Fortis Reports Second Quarter Earnings of $29 Million

08/08/2008 07:00 EST

St. John’s, NL (August 8, 2008):

Fortis Reports Second Quarter Earnings of $29 Million

Fortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS) recorded second quarter net earnings applicable to common shares of $29 million, or $0.19 per common share, compared to earnings of $41 million, or $0.31 per common share, for the second quarter of 2007.  Year-to-date earnings applicable to common shares were $120 million, or $0.77 per common share, compared to earnings of $83 million, or $0.69 per common share, for the same period last year.  Terasen was acquired on May 17, 2007 and, consequently, the Corporation’s financial results for the prior period last year reflected earnings’ contribution from Terasen for a partial second quarter.

Second quarter results included a $13 million, or $0.08 per common share, charge representing the Corporation’s approximate 70 per cent share of disallowed previously incurred fuel and purchased power costs at Belize Electricity.  The charge was the result of the decision by the Public Utilities Commission of Belize on Belize Electricity’s 2008/2009 rate application.  Belize Electricity filed an application for judicial review and appeal of the decision with the Supreme Court of Belize on July 25, 2008.  At the end of the second quarter, Belize Electricity’s assets represented approximately 2 per cent of the total assets of Fortis.

Second quarter results also included a one‑time charge of approximately $2 million at FortisOntario associated with the repayment of interconnection agreement amounts received in the fourth quarter of 2007.

Excluding the one-time items at Belize Electricity and FortisOntario, earnings for the second quarter were $44 million, or $0.28 per common share, compared to $41 million, or $0.31 per common share, for the same quarter last year.  Earnings were favourably impacted by a full quarter of earnings’ contribution from the Terasen Gas companies, higher earnings at Newfoundland Power associated with a shift in the quarterly distribution of annual purchased power expense, increased non-regulated hydroelectric production and improved performance at Fortis Properties.  Partially offsetting these items were lower earnings at FortisAlberta associated with higher corporate income taxes, and higher corporate financing costs associated with the Terasen acquisition. 

“The Terasen Gas companies have contributed earnings of $120 million since acquisition almost 15 months ago and are now substantially integrated into the Fortis Group of Companies,” says Stan Marshall, President and Chief Executive Officer, Fortis.

The Terasen Gas companies contributed earnings of $12 million for the second quarter, up $11 million from the same quarter last year; however, contributions last year were from May 17, 2007, the date of acquisition.  On a full quarter‑over‑quarter basis, earnings of the Terasen Gas companies were comparable.  In August 2008, Terasen settled certain historical corporate tax matters and, as a result, is expected to record an earnings’ benefit of approximately $7.5 million in the third quarter of 2008.

Excluding the one-time item at FortisOntario, Canadian Regulated Electric Utilities’ earnings were $28 million for the second quarter compared to $33 million for the same quarter last year.  The decrease in earnings was mainly due to a $7.5 million increase in future income tax expense at FortisAlberta associated with regulator-approved deferral accounts and the timing of their collection. FortisAlberta is expected to record a future income tax recovery when the deferral accounts are collected.  Partially offsetting the above decrease was the favourable impact of a shift in the quarterly distribution of annual purchased power expense at Newfoundland Power, which increased earnings during the second quarter of 2008 by approximately $2.5 million.  Newfoundland Power’s annual earnings are not expected to be impacted by the shift in quarterly earnings’ distribution; however, earnings are expected to be lower in the first and fourth quarters and higher in the second and third quarters compared to the same periods last year. 

Excluding the one-time item at Belize Electricity, Caribbean Regulated Electric Utilities’ earnings were $8 million for the second quarter, comparable to earnings for the same quarter last year.  The favourable impact of electricity sales growth and a change in the method of calculating fuel costs under Caribbean Utilities’ new transmission and distribution licence was largely offset by higher operating expenses, increased amortization costs, and the 3.25 per cent reduction in basic electricity rates at Caribbean Utilities, effective January 1, 2008.  Commencing June 1, 2009, Caribbean Utilities will be permitted to adjust basic electricity rates with a formula tied to inflation. 

Year to date, Fortis and its utilities have raised almost $900 million in preferred equity and 30-year debt including the issuance of $230 million 5.25% First Preference Shares at Fortis Inc., $250 million 5.80% debentures at Terasen Gas Inc., $250 million 6.05% debentures at Terasen Gas (Vancouver Island) Inc., $100 million 5.85% debentures at FortisAlberta and $60 million 6.05% bonds at Maritime Electric.

In June 2008, Caribbean Utilities announced a rights offering to shareholders of record on July 14, 2008.  The estimated net proceeds of approximately US$28 million will be used to repay credit facility borrowings and to finance capital expenditures.   The rights offering closes on August 15, 2008.

Non-Regulated Fortis Generation contributed earnings of $7 million for the second quarter, up $2 million from the same quarter last year.  Results reflected increased hydroelectric production in central Newfoundland due to higher rainfall.

Fortis Properties contributed earnings of $7 million for the second quarter, up $1 million from the same quarter in 2007.  The increase reflected contributions from the Delta Regina in Saskatchewan, acquired on August 1, 2007, and improved performance at the Company’s hospitality operations in Atlantic Canada.

Corporate and other expenses were $18 million for the second quarter compared to $12 million for the same quarter last year.  The increase in corporate and other expenses was primarily driven by a full quarter of Terasen acquisition‑related finance charges compared to a partial quarter last year.

Cash flow from operating activities was $244 million in the second quarter of 2008, up from $68 million in the same quarter last year.  Cash flow from operating activities was $432 million year to date, up from $162 million in the same period last year.  The improvement reflected seasonality of operations of the Terasen Gas companies and their contribution for all of the second quarter and year‑to‑date period in 2008 compared to a partial second quarter last year.

Consolidated capital expenditures, before customer contributions, were $389 million in the first half of 2008 and are expected to exceed $900 million for the year.  Much of the consolidated capital program is being driven by the Terasen Gas companies, FortisAlberta, FortisBC, and regulated and non‑regulated electric utility operations in the Caribbean.  During the quarter, Terasen Gas (Vancouver Island) Inc. commenced construction of its $200 million liquefied natural gas storage facility.

“Fortis is a leading energy infrastructure builder in Canada. The Corporation’s consolidated capital expenditure program is expected to exceed $4.5 billion over the next five years which should drive earnings growth going forward,” concludes Mr. Marshall.

 
Fortis Inc. Barry V. Perry Vice President Finance and Chief Financial Officer 709-737-2822

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