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Fortis Reports Second Quarter Earnings of $29 Million ST. JOHN'S, NEWFOUNDLAND AND LABRADOR--(MARKET WIRE)--Aug 8, 2008 -- Fortis Inc. ("Fortis" or the "Corporation") (Toronto:FTS.TO - News) recorded
second quarter net earnings applicable to common shares
of $29 million, or $0.19 per common share, compared to earnings
of $41 million, or $0.31 per common share, for the second
quarter of 2007. Year-to-date earnings applicable to common
shares were $120 million, or $0.77 per common share, compared
to earnings of $83 million, or $0.69 per common share, for
the same period last year. Terasen was acquired on May 17,
2007 and, consequently, the Corporation's financial results
for the prior period last year reflected earnings' contribution
from Terasen for a partial second quarter.
Second quarter results included a $13 million, or $0.08 per common share, charge representing the Corporation's approximate 70 per cent share of disallowed previously incurred fuel and purchased power costs at Belize Electricity. The charge was the result of the decision by the Public Utilities Commission of Belize on Belize Electricity's 2008/2009 rate application. Belize Electricity filed an application for judicial review and appeal of the decision with the Supreme Court of Belize on July 25, 2008. At the end of the second quarter, Belize Electricity's assets represented approximately 2 per cent of the total assets of Fortis. Second quarter results also included a one-time charge of approximately $2 million at FortisOntario associated with the repayment of interconnection agreement amounts received in the fourth quarter of 2007. Excluding the one-time items at Belize Electricity and FortisOntario, earnings for the second quarter were $44 million, or $0.28 per common share, compared to $41 million, or $0.31 per common share, for the same quarter last year. Earnings were favourably impacted by a full quarter of earnings' contribution from the Terasen Gas companies, higher earnings at Newfoundland Power associated with a shift in the quarterly distribution of annual purchased power expense, increased non-regulated hydroelectric production and improved performance at Fortis Properties. Partially offsetting these items were lower earnings at FortisAlberta associated with higher corporate income taxes, and higher corporate financing costs associated with the Terasen acquisition. "The Terasen Gas companies have contributed earnings of $120 million since acquisition almost 15 months ago and are now substantially integrated into the Fortis Group of Companies," says Stan Marshall, President and Chief Executive Officer, Fortis. The Terasen Gas companies contributed earnings of $12 million for the second quarter, up $11 million from the same quarter last year; however, contributions last year were from May 17, 2007, the date of acquisition. On a full quarter-over-quarter basis, earnings of the Terasen Gas companies were comparable. In August 2008, Terasen settled certain historical corporate tax matters and, as a result, is expected to record an earnings' benefit of approximately $7.5 million in the third quarter of 2008. Excluding the one-time item at FortisOntario, Canadian Regulated Electric Utilities' earnings were $28 million for the second quarter compared to $33 million for the same quarter last year. The decrease in earnings was mainly due to a $7.5 million increase in future income tax expense at FortisAlberta associated with regulator-approved deferral accounts and the timing of their collection. FortisAlberta is expected to record a future income tax recovery when the deferral accounts are collected. Partially offsetting the above decrease was the favourable impact of a shift in the quarterly distribution of annual purchased power expense at Newfoundland Power, which increased earnings during the second quarter of 2008 by approximately $2.5 million. Newfoundland Power's annual earnings are not expected to be impacted by the shift in quarterly earnings' distribution; however, earnings are expected to be lower in the first and fourth quarters and higher in the second and third quarters compared to the same periods last year. Excluding the one-time item at Belize Electricity, Caribbean Regulated Electric Utilities' earnings were $8 million for the second quarter, comparable to earnings for the same quarter last year. The favourable impact of electricity sales growth and a change in the method of calculating fuel costs under Caribbean Utilities' new transmission and distribution licence was largely offset by higher operating expenses, increased amortization costs, and the 3.25 per cent reduction in basic electricity rates at Caribbean Utilities, effective January 1, 2008. Commencing June 1, 2009, Caribbean Utilities will be permitted to adjust basic electricity rates with a formula tied to inflation. Year to date, Fortis and its utilities have raised almost $900 million in preferred equity and 30-year debt including the issuance of $230 million 5.25% First Preference Shares at Fortis Inc., $250 million 5.80% debentures at Terasen Gas Inc., $250 million 6.05% debentures at Terasen Gas (Vancouver Island) Inc., $100 million 5.85% debentures at FortisAlberta and $60 million 6.05% bonds at Maritime Electric. In June 2008, Caribbean Utilities announced a rights offering to shareholders of record on July 14, 2008. The estimated net proceeds of approximately US$28 million will be used to repay credit facility borrowings and to finance capital expenditures. The rights offering closes on August 15, 2008. Non-Regulated Fortis Generation contributed earnings of $7 million for the second quarter, up $2 million from the same quarter last year. Results reflected increased hydroelectric production in central Newfoundland due to higher rainfall. Fortis Properties contributed earnings of $7 million for the second quarter, up $1 million from the same quarter in 2007. The increase reflected contributions from the Delta Regina in Saskatchewan, acquired on August 1, 2007, and improved performance at the Company's hospitality operations in Atlantic Canada. Corporate and other expenses were $18 million for the second quarter compared to $12 million for the same quarter last year. The increase in corporate and other expenses was primarily driven by a full quarter of Terasen acquisition-related finance charges compared to a partial quarter last year. Cash flow from operating activities was $244 million in the second quarter of 2008, up from $68 million in the same quarter last year. Cash flow from operating activities was $432 million year to date, up from $162 million in the same period last year. The improvement reflected seasonality of operations of the Terasen Gas companies and their contribution for all of the second quarter and year-to-date period in 2008 compared to a partial second quarter last year. Consolidated capital expenditures, before customer contributions, were $389 million in the first half of 2008 and are expected to exceed $900 million for the year. Much of the consolidated capital program is being driven by the Terasen Gas companies, FortisAlberta, FortisBC, and regulated and non-regulated electric utility operations in the Caribbean. During the quarter, Terasen Gas (Vancouver Island) Inc. commenced construction of its $200 million liquefied natural gas storage facility. "Fortis is a leading energy infrastructure builder in Canada. The Corporation's consolidated capital expenditure program is expected to exceed $4.5 billion over the next five years which should drive earnings growth going forward," concludes Mr. Marshall.
Interim Management Discussion and Analysis
For the three and six months ended June 30, 2008
Dated August 8, 2008The following analysis should be read in conjunction with the Fortis Inc. ("Fortis" or the "Corporation") interim unaudited consolidated financial statements and notes thereto for the three and six months ended June 30, 2008 and the Management Discussion and Analysis ("MD&A") and audited consolidated financial statements for the year ended December 31, 2007 included in the Corporation's 2007 Annual Report. This material has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations relating to MD&As. Financial information in this release has been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") and is presented in Canadian dollars unless otherwise specified. Fortis includes forward-looking information in the MD&A within the meaning of applicable securities laws in Canada ("forward-looking information"). The purpose of the forward-looking information is to provide management's expectations regarding the Corporation's future growth, results of operations, performance, business prospects and opportunities and may not be appropriate for other purposes. All forward-looking information is given pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. The words "anticipates", "believes", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "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 the Corporation's management. The forward-looking information in the MD&A includes, but is not limited to, statements regarding: that cash required to complete the consolidated capital expenditure program and to finance acquisitions is expected to be derived from a combination of borrowings under credit facilities and the issuance of common shares, preference shares and long-term debt; the belief of the Corporation and its subsidiaries that they do not anticipate any difficulties in accessing required capital on reasonable market terms; the Corporation's consolidated forecasted gross capital expenditures for 2008 and in total over the next five years and the Corporation's belief that its capital program should drive growth in earnings. The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the receipt of applicable regulatory approvals and requested rate orders; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the Corporation's ability to maintain its gas and electricity systems to ensure their continued performance; the competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the availability of natural gas supply; favourable economic conditions; the level of interest rates; the ability to hedge certain risks; access to capital; maintenance of adequate insurance coverage; the ability to obtain licences and permits; the level of energy prices; retention of existing service areas; favourable labour relations; and sufficient human resources to deliver service and execute the capital program. The forward-looking information 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. The factors which could cause results or events to differ from current expectations include, but are not limited to: regulation; operating and maintenance risks; natural gas prices and supply; economic conditions; weather and seasonality; interest rates; changes in tax legislation; derivative financial instruments and hedging; risks related to Terasen Gas (Vancouver Island) Inc.; capital resources; environment; insurance; licences and permits; energy prices and the cessation of the Niagara Exchange Agreement; loss of service area; First Nations Lands; counterparty risk; labour relations; human resources; and liquidity risk. For additional information with respect to the Corporation's risk factors, reference should be made to the Corporation's continuous disclosure materials filed from time to time with Canadian securities regulatory authorities and to the heading "Business Risk Management" in the MD&A for the three and six months ended June 30, 2008 and for the year ended December 31, 2007. All forward-looking information in the MD&A is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof. COMPANY OVERVIEW AND FINANCIAL HIGHLIGHTS Fortis is the largest investor-owned distribution utility in Canada serving almost 2,000,000 gas and electricity customers. Its regulated holdings include a natural gas utility in British Columbia and electric utilities in five Canadian provinces and three Caribbean countries. Fortis owns non-regulated generation assets across Canada and in Belize and Upper New York State, and hotels and commercial real estate in Canada. In 2007, the Corporation's electricity distribution systems met a combined peak electricity demand of approximately 5,700 megawatts ("MW") and its gas distribution systems met a peak day demand of 1,360 terajoules ("TJ"). For additional information on the Corporation's business segments, refer to Note 1 to the Corporation's interim unaudited consolidated financial statements for the three and six months ended June 30, 2008. The key goals of the Corporation's regulated utilities are to operate sound gas and electricity distribution systems, deliver gas and electricity safely and reliably to customers at reasonable rates, and conduct business in an environmentally responsible manner. The Corporation's core utility business is highly regulated. It is segmented by franchise area and, depending on regulatory requirements, by the nature of the assets. Fortis has adopted a strategy of profitable growth with earnings per common share as the primary measure of performance. Key financial highlights, including earnings by reportable segment, for the second quarter and year-to-date periods ended June 30, 2008 and June 30, 2007, are provided in the table below.
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Financial Highlights (Unaudited)
Periods Ended June 30
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Quarter Year-to-date
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($ millions, except
earnings per
common share and
common shares
outstanding) 2008 2007 Variance 2008 2007 Variance
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Revenue 848 566 282 1,994 1,049 945
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Cash flow from
operating
activities 244 68 176 432 162 270
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Net earnings
applicable to
common shares 29 41 (12) 120 83 37
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Basic earnings per
common share ($) 0.19 0.31 (0.12) 0.77 0.69 0.08
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Diluted earnings per
common share ($) 0.18 0.27 (0.09) 0.75 0.61 0.14
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Weighted average
number of common
shares outstanding
(millions) 157.0 131.1 25.9 156.8 120.2 36.6
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Segmented Net Earnings
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Quarter Year-to-date
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2008 2007 Variance 2008 2007 Variance
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Regulated Gas
Utilities -
Canadian
Terasen Gas
Companies (1) 12 1 11 70 1 69
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Regulated Electric
Utilities -
Canadian
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FortisAlberta 7 15 (8) 18 27 (9)
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FortisBC (2) 7 6 1 19 18 1
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Newfoundland Power 10 8 2 16 19 (3)
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Other Canadian (3) 2 4 (2) 6 8 (2)
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26 33 (7) 59 72 (13)
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Regulated Electric
Utilities -
Caribbean (4) (5) 8 (13) 2 12 (10)
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Non-Regulated -
Fortis Generation (5) 7 5 2 13 12 1
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Non-Regulated -
Fortis Properties (6) 7 6 1 10 8 2
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Corporate and
other (7) (18) (12) (6) (34) (22) (12)
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Net Earnings
Applicable to
Common Shares 29 41 (12) 120 83 37
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(1) Comprised of Terasen Gas Inc. ("TGI"), Terasen Gas (Vancouver Island)
Inc. ("TGVI") and Terasen Gas (Whistler) Inc. ("TGWI"). Financial
results are reported from May 17, 2007, the date of acquisition.
(2) Includes the regulated operations of FortisBC Inc. and operating,
maintenance and management services related to the Waneta, Brilliant
and Arrow Lakes hydroelectric generating plants and the distribution
system owned by the City of Kelowna. Excludes the non-regulated
generation operations of FortisBC Inc.'s wholly owned partnership,
Walden Power Partnership.
(3) Includes Maritime Electric and FortisOntario. FortisOntario includes
Canadian Niagara Power and Cornwall Electric.
(4) Includes Belize Electricity, in which Fortis holds an approximate 70
per cent controlling interest; Caribbean Utilities on Grand Cayman,
Cayman Islands, in which Fortis holds an approximate 54 per cent
controlling interest; and wholly owned Fortis Turks and Caicos.
Caribbean Utilities has an April 30 fiscal year end; therefore,
Caribbean Utilities' financial statements are consolidated in the
financial statements of Fortis on a two-month lag basis.
(5) Includes the operations of non-regulated generation assets in Belize,
Ontario, central Newfoundland, British Columbia and Upper New York
State, with a combined generating capacity of 195 MW, mainly
hydroelectric.
(6) Includes 19 hotels with more than 3,500 rooms in eight Canadian
provinces and approximately 2.8 million square feet of commercial real
estate primarily in Atlantic Canada.
(7) Includes Fortis net corporate expenses and, from May 17, 2007, the net
expenses of non-regulated Terasen Inc. ("Terasen") corporate-related
activities and the financial results of Terasen's 30 per cent ownership
interest in CustomerWorks Limited Partnership ("CWLP") and of Terasen's
non-regulated wholly owned subsidiary Terasen Energy Services Inc.
("TES").
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SEGMENTED RESULTS OF OPERATIONS
REGULATED GAS UTILITIES - CANADIAN
Terasen Gas Companies
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Terasen Gas Companies (1)
Financial Highlights (Unaudited)
Periods Ended June 30
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Quarter Year-to-date
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2008 2007 Variance 2008 2007 Variance
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Gas Volumes (TJ) 45,324 17,744 27,580 123,508 17,744 105,764
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($ millions)
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Revenue 390 130 260 1,025 130 895
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Energy Supply Costs 256 73 183 693 73 620
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Operating Expenses 62 28 34 123 28 95
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Amortization 25 12 13 49 12 37
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Finance Charges 30 15 15 63 15 48
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Corporate Taxes 5 1 4 27 1 26
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Earnings 12 1 11 70 1 69
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(1) Financial results are reported from May 17, 2007, the date of
acquisition.
--------------------------------------------------------------------------On May 17, 2007, Fortis acquired all of the issued and outstanding common shares of Terasen. Terasen owns and operates a gas distribution business carried on by TGI, TGVI and TGWI, collectively referred to as the Terasen Gas companies, and is the principal distributor of natural gas in British Columbia. Gas volumes: Gas volumes at the Terasen Gas companies were 45,324 TJ during the second quarter of 2008, up 846 TJ, or 1.9 per cent, from 44,478 TJ reported by the Terasen Gas companies for the full quarter last year. Gas volumes year to date were 123,508 TJ, up 3,080 TJ, or 2.6 per cent, from 120,428 TJ reported by the Terasen Gas companies for the full year-to-date period last year. The increases were driven by higher consumption due to cooler weather compared to the same periods last year. Changes in consumption levels and energy supply costs from those forecasted to set gas distribution rates, do not materially impact earnings as a result of the operation of British Columbia Utilities Commission ("BCUC")-approved regulatory deferral mechanisms. During the second quarter of 2008, net customer additions at TGI and TGVI totalled 845, bringing the total customer count to approximately 921,970 at June 30, 2008. Year-to-date 2008, net customer additions totalled 3,339, lower than net customer additions of 4,199 during the same period last year but in line with expectations. Favourable economic conditions and housing activity in British Columbia continue to positively impact customer growth in the region. Revenue: The Terasen Gas companies contributed a full quarter and half year of revenue of approximately $390 million and $1.0 billion, respectively, compared to revenue of $130 million for a partial second quarter last year. Factors favourably impacting revenue during the second quarter and year-to-date period of 2008 included: (i) increased customer consumption due to cooler weather; (ii) higher gas commodity costs charged to customers; and (iii) an increase in gas distribution rates, effective January 1, 2008, associated with an increase in the 2008 allowed rates of return on common shareholders' equity ("ROE") for TGI and TGVI to 8.62 per cent and 9.32 per cent, respectively, from 8.37 per cent and 9.07 per cent, respectively. Earnings: The Terasen Gas companies contributed a full quarter and half year of earnings of $12 million and $70 million, respectively, compared to earnings of $1 million for a partial second quarter last year. Seasonality materially impacts the earnings of the Terasen Gas companies as a major portion of the gas distributed is used for space heating. Virtually all of the annual earnings of the Terasen Gas companies occur in the first and fourth quarters. The significant factors favourably impacting earnings during the second quarter and year-to-date period of 2008 included the increase in the allowed ROEs, effective January 1, 2008, and lower effective corporate taxes, partially offset by increased amortization costs associated with continued investment in capital assets, and higher finance charges reflective of higher borrowing rates and increased credit facility borrowings. For a discussion of the nature of regulation and material regulatory decisions and applications pertaining to the Terasen Gas companies, refer to "Regulatory Highlights".
REGULATED ELECTRIC UTILITIES - CANADIAN
FortisAlberta
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FortisAlberta
Financial Highlights (Unaudited)
Periods Ended June 30
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Quarter Year-to-date
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2008 2007 Variance 2008 2007 Variance
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Energy Deliveries
(GWh) 3,768 3,650 118 7,906 7,595 311
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($ millions)
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Revenue 75 68 7 148 132 16
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Operating Expenses 32 30 2 65 59 6
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Amortization 21 19 2 41 37 4
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Finance Charges 11 9 2 20 18 2
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Corporate Tax
Expense (Recovery) 4 (5) 9 4 (9) 13
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Earnings 7 15 (8) 18 27 (9)
--------------------------------------------------------------------------Energy Deliveries: Energy deliveries at FortisAlberta increased 118 gigawatt hours ("GWh"), or 3.2 per cent, quarter over quarter and increased 311 GWh, or 4.1 per cent, year to date compared to the same period last year. The increases were due to increased energy demand attributable to customer growth. The number of customers at FortisAlberta increased by 5,500 to approximately 453,500 during the first half of 2008. Revenue: Revenue was $7 million higher quarter over quarter and $16 million higher year to date compared to the same period last year. The increases were mainly due to customer growth; a 6.8 per cent increase in customer distribution rates, effective January 1, 2008; and the accrual of the impact for collection in future customer distribution rates of the increase in the 2008 allowed ROE to 8.75 per cent from 8.51 per cent, effective January 1, 2008. Earnings: FortisAlberta's earnings were $8 million lower quarter over quarter, driven by increased corporate taxes, primarily associated with the regulator-approved Alberta Electric System Operator ("AESO") charges deferral account and the timing of its collection. Quarter over quarter, the impact of customer growth, the increase in customer distribution rates and a higher allowed ROE was partially offset by: (i) higher operating expenses due to increased contracted manpower costs, higher labour and employee-benefit costs associated with increased salaries and number of employees, partially offset by lower general operating expenses; (ii) increased amortization costs associated with continued investment in capital assets and higher amortization rates provided for in the 2008/2009 Negotiated Settlement Agreement ("NSA"); and (iii) increased finance charges due to higher debt levels in support of the Company's significant capital expenditure program. Earnings were $9 million lower year to date compared to the same period last year mainly as a result of increased corporate taxes for the reasons described above for the quarter. Additionally, the impact of (i) higher operating expenses due to increased contracted manpower costs, higher labour and employee-benefit costs associated with increased salaries and number of employees, and higher general operating expenses; and (ii) increased amortization costs and finance charges for the reasons described above for the quarter was more than offset by the impact of customer growth, the increase in customer distribution rates and a higher allowed ROE. FortisAlberta collects from customers and records income taxes on the cash taxes payable method, as approved by its regulator, except for certain regulator-approved deferral accounts whereby income taxes are recorded on the liability method. FortisAlberta does not expect to incur any cash income taxes in 2008. For the second quarter and year-to-date period of 2008, the future corporate income tax expense of $4 million was primarily associated with an increase in the balance of deferred AESO charges. However, for the second quarter and year-to-date period of 2007, a recovery of future income tax expense of $3.5 million and $7 million, respectively, was recorded primarily due to a reduction in the balance of deferred AESO charges. FortisAlberta's AESO charges deferral account captures variances between amounts charged by the AESO to FortisAlberta for transmission tariffs and amounts collected from FortisAlberta's customers through the transmission tariff component of basic customer rates. Subject to regulatory approval, amounts charged by the AESO in excess of amounts collected from customers are deferred as a regulatory asset for future recovery from customers and amounts collected from customers in excess of amounts charged are deferred as a regulatory liability for future refund to customers. Generally, there is a two-year regulatory lag between the deferral of amounts in the AESO charges deferral account and when they are collected from, or refunded to, customers in rates. In 2007, the 2005 deferred AESO charges receivable balance was collected in customer rates. Additionally, FortisAlberta received regulatory approval to sell amounts in its annual AESO charges deferral account. In September 2007 and December 2007, the 2006 deferred AESO charges receivable balance of $28 million and approximately $37 million of the 2007 deferred AESO charges receivable balance, respectively, were sold to a Canadian chartered bank and, as a result, the proceeds were recognized in 2007. To date, FortisAlberta has not entered into any transaction to sell its 2008 deferred AESO charges receivable balance. For a discussion of the nature of regulation and material regulatory decisions and applications pertaining to FortisAlberta, refer to "Regulatory Highlights".
FortisBC
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FortisBC
Financial Highlights (Unaudited)
Periods Ended June 30
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Quarter Year-to-date
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2008 2007 Variance 2008 2007 Variance
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Electricity Sales
(GWh) 673 670 3 1,548 1,549 (1)
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($ millions)
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Revenue 53 52 1 119 115 4
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Energy Supply Costs 12 13 (1) 33 33 -
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Operating Expenses 17 17 - 33 33 -
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Amortization 8 8 - 17 16 1
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Finance Charges 7 6 1 14 12 2
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Corporate Taxes 2 2 - 3 3 -
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Earnings 7 6 1 19 18 1
--------------------------------------------------------------------------Electricity Sales: Electricity sales at FortisBC were comparable quarter over quarter and year to date compared to the same period last year. Electricity sales during the first half of 2008 were impacted by reduced industrial customer loads, as a result of a general slowdown in the forestry sector, largely offset by residential, general service and wholesale customer growth primarily in the Okanagan region. Revenue: Revenue was $1 million higher quarter over quarter and $4 million higher year to date compared to the same period last year. Revenue increased mainly due to: (i) a 2.9 per cent increase in customer rates, effective January 1, 2008, which included the impact of an increase in the 2008 allowed ROE to 9.02 per cent from 8.77 per cent; and (ii) a 0.8 per cent increase in customer rates, effective May 1, 2008, as a result of the flow through to customers of increased purchased power costs from BC Hydro. The increase was partially offset by lower revenue contributions from non-regulated operating, maintenance and management services. Earnings: FortisBC's earnings were $1 million higher quarter over quarter. The impact of the 2.9 per cent increase in electricity rates and decreased energy supply costs, driven by lower average power purchase prices and the receipt of $0.6 million of insurance proceeds associated with a turbine generator failure in 2006, was partially offset by higher finance charges, reflective of the Company's significant capital expenditure program. Earnings were $1 million higher year to date compared to the same period last year. The impact of the 2.9 per cent increase in electricity rates was partially offset by higher amortization costs and finance charges reflective of the Company's significant capital expenditure program. Operating expenses were comparable quarter over quarter and year to date compared to the same period last year. The impact of the timing in 2008 of certain operating and maintenance projects combined with higher labour costs and general inflationary increases was largely offset by lower operating expenses associated with non-regulated operating maintenance and management services. Energy supply costs year to date were comparable to the same period last year. A higher proportion of energy generated from Company-owned hydroelectric generating plants versus power purchased period over period, combined with the receipt of insurance proceeds and lower electricity sales, were offset by higher average power purchase prices. For a discussion of the nature of regulation and material regulatory decisions and applications pertaining to FortisBC, refer to "Regulatory Highlights".
Newfoundland Power
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Newfoundland Power
Financial Highlights (Unaudited)
Periods Ended June 30
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Quarter Year-to-date
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2008 2007 Variance 2008 2007 Variance
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Electricity Sales
(GWh) 1,183 1,172 11 2,899 2,835 64
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($ millions)
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Revenue 120 115 5 284 269 15
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Energy Supply Costs 70 74 (4) 192 180 12
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Operating Expenses 13 13 - 27 27 -
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Amortization 12 9 3 22 19 3
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Finance Charges 9 8 1 17 16 1
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Corporate Taxes 6 3 3 10 8 2
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Earnings 10 8 2 16 19 (3)
--------------------------------------------------------------------------Electricity Sales: Electricity sales at Newfoundland Power increased 11 GWh quarter over quarter, driven by customer growth, partially offset by lower average consumption. Electricity sales increased 64 GWh, or 2.3 per cent, year to date compared to the same period last year, largely due to the combined impact of customer growth and higher average consumption. Revenue: Revenue was $5 million higher quarter over quarter and $15 million higher year to date compared to the same period last year. The increases were driven by electricity sales growth and an average increase in customer rates of 2.8 per cent, effective January 1, 2008, which included the impact of an increase in the 2008 allowed ROE to 8.95 per cent from 8.60 per cent. The increase in revenue also reflected higher amortization of regulatory liabilities in accordance with prescribed regulatory orders. Earnings: Newfoundland Power's earnings were $2 million higher quarter over quarter, reflecting a quarterly shift in the distribution of annual purchased power expense which increased earnings by approximately $2.5 million during the second quarter of 2008. Under the regulated rate structure, annual purchased power expense per kilowatt hour ("kWh") is higher in the winter months and lower in the summer months. During 2007, Newfoundland Power estimated and recognized monthly purchased power expense based on forecast annual average cost per kWh. Differences between the estimated monthly purchased power expense and that based on the actual cost per kWh were adjusted to a regulatory reserve that was discontinued for use effective January 1, 2008. Monthly purchased power expense is now being recorded at actual cost per kWh. As a result of this change, earnings in 2008 are expected to be lower in the first and fourth quarters and higher in the second and third quarters compared to the same periods in 2007. Annual earnings will not be impacted by the shift in quarterly earnings. Excluding the $2.5 million favourable shift in quarterly earnings, as described above, earnings were $7.5 million for the quarter, slightly lower than $8 million for the same quarter last year. Timing differences related to operating expenses and the rebasing of customer rates were partially offset by the 2.8 per cent increase in customer rates. Newfoundland Power's earnings were $3 million lower year to date compared to the same period last year, reflecting the quarterly shift in the distribution of annual purchased power expense which decreased year-to-date earnings by approximately $3.5 million. Excluding the $3.5 million unfavourable shift in earnings, year-to-date earnings were approximately $19.5 million, slightly higher than $19 million for the same period last year. The increase was mainly the result of the 2.8 per cent increase in customer rates along with related timing differences associated with the rebasing of customer rates, and increased electricity sales, partially offset by timing differences related to operating expenses. Amortization costs are allocated quarterly based on gross margin. Amortization costs have increased during 2008 reflecting the regulator-approved recovery of previously deferred amortization costs in customer rates, effective January 1, 2008. Higher effective corporate income tax rates quarter over quarter and year to date compared to the same period last year were driven by decreased deductions taken for tax purposes compared to accounting purposes. For a discussion of the nature of regulation and material regulatory decisions and applications pertaining to Newfoundland Power, refer to "Regulatory Highlights".
Other Canadian Electric Utilities
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Other Canadian Electric Utilities (1)
Financial Highlights (Unaudited)
Periods Ended June 30
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Quarter Year-to-date
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2008 2007 Variance 2008 2007 Variance
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Electricity Sales
(GWh) 508 516 (8) 1,107 1,118 (11)
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($ millions)
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Revenue 61 65 (4) 131 135 (4)
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Energy Supply Costs 40 43 (3) 89 91 (2)
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Operating Expenses 7 7 - 14 14 -
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Amortization 5 4 1 9 8 1
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Finance Charges 5 5 - 9 9 -
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Corporate Taxes 2 2 - 4 5 (1)
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Earnings 2 4 (2) 6 8 (2)
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(1) Includes Maritime Electric and FortisOntario
--------------------------------------------------------------------------Electricity Sales: Electricity sales at Other Canadian Electric Utilities decreased 8 GWh, or 1.6 per cent, quarter over quarter, and decreased 11 GWh, or 1.0 per cent, year to date compared to the same period last year, driven by lower average consumption, in part due to warmer-than-normal weather conditions, the impact of a temporary shutdown of operations of an industrial customer in Ontario and an unscheduled maintenance outage by a large customer at Maritime Electric. Revenue: Revenue was $4 million lower quarter over quarter and year to date compared to the same period last year. Revenue decreased approximately $3 million associated with the repayment, during the second quarter of 2008, of a refund FortisOntario had received during the fourth quarter of 2007. In April 2008, the US Federal Energy Regulatory Commission ("FERC") issued an order stating that the one-time refund of approximately $3 million ($2 million after-tax) received by FortisOntario in December 2007 from Niagara Mohawk Power Corporation ("NIMO"), associated with cross-border transmission interconnection agreements, should not have been originally ordered as FERC does not have jurisdiction over the interconnection agreements in question and, therefore, did not have jurisdiction to order the refund. In May 2008, FortisOntario repaid the refunded amounts to NIMO. Revenue was also lower due to a decrease in customer rates at FortisOntario associated with the flow through to customers of lower energy supply costs in addition to lower electricity sales. The decrease was partially offset by the impact of an average 1.1 per cent increase in basic electricity distribution rates at FortisOntario, effective May 1, 2008, and a 1.8 per cent increase in basic electricity rates at Maritime Electric, effective April 1, 2008. Earnings: Earnings were $2 million lower quarter over quarter and year to date compared to the same period last year. Excluding the one-time $2 million after-tax repayment by FortisOntario of the refund described above, earnings were comparable, reflecting stable operating conditions. In August 2008, FortisOntario and Grimsby Power Inc. entered into a non-binding letter of intent for the acquisition by FortisOntario of a 10 per cent minority interest in Grimsby Power Inc.'s electricity distribution business for a cash payment of approximately $1.1 million plus the provision of services to migrate Grimsby Power Inc.'s customer information system to FortisOntario's SAP-based system. Grimsby Power Inc. serves approximately 10,000 customers in a service territory that is in close proximity to FortisOntario's operations in Fort Erie. The transaction is structured to take advantage of the existing transfer tax holiday which expires in October 2008. The transaction is subject to the completion of due diligence, negotiation, board approval, signing of definitive documentation and receipt of regulatory approvals. For a discussion of the nature of regulation and material regulatory decisions and applications pertaining to Maritime Electric and FortisOntario, refer to "Regulatory Highlights".
REGULATED ELECTRIC UTILITIES - CARIBBEAN
--------------------------------------------------------------------------
Regulated Electric Utilities - Caribbean (1)
Financial Highlights (Unaudited)
Periods Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Average US:CDN
Exchange Rate (2) 1.01 1.10 (0.09) 1.01 1.13 (0.12)
--------------------------------------------------------------------------
Electricity Sales
(GWh) 276 258 18 534 499 35
--------------------------------------------------------------------------
($ millions)
--------------------------------------------------------------------------
Revenue 78 74 4 153 151 2
--------------------------------------------------------------------------
Energy Supply Costs 64 (3) 41 23 104 (3) 85 19
--------------------------------------------------------------------------
Operating Expenses 12 11 1 23 28 (4) (5)
--------------------------------------------------------------------------
Amortization 8 7 1 15 14 1
--------------------------------------------------------------------------
Finance Charges 2 3 (1) 7 7 -
--------------------------------------------------------------------------
Corporate Taxes (1) 1 (2) - 1 (1)
--------------------------------------------------------------------------
Non-Controlling
Interest (2) 3 (5) 2 4 (2)
--------------------------------------------------------------------------
(Loss) Earnings (5) 8 (13) 2 12 (10)
--------------------------------------------------------------------------
(1) Includes Belize Electricity, Caribbean Utilities and Fortis Turks and
Caicos
(2) The reporting currency of Belize Electricity is the Belizean dollar
which is pegged to the US dollar at BZ$2.00 equals US$1.00. The
reporting currency of Caribbean Utilities and Fortis Turks and Caicos
is the US dollar. The Cayman Islands dollar is pegged to the US dollar
at CI$1.00 equals US$1.20.
(3) Energy supply costs during the second quarter of 2008 included an $18
million (BZ$36 million) charge as a result of a regulatory rate
decision by the Public Utilities Commission ("PUC") in Belize in June
2008.
(4) Operating expenses during the first quarter of 2007 included a $4.4
million (US$3.7 million) charge on the disposal of steam-turbine assets
at Caribbean Utilities.
--------------------------------------------------------------------------Electricity Sales: Regulated Electric Utilities - Caribbean electricity sales increased 18 GWh, or 7 per cent, quarter over quarter and increased 35 GWh, or 7.0 per cent, year to date compared to the same period last year. The increases were primarily due to higher demand driven by customer growth. Electricity sales growth is expected to remain strong throughout the second half of 2008. Caribbean Utilities expects sales growth for its fiscal year ended April 30, 2009 to be approximately 5 per cent, slightly lower than sales growth experienced during its previous fiscal year, reflecting the impact of slowing construction trends and the expected impact on tourism of the current downturn being experienced in the U.S. economy. Revenue: Revenue increased $4 million quarter over quarter and increased $2 million year to date compared to the same period last year. Excluding the unfavourable impact of foreign exchange during the second quarter and year to date period, associated with the translation of foreign currency-denominated revenue due to the strengthening of the Canadian dollar against the US dollar compared to the same periods last year, revenue increased $11 million quarter over quarter and increased $21 million year to date compared to the same period last year. Excluding foreign exchange impacts, factors increasing revenue were strong electricity sales growth, the full flow through of higher fuel and oil costs to customers at Caribbean Utilities under the terms of the Company's new transmission and distribution ("T&D") licence, and the flow through of higher fuel and oil costs at Fortis Turks and Caicos. Partially offsetting the above factors was a 3.25 per cent reduction in basic customer rates and the elimination of the hurricane cost recovery surcharge ("CRS") at Caribbean Utilities, effective January 1, 2008, under the terms of the Company's new T&D licence. Earnings: Earnings' contribution was $13 million lower quarter over quarter. However, second quarter 2008 earnings were reduced by $13 million, representing the Corporation's approximate 70 per cent share of $18 million of disallowed previously incurred fuel and purchased power costs at Belize Electricity. The $18 million (BZ$36 million) charge was the result of the PUC's decision on Belize Electricity's 2008/2009 rate application. Excluding the $13 million charge, earnings' contribution was $8 million for the second quarter of 2008, comparable to the same quarter last year. Earnings' contribution was $10 million lower year to date compared to the same period last year. Earnings' contribution year-to-date last year was reduced by approximately $2 million as a result of a charge on the disposal of steam-turbine assets at Caribbean Utilities. Excluding the above item and the $13 million charge associated with Belize Electricity, earnings' contribution increased $1 million year to date compared to the same period last year. Excluding the one-time items in 2008 and 2007 described above and the unfavourable impact of foreign exchange, electricity sales growth and the favourable impact on energy supply costs associated with the movement in deferred fuel costs at Caribbean Utilities were largely offset by higher operating expenses, increased amortization costs, and the 3.25 per cent reduction in basic electricity rates at Caribbean Utilities. The movement in deferred fuel costs was the result of a change in the basis for calculating those costs under Caribbean Utilities' new T&D licence. Excluding the impact of foreign exchange, operating costs increased mainly due to increased activity associated with a high-growth environment, the timing of maintenance activities and increased provisions for bad debts. Amortization costs increased as a result of continued investment in capital assets. In April 2008, Caribbean Utilities and the Government of the Cayman Islands entered into a new exclusive 20-year T&D licence and a new non-exclusive 21.5-year generation licence. Under the new T&D licence, customer rates will be set using an initial targeted rate of return on rate base assets ("ROA") of 10 per cent, down from 15 per cent as allowed under the previous licence. Following the receipt of the new licences, Standard & Poor's ("S&P") affirmed its 'A' credit ratings on Caribbean Utilities' long-term corporate credit and senior unsecured debt and removed the ratings from credit watch. In June 2008, Caribbean Utilities announced a rights offering to shareholders of record on July 14, 2008. The estimated net proceeds of approximately US$28 million will be used to repay credit facility borrowings and to finance capital expenditures. The rights offering closes on August 15, 2008. For additional information on the impact of the new licences and the nature of regulation and material regulatory decisions and applications pertaining to Belize Electricity, Caribbean Utilities and Fortis Turks and Caicos, refer to "Regulatory Highlights".
NON-REGULATED - FORTIS GENERATION
--------------------------------------------------------------------------
Non-Regulated - Fortis Generation (1)
Financial Highlights (Unaudited)
Periods Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Energy Sales (GWh) 312 274 38 600 565 35
--------------------------------------------------------------------------
($ millions)
--------------------------------------------------------------------------
Revenue 22 18 4 41 39 2
--------------------------------------------------------------------------
Energy Supply Costs 2 2 - 4 4 -
--------------------------------------------------------------------------
Operating Expenses 4 4 - 8 8 -
--------------------------------------------------------------------------
Amortization 3 2 1 5 5 -
--------------------------------------------------------------------------
Finance Charges 2 2 - 4 5 (1)
--------------------------------------------------------------------------
Corporate Taxes 2 2 - 5 4 1
--------------------------------------------------------------------------
Non-Controlling
Interest 2 1 1 2 1 1
--------------------------------------------------------------------------
Earnings 7 5 2 13 12 1
--------------------------------------------------------------------------
(1) Includes the operations of non-regulated generation assets in Belize,
Ontario, central Newfoundland, British Columbia and Upper New York State.
--------------------------------------------------------------------------Energy Sales: Energy sales from Non-Regulated - Fortis Generation increased 38 GWh, or 13.9 per cent, quarter over quarter and increased 35 GWh, or 6.2 per cent, year to date compared to the same period last year. The increases were mainly due to higher production in central Newfoundland during the second quarter of 2008 as a result of higher rainfall. At the end of July 2008, the reservoir at the Corporation's generating facility in central Newfoundland was at approximately two-thirds of its maximum energy supply level while the Chalillo reservoir in Belize was at its full supply level. Revenue: Revenue was $4 million higher quarter over quarter. Factors increasing revenue were: (i) higher production; (ii) increased average wholesale energy prices per megawatt hour ("MWh") in Ontario of $46.86 during the second quarter of 2008 compared to $42.93 for the same quarter last year; and (iii) higher average wholesale energy prices per MWh in Upper New York State of US$80.89 for the second quarter of 2008 compared to US$56.97 for the same quarter last year. Partially offsetting the above factors was the unfavourable impact of foreign exchange associated with the translation of foreign currency-denominated revenue, due to the strengthening of the Canadian dollar against the US dollar compared to the same quarter last year. Revenue was $2 million higher year to date compared to the same period last year. Factors increasing revenue were higher production and increased average wholesale energy prices per MWh in Upper New York State of US$76.90 year-to-date 2008 compared to US$56.92 for the same period last year. Partially offsetting the above factors was the unfavourable impact of foreign exchange. Earnings: Earnings were $2 million higher quarter over quarter and $1 million higher year to date compared to the same period last year, driven by increased production and increased average wholesale energy prices, partially offset by the unfavourable impact of foreign exchange associated with the translation of foreign currency-denominated earnings.
NON-REGULATED - FORTIS PROPERTIES
--------------------------------------------------------------------------
Non-Regulated - Fortis Properties
Financial Highlights (Unaudited)
Periods Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
($ millions) 2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Real Estate Revenue 15 14 1 31 28 3
--------------------------------------------------------------------------
Hospitality Revenue 39 33 6 68 59 9
--------------------------------------------------------------------------
Total Revenue 54 47 7 99 87 12
--------------------------------------------------------------------------
Operating Expenses 35 29 6 66 57 9
--------------------------------------------------------------------------
Amortization 3 3 - 7 6 1
--------------------------------------------------------------------------
Finance Charges 6 6 - 12 12 -
--------------------------------------------------------------------------
Corporate Taxes 3 3 - 4 4 -
--------------------------------------------------------------------------
Earnings 7 6 1 10 8 2
--------------------------------------------------------------------------Revenue: Fortis Properties' Real Estate revenue was $1 million higher quarter over quarter and $3 million higher year to date compared to the same period last year. Revenue grew throughout the real estate portfolio and was also significantly impacted by the real estate operations acquired on August 1, 2007 as part of the Delta Regina acquisition. The occupancy rate of the Real Estate Division was 96.7 per cent as at June 30, 2008, up from 96.0 per cent as at June 30, 2007. Hospitality Revenue was $6 million higher quarter over quarter and $9 million higher year to date compared to the same period last year, reflecting revenue contribution from the Delta Regina and improved performance at the Company's hospitality operations in Atlantic Canada. On August 1, 2007, Fortis Properties purchased the Delta Regina in Saskatchewan for approximately $50 million, including acquisition costs. Delta Regina is comprised of 274 hotel rooms, the Saskatchewan Trade and Convention Centre, 52,000 square feet of Class A commercial office space and a parking garage. Revenue per available room for the second quarter was $87.54 compared to $82.11 for the same quarter last year, and year to date was $77.68 compared to $73.84 for the same period last year. The increases were mainly due to higher average room rates. Earnings: Fortis Properties' earnings were $1 million higher quarter over quarter and $2 million higher year to date compared to the same period last year. The increases reflected contributions from the Delta Regina and improved performance at the Company's hospitality operations in Atlantic Canada.
CORPORATE AND OTHER
--------------------------------------------------------------------------
Corporate and Other (1)
Financial Highlights (Unaudited)
Quarter Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
($ millions) 2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Revenue 5 4 1 12 8 4
--------------------------------------------------------------------------
Operating Expenses 3 1 2 6 3 3
--------------------------------------------------------------------------
Amortization 1 1 - 4 2 2
--------------------------------------------------------------------------
Finance Charges (2) 20 15 5 41 26 15
--------------------------------------------------------------------------
Corporate Tax
Recovery (4) (3) (1) (9) (4) (5)
--------------------------------------------------------------------------
Preference Share
Dividends 3 2 1 4 3 1
--------------------------------------------------------------------------
Net Corporate and
Other Expenses (18) (12) (6) (34) (22) (12)
--------------------------------------------------------------------------
(1) Includes non-regulated Terasen corporate-related activities and
financial results of CWLP and TES from May 17, 2007, the date of
acquisition
(2) Includes dividends on preference shares classified as long-term
liabilities
--------------------------------------------------------------------------The Corporate and Other segment captures expense and revenue items not specifically related to any reportable segment. Included in this segment are finance charges including interest on debt incurred directly by Fortis and Terasen Inc. and dividends on preference shares classified as long-term liabilities; dividends on preference shares classified as equity; other corporate expenses, including Fortis and Terasen corporate operating costs, net of recoveries from subsidiaries; interest and miscellaneous revenues; and corporate income taxes. Also included in the Corporate and Other segment are the financial results of CWLP. CWLP is a non-regulated shared-service business in which Terasen holds a 30 per cent interest. CWLP operates in partnership with Enbridge Inc. and provides customer service, meter reading, billing, credit, support and collection services to the Terasen Gas companies and several smaller third parties. CWLP's financial results are recorded using the proportionate consolidation method of accounting. While currently not significant, financial results of TES are also reported in the Corporate and Other segment. TES is a non-regulated wholly owned subsidiary of Terasen. TES expects to increase its activities in the development, building, owning and operating of innovative geoexchange energy systems, community piping and energy transfer systems to harness renewable energy sources. TES is entering into agreements with developers to provide alternative thermal energy systems for both residential and commercial development projects in British Columbia. Revenue: Revenue was $1 million higher quarter over quarter and $4 million higher year to date compared to the same period last year. The increases were mainly due to a full quarter and half year of revenue contribution from CWLP compared to revenue contribution during the same periods last year being from May 17, 2007, the date of acquisition. Net Corporate and Other Expenses: Net corporate and other expenses were $6 million higher quarter over quarter and $12 million higher year to date compared to the same period last year. The increases reflected a full quarter and half year of Terasen acquisition-related finance charges, Terasen corporate and CWLP amortization costs and operating expenses, less revenue contribution from CWLP. This compares to the inclusion, last year, of the above items in the Corporate and other segmented results from May 17, 2007, the date of acquisition. During the second quarter, Fortis issued 9.2 million 5.25% Five-Year Rate Reset First Preference Shares, Series G ("First Preference Shares, Series G") for gross proceeds of $230 million. A significant portion of the proceeds were used to repay amounts outstanding under the Corporation's committed credit facility. The increase in preference share dividends quarter over quarter and year to date compared to the same period last year reflected dividends on the First Preference Shares, Series G. REGULATORY HIGHLIGHTS A summary of the nature of regulation and material regulatory decisions and applications for the Corporation's regulated utilities is as follows:
--------------------------------------------------------------------------
Nature of Regulation
--------------------------------------------------------------------------
Allowed Allowed Returns (%) Supportive Features
Common ----------------------------------------
Regulated Regulatory Equity Future or Historical
Utility Authority (%) 2006 2007 2008 Test Year Used to
Set Rates
--------------------------------------------------------------------------
ROE Cost of Service
------------------- ("COS")/ROE
PBR mechanisms
through 2009:
TGI BCUC 35 8.80 8.37 8.62 TGI: 50/50 sharing
of earnings above or
below the allowed
ROE.
TGVI BCUC 40 9.50 9.07 9.32 TGVI: 100 per cent
retention of
earnings from lower-
than-forecasted
operating and
maintenance costs
but no relief from
increased operating
and maintenance
costs
ROE automatic
adjustment formula
tied to long-term
Canada bond yields
-------------------
Future Test Year
--------------------------------------------------------------------------
FortisBC BCUC 40 9.20 8.77 9.02 COS/ROE
PBR mechanism
through 2008, with
option to continue
in 2009: 50/50
sharing of earnings
above or below the
allowed ROE up to an
achieved ROE that is
200 basis points
above or below the
allowed ROE - excess
to deferral account
ROE automatic
adjustment formula
tied to long-term
Canada bond yields
-------------------
Future Test Year
--------------------------------------------------------------------------
FortisAlberta Alberta 37 8.93 8.51 8.75 COS/ROE
Utilities
Commission
("AUC")
ROE automatic
adjustment formula
tied to long-term
Canada bond yields
--------------------------------------------------------------------------
Future Test Year
--------------------------------------------------------------------------
Newfoundland Newfoundland 45 9.24 8.60 8.95 COS/ROE
Power and Labrador +/- +/- +/-
Board of 50 bps 50 bps 50 bps
Commissioners
of Public
Utilities
("PUB")
ROE automatic
adjustment formula
tied to long-term
Canada bond yields
-------------------
Future Test Year
--------------------------------------------------------------------------
Maritime Island 40 10.25 10.25 10.00 COS/ROE
Electric Regulatory and
Appeals
Commission
("IRAC")
-------------------
Future Test Year
--------------------------------------------------------------------------
FortisOntario Ontario Energy
Board ("OEB")
(Canadian
Niagara Power)
Franchise 46.7 9.00 9.00 9.00 Canadian Niagara
Agreement Power - COS/ROE
(Cornwall
Electric)
Cornwall Electric -
Price cap with
commodity cost flow
through
-------------------
Historical
Test Year
--------------------------------------------------------------------------
ROA Four-year COS/ROA
------------------- agreements
Belize PUC N/A 10.00- 10.00- 10.00
Electricity 15.00 15.00 -------------------
Future Test Year
--------------------------------------------------------------------------
Caribbean Electricity N/A 15.00 15.00 9.00- COS/ROA
Utilities Regulatory 11.00
Authority
("ERA")
Rate-cap adjustment
mechanism based on
published consumer
price indices
-------------------
Historical Test Year
--------------------------------------------------------------------------
Fortis Turks
and Caicos Utilities make N/A 17.50 17.50 17.50 COS/ROA
annual filings
with the Energy
Commission -------------------
Future Test Year
--------------------------------------------------------------------------
--------------------------------------------------------------------------
---------------------------------------------------------------------------
Material Regulatory Decisions and Applications
---------------------------------------------------------------------------
Regulated Utility Summary Description
---------------------------------------------------------------------------
TGI - In December 2007, the BCUC approved various rates
TGVI at TGI, including those for mid-stream and
delivery for residential customers in several
service areas, effective January 1, 2008.
Increased mid-stream costs are flowed through to
customers without markup. The approved rates
also reflect the impact of an increase in the
allowed ROE for 2008 to 8.62 per cent.
- Effective April 1, 2008 and July 1, 2008, the
BCUC approved increases in the commodity rates
charged to customers for natural gas and propane
The commodity cost of natural gas and propane are
flowed through to customers without markup. Every
three months TGI and TGVI review natural gas and
propane commodity prices with the BCUC in order
to ensure the flow through rates charged to
customers are sufficient to cover the cost of
purchasing gas and propane.
- On April 1, 2008, final regulatory approval for
the construction of the 1.5 billion-cubic foot
liquefied natural gas ("LNG") facility on
Vancouver Island was received for a total
estimated cost of approximately $200 million.
---------------------------------------------------------------------------
FortisBC - In December 2007, regulatory approval was
received of the NSA associated with 2008 revenue
requirements resulting in a customer rate
increase of 2.9 per cent, effective January 1,
2008. The rate increase is primarily the result
of the Company's capital investment program.
Rates for 2008 reflect an allowed ROE of 9.02 per
cent.
- In April 2008, the BCUC approved an interim
increase of 0.8 per cent to FortisBC's customer
rates, effective May 1, 2008, as a result of BC
Hydro's recent interim rate increase, which has
increased FortisBC's cost to purchase power from
BC Hydro by 5.06 per cent.
- In June 2008, FortisBC filed its 2009 and 2010
Capital Plan for gross capital expenditures of
approximately $193 million for 2009 and $196
million for 2010. A decision on the application
is expected in the fourth quarter of 2008.
- FortisBC expects to file a 2009 Revenue
Requirements Application with the BCUC during the
fourth quarter of 2008.
---------------------------------------------------------------------------
FortisAlberta - Effective January 1, 2008, FortisAlberta is
regulated by the AUC due to the separation of the
Alberta Energy and Utilities Board into two
separate regulatory bodies.
- In February 2008, regulatory approval was
received of the NSA associated with 2008/2009
revenue requirements resulting in distribution
rate increases of 6.8 per cent, effective January
1, 2008, and 7.3 per cent, effective January 1,
2009. The approved NSA includes forecast gross
capital expenditures of approximately $264
million for 2008 and $296 million for 2009,
primarily to meet customer growth and improve
system reliability. The 2008 revenue
requirements included in the 2008/2009 NSA were
determined using the 2007 ROE of 8.51 per cent.
The impact of the increase in the ROE to 8.75 per
cent for 2008 is subject to deferral-account
treatment and, as such, is being recognized as
earned in 2008 and is expected to be collected in
future customer rates.
- In June 2008, the AUC issued a decision, ruling
that there is sufficient evidence that a review
of the ROE level, the adjustment mechanism and
utility capital structures in a generic
proceeding would be appropriate. In July 2008,
the AUC issued its notice of application,
preliminary scoping document and minimum filing
requirements for the 2009 Generic Cost of Capital
Proceeding. The Proceeding applies to all gas,
electric and pipeline utilities in Alberta that
are regulated by the AUC. A hearing is scheduled
for the first quarter of 2009.
---------------------------------------------------------------------------
Newfoundland - In December 2007, the PUB approved the Company's
Power NSA associated with the 2008 general rate
application, resulting in an average 2.8 per cent
increase in customer rates, effective January 1,
2008. The rate increase is largely driven by
higher amortization costs. The rate increase
also reflects the impact of an increase in the
allowed ROE to 8.95 per cent for 2008.
- The PUB-approved NSA will also result in, among
other things: (i) the amortization of $7.2
million in 2008 and $4.6 million in each of 2009
and 2010 of the remaining $16.4 million balance
of the original December 2005 unbilled revenue
liability; (ii) amortization of approximately
$3.9 million in each of 2008, 2009 and 2010 of
previously deferred amortization expense; (iii)
amortization over a period of three to five years
of certain deferred regulatory balances; and (iv)
for 2008 through 2010, the deferral of variations
in purchase power expense caused by differences
in the actual unit cost of energy and the unit
cost reflected in customer rates to be recovered
from, or refunded to, customers through operation
of the Company's rate stabilization account.
- Effective July 1, 2008, the PUB approved an
average 5.9 per cent increase in customer
electricity rates, reflecting the flow through to
customers, by operation of the rate stabilization
account, of variances in the cost of fuel used to
generate electricity that Newfoundland and
Labrador Hydro sells to Newfoundland Power. The
increase in customer rates will have no impact on
Newfoundland Power's earnings.
- In July 2008, the Company filed its 2009 Capital
Budget Application with the PUC for approximately
$62 million, with more than half of the proposed
capital expenditures relating to replacing aged
and deteriorated components of the electricity
system.
---------------------------------------------------------------------------
Maritime - In January 2008, IRAC approved, as filed, an
Electric increase in basic electricity rates of 1.8 per
cent, effective April 1, 2008, and approved a
maximum allowed ROE of 10.0 per cent for 2008.
- In April 2008, IRAC ordered the energy cost
adjustment mechanism ("ECAM") amortization period
of 12 months to be set at eight months, effective
May 1, 2008. The result is an increase in the
flow through in customer rates of the recovery of
ECAM over the shorter amortization period.
- In July 2008, Maritime Electric filed its 2009
Capital Budget for approximately $20 million,
before customer contributions. A decision on the
Budget is expected late in 2008.
---------------------------------------------------------------------------
FortisOntario - In March 2008, the OEB issued its decision
relating to the 2008 Incentive Regulation
Mechanism ("IRM") application filed by Canadian
Niagara Power. The result is an average 1.1 per
cent increase in electricity distribution rates
for operations in Fort Erie, Port Colborne and
Gananoque, effective May 1, 2008. The increase
is comprised of a 2.1 per cent increase for
inflation, partially offset by a 1 per cent
decrease for a productivity adjustment. Under
the 2008 IRM, Canadian Niagara Power's capital
structure will be deemed at 53.3 per cent debt
and 46.7 per cent equity, as part of the OEB's
plan to move to a 60 per cent debt and 40 per
cent equity capital structure over a three-year
period.
- Effective July 1, 2008, retail rates at Cornwall
Electric decreased by approximately 6.2 per cent,
attributable to a new 11.5 year wholesale
electricity supply contract negotiated with
Hydro-Quebec Energy Marketing by Cornwall
Electric on behalf of its customers. The new
long-term agreement replaces an existing short-
term contract and ensures reliability of supply
and rate stability.
- Canadian Niagara Power expects to file a full COS
rate application before the end of the third
quarter of 2008, for rates effective May 1, 2009,
which will result in the rebasing of distribution
rates based on a future test year.
---------------------------------------------------------------------------
Belize - In March 2008, the newly elected Government of
Electricity Belize repealed December 2007 amendments to the
Electricity (Tariffs, Charges and Quality of
Services Standards) Bylaws. The amendments had
simplified Belize Electricity's rate-setting
methodology, allowed for improved rate
stabilization and settled outstanding matters
related to the PUC's Final Decision on
electricity rates for the period July 1, 2007
through June 30, 2008.
- In March 2008, Belize Electricity filed an
application requesting an increase in the cost of
power component of the average electricity rate
by 15 per cent, or BZ6.5 cents per kWh, as a
result of the rapid increase in the cost of power
due to increasing world oil prices. The
application was disallowed by the PUC who cited
that, in the interim, a decrease in the Company's
operating expenses and capital expenditures
levels would help offset the impact on cash flow
of the increasing cost of power. Additionally,
the PUC indicated it would defer its detailed
analysis of the high deferrals of cost of power
into Belize Electricity's cost of power rate
stabilization account ("CPRSA") until the Annual
Tariff Review Proceeding for the annual tariff
period for July 1, 2008 to June 30, 2009.
- In April 2008, Belize Electricity filed its
Annual Tariff Review Application for the annual
tariff period from July 1, 2008 to June 30, 2009
("2008/2009 Rate Application") requesting a 13.4
per cent increase in the average electricity
rate, as a result of an increase in the cost of
power component of the rate and an increase in
the recovery of the CPRSA.
- In May 2008, the PUC issued its Initial Decision
on Belize Electricity's 2008/2009 Rate
Application. The Initial Decision denied any
average rate increase and approved, among other
things, a retroactive adjustment to Belize
Electricity's CPRSA. Belize Electricity objected
to the Initial Decision, which resulted in a
review of the Initial Decision by a PUC-appointed
Independent Expert. The report of the
Independent Expert echoed many of Belize
Electricity's concerns pertaining to the Initial
Decision.
- In June 2008, the PUC issued its Final Decision
on Belize Electricity's 2008/2009 Rate
Application which rejected most of the
recommendations of the Independent Expert and
failed to increase the average electricity rate.
The PUC also ordered a BZ$36 million retroactive
adjustment associated with Belize Electricity's
prior years' financial results. The adjustment,
in substance, represented the disallowance of
previously incurred fuel and purchased power
costs. The PUC also reduced Belize Electricity's
target allowed ROA to 10 per cent from 12 per
cent. The Final Decision would have the impact
of reducing Fortis' share of Belize Electricity's
earnings by approximately $5 million over the
next 12 months. The Final Decision also proposes
the future use of an automatic mechanism to
adjust on a monthly basis the cost of power
component of rates to reflect actual costs of
power. The Final Decision does not impact the
Corporation's non-regulated generation operations
in Belize.
- As a direct result of the Final Decision, Belize
Electricity has recorded an $18 million (BZ$36
million) charge ($13 million of which is Fortis'
share) to energy supply costs during the second
quarter of 2008.
- Belize Electricity filed an application for
judicial review and appeal of the Final Decision
with the Supreme Court of Belize on July 25,
2008.
---------------------------------------------------------------------------
Caribbean Utilities - In December 2007, an Agreement in Principle
("AIP") was reached with the Government of the
Cayman Islands on the terms of a new exclusive
T&D licence and a new non-exclusive generation
licence.
- In April 2008, the new licences were granted.
The terms of the new licences include competition
for future generation capacity and general
promotion of renewable resources of energy. The
T&D licence is for an initial period of 20 years,
expiring April 2028, with a provision for
automatic renewal. The generation licence is for
a period of 21.5 years, expiring September 2029.
The terms of the new licences remained
substantially the same as the terms outlined in
the AIP.
- Effective January 1, 2008, as a result of the AIP
and subsequent granting of the new licences,
basic customer rates were reduced by 3.25 per
cent, the CRS was removed, a fuel-duty rebate
funded by the Government of the Cayman Islands
was implemented for residential customers
consuming less than 1,500 kWh monthly, and basic
rates were restructured to extract all fuel costs
and licence fee amounts which are now to be fully
flowed through to customers. The 3.25 per cent
reduction in basic rates will reduce annual
revenue by approximately US$2.1 million.
Additionally, Caribbean Utilities has forgone
US$2.6 million of revenue in 2008 as a result of
the early elimination of the CRS. A new fuel and
oil rate factor was also established to provide
for full flow through of fuel and oil costs to
customers.
- Following the initial basic rate reduction,
customer rates will be frozen until May 31, 2009
and will be subject to annual review and
adjustment each June thereafter. Under the new
T&D licence, a mechanism will be used to adjust
basic rates in accordance with a formula that is
based on published consumer price indices,
thereby taking inflation into account. The rate-
adjustment mechanism is designed to maintain
Caribbean Utilities' ROA in a targeted range of 9
per cent to 11 per cent, down from an allowed ROA
of 15 per cent that was permitted under the
previous licence. The recently amended
Electricity Regularity Authority Law (2005
Revision) provides for the conduct of a
competitive bid process to be managed by the ERA
for new generating capacity and the replacement
of retired generating capacity. The first
competitive process under the new generation
licence began in May 2008 with a filing of a
Certificate of Need by Caribbean Utilities for
the installation of 16 MW of additional
generating capacity in each of 2011 and 2012.
- In July 2008, Caribbean Utilities filed with the
regulator a Five-Year Capital Investment Plan
totalling US$255 million, including US$80 million
related to new generation that is expected to be
solicited. A decision on the Plan is expected
during the second half of 2008.
- In July 2008, Caribbean Utilities began a formal
request for expressions of interest from
qualified wind-generation developers for a wind-
generation project for up to 10 MW. The ERA has
endorsed this initiative and any power purchase
agreements or generating licence arising from
this initiative will be subject to ERA approval.
---------------------------------------------------------------------------
Fortis Turks and Caicos - In March 2008, Fortis Turks and Caicos submitted
its 2007 annual regulatory filing outlining the
Company's performance in 2007 and its capital
Expansion plans for 2008. Fortis Turks and
Caicos' achieved ROA in 2007 was less than that
permitted under its licences; however, the
Company did not seek any basic rate increases in
2008.
- In May 2008, Fortis Turks and Caicos received
approval from the Government of Turks and Caicos
Islands to supply wholesale electricity under an
exclusive licence to Dellis Cay on the Turks and
Caicos Islands.
---------------------------------------------------------------------------CONSOLIDATED FINANCIAL POSITION The following table outlines the significant changes in the consolidated balance sheets between June 30, 2008 and December 31, 2007.
---------------------------------------------------------------------------
Fortis Inc.
Significant Changes in the Consolidated Balance Sheets (Unaudited)
between June 30, 2008 and December 31, 2007
---------------------------------------------------------------------------
Increase/
(Decrease)
Balance Sheet Account ($ millions) Explanation
---------------------------------------------------------------------------
Accounts receivable 101 The increase was primarily due to $208
million associated with recording an
increase in the fair market value of
the natural gas derivative contracts,
which were in the money at June 30,
2008 and recorded in accounts
receivable, versus out of the money at
December 31, 2007 and recorded in
accounts payable. The increase was
partially offset by the impact of a
seasonal reduction in sales driven by
the Terasen Gas companies, FortisBC and
Newfoundland Power.
---------------------------------------------------------------------------
Regulatory assets - (65) The decrease was driven by a $79
current and long-term million decrease in regulatory
deferrals associated with the change in
the fair market value of the natural
gas derivative contracts, and the
adjustment to Belize Electricity's
CPRSA as a result of a regulatory rate
decision. The decrease was partially
offset by the deferral of an increase
in cost of fuel and power at Maritime
Electric and Caribbean Utilities and
increased AESO charges deferral amounts
at FortisAlberta.
---------------------------------------------------------------------------
Inventories of gas, (15) The decrease was driven by a normal
materials and supplies seasonal reduction of gas in storage.
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Deferred charges and 19 The increase was mainly due to
other assets contributions made by FortisAlberta to
the AESO for transmission capital
projects, partially offset by
amortization for the six months ended
June 30, 2008.
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Utility capital assets 214 The increase primarily related to $381
million invested in electricity and gas
systems, partially offset by
amortization for the six months ended
June 30, 2008, and the impact of
foreign exchange on the translation of
US dollar-denominated utility capital
assets.
---------------------------------------------------------------------------
Short-term borrowings (196) The decrease was primarily due to
seasonality of operations at the
Terasen Gas companies, including the
impact of decreased purchases of gas
inventories, in addition to the
repayment of short-term borrowings by
TGI and Maritime Electric with proceeds
from the issuance of long-term debt.
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Accounts payable and (108) The decrease was driven by $79 million
accrued charges associated with recording the change in
the fair market value of the natural
gas derivative contracts, in addition
to the timing of FortisAlberta's
payments to the AESO for transmission
costs and decreased amounts owing for
purchased power at Newfoundland Power
due to seasonality of operations.
---------------------------------------------------------------------------
Income taxes payable 29 The increase was mainly due to the
timing of income tax payments and the
accrual of current income tax expense
at the Terasen Gas companies.
---------------------------------------------------------------------------
Regulatory liabilities 236 The increase was driven by a $208
- current and long-term million increase in regulatory
deferrals associated with the change in
the fair market value of the natural
gas derivative contracts.
---------------------------------------------------------------------------
Long-term debt and (17) The decrease was primarily due to a net
capital lease $477 million decrease in committed
obligations (including credit-facility borrowings, driven by
current portion) net repayments by the Terasen Gas
companies and the Corporation,
partially offset by the impact of the
issuance of long-term debt.
The issuance of long-term debt,
primarily to repay committed credit-
facility borrowings, short-term
borrowings and $188 million of maturing
long-term debt, was comprised of a $100
million senior unsecured debenture
offering by FortisAlberta, a $60
million secured first mortgage bond
issue by Maritime Electric, a $250
million unsecured debenture offering by
TGVI and a $250 million unsecured
debenture offering by TGI.
---------------------------------------------------------------------------
Shareholders' equity 292 The increase was driven by a $230
million preference share issue, $225
million net of after-tax expenses,
combined with net earnings reported for
the six months ended June 30, 2008,
less common share dividends. The
remainder of the increase related to
the issuance of Common Shares under the
Corporation's share purchase, dividend
reinvestment and stock option plans.
---------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The following table outlines the summary of cash flows.
--------------------------------------------------------------------------
Fortis Inc.
Summary of Cash Flows (Unaudited)
Periods Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
($ millions) 2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Cash, beginning
of period 67 43 24 58 41 17
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Cash provided by
(used in)
--------------------------------------------------------------------------
Operating
activities 244 68 176 432 162 270
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Investing
activities (215) (1,429) 1,214 (358) (1,547) 1,189
--------------------------------------------------------------------------
Financing
activities (37) 1,383 (1,420) (73) 1,409 (1,482)
--------------------------------------------------------------------------
Foreign currency
impact on cash
balances - (2) 2 - (2) 2
--------------------------------------------------------------------------
Cash, end of period 59 63 (4) 59 63 (4)
--------------------------------------------------------------------------Operating Activities: Cash flow from operating activities, after working capital adjustments, was $176 million higher quarter over quarter. The Terasen Gas companies contributed $142 million of the increase, due to seasonality of operations and the fact that the Terasen Gas companies contributed to the financial results of the Corporation last year only from May 17, 2007, the date of acquisition. The remaining increase was driven by favourable working capital timing differences at Newfoundland Power and FortisAlberta. Cash flow from operating activities, after working capital adjustments, was $270 million higher year to date compared to the same period last year. An increase in cash flow from operating activities, after working capital adjustments, of $296 million by the Terasen Gas companies, combined with the impact of favourable working capital timing differences and recovery of regulatory deferral balances at Newfoundland Power, was partially offset by the impact of the timing of the payment of AESO transmission cost accruals at FortisAlberta. Investing Activities: Cash used in investing activities was $1.21 billion lower quarter over quarter and $1.19 billion lower year to date compared to the same period last year. Investing activities last year, however, included the impact of the May 2007 acquisition of Terasen for $3.7 billion, including assumed debt of $2.4 billion, net of cash acquired. The acquisition resulted in a cash payment, including acquisition costs, of approximately $1.25 billion. Excluding the impact of the investment in Terasen last year, cash used in investing activities was $37 million higher quarter over quarter and $64 million higher year to date compared to the same period last year. The increases were driven by higher utility capital expenditures and changes in deferred charges, other assets and deferred credits. Year to date, the increase was partially offset by an increase in proceeds from the sale of capital assets, driven by $14 million of proceeds received in January 2008 associated with the December 2007 sale of surplus land by TGI. Gross utility capital expenditures were $219 million for the second quarter of 2008, $26 million higher than for the same quarter last year. Gross utility capital expenditures were $381 million year to date, $54 million higher than for the same period last year. The increases were driven by capital expenditures incurred at the Terasen Gas companies, partially offset by lower capital spending at FortisBC. The net increase in the use of cash associated with changes in deferred charges, other assets and deferred credits of $10 million quarter over quarter and $14 million year to date compared to the same period last year was driven by higher contributions by FortisAlberta to AESO transmission capital projects. Financing Activities: Cash used in financing activities was $37 million during the second quarter compared to cash provided by financing activities of $1.38 billion during the same quarter last year. Financing activities last year, however, included the impact of the issuance of Common Shares for gross proceeds of $1.15 billion, upon conversion of Subscription Receipts that were initially issued in March 2007, to finance a significant portion of the cash purchase price of Terasen. Excluding the impact of financing the acquisition of Terasen last year, cash used in financing activities was $293 million higher quarter over quarter and $380 million higher year to date compared to the same period last year. Net repayments of short-term borrowings were $163 million for the second quarter of 2008 and $196 million year-to-date 2008. The net repayments were driven by the Terasen Gas companies and Maritime Electric. Net repayments of short-term borrowings were $26 million for the second quarter of 2007 and $70 million year-to-date 2007. The net repayments were mainly due to the Terasen Gas companies, partially offset by net borrowings by FortisBC. Proceeds from long-term debt, net of issue costs, net (repayments) borrowings under committed credit facilities, and repayments of long-term debt and capital lease obligations for the quarter and year to date compared to the same periods last year are summarized in the following tables.
--------------------------------------------------------------------------
Proceeds from Long-Term Debt, Net of Issue Costs (Unaudited)
Periods Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
($ millions) 2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Terasen Gas
companies 247(1) - 247 496(1) - 496
(2)
--------------------------------------------------------------------------
FortisAlberta 99(3) - 99 99(3) 110(4) (11)
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Maritime Electric 60(5) - 60 60(5) - 60
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Caribbean Utilities - 32(6) (32) - 32(6) (32)
--------------------------------------------------------------------------
Other 3 1 2 4 1 3
--------------------------------------------------------------------------
Total 409 33 376 659 143 516
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(1) Issued May 2008, $250 million 5.80% Medium-Term Note Debentures by TGI,
due May 2038. The net proceeds were primarily used to repay maturing
$188 million 6.20% debentures and short-term borrowings.
(2) Issued February 2008, $250 million 6.05% Medium-Term Note Debentures by
TGVI, due February 2038. The net proceeds were used to repay committed
credit-facility borrowings.
(3) Issued April 2008, $100 million 5.85% Senior Unsecured Debentures, due
April 2038. The net proceeds were used to repay committed credit-
facility borrowings.
(4) Issued January 2007, $110 million 4.99% Senior Unsecured Debentures,
due January 2047. The net proceeds were used to repay committed
credit-facility borrowings.
(5) Issued April 2008, $60 million 6.05% Secured First Mortgage Bonds, due
April 2038. The proceeds were used to repay short-term borrowings.
(6) Issued June 2007, US$30 million 5.65% Senior Unsecured Notes, due June
2022. The proceeds were used to repay debt and to finance capital
expenditures.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net (Repayments) Borrowings Under Committed Credit Facilities (Unaudited)
Periods Ended June 30
--------------------------------------------------------------------------
Quarter Year-to-date
--------------------------------------------------------------------------
($ millions) 2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Terasen Gas
companies 4 - 4 (261) - (261)
--------------------------------------------------------------------------
FortisAlberta (74) 24 (98) (2) (72) 70
--------------------------------------------------------------------------
FortisBC 8 19 (11) 8 10 (2)
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Newfoundland Power (34) 14 (48) (14) 31 (45)
--------------------------------------------------------------------------
Corporate (170) 243 (413) (208) 213 (421)
--------------------------------------------------------------------------
Total (266) 300 (566) (477) 182 (659)
--------------------------------------------------------------------------Borrowings by the utilities under committed credit facilities are primarily in support of their respective capital expenditure programs and/or for working capital requirements. Repayments are primarily financed through the issuance of long-term debt and/or cash from operations. From time to time, proceeds from preference share, common share and long-term debt issuances are used to repay borrowings under the Corporation's committed credit facility. During the second quarter of 2008, a net repayment of $170 million under the Corporation's committed credit facility was financed with partial proceeds from the issuance of $230 million preference shares ($223 million net of costs). The remaining proceeds from the preference share offering were lent to Newfoundland Power to repay certain committed credit-facility borrowings, and were used for other general corporate purposes. During the second quarter last year, borrowings under the Corporation's committed credit facility primarily related to financing, on an interim basis, the remaining $125 million net cash purchase price of Terasen on May 17, 2007, in addition to certain acquisition costs and Common Share issuance costs; to repay certain short-term indebtedness assumed upon the acquisition of Terasen; and for general corporate purposes. During | ||||