Executive Summary / Key Takeaways

• Emera Incorporated (ERRAF) is strategically repositioning for sustained growth and enhanced shareholder value, driven by disciplined capital allocation and significant investments in high-growth regulated utility markets, particularly Florida.
• The company's robust Q1 2025 performance, with adjusted EPS up 68% year-over-year, reflects the successful execution of 2024 strategic actions, including asset sales and balance sheet strengthening.
• Emera is leveraging technological advancements in solar, battery storage, and grid hardening to enhance reliability, reduce costs, and integrate cleaner energy, thereby strengthening its competitive moat and regulatory relationships.
• A substantial $20 billion five-year capital plan, with a forecasted 7% to 8% rate base growth, underpins future earnings, focused on customer-centric investments in reliability, resiliency, and renewable integration.
• Despite an uncertain macroeconomic environment, Emera is confident in achieving its 5% to 7% average adjusted EPS growth guidance through 2027, with 2025 expected to exceed this range, supported by favorable tailwinds and improving credit metrics.

A Foundation for Growth: Emera's Strategic Evolution in a Transforming Energy Sector

Emera Incorporated, a diversified energy and services company headquartered in Halifax, Canada, has established itself as a significant player in the generation, transmission, and distribution of electricity and natural gas across the United States, Canada, Barbados, and the Bahamas. Founded in 1998, Emera's journey has been marked by strategic expansion and a commitment to safely delivering cleaner, affordable, and reliable energy. This overarching strategy is particularly evident in its high-growth Florida operations, Tampa Electric and Peoples Gas, which serve as critical engines for the company's future. The energy sector is currently undergoing a profound transformation, characterized by accelerating demand, an evolving grid, decarbonization imperatives, electrification trends, and an increasing need for resilience against severe weather events. These dynamics necessitate unprecedented capital investment, a challenge Emera is actively addressing through its strategic initiatives and technological advancements.

Emera's competitive landscape includes major North American utilities such as Duke Energy (DUK), NextEra Energy (NEE), and infrastructure players like MYR Group (MYRG). Emera distinguishes itself through its diversified geographic footprint and integrated energy services, offering a comprehensive service package that can lead to enhanced customer loyalty and stable revenue streams across multiple regions. For instance, its gas utility operations provide unique distribution channels, potentially yielding superior margins by reducing reliance on external suppliers. While direct quantitative market share figures for all niche competitors are not publicly detailed, Emera's strong performance in its core regulated markets suggests a leading role in certain regions.

However, Emera faces competition from companies like NextEra Energy, which is recognized for its leadership in renewable energy generation and AI-driven grid technology. NextEra's focus on scaling renewable infrastructure and leveraging data for efficiency suggests a faster adaptation to emerging energy demands, such as those from data centers. Duke Energy, another significant competitor, demonstrates robust growth in its electric utilities, emphasizing grid modernization and storm resilience, areas where Emera is competitive but may need to accelerate its specialized execution. Emera's strategic response involves a disciplined capital allocation focused on high-value investments that enhance its technological capabilities and operational efficiency, thereby strengthening its competitive positioning.

Technological Edge and Operational Excellence

Emera's strategic investments in technology are foundational to its competitive advantage and its ability to meet evolving energy demands. The company's commitment to innovation is evident across its portfolio:

• Solar Deployment: At Tampa Electric, Emera has significantly expanded its solar fleet, reaching over 1,300 megawatts of capacity in 2024, representing 19% of its generated capacity. In 2024, 10% of Tampa Electric's energy came from solar, saving customers over $320 million in avoided fuel costs since 2017. This quantifiable benefit underscores the economic and environmental advantages of its solar strategy.
• Battery Energy Storage Systems: Nova Scotia Power received regulatory approval in June 2024 for a 150-megawatt battery energy storage system project, comprising 350-megawatt, four-hour grid-scale battery facilities with a total cost of $237.7 million. This project, supported by federal government programs and the Canada Infrastructure Bank, enables equity investment from Nova Scotia's Mi'kmaq communities and aims to lower customer costs. These systems are slated for service in late 2025 and early 2026, providing critical grid stability and facilitating the integration of intermittent renewable energy sources.
• Hydro Life Extension: The Wreck Cove hydro facility in Nova Scotia, with two 106-megawatt units, is undergoing a $102 million major life extension program. Unit one is expected to conclude in early September 2024. This investment will extend the asset's life by an additional 50 years and allow the units to operate more efficiently over a wider range, down to 30 megawatts from a previous 50-megawatt floor. This increased flexibility is crucial for integrating variable generation sources like wind and solar.
• Advanced Gas Turbine Upgrades: Tampa Electric's Bayside plant saw an $87 million investment in advanced gas path combustion turbine upgrades, resulting in 157 megawatts of new capacity and a 3.7% improvement in the station's overall operating efficiency. This enhances generation capacity while reducing emissions and lowering the cost per megawatt.
• Grid Hardening and Resilience: Investments in storm protection plans have proven invaluable. Tampa Electric's distribution grid is 52% underground, and Peoples Gas's system demonstrated remarkable resilience during the active 2024 hurricane season, experiencing virtually no damage. These efforts enhance reliability, reduce restoration times, and mitigate damage from severe weather, directly benefiting customers and operational continuity.

These technological advancements and operational improvements are not merely incremental; they are strategic differentiators. They enhance Emera's competitive moat by improving grid reliability, reducing operating costs, integrating cleaner energy sources, and bolstering customer affordability. This, in turn, strengthens regulatory relationships, supports rate base growth, and ensures long-term, predictable earnings and cash flow, which are vital for a regulated utility. The focus on cost-effective, resilient, and cleaner energy positions Emera favorably in a rapidly evolving industry.

Financial Performance and Strategic Repositioning

Emera's financial performance in recent periods reflects the impact of its strategic repositioning and robust operational execution. The company reported its strongest first quarter performance in history in Q1 2025, with adjusted earnings per share of $1.28, representing a significant 68% increase over Q1 2024. This was largely driven by new rates benefiting Tampa Electric and New Mexico Gas, favorable colder weather for Nova Scotia Power, and a record quarter for Emera Energy due to higher pricing and market volatility. Operating cash flow in Q1 2025 saw a meaningful 37% increase when normalized for fuel and storm deferrals.

For the full year 2024, Emera reported annual adjusted earnings per share of $2.94, aligning closely with the $2.96 reported in 2023 and meeting its benchmark guidance. The fourth quarter of 2024 alone saw a 33% increase in quarterly adjusted EPS, propelled by higher contributions from regulated utilities and lower corporate costs. Regulated utilities' adjusted earnings contributions increased over 24% quarter-over-quarter and 6% year-over-year in 2024, despite the impact of lost earnings from the Labrador Island Link sale.

Profitability metrics for Emera remain solid, with a TTM Gross Profit Margin of 44.50%, Operating Profit Margin of 20.35%, Net Profit Margin of 11.54%, and an EBITDA Margin of 37.51%. While the TTM Free Cash Flow was -$505 million, this is characteristic of a utility company in a heavy capital investment phase, focused on growth and modernization.

A key aspect of Emera's 2024 strategy was strengthening its balance sheet and credit metrics. The company successfully improved its credit metrics by over 100 basis points in 2024. The holding company debt to total debt metric improved to 35%, and on a pro forma basis for the New Mexico Gas sale, it stands at 33%. The cash from operations (CFO) to debt metric improved by over 200 basis points since Q1 2024, with the company targeting 12%. S&P returned Emera's outlook to stable in Q1 2025, acknowledging successful deleveraging efforts and confidence in 2025 cash flow growth. Management is confident that Moody's and Fitch will follow suit in 2025. These improvements are critical for reducing the cost of capital and supporting future investments.

Strategic Initiatives and Forward Outlook

Emera's strategic initiatives are designed to capitalize on the evolving energy landscape and drive sustained growth. The company is executing a substantial $20 billion five-year capital plan, with a forecasted 7% to 8% rate base growth. For 2025, the capital plan is $3.4 billion, with over $700 million already deployed in Q1. These investments are primarily focused on enhancing reliability, resiliency, renewable integration, and gas infrastructure expansion, particularly in Florida, where strong population and economic growth continue to drive significant demand. Customer growth at Tampa Electric and Peoples Gas is robust, at over 1.5% and 3.5% respectively.

Key strategic initiatives include:

• Florida Growth: Tampa Electric has contracted for two gas turbines for delivery in 2028 to ensure resource adequacy, driven by organic load growth and economic development. Peoples Gas plans to invest nearly $800 million in capital over the next two years and intends to file for $90 million to $110 million in new rates effective January 1, 2026.
• New Mexico Gas Sale: The sale of New Mexico Gas to Bernhard Capital Partners, announced in August 2024, is progressing, with a regulatory hearing scheduled for June 23, 2025, and an expected closing in Q4 2025. This divestiture is part of Emera's portfolio optimization, further reducing holding company debt by approximately $1 billion and improving credit metrics.
• Nova Scotia Power Stability: The company is working constructively with stakeholders in Nova Scotia to secure financial stability for Nova Scotia Power, including the potential securitization of additional deferred fuel costs related to delayed energy deliveries from Muskrat Falls. This initiative aims to provide customer relief and stabilize the utility's credit rating.
• Data Center Opportunities: Emera is exploring opportunities to support data center development in its jurisdictions, particularly in Florida. While not included in the current $20 billion five-year capital plan, any such opportunities would represent upside to the plan, leveraging Florida's attractive business environment, low rates, and strong reliability.

Emera's management is confident in its ability to deliver "well above our 5% to 7% earnings growth per share range in 2025," maintaining an average 5% to 7% adjusted EPS growth through 2027. This front-loaded growth is supported by favorable tailwinds, including the strengthening U.S. dollar, which is expected to have a $0.01 impact on adjusted EPS for every penny change in the Canada-U.S. dollar foreign exchange rate. Emera Energy's 2025 earnings guidance has been adjusted upward to a range of USD 35 million to USD 45 million, reflecting strong Q1 performance. The company also expects its U.S. listing in New York in the spring of 2025.

Risks and Mitigation

Despite a compelling growth narrative, Emera faces several pertinent risks. Regulatory approvals, particularly for the New Mexico Gas sale and ongoing rate cases, are critical. While the company has a track record of constructive outcomes, delays or unfavorable decisions could impact financial performance. Weather-related events, such as the record-breaking Hurricanes Helene and Milton in Florida, pose significant operational and financial challenges, incurring substantial restoration costs. However, Emera's investments in storm protection plans and its proven ability to recover prudently incurred costs through regulatory mechanisms mitigate these impacts.

The macroeconomic backdrop, including interest rate uncertainty and potential tariff impacts, could affect capital deployment and customer affordability. Emera is actively mitigating these risks by reprofiling capital spend to maintain rate base growth without negatively impacting affordability and by securing domestic supply for key components like solar panels, contractually mitigating tariff risks through 2029. Furthermore, while the company has limited direct exposure to Chinese tariffs, it remains vigilant about supply chain constraints. The enforceability of civil liabilities under U.S. federal securities laws may be affected by Emera's Nova Scotia incorporation and the non-U.S. residency of some officers and directors, a standard disclosure for foreign private issuers.

Conclusion

Emera Incorporated is executing a clear and compelling strategy to drive long-term value for its shareholders. By focusing on its high-growth regulated utility assets, particularly in Florida, and making disciplined, customer-centric capital investments, the company is well-positioned to capitalize on the transformative trends in the energy sector. Its commitment to technological innovation in solar, battery storage, and grid resilience not only enhances operational efficiency and reliability but also strengthens its competitive standing against industry peers.

The company's robust financial performance in Q1 2025, coupled with a strong outlook for adjusted EPS growth and improving credit metrics, underscores the effectiveness of its strategic repositioning. While regulatory and weather-related risks persist, Emera's proactive mitigation strategies and established regulatory frameworks provide a degree of stability. For discerning investors, Emera presents an opportunity to participate in the growth of a diversified utility with a strong asset base, a clear strategic roadmap, and a commitment to delivering dependable and growing dividends, underpinned by its ongoing technological leadership and operational excellence.