Management's Discussion & Analysis – Form 6-K

Management's Discussion & Analysis

As at February 23, 2023

Management's Discussion & Analysis ("MD&A") provides a review of the results of operations of Emera Incorporated and its subsidiaries and investments during the fourth quarter of 2022 relative to the same quarter in 2021; for the full year of 2022 relative to 2021 and selected financial information for 2020; and its financial position as at December 31, 2022 relative to December 31, 2021. Throughout this discussion, "Emera" and "Company" refer to Emera Incorporated and all of its consolidated subsidiaries and investments. The Company's activities are carried out through five reportable segments: Florida Electric Utility, Canadian Electric Utilities, Gas Utilities and Infrastructure, Other Electric Utilities, and Other.

This discussion and analysis should be read in conjunction with the Emera annual audited consolidated financial statements and supporting notes as at and for the year ended December 31, 2022. Emera follows United States Generally Accepted Accounting Principles ("USGAAP" or "GAAP").

The accounting policies used by Emera's rate-regulated entities may differ from those used by Emera's non-rate-regulated businesses with respect to the timing of recognition of certain assets, liabilities, revenues and expenses. At December 31, 2022, Emera's rate-regulated subsidiaries and investments include:

(1) Effective January 1, 2023, Peoples Gas System ceased to be a division of TEC and the gas utility was reorganized, resulting in a separate legal entity called Peoples Gas System, Inc., a wholly owned direct subsidiary of TECO Gas Operations, Inc.

All amounts are in Canadian dollars ("CAD"), except for the Florida Electric Utility, Gas Utilities and Infrastructure, and Other Electric Utilities sections of the MD&A, which are reported in United States dollar ("USD") unless otherwise stated.

Additional information related to Emera, including the Company's Annual Information Form, can be found on SEDAR at www.sedar.com.

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TABLE OF CONTENTS

FORWARD-LOOKING INFORMATION

This MD&A contains "forward-looking information" and statements which reflect the current view with respect to the Company's expectations regarding future growth, results of operations, performance, carbon dioxide emissions reduction goals, business prospects and opportunities, and may not be appropriate for other purposes within the meaning of applicable Canadian securities laws. All such information and statements are made pursuant to safe harbour provisions contained in applicable securities legislation. The words "anticipates", "believes", "budget", "could", "estimates", "expects", "forecast", "intends", "may", "might", "plans", "projects", "schedule", "should", "targets", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects management's current beliefs and is based on information currently available to Emera's management and should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the time at which, such events, performance or results will be achieved.

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The forward-looking information is based on reasonable assumptions and is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Factors that could cause results or events to differ from current expectations include, without limitation: regulatory and political risk; operating and maintenance risks; changes in economic conditions; commodity price and availability risk; liquidity and capital market risk; future dividend growth; timing and costs associated with certain capital investments; expected impacts on Emera of challenges in the global economy; estimated energy consumption rates; maintenance of adequate insurance coverage; changes in customer energy usage patterns; developments in technology that could reduce demand for electricity; global climate change; weather; unanticipated maintenance and other expenditures; system operating and maintenance risk; derivative financial instruments and hedging; interest rate risk; inflation risk; counterparty risk; disruption of fuel supply; country risks; environmental risks; foreign exchange ("FX"); regulatory and government decisions, including changes to environmental, financial reporting and tax legislation; risks associated with pension plan performance and funding requirements; loss of service area; risk of failure of information technology ("IT") infrastructure and cybersecurity risks; uncertainties associated with infectious diseases, pandemics and similar public health threats, such as the COVID-19 novel coronavirus ("COVID-19") pandemic; market energy sales prices; labour relations; and availability of labour and management resources.

Readers are cautioned not to place undue reliance on forward-looking information, as actual results could differ materially from the plans, expectations, estimates or intentions and statements expressed in the forward-looking information. All forward-looking information in this MD&A is qualified in its entirety by the above cautionary statements and, except as required by law, Emera undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise.

INTRODUCTION AND STRATEGIC OVERVIEW

Based in Halifax, Nova Scotia, Emera owns and operates cost-of-service rate-regulated electric and gas utilities in Canada, the United States and the Caribbean. Cost-of-service utilities provide essential electric and gas services in designated territories under franchises and are overseen by regulatory authorities. Emera's strategic focus continues to be safely delivering cleaner, affordable and reliable energy to its customers.

The majority of Emera's investment in rate-regulated businesses are located in Florida with other investments in Nova Scotia, New Mexico and the Caribbean. Emera's portfolio of regulated utilities provides reliable earnings, cash flow and dividends. Earnings opportunities in regulated utilities are generally driven by the magnitude of net investment in the utility (known as "rate base"), and the amount of equity in the capital structure and the retuon that equity ("ROE") as approved through regulation. Earnings are also affected by sales volumes and operating expenses.

Emera's capital investment plan is $8 - 9 billion over the 2023-to-2025 period (including a $240 million equity investment in the LIL in 2023), mainly focused in Florida. This results in a forecasted rate base growth of approximately 7 per cent to 8 per cent through 2025. The capital investment plan continues to include significant investments across the portfolio in renewable and cleaner generation, reliability and integrity investments, infrastructure modernization, and customer-focused technologies. Emera's capital investment plan is being funded primarily through internally generated cash flows and debt raised at the operating company level. Equity requirements in support of the Company's capital investment plan are expected to be funded through the issuance of preferred equity and the issuance of common equity through Emera's dividend reinvestment plan ("DRIP") and at-the-market program ("ATM program"). Maintaining investment-grade credit ratings is a priority of the Company.

Emera has provided annual dividend growth guidance of four to five per cent through 2025. The Company targets a long-term dividend payout ratio of adjusted net income of 70 to 75 per cent and, while the payout ratio is likely to exceed that target through and beyond the forecast period, it is expected to retuto that range over time. For further information on the non-GAAP measure "Dividend Payout Ratio of Adjusted Net Income", refer to the "Non-GAAP Financial Measures and Ratios" section.

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Seasonal patterns and other weather events affect demand and operating costs. Similarly, mark-to-market adjustments and foreign currency exchange can have a material impact on financial results for a specific period. Emera's consolidated net income and cash flows are impacted by movements in the USD relative to the Canadian dollar. Emera may hedge both transactional and translational exposure. These impacts, as well as the timing of capital investments and other factors, mean results in any one quarter are not necessarily indicative of results in any other quarter, or for the year as a whole.

Energy markets worldwide are facing significant change and Emera is well positioned to respond to shifting customer demands, digitization, decarbonization, complex regulatory environments, and decentralized generation.

Customers are looking for more choice, better control, and enhanced reliability in a time where costs of decentralized generation and storage have become more competitive in some regions. Advancing technologies are transforming the way utilities interact with their customers and generate and transmit energy. In addition, climate change and extreme weather are shaping how utilities operate and how they invest in infrastructure. There is also an overall need to replace aging infrastructure and further enhance reliability. Emera will play a role in all of these trends. Emera's strategy is to fund investments in renewable energy and technology assets which protect the environment and benefit customers through fuel or operating cost savings.

For example, significant investments to facilitate the use of renewable and low-carbon energy include the Maritime Link in Atlantic Canada, and the ongoing construction of solar generation and modernization of the Big Bend Power Station at Tampa Electric. Emera's utilities are also investing in reliability projects and replacing aging infrastructure. All of these projects demonstrate Emera's strategy of safely delivering cleaner, reliable, and affordable energy for its customers.

Building on its decarbonization progress, Emera is continuing its efforts by establishing clear carbon reduction goals and a vision to achieve net-zero carbon dioxide emissions by 2050.

This vision is inspired by Emera's strong track record, the Company's experienced team, and a clear path to Emera's interim carbon goals. With existing technologies and resources, and subject to supportive government and regulatory decisions, Emera is working to achieve the following goals compared to corresponding 2005 levels:

Achieving the above climate goals on these timelines is subject to the Company's regulatory obligations and other external factors beyond Emera's control.

Emera seeks to deliver on its Climate Commitment while maintaining its focus on investing in reliability and staying focused on the cost impacts for customers. Emera is also committed to identifying emerging technologies and continuing to work constructively with policymakers, regulators, partners, investors and customers to achieve these goals and realize its net-zero vision.

Emera is committed to world-class safety, operational excellence, good governance, excellent customer service, reliability, being an employer of choice, and building constructive relationships.

NON-GAAP FINANCIAL MEASURES AND RATIOS

Emera uses financial measures and ratios that do not have standardized meaning under USGAAP and may not be comparable to similar measures presented by other entities. Emera calculates the non-GAAP measures and ratios by adjusting certain GAAP measures for specific items. Management believes excluding these items better distinguishes the ongoing operations of the business and allows investors to better understand and evaluate the business. These measures and ratios are discussed and reconciled below.

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Adjusted Net Income Attributable to Common Shareholders, Adjusted Earnings (Loss) Per Common Share ("EPS") - Basic and Dividend Payout Ratio of Adjusted Net Income

Emera calculates an adjusted net income attributable to common shareholders ("adjusted net income") measure by excluding the effect of mark-to-market ("MTM") adjustments, impairment charges, the impact of the NSPML unrecoverable costs, and the 2020 gain on sale of Emera Maine.

Management believes excluding from net income the effect of these MTM valuations and changes thereto, until settlement, better aligns the intent and financial effect of these contracts with the underlying cash flows, and therefore excludes these MTM adjustments for evaluation of performance and incentive compensation. The MTM adjustments are related to the following:

For further detail on MTM adjustments, refer to the "Consolidated Financial Review", "Financial Highlights - Other Electric Utilities", and "Financial Highlights - Other" sections.

In Q4 2022, the Company recognized a $73 million non-cash goodwill impairment charge related to GBPC due to a decline in the fair value of the reporting unit. The fair value decline was driven by the effects of macro-economic factors on the discount rate calculation, including the risk-free rate assumption. Management believes excluding from net income the effect of this charge better distinguishes ongoing operations of the business and allows investors to better understand and evaluate the Company. For further details on this GBPC impairment charge, refer to "Significant Items Impacting Earnings", and "Financial Highlights - Other" sections.

In February 2022, the UARB issued a decision to disallow the recovery of $9 million in costs ($7 million after-tax) included in NSPML's final capital cost application. The after-tax unrecoverable costs were recognized in "Income from equity investments" in Emera's Consolidated Statements of Income. Management believes excluding these unrecoverable costs from the calculation of adjusted net income better reflects the underlying operations in the period. For further details on the NSPML unrecoverable costs, refer to the "Business Overview and Outlook - Canadian Electric Utilities" and "Financial Highlights - Canadian Electric Utilities" sections.

In 2020, the Company recognized a gain on the sale of Emera Maine and certain non-cash impairment charges. Management believes excluding these from net income better distinguishes ongoing operations of the business and allows investors to better understand and evaluate the business.

Adjusted EPS - basic and dividend payout ratio of adjusted net income are non-GAAP ratios which are calculated using adjusted net income, as described above. For further details on dividend payout ratio of adjusted net income, see the "Dividend Payout Ratio" section.

Emera calculates adjusted net income for the Canadian Electric Utilities, Other Electric Utilities, and Other segments. Reconciliation to the nearest GAAP measure is included in each segment. Refer to "Financial Highlights - Canadian Electric Utilities", "Financial Highlights - Other Electric Utilities" and "Financial Highlights - Other" sections.

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The following reconciles net income attributable to common shareholders to adjusted net income:

(1) Net of income tax expense of $124 million for the three months ended December 31, 2022 (2021 - $63 million expense) and $73 million expense for the year ended December 31, 2022 (2021 - $86 million recovery) (2020 - $8 million recovery).

(2) Net of income tax expense of nil for the three months and year ended December 31, 2022 (2021 - nil) (2020 - $1 million expense).

(3) Emera accounts for NSPML as an equity investment and therefore the after-tax unrecoverable costs were recorded in "Income from equity investments" on Emera's Consolidated Statements of Income.

(4) Net of income tax expense of $276 million for the year ended December 31, 2020.

EBITDA and Adjusted EBITDA

Earnings before interest, income taxes, depreciation and amortization ("EBITDA") and adjusted EBITDA are non-GAAP financial measures used by Emera. These financial measures are used by numerous investors and lenders to better understand cash flows and credit quality. EBITDA is useful to assess Emera's operating performance and indicates the Company's ability to service or incur debt, invest in capital, and finance working capital requirements.

Similar to adjusted net income calculations described above, adjusted EBITDA represents EBITDA absent the income effect of MTM adjustments, impairment charges, the NSPML unrecoverable costs, and the 2020 gain on sale of Emera Maine.

The following is a reconciliation of net income to EBITDA and Adjusted EBITDA:

(1) Net income is before Non-controlling interest in subsidiaries and Preferred stock dividends.

(2) Emera accounts for NSPML as an equity investment and therefore the after-tax unrecoverable costs were recorded in "Income from equity investments" on Emera's Consolidated Statements of Income.

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CONSOLIDATED FINANCIAL REVIEW

Significant Items Affecting Earnings

GBPC Impairment Charge

In Q4 2022, Emera recognized a goodwill impairment charge of $73 million ($0.27 per common share) for GBPC due to a decline in the fair value of the reporting unit. Although the cash flows of GBPC have not changed significantly compared to previous periods, the decline in the fair value was driven by the effects of macro-economic factors on discount rate calculations, including the risk-free rate assumption. This non-cash charge was recorded in "Impairment charge" on the Consolidated Statements of Income and reduced the GBPC goodwill balance to nil. For further details, refer to note 22 in the consolidated financial statements.

TECO Guatemala Holdings ("TGH") International Arbitration and Award

On December 15, 2022, a payment of $63 million ($45 million after tax and legal costs, or $0.17 per common share), was made by the Republic of Guatemala to TECO Energy in satisfaction of the second and final award issued by the International Centre of the Settlement of Investment Disputes tribunal regarding a dispute over an investment of TGH, a wholly owned subsidiary of TECO Energy. The dispute related to the 2007 intervention by the government of Guatemala in an ongoing independent rate-setting process to unilaterally set a new and lower tariff. The payment was recognized in "Other income, net" on the Consolidated Statements of Income. For further details, refer to note 27 in the consolidated financial statements.

Earnings Impact of MTM Gain (Loss), After-Tax

MTM gain, after-tax increased $151 million to $307 million in Q4 2022, compared to $156 million in Q4 2021, and for the year ended December 31, increased $388 million to $175 million compared to a MTM loss, after-tax of $213 million for the same period in 2021. These increases were due to changes in existing positions and reversal of losses in 2022, partially offset by higher amortization in 2022 of gas transportation assets at Emera Energy.

Consolidated Financial Highlights

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The following table highlights the significant changes in adjusted net income from 2021 to 2022:

For further details of reportable segments contributions, refer to the "Financial Highlights" section.

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Consolidated Income Statement Highlights

(1) Effective February 10, 2022, deferred share units are no longer able to be settled in shares and are therefore excluded from weighted average shares of common stock outstanding.

Operating Revenues

For Q4 2022, operating revenues increased $490 million compared to Q4 2021 and, absent increased MTM gains of $195 million, increased $295 million. For the year ended December 31, 2022, operating revenues increased $1,823 million compared to 2021 and, absent increased MTM gains of $555 million, increased by $1,268 million. The increases in both periods were due to: higher fuel revenues at NMGC, Tampa Electric PGS and BLPC; new rates effective January 2022 and customer growth at Tampa Electric; the impact of a weaker CAD; higher off-system sales and customer growth at PGS; and increased marketing and trading margin due to favourable market conditions at EES. Year-over-year also increased due to increased sales volumes at NSPI and favourable weather at Tampa Electric.

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Operating Expenses

For Q4 2022, operating expenses increased $286 million compared to Q4 2021 and, absent the GBPC impairment charge of $73 million, increased by $213 million. For the year ended December 31, 2022, operating expenses increased $1,124 million compared to 2021 and, absent the GBPC impairment charge of $73 million, increased by $1,051 million. The increases in both periods were due to: higher natural gas prices at NMGC and PGS; the impact of a weaker CAD; and increased OM&G at Tampa Electric, Corporate, NSPI, NMGC and PGS. Year-over-year also increased due to higher natural gas and fuel prices at Tampa Electric and BLPC.

Other Income, Net

Other income, net increased for Q4 2022 and the year ended December 31, 2022, compared to the same periods in 2021, primarily due to the TGH award in Q4 2022.

Net Income and Adjusted Net Income

Net income attributable to common shareholders for Q4 2022, as compared to Q4 2021, was favourably impacted by the $151 million increase in MTM gains, after-tax and unfavourably impacted by the $73 million GBPC impairment charge. Absent these changes, adjusted net income increased $81 million. The increase was primarily due to: the TGH award in Q4 2022; higher earnings contribution from Tampa Electric, Emera Energy and NMGC; and the impact of a weaker CAD. These were partially offset by lower earnings contribution from NSPI and increased corporate OM&G due to the timing of long-term compensation and related hedges, and higher corporate interest expense.

Net income attributable to common shareholders for the year ended 2022, as compared to the same period in 2021, was favourably impacted by the $388 million increase in MTM gains, after-tax and unfavourably impacted by the $73 million GBPC impairment charge as well as the $7 million in NSPML unrecoverable costs. Absent these changes, adjusted net income increased $127 million. The increase was primarily due to: higher earnings contributions from Tampa Electric, Emera Energy, PGS and Seacoast; the TGH award in Q4 2022; and the impact of a weaker CAD. These were partially offset by increased corporate OM&G due to the timing of long-term compensation and related hedges, higher corporate interest expense, realized gains on corporate FX hedges in 2021, increased preferred stock dividends and lower earnings contribution from NSPI.

EPS and Adjusted EPS - Basic

EPS and Adjusted EPS - basic were higher for Q4 2022, and for the year ended December 31, 2022, due to the impact of higher earnings as discussed above, partially offset by the impact of the increase in weighted average shares of common stock outstanding.

Effect of Foreign Currency Translation

Emera operates in Canada, the United States and various Caribbean countries and, as such, generates revenues and incurs expenses denominated in local currencies which are translated into CAD for financial reporting. Changes in translation rates, particularly in the value of the USD against the CAD, can positively or adversely affect results.

In general, Emera's earnings benefit from a weakening CAD and are adversely impacted by a strengthening CAD. The impact in any period is driven by rate changes, the timing and percentage of earnings from foreign operations, and the impact of FX hedges entered into to hedge USD denominated operating unit earnings exposure.

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Results of foreign operations are translated at the weighted average rate of exchange, and assets and liabilities of foreign operations are translated at period end rates. The relevant CAD/USD exchange rates for 2022 and 2021 are as follows:

The table below includes Emera's significant segments whose contributions to adjusted net income are recorded in USD currency.

The impact of the weakening CAD, partially offset by the unrealized losses on FX hedges increased net income by $42 million in Q4 2022 and $30 million for the year ended December 31, 2022, compared to the same periods in 2021. Weakening of the CAD increased adjusted net income by $14 million in Q4 2022 and $28 million for the year ended December 31, 2022, compared to the same periods in 2021. Impacts of the weakening CAD include the impacts of corporate FX hedges in the Other segment.

BUSINESS OVERVIEW AND OUTLOOK

Florida Electric Utility

Florida Electric Utility consists of Tampa Electric, a vertically integrated regulated electric utility engaged in the generation, transmission and distribution of electricity, serving customers in West Central Florida. Tampa Electric has $12.1 billion USD of assets and approximately 827,000 customers at December 31, 2022. Tampa Electric owns 6,549 megawatts ("MW") of generating capacity, of which 78 per cent is natural gas-fired, 15 per cent is solar and 7 per cent is coal. Tampa Electric owns 2,171 kilometres of transmission facilities and 19,916 kilometres of distribution facilities. Tampa Electric meets the planning criteria for reserve capacity established by the FPSC, which is a 20 per cent reserve margin over firm peak demand.

Tampa Electric's approved regulated ROE range is 9.25 per cent to 11.25 per cent, based on an allowed equity capital structure of 54 per cent. An ROE of 10.20 per cent will be used for the calculation of the retuon investments for clauses.

Tampa Electric anticipates earning within its ROE range in 2023. New base rates effective January 1, 2023, as a result of the 2021 settlement agreement, will result in higher 2023 USD earnings than in 2022. Normalizing 2022 for weather, Tampa Electric sales volumes in 2023 are projected to be higher than in 2022 due to customer growth. Tampa Electric expects customer growth rates in 2023 to be comparable to 2022, reflective of the current expected economic growth in Florida.

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On January 23, 2023, Tampa Electric requested an adjustment to its fuel charges to recover the 2022 fuel under-recovery of $518 million USD over a period of 21 months. The request also included an adjustment to 2023 projected fuel costs to reflect the reduction in natural gas prices since September 2022 for a projected reduction of $170 million USD for the balance of 2023. The proposed changes will be decided by the FPSC in March 2023, and recovery is expected to begin in April 2023.

On September 28, 2022, Hurricane Ian made landfall in Southwest Florida as a Category 4 hurricane and, as a result, approximately 291,000 customers lost power. The majority of Hurricane Ian restoration costs were charged against Tampa Electric's FPSC approved storm reserve, resulting in minimal impact to earnings for 2022. The total cost of restoration was $126 million USD, with approximately $119 million USD charged to the storm reserve. Total restoration costs charged to the storm reserve have exceeded the reserve balance and have been deferred as a regulatory asset for future recovery. On January 23, 2023, Tampa Electric petitioned the FPSC for recovery of the storm reserve regulatory asset and the replenishment of the balance in the reserve to the previous approved reserve level of $56 million USD, for a total of approximately $131 million USD. The proposed changes will be decided by the FPSC in March 2023, and recovery is expected to begin in April 2023 through March 2024.

The mid-course fuel adjustment requested by Tampa Electric on January 19, 2022, was approved on March 1, 2022. The rate increase, effective with the first billing cycle in April 2022, covered higher fuel and capacity costs of $169 million USD and was spread over customer bills from April 1, 2022 through December 2022.

In 2023, capital investment in the Florida Electric Utility segment is expected to be $1.3 billion USD (2022 - $1.1 billion USD), including allowance for funds used during construction ("AFUDC"). Capital projects include solar investments, grid modernization and storm hardening investments.

Canadian Electric Utilities

Canadian Electric Utilities includes NSPI and ENL. NSPI is a vertically integrated regulated electric utility engaged in the generation, transmission and distribution of electricity and the primary electricity supplier to customers in Nova Scotia. ENL is a holding company with equity investments in NSPML and LIL: two transmission investments related to the development of an 824 MW hydroelectric generating facility at Muskrat Falls on the Lower Churchill River in Labrador.

NSPI

With $6.8 billion of assets and approximately 541,000 customers, NSPI owns 2,420 MW of generating capacity, of which approximately 44 per cent is coal-fired; 28 per cent is natural gas and/or oil; 19 per cent is hydro and wind; 7 per cent is petcoke and 2 per cent is biomass-fueled generation. In addition, NSPI has contracts to purchase renewable energy from independent power producers ("IPPs"), which own 546 MW of capacity. NSPI also has rights to 153 MW of Maritime Link capacity, representing Nalcor Energy's ("Nalcor") Nova Scotia Block ("NS Block") delivery obligations, as discussed below. NSPI owns approximately 5,000 kilometres of transmission facilities and 28,000 kilometres of distribution facilities.

NSPI's approved regulated ROE range is 8.75 per cent to 9.25 per cent, based on an actual five-quarter average regulated common equity component of up to 40 per cent of approved rate base.

NSPI anticipates earning near the low end of its allowed ROE range in 2023, and below the allowed range in 2024. NSPI expects earnings and sales volumes to be higher in 2023 than 2022.

NSPI operated under a three-year fuel stability plan which resulted in an average annual overall rate increase of 1.5 per cent to recover fuel costs for the period of 2020 through 2022. These rates include recovery of Maritime Link costs (discussed below in the "ENL, NSPML" section).

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On November 9, 2022, the Nova Scotia provincial government enacted Bill 212, "Public Utilities Act (amended)". The legislation limits non-fuel rate increases in NSPI's 2022 General Rate Application ("GRA") to the UARB, excluding increases relating to demand side management ("DSM") costs, to a total of 1.8 per cent between the effective date of the UARB's decision and the end of 2024. The legislation also:

Actions required to address the impact of Bill 212, "Public Utilities Act (amended)", include a material reduction in NSPI's planned capital investments and operating costs over the 2023 through 2024 period. Such deferral of capital investment and operating costs may result in higher customer costs in future periods. The legislation will have a direct and negative impact on the financial performance of NSPI and has had a negative impact on NSPI's credit quality. For more information on this risk, refer to the "Risk Management and Financial Instruments - Regulatory and Political Risk" section.

On November 24, 2022, NSPI filed with the UARB a comprehensive settlement agreement between NSPI, key customer representatives and participating interest groups ("NSPI Settlement Agreement") in relation to its GRA filed in January 2022. The NSPI Settlement Agreement was structured to be consistent with the amendments to the Public Utilities Act made under Bill 212, which included a 1.8 per cent cap on non-fuel rate increases for 2023 and 2024. Bill 212, "Public Utilities Act (amended)," is described further above. The NSPI Settlement Agreement also addresses the recovery of fuel costs over the settlement period and establishes a DSM rider. This will result in a combined fuel and non-fuel rate increase of 6.9 per cent each year for 2023 and 2024 and annualized incremental revenue (fuel and non-fuel) of $105 million in 2023 and $115 million in 2024. In addition, any under or over recovery of fuel costs will be addressed through the UARB's established FAM process. NSPI's ROE range will continue to be 8.75 per cent to 9.25 per cent, based on an actual five-quarter average regulated common equity component of up to 40 per cent. The NSPI Settlement Agreement also establishes a storm rider for each of 2023, 2024 and 2025, which gives NSPI the option to apply to the UARB for recovery of costs if major storm restoration expense exceeds approximately $10 million in a given year. On February 2, 2023, NSPI received the UARB's decision, which substantially approved the NSPI Settlement Agreement as filed. Approved rate increases will be effective as of the date of the decision.

On September 24, 2022, Nova Scotia was struck by Hurricane Fiona, which made landfall as a post-tropical storm equivalent to a Category 2 hurricane. The storm had sustained winds of over 100 kilometres per hour and peak gusts of approximately 180 kilometres per hour. This historic storm for Nova Scotia caused significant and widespread damage to NSPI's transmission and distribution system and at the height of the storm approximately 415,000 customers lost power. The total cost of the restoration was approximately $115 million, of which $91 million was capitalized to Property, plant and equipment ("PP&E") and $24 million deferred to Other long-term assets for future amortization, subject to UARB approval. NSPI intends to submit an application to the UARB requesting to defer the recognition of incremental operating costs related to storm restoration. If the deferral is approved, this balance will be reclassified to "Regulatory assets" and amortized over the UARB approved recognition period.

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Energy from renewable sources has increased with Nalcor's NS Block delivery obligations from the Muskrat Falls hydroelectric project ("Muskrat Falls") commencing in 2021. Nalcor is obligated to provide NSPI with approximately 900 GWh of energy annually over 35 years. In addition, for the first five years of the NS Block, Nalcor is obligated to provide approximately 240 GWh of additional energy from the Supplemental Energy Block transmitted through the Maritime Link. Nalcor's final commissioning of the LIL has experienced delays and it's expected that final commissioning of the LIL will be completed in 2023. During these final stages of commissioning, there will be interruptions in supply, with any resultant delivery shortfalls being delivered on a timely basis in accordance with the Energy and Capacity Agreement. NSPI has the option of purchasing additional market-priced energy from Nalcor through the Energy Access Agreement. The Energy Access Agreement enables NSPI to access a market-priced bid from Nalcor for up to 1.8 Terawatt hours ("TWh") of energy in any given year and, on average, 1.2 TWh of energy per year through August 31, 2041.

Capital investment for 2023, including AFUDC, is expected to be approximately $375 million (2022 - $540 million). NSPI is primarily investing in capital projects required to support power system reliability and reliable service for customers.

Environmental Legislation and Regulations

NSPI is subject to environmental laws and regulations set by both the Government of Canada and the Province of Nova Scotia. NSPI continues to work with both levels of government to comply with these laws and regulations to maximize efficiency of emission control measures and minimize customer cost. NSPI anticipates that costs prudently incurred to achieve legislated compliance will be recoverable under NSPI's regulatory framework. NSPI faces risks associated with achieving climate-related and environmental legislative requirements, including the risk of non-compliance, which could adversely affect NSPI's operations and financial performance. For further discussion on these risks and environmental legislation and regulations, refer to the "Enterprise Risk and Risk Management" section. Recent developments related to provincial and federal environmental laws and regulations are outlined below.

Nova Scotia Cap-and-Trade Program Regulations:

NSPI is a participant in the Nova Scotia Cap-and-Trade Program ("Cap-and-Trade Program") and is subject to the 2019 through 2022 compliance period. NSPI received granted emissions allowances under the Cap-and-Trade Program and is permitted to purchase up to five per cent of the credits available at provincial auctions. Any remaining allowance shortfall requires the purchase of reserve credits directly from the provincial government, which are anticipated to be priced at a premium to provincial auction pricing. Compliance is forecast to be achieved through granted emissions allowances and credit purchases under the Cap-and-Trade Program, including reserve credits. Lower than forecast Muskrat Falls energy received during the compliance period has resulted in the increased deployment of higher carbon-emitting generation sources. The Province of Nova Scotia has agreed to provide approximately $165 million of relief from the 2019 through 2022 compliance costs, which was equal to the total cost of compliance forecast at the time of the fuel update submitted by NSPI to the UARB in September 2022 as part of the GRA. Discussions related to the final amount of relief and how this relief will be provided are ongoing. Further, NSPI's regulatory framework provides for the recovery of costs prudently incurred to comply with the Cap-and-Trade Program Regulations pursuant to NSPI's FAM.

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Carbon Pricing Regulations:

On November 9, 2022, the Nova Scotia provincial government enacted Bill 208, "Environment Act (amended)". The legislation provides the framework for Nova Scotia's system to comply with the federal government's 2023 through 2030 carbon pollution pricing regulations laid out in the Pan-Canadian Framework on Clean Growth and Climate Change. Nova Scotia's proposed system utilizes an output-based pricing system that will implement performance standards for large industrial greenhouse gas emitters to achieve emission reduction goals. Subsequent regulations will be required to detail how the pricing system will operate. The Province of Nova Scotia's proposed output-based pricing system is subject to the approval of the federal government. If an agreement is not reached between the federal and provincial governments on a Nova Scotia system that meets the federal compliance criteria, Nova Scotia will be subject to the federal carbon pollution pricing backstop which uses emissions performances standards that vary by fuel type, and a carbon price that will start at $65 per tonne in 2023 and increase by $15 per tonne annually, reaching $170 per tonne by 2030. NSPI's regulatory framework provides for the recovery of costs prudently incurred to comply with carbon pricing programs pursuant to NSPI's FAM.

Nova Scotia Renewable Energy Regulations:

Under the provincially legislated Renewable Energy Regulations, 40 per cent of electric sales must be generated from renewable sources. This standard was predicated on receipt of the full NS Block. Due to the delay of the NS Block, the provincial government provided NSPI with an alternative compliance plan that requires NSPI to achieve 40 per cent of electric sales generated from renewable sources over the 2020 through 2022 period. With delivery of the NS Block commencing later than anticipated, as well as further interruptions in supply due to delays in the LIL, NSPI did not achieve the requirements of the alternative compliance plan. The Renewable Energy Regulations require NSPI to have acted in a duly diligent manner. If NSPI is found not to have acted in a duly diligent manner, it could be subject to a maximum penalty of $10 million.

ENL

Total equity earnings from NSPML and LIL are expected to be higher in 2023, compared to 2022. Both the NSPML and LIL investments are recorded as "Investments subject to significant influence" on Emera's Consolidated Balance Sheets.

NSPML

Equity earnings from the Maritime Link are dependent on the approved ROE and operational performance of NSPML. NSPML's approved regulated ROE range is 8.75 per cent to 9.25 per cent, based on an actual five-quarter average regulated common equity component of up to 30 per cent.

The Maritime Link assets entered service on January 15, 2018, enabling the transmission of energy between Newfoundland and Nova Scotia, improved reliability and ancillary benefits, supporting the efficiency and reliability of energy in both provinces. Nalcor continues to advance towards completion of the LIL, and it's expected final commissioning will be achieved in 2023. Nalcor's NS Block delivery obligations commenced on August 15, 2021, and the NS Block will be delivered over the next 35 years pursuant to the project agreements. As Nalcor is in the final stages of commissioning the LIL, there will be commissioning related interruptions in supply with any resultant delivery shortfalls being delivered on a timely basis in accordance with the Energy and Capacity Agreement.

In February 2022, the UARB issued its decision and Board Order approving NSPML's requested rate base of approximately $1.8 billion less $9 million of costs ($7 million after-tax) that would not have otherwise been recoverable if incurred by NSPI. NSPML also received approval to collect up to $168 million (2021 - $172 million) from NSPI for the recovery of costs associated with the Maritime Link in 2022. This was subject to a holdback of up to $2 million per month, beginning April 2022, contingent on receiving at least 90 per cent of NS Block deliveries, including Supplemental Energy deliveries.

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In December 2022, NSPML received UARB approval to collect up to $164 million from NSPI for the recovery of costs associated with the Maritime Link in 2023. This continues to be subject to a holdback of up to $2 million a month, as discussed above. On December 22, 2022, the UARB clarified its earlier direction regarding the holdback and NSPI can now release the holdback to NSPML when 90 per cent of NS Block deliveries, including Supplemental Energy deliveries, is achieved. This enabled NSPI to pay NSPML approximately $4 million of the 2022 holdback. As of December 31, 2022, an additional $14 million in aggregate has been held back by NSPI. Determination of allocation of the $14 million between NSPML and NSPI will be subject to a regulatory process that is expected to commence in early 2023 to review the holdback mechanism.

NSPML does not anticipate any significant capital investment in 2023.

LIL

ENL is a limited partner with Nalcor in LIL. Construction of the LIL is complete and Nalcor is forecasting it will achieve final commissioning in 2023.

Equity earnings from the LIL investment are based upon the book value of the equity investment and the approved ROE. Emera's current equity investment is $740 million, comprised of $410 million in equity contribution and $330 million of accumulated equity earnings. Emera's total equity contribution in the LIL, excluding accumulated equity earnings, is estimated to be approximately $650 million after the Lower Churchill projects are completed.

Cash earnings and retuof equity will begin after commissioning of the LIL by Nalcor, which is anticipated in 2023, and until that point Emera will continue to record AFUDC earnings.

Gas Utilities and Infrastructure

Gas Utilities and Infrastructure includes PGS, NMGC, SeaCoast, Brunswick Pipeline and Emera's non-consolidated investment in M&NP. PGS is a regulated gas distribution utility engaged in the purchase, distribution and sale of natural gas serving customers in Florida. NMGC is an intrastate regulated gas distribution utility engaged in the purchase, transmission, distribution and sale of natural gas serving customers in New Mexico. SeaCoast is a regulated intrastate natural gas transmission company offering services in Florida. Brunswick Pipeline is a regulated 145-kilometre pipeline delivering re-gasified liquefied natural gas from Saint John, New Brunswick, to markets in the northeasteUnited States.

Peoples Gas System

With $2.5 billion USD of assets and approximately 468,000 customers, the PGS system includes 24,300 kilometres of natural gas mains and 13,500 kilometres of service lines. Natural gas throughput (the amount of gas delivered to its customers, including transportation-only service) was 2 billion therms in 2022.

The approved ROE range for PGS is 8.9 per cent to 11.0 per cent, based on an allowed equity capital structure of 54.7 per cent. An ROE of 9.9 per cent is used for the calculation of retuon investments for clauses.

New Mexico Gas Company, Inc.

With $2.0 billion USD of assets and approximately 545,000 customers, NMGC's system includes approximately 2,426 kilometres of transmission pipelines and 17,781 kilometres of distribution pipelines. Annual natural gas throughput was approximately 926 million therms in 2022.

The approved ROE for NMGC is 9.375 per cent, on an allowed equity capital structure of 52 per cent.

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Gas Utilities and Infrastructure Outlook

Gas Utilities and Infrastructure USD earnings are anticipated to be higher in 2023 than 2022, primarily due to a base rate increase at NMGC, effective January 2023.

PGS expects 2023 rate base growth and USD earnings to be consistent with 2022 as higher revenues from customer growth offset increased interest expenses and the effect of inflation. Increased residential and commercial sales volumes and customer growth are anticipated in 2023. PGS anticipates earning below its allowed ROE range in 2023 primarily due to rate base growth. As a result, on February 3, 2023, PGS notified the FPSC that it is planning to file a base rate proceeding in April 2023 for new rates effective January 2024.

The PGS rate case settlement, which was approved in November 2020, provides the ability to reverse a total of $34 million USD of accumulated depreciation through 2023. Through December 31, 2022, PGS reversed $14 million USD accumulated depreciation. The reversal of the remaining accumulated depreciation is expected to occur over 2023.

NMGC expects 2023 rate base and USD earnings to be higher in 2023 than 2022 due to base rate increases effective January 2023, as discussed below, and rate base growth to expand the distribution system and to continue to reliably serve customers. NMGC anticipates earning near its authorized ROE in 2023 and expects customer growth rates to be consistent with historical trends. NMGC's asset optimization revenues for 2022 were well above the historical average, and may not recur in 2023.

On December 13, 2021, NMGC filed a rate case with the NMPRC for new rates to become effective January 2023. On May 20, 2022, NMGC filed an unopposed settlement agreement with the NMPRC for an increase of $19 million USD in annual base revenues. The rates reflect the recovery of increased operating costs and capital investments in pipelines and related infrastructure. The NMPRC approved the settlement agreement on November 30, 2022.

In 2018, SeaCoast executed a 34-year agreement to provide long-term firm gas transportation service via a 21-mile,30-inch pipeline lateral. The lease of the pipeline lateral commenced January 1, 2022.

In 2023, capital investment in the Gas Utilities and Infrastructure segment is expected to be approximately $475 million USD (2022 - $436 million USD), including AFUDC. PGS will make investments to expand its system and support customer growth. NMGC will continue to make investments to maintain the reliability of its system and support customer growth.

Other Electric Utilities

Other Electric Utilities includes Emera (Caribbean) Incorporated ("ECI"), a holding company with regulated electric utilities. ECI's regulated utilities include vertically integrated regulated electric utilities of BLPC on the island of Barbados, GBPC on Grand Bahama Island, and a 19.5 per cent interest in Lucelec on the island of St. Lucia, which is accounted for on the equity basis.

On March 31, 2022, Emera completed the sale of its 51.9 per cent interest in Dominica Electricity Services Ltd. ("Domlec") for proceeds which approximated carrying value. Domlec was included in the Other Electric Utilities segment in Q1 2022. The sale did not have a material impact on earnings.

BLPC

With $505 million USD of assets and approximately 133,000 customers, BLPC owns 276 MW of generating capacity, of which 96 per cent is oil-fired and four per cent is solar. BLPC owns approximately 188 kilometres of transmission facilities and 3,789 kilometres of distribution facilities. BLPC's approved regulated retuon rate base for 2022 was 10 per cent.

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GBPC

With $338 million USD of assets and approximately 19,000 customers, GBPC owns 98 MW of oil-fired generation, approximately 90 kilometres of transmission facilities and 670 kilometres of distribution facilities. GBPC's approved regulatory retuon rate base for 2023 is 8.32 per cent (2022 - 8.23 per cent).

Other Electric Utilities Outlook

Absent the impact of the GBPC impairment charge in Q4 2022, Other Electric Utilities' USD earnings in 2023 are expected to increase over the prior year primarily as a result of higher earnings due to higher base rates at BLPC.

BLPC currently operates pursuant to a franchise to generate, transmit and distribute electricity on the island of Barbados until 2028. In 2019, the Government of Barbados passed legislation amending the number of licenses required for the supply of electricity from a single integrated license which currently exists, to multiple licenses for Generation, Transmission and Distribution, Storage, Dispatch and Sales. In March 2021, BLPC reached commercial agreement with the Government of Barbados for each of the license types, subject to the passage of implementing legislation. The new licenses are expected to take effect in 2023 on completion of the legislative process. The Dispatch license will have a term of five years with the remaining licenses having terms ranging from 25-30 years. BLPC anticipates that any increased costs associated with the implementation of the new multi-licensed structure will be recoverable through BLPC's regulatory framework. BLPC is awaiting final enactment and will work towards implementation of the licenses once received.

On October 4, 2021 BLPC submitted a general rate review application to the FTC. The application seeks a rate adjustment and the implementation of a cost reflective rate structure that will facilitate the changes expected in the newly reformed electricity market and the country's transition toward 100 per cent renewable energy generation. The application seeks recovery of capital investment in plant, equipment and related infrastructure and results in an increase in annual non-fuel revenue of approximately $23 million USD upon approval. The application includes a request for an allowed regulatory ROE of 12.50 per cent on an allowed equity capital structure of 65 per cent. On September 16,2022, the FTC granted BLPC interim rate relief, allowing an increase in base rates of approximately $3 million USD for the remainder of 2022 and approximately $1 million USD per month for 2023. Interim rate relief is effective from September 16, 2022 until the implementation of final rates. The hearing concluded in October 2022. On February 15, 2023, the FTC issued a decision on the BLPC rate review application which included the following significant items: an allowed regulatory ROE of 11.75 per cent, an equity capital structure of 55 per cent, a directive to update the major components of rate base to September 16, 2022, and a directive to establish regulatory liabilities of approximately $70 million USD related to the self-insurance fund, accumulated depreciation, and taxes. The impacts to BLPC's rate base and final rates are not yet determinable but management does not expect the decision to have a material impact on Emera's adjusted net income. BLPC will seek to clarify aspects of the FTC decision in its compliance filing and is also considering filing a submission to the FTC for a review of the decision. BLPC expects a decision on final rates from the FTC in 2023.

On January 14, 2022, the GBPA issued its decision on GBPC's rate application. The decision, which became effective April 1, 2022, allows for an increase in revenues of $3.5 million USD. The new rates include a regulatory ROE of 12.84 per cent.

Effective November 1, 2022, GBPC's fuel pass through charge was increased due to an increase in global oil prices impacting the unhedged fuel cost. In 2023, the fuel pass through charge will be adjusted monthly, in-line with actual fuel costs.

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In 2023, capital investment in the Other Electric Utilities segment is expected to be approximately $65 million USD (2022 - $48 million USD), primarily in more efficient and cleaner sources of generation, including renewables and battery storage.

Other

The Other segment includes those business operations that in a normal year are below the required threshold for reporting as separate segments; and corporate expense and revenue items that are not directly allocated to the operations of Emera's subsidiaries and investments.

Business operations in the Other segment include Emera Energy and Emera Technologies LLC ("ETL"). Emera Energy consists of EES, a wholly owned physical energy marketing and trading business and an equity investment in a 50 per cent joint venture ownership of Bear Swamp, a 660 MW pumped storage hydroelectric facility in northwesteMassachusetts. ETL is a wholly owned technology company focused on finding ways to deliver renewable and resilient energy to customers.

Corporate items included in the Other segment are certain corporate-wide functions including executive management, strategic planning, treasury services, legal, financial reporting, tax planning, corporate business development, corporate governance, investor relations, risk management, insurance, acquisition and disposition related costs, gains or losses on select assets sales, and corporate human resource activities. It includes interest revenue on intercompany financings and interest expense on corporate debt in both Canada and the United States. It also includes costs associated with corporate activities that are not directly allocated to the operations of Emera's subsidiaries and investments.

Earnings from EES are generally dependent on market conditions. In particular, volatility in natural gas and electricity markets, which can be influenced by weather, local supply constraints and other supply and demand factors, can provide higher levels of margin opportunity. The business is seasonal, with Q1 and Q4 usually providing the greatest opportunity for earnings. EES is generally expected to deliver annual adjusted net income within its guidance range of $15 to $30 million USD ($45 to $70 million USD of margin).

Absent the TGH award in Q4 2022, the adjusted net loss from the Other segment is expected to be higher in 2023, based on EES returning to its normal earnings range in 2023 and increased interest expense. The increase is expected to be partially offset by decreased taxes due to a higher net loss.

The Other segment does not anticipate any significant capital investment in 2023.

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CONSOLIDATED BALANCE SHEET HIGHLIGHTS

Significant changes in the Consolidated Balance Sheets between December 31, 2021 and December 31, 2022 include:

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OTHER DEVELOPMENTS

USGAAP Reporting Extension

Emera was granted exemptive relief by Canadian securities regulators on September 13, 2022, and under the Companies Act (Nova Scotia) on October 12, 2022, each allowing Emera to continue to report its financial results in accordance with USGAAP (collectively the "Exemptive Relief"). The Exemptive Relief will terminate on the earliest of: (i) January 1, 2027; (ii) if the Company ceases to have rate-regulated activities, the first day of the Company's financial year that commences after the Company ceases to have rate-regulated activities; and (iii) the first day of the Company's financial year that commences on or following the later of: (a) the effective date prescribed by the International Accounting Standards Board ("IASB") for the mandatory application of a standard within IFRS specific to entities with rate-regulated activities ("Mandatory Rate-regulated Standard"); and (b) two years after the IASB publishes the final version of a Mandatory Rate-regulated Standard. The Exemptive Relief replaces similar relief that had been granted to Emera in 2018 and would have expired by no later than January 1, 2024.

Increase in Common Dividends

On September 22, 2022, the Emera Board of Directors approved an increase in the annual common share dividend rate to $2.76 from $2.65. The first payment was effective November 15, 2022. Emera also extended its dividend growth rate target of four to five per cent through 2025.

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Appointments

Effective July 1, 2022, Michael Barrett was appointed Executive Vice President and General Counsel for Emera. Mr. Barrett was most recently the General Counsel for Emera.

Effective June 30, 2022, Bruce Marchand was appointed Chief Risk and Sustainability Officer for Emera. Mr. Marchand was most recently the Chief Legal and Compliance Officer for Emera.

FINANCIAL HIGHLIGHTS

Florida Electric Utility

All amounts are reported in USD, unless otherwise stated.

The impact of the change in the FX rate increased CAD earnings for the three months and year ended December 31, 2022, by $10 million and $23 million, respectively.

Net Income

Highlights of the net income changes are summarized in the following table:

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Operating Revenues - Regulated Electric

Annual electric revenues and sales volumes are summarized in the following table by customer class:

Tampa Electric's fuel costs are affected by commodity prices and generation mix that is largely dependent on economic dispatch of the generating fleet, bringing the lowest cost options on first (renewable energy from solar), such that the incremental cost of production increases as sales volumes increase. Generation mix may also be affected by plant outages, plant performance, availability of lower priced short-term purchased power, availability of renewable solar generation, and compliance with environmental standards and regulations.

Regulatory Environment

Tampa Electric is regulated by the FPSC and is also subject to regulation by the FERC. The FPSC sets rates at a level that allows utilities such as Tampa Electric to collect total revenues or revenue requirements equal to their cost of providing service, plus an appropriate retuon invested capital. Base rates are determined in FPSC rate setting hearings which can occur at the initiative of Tampa Electric, the FPSC or other interested parties. For further details on Tampa Electric's regulatory environment, base rates and recovery mechanisms, refer to note 7 in the consolidated financial statements.

Canadian Electric Utilities

(1) Regulated fuel for generation and purchased power includes NSPI's FAM and fixed cost deferrals on the Consolidated Statements of Income, however it is excluded in the segment overview.

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Canadian Electric Utilities' contribution to consolidated adjusted net income is summarized in the following table:

(1) Excludes $7 million in NSPML unrecoverable costs, after-tax, for the year ended December 31, 2022 (2021 - nil).

Net Income

Highlights of the net income changes are summarized in the following table:

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NSPI

Operating Revenues - Regulated Electric

Annual electric revenues and sales volumes are summarized in the following tables by customer class:

NSPI's fuel costs are affected by commodity prices and generation mix, which is largely dependent on economic dispatch of the generating fleet. NSPI brings the lowest cost options on stream first after renewable energy from IPPs, including Community Feed-in Tariff ("COMFIT") participants, for which NSPI has power purchase agreements in place, and the NS Block of energy, including the Supplemental Energy Block. NSPI pays annual assessments approved by the UARB to NSPML for use of the Maritime Link, and therefore utilizes all transmitted NS Block and Supplemental Energy Block energy received which carries no additional fuel cost.

NSPI-owned hydro and wind have no fuel cost component. After hydro and wind, historically, petcoke and coal have the lowest per-unit fuel cost, followed by natural gas. Oil, biomass and purchased power have the next lowest fuel cost, depending on the relative pricing of each. Generation mix may also be affected by plant outages, availability of renewable generation, availability of energy from the NS Block, plant performance, and compliance with environmental standards including the Cap-and-Trade Program.

The generation mix has undergone significant transformation with the addition of non-dispatchable renewable energy sources such as wind, including from IPPs and COMFIT, which typically have a higher cost per MWh than NSPI-owned generation or other purchased power sources.

The provision for the Cap-and-Trade program was an $18 million recovery for the three months ended December 31, 2022 (2021 - $35 million expense) and a $134 million expense for the year ended December 31, 2022 (2021 - $38 million expense). For further information on this non-cash accrual, the estimated costs and the FAM regulatory balance, refer to note 7 in the consolidated financial statements.

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Regulatory Environment - NSPI

NSPI is a public utility as defined in the Public Utilities Act and is subject to regulation under the Public Utilities Act by the UARB. The Public Utilities Act gives the UARB supervisory powers over NSPI's operations and expenditures. Electricity rates for NSPI's customers are subject to UARB approval. NSPI is not subject to a general annual rate review process, but rather participates in hearings held from time to time at NSPI's or the UARB's request. For further details on NSPI's regulatory environment and recovery mechanisms, refer to note 7 in the consolidated financial statements.

(1) Operating revenues - regulated gas includes $13 million of finance income from Brunswick Pipeline (2021 - $12 million) for the three months ended December 31, 2022 and $47 million (2021 - $46 million) for the year ended December 31 2022; however, it is excluded from the gas revenues and cost of natural gas analysis below.

Gas Utilities and Infrastructure's contribution to consolidated net income is summarized in the following table:

The impact of the change in the FX rate increased CAD earnings for the three months and year ended December 31, 2022, by $4 million and $6 million, respectively.

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Operating Revenues - Regulated Gas

Annual gas revenues and sales volumes are summarized in the following tables by customer class:

(1) Industrial gas revenue includes sales to power generation customers.

(2) Other gas revenue includes off-system sales to other utilities and various other items.

(3) Total gas revenue excludes $47 million of finance income from Brunswick Pipeline (2021 - $46 million).

Regulated Cost of Natural Gas

PGS and NMGC purchase gas from various suppliers depending on the needs of their customers. In Florida, gas is delivered to the PGS distribution system through interstate pipelines on which PGS has firm transportation capacity for delivery by PGS to its customers. NMGC's natural gas is transported on major interstate pipelines and NMGC's intrastate transmission and distribution system for delivery to customers.

In Florida, natural gas service is unbundled for non-residential customers and residential customers who use more than 1,999 therms annually and elect the option. In New Mexico, NMGC is required, if requested, to provide transportation-only services for all customer classes. The commodity portion of bundled sales is included in operating revenues, at the cost of the gas on a pass-through basis, therefore no net earnings effect when a customer shifts to transportation-only sales.

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Annual gas sales by type are summarized in the following table:

Regulatory Environments

PGS is regulated by the FPSC. The FPSC sets rates at a level that allows utilities such as PGS to collect total revenues or revenue requirements equal to their cost of providing service, plus an appropriate retuon invested capital.

NMGC is subject to regulation by the NMPRC. The NMPRC sets rates at a level that allows NMGC to collect total revenues equal to its cost of providing service, plus an appropriate retuon invested capital.

For further information on PGS and NMGC's regulatory environment and recovery mechanisms, refer to note 7 in the consolidated financial statements.

Other Electric Utilities

All amounts are reported in USD, unless otherwise stated.

The impact of the change in the FX rate increased net loss by $ 3 million for the three months and year ended December 31, 2022 and had a minimal impact on adjusted net income for the same periods.

Other Electric Utilities' contribution to consolidated adjusted net income is summarized in the following table:

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Net Income

Highlights of the net income changes are summarized in the following table:

Regulatory Environments

BLPC is regulated by the FTC, an independent regulator. Rates are set to recover prudently incurred costs of providing electricity service to customers plus an appropriate retuon capital invested.

GBPC is regulated by the GBPA. Rates are set to recover prudently incurred costs of providing electricity service to customers plus an appropriate retuon rate base.

For further details on BLPC and GBPC's regulatory environments and recovery mechanisms, refer to note 7 in the consolidated financial statements.

Other

(1) Marketing and trading margin represents EES's purchases and sales of natural gas and electricity, pipeline and storage capacity costs and energy asset management services' revenues.

(2) Marketing and trading margin excludes a MTM gain, pre-tax of $430 million in Q4 2022 (2021 - $212 million gain) and a gain of $281 million for the year ended December 31, 2022 (2021 - $289 million loss).

(3) Net of income tax expense of $124 million for the three months ended December 31, 2022 (2021 - $63 million expense) and $73 million expense for the year ended December 31, 2022 (2021 - $86 million recovery).

Other's contribution to consolidated adjusted net income is summarized in the following table:

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MTM Adjustments

Emera Energy's ''Marketing and trading margin'', ''Non-regulated fuel for generation and purchased power'', ''Income from equity investments'' and ''Income tax expense (recovery)'' are affected by MTM adjustments. Management believes excluding the effect of MTM valuations, and changes thereto, from income until settlement better matches the financial effect of these contracts with the underlying cash flows. Variance explanations of the MTM changes for this quarter and for the year are explained in the chart below.

Emera Energy has a number of asset management agreements (''AMA'') with counterparties, including local gas distribution utilities, power utilities and natural gas producers in North America. The AMAs involve Emera Energy buying or selling gas for a specific term, and the corresponding release of the counterparties' gas transportation/storage capacity to Emera Energy. MTM adjustments on these AMAs arise on the price differential between the point where gas is sourced and where it is delivered. At inception, the MTM adjustment is offset fully by the value of the corresponding gas transportation asset, which is amortized over the term of the AMA contract.

Subsequent changes in gas price differentials, to the extent they are not offset by the accounting amortization of the gas transportation asset, will result in MTM gains or losses recorded in income. MTM adjustments may be substantial during the term of the contract, especially in the winter months of a contract when delivered volumes and market pricing are usually at peak levels. As a contract is realized, and volumes reduce, MTM volatility is expected to decrease. Ultimately, the gas transportation asset and the MTM adjustment reduce to zero at the end of the contract term. As the business grows, and AMA volumes increase, MTM volatility resulting in gains and losses may also increase.

Emera Corporate has FX forwards to manage the cash flow risk of forecasted USD cash inflows. Fluctuations in the FX rate result in MTM gains or losses recorded in income.

Net Income

Highlights of the net income changes are summarized in the following table:

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Emera Energy

EES derives revenue and earnings from the wholesale marketing and trading of natural gas and electricity within the Company's risk tolerances, including those related to value-at-risk ("VaR") and credit exposure. EES purchases and sells physical natural gas and electricity, the related transportation and transmission capacity rights, and provides energy asset management services. The primary market area for the natural gas and power marketing and trading business is northeasteNorth America, including the Marcellus and Utica shale supply areas. EES also participates in the Florida, United States Gulf Coast and Midwest/Central Canadian natural gas markets. Its counterparties include electric and gas utilities, natural gas producers, electricity generators and other marketing and trading entities. EES operates in a competitive environment, and the business relies on knowledge of the region's energy markets, understanding of pipeline and transmission infrastructure, a network of counterparty relationships and a focus on customer service. EES manages its commodity risk by limiting open positions, utilizing financial products to hedge purchases and sales, and investing in transportation capacity rights to enable movement across its portfolio.

Corporate

Corporate's adjusted loss is summarized in the following table:

(1) Operating expenses include OM&G and depreciation. In Q4 2021, OM&G and depreciation were offset by a decrease in long-term incentive compensation. The value of long-term incentive compensation and related hedges are impacted by changes in Emera's period end share price.

(2) Other includes realized FX gains and losses on FX hedges entered into to hedge USD denominated operating unit earnings exposure.

(3) Includes a realized, pre-tax net loss of $5 million (2021 - $5 million gain) quarter-to-date and a $6 million loss for the year ended December 31, 2022 (2021 - $18 million gain) on FX hedges, as discussed above.

(4) Excludes a MTM gain, after-tax of $9 million for the three months ended December 31, 2022 (2021 - $3 million loss) and a MTM loss, after-tax of $12 million for the year ended December 31, 2023 (2021 - $14 million loss)

LIQUIDITY AND CAPITAL RESOURCES

The Company generates internally sourced cash from its various regulated and non-regulated energy investments. Utility customer bases are diversified by both sales volumes and revenues among customer classes. Emera's non-regulated businesses provide diverse revenue streams and counterparties to the business. Circumstances that could affect the Company's ability to generate cash include changes to global macro-economic conditions, downturns in markets served by Emera, impact of fuel commodity price changes on collateral requirements and timely recoveries of fuel costs from customers, the loss of one or more large customers, regulatory decisions affecting customer rates and the recovery of regulatory assets, and changes in environmental legislation. Emera's subsidiaries are generally in a financial position to contribute cash dividends to Emera provided they do not breach their debt covenants, where applicable, after giving effect to the dividend payment, and maintain their credit metrics.

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Emera's future liquidity and capital needs will be predominately for working capital requirements, ongoing rate base investment, business acquisitions, greenfield development, dividends and debt servicing. Emera has an $8 - 9 billion capital investment plan over the 2023-to-2025 period (including a $240 million equity investment in the LIL in 2023), mainly focused in Florida. This plan includes significant rate base investments across the portfolio in renewable and cleaner generation, infrastructure modernization and customer-focused technologies. Capital investments at the regulated utilities are subject to regulatory approval.

Emera plans to use cash from operations and debt raised at the utilities to support normal operations, repayment of existing debt, and capital requirements. Debt raised at certain of the Company's utilities is subject to applicable regulatory approvals. Equity requirements in support of the Company's capital investment plan are expected to be funded through the issuance of preferred equity and the issuance of common equity through Emera's DRIP and ATM program.

Emera has credit facilities with varying maturities that cumulatively provide $4.7 billion of credit, with approximately $1.1 billion undrawn and available at December 31, 2022. The Company was holding a cash balance of $332 million at December 31, 2022. For further discussion, refer to the "Debt Management" section below. For additional information regarding the credit facilities, refer to notes 23 and 25 in the consolidated financial statements.

Consolidated Cash Flow Highlights

Significant changes in the Consolidated Statements of Cash Flows between the years ended December 31, 2022 and 2021 include:

Cash Flow from Operating Activities

Net cash provided by operating activities decreased $272 million to $913 million for the year ended December 31, 2022, compared to $1,185 million in 2021.

Cash from operations before changes in working capital decreased $190 million for the year ended December 31, 2022. This decrease was due to under-recovery of clause-related costs primarily due to higher natural gas prices at Tampa Electric, unfavourable changes in Tampa Electric's storm reserve balance as a result of Hurricane Ian, increased fuel for generation and purchased power at NSPI, and decreased long-term payables due to the Nova Scotia Cap-and-Trade accrued emissions compliance charges being reclassified to other current liabilities as the liability is anticipated to be settled in 2023. This was partially offset by the 2021 deferral of gas costs at NMGC resulting from the extreme cold weather event, increased revenues at Tampa Electric and NSPI, favourable changes in regulatory liabilities due to the NMGC gas hedge settlement, TGH award, and increased marketing and trading margin at Emera Energy.

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Changes in working capital decreased operating cash flows by $82 million for the year ended December 31, 2022. This decrease was due to unfavourable changes in accounts receivable at NMGC due to the gas hedge settlement, unfavourable changes in accounts receivable at NSPI, unfavourable changes in cash collateral positions on derivative instruments at NSPI, and the required prepayment of income taxes and related interest at NSPI. This was partially offset by the Nova Scotia Cap-and-Trade accrued emissions compliance charges, favourable changes in cash collateral positions at Emera Energy, and favourable changes in accounts payable at Tampa Electric and NMGC.

Cash Flow used in Investing Activities

Net cash used in investing activities increased $237 million to $2,569 million for the year ended December 31, 2022, compared to $2,332 million in 2021. The increase was due to higher capital investment in 2022.

Capital expenditures for the year ended December 31, 2022, including AFUDC, were $2,646 million compared to $2,420 million in 2021. Details of 2022 capital spending by segment are shown below:

Cash Flow from Financing Activities

Net cash provided by financing activities increased $244 million to $1,555 million for the year ended December 31, 2022, compared to $1,311 million in 2021. This increase was due to higher proceeds of short-term debt at Tampa Electric, proceeds from committed credit facilities at NSPI, and term loan issuance at Emera in 2022. These were partially offset by the issuance of preferred shares in 2021, lower proceeds of long-term debt at Tampa Electric, and net proceeds of long-term debt at NMGC in 2021.

Working Capital

As at December 31, 2022, Emera's cash and cash equivalents were $310 million (2021 - $394 million) and Emera's investment in non-cash working capital was $1,173 million (2021 - $491 million). Of the cash and cash equivalents held at December 31, 2022, $250 million was held by Emera's foreign subsidiaries (2021 - $194 million). A portion of these funds are invested in countries that have certain exchange controls, approvals, and processes for repatriation. Such funds are available to fund local operating and capital requirements unless repatriated.

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Contractual Obligations

As at December 31, 2022, contractual commitments for each of the next five years and in aggregate thereafter consisted of the following:

(1) Future interest payments are calculated based on the assumption that all debt is outstanding until maturity. For debt instruments with variable rates, interest is calculated for all future periods using the rates in effect at December 31, 2022, including any expected required payment under associated swap agreements.

(2) Purchasing commitments for transportation of fuel and transportation capacity on various pipelines. Includes a commitment of $144 million related to a gas transportation contract between PGS and SeaCoast through 2040.

(3) Annual requirement to purchase electricity production from IPPs or other utilities over varying contract lengths.

(4) The estimated contractual obligation is calculated as the current legislatively required contributions to the registered funded

pension plans (excluding the possibility of wind-up), plus the estimated costs of further benefit accruals contracted under NSPI's Collective Bargaining Agreement and estimated benefit payments related to other unfunded benefit plans.

(5) Emera has a commitment to make a final equity contribution to the LIL upon its commissioning. Once commissioned, the commercial agreements between Emera and Nalcor require true ups to finalize the respective investment obligations of the parties in relation to the Maritime Link and LIL.

NSPI has a contractual obligation to pay NSPML for use of the Maritime Link over approximately 38 years from its January 15, 2018 in-service date. In February 2022, the UARB issued its decision and Board Order approving NSPML's requested rate base of approximately $1.8 billion. In December 2022, the UARB approved the collection of $164 million from NSPI for the recovery of Maritime Link costs in 2023. The timing and amounts payable to NSPML for the remainder of the 38-year commitment period are subject to UARB approval.

Emera has committed to obtain certain transmission rights for Nalcor, if requested, to enable it to transmit energy which is not otherwise used in Newfoundland and Labrador or Nova Scotia. Nalcor has the right to transmit this energy from Nova Scotia to New England energy markets effective August 15, 2021, the date the NS Block delivery obligation commenced, and continuing for 50 years. As transmission rights are contracted, the obligations are included within "Other" in the above table.

Forecasted Gross Consolidated Capital Expenditures

The 2023 forecasted gross consolidated capital expenditures are as follows:

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Debt Management

In addition to funds generated from operations, Emera and its subsidiaries have, in aggregate, access to committed syndicated revolving and non-revolving bank lines of credit in either CAD or USD per the table below.