HALIFAX, NS, July 28 /CNW/ -(EMA-TSX): Emera Inc.'s consolidated net
earnings were $29.2 million in the second quarter of 2006, compared to
$19.3 million for the same period in 2005, and $29.8 million in Q2 2004.
Consolidated earnings per share were $0.26 in Q2 2006, compared to $0.18 in Q2
2005, and $0.27 in Q2 2004.
"The second quarter of 2006 shows that Emera is back on track," said
Chris Huskilson, President and Chief Executive Officer. "The improvement in
earnings helps strengthen our business today, and our recently announced
investment in the Brunswick Pipeline is an important step in growing our
company for the future."
"I am pleased that NSPI has been able to restore its earnings this year
after a challenging 2005," said Mr. Huskilson. "Ensuring the utility has a
strong financial footing depends on our ability to consistently recover costs
and provide predictable returns within the range allowed by our regulator."
The Q2 earnings increase reflects an improvement at the Company's largest
subsidiary, Nova Scotia Power Inc. (NSPI). NSPI's contribution to consolidated
earnings was $24.3 million in Q2 2006, compared with $13.7 million in Q2 2005,
and $25.0 million in Q2 2004. The improvement in 2006 is due to the combined
effect of an electricity price increase earlier this year; and higher proceeds
from the resale of natural gas, which are netted against other fuel costs.
Sales and production volume decreases associated with the temporary shutdown
of a large industrial customer and warmer weather had a minimal effect on
electricity margin in the quarter.
Bangor Hydro Electric (BHE), Emera's electricity transmission and
distribution utility in Maine, contributed $2.7 million to consolidated net
earnings in Q2 2006, compared to $2.4 million in Q2 2005. Lower operating
expenses reflecting the capitalization of costs associated with the Northeast
Reliability Interconnect transmission project were somewhat offset by the
effect of a stronger Canadian dollar.
Emera's Other operations contributed $2.2 million to net earnings in Q2
2006, compared to $3.2 million in Q2 2005.
Consolidated cash provided by operating activities was $71.2 million in
Q2 2006, compared to $65.9 million in Q2 2005.
About Emera Inc.
Emera Inc. (EMA-TSX) is an energy and services company with $4.0 billion
in assets. Electricity is Emera's core business. The company has two
wholly-owned regulated electric utility subsidiaries, Nova Scotia Power Inc.
and Bangor Hydro-Electric Company, which together serve 590,000 customers.
Emera's other investments include a joint venture interest in Bear Swamp, a
600 megawatt pumped storage hydro-electric facility in northern Massachusetts;
a 12.9% interest in the Maritimes & Northeast Pipeline ; and Emera Energy
Services which manages energy assets on behalf of third parties and provides
related services. Visit Emera on the web at www.emera.com.
Teleconference Call
Emera is holding a teleconference this afternoon, July 28, 2006, at
2:00 PM Atlantic (1:00 PM Eastern, 10:00 AM Pacific) to discuss the Q2 2006
financial results. Analysts and other interested parties wanting to
participate in the call should dial 1-866-898-9626 (in Toronto 416-340-2216)
at least 10 minutes prior to the start of the call. No pass code is required.
The teleconference will be recorded. If you are unable to join the
teleconference live, you can dial for playback toll-free at 1-800-408-3053 (in
Toronto 416-695-5800), access code 3192715(pound key) (available until
midnight, Monday, August 7, 2006). The teleconference will also be web cast
live at www.emera.com and available for playback for one year.
Forward Looking Information
This news release contains forward looking information. Actual future
results may differ materially. Additional financial and operational
information is filed electronically with various securities commissions in
Canada through the System for Electronic Document Analysis and Retrieval
(SEDAR).
Management's Discussion & Analysis
As at July 28, 2006
Management's Discussion and Analysis ("MD&A") provides a review of the
results of operations of Emera Inc. and its primary subsidiaries and
investments during the second quarter of 2006 relative to 2005, year to date
2006 relative to 2005, and its financial position at June 30, 2006 relative to
December 31, 2005. Certain factors that may impact future operations are also
discussed. Such comments will be affected by, and may involve, known and
unknown risks and uncertainties that may cause the actual results of the
company to be materially different from those expressed or implied. Those
risks and uncertainties include, but are not limited to, weather, commodity
prices, interest rates, foreign exchange, regulatory requirements and general
economic conditions.
This discussion and analysis should be read in conjunction with the Emera
Inc. unaudited consolidated financial statements and supporting notes as at
and for the six month period ended June 30, 2006, and the Emera Inc. MD&A and
annual audited consolidated financial statements and supporting notes as at
and for the year ended December 31, 2005. Emera follows Canadian Generally
Accepted Accounting Principles ("GAAP"). Emera's subsidiary, Nova Scotia Power
Inc.'s accounting policies are subject to examination and approval by the Nova
Scotia Utility and Review Board. Emera's subsidiary, Bangor Hydro-Electric
Company's accounting policies are subject to examination and approval by the
Maine Public Utilities Commission and the Federal Energy Regulatory
Commission. The rate-regulated accounting policies of Nova Scotia Power and
Bangor Hydro may differ from GAAP for non rate-regulated companies.
Throughout this discussion, "Emera Inc." and "Emera" refer to Emera Inc.
and all of its consolidated subsidiaries and affiliates.
All amounts are in Canadian dollars ("CAD") except for the Bangor Hydro
section of the MD&A, which is reported in US dollars ("USD") unless otherwise
stated.
Additional information related to Emera, including the company's Annual
Information Form, can be found at SEDAR at www.sedar.com.
INTRODUCTION
The core business of Emera is electricity. The company owns and operates
two regulated electric utilities in northeastern North America. Both
businesses operate as monopolies in their service territories, and together
comprise approximately 95% of consolidated revenues:
<<
- Nova Scotia Power Inc. ("NSPI") is an electricity generation,
transmission and distribution company, providing service to the vast
majority of the province of Nova Scotia. NSPI has $3.0 billion of
assets, and 470,000 customers. NSPI is a cost of service utility. As
such, regulated electricity rates are set to enable the company to
recover all prudently incurred costs, with an opportunity to earn a
prescribed rate of return. The company is regulated by the Nova Scotia
Utility and Review Board ("UARB").
- Bangor Hydro-Electric Company ("BHE") is an electricity transmission
and distribution company with $570 million of assets serving 115,000
customers in eastern Maine. BHE's transmission operations are regulated
by the Federal Energy Regulatory Commission ("FERC"), and its
distribution operations are regulated by the Maine Public Utilities
Commission ("MPUC"). BHE is a cost of service utility, with an
alternate rate plan ("ARP") for its distribution operations.
>>
The success of Emera's electric utilities is integral to the creation of
shareholder value, providing substantial earnings and cash flow to fund
dividends and reinvestment. The essential nature of the services provided, the
monopoly positions, and the regulated market structures means that NSPI and
BHE can generally be expected to produce relatively stable earnings streams,
within regulated ranges. Nova Scotia and Maine are mature electricity markets,
with annual demand growth of approximately 2%. Accordingly, Emera must look
beyond its existing regulated electricity business to supplement organic
growth.
Emera's plan for growth seeks to add energy infrastructure assets to its
portfolio. The company is primarily focused on building on its core
electricity business, specifically in regulated transmission and distribution
operations, and low risk generation facilities.
Investment in Brunswick Pipeline
In May 2006, Emera announced that it plans to invest approximately
$350 million for full ownership of a proposed pipeline, which will deliver
natural gas from the planned Canaport(TM) Liquefied Natural Gas ("LNG") import
terminal near Saint John, New Brunswick to markets in Canada and the US
Northeast. The 145 kilometer Brunswick Pipeline would travel through southwest
New Brunswick and connect with the US portion of the Maritimes & Northeast
Pipeline ("Maritimes") at the Canada/US border near Baileyville, Maine. Emera
has been an investor in Maritimes since its inception in 1999.
Canaport(TM) LNG is a partnership of Repsol YPF, S.A. and Irving Oil
Limited. Emera has negotiated a 25 year send or pay toll agreement with Repsol
to transport natural gas through the Brunswick Pipeline. Emera has also
negotiated agreements with its Maritimes & Northeast Pipeline partner, Duke
Energy, which will see an affiliate of Duke Energy continue its lead role in
the Brunswick pipeline permitting process, and construct and operate the
pipeline on Emera's behalf.
Emera expects to finance the investment with a combination of equity and
debt. The investment is forecast to provide a return on equity of 11% - 14%.
The project requires National Energy Board approval. A formal filing has
been made, and a public hearing is scheduled for November of this year. The
pipeline is expected to be in service by the end of 2008.
Emera's net cash requirements related to Brunswick Pipeline is expected
to be minimal for the remainder of the year.
Standard & Poor's Debt Rating Downgrade
In Q2 2006, Standard & Poor's rating agency lowered the corporate credit
ratings of Emera and Nova Scotia Power to BBB/Stable Outlook from
BBB+/Negative Outlook. S&P cited concerns related to the recovery of
fuel-related expenses under the current regulatory framework in Nova Scotia;
an evolving fuel procurement strategy; and upcoming challenges related to the
approval, financing, and execution of several proposed capital projects as
reasons for the change.
The downgrade could have cost implications for Emera and Nova Scotia
Power as the companies re-finance existing debt in future years, issue new
capital or enter into new fuel procurement arrangements.
The ratings issued by Dominion Bond Rating Service and Moody's Investor
Services are unchanged.
Structure of MD&A
This quarterly MD&A has been prepared in accordance with the Canadian
Securities Administrators National Instrument 51-102 Management's Discussion &
Analysis.
This Management's Discussion and Analysis begins with an overview of
quarterly consolidated results; then presents quarterly information on the
company's two primary subsidiaries, NSPI and BHE. All other operations,
including the Maritimes & Northeast Pipeline, Emera Energy Services, Bear
Swamp, Brunswick Pipeline, and corporate activities are grouped and discussed
as "Other". Significant changes in the consolidated balance sheets,
outstanding share data, liquidity and capital resources, financial and
commodity instruments, transactions with related parties, change in accounting
policy, and selected quarterly trend information are presented on a
consolidated basis.
<<
EMERA CONSOLIDATED
Q2 Operating Unit
Contributions
(millions of dollars,
except earnings per Three months ended Six months ended
common share) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Nova Scotia Power $ 24.3 $ 13.7 $ 61.7 $ 54.5
Bangor Hydro-Electric 2.7 2.4 6.4 6.5
Other 2.2 3.2 4.7 6.6
-------------------------------------------------------------------------
Consolidated net earnings $ 29.2 $ 19.3 $ 72.8 $ 67.6
-------------------------------------------------------------------------
Earnings per common
share - basic $ 0.26 $ 0.18 $ 0.66 $ 0.62
-------------------------------------------------------------------------
Earnings per common
share - diluted $ 0.26 $ 0.18 $ 0.64 $ 0.60
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Review of Q2 2006
Emera Inc.'s consolidated net earnings increased $9.9 million to
$29.2 million in Q2 2006 compared to $19.3 million for the same period in
2005. Year to date Emera's consolidated net earnings increased $5.2 million to
$72.8 million in 2006 compared to $67.6 million in 2005. Key factors in the
earnings comparison are:
- Electricity price increases in NSPI, effective April 1, 2005 and
March 10, 2006;
- The temporary shutdown of one of NSPI's large industrial customers;
- Increased natural gas sales margin in NSPI; and
- The deferral in Q1 2005 of $15.3 million in provincial grants and taxes
and income taxes in NSPI, while the company was awaiting regulatory
approval of new rates.
The financial impact of these factors is summarized in the following
table:
Three months Six months
ended ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
Consolidated net earnings - 2005 $ 19.3 $ 67.6
Increased electric revenue in NSPI due to
electricity price increases and increased
export sales 23.7 51.9
Decreased electric revenue in NSPI due to
reduced industrial sales volume and warmer
weather (25.1) (52.5)
Decreased fuel expense in NSPI due to reduced
load and increased natural gas sales margin 42.6 86.7
Increased fuel expense in NSPI due to higher
commodity prices and increased export sales (5.2) (23.5)
Increased operating, maintenance and general
costs in NSPI due to increased pension costs.
Q1 pension cost increases were partially
offset by the timing of expenditures across NSPI (5.0) (4.9)
Increased taxes in NSPI primarily due to higher
taxable income (13.9) (26.1)
Deferral of Q1 2005 taxes in NSPI - (15.3)
All other (7.2) (11.1)
-------------------------------------------------------------------------
Consolidated net earnings - 2006 $ 29.2 $ 72.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Q2 basic earnings per share were $0.26 in 2006, compared to $0.18 in 2005;
and $0.66 year to date in 2006, compared to $0.62 for the first six months of
2005.
NOVA SCOTIA POWER INC.
Overview
Leadership and Governance
Ralph Tedesco was named President and Chief Executive Officer of Nova
Scotia Power effective May 15, 2006. Mr. Tedesco was formerly NSPI's Chief
Operating Officer. He takes over from Chris Huskilson who continues in his
role as President and CEO of Emera Inc.
NSPI is also reconfiguring its Board of Directors ("Board"). John McLennan
has been named Chairman, replacing Derek Oland who continues as Chairman of
Emera. Several Emera Directors, including Mr. Huskilson, will continue to
serve on the reconfigured NSPI Board, with new Directors to be added in the
coming months.
2006 Rate Application
The Nova Scotia Utility and Review Board granted NSPI an average rate
increase of approximately 8.7% effective March 10, 2006. The rate decision is
expected to increase NSPI's total electric revenues by approximately
$90 million. NSPI's allowed return on equity ("ROE") was maintained between
9.3% and 9.8%.
The UARB noted numerous improvements NSPI had made in fuel procurement,
but determined that a previous finding related to 2002 and 2003 fuel
procurement carried over into 2006. As a result, $15.7 million in fuel costs
was disallowed for 2006. The UARB noted that this would be the final
disallowance related to this issue.
The company has revised its financial outlook to incorporate the expected
effect of the rate decision and other factors, and is expecting to earn within
its allowed ROE range in 2006.
Review of Q2 2006
NSPI Q2 Net Earnings
(millions of dollars, except Three months ended Six months ended
earnings per common share) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Electric revenue $ 229.1 $ 230.4 $ 490.1 $ 490.6
-------------------------------------------------------------------------
Fuel for generation and
purchased power 58.6 91.9 137.1 196.5
Operating, maintenance
and general 51.3 46.3 97.5 92.6
Provincial grants and taxes 10.1 10.0 20.1 20.1
Provincial grants and taxes
deferral - - - (4.9)
Depreciation 31.9 29.8 63.7 59.3
Regulatory amortization 1.6 1.6 3.1 3.1
Other (2.8) (2.5) (5.2) (4.5)
-------------------------------------------------------------------------
Earnings before interest
and income taxes 78.4 53.3 173.8 128.4
Interest 25.2 24.4 51.0 49.0
Amortization of defeasance
costs 3.1 3.3 6.3 6.6
-------------------------------------------------------------------------
Earnings before income
taxes 50.1 25.6 116.5 72.8
Income taxes 22.5 8.6 48.2 22.1
Income taxes deferral - - - (10.4)
-------------------------------------------------------------------------
Net earnings before
preferred dividends 27.6 17.0 68.3 61.1
Preferred dividends 3.3 3.3 6.6 6.6
-------------------------------------------------------------------------
Contribution to consolidated
net earnings $ 24.3 $ 13.7 $ 61.7 $ 54.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
earnings per common share $ 0.22 $ 0.13 $ 0.56 $ 0.50
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NSPI's net earnings increased $10.6 million to $24.3 million in Q2 2006,
compared to $13.7 million in Q2 2005. Year to date net earnings increased
$7.2 million to $61.7 million compared to $54.5 million in 2005.
Highlights of the earnings changes are summarized in the following table:
Three months Six months
ended ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2005 $ 13.7 $ 54.5
Increased electric revenue due to electricity
price increases and increased export sales 23.7 51.9
Decreased electric revenue due to reduced
industrial sales volume and warmer weather (25.1) (52.5)
Decreased fuel expense due to reduced load and
increased natural gas sales margin 42.6 86.7
Increased fuel expense due to higher commodity
prices and increased export sales (5.2) (23.5)
Increased operating, maintenance and general
costs mainly due to increased pension costs.
Q1 pension cost increases were partially offset
by the timing of expenditures across the company (5.0) (4.9)
Increased depreciation primarily due to an
increase in UARB approved depreciation rates (2.1) (4.4)
Increased taxes primarily due to higher taxable
income (13.9) (26.1)
Deferral of Q1 2005 taxes - (15.3)
All other (4.4) (4.7)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2006 $ 24.3 $ 61.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Electric Revenue
Q2 Electric Sales Volume Q2 Electric Sales Revenues
(Gigawatt hours ("GWh")) (millions of dollars)
--------------------------------- -----------------------------------
2006 2005 2004 2006 2005 2004
--------------------------------- -----------------------------------
Residential 890 930 877 Residential $103.3 $ 99.0 $ 92.1
Commercial 701 716 693 Commercial 67.6 64.0 62.6
Industrial 638 1,060 1,049 Industrial 42.4 58.7 54.8
Other 202 81 116 Other 15.8 8.7 10.9
--------------------------------- -----------------------------------
Total 2,431 2,787 2,735 Total $229.1 $230.4 $220.4
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
YTD Electric Sales Volume YTD Electric Sales Revenues
(Gigawatt hours ("GWh")) (millions of dollars)
--------------------------------- -----------------------------------
2006 2005 2004 2006 2005 2004
--------------------------------- -----------------------------------
Residential 2,148 2,218 2,184 Residential $234.3 $222.1 $216.2
Commercial 1,538 1,545 1,482 Commercial 143.2 134.5 130.2
Industrial 1,274 2,100 2,065 Industrial 81.5 115.4 111.0
Other 385 188 214 Other 31.1 18.6 20.6
--------------------------------- -----------------------------------
Total 5,345 6,051 5,945 Total $490.1 $490.6 $478.0
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
Q2 Average Revenue /
Megawatt hour ("MWh")
---------------------------------
2006 2005 2004
---------------------------------
Dollars per
MWh $ 94 $ 83 $ 81
---------------------------------
---------------------------------
YTD Average Revenue /
Megawatt hour ("MWh")
---------------------------------
2006 2005 2004
---------------------------------
Dollars per
MWh $ 92 $ 81 $ 80
---------------------------------
---------------------------------
Electric revenues decreased $1.3 million to $229.1 million in Q2 2006
compared to $230.4 million in Q2 2005 due to the temporary shutdown of a large
industrial customer and warmer weather partially offset by the 8.7% rate
increase effective March 10, 2006 and export sales.
Year to date electric revenues decreased $0.5 million to $490.1 million in
2006, compared to $490.6 million in 2005 for the reasons noted above. Also
partially offsetting the year-to-date decrease is the 5.3% rate increase
effective April 1, 2005.
The increase in average revenue per MWh in the quarter and year to date
reflects the rate increases noted above, and a change in sales mix,
specifically a reduction in lower priced industrial sales.
The Utility and Review Board has scheduled hearings in the fall of 2006 to
review electricity rates for the extra-large interruptible industrial rate
("ELIIR") customers. The outcome of the hearing is a rate expected to be
effective January 1, 2007.
Fuel for Generation and Purchased Power
Q2 Production Volume
(GWh)
-------------------------------------------------------------------------
2006 2005 2004
-------------------------------------------------------------------------
Coal and petcoke 2,188 2,199 2,196
Natural gas 69 54 10
Oil 38 253 376
Renewable 244 306 268
Purchased power 71 120 66
-------------------------------------------------------------------------
Total 2,610 2,932 2,916
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Purchased power includes 26 GWh of wind power in 2006 (2005 - 19 GWh).
YTD Production Volume
(GWh)
-------------------------------------------------------------------------
2006 2005 2004
-------------------------------------------------------------------------
Coal and petcoke 4,639 4,682 4,728
Natural gas 140 95 47
Oil 257 803 979
Renewable 560 609 525
Purchased power 147 284 178
-------------------------------------------------------------------------
Total 5,743 6,473 6,457
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Purchased power includes 56 GWh of wind power in 2006 (2005 - 39 GWh).
Q2 Average Unit Fuel Costs
-------------------------------------------------------------------------
2006 2005 2004
-------------------------------------------------------------------------
Dollars per MWh $ 22 $ 31 $ 22
-------------------------------------------------------------------------
-------------------------------------------------------------------------
YTD Average Unit Fuel Costs
-------------------------------------------------------------------------
2006 2005 2004
-------------------------------------------------------------------------
Dollars per MWh $ 24 $ 30 $ 23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended June 30, 2006, fuel for generation and
purchased power decreased $33.3 million to $58.6 million, compared to
$91.9 million in Q2 2005. Year to date fuel for generation and purchased power
decreased $59.4 million to $137.1 million, compared to $196.5 million in 2005.
Highlights of the changes are summarized in the following table:
(millions of dollars) Three months Six months
ended ended
June 30 June 30
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2005 $ 91.9 $ 196.5
Decreased load due to the temporary shutdown of
a large industrial customer and warmer weather (26.1) (53.9)
Increased net proceeds from the resale of
natural gas (16.5) (32.8)
Commodity pricing increase 1.1 16.5
Increased export sales as a result of reduced
in-province load 4.1 7.0
Decreased hydro production 3.6 2.9
All other 0.5 0.9
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2006 $ 58.6 $ 137.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating, Maintenance & General Expenses
NSPI's operating, maintenance and general expenses ("OM&G") were
$51.3 million in Q2 2006 compared to $46.3 million in Q2 2005, primarily
reflecting higher pension costs.
Year to date OM&G expenditures were $97.5 million compared to
$92.6 million for the same period in 2005 due the reason noted above partially
offset by the timing of expenditures in Q1.
Provincial Grants and Taxes
In Q1 2005, the UARB agreed to allow NSPI to defer taxes not reflected in
rates for the period from January 1, 2005 until April 1, 2005, the date when
new rates became effective. As a result, NSPI deferred a portion of provincial
grants and taxes relating to Q1 2005. The amortization period is subject to
approval by the UARB.
Interest
Interest expense increased $0.8 million, to $25.2 million in Q2 2006,
compared to $24.4 million in Q2 2005, and increased $2.0 million, to
$51.0 million year to date, compared to $49.0 million for the same period in
2005, due to the issuance in November 2005 of a $150 million 5.67% medium-term
note which partially refinanced short-term debt, and foreign exchange losses.
Income Taxes
In addition to the deferral of provincial grants and taxes referred to
above, in Q1 2005, NSPI deferred a portion of federal capital taxes and income
taxes reflecting increases in these taxes since rates were last set in 2002
relating to Q1 2005. The amortization period is subject to approval by the
UARB.
Outlook
The company's largest industrial customer has been shut down since
December 2005. The customer has not indicated when it plans to restart the
facility. Nova Scotia Power has revised its financial outlook to incorporate
the effect of this circumstance, the 2006 Rate Case Decision, and actual
results year to date, and expects to earn a regulated return on equity within
its allowed range in 2006.
BANGOR HYDRO-ELECTRIC COMPANY
BHE's core business is the transmission and distribution ("T&D") of
electricity. Electricity generation is deregulated in Maine, and several
suppliers compete to provide customers with the commodity that is delivered
through the BHE T&D network.
All amounts in the Bangor Hydro section are reported in US dollars unless
otherwise stated.
Review of Q2 2006
Bangor Hydro Q2 Net Earnings
(millions of dollars, except Three months ended Six months ended
earnings per common share) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
T&D electric revenues $ 23.9 $ 24.0 $ 49.8 $ 53.3
Resale of purchased power 4.0 3.9 7.9 6.2
-------------------------------------------------------------------------
Total electric revenue 27.9 27.9 57.7 59.5
Purchased power and fuel
for generation 9.1 8.6 16.5 16.6
Operating, maintenance and
general 6.5 8.3 13.8 16.3
Property taxes 1.3 1.3 2.7 2.7
Depreciation 3.2 3.1 6.5 6.2
Regulatory amortization 2.4 2.3 6.2 6.2
Other (1.2) (1.1) (2.4) (2.0)
-------------------------------------------------------------------------
Earnings before interest
and income taxes 6.6 5.4 14.4 13.5
Interest 2.8 2.5 5.2 5.0
-------------------------------------------------------------------------
Earnings before income taxes 3.8 2.9 9.2 8.5
Income taxes 1.4 1.0 3.6 3.2
-------------------------------------------------------------------------
Contribution to consolidated
net earnings - USD $ 2.4 $ 1.9 $ 5.6 $ 5.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
net earnings - CAD $ 2.7 $ 2.4 $ 6.4 $ 6.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
earnings per common
share - CAD $ 0.03 $ 0.02 $ 0.06 $ 0.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings weighted average
foreign exchange
rate - CAD/USD $ 1.12 $ 1.25 $ 1.14 $ 1.23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's contribution to consolidated net earnings was $2.4 million
in Q2 2006, compared to $1.9 million in Q2 2005. Year to date, Bangor Hydro's
contribution to consolidated net earnings was $5.6 million, compared to
$5.3 million in 2005. Highlights of the earnings changes are summarized in the
following table:
(millions of dollars) Three months Six months
ended ended
June 30 June 30
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2005 $ 1.9 $ 5.3
Increased overheads being capitalized primarily
as a result of capital expenditures on the
Northeast Reliability Interconnect transmission
project 1.0 1.5
Decreased energy sales largely due to warmer weather (0.6) (1.3)
All other 0.1 0.1
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2006 $ 2.4 $ 5.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's contribution to consolidated net earnings was $2.7 million
CAD in Q2 2006 compared to $2.4 million CAD in Q2 2005. Year to date Bangor
Hydro's contribution to consolidated net earnings was $6.4 million CAD,
compared to $6.5 million CAD in 2005.
T&D Electric Revenue
Q2 T&D Sales Volume Q2 T&D Sales Revenues
(GWh) (millions of US dollars)
--------------------------------- -----------------------------------
2006 2005 2004 2006 2005 2004
--------------------------------- -----------------------------------
Residential 136 141 135 Residential $ 11.5 $ 11.7 $ 13.0
Commercial 142 146 142 Commercial 8.5 8.8 9.9
Industrial 93 96 76 Industrial 2.7 2.1 3.1
Other 3 3 3 Other 1.2 1.4 0.6
--------------------------------- -----------------------------------
Total 374 386 356 Total $ 23.9 $ 24.0 $ 26.6
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
YTD T&D Sales Volume YTD T&D Sales Revenues
(GWh) (millions of US dollars)
--------------------------------- -----------------------------------
2006 2005 2004 2006 2005 2004
--------------------------------- -----------------------------------
Residential 290 300 300 Residential $ 24.1 $ 25.9 $ 28.1
Commercial 293 296 297 Commercial 17.5 18.8 20.8
Industrial 188 195 147 Industrial 5.9 6.0 6.9
Other 6 6 6 Other 2.3 2.6 2.0
--------------------------------- -----------------------------------
Total 777 797 750 Total $ 49.8 $ 53.3 $ 57.8
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
Q2 Average Revenue / MWh
---------------------------------
2006 2005 2004
---------------------------------
Dollars
per MWh $ 64 $ 62 $ 75
---------------------------------
---------------------------------
YTD Average Revenue / MWh
---------------------------------
2006 2005 2004
---------------------------------
Dollars
per MWh $ 64 $ 67 $ 77
---------------------------------
---------------------------------
T&D electric revenues decreased by $0.1 million in Q2 2006, to
$23.9 million compared to $24.0 million in Q2 2005. Year to date, Bangor
Hydro's T&D electric revenues were $49.8 million compared to $53.3 million for
the same period. Highlights of the changes are summarized in the following
table:
(millions of dollars) Three months Six months
ended ended
June 30 June 30
-------------------------------------------------------------------------
T&D electric revenues - 2005 $ 24.0 $ 53.3
Stranded cost rate reduction on March 1, 2005 - (2.7)
Decreased energy sales largely due to warmer weather (0.6) (1.3)
All other 0.5 0.5
-------------------------------------------------------------------------
T&D electric revenues - 2006 $ 23.9 $ 49.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On February 25, 2005, the MPUC approved BHE's stranded cost rates for the
three-year period March 1, 2005 to February 29, 2008. The stranded cost rates
were reduced to reflect the completion of a major regulatory amortization, and
increases in the rate at which BHE's power purchases under long-term power
supply agreements will be resold to a third party. Accordingly, the impact on
net earnings is expected to be minimal.
Resale of Purchased Power
Resale of purchased power increased in 2006 due to an increase in the rate
at which BHE's power purchases are resold to a third party.
Operating, Maintenance and General Expenses
Operating expenses were $6.5 million in Q2 2006, compared to $8.3 million
in Q2 2005 primarily due to increased overheads being capitalized primarily as
a result of capital expenditures on the Northeast Reliability Interconnect
transmission project.
Year to date operating expenses were $13.8 million, compared to
$16.3 million for the reason noted above.
OTHER
All activities of Emera other than its two regulated electric utilities
are incorporated in Other, including:
- Emera Energy Services, which manages energy assets on behalf of third
parties and provides related energy management services. Emera Energy
Services operates with minimal day-to-day commodity risk exposure.
- A 12.9% interest in the $2 billion, 1,300 kilometre Maritimes &
Northeast Pipeline ("M&NP") that transports Nova Scotia's offshore
natural gas to markets in Maritime Canada and the northeastern United
States.
- Bear Swamp, a 50-50 joint venture in a 600 megawatt pumped storage
hydro-electric facility in northern Massachusetts, which was acquired
on May 24, 2005.
- Certain corporate-wide functions such as executive management,
strategic planning, treasury services, tax planning, business
development, and corporate governance; and financing for the
corporation's business outside of its regulated electric utilities.
Investment in Brunswick Pipeline
In May 2006, Emera announced that it plans to invest approximately
$350 million for full ownership of a proposed pipeline, which will deliver
natural gas from the planned Canaport(TM) Liquefied Natural Gas ("LNG") import
terminal near Saint John, New Brunswick to markets in Canada and the US
Northeast. The 145 kilometer Brunswick Pipeline would travel through southwest
New Brunswick and connect with the US portion of the Maritimes & Northeast
Pipeline ("Maritimes") at the Canada/US border near Baileyville, Maine. Emera
has been an investor in Maritimes since its inception in 1999.
Canaport(TM) LNG is a partnership of Repsol YPF, S.A. and Irving Oil
Limited. Emera has negotiated a 25 year send or pay toll agreement with Repsol
to transport natural gas through the Brunswick Pipeline. Emera has also
negotiated agreements with its Maritimes & Northeast Pipeline partner, Duke
Energy, which will see an affiliate of Duke Energy continue its lead role in
the Brunswick pipeline permitting process, and construct and operate the
pipeline on Emera's behalf.
Emera expects to finance the investment with a combination of equity and
debt. The investment is forecast to provide a return on equity of 11% - 14%.
The project requires National Energy Board approval. A formal filing has
been made, and a public hearing is scheduled for November of this year. The
pipeline is expected to be in service by the end of 2008.
Emera's net cash requirements related to Brunswick Pipeline is expected to
be minimal for the remainder of the year.
Review of Q2 2006
Other Q2 Net Earnings
(millions of dollars, except Three months ended Six months ended
earnings per common share) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Electric revenue $ 7.2 $ 6.5 $ 13.5 $ 6.5
Energy marketing margin 3.5 3.8 8.6 11.1
Equity earnings 1.0 1.5 2.5 3.3
-------------------------------------------------------------------------
Total revenue 11.7 11.8 24.6 20.9
Purchased power 5.2 4.6 8.3 4.6
Operating, maintenance and
general 4.4 5.0 9.9 10.0
Business development 0.9 0.7 1.2 0.5
Depreciation 0.6 0.6 1.1 0.8
Other (1.4) (1.3) (2.1) (2.1)
-------------------------------------------------------------------------
Earnings before interest
and income taxes 2.0 2.2 6.2 7.1
Interest 1.3 (1.3) 3.9 1.3
-------------------------------------------------------------------------
Earnings before income taxes 0.7 3.5 2.3 5.8
Income taxes (1.5) 0.5 (2.4) 0.5
-------------------------------------------------------------------------
Net earnings from continuing
operations 2.2 3.0 4.7 5.3
Earnings from discontinued
operations, net of tax - 0.2 - 1.3
-------------------------------------------------------------------------
Contribution to consolidated
net earnings $ 2.2 $ 3.2 $ 4.7 $ 6.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
earnings per common share $ 0.02 $ 0.03 $ 0.04 $ 0.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The contribution of Other operations to consolidated net earnings
decreased $1.0 million quarter over quarter and $1.9 million year to date 2006
compared to 2005. Highlights of the changes are summarized in the following
table:
Three months Six months
ended ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2005 $ 3.2 $ 6.6
Increased interest expense due to foreign exchange
gains recognized in Q2 2005 to refine prior years'
foreign exchange estimates, offset partially by
lower interest expense due to lower debt volumes (2.6) (2.6)
Decreased energy marketing margin as a result of
decreased natural gas marketing opportunities due
to warmer weather quarter over quarter in Q1 (0.3) (2.5)
Addition of Bear Swamp hydro-electric facility
earnings before interest & taxes 0.2 2.0
Lower corporate income tax primarily due to lower
earnings 2.0 2.9
Earnings from discontinued operations, net of tax (0.2) (1.3)
All other (0.1) (0.4)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2006 $ 2.2 $ 4.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Electric Revenue and Purchased Power
Electric revenue and purchased power represents Emera's pro-rata share of
electric revenue and purchased power from Bear Swamp, which was acquired in
May 2005.
Energy Marketing Margin
Emera Energy Services net margin decreased quarter over quarter to
$3.5 million in Q2 2006, from $3.8 million in Q2 2005 and decreased year to
date to $8.6 million compared to $11.1 million in 2005 as a result of
decreased natural gas marketing opportunities due to warmer weather quarter
over quarter in Q1.
Equity Earnings
Equity earnings from the M&NP decreased to $1.0 million in Q2 2006,
compared to $1.5 million for the same period in 2005 and decreased to
$2.5 million year to date in 2006 compared to $3.3 million in 2005.
On May 16, 2006 M&NP filed an application with the FERC to expand its US
pipeline system to connect the proposed Brunswick Pipeline to markets in the
US Northeast. Construction of the proposed expansion facilities is anticipated
to begin in June 2007, in conjunction with the building of Brunswick Pipeline.
In 2004 M&NP filed a Notice of Rate Increase for its US operations.
Effective January 1, 2005 M&NP was permitted to collect proposed rates from
customers, pending approval of new rates. On June 28, 2005 M&NP submitted an
offer of settlement to the FERC, which was approved without modification on
May 15, 2006. The company had been recognizing its best estimate of rates in
equity earnings and energy marketing margin in Emera Energy Services based on
the terms of the proposed settlement. As a result, there are no adjustments to
earnings to account for the approved new rates.
Discontinued Operations
Effective September 30, 2005, Emera sold its oil distribution business.
Consolidated Balance Sheets
Significant changes in the consolidated balance sheets between June 30,
2006 and December 31, 2005 include:
- $27.8 million decrease in accounts receivable, reflecting decreased
activity in Energy Services, partially offset by increases in NSPI
related to the 2005 and 2006 electricity price increases and lower
accounts receivable securitization.
- $43.8 million increase in inventory, reflecting higher fuel inventory
volumes and pricing in NSPI.
- $29.5 million increase in prepaid expenses, reflecting the timing of
provincial grants in lieu and insurance payments in NSPI, as well as
increased posted margin paid to counterparties in Emera Energy
Services.
- $12.3 million increase in long-term receivables, reflecting the
estimated natural gas price adjustment in NSPI.
- $27.7 million decrease in deferred charges, reflecting normal
amortization and a reduction in NSPI's deferred pension asset.
- $29.7 million decrease in property, plant and equipment, reflecting
depreciation expense in excess of capital additions.
- $38.0 million decrease in accounts payable and accrued charges,
reflecting decreased activity in Emera Energy Services.
- $19.1 million increase in income tax payable due to tax expense being
higher than year-to-date installments in NSPI.
Outstanding Share Data
Common
Issued and Outstanding: Millions of Shares
(millions of dollars) Shares Capital
-------------------------------------------------------------------------
January 1, 2005 108.87 $1,019.2
Issued for cash under purchase plans 0.43 7.9
Options exercised under senior management share
option plan 0.80 13.0
Share-based compensation - 0.9
-------------------------------------------------------------------------
December 31, 2005 110.10 1,041.0
Issued for cash under purchase plans 0.23 4.3
Options exercised under senior management share
option plan 0.10 1.8
Share-based compensation - 0.5
-------------------------------------------------------------------------
June 30, 2006 110.43 $1,047.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity and Capital Resources
Emera and Nova Scotia Power have debt shelf prospectuses in the amount of
$300 and $400 million respectively that provide the companies with access to
long-term debt. Emera and Nova Scotia Power have $300 million and $150 million
respectively that remained unused as at June 30, 2006 and December 31, 2005.
The prospectuses expire in April 2007.
In Q2 2006, Standard & Poor's rating agency lowered the corporate credit
ratings of Emera and Nova Scotia Power to BBB/Stable Outlook from
BBB+/Negative Outlook. S&P cited concerns related to the recovery of
fuel-related expenses under the current regulatory framework in Nova Scotia;
an evolving fuel procurement strategy; and upcoming challenges related to the
approval, financing, and execution of several proposed capital projects as
reasons for the change.
The downgrade could have cost implications for Emera and Nova Scotia Power
as the companies re-finance existing debt in future years, issue new capital
or enter into new fuel procurement arrangements.
The ratings issued by Dominion Bond Rating Service and Moody's Investor
Services are unchanged.
Emera has the following credit ratings:
DBRS S&P Moody's
-------------------------------------------------------------------------
June December June December June December
30 31 30 31 30 31
2006 2005 2006 2005 2006 2005
-------------------------------------------------------------------------
Long-term BBB BBB BBB BBB+ N/A N/A
corporate (high) (high)
Senior
unsecured BBB BBB BBB- BBB Baa2 Baa2
debt (high) (high)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nova Scotia Power has the following credit ratings:
DBRS S&P Moody's
-------------------------------------------------------------------------
June December June December June December
30 31 30 31 30 31
2006 2005 2006 2005 2006 2005
-------------------------------------------------------------------------
Long-term
corporate A A BBB BBB+ N/A N/A
(low) (low)
Senior
unsecured A A BBB BBB+ Baa1 Baa1
debt (low) (low)
Preferred Pfd-2 Pfd-2 P-3 P-2 N/A N/A
stock (low) (low) (high) (low)
Commercial R-1 R-1 A-2 A-2 P-2 P-2
paper (low) (low) (Cdn) (Cdn) (Baa) (Baa)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Cash Flow Highlights
Three months ended Six months ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Net cash provided by
operating activities $ 71.2 $ 65.9 $ 140.3 $ 83.9
Net cash used in investing
activities (35.3) (82.4) (62.6) (92.0)
Net cash (used in) provided
by financing activities (18.3) 19.0 (72.8) (1.9)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents $ 17.6 $ 2.5 $ 4.9 $ (10.0)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated net cash provided by operating activities was $71.2 million
in Q2 2006, compared to $65.9 million in Q2 2005. Year to date consolidated
net cash provided by operating activities was $140.3 million compared to
$83.9 million in 2005. Highlights of the changes are summarized in the
following table:
Three months Six months
ended ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
Net cash provided by operating activities - 2005 $ 65.9 $ 83.9
Increased cash flow from earnings 6.5 29.8
Increased inventory primarily due to higher fuel
volumes and pricing in NSPI (2.2) (26.1)
Lower trade receivables largely reflecting a
reduction in receivables outstanding in Emera
Energy Services 13.8 70.1
Lower trade payables largely reflecting a
reduction in payables outstanding in Emera
Energy Services and a reduction in fuel related
payables due to the finalization of pricing terms
in 2005 in NSPI (33.9) (45.0)
Increased income taxes payable primarily due to
higher taxes and timing of installments in NSPI 18.6 35.5
All other 2.5 (7.9)
-------------------------------------------------------------------------
Net cash provided by operating activities - 2006 $ 71.2 $ 140.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated net cash used in investing activities was $35.3 million in Q2
2006 compared to $82.4 million in Q2 2005. Year to date consolidated net cash
used in investing activities was $62.6 million compared to $92.0 million in
2005. Highlights of the changes are summarized in the following table:
Three months Six months
ended ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
Net cash used in investing activities - 2005 $ (82.4) $ (92.0)
Increased restricted cash related to posted margin (3.1) (21.6)
Acquisition of Bear Swamp in Q2 2005 52.6 52.6
Capital expenditures related to the Northeast
Reliability Interconnect transmission project (7.3) (9.6)
All other 4.9 8.0
-------------------------------------------------------------------------
Net cash used in investing activities - 2006 $ (35.3) $ (62.6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated net cash used in financing activities was $18.3 million in Q2
2006, compared to net cash provided by financing activities of $19.0 million
in Q2 2005. Year to date consolidated net cash used in financing activities
was $72.8 million compared to $1.9 million in 2005. Highlights of the changes
are summarized in the following table:
Three months Six months
ended ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
Net cash provided by (used in) financing
activities - 2005 $ 19.0 $ (1.9)
Increased short-term debt 96.5 61.7
Decreased issuance of long-term debt (60.0) (60.0)
Retirement of long-term debt (49.1) (48.5)
Decreased securitization of accounts receivable (20.0) (20.0)
Decreased issuance of common shares (6.4) (6.8)
All other 1.7 2.7
-------------------------------------------------------------------------
Net cash used in financing activities - 2006 $ (18.3) $ (72.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital Resources
In November 2005, NSPI filed a Notice of Application for the construction
of capital projects to comply with the air emission requirements contained in
the Provincial environmental regulations. These capital projects are for the
installation of air emissions abatement equipment at the Lingan generating
station. Total investment associated with this equipment was projected at
$177 million. Of this amount, $16 million was included in the 2006 NSPI
capital forecast.
NSPI's regulator, the UARB, approved $5 million for the installation of a
Low NOx Combustion Firing system on Lingan Unit 3 on April 5, 2006. Nova
Scotia Power requested to discontinue its application for the remaining
$172 million for the flue gas desulphurization equipment in response to
requests from stakeholders for more study. A hearing on this matter took place
on June 19, 2006. The UARB agreed with NSPI's request. Participants in the
hearing agreed to take part in an Integrated Resource Plan ("IRP"), which will
analyze a variety of factors to assess how best to proceed. The IRP is
expected to be completed in Q1 2007.
Financial and Commodity Instruments
The company manages its exposure to foreign exchange, interest rate, and
commodity risks in accordance with established risk management policies and
procedures. The company uses derivative instruments consisting mainly of
foreign exchange forward contracts, interest options and swaps, and oil and
gas options and swaps.
Instruments that meet stringent documentation requirements, and can be
proven to be effective both at the inception and over the term of the
instrument, qualify for hedge accounting. Specifically, amounts paid or
received are deferred and recognized in earnings in the same period as the
related hedged item is realized. Where the documentation or effectiveness
requirements are not met, the non-qualifying instruments are marked-to-market
and recognized in earnings in the reporting period.
The company has deferred payments and receipts on derivative instruments
that are designated and effective as hedges and are recognized in the
following categories on the balance sheet:
Deferred Hedging Losses Recognized on the Balance Sheet
(millions of dollars)
-------------------------------------------------------------------------
June 30 December 31
2006 2005
-------------------------------------------------------------------------
Inventory $ 2.5 $ 0.2
Deferred charges 0.7 -
-------------------------------------------------------------------------
Deferred hedging losses $ 3.2 $ 0.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and six month periods ended June 30, the impact of effective
hedges recognized in earnings were recorded in the following categories:
Hedging Impact Recognized in Earnings
Three months ended Six months ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Fuel and purchased power
decrease (increase) $ 3.0 $ (4.2) $ 20.6 $ (8.0)
Interest expense increase - (0.5) (0.1) (0.9)
-------------------------------------------------------------------------
Hedging impact on earnings $ 3.0 $ (4.7) $ 20.5 $ (8.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The company also enters into non-hedging derivative financial and
commodity instruments. These instruments, along with the non-qualifying hedges
referred to above, are marked-to-market at each reporting date.
The company has recorded the following mark-to-market transactions
included on the balance sheet and recognized in earnings.
Mark-to-Market Gains (Losses) Recognized on the Balance Sheet
(millions of dollars)
-------------------------------------------------------------------------
June 30 December 31
2006 2005
-------------------------------------------------------------------------
Accounts receivable $ 3.4 $ 8.5
Energy marketing assets 21.9 20.1
Deferred charges 0.3 -
Energy marketing liabilities (23.8) (15.0)
-------------------------------------------------------------------------
Mark-to-market gains $ 1.8 $ 13.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Mark-to-Market Gains (Losses) Recognized in Earnings
Three months ended Six months ended
(millions of dollars) June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Other revenue $ (5.4) $ 1.9 $ (7.1) $ 1.3
Fuel and purchased power (0.7) - (4.8) -
Interest 0.3 - 0.3 -
-------------------------------------------------------------------------
Mark-to-market gains
(losses) $ (5.8) $ 1.9 $ (11.6) $ 1.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In determining the fair value of derivative financial instruments, the
company has relied on quoted market prices as at the reporting date.
Transactions With Related Parties
In the ordinary course of business, Emera purchased natural gas
transportation capacity totaling $7.3 million (2005 - $5.6 million) during the
three months ended June 30, 2006, and $15.7 million (2005 - $10.7 million)
during the six months ended June 30, 2006 from the Maritimes & Northeast
Pipeline, an investment under significant influence of the company. The amount
is recognized in fuel for generation and purchased power or netted against
energy marketing margin in other revenue, and is measured at the exchange
amount. At June 30, 2006 the amount payable to the related party is
$5.3 million (December 31, 2005 - $4.5 million), and is under normal interest
and credit terms.
Change in Accounting Policy
In December 2005, the Canadian Institute of Chartered Accountants issued
Emerging Issues Committee Abstract 159 Conditional Asset Retirement
Obligations ("EIC-159"). EIC-159 is to be applied retroactively, with
restatement of prior periods, to financial statements for interim and annual
reporting periods ending after March 31, 2006. EIC-159 was issued in response
to the diverse accounting practices that have developed with respect to the
timing of liability recognition when the timing and/or method of settlement
are conditional on a future event.
As a result of adopting EIC-159, the company has determined that it has
conditional asset retirement obligations related to the disposal of
polychlorinated biphenyls ("PCBs"). As at June 30, 2006, property, plant and
equipment has increased by $0.6 million (December 31, 2005 - $0.6 million),
accumulated depreciation has decreased by $1.9 million (December 31, 2005 -
$1.8 million), and asset retirement obligations have increased by $2.5 million
(December 31, 2005 - $2.4 million). There is no impact to net earnings in 2006
and 2005.
Summary of Quarterly Reports
For the quarter ended
(millions of dollars, except earnings per common share)
-------------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
2006 2006 2005 2005 2005 2005 2004 2004
-------------------------------------------------------------------------
Total
revenues $275.9 $310.7 $297.1 $281.1 $280.1 $309.7 $286.5 $260.1
-------------------------------------------------------------------------
Net
earnings
from
conti-
nuing
opera-
tions $ 29.2 $ 43.6 $ 37.7 $ 18.1 $ 19.1 $ 47.2 $ 30.7 $ 22.0
-------------------------------------------------------------------------
Net
earnings
applicable
to common
shares $ 29.2 $ 43.6 $ 37.7 $ 15.9 $ 19.3 $ 48.3 $ 31.4 $ 22.1
-------------------------------------------------------------------------
Earnings
per common
share -
basic:
Conti-
nuing
opera-
tions $ 0.26 $ 0.40 $ 0.34 $ 0.16 $ 0.18 $ 0.43 $ 0.29 $ 0.20
Discon-
tinued
opera-
tions - - - (0.02) - 0.01 0.01 -
-------------------------------------------------------------------------
$ 0.26 $ 0.40 $ 0.34 $ 0.14 $ 0.18 $ 0.44 $ 0.30 $ 0.20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings
per common
share -
diluted:
Conti-
nuing
opera-
tions $ 0.26 $ 0.38 $ 0.34 $ 0.16 $ 0.18 $ 0.41 $ 0.27 $ 0.20
Discon-
tinued
opera-
tions - - - (0.02) - 0.01 0.01 -
-------------------------------------------------------------------------
$ 0.26 $ 0.38 $ 0.34 $ 0.14 $ 0.18 $ 0.42 $ 0.28 $ 0.20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly total revenues and net earnings applicable to common shares are
affected by seasonality, with Q1 and Q4 the strongest periods, reflecting
colder weather and fewer daylight hours at those times of year.
Financial Statements
Consolidated Statements of Earnings (Unaudited)
-------------------------------------------------------------------------
For the Three months ended Six months ended
millions of dollars June 30 June 30
(except earnings per common share)
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue
Electric $ 267.6 $ 271.6 $ 569.3 $ 570.6
Other 8.3 8.5 17.3 19.2
-------------------------------------------------------------------------
275.9 280.1 586.6 589.8
-------------------------------------------------------------------------
Cost of operations
Fuel for generation and
purchased power 74.1 107.2 164.2 221.6
Operating, maintenance,
and general 64.1 62.2 124.4 123.2
Provincial, state, and
municipal taxes 12.0 12.4 24.1 24.4
Provincial tax deferral
(note 10) - - - (4.9)
Depreciation 36.1 34.1 72.2 67.8
Regulatory amortization 4.3 4.6 10.2 10.8
Allowance for funds used
during construction (1.3) (1.2) (2.3) (2.0)
-------------------------------------------------------------------------
189.3 219.3 392.8 440.9
-------------------------------------------------------------------------
Earnings from operations 86.6 60.8 193.8 148.9
Equity earnings (note 8) 1.0 1.5 2.5 3.3
-------------------------------------------------------------------------
Earnings before interest and
income taxes 87.6 62.3 196.3 152.2
Interest (note 9) 29.4 26.1 60.7 56.4
Amortization of defeasance
costs 3.1 3.3 6.3 6.6
-------------------------------------------------------------------------
Earnings before income taxes 55.1 32.9 129.3 89.2
Income taxes 22.5 10.4 49.8 26.6
Income taxes deferral (note 10) - - - (10.4)
-------------------------------------------------------------------------
Net earnings before
non-controlling interest 32.6 22.5 79.5 73.0
Non-controlling interest 3.4 3.4 6.7 6.7
-------------------------------------------------------------------------
Net earnings from continuing
operations 29.2 19.1 72.8 66.3
Earnings from discontinued
operations, net of tax
(note 5) - 0.2 - 1.3
-------------------------------------------------------------------------
Net earnings applicable to
common shares $ 29.2 $ 19.3 $ 72.8 $ 67.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common
share - basic
Continuing operations $ 0.26 $ 0.18 $ 0.66 $ 0.61
Discontinued operations - - - 0.01
-------------------------------------------------------------------------
$ 0.26 $ 0.18 $ 0.66 $ 0.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common
share - diluted
Continuing operations $ 0.26 $ 0.18 $ 0.64 $ 0.59
Discontinued operations - - - 0.01
-------------------------------------------------------------------------
$ 0.26 $ 0.18 $ 0.64 $ 0.60
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Weighted average number of
common shares outstanding
(millions)
- basic 110.4 109.4 110.3 109.2
- diluted 110.4 109.4 123.7 123.1
Consolidated Statements of Retained Earnings (Unaudited)
For the six months ended June 30
-------------------------------------------------------------------------
millions of dollars 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of year $ 423.4 $ 399.6
Net earnings applicable to common shares 72.8 67.6
-------------------------------------------------------------------------
496.2 467.2
Dividends 49.1 48.5
-------------------------------------------------------------------------
Retained earnings, end of period $ 447.1 $ 418.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
June 30 December 31
2006 2005
As at Restated
millions of dollars (note 3)
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 26.4 $ 21.5
Restricted cash 10.0 5.8
Accounts receivable 204.0 231.8
Income tax receivable 15.1 15.1
Inventory 119.9 76.1
Prepaid expenses 45.4 15.9
Future income tax assets 9.5 9.3
Energy marketing assets 19.0 16.0
-------------------------------------------------------------------------
449.3 391.5
-------------------------------------------------------------------------
Long-term receivables 60.7 48.4
-------------------------------------------------------------------------
Energy marketing assets 2.9 4.1
-------------------------------------------------------------------------
Deferred charges 480.6 508.3
-------------------------------------------------------------------------
Future income tax assets 17.1 19.0
-------------------------------------------------------------------------
Goodwill 92.9 97.1
-------------------------------------------------------------------------
Investments (note 11) 98.4 101.0
-------------------------------------------------------------------------
Property, plant and equipment 2,746.6 2,789.2
Construction work in progress 52.9 40.0
-------------------------------------------------------------------------
2,799.5 2,829.2
-------------------------------------------------------------------------
$4,001.4 $3,998.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 3.3 $ 152.9
Short-term debt 197.0 88.1
Accounts payable and accrued charges 210.6 248.6
Income tax payable 20.6 1.5
Dividends payable 3.2 3.2
Energy marketing liabilities 18.3 12.1
-------------------------------------------------------------------------
453.0 506.4
-------------------------------------------------------------------------
Energy marketing liabilities 5.5 2.9
-------------------------------------------------------------------------
Future income tax liabilities 76.9 78.9
-------------------------------------------------------------------------
Asset retirement obligations (note 3 and note 12) 76.2 74.1
-------------------------------------------------------------------------
Deferred credits 74.7 77.5
-------------------------------------------------------------------------
Long-term debt (note 13) 1,676.2 1,631.8
-------------------------------------------------------------------------
Non-controlling interest 260.8 260.8
-------------------------------------------------------------------------
Shareholders' equity
Common shares (note 14) 1,047.6 1,041.0
Foreign exchange translation adjustment (116.6) (98.2)
Retained earnings 447.1 423.4
-------------------------------------------------------------------------
1,378.1 1,366.2
-------------------------------------------------------------------------
$4,001.4 $3,998.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contingencies (Note 16)
See accompanying notes to the unaudited consolidated financial
statements.
Approved on behalf of the Board of Directors
"Derek Oland" "Christopher Huskilson"
Derek Oland Christopher Huskilson
Chairman President and Chief Executive Officer
Consolidated Statements of Cash Flow (Unaudited)
-------------------------------------------------------------------------
For the Three months ended Six months ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities
Net earnings before
non-controlling interest $ 32.6 $ 22.5 $ 79.5 $ 73.0
Non-cash items:
Depreciation 36.1 34.1 72.2 67.8
Deferral of provincial taxes
and income taxes - - - (15.3)
Amortization of deferred
charges 9.8 7.0 20.8 14.7
Equity earnings (1.0) (1.5) (2.5) (3.3)
Regulatory amortization 4.3 4.6 10.2 10.8
Allowance for funds used
during construction (1.3) (1.2) (2.3) (2.0)
Future income taxes 0.5 5.4 3.2 5.1
Other non-cash operating
items (1.3) 1.7 4.4 2.5
Discontinued operations - 0.2 - 1.3
Other cash operating items (1.9) (1.5) (9.4) (8.3)
-------------------------------------------------------------------------
77.8 71.3 176.1 146.3
Change in non-cash operating
working capital (6.6) (5.4) (35.8) (62.4)
-------------------------------------------------------------------------
Net cash provided by operating
activities 71.2 65.9 140.3 83.9
-------------------------------------------------------------------------
Investing activities
Property, plant and
equipment (37.6) (33.9) (56.8) (53.6)
Acquisition (note 4) - (52.6) - (52.6)
Retirement spending net of
salvage (0.8) (1.0) (1.6) (1.7)
Decrease (increase) in
restricted cash 2.0 5.1 (4.2) 17.4
Other investing activities 1.1 - - (1.5)
-------------------------------------------------------------------------
Net cash used in investing
activities (35.3) (82.4) (62.6) (92.0)
-------------------------------------------------------------------------
Financing activities
Retirement of long-term
debt (150.2) (101.1) (150.8) (102.3)
Issuance of long-term debt 40.0 100.0 40.0 100.0
Increase in short-term debt 139.0 42.5 118.3 56.6
Issuance of common shares 2.4 8.8 6.1 12.9
Dividends on common shares (24.6) (24.4) (49.1) (48.5)
Dividends paid by
subsidiaries to
non-controlling interest (3.4) (3.4) (6.7) (6.7)
Accounts receivable
securitization (20.0) - (30.0) (10.0)
Other financing (1.5) (3.4) (0.6) (3.9)
-------------------------------------------------------------------------
Net cash (used in) provided
by financing activities (18.3) 19.0 (72.8) (1.9)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 17.6 2.5 4.9 (10.0)
Cash and cash equivalents,
beginning of period 8.8 30.2 21.5 42.7
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 26.4 $ 32.7 $ 26.4 $ 32.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents
consists of:
Cash $ 26.0 $ 27.1 $ 26.0 $ 27.1
Cash equivalents 0.4 5.6 0.4 5.6
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 26.4 $ 32.7 $ 26.4 $ 32.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental disclosure of
cash paid:
Interest $ 48.1 $ 31.5 $ 78.6 $ 61.1
Income and capital taxes $ 18.4 $ 21.0 $ 35.2 $ 33.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Notes to the Interim Unaudited Consolidated Financial Statements
June 30, 2006
1. Basis of Presentation
The disclosures in these unaudited interim consolidated financial
statements do not conform in all respects to the requirements of Canadian
Generally Accepted Accounting Principles for annual audited financial
statements and should be read in conjunction with Emera Inc.'s annual
consolidated financial statements as at and for the year ended December 31,
2005.
These consolidated financial statements follow the same accounting
policies and methods of computation as Emera Inc.'s annual audited
consolidated financial statements as at and for the year ended December 31,
2005 with the exception of the accounting policy change disclosed in note 3.
2. Seasonal Nature of Operations
Interim results are not necessarily indicative of results for the full
year due primarily to seasonal factors. Sales and related production vary
significantly over the year, with Q1 and Q4, the strongest periods, reflecting
colder weather and fewer daylight hours in the winter season.
3. Change in Accounting Policy
In December 2005, the Canadian Institute of Chartered Accountants ("CICA")
issued Emerging Issues Committee Abstract 159 Conditional Asset Retirement
Obligations ("EIC-159"). EIC-159 is to be applied retroactively, with
restatement of prior periods, to financial statements for interim and annual
reporting periods ending after March 31, 2006. EIC-159 was issued in response
to the diverse accounting practices that have developed under CICA Handbook
Section 3110 Asset Retirement Obligations ("Section 3110") with respect to the
timing of liability recognition when the timing and/or method of settlement
are conditional on a future event.
As a result of adopting EIC-159, the company has determined that is has
conditional asset retirement obligations related to the disposal of
polychlorinated biphenyls ("PCBs"). As at June 30, 2006, property, plant and
equipment has increased by $0.6 million (December 31, 2005 - $0.6 million),
accumulated depreciation has decreased by $1.9 million (December 31, 2005 -
$1.8 million), and asset retirement obligations have increased by $2.5 million
(December 31, 2005 - $2.4 million). There is no impact to net earnings in 2006
and 2005.
Accounting for the impact of rate regulation:
Any difference between the amount of depreciation and accretion expense
approved by the regulator of Nova Scotia Power and the amount that would have
been calculated under EIC-159 is recognized as a regulatory asset in
accumulated depreciation. In the absence of this deferral, year to date net
earnings for 2006 would be $0.1 million lower.
4. Acquisition
On May 24, 2005 Emera and Brookfield Power Corporation, in a 50/50 joint
venture, acquired Bear Swamp, a 600 megawatt ("MW") pumped storage
hydro-electric facility in northern Massachusetts. Emera's share of the
purchase price was $61.2 million. The facility sells energy, capacity and
ancillary products to the New England Power Pool. Also included in the
acquisition is the nearby 10 MW Fife Brook run-of-river hydro-electric
facility.
The acquisition has been accounted for under the purchase method of
accounting using proportionate consolidation, and accordingly, Emera's
pro-rata share of the results since acquisition have been included in the
consolidated statements of earnings.
Emera's share of the transaction is as follows:
millions of dollars
-------------------------------------------------------------------------
Net assets acquired
Inventory $ 0.2
Property, plant and equipment 61.8
Deferred charges 0.2
Accrued liabilities (0.1)
Deferred credits (0.9)
-------------------------------------------------------------------------
Total cash consideration $ 61.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Discontinued Operations
Effective September 30, 2005 Emera Fuels, a subsidiary of Emera, sold its
heating oil distribution business. Emera Fuels is included in the segment
"Other" in Note 6 Segment Information.
Emera Fuels has been accounted for as a discontinued operation.
Accordingly, prior periods have been reclassified to reflect this change. The
following provides additional information with respect to amounts included in
earnings from discontinued operations on the consolidated statements of
earnings:
-------------------------------------------------------------------------
For the Three months ended Six months ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue - $ 21.4 - $ 50.6
Earnings before income taxes - $ 0.4 - $ 1.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. Segment Information
Segmented financial information for the three months ended and as at
June 30, 2006:
-------------------------------------------------------------------------
Bangor
millions of dollars NSPI Hydro Other(x) Total
-------------------------------------------------------------------------
Revenues from external
customers $ 231.5 $ 31.9 $ 12.5 $ 275.9
Depreciation 31.9 3.6 0.6 36.1
Cost of operations, including
depreciation 153.1 24.7 11.5 189.3
Net inter-segment operating
revenues/(expenses) 38.9 (0.9) (38.0) -
Equity earnings - - 1.0 1.0
Interest expense 25.2 2.9 1.3 29.4
Income taxes 22.5 1.5 (1.5) 22.5
Net earnings from continuing
operations 24.3 2.7 2.2 29.2
Net earnings applicable to
common shares 24.3 2.7 2.2 29.2
Assets 3,099.0 565.0 337.4 4,001.4
Goodwill - 92.9 - 92.9
Capital expenditures 18.6 14.5 4.5 37.6
-------------------------------------------------------------------------
(x) Other consists of items related to corporate activities and other
subsidiaries.
Segmented financial information for the three months ended and as at
June 30, 2005:
-------------------------------------------------------------------------
Bangor
millions of dollars NSPI Hydro Other(x) Total
-------------------------------------------------------------------------
Revenues from external
customers $ 232.3 $ 35.6 $ 12.2 $ 280.1
Depreciation 29.8 3.7 0.6 34.1
Cost of operations, including
depreciation 179.0 28.9 11.4 219.3
Net inter-segment operating
revenues/(expenses) 32.6 (0.6) (32.0) -
Equity earnings - - 1.5 1.5
Interest expense 24.4 3.0 (1.3) 26.1
Income taxes 8.6 1.3 0.5 10.4
Net earnings from continuing
operations 13.7 2.4 3.0 19.1
Net earnings applicable to
common shares 13.7 2.4 3.2 19.3
Assets 3,048.8 609.5 402.3 4,060.6
Goodwill - 102.1 7.4 109.5
Capital expenditures 28.8 6.5 51.2 86.5
-------------------------------------------------------------------------
(x) Other consists of items related to corporate activities and other
subsidiaries.
Segmented financial information for the six months ended and as at
June 30, 2006:
-------------------------------------------------------------------------
Bangor
millions of dollars NSPI Hydro Other(x) Total
-------------------------------------------------------------------------
Revenues from external
customers $ 494.5 $ 66.9 $ 25.2 $ 586.6
Depreciation 63.7 7.4 1.1 72.2
Cost of operations, including
depreciation 320.8 50.7 21.3 392.8
Net inter-segment operating
revenues/(expenses) 89.1 (1.4) (87.7) -
Equity earnings - - 2.5 2.5
Interest expense 51.0 5.8 3.9 60.7
Income taxes 48.2 4.0 (2.4) 49.8
Net earnings from continuing
operations 61.7 6.4 4.7 72.8
Net earnings applicable to
common shares 61.7 6.4 4.7 72.8
Assets 3,099.0 565.0 337.4 4,001.4
Goodwill - 92.9 - 92.9
Capital expenditures 30.2 22.1 4.5 56.8
-------------------------------------------------------------------------
(x) Other consists of items related to corporate activities and other
subsidiaries.
Segmented financial information for the six months ended and as at
June 30, 2005:
-------------------------------------------------------------------------
Bangor
millions of dollars NSPI Hydro Other(x) Total
-------------------------------------------------------------------------
Revenues from external
customers $ 494.0 $ 75.0 $ 20.8 $ 589.8
Depreciation 59.3 7.7 0.8 67.8
Cost of operations, including
depreciation 365.7 58.4 16.8 440.9
Net inter-segment operating
revenues/(expenses) 65.1 (1.3) (63.8) -
Equity earnings - - 3.3 3.3
Interest expense 49.0 6.1 1.3 56.4
Income taxes 22.1 4.0 0.5 26.6
Net earnings from continuing
operations 54.5 6.5 5.3 66.3
Net earnings applicable to
common shares 54.5 6.5 6.6 67.6
Assets 3,048.8 609.5 402.3 4,060.6
Goodwill - 102.1 7.4 109.5
Capital expenditures 40.0 15.0 51.2 106.2
-------------------------------------------------------------------------
(x) Other consists of items related to corporate activities and other
subsidiaries.
7. Employee Future Benefits
Emera maintains contributory defined-benefit and defined-contribution
pension plans, which cover substantially all of its employees, and plans that
provide non-pension benefits for its retirees. The Company's cost, related to
these plans, for the three month period ended June 30, 2006 is $10.7 million
(2005 - $7.3 million), and for the six month period ended June 30, 2006 is
$21.5 million (2005 - $14.6 million).
8. Equity Earnings
Equity earnings of $1.0 million (2005 - $1.5 million) for the three months
ended June 30, 2006, and $2.5 million (2005 - $3.3 million) for the six month
period ended June 30, 2006 consists of the Company's pro-rata share of
after-tax earnings from Maritimes and Northeast Pipeline, an investment under
significant influence of the Company.
9. Interest
Interest expense consists of the following:
Three months ended Six months ended
June 30 June 30
-------------------------------------------------------------------------
millions of dollars 2006 2005 2006 2005
-------------------------------------------------------------------------
Interest on long-term debt $ 25.9 $ 26.4 $ 53.2 $ 53.2
Interest on short-term debt 1.5 4.4 5.5 7.7
Amortization of debt financing 0.5 0.7 1.0 1.0
Foreign exchange losses (gains) 1.5 (5.4) 1.0 (5.5)
-------------------------------------------------------------------------
$ 29.4 $ 26.1 $ 60.7 $ 56.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Provincial Tax Deferral and Income Tax Deferral
The UARB agreed to allow NSPI to defer taxes not reflected in rates for
the period January 1, 2005 until April 1, 2005, the date when new rates became
effective. In Q1 2005, NSPI deferred a portion of provincial and federal
grants and taxes. The amortization period is subject to approval by the UARB.
11. Investments
Investments are comprised of the following:
June 30 December 31
millions of dollars 2006 2005
-------------------------------------------------------------------------
Equity accounted investments
Maritimes & Northeast Pipeline ("M&NP") $ 90.4 $ 92.8
Maine Yankee Atomic Power Company 2.0 2.4
Maine Electric Power Company Inc. 1.2 1.5
Intragas Energy 1.9 1.9
-------------------------------------------------------------------------
Total equity investments 95.5 98.6
Long-term portfolio investments 2.9 2.4
-------------------------------------------------------------------------
$ 98.4 $ 101.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
12. Asset Retirement Obligations
In addition to asset retirement obligations recognized under Section 3110
and EIC-159, the Company may have asset retirement obligations associated with
some of its transmission and distribution assets. As the Company expects to
use the majority of its installed assets for an indefinite period, no removal
date can be determined and consequently a reasonable estimate of the fair
value of any related asset retirement obligation cannot be made at this time.
13. Long-Term Debt
As at December 31, 2005, long-term debt included a private placement in
the amount of $10.0 million, which is secured by a letter of credit. The
private placement matured on April 24, 2006.
Long-term debt includes $5.1 million (December 31, 2005 - $0.9 million)
in capital lease obligations.
14. Common Shares
As of June 30, 2006 there were 110.4 million (December 31, 2005 -
110.1 million) issued and outstanding common shares, 5.2 million (December 31,
2005 - 0.3 million) common shares reserved and available for issuance under
the senior management stock option plan, and 1.2 million (December 31, 2005 -
1.3 million) common shares reserved and available for issuance under the
employee common share purchase plan.
During the six months ended June 30, 2006, the Company issued 0.3 million
(2005 - 0.8 million) common shares for cash proceeds of $6.1 million (2005 -
$12.9 million). Additionally, $0.5 million (2005 - $0.5 million) was
recognized as share compensation. Common shares were issued through the
employee common share purchase plan, the senior management stock option plan,
and the dividend reinvestment plan.
15. Related Party Transactions
In the ordinary course of business, Emera purchased natural gas
transportation capacity totaling $7.3 million (2005 - $5.6 million) during the
three months ended June 30, 2006, and $15.7 million (2005 - $10.7 million)
during the six months ended June 30, 2006 from the Maritimes & Northeast
Pipeline, an investment under significant influence of the Company. The amount
is recognized in fuel for generation and purchased power or netted against
energy marketing margin in other revenue, and is measured at the exchange
amount. At June 30, 2006 the amount payable to the related party is
$5.3 million (December 31, 2005 - $4.5 million), and is under normal interest
and credit terms.
16. Contingencies
The Company may, from time to time, be involved in legal proceedings,
claims and litigation that arise in the ordinary course of business which the
Company believes would not reasonably be expected to have a material adverse
effect on the financial condition of the Company.
In late 2005 some of Nova Scotia Power's petroleum coke (petcoke)
suppliers were unable to supply the fuel due to hurricanes in the Gulf of
Mexico, which seriously affected their operations. As a result, NSPI incurred
additional costs for replacement fuel, and other expenses. NSPI has advised
its insurers that it intends to seek recovery of applicable costs. The
insurers have advised that coverage is available under the policy but at this
time NSPI is unable to estimate the total recovery amount.
As part of an ongoing litigation against a coal supplier, NSPI was
required to post an $11.5 million bond. The bond may be called if NSPI does
not prosecute the claim without delay, or if the claim is not successful. It
is not determinable whether NSPI will be successful with its claim,
accordingly, an estimate of the potential contingent loss cannot be made.
17. Comparative Information
Certain of the comparative figures have been reclassified to conform to
the consolidated financial statement presentation adopted for 2006.
