HALIFAX, April 27 /CNW/ - (EMA-TSX): Emera Inc.'s consolidated net earnings were $39.7 million in Q1 2007, compared to $43.6 million for the same period in 2006. Earnings were $11.3 million lower quarter over quarter at Nova Scotia Power, but higher across the rest of Emera's investment portfolio. Earnings per share were $0.36 in Q1, 2007, compared to $0.40 in the prior year.
"We achieved some important milestones in Q1 on our two key goals, improving returns in our existing businesses and growing Emera through higher return investments," said Chris Huskilson, President and Chief Executive Officer of Emera Inc. "Nova Scotia Power worked productively with stakeholders to a successful rate settlement, which is key to improving the consistency of its returns. Bangor Hydro's new international transmission line is 60% complete. Bear Swamp finalized a capacity agreement that will add new revenue. Brunswick Pipe received a positive environmental report from the NEB. And Energy Services completed a contract to manage natural gas purchases and associated power sales for the largest combined cycle gas generating station in the country. It was a productive quarter."
Nova Scotia Power's contribution to consolidated earnings was $26.1 million in Q1 2007, compared to $37.4 million in Q1 2006. Electricity margin (revenues less fuel for generation and purchased power) was $12.1 million lower quarter over quarter ($7.5 million after tax). This reflects the return to operation of a large industrial customer, which increased sales volume but was serviced by higher marginal cost production, and lower natural gas resale margins. In addition, operating, maintenance and general expenditures were $4.1 million higher quarter over quarter ($2.5 million after tax), primarily due to higher storm costs and increased plant maintenance. Nova Scotia Power implemented an average 3.8% electricity rate increase on April 1, 2007. Hearings on the establishment of a Fuel Adjustment Mechanism are scheduled to begin June 18, 2007.
"We knew Nova Scotia Power's earnings would be pressured in Q1 because of the timing of new rates," said Mr. Huskilson. "We are satisfied with what NSPI was able to achieve under challenging circumstances this quarter."
Bangor Hydro Electric contributed $6.8 million to consolidated net earnings in Q1 2007, compared to $3.7 million in Q1 2006, primarily due to the capitalization of $2.2 million of overhead expenses and allowance for funds used during construction to the Northeast Reliability Interconnect project. Also, colder temperatures quarter-over-quarter increased residential revenues.
Emera's Other operations contributed $6.8 million to net earnings in Q1 2007, compared to $2.5 million in Q1 2006. Emera Energy Services, the Maritimes & Northeast Pipeline (M&NP), and the Bear Swamp merchant generating facility all reported higher earnings. Energy Services benefited from cold weather in the northeast, which increased its natural gas marketing opportunities. M&NP received approval from the US Federal Energy Regulatory Commission to expand the US portion of the pipeline system to carry volumes from the proposed Brunswick Pipeline. As a result, M&NP was able to capitalize certain related costs in Q1 2007 which had been expensed in prior periods.
The Bear Swamp generating station is a pumped-storage hydro facility that typically pumps water into its reservoir using lower priced off-peak power, and uses that hydro capacity to generate electricity during higher priced on-peak periods. During the quarter, Bear Swamp finalized a long term Power Purchase Agreement with the Long Island Power Authority (LIPA) providing LIPA with 345 MW of capacity to May 31, 2010, and 100 MW thereafter, to April 30, 2021. In addition, Bear Swamp will provide LIPA with 12,200 MW/hr of super peak and peak energy weekly, at an escalating fixed price over the 14 year term of the agreement. Bear Swamp has contracted with its parent companies, Emera and Brookfield Power for the power supply necessary to produce the requirements of the LIPA agreement.
"Contracting a portion of Bear Swamp provides a dependable earnings stream, but still preserves an opportunity for upside that is necessary to optimize a merchant facility," said Mr. Huskilson.
Forward Looking Information
This news release contains forward looking information. Actual future results may differ materially. Additional financial and operational information is filed electronically with various securities commissions in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR).
Teleconference Call
Emera is hosting a teleconference at 3:00 pm Atlantic time today (2:00 pm Toronto/Montreal/New York; 1:00 pm Winnipeg; 11:00 am Vancouver) to discuss the Q1 2007 financial results.
Analysts and other interested parties wanting to participate in the call should dial 1-888-575-8232 (in Toronto 416-406-6419) at least 10 minutes prior to the start of the call. No pass code is required. The teleconference will be recorded. If you are unable to join the teleconference live, you can dial for playback toll-free at 1-800-408-3053 (in Toronto 416-695-5800), access code 3220368(number sign) (available until midnight, Friday, May 11, 2007). The teleconference will also be web cast live at www.emera.com and available for playback for one year.
About Emera
Emera Inc. (EMA-TSX) is an energy and services company with $4.0 billion in assets. Electricity is Emera's core business. The company has two wholly-owned regulated electric utility subsidiaries, Nova Scotia Power Inc. and Bangor Hydro-Electric Company, which together serve 590,000 customers. Emera also owns 19% of St. Lucia Electricity Services Limited, which serves more than 50,000 customers on the Caribbean island of St. Lucia. In addition to its electric utility investments, Emera has a joint venture interest in Bear Swamp, a 600 megawatt pumped storage hydro-electric facility in northern Massachusetts; a 12.9% interest in the Maritimes & Northeast Pipeline; and Emera Energy Services which manages energy assets on behalf of third parties and provides related services. Visit Emera on the web at www.emera.com.
Management's Discussion & Analysis
As at April 27, 2007
Management's Discussion and Analysis ("MD&A") provides a review of the
results of operations of Emera Inc. and its primary subsidiaries and
investments during the first quarter of 2007 relative to 2006, and its
financial position at March 31, 2007 relative to 2006. Certain factors that
may affect future operations are also discussed. Such comments will be
affected by, and may involve, known and unknown risks and uncertainties that
may cause the actual results of the company to be materially different from
those expressed or implied. Those risks and uncertainties include, but are not
limited to, weather, commodity prices, interest rates, foreign exchange,
regulatory requirements and general economic conditions. To enhance
shareholders' understanding, certain multi-year historical financial and
statistical information is presented.
This discussion and analysis should be read in conjunction with the
Emera Inc. unaudited consolidated financial statements and supporting notes as
at and for the three month period ended March 31, 2007 and the Emera Inc. MD&A
and annual audited consolidated financial statements and supporting notes as
at and for the year ended December 31, 2006. Emera follows Canadian Generally
Accepted Accounting Principles ("GAAP"). Emera's wholly-owned subsidiary, Nova
Scotia Power Inc.'s accounting policies are subject to examination and
approval by the Nova Scotia Utility and Review Board. Emera's wholly-owned
subsidiary, Bangor Hydro-Electric Company's accounting policies are subject to
examination and approval by the Maine Public Utilities Commission and the
Federal Energy Regulatory Commission. The rate-regulated accounting policies
of Nova Scotia Power and Bangor Hydro may differ from GAAP for non
rate-regulated companies.
Throughout this discussion, "Emera Inc." and "Emera" refer to Emera Inc.
and all of its consolidated subsidiaries and affiliates.
All amounts are in Canadian dollars ("CAD") except for the Bangor Hydro
section of the MD&A, which is reported in US dollars ("USD") unless otherwise
stated.
Additional information related to Emera, including the company's Annual
Information Form, can be found on SEDAR at www.sedar.com.
INTRODUCTION AND STRATEGIC OVERVIEW
The core business of Emera is electricity. The company owns and operates
two regulated electric utilities in northeastern North America. Both
businesses operate as monopolies in their service territories, and together
typically comprise approximately 90% of Emera's consolidated earnings:
- Nova Scotia Power Inc. ("NSPI") is an electricity generation,
transmission and distribution company, providing service to the vast
majority of the province of Nova Scotia. NSPI has over $3 billion in
assets, and 475,000 customers.
- Bangor Hydro-Electric Company ("BHE") is an electricity transmission
and distribution company with $650 million in assets serving
115,000 customers in eastern Maine. BHE is a cost of service utility,
with an alternate rate plan ("ARP") for its distribution operations.
The success of Emera's electric utilities is integral to the creation of
shareholder value, providing substantial earnings and cash flow to fund
dividends and reinvestment. Nova Scotia and Maine are mature electricity
markets, with annual demand growth of approximately 2%. Accordingly, Emera
must look beyond its existing regulated electricity business to supplement
organic growth.
Emera's plan for growth leverages its core strength in the electricity
business. Emera will pursue investments in both acquisitions and greenfield
development opportunities in regulated electricity transmission and
distribution and low risk generation. Emera will also capitalize on investment
opportunities in related energy infrastructure businesses appropriate to its
risk profile, where its development, commercial and operational skills are
needed.
Emera's other investments include:
- Emera Energy Services, a wholly owned subsidiary, which purchases and
sells natural gas and electricity on behalf of third parties and
provides related energy asset management services.
- Bear Swamp, a 50/50 joint venture in a 600 megawatt pumped storage
hydro-electric facility in northern Massachusetts.
- A 12.9% interest in the $2 billion, 1,300 kilometer Maritimes &
Northeast Pipeline ("M&NP") that transports Nova Scotia's offshore
natural gas to markets in Maritime Canada and the northeastern United
States.
- Brunswick Pipeline, a proposed 145 kilometer greenfield pipeline
project under development that will deliver natural gas from the
planned Canaport(TM) Liquefied Natural Gas import terminal near
Saint John, New Brunswick, to markets in Canada and the US northeast.
Most recently, Emera invested $22 million USD in January 2007 to acquire a
19% equity interest in St Lucia Electricity Services Limited ("Lucelec"), a
vertically integrated electric utility serving more than 50,000 customers on
the Caribbean island of St. Lucia.
Implementation of New Accounting Standards in Q1 2007
The Canadian Institute of Chartered Accountants ("CICA") has introduced
new classification and measurement requirements for financial instruments,
which Emera has adopted in the preparation of its Q1 2007 financial
statements. These changes affect the accounting for several elements of
Emera's business including:
- hedges the company uses to manage risk of fluctuations in commodity
prices, interest rates, and foreign exchange;
- Nova Scotia Power's natural gas supply contracts; and
- forward sales of electricity at Bear Swamp.
In some instances, the new accounting requirements result only in a
reclassification of amounts to new balance sheet accounts. For example,
"energy marketing assets and liabilities" have been reclassified as "assets
held for trading". A more significant change is the new requirement to record
the fair value of hedges, Nova Scotia Power's natural gas contracts, and
forward sales of electricity at Bear Swamp as assets and liabilities on the
company's balance sheet. The recognition of these items beginning January 1,
2007 increased Emera's total assets by $193.6 million, with a corresponding
increase of $193.6 million on the liabilities and shareholders' equity side of
the balance sheet. The net effect for the three month period ended March 31,
2007 of the implementation of these changes is a $0.7 million after-tax
reduction in net earnings.
More detail on the implementation of these new accounting standards is
provided later in this Management's Discussion and Analysis, and in Note 3 to
the financial statements.
Structure of MD&A
This MD&A has been prepared in accordance with the Canadian Securities
Administrators National Instrument 51-102 Management's Discussion & Analysis.
This Management's Discussion and Analysis begins with an overview of
consolidated results; then presents information on the company's two primary
subsidiaries, NSPI and BHE. All other operations, including the Emera Energy
Services, Bear Swamp, Brunswick Pipeline, Maritimes & Northeast Pipeline,
Lucelec, and corporate activities are grouped and discussed as "Other".
Significant changes in the consolidated balance sheets, outstanding share
data, liquidity and capital resources, financial and commodity instruments,
transactions with related parties, changes in accounting policies, and
selected quarterly trend information are presented on a consolidated basis.
EMERA CONSOLIDATED
Q1 Operating Unit Contributions
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Nova Scotia Power $ 26.1 $ 37.4
-------------------------------------------------------------------------
Bangor Hydro-Electric 6.9 3.7
-------------------------------------------------------------------------
Other 6.7 2.5
-------------------------------------------------------------------------
Consolidated net earnings $ 39.7 $ 43.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - basic $ 0.36 $ 0.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - diluted $ 0.35 $ 0.38
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Review of 2007
Emera Inc.'s consolidated earnings decreased $3.9 million to $39.7 million
in Q1 2007 compared to $43.6 million for the same period in 2006. Highlights
of the changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Consolidated net earnings - 2006 $ 43.6
-------------------------------------------------------------------------
Decreased net earnings in NSPI due to reduced
electric margin and higher operating, maintenance
and general expenses (11.3)
-------------------------------------------------------------------------
Increased net earnings in Bangor Hydro due to
increased capitalized costs associated with the
Northeast Reliability Interconnect transmission project 3.2
-------------------------------------------------------------------------
Increased net earnings in Other due to increased natural
gas marketing opportunities and M&NP's capitalization
of prior years' expansion costs, partially offset by
increased business development activity 4.2
-------------------------------------------------------------------------
Consolidated net earnings - 2007 $ 39.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Q1 basic earnings per share were $0.36 in 2007 compared to $0.40 in 2006.
NOVA SCOTIA POWER INC.
Overview
NSPI is the primary electricity supplier in Nova Scotia, providing over
95% of electricity generation, transmission and distribution in the province.
Nova Scotia Power is regulated under a cost of service model, with rates set
to recover prudently incurred costs of providing electricity service to
customers, and provide an opportunity to earn a prescribed return on equity.
The company is regulated by the Nova Scotia Utility and Review Board ("UARB").
2007 Rate Decision
In February 2007 the UARB approved an average increase in electricity
rates of 3.8% effective April 1, 2007. The rate increase was part of a
settlement agreement between NSPI and key stakeholders. NSPI's return on
equity range was unchanged, at 9.3% to 9.8%.
A central provision of the settlement is an agreement in principle that
the UARB should establish a fuel adjustment mechanism ("FAM") for Nova Scotia
Power to ensure actual fuel costs are recovered from customers. FAM hearings
are scheduled to begin June 18, 2007.
Review of 2007
NSPI Q1 Net Earnings
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Electric revenue $ 301.3 $ 261.0
-------------------------------------------------------------------------
Fuel for generation and purchased power 130.9 78.5
-------------------------------------------------------------------------
Operating, maintenance and general 50.3 46.2
-------------------------------------------------------------------------
Provincial grants and taxes 10.1 10.0
-------------------------------------------------------------------------
Depreciation 32.6 31.8
-------------------------------------------------------------------------
Regulatory amortization 1.5 1.5
-------------------------------------------------------------------------
Other (2.4) (2.4)
-------------------------------------------------------------------------
Earnings before interest and income taxes 78.3 95.4
-------------------------------------------------------------------------
Interest 25.0 25.8
-------------------------------------------------------------------------
Amortization of defeasance costs 3.2 3.2
-------------------------------------------------------------------------
Earnings before income taxes 50.1 66.4
-------------------------------------------------------------------------
Income taxes 20.7 25.7
-------------------------------------------------------------------------
Net earnings before preferred dividends 29.4 40.7
-------------------------------------------------------------------------
Preferred dividends 3.3 3.3
-------------------------------------------------------------------------
Contribution to consolidated net earnings $ 26.1 $ 37.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated earnings per common
share $ 0.24 $ 0.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NSPI's contribution to consolidated net earnings decreased $11.3 million
to $26.1 million in Q1 2007, compared to $37.4 million in Q1 2006. Highlights
of the earnings changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2006 $ 37.4
-------------------------------------------------------------------------
Increased electric revenue due to electricity price
increase in mid-March 2006, higher industrial sales
volume, and colder weather year over year, partially
offset by lower export sales volume 40.3
-------------------------------------------------------------------------
Increased fuel expense (52.4)
-------------------------------------------------------------------------
Increased operating expenses due primarily to higher
storm costs and increased plant maintenance (4.1)
-------------------------------------------------------------------------
Decreased income taxes primarily due to lower taxable income 5.0
-------------------------------------------------------------------------
All other (0.1)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $ 26.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Electric Revenue
Q1 Electric Sales Volume Q1 Electric Sales Revenues
Gigawatt hours ("GWh") millions of dollars
---------------------------------- ------------------------------------
2007 2006 2005 2007 2006 2005
---------------------------------- ------------------------------------
Residential 1,330 1,259 1,288 Residential $146.7 $131.0 $123.1
---------------------------------- ------------------------------------
Commercial 869 837 829 Commercial 82.1 75.6 70.5
---------------------------------- ------------------------------------
Industrial 1,012 635 1,040 Industrial 62.2 39.1 56.7
---------------------------------- ------------------------------------
Other 93 183 107 Other 10.3 15.3 9.9
---------------------------------- ------------------------------------
Total 3,304 2,914 3,264 Total $301.3 $261.0 $260.2
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Q1 Average Revenue /
Megawatt hour ("MWh")
----------------------------------
2007 2006 2005
----------------------------------
Dollars
per MWh $91 $90 $80
----------------------------------
----------------------------------
Electric revenues increased by $40.3 million to $301.3 million in Q1 2007
from $261.0 million for the same period in 2006. Revenue increases are
substantially due to the 8.7% rate increase effective March 10, 2006,
increased sales volume due to a large industrial customer returning to
operations in late 2006, and colder weather year over year, partially offset
by lower export sales.
Fuel for Generation and Purchased Power
Q1 Production Volume
GWh
----------------------------------
2007 2006 2005
----------------------------------
Coal &
petcoke 2,487 2,451 2,483
----------------------------------
Natural gas 158 68 41
----------------------------------
Oil 429 221 550
----------------------------------
Renewable 300 316 303
----------------------------------
Purchased
power 194 76 164
----------------------------------
Total 3,568 3,132 3,541
----------------------------------
----------------------------------
Purchased power includes 50 GWh of
wind power in 2007 (2006 - 30 GWh;
2005 - 20 GWh).
Q1 Average Unit Fuel Costs
----------------------------------
2007 2006 2005
----------------------------------
Dollars
per MWh $37 $25 $30
----------------------------------
----------------------------------
For the three months ended March 31, 2007, fuel for generation and
purchased power increased $52.4 million to $130.9 million, compared to
$78.5 million in Q1 2006. Highlights of the changes are summarized in the
following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2006 $ 78.5
-------------------------------------------------------------------------
Increased sales volume due to the return to operation
of a large industrial customer that had been shut-down
for most of 2006 and colder weather year over year 39.0
-------------------------------------------------------------------------
Commodity price increases 8.5
-------------------------------------------------------------------------
Decreased net proceeds from the resale of natural gas 7.7
-------------------------------------------------------------------------
Decreased hydro production 1.1
-------------------------------------------------------------------------
Decreased export sales volume (3.8)
-------------------------------------------------------------------------
All other (0.1)
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2007 $130.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Q1 average unit fuel costs increased in 2007 because sales volume
increases necessitated use of higher marginal cost production, and also due to
a reduction in natural gas margins.
Regulatory Amortization
The UARB has approved recovery, over eight years, of a $147.1 million
regulatory asset related to pre-2003 income taxes that have been paid, but not
yet recovered from customers; and a $16.7 million regulatory asset related to
Q1 2005 taxes not included in rates. Amortization of these regulatory assets
will begin April 1, 2007.
BANGOR HYDRO-ELECTRIC COMPANY
All amounts in the Bangor Hydro section are reported in US dollars unless
otherwise stated.
Overview
BHE's core business is the transmission and distribution ("T&D") of
electricity. Electricity generation is deregulated in Maine, and several
suppliers compete to provide customers with the commodity that is delivered
through the BHE T&D network. BHE is a cost of service utility with an
alternate rate plan for its distribution operations.
BHE estimates the construction of the Northeast Reliability Interconnect
("NRI") electricity transmission line is approximately 60% complete at the end
of the quarter, and on schedule to be in service in Q4 of this year. In
Q1 2007, BHE filed updates to its total project cost estimate with regulatory
agencies and the Independent System Operator in New England. The project cost
is now forecast at $135-$140 million, an approximate 20% increase over earlier
estimates. The change reflects higher costs of mitigating effects of the line
on the Maritimes & Northeast Pipeline, with which it shares a utility
corridor; and increased construction costs due to a wet fall and short winter
construction season. The new cost estimate will be incorporated into rates
effective June 1, 2007.
Review of 2007
Bangor Hydro Q1 Net Earnings
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
T&D electric revenues $ 26.6 $ 25.9
-------------------------------------------------------------------------
Resale of purchased power 3.6 3.9
-------------------------------------------------------------------------
Total electric revenue 30.2 29.8
-------------------------------------------------------------------------
Purchased power and fuel for generation 8.4 7.4
-------------------------------------------------------------------------
Operating, maintenance and general 5.3 7.3
-------------------------------------------------------------------------
Property taxes 1.4 1.4
-------------------------------------------------------------------------
Depreciation 3.3 3.3
-------------------------------------------------------------------------
Regulatory amortization 2.6 3.8
-------------------------------------------------------------------------
Other (2.6) (1.2)
-------------------------------------------------------------------------
Earnings before interest and income taxes 11.8 7.8
-------------------------------------------------------------------------
Interest 2.7 2.4
-------------------------------------------------------------------------
Earnings before income taxes 9.1 5.4
-------------------------------------------------------------------------
Income taxes 3.2 2.2
-------------------------------------------------------------------------
Contribution to consolidated net earnings - USD $ 5.9 $ 3.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated net earnings - CAD $ 6.9 $ 3.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated earnings per common
share - CAD $ 0.06 $ 0.03
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings weighted average foreign exchange
rate - CAD/USD $ 1.17 $ 1.15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's contribution to consolidated net earnings increased by $2.7
million to $5.9 million in Q1 2007 compared to $3.2 million in Q1 2006.
Highlights of the earnings changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2006 $ 3.2
-------------------------------------------------------------------------
Increased overheads and AFUDC capitalized primarily
as a result of capital expenditures on the NRI
transmission project 1.9
-------------------------------------------------------------------------
Increased residential energy sales due to colder
weather year over year 0.8
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $ 5.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's contribution to consolidated net earnings increased
$3.2 million CAD to $6.9 million CAD in Q1 2007 compared to $3.7 million CAD
in Q1 2006, due to the Canadian dollar equivalent of the variances discussed
above.
Electric Revenue
Q1 Electric Sales Volume Q1 Electric Sales Revenues
GWh millions of dollars
---------------------------------- ------------------------------------
2007 2006 2005 2007 2006 2005
---------------------------------- ------------------------------------
Residential 160 154 160 Residential $13.3 $12.6 $14.2
---------------------------------- ------------------------------------
Commercial 152 151 150 Commercial 9.2 9.0 9.9
---------------------------------- ------------------------------------
Industrial 89 95 98 Industrial 3.1 3.2 3.9
---------------------------------- ------------------------------------
Other 3 3 3 Other 1.0 1.1 1.3
---------------------------------- ------------------------------------
Total 404 403 411 Total $26.6 $25.9 $29.3
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Q1 Average Revenue / MWh
----------------------------------
2007 2006 2005
----------------------------------
Dollars
per MWh $66 $64 $71
----------------------------------
----------------------------------
Electric revenues increased by $0.7 million in Q1 2007, to $26.6 million
compared to $25.9 million in Q1 2006 substantially due to increased
residential energy sales due to colder weather year over year.
Regulatory Amortization
Regulatory amortization was $1.2 million lower in Q1 2007 at $2.6 million,
compared to $3.8 million in Q1 2006, primarily due to current year reductions
in amortizations associated with the implementation of a stranded cost rate
reduction effective March 1, 2005.
OTHER
All activities of Emera other than its two wholly-owned regulated electric
utilities are incorporated into Other, including:
- Emera Energy Services, a wholly owned subsidiary, which purchases and
sells natural gas and electricity on behalf of third parties and
provides related energy asset management services. Emera Energy
Services operates with minimal day-to-day commodity risk exposure.
Volatility in natural gas markets usually results in increased
opportunities for Emera Energy Services.
- Bear Swamp, a 50/50 joint venture in a 600 megawatt pumped storage
hydro-electric facility in northern Massachusetts. Bear Swamp typically
pumps water into its reservoir using lower priced off-peak power, and
uses that hydro capacity to generate electricity during higher priced
on-peak periods.
- Brunswick Pipeline, a proposed 145 kilometer greenfield pipeline
project under development that will deliver natural gas from the
planned Canaport(TM) Liquefied Natural Gas import terminal near
Saint John, New Brunswick, to markets in Canada and the US northeast.
Assuming approval from the National Energy Board is granted, the
pipeline is expected to be in service by the end of 2008.
- A 12.9% interest in the $2 billion, 1,300 kilometer Maritimes &
Northeast Pipeline that transports Nova Scotia's offshore natural gas
to markets in Maritime Canada and the northeastern United States.
- A 19% interest in St. Lucia Electricity Services ("Lucelec"), a
vertically integrated electric utility on the Caribbean Island of
St. Lucia, which was acquired in January 2007. Additional details are
provided below.
- Certain corporate-wide functions such as executive management,
strategic planning, treasury services, tax planning, business
development, and corporate governance; and financing for the
corporation's business outside of its regulated electric utilities.
Investment in St. Lucia Electricity Services
St. Lucia Electricity Services Limited is a vertically integrated electric
utility serving more than 50,000 customers on the Caribbean island of St.
Lucia. Emera acquired a 19% equity interest in Lucelec for $22 million USD in
January 2007.
Lucelec has an exclusive license to generate, transmit and distribute
electricity on the island to 2045. The utility has 66 MW of generating
capacity, primarily oil fired, and 800 kilometers of electricity transmission
and distribution assets. Lucelec is a cost of service utility, with a minimum
rate of return of 10% on a 50% equity base. Emera financed the acquisition
with existing credit facilities. Lucelec is expected to add approximately
$1-$2 million to Emera's annual consolidated net earnings.
Emera's strategy recognizes that the Caribbean market has attractive
growth prospects and opportunities for the company to deploy its operational
expertise. This modest investment in Lucelec provides Emera with a low risk
vehicle to assess whether there is broader business potential for the company
in the region, and at the same time, provides immediately accretive and
attractive returns.
Review of 2007
Other Q1 Net Earnings
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Emera Energy Services earnings before interest
and taxes ("EBIT") $ 5.1 $ 3.4
-------------------------------------------------------------------------
Bear Swamp EBIT 3.7 1.8
-------------------------------------------------------------------------
M&NP equity earnings 3.9 1.5
-------------------------------------------------------------------------
Lucelec equity earnings 0.2 -
-------------------------------------------------------------------------
Corporate costs and other (3.6) (2.5)
-------------------------------------------------------------------------
Earnings before interest and income taxes 9.3 4.2
-------------------------------------------------------------------------
Interest 2.1 2.6
-------------------------------------------------------------------------
Earnings before income taxes 7.2 1.6
-------------------------------------------------------------------------
Income taxes 0.5 (0.9)
-------------------------------------------------------------------------
Contribution to consolidated net earnings $ 6.7 $ 2.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated earnings per common
share $ 0.06 $ 0.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The contribution of Other to consolidated net earnings increased
$4.2 million to $6.7 million in Q1 2007, compared to $2.5 million in Q1 2006.
Highlights of the earnings changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2006 $ 2.5
-------------------------------------------------------------------------
Increased Emera Energy Services EBIT due to increased
natural gas marketing opportunities as a result of
colder weather in the northeast 1.7
-------------------------------------------------------------------------
Increased Bear Swamp EBIT due mainly to a change in the
recognized fair value of the Long Island Power Authority
agreement and associated contracts 1.9
-------------------------------------------------------------------------
Increased M&NP equity earnings due to the capitalization
of prior years' expansion costs 2.4
-------------------------------------------------------------------------
Increased corporate costs and other primarily due to
increased business development activity (1.1)
-------------------------------------------------------------------------
All other (0.7)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $ 6.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Emera Energy Services
During Q1 2007, Emera Energy Services ("EES") contracted to manage
Canada's largest combined cycle gas-fired electricity generating facility. The
new Greenfield Energy Center, a 1,010 MW facility located near Sarnia, Ontario
is expected to be in test operations this summer. EES will act as agent for
the facility, managing approximately 197,000 mmbtu/day of natural gas
purchases and associated power sales.
Bear Swamp
During the quarter, Bear Swamp finalized a long-term power purchase
agreement with the Long Island Power Authority ("LIPA") providing LIPA with
345 MW of capacity to May 31, 2010 (approximately 55% of Bear Swamp's total
capacity); and 100 MW thereafter, to April 30, 2021. In addition, Bear Swamp
will provide LIPA with 12,200 MW/hr of super-peak and peak energy weekly,
(approximately 35% of the plant's available energy) at a fixed price over the
14 year term of the agreement. Bear Swamp has contracted with its parent
companies, Emera and Brookfield Power for the power supply necessary to
produce the requirements of the LIPA agreement.
M&NP
Equity earnings for M&NP increased $2.4 million quarter over quarter to
$3.9 million in Q1 2007 compared to $1.5 million in Q1 2006 primarily due to
the capitalization of prior years' expansion costs previously expensed now
that FERC approval for the expansion has been obtained.
Brunswick Pipeline
In Q1 2007, the National Energy Board ("NEB") issued its Environmental
Assessment Report ("EA Report") on the proposed Brunswick Pipeline project.
The main finding of the EA Report is that the project is not likely to result
in significant adverse environmental effects, provided Brunswick Pipeline
meets all of its environmental commitments, and all of the NEB's
recommendations are implemented.
The regulatory process will now see the Federal government prepare a
response to the EA Report, which will require Cabinet approval. The EA Report,
combined with the government's response, will be considered by the NEB as it
makes its regulatory decision under the National Energy Board Act to either
approve or deny Brunswick Pipeline's application. Provided regulatory approval
is received, Brunswick Pipeline is expected to be in service in Q4 2008.
Consolidated Balance Sheets
Significant changes in the consolidated balance sheets between March 31,
2007 and December 31, 2006 include:
Increase
millions of dollars (Decrease) Explanation
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------
Accounts receivable $79.3 Lower accounts receivable securitized,
higher sales volume due to seasonality
and a higher receivable from a natural
gas supplier in NSPI, and increased
trading activity in Emera Energy
Services, partially offset by timing
of payments related to the LIPA
contract in Bear Swamp.
-------------------------------------------------------------------------
Derivatives in a 25.0 Implementation of new accounting
valid hedging standards related to financial
relationship (including instruments and hedges. Balance
long-term portion) represents the fair value of NSPI's
hedges.
-------------------------------------------------------------------------
Held for trading 186.5 Implementation of new accounting
securities (including standards related to financial
long-term portion) instruments and hedges. Balance
represents the fair value of certain
of NSPI's natural gas contracts,
trading instruments in Emera Energy
Services, and instruments held by NSPI
that are not considered valid hedges.
-------------------------------------------------------------------------
Deferred charges (11.9) As a result of implementing new
accounting standards, reclassification
of deferred financing costs, now
netted against long-term debt,
partially offset by the new regulatory
asset recognized in NSPI as a result
of fair valuing certain natural gas
contracts. On-going amortization also
contributed to the decrease.
-------------------------------------------------------------------------
Investments subject to 29.5 Q1 2007 investment in Lucelec.
significant influence
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
-------------------------------------------------------------------------
Short-term debt 145.2 Increased issuance of short-term notes
in NSPI and increased borrowings to
finance the NRI project in Bangor
Hydro.
-------------------------------------------------------------------------
Accounts payable and (37.5) Timing of payments.
accrued charges
-------------------------------------------------------------------------
Income tax payable (26.7) Increased payments in Q1 2007 in NSPI.
-------------------------------------------------------------------------
Derivatives in a valid 24.2 Implementation of new accounting
hedging relationship standards related to financial
(including long-term instruments and hedges. Balance
portion) represents the fair value of NSPI's
hedges.
-------------------------------------------------------------------------
Held for trading 13.4 Implementation of new accounting
securities (including standards related to financial
long-term portion) instruments and hedges. Balance
represents the fair value of certain
of NSPI's natural gas contracts, the
fair value of Bear Swamp's LIPA
contract, trading instruments in Emera
Energy Services, and instruments held
by NSPI that are not considered valid
hedges.
-------------------------------------------------------------------------
Deferred credits 192.6 Implementation of new accounting
standards. Change primarily represents
the new regulatory liability
recognized in NSPI as a result of fair
valuing certain natural gas contracts.
-------------------------------------------------------------------------
Long-term debt (30.3) Decreased short-term debt reclassified
(including current to long-term debt and the netting of
portion) deferred financing costs against
long-term debt as a result of
implementing new accounting standards.
-------------------------------------------------------------------------
Shareholders' equity 12.4 Net earnings in excess of dividends
paid.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional information on the new accounting standards is outlined in the
Changes in Accounting Policies section below.
OUTSTANDING SHARE DATA
Common
Share
Capital
Millions millions
of of
Issued and Outstanding: Shares dollars
-------------------------------------------------------------------------
January 1, 2006 110.10 $1,039.2
-------------------------------------------------------------------------
Issued for cash under purchase plans 0.45 8.6
-------------------------------------------------------------------------
Options exercised under senior management share
option plan 0.38 6.7
-------------------------------------------------------------------------
Share-based compensation - 0.7
-------------------------------------------------------------------------
December 31, 2006 110.93 $1,055.2
-------------------------------------------------------------------------
Issued for cash under purchase plans 0.11 2.4
-------------------------------------------------------------------------
Options exercised under senior management share
option plan 0.02 0.4
-------------------------------------------------------------------------
Share-based compensation - 0.1
-------------------------------------------------------------------------
March 31, 2007 111.06 $1,058.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at April 13, 2007 the number of issued and outstanding common shares
was 111.12 million.
Liquidity and Capital Resources
Emera and Nova Scotia Power have debt shelf prospectuses in the amounts of
$300 million and $400 million respectively that provide the companies with
access to long-term debt. Emera and Nova Scotia Power have $300 million and
$150 million respectively that remained unused at March 31, 2007. The
prospectuses expire in April 2007 and will be renewed in 2007.
Consolidated Cash Flow Highlights
Significant changes in the consolidated cash flow statements between March
31, 2007 and March 31, 2006 include:
Three months ended
March 31
millions of dollars 2007 2006 Explanation
-------------------------------------------------------------------------
Cash and cash $7.6 $21.5
equivalents, beginning
of period
-------------------------------------------------------------------------
Provided by (used in):
-------------------------------------------------------------------------
Operating activities (15.2) 69.1 In 2007, increased non-cash
working capital, partially
offset by cash earnings.
-------------------------------------------------------------------------
In 2006, cash earnings,
partially offset by increased
non-cash working capital.
-------------------------------------------------------------------------
Investing activities (57.4) (27.3) In 2007, capital spending,
including NRI and Brunswick
Pipeline projects, acquisition
of 19% interest in Lucelec,
partially offset by decreased
restricted cash related to
posted margin.
-------------------------------------------------------------------------
In 2006, capital spending and
increased restricted cash
related to posted margin.
-------------------------------------------------------------------------
Financing activities 74.3 (54.5) In 2007, increased debt
levels, partially offset by
dividends on common shares and
decreased accounts receivable
securitized.
-------------------------------------------------------------------------
In 2006, reduced debt levels,
dividends on common shares,
and decreased accounts
receivable securitized.
-------------------------------------------------------------------------
Cash and cash $9.3 $8.8
equivalents, end of
period
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial and Commodity Instruments
The company enters into swap contracts on commodities to limit exposure to
(hedge) fluctuations in natural gas and oil prices; foreign exchange forwards,
options and swap contracts to hedge currency rate fluctuations; and interest
rate contracts to hedge interest rate fluctuations. In addition, the company
has contracts for physical purchases and sales of natural gas and electricity.
Collectively, these contracts are referred to as derivatives.
Derivatives that meet stringent documentation requirements, and can be
proven to be effective hedges both at the inception and over the term of the
derivative qualify for hedge accounting. That enables amounts paid or received
to be deferred and recognized in earnings in the same period that the related
hedged item is realized.
As a result of implementing new accounting standards related to financial
instruments and hedges in 2007, the company is now recognizing the fair value
of derivatives in valid hedging relationships on its balance sheet. Further,
the effective portion of the hedging relationship is now recognized in other
comprehensive income. Any ineffective portion of the hedging relationship is
recognized in net earnings in the reporting period. In Q1 2007, the total
ineffectiveness recognized by the company was a $0.1 million loss.
Amounts paid or received in connection with derivatives that do not
qualify as hedges are in net earnings in the period incurred.
Derivatives held for trading are recorded on the balance sheet at fair
value, with changes normally recorded in net earnings of the period, unless
deferred as a result of regulatory accounting.
Where the documentation or effectiveness requirements are not met, the
derivative instruments are recognized at fair value with any changes in fair
value recognized in net earnings in the reporting period.
The company has the following categories on the balance sheet related to
derivatives in valid hedging relationships:
Deferred Hedging Losses Recognized on the Balance Sheet
millions of dollars
-------------------------------------------------------------------------
March December
31 31
2007 2006
-------------------------------------------------------------------------
Inventory $ 1.6 $ 5.2
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship 0.8 -
-------------------------------------------------------------------------
Long-term debt 0.8 -
-------------------------------------------------------------------------
Deferred charges - 0.9
-------------------------------------------------------------------------
Deferred hedging losses $ 3.2 $ 6.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three month period ended March 31, the impacts of derivatives in
valid hedging relationships recognized in earnings were recorded in the
following categories:
Hedging Impact Recognized in Earnings Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Fuel and purchased power decrease $ 1.4 $ 17.6
-------------------------------------------------------------------------
Interest expense increase (0.2) (0.1)
-------------------------------------------------------------------------
Hedging earnings impact $ 1.2 $ 17.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The company has recognized a net unrealized fair value of held for trading
securities of $174.3 million (December 31, 2006 - $1.2 million) on the balance
sheet. The company has recognized the following realized and unrealized gains
and losses with respect to held for trading securities in earnings:
Held for Trading Securities Gains (Losses)
Recognized in Earnings Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Electric revenue $ 0.8 $ 0.3
-------------------------------------------------------------------------
Other revenue 1.6 (1.7)
-------------------------------------------------------------------------
Fuel and purchased power (4.3) -
-------------------------------------------------------------------------
Interest (0.1) -
-------------------------------------------------------------------------
Held for trading securities losses $ (2.0) $ (1.4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In determining the fair value of derivative financial instruments, the
company has relied on quoted market prices as at the reporting date.
Transactions With Related Parties
In the ordinary course of business, Emera purchased natural gas
transportation capacity totaling $6.8 million (2006 - $8.4 million) during the
three months ended March 31, 2007 from the Maritimes & Northeast Pipeline, an
investment under significant influence of the company. The amount is
recognized in fuel for generation and purchased power or netted against energy
marketing margin in other revenue, and is measured at the exchange amount. At
March 31, 2007 the amount payable to the related party is $3.2 million
(December 31, 2006 - $3.4 million), is non-interest bearing and is under
normal credit terms.
Changes in Accounting Policies
The Canadian Institute of Chartered Accountants ("CICA") has introduced
new classification and measurement requirements for financial instruments,
including increased use of fair value measurement. These new accounting
standards are incorporated in CICA Handbook Sections 1530 Comprehensive
Income, 3855 Financial Instruments - Recognition and Measurement, and
3865 Hedges, and are effective as of January 1, 2007 for Emera Inc.
In accordance with the new accounting standards, the accounting policy
changes were applied retroactively without restatement of prior periods. The
following provides more information on each standard.
Comprehensive Income
As a result of the recently issued standard, a new item, accumulated other
comprehensive income ("AOCI"), is recognized in the shareholders' equity
section of the consolidated balance sheets. AOCI includes the unrealized
foreign exchange translation adjustments on the company's self-sustaining
foreign operations, the effective portion of changes in fair value of
derivatives meeting the requirements for cash flow hedges, and unrealized
gains and losses on financial assets classified as available-for-sale.
Financial Instruments - Recognition and Measurement
According to the new standard, financial assets are now classified as
loans and receivables, held for trading, available for sale, or held to
maturity. Financial liabilities are classified as either held for trading, or
other than held for trading. The financial assets and liabilities are subject
to different methods of measurement and classification in the financial
statements, as set out in the accompanying table:
-------------------------------------------------------------------------
Financial Instrument Measured at Classified in
-------------------------------------------------------------------------
- Loans and receivables Amortized cost N/A
- Held to maturity financial assets
- Other than held for trading financial
liabilities
-------------------------------------------------------------------------
- Held for trading financial assets Fair value Net earnings
and liabilities unless deferral
permitted under
regulatory
accounting
-------------------------------------------------------------------------
- Available for sale financial assets Fair value Other
comprehensive
income
-------------------------------------------------------------------------
In accordance with the new standard, transactions costs associated with
the issuance of long-term debt are included in long-term debt and amortized
using the effective interest method.
Hedges
The new standard outlines the criteria for applying hedge accounting to
cash flow hedges, fair value hedges, and hedging foreign currency fluctuations
on self-sustaining foreign operations.
Cash flow hedges are recognized on the balance sheet at fair value with
the effective portion of the hedging relationship recognized in other
comprehensive income. Any ineffective portion of the cash flow hedge is
recognized in net earnings. Amounts recognized in AOCI are reclassified to net
income in the same periods in which the hedged item is recognized in net
earnings.
Fair value hedges and the related hedged items are recognized on the
balance sheet at fair value with any changes in fair value recognized in net
income. To the extent the fair value hedge is effective, the changes in fair
value of the hedge and the hedged item will offset each other.
Hedges of self-sustaining foreign operations are recognized at fair value
with any changes in fair value recognized in other comprehensive income.
Accounting for the impact of rate-regulation:
In accordance with the new accounting standards as outlined above, Nova
Scotia Power determined that its contracts for the purchase or sale of natural
gas for its Tufts Cove generating station ("TUC") should be considered
derivative financial instruments and accordingly recognized at fair value as a
held for trading ("HFT") asset or liability as applicable. This reflects
NSPI's history of buying and reselling any natural gas not used in the
production of electricity at TUC.
Changes in the fair value of HFT assets and liabilities are recognized in
net earnings. In accordance with Nova Scotia Power's accounting policy
covering physical and financial contracts relating to fuel at TUC, NSPI has
deferred any changes in fair value to a regulatory asset or liability as
appropriate, which are reflected in deferred assets or credits. Absent the
accounting policy, which has been approved by the UARB, NSPI's net earnings
for Q1 2007 would have been $22.2 million ($13.7 million after-tax) higher.
Details of the amounts recognized upon implementation of the new
accounting standards, and the effect on the consolidated balance sheet as at
January 1, 2007 are summarized below:
Balance Balance
Before Effect of After
Consolidated Balance Sheet Implemen- Implemen- Implemen-
Selected Information tation tation tation
millions dollars Adjustment Adjustment Adjustment
-------------------------------------------------------------------------
Current assets
Energy marketing assets $ 37.3 $ (37.3) $ -
-------------------------------------------------------------------------
Derivatives in valid hedging
relationship - 13.9 13.9
-------------------------------------------------------------------------
Held for trading securities - 76.0 76.0
-------------------------------------------------------------------------
Energy marketing assets 2.0 (2.0) -
-------------------------------------------------------------------------
Derivatives in a valid hedging
relationship - 17.9 17.9
-------------------------------------------------------------------------
Held for trading securities - 136.4 136.4
-------------------------------------------------------------------------
Deferred charges 468.2 (11.3) 456.9
-------------------------------------------------------------------------
Investments 98.5 (98.5) -
-------------------------------------------------------------------------
Investments subject to significant
influence - 98.5 98.5
-------------------------------------------------------------------------
$ 193.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $ 3.4 $ (0.2) $ 3.2
-------------------------------------------------------------------------
Energy marketing liabilities 36.7 (36.7) -
-------------------------------------------------------------------------
Derivatives in a valid hedging
relationship - 26.6 26.6
-------------------------------------------------------------------------
Held for trading securities - 39.7 39.7
-------------------------------------------------------------------------
Energy marketing liabilities 1.4 (1.4) -
-------------------------------------------------------------------------
Derivatives in a valid hedging
relationship - 10.6 10.6
-------------------------------------------------------------------------
Held for trading securities - 2.6 2.6
-------------------------------------------------------------------------
Deferred credits 66.1 173.1 239.2
-------------------------------------------------------------------------
Long-term debt 1,657.4 (12.7) 1,644.7
-------------------------------------------------------------------------
Shareholders' equity
Foreign exchange translation
adjustment (100.2) 100.2 -
-------------------------------------------------------------------------
Accumulated other comprehensive
income - (105.5) (105.5)
-------------------------------------------------------------------------
Retained earnings 450.9 (2.7) 448.2
-------------------------------------------------------------------------
$ 193.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The effect on the January 1, 2007 balances can be further explained as
follows:
Energy marketing assets and liabilities: The balances have been
reclassified to held for trading securities.
Derivatives in a valid hedging relationship: This new account represents
the fair value of Nova Scotia Power's hedges. These derivatives are all
designated as hedging future expected cash flows.
Held for trading securities: This new account includes the fair value of
certain of Nova Scotia Power's natural gas contracts, the fair value of Bear
Swamp's LIPA contract, amounts previously recognized as energy marketing
assets and liabilities, and the fair value of any derivatives that are not
considered valid hedges.
Deferred charges: The adjustment represents the reclassification of
deferred financing costs which are now netted against the related debt,
partially offset by the regulatory asset resulting from the fair value
recognition of certain of Nova Scotia Power's natural gas contracts.
Investments: The adjustment represents the reclassification of equity
accounted investments to investments subject to significant influence.
Investments subject to significant influence: This new account represents
the reclassification of equity accounted investments from the investments
account as noted above.
Deferred credits: The adjustment represents the regulatory liability
resulting from the fair value recognition of certain of Nova Scotia Power's
natural gas contracts.
Long-term debt (including current portion): The adjustment represents the
netting of deferred financing costs against the related debt.
Foreign exchange translation adjustment: The adjustment represents the
reclassification of foreign exchange losses on self-sustaining foreign
operations to accumulated other comprehensive income.
Accumulated other comprehensive income: The adjustment represents the
effective portion of the fair value of Nova Scotia Power's hedges and the
cumulative foreign exchange loss on self-sustaining foreign operations.
Retained earnings: The adjustment represents the fair value of Bear
Swamp's interim LIPA contract.
As a result of implementing the accounting policy changes, net earnings
for 2007 has decreased by $0.7 million after-tax. There has been no effect on
the consolidated statement of changes of cash flow.
The fair value of derivatives held in a valid hedging relationship and
held for trading securities are estimated by obtaining prevailing market rates
from investment dealers.
Summary of Quarterly Reports
For the quarter ended
millions of dollars
(except earnings
per common share)
-------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
2007 2006 2006 2006 2006 2005 2005 2005
-------------------------------------------------------------------------
Total
revenues $359.9 $307.0 $272.4 $275.9 $310.7 $297.1 $281.1 $280.1
-------------------------------------------------------------------------
Net earnings
from continuing
operations $ 39.7 $ 33.5 $ 19.5 $ 29.2 $ 43.6 $ 37.7 $ 18.1 $ 19.1
-------------------------------------------------------------------------
Net earnings
applicable to
common shares $ 39.7 $ 33.5 $ 19.5 $ 29.2 $ 43.6 $ 37.7 $ 15.9 $ 19.3
-------------------------------------------------------------------------
Earnings per
common share -
basic:
Continuing
operations $ 0.36 $ 0.30 $ 0.18 $ 0.26 $ 0.40 $ 0.34 $ 0.16 $ 0.18
-------------------------------------------------------------------------
Discontinued
operations - - - - - - (0.02) -
-------------------------------------------------------------------------
$ 0.36 $ 0.30 $ 0.18 $ 0.26 $ 0.40 $ 0.34 $ 0.14 $ 0.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per
common share -
diluted:
Continuing
operations $ 0.35 $ 0.30 $ 0.18 $ 0.26 $ 0.38 $ 0.34 $ 0.16 $ 0.18
-------------------------------------------------------------------------
Discontinued
operations - - - - - - (0.02) -
-------------------------------------------------------------------------
$ 0.35 $ 0.30 $ 0.18 $ 0.26 $ 0.38 $ 0.34 $ 0.14 $ 0.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly total revenues and net earnings applicable to common shares are
affected by seasonality, with Q1 and Q4 the strongest periods, reflecting
colder weather and fewer daylight hours at those times of year.
Financial Statements
Consolidated Statements of Earnings (Unaudited)
-------------------------------------------------------------------------
For the
millions of dollars (except earnings per Three months ended
common share) March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Revenue
Electric $ 347.8 $ 301.7
Other 12.1 9.0
-------------------------------------------------------------------------
359.9 310.7
-------------------------------------------------------------------------
Cost of operations
Fuel for generation and purchased power 148.3 90.1
Operating, maintenance, and general 63.2 60.3
Provincial, state, and municipal taxes 12.2 12.1
Depreciation 37.0 36.1
Regulatory amortization 4.6 5.9
Allowance for funds used during construction (2.6) (1.0)
-------------------------------------------------------------------------
262.7 203.5
-------------------------------------------------------------------------
Earnings from operations 97.2 107.2
Equity earnings 4.1 1.5
-------------------------------------------------------------------------
Earnings before interest and income taxes 101.3 108.7
Interest (note 7) 30.2 31.3
Amortization of defeasance costs 3.2 3.2
-------------------------------------------------------------------------
Earnings before income taxes 67.9 74.2
Income taxes 24.9 27.3
-------------------------------------------------------------------------
Net earnings before non-controlling interest 43.0 46.9
Non-controlling interest 3.3 3.3
-------------------------------------------------------------------------
Net earnings applicable to common shares $ 39.7 $ 43.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - basic $ 0.36 $ 0.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - diluted $ 0.35 $ 0.38
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Weighted average number of common shares
outstanding (millions)
- basic 111.0 110.2
- diluted 124.1 123.8
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
March December
As at 31 31
millions of dollars 2007 2006
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 9.3 $ 7.6
Restricted cash 3.2 11.9
Accounts receivable 332.9 253.6
Income tax receivable 2.0 5.3
Inventory 112.1 113.6
Prepaid expenses 55.7 53.9
Future income tax assets 16.9 18.9
Derivatives in a valid hedging relationship
(note 3) 8.1 -
Held for trading securities (note 3) 84.0 37.3
-------------------------------------------------------------------------
624.2 502.1
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship (note 3) 16.9 -
-------------------------------------------------------------------------
Held for trading securities (note 3) 141.8 2.0
-------------------------------------------------------------------------
Deferred charges (note 3) 456.3 468.2
-------------------------------------------------------------------------
Future income tax assets 9.8 10.0
-------------------------------------------------------------------------
Goodwill 96.1 97.1
-------------------------------------------------------------------------
Investments subject to significant influence
(note 3) 128.0 98.5
-------------------------------------------------------------------------
Property, plant and equipment 2,744.8 2,756.4
Construction work in progress 137.2 125.5
-------------------------------------------------------------------------
2,882.0 2,881.9
-------------------------------------------------------------------------
$4,355.1 $4,059.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt (notes 3 and 8) $ 3.3 $ 3.4
Short-term debt 278.4 133.2
Accounts payable and accrued charges 248.5 286.0
Income tax payable 12.6 39.3
Dividends payable 3.2 3.2
Future income tax liabilities 0.6 -
Derivatives in a valid hedging relationship
(note 3) 14.3 -
Held for trading securities (note 3) 36.1 36.7
-------------------------------------------------------------------------
597.0 501.8
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship (note 3) 9.9 -
-------------------------------------------------------------------------
Held for trading securities (note 3) 15.4 1.4
-------------------------------------------------------------------------
Future income tax liabilities 87.4 86.2
-------------------------------------------------------------------------
Asset retirement obligations 79.1 78.1
-------------------------------------------------------------------------
Deferred credits (note 3) 258.7 66.1
-------------------------------------------------------------------------
Long-term debt (notes 3 and 8) 1,627.2 1,657.4
-------------------------------------------------------------------------
Non-controlling interest 260.7 260.7
-------------------------------------------------------------------------
Shareholders' equity
Common shares (note 9) 1,058.1 1,055.2
Contributed surplus 2.4 2.2
Accumulated other comprehensive income (note 3) (104.1) (100.2)
Retained earnings 463.3 450.9
-------------------------------------------------------------------------
1,419.7 1,408.1
-------------------------------------------------------------------------
$4,355.1 $4,059.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Approved on behalf of the Board of Directors
"Derek Oland" "Christopher Huskilson"
Derek Oland Christopher Huskilson
Chairman President and Chief Executive Officer
Consolidated Statements of Cash Flow (Unaudited)
-------------------------------------------------------------------------
For the Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Operating activities
Net earnings before non-controlling interest $ 43.0 $ 46.9
Non-cash items:
Depreciation 37.0 36.1
Amortization of deferred charges 3.5 3.5
Equity earnings (4.1) (1.5)
Regulatory amortization 4.6 5.9
Allowance for funds used during construction (2.6) (1.0)
Future income taxes 4.2 3.2
Post-retirement benefits 3.3 3.7
Other non-cash operating items 1.8 2.7
Other cash operating items 2.2 (1.2)
-------------------------------------------------------------------------
92.9 98.3
Change in non-cash operating working capital (108.1) (29.2)
-------------------------------------------------------------------------
Net cash (used in) provided by operating activities (15.2) 69.1
-------------------------------------------------------------------------
Investing activities
Property, plant and equipment (39.8) (19.2)
Acquisition (note 4) (25.7) -
Retirement spending net of salvage (0.6) (0.8)
Decrease (increase) in restricted cash 8.7 (6.2)
Other investing activities - (1.1)
-------------------------------------------------------------------------
Net cash used in investing activities (57.4) (27.3)
-------------------------------------------------------------------------
Financing activities
Retirement of long-term debt (0.6) (0.6)
Increase (decrease) in short-term debt 130.8 (20.7)
Issuance of common shares 2.8 3.7
Dividends on common shares (24.7) (24.5)
Dividends paid by subsidiaries to non-controlling
interest (3.3) (3.3)
Accounts receivable securitization (30.0) (10.0)
Other financing (0.7) 0.9
-------------------------------------------------------------------------
Net cash provided by (used in) financing activities 74.3 (54.5)
-------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1.7 (12.7)
Cash and cash equivalents, beginning of period 7.6 21.5
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 9.3 $ 8.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents consists of:
Cash $ 4.4 $ 7.6
Cash equivalents 4.9 1.2
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 9.3 $ 8.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental disclosure of cash paid:
Interest $ 31.1 $ 30.5
Income and capital taxes $ 47.1 $ 18.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
-------------------------------------------------------------------------
For the three months Accu-
ended March 31, 2007 mulated
millions of dollars Other
Compre- Total
Contri- hensive AOCI and
Common buted Income Retained Retained
Shares Surplus ("AOCI") Earnings Earnings
-------------------------------------------------------------------------
Balance,
December 31, 2006 $1,055.2 $ 2.2 $(100.2) $450.9 $350.7
Implementation
adjustment
(note 3) - - (5.3) (2.7) (8.0)
Comprehensive
Income:
Net earnings
applicable to
common shares - - - 39.7 39.7
Net gain on
derivatives in
a valid hedging
relationship - - 1.6 - 1.6
Reclassification
of hedging losses
included in income - - 3.2 - 3.2
Reclassification
of hedging losses
included in
inventory - - 1.6 - 1.6
Unrealized loss on
translation of
self-sustaining
foreign operations - - (5.0) - (5.0)
-------------------------------------------------------------------------
Total comprehensive
income - - 1.4 39.7 41.1
-------------------------------------------------------------------------
Dividends declared
on common shares - - - (24.6) (24.6)
Common shares
issued under
purchase plans 2.4 - - - -
Senior management
stock options
exercised 0.4 - - - -
Stock option expense - 0.2 - - -
Other share-based
compensation 0.1 - - - -
-------------------------------------------------------------------------
Balance, March 31,
2007 $1,058.1 $ 2.4 $(104.1) $463.3 $359.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months Total
ended March 31, 2006 Contri- AOCI and
millions of dollars Common buted Retained Retained
Shares Surplus AOCI Earnings Earnings
-------------------------------------------------------------------------
Balance,
December 31, 2005 $1,039.2 $ 1.8 $ (98.2) $423.4 $325.2
Comprehensive
Income:
Net earnings
applicable to
common shares - - - 43.6 43.6
Unrealized loss on
translation of
self-sustaining
foreign operations - - (2.5) - (2.5)
-------------------------------------------------------------------------
Total comprehensive
income - - (2.5) 43.6 41.1
-------------------------------------------------------------------------
Dividends declared
on common shares - - - (24.5) (24.5)
Common shares
issued under
purchase plans 2.2 - - - -
Senior management
stock options
exercised 1.6 (0.1) - - -
Stock option expense - 0.2 - - -
Other share-based
compensation 0.1 - - - -
-------------------------------------------------------------------------
Balance,
March 31, 2006 $1,043.1 $ 1.9 $(100.7) $442.5 $341.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Notes to the Interim Unaudited Consolidated Financial Statements
March 31, 2007
1. Basis of Presentation
The disclosures in these unaudited interim consolidated financial
statements do not conform in all respects to the requirements of Canadian
Generally Accepted Accounting Principles for annual audited financial
statements and should be read in conjunction with Emera Inc.'s annual
consolidated financial statements as at and for the year ended December 31,
2006.
These consolidated financial statements follow the same accounting
policies and methods of computation as Emera Inc.'s annual audited
consolidated financial statements as at and for the year ended December 31,
2006, with the exception of the accounting policy changes disclosed in note 3.
2. Seasonal Nature of Operations
Interim results are not necessarily indicative of results for the full
year due primarily to seasonal factors. Sales and related production vary
significantly over the year, with Q1 and Q4, the strongest periods, reflecting
colder weather and fewer daylight hours in the winter season.
3. Changes in Accounting Policy
The Canadian Institute of Chartered Accountants has issued new accounting
standards 1530 Comprehensive Income, 3855 Financial Instruments - Recognition
and Measurement, and 3865 Hedges, which are applicable to the Company
effective January 1, 2007. In accordance with the new accounting standards,
the accounting policy changes were applied retroactively without restatement
of prior periods. The following provides more information on each standard.
Comprehensive Income
As a result of the recently issued standard, a new item, accumulated other
comprehensive income ("AOCI"), is recognized in the shareholders' equity
section of the consolidated balance sheets. AOCI includes the unrealized
foreign exchange translation adjustments on the company's self-sustaining
foreign operations, the effective portion of changes in fair value of
derivatives meeting the requirements for cash flow hedges, and unrealized
gains and losses on financial assets classified as available-for-sale.
Financial Instruments - Recognition and Measurement
According to the new standard, financial assets are now classified as
loans and receivables, held for trading, available for sale, or held to
maturity. Financial liabilities are classified as either held for trading, or
other than held for trading. The financial assets and liabilities are subject
to different methods of measurement and classification in the financial
statements as follows:
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Financial Instrument Measured at Classified in
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- Loans and receivables Amortized cost N/A
- Held to maturity financial assets
- Other than held for trading financial
liabilities
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- Held for trading financial assets and Fair value Net earnings
liabilities unless deferral
permitted under
regulatory
accounting
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- Available for sale financial assets Fair value Other
comprehensive
income
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In accordance with the new standard, transactions costs associated with
the issuance of long-term debt are included in long-term debt and amortized
using the effective interest method.
The Company has chosen January 1, 2003 as the transition date for embedded
derivatives and as a result, embedded derivatives existing prior to the
transition date are not reflected as separate assets and liabilities on the
balance sheet. An embedded derivative is a component of a contract with
characteristics similar to a derivative.
Hedges
The new standard outlines the criteria for applying hedge accounting to
cash flow hedges, fair value hedges, and hedging foreign currency fluctuations
on self-sustaining foreign operations.
Cash flow hedges are recognized on the balance sheet at fair value with
the effective portion of the hedging relationship recognized in other
comprehensive income. Any ineffective portion of the cash flow hedge is
recognized in net earnings. Amounts recognized in AOCI are reclassified to net
income in the same periods in which the hedged item is recognized in net
earnings.
Fair value hedges and the related hedged items are recognized on the
balance sheet at fair value with any changes in fair value recognized in net
income. To the extent the fair value hedge is effective, the changes in fair
value of the hedge and the hedged item will offset each other.
Hedges of self-sustaining foreign operations are recognized at fair value
with any changes in fair value recognized in other comprehensive income.
Accounting for the impact of rate-regulation:
In accordance with the new accounting standards as outlined above, Nova
Scotia Power determined that its contracts for the purchase or sale of natural
gas for its Tufts Cove generating station ("TUC") should be considered
derivative financial instruments and accordingly recognized at fair value as a
held for trading ("HFT") asset or liability as applicable. This reflects
NSPI's history of buying and reselling any natural gas not used in the
production of electricity at TUC.
Changes in the fair value of HFT assets and liabilities are recognized in
net earnings. In accordance with Nova Scotia Power's accounting policy
covering physical and financial contracts relating to fuel at TUC, NSPI has
deferred any changes in fair value to a regulatory asset or liability as
appropriate, which are reflected in deferred assets or credits. Absent the
accounting policy, which has been approved by the UARB, NSPI's net earnings
for Q1 2007 would have been $22.2 million ($13.7 million after-tax) higher.
Details of the amounts recognized upon implementation of the new
accounting standards, and the effect on the consolidated balance sheet as at
January 1, 2007 are summarized below:
Balance Balance
Before Effect of After
Consolidated Balance Sheet Implemen- Implemen- Implemen-
Selected Information tation tation tation
millions dollars Adjustment Adjustment Adjustment
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Current assets
Energy marketing assets $ 37.3 $ (37.3) -
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Derivatives held in valid hedging
relationship - 13.9 $ 13.9
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Held for trading securities - 76.0 76.0
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Energy marketing assets 2.0 (2.0) -
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Derivatives in a valid hedging
relationship - 17.9 17.9
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Held for trading securities - 136.4 136.4
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Deferred charges 468.2 (11.3) 456.9
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Investments 98.5 (98.5) -
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Investments subject to significant
influence - 98.5 98.5
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$ 193.6
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Current liabilities
Current portion of long-term debt $ 3.4 $ (0.2) $ 3.2
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Energy marketing liabilities 36.7 (36.7) -
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Derivatives held in a valid hedging
relationship - 26.6 26.6
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Held for trading securities - 39.7 39.7
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Energy marketing liabilities 1.4 (1.4) -
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Derivatives in a valid hedging
relationship - 10.6 10.6
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Held for trading securities - 2.6 2.6
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Deferred credits 66.1 173.1 239.2
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Long-term debt 1,657.4 (12.7) 1,644.7
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Shareholders' equity
Foreign exchange translation
adjustment (100.2) 100.2 -
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Accumulated other comprehensive income - (105.5) (105.5)
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Retained earnings 450.9 (2.7) 448.2
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$ 193.6
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The effect on the January 1, 2007 balances can be further explained as
follows:
Energy marketing assets and liabilities: The balances have been
reclassified to held for trading securities.
Derivatives in a valid hedging relationship: This new account represents
the fair value of Nova Scotia Power's hedges. These derivatives are all
designated as hedging future expected cash flows.
Held for trading securities: The new account includes the fair value of
certain of Nova Scotia Power's natural gas contracts, the fair value of Bear
Swamp's contract with the Long Island Power Authority ("LIPA"), amounts
previously recognized as energy marketing assets and liabilities, and the fair
value of any derivatives that are not valid hedges.
Deferred charges: The adjustment represents the reclassification of
deferred financing costs which are now netted against the related debt,
partially offset by the regulatory asset resulting from the fair value
recognition of certain of Nova Scotia Power's natural gas contracts.
Investments: The adjustment represents the reclassification of equity
accounted investments to investments subject to significant influence.
Investments subject to significant influence: This new account represents
the reclassification of equity accounted investments from the investments
account as noted above.
Deferred credits: The adjustment represents the regulatory liability
resulting from the fair value recognition of certain of Nova Scotia Power's
natural gas contracts.
Long-term debt (including current portion): The adjustment represents the
netting of deferred financing costs against the related debt.
Foreign exchange translation adjustment: The adjustment represents the
reclassification of foreign exchange losses on self-sustaining foreign
operations to accumulated other comprehensive income.
Accumulated other comprehensive income: The adjustment represents the
effective portion of the fair value of Nova Scotia Power's hedges, and the
cumulative foreign exchange loss on self-sustaining foreign operations.
Retained earnings: The adjustment represents the fair value of Bear
Swamp's interim LIPA contract.
As a result of implementing the accounting policy changes, net earnings
for 2007 has decreased by $0.7 million after-tax.
For the three month period ended March 31, 2007 the pre-tax impact of
hedges recognized in earnings was a $1.2 million gain (2006 - $17.5 million).
The fair value of derivatives in a valid hedging relationship and held for
trading securities are estimated by obtaining prevailing market rates from
investment dealers.
4. Acquisition
On January 16, 2007 Emera acquired a 19% interest in St. Lucia Electricity
Services Limited ("Lucelec") for a purchase price of $25.7 million. Lucelec is
a vertically integrated electric utility with an exclusive license to
generate, transmit and distribute electricity on the island of St. Lucia to
2045. The utility has 66 MW of generating capacity and 800 kilometers of
electricity transmission and distribution assets. Lucelec is a cost of service
utility, with a minimum rate of return of 10% on a 50% equity basis.
The acquisition has been accounted for as an equity investment, and
accordingly, the investment was initially recorded at cost. Emera's pro-rata
share of the results since acquisition have been included in the investment
and consolidated statements of earnings. Any dividends received or receivable
reduces the investment. Lucelec is included in the segment "Other" in Note 5
Segment Information.
5. Segment Information
Nova
Scotia Bangor
millions of dollars Power Hydro Other(x) Total
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Three months ended March 31,
2007:
Revenues from external
customers $ 303.4 $ 36.1 $ 20.4 $ 359.9
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Net earnings applicable to
common share 26.1 6.9 6.7 39.7
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Net inter-segment revenues/
(expenses) 34.8 (0.3) (34.5) -
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As at March 31, 2007
Total assets 3,316.2 648.4 390.5 4,355.1
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Three months ended March 31,
2006:
Revenues from external
customers 263.0 35.0 12.8 310.8
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Net earnings applicable to
common share 37.4 3.7 2.5 43.6
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Net inter-segment revenues/
(expenses) 50.2 (0.5) (49.7) -
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As at March 31, 2006
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Total assets 3,081.1 578.8 314.4 3,974.3
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(x) Other consists of corporate activities and adjustments to reconcile
to consolidated balances.
6. Employee Future Benefits
Emera maintains contributory defined-benefit and defined-contribution
pension plans, which cover substantially all of its employees, and plans that
provide non-pension benefits for its retirees. The Company's estimated total
benefit cost, related to these plans, for the three month period ended
March 31, 2007 is $10.7 million (2006 - $10.8 million).
7. Interest
Interest expense consists of the following:
Three months ended
March 31
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million of dollars 2007 2006
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Interest on long-term debt $ 25.7 $ 27.3
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Interest on short-term debt 4.9 4.0
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Amortization of debt financing 0.5 0.5
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Foreign exchange gains (0.9) (0.5)
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$ 30.2 $ 31.3
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8. Long-Term Debt
As of March 31, 2007, long-term debt includes $3.8 million (December 31,
2006 - $3.8 million) in capital lease obligations.
9. Common Shares
As of March 31, 2007 there were 111.06 million (December 31, 2006 - 110.93
million) issued and outstanding common shares, 4.88 million (December 31, 2006
- 4.90 million) common shares reserved and available for issuance under the
senior management stock option plan, and 1.12 million (December 31, 2006 -
1.15 million) common shares reserved and available for issuance under the
employee common share purchase plan.
During the three months ended March 31, 2007, the Company issued
0.13 million (2006 - 0.19 million) common shares. Common shares were issued
through the employee common share purchase plan, the senior management stock
option plan, and the dividend reinvestment plan.
10. Comparative Information
Certain of the comparative figures have been reclassified to conform to
the consolidated financial statement presentation adopted for 2007.
