Emera Inc.


Emera Inc.

Tampa Electric Agreement Includes Solar Investment, Accelerating Growth

Our Conclusion

A settlement agreement filed by Tampa Electric includes 600 MW of solar projects that represent incremental rate base growth, beyond the company’s existing capital plan. This ability to deploy capital in the greening of its portfolio is a key driver of our growth thesis,
though we note this carries some additional financing risk. We increase our DCF-based price target to $56 (prior $54) and maintain our Outperformer rating.

What’s The Event?

Tampa Electric announced an agreement with customers to invest US$850 million to install 600 MW of utility-scale photovoltaic solar, in four phases through 2021, pending approval of the Florida PSC. The agreement includes a strict US$1,500/kWh cost cap, with cost savings
below cap to be shared 75% to customers and 25% to the company. Other agreement provisions are in line with expectations, including storm cost recovery provisions and an ROE range of 9.25% to 11.25% (10.25% mid-point), with some protection against higher rates.
Tampa Electric agreed not to raise its base rates for the four year term of the settlement agreement base rate plan (2017-2021).

The 600 MW will be commissioned in four phases, with the first comprising two projects totalling almost 150 MW scheduled to be complete in September, 2018. A second phase of four projects and 250 MW is scheduled for Jan 1, 2019. The remaining phases are
scheduled to be complete by Jan 1, 2020 and Jan 1, 2021. Once complete, solar would represent almost 7% of Tampa Electric’s energy generation (it currently has ~27 MW of solar capacity).

Given the phased timing, we expect the company will finance a portion of its equity commitment through cash generation and its revolver; however we see that a potential ‘top-up’ financing may be required through 2018 to achieve its 35% equity capitalization target. The company currently trades at a 4.4% dividend yield vs. peers at 3.6%. Based on its history, a dividend increase could be announced in October which could be a further catalyst for its shares.