Scott Balfour thinks teamwork is next to godliness, uses words like “triangulated momentum” and doubles the size of multi-billion-dollar companies. And that’s just before breakfast. Meet Emera Inc.’s main man and Atlantic Business Magazine’s 2021 CEO of the Year

IT WAS LABOUR DAY WEEKEND, 2015, and the mercury showed a scorching 29 degrees Celsius in downtown Halifax. For Emera Inc.’s future CEO Scott Balfour, who waited for word on his proposal to vault the Nova Scotia-based company into the stratosphere of North American energy utilities, the heat was also rising. Only, it had nothing to do with climate change. 

For months, the then-CFO and his team had been toiling over a negotiation that would see Emera buy Tampa-based TECO Energy Inc.—a move that, if successful, would double its assets to $20 billion and customer base to 2.4 million. The TECO purchase, expected to be one of the biggest cross-border takeovers in Canadian history, would also give Emera the scale it needed to become a “distributed energy” giant, enabling it to proffer a mix of next-generation renewables across Nova Scotia, the Caribbean, and the U.S. Eastern Seaboard.

Now, it all came down to these three September days, and as Balfour hoped for good news about the last piece of the financing puzzle that would put them over the top, the markets boiled with bad tidings. Thanks to a bursting bubble of speculation, the Shanghai Stock Exchange had just lost a third of its A-share value. The consequent rolling “flash crashes” had halted trading in New York, where merger and acquisitions money for deals just like this were typically sought. For Emera, through no fault of its own, the dream seemed to be going suddenly, horribly sideways. 

“Man, oh man, where is this heading?” Henry Demone, one of Emera’s longtime independent directors who had a front-row seat to the historic power play, recalls thinking. “We had to raise $2.1 billion in equity. That’s ‘2’ with a ‘b’! The banks said, ‘Sure, we’ll lend you the money, but you gotta raise the equity first.’ Under those market conditions, over Labour Day? Really? No retail investors were making commitments.”

Still, there was something about the calm and purposeful way Balfour’s team had gone about its business during the long, hot summer leading up to those last, few hours. There was something about Balfour, himself. Something unaccountably, almost absurdly, cool.

“Right off the top, Scott and the team knew we needed a deal that took advantage of Emera not having to worry about [American] anti-trust rulings,” Demone said. “So, there was some very clever structuring of the purchase and sale agreement to make our bid look more attractive to shareholders and, therefore, less risky for TECO to accept. [Then], when we finally needed to raise the $2.1 billion, we structured it as a debenture with a mandatory conversion, so the banks knew that one day it would be actual stock. Meanwhile, investors got an attractive interest rate until it converted to equity.”

One by one, Balfour’s ducks lined up and by September 7, Emera had its “cash” commitment, the banks were on board and press releases went out the doors from Tampa to Halifax. “Under the terms of the all-cash deal, which has been unanimously approved by the Board of Directors of both companies, TECO Energy shareholders will receive US $27.55 per common share, a 48 per cent premium based on TECO Energy’s unaffected closing stock price on July 15, 2015, and 25 per cent above TECO Energy’s unaffected 52-week high,” the joint announcement stated.

“This represents an aggregate purchase price of approximately US $10.4 billion including assumption of approximately US $3.9 billion of debt… Following the completion of the transaction, 56 per cent of Emera’s total assets will [be] in Florida, 23 per cent in Canada, 10 per cent in New England, six per cent in New Mexico, and five per cent in the Caribbean.”

Emera’s then-president and CEO Chris Huskilson said for the record: “Our patient approach, and disciplined investment criteria have resulted in a pure-play regulated utility transaction that we expect to be significantly accretive for Emera’s shareholders and one that advances our strategic objectives. We have found our ideal match in TECO Energy.”

All of which, Demone said, remains utterly true—especially that bit about patience and discipline, which connoted a masterful degree of teamwork. On the other hand, he suggests, a great team is only as good as its captain. “Scott’s the first one to tell you that nothing is ever a one-man show with him. He is nowhere near the egotistical end of the spectrum at all. He leads through his team. Still, there’s no denying that he played a very pivotal role in TECO.”

Perhaps, but in Balfour, who became Emera’s president and CEO in 2018 after serving two years as its chief operating officer, there’s something more than leadership tropes designed to reflect the gospels of sundry management gurus. He loves a puzzle, and the more challenging the better. The TECO takeover was a rich case in point. 

“You know, TECO were the ones who decided that they wanted to pursue ‘strategic alternatives’ for themselves,” he said through a video chat link from his Halifax office. “In capital markets, those are code words for, you know, ‘we want to put ourselves up for sale and see what happens.’ They didn’t want to go to broad public auction, so they hired an investment banker to quietly approach a number of parties they thought were logical buyers.”

He smiles mischievously through his COVID beard. “Well, we were not one of them. We found out what was going on through our own banking relationships, and we kind of invited ourselves to the party. And frankly, you know, maybe we weren’t seen to be the logical buyer; we weren’t seen to be the ones that could write the biggest cheque. Our balance sheet was smaller than some of the other, maybe all of the other, parties that were out there. But through all of that, you know, we found a way to prevail. And, for sure, I think we punched above our weight.”

He leans back, straightening his t-shirt. “There is no question that on the day of the public announcements, Google traffic had to have been at an all-time high, because it would have been a bunch of people saying, ‘Who the hell is Emera?’”

No one’s asking that question anymore.

 

SINCE RISING TO THE TOP of Emera’s executive food chain, Balfour has presided over a quiet, corporate revolution. Not that there was much wrong with the utility to begin with. Conservative, steady, slow, it always posted reasonable returns, provided good (if not stellar) shareholder value and evinced a persuasive commitment to the welfare of its employees and the communities it served. 

But, like many large companies operating under increasingly global and constantly changing pressures, it had embraced a comprehensive set of principles designed to keep all of its oars sculling at the same time—just more nimbly, crisply and responsively. Emera called this its Environmental, Social and Governance (ESG) commitment, and for the past 15 years, it’s been the corporate playbook. 

According to the company’s 2019 Sustainability Report, “Our strategic focus has been to safely deliver clean, affordable and reliable energy to customers… Our healthy, safe and diverse teams work together and are in the best position to deliver on our commitments to customers and the communities where we live and work… Our risk management activities are focused on areas that most significantly impact safety, profitability, quality and consistency of income, and cash flow,” including security of the electricity supply, dignity of the employees, and safety of the offices and job sites.

What these high-minded words fail to thoroughly convey, however, is the enormous complexity of the energy industry in the modern era. The push for renewable sources of power—principally wind, solar, and hydro—to replace traditional ones, such as coal and oil, has been a juggernaut of innovation and, of course, cost. Meanwhile, deregulation and falling barriers have opened up fresh geographic territory, competition and even opportunities for new alliances among energy producers and distributors, both to cover those costs and introduce new ones. 

Henry Demone doesn’t call it the wild, wild west. But he wouldn’t be wrong if he did. “If you think of the beginnings of the utility business—you know, Nikola Tesla, Thomas Edison and sending power from Niagara Falls to New York City—the model hadn’t changed for 100 years,” he said. “Then, all of a sudden and thankfully, the world is getting very serious about climate change. We had these new sources of energy that were more and more competitive. And that leads to distributed generation. It’s not three coal plants or two gas plants or Niagara Falls or some hydro source up in Labrador, right? It’s distributed windmills wherever you have a good wind regime. There are solar panels wherever you have good sun. So, distributed generation means decentralization, and that means smart, new technology. Today, people definitely don’t want coal. In some places, they don’t even want gas. So, we’ve needed to adapt to that.”

In fact, Emera now operates seven regulated companies “safely”, “profitably”, “securely”, and “cleanly” from Atlantic Canada to the Southwest U.S.: Nova Scotia Power (NSP), Emera Newfoundland and Labrador, Emera New Brunswick, Emera Caribbean, TECO Tampa Electric, TECO People’s Gas, and New Mexico Gas Company. Uniting all of them is an overarching $4.7-billion commitment by head office to get “green” by 2023. Or, at least, as green as an imperfect world permits. “Approximately 60 per cent of our 2020–2022 capital spending is focused on clean and reliable energy initiatives,” said a current presentation to investors. “Since 2005, we’ve reduced CO2 emissions by 30 per cent and coal use by 68 per cent; by 2023, we’ll reduce our coal use by at least 80 per cent. The 2025 goal: 55 per cent reduction of CO2 emissions. The 2040 goals: 80 per cent reduction. The 2050 vision: Net zero.”

These were only emerging priorities when, headhunted from running the Toronto-based construction company Aecon Group, Balfour became Emera’s main planning, budgeting and forecasting guy in 2012. “Scott came in at a time when all of these things were bubbling,” said Emera’s president and COO Judy Steele. “His job was to consolidate the tracks and turn them into something going forward. And he really has.”

In practical terms, this has meant juggling the needs and interests of shareholders, employees, customers and environmental stewards without standing in one place for too long. Balfour calls this feat “triangulated momentum” and, despite the jargony ring, he’s deadly serious about it, especially since becoming the boss. It’s his favourite puzzle.

“I don’t think Emera—and, therefore, its CEO—should be focused on reducing carbon just because it’s the right thing to do,” he said. “Of course, it is. But, frankly, it’s also good business and it’s what our customers increasingly expect. It’s what a broad range of stakeholders are focused on. As part of that journey, it has created value for shareholders. I think that is what’s been special about Emera—finding a way to decarbonize, while having energy be affordable and reliable, and employee teams fully engaged in the process.”

Indeed, while the strategy behind the TECO takeover technically might have been to grow Emera’s corporate muscle and expand its reach, the vision was to “triangulate” the “momentum” of the Florida operation’s evolution into a next-gen, carbon-savvy corporate lean machine; a blueprint for the entire group, including legacy operations like NSP, where the objective was, and remains, to “decarbonize” without wrecking the joint.

“You know, Tampa Electric essentially had no renewables in their generation,” Balfour said. “There was maybe 27 megawatts solar generation in their mix. Today, we have 655 megawatts, and we’re planning to do another 600 megawatts. To put that into perspective, that’s a million solar panels. We expect solar generation will be in the range of 14 to 16 per cent by the end of 2023.”

What’s more, he adds: “Tampa Electric also continues to have coal generation as part of its mix, but we’ve now started to retire those and convert them to natural gas, which is an option in Florida. It’s more challenging in Nova Scotia. But the journey that Nova Scotia Power has been on over the past 15 years has also been transformative.”

In fact, solid fuel (mostly coal) accounts for 47 per cent of NSP’s generation mix, down from 76 per cent in 2007. Wind is 18 per cent (up from one per cent); natural gas, 15 per cent (up from 13 per cent); hydro and tidal, 10 per cent (up from seven per cent); biomass, three per cent (up from one per cent). Seven per cent are imports (up from three per cent).

“When we talk about net zero, we describe it as a vision,” Balfour said. “Many companies have committed to net zero and God bless them, but from our perspective, we look at it and say, ‘can we see a path to get to 80 per cent?’ It’s hard, but achievable. Right now, we don’t see a path to get from 80 per cent down to net zero, not affordably, and not based on technology today. But you know, 2040 is still a long way off. And as we continue this credible path towards reducing carbon, as we’ve demonstrated, new technology will develop, and it will get cheaper. And I suspect, as we get closer, we will find a path to get to net zero.”

Of course, nothing tests a vison like a sustained dose of cold, hard reality. And, arguably, no recent 12-month stretch has provided more of that than the one that’s just finished. Yet, despite all the wretchedness that COVID-19 wrought, Emera seemed to sail through with flying colours, keeping 7,000 employees safely and productively on the job, and posting a net income of $938 million for the year ending December 31, 2020, compared with $663 million in 2019.

Certainly, Balfour appeared buoyant before shareholders at the annual meeting in May. “In 2020, we completed our asset sale program and strengthened our balance sheet—important steps that continue to position Emera well for future growth,” he said. “In line with our expectations, we delivered three per cent growth in our annual adjusted earnings per share, driven by strong 13 per cent earnings growth from our regulated portfolio. We raised our dividend by four per cent. And even with the additional safety protocols required, we executed $2.7 billion of capital projects—more than any other year in our history—advancing our major projects while keeping critical work on-time and on-budget.”

Just as important, he noted, “We made good progress on our inclusion and diversity strategy in 2020. We strengthened our commitment to strong, diverse and inclusive workplaces and communities. We increased our efforts on education [and] recruitment. We also established a $5 million Inclusion and Diversity Community Fund.” 

None of which has gone unnoticed in capital markets which, increasingly, appreciate Balfour’s mix of environmental, social and good governance precepts. In September, RBC stated that following its discussions with him, they “continue to believe [Emera’s] shares have upside valuation potential as investors better appreciate [its] above-average growth profile, underpinned by its clean energy and modernization investments in Florida.” Ditto, said Scotiabank and National Bank earlier this year.

No part of any of this, Balfour said, works unless all parts are thrumming together. “It’s the quality and discipline around governance. It’s the safety and inclusion and diversity you have for the employees. It’s the commitment to the environment. It’s all of it… With TECO, it [would have been] easy to say, ‘no it’s too big, it’s too hard.’ But we found a way.”

The question, of course, is whether he can keep finding a way.

 

 

WHEN HE THINKS ABOUT IT (which is not often), Balfour sees no compelling reason why a 56-year-old Ontario boy with a BBA from Wilfred Laurier University and an MBA from the Richard Ivey School of Business at the University of Western Ontario should find himself playing the role he now does. After all, he comes from investment banking and real estate, not utilities. And his formative influences were even less predictive of his current circumstances. “My dad was a dentist, and my grandfather was a dentist,” he said. “Boy, I hated going to the dentist.”

But he did love numbers and finance. He went from TD to RBC, from commercial banking to corporate. In the 1990s, he ended up in the special loans department. Eventually, he wound up at Aecon, where he rose to the CEO’s position and masterminded the firm’s expansion from a $60-million to a $2.8-billion company.

In fact, these career moves may have been ideal preparation for running what is becoming, almost despite itself, one of North America’s sexiest energy corporations, operating at the knife’s edge of environmental technologies, courting U.S. utilities it had no previous business buying, and facing a future that is, at best, unpredictable—even a little precarious. After all, when the temperature rises, it’s the cool head that’s most likely to prevail over a complicated puzzle. 

Questions continue to swirl, for example, around the precise mix of energy that’s available to Emera—particularly to NSP—from and through Atlantic Canada.

His analysis: “Frankly, there is a challenge in that we are not blessed here, like our neighbors to the east in Newfoundland and Labrador,” he said. “They are blessed with more hydro resources for the benefit of generating electricity than they’re able to consume inside their province. And, so the Maritime Link project and the ability to bring in hydro energy from Labrador through the Maritime Link is an important step in our journey.”

He’s also crystal clear about the nature of the steps after that. 

Triangulation: “Look it, we’re now in the middle of an Atlantic market. We can bring energy in from Newfoundland Labrador. In order to retire those coal units in Nova Scotia, yes, we need to build more wind, and yes, we need to go to batteries. But we need to be able to have a big extension cord to more hydro resources. And the most logical way to do that now is to tie into Quebec.”

Momentum: “That’s the ambition. That’s the vision.”

Still, who the hell is Emera? Balfour will tell you soon enough—just as soon as he finishes putting all the pieces of the puzzle together. •