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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and thank you for standing by. Welcome to the Emera Q4 2021 Analyst Call. [Operator Instructions] Please be advised, today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Dave Bezanson.
Thank you, Don, and thank you all for joining us this morning for Emera's Fourth Quarter 2021 Conference Call and Live Webcast. Emera's fourth 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 Emera's management team. Before we begin, I will 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 slide. 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 will turn things over to Scott.
Thank you, Dave, and good morning, everyone. This morning, we reported annual adjusted earnings of $723 million. And I'm pleased to say that thanks in large part to record earnings at Peoples Gas and Emera Energy's exceptional year, this represents our highest annual adjusted earnings to date. Our fourth quarter adjusted earnings per share was $0.74, and annual adjusted earnings per share was $2.81. When you further adjust for a legal settlement we received in the fourth quarter of last year, adjusted earnings per share increased 7% over the fourth quarter of last year and 11% year-over-year. This is a continuation of our established record of providing predictable, sustainable growth in earnings and shareholder value. Since 2017, we've delivered 8% compound annual growth in adjusted earnings and, in 2021, we raised our dividend by 4%, representing 15 continuous years of dividend growth. Our continued financial and operational success highlights the strength of our strategy and the dedication of our team as they continue to focus on delivering value to our customers. As we advance our strategy to reduce the carbon intensity of our portfolio, and invest in a stronger, more reliable grid, all at a pace that is cost effective for customers, we are well positioned to continue to deliver long-term growth for our shareholders. Nova Scotia Power achieved an important milestone in their decarbonization journey in the third quarter of last year when hydro energy from Muskrat Falls began flowing to Nova Scotia through the Maritime Link. Access to this clean energy is the major contributor to enabling Nova Scotia to reach 60% renewable energy by the end of 2022. I'm pleased to report that last week, the Utility and Review Board approved the $1.8 billion final cost assessment for the Maritime Link. This represents a significant achievement for the business and a testament to the transparent and disciplined approach taken on large capital projects. In fact, UARB called it a commendable achievement that we were able to complete this extraordinary project on time and on budget. While seeing the Nova Scotia block fully flowing as it is now, is an important step in our decarbonization journey, we know there's more to do. With mandates from both the federal and provincial governments to eliminate coal-fired generation in Nova Scotia, we will have to continue to find innovative ways to achieve these goals in a way that is the most cost effective for customers. We also continue to be committed to strengthening and modernizing the grid. And in 2021, we saw meaningful improvement in reliability at both Tampa Electric and Nova Scotia Power. With the increasing intensity of storms like we've seen over the last 2 months in Nova Scotia, we need to continue to invest in strengthening the grid. In 2021, Nova Scotia Power invested $65 million in projects specifically focused on improving grid reliability. Continued investments in these types of projects has enabled Nova Scotia Power to achieve 29% reduction in frequency of outages this past year compared to the previous 5-year average. This follows a 16% improvement in 2020 compared to that previous 5-year average. Continued investment in both targeted equipment replacements and upgrades, vegetation management and new technologies will enable ongoing achievement of these kind of improvements. Tampa Electric also achieved a second consecutive year of best-ever reliability performance. Through their continued investment and focus on improving the customer experience, performance metrics like outage duration and frequency have improved by more than 20% since 2019, and momentary outages have been reduced by as much as 55%. Continued investment in their storm protection plan and their continued commitment to their customer, positions them well to continue this positive momentum into 2022. Growth across the business has been driven by the effective execution of our strategy. This has been the driver of our growth for the last decade, and we're well positioned to continue delivering this profile of organic growth as demand for cleaner energy continues to grow. Our capital program as a whole really reflects our strategy and action, making carbon reducing and reliability enhancing investments of value to our customers. And I'm pleased to say that over 60% of our 2022 to 2024 capital plan is specifically focused on delivering cleaner and more reliable energy. At our Investor Day in December, we shared our updated capital plan of $8.4 billion to $9.4 billion, a plan that is $1 billion higher than our previous forecast. And beyond 2024, we see this growth extending well into the future. To deliver on our climate goals, we will continue to make investments to decarbonize our portfolio including investments in renewable generation, energy storage and transmission. We'll also continue to make significant investments that continue to improve reliability and provide better customer experience. Our ongoing investments in digitalization and decentralization initiatives like smart meters, give customers more choice and control and are also an important part of building a cleaner, more reliable and sustainable energy future. Our forecast includes $500 million to be invested in the Eastern Clean Energy Initiative at Nova Scotia Power. This project includes investment in new wind generation, transmission infrastructure upgrades and battery storage to help facilitate the transition away from coal-fired generation. It's our responsibility. In fact, it's our legal obligation to implement the policies that are legislated by provincial and federal governments to phase out coal and reach 80% renewables by 2030. But under the oversight of the regulators' transparent processes, we are also obligated to ensure that we do that in the most cost-efficient and affordable way possible for Nova Scotians. In addition to the planned investments discussed above, we are actively engaged in conversations with the provincial and federal government on how we can work together to fully achieve these climate goals. Approximately 70% of our 3-year capital program will be invested in the state of Florida. We've seen strong customer growth in Tampa of approximately 2% per year. This growth helps us to manage the affordability for our customers to help offset the cost of the required investments to reduce the carbon intensity of the generation mix and to improve reliability. Our baseline capital forecast includes previously announced projects like the investments in Solar, the Big Bend Modernization and Storm Hardening as well as new investments in battery storage to help provide the capacity needed to support renewable generation. It's no surprise that Florida has a strong solar resource, which makes investing in solar generation at Tampa Electric both the right thing to do for our customers and for the environment. Since we acquired Tampa Electric just over 5 years ago, solar has increased from less than 1% to approximately 12% of our generation capacity, representing an increase of over 700 megawatts of generation. Our continued investment in solar will increase that to approximately 19% by the end of 2023. Solar continues to be in the best interest of our customers in Tampa, both economically and environmentally. In 2021, we also reached an important milestone in the Big Bend Modernization project, achieving simple cycle commercial operation on December 1, right on schedule. Combined cycle commercial operation is on track to be delivered by the end of this year. Last quarter, I highlighted some of the key regulatory outcomes we achieved over the last 12 to 16 months that have supported the growth of our business. We've reached settlements at all of our U.S. affiliates including Tampa Electric's uncontested and unanimously supported settlement that was approved by the Florida Public Service Commission. More recently, the regulator in Grand Bahama has issued its decision on the GBPC REIT application, approving an increase of USD 3.5 million effective April 1 of this year. And as mentioned, last week, the regulator in Nova Scotia approved the final cost application for the Maritime Link. As I look forward, we continue to have a very active regulatory calendar in front of us. In December, the New Mexico Gas team filed a rate case with the regulator, which, if approved, will see new rates effective January of 2023. The requested USD 41 million increase in revenues is principally to support continued investment in the reliability of the system. We expect to have a decision on this application by the end of 2022. In Barbados, we expect a decision from the regulatory process at Barbados Light & Power's general rate application in the second half of that year. I'd also like to take a few minutes to talk about the general rate application that we filed last month here in Nova Scotia. The request includes an annual increase to nonfuel revenues of 2.9% and a fuel revenue increase of 0.8% in each of the next 3 years. This is the first general rate application filed by Nova Scotia Power since 2012. We see the GRA as an essential step on the path to a greener Nova Scotia and achieving the government's 2030 carbon goals. And we also understand that rate increases are never easy or popular, especially as we know that Nova Scotians are feeling pressure on all fronts as the cost of food, housing, fuel and electricity all continue to rise. Our application to the UARB is in large part based on the need to make significant investments as part of the provinces energy transition. The scope and scale of the investment required to meet the government's 2030 climate goals should not be understated, and we will continue to do our part. When it comes to greening the grid, we're proud of our track record. The GRA is an essential step that allows us to make the investments required to help the government hit its ambitious target. As we know, regulatory processes are complex and comprehensive. They can and, quite frankly, should include many strong voices and differing opinions from customers, consumer advocates, community groups and government. We welcome that accountability. And we believe that a rigorous regulatory process will result in a balanced outcome. We respect the role that Nova Scotia's expert independent regulator, the UARB, plays in ensuring that rate applications are clearly and transparently justified and that rate decisions are based on the facts with benefit of input from all stakeholders. Since we filed our GRA on January 27, there has been significant discussion around the proposal we submitted to address the net metering program in the province. The reaction from the solar industry, customers and government was strong. We listened. We understand the concerns we heard and we have since withdrawn the proposal. As you know, we are seeing the debate over net metering play out in many jurisdictions. It's a complicated issue. And we recognize that we could have engaged more and communicated better on this. Our initial proposal tried to solve an issue of imbalance in the current rate design between customers. We were trying to do the right thing for our customers. It was certainly not our intention to hurt businesses in Nova Scotia with this proposal. We're sorry for not working harder to address the impact this change would have had on those businesses. So let me explain what we were trying to achieve. First, let me talk about our commitment to solar power. Solar is absolutely part of helping Nova Scotia reach its 2030 climate goals. At Emera, we see solar as an exciting and important part of our clean energy future. At Emera, we have invested USD 1.4 billion in solar in Florida as part of the energy transition in that state. But we have to recognize some basic facts. Solar is more valuable in [indiscernible] climates because the energy is generated when it's needed on hot summer days when air conditioning drives a peak load. Unfortunately, in Nova Scotia, Solar alone will not close the coal plant that today are required to supply energy to Nova Scotia's peak load, which happens on cold winter nights. We need to continue to invest in wind, batteries and transmission to import clean hydro from our neighboring provinces because these are the most cost-effective solutions that offer the most reliability for customers in Nova Scotia. Next, let me talk about the challenges of net metering design. This is not unique to Nova Scotia, utilities, regulators, governments and customer groups in many jurisdictions across North America have raised concern with net metering tariff design structures like that currently in place here in Nova Scotia. Many jurisdictions are trying to balance these programs to benefit all customers, not just for today, but into the future, too. And we look forward to working with government and stakeholders to find the right solution to this challenge for Nova Scotia. On behalf of the thousands of employees who work at Emera and Nova Scotia Power, I'd like to reiterate that we are 100% committed to building a cleaner and greener Nova Scotia. As you've heard me say many times, the greening of the grid and reducing the carbon intensity of the energy we deliver to our customers has been at the core of our strategy for over 15 years. But it's more than that. It's part of our culture. It's what drives our team every day, and we are delivering. Nova Scotia Power has led one of the fastest energy transitions in Canada. This year, 60% of our energy will be from renewable sources. It's real progress, but it's not easy. Over the last 10 years, we've accomplished this progress while keeping total rate increases, including fuel, in line with inflation. Decarbonizing our electrical grid is a complex endeavor, ensuring that the reliability of the grid as a whole is not put at risk. It also requires significant investment which is why all jurisdictions that are working to reduce the carbon intensity of their energy in Canada and around the globe are seeing the cost of that energy increase. The fact is that Canada's and Nova Scotia's, climate goals, are very ambitious. And to achieve them, we will need to transform how we make, deliver and store electricity in less than 10 years. And to do that, we'll need to work together, constructively with governments, regulators and all stakeholders. Before I pass the call to Greg, I'd like to take the opportunity to highlight 2 new Board appointments. I'd like to welcome Paula Gold-Williams and Ian Robertson to Emera's Board of Directors. Paula is the former President and CEO of CPS Energy, and Ian is the former CEO of Algonquin Power & Utilities, each bring more than 30 years of leadership experience in the energy industry and will be tremendous assets to our Board of Directors. And with that, I'll turn it over to Greg to take you through our financial results. Greg?
Thank you, Scott, and thank you all for joining us today. This morning, we reported fourth quarter adjusted earnings of $168 million and adjusted earnings per share of $0.64. For the year, adjusted earnings were $723 million and adjusted earnings per share was $2.81. Before we continue, I want to remind everyone that in Q4 2020, we recognized a $36 million award related to outstanding litigation, which represented $0.15 on adjusted earnings per share. Normalizing for the impact of this onetime award better highlights the performance of our ongoing business. Excluding the impact of the onetime award, Emera's adjusted earnings per share increased 7% for the quarter and 11% year-over-year. Growth in adjusted earnings per share was primarily driven by continued growth at Peoples Gas, an improvement at Nova Scotia Power as compared to the weaker 2020, lower corporate costs and higher earnings in our Marketing and Trading business. These were partially offset by a stronger Canadian dollar and a higher share count. The stronger Canadian dollar has been a headwind throughout 2021, decreasing adjusted earnings for the year by $0.11. But despite these headwinds, the strong performance of our underlying business continues to drive earnings growth for our shareholders, which I'll take you through now. When you adjust for the impact of the legal award previously discussed, adjusted earnings per share has increased by $0.04 over Q4 2020, largely driven by strong operating results in our Gas and Canadian utilities and lower corporate costs. Corporate costs decreased primarily due to lower operating costs, primarily long-term compensation costs and corporate interest expense, partially offset by higher preferred dividend expense as a result of our issuances last year. Our gas utilities led by Peoples Gas contributed to the -- continued to benefit from new rates and the 4% to 5% growth in its customer base. Excluding the impact of a stronger Canadian dollar, our gas utilities delivered $11 million of growth in earnings, representing a 30% increase compared to Q4 2020. Weather is always a factor in the energy business, but one of the strengths of our portfolio of utilities is its geographic diversity, which played out well in 2021. In Nova Scotia, favorable weather conditions increased Nova Scotia Power's earnings contribution for the quarter, and we saw a modest increase in contributions from our investments in the Maritime Link and Labrador-Island Link. In Florida, we experienced less favorable weather than Q4 2020, which had benefited from colder than normal conditions. Tampa Electric also saw higher depreciation and amortization expense, reflecting increased capital investment and the effect of the 2020 amortization settlement. These factors drove a decrease in earnings from that business this quarter. These were partially offset by higher AFUDC earnings as we continue to invest in our solar and Big Bend projects and continued growth in Tampa Electric's customer base. Similar to the previous quarters, the growth from regulated utilities was partially offset by a higher share count. Year-to-date adjusted earnings per share increased by $0.13 to $2.81. Excluding the impact of the legal award, adjusted earnings per share has increased by $0.28 or 11% year-over-year, driven by strong earnings growth at our gas and Canadian Utilities, lower corporate costs and a strong natural gas market that Emera Energy was able to capitalize on. Similar to the quarter, higher earnings in our gas utilities were driven by new base rates at both Peoples Gas and New Mexico Gas continue -- and continued customer growth at Peoples Gas. Peoples Gas delivered USD 77 million earnings, representing a 48% increase over 2020 and the highest earnings in the company's history. Given the strong performance of the business in 2021, we did not recognize any of the USD 34 million of accumulated depreciation reserve that was allowed for through the Peoples Gas settlement last year. We, therefore, continue to have access to this reserve through 2022 and 2023. Our Corporate segment benefited from $35 million of lower interest expense, primarily due to the retirement of corporate debt, lower interest rates and the strengthening Canadian dollar as well as $13 million in lower operating expenses. These increases were partially offset by higher preferred dividend expense as a result of the issuances during the year. For the year-to-date period, Emera Energy's Marketing and Trading business delivered an impressive USD 37 million of earnings. While this is outside of our USD 15 million to USD 30 million earnings guidance range, we believe the range remains appropriate over the long term. The February storm event in the Midwest sharply increased prices and drove volatility across the U.S., which the business was able to capitalize on in the first quarter. In the third and fourth quarters, we saw a surge in global LNG pricing, which enhance the gas market pricing and volatility in key geographies where Emera Energy operates. This is a good example of the upside potential in this business that we often talk about. The increase in the Canadian Electric segment is consistent with the factors that impacted the quarter as discussed a moment ago, and contributions from our other electric utilities saw a modest increase over prior year. U.S. dollar earnings at Tampa Electric were relatively flat year-over-year, a strong performance in advance of new rates being in effect on January 1. In 2021, Tampa Electric earned near the bottom of the ROE range, a shift in the trend that we've seen since the acquisition of Tampa of earning at or above the midpoint of the range. This type of ROE degradation is driven by regulatory lag that is expected in the year of a general rate application as continued investment in rate case -- in rate base compresses ROEs With new rates in effect on January 1 of this year, we expect earnings from Tampa Electric to be higher than 2021 and anticipate earning within the allowed ROE range. And finally, both FX and a higher share count provided headwinds for the year. Operating cash flow year-to-date is down $83 million or 6% compared to 2020, primarily as a result of incremental fuel cost associated with winter storm Uri at New Mexico gas and fuel under recoveries across the portfolio. To show the cash flow changes in the underlying business, we broken out the change in cash flow driven by the under-recovery of fuel costs at New Mexico, Nova Scotia Power and Tampa Electric. Excluding these under recoveries, cash from operations increased 8% over 2021, reflecting the strong underlying growth in our utility operations and lower corporate costs. Increasing commodity prices have been a headwind for our cash flow throughout 2021, beginning with winter storm Uri and the trickle-down impact on natural gas pricing that persisted in 2021. As I mentioned last quarter, we have regulatory mechanisms in place to recover these prudently incurred costs from customers. Tampa Electric filed a mid-course fuel adjustment in January in response to the continued high natural gas prices. If approved, we'll begin recovery of the USD 169 million in April, of which $70 million relates to the under-recovered position at December 31. Recovery cost of winter storm Uri began in July of last year and are being recovered over 30 months. Nova Scotia Power is in a fuel stability period until December 31, 2022. So while the recovery of the $55 million won't begin until 2023, the regulatory mechanism will allow for the full recovery of prudently incurred fuel costs over the longer term and while it remains a regulatory asset until that time. Access to these regulatory mechanisms allows us to reduce rate pressure and rate volatility for our customers while ensuring our shareholders' interests are protected. Our experience in 2021 does not change our views on our operating cash profile going forward, and we have a clear path to achieve our cash flow objectives. We are well positioned heading into this year to deliver both earnings and cash flow growth to continue investing in our rate base and growing our business through our $8.4 billion capital plan, all while providing value to our shareholders and maintaining our investment-grade credit ratings.
Thank you, Greg. This concludes the presentation. We would now like to open the call for questions from analysts.
[Operator Instructions] We have a question from the line of Ben Pham with BMO.
I have a couple of questions on the NSPI rate case. And I'm wondering, first off, how does the Atlantic project feed into the rate case? You need some visibility on that before clearing the hearings and getting the disposition, like how meaningful is that to the rate case outcome.
Yes. Thanks, Ben. It's Scott. And so look, within the GRA, certainly, there's important investments that are proposed as part of the journey to coal plants. It would not specifically at this point, include anything in relation to the Atlantic Loop, but rather would focus on investments required in Nova Scotia. At the same time, obviously, we continue to advance our discussions on the Atlantic Loop, which is also an important part of the ability to transition off coal generation of Scotia over time.
Okay. And then also, what's the thought process around the ROE and you get the midpoint to saying interests in earnings sharing mechanism, but you also provide potential for a much, much lower downside potential or maybe not much lower, but slightly lower on the downside. Like what's -- is there O&M that you can pick up that you're thinking about? I love just a rationale around at ROE change.
I think really, Ben, just a reflection that the 25 basis points up and down as has been the case in Nova Scotia for some time, is actually unusually very narrow. And with the amount of investments and the journey in front for Nova Scotia, it's really just looking at that very narrow band in saying, it's appropriate, we believe appropriate for customers, appropriate for the regulator to look at that band in the context of the volatility of potential earnings for Nova Scotia Power to make sure that it's consistent with market practice. And right now, that 25% band seems inconsistent with market practice, but ultimately something that the regulator will determine as appropriate.
Okay. Seems I got more to catch them and everything. And maybe one last one on the Caribbean. You shared the realized ROEs you're generating in those businesses and just give us a sense of the earnings upside magnitude?
Yes. I think Ben -- it's Greg. I mean really, our Caribbean business is 2 businesses. It's Grand Bahama and Barbados. I'd say we've been tracking kind of at the allowed ROE at Grand Bahama. The economy has come back fairly well during COVID and particularly from an industrial side. We're still seeing some challenges in Barbados primarily because of lack of tourism and lack of rebound in the economy. So the returns there have been a little bit softer. But again, on hold in total, the businesses are performing reasonably well in light of the circumstances.
Next question comes from Maurice Choy with RBC Capital Markets.
If I could continue with the ECI or the Atlantic Loop. You previously mentioned that you expected an update on this initiative in early 2022. Has there been any change in your view of timing, be it in terms of months or quarters? And what is the top reason that could move this timing either earlier or later?
Yes. Maurice, I think we're still hopeful for more clarity on that mid-year. Certainly, I think it's fair to say we need clarity on that this year. And look, as I said before, we'll continue to be encouraged by the ongoing discussions and engagement with the federal government with and by the provincial governments and also with our provincial partners. It's a really complex project. And it's working through those complexities. And of course, as you would understand, governments in Canada also challenged by a number of other active files. And so it's really just a matter of working through those complexities. But really focused on seeking clarity this year. We're hoping midyear, but certainly need clarity sometime in '22 in order to move this project forward.
And just as a follow-up. You mentioned that the governments have other active files going on. Do you see a material change in their view or their priorities in terms of energy transition versus those active files over the recent weeks?
No, I don't think so at all. I'm thinking about things like COVID and trucker protests and those kinds of things that are obviously very, very active. But no, I don't see any shift on the one you asked.
Great. And if I could just finish off with a question on capital allocation. Greg, you mentioned that there's a good runway of any transition investments ahead, including after 2024. And like many of your peers, you probably have a lot of tools at your disposal to raise funds, including your trip and ATM. Equally, you do have a number of assets that arguably are viewed as noncore by the market. In your view, when would it be a suitable time to consider selling these assets to improve your liquidity, especially ahead of some of these larger scale investments and potentially reduce EPS dilution?
Well, Maurice, it's Greg. I mean, we always take a look at all of our portfolio to see what makes the most sense from a strategic and a financial perspective. We have no plans. We're happy with our portfolio. Now I have no plans to divest of anything, but we'll continue to look at it. I don't know if there's an optimal or a perfect time and whether or not we need to do something. But as we get greater clarity in terms of the timing of some capital investments in some of these large projects at that point in time, we'll start to look at what our funding requirements are and what's the most cost-effective way to raise the capital in support of that, and that would include maybe divesting of some smaller assets, but it may not as well, but we'll make that determination at that time.
And you see greater clarity on investments, presumably the ECI/Atlantic Loop is your next biggest project to consider?
Yes, that's likely the next biggest project. But the large capital in that would be towards the end of this decade, not in the next couple of years.
Really Maurice, we continue -- as Greg said, we continue to look at the portfolio. And if we see a transaction that's compelling from a shareholder value perspective, we looked and heard and, obviously, you've seen our willingness and ability to look at that and to think about the portfolio and recycle capital where it makes sense, and we'll continue to do that and look through that one.
Your next question comes from the line of Rob Hope with Scotia Bank.
Two shorter-term kind of questions in nature. First off, NSPI. In 2022, it looks like you're saying earnings are going to be consistent versus 2021 levels, yet sales volumes will be higher, and you could have the potential for new rates there. What are the puts and takes you're seeing at NSPI in 2021? And are you assuming kind of a positive outcome on your rate filing?
Robert, it's Greg. I mean it's one month in the year. So I think it's a little early to be much more specific in terms of what we expect the year to be. But in general, I mean, the 2 biggest things that would be in front of us from an uncertainty perspective would be the outcome of the right case, in particular, the timing of when those rates would be effective. And of course, as always, weather. And weather can be positive or negative from a load perspective and also from a store perspective. And so it's hard to be much more precise, I would say, at this point in time for 2022.
All right. And then another shorter-term question. The volatility and strength in gas pricing has persisted into 2022, would we be correct in assuming that the gas business or your marketing business has had a good start to the year, but too soon to kind of point you to the upper end of the longer-term guidance there?
Absolutely. Yes.
Your next question comes from the line of Linda Ezergailis with TD Securities.
Wondering if maybe we could look at your -- some of your other application components to NSPI, specifically your equity thickness. Just wondering how you converged on that request, given my sense that some utilities in North America, would you have even a higher equity thickness?
Peter Gregg from NSPI. Really, part of the preparation of the rate case, obviously, we do engage experts and look at utilities with similar risk profiles to ours and considering what is an appropriate equity thickness. And in doing that, that's where we landed with the move to 45% equity thickness by the end of 2024.
And...
Sure, go ahead, Greg.
Linda, it's Greg. I might just say, so there's probably a couple of things happening there. The phase-in was done largely to the extent of lens and affordability for customers, and we're very, very sensitive to that. And so we felt it was appropriate to phase in over time. The other lens too is what do we think the required capital structure is to maintain really strong investment-grade credit ratings. And so that was part of it as well. And ultimately, we -- in addition to what Peter said, we believe 45% is the right number, but we believe it's also prudent to get there over a couple of years as opposed to immediately.
And just as a follow-up, recognizing that affordability is something you always keep at the forefront in all of your considerations of a balanced application. I'm just wondering what if you got everything that you asked for, what would that translate into as higher earnings and normal weather and volumes load? What would that translate into higher earnings in 2022, 2023 and 2024? And my second part of that question is if it didn't get everything that was requested in terms of a rate increase, what sort of cost could be deferred to mitigate the negative effect of that?
Yes. I wouldn't necessarily think of it, Linda, through what would it create from an earnings capacity perspective. I mean the basic math is not going to change. It will be a function of the rate base investment, the equity thickness and the ROE, and we haven't asked for an increase in the ROE. And as we discussed, the equity thickness is going through. But to the extent that rate base grows over time, then yes, earnings will grow with that as well. Some of the other components like I think you mentioned load. I mean that load will be what load will be, nothing specific in this rate case is going to cause us to have a different view on that side of it. And I think you might have had another -- there might have been one other part of that question, Linda, that's escaping me hit this 10 seconds.
Apologies. Yes. Just in terms of if you don't get everything you asked for, might there be some costs that you could potentially defer?
Yes. And no need to apologize, Linda. I mean, it's premature. On all these rate cases, it depends on how it's structured. So as you're very familiar, often rate decisions come out in, for example, there's certain costs that get deferred. There's a change in depreciation rates, which means it has no effect on earnings. So it's kind of premature at this point in time to determine what the outcome would be and what the likely impact of that would be.
Your next question comes from the line of Mark Jarvi with CIBC Capital Markets.
Question for Greg. Just a slide you guys talked about a path to $2 billion roughly of operating cash flow. Just with the fuel recovery item you flagged on Slide 13. Is there an ability to get to that level this year? Or do you think that's been pushed out a little bit into 2023?
No, I think just the opposite, Mark. I mean nothing that happened in 2021 changes our view on what we're going to generate from a cash flow in -- sorry, is 2021 changes our impact of what we think we'll have for cash flow in 2022, with the exception of any under recoveries, for example, on Tampa Electric that will get trued up in the midcourse correction. So if anything, our view on cash flow this year is probably even stronger than it was a month ago just because of the timing of the fuel costs on a period-over-period basis.
Okay. Great. And then can you give us a bit more context in terms of the $2 million pullback per month for Nova Scotia block? Is that a sort of a rolling average? Or like is it binary? And then maybe how you kind of true up for the actual $2 million cost if you're shy on the Nova Scotia block.
Teams are still going through that regulatory decision, but it is a $2 million per month calculation and then gets factored against the cost of replacement energy. And so -- and then that gets calculated at the end of the year. So yes, I think that's the simplest way to describe it and, as I say, though, the team's still going through the details of the decision and getting more precise clarity on exactly the mechanics. But the way I described it is in simplest terms how it works.
But if you were, say, 6 months over and 6 months under, but you still average 90, would there be penalties? Or would that kind of smooth it all out? I'm just trying to understand exactly how you get penalized for being short in a given month and whether or not just sort of again sort of average over the whole year.
So as I say, team is still going through the details to make sure we understand the mechanics, Mark. But I think that the shortfall is calculated monthly, but the replacement energy obviously happens over a longer period of time. So that's sort of the mechanics the team still trying to -- we're trying still to work through and make sure we understand as part of the decision. But the shortfall is calculated.
And maybe just going back to the question on Emera Energy. You talked about the gas markets and how strong they are and ability to hit the operating in the range potentially. Anything in terms of transportation cost, you guys can comment on whether or not sort of relative levels versus -- like heading into 2022 versus where you were in 2021?
So we probably have a little bit less time for than we had in 2021. We're not dissatisfied. As you know, that's always a competitive bidding process. And so it has gotten more expensive because of the run-up in gas prices, so we have to be very astute when we are bidding. And we'd rather lose it than overpay for it to be honest. So we probably have a little bit less volume in 2022 than we had in 2021. But again, as I said earlier, quickly, it is very much too early in the year to say anything other than we hope to be within our range. So that's where we are.
Your next question comes from the line of Andrew Kuske with Credit Suisse.
I guess the question is really a big picture and directed for Scott, and it's along the lines of the growth we've seen in Atlantic Canada in the last 2 years. We can pick any timeline you want, but it's been a pretty good news story in Atlantic Canada from population dynamics. How does that bake into your longer-term outlooks for your core business?
So -- Andrew. So look, I think, obviously, being in a place where we're starting to see some renewed strength of the economy is good news on a bunch of levels. Obviously, that's certainly true for us in Florida. And benefit from a strong and growing economy there. And so to the extent that the economy continues to strengthen, the population continues to increase. Frankly, that helps to reduce rate pressure as we invest to make this transition towards cleaner energy. So I think it's helpful. And I think as I say, it helps to reduce the cost on a per customer basis, of the energy transition towards closing coal plants in Nova Scotia.
Okay. That's helpful. And then maybe just related, with some of the issues that there've been with having transmission lines come from Canada into the U.S. Does that wind up being a better new story on a longer-term basis for your decarbonization efforts is effectively hydro plants and whether they'd be Quebec or elsewhere in Canada. The easiest access route for them may be places like Nova Scotia to effectively put Clean Power?
That's certainly the proposition we're putting forward that it makes sense to try and interconnect the region so that we can move energy around and recognize that both Quebec and Newfoundland Labrador are blessed with hydro resources that are at many times, if not most of the time, more than they need themselves and rather than moving that energy down to U.S. markets, let's share it within the region. And help provinces like Nova Scotia and New Brunswick that still have thermal emitting sources to retire those coal plants. And that's really the whole fundamental thesis of the value, we think, to the whole region of the Atlantic Loop and the Maritime Link projects built.
And if I could sneak in one more. Is there any longer-term prospect of revisiting your transmission project that you had going from Nova Scotia in the Massachusetts?
So it's not a focus for us today, I'd say, Andrew. Obviously, we know that there's been some challenge in dealing with some of those other proposed transmission lines. But our focus right now is really trying to address the off coal and renewable targets here in Nova Scotia. And as part of that, a transmission interconnect ideally to Quebec as part of the Atlantic Loop and broader Eastern Clean Energy initiative. That's really where our focus is here right now.
Next question comes from Dariusz Lozny with Bank of America.
Just wanted to, at the outset, ask about, I think the timeline for the retirement of the trends in one of the units that got pushed back by one year. Can you maybe just discuss that decision a little bit, how the process is going to procure replacement energy and whether there's any risk of the timeline potentially moving back again, whether it's another year or any other amount of time?
It's Peter from NSPI. Really, what drives that, our ability to shut coal is that we need to have available capacity inside of Nova Scotia to be able to shut those plants down. With the delay in receiving Nova Scotia block over the past several months, it is flowing down and that's a positive sort of development. And consistent flows over the Maritime Link will certainly aid in our ability to commit to a coal shutdown. As we go further into the rest of the plants, we've got Nova Scotia, obviously, the Atlantic Loop into the play, things like [ Gridscale ] batteries come into play, has to pull the gas conversions for the whole story and had to shut down coal. But to your trend [ 5 ] direct question, that is part of ongoing analysis and discussions around the confirmed timing of that. And when we have that nailed down, we're happy to share that.
Okay. Great. Appreciate that. And if I can pivot over to Tampa Electric, earlier in the call, you alluded to depending fuel [Audio Gap] your level of confidence on being able to achieve the full ask on the recovery there, particularly given the bill impacts that I think are estimated at maybe low double digits per month given the current inflationary environment that we're in today.
Yes, Dariusz, it's Greg. I mean, I don't ever want to speculate what the commission will ultimately decide. But certainly, if you look at the track record of the commission and other investor-owned utilities in Florida, including ourselves last year. Generally, these approval of these midyear course corrections go through without a whole lot of controversy, we wouldn't expect this to be any different this year.
And your next question comes from the line of Matthew Weekes with IA Capital Market.
The first is sort of broad. Anything new to report on BlockEnergy?
Yes. So BlockEnergy, we continue to be really excited about. I can share with you that the pilot project is -- that entails 37 homes in Florida. These are homes that have been built and are being looked in are now starting to be live connected. The block system is now live and active and is performing exactly as we expected. And so that continues to build our excitement around what this idea can do, what this technology can do as part of the clean energy transition. And so one of those stories we'll continue to share more as developments move along, but just happy to share that we didn't achieve that milestone in the last few weeks now with that pilot now live in [Audio Gap]and the like. And certainly, we're not immune to those things. But fortunately, I will say all of our major active projects are in good shape. We're not -- most of the important procurement has already happened for the wave of solar that we're executing now for the completion of the Big Bend Modernization of things. But we are seeing some cost pressures that's part of the team's planning in order to impact those things. It could have an impact on the capital programs that are in front of us over the medium to longer term. And the team is working really hard to make sure that we minimize those impacts with that.
And there are no further questions in queue.
Okay. Thank you, Don, and thank you all for your participation and continued interest in Emera. This now concludes our call for today. Have a great day.
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