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Edited Transcript of EMA.TO earnings conference call or presentation 13-May-20 12:30pm GMT

Q1 2020 Emera Inc Earnings Call

HALIFAX May 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Emera Inc earnings conference call or presentation Wednesday, May 13, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory W. Blunden

Emera Incorporated - CFO

* Nancy G. Tower

Emera Incorporated - President & CEO of Tampa Electric Company

* Scott Hastings

Emera Incorporated - Senior Director of Capital Markets

* Scott Carlyle Balfour

Emera Incorporated - CEO, President & Director

* Wayne D. O'Connor

Nova Scotia Power Inc. - President, CEO & Director

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Conference Call Participants

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* Andrew M. Kuske

Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research

* Benjamin Pham

BMO Capital Markets Equity Research - Analyst

* David Quezada

Raymond James Ltd., Research Division - Equity Analyst

* Linda Ezergailis

TD Securities Equity Research - Research Analyst

* Mark Thomas Jarvi

CIBC Capital Markets, Research Division - Director of Institutional Equity Research

* Patrick Kenny

National Bank Financial, Inc., Research Division - MD

* Robert Hope

Scotiabank Global Banking and Markets, Research Division - Analyst

* Robert Michael Kwan

RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst

* Ryan Greenwald

BofA Merrill Lynch, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Emera Q1 2020 Analyst Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Scott Hastings, Senior Director, Capital Markets. Thank you. Please go ahead, sir.

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Scott Hastings, Emera Incorporated - Senior Director of Capital Markets [2]

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Thank you, Chris. And thank you all for joining us this morning for Emera's First Quarter 2020 Conference Call and Live Webcast. The Emera first quarter earnings release was distributed this morning via Newswire, and the financial statements, management's discussion and analysis, and the presentation being referenced on this call are available on our website at emera.com.

Joining me for this morning's call are Scott Balfour, Emera's President and Chief Executive Officer; Greg Blunden, Emera's Chief Financial Officer; and other members of the Emera management team.

Before we begin, I'd like to take a moment to advise you that this morning's discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slides. Today's discussion and presentation will also include references to non-GAAP financial measures. You should refer to the appendix for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure.

And now I'll turn things over to Scott Balfour.

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [3]

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Thank you, Scott, and good morning, everyone. I'd like to begin my remarks by taking a moment to reflect not only loss of lives due to COVID-19, but also to acknowledge 2 additional tragedies that have hit us here in Nova Scotia. We're all incredibly shaken by the mass shootings on April 18 and 19 that claimed 22 victims in our province, a senseless act of violence and an unimaginable loss of life. And then less than 2 weeks later, 6 members of Canada's armed forces were killed when their helicopter crashed off the coast of Greece, the single largest day loss of life for our military in more than a decade. All 6 were based here in Nova Scotia. And 3 of the 6 were native Nova Scotians.

As you can imagine, these tragedies are deeply affecting a close-knit community at an already difficult time when we cannot physically come together to support one another.

On behalf of the entire Emera team, we extend our heartfelt condolences to everyone impacted by these events. And I would ask you to join me in a moment of silence to honor those whose lives have been lost.

Now to the business of the call and turning to our quarterly update. We're all facing the impact of the global COVID-19 pandemic. At Emera, we're very fortunate. We're only experiencing relatively modest short-term impact to Emera's business, and our long-term outlook remains positive. Our response to COVID-19 has been grounded in our relentless focus on the health and safety of our employees, customers and communities while continuing to deliver the critical energy that our customers rely on now more than ever.

Our teams are committed to providing a reliable and affordable energy that the health systems, food suppliers, technology providers, businesses, governments and every single customer within the regions we serve need for them themselves to continue to function and which we are all ourselves relying upon during this pandemic.

We understand that we truly are an essential service during this critical and challenging time, and so we activated our integrated pandemic and business continuity plans in early March to ensure that we can continue to deliver our essential services to our customers regardless of the degree and the duration of this pandemic.

I'm extremely proud of our team. Quite frankly, they're doing what they do best, adapting and delivering for our customers, demonstrating an incredible amount of resiliency, commitment and professionalism. Employees that were able to work from home have been safely doing so since early March. But for many of our employees in critical roles in our generating facilities and field operations, working from home is not an option. So we implemented new protocols and PPE standards. For example, we established health screening processes and our control centers have been split between primary and backup locations, and we've been staggering shifts for our employees. We are taking every precaution to keep our people, our customers and our communities safe.

And I'm very grateful that our efforts to date are working. We are fortunate that the direct impacts to our team so far have been minimal, with only 2 employees and 1 contractor diagnosed with COVID-19 to date across our more than 7,000-person team in Canada, U.S. and the Caribbean. And I'm pleased to say that they are all recovering well.

While we plan for the next phase, where governments and health officials begin or continue to lift some restrictions across our jurisdictions, we will remain relentlessly focused on health and safety and the reliable delivery of energy throughout this unprecedented period. We know that this pandemic is creating significant challenges for the most vulnerable in our communities, and we're committed to doing our part to help.

Our utilities have taken steps to assist our customers during this difficult time. For those customers most hit by the pandemic, we've been suspending disconnections, facilitating access to resources, providing financial support and should it be necessary, willing to work directly with customers on flexible payment plans.

At Tampa Electric, we've also accelerated a fuel refund, thus reducing monthly customer bills for the remainder of 2020. In addition, the Emera Group of Companies have donated approximately CAD 4 million to various COVID relief programs to assist those most in need in our communities. And we continue to collaborate with community partners and government officials to identify emerging needs. We are grateful to be in a position to help our communities through this devastating time.

As Greg will discuss in a minute, given the timing of COVID-19 and our customer profile, the pandemic had minimal impact to our Q1 financial results. While it's challenging to predict all the potential future impacts of COVID-19, as we look forward into the second quarter and beyond, we do know that Emera is well positioned to respond to the needs of all of our stakeholders. Emera's customer mix is heavily weighted towards residential customers. This means that not only a small portion of its fixed cost contribution comes from industrial and commercial customers. To date, most of our utilities have experienced reductions to weather-adjusted load in the range of 4% to 6%. However, the related earnings impact for the remainder of the year will be dependent on several factors, including the length of the pandemic, customer composition of the load and the actual weather we experience going forward.

Closing of the Emera Maine transaction has provided additional strength to our balance sheet and has bolstered our liquidity position. While these proceeds have sufficient -- with these proceeds, we have sufficient liquidity to manage through the pandemic and beyond.

Historically, Emera has been very successful working with customers during times of economic stress. During the 2008 and 2009 financial crisis, Emera and TECO only experienced a small increase in uncollectible accounts. This was managed through the application of existing customer deposits, developing payment plans for customers and facilitating financial aid from local, state and national programs. At Emera, we understand the long-term value of our customer relationships, and we are committed to doing the right thing for our customers as they manage through this financially challenging time.

Emera's capital program continues to advance with additional health and safety procedures in place where necessary. And we are pleased that our major projects continue without any significant supply disruptions or delays at this time. This includes both the Big Bend modernization project and our solar developments in Florida.

We remain committed to our capital program, which will contribute to the recovery of our local economies through employment and support for local businesses. In addition, many of Emera's capital projects will provide significant cost savings as we reduce the cost of fuel component of customers' bills.

We are confident in our long-term value proposition to shareholders because of the resiliency of our people and our strategy. Our proven strategy, which is rooted in customer affordability and the transition from higher to lower carbon energy, continues to be relevant despite the temporary impacts of the pandemic.

At the core of our responses to COVID-19 has been our people. Their unwavering commitment to keeping each other, our customers and our communities safe while delivering the essential energy our customers need has been inspiring. And we know there are more challenges ahead as governments look towards economic recovery, and we remain committed to doing our part not only to continuing to provide the cleaner, affordable and reliable energy our customers and communities rely on but to help with community support and the economic restarts in all of our jurisdictions.

And with that, I'll turn it over to Greg to take you through our financial results for the quarter. Greg?

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Gregory W. Blunden, Emera Incorporated - CFO [4]

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Thank you, Scott, and thank you all for joining us this morning. Earlier this morning, we reported first quarter adjusted earnings of $193 million and adjusted earnings per share of $0.79. Although the Q1 2020 results were lower than Q1 2019, it is important to remember that last year included earnings from our merchant gas plants and a gain on the sale of a Florida property. Collectively, these items totaled $34 million or $0.14 per share. When excluding these 2 items, results for Q1 2020 are consistent with those of Q1 2019.

While consolidated results are down compared to Q1 2019, the core of our business, our portfolio of regulated utilities remained strong and performed very well, delivering adjusted earnings growth of 7% for the quarter. We are very pleased with this level of growth, which was primarily driven by strong earnings from Tampa Electric.

Our regulated utilities are in premium jurisdictions with supportive regulatory relationships, and we continue to see the quality of our overall earnings improve.

Now let's get into some details about the quarter. In the first quarter of 2019, we delivered adjusted earnings per share of $0.95 or $0.81 on a normalized basis. Growth from that normalized Q1 2019 base of $0.81 was largely driven by very strong performance by Tampa Electric. During the quarter, Tampa Electric contributed $79 million of earnings, an increase of $18 million over the first quarter of last year. Tampa Electric's growth was driven by higher base revenues as a result of favorable weather, customer growth and revenues related to our solar generation projects.

First quarter earnings from Emera Energy's Marketing and Trading business were $9 million lower than Q1 2019 or $0.04 per share. This decrease was driven by less favorable marketing conditions quarter-over-quarter, reflecting a very mild winter, particularly in the Northeast.

We also recorded 2 tax-related adjustments in the quarter. The first was related to the reduction of provincial corporate tax rate in Nova Scotia, a good development in the long run, but which necessitated a revaluation of our deferred tax balances resulting in a onetime noncash earnings impact of $14 million or $0.06 per share. Partially offsetting this was the reversal of the corporate income tax regulatory liability at Barbados Light & Power, which increased earnings by $10 million or $0.04 per share. Collectively, these 2 onetime items negatively impacted earnings by $4 million or $0.02 per share.

Moving to adjusted EBITDA and cash flow. Quarter-over-quarter, the EBITDA, that's earnings before interest, taxes, depreciation and amortization was lower, decreasing by $46 million or 7%. Most of the decline related to the sale of the gas plants in Q1 of 2019.

Operating cash flow for Q1 2020 was up $84 million or 20% compared to the first quarter of last year. The growth was led by Tampa Electric, which experienced an increase of $88 million or a 10% increase quarter-over-quarter. The increase in the regulated cash flows is a further signal of our improving cash flow quality, which remains a priority for our team.

Q1 2020 marked the completion of the sale of Emera Maine to ENMAX. At the closing of this transaction, we have transformed our portfolio while significantly improving our balance sheet and liquidity. This transaction was a critical component of our funding plan and the backbone of the asset sales program, which we highlighted in 2018. The 2018 asset sales program has now raised more than $2.2 billion that will be used to fund our future capital programs and to repay holding company debt.

Now looking forward, we will not have the earnings contributions from Emera Maine, which contributed $27 million in the last 3 quarters of last year. On behalf of Emera, I would like to extend my gratitude to the employees of Emera Maine and wish them and ENMAX all the best in the future.

With the timing of the Emera Maine proceeds and our ongoing access to capital markets, our liquidity is very strong. At the end of the quarter, we had approximately $3.2 billion of available liquidity. We have no significant short-term debt maturities in 2020. And as of year-end, our pension plans were well funded with no significant short-term funding requirements. The liquidity position was further improved by the $300 million Nova Scotia Power issuance that was completed in April. This 30-year issuance had the lowest rate of any of Nova Scotia Power's outstanding debt instruments and is illustrative of our continued access to the capital markets.

We continue to access the capital needs of our business and currently believe that there are no changes required to our previously communicated funding program. This includes equity needs being met through the existing dividend reinvestment plan and after-market programs and the potential for a hybrid preferred share equity -- preferred share equity issuance over the forecast period.

Emera continues to assess the potential impacts of COVID-19, but we are reassured by the strength of our business and the makeup of our customer profile. Emera's 2 largest utilities are primarily made up of residential customers with very low contributions from industrial customers. Emera expects the load profile of these 2 utilities to change during the pandemic with increases in consumption by residential customers and reductions in the industrial and commercial customer classes. And as shown on the slide, in 2019, residential customers made up the largest percentage contribution to the fixed cost recovery of these utilities. The increase in revenue from these residential customers will at least partially offset the COVID-19-related reductions in the commercial and industrial revenues.

In addition to the customer mix, the current foreign exchange environment creates a tailwind to help mitigate some of the potential impacts of COVID-19. When removing Emera Maine from our 2019 results, approximately 68% of our earnings are reported in U.S. currency. Given the recent movement in FX rates, we have taken advantage of some limited FX hedges for 2020 and 2021. We will continue to review the foreign exchange environment to determine incremental hedges are required to further reduce earnings volatility.

We're also updating our FX sensitivity to reflect the sale of Maine and the FX hedges put in place. A $0.01 change in the U.S.-Canada FX rate would result in an approximately $0.005 to $0.01 change in EPS. It's important to note that this change in the FX rate would have to hold for an entire 12-month period.

In closing, Emera's 2020 get off to a solid start, which is helpful as we face the COVID-19 crisis. Emera's balance sheet and liquidity positions are strong, and this will allow the business to manage through COVID-19. Although the potential impacts of the pandemic are difficult to determine, our customer mix and exposure to the U.S.-denominated earnings offer mitigating factors.

And with that, I'll turn the presentation back over to Scott.

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Scott Hastings, Emera Incorporated - Senior Director of Capital Markets [5]

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Thank you, Greg. This concludes the presentation. We would now like to open the call for questions from analysts.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Linda Ezergailis of TD Securities.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [2]

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I appreciate the update today and glad to hear that the organization is doing well and your employees are safe. I'm wondering -- with respect to your load profile shifting a little bit in terms of customer mix and everything, I'm just wondering if it's possible that regulators in your key jurisdictions would be open to reassessing your revenue allocation across your customer classes in the event that the industrial load doesn't recover in certain jurisdictions very quickly and maybe even shifting more of your bill component to a fixed, not variable component?

And I guess, further to that, are you still -- your update indicated that some of your regulatory processes might be delayed. I'm just wondering if you're still planning on filing your Tampa Electric general rate application for 2021 or might you do that sooner? And can you comment specifically on Tampa Electric and the potential to accelerate some of the rate filing applications potentially?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [3]

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Linda, it's Scott. Thank you for the question. Let me take the first part of that, and then I'll let Nancy address the specific Tampa Electric question. So look, I think it would be fair to say that we're looking at our regulatory options in relation to the impacts of COVID-19. Of course, we've been watching the approach that's been taken by many utilities in the sector and also reflective of the progressive history I think we've had in working with regulators in all of our jurisdictions to address change of circumstances and issues and impacts that come up. And so I think it would be just -- most appropriate to say those are all things that we're looking at. And of course, at a point in time where we decide to proceed with any particular regulatory purchase like that, those will obviously become matters that we could talk about more clearly then.

Nancy, do you want to address the intentions around the -- and the plans for the rate filing in Tampa Electric?

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Nancy G. Tower, Emera Incorporated - President & CEO of Tampa Electric Company [4]

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Right. And yes, Linda, our intention is still to file. The timing of that would be in April of 2021. So we are moving ahead with that time line and expect that we would not delay that. That's our thought at this point. Linda, perhaps I'll also address the load and maybe specifically, our focus here in Tampa Electric. So what we're seeing currently is that our -- because we are so heavily residential, we're seeing our residential load offset essentially the loss we're seeing from industrial. And so at this point, and you can see from our revenues, although there certainly is some weather in there, and we can see from April that we're not expecting a significant impact if things continue on as they did, say, in April.

From a bad debt perspective, again, looking back at what happened in 2008 and '09, we would not, at this point, expect a material impact to our earnings from that. Hard to tell this early, but we're seeing a small uptick in bad debt, but we're also seeing just recently an uptick in customers making payment arrangements. So at this point, we are moving along cautiously and keeping our eyes on it. We are also accumulating any costs at this point related to COVID-19. And we haven't closed any doors in terms of the thought that we might ask for relief on some of that. But again, we're not seeing anything material at this point.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [5]

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And just to clarify a comment you made, Scott, about assessing options regarding regulatory levers for changed circumstances. Might you also, across all of your utilities, record accumulated costs and potentially your estimate of lost revenues and consider requesting onetime relief on losses incurred to date, not just prospective shifts in revenue allocation?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [6]

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Yes. I think I'd just say, Linda, that we're continuing to assess what the impacts are to the business. As Nancy says, just like in Tampa Electric, we're keeping -- recording the costs and the impacts that relate to the pandemic. And as the clarity of that continues to build with the passage of time, we'll be in a better position then to make a determination as to what, if any, regulatory support or request that we look to make.

But at this point in time, I'd say we're mostly just just following that. There has been a joint filing that has been made in New Mexico that the New Mexico Gas is part of together with the other utilities in that state. But in other jurisdictions at this point, we're just continuing to monitor and assessing our options.

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Linda Ezergailis, TD Securities Equity Research - Research Analyst [7]

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Okay. And maybe just as a follow-up as well. With respect to your financing plans being unchanged, I don't know if you're still in ongoing discussions with the rating agencies. But at what point might you consider potentially additional asset sales to bolster your financial outlook? And what might you -- when do you expect, I guess, S&P to potentially revise your outlook from negative on your rating?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [8]

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Greg, do you want to tackle that one?

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Gregory W. Blunden, Emera Incorporated - CFO [9]

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Yes. So the second part, S&P has done that. So they did a couple of things in April. They downgraded Emera and went back to stable. But at the same time, and interestingly enough, they broke apart from the group rating methodology and took all of our operating utilities back to stable, which, quite frankly, was the more important change that they made of the 2.

On a broader perspective, Linda, I mean, we're always in contact on a regular basis with all the rating agencies and sensitive to what they're seeing and making sure that dialogue remains open. As it specifically relates to asset sales, we had identified as part of our funding plan some required asset sales. That piece of it is complete. So we're not in a position where we need to sell anything or -- nor are we in a position where we're planning to sell anything. But as we have always done, we'll continually look at our portfolio to determine whether there are certain components of our portfolio that might make sense to not hold over the long term, but no plans to do anything at this point in time.

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Operator [10]

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Your next question comes from Rob Hope of Scotiabank.

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Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [11]

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First question is just on your capital outlook for 2020. So we saw that you maintained the Florida number at around USD 1 billion. Just want to get a sense of whether or not you're seeing any supply chain delays in some of the larger items such as solar panels or items related to Big Bend, which could push off some spend there and potentially add some delays?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [12]

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Robert, it's Scott. I'll answer. But Nancy, if you have any additional color or a different perspective, please share it. No, at this point, Rob, as it relates to both those projects -- in fact, most of our -- all of the capital projects that I can think of, at this point, we have not been negatively impacted as to schedule or cost for that matter as it relates to supply or other COVID-related matters and progress in advancement of those projects.

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Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [13]

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All right. I appreciate that. And then just taking a look at Muskrat Falls and the pause on construction there and further delays there. Are you looking at some sort of relief from the regulator to allow you to earn cash a little bit quicker or what avenues are you exploring there?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [14]

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Greg, do you want to tackle that one as it relates to the cash impacts?

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Gregory W. Blunden, Emera Incorporated - CFO [15]

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Yes. So Robert, we don't -- the arrangements that we had in front of us, which we don't think will change is that we fully expect the cash, in particular the depreciation of Muskrat Falls to kind of flow as originally expected primarily because there's some debt service requirements starting to materialize at the end of this year, and the regulator is well aware that it's important to meet those as planned. So will we see maybe some slight delay by maybe a quarter or so from Labrador Island Link? Possibly. But we're not -- collectively, between the 2, we're not seeing any material change based on the timing of their construction over there.

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Operator [16]

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Your next question comes from Robert Kwan of RBC Capital Markets.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [17]

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If I can just ask about what you're seeing, you noted the 4% to 6% reduction in load across the utilities. Are you able to provide EPS sensitivity to what a 1% change in load is across the utilities, whether that's on an annualized basis or a monthly basis?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [18]

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Greg?

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Gregory W. Blunden, Emera Incorporated - CFO [19]

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Yes. I'll take that, Robert. I wish it was that simple. But unfortunately, it's not. And the reason being is with so many different utilities, so many different rate designs, so many different customer classes and the contributions, it's quite frankly difficult to roll that up into a single thing and have it be at all meaningful. I can't tell you, and Nancy reinforced it, that what we've seen to date, given our customer mix at our 2 electric utilities that with a shift from commercial and industrial to residential customers and the contributions on a relative basis between those classes and some weather that, quite frankly, it's continued through to the end of April, we haven't seen any kind of overall material impact. Because, again, not all load is equal.

Happy to go through in more detail with you and an offer for all the analysts and investors that are on the phone to try to get through in a little bit more detail off-line. But we just don't think it's meaningful to roll it up into to a single percent across the entire business. We actually think that would be misleading from how our portfolio is laid out.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [20]

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Okay. Maybe then, are you able to -- if that 4% to 6% holds or just whatever, can you talk about what are your expectations? How long that might persist? And maybe something that is more quantitative as you outlined your FX sensitivity. So assuming the dollar stays where it is for the -- kind of the remaining 3 quarters of this year, I think that's probably about a $0.03 to $0.08 per share tailwind. When you wrap that together with the COVID-19 impact, does FX just become a mitigating factor to your expected impact or is it close to a push or could it actually be a tailwind?

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Gregory W. Blunden, Emera Incorporated - CFO [21]

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Yes. I think the increase in residential customers or usage by residential customers and a weaker Canadian dollar is certainly helpful. I mean what we just don't know is the 4% to 6% that we're experiencing to date, which, again, has been more than offset by the mix of sales as well as weather, how long will that continue for? Is -- we're fortunate enough that we're starting to see the jurisdictions that we're operating start to open up slowly, which I think is helpful, but it's -- I think it's just too early to speculate what the impacts could be if we have a second wave of this and it's deeper than the first wave and lasts longer.

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Robert Michael Kwan, RBC Capital Markets, Research Division - MD & Energy Infrastructure Analyst [22]

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Okay. If I can just finish with the question on NSPI. And if you have to go out and purchase power to meet the RPS, is there any exposure outside the (inaudible)?

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Gregory W. Blunden, Emera Incorporated - CFO [23]

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Scott, do you want me to take that or...

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [24]

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Sure. Only because I wasn't sure I got the question. So if you did, then sure.

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Gregory W. Blunden, Emera Incorporated - CFO [25]

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Yes. No. Any incremental costs, Robert, would flow through the fuel adjustment mechanism.

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Operator [26]

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Your next question comes from Ben Pham of BMO.

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Benjamin Pham, BMO Capital Markets Equity Research - Analyst [27]

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On the U.S. dollar movement, and you mentioned a bit benefit on earnings and that as a mitigant. How should we think about that flowing to your CapEx budget? And do you see more of a situation where that CapEx budget just simply is higher because of FX? Do you use it as a way to trim the group profile here and there, so your financing program is unchanged?

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Gregory W. Blunden, Emera Incorporated - CFO [28]

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Yes. Ben, it's Greg. All things being equal, yes, if you took our capital program that's based in U.S. dollars and the FX rate was higher then -- and stayed that way over the forecast period, then yes, you would see a higher capital profile.

In terms of kind of tweaking or reprofiling, we do that all the time just as a matter of normal course of business. There's always things that pop-up that require priorities or other things for whatever reason, resource requirements that move. That's -- I'd say there's probably 5% to 7% of our capital plan that's always kind of moving around anyway just for normal business reasons. I wouldn't see any changes in foreign currency to be causing any different profiling of that than we normally would.

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Benjamin Pham, BMO Capital Markets Equity Research - Analyst [29]

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Okay. So it sounds like if you're up a couple of hundred million that you have the right balance sheet to drive perhaps access to capital and think about the credit rating that you can absorb that?

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Gregory W. Blunden, Emera Incorporated - CFO [30]

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Yes. And of course, you also get -- with a significant amount of our cash flows coming out of the U.S., they get translated at a higher value as well. So if you think from a pure hedging perspective, the cash component of it, meaning the cash we're generating in the U.S. and what we're reinvesting in the U.S. utilities, those are effectively moving in the same direction with a weaker Canadian dollar.

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Benjamin Pham, BMO Capital Markets Equity Research - Analyst [31]

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Okay. That makes a lot of sense. And maybe lastly, you mentioned some commentary, can't remember if it was you, Greg, or Scott on improving cash flow quality. And is that just more reaffirming what you guys have been doing in the last 12 months, getting to the 95% plus? Or is there messaging on more to go on getting it even higher?

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Gregory W. Blunden, Emera Incorporated - CFO [32]

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If I understand your question, Ben, yes, certainly, having more of the business regulated, which is a function of 2 things. It's a very concerted effort to grow our regulated utilities. And those are obviously growing at a pace faster than our unregulated business. We've gotten rid of some unregulated businesses, in particular, merchant gas plants over the last year. And obviously, the cash contribution from Emera Energy has been a little bit softer, although it's probably not as material. So I think that's the first part.

The second part is our regulated utilities are performing really well, and the cash flow coming on them is really strong. So the earnings that you're seeing at Nova Scotia Power, Peoples Gas, New Mexico Gas and Tampa Electric are not being driven by regulatory deferrals. We have virtually no regulatory deferrals across any of those 4 utilities, which is not always the case with other utilities in our sector. So I think it's both the approach inside the utilities and then from an overall portfolio perspective.

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [33]

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Yes. Just to add on to that, I think it's also, if you think back to the Investor Day that we had in Florida and starting to talk about just the overall quality of the portfolio too with -- between Florida and Atlantic Canada, Nova Scotia is roughly 80% of earnings and therefore, cash flow profile and add New Mexico into that list, and we're well over 85% in total, just amongst those jurisdictions.

So just the quality, the predictability of those businesses, and therefore, the cash flow profiles that come from that, all wrapped up into your question -- the answer to your question, including everything Greg said.

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Operator [34]

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Your next question comes from Mark Jarvi of CIBC Capital Markets.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [35]

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I just wanted to maybe clarify and parse apart some of the commentary on the Tampa Electric results we've seen recently. So are you saying that residential has essentially offset the drop in C&I? And then weather -- humid weather has then pushed you above on load? Is that kind of what you're saying in those comments between Nancy and Greg's?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [36]

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Nancy?

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Nancy G. Tower, Emera Incorporated - President & CEO of Tampa Electric Company [37]

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That -- yes. Yes. It's Nancy. That's what we're -- that is what we're seeing.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [38]

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So even with weather normalized, do you think resi -- higher resi rates and increased load there, it can offset that commercial drop?

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Nancy G. Tower, Emera Incorporated - President & CEO of Tampa Electric Company [39]

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We believe, based on what we've seen in the last couple of months that the residential -- we're seeing the uptick in residential and decrease, obviously, in commercial and industrial, but it seems to be offsetting. And so with the benefit of some weather, it -- as we saw at the end of March, we're going to -- we've seen some benefit to the revenues.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [40]

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Okay. Great. And then, Greg, maybe a question on the cash that we still see on the balance sheet. You repaid some of the TECO finance, debt outstanding. What's the plan there going forward? Do you repay more or do you hold a bit of higher cash balance given some of the uncertainty that we're facing right now?

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Gregory W. Blunden, Emera Incorporated - CFO [41]

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Yes. We find ourselves -- first of all, Mark, welcome back. We find ourselves in a situation where we probably have some cash that we would otherwise utilize and pay down some debt. The next significant maturity we have is not till June next year, although we have some very modest term loan that we could pay off if we so choose.

But at this point in time, just given all the uncertainty overall how we feel today is probably very different than how we saw 3, 4 weeks ago. We just think it's prudent just to hang on to the cash for another quarter before we start to look at scenarios where we redeploy it.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [42]

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Okay. And then I know it's a small segment, but the Caribbean, will the 4% to 6% load apply to that utilities as well? Or are you seeing a bigger drop given the drop in tourism?

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Gregory W. Blunden, Emera Incorporated - CFO [43]

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So as I think you know, we're really in 2 Caribbean Islands, Grand Bahamas and Barbados. In Grand Bahama, it's much more weighted to the industrial sector, and that sector has still been operating. So their load change hasn't been, quite frankly, that as material, and we wouldn't expect that to change, albeit that's a smaller part of our business.

We're seeing that so far kind of those levels, maybe at the high end of that range in Barbados. And it's difficult to see that not continuing for a period of time. It's difficult to see the tourism industry rebounding anytime soon in 2019. So that's clearly one where we'll have some work to do over the balance of the year.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [44]

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So your internal forecast assumes it's sort of high single-digit load decrease there?

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Gregory W. Blunden, Emera Incorporated - CFO [45]

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Yes. That's correct.

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Operator [46]

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Your next question comes from David Quezada of Raymond James.

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David Quezada, Raymond James Ltd., Research Division - Equity Analyst [47]

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My first question, maybe on the topic of -- kind of a longer-term question on storage in Florida. It sounds like some of your peers in the state have recently rolled out some fairly big plans there. I wonder if you have any recent thoughts on that opportunity in the future.

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [48]

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Yes. I'd say, if I think about our 2 businesses in Florida combined, David, we're looking at storage in that market. Nothing specific to talk about today, but it's certainly an area that we're looking at.

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David Quezada, Raymond James Ltd., Research Division - Equity Analyst [49]

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Okay. Fair enough. And then maybe just one quick confirmation. Do you expect to see any effect to cash flow on the lower corporate tax rate in Nova Scotia?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [50]

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Greg?

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Gregory W. Blunden, Emera Incorporated - CFO [51]

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Not in the short term. The business that we have that is most impacted with the lower tax rate is Nova Scotia Power. And it's on a cash tax basis. So over time, obviously, the cash tax component of rates will change. But on the short term, it won't have any impact at all.

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Operator [52]

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Your next question comes from Ryan Greenwald of Bank of America.

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Ryan Greenwald, BofA Merrill Lynch, Research Division - Associate [53]

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So I appreciate the disclosure around the 4% to 6% impact for most of the utilities so far. Could you just provide a little more color on what your internal assumptions are going forward the rest of the year?

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Gregory W. Blunden, Emera Incorporated - CFO [54]

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Yes. Ryan, it's Greg. I'd say it's less of a deterministic forecasting that we think we're on track to deliver what we otherwise would have expected. You would have seen in our disclosure that there's a couple of businesses like our Marketing and Trading business because of market conditions in New England that probably will be at the lower end. But reconfirm that we expect to earn within the allowed ROE bands for Nova Scotia Power and Tampa Electric, just as 2 examples of that.

And then what we're kind of overlaying with that and it's still work in progress is what if the impacts of COVID-19 extend beyond -- quite frankly, not Q2, but beyond 2020, and that's still work in progress. And I think it's also important to note through all of this is, as we talk about load changes and fixed cost contributions, these are all with the exception of Emera Energy regulated utilities. Whether it's a long history of having in all jurisdictions and in particular, in (inaudible), where there's always regulatory opportunities to manage these situations, so that utilities continue to earn kind of in and around their ROE band.

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [55]

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Obviously, -- sorry, I was just going to say, Ryan, only to state the obvious, but the difficult thing in this is really understanding what the duration of the restrictions imposed across all of our jurisdictions are. And frankly, the answer to that is not going to be uniform across all the regions that we operate. Obviously, Florida is starting to relax some of those now that hasn't yet happened in some of the other jurisdictions. So that's the other question in all of this as well that makes it difficult to fully understand what the impacts are. But I think the important message is within how we're seeing within that environment, while many commercial customers and industrial customers, obviously, are challenged in terms of their operations, what we're seeing as it relates to the residential usage and how that impacts our business is one of the key mitigating factors.

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Ryan Greenwald, BofA Merrill Lynch, Research Division - Associate [56]

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Got it. And then on the bad debt, can you just provide a little more color there? It seems like pretty modest uptick so far, but any additional color there around your expectations? And if you've had initial conversations with regulators and ultimate confidence around favorable treatment there?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [57]

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Greg, do you want to start with that, at least?

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Gregory W. Blunden, Emera Incorporated - CFO [58]

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Yes. Yes. I mean, we haven't really seen much of a change in bad debt at this point. Obviously, we're seeing some -- starting to see some weakness or further aging of our accounts receivable, not unexpected because we have made the decision not to disconnect customers for nonpayment. So those that would otherwise have paid their bill for fear of disconnection aren't. But that, quite frankly, is a small portion of our customers. We would expect that net bad debt will be higher this year than it was last year as a percent. But when we go back and look at the experience in 2008 and 2009, it won't be the same. Whether it's better or worse, remains to be seen. It's not a material amount of money, but it is something that we are keeping track of. And that if we feel it's an appropriate amount of money to have the conversation with the regulators as they already have started in New Mexico, then we will do so.

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Operator [59]

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Your next question comes from Andrew Kuske of Crédit Suisse.

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Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research [60]

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Given the COVID-19-related demand destruction across your footprint, does that allow you to phase out coal on a more accelerated basis across the portfolio? And then what kind of positive impact does it have on your carbon footprint?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [61]

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Yes. Andrew, it's Scott. So -- I mean, really the -- an important premise within the question is really what -- the demand destruction, how permanent is it? And so what you will have gathered from the answer so far is our load actually is not down meaningfully. And so really, when you think about the decarbonization path that we're on, that's a path we're on regardless of short-term impacts, so what we all hope to be short-term impacts from something like this pandemic. And obviously, that's been a core part of our strategy for a long time. It continues to be. We're working through our plans around how we continue to decarbonize, in particular, in Tampa Electric and Nova Scotia Power. I would note, during this period, as the Tampa Electric team was working through a major planned outage at one of their largest stations, Big Bend station, for the last number of weeks since it was originally commissioned, Big Bend has not been operating, has not been burning coal through that period, while they have been doing some retrofit work within that important generation unit. And that, in fact, helped to assist in terms of a very complex set of work to be done while keeping the team safe and allowing that work to advance productively and efficiently and successfully.

But I think the bigger part to your important question is the decarbonization efforts, the efforts to eliminate coal generation within the mix is very much a front and center component of our strategy. And we don't see the short-term impact, relatively speaking, of COVID as challenging as they are for everyone. We really don't see that shaking the path that we're on in order to continue to drive towards the cleaner energy future that we all strive for, and we know our customers want to.

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Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research [62]

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Appreciate that color and context. And then maybe just an extension of that, I think it was in the MD&A, you highlighted that the gas utilities are expected to underearn given the pandemic situation we're in. I guess your fundamental confidence in that business on a longer-term basis is really enhanced as you transition towards solar and there's greater natural gas usage across portions of your utility portfolio and your footprint.

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [63]

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Yes. I think that's right. And I think there's an element of those LDCs that very efficient use of energy with direct at the need in terms of its overall efficiency, there's an enabling aspect of that, that enables the continued decarbonization on the electric side. And so we see those businesses continuing to play an important role in the decarbonization of the sector overall. And obviously, the under earning element of it is also, frankly, reflective of the fact that both those businesses are in the process of securing rates in response to the fact that there's been investments made on behalf of customers that need some rate raise in order to support those advancements in both improving reliability and enhancing the integrity -- sort of integrity-related investments, but also system expansion, particularly in Florida as Peoples Gas continues to meet the need from a growing list of customers for natural gas supply. And so both those utilities are in the process of rate filings or related requests as we speak, obviously.

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Operator [64]

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Your next question comes from Patrick Kenny of National Bank Financial.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [65]

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Just with respect to your industrial and, I guess, commercial customer base as well in both Nova Scotia and Tampa, are you seeing some of these customers being able to sustain a certain level of operating capacity or perhaps pivot from one business line to another over the past couple of months. Just curious how meaningful this trend could be in potentially offsetting a certain portion of the initial demand destruction under normalized weather, of course?

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Scott Carlyle Balfour, Emera Incorporated - CEO, President & Director [66]

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Yes. Patrick, it's Scott. So maybe what I'll do is I'll let first Nancy, and then Wayne give a little bit of color from the Tampa and Nova Scotia perspective, respectively. Nancy?

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Nancy G. Tower, Emera Incorporated - President & CEO of Tampa Electric Company [67]

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Sure. From an industrial customer perspective, we've seen that continue on. Interesting here on our commercial sector, one of the things -- so lots of restaurants and retail and that sort of thing, people still need to keep the air conditioning on to protect the premise even if they're not operating. So I think that's part of the reason why we haven't seen so much demand destruction.

And we do believe that some of the increase in people calling and arranging payment is because the economy is starting to open up in a small way and in Phase 1 as the governor's called it. So we -- so I think that's part of the lay of the land in terms of how -- what we're seeing in our revenues, if that's helpful.

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Wayne D. O'Connor, Nova Scotia Power Inc. - President, CEO & Director [68]

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And it's Wayne. I would only add that we're seeing a similar thing here in Nova Scotia, where some of our industrial and commercial customers are closed or operating at lower levels, while others have adjusted their activities and there are a few here that have shifted their production to make things like surgical masks and that kind of activity. So it's a mixed bag, but there are industries that are doing better and actually running more at this time. So that all goes into the overall load numbers that we would have given you in our MD&A.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [69]

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Okay. Perfect. And then on the bad debt expenses, Nancy, maybe you can just provide an overview on some of the financial aid programs for the residential customers down in Tampa and how meaningful these programs could be in mitigating some of your bad debt expense over the coming months without needing to rely on the regulatory mechanisms?

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Nancy G. Tower, Emera Incorporated - President & CEO of Tampa Electric Company [70]

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Sure. So we have a variety of programs, some of the local charities as well as our own program that we call Share that's administered through the Salvation Army here. There's federal programs, as you know. So just to perhaps put it in perspective, we've -- year-to-date, we've -- about 9,700 of our customers have received some kind of aid at about a little over $200 on average in terms of that aid. So that has certainly been helpful.

We've done a lot of work in terms of assisting our customers and trying to help them get access to these programs. And so that hard work by our staff in the contact center has certainly helped. So again, when I say small uptick, I do mean small uptick currently in terms of our bad debt. So it's hard to see what's coming, but nothing alarming so far.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [71]

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Okay. And maybe just a final cleanup question here for Greg on the FX hedges. You may have touched on that already, but the $200 million in place for 2020, is that the target zone on an annual basis or do you expect to move that up further through the back half of the year? And also maybe a comment on when you might look to move the 2021 hedges up as well?

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Gregory W. Blunden, Emera Incorporated - CFO [72]

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Yes. Patrick, I don't think there's necessarily a target per se, although probably $200 million to $250 million would probably feel about reasonable. And so obviously, if we want to do something additional in 2021, we could. We haven't -- over the last couple of weeks, the dollar has appeared to have stabilized, although at least, personally, I find it difficult to draft the thesis where it's going to get stronger anytime soon or very quickly anyway. So you could probably see us for 2021 kind of in a similar type of hedge level in place that we have in for the current year and maybe slightly higher than that.

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Operator [73]

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There are no further questions at this time. I will now return the call to Mr. Hastings.

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Scott Hastings, Emera Incorporated - Senior Director of Capital Markets [74]

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Thank you very much for your interest in Emera, and I hope you enjoy the rest of the day.

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Operator [75]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.