Fortis Inc. ("Fortis" or the "Corporation") (TSX:FTS) delivered net earnings
applicable to common shares of $245 million in 2008, 27 per cent higher than
earnings of $193 million in 2007. Earnings per common share were $1.56, 16 cents
higher than earnings per common share of $1.40 in 2007.
"Fortis delivered earnings of $245 million in 2008, which marks the ninth
consecutive year the Corporation has delivered record earnings to our
shareholders. Results were driven by a full year of earnings from Terasen and
increased contributions from hydroelectric generation," says Stan Marshall,
President and Chief Executive Officer, Fortis Inc. "In 2008, Fortis completed
its largest ever capital program, with approximately $900 million being invested
in energy infrastructure to enhance reliability of service to our customers and
to meet their growing energy requirements," he explains.
Earnings for the fourth quarter were $76 million, or $0.48 per common share,
compared to $79 million, or $0.51 per common share, for the same quarter in
2007. Fourth quarter results for 2007 were favourably impacted by one-time items
totalling approximately $13 million related to the sale of surplus land at
Terasen Gas Inc., the reduction of future income tax liability balances at
Fortis Properties related to lower enacted corporate income tax rates and an
interconnection agreement-related refund at FortisOntario. Excluding these
one-time items, earnings were $10 million higher quarter over quarter. The
increase was driven by stronger performance and lower corporate taxes at
FortisAlberta, lower corporate expenses, and $1 million of additional earnings
from Caribbean Utilities related to a change in the utility's fiscal year end.
The increase was partially offset by the impact of a lower allowed rate of
return on rate base assets ("ROA") at Belize Electricity, effective July 1,
2008; an approximate $1 million loss of revenue at Fortis Turks and Caicos
related to Hurricane Ike; and an approximate $2 million reduction in fourth
quarter earnings at Newfoundland Power associated with a shift in the quarterly
distribution of the utility's annual purchased power expense. Newfoundland
Power's annual earnings were not impacted by the shift in the quarterly
distribution of annual purchased power expense.
Dividends paid per common share grew to $1.00 in 2008, up 22 per cent from 82
cents paid per common share in the previous year. Fortis increased its quarterly
common share dividend 4 per cent to 26 cents from 25 cents, commencing with the
first quarter dividend payable on March 1, 2009. The increase extends the
Corporation's record of annual common share dividend increases to 36 consecutive
years, the longest record of any public corporation in Canada.
Fortis and its utilities raised almost $1.2 billion in equity and 30-year debt
in 2008, including $230 million in preference equity and $300 million in common
equity at Fortis Inc.; $250 million 5.80% debentures at Terasen Gas Inc.; $250
million 6.05% debentures at Terasen Gas (Vancouver Island) Inc.; $100 million
5.85% debentures at FortisAlberta; and $60 million 6.05% bonds at Maritime
Electric.
In December, Fortis issued 11.7 million common shares, under a bought deal
agreement with underwriters, for gross proceeds of approximately $300 million.
Net proceeds from the common equity offering were used to repay short-term debt
incurred to retire $200 million of debt at Terasen Inc. ("Terasen") that matured
on December 1, 2008 and for general corporate purposes.
The Terasen Gas companies delivered earnings of $118 million for the full year
in 2008 compared to $50 million for the 71/2 months of ownership in 2007.
Results for 2007 reflected a $7 million after-tax gain on the sale of surplus
land. Results for 2008 were favourably impacted by an approximate $5.5 million
tax reduction related to the settlement of historical corporate tax matters and
a higher allowed rate of return on common shareholder's equity ("ROE") as
compared to 2007.
Earnings at Canadian Regulated Electric Utilities were $126 million compared to
$125 million for 2007. Results for 2007 included a one-time after-tax gain of
approximately $2 million related to the receipt of an interconnection
agreement-related refund at FortisOntario; however, results for 2008 were
reduced by that amount to reflect the regulatory-required repayment of the
refund. Excluding these one-time items, earnings' growth of $5 million year over
year was driven by rate base growth and higher allowed ROEs at FortisAlberta,
FortisBC and Newfoundland Power, partially offset by lower corporate tax
recoveries at FortisAlberta.
Customer rates for 2009 have been approved for the Terasen Gas companies,
FortisAlberta, FortisBC and Newfoundland Power. The allowed ROEs for 2009 have
been set for Terasen Gas Inc., Terasen Gas (Vancouver Island) Inc. and FortisBC,
decreasing slightly to 8.47 per cent, 9.17 per cent and 8.87 per cent,
respectively. Newfoundland Power's allowed ROE for 2009 remains unchanged at
8.95 per cent. FortisAlberta is currently engaged in a Generic Cost of Capital
Proceeding with its regulator to review, among other things, 2009 ROE
calculations and capital structures for regulated gas, electric and pipeline
utilities in Alberta. In the interim, as directed by its regulator, customer
rates for 2009 at FortisAlberta have been set using the utility's 2007 allowed
ROE of 8.51 per cent.
Earnings at Caribbean Regulated Electric Utilities were $17 million compared to
$31 million in 2007. Earnings in 2008 were negatively impacted by a one-time $13
million loss related to a June 2008 regulatory decision at Belize Electricity.
The decision disallowed previously incurred energy supply costs and is being
legally contested. Excluding the above one-time $13 million loss in 2008 and a
one-time $2 million loss in 2007 associated with the disposal of steam-turbine
assets at Caribbean Utilities, earnings were $3 million lower year over year.
Overall electricity sales growth and two additional months of earnings from
Caribbean Utilities, related to a change in the utility's fiscal year end, were
more than offset by the impact of a 3.25 per cent reduction in basic electricity
rates at Caribbean Utilities, effective January 1, 2008; a lower allowed ROA at
Belize Electricity, associated with the June 2008 regulatory decision; and an
approximate $2 million loss of revenue at Fortis Turks and Caicos associated
with Hurricane Ike.
Earnings at Non-Regulated Fortis Generation were $30 million, $6 million higher
than in 2007, driven by increased hydroelectric production at central
Newfoundland, Belize and upper New York State as a result of higher rainfall,
and higher average wholesale energy prices in upper New York State and Ontario.
Total energy sales were up 8.5 per cent from 2007.
Earnings at Fortis Properties were $23 million compared to $24 million in 2007.
Excluding a $2 million favourable tax adjustment in 2007, earnings were $1
million higher year over year, mainly due to a full year of earnings from the
Delta Regina hotel which was acquired in August 2007.
Corporate and other expenses were $69 million compared to $61 million in 2007.
The increase was primarily driven by a full year of Terasen acquisition-related
finance charges and other Terasen corporate-related expenses, higher preference
share dividends associated with the $230 million preference share issue in the
second quarter of 2008 and higher business development costs. The increase was
partially offset by a higher corporate tax recovery, which reflected the impact
of a $2 million tax reduction in 2008 associated with the settlement of
historical corporate tax matters at Terasen.
Cash flow from operating activities was $663 million in 2008, up $290 million
from 2007. The increase primarily reflected a full year of contributions from
the Terasen Gas companies in 2008.
Consolidated capital expenditures, before customer contributions, were $904
million in 2008, including capital expenditures of approximately $220 million at
the Terasen Gas companies. Major capital projects in progress include the $200
million liquefied natural gas storage facility on Vancouver Island, the US$53
million Vaca hydroelectric generating facility in Belize and the $124 million
installation of automated meters at FortisAlberta.
During the fourth quarter, Standard & Poor's and DBRS confirmed the
Corporation's unsecured debt credit ratings which remain unchanged at A- and
BBB(high), respectively.
At December 31, 2008, Fortis had consolidated credit facilities of $2.2 billion,
of which approximately $1.5 billion was unused, including $568 million unused
under the Corporation's $600 million committed revolving credit facility.
Approximately $2 billion of the total credit facilities are committed multi-year
facilities, the majority of which having maturities between 2011 and 2013.
Debt as a percentage of the total consolidated capital structure of Fortis
improved to 59.5 per cent as at December 31, 2008, in line with the
Corporation's long-term target of 60 per cent, and compares to 64.3 per cent as
at December 31, 2007. Management expects consolidated long-term debt maturities
and repayments to be approximately $240 million in 2009 and to average
approximately $180 million annually over the next five years.
"With its substantial credit facilities and conservative capital structure, we
believe Fortis has the financial flexibility to respond to the global economic
downturn and volatility in the capital markets anticipated to continue in 2009,"
says Marshall. "Fortis is focused on executing its 2009 consolidated capital
expenditure program, estimated at approximately $1 billion, to ensure we
continue to meet increased energy demand and enhance reliability of service to
customers," concludes Marshall.
FINANCIAL HIGHLIGHTS
For the three and twelve months ended December 31, 2008
Dated February 5, 2009
The following fourth quarter 2008 media release should be read in conjunction
with the Fortis Inc. ("Fortis" or the "Corporation") Management Discussion and
Analysis ("MD&A") and audited consolidated financial statements for the year
ended December 31, 2007 included in the Corporation's 2007 Annual Report.
Financial information in this fourth quarter 2008 media release has been
prepared in accordance with Canadian generally accepted accounting principles
and is presented in Canadian dollars unless otherwise specified.
Fortis includes forward-looking information in this fourth quarter 2008 media
release within the meaning of applicable securities laws in Canada
("forward-looking information"). The purpose of the forward-looking information
is to provide management's expectations regarding the Corporation's future
growth, results of operations, performance, business prospects and opportunities
and may not be appropriate for other purposes. All forward-looking information
is given pursuant to the "safe harbour" provisions of applicable Canadian
securities legislation. The words "anticipates", "believes", "could",
"estimates", "expects", "forecasts", "intends", "may", "might", "plans",
"projects", "schedule", "should", "will", "would" and similar expressions are
often intended to identify forward-looking information, although not all
forward-looking information contains these identifying words. The
forward-looking information reflects management's current beliefs and is based
on information currently available to the Corporation's management.
The forward-looking information in this release includes, but is not limited
to, statements regarding: the expected long-term debt maturities and repayments
in 2009 and on average, annually, over the next five years; the expected timing
of receipt of regulatory decisions (see "Regulatory Highlights" section of this
fourth quarter 2008 media release); the expected amount of the Corporation's
2009 consolidated capital expenditure program and total consolidated capital
expenditures over the next five years; the expected timing and amount of
specific capital expenditure projects; and the expected impacts on the
Corporation and its subsidiaries of the global economic downturn. The forecasts
and projections that make up the forward-looking information are based on
assumptions which include, but are not limited to: the receipt of applicable
regulatory approvals and requested rate orders; no significant operational
disruptions or environmental liability due to a catastrophic event or
environmental upset caused by severe weather, other acts of nature or other
major events; the continued ability to maintain the gas and electricity systems
to ensure their continued performance; no severe and prolonged downturn in
economic conditions; sufficient liquidity and capital resources; the
continuation of regulatory-approved mechanisms to flow through the commodity
cost of natural gas and energy supply costs in customer rates; the continued
ability to hedge exposures to fluctuations in interest rates, foreign exchange
rates and natural gas commodity prices; no significant variability in interest
rates; no significant counterparty defaults; the continued competitiveness of
natural gas pricing when compared with electricity and other alternative sources
of energy; the continued availability of natural gas supply; the continued
ability to fund defined benefit pension plans; the absence of significant
changes in government energy plans and environmental laws that may materially
impact the operations and cash flows of the Corporation and its subsidiaries;
maintenance of adequate insurance coverage;
the ability to obtain and maintain licences and permits; retention of existing
service areas; no material decrease in market energy sales prices; favourable
relations with First Nations; favourable labour relations; and sufficient human
resources to deliver service and execute the capital program. The
forward-looking information is subject to risks, uncertainties and other factors
that could cause actual results to differ materially from historical results or
results anticipated by the forward-looking information. The factors which could
cause results or events to differ from current expectations include, but are not
limited to: regulatory risk; operating and maintenance risks; economic
conditions; capital resources and liquidity risk; weather and seasonality;
commodity price risk; derivative financial instruments and hedging; interest
rate risk; counterparty risk; competitiveness of natural gas; natural gas
supply; defined benefit pension plan performance and funding requirements; risks
related to Terasen Gas (Vancouver Island) Inc.; the British Columbia provincial
government energy plan; environmental risk; insurance coverage risk; licences
and permits; loss of service area; market energy sales prices; transition to
International Financial Reporting Standards; changes in tax legislation; First
Nations Lands; labour relations and human resources. For additional information
with respect to the Corporation's risk factors, reference should be made to the
Corporation's continuous disclosure materials filed from time to time with
Canadian securities regulatory authorities and to the heading "Business Risk
Management" in the MD&A for the year ended December 31, 2007 and for the three
and nine months ended September 30, 2008, and as otherwise disclosed in this
fourth quarter 2008 media release.
All forward-looking information in this fourth quarter 2008 media release is
qualified in its entirety by the above cautionary statements and, except as
required by law, the Corporation undertakes no obligation to revise or update
any forward-looking information as a result of new information, future events or
otherwise after the date hereof.
COMPANY OVERVIEW AND FINANCIAL HIGHLIGHTS
Fortis is the largest investor-owned distribution utility in Canada serving more
than 2,000,000 gas and electricity customers. Its regulated holdings include
electric utilities in five Canadian provinces and three Caribbean countries and
a natural gas utility in British Columbia. Fortis owns non-regulated generation
assets across Canada and in Belize and upper New York State and hotels and
commercial real estate in Canada. In 2008, the Corporation's electricity
distribution systems met a combined peak electricity demand of more than 5,700
megawatts ("MW") and its gas distribution systems met a peak day demand of 1,402
terajoules ("TJ"). For additional information on the Corporation's business
segments, refer to Note 1 to the Corporation's interim unaudited consolidated
financial statements for the three and nine months ended September 30, 2008 and
to the Corporation's audited consolidated financial statements for the year
ended December 31, 2007 included in the Corporation's 2007 Annual Report.
The key goals of the Corporation's regulated utilities are to operate sound gas
and electricity distribution systems, deliver gas and electricity safely and
reliably to customers at reasonable rates, and conduct business in an
environmentally responsible manner. The Corporation's main business, utility
operations, is highly regulated. It is segmented by franchise area and,
depending on regulatory requirements, by the nature of the assets. Fortis has
adopted a strategy of profitable growth with earnings per common share as the
primary measure of performance. Key financial highlights, including earnings by
reportable segment, for the fourth quarters and years ended December 31, 2008
and December 31, 2007, are provided in the table below.
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Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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($ millions, except
earnings per common
share and common
shares outstanding) 2008 2007 Variance 2008 2007 Variance
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Revenue 1,182 1,018 164 3,903 2,718 1,185
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Cash flow from
operating
activities 214 152 62 663 373 290
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Net earnings
applicable to
common shares 76 79 (3) 245 193 52
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Basic earnings per
common share ($) 0.48 0.51 (0.03) 1.56 1.40 0.16
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Diluted earnings per
common share ($) 0.46 0.49 (0.03) 1.52 1.32 0.20
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Weighted average
number of common
shares outstanding
(millions) 158.9 155.4 3.5 157.4 137.6 19.8
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Segmented Net Earnings
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Quarter Annual
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2008 2007 Variance 2008 2007 Variance
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Regulated Gas
Utilities -
Canadian
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Terasen Gas
Companies (1) 47 52 (5) 118 50 68
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Regulated Electric
Utilities -
Canadian
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FortisAlberta 11 6 5 46 48 (2)
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FortisBC (2) 7 7 - 34 31 3
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Newfoundland Power 8 9 (1) 32 30 2
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Other Canadian (3) 3 3 - 14 16 (2)
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29 25 4 126 125 1
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Regulated Electric
Utilities -
Caribbean (4) 8 9 (1) 17 31 (14)
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Non-Regulated - Fortis
Generation (5) 8 7 1 30 24 6
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Non-Regulated -
Fortis Properties (6) 4 8 (4) 23 24 (1)
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Corporate and
Other (7) (20) (22) 2 (69) (61) (8)
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Net Earnings
Applicable to
Common Shares 76 79 (3) 245 193 52
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(1) Comprised of Terasen Gas Inc. ("TGI"), Terasen Gas (Vancouver Island)
Inc. ("TGVI") and Terasen Gas (Whistler) Inc. ("TGWI"). Financial
results are reported from May 17, 2007, the date of acquisition.
(2) Includes the regulated operations of FortisBC Inc. and operating,
maintenance and management services related to the Waneta, Brilliant
and Arrow Lakes hydroelectric generating plants and the distribution
system owned by the City of Kelowna. Excludes the non-regulated
generation operations of FortisBC Inc.'s wholly owned partnership,
Walden Power Partnership.
(3) Includes Maritime Electric and FortisOntario. FortisOntario includes
Canadian Niagara Power and Cornwall Electric.
(4) Includes Belize Electricity, in which Fortis holds an approximate 70
per cent controlling interest; Caribbean Utilities on Grand Cayman,
Cayman Islands, in which Fortis holds an approximate 57 per cent
controlling interest; and wholly owned Fortis Turks and Caicos.
Caribbean Utilities previously had an April 30 fiscal year end whereby,
up to and including the third quarter of 2008, Caribbean Utilities'
financial statements were consolidated in the financial statements of
Fortis on a two-month lag basis. Caribbean Utilities changed its
fiscal year end to December 31 which has resulted in the Corporation
consolidating five months of financial results of Caribbean Utilities
for the fourth quarter of 2008 and 14 months of financial results for
the year. Going forward, this will eliminate the previous two-month
lag in consolidating Caribbean Utilities' financial results.
(5) Includes the operations of non-regulated generation assets in Belize,
Ontario, central Newfoundland, British Columbia and upper New York
State, with a combined generating capacity of 195 MW, mainly
hydroelectric.
(6) Includes 20 hotels with more than 3,800 rooms in eight Canadian
provinces and approximately 2.8 million square feet of commercial real
estate primarily in Atlantic Canada.
(7) Includes Fortis net corporate expenses and, from May 17, 2007, the net
expenses of non-regulated Terasen Inc. ("Terasen") corporate-related
activities and the financial results of Terasen's 30 per cent ownership
interest in CustomerWorks Limited Partnership ("CWLP") and of Terasen's
non-regulated wholly owned subsidiary Terasen Energy Services Inc.
("TES").
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SEGMENTED RESULTS OF OPERATIONS
REGULATED GAS UTILITIES - CANADIAN
Terasen Gas Companies
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---------------------------------------------------------------------------
Terasen Gas Companies
Financial Highlights (Unaudited)
Periods Ended December 31
---------------------------------------------------------------------------
Quarter Annual
---------------------------------------------------------------------------
2008 2007(1) Variance 2008 2007(1) Variance
---------------------------------------------------------------------------
Gas Volumes
(TJ) 66,816 69,108 (2,292) 221,122 118,309 102,813
---------------------------------------------------------------------------
($ millions)
---------------------------------------------------------------------------
Revenue 606 548 58 1,902 905 997
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Energy Supply
Costs 418 367 51 1,268 559 709
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Operating
Expenses 71 66 5 253 150 103
---------------------------------------------------------------------------
Amortization 24 24 - 97 58 39
---------------------------------------------------------------------------
Finance Charges 33 33 - 129 80 49
---------------------------------------------------------------------------
Gain on Sale of
Property - (8) 8 - (8) 8
---------------------------------------------------------------------------
Corporate Taxes 13 14 (1) 37 16 21
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Earnings 47 52 (5) 118 50 68
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(1) Results are reported from May 17, 2007, the date of acquisition.
On May 17, 2007, Fortis acquired all of the issued and outstanding common shares
of Terasen Inc. ("Terasen"). Terasen owns and operates a gas distribution
business carried on by Terasen Gas Inc. ("TGI"), Terasen Gas (Vancouver Island)
Inc. ("TGVI") and Terasen Gas Whistler Inc, collectively referred to as the
Terasen Gas companies, and is the principal distributor of natural gas in
British Columbia.
Gas volumes: Gas volumes at the Terasen Gas companies decreased 2,292 TJ, or 3.3
per cent, quarter over quarter. The decrease was primarily due to lower
transportation volumes to customers sourcing their own gas supplies, partially
offset by higher sales volumes to residential customers as a result of increased
consumption due to cooler weather compared to the same period for the previous
year. Gas volumes were 221,122 TJ for 2008 compared to 220,977 TJ reported by
the Terasen Gas companies for the full year in 2007. Increased sales volumes to
residential customers, for the reason described above for the quarter, and to
customers under fixed price contracts, was largely offset by lower
transportation volumes to customers sourcing their own gas supplies. The
Terasen Gas companies earn approximately the same margin regardless of whether a
customer contracts for the purchase of natural gas or only for the
transportation of natural gas.
As a result of the operation of British Columbia Utilities Commission
("BCUC")-approved regulatory deferral mechanisms, changes in consumption levels
and energy supply costs, from those forecasted to set gas distribution rates, do
not materially impact earnings.
During 2008, net customer additions at TGI and TGVI totalled approximately
12,800, bringing the total customer count at TGI and TGVI to approximately
929,000 at December 31, 2008. During 2007, net customer additions at TGI and
TGVI totaled approximately 13,900. Net customer additions in 2008 were lower
than expected, reflecting weakening housing and construction markets and growth
in multi-family housing where natural gas use is less prevalent compared to
single-family housing.
Revenue: Revenue was $58 million higher quarter over quarter mainly due to: (i)
the higher commodity cost of gas charged to customers; (ii) increased
residential customer consumption; and (iii) an increase in gas distribution
rates, effective January 1, 2008, which included the impact of an increase in
the 2008 allowed rate of return on common shareholder's equity ("ROE") for TGI
and TGVI to 8.62 per cent and 9.32 per cent, respectively, from 8.37 per cent
and 9.07 per cent, respectively.
Revenue was approximately $1.9 billion for 2008 compared to $905 million for the
partial year in 2007. In addition to the impact of revenue contribution for the
full year of 2008, revenue also increased year over year due to the same factors
described above for the quarter.
Earnings: Earnings were $5 million lower quarter over quarter. Earnings for
the fourth quarter of 2007 included a $7 million after-tax gain on the sale of
surplus land. Excluding the after-tax gain, earnings were $2 million higher
quarter over quarter, primarily due to the increase in gas distribution rates,
effective January 1, 2008 reflecting a higher allowed ROE, partially offset by
higher operating expenses driven by increased labour costs.
Earnings were $118 million for 2008 compared to $50 million for the partial year
in 2007. Earnings for 2007 were favourably impacted by the $7 million after-tax
gain on the sale of surplus land. Earnings for 2008 included an approximate
$5.5 million tax reduction associated with the settlement of historical
corporate tax matters. During the third quarter of 2008, Terasen reached a
settlement with Revenu Quebec and Canada Revenue Agency related to amounts owing
as a result of amended Quebec tax legislation. The legislation was passed in
2006 for the purpose of challenging certain inter-provincial Canadian tax
structures.
In addition to earnings' contribution for a full year in 2008 and the one-time
tax reduction described above, earnings for 2008 were favourably impacted by the
increase in gas distribution rates, effective January 1, 2008 reflecting a
higher allowed ROE, partially offset by: (i) higher operating expenses, for the
reason described above for the quarter; (ii) higher amortization costs
associated with the continued investment in capital assets; and (iii) higher
finance charges reflective of higher borrowing rates.
Seasonality materially impacts the earnings of the Terasen Gas companies as a
major portion of the gas distributed is used for space heating. Virtually all
of the annual earnings of the Terasen Gas companies are generated in the first
and fourth quarters.
For an update on material regulatory decisions and applications pertaining to
the Terasen Gas companies for the fourth quarter of 2008, refer to "Regulatory
Highlights".
REGULATED ELECTRIC UTILITIES - CANADIAN
FortisAlberta
--------------------------------------------------------------------------
--------------------------------------------------------------------------
FortisAlberta
Financial Highlights (Unaudited)
Periods Ended December 31
--------------------------------------------------------------------------
Quarter Annual
--------------------------------------------------------------------------
2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Energy Deliveries
(GWh) 4,068 4,002 66 15,722 15,378 344
--------------------------------------------------------------------------
($ millions)
--------------------------------------------------------------------------
Revenue 78 68 10 300 270 30
--------------------------------------------------------------------------
Operating Expenses 34 32 2 130 122 8
--------------------------------------------------------------------------
Amortization 22 19 3 85 75 10
--------------------------------------------------------------------------
Finance Charges 12 10 2 42 36 6
--------------------------------------------------------------------------
Corporate Tax
(Recoveries)
Expenses (1) 1 (2) (3) (11) 8
--------------------------------------------------------------------------
Earnings 11 6 5 46 48 (2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Energy Deliveries: Energy deliveries at FortisAlberta increased 66 gigawatt
hours ("GWh"), or 1.6 per cent, quarter over quarter and increased 344 GWh, or
2.2 per cent, year over year, mainly due to customer growth. During 2008, the
number of customers at FortisAlberta increased by approximately 12,700, bringing
the total number of customers at Fortis Alberta to approximately 460,700 at the
end of 2008.
As a significant portion of the Company's distribution revenue is derived from
fixed or largely fixed billing determinants, changes in energy deliveries are
not directly correlated with changes in revenue.
Revenue: Revenue was $10 million higher quarter over quarter and $30 million
higher year over year. The increases were mainly due to: (i) a 6.8 per cent
increase in customer distribution rates, effective January 1, 2008; (ii) the
impact of customer and load growth; (iii) the accrual of the impact for
collection in future customer distribution rates of the increase in the 2008
allowed ROE to 8.75 per cent from 8.51 per cent, effective January 1, 2008; and
(iv) increased franchise fee revenue.
Earnings: Earnings were $5 million higher quarter over quarter, primarily due to
higher revenue and lower future income tax expenses primarily associated with
the regulator-approved Alberta Electric System Operator ("AESO") charges
deferral account. The increase was partially offset by: (i) higher operating
expenses due to increased labour and employee benefit costs associated with
increased salaries and number of employees, and higher general operating
expenses; (ii) increased amortization costs associated with continued investment
in capital assets and higher amortization rates provided for in the 2008/2009
Negotiated Settlement Agreement ("NSA"); and (iii) increased finance charges
driven by higher debt levels in support of the Company's significant capital
expenditure program.
Annual earnings were $2 million lower than the previous year, driven by lower
future income tax recoveries primarily associated with the regulator-approved
AESO charges deferral account. Additionally, higher revenue was partially
offset by: (i) higher operating expenses due to increased contracted manpower
costs, higher labour and employee-benefit costs associated with increased
salaries and number of employees, and higher general operating expenses; and
(ii) increased amortization costs and finance charges for the reasons described
above for the quarter.
FortisAlberta's AESO charges deferral account captures variances between amounts
charged by the AESO to FortisAlberta for transmission tariffs and amounts
collected by FortisAlberta from customers through the transmission tariff
component of basic customer rates. Subject to regulatory approval, amounts
charged by the AESO in excess of amounts collected from customers are deferred
as a regulatory asset for future recovery from customers, and amounts collected
from customers in excess of amounts charged are deferred as a regulatory
liability for future refund to customers. Generally, there is a two-year lag
between the deferral of amounts in the AESO charges deferral account and their
collection from, or refund to, customers in rates.
FortisAlberta records income taxes on the cash taxes payable method, as approved
by its regulator, except for certain deferral accounts, including the AESO
charges deferral account, whereby income taxes are recorded using the liability
method. During the third quarter of 2008, FortisAlberta identified that taxable
income from operations, before considering impacts associated with the AESO
charges deferral account, could be fully offset by utilizing capital cost
allowance deductions. Then, by applying the tax deductions related to
transmission tariff payments made to the AESO, a tax loss carryforward could be
created and a future income tax recovery could be recorded. Under the liability
method of recording income taxes, a future income tax asset associated with the
tax loss carryforward is not recorded unless there is certainty of recovery.
The transmission tariff payments made to the AESO are recoverable from customers
in the future; therefore, a future income tax asset and future income tax
recovery were recorded in each of the third and fourth quarters of 2008, which
offset the future income tax liability and future income tax expense created by
the AESO charges deferral as it was incurred.
Prior to the third quarter of 2008, FortisAlberta was not deducting transmission
tariff payments made to the AESO to create tax loss carryforwards and was not
recording the associated future income tax recoveries. This accounting
treatment, in effect, resulted in a two-year lag of recording the future income
tax impacts between the payments of transmission tariff amounts to the AESO and
the timing of their collection from customers. Going forward, fluctuations in
corporate income taxes associated with the operation of the AESO charges
deferral account are not expected to occur.
During 2007, net future income tax recoveries of approximately $9 million were
recorded primarily due to the sale of amounts deferred to the AESO charges
deferral account. In September 2007 and December 2007, the 2006 deferred AESO
charges receivable balance of $28 million and approximately $38 million of the
2007 deferred AESO charges receivable balance, respectively, were sold to a
Canadian chartered bank and, as a result, the proceeds were recognized in 2007.
In the fourth quarter of 2007, approximately $3 million of future income tax
expense was recorded related to amounts deferred in 2007 in the AESO charges
deferral account that were not sold in 2007.
In December 2008, FortisAlberta filed a short-form base shelf prospectus for the
issuance of up to $350 million in debentures.
For an update on material regulatory decisions and applications pertaining to
FortisAlberta for the fourth quarter of 2008, refer to "Regulatory Highlights".
FortisBC
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FortisBC
Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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2008 2007 Variance 2008 2007 Variance
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Electricity Sales
(GWh) 842 839 3 3,087 3,091 (4)
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($ millions)
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Revenue 66 61 5 237 229 8
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Energy Supply Costs 23 19 4 68 67 1
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Operating Expenses 18 20 (2) 67 69 (2)
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Amortization 9 7 2 34 31 3
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Finance Charges 7 7 - 28 26 2
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Corporate Taxes 2 1 1 6 5 1
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Earnings 7 7 - 34 31 3
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Electricity Sales: Electricity sales at FortisBC increased 3 GWh, or 0.4 per
cent, quarter over quarter. The increase was primarily due to residential,
general service and wholesale customer growth, partially offset by reduced
industrial customer loads as a result of a general slowdown in the forestry
sector. Annual electricity sales decreased 4 GWh, or 0.1 per cent, year over
year due to reduced industrial customer loads, for the reason described above,
partially offset by the impact of residential, general service and wholesale
customer growth.
Revenue: Revenue was $5 million higher quarter over quarter. The favourable
impact of: (i) a 2.9 per cent increase in electricity rates, effective January
1, 2008, which included the impact of an increase in the 2008 allowed ROE to
9.02 per cent from 8.77 per cent; (ii) a 0.8 per cent increase in electricity
rates, effective May 1, 2008, as a result of the flow through to customers of
increased purchased power costs from BC Hydro; (iii) electricity sales growth;
and (iv) a shift in sales mix from lower-rate customer classes to higher-rate
customer classes was partially offset by lower revenue contributions from
non-regulated operating, maintenance and management services.
Annual revenue was $8 million higher than the previous year, driven by the
increases in electricity rates and the shift in sales mix. The increase was
partially offset by lower revenue contributions from non-regulated operating,
maintenance and management services and lower electricity sales.
Earnings: FortisBC's earnings were comparable quarter over quarter. The impact
of the 2.9 per cent increase in electricity rates was offset by increased energy
supply costs, driven by higher average market power purchase prices due to
increased demand during peak times, and higher amortization costs reflective of
the Company's significant capital expenditure program.
Annual earnings were $3 million higher than the previous year. The increase was
primarily due to the 2.9 per cent increase in electricity rates, partially
offset by higher amortization costs and finance charges related to the Company's
significant capital expenditure program.
Operating expenses were $2 million lower quarter over quarter mainly due to
lower operating expenses associated with non-regulated operating, maintenance
and management services. Annual operating expenses were $2 million lower than
the previous year, for the reason described above for the quarter, partially
offset by the impact of higher labour costs and general inflationary cost
increases year over year.
For an update on material regulatory decisions and applications pertaining to
FortisBC for the fourth quarter of 2008, refer to "Regulatory Highlights".
Newfoundland Power
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Newfoundland Power
Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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2008 2007 Variance 2008 2007 Variance
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Electricity Sales
(GWh) 1,412 1,384 28 5,208 5,093 115
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($ millions)
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Revenue 139 132 7 517 491 26
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Energy Supply Costs 94 88 6 337 327 10
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Operating Expenses 12 14 (2) 50 53 (3)
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Amortization 12 9 3 45 34 11
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Finance Charges 8 8 - 33 34 (1)
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Corporate Taxes 4 3 1 19 12 7
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Non-Controlling
Interest 1 1 - 1 1 -
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Earnings 8 9 (1) 32 30 2
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Electricity Sales: Electricity sales at Newfoundland Power increased 28 GWh, or
2.0 per cent, quarter over quarter and increased 115 GWh, or 2.3 per cent, year
over year, primarily due to the combined impact of customer growth and higher
average consumption.
Revenue: Revenue was $7 million higher quarter over quarter and $26 million
higher year over year. The increases were driven by an average increase in
customer rates of 2.8 per cent, effective January 1, 2008, which included the
impact of an increase in the 2008 allowed ROE to 8.95 per cent from 8.60 per
cent, and electricity sales growth. The increase in revenue also reflected
higher amortization of regulatory liabilities in accordance with prescribed
regulatory orders.
Earnings: Newfoundland Power's earnings were $1 million lower quarter over
quarter, reflecting a shift in the quarterly distribution of annual purchased
power expense which decreased earnings by approximately $2 million during the
fourth quarter of 2008. Under the regulated rate structure, annual purchased
power expense per kilowatt hour ("kWh") is higher in the winter months and lower
in the summer months. During 2007, Newfoundland Power estimated and recognized
monthly purchased power expense based on forecast annual average cost per kWh.
Differences between the estimated monthly purchased power expense and that based
on the actual cost per kWh were adjusted to a regulatory reserve that was
discontinued for use effective January 1, 2008. Monthly purchased power expense
is now recorded at actual cost per kWh. As a result of this change, earnings in
2008 were lower in the first and fourth quarters and higher in the second and
third quarters compared to the same periods in 2007. Annual earnings were not
impacted by the shift in the quarterly distribution of annual purchased power
expense. Excluding the approximate $2 million unfavourable impact of the shift
in the quarterly distribution of annual purchased power expense, as described
above, earnings were $1 million higher quarter over quarter, mainly due to the
average 2.8 per cent increase in customer rates, effective January 1, 2008, and
lower operating expenses driven by the timing of expenses and lower maintenance
and pension costs.
Annual earnings were $2 million higher than the previous year, primarily driven
by the average 2.8 per cent increase in customer rates, effective January 1,
2008, lower operating costs, for the reasons described above for the quarter,
and lower finance charges. Finance charges decreased due to the refinancing of
maturing debt in August 2007 at lower rates.
Amortization costs were higher due to the regulator-approved recovery in
customer rates, effective January 1, 2008, of previously deferred amortization
costs.
Corporate tax expense increased year over year as a result of higher earnings
before corporate taxes, combined with a higher effective corporate income tax
rate, which was driven by decreased deductions taken for tax purposes compared
to accounting purposes.
For an update on material regulatory decisions and applications pertaining to
Newfoundland Power for the fourth quarter of 2008, refer to "Regulatory
Highlights".
Other Canadian Electric Utilities
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Other Canadian Electric Utilities (1)
Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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2008 2007 Variance 2008 2007 Variance
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Electricity Sales
(GWh) 543 554 (11) 2,182 2,209 (27)
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($ millions)
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Revenue 65 66 (1) 262 263 (1)
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Energy Supply Costs 44 43 1 177 174 3
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Operating Expenses 7 8 (1) 28 29 (1)
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Amortization 5 5 - 18 17 1
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Finance Charges 5 4 1 18 17 1
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Corporate Taxes 1 3 (2) 7 10 (3)
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Earnings 3 3 - 14 16 (2)
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(1) Includes Maritime Electric and FortisOntario
Electricity Sales: Electricity sales at Other Canadian Electric Utilities
decreased 11 GWh, or 2.0 per cent, quarter over quarter and decreased 27 GWh, or
1.2 per cent, year over year. The decreases were driven by the loss of and shut
down of operations of certain industrial customers in Ontario and lower average
consumption in Ontario.
Revenue: Revenue was $1 million lower quarter over quarter. During the fourth
quarter of 2007, FortisOntario received a one-time refund of approximately $3
million ($2 million after-tax) from Niagara Mohawk Power Corporation ("NIMO")
associated with cross-border transmission interconnection agreements. In April
2008, the US Federal Energy Regulatory Commission ("FERC") issued an order
stating that the refund should not have been ordered as FERC does not have
jurisdiction over the interconnection agreements in question and, therefore, did
not have jurisdiction to order the refund. In May 2008, FortisOntario repaid
the refunded amounts to NIMO.
Excluding the impact of the receipt of the $3 million refund in the fourth
quarter of 2007, revenue increased $2 million quarter over quarter mainly due to
the flow through to customers of higher energy supply costs at FortisOntario,
partially offset by the impact of lower electricity sales.
Annual revenue was $1 million lower than the previous year. Excluding the
impact of the receipt of the refund in the fourth quarter of 2007 and its
subsequent repayment in the second quarter of 2008, revenue increased $5 million
year over year. The increase was primarily due to: (i) the flow through to
customers of higher energy supply costs at FortisOntario; (ii) a 1.8 per cent
increase in basic electricity rates at Maritime Electric, effective April 1,
2008; and (iii) an average 1.1 per cent increase in basic electricity
distribution rates at FortisOntario, effective May 1, 2008, partially offset by
the impact of lower electricity sales.
Earnings: Excluding the impact of the receipt of the refund in the fourth
quarter of 2007, earnings were $2 million higher quarter over quarter, driven by
lower operating expenses and lower effective corporate taxes. Operating
expenses during the fourth quarter of 2007 included costs associated with an
early retirement program at FortisOntario.
Annual earnings were $2 million lower than the previous year. Excluding the
impact of the receipt of the refund in the fourth quarter of 2007 and its
subsequent repayment in the second quarter of 2008, earnings were $2 million
higher year over year. The increase was driven by higher basic electricity
rates, lower operating expenses and lower effective corporate taxes, partially
offset by the impact of lower electricity sales, and higher finance charges
associated with increased borrowings.
For an update on material regulatory decisions and applications pertaining to
Maritime Electric and FortisOntario for the fourth quarter of 2008, refer to
"Regulatory Highlights".
REGULATED ELECTRIC UTILITIES - CARIBBEAN
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Regulated Electric Utilities - Caribbean (1)
Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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2008(2) 2007 Variance 2008(2) 2007 Variance
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Average US:CDN
Exchange Rate (3) 1.21 0.98 0.23 1.08 1.07 0.01
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Electricity Sales
(GWh) 361 272 89 1,199 1,054 145
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($ millions)
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Revenue 159 76 83 408 307 101
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Energy Supply Costs 109 42 67 273(4) 169 104
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Operating Expenses 20 10 10 55 49(5) 6
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Amortization 13 7 6 36 28 8
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Finance Charges 5 4 1 16 15 1
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Corporate Taxes 1 1 - 2 2 -
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Non-Controlling
Interest 3 3 - 9 13 (4)
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Earnings 8 9 (1) 17 31 (14)
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(1) Includes Belize Electricity, Caribbean Utilities, and Fortis Turks and
Caicos
(2) Caribbean Utilities previously had an April 30 fiscal year end whereby,
up to and including the third quarter of 2008, Caribbean Utilities'
financial statements were consolidated in the financial statements of
Fortis on a two-month lag basis. Caribbean Utilities changed its
fiscal year end to December 31 which has resulted in the Corporation
consolidating five months of financial results of Caribbean Utilities
for the fourth quarter of 2008 and 14 months of financial results for
the year.
(3) The reporting currency of Belize Electricity is the Belizean dollar
which is pegged to the US dollar at BZ$2.00 equals US$1.00. The
reporting currency of Caribbean Utilities and Fortis Turks and Caicos
is the US dollar. The Cayman Islands dollar is pegged to the US dollar
at CI$1.00 equals US$1.20.
(4) Energy supply costs during the second quarter of 2008 included an $18
million (BZ$36 million) charge as a result of a regulatory rate
decision by the Public Utilities Commission of Belize (the "PUC") in
Belize in June 2008.
(5) Operating expenses during the first quarter of 2007 included a $4.4
million (US$3.7 million) charge on the disposal of steam-turbine assets
at Caribbean Utilities.
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Electricity Sales: Regulated Electric Utilities - Caribbean electricity sales
increased 89 GWh, or 32.7 per cent, quarter over quarter, driven by two
additional months of contribution from Caribbean Utilities related to a change
in the utility's fiscal year end. Excluding the two additional months of
contribution from Caribbean Utilities, electricity sales increased 2.6 per cent
quarter over quarter, primarily due to customer and general economic growth.
The increase was tempered by the loss of electricity sales at Fortis Turks and
Caicos as a result of Hurricane Ike, including the delayed re-opening for the
fall tourist season of several large hotels on the Turks and Caicos Islands, and
the effects of the recent decline in global economic conditions. Hurricane Ike
was a Category 4 hurricane which struck the Turks and Caicos Islands in early
September 2008.
Annual electricity sales increased 145 GWh, or 13.8 per cent, year over year,
driven by two additional months of contribution from Caribbean Utilities.
Excluding the two additional months of contribution from Caribbean Utilities,
electricity sales increased 6.0 per cent year over year, primarily due to the
reasons described above for the quarter. Electricity sales increased 8.7 per
cent in 2007 compared to 2006. Growth in annual electricity sales for 2009 is
expected to be between 4 per cent and 5 per cent, reflecting the anticipated
continuing economic downturn that is negatively affecting activity in the
tourism, oil and related industries in the Caribbean region.
Revenue: Revenue increased $83 million quarter over quarter. Excluding the
approximate $30 million favourable impact of foreign exchange associated with
the translation of foreign currency-denominated revenue due to the weakening of
the Canadian dollar against the US dollar quarter over quarter, revenue
increased approximately $53 million quarter over quarter, driven by the two
additional months of contribution from Caribbean Utilities.
Excluding the impact of foreign currency translation and the two additional
months of contribution from Caribbean Utilities, other factors increasing
revenue quarter over quarter were: (i) the full flow through of higher fuel and
oil costs to customers at Caribbean Utilities under the terms of the Company's
new transmission and distribution ("T&D") licence; (ii) electricity sales
growth; and (iii) an increase in the cost of power component of the average
electricity rate at Belize Electricity, effective July 1, 2008. Partially
offsetting the above factors were: (i) a decrease in the value-added delivery
("VAD") component of the average electricity rate at Belize Electricity,
effective July 1, 2008; (ii) a 3.25 per cent reduction in basic electricity
rates and the elimination of the hurricane cost recovery surcharge ("CRS") at
Caribbean Utilities, effective January 1, 2008, under the terms of the Company's
new T&D licence; and (iii) revenue loss of approximately $1 million at Fortis
Turks and Caicos due to Hurricane Ike.
Annual revenue increased $101 million year over year. Excluding the two
additional months of contribution from Caribbean Utilities and the approximate
$6 million favourable impact of foreign currency translation, the increase in
revenue was primarily due to the same reasons described above for the quarter.
Revenue loss at Fortis Turks and Caicos as a result of Hurricane Ike was
approximately $2 million in the second half of 2008.
Earnings: Earnings' contribution was $1 million lower quarter over quarter.
The impact of electricity sales growth, $1 million of additional earnings'
contribution from Caribbean Utilities associated with the change in the
utility's fiscal year end and the approximate $1 million favorable impact of
foreign currency translation were more than offset by: (i) the impact of the
3.25 per cent reduction in basic electricity rates and the elimination of the
hurricane CRS at Caribbean Utilities; (ii) the reduction in the VAD component of
the average electricity rate at Belize Electricity; (iii) revenue loss of
approximately $2 million at Fortis Turks and Caicos due to Hurricane Ike; and
(iv) increased operating expenses and amortization costs.
Annual earnings' contribution was $14 million lower than the previous year.
Earnings' contribution in 2008 was reduced by $13 million, representing the
Corporation's approximate 70 per cent share of $18 million (BZ$36 million) of
previously incurred fuel and purchased power costs at Belize Electricity
disallowed by the regulator. Earnings' contribution in 2007 was reduced by
approximately $2 million, representing the Corporation's share of a charge on
the disposal of steam-turbine assets at Caribbean Utilities.
Excluding the one-time items in 2008 and 2007, as described above, earnings were
$3 million lower year over year. The impact of electricity sales growth, $1
million of additional earnings' contribution from Caribbean Utilities, and the
favourable impact on energy supply costs associated with the movement in
deferred fuel costs at Caribbean Utilities were more than offset by the same
factors described above for the quarter.
Excluding the impact of foreign currency translation, and the charge on the
disposal of steam-turbine assets during the first quarter of 2007, operating
expenses increased mainly due to the impact of hiring additional employees and
increased general and administrative expenses at Fortis Turks and Caicos and the
timing of maintenance activities. Amortization costs increased as a result of
continued investment in capital assets.
In addition to the $18 million charge described above, Belize Electricity's
targeted allowed rate of return on rate base assets ("ROA") was reduced to 10
per cent from 12 per cent, effective July 1, 2008, which was reflected through a
reduction in the VAD component of the average electricity rate.
In April 2008, Caribbean Utilities and the Government of the Cayman Islands
entered into a new exclusive 20-year T&D licence and a new non-exclusive
21.5-year generation licence. Under the new T&D licence, customer rates are
being set using an initial targeted ROA of 10 per cent, down from 15 per cent as
allowed under the previous licence, which was reflected through the reduction in
basic electricity rates, effective January 1, 2008.
For an update on material regulatory decisions and applications pertaining to
Belize Electricity and Caribbean Utilities for the fourth quarter of 2008, refer
to "Regulatory Highlights".
NON-REGULATED - FORTIS GENERATION
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Non-Regulated - Fortis Generation (1)
Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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2008 2007 Variance 2008 2007 Variance
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Energy Sales (GWh) 312 303 9 1,217 1,122 95
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($ millions)
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Revenue 20 19 1 82 75 7
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Energy Supply Costs 1 2 (1) 7 8 (1)
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Operating Expenses 3 3 - 14 14 -
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Amortization 2 2 - 10 10 -
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Finance Charges 2 3 (1) 8 10 (2)
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Corporate Taxes 3 2 1 10 8 2
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Non-Controlling
Interest 1 - 1 3 1 2
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Earnings 8 7 1 30 24 6
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(1) Includes the operations of non-regulated generation assets in Belize,
Ontario, central Newfoundland, British Columbia and upper New York
State
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Energy Sales: Energy sales from Non-Regulated - Fortis Generation increased 9
GWh, or 3.0 per cent, quarter over quarter mainly due to higher production in
central Newfoundland and upper New York State. Annual energy sales increased 95
GWh, or 8.5 per cent, year over year driven by higher production in central
Newfoundland, Belize and upper New York State. Higher production was mainly the
result of higher rainfall.
Revenue: Revenue was $1 million higher quarter over quarter, primarily as a
result of higher production. Annual revenue was $7 million higher year over
year. Factors increasing annual revenue were: (i) higher production; (ii)
increased average wholesale energy prices per megawatt hour ("MWh") in Ontario,
which were $48.83 for 2008 compared to $47.81 for 2007; and (iii) increased
average wholesale energy prices per MWh in upper New York State, which were
US$71.00 for 2008 compared to US$60.73 for 2007.
Earnings: Earnings were $1 million higher quarter over quarter and $6 million
higher year over year, reflecting increased production, and lower finance
charges driven by the refinancing, in November 2007, of higher cost external
debt with lower cost inter-company-borrowings. Higher average wholesale energy
prices also contributed to the increase in annual earnings year over year.
NON-REGULATED - FORTIS PROPERTIES
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Non-Regulated - Fortis Properties
Financial Highlights (Unaudited)
Periods Ended December 31
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Quarter Annual
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($ millions) 2008 2007 Variance 2008 2007 Variance
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Hospitality Revenue 36 34 2 144 132 12
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Real Estate Revenue 16 16 - 63 59 4
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Total Revenue 52 50 2 207 191 16
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Operating Expenses 36 34 2 135 123 12
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Amortization 4 4 - 15 14 1
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Finance Charges 6 6 - 24 24 -
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Corporate Taxes 2 (2) 4 10 6 4
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Earnings 4 8 (4) 23 24 (1)
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Revenue: Hospitality Revenue was $2 million higher quarter over quarter,
primarily due to revenue contributions from the Fairmont Newfoundland hotel,
which was acquired for approximately $22 million in November 2008. The Fairmont
Newfoundland hotel was rebranded the Sheraton Hotel Newfoundland in January
2009.
Annual hospitality revenue was $12 million higher than the previous year,
reflecting revenue contribution from the Delta Regina, acquired in August 2007,
and the Fairmont Newfoundland hotel, acquired in November 2008, combined with
improved performance at the Company's hospitality operations in Atlantic Canada.
Revenue per available room ("REVPAR") for the fourth quarter of 2008 was $72.86
compared to $73.84 for the same quarter in 2007. Despite higher average room
rates, REVPAR decreased quarter over quarter as a result of lower occupancy at
all of the hospitality operating regions. Annual REVPAR was $80.39 compared to
$79.31 for 2007. The increase in annual REVPAR was mainly due to higher average
room rates, partially offset by decreased occupancy, at all of the hospitality
operating regions.
Real Estate revenue was comparable quarter over quarter and $4 million higher
year over year. The growth in annual Real Estate revenue was attributable to
enhanced performance throughout all of the real estate operating regions, as
well as the contribution from the real estate operations of the Delta Regina
since August 2007. The occupancy rate of the Real Estate Division was 96.8 per
cent as at December 31, 2008, consistent with the rate at December 31, 2007.
Earnings: Earnings were $4 million lower quarter over quarter, primarily due to
higher corporate taxes. Earnings for the fourth quarter of 2007 included a $4
million favourable corporate tax adjustment as a result of lower enacted
corporate tax rates, of which $2 million was associated with future income tax
liability balances as at January 1, 2007.
Annual earnings were $1 million lower than the previous year. Excluding the $2
million favourable tax adjustment in 2007 associated with opening future income
tax liability balances, earnings were $1 million higher year over year, mainly
due to a full year of earnings from the Delta Regina hotel which was acquired in
August 2007.
CORPORATE AND OTHER
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Corporate and Other (1)
Financial Highlights (Unaudited)
Quarter Ended December 31
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Quarter Annual
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($ millions) 2008 2007 Variance 2008 2007 Variance
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Revenue 7 6 1 26 22 4
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Operating Expenses 8 5 3 16 13 3
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Amortization 2 1 1 8 6 2
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Finance Charges (2) 20 22 (2) 80 70 10
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Corporate Tax
Recovery (8) (2) (6) (23) (12) (11)
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Preference Share
Dividends 5 2 3 14 6 8
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Net Corporate and
Other Expenses (20) (22) 2 (69) (61) (8)
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(1) Includes Fortis net corporate expenses and, from May 17, 2007, the net
expenses of non-regulated Terasen corporate-related activities and the
financial results of Terasen's 30 per cent ownership interest in CWLP
and of Terasen's non-regulated wholly owned subsidiary TES
(2) Includes dividends on preference shares classified as long-term
liabilities
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Revenue: Revenue was $1 million higher quarter over quarter, primarily due to
higher interest revenue from increased inter-company lending, partially offset
by the impact of a decrease in the number of customer contracts at CustomerWorks
Limited Partnership ("CWLP").
Annual revenue was $4 million higher than the previous year. Higher interest
revenue from increased inter-company lending was combined with increased revenue
contributions from CWLP. CWLP contributed revenue for a full year in 2008
compared to a partial year in 2007; however, this increase was partially offset
by the impact of a decrease in the number of customer contracts.
Net Corporate and Other Expenses: Net corporate and other expenses were $2
million lower quarter over quarter, primarily due to lower finance charges,
resulting from lower net credit facility borrowings, and a higher corporate tax
recovery, partially offset by higher preference share dividends and increased
business development costs. The increase in preference share dividends was
associated with the 9.2 million First Preference Shares, Series G issued in the
second quarter of 2008 for gross proceeds of $230 million. Corporate tax
recovery in the fourth quarter of 2007 was reduced as a result of purchase price
allocation tax adjustments and by the impact of lower enacted future corporate
income tax rates.
Annual net corporate and other expenses were $8 million higher than the previous
year, primarily due to Terasen acquisition-related finance charges and other
Terasen corporate-related expenses for a full year in 2008 compared to a partial
year in 2007. The increase also reflected higher preference share dividends
associated with preference shares issued in the second quarter of 2008 and
higher business development costs. The increase in net corporate and other
expenses was partially offset by a higher corporate tax recovery, for the reason
described above for the quarter, combined with the impact of a $2 million tax
reduction in 2008 associated with the settlement of historical corporate tax
matters at Terasen and higher interest revenue from increased inter-company
lending.
REGULATORY HIGHLIGHTS
An update on material regulatory decisions and applications for the
Corporation's regulated utilities for the fourth quarter of 2008 is as follows:
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Material Regulatory Decisions and Applications
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Regulated Utility Summary Description
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TGI/TGVI - Effective October 1, 2008, the BCUC approved decreases
in the commodity rates charged to TGI customers for
natural gas. The commodity cost of natural gas and
propane are flowed through to customers without markup.
Every three months TGI and TGVI review natural gas and
propane commodity prices with the BCUC in order to
ensure the flow-through rates charged to customers are
sufficient to cover the cost of purchasing natural gas
and propane.
- In December 2008, the BCUC approved various rates at
TGI and TGVI, including those for mid-stream and
delivery for residential customers in several service
areas, effective January 1, 2009. The approved rates
also reflected the impact of a decrease in the allowed
ROE for 2009 to 8.47 per cent and 9.17 per cent for TGI
and TGVI, respectively, resulting from the application
of automatic ROE adjustment mechanisms. The commodity
rate for natural gas will remain unchanged and the
commodity rate for propane will decrease effective
January 1, 2009.TGI filed an application with the BCUC
in the fourth quarter of 2008 requesting approval to
perform extensive rehabilitation of certain underwater
transmission pipeline crossings of the South Arm of the
Fraser River serving Vancouver and Richmond. TGI
expects to receive regulatory approval for this $27
million project in early 2009 with completion of the
project anticipated in 2010.
- TGI and TGVI are currently preparing rate applications
related to 2010 which are anticipated to be filed with
the BCUC in the second quarter of 2009. The BCUC
approval of rates for 2010, and for future years, will
be required as the current performance-based settlement
agreements expire at the end of 2009. As part of the
rate filings, TGI and TGVI plan to seek a review of the
current generic ROE adjustment mechanisms and of the
deemed equity component of the capital structure.
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FortisBC - In June 2008, FortisBC filed its 2009 and 2010 Capital
Expenditure Plan for gross capital expenditures of
approximately $193 million for 2009 and $196 million
for 2010. To date, the BCUC has approved gross capital
expenditures of approximately $100 million and $90
million for 2009 and 2010, respectively. In November
2008, the BCUC denied the costs relating to the Copper
Conductor Replacement Project and Advanced Metering
Infrastructure Project included in the 2009 and 2010
Capital Expenditure Plan. These projects would have
totalled approximately $21 million in 2009 and $27
million in 2010. A BCUC decision on the remainder of
the 2009 and 2010 Capital Expenditure Plan is expected
in the first quarter of 2009.
- In December 2008, the BCUC approved the Company's 2009
Revenue Requirements Application resulting in a general
rate increase of 4.6 per cent, effective January 1,
2009. The rate increase is primarily the result of the
Company's capital expenditure program and higher power
purchases driven by customer growth and increased
electricity demand. Rates for 2009 reflect an allowed
ROE of 8.87 per cent as a result of the application of
the automatic ROE adjustment mechanism. The approval
of the 2009 Revenue Requirements Application also
included an extension of the performance-based rate
setting ("PBR") mechanism for the years 2009 through
2011 under terms similar to the previous PBR agreement,
except annual gross operating and maintenance expenses,
before capitalized overhead, will be set by a formula
incorporating customer growth and inflation; i.e., the
consumer price index ("CPI") for British Columbia,
minus a productivity improvement factor ("PIF") of 3
per cent in 2009, 1.5 per cent in 2010 and 1.5 per
cent in 2011. Should inflation be in excess of 3 per
cent, the excess is added to the PIF which effectively
caps the CPI at 3 per cent.
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FortisAlberta - In November 2008, FortisAlberta submitted its evidence
with respect to the 2009 Generic Cost of Capital
Proceeding as requested by the Alberta Utilities
Commission ("AUC"). The proceeding will include a
review of the ROE level, the adjustment mechanism and
utility capital structures for all gas, electric and
pipeline utilities in Alberta that are regulated by the
AUC. A hearing is scheduled for the second quarter of
2009.
- In December 2008, FortisAlberta received regulatory
approval for its 2009 distribution rates to recover
approved distribution costs. The result was a
distribution rate increase of 8.6 per cent, effective
January 1, 2009. The rate increase is slightly higher
than the rate increase of 7.3 per cent contemplated in
the 2008/2009 NSA due to the deferred recovery in
customer rates in 2009 of the increase in the allowed
ROE to 8.75 per cent in 2008. The approved rates for
2009 also reflect the impact of the Company's union
agreement which was settled after the 2008/2009 NSA was
approved. As directed by the AUC, the Company is to
continue using the 2007 ROE of 8.51 per cent for 2009,
pending the outcome of the AUC's 2009 Generic Cost of
Capital Proceeding.
- FortisAlberta expects to file a 2010 and 2011 revenue
requirements application during the second quarter of
2009.
--------------------------------------------------------------------------
Newfoundland - In November 2008, the Newfoundland and Labrador Board
Power of Commissioners of Public Utilities approved, as
filed, the Company's 2009 Capital Budget Application
for approximately $62 million, with approximately half
of the proposed capital expenditures relating to
replacing aged and deteriorated components of the
electricity system.
- The Company's allowed ROE of 8.95 remains unchanged for
2009 and, subsequently, there has been no change in
basic customer rates for 2009.
--------------------------------------------------------------------------
Maritime - In October 2008, Maritime Electric filed a 2009
Electric Rate Application. The proposed rate increase, effective
April 1, 2009, reflects an increase in the amount of
energy-related costs to be collected from customers
through the basic rate component of customer billings.
The proposed increase in the reference cost of energy
in basic rates will result in a decrease in the amount
of energy costs to be collected from customers through
the operation of the energy cost adjustment mechanism
account. The application also requests a maximum
allowed ROE of 9.75 per cent for 2009. A decision on
the application is expected by the end of the first
quarter of 2009.
- In November 2008, the Island Regulatory and Appeals
Commission approved, as filed, the Company's 2009
Capital Budget for approximately $20 million, before
customer contributions.
--------------------------------------------------------------------------
FortisOntario - Canadian Niagara Power filed a 2009 Cost of Service
Application in August 2008 requesting the rebasing of
distribution rates using 2009 as a forward test year.
The hearing process associated with the application
commenced during the fourth quarter of 2008 and the
Company expects a decision on the application to be
received in April 2009.
--------------------------------------------------------------------------
Belize - In June 2008, the Public Utilities Commission of
Electricity Belize (the "PUC") issued its Final Decision on Belize
Electricity's 2008/2009 rate application which failed
to increase the overall average electricity rate. The
PUC also ordered a BZ$36 million retroactive adjustment
associated with Belize Electricity's prior years'
financial results. The adjustment, in substance,
represented the disallowance of previously incurred
fuel and purchased power costs. The PUC also reduced
Belize Electricity's targeted allowed ROA to 10 per
cent from 12 per cent through a reduction in the VAD
component of the average electricity rate. The Final
Decision does not impact the Corporation's non-
regulated generation operations in Belize.
- In January 2009, the PUC amended the Final Decision on
Belize Electricity's 2008/2009 rate application (the
"Amendment"), effective for the period from January 1,
2009 through June 30, 2009. The Amendment provides for
an increase in the VAD component of the average
electricity rate to allow Belize Electricity to earn a
targeted allowed ROA of 12 per cent but reduces the
reference cost of power component of the average
electricity rate, due to an overall decline in the cost
of power. The Amendment, therefore, allows for an
overall decrease in the average electricity rate from
BZ44.1 cents per kWh to BZ38.7 cents per kWh. The
Amendment also provides for a lower regulated asset
value upon which the ROA is calculated, while
increasing operating expenses by the same amount, and
reduces deprecation, taxes and fees and the related
revenue requirement.
- Changes made in electricity legislation by the
Government of Belize and the PUC, and the June 2008
Final Decision and Amendment, which were based on the
changed legislation, have been judicially challenged by
Belize Electricity in several proceedings. The
judicial process is ongoing with interim rulings,
judgments and appeals. The timing or likely outcome of
the proceedings is indeterminable at this time.
--------------------------------------------------------------------------
Caribbean - In December 2008, Caribbean Utilities filed
Utilities with the regulator a revised Five-Year Capital
Investment Plan ("CIP") as a result of the change in
the Company's fiscal year end. The revised CIP still
totals US$255 million, including approximately US$72
million related to new generation that is expected to
be solicited. In January 2009, the regulator requested
that the Company further review its non-generation
capital expenditures to reflect the current economic
environment and lower growth projections. A decision
on the revised CIP is expected during the first quarter
of 2009.
- In January 2009, the Electricity Regulatory Authority
of the Cayman Islands approved a new customer-owned
renewable energy tariff that will allow customers on
Grand Cayman to connect renewable energy systems to the
Company's distribution system and generate their own
power from renewable energy while remaining connected
to Caribbean Utilities' grid. The Company expects to
be able to connect customers to the grid by the end of
the first quarter of 2009.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
CAPITAL STRUCTURE
The Corporation's principal businesses of regulated gas and electricity
distribution require ongoing access to capital to allow the utilities to fund
maintenance and expansion of infrastructure. Wherever possible, Fortis raises
debt at the subsidiary level to ensure regulatory transparency, tax efficiency
and financing flexibility. To help ensure access to capital, the Corporation
targets a consolidated long-term capital structure containing approximately 40
per cent equity, including preference shares, and 60 per cent debt, as well as
investment-grade credit ratings. Each of the Corporation's regulated utilities
maintains its own capital structure in line with the deemed capital structure
reflected in the utilities' customer rates. The consolidated capital structure
of Fortis is presented in the following table.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Capital Structure (Unaudited)
As at
--------------------------------------------------------------------------
December 31, 2008 December 31, 2007
--------------------------------------------------------------------------
($ millions) (%) ($ millions) (%)
--------------------------------------------------------------------------
Total debt and capital
lease obligations
(net of cash) (1) 5,468 59.5 5,476 64.3
--------------------------------------------------------------------------
Preference shares (2) 667 7.3 442 5.2
--------------------------------------------------------------------------
Common shareholders' equity 3,046 33.2 2,601 30.5
--------------------------------------------------------------------------
Total 9,181 100.0 8,519 100.0
--------------------------------------------------------------------------
(1) Includes long-term debt and capital lease obligations, including
current portion, and short-term borrowings, net of cash
(2) Includes preference shares classified as both long-term liabilities and
equity
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The improvement in the capital structure from December 2007 was primarily due to
a $300 million ($291 million net of after-tax expenses) common share issue in
December 2008 and a $230 million ($225 million net of after-tax expenses)
preference share issue in the second quarter of 2008. The capital structure was
also favourably impacted by net earnings applicable to common shares, less
common share dividends, of $83 million during 2008.
CASH FLOW
The table below outlines the Corporation's 2008 fourth quarter and annual
sources and uses of cash compared to the same periods in 2007.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Summary of Cash Flows (Unaudited)
Periods Ended December 31
--------------------------------------------------------------------------
Quarter Annual
--------------------------------------------------------------------------
($ millions) 2008 2007 Variance 2008 2007 Variance
--------------------------------------------------------------------------
Cash, beginning
of period 68 51 17 58 41 17
--------------------------------------------------------------------------
Cash provided
by (used in)
--------------------------------------------------------------------------
Operating
activities 214 152 62 663 373 290
--------------------------------------------------------------------------
Investing
activities (277) (234) (43) (854) (2,033) 1,179
--------------------------------------------------------------------------
Financing
activities 58 89 (31) 196 1,680 (1,484)
--------------------------------------------------------------------------
Foreign
currency
impact on
cash
balances 3 - 3 3 (3) 6
--------------------------------------------------------------------------
Cash, end of
period 66 58 8 66 58 8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash flow provided by operating activities, after working capital adjustments,
increased $62 million quarter over quarter. The increase was mainly due to
favourable working capital changes at the Terasen Gas companies related to the
impact of cooler weather and higher commodity natural gas costs charged to
customers during the fourth quarter of 2008 compared to the fourth quarter of
2007. The increase was partially offset by lower cash flow from operating
activities at FortisAlberta. During the fourth quarter of 2007, however,
FortisAlberta received cash from the sale of amounts in its 2007 AESO charges
deferral account. Annual cash flow provided by operating activities, after
working capital adjustments, was $290 million higher than the previous year,
reflecting a full year of contributions from the Terasen Gas companies in 2008
compared to a partial year in 2007.
Cash used in investing activities increased $43 million quarter over quarter,
reflecting higher utility capital expenditures and the acquisition of the
Fairmont Newfoundland hotel in November 2008. Annual cash used in investing
activities was approximately $1.2 billion lower than the previous year.
Investing activities in 2007, however, reflected the acquisition of Terasen for
cash consideration of approximately $1.3 billion and the acquisition of the
Delta Regina for $50 million. Excluding the impact of business acquisitions in
2007 and 2008, annual cash used in investing activities increased year over year
due to higher capital spending driven by the Terasen Gas companies.
Cash provided by financing activities was $31 million lower quarter over
quarter. Increased cash associated with the $300 million common share issue in
the fourth quarter of 2008 was more than offset by the impact of a net decrease
in debt during the fourth quarter of 2008 compared to a net increase in debt
during the same quarter for the previous year. Annual cash provided by
financing activities was approximately $1.5 billion lower year over year.
Financing activities in 2007, however, reflected proceeds from a $1.15 billion
common share issue used to finance a significant portion of the cash purchase
price of Terasen. Excluding the impact of the Terasen acquisition, annual cash
provided by financing activities decreased year over year due to a net decrease
in debt during 2008 compared to a net increase in debt during 2007, partially
offset by increased proceeds from common and preference share issues.
CAPITAL PROGRAM
The Corporation's principal businesses of regulated gas and electricity
distribution are capital intensive. Capital investment in infrastructure is
required to ensure continued and enhanced performance, reliability and safety of
the gas and electricity systems and to meet customer growth. All costs
considered to be maintenance and repairs are expensed as incurred. Costs
related to replacements, upgrades and betterments of capital assets are
capitalized as incurred.
Gross consolidated capital expenditures for the year ended December 31, 2008
were $904 million. A breakdown of gross capital expenditures by segment for
2008 is provided in the following table.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gross Capital Expenditures (Unaudited)
Year Ended December 31, 2008
($ millions)
--------------------------------------------------------------------------
Terasen Fortis Fortis- Newfound- Other Total Regu- Non Fortis Total
Gas Alberta BC land Regu- Regu- lated Regu- Proper- (4)
Compa- (1)(2) (1) Power(1) lated lated Utili- lated ties
nies Utili- Cana- ties Uti-
(1) ties dian Carib- lity
Cana- bean (3)
(1)
--------------------------------------------------------------------------
220 302 117 67 46 752 110 28 14 904
--------------------------------------------------------------------------
(1) Includes asset removal and site restoration expenditures which are
permissible in rate base
(2) Excludes payments of $31 million made to the AESO for investment in
transmission capital projects
(3) Includes non-regulated generation, non-regulated gas utility and
Corporate capital expenditures
(4) Includes expenditures associated with assets under construction
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Actual gross consolidated capital expenditures for 2008 were comparable with
forecasted gross consolidated capital expenditures as disclosed in the
Corporation's MD&A for the year ended December 31, 2007. An update on
significant capital projects for 2008 is provided below.
In April 2008, TGVI received approval from the BCUC to proceed with the
engineering, procurement and construction ("EPC") of the liquefied natural gas
("LNG") storage facility on Vancouver Island for a total cost of approximately
$200 million. As a result, the Company entered into an EPC contract with a
third party for the construction of the facility. The contract includes
approximately $55 million to be paid in US dollars and, as a result, TGVI
entered into a three-year US dollar forward-purchase contract which will
mitigate currency fluctuations on the US dollar portion of the EPC contract.
Construction commenced on the LNG storage facility during the second quarter of
2008 with completion of the project expected in late 2011. Approximately $47
million in capital spending related to this project was incurred in 2008.
TGVI's construction of a 50-kilometre pipeline lateral from Squamish to Whistler
continued in 2008 and, as at December 31, 2008, approximately 49 kilometres of
the pipeline had been constructed. Originally scheduled to be completed by
summer 2008, the pipeline lateral is now expected to be completed in April 2009,
later than originally planned due to changes in the way the Company can sequence
the pipeline construction as a result of the province of British Columbia's
Sea-to-Sky Highway Improvement Project Plan ("Highway Project"). The pipeline
is being built in conjunction with the Highway Project and the pipeline route
mainly falls within the highway right of way. Upon completion of the pipeline,
the Company will convert the Resort Municipality of Whistler from propane to
natural gas during spring and summer of 2009. Approximately $13 million in
capital spending related to the pipeline lateral and system conversion was
incurred in 2008.
During the third quarter of 2008, FortisAlberta began the second phase of
deployment of the replacement of conventional meters with new Automated Meter
Infrastructure ("AMI") technology. The second phase is part of an overall $124
million project to convert all of FortisAlberta's customers to AMI technology
over a four-year period that commenced in 2007. Approximately $17 million in
capital spending related to the AMI project was incurred in 2008.
Late in 2008, Fortis Properties commenced the expansion of its Holiday Inn
Kelowna hotel which includes adding 70 rooms and 4,000 square feet of meeting
room space. Completion of the expansion is expected by January 2010 at a total
capital cost of approximately $14 million.
In April 2008, Caribbean Utilities entered into an agreement to purchase a 16-MW
diesel generating unit and related equipment from a supplier in Germany for
approximately US$24 million over the period 2008 and 2009 with the unit expected
to be commissioned in summer 2009. Approximately US$8 million ($8 million) was
spent in 2008 related to this unit.
Construction continued in 2008 on the US$53 million 19-MW hydroelectric
generating facility at Vaca on the Macal River in Belize. The facility is being
constructed downstream from the Chalillo and Mollejon hydroelectric generating
facilities and is expected to increase average annual energy production from the
Macal River by approximately 80 GWh to 240 GWh. The facility is expected to
come into service at the beginning of 2010, slightly later than originally
planned for late 2009, due to labour and weather-related delays. Approximately
US$16 million ($18 million) was spent in 2008 related to this facility.
In October 2008, the BCUC approved FortisBC's proposed $141 million Okanagan
Transmission Reinforcement project, which was included in FortisBC's 2009 and
2010 Capital Expenditure Plan. The project relates to upgrading the existing
overhead transmission line from 161 kilovolts ("kV") to 230 kV from Vaseux Lake
to Oliver and Penticton, and building a new 230-kV transmission line from Vaseux
Lake to Penticton. FortisBC anticipates that construction of the project will
begin in spring 2009 for expected completion in 2011.
A breakdown of forecast gross capital expenditures for 2009 by segment is
provided in the following table.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Forecast Gross Capital Expenditures (Unaudited)
Year Ending December 31, 2009
($ millions)
--------------------------------------------------------------------------
Terasen Fortis Fortis- Newfound- Other Total Regu- Non Fortis Total
Gas Alberta BC land Regu- Regu- lated Regu- Proper- (5)
Compa- (1)(2) (1)(3) Power(1) lated lated Utili- lated ties
nies Utili- Cana- ties Uti-
(1) ties dian Carib- lity
Cana- bean (4)
(1)
--------------------------------------------------------------------------
287 292 160 65 34 838 118 56 33 1,045
--------------------------------------------------------------------------
(1) Includes forecast asset removal and site restoration expenditures which
are permissible in rate base
(2) Excludes forecast payments of $31 million to be made to the AESO for
investment in transmission capital projects
(3) Includes approximately $72 million in expenditures for which regulatory
approval has not yet been received
(4) Includes non-regulated generation, non-regulated gas utility and
Corporate capital expenditures
(5) Includes expenditures associated with assets under construction
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Over the next five years, consolidated gross capital expenditures are expected
to be approximately $4.5 billion. Approximately $3.1 billion of the capital
spending is expected be incurred at the regulated electric utilities driven by
FortisAlberta, FortisBC and the Corporation's regulated utility operations in
the Caribbean. Approximately $1.2 billion is expected to be incurred at the
regulated gas utilities. Capital expenditures at the regulated utilities are
subject to regulatory approval. Non-regulated capital expenditures are expected
to total $200 million over the same time period. The Corporation's capital
program is expected to drive growth in earnings and dividends.
CREDIT FACILITIES
As at December 31, 2008, the Corporation and its subsidiaries had consolidated
authorized lines of credit of $2.2 billion, of which approximately $1.5 billion
was unused. Approximately $2 billion of the total credit facilities are
committed multi-year facilities, the majority of which having maturities between
2011 and 2013. The credit facilities are syndicated almost entirely with the
seven largest Canadian banks with no one bank holding more than 25 per cent of
these facilities.
As a result of the regulator's Final Decision on Belize Electricity's 2008/2009
rate application, Belize Electricity does not meet certain debt covenant
financial ratios related to loans with the International Bank for Reconstruction
and Development and the Caribbean Development Bank totalling $11 million (BZ$18
million) as at December 31, 2008. The Company has informed the lenders of the
defaults and has requested appropriate waivers. Belize Electricity is also in
default of certain debt covenants which have resulted in Belize Electricity
being prohibited from incurring new indebtedness or declaring dividends.
In November 2008, First Caribbean Bank withdrew its credit facility with Belize
Electricity, requiring the Company to repay approximately BZ$4 million
outstanding under the facility. Scotiabank has also put Belize Electricity on
notice that it may not renew its BZ$5.1 million credit facility with the Company
if conditions do not show signs of improvement. As at December 31, 2008, the
Scotiabank credit facility was undrawn. A continuation of lower energy supply
costs should provide Belize Electricity with some liquidity relief in the near
term.
The following summary outlines the credit facilities of the Corporation and its
subsidiaries.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Credit Facilities (Unaudited)
--------------------------------------------------------------------------
Total as at Total as at
($ millions) Corporate Regulated Fortis December 31, December 31,
and Other Utilities Properties 2008 2007
--------------------------------------------------------------------------
Total credit
facilities 715 1,500 13 2,228 2,234
--------------------------------------------------------------------------
Credit facilities
utilized:
Short-term
borrowings - (410) - (410) (475)
--------------------------------------------------------------------------
Long-term debt
(including
current
portion) (32) (192) - (224) (530)
--------------------------------------------------------------------------
Letters of
credit
outstanding (1) (102) (1) (104) (159)
--------------------------------------------------------------------------
Credit facilities
available 682 796 12 1,490 1,070
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NON-REGULATED FORTIS GENERATION - EXPLOITS RIVER HYDRO PARTNERSHIP
On December 16, 2008, the Government of Newfoundland and Labrador passed
legislation expropriating most of the Newfoundland assets of
Abitibi-Consolidated Company of Canada ("Abitibi-Consolidated"). Prior to that
date, Abitibi-Consolidated announced the closure of its Grand Falls-Windsor,
Newfoundland newsprint mill, effective March 31, 2009. The hydroelectric
generating facility assets of the Exploits River Hydro Partnership ("Exploits
Partnership") were included as part of the expropriation legislation. The
Exploits Partnership is owned 51 per cent by Fortis Properties and 49 per cent
by Abitibi-Consolidated. The financial statements of the Exploits Partnership
are consolidated in the financial statements of Fortis. The Exploits
Partnership has a $61 million term loan with several lenders which is secured by
the assets of the Exploits Partnership and is non-recourse to Fortis.
Discussions are ongoing with Exploits Partnership's lenders with respect to the
above matters. The Government of Newfoundland and Labrador has publicly stated
that it is not its intention to adversely affect the independent partners of
Abitibi-Consolidated and lenders to Exploits Partnership. Pending resolution of
these matters, deferred financing costs of $2 million and utility capital assets
of $61 million related to the Exploits Partnership have been reclassified to
deferred charges and other assets and the $61 million term loan has been
classified as current on the consolidated balance sheet of Fortis as at December
31, 2008.
IMPACT OF GLOBAL ECONOMIC DOWNTURN
Capital Expenditures: Gross consolidated capital expenditures are expected to be
approximately $1.0 billion for 2009 and $4.5 billion over the next five years.
Planned capital expenditures are based on detailed forecasts of customer demand,
weather, and cost of labour and materials, as well as other factors, including
economic conditions, which could change and cause actual expenditures to differ
from forecasts.
Cash Flows: The Corporation does not expect any significant decrease in
subsidiary operating cash flows in 2009, as a result of the anticipated
continued downturn in the global economy. The subsidiaries expect to be able to
source the cash required to fund their 2009 capital expenditure programs.
Fortis and its subsidiaries, except for Belize Electricity and debt associated
with the Exploits Partnership as described above, were in compliance with debt
covenants as at December 31, 2008 and are expected to remain compliant in 2009.
Cost of and Access to Capital: The volatility in the global financial and
capital markets may increase the cost of, and affect the timing of issuance of,
long-term capital by the Corporation and its utilities in 2009. While the cost
of borrowing may increase, as new long-term debt is expected to be issued at
higher rates due to an increase in credit spreads, the Corporation and its
utilities expect to continue to have reasonable access to capital in the near to
medium terms. The cost of renewed and extended credit facilities may also
increase going forward; however, any increased interest expense and/or fees is
not expected to have a material financial impact on the Corporation and its
utilities in 2009, as the majority of the total committed credit facilities
have maturities between 2011 and 2013. Due to the regulated nature of the
Corporation's utilities, increased borrowing costs are eligible to be recovered
in future customer rates.
Results of Operations: Achieving organic revenue and earnings growth at Fortis
Properties' Hospitality Division may prove challenging in 2009 as a result of
the anticipated continued downturn in the global economy and its impact on
leisure and business travel and hotel stays. In the Caribbean, the level of and
fluctuations in tourism and related activities, which are closely tied to
economic conditions, influence electricity sales as it impacts electricity
demand of the large hotels and condominium complexes that are serviced by the
Corporation's regulated utilities in that region. As a result, electricity
sales growth at the Corporation's Regulated Caribbean Electric utilities in 2009
is expected to be lower than electricity sales growth achieved in 2008.
Defined Benefit Pension Plans: As at December 31, 2008, the fair value of the
Corporation's consolidated defined benefit pension plan assets was $579 million
compared to $674 million as at December 31, 2007, which represented a 14 per
cent decline in asset value. The decline in the fair value of the plan assets
is expected to have the impact of increasing the Corporation's future
consolidated pension funding obligations. The amount of the increase will not
be determinable until the next completion of actuarial valuations, which for
Newfoundland Power, the Corporation and for one of the defined benefit pension
plans at Terasen is expected during 2009, related to December 31, 2008 valuation
dates. The next scheduled actuarial valuations for the remaining larger defined
benefit pension plans are not until December 2009 and December 2010. Fortis
expects any additional defined benefit pension plan funding requirements to be
sourced primarily from a combination of cash generated from operations and
amounts available for borrowing under existing credit facilities. The discount
rates used to measure the accrued defined benefit pension obligations on the
measurement dates in 2008 have increased as a result of the impact of increased
credit risk spreads on investment-grade corporate bonds due to volatility in the
capital markets. Fortis expects no material increase in consolidated pension
expense for 2009 related to defined benefit pension plans. The amortization of
2008 losses associated with the pension plan assets is expected to be largely
offset by the impact of higher assumed discount rates. The impact of the
decline in pension plan assets in 2008, as it relates to 2009 defined benefit
pension expense, was mitigated by the use of the market-related method for
valuing pension assets at Terasen and Newfoundland Power. Any increase in
future pension funding requirements and/or pension expense at the regulated
utilities is expected to be recovered from, or refunded to, customers in future
rates, subject to forecast risk. At the Terasen Gas companies and FortisBC,
however, actual pension expense above or below the forecast pension expense
approved for recovery in customer rates for the year is subject to deferral
account treatment for recovery from, or refund, to customers in future rates,
subject to regulatory approval.
Counterparty Risk: The Terasen Gas companies are exposed to credit risk in the
event of non-performance by counterparties to derivative instruments. The
Terasen Gas companies are also exposed to significant credit risk on physical
off-system sales. The Terasen Gas companies deal with high credit-quality
institutions in accordance with established credit approval practices. Due to
recent events in the capital markets, including significant government
intervention in the banking systems, the Terasen Gas companies have further
limited the financial counterparties that they transact with and have reduced
available credit to, or taken additional security from, the physical off-system
sales counterparties with which they transact. To date, the Terasen Gas
companies have not experienced any counterparty defaults and they do not expect
any counterparties to fail to meet their obligations, however, the credit
quality of counterparties, as recent events have indicated, can change rapidly.
An extended decline in economic conditions could also impair the ability of
customers to pay for gas and electricity consumed thereby affecting the aging
and collection of the utilities' trade receivables.
Credit Ratings: Fortis and its regulated utilities do not anticipate any
material adverse rating actions by the credit rating agencies in the near term.
However, the current global financial crisis has placed increased scrutiny on
rating agencies and rating agency criteria which may result in changes to credit
rating practices and policies.
OUTLOOK
With its substantial credit facilities and conservative capital structure,
Fortis believes it has the financial flexibility to respond to the global
economic downturn and volatility in the capital markets anticipated to continue
in 2009. The Corporation and its utilities also expect to continue to have
reasonable access to long-term capital in 2009.
The Corporation continues to pursue acquisitions for profitable growth, focusing
on opportunities to acquire regulated natural gas and electric utilities in
Canada, the United States and the Caribbean. Fortis will also pursue growth in
its non-regulated businesses in support of its regulated utility growth
strategy.
FORTIS INC.
Consolidated Financial Statements
For the three and twelve months ended December 31, 2008 and 2007
(Unaudited)
Fortis Inc.
Consolidated Balance Sheets (Unaudited)
As at December 31
(in millions of Canadian dollars)
2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $66 $58
Accounts receivable 681 635
Prepaid expenses 17 19
Regulatory assets 157 119
Inventories 229 207
--------------------------------------------------------------------------
1,150 1,038
Deferred charges and other assets 279 179
Regulatory assets 203 193
Future income taxes 54 37
Utility capital assets 7,367 6,748
Income producing properties 541 519
Intangibles, net of amortization 9 15
Goodwill 1,575 1,544
--------------------------------------------------------------------------
$11,178 $10,273
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $410 $475
Accounts payable and accrued charges 874 793
Dividends payable 47 43
Income taxes payable 66 30
Regulatory liabilities 45 20
Current installments of long-term debt
and capital lease obligations 240 436
Future income taxes 15 7
--------------------------------------------------------------------------
1,697 1,804
Deferred credits 277 261
Regulatory liabilities 401 372
Future income taxes 61 55
Long-term debt and capital lease obligations 4,884 4,623
Non-controlling interest 145 115
Preference shares 320 320
--------------------------------------------------------------------------
7,785 7,550
--------------------------------------------------------------------------
Shareholders' equity
Common shares 2,449 2,126
Preference shares 347 122
Contributed surplus 9 6
Equity portion of convertible debentures 6 6
Accumulated other comprehensive loss (52) (88)
Retained earnings 634 551
--------------------------------------------------------------------------
3,393 2,723
--------------------------------------------------------------------------
$11,178 $10,273
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Consolidated Statements of Earnings (Unaudited)
For the periods ended December 31
(in millions of Canadian dollars, except per share amounts)
Quarter Ended Year Ended
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue $1,182 $1,018 $3,903 $2,718
--------------------------------------------------------------------------
Expenses
Energy supply costs 685 558 2,112 1,287
Operating 208 191 743 617
Amortization 93 78 348 273
--------------------------------------------------------------------------
986 827 3,203 2,177
--------------------------------------------------------------------------
Operating income 196 191 700 541
Finance charges 93 93 363 299
Gain on sale of property - (8) - (8)
--------------------------------------------------------------------------
93 85 363 291
--------------------------------------------------------------------------
Earnings before corporate taxes
and non-controlling interest 103 106 337 250
Corporate taxes 17 21 65 36
--------------------------------------------------------------------------
Net earnings before
non-controlling interest 86 85 272 214
Non-controlling interest 5 4 13 15
--------------------------------------------------------------------------
Net earnings 81 81 259 199
Preference share dividends 5 2 14 6
--------------------------------------------------------------------------
Net earnings applicable
to common shares $76 $79 $245 $193
--------------------------------------------------------------------------
Earnings per common share
Basic $0.48 $0.51 $1.56 $1.40
Diluted $0.46 $0.49 $1.52 $1.32
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Consolidated Statements of Retained Earnings (Unaudited)
For the periods ended December 31
(in millions of Canadian dollars)
Quarter Ended Year Ended
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance at beginning of period $602 $511 $551 $486
Net earnings applicable
to common shares 76 79 245 193
--------------------------------------------------------------------------
678 590 796 679
Dividends on common shares (44) (39) (162) (128)
--------------------------------------------------------------------------
Balance at end of period $634 $551 $634 $551
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
For the periods ended December 31
(in millions of Canadian dollars)
Quarter Ended Year Ended
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net earnings $81 $81 $259 $199
--------------------------------------------------------------------------
Unrealized foreign currency
translation gains (losses) on
net investments in
self-sustaining foreign
operations 80 - 115 (70)
(Losses) gains on hedges of net
investments in self-sustaining
foreign operations (64) 1 (92) 48
Corporate tax recovery (expense) 9 (1) 13 (9)
--------------------------------------------------------------------------
Change in unrealized foreign
currency translation gains
(losses), net of hedging
activities and tax 25 - 36 (31)
--------------------------------------------------------------------------
Comprehensive income $106 $81 $295 $168
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fortis Inc.
Consolidated Statements of Cash Flows (Unaudited)
For the periods ended December 31
(in millions of Canadian dollars)
Quarter Ended Year Ended
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operating Activities
Net earnings $81 $81 $259 $199
Items not affecting cash
Amortization - utility
capital assets and income
producing properties 91 73 339 261
Amortization - intangibles
and other 2 5 9 12
Future income taxes (3) (2) 14 -
Non-controlling interest 5 4 13 15
Write down of deferred power
costs - Belize Electricity - - 18 -
Gain on sale of property - (8) - (8)
Other (1) (11) (7) -
Change in long-term regulatory
assets and liabilities (20) 1 (23) 11
--------------------------------------------------------------------------
155 143 622 490
Change in non-cash operating
working capital 59 9 41 (117)
--------------------------------------------------------------------------
214 152 663 373
--------------------------------------------------------------------------
Investing Activities
Change in deferred charges,
other assets and
deferred credits 1 2 (31) (4)
Utility capital expenditures (278) (252) (890) (790)
Contributions in aid of
construction 25 18 85 73
Income producing property
capital expenditures (3) (3) (14) (13)
Proceeds on sale of
capital assets - 1 18 4
Business acquisitions,
net of cash acquired (22) - (22) (1,303)
--------------------------------------------------------------------------
(277) (234) (854) (2,033)
--------------------------------------------------------------------------
Financing Activities
Change in short-term borrowings (33) 74 (69) 103
Proceeds from long-term debt,
net of issue costs 3 264 662 797
Repayments of long-term debt
and capital lease obligations (211) (315) (431) (363)
Net borrowings (repayments)
under committed credit
facilities 65 104 (309) 25
Advances (to) from
non-controlling interest (1) - 3 (3)
Issue of common shares,
net of costs 292 5 308 1,267
Issue of preference shares,
net of costs - - 223 -
Dividends
Common shares (44) (39) (162) (128)
Preference shares (5) (2) (14) (6)
Subsidiary dividends paid
to non-controlling interest (8) (2) (15) (12)
--------------------------------------------------------------------------
58 89 196 1,680
--------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents 3 - 3 (3)
--------------------------------------------------------------------------
Change in cash and
cash equivalents (2) 7 8 17
Cash and cash equivalents,
beginning of period 68 51 58 41
--------------------------------------------------------------------------
Cash and cash equivalents,
end of period $66 $58 $66 $58
--------------------------------------------------------------------------
--------------------------------------------------------------------------
SEGMENTED INFORMATION (Unaudited)
Information by reportable segment is as follows:
REGULATED
--------------------------------------------------------------------------
Gas Utilities Electric Utilities
--------------------------------------------------------------------------
Quarter Terasen
ended Gas Total
December Companies- Fortis Fortis NF Other Electric Electric
31, 2008 Canadian Alberta BC Power Canadian Canadian Caribbean
($ millions) (1) (2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 606 78 66 139 65 348 159
Energy supply
costs 418 - 23 94 44 161 109
Operating
expenses 71 34 18 12 7 71 20
Amortization 24 22 9 12 5 48 13
--------------------------------------------------------------------------
Operating income 93 22 16 21 9 68 17
Finance charges 33 12 7 8 5 32 5
Corporate taxes
(recoveries) 13 (1) 2 4 1 6 1
Non-controlling
interest - - - 1 - 1 3
--------------------------------------------------------------------------
Net earnings
(loss) 47 11 7 8 3 29 8
Preference share
dividends - - - - - - -
--------------------------------------------------------------------------
Net earnings
(loss)
applicable to
common shares 47 11 7 8 3 29 8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill 903 227 221 - 63 511 161
Identifiable
assets 3,721 1,574 990 1,001 520 4,085 867
--------------------------------------------------------------------------
Total assets 4,624 1,801 1,211 1,001 583 4,596 1,028
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gross capital
expenditures 68 80 36 20 18 154 45
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NON-REGULATED
--------------------------------------------------------------------------
Quarter ended Corporate Inter-
December 31, 2008 Fortis Fortis and segment
($ millions) Generation Properties Other eliminations Consolidated
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 20 52 7 (10) 1,182
Energy supply costs 1 - - (4) 685
Operating expenses 3 36 8 (1) 208
Amortization 2 4 2 - 93
--------------------------------------------------------------------------
Operating income 14 12 (3) (5) 196
Finance charges 2 6 20 (5) 93
Corporate
taxes
(recoveries) 3 2 (8) - 17
Non-controlling interest 1 - - - 5
--------------------------------------------------------------------------
Net earnings (loss) 8 4 (15) - 81
Preference share dividends - - 5 - 5
--------------------------------------------------------------------------
Net earnings (loss)
applicable to
common shares 8 4 (20) - 76
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill - - - - 1,575
Identifiable assets 285 559 126 (40) 9,603
--------------------------------------------------------------------------
Total assets 285 559 126 (40) 11,178
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gross capital
expenditures 6 3 5 - 281
--------------------------------------------------------------------------
--------------------------------------------------------------------------
REGULATED
--------------------------------------------------------------------------
Gas Utilities Electric Utilities
--------------------------------------------------------------------------
Quarter Terasen
ended Gas Total
December Companies- Fortis Fortis NF Other Electric Electric
31, 2007 Canadian Alberta BC Power Canadian Canadian Caribbean
(1) (2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 548 68 61 132 66 327 76
Energy supply
costs 367 - 19 88 43 150 42
Operating
expenses 66 32 20 14 8 74 10
Amortization 24 19 7 9 5 40 7
--------------------------------------------------------------------------
Operating income 91 17 15 21 10 63 17
Finance charges 33 10 7 8 4 29 4
Gain on sale
of property (8) - - - - - -
Corporate taxes
(recoveries) 14 1 1 3 3 8 1
Non-controlling
interest - - - 1 - 1 3
--------------------------------------------------------------------------
Net earnings
(loss) 52 6 7 9 3 25 9
Preference
share dividends - - - - - - -
--------------------------------------------------------------------------
Net earnings
(loss)
applicable to
common shares 52 6 7 9 3 25 9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill 907 227 221 - 63 511 126
Identifiable
assets 3,540 1,294 914 986 484 3,678 652
--------------------------------------------------------------------------
Total assets 4,447 1,521 1,135 986 547 4,189 778
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gross capital
expenditures 56 80 39 19 11 149 36
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NON-REGULATED
--------------------------------------------------------------------------
Quarter ended Corporate Inter-
December 31, 2007 Fortis Fortis and segment
Generation Properties Other eliminations Consolidated
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 19 50 6 (8) 1,018
Energy supply costs 2 - - (3) 558
Operating expenses 3 34 5 (1) 191
Amortization 2 4 1 - 78
--------------------------------------------------------------------------
Operating income 12 12 - (4) 191
Finance charges 3 6 22 (4) 93
Gain on sale of property - - - - (8)
Corporate taxes
(recoveries) 2 (2) (2) - 21
Non-controlling interest - - - - 4
--------------------------------------------------------------------------
Net earnings (loss) 7 8 (20) - 81
Preference share dividends - - 2 - 2
--------------------------------------------------------------------------
Net earnings (loss)
applicable to common shares 7 8 (22) - 79
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill - - - - 1,544
Identifiable assets 235 535 108 (19) 8,729
--------------------------------------------------------------------------
Total assets 235 535 108 (19) 10,273
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gross capital
expenditures 7 3 4 - 255
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) Includes Maritime Electric and FortisOntario
(2) Includes Belize Electricity, Caribbean Utilities, and Fortis Turks and
Caicos. Results for 2008 include two additional months of contribution
from Caribbean Utilities due to a change in the utility's fiscal year
end.
SEGMENTED INFORMATION (Unaudited) (cont'd)
REGULATED
--------------------------------------------------------------------------
Gas Utilities Electric Utilities
--------------------------------------------------------------------------
Terasen
Annual Gas Total
December Companies- Fortis Fortis NF Other Electric Electric
31, 2008 Canadian Alberta BC Power Canadian Canadian Caribbean
($ millions) (1) (2) (3)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 1,902 300 237 517 262 1,316 408
Energy supply
costs 1,268 - 68 337 177 582 273
Operating
expenses 253 130 67 50 28 275 55
Amortization 97 85 34 45 18 182 36
--------------------------------------------------------------------------
Operating income 284 85 68 85 39 277 44
Finance charges 129 42 28 33 18 121 16
Corporate taxes
(recoveries) 37 (3) 6 19 7 29 2
Non-controlling
interest - - - 1 - 1 9
--------------------------------------------------------------------------
Net earnings
(loss) 118 46 34 32 14 126 17
Preference share
dividends - - - - - - -
--------------------------------------------------------------------------
Net earnings
(loss)
applicable to
common shares 118 46 34 32 14 126 17
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill 903 227 221 - 63 511 161
Identifiable
assets 3,721 1,574 990 1,001 520 4,085 867
--------------------------------------------------------------------------
Total assets 4,624 1,801 1,211 1,001 583 4,596 1,028
Gross capital
expenditures 220 302 117 67 46 532 110
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NON-REGULATED
--------------------------------------------------------------------------
Annual Corporate Inter-
December 31, 2008 Fortis Fortis and segment
($ millions) Generation Properties Other eliminations Consolidated
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 82 207 26 (38) 3,903
Energy supply costs 7 - - (18) 2,112
Operating expenses 14 135 16 (5) 743
Amortization 10 15 8 - 348
--------------------------------------------------------------------------
Operating income 51 57 2 (15) 700
Finance charges 8 24 80 (15) 363
Corporate taxes
(recoveries) 10 10 (23) - 65
Non-controlling interest 3 - - - 13
--------------------------------------------------------------------------
Net earnings (loss) 30 23 (55) - 259
Preference share dividends - - 14 - 14
--------------------------------------------------------------------------
Net earnings (loss)
applicable to
common shares 30 23 (69) - 245
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill - - - - 1,575
Identifiable assets 285 559 126 (40) 9,603
--------------------------------------------------------------------------
Total assets 285 559 126 (40) 11,178
Gross capital expenditures 19 14 9 - 904
--------------------------------------------------------------------------
--------------------------------------------------------------------------
REGULATED
--------------------------------------------------------------------------
Gas Utilities Electric Utilities
--------------------------------------------------------------------------
Terasen
Annual Gas Total
December Companies- Fortis Fortis NF Other Electric Electric
31, 2007 Canadian Alberta BC Power Canadian Canadian Caribbean
(1) (2) (3)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 905 270 229 491 263 1,253 307
Energy supply
costs 559 - 67 327 174 568 169
Operating
expenses 150 122 69 53 29 273 49
Amortization 58 75 31 34 17 157 28
--------------------------------------------------------------------------
Operating income 138 73 62 77 43 255 61
Finance charges 80 36 26 34 17 113 15
Gain on sale
of property (8) - - - - - -
Corporate taxes
(recoveries) 16 (11) 5 12 10 16 2
Non-controlling
interest - - - 1 - 1 13
--------------------------------------------------------------------------
Net earnings
(loss) 50 48 31 30 16 125 31
Preference share
dividends - - - - - - -
--------------------------------------------------------------------------
Net earnings
(loss)
applicable to
common shares 50 48 31 30 16 125 31
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill 907 227 221 - 63 511 126
Identifiable
assets 3,540 1,294 914 986 484 3,678 652
--------------------------------------------------------------------------
Total assets 4,447 1,521 1,135 986 547 4,189 778
--------------------------------------------------------------------------
Gross capital
expenditures 120 285 147 72 38 542 106
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NON-REGULATED
--------------------------------------------------------------------------
Annual Corporate Inter-
December 31, 2007 Fortis Fortis and segment
Generation Properties Other eliminations Consolidated
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue 75 191 22 (35) 2,718
Energy supply costs 8 - - (17) 1,287
Operating expenses 14 123 13 (5) 617
Amortization 10 14 6 - 273
--------------------------------------------------------------------------
Operating income 43 54 3 (13) 541
Finance charges 10 24 70 (13) 299
Gain on sale of property - - - - (8)
Corporate taxes
(recoveries) 8 6 (12) - 36
Non-controlling interest 1 - - - 15
--------------------------------------------------------------------------
Net earnings (loss) 24 24 (55) - 199
Preference share dividends - - 6 - 6
--------------------------------------------------------------------------
Net earnings (loss)
applicable to
common shares 24 24 (61) - 193
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill - - - - 1,544
Identifiable assets 235 535 108 (19) 8,729
--------------------------------------------------------------------------
Total assets 235 535 108 (19) 10,273
--------------------------------------------------------------------------
Gross capital
expenditures 17 13 5 - 803
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) The Terasen Gas companies were acquired on May 17, 2007.
(2) Includes Maritime Electric and FortisOntario
(3) Includes Belize Electricity, Caribbean Utilities, and Fortis Turks and
Caicos. Results for 2008 include two additional months of contribution
from Caribbean Utilities due to a change in the utility's fiscal year
end.
CORPORATE INFORMATION
Fortis Inc. is the largest investor-owned distribution utility in Canada. With
total assets exceeding $11 billion and annual revenues totalling $3.9 billion,
the Corporation serves more than 2,000,000 gas and electricity customers. Its
regulated holdings include electric distribution utilities in five Canadian
provinces and three Caribbean countries and a natural gas utility in British
Columbia. Fortis owns non-regulated generation assets across Canada and in
Belize and upper New York State. It also owns hotels and commercial real estate
across Canada. Fortis Inc. shares are listed on the Toronto Stock Exchange and
trade under the symbol FTS.
Share Transfer Agent and Registrar:
Computershare Trust Company of Canada
9th Floor, 100 University Avenue
Toronto, ON M5J 2Y1
T: 514.982.7555 or 1.866.586.7638
F: 416.263.9394 or 1.888.453.0330
E: service@computershare.com
W: www.computershare.com/fortisinc
Additional information, including the Fortis 2007 Annual Information Form,
Management Information Circular and Annual Report, is available on SEDAR at
www.sedar.com and on the Corporation's web site at www.fortisinc.com.
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