Morningstar | Emera's Transition Continues with Announced Sale of Maine Assets
Lured by higher allowed returns and greater growth opportunities, Emera has made the transition from a predominantly Canadian utility to one where a majority of earnings come from U.S. subsidiaries.While Emera's Canadian utilities earn around 9% allowed returns, they typically enjoy lower costs of capital than U.S. counterparts. Forward test years and fuel-adjustment mechanisms keep regulation constructive and allowed returns attainable.Strong results from Emera's unregulated operations resulted in regulated operations accounting for just 65% of earnings in 2015. This led management to look to the U.S. to boost its share of earnings from regulated businesses. The Teco acquisition brought above-average load growth, supportive regulation, and natural gas infrastructure investment opportunities to Emera. Management is in the process of fully divesting its unregulated generation portfolio.Growth prospects are strong for Emera, particularly at its regulated Florida subsidiary. Similar to its regulated peers in Florida, Teco Energy is investing roughly $850 million for 600 megawatts in solar development in the region, with regulators providing automatic solar base rate adjustments upon completion with a 10.25% allowed return on equity. Beyond 2020, management is looking for an additional 600 MW of solar investment, confirming our view that there is a very long runway of solar generation opportunities in the state. The Florida utility also recently announced plans to invest $850 million in the modernization of the Big Bend Power Station.Management is amid selling assets to fund 20%-30% of the CAD 6 billion we forecast Emera to need over the next three years. Management is selling its Northeast generation portfolio and recently entered into a transaction to sell its Maine subsidiary to Enmax. These sales will bring in roughly CAD 2.1 billion. We don't forecast any additional asset sales. Overall, we think this realignment of Emera's business to focus on its high-growth regulated operations is in shareholders' best interests.Emera is an energy and services company which invests in electricity generation, transmission and distribution, gas transmission and utility energy services. Co. had six segments: Nova Scotia Power Inc., an electric utility and electricity supplier in Nova Scotia; Emera Maine, which provides electric transmission and distribution services in the U.S.; Emera Caribbean, which includes Emera (Caribbean) Incorporated and its subidiaries; Pipelines, which includes Emera Brunswick Pipeline Company Ltd. and an equity investment in Maritimes & Northeast Pipeline; Emera Energy, which includes Emera Energy Services that provides energy management services; and Corporate and Other.
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