Emera Inc (EMA) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Emera second quarter results conference call. Please be advised that this conference is being recorded. I will now like to turn the meeting over to Ms. Judy Steele, Director Investor and External Relations. Please go ahead, Ms. Steele.

Good afternoon, everyone and thank you for participating in our call today. Joining me from Emera are Chris Huskilson, President and Chief Executive Officer; Nancy Tower, Chief Financial Officer; Ralph Tedesco, Chief Operating Officer of Nova Scotia Power; and Ray Robinson, Vice President Integrated Operations and Vice Chairman of Bangor Hydro. Emera's second quarter earnings release financial statements and management's discussion and analysis were distributed earlier in the day via news wire. These documents are also available on our website at www.emera.com.

Today we'll have Chris begin with a corporate update. Nancy will then review the second quarter financial results in more detail. We expect the presentation segment to last about ten minutes. After which we will be happy to take questions from analysts and investors. Please note that all amounts are in Canadian dollars with the exception of Bangor Hydro-Electric where segment reports -- results are reported in U.S. dollars. 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 disseminated via live webcast. And now I'll turn things over to Chris.

Well thank you, Judy, and good afternoon, everyone. First of all, I want to take a moment to welcome Nancy Tower, FCA, as acting Chief Financial Officer of Emera. Nancy and I have worked closely together as part of the executive team at Nova Scotia Power for several years. She first came to our company in a financial role as controller in NSPI in 1997. In addition to her financial qualifications and experience, she has a strong background in operations and was most recently Vice President Customer Operations at NSPI. I'm delighted to have Nancy join our leadership team at Emera and look forward to her contribution.

Emera's consolidated net earnings were $19 million for the second quarter of 2005 compared to 30 million for the same period in '04. Quarterly earnings per share were $0.18 compared to $0.27 in 2004. As anticipated, the results of the second quarter reflect significantly higher fuel costs year-over-year at Nova Scotia Power. Approved rate increases implemented by April 1st of this year are not sufficient to offset these higher costs resulting in the decline in earnings. Fuel costs have continued to rise prompting Nova Scotia Power to file an average 15 percent increase in rates for 2006.

We know rate increases are never popular. And if there was something we could do to avoid this request, we would. The reality is that the 2006 rate appli -- application is critical for our company. So we're doing everything we can to insure a successful outcome. The focus of our application is on fuel and as CEO, I've been very active over the past several weeks talking publicly about the issue to help customers understand the reason we're asking for higher rates. In addition, our regulator made several findings and a -- and directives concerning fuel procurement in its decision in March. We want to demonstrate to our regulator that we're listening and acting on their concerns.

That is why in June we reported on the changes we had made to our fuel approach based on UARB directives. Specifically we've consolidated responsibility for buying fuel with one staff person at Nova Scotia Power. We changed the fuel buying strategy team at Nova Scotia Power to remove any potential or apparent conflict between NSPI and Emera. We're in the process of hiring a fuel procurement manager experienced in international coal markets and finally we're seeking long-term contracts for cleaner, low sulphur coal with multi-year deals signed or un -- currently under negotiation, this complements other long-term deals already in place on other fuel sources such as petroleum coke, local coal, transportation and natural gas. Hearings on the request are scheduled to start on November 14th. We're seeking to have new rates in place at the beginning of 2006. Certainly the application we have this time is less complicated than our 2005 filing which will help with our timing. We're also encouraged by the UARB's decision to introduce an issues list into the process which we believe will focus the discussion on key areas and improve the efficiency and effectiveness of the regulatory process.

With respect to other developments, Emera was pleased to successfully complete our acquisition of the Bear Swamp and Five Brook hydro generating facilities in partnership with Brascan Power. We're executing our plan for these assets including completion of a major overhaul earlier in the year and Bear Swamp Power Company made a modest contribution to earnings in Q2. With respect to other hydro transaction at Bellows Falls we continue to work closely with our partner Brascan Power and the community in Rockingham, Vermont. As you may be aware the town of Rockingham held a second public vote in early July that reversed the town's earlier decision to purchase the Bellows Falls facility and ultimately lease it to Emera - Brascan. While we're disappointed with the latest vote I highlight that the town recently passed a petition for a third vote on August the 22nd. We will be working hard to communicate the benefits of -- of our proposal over the coming weeks in preparation for that vote. With that, I'll turn things over to Nancy for a -- the financial update.

Thank you, Chris, and good afternoon, everyone. First of all, let me say it is a pleasure for me to take on the CFO responsibilities at Emera and to be participating in the call today. As Judy mentioned, our second quarter financial results were released earlier today and are on the Emera website. I'll take a few minutes to review them.

Emera's consolidated net earnings were $19.3 million in the second quarter of 2005 compared to 29.8 million for the same period in 2004. As Chris noted, the 5.3 percent rate increase at Nova Scotia Power on April 1st was not sufficient to offset the higher fuel costs resulting in the decline in quarterly earnings. Earnings per share in the second quarter were $0.18 compared to $0.27 in 2004. Nova Scotia Power's contribution to consolidated net earnings was $13.7 million in the second quarter of 2005 compared to $25 million for the same period in 2004. The quarter-over quarter-change primarily reflects the increased fuel costs. For the balance of 2005 we have approximately 97 percent of fuel costs locked up with physical contracts and hedges. However, it is important to keep in mind that even with a fully hedged position on anticipated changes in fuel supply delivery and plant operations can affect overall fuel costs by several millions of dollars in our business.

For 2006 we have 70 percent of our solid fuel contracted or hedged, 68 percent of heavy fuel oil and 71 percent of our projected natural gas burn secured. Looking forward, as we begin to build our fuel portfolio of multi-year contracts, we have currently secured approximately 35 percent of our 2007 and 20 percent of our 2008 projected solid fuel requirements. The arbitration process for our natural gas contracts continues and I'm sure you can appreciate that we're not able to discuss this process in any detail as it is still under way.

Turning to Bangor Hydro, our U.S. subsidiary's contribution to consolidated net earnings was $1.9 million U.S. in the second quarter of 2005 compared to $2.6 million U.S. in the same period last year. The lower earnings were as a result of higher knee pool related transmission expenses, increased depreciation expense and higher operating maintenance and general expenses resulting from lower capital overhead allocations. Bangor Hydro continues to focus on some growth opportunities within its transmission operation making steady progress with the northeast reliability interconnect project. This past week the Maine Public Utilities Commission granted a certificate of public convenience and necessity s to the transmission line marking a significant milestone for the project.

Other operations, which include corporate costs and businesses outside of our regulated electric utilities, contributed 3.2 million in the second quarter of 2005 compared to 1.3 million for the same period last year. Quarter-over-quarter improvement is largely a result of an adjustment to interest expense of 2.8 million after tax related to the foreign exchange translation and accounting for inter-company accounts. Equity earnings from our investments in the Maritimes and Northeast Pipeline were 1.5 million in Q2 2005, unchanged from Q2 last year. Included in quarterly partnership earnings this year was 0.5 million after tax of deferred write off associated with the u -- with the U.S. pipeline. Consolidated net cash provided by operating activities was 65.9 million in the second of 2005 compared to 92.2 million for the same period in 2004 reflecting higher fuels, NNFPIs and increased working capital. That's it for my financial review. Thank you and I will now -- will now be happy to -- happy to take your questions.

Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question from Linda Ezergailis from TD Newcrest. Please go ahead.

Thank you. I was wondering if you could give us a sense of an update on your JV with Brascan. I know you mentioned later on next month there will be a third vote at Bellows Falls. What -- what will be the action plan to try to swing the vote in favor of an acquisition and are you actively pursuing other acquisitions with Brascan at this point?

Well, this is Ray Robinson. First of all I'll talk to Bellows Falls. Yes, as you are aware now there is a -- another vote on August 22nd and certainly through the -- the feedback we've heard while on the ground and through public town meetings we heard some of the concerns that were on the minds of the local residents and so we are right now in the midst of preparing an enhanced offering to the town that will then be circulated or communicated to -- to the community and we believe that will be significant enough to -- to effectively have dealt with the -- each of the publicly stated concerns and so we're -- we're thinking we're pretty well positioned for a successful vote on August 22nd.

Now I could probably travel down to Bellows Falls and pick up one of those enhanced offerings copies in the town. But maybe you can save me a trip and help me understand the nature and the magnitude of the enhanced offering.

I -- I won't be able to do that for a couple days yet. What we're -- what we're doing is still finalizing it and until we communicate that to the town board or sorry, town select board, and the residents, we'll -- we'll not be able to do that. But within a couple of days we'll -- we'll certainly be able to forward on what that would look like.

Okay. Thank you, Ray. And my -- my other question is just with respect to Nova Scotia Power, I was wondering if you could give us an update on any sort of discussions you might have had with the regulators since you filed your updated fuel procurement action plan and your 2006 rate application? I know it's not in the formal process yet, but has there been any discussions?

Hi, Linda, Ralph Tedesco. Very definitely we have had discussions with our regulator and a variety of other stake holders around the rate filing and I think some of the significant things to bare in mind is the 2006 filing is certainly less complicated than the 2005 filing. 2005 filing was complicated by section 21 tax issue and other things. As well, the efforts that we put forth in -- with stake holders I think it's pretty clear in the community that the -- and across Nova Scotia that the issue is fuel and fuel prices and upward pressure on world commodity prices that is creating the need for this rate filing. Another very positive development is that the regulator is speaking in terms of developing an issues list that I think will bring focus and ho -- and efficiency to the hearings.

Okay. And how your search process -- you're still looking for someone, a senior person in your fuel procurement division, right?

That's correct.

And I would imagine that you're competing with hedge funds and -- and everyone else and their brother, I mean. And -- and -- with all due respect, it might be hard to relocate someone to Nova Scotia. How is that coming along and -- and has the regular been a pr -- regulator -- anyone at the board been apprised of the cost associated with attracting someone like that?

To address the last part, I think folks are aware that attracting this sort of talent will not necessarily be inexpensive but the names and the folks that we've seen coming across have been very positive and as well in the short term, I'm sure you would understand that we can access other expertise through consulting firms and this sort of thing and in fact that's precisely what we're doing on an interim basis and have advised the regulator.

That's wonderful. Thank you very much.

Thank you. The following question is from Maureen How from RBC Capital Markets. Please go ahead.

Thank you very much. In terms of the -- the application -- the rate application for NSPI, you talk about an issues list and I'm wondering if you can just elaborate a little bit on that and tell me perhaps the process that the company and -- and the regulator will go through in -- and how the issues list actually is incorporated into the process?

I think the -- the nature of the issues list will be to, again as I mentioned earlier, hopefully narrow the issues to the very substantive things we need to focus on. Obviously fuel would be one of those. There may be other issues that because of this filing comes so soon on the heels of the previous filing that simply do not need to be rehashed and I think the regulator no doubt is seeking and receiving input not only from Nova Scotia Power but other stake holders and ultimately will decide on the scope of the hearings. But I think this is a very positive development for moving the hearings along.

And in terms of this issue list, you in your filing I know did not request the change in the return on equity and I think most pipelines and utilities in Canada would be very happy not to request a return on equity for 2006 but with respect to your discussions with either the regulator or the customer, what do you think the probability that one of the other stake holders puts on the issue list for return on equity?

I can't speak to what another stake holder would say. But I -- I can tell you that we feel the proposed ROE certainly -- properly reflects the risk of a vertically integrated utility particularly with the current 10-year government bond outlook.

Okay. But the outlook has changed pretty substantially since your last hearing at least as summarized Consensus Economics which is the forecast used in much -- most jurisdictions I realize it's not necessarily used by the UARB.

Yes, and I think again a lot -- some of those changes I think were occurring at the time the decision was rendered and again given the freshness of this ROE we -- we think it's the right number.

Okay and just moving on to the interest expense particularly in terms of the other category, on page 13, the statements made a stronger Canadian dollar on U.S. denominated debt, I think resulted in an FX gain and then on page 25 in the -- in the interest expense note, there is $5.4 million in there for a gain on foreign exchange and I'm wondering if, I don't know, Nancy, or someone could perhaps explain that and -- and I guess in particular explain why it went through in Q2?

On the FX issue, so that would be on the -- in the other category, I think on page 25 you were saying, the foreign ex -- so the -- we had when we were looking at our accounting for U.S. investments we were recording FX translation. The impact of that differently in the Canadian holding company and the U.S. subsidiary. So we actually made a correction for -- for prior periods. In one particular quarter the amount was not material, but we did book the amount in this quarter.

And what was that amount, Nancy.

It was around 2.8 after tax.

2.8 million after tax.

Yes.

Now presumably that 2.8 million is included in the 5.4 on page 25?

Yes, it is.

Okay. Okay. And so the -- the balance -- I realize the 2.8 is an after tax mo -- number, the 5.4 wouldn't be an after tax number, so I guess there's small balance just elsewhere?

Yes. Yes, that is indeed a -- a pre-tax number.

Okay. Okay. And then just one other question on page 7 there's a discussion about the nation -- natural gas supply contract and -- and stating that there's a clause whereby the arbitration process has triggered a price adjustment covering the next three year period of natural gas purchases and -- and excuse me, I guess I'm just a little _I'm just a little confused by this. The reopener on November 1st for 2004 in terms of the price of natural gas for what period was that for?

The first period would have ended November of last year.

Right. So the reopener was November 1st, 2004.

That's right. And so --

And then for what subsequent period?

It'd be three additional years. So --

Okay.

Yes, three-year periods.

So the noted on page 7 is -- is -- I -- is that another period or are we talking about the same period?

It's -- it's the -- it's the same period. So there's two -- two adjustments being made which can't be netted which is why it was explained them in -- in two different ways. So one is the way that we're booking -- booking the fuel expense. The first one talks to the way we're booking the fuel expense and the amount that we think we will pay when the contract is finally resolved. In the second paragraph there is a specific portion of the -- of the contract, the specific portion of the gas, that is at a particular price and so that is being booked as well and the offsetting amount is in the accounts receivable. So there is no write of offset on those two amounts which is why we explain it in two paragraphs. I -- I think the -- to summarize, we are booking the -- the gas in -- in all of the entries at the ex -- the price we expect to pay in the future.

And can you tell me the volumes of gas under each portion of the contract?

One of the things I -- we would like to avoid and in fact because of confidentiality agreements we have with Shell is probably to avoid sharing that information and I'm sure you can also appreciate that it could be actually pres -- prejudicial to our position to discuss pricing or volumes.

Okay. So is it correct to say, though, that the entire amount and I think it is about 60 million cubic feet a day correct me if I'm wrong, the entire amount is essentially reopened?

Again, I'm going to pass on answering that question given the nature of the arbitration. The current contract I can tell you has a -- a one-third fixed price component and -- and then a -- a two-third market price component.

Okay. And then one last question, I'm sorry, I did have one other question and that's in Bangor, it looks like the -- the revenue for megawatt hour has dropped about 17 percent or $13 U.S. per megawatt hour. What -- what is causing that significant decline in -- in the revenue on a per unit basis?

Well, one, excuse me, one significant thing that happened this year was a -- a resetting of our stranded cost rates so through -- so through that it was about a 37 percent decrease in stan -- stranded cost rates. That would -- that would be --

Is that the majority of it then?

Yes.

Yes.

Okay. Thank you very much.

Thank you. The following question is from Bob Hastings from Canaccord. Please go ahead.

Yes. Thank you. I noticed originally in your regulatory filing that talking about last year as your -- your fuel cost was expected to be about 18 million higher than what was allowed and then you put a ride on there and saying it be another 13 so for a total of 31 million. In your statements today you're saying that you expect fuel costs to be 41 million higher than what was allowed in -- in the rates and I guess what I am wondering is has fuel costs ri -- risen up is this partly the -- what appears to be hedging the losses in fuel or what's the story there?

There are two key components, as you can appreciate with our fuel portfolio there are a lot of moving parts, but the two key components would be reductions in deliveries of gas that we would otherwise be selling for profit and the second component would be upward pressure on commodity prices particularly heavy fuel oil.

And was there anything to do with the hedging because there's a -- a note there on your or -- comments on your hedging losses in fuel. that's -- it's 8 million year-to-date.

No, I don't think that would be a significant factor, no, no sig -- substantive movement there as a result of hedging or losses or gains.

Okay. And the -- the electric sales if I look at the volumes in the second quarter, the category other dropped quite significantly in the second quarter seems to be flat in the first quarter and of course revenues were down and -- and therefore revenues were up in total only about 4.5 percent versus something, you would expect higher given a 5.5 percent rate increase and some volume increase. So, what -- what happened there and is that a -- is than an ongoing thing or is it just this quarter?

Difficult to say whether ongoing or not. What I -- what I would suggest is that while the through put change, the actual dollars did not change that significantly. In other words we would have seen sales revenue for other of about -- year-to-date of about $21 million versus, I'm sorry, $19 million versus 21 last year.

Stat one -- sales revenues for second quarter looks like for that component was down 2.2 million, right?

Yes.

Okay. Okay, so that's -- anyway. And then last question, then, is -- is for your rate filing last time you had asked it went settlement route and almost got it there other than the issue of fuel costs is that the reason you've decided not to try settlement this time?

Well, I'm not sure this time around we've -- we've simply filed and certainly the -- there is whether or not folks would be willing to discuss a settlement we don't know but certainly I think our posture would be that other folks would have to recommend that.

And nobody's -- nobody's leap being forward on that?

Oh, I thinks it's way -- very early in the game. The hearings are not until November.

Okay. So right -- that might -- that might be a possibility?

I wouldn't rule it in or out.

Okay. Thank you very much.

Thank you. The following question's from Dominique Barker from Credit Suisse Bir -- First Boston. Please go ahead.

Great. Good afternoon. I wanted to ask, page 13 you talk about a pending acquisition of another hydro facility. Is that Bellows Falls?

Yes.

Okay. And with respect to either acquisitions of other hydro facilities or for example if the transmission proposal goes ahead, how do you expect to finance that?

We;; as far as financing of the -- of the transmission proposal as an example, we would see ourselves probably in a private placement situation in the U.S. In fact, if you look at Bangor right now we've -- we have been accumulating some equity and so in -- in all likelihood that'll be the approach.

Okay. And with respect to acquisitions?

On the acquisition front that would certainly depend on v-- on where we were at the time. Certainly right now we're focused primarily on making sure that we get our cash flows in -- in line as -- as you can imagine, making sure we're focused on the Nova Scotia Power situation is where we are today.

Okay. Okay. And I wanted to just switch gears on your O&M expenses. They rose at Nova Scotia Power. I wanted to know if that -- if they're going to continue to go at the same run rate?

No, they will not and the increase that you're seeing is a result of some severe storm damage that we experienced earlier in the year.

Okay. And what about Bangor Hydro?

Similarly at Bangor Hydro it would be a reduced per month expenditure moving forward. There was a delay in implementing the automated meter reading project and as a result we were -- it was the employees that were going to be ba -- basically eliminated it was a -- it was a later elimination of the employees but those -- those employees reductions or adjustments have been made now.

Okay. And -- and just with Bangor Hydro, last quarter you talked about this, an allocation to a capital program on previous O&M and as well and so I'm just wondering would that have been -- are you putting the offset of your decrease in expense to your balance sheet? I guess I'm asking are you going debit asset credit expenses?

Yes, that's how the over head allocation works.

Okay. Is it -- so is there a risk of a write down going forward? I mean, I think some of it was disallowed in the past.

No, these are standardized calculations that are approved by the main public utilities commission as the right rates for -- for overheads for capital work and so it is something that is routine issue with -- with utilities both in -- in Canada and the U.S.

Okay.

Well, Dominique, it's Judy, to be clear we're capitalizing less not more. Right.

Well, you are now but I guess I'm wondering if in the past your O&M expenses were lower. They appeared lower than they -- than they may have been in cash terms?

Well, no, I think we -- we would have had a very similar kind of capital program in Bangor over a number of years and so what's really happened this time is there's a bitted of a timing issue with some of the capital at this point and so that you see that ti -- that timing issue will work its way out by year end. But I think there - there has been no change in the way that Bangor capitalizes its overheads and it is a standard approach approved by the Maine Public Utilities Commission.

Okay. Okay. And sorry, I have just more questions. Bear Swamp, I wanted to ask with -- with respect going -- going forward with Brascan, it -- is it -- how -- how should we be -- how -- how are the earnings going to be driven on that? Is it contracted and if it's more like a spot or merchant are you competing with Brascan in the market in blind bidding?

Well, first of all, in the short term it will be a merchant in the -- in the market and we've contracted Brascan Energy Marketing to -- to actually market that exclusively so Brascan is responsible for that activity. We are however working together to try to get some contracts in place and we've made several bids so far and we're encouraged by what we see in the marketplace. So over time it would be our objective to get that asset to have much more -- a higher percentage of contracts.

So do you pay Brascan a management fee?

The -- the joint venture does, yes.

Okay. And one last question. The Nancy Tower's role as acting CFO. Does that mean that it's temporary or I'm just wondering about the word acting?

Well, it's just we were in transition and -- and wanted to make sure that -- that -- that someone was in the seat and so Nancy has taken on that roll in an acting way at this point and we'll see what the future brings.

Okay. Thank you very much.

Thank you. The following question is from Sam Kanes from Scotia Capital. Please go ahead.

Thank you. Just extend down one layer of detail on that Bear Swamp asset. What is the seasonality of that asset look like to you if you had to kind of framework its expected contribution to you next year?

I think, Sam, it's Chris, it is -- it is somewhat seasonal. Certainly the spring and fall seasons will be -- will be weaker seasons, the summer and winter seasons will be much stronger just because it is primarily a differential -- a differential approach that it -- it takes. It's taking in back shift energy and -- and providing day shift energy and so it -- it clearly is going to be somewhat seasonal. But as well as we start to -- as -- as part -- as various participants in the market see the value of this asset we would think there will be contracting opportunities that might make it more stable than -- than that seasonal approach.

So it's winter, summer, on peak off peak spreads.

That's certainly the way it works, yes.

Okay. And just to question because it's been quiet topic the last little while maybe there's nothing much to say. Your -- your constructed coal terminal you had mused over owning, selling, leasing some or all of that asset. Ha -- have your thoughts changed there or has nothing changed since I guess six months ago when that topic came up?

Okay. We are -- we are still exploring that as a possibility. The -- the bids that we have received for it thus far suggest to us we built it at a good price in addition we're receiving good value for it right now in terms of our fuel costs as well as transportation costs.

And is that 100 percent within NSPI or 100 percent outside or some blend be -- in between?

It's NSPI currently but not in rate base at present.

Within NSPI but not NSPI's rate base.

Correct.

Okay. Thank you.

Thank you. The following question is from Karen Taylor from BMO Nesbitt Burns. Please go ahead.

Thanks. I just have a quick follow up question. Nancy, at the end of your remarks you made mention of a $0.5 million something or other and I wasn't writing fast enough to catch it. Can you just elaborate what that was again?

It was 0.5 million after tax of deferred write-offs associated with the U.S. pipeline, Maritimes and Northeast costs. These were costs.

Okay. And that was tine in in Q2?

Yes.

And -- I'm sorry, deferred development costs?

It was -- it was costs associated with the explore of the pipeline on the U.S. side.

I'm sorry, costs associated with the what on the pipeline on the U.S. side.

The -- the -- what the -- what the pipeline has referred to as Phase IV costs.

Okay. Sorry, Phase IV. I just --

No, sorry.

No. That's okay.

And -- and it's primarily related to the initial approach, the pipeline had taken to the Deep Panuke project.

Okay.

And as that project slowed down we've -- we've carried those costs. Ultimately it may well be that those costs come -- are able to be recovered again and it's something we'll see over time based on the work that's happening now with L &G.

So absent this one time charge the contribution would have been about 2 million after tax for the quarter?

That -- that's correct.

And I just want to clarify as well that the amount that you're accruing includes the settlement in nego -- negotiated on the pipeline as it relates to the expansion so that the run rate per quarter including the settlement is about 2 million, is that right?

Yes, I think it -- what --- it -- what we have there is Maritimes best estimate of what the settlement will look like. We're sti -- it's still uncertain situation and we -- it is not completed yet. But yes, it is -- it is where Maritime's believes it should be.

But I wanted to make sure that it is in the numbers because they look flat on a year-over-year basis.

That -- that is correct, it is in the numbers.

Okay. Can I just ask my actual questions now?

I think it, Kar -- Karen it's probably important to note that we are seeing some declines in the delivery from the offshore and that's really what's driving the situation right now.

Oh, no, we were quite aware of that and -- but we were also seeing that you got two new contracts with the L&G folks out there for potential through put to offset that I'm assuming..

Exactly, and those are very encouraging to us.

Yes. Can I just come back to some of the regulatory process? First of all, the fuel taxes that because fuel costs are higher in 2005 than are allowed in the actual 2005 decision, you're collecting tax. Has the UARB decided, determined that that is something for the shareholder keep in '05?

We've filed and the UARB has agreed that we are entitled to recovery of the taxes that have been deferred in the period from January 1st through March 31st.

No, I'm talking about the taxes that result from the implied fuel costs allowed by the URB in 2005 which are in fact significantly lower than allowed.

Well, I think -- I think where we are right now is we've made that application before the regulator. What they've come back and told us is that they'll make the decision after the end of the year and so we're -- it's a -- it's a pending question that -- that we've applied in the same way that you've just mentioned and we're looking for a decision which we won't see until January probably.

Okay. The Bear Swamp when you say it's a 300,000 contribution, is that net of financing costs? Include in the allocated costs for the equity portion of that investment?

Yes.

It's after tax operating only.

But bef -- okay.

But before financing costs.

It -- it's a very short period of operation.

No. I understand. I just want to make sure I understand what that number is. And it's before financing costs. Can you just talk to me about the timing of this -- this hearing? I mean, you made a -- an application in early July we're not going to have a hearing for -- until November. Has the UARB said that unequivocally rates will apply from January 1st of 2006.

No, there's been nothing to that effect.

So the board has set up a process that doesn't get us into the hearing or until mid-November, fact that they've appointed a consumer advocate suggests that this is going to be a rather contentious hearing even if the issues are somewhat simpler than they were last year and they're not guaranteeing share holders that whatever it is that they decide will apply from January 1st onward?

Well, if you go whack to the previous hearing again it was a -- a more complicated hearing with many more issues and as well you may recall that there was a consumer advocate introduced into that hearing. So it is not a a -- new concept and I don't see that as creating delay. Indeed I would suggest it may actually help move things along. And that coupled with the development of an issues list I think are again positive developments.

So are you reasonably confident we will get a decision either in late 2005 or early enough in 2006 that shareholders by definition will not be subsidizing customer rates due to a -- a late decision.

It's -- it's obviously impossible for us to guarantee that. What we have done, however, is to communicate to the regulator, clearly, our financial situation, our cash flow situation and the volume of dollars that move when a decision is delayed.

And what was their response?

Well, I think they were certainly receptive to -- to that discussion. But again I can't speak for the regulators. I'm sure you can appreciate.

Do they understand the consequences of a potential down grade by S&P to triple B minus if co -- if costs are not flown through, those that are perpudent -- prudently incurred?

I -- I can tell you that as part of our filing we have put that information forward for all to -- stake holders to see and -- and obviously that would include the regulator.

And have you had any indication at all that the filings because we always file this stuff in -- it may or may not resonate with anybody. Has -- have you got any sense whatsoever that what was filed resonates with anybody?

Well, as -- as we look at the certainly the media coverage and the feedback from stake holders, it would seem to us that Nova Scotians are aware that fuel prices are higher, that -- that this is putting pressure on our prices, and while it is of concern to us, in terms of the price increase to our customers, it is really something that we do not control. As I'm sure -- the international commodity markets are moving up and Nova Scotia Power like utilities throughout North America and around the globe are being affected by these run up in commodity prices.

So -- okay -- well maybe I'll just leave it at that.

Karen, it's Judy. We would also be kind of explicitly helping people understand the consequences, the developments in the bond ratings and -- and to foreshadow consequences and make sure that people who -- to whom that information is important appreciate the significance.

Well I guess what I'm trying to ask is whether or not the UARB is taking a broad definition of public interest. And public interest simply does not mean that customer rates stay low. It has to ensure you've got a healthy public utility, which a triple B minus rating at S&P does not imply, and it also implies that the shareholder using a fair return standard gets some degree of a fair return on capital which is not where we're looking at 2 -- for 2005 and so the broad public interest certainly means certain things and we're looking for it to be broadly interpreted and applied by the board for 2006 and we have concern that it won't be in terms of the timing and the quality of the ultimate de -- decision obviously. So we're trying to get a feel for whether or not the UARB is broadly defining the public interest the way it's supposed to.

Again, I can't speak for the UARB. But I believe that indeed they -- that this sort of thing needs to be and will be carefully considered as part of these proceedings. And in the conversations that we've -- that I eluded to a moment ago, I think there is recognition of -- of the Company's cash flow and future needs and the importance of this particular filing.

Okay. Thanks very much.

Thank you. The following question is from Matthew Akman from CIBC World Markets. Please go ahead.

Thank you. I'm just wondering if we could explore for a second the dynamics of the Bellows Falls transaction and I'm wondering if you're going to sweeten the offer to some extent? What has changed in order for you to justify that? Is it your outlook on the assets, on the commodity market there? Some of the rules in the market or would you just take less accretion from that transaction?

I -- I think it's fair to say it might be a combination of -- of the two. Certainly as I mentioned before we -- we think we've heard clearly where some of the issues in the community are and without having to offer -- offer up any more in -- in any material way, it's how we redistribute what we were offering to make it more meaningful to the community and there -- there might also be some -- some additional monetarily as well. But I -- I can't go into any more detail than that.

Maybe I could just ask on -- on acquisition criteria. Chris, I think in the past you said that acquisitions would have to be accretive to earnings per share near term. Is that something that you still stand by on this transaction?

Absolutely, Matthew, and -- and in fact unless we can see some improvement in the market or whatever, then -- then it's critically important that this -- this investment work for us and so you -- you've articulated the terms very clearly.

Okay. Thanks. Maybe I can move onto another topic and this is a big picture question, but I think it's important and it relates to your dividend policy. And I'm not sure who it's for. Maybe it is for Chris again, but earnings could well be -- normalized earnings could well be below the dividend for some time running or maybe even at and around the dividend level. Is it appropriate to maintain that kind of payout ratio and I guess how long would you tolerate that kind of payout ratio before you think that it's -- that's it's inappropriate?

I think first and for most I think that's an assumption we're not -- we're not ready to make at this stage and -- and so from our perspective we're absolutely committed to our dividend. We know that that's why our shareholders buy our stock and -- and we'll stay committed to that dividend.

So your -- your payout ratio is going to be based more on really your availability of cash to pay it and not so much a target payout ratio of earnings?

Well I think first of all we -- let's -- let's not assume that we're going to have a poor outcome in -- in 2006. I think that's the first place. And we'll -- we'll work our way through that. We've been working extremely hard here in this market to make sure that customers and stake holders and the regulator themselves understand the circumstances that the company finds itself in and we're -- we're going to work -- do everything we can to make sure that we have a successful outcome and that's -- that's the approach we're taking. We believe that -- that that's where we'll be.

Okay, thanks. Those are all my questions.

Thank you. The following question is from Winfried Fruehauf from National Bank Financial. Please go ahead.

Thank you and good afternoon. First question relates to Bear Swamp. The contribution of $300,000 to after tax earnings in the second quarter would that be offset totally on more than offset by the associated financing costs on an after tax basis? And -- and by the way, what are they?

I don't -- I don't have that number right here.

We can follow up with you.

Winfried we can -- we can follow up with you.

All right.

But I think it would -- it would be fair to say that -- that that was a -- a partial -- a very partial part of the quarter and the -- and the plant had gone through a -- a major out -- outage during that same time so it's not indicative of where the unit is going to be. And if you look at from a seasonal perspective and -- and Sam had asked that question earlier, you'd find that the season that we just came out of, the Q2 time, is the weakest period that the -- that the plant will see.

Okay. So I assume from your answer that because of all of these reasons on a net net basis the contribution would have been negative from Bear Swamp for the quarter and we have to establish by how much?

Flat might be a better subscription. But we can get you the exact amount.

Okay. And you mentioned that -- that suggestions for contracting a portion of the output of Bear Swamp seems to resonate more positively now than some time ago. Is this not another way of saying that customers expect prices to go up so they're willing to lock in a price where as previously they expected prices to be flat or -- or down? And so they re -- resisted contracting?

Well, I think -- I think you make an assumption about how you might contract the facility first of all and I think -- I think a couple of things are true. First of all, we've -- we've put forward a business case for the -- for the asset which I think we've communicated at least on an EBITDA basis. We believe that what we're seeing in the market right now continues to support that business case and -- and we're quite en -- encouraged and excited about what we see. The other thing is that we've also started to see some interest in the asset by customers and -- and the reason is because it has a special nature to it and it's what we might call a super peaking product and there does seem to be enough volatility in the New England market right now that that super peaking product may well be something attractive. So I wouldn't necessarily assume it is just about price. It may be more about the service that the -- the facility can provide to customers.

Yes, but even if it is a super peaking product, the issue is still do you want to have an exposure if markets improve or do you want to log in and fogo a portion of that improvement?

Well, I think to some extent that's true. But in this case it's more about the differential between off peak and peak prices and -- and especially the -- the highest peak time.

Now, assuming your revised offer will be accepted by the residents of Bellows Falls, would Bellows Falls still meet your criterion of being near term earnings positive net net?

I think that that's the criteria that we would use in -- in order to make an offer in the first place and -- and so, yes you can be assured of that.

Okay. Now, with respect to the category of other, would you please provide for each of the components that are shown on page 11, the after tax contribution to the second quarter earnings?

No, Win, we're not going to get into that level of detail. Other has a contribution of $0.03 and so we don't want to wind up providing segmented disclosure our on a sum that would be less than a penny.

Okay. Now, with respect to the $2.8 million of after tax foreign exchange gain, to what period does that amount pertain?

It -- it goes back to 2003. As far as back as 2003. And through to 2005.

Okay. And with respect to Maritimes Northeast, the $300,000 after tax of expense deferred charge, what period does that relate to?

I think that's in the 2003ish time frame as well. It was back when the Deep Panuke project was -- was going strong.

Okay. And my math is always suspect, but if I just take the operational expenses for Bangor Hydro reduce operating and maintenance plus electricity and fuel for generation, we have seen an increase of about 8.3 percent year-over-year in the second quarter. You mention various reasons as to why this number is so high compared to fairly modest revenue increases of 5.8 percent, I believe, so what would have been sort of a reasonable run rate for the second quarter of these two expense items?

Are -- are you talking about the last -- or the first two quarters of '05 now?

Yes, I'm talking about the second quarter 2005 and the first six months and I'm referring to purchased electricity and fuel for generation and operating maintenance and general expenses.

Okay. So, I'll start with operating and maintenance and I think if you were look at previ -- previous years net O&M it will be equal to or -- or less than that moving forward. If -- if you look at other adjustments relate -- or other increased costs related to knee pool or transmission related, those are things that will have been captured in the -- in the rate adjustments or adjustments in the transmission rate and effective, I think it was July 1st. It's a 10 to 12 percent rate increase in transition rates. So, those are recovered and that's a -- that's a regulatory lag.

And I think it -- it's important especially on the transmission side with -- with the fact -- withe the way that the FERQ sets rates and some continued working out in the markets in New England, as -- as some more infrastructure gets if place in New England those -- those things should get more stable. This particular increase is related to voltage support in the Boston area at this point in time as part of the -- the costs that are -- are standardized across the entire region and so there's a lag to that. But we will get that -- those costs back. Fundamentally, when we look at that investment it certainly is a investment that with stranded costs going away is in it's current state shrinking a bit. That's why we're looking at things like the northeast reliability interconnect to -- to begin to grow that business and we think that that -- that particular investment is a good one for Bangor and one that will start to pay dividends as we -- as we begin construction which as -- as things have proceeded from a permanent perspective we hope will -- will begin either late this year or early next.

And with respect to operating maintenance and general expenses at Bangor Hydro, if the installation of automatic re -- meter reading had not been delayed, what would have been the second quarter expenses in this category?

Just related to that, it's the equivalent about a half of dozen employees. So, you -- you can make an estimate from there.

Okay. So that's not a major item that still would leave us with a significant percentage rate of escalation year-over-year. And is -- is

What -- I think what you're seeing is -- is the net OM&G whi -- which again is compacted by what we talked about earlier is the overheads that are capitalized and when you're in a period of lesser capital program a greater portion of it is borne directly in your O&M account and that's what you will have seen in the first half of this year. And as we've talked about again with the NRI, or northeast reliability interconnect project, with that I intended to ramp up later this year and early next year that is going to increase our capital program thus netting out a lower OM -- O&M cost.

I see. And with respect to the -- the implied income tax rate for Bangor Hydro, which seems to have been about 34.5 percent in the last quarter versus 40.9 percent a year ago, why did that rate fall?

Win, it's -- on a quarter-by-quarter basis those numbers can move around a little bit. Doesn't take much to throw that percentage off. I think on an annualized basis still somewhere between 35 and 40 percent would be the right tax rate there.

And for Emera as a whole, sort of a run rate say 2006, 2007.

Sorry, a tax rate.

Yes.

Again, somewhere between 30 -- somewhere around 35 percent. I think which is consistent with what we've said before.

Okay. That's all I have so for that item which refinancing costs relating to Bear Swamp which we take off line.

Yes. Fine. Thank you.

Thank you.

Thank you.

Thank you. The following question is from Andrew Kuske from UBS. Please go ahead.

Thank you. Good afternoon. I can appreciate the lack of regulatory clarity you have at NSPI. But if we look in the capital market today, and in particular the ITC IPO that was just done yesterday for an electricity transmission company, have you contemplated really surfacing value from NSPI's assets by monetizing some of the assets in particular the transmission by way of an income fund or private equity sale?

wi -- I think it's fair to say we're always looking at a variety of options at great value for the she -- for our shareholders. Our immediate focus right now is success -- a successful outcome in our filing.

And Andrew, I think, it's Chris, I think we really need to be focused on -- on getting Nova Scotia Power in the right situation with its regulator. That's -- that's clearly the most important work for us to be doing right now. We're very much focused on that and -- and that -- that'll be what we'll be doing over the next number of months.

But it'd be fair to say once you get some regulatory clarity that you might contemplate some potential asset monezi -- monetizations?

It is always our job to make sure we're looking out for the shareholder.

And than just a -- one follow up in -- in a somewhat related fashion. Assuming that the energy bill does pass later this week, do you see any implications really with the repealed PUCA for you in the northeast?

Well I think ultimately de -- depending on -- on where we totally settle out with that, it certainly could reduce our cost a little bit. I mean, certainly it -- it does cost to be engaged in -- in the regulatory process that we have, and ult -- ultimately will open the market up quite a bit and that should bring value to the market.

Value in what sense?

Well value in that ultimately there'll be less restrictions on who can -- who can work in that market and therefore any assets in the market should be more valuable.

Okay. That's great. Thank you.

Thank you. The following question is from Maureen Howe from RBC Capital Markets. Please go ahead.

Thank you very much. I j ust have a -- a quick follow up question and it has to do with Bangor. In the MD&A you do talk about hoping to offset the -- the rate decline by reductions in -- in costs and -- and higher sales and I'm just wondering if you can get us -- give us a sense on your ability to do that and -- and perhaps an outlook for -- for Bangor in terms of the earnings contribution?

Well, I'll start. First -- first of all, there are still modest opportunities for reductions in costs but we are exploring other opportunities to -- to grow the revenue line as well and that may be taking advantage of not only the technology that we just installed, the automated meter reading technology, but also end use technologies as well. So that -- that's an area of focus as well.

So -- so -- are -- do you have confidence, then, that you'll be able to maintain the earnings contribution from Bangor going forward?

I -- I would say yes and in fact over time as -- as the -- this transmission line project comes on that's actually going to enhance current -- current levels of earnings. So this is the sorted of a -- a lull in -- in -- in what you would have seen for earnings in like I say with the expansion hopefully growing the revenue line by end use but also with additional transmission assets, that will -- that will certainly help -- help greatly.

And can you just remind me in terms of the transmission pro -- project the -- the time line going forward from this point?

It's -- we -- we are expecting, assuming successful outcome of obtaining pernit -- permits, we should as you you'd have heard Nancy say that last week we received the certificate from the MPUC. We do expect a permit from the Maine Department of Environmental Protection within the next month or so which is another very major milestone and -- and to date that's a very positive outcome where the -- the Board of Environmental Protection has declined to take jurisdiction which means the staff at the department are -- are managing that -- that permit or that approval process. And finally the -- the federal -- presidential permit from the Department of -- of Energy is expected towards the end of this year as well. That will give really green lights to begin the construction phase on it and it's likely to be about a -- about a two year project -- between one-and-a-half to two-year project in -- in the construction phase.

During the construction phase so two-year project and will you be booking AFUDC on that project?

That's correct.

Okay. Thank you very much.

Thank you. The following question is from Bob Hastings from Canaccord. Please go ahead.

Yes, thank you. Just a couple of quick clarifications. One is the FX gain that Maureen originally talked about the $5.4 million. Do you -- what is the tax rate we should be applying against that because I know there's some -- some of the assets are at different tax rate depending on where it came through?

38 percent.

38 percent. On that full 5.4.

Yes.

Okay. And there is -- and -- and Chris you made a statement that you didn't -- or comment that you didn't agree with the assumption that maybe earnings would be at or below the dividend level. And the clarification I wondered was that are you -- were you referring to 2005 and/or 6?

Well I think the question was about 2006 and -- and so that's what I'd be referring to.

Okay. Any comments on 2005?

Well, I think our forecasts for 2005 continues to be as we've put it forward and so it will be above the dividend level.

Okay. I just wanted to clarify that with the increased fuel costs. And there's -- in terms of the senior management change that occurred recently, are those costs all in this quarter or is it -- will they be coming in later?

I think they're in -- they'll be in next quarter.

In the next quarter? Okay. And last one is the -- there's been no changes to the act governing the UARB?

No, there has not.

So there -- they still have to allow prudent costs and -- and give you an appropriate rate of return which they can fool around with a bit but there's no change, is there?

No, there's absolutely no change to the act.

I didn't think so. Okay. Thank you very much.

Thank you.

Thank you. The next question is from Dominique Barker from Credit Suisse First Boston. Please go ahead.

Hi. Just a point of clarification and a couple of other questions. On the Canfield facility, I think you'd mentioned that i'ts not in rate base. Is that a permanent decision or it's not currently in rate base and it may go into rate base?

It's not currently in rate base and may go into rate base. Is there any -- what is driving the decision? Does it depend on third party customers or does it depend on the regulator? Well we're looking at a variety of factors right now. For sure we think the facility provides value to customers and is providing value to share holders as well. And as was mentioned earlier one of the options we're exploring is the sale of that facility and it's really that sale that we're trying to balance off against rate base but we would feel fine with putting it in rate base. Conversely, if we get a -- an offer that is attractive to us we would be comfortable with selling that facility and taking back an operating agreement.

And Dominique, I think it's -- it's Chris, it's important to note that the facility hasn't even unloaded its first bulk vessel yet. We just got the -- got the crane on the dock in June and it's been operating in -- in a temporary mode from the first of the year so it's still very, very early in that facilities life.

Have you secured contracts with third party customers?

Not as yet but that's part of some of the work that we're doing collectively with Savage. And again, Savage services has just begun their work and has just begun their marketing approach.

Okay. I also wanted to ask are -- are you seeing a decline in freight rates globally on your -- on your -- with respect to your coal shipments?

Freight rates have come off a little bit and further the fact that we do have the marine terminal is helping us even further.

Okay. And one last question. You may -- I'm not sure if this is -- if you even have -- if you've thought about this. I think Nova Scotia has an energy act that they're putting out in the fall. Do you expect any impact from that either positive or negative? And maybe you're not even really contemplated in it at all.

Well, I -- I think first of all the only thing that -- that we would see at this point is there -- there are some of the various aspects of the electricity market governance committee that wouldn't have been brought forward yet. And so there may be some of the those attributes. But we would see that as being a continued to align directly to the strategy that Nova Scotia government put out in 2001.

Okay. That's great. Thank you very much.

Thank you. The following question is from Winfried Fruehauf from National Bank Financial. Please go ahead.

Thank you. I'm not asking for an ac -- actual number but your fuel oil sales division on a net net basis including financing costs was that earnings positive in the second quarter or break even or -- or did it lose money?

Slightly positive is how we would characterize that, Win.

On a net net basis.

Yes.

Okay. Thanks very much.

Thank you. Once again please press star 1 at this time if you have a question. The following question is from Linda Ezergailis from TD Newcrest. Please go ahead.

Thank you. I was wondering if you can give us a little bit more color on the northeast relia -- reliability interconnect project it sounds like construction would begin at the earliest early next year and last for up to two years. Is the capital expenditures still estimated at U.S. 90 million and if so, what would be the distribution of incurring those costs over that time period and if it's a different cost estimate maybe you can give us a sense of what that is?

Yes, the -- the cost estimate still is the ni -- $90 million plus about a $10 million contingency and -- and basically the -- the -- we are -- we are hopeful that we can break ground this year but the expenditures this year would be -- this year would be relatively modest. I'd -- I'd say another -- I wouldn't -- I wouldn't say any more than $10 million but then the -- the balance would be split fairly evenly between '06 and '07.

Okay. Great. Thank you.

Thank you. There are no further questions we display at this time. I would now like to turn the meeting back over to you, Mr. Huskilson.

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. And I want to leave you with this thought: Our utilities are the foundation of Emera. NSPI is working through a challenging period and taking steps to address these challenges. The interests of our customers and share holders are the same. A strong electric utility that contributes to the economic strength of our region. I'd like to thank you very much and I hope you have a great day.

Thank you. The conference is now ended. Please disconnect your lines at this time. We thank you for your par -- participation and have a great day.