Emera's (EMRAF) CEO Chris Huskilson on Q2 2014 Results - Earnings Call Transcript

Aug.12.14 | About: Emera Inc. (EMRAF)

Emera Inc. (OTCPK:EMRAF) Q2 2014 Earnings Conference Call August 12, 2014 9:00 AM ET

Executives

Scott LaFleur – Manager, IR

Chris Huskilson – President and CEO

Scott Balfour – EVP and CFO

Bob Hanf – CEO and President of Nova Scotia Power, Inc

Gerry Chasse – President and COO of Emera Main

Analysts

Linda Ezergailis – TD Securities

Paul Lechem – CIBC

Ben Pham – BMO Capital Markets

Matthew Akman – Scotia Bank

Robert Kwan – RBC Capital Markets

Andrew Kuske – Credit Suisse

Operator

Good morning. My name is Laura, and I will be your conference operator today. At this time I would like to welcome everyone to the Emera’s Second Quarter 2014 Results Conference Call. (Operator Instructions) As a reminder, today’s call is being recorded, today, August 12, 2014 at 10 AM Atlantic Time. I would now like to turn the call over to Scott LaFleur, Manager of Investor Relations. Please go ahead, Mr. LaFleur.

Scott LaFleur

Good afternoon everyone, and thank you for joining us on our second quarter conference call this morning. Joining me for Emera are Chris Huskilson, President and Chief Executive Officer; Scott Balfour, EVP and Chief Financial Officer; and other members of the management team.

Emera’s second quarter earnings release were distributed earlier today via newswire, and the financial statements and management’s discussion and analysis are available on our website at emera.com. This morning Chris will begin with the corporate update and then Scott will review the financial results in detail. We expect the presentation segment to last about 10 minutes after which we will be happy to take questions from analysts.

Please note, that all amounts are in Canadian dollars with the exception of Emera Maine and Emera Caribbean where segment results are reported in U.S. dollars.

I will take a moment to remind you that this conference call may contain forward-looking information which involves certain assumptions, and known and unknown risks and uncertainties that may cause actual results to be materially different from those that are expressed or implied by the comments. Those risks include but are not limited to weather, commodity prices, interest rates, foreign exchange, regulatory requirements, and general economic conditions. In addition, please note that this conference is being widely disseminated via live webcast.

And now, I will turn things over to Chris.

Chris Huskilson

Thank you, Scott, and good morning everyone. Emera delivered another solid quarter in Q2 with adjusted net income of $44.2 million, or $0.31 per share, in line with the $42.6 million, or $0.32 per share reported in Q2 last year. Overall Emera has had a great start to the year. Net income year-to-date is $227.3 million, or $1.59 per share, up 35.5% from the $167.7 million, or $1.27 per share for the same period in 2013. Scott Balfour will take you through the details of the quarter later in his remarks. But first, I’d like to touch on some of the key strategic and operational milestones Emera reached this quarter.

I’ll start with our most recent progress on Maritime Link. The construction of Maritime Link continues to progress as planned. The project is on schedule, and on budget. An important project milestone was announced on July 30 with the signing of labor agreements with IBEW, and the Cape Breton Islands Building and Construction Trades Council. These agreements will allow us to have labor security and stability throughout the construction period of Maritime Link. Earlier in this quarter, we awarded the contract for the two converter stations, this contract award and the award earlier this year and the Subsea Cable Contract account for over 50% of the cost for Maritime Link. The only remaining major contracts to be awarded are the transmission line construction contracts which will be awarded later in this year. We continue to be happy with the supplier interest in the project and expect to have in excess of 70% of the project cost under contract by the end of this year.

Emera Energy’s trading and marketing group continued its momentum from the first quarter with another strong quarter. The scale of the business continues to grow with an extensive network of counter parties and gas transportation capacity from which to source and sell gas. Our New England Gas Plants have been performing as expected. And the long-term market conditions are encouraging. Plant retirements in the region are being announced earlier than forecast and the capacity auction price for 2017, 2018, is more than doubled the previous auction results. As the market changes, The New England Gas Plants are well positioned to capitalize, and we are increasingly confident about their future contributions.

There is New England wide initiative underway that focuses on improving access to natural gas by building new and enhancing existing natural gas pipeline infrastructure. The cost of this would be borne by electricity customers and the states have agreed on a cost sharing mechanism. The New England states remain interested in a regional solution to meet clean energy goals and provide price stability and reduce the overall reliance on natural gas generation. The results of our New England initiative focused on increasing the supply of clean electricity and the reduction of GHG emissions, a bill that was before the Massachusetts Legislature which would have established a solicitation for clean energy, ultimately it did not pass at the end of the session. We expect this will cause a delay in the electricity initiative for Massachusetts besides our next steps.

In Maine, Emera Maine announced an MOU with Central Maine Power to develop project to efficiently collect wind in Northern Maine. We’ve been working on transmission solutions to get renewal generation to market and through this MOU we’re renewing our commitment to expanding these efforts. It’s a challenge to get additional wind and hydro to market, and this MOU seeks to jointly address those challenges.

In the Caribbean, our plan to move CNG from Florida to Grand Bahamas is progressing. We submitted an export application to the US Department of Energy seeking two authorizations; first, to export CNG to free trade agreement countries, and to export CNG to non-free trade agreement countries. Our application to export to CNG to free trade countries was recently approved, and the authorization to export to non-free trade countries such as Bahamas is being reviewed separately. This aligns with our strategy in the Caribbean to introduce generation of alternatives, including lower emission gas and renewables with a focus on affordability and fuel cost stability.

With that update, I’ll turn things over to Scott, who will give you a more detailed update on our financial results for the quarter. Scott?

Scott Balfour

Thank you, Chris, and good morning everyone. Our second quarter financial results were announced yesterday and are now available on the Emera website.

Emera’s consolidated net income for the second quarter was $24.5 million, or $0.17 per share, compared to $44.9 million, or $0.34 per share in the second quarter of 2013. When the second quarter results are normalized for mark-to-market impacts, adjusted net income was $44.2 million, or $0.31 per share in this quarter compared to $42.6 million or $0.32 per share for the same quarter last year. The $1.6 million increase and adjusted net earnings is primarily due to higher contributions from Emera Energy which is also the primary contributor for the strong year-to-date results. I’ll provide more detail on Emera Energy’s quarter when I discuss the segmented results.

Cash flow from operations for the first six months of the year was $410.2 million this year, compared to $233.2 million for the same period a year ago. The near 76% increase is primarily due to the higher cash earnings contributions from Emera Energy’s trading and marketing group.

Turning now to our segmented results; Nova Scotia Power contributed $17.1 million to consolidated net income in the second quarter of 2014, compared to $18.5 million in the second quarter last year. The decrease in the quarter was primarily due to timing of regulatory deferrals and increased income tax expense. In 2014, we expect Nova Scotia Power to earn within its allowed rate of return and to have earnings similar to that of 2013. Emera Maine contributed $7 million to consolidated net income in the second quarter of this year, compared to $8.9 million for the same period in 2013. The lower net income was primarily due to decreased transmission pool revenue, as a result of whether in the New England region.

Emera Caribbean contributed $7.8 million to consolidated net income in the second quarter 2014, compared to $8 million in the second quarter last year. The lower net income is primarily due to the second quarter 2013 impact of the $2.2 million gain for the acquisition of Dalmac [ph], partially offset with improved operational results this year. Our pipelines segment contributed $8.3 million to consolidated net income in the second quarter 2014, compared to $6.8 million last year. The $1.5 million increase was primarily due to refinancing initiatives than lower interest expense.

Emera Energy builds on an outstanding first quarter with a strong second quarter, delivering adjusted net income of $5.2 million compared to a loss of $1.4 million in the second quarter last year. The higher net income was primarily due to increased contributions from trading and marketing operations at Bear Swamp, as well as costs savings at Northeast Wind’s joint venture. Our corporate and other segment contributed a $1.2 million loss in the second quarter this year, compared to earnings of $1.8 million in the same period a year ago. The lower net income was primarily due to an increase in income tax expense.

Before I conclude, I would like to note that Maritime Link is now accounted for on an equity basis. As planned with all the required approvals and project financing in place, and pursuant to US GAAP and as P&L [ph] is now accounted as an equity accounted investment, this means that our interest in Maritime Link project will now only be reflected in income from equity accounted investments line on our income statement, and similarly only on Emera’s net equity investment and only Emera’s net equity investment in Maritime Link will be reflected on Emera’s balance sheet together with our other equity accounted investments.

That’s all from my financial overview, and now we will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Linda Ezergailis, TD Securities. Your line is open.

Linda Ezergailis – TD Securities

Great, thank you. I appreciate the update on the bill in Massachusetts, it’s disappointing that the legislature didn’t pass, can you explain to us maybe what we might look forward to on the next steps of timelines of how these initiatives might get back on track?

Chris Huskilson

Linda, it's Chris. Well, first of all, I think that’s pretty hard to predict at this point because I think it is going to be up to how Massachusetts and other states want to proceed, we do know that Nesco [ph] is very much focused on this issue and we do expect that something, at least a tentative type of fee would come out to actually give us an idea of what it is that we’re getting into. But from our perspective, the real focus right now is the work that we are doing with Central Maine Power in Maine because there are in fact, wind generation facilities that have been contracted but that we would believe are congested in the marketplace. And so we think that those contracts will need more transmission in order to be perfected, and so I think that creates a substantial opportunity to build more AC transmission in the state of Maine. And that’s really where our focus is on the short-term, we continue to be focused on a longer term solution that probably comes to DC outcome but there is lots of work to do to just get the listing generation to market.

Linda Ezergailis – TD Securities

And can you talk maybe about the order of magnitude of investment on that AC opportunity in Maine?

Chris Huskilson

Well, I mean I think we’re talking about a need to move 500, 600 megawatts of wind, so it’s in that kind of magnitude.

Linda Ezergailis – TD Securities

It’s helpful, thank you. And just a follow-up detailed question, the NSPI FAM disallowance recommendation with the final decision in Q4, what sort of procedural steps would there be leading into Q4 that might allow you to have them reconsider that? And, I guess the other question is, would this have an impact potentially on 2014 earnings, there on an ongoing basis if the final decision is unfavorable.

Bob Hanf

Hi Linda, Bob Hanf here. Procedurally there will be a hearing in October and an opportunity for us to present our view which would no disallowance and as to a pact on 14 – I think it was 14, the answer is no impact, in my view.

Linda Ezergailis – TD Securities

Okay. And can you just describe just maybe again, what the nature of the audit recommendation was in terms of why they wanted to disallow that?

Chris Huskilson

So generally the audit was actually quite favorable on many many areas, and there were probably three or four issues where we disagreed on their findings and one of them involves our hedging program although we approved the hedging program, there is just a question around timing, so it’s something of that nature. There is another issue about hedging – sorry, not hedging but dredging of our harbor and whether – how that should be accounted for. So it’s just an accounting issue but it’s nothing of great significance. And there is a holdover issue on gas contract from the last audit, and we just had a different way of valuing on that outcome, so that’s the nature of the issues that we’re talking about.

Linda Ezergailis – TD Securities

Great, thank you.

Chris Huskilson

Thanks, Linda.

Operator

Your next question comes from the line of Paul Lechem, with CIBC. Please go ahead.

Paul Lechem – CIBC

Thank you, good morning.

Chris Huskilson

Good morning, Paul.

Paul Lechem – CIBC

Good morning. Just reading through the MD&A, it seems that the Labrador Island link gone up to $2.8 billion if I’m correct last at least it was $2.6 billion. I’m just wondering does that have any impact on Emera. Can you run to get is there any cost overrun sharing or do you just benefit from the higher equity investment, how does that work for you guys?

Chris Huskilson

At this point it’s not completely clear how it will affect us, we don’t have any cost overrun exposure, so that won’t be exactly for us. But in the end, our arrangement is to own 49% of the total transmission, and so it will really depend on what the final cost are of all the transmission elements before we really know exactly how it will flow through. I think we’ve estimated what we think the numbers would be at this point and that’s about $350 million equity investment in that project. But until explicitly done, we won’t know but from our cost perspective, we don’t have an exposure.

Paul Lechem – CIBC

Okay. And at the end of the day if your 49% resulted in a higher number them you would actually inject [ph] on a bigger equity investment?

Chris Huskilson

That’s correct, it will be based on the equity.

Paul Lechem – CIBC

Okay, thanks. In Maine, a couple of decision that seems like – one on the distributions return, the one on the transmission returns if I’m reading us right, they were far grueling on the transmission at 10.57%, is that in line with what you were hoping for? Can you remember, what are your booking right now, are you still at the 11.17% or whatever the number is, are you still looking at that, so how does that work with – how does that compare to what you’re expecting?

Chris Huskilson

We just ask Gerry to speak for that.

Gerry Chasse

Yes, on the – I think you started with the distribution case Paul, and we – I think we saw reasonable results from that. We basically were able to implement rates three months ahead of time, and also include in that rate increase the expenses from the Ice Storm that occurred at the end of 2013. So all in all, I think it was a positive result for us. In the FERC ROE case, the FERC made a decision on the first complaint, the refund period for the first complaint at 10.57% as you mentioned, and we had accrued for that back in 2013, approximately $2.4 million pretax. As a result of the FERCs decision we had to accrue another $900,000 in the second quarter of this – of this second quarter because of the cap that was set on one of the larger investments that we have, the NRI line. Going forward, there is a second complaint that is being heard that the FERC will make a decision on, probably into the 2015 timeframe, and when we understand what the – kind of the going forward ROE is expected to be, we’ll make a decision on what we need to accrue for that. At this point in time, I believe we’ve been totally based on a 10.57% going forward, as far as I’m aware.

Chris Huskilson

That’s correct Gerry. And I think probably the other thing is, there is impact of third complaint that’s been filed. And so, while we’re seeing a bit of uncertainty relative to the cost of capital, I think you’re probably going to see this continue for a little while but I do think that it will stabilize over the next period. And I think at the end of the day, the FERC is continuing to try to incent more transmission to be built because in fact, New England does need more transmission, and I think that that factors into all there.

Paul Lechem – CIBC

Okay, thank you very much.

Chris Huskilson

Thank you.

Operator

Your next question comes from the line of Ben Pham with BMO Capital Markets. Your line is open.

Ben Pham – BMO Capital Markets

Could you just give us a commercial update on the Northeast Energy Link?

Chris Huskilson

Sure, Benefit. Gerry, do you want to go ahead?

Gerry Chasse

Sure. I guess what I’d say, Chris spoke about some of the events that were happening in New England and the Massachusetts legislation, underlying all of that, I think the important thing to understand is that there is a lot of pressure on the State to meet both their GHC, Green House Gas, objectives and their renewable portfolio objectives. And that kind of underlying pressure is going to continue to put pressure on them to do something. And so, really the – Chris spoke about the CMP MOU and the NEL project is, those are both projects that are designed to help the states meet that pressure, that gap in their portfolios. And so – the NEL continues to be developed, we’re going through a siding process right now with the State of Maine that I expect will continue throughout the course of this year and probably into next. However, we’re really positioning the project in order to respond – to be able to respond to a request for proposals from Nesco when that comes out.

Chris Huskilson

Yes, I think that can be important distinction I believe that the DC projects are likely to be required relative to solicitations or requests from the States of a broader clean energy initiative, whereas the AC upgrades that we’re talking about are – I would say are required now because of the fact that contracts have been signed to move more clean energy. And so, in the short-term, you’re going to see us focus on those AC activities, but in the longer term, we believe as Gerry said, that there will be a need and these types of projects will be important offerings.

Gerry Chasse

So – I was just going to add to that Chris, while Massachusetts is 50% of the pool and the legislation did not pass, other states like Connecticut and Rhode Island continue to release requests for smaller components and that’s why the AC components will continue to fill that gap in that kind of an incremental fashion.

Ben Pham – BMO Capital Markets

Okay, thanks for that. And maybe I can just switch at deals over at Caribbean, if you can provide some context about CNG, just a timing of that opportunity and just what you’re seeing on the acquisition front in the Caribbean? And there is also a bit of a tweak on the CapEx for ‘14 in the Caribbean, can you talk about more about that here?

Chris Huskilson

Sure. First of all on CNG, as I said in my remarks, we continue to be focused on getting the permit on non-free trade countries, that’s the key milestone that needs to happen. We feel in good shape because of the fact that we do have most of our environmental work done and within this year we’ll finish our environmental work on that project and we believe that that puts in good shape compared to other projects that are in the queue, other projects don’t have their environment work in shape. And so that’s an important piece of milestone that we need to hit in order to get this approval. So we continue to work on that and we continue to be optimistic that that will come together in the near term. As it relates to acquisitions, frankly we’re primarily focused in the Caribbean right now on these fuel issues and on clean generation, an example of that is, that we now have a project in Barbados, we’re putting between 8 and 10 megawatts of solar – utility class solar in place. We continue to see opportunities to do that, and as well, we also believe that there is a requirement for some dual fuel generation capacity in the marketplace and we’re working towards that. So that’s really where our focus is right now. And I guess lastly, Sarah MacDonald is the leader down there, is continuing to integrate the operations of the business across the Caribbean region and she is seeing opportunities to do that and that is generating value for us overall. So when we look at the activities in the Caribbean, it’s primarily about cleaner energy and renewables in that marketplace. And Scott, do you want to just touch on that?

Scott Balfour

Yes, so we’re still expecting to see increased capital investment in the Caribbean overall in 2014 with both $30 million within capital at this point looking for the investment relative to over $24 million last year, and that $30 million estimate is a little less than where we thought we might be at the beginning of the year and that’s just a reflection of timing of investment in some generation related initiatives through Caribbean [ph].

Ben Pham – BMO Capital Markets

Okay, greats, that’s it for me. Thanks everybody.

Chris Huskilson

Thanks, Ben.

Operator

Your next question comes from the line of Matthew Akman with Scotia Bank. Your line is open.

Matthew Akman – Scotia Bank

Thank you, good morning.

Chris Huskilson

Good morning.

Matthew Akman – Scotia Bank

Good morning, guys. On Nova Scotia Power I’m just wondering if you were aware of the impact I guess of the Nova Scotia Legislation on energy efficiency when you decided to not file a rates case for 2015.

Bob Hanf

Matthew, Bob here. And if my memory serves me correct, we made that call before that legislation went into it.

Matthew Akman – Scotia Bank

Do you think that might have changed your decision?

Bob Hanf

I do not think it would, no.

Matthew Akman – Scotia Bank

Okay. I guess a bigger picture question around the discussion that’s been ongoing on this call is, with the Northeast renewable standards and greenhouse gas regulations and meeting those. There are two broad options I feel like, one is to build more pipeline capacity and generate more electricity with gas and the others to build more transmission in the region for primarily renewable. And I’m just wondering, maybe Chris – how do you see a mirror positioning for either of those, which would you prefer, the company – which option does your strategy better align with, I guess, or do you feel that you’re indifferent to which direction the scales tip there?

Chris Huskilson

So Matthew, I think that is a very good question, and one that the region will sort through over the next number of years, probably over the next decade I suspect. But I mean, that’s one of the main reasons why we’re investing in a portfolio of generation in that region and that we are continuing to concentrate our activities relative to gas and electricity there, and we’re very well positioned for either outcome. We think that that outcome will be a combination of the two, as and there will be need for more gas and we’re starting to see that in the capacity markets as they begin to unfold, and that new entrance are looking like they are going to be called at some point. But as well, at some point the amount of gas in the market is going to dictate that they will have to be zero emissions contributions as well. And wind has certainly been the contribution of choice recently but most of the wind is very remote and so the transmission is required in order to make that work. And as well, I think there is going to be some requirement for the ISO to continue to look at wind differently, and the system need to be planned somewhat differently which is really what’s generating the opportunity around the AC investments we’re talking about. So I just think that as a company we’re well positioned for either path, we will continue to participate on both sides. As it relates to gas directly, we have a need for gas in the Maritime as well, and we’re working – if you think about the big strategies we’re working on right now, the first is clean energy directly, so whether that’s hydro or wind or a combination and transmission route that relates to that. The second is about gas, and for us gas to the Maritime’s will also mean more gas capacity in the Northern part of New England and so that’s an area where we believe we can participate because of our domestic needs. And then lastly, the gas and alternative energies into the Caribbean, those are the three bigger issues that we’re working on right now, we feel that we’re well positioned in each one of those categories, and we’re able to go either direction and I really do think that it’s about pace and timing that all the options will have to be on the table in the long-term.

Matthew Akman – Scotia Bank

Okay, great. Thanks very much for those comments.

Chris Huskilson

Thank you, Matthew.

Operator

(Operator Instructions) Your next question comes from the line of Robert Kwan with RBC Capital Markets. Your line is open.

Robert Kwan – RBC Capital Markets

I wanted to just come back to the Central Maine MOU and Northeast Energy Link, if I’m understanding correctly, is the MOU mostly both sorting or kind of reinforcing and extending the grid in Maine or it’s just some crossover with that MOU that would potentially give you another project against Northeast Energy Link?

Chris Huskilson

Well, I think it is primarily focused on Maine but if I just ask Gerry to comment a little bit further.

Gerry Chasse

Robert, the Northern part of the State where a lot of the wind wants to be sighted is really generation rich and our load – and there is not much load there, and it really needs to be collected through an AC system and parts of it can be delivered to the existing AC system but as it gets collected and the demand gets higher and higher, it really enables the project like any else to carry a larger quantity of that wind from point A in Maine to point B in the low sides in Massachusetts. So they do kind of fit together, one of them I think needs to occur really before the other one, before the second one, the NEL could actually happen. So they put together pretty tightly in there, it’s kind of a natural sequence of projects.

Robert Kwan – RBC Capital Markets

Okay, that’s great. And then just on Northeast Energy Link itself, it sounds like it’s really demand pull, that might be slowing down the process, is that fair and as well how much did the first wind uncertainty impact the progress on NEL?

Chris Huskilson

So maybe I can start with the demand piece of it. I wouldn’t say it’s driven by the lack of demand because the demand is certainly there, it’s driven by the timing that will take the – sort of the collective New England States to figure out how to best make it work, how to most efficiently make it work. So just as an example, the RPS standards for the collectively for the New England States over the last five year have increased more 3,000 to 9,000 megawatts over the last five years. The supply in New England has only increased by 500 megawatts, from 7,500 to about 8,000 megawatts. So those curves [ph] have crossed and the demand slope continues at a pretty slope, so it’s really not driven by the demand, I’d say the greenhouse gas requirements that are on a – around a similar slope in Massachusetts, it’s really about the timing that it will take the States to figure out how to do it.

Scott Balfour

And I think Robert the other piece to recognize is that these are 1,200 megawatt step changes, and so they are big decisions and I think the states are taking their time to figure out exactly how they want to do it is very appropriate. We believe that we’re well positioned to be helpful and that’s really what we want to do, but as Gerry said, in the meantime, there is still lots of wind to be collected, and in fact, what we’re seeing right now is, wind producers are having to make their own investments and decisions around transmission which we would see as suboptimal. We think the two utilities working together in that marketplace will be able to provide much better solutions for the customer base.

Robert Kwan – RBC Capital Markets

Okay. And I just guess a follow-up on that, you’ve done kind of a good job now with the MOU in bolting to NEL and then putting together a lot of generation to back the line, you were talking about more wind, do you see additional pieces as you look forward that you need to add or not necessarily need to add but that you could add to really kind of bring any elder fruition?

Chris Huskilson

Our work is to pull together a portfolio of clean energy that will create critical assets to move this kind of a project forward, and so that’s really the challenge. What’s going on with AC though is that in fact, there are contracts that have already been signed by wind producers to both, Massachusetts and Connecticut that essentially can’t get the market. There is too much congestion in that today for many of these new projects to go forward, and so we would say that AC upgrade is going to be required even just to fulfill contracts at most of the time [ph].

Robert Kwan – RBC Capital Markets

Okay, that’s great. And just my last question, turning to NSPI, and I recognize it’s a small part or the disallowance is pretty small to begin with and then the hedging sounds like it’s only one piece, but if you combine that with historical, I feel kind of ruling so split that way. As you look forward do you think that there might be a need for dynamic kind of approval process as it relates to feel hedging?

Bob Hanf

So Robert, Bob here. I just point to restate that the review is over, the audit for the FAM was over a two year period, and the findings are actually very positive and very supportive and I think reflective of some very positive work on the price of the utility, and certainly being viewed that way by Liberty as well. So we’re quite confident that we have owned a good working relationship and we’re doing what we need to do in the best interest of our customers, so we feel very confident there. So I would say that to look at the audit that the FAM is actually working from that perspective, but we’re going to continue to find ways to work better and to make sure that we’re doing everything we can on the fronts of affordability for our customers, and that’s our focus.

Robert Kwan – RBC Capital Markets

But to the extent if there was any disallowance, and obviously, you disagree with that. Do you think if that can be cured by somehow having everything fully approved in advance?

Bob Hanf

Robert I think that the recommendations that we have implemented have provided opportunity such that the cost are being fully collected and approved, so that is working. I think there is an opportunity for some of the recommendations that are being made that we frankly agree with and we’ll continue to do that and the result is that the fuel expenditure is being approved. So I think obviously that’s the goal, a 100%, and as I say, we’re quite confident that we will recover those cost, that we’re prudent and you’d be hearing us on the October 27, so we look forward to presenting our position.

Robert Kwan – RBC Capital Markets

Okay, that’s great. Thank you very much.

Bob Hanf

Thank you.

Chris Huskilson

Thank you.

Operator

Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is open.

Andrew Kuske – Credit Suisse

Thank you, good morning. I guess my question is Scott, and it just relates to the language in the MD&A where you said pretty clearly that I believe is along the lines of, there is no equity injections into the Nova Power related transmission projects for ‘14, the remainder of ‘14. But if you add a little bit of view into 2015. And then also along that line where you anticipate those cash flows coming on, just operating cash flows the crack [ph] are showing, something along that lines.

Scott Balfour

So you may have to help me a little bit with the second question but let me start with the first one Andrew and then we’ll come back to it. So, we don’t expect any further equity injections by us into Labrador Island Link in 2014, nor for that matter we expect in Maritime Link either, in both projects in the sense we’re at the same stage now with the federally guaranteed project debt financing in place. We’re able to draw down on that debt in order to catch the debt equity balance up to the levels that have been approved which really allows us to spend 100% debt dollars until we get that ratio in place which in a case of Maritime Link is 70:30 and in case of Labrador Island Link is 75:25. I don’t have a perfect window yet as to when in 2015 we’ll look to see the first equity contribution, I don’t believe it will be in the first quarter, our side it’s hard to say at this point it really depends upon sort of the timing spend as the Nova Power proceeds with infrastructure cost and cost profile and the like but would expect to see some additional injections made in 2015 but certainly not in the first quarter. And I’m sorry, I wasn’t clear in your second question, where are our operating cash flow is coming from?

Andrew Kuske – Credit Suisse

Sure, so if you think about from Emera whole curve standpoint, the cash flows that it could be injecting into the Maritime Link and to the little projects, where Matthew [ph] was coming from, is it really taking cash from NSPI or other operating subs, flow and [indiscernible] and then down in Board in terms of topping the market from a plus standpoint or enhancing your [indiscernible] as a matter of fact?

Scott Balfour

I’d say for us it’s continuing to do what we’ve been doing, which is continuing to grow cash flow and obviously that starts with earnings growth, so we’ve seen strong earnings contributions over the tail end of 2014 – sorry, tail end of 2013 and certainly thus far in 2014, that’s obviously also driving strong performance on cash, and internally we of course work to ensure that there is appropriate efficiencies as it relates to the utilization of that cash that’s generated within each of our affiliates and appropriately dividend or distributed up to the parent company, so that’s just an ongoing process for us and something that happens as an ordinary course basis. So that strengthened ongoing cash flow that’s being driven both by a discipline on cash and by growing earnings that’s providing the first and primary contributor to our capital injections, that our equity injections into those projects. And then we continue to finance any balance of our requirements and our capital program is, you’ve heard me say before around – continuing to keep an eye on our balance sheet and balance some of our component parts of capital between common equity, preferred equity and debt, to ensure that we maintain a good balance in that capital structure which remains today in target of range of 35% common, 10% preferred share, and the balance with debt. So we continue to do that but to answer your point, largely right now a lot of it is coming from strength of operating cash flows.

Andrew Kuske – Credit Suisse

Okay, that’s pretty helpful. And then, just if I may, a bit of a broader question, what do you think about the balancing act between the capitals coming out from power business related to the New England assets that you acquired are hedged at this point in time are really very few contracts on them versus the core utility business. How do you think about that balancing act between the cash flows and those two businesses, in particular, what happened in Q1 obviously, going to raise capitals coming off those power assets, and just letting up for pretty good second half. So we think about the functionality of cash flows from those very different business streams. How should we think about that today versus when the transmission projects are online several years from now, just on a percentage basis?

Bob Hanf

I mean, particularly there won’t be a whole bunch of difference relation to the cash throw off from our businesses as there will be from our earnings, certainly in some cases there is more of a lag or two in cash coming to the hold curve when you start to get into the Caribbean, for example, cash there comes to Emera Incs, more fully, certainly in Nova Scotia there is a well-established process where earnings are appropriately distributed, similar to how Emera Inc. has to distribute its earnings to its shareholders. So I think the best proxy for you to look at Andrew really is just sort of the earnings contribution today, I don’t know if Scotia Power is about 44% of Emera Incs earnings contributions and the cash would not be all that dissimilar from that.

Chris Huskilson

And I think Andrew, its Chris, the other thing I would say is that we continue to be focused on maintaining the balance we have today. We do think that it’s critical that we have a substantive amount of contracted and regulated cash flows, and that’s really our continued focus. So you will see us working towards that on an ongoing basis.

Andrew Kuske – Credit Suisse

Okay, that’s very helpful. Thank you.

Chris Huskilson

Thanks.

Operator

There are no further questions at this time. I turn the call back to the presenters.

Chris Huskilson

Okay, thank you very much everyone for taking the time today for your participation in this call and for your interest in Emera. And I hope enjoy through the rest of their summer. So, thanks a lot.

Operator

This concludes today’s conference call. You may now disconnect.

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