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Operator
Good afternoon, ladies and gentlemen. Welcome to the Emera's year-end results conference call. I would now like to turn the meeting over to Ms. Judy Steele, Director Investor and External Relations. Please go ahead, Ms. Steele.
Judy Steele - IR
Good afternoon, everyone, and thank you for participating in our call today. Joining me from Emera are Chris Huskilson, President and Chief Executive Officer; Randy Henderson, Senior Vice President and Chief Financial Officer; Ralph Tedesco, Chief Operating Officer of Nova Scotia Power; Ray Robinson, President and COO of Bangor Hydro; Ralph Tedesco, Emera's Vice President of Regulatory Affairs; and Greg Blunden, General Manager Finance for Nova Scotia Power.
Emera's year-end earnings release, financial statements, and Management's Discussion and Analysis were distributed earlier in the day via newswire. These documents are also available on our website at www.emera.com.
Today we will have Chris begin with a corporate update, Randy will then review the fourth-quarter and year-end financial results in more detail. We expect the presentation segment to last about 10 minutes, after which we will be happy to take questions from analysts and investors. Please note that all amounts are in Canadian dollars unless otherwise noted.
I will take a moment to remind you that this conference call may contain forward-looking information which involves certain assumptions and known and unknown risks and uncertainties that may cause actual results to be materially different from those that are expressed or implied by the comments. Those risks include weather, commodity prices, interest rates, foreign exchange, regulatory requirements, and general economic conditions.
In addition, please note that this conference is being widely dessiminated via live webcast. Now I will turn things over to Chris.
Chris Huskilson - President and CEO
Thank you, Judy, and good afternoon, everyone. Emera's consolidated net earnings were $31 million for the fourth quarter of 2004, compared to 47.5 million for the same period in 2003. Quarterly earnings were 30 cents per share, compared to 44 cents in 2003. Those results were in line with our expectations.
As we discussed in our last conference call, for the first part of the year lower fuel costs offset higher taxes in Nova Scotia Power. Our ability to continue offsetting higher taxes is decreasing, and the lower earnings in Q4 reflect that. For the full year, Emera earned $129.8 million with earnings per share of $1.20. That provides solid support for our dividend, which was increased in early 2005 to 89 cents annually. Randy will take you through the details of the financial results shortly.
I want to take a moment to update you on a few other items of interest. First, Nova Scotia Power's 2005 rate application. Nova Scotia Power has been fully taxable since 2003, and the Company managed to cover that multi-million dollar expense with the proceeds from opportunistic natural gas sales and aggressive fuel cost management. As I noted a moment ago, our ability to continue to cover our increased taxes has diminished, which is reflected in the fact that fourth-quarter earnings are over 30 percent lower year-over-year.
Our 2005 rate application was prompted by this circumstance. Nova Scotia Power concluded 3 weeks of hearings on December 3 covering all aspects of our rate application for 2005. Proceeding had a wide scope of information presented, reviewed, and discussed. Through the entire process, beginning with the technical conferences in the summer and during the rate hearing itself, we remained engaged with stakeholders and open to the opportunity to try and find a solution to the issues. Our consultation with stakeholders continued after the hearings wrapped up and culminated in the negotiated settlement agreement that was submitted to our regulator on December 15.
The settlement reduced the average rate increase from 12.4 percent to 7.3 percent. The settlement has the support of over 85 percent of the industrial load that intervened in the rate filing; and I am pleased to say the settlement agreement is also supported by the Province of Nova Scotia. As with any settlement, the proposal involved give and take aimed at balancing the interests of all stakeholders. For example Nova Scotia Power reduced its requested return on equity from 10.2 percent to 9.8 percent and significantly extended the recovery period for our pre 2003 income tax deposit.
Settlement is a new approach in Nova Scotia, and this was the first time a settlement was proposed in a full rate application. The only other previous settlement agreement was used to deal with NSPI's recent changes in depreciation rates. We view negotiated settlements as a positive and constructive step. We continue to gain important insights to make the process better and enhance our overall stakeholder relationships.
The Nova Scotia Utility and Review Board held 2 days of hearings in January to review and discuss the settlement proposal. We are awaiting their decision. In the meantime, Nova Scotia Power requested and received an order from the Utility and Review Board allowing us to defer 2005 taxes that are not presently in the rate structure, until a decision is rendered and new rates become effective. This arrangement addresses the earnings pressure the Company is experiencing now that we are inside our test year for new rates, essentially keeping us whole while the regulator considers the settlement agreement.
As part of the settlement, stakeholders agreed to further consider a fuel adjustment mechanism. There was a feeling that more time was required to fully resolve the issue. Importantly, there was agreement to advance the process with additional consultation and technical conferences.
Turning now to Bangor Hydro, Bangor Hydro has recently settled its stranded costs case that was before the Maine Public Utility Commission. This will set stranded costs rates for the next 3 years. Randy will talk more about the details of this in a moment.
Both these rate applications serve to better match regulated rates with costs and so are key to increasing the predictability of our earnings. However, this year will mark a reset point on earnings, mostly to reflect slightly lower allowed return on equity in Nova Scotia Power and Bangor Hydro, that is consistent with the current interest rate environment. Just the same, I believe the increased predictability gives us a solid base on which to build.
That brings me to another important development for our Company in 2004. A partnership between Emera and Brascan Power will invest in 3 hydro-electric generating facilities in New England. The Bellows Falls, Bear Swamp, and Fife Brook assets are quality additions to our generation fleet that are accretive and represent a solid example of growth opportunities that are clearly in line with Emera's skill set and risk profile. The facilities are low-cost generators in their region. and over time our intent is to contract for much of the output.
We have had a partnership with Brascan Power for more than 2 years, exploring development opportunities that fit our businesses and complement our respective competencies. We both have interest in power generation in the Northeast, and I am personally pleased with the shared vision both organizations have regarding the Bellows Falls and Bear Swamp transactions. Over the next few months, we will be focused on closing these transactions and beginning operations.
With that, I will turn things over to Randy for the financial update.
Randy Henderson - SVP and CFO
Thank you, Chris, and good afternoon everyone. As Judy mentioned, our fourth-quarter and annual financial results were released earlier today and are on the Emera website. I will take a few minutes to review them and will focus primarily on the results of the quarter.
Emera's consolidated net earnings were $31.4 million in the fourth quarter of 2004, compared to 47.5 million for the same period in 2003. As Chris noted, we anticipated lower earnings in the fourth quarter. As you are aware, gas resale margins are lower because of changes to the pricing structure in our gas supply contract currently in arbitration, and this diminishes our ability to cover higher taxes. And commodity prices are higher, including replacement fuel costs due to a supplier default which we discussed on our last conference call.
Consolidated earnings for the full year of 2004 were 129.8 million, compared to 129.2 million for 2003. Although earnings remained nearly unchanged year-over-year, which did realize increased electric revenues. This was offset by higher fuel costs, increased depreciation expense, and tax increases.
Earnings per share in the fourth quarter were 30 cents, compared to 44 cents in 2003. Full-year earnings per share remain unchanged year-over-year at $1.20 per share.
Nova Scotia Power's contribution to consolidated net earnings was $25 million in the fourth quarter of 2004, compared to $41.7 million for the same period in 2003. The quarter-over-quarter change primarily reflects the reduction in electric margin I mentioned earlier. Depreciation costs in the quarter were $5 million higher reflecting the $3.8 million reduction in expense reported last year from a revised estimate of site restoration costs for our Glace Bay generating station. On a full-year basis, NSPI earned within its allowed rate of return of 2004, with a 10 percent regulated rate of return on equity.
Turning now to Bangor Hydro, our U.S. subsidiary's contribution to consolidated net earnings was $4.4 million in the fourth quarter of 2004, unchanged from the same period in 2003. A stronger Canadian dollar offset U.S. dollar earnings growth in the quarter.
As Chris noted, Bangor Hydro is in the midst of a stranded cost rate application. This is required every 3 years to true up stranded cost amortizations. The Company and other parties involved reached a settlement agreement that has been filed with the Maine Public Utilities Commission. The settlement reflects a return on common equity of 10 percent for the stranded costs portion of Bangor's asset base with a 40 percent thickness. The settlement will result in minimal impact on earnings, estimated at under $100,000 per year. It is expected at the commission will issue a final rate order approving the settlement prior to the March 1 effective date.
Other operations, which include corporate costs and businesses outside of our regulated electric utilities, contributed $2 million in the fourth quarter of 2004, compared to $1.4 million for the same period in 2003. Higher energy marketing margins offset the elimination of offshore gas infrastructure revenue as a result of the sale of our Sable investment last year.
Equity earnings from our investment in the Maritimes & Northeast Pipeline were lower quarter-over-quarter. This largely reflects the performance on the U.S. component of the pipeline, which does not have the costs related to the Phase III expansion reflected yet in its rates. As you are aware, Maritimes in the Northeast is in the midst of a regulatory application to address this and is permitted to charge and collect increased rates as of January 1, 2005, subject to refund pending the outcome of the rate application, which we anticipate later in 2005.
On a full-year basis, contributions from other operations provided net earnings of $4 million in 2004, compared with a loss of $1.7 million in 2003. This is largely due to the increase in Energy Services margins. I want to take a moment to remind you that the levels of margin in Emera Energy Services are not necessarily predictable. Market conditions supporting high prices and volatility are necessary for the opportunity to materialize; and such conditions are obviously not always present. That said, after 3 years' experience we do believe that Energy Services can deliver a base level of about $5 million in annual earnings with upside potential if conditions are right. So from a standing start in 2002, this business has developed very well.
Cash flow continues to be strong. Consolidated net cash provided by operating activities was $62 million in the fourth quarter of 2004, compared to 104 million for the same period in 2003, reflecting the higher fuel costs in NSPI. On a full-year basis consolidated net cash provided by operating activities was $304 million, compared with $252 million in 2003. The increase reflects the onetime cash payment in 2003 for prior-year's income tax assessment, partially offset by lower cash receipts from customers in 2004 from the timing of bill payments.
That's it for my financial overview. Thank you, and now we will be happy to take your questions.
Operator
(OPERATOR INSTRUCTIONS) Maureen Howe, RBC Capital Markets.
Maureen Howe - Analyst
A couple questions. Just a quick one on the return on equity; you mentioned that NSPI was 10 percent. Can you tell us on what deemed equity component or what equity component that would be calculated on?
Greg Blunden - General Manager Finance
This is Greg Blunden. That is on our actual equity component for the year, which was 38 percent.
Maureen Howe - Analyst
Okay, thanks very much. A little bit, I guess, of a more general question with respect to the fuel adjustment mechanism. I am just wondering if someone can just comment a bit on what the issues may be; and if the intervenors are generally positive towards it; and if not, why not?
Ralph Tedesco - COO Nova Scotia Power
I think the primary issues with respect to the full adjustment mechanisms are, first and foremost, that it is a new concept in the Province. Secondly, Suddenly, this is an unusual time in markets with fluctuation of commodity prices; I think there is some uncertainty around that. People wish to get a little more comfortable with the concept, and I take as positive the fact that our settlement includes that we will seek to move forward with a fuel adjustment mechanism proposal during 2005.
Maureen Howe - Analyst
So is the view then -- when you say seek to move forward, then there is general agreement on the part of the intervenors and the Commission that move forward on the exploration of it? Or move forward on the implementation of it?
Ralph Tedesco - COO Nova Scotia Power
It is probably more actually to characterize it as exploration of it. We will put forth or we intend to put forth a specific proposal that folks will review and comment on.
Maureen Howe - Analyst
Okay. Is there some view then that risk on the fuel cost is more appropriately assumed by the utility as opposed to the ratepayers?
Ralph Tedesco - COO Nova Scotia Power
As part of the rate hearings, that was clearly a point of discussion; and there are, as we indicated in testimony, there is a difference in the Company's risk profile as to whether you have a fuel adjustment mechanism or not. Those issues were vetted and considered as part of the settlement agreement.
Maureen Howe - Analyst
Is there any risk, do you think, if you were to be successful in getting a fuel adjustment mechanism, is there any risk to a re-examination of your return? Your allowed return?
Ralph Tedesco - COO Nova Scotia Power
From our perspective, we would not anticipate that.
Maureen Howe - Analyst
Okay. Yesterday Paul Anderson at Ana-Duke Lines (ph) was making some pretty positive comments about the Anadarko LNG facility. In addition to potential volumes flowing on the Maritimes & Northeast Pipeline and perhaps further expansions, does Emera see any role that it might play in terms of the Company's involvement in LNG infrastructure in the Province?
Chris Huskilson - President and CEO
It's Chris. I think we're certainly always open to opportunities as they emerge, certainly in our geography. But fundamentally we see ourselves as becoming a customer of such a facility. As such, that would give us some involvement and would also, I think, help to secure gas volumes into the future.
We would like to see an LNG facility actually comes to pass in this region. If it does, then that would mean further investment in the Maritimes & Northeast Pipeline, so we would participate in that. We certainly would at a minimum take gas.
Maureen Howe - Analyst
Can you tell us what the volumes that are flowing on the Maritimes & Northeast are now? And what potential further expansions you might see over and above its current capacity?
Chris Huskilson - President and CEO
Currently the pipeline carries the the low 400s, 430-ish a day, that kind of a number. Its current configuration allows it to go to about 600 a day. If it went to its Phase IV expansion you would see 1 billion a day. So that is the kind of numbers that are being discussed, and potentially you can go higher; but obviously there would be more pipe to be built at that point.
Maureen Howe - Analyst
I am just wondering if you can update us on when the cost of the Phase III expansion might be reflected in the U.S. portion of the rates?
Randy Henderson - SVP and CFO
It is Randy here. They are the subject of the rate application that I mentioned in my remarks. So we're anticipating a hearing in May of this year and a decision probably in the Q4 at some point.
Maureen Howe - Analyst
One just final question. Definitely a very good quarter in terms of the energy marketing business. This is a business that, I don't know if it is seasonality; there was obviously very strong Q1 in terms of the earnings that were booked; not so strong Q2 and Q3; but then a very solid, maybe a bit better than solid Q4.
Can you give us any help in terms of what might cause the variability? And what we might be looking for in terms of insights into when you might have a good quarter versus a mediocre quarter?
Randy Henderson - SVP and CFO
Randy again. It is really a customer focused business, really providing a portfolio of energy management services. Low risk profile with the back to back nature of what it is doing and short-term duration of its deals. But I guess the prime signal might be a higher volatility in prices in the marketplace. That is what you would have seen in early January 2004 when the results were very strong.
Maureen Howe - Analyst
But high volatility, and maybe I misunderstand what the services that you're providing are, high volatility I could understand if you were actively trading. I was always under the impression that you were really acting more as agents, bringing together and perhaps supplying customers and bringing together suppliers and consumers of energy. Correct me if I am wrong.
Chris Huskilson - President and CEO
That is exactly right. It's Chris again. But the reason that volatility helps this business is because they act on behalf of parties that have gas or power and so on. Therefore, when it is volatile that is when people will participate more in the. Market, so for instance if you're a power generator and all of a sudden gas prices become quite high, you may shut that power generation off and sell gas. So it is that kind of service that this organization provides to others, and that is why volatility is what causes profitability for them.
Maureen Howe - Analyst
What about buying transportation? It looked like you bought some transportation on the gas pipeline this quarter. Is that another issue when gas prices get high in New England, and having the ability or having transportation capacity?
Chris Huskilson - President and CEO
Certainly. The business would actually lease capacity on pipes and so on. As they do that, then that provides them the ability to provide service to customers as well. It is that kind of activity that is really the activity that this business is focusing on and allows them to provide -- especially during times of volatile prices -- provide services that people want.
Maureen Howe - Analyst
Okay. Thank you for that.
Judy Steele - IR
Excellent questions.
Operator
Linda Ezergailis, TD Newcrest.
Linda Ezergailis - Analyst
Can you give us a sense, maybe a role of thumb in terms of the tax deferrals? How much is accumulating per week at an SPI as you're waiting for your decision? Is there any mechanism discussed yet as to how it will be recovered?
Randy Henderson - SVP and CFO
It's Randy. Appreciate we haven't gone into a lot of detail calculations at the moment. But what I can tell you is in the rate application we had about $79 million of increased taxes that we had to cover on an annual basis. You can pretty much just divide that by 12 and come up with a rough number, 6 to $7 million per month.
In terms of the actual deferral mechanism, we have not yet worked that out with the Board. What their letter does suggest is that the amounts will be deferred and collection will commence next year. That is something we will work out with them presumably as part of the overall settlement agreement.
Linda Ezergailis - Analyst
All right. The marketing guidance you gave in terms of 5 million of earnings per year is kind of a normal level. Is that earnings or margins?
Randy Henderson - SVP and CFO
That would be net earnings.
Linda Ezergailis - Analyst
Net earnings, okay. So then what did you earn in 2004? Because that is all bundled in with your other stuff, right?
Randy Henderson - SVP and CFO
That is correct.
Linda Ezergailis - Analyst
So what did you earn in 2004?
Randy Henderson - SVP and CFO
Approximately $10 million.
Linda Ezergailis - Analyst
10 million. In your NSPI discussions, I know there is no retail stakeholder group, but we have been picking up in the media some maybe of the more vocal dissenters to the negotiated settlement for NSPI. I am just wondering if you can give me your perception as to how the retail crowd might influence or change the settlement as has been filed, in the eyes of -- when the ultimate decision comes out.
Ralph Tedesco - COO Nova Scotia Power
Ralph Tedesco here. A couple of important points. Chris touched on the fact that the settlement is supported by about 85 to 90 percent of the intervenors in the hearing. As well, it is supported by the Province of Nova Scotia.
Another important thing occurs during the hearing on the settlement agreement itself, which is that the consumer advocate put forth a recommendation for a residential increase that was within a half a percent of our proposal. Indeed under cross-examination it was brought out that due to a, I will it, potential error in their testimony, their proposal might in fact even produce higher rates than the settlement produces. So we feel pretty good about it, I would say, a a balanced settlement amongst all stakeholders.
Linda Ezergailis - Analyst
That's great. Thank you very much for that update.
Operator
Dominique Barker from Credit Suisse First Boston.
Dominique Barker - Analyst
Just to clear up, did you assume any debt with the purchase purchase of Bellows Falls and Bear Swamp?
Randy Henderson - SVP and CFO
No, we did not.
Dominique Barker - Analyst
Second question, what is your financing plan for this year? I know you have got 100 million of debt that matures, and you have got some CapEx and investments that you're making.
Randy Henderson - SVP and CFO
Right. The $100 million is in NSPI, and that will need to be refinanced May time frame. We of course have got to close the Bear Swamp acquisition and Bellows Falls. We have got money on deposit in escrow at the moment. Those acquisitions will be closed; and it is our anticipation that we will then put project debt in place over the course of the year.
Lastly, we have our normal CapEx programs in our utility businesses, and they will be funded out of cash flow from operations.
Dominique Barker - Analyst
Are you comfortable with the debt metrics that you end up with?
Randy Henderson - SVP and CFO
Yes.
Dominique Barker - Analyst
Also, your residential electric sales were up a significant 6 percent. Is that all weather-related?
Unidentified Company Representative
From a volume perspective? Yes.
Dominique Barker - Analyst
Final question, can you isolate the storm-related O&M costs for Q4?
Randy Henderson - SVP and CFO
In terms of our OM&G budget, our storm costs total for the year were about $4 million over forecast.
Dominique Barker - Analyst
Okay, thanks, that's it. Thank you.
Operator
Matthew Akman, CIBC World Markets.
Matthew Akman - Analyst
I just first want to talk about the fuel budget and hedging for '05. There's some comments in the release or MD&A that you were not fully hedged at the end of '04 on 2005 on any of the fuels. I am just wondering if you could give us an update on that. Also why you were not fully hedged, because you're usually 12 months out, I think, especially on coal. Were you sort of taking a view on pricing there? Or just wondering about the rationale for that.
Ralph Tedesco - COO Nova Scotia Power
Ralph Tedesco here. We have a specific strategy that we undertake with regard to fuel and our current level of hedging or physical assets. We (inaudible) that. So if you consider where we are right now for '05, coal we are 80 percent hedged. For petroleum coke we are 100 percent hedged. For ocean freight, 97 percent hedged. Heavy fuel oil about 45 percent hedged. With respect to gas, about a little over 70 percent, about 72 percent.
Matthew Akman - Analyst
So oil you are only about 45 percent hedged?
Ralph Tedesco - COO Nova Scotia Power
That is correct.
Matthew Akman - Analyst
Is there a lot of variation in the potential fuel budget that you put forward in the rate case because of that? How do you see that?
Ralph Tedesco - COO Nova Scotia Power
Right now we feel good about the fuel budget that we put forth. The level of hedging that we have for fuel oil is consistent, again, with the strategies that we have laid out. At this point in time, we feel good about our overall fuel hedging.
Matthew Akman - Analyst
Okay. Moving onto the EBITDA guidance you gave on the acquisition, I'm just wondering how you can give EBITDA guidance on something like the pump storage facility? Because you're kind of (indiscernible) spot prices there a lot of the time. Or are there hedges in place there?
Randy Henderson - SVP and CFO
It's Randy here. When you evaluate the acquisition and think about how you're going to operate it, you come up with plans in your mind about how you will operate it, and take a view on prices going forward. So the numbers we're showing there are reflective of what we believe to be a reasonable business case outcome in the context of the investment we made.
Matthew Akman - Analyst
Okay, but there aren't hedges on that facility?
Randy Henderson - SVP and CFO
No.
Matthew Akman - Analyst
I guess just last question for Chris. Chris, you said this is kind of a reset year for earnings; I think you said those words. I am just wondering what you meant by that; that there could be a kind of a reduction and then going forward more of a steady growth rate? Or what were you meaning by that?
Chris Huskilson - President and CEO
Matthew, I think fundamentally when we look at the regulated companies, each one of them is seeing a little bit of a change relative to their earnings targets. Return on equity, specifically, as it relates to where we are with the interest rates right now. So we see that as being the reset that we're talking about.
But ensuring that we have got all of our costs in the cost model -- so the fact that we now have taxes in Nova Scotia Power; the fact that on the stranded costs case in Bangor we have been able to change it, so that any large contracts that are discounted are going to go against the stranded costs case as opposed to against the distribution costs. Those things all help to give us a much more predictable outcome.
So the the reset relates to the return on equity, but the stability actually relates to the fact that we have got the costs in place and under control.
Matthew Akman - Analyst
It looks like in the release you're actually going to be achieving some cost savings at Bangor and so on. Does the lower ROE necessarily mean lower earnings?
Chris Huskilson - President and CEO
Well, I think the setpoint is a bit lower, so that is really what we start from. Both the setpoint for stranded costs and the setpoint for transmission has moved a bit on us this year. Obviously we are still under an alternative rate plan on distribution, so there is a wide band of earnings potential there. But I think we do see some downward pressure on those regulated assets; but we think that that is a good place to build from.
Matthew Akman - Analyst
Okay, thanks. Those are all my questions.
Operator
Karen Taylor, BMO Nesbitt Burns.
Karen Taylor - Analyst
I just want to come back to the fuel budget again. You've got 13 million of possible deferral under the settlement. So given your current hedged position, you're entirely comfortable that you can make the budget that was in the rate filing and subsequently reflected into the settlement agreement with the hedged position as it sits, with the potential to defer 13 million in costs?
Randy Henderson - SVP and CFO
That's right. That's exactly what I am saying.
Karen Taylor - Analyst
Can you just go back and look at Bangor for a second. We talked about -- I am just trying to find where I think it was Chris talked about 10 percent return on equity and 40 percent deemed equity on the stranded costs. Where are we now on the stranded costs? What is the total dollar there for '05?
Chris Huskilson - President and CEO
When you say total dollar, you are talking about which part?
Karen Taylor - Analyst
Stranded cost set, that is got the 10 percent ROE and 40 percent deemed equity. What is the number that notionally is that stranded asset, if you will?
Randy Henderson - SVP and CFO
On a revenue requirement basis it is somewhere in the range of 30 to $35 million.
Karen Taylor - Analyst
30 to 35. How fast now is that being amortized?
Randy Henderson - SVP and CFO
There is a number of pieces within that; so it is not a single amortization.
Karen Taylor - Analyst
How fast per annum is that aggregate of 30 to 35 rolling off, in aggregate? Not interest in each individual piece.
Chris Huskilson - President and CEO
Karen, they go out as far as 2017, I believe, in total. I think Greg can look up a schedule here if you want a more precise number. Maybe you want to jump to another question?
Karen Taylor - Analyst
What I wanted to understand was now, Chris, you just said in a previous question that you have got the discounted contracts; and you're now matching that against the amortized cost. Such that the lower, I think it was 20-odd million in lower adjustments for the stranded cost, was going to be largely offset by the recovery on the contracts, right? Such that the effect on earnings would be less than 100,000 U.S. per annum?
Chris Huskilson - President and CEO
That is correct. So the effects on earnings in this year is in that order. The big issue that we have had is, as we have seen issues with large customers in Bangor, originally the way that those contracts had to be changed would be -- so if we actually discounted a price in Bangor for a large customer, the majority of that came against our distribution tariff. Whereas what has been negotiated in this settlement is 80 percent of it will go against the stranded cost tariff. In fact we also have a mechanism whereby we will go back and reset the stranded cost rates to make sure that recovery occurs.
So it is a much, much better approach. We don't see that impact on our distribution side, and we also have the ability to recover it through the stranded cost side. That is the big advantage of what has happened in this last round, coupled with the fact that has only reduced earnings by about $100,000. So all those things comem together to be a very good settlement, we think.
Karen Taylor - Analyst
Okay. Does Greg have those numbers, or do you want me to call back?
Greg Blunden - General Manager Finance
From a balance sheet perspective? There was $150 million or so on the balance sheet for stranded costs. About 20 percent of Bangor Hydro balance sheet.
Karen Taylor - Analyst
20 percent of Bangor Hydro. How much is that per annum in terms of a runoff?
Judy Steele - IR
Karen, probably we will just get back to you with that. Because it is very -- changes a lot annually depending on what is coming off.
Randy Henderson - SVP and CFO
Certainly there is a large chunk the next few years, but we will provide you with some more detail.
Karen Taylor - Analyst
Okay, that's great. Thank you.
Operator
Winfried Fruehauf, National Bank Financial.
Winfried Fruehauf - Analyst
You mentioned that energy marketing contributed about $10 million in 2004. What was the contribution in 2003?
Randy Henderson - SVP and CFO
It's Randy here. I believe it was approximately $4 million.
Winfried Fruehauf - Analyst
What are the comparable numbers for your fuel oil business, 2003 and 2004 net income?
Chris Huskilson - President and CEO
Winfried, in I think last year 2003, I think the fuel oil was just around zero or just slightly negative. The fuel oil business was around $2 million in 2004.
Winfried Fruehauf - Analyst
Okay. Now what you describe as pending transactions, if they do close, which I assume, is it your intent to organize a merchant generating division?
Randy Henderson - SVP and CFO
It is Randy here. No. We will operate these assets with our Energy Services folks being actively involved.
Chris Huskilson - President and CEO
It's Chris. We certainly are going to work to get these assets contracted. We believe that there is great opportunity to do that, especially with the position and the flexibility that these assets have. We know that the people in Vermont would love to have more of this Hydro as part of their complement and as part of their service, and so that is certainly something we will be pursuing.
Winfried Fruehauf - Analyst
Okay. What is the permanent capitalization for the assets that you're currently hoping to acquire, as between debt and equity?
Randy Henderson - SVP and CFO
On the Bellows Falls and Bear Swamp we're anticipating we will put about 50 percent of the value against the project at the project level.
Winfried Fruehauf - Analyst
How will you be generating the new equity? What would be the source of financing?
Randy Henderson - SVP and CFO
At this point in time, as I indicated, we will be able to finance these acquisitions off of our cash flows. So we will not be issuing any new equity to make these acquisitions.
Winfried Fruehauf - Analyst
So in addition to the capital requirements of Nova Scotia Power, you are saying, if I understand you correctly, there is enough room there to also finance these acquisitions?
Randy Henderson - SVP and CFO
Yes.
Winfried Fruehauf - Analyst
Will there be enough -- what would be the income tax rate that we ought to be applying to the income that you will be generating from these pending transactions, if they close?
Randy Henderson - SVP and CFO
I think approximately 40 percent.
Winfried Fruehauf - Analyst
Okay. I did not find -- maybe there was not enough time -- a cash-flow statement for the fourth quarter. I was wondering if that could be provided. (indiscernible) is contained somewhere in the release.
Chris Huskilson - President and CEO
I don't believe we provided quarterly statements in the release.
Greg Blunden - General Manager Finance
We didn't provide it; but if you take the year to date for the 9 months and Q3 that should get you there.
Winfried Fruehauf - Analyst
No; I appreciate that, but for the purposes of a conference call, one should perhaps not do all of these mathematical acrobatics. It is a lot easier if the numbers are there. One can just see them and develop a series of questions.
Judy Steele - IR
Point taken.
Winfried Fruehauf - Analyst
That is all I have. Thank you.
Operator
Andrew Kuske from UBS.
Andrew Kuske - Analyst
I am not sure if Chris, or Randy, you want to answer this one, but if we look ahead over the next 2 years, potentially out to 3, where do you see your cash flow generation, in particular your free cash flow generation? Then just expand on that. How do you see redeploying that? Do you see your preference leaning towards acquisitions as you are trying to close off now? Or really just strengthening your balance sheet?
Randy Henderson - SVP and CFO
It's Randy here. I think first of all we will have enough free cash flow to close the acquisitions that we have currently announced. Obviously I think our results probably show we generated about $40 million of free cash flow after a lot of this acquisition activity this year.
These acquisitions themselves will throw off some cash; modest, but will throw off some cash. So we will continue to follow our strategy of looking for low to moderate risk investment opportunities. I think we have characterized them as singles and doubles in our region. That will be one focus for us in the future, and continue to build our business that way.
To the extent that we ever needed new equity for some purpose, larger acquisition, we know that would be available to us.
Andrew Kuske - Analyst
I guess on that light, what do you see in the Northeast that looks relatively attractive? Especially if one looks at relative valuation between yourselves and other players. Then an add-on question to that, how does Brascan's role fit in, that is really your joint venture partner on your last two acquisitions, with any future acquisitions?
Chris Huskilson - President and CEO
It's Chris. A couple things I guess. First of all. on an ongoing basis I think as we have always said. we are producing about 50 to $75 million in free cash flow. So we see that as being available to us as we move forward.
Again, we think that there are assets out there, whether on the generation side or on the wire side that are available and that we would continue to look to pursue. So that is generally where we are.
As it relates to Brascan, we are really looking forward to working together on these particular investments and making this both operate well and also profitable. We will look down the road after we make that happen, I think.
Andrew Kuske - Analyst
I guess just to follow-up on that, if we could get a bit more color and potential clarity on your involvement with Brascan and the types of assets that you're attempting to purchase and close off. They have clearly got expertise in that field, and they understand that field fairly well.
They clearly don't have fossil expertise. Is that really what you're bringing to the table for potential future acquisitions? My thinking here is just is this step 1 of potentially 3 or 4?
Chris Huskilson - President and CEO
I think we clearly have complementary skills and also skills that are additive. We are quite active in the Northeast and as are they. So we have some of those skills come together and are additive. Yes, we have some other skills that they might not have. So those are all good, I think, for the relationship. But our focus right now is on the things that we have, and on closing those transactions, and on making them profitable.
Andrew Kuske - Analyst
Just one final question if I may. How do you see any power marketing opportunities into New Brunswick? There is some commentary in your release about your power sales, your exports. How do you see that market developing, in particular with the uncertainty around Point Lepreau, and then the Irving proposal to build a nat gas plant in the Province?
Randy Henderson - SVP and CFO
Generally speaking, when I think about exports, the thing that has driven our export sales has been a hot summer in New England. To the extent that there is a hot summer and say a large unit is not available, that is even better. With specific regard to Lepreau, it is not clear how that situation is going to evolve at this point.
Chris Huskilson - President and CEO
It's Chris again, Andrew. I think it's also important to note that we're working hard on that transmission line between Maine and New Brunswick. We think if we can get that pulled together, which we believe it's progressing well at this point, if we can get that pulled together then it really tightens up the market.
It allows for some larger swings in both Maine and in New Brunswick, Nova Scotia. So with that potential, we think the opportunities to deal with the winter-summer difference -- the New England area peaks in the summer; we peak in the winter -- and that just creates that opportunity. If LNG or new gas facilities come together in the region, then that just is much more opportunity for things like that investment in the transmission side.
Andrew Kuske - Analyst
Okay, that's great. Thank you very much.
Operator
Maureen Howe, RBC Capital Markets.
Maureen Howe - Analyst
First, just a bit of a clarification of my previous question with respect to the Maritimes & Northeast. There is a decision on the Phase III for the U.S. portion that is expected in the fourth quarter. If it goes as you filed, or I guess as you hope, what would you expect in terms of incremental earnings from your portion of the Maritimes & Northeast for 2005?
Randy Henderson - SVP and CFO
It's Randy here. The decision would be expected later in the year. What we filed for is a 14.25 percent ROE on a 43.75 equity thickness; and long-term debt at about 6.98 percent. I think the numbers would roughly mean, as it backed into ours, as I recall something between 1 and $2 million per year.
Maureen Howe - Analyst
Incremental?
Randy Henderson - SVP and CFO
Incremental earnings.
Maureen Howe - Analyst
Thank you. Just a more strategic question I guess for Chris, and that is, you've got these projects in New England. Is New England going to be the focus of your potential growth strategy? Is is going to be New England and the Maritimes? Would you look elsewhere? Would you look to Ontario or other areas? Are you going to focus on generation, or will you also look at transmission and distribution?
Chris Huskilson - President and CEO
I think, first of all, our geography as we currently see it is the Maritimes, New England, and New York. Those are the areas where we are focused. And primarily on things that are directly related to the electricity business, generation transmission, distribution, or things that are around the edges of that. You know, the work that we do in Energy Services on the gas side is another example. Potential transportation assets on the gas side.
So those are the things that we are focused on right now. We see lots of opportunity as the last couple of months have shown. We're just going to continue to keep focusing in the area and see if we can produce some more results.
Maureen Howe - Analyst
You have -- presumably if another attractive project came along in 2005, if it made sense, then presumably you would go ahead and finance that. So you would not be tapped out for this year necessarily.
Chris Huskilson - President and CEO
True. I think projects of the same size that we're talking about right now, we could clearly handle. If the projects were larger, then we would seek to go to the equity markets.
Maureen Howe - Analyst
Okay, that's it. Thank you very much.
Operator
Bob Hastings, Canaccord.
Bob Hastings - Analyst
Maureen just picked up most of the ones I was going to ask. But on the project growth, is there anything in terms -- like you have said before, you like to go after singles, not homeruns. What is the maximum size that you would be willing to spend on a project if it was the right asset came along?
Chris Huskilson - President and CEO
It's Chris. It's really not about size. It is about return and ensuring that we have a good profitable acquisition. That is really our focus, is ensuring that we can add shareholder value and continue to grow our overall earnings, so that we can grow our dividend for our investors.
Bob Hastings - Analyst
So if you had to do a large common equity issue to fund it, that would not be an issue either?
Chris Huskilson - President and CEO
I think the way to put it would be that we are focused on making sure that we ahve got a good stream of singles and doubles. If a homerun happens to come along, then certainly we would be happy to go to the markets and finance that.
Bob Hastings - Analyst
Okay. In terms of your comfort level, is there anything that you want to digest the existing acquisitions, before you would be looking at something else? What is the strategy there?
Chris Huskilson - President and CEO
No, I would say that these acquisitions are relatively small from that perspective; so we're just going to continue to move ahead.
Bob Hastings - Analyst
Okay. One clarification question. In your notes you said that the recent acquisitions might add 10 to 14 million U.S. of EBITDA.
Chris Huskilson - President and CEO
That is correct.
Bob Hastings - Analyst
I am just wondering what the range is dependent upon. You have talked -- I'm assuming you talk to Vermont and others. Is that just pure commodity pricing at the time? Or how successful do you see that you can put 50 percent or 75 percent of the annual expected capacity under long-term contracts? What are the metrics there?
Randy Henderson - SVP and CFO
As Chris mentioned we are longer-term obviously interested in contracting these assets. First we need to close the deal, so there's a timing issue about how much of the year we actually have earnings that to come to us. In particular with Bear Swamp, which is a relatively unique type of asset, although we have operated pump storage before, I think we want to see how it operates in the market that it is in. So that is all still to be discovered once we get these closed.
Bob Hastings - Analyst
So the 10 to 14 is mainly based on what percentage gets signed up?
Chris Huskilson - President and CEO
I think that is right. I think we would see it being on the higher end as we start to get some contracts in place; and on the lower end if we are in the shorter-term markets. That is probably where we are right now.
Bob Hastings - Analyst
That is what I was trying to get a feel for. Thank you very much.
Operator
Dominique Barker from Credit Suisse First Boston.
Dominique Barker - Analyst
What do you expect your CapEx for Nova Scotia Power and for Bangor Hydro for next year?
Randy Henderson - SVP and CFO
Just having a look here.
Greg Blunden - General Manager Finance
Nova Scotia Power is about 112 to $115 million. I just want to doublecheck on Bangor.
Randy Henderson - SVP and CFO
It was 25 U.S.
Greg Blunden - General Manager Finance
Bangor was about 25 U.S., I believe.
Dominique Barker - Analyst
So the Bangor does not include the line that you are proposing. the 90 million U.S. line?
Randy Henderson - SVP and CFO
That is correct. We don't see very significant spending next year. We think that will occur mostly in '06 and maybe part of '07, but mostly in '06.
Dominique Barker - Analyst
What about -- just remind me, is the Canso facility -- is that part of '05 CapEx as well?
Randy Henderson - SVP and CFO
It is pretty much fully built at this point. I think the only thing left is the actual crane that has to go on the docks. So that is a relatively small capital left.
Dominique Barker - Analyst
Final question. Where do you see after your refinancing of your debt in May, and I see you've got some revolvers, where do you put your floating? The percent of your debt that is floating or very short-term, I would say within a year or 2? In other words, exposure to rising interest rates/
Randy Henderson - SVP and CFO
I think we're going to stay the course, where we are the moment, and evaluate as time goes on. I have not got any major plans for any change in that regard.
Dominique Barker - Analyst
Does your Board, do you have a policy of 25 percent floating or something like that?
Randy Henderson - SVP and CFO
No, we don't.
Dominique Barker - Analyst
Okay, thanks.
Operator
Winfried Fruehauf, National Bank Financial.
Winfried Fruehauf - Analyst
With respect to the joint venture assets and their expected contribution on an annualized basis, what have you actually budgeted for 2005?
Chris Huskilson - President and CEO
I'm sorry; could you repeat the question again?
Winfried Fruehauf - Analyst
Question with respect to the joiny venture assets, if I may call them that way. What have you actually budgeted in terms of a contribution for 2005?
Randy Henderson - SVP and CFO
As we say we're still trying to close the acquisition. So what we have tried to do is give you a feel for what it will be on annual basis once we have got them fully operating. I think we prefer to leave it at that level at this point.
Winfried Fruehauf - Analyst
So for rough numbers, about half if it closes in midyear. Or is there seasonality in there?
Randy Henderson - SVP and CFO
I guess you're free to calculate as you like. We provided the numbers that we see on a full-year basis.
Winfried Fruehauf - Analyst
But is there seasonality in the earnings?
Chris Huskilson - President and CEO
I would say not particularly.
Winfried Fruehauf - Analyst
Okay. Maybe another question related there to -- no, that's all I needed to know. Thank you.
Operator
Karen Taylor from BMO Nesbitt Burns.
Karen Taylor - Analyst
Given that you're allowed to charge under Maritimes & Northeast for -- on an interim basis, are you accruing those, or are you actually taking them into income?
Greg Blunden - General Manager Finance
At this point, our understanding, Karen, is that they are taken into income on the the U.S. side of the pipeline; and on an equity accounting basis we will have to do the same. But my understanding is that we are not going to really have an issue with that until the end of Q1. So we haven't seen any statements coming out of the pipeline yet in January. But that is our understanding how they are going to treat it from their perspective.
Karen Taylor - Analyst
So they will be taking the 1 to 2 million into income into 2005 on a refund basis.
Randy Henderson - SVP and CFO
That is my understanding.
Karen Taylor - Analyst
You won't know whether you actually have to make any amount of refund until the third quarter, third or fourth quarter?
Randy Henderson - SVP and CFO
That probably the correct timing.
Karen Taylor - Analyst
I beg your pardon?
Randy Henderson - SVP and CFO
That would be the correct timing. Yes.
Karen Taylor - Analyst
Okay, thank you.
Operator
(OPERATOR INSTRUCTIONS) Winfried Fruehauf, National Bank Financial.
Winfried Fruehauf - Analyst
With respect to the joint venture assets versus your regulated assets, could you maybe discuss what sort of a weighted average cost of capital you expect to generate from merchant generation, as compared to say Nova Scotia Power?
Randy Henderson - SVP and CFO
I guess, higher would be the response to that.
Winfried Fruehauf - Analyst
I would think so. That is why I asked the question how much higher?
Randy Henderson - SVP and CFO
I think it is all based on the nature of the asset and what we're looking at, so these particular acquisitions do fit the low to moderate risk characterization. We are expecting to earn a higher weighted average cost of capital on them than we are in Nova Scotia Power.
Winfried Fruehauf - Analyst
But you won't disclose sort of a range, how much higher you expect that will come in
Randy Henderson - SVP and CFO
I don't think we really want to put a range on the table at this point.
Winfried Fruehauf - Analyst
Okay, thank you.
Operator
There are no further questions registered at this time. I would now like to to the meeting back over to Mr. Huskilson.
Chris Huskilson - President and CEO
Thank you very much. Before we sign off I want to thank you all very much for your participation today and for your interest in Emera. I want to leave you with this thought. Emera's electric utilities are the foundation of our business. We will remain sharply focused on running them well for the benefit of our customers and our investors alike.
We will continue to look for solid opportunities for growth in the Northeast of North America, and built on our expertise and electricity generation, transmission, and distribution. I thank you very much. Have a great weekend.
Operator
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation and have a nice day.