Emera Inc (EMA) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Emera 4th Quarter Results Conference Call. Please be advised this conference is being recorded.

I would now like to turn the meeting over to Ms. Judy Steele, Director Investor and External Relations. Please go ahead, Ms. Steele.

[missing audio] Ralph Tedesco, Chief Operating Officer of Nova Scotia Power, Rob Bennett – President and Chief Operating Officer of Bangor Hydro, and Jim Connors – Vice President Regulatory Affairs.

Emera’s year-end and Q4 earnings release, financial statements and management’s discussion and analysis were distributed earlier this morning via NewsWire. Those 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 4th quarter and year-end financial results in more detail. We express the presentation segment to last about 15 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, where segment results are recorded in US 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.

Now, I’ll turn things over to Chris.

Thank you, Judy – and good morning.

Emera’s consolidated net earnings were $38 million for the 4th quarter of 2005, compared to 31 million for the same period in 2004. Quarterly basic earnings-per-share were 34 cents, compared to 30 cents last year.

The quarterly earnings primarily reflect NSPI’s renegotiation of its natural gas supply contract in late November, at better-than-forecast pricing. That resulted in a $15 million after-tax adjustment to fuel expense for the year – all of which was recorded in Q4.

For the full-year 2005, Emera earned $121 million, with earnings-per-share of $1.11, compared to just under 130 million, and $1.20 for last year.

Nova Scotia Power contributed $91 million to consolidated earnings in 2005, compared to $107 million in 2004. That 15% decrease was in line with our expectations in our previous guidance.

Fuel costs at Nova Scotia Power were $71 million higher in 2005 than 2004. Our higher fuel costs were only partially offset by a 5% electricity rate increase, implemented in the spring of last year -- in the deferral of 1st quarter 2005 corporate taxes, in advance of that rate increase coming into effect.

The shortfall in NSPI earnings was partially offset by higher earnings in Emera’s other operations. Our energy marketing business had another strong year, and we added new earnings from our recent investment in the Bear Swamp hydroelectric facility in Massachusetts. Nancy will speak more about the financial details in a moment.

Nova Scotia Power concluded its hearings on its 2006 rate application in December. We're expecting the decision, soon. We believe we put forward a compelling case. And while we cannot predict the outcome, I would characterize us as cautiously optimistic that we will have a result that will return us to a more solid financial footing.

As you can appreciate, Emera’s financial outlook for 2006 is heavily dependent on the 2006 rate decision, so we're not able to say much about that, today. We will provide an update, however, once we've received the rate decision.

We want to take a moment to update you on our thinking, with respect to corporate strategy -- specifically, as it relates to geographic focus. As you are aware, for the past several years, Emera has focused its business development efforts in Northeastern North America. We've made investments in Maine and Massachusetts, and in the Maritimes & Northeast Pipeline which runs through the region.

We now have a new executive team. And over the past several months, in consultation with our board of directors, we've concluded that we should expand to investigate the potential for growth beyond the Northeast – including Central and Western Canada and select markets in the US. We believe this will significantly expand the portfolio of growth opportunities that’s in our skillset, risk profile and capacity. We will continue to exercise discipline in the pursuit of growth and increased shareholder value.

Two final notes. I'm pleased to report that Bangor Hydro achieved a major milestone, recently – receiving the final permits necessary to proceed with construction of the Northeast Reliability Interconnect Project. This major transmission line project has now moved to the land-clearing phase, and commencement of construction is planned for the early summer.

As well, Nova Scotia Power has significant advancements and achievements to report, as well. For the second year in a row, NSPI’s operations were recognized for extraordinary achievement, nationally. Five of NSPI’s thermal-generating units were recently included in the top 10 in Canada in performance. Trenton Unit 6 out-performed all other fossil units in the country, for the Number 1 ranking. Our Point Tupper plant took that honor, last year.

With that, I’ll turn things over to Nancy, for a detailed financial update.

Thank you, Chris, and good morning, everyone. As Judy mentioned, our 4th quarter and annual financial results were released earlier today, and are on the Emera website. I’ll take a few minutes to review them – beginning with the results for the quarter.

Emera’s consolidated net earnings were $37.7 million in the 4th quarter of 2005, compared to 31.4 million for the same period in 2004. As Chris noted, the higher earnings in the quarter were due to the settlement of Nova Scotia Power’s gas supply agreement, which had been subject to a price reopener.

The final outcome of the negotiations was better than we had estimated through the year, and resulted in a positive adjustment to fuel costs, to true up actual versus estimated gas pricing back to November 2004.

All of the adjustment was booked in the 4th quarter, which makes it difficult to compare to the prior year. If you normalize our results for that adjustment, and for a separate one-time payment from the gas supplier, Q4 2005 net earnings would be approximately 20 million lower than reported and 13 million lower than in the 4th quarter of 2004.

Bangor Hydro’s contribution to Q4 2005 net earnings was $4 million, compared to 4.4 million in 2004 – primarily because of a stronger Canadian dollar.

The earnings contribution of Emera’s other operations decreased 2.7 million in Q4 2005 – largely as a result of the reversal of foreign exchange gains recognized earlier in the year on the settlement of US dollar financial obligations, as expected. We have made changes in our US banking facilities that will reduce the foreign exchange translation adjustments that are reported through income, going forward.

Looking back over the whole year of 2005, Emera’s consolidated earnings were 121.2 million – compared to 129.8 million for 2004. Earnings were 16 million lower year-over-year at Nova Scotia Power. This was partially offset by higher earnings from Emera’s other operations. I will take a moment to review the highlights.

As Chris has noted, Nova Scotia Power’s contribution to consolidated earnings was 91.2 million in 2005 – compared to 107 million in 2004. Fuel costs at Nova Scotia Power were $71 million higher, year-over-year. That increase was only partially offset by a 5% electricity rate increase last April, and the deferral of $16.7 million in corporate and other taxes, until that rate increase came into effect. As an aside, I note that the $16.7 million amount is consistent with directions we recently received that was provided by the UARB.

Nova Scotia Power’s regulated rate of return on equity was 8.6% -- below its allowed range of 9.3-9.8%. As you are aware, NSPI is currently awaiting a decision on its request for new rates for 2006, in order that it might have a reasonable opportunity to earn within its allowed range, going forward.

Bangor Hydro’s contribution to earnings was 14.9 million in 2005 – compared to 18.5 million in the prior year. The lower earnings primarily reflect increases in depreciation rates, higher [Nepal] transmission expenses, and the effect of a stronger Canadian dollar. Bangor Hydro’s regulated return of rate on equity was 10.9% in 2005. We anticipate that Bangor’s US dollar net earnings in 2006 will return to 2004 levels, based on the recovery of higher [Nepal] transmission costs and capitalization of construction-related expenses – including overheads and [MUDC] from the NRI transmission project.

On a full-year basis, contributions from other operations provided net earnings of 15.1 million in 2005 – compared with 4 million in 2004. A significant reason for the earnings increase was the 5.2 million pre-tax and after-tax foreign exchange gains, reflecting an adjustment to refine prior-years' calculations. This was booked in Q2 of this year.

In addition, the Bear Swamp acquisition contributed 4.2 million of new earnings before interest and taxes. And we also capitalized 2.5 million of business development costs related to this acquisition, which had previously been expensed.

Consolidated net cash used by operating activities was 36.3 million in the 4th quarter of 2005 – compared to cash provided by operating activities of 62.9 million for the same period of 2004. These operating cash flow amounts include funds paid under NSPI’s gas contract, and settlement of other commodity arrangements with counterparties that are directly offset by the $50 million decrease in restricted cash reported in investing activities.

In January, in light of our earnings and cash flow situation, Emera’s board of directors decided not to proceed with our customary $0.01 increase in the annual dividend. Nonetheless, I want to assure investors that we are committed tour dividend. We know that it is a key reason that people entrust their capital to us. Our objective is to grow our earnings, so that we can provide a more significant and sustainable annual increase.

That’s it for my financial review. Thank you. We’ll now all be happy to take your questions.

Thank you. We will now take questions from the telephone line. If you have any questions, please press *1 on your telephone keypad. If you're using a speakerphone, please lift the handset, and then press *1. If at any time you wish to cancel your question, please press the # sign.

Please press *1 at this time, if you have a question. There will be a brief pause while the participants register, and we thank you for your patience.

The first question is from Linda Ezergailis from TD Newcrest. Please go ahead.

Thank you. If I could just get an update on the composition of Bangor Hydro’s rates? Or the revenues? And maybe your asset base. I think you mentioned that the stranded assets now – US 80 million, in your release. But would appreciate the transmission distribution components, as well.

It’s Rob Bennett, here. Approximately 55% of our rates come from distribution service, 30% from our stranded costs part of the business, and 15 from transmission.

Then what about your assets?

The assets are split up according to those same percentages.

How will that change in 2007?

It will change substantially, over time, if the stranded cost assets are diminished – being replaced, primarily, by investments in the transmission system – like the NRI.

This is a question, I guess maybe for Judy. In your "other" segment. The business development costs related to the capitalization of Bear Swamp. What sort of tax rate should we be applying to that 2.5 million?

Yes. Standard… Somewhere between 35 and 40% would be the right one to use. I use 38, habitually.

I’ll use that one as well, then. And the Bear Swamp contribution, in Q4 or in the year, I guess, was 1.6 million EBIT. Can you give me an earnings contribution number?

No. We're not breaking down at that level in the "other," Linda.

Did you, historically?

No. I also think the number for the year is 4.2?

Yes. 4.2 million for Bear Swamp, Linda.

Oh, sorry. That was the 4th quarter. Okay. Because I think in the 2nd quarter, you actually gave a 0.3 million net earning contribution.

Yes. We don’t want… If you can appreciate all the things grouped in "other," we can get into some very small numbers, there. So our preference is to just group it together.

Now, the NSPI gas arbitration decision… If I were to take some stab at maybe allocating over all 4 quarters… Can you give me a sense of how I might approach that? Should I spread it evenly?

This is Ralph Tedesco. Most of the benefit from the gas contract improves in the 1st and the 4th quarter – if you think of it that way. Primarily based on gas price and how we use the gas in those various periods. If you were to think of about 2/3 of the benefit – 2/3 to ¾ of the benefit accruing in the 1st and 4th quarter, evenly split.

That’s helpful. Thank you.

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

In addition to just the last question that Rob answered for Linda – The 20 million that Nancy mentioned… Could you just review that? What that number actually is? You said that you had the one-time $8 million payment. Why did they pay you the $8 million.

Ralph Tedesco, again. The payment that we received from the negotiation recognizes certain terms of our gas supply and contract. Due to confidentiality agreements we've entered into, that’s about as much as I can say.

Okay. Then if Nancy can just clarify her $20 million comment, I'd appreciate it. In terms of how much of the benefit recorded is actually for this year – before I start allocating between quarters.

The $20 million, Karen, is the 23 million that we've broken out due to the finalization in pricing term. And then the $8 million that Ralph just spoke to passes that.

I just wanted to make sure that for 2005, 20 million applies to 2005 pre-tax, and 3 million applies to 2004 for the period November and December? Is that right? Is that what you're saying?

No. The first question I have is – we're getting an echo, here. Are you? Are the callers hearing that? Or is it just an annoying blur? Can you hear us clearly?

Yes.

Two months of the benefit would relate back to 2004. But I don’t think that we would… Okay. Just bear with us. Okay. So a point of clarification, Karen, Nancy’s going to make, here.

Just to be clear. The 20 that we get to was the 23 that I talked about, and the 8 million after-tax. There is about 3 million of that that does relate to the prior year.

So the 23 after-tax, plus the 8 after-tax, is 20 after-tax. Is that what you're saying?

That’s what I'm saying. Yes.

So 23 after…

No – the 23’s a before-tax number, though, Karen.

I beg your pardon?

23 million of…

I realize that. But you're taking it after-tax to the 15 or whatever it is – plus the 5 million after-tax is the 8. And adding it together, you have 20 after-tax. Right?

No. We're adding 23 and 8 to get approximately 31.

Right.

And we're tax-assessing that at approximately 60% to get to 20.

Right. And, I'm sorry – how much responsible in 2004?

Approximately 3 million before-tax.

And I still would use that 38% effective tax rate on that?

Yes.

Can you also just explain to me… In the quarterly release, page 41, the summary of the quarterly report. The total revenues for 2005, by quarter, do not sum to the totaled revenues that you've disclosed for the year. Maybe you want to go back and look at that?

Maybe we’ll go back and look at that.

And can you just answer one other quick question, on the change in geographical focus for your strategy? [Like] everyone else on the line? What selective areas are you talking about in the US?

Karen, it’s Chris. It’s primarily focused on areas that in the US are growing, or that are focused on the same kind of generation mix that we have in our [sort of] territory today. So areas that you would see as being high-growth areas.

That could explain being in a lot of areas. Can you narrow it down for us?

Well, I think at this point, we are staying quite broad. And we're really seeing the US as an area of greater opportunity. So we wouldn’t narrow it, at this point.

So we should say that basically, anything in the lower 48 is fair game?

I think that’s fair. Yes.

Okay. Thanks.

Thank you. The following question is from Matthew Ackerman from CIBC World Markets.

Thanks, Chris. Just wanted to follow up on strategies, some more. You guys must have gone through some kind of strategic review or something, to come up with this new conclusion that you need to broaden your scope. I'm just wondering, I guess, why you came up with those conclusions? Especially given there is a lot of capital to invest in Nova Scotia over the next couple of years – albeit for environmental capex. And you seem to have some growth out of Bangor in transmission. So what was the driver for this conclusion?

Well I think, Matthew, that’s a fair observation. And in fact, I think it’s important to recognize that both Bangor and Nova Scotia Power are growing, relative to their invested capital. And as is the Maritimes & Northeast Pipeline. We believe that with LNG sort of continuing to advance, there’ll be some opportunities to invest, there. So there's no question that those opportunities are there.

I guess as we've looked at that, though, we've also said that we need to diversify ourselves geographically, as well. We still have a significant portion of our earnings coming from the Nova Scotia marketplace. It’s just a desire that we have to diversify that, some more. So, over time, giving us the opportunity to move into other regulatory and market areas, we just think is good for the business.

We've seen some ups and downs in the last few years, here. And we'd like to be able to diversify from that.

Well, have you established any internal targets, in terms of sizes of acquisitions, or how much of your business you'd like to be outside Nova Scotia, in the next number of years? Or anything like that?

Well, we have begun to do that. What we'd say is that we continue to be in the singles and doubles kind of size range. So we're not looking to make huge investments outside of the region, in the short-term. But we would see ourselves as continuing to evolve.

Right now, Nova Scotia Power is about 75% of our earnings. We'd like to see that percentage continue to decline, over the next 5 years. If we could get it to 65 or something like that, that would start to look to be a better number for us.

Then just one final question, on a different issue. What is Emera’s realistic view of opening up coal-mining again in the province? Possibly sub-C. There seems to be some positive discussion of that. But do you think that is realistic in any kind of timeframe, here?

I think I’ll let Ralph go ahead and answer that one.

We're following carefully the goings-on in the province. Certainly, there are certain positive attributes about having coal, locally – in terms of transportation risk, and the like. At the end of the day, however, it really becomes and issue of quality and price, in terms of whether and how much of that fuel we can use. Again, we're following it carefully.

What is the earliest timeline you could possibly see coal coming out of Nova Scotia, again?

I think you're aware, today – or last year, anyway – we used about half a million tons of local coal. The projections that I've heard out of Xstrata are probably that coal might be available in an 18-24 month timeframe.

Thanks. Those are all my questions.

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

Hi. Thank you. Just maybe a couple clarifications. The 8.6% return that you forecast or you estimated that was earned last year for Nova Scotia Power, Inc… Was that after normalizing out that fuel-savings to just what it applied for 2004? Or how was that calculated?

No. That is inclusive of benefit of the gas contract renegotiation.

So even for the portion that applied to 2004?

Correct.

So it would've been a little lower, obviously, then. Then, I didn’t quite catch the outlook that Karen mentioned for Bangor. She said something about returning to 2004 levels. I wasn’t sure if that was sort of a dollar amount or rate of return on equity amount, or… What was that?

That would be a dollar amount.

And just one last clarification. You mentioned that you had done something to reduce your foreign exchange volatility. Although I don’t think you said it in quite those words. Can you clarify what you've done?

The volatility or the exchange amounts that we saw – the gains that we saw earlier – were because the Bear Swamp acquisition had been financed in Canada. So we now have it financed in the US, and we've reversed those exchange gains. And that won’t continue.

We've also received the money back from Bellows Falls, and we've paid that amount off again, financed in Canada. So those gains – any gains and losses from that – won’t be recurring.

But we’ll still have the normal swings from currency, just because your US earnings would be higher or lower?

That’s right. At Bangor.

I wasn’t sure if you'd hedged that amount.

No.

Thank you very much.

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

Coming back to the $8 million associated with the gas contract. I think in the notes, it talks about… And maybe I misinterpreted this… But I think it talks about recovery at cost. So I guess the question is, is that $8 million… Would that have been, essentially, offset during 2005 from costs that you actually incurred to undergo the arbitration? Is it a wash? Or is this actually a gain?

The $8 million is net of costs associated with legal fees, the arbitration, consultants and that sort of thing.

So it’s net of those things.

Correct.

Then the 23.8 million. On page 9 – and I think actually repeats a little bit later – it shows it all coming in in Q4. But then for the year… And this is the chart that’s showing how you get from – I guess – where you were to what you booked during the year and during the quarter.

So there's no impact for the year, and there's the full 23.8 impact during Q4. But that doesn’t exactly seem right, does it? I mean in terms of the year, there would've been some impact in the year, presumably – particularly if some portion of that was attributable to 2004.

Maureen – the 23.8 is meant to represent amounts from prior quarters, only, that flowed through Q4. Any of the in-the-quarter-amounts change in gas sales would be flowing through the other numbers. So you see below the 23.8, there's a decrease in fuel expense due to increased gas resale margins. That’s the amount for the quarter. The 23.8 relates to prior quarters.

So, Maureen, we were trying to isolate for people – essentially – the difference between the period of time when we had to estimate what the gas price would be, and what it actually turned out to be.

Yes.

And we did lump in the… The right accounting is to not… We wouldn’t go back and adjust 2004.

Right.

So it all has to flow through that period.

But if some portion of it was attributable to 2004, wouldn’t that have had an annual impact in '05?

It did. There was a small amount that related to 2004. I think we said 3 million pre-tax.

Yes.

Approximately. Rightly, it should have – would be attributed to 2004 – but it flowed through that 23.8 million amount.

And then the tax impact, presumably, is sort of washed out in this "all other" line? The bottom line? Or is it in the tax line? It doesn’t really matter, but is that?

Yes.

And then, moving to Page 24 of the interim. This 5.9, which is this FX gain, I guess, that’s being reversed – presumably. This is what you were talking about, I think. I think it was Bob. So I'm a little confused about this. It was booked, and now it’s reversed?

It was. We had some foreign exchange gains that were booked in prior quarters, as the result of the loans that I talked about. The financing in Canada versus the US.

Yes.

So when we got the proper financing in place in the US and received the Bellows Falls amount back, that $6 million – $5.9 million – reversed.

So this was all attributable to 2005, then?

Yes, it was. So it was in and out in the year.

In and out in the year.

That’s why there's no amount there for the year-ended, in the other column.

The capitalization, though, was previously incurred – presumably in 2004?

Yes.

Then, just to clarify the market-to-market. On Page 32. The $8.4 market-to-market gain. Would that all be in NSPI?

Let me find it – one second. Where are you exactly, Maureen?

Page 32.

Yes.

The market-to-market gains, losses recognized and income.

That would all be NSPI.

All NSPI. Then I guess just finally, for Chris. In terms of broadening your scope, and looking – I guess – to a larger geographic footprint. I know you've touched on this, already. But do you have a focus on generation? You are doing something in transmission. Have you sort of defined your business lines? Even though you've broadened your geographic outlook or geographic scope for investment?

Yes. Thank you, Maureen. In fact, we are sticking to our knitting, from that perspective. We believe that what we do today is something that is in demand in North America. We believe that we see opportunities in the areas where we work, today.

The other thing is that we've developed some reasonably good partnerships over this past period of time. We think that those will continue to be things that are good, from our perspective. The relationship we've built with NB Power, as we've built the transmission line to Maine, and the Bear Swamp relationship, are all things that are working well for us. So we continue in that kind of vein.

With NB Power – that’s transmission. With Brookfield Power, that’s generation. So is that pretty much your focus then, Chris?

And utilities, as well. We still think that there are still some opportunities out there, from a utility perspective. But certainly, transmission and generation are where there's a lot going on, right now.

Thanks. That’s all my questions.

Thank you.

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

Thank you. I would like to first come back to Ralph’s comment that most of the benefits of the reduced fuel expense was incurred in the 1st and 4th quarters. Does that mean in the 1st and 4th quarters of the contract year? Or 2005 calendar year?

It’s really the calendar year, Winfried. And it’s – again – more a function of what the value of gas is, at different times of year – as well as our own usage patterns – that causes those earnings to accrue that way.

And you said that 2/3 or ¾ occurs in the 1st and 4th quarters?

Yes. That’s about right. So if you think… Yes. Between 2/3 and ¾ of the benefit of the gas contract – it’s evenly split between the 1st quarter and the 4th quarter of the year, with the balance occurring during the other 6 months.

And how do we then arrive at an allocation for the 4th quarter of 2004, which would have been the 1st quarter of your 2004/2005 contract year?

Win, this would have been because the gas contract went… The period of the contract is through November 1st, each year.

Right.

So that’s what I’ll call the fiscal year of the contract.

Right.

It’s through November 1. So we had 2 months of new pricing, based on the renegotiated contract, that reflected that $3 million or so benefit that Nancy described.

And the 3 million… That pertains both to the 23.8 million and the 8 million?

No. That’s purely the 23.

And how much of the 8 million pertains, then, to 2004?

None of it.

None? Okay. I listened to the explanation of why there is nothing shown for 2005 of that reduction in fuel expenses, on Page 5 of the release. I must confess that I don’t understand… No matter what part of the 23.8 million pertains to prior quarters, there's got to be an amount that pertains to the whole year.

It’s actually, though… I think Win, on the next line down… So what we tried to do was separate out the quarterly impact that was occurring because we had previously had to record that at an estimated price. So if you look at the next slide down, it talks about the quarter-over-quarter and year-over-year fuel expense change, as a result of gas sale margin. So the 4th quarter number there has what I’ll call the renegotiated pricing in there.

We're just trying to – believe it or not – be helpful, and isolate the impact of having to adjust the estimates to actual, up to September 30th – and then kind of record the real numbers, going forward.

Thank you. Now, with respect to Bear Swamp. You refuse to give us net earnings. You give us a $4.2 million EBIT Number for 2005. Do I take it that if we take off interest and income taxes, that you would have still been in a positive position?

Yes. We would, Winfried.

How does this positive position compare with the expectations that went into your decision to actually invest in Bear Swamp?

It certainly met our expectations.

It’s lower than your expectations?

No. Sorry. It met our expectations.

It met your expectations?

Yes. It did.

Most of the companies that I follow that are engaged in energy marketing, they did rather well in the 4th quarter of 2005. You didn’t. Why not? You showed a gain of 5.5 million, rather than 6.7 million in the 4th quarter of 2004.

I think I would say, Win, that… I think I'd say that for us, that quarter was fairly challenging. Because fundamentally, what we're doing is managing assets for the overall… A number of customers. So when we're looking at that kind of volatility, what we're doing is working with those customers, to make sure that we've got their assets performing in a way that they want to.

And fundamentally, we have a low-risk business. So it’s really about relationships we've put in place to grow that business through time. So I think that’s the reason.

And what does the… We're only in the… Not even 2 months into the new year. What is the actual experience, just directionally, from an energy marketing, since the beginning of the year, year-to-date? Compared with the 4th quarter?

Well I think right now, they're probably on their budget. Maybe they're a little better than their budget, at this point in time. So we're happy with the way that’s performing. But I think what I'd say, though, is – again – there's been a lot of… The market has been very soft in the 1st quarter, and I think energy companies everywhere are seeing lower lows and lower pricing. But in the case of our services businesses, it’s pretty much on-budget.

That’s helpful. Now, what was across the entire consolidated operation in 2005, the aggregate foreign exchange impact – in terms of earnings-per-share?

Winfried, I think we’ll have to get you that. The impact is all across the business, in a whole bunch of things. Energy services, on our fuel contract, in Bangor Hydro. So it’s not something we would have off the top of our heads.

If you could do that, please. My next question would have been and still is – had the new banking arrangements been in place for 2005, what would the aggregate FX impact have been in 2005? If you could maybe try to respond to that, too?

Just to be clear, Win… The 5.9 million that we booked and then reversed had a zero impact over 2005, as a result of those loans.

That, I understand. Yes.

So did I miss your question?

No. There are others. There is foreign exchange impact in Bangor Hydro and so on. So…

We’ll see what we can get you.

Yes. If you disregard the 5.9 million, I'm just interested in the residual. Then I'm interested in what that residual would have been, had your new banking arrangements been in place in 2005.

Yes.

I think the answer is the same, though, Win.

The 5.9 that you're referring to, is only the impact of the loans – and not anything else.

Oh, yes. I was not… Actually, I should have told you that I disregard the 5.9 million right off the bat. I'm only interested in sort of the residual foreign exchange impact on consolidated operations.

Okay. We’ll see what we can get you on that.

Now, the increase in [Nepal] transmission rates in 2005… Why were you not allowed or able to recover that amount in 2005? And would you be able to or expect to recover that in 2006?

It’s Rob Bennett, here. It’s a formula-based rate that allows recovery in future years of costs from the prior year. So we’ll start recovering that in the summer of '06.

So that becomes, then, an out-of-period item, the summer of 2006 – which really belongs to 2005?

Yes. So the revenues will start to come in in 2006 for expenses that were higher-than-expected in 2005.

Now, would there be any financial benefit in repurchasing the preferred shares of Nova Scotia Power? And if there would be a benefit, why are you not doing it?

Win, the only thing I would say on that is that it’s certainly something that we looked at. But I don’t think I’ll comment any more than that, right now.

Let’s see if I can find this here, quickly. For Nova Scotia Power, there was a… Sorry – for Bangor Hydro… Page 19. There is an average 4th quarter revenue of $64 per megawatt hour. That has come down from 76 in 2003 and 72 in 2004. Why do we see such a large reduction in 2005 versus 2004?

Primarily the result of the stranded cost rate reductions.

And in what year do they terminate, again, totally?

I believe they're about 6 or 8 years. Sorry. That’s on a [inaudible]. That’s not right on the top of my mind.

The final question is for the new transmission line. The NRI project. What is, now, the estimated total capital cost? Over what period would that cost be spent? In other words, what is the in-service date for this line? And how much of the total capital cost would be equity-financed?

The total capital cost of the NRI will be about $100 million. We expect to deploy that over the next two years, with the project being finished in the fall of 2007.

And from an equity point of view, about 40% would be equity.

Okay. And the 100 million – is that Canadian or US?

That’s US.

The stranded-costs question you asked, earlier… They go away in about 2020 – 2022.

Thanks very much. That’s helpful. That’s all I have.

Thank you.

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

Good morning. Just following up on the strategy and the self-stated change of strategy and broadening about. Are we to expect transactions fairly similar to Bangor, in terms of size? Bangor was about, I guess, 6 years, ago, now. So are we looking in that kind of neighborhood? You mentioned sort of singles and doubles – and that’s really what you're looking at. Is that what we should be expecting?

Yes, I think, Andrew. It’s Chris. I think that’s a reasonable size. There could be some smaller than that, in fact, as well. But certainly, that’s the order of magnitude that we'd be looking at.

So you don’t really see yourselves partnering up with Brookfield Asset Management, as you did on the Bear Swamp facility – and really reaching into someone’s deeper pockets? Helping them out on the acquisition front, to do something much bigger?

I think from our perspective, it’s too early to say exactly where we’ll be going. What we're doing right now is assessing what’s out there. We're looking at where those opportunities are, and we're trying to make sure we keep our sites set on things that we can do.

How far into this process are you? I would assume that the strategic review was fairly recent. But obviously, something piqued your interest, at some point in time.

Well, as I said – we've been working with our board of directors in the early part of last year. Really, this is now a decision that we've made, that we're going to broaden a little bit. So I'd say it will be evolving over 2006.

With a desire to do something in 2006? Or some point, thereafter?

Well, as you know, we're always looking. The intent would be to do something as soon as there's something there that makes business sense to us.

That’s fair enough. If I may ask just an operational question – and just what you're seeing within the petcoke market. There are really 2 competing forces that we see, right now. Grades of crude are tending to get a bit heavier, so there's a bit more petcoke in that sense, in the market. But we hear a lot of generators really wanting to switch to petcoke because the cost advantage, which you've had for a number of years – and still do, at this point in time.

So are you starting to see costs trending upwards?

We very definitely have seen petcoke prices increase throughout '05, for sure. And currently, we would expect them to be somewhat stable between '06 and '07.

And part of the trending up in '05, though, was due to the hurricane impact?

Yes. But even setting that aside, we've seen prices moving up. And I think part of it has to do with – you may recall – Nova Scotia Power probably was the largest utility consumer of petroleum coke. And other utilities are beginning to figure out how to use it. That is being offset, in part, by stronger coal prices – and, we believe, other coal coming online. As we look to the future, we think solid fuel pricing will be stable-to-slightly-higher.

And I think, Andrew, the other thing that’s going on is there will continue to be more and more refineries that are adding coking facilities. So there's a bit of a race going on between supply and demand, around that subject. At this point, it’s continuing to grow – both on the supply and the demand side. Though, we're seeing the market respond to that.

How do you see that balancing out? Do you just see a slight trending upwards in price?

That’s where we are, right now.

And how do you plan on locking that in? And what’s your hedge position on the petcoke?

If you think about 2006… As I sit here, we are north of 90% -- either bought or hedged. And as part of our portfolio strategy, we're about 50% bought or hedged for '07. The other positive thing that I mentioned in our portfolio strategy is, during our hearings, the UARB’s consultant spoke positively of the strategy that we are now using to procure fuel, over time.

That’s great. Thank you very much.

Thank you. The following question is from Siguan Tuleman from Credit Suisse. Please go ahead.

Thank you. Hi there. Just a follow-up on the last question. I understand that you were actually test-burning Indonesian coal, back in October or Novemberish. I was wondering what the results of the test-burning were, and if you're going to be procuring any of your fuel from that region?

We did complete test-burning of Indonesian coal, actually, in December – at our Point Tupper Power Plant. The result of that test-burn was successful. The significance of that, for us – and the reason we do these test-burns – is that it creates additional optionality for us in new markets, and allows us to lever the investment we made in the Point Tupper Marine Terminal. Again, it’s really just part of our strategy to moderate fuel prices.

So the hedge position – 50% for 2007 – is that largely Indonesian coal? Indonesian Thermal, I believe?

I'm sorry.

The position that you said you've hedged or have procured… 50% of your 2000 supply of fuel… Is a good portion of that sourced from Indonesia.

Okay. I don’t want to mislead you. The answer I gave earlier was strictly with regard to petroleum coke. For coal, in '07, we're about 17% hedged. Or bought.

And is a lot of that sourced from Indonesia?

Most of that coal would probably be South American.

Great. Thank you. That’s all I have.

Next question is from Karen Taylor, BMO Nesbitt Burns. Please go ahead.

Thanks. Sorry to be a bother about this, but I'd just like to come back to the 23.8 million, and the now-famous exhibit on Page 9 – to make sure I understand. So the 23.8 is for the 9 quarters of the year – exclusive of the 4th? Is that right?

The 9 months of the year.

Right. Right.

Plus 2 months in 2004.

Okay. So I take 23.8 million pre-tax. I did that. The 3 million pre-tax was for '04.

Sure.

And I get 20.8 million for the first 3 quarters or 9 months for the year. Is that right?

Yes.

Yes.

Yes.

That’s an estimate, but yes.

Then for the 1st quarter of '05, for the line below, it was 4.3 million.

That’s a comparison, year-over-year, apples-to-apples. Yes.

Can you just maybe… And Ralph can help me with the allocation of the 20.8 million. Because just on a simplistic basis, if I were to say the 20.8 million allocated evenly over 4 quarters… So, 20.8 plus the 4.3 would give me a higher number. Can you just maybe walk me thru what the 1st quarter effect would look like, given the 20.8 number – it’s quite high – and that the 2nd and 3rd quarter, in fact, also have to be quite high – given that the 4th quarter of '05 number appears low – given your seasonality.

So if I add it all together, it’s 20.8, roughly. Plus 4.3. And if you simply divided that by 4 quarters, I would get 6.3 per quarter. And you're telling me the seasonality is when… the 1st quarter and the 4th quarter… But it doesn’t seem to work.

Can you just give me a little bit more help in how I should allocate that?

What we can do, Karen… Maybe the best thing is to just take that offline. Then I can give you a precise calculation. That might be helpful to what you're trying to accomplish.

I suspect that others are going to want to hear it, as well. But I will follow up with you after the call.

Thank you.

Thank you. The following question is from Linda Ezergailis from TD Newcrest. Please go ahead.

This is a follow-up question, I believe, from Maureen’s strategic, geographic and more-importantly, which part of the value chain you guys are playing on.

The focus… My takeaway from your response to that question was that your focus is generation, transmission and utilities. You were silent on pipelines. Can I infer from that, that you would be looking to – potentially – sell some non-core businesses? Such as Maritimes & Northeast Pipeline, Energy Services, et cetera?

No, certainly… I guess first of all, the Energy Services part of the business is very important to the generation side. It really is a big part of making sure that you create value on the generation side. So, services is a very important skillset.

On the pipeline side… The way we've looked at Maritimes & Northeast and the way we would look at other situations, is that particular pipeline is a big part of supplying our own needs. As we've been talking a bit about in this conference call, we obviously have a supply contract around that – and so on. So it’s a fairly integral part of our business. So we look at it, that way.

But that’s the way we look at it. Because it’s an ancillary part to the business, but connects to our generation. And that’s the only way that we would see ourselves investing further in those kinds of things.

The expansion of that particular pipe and so on, however, we are very interested in – as it continues to be a good investment for us.

So then, as a follow-up, you would then be interested in ancillary investments related to any sort of generation, transmission or utility opportunities. So, if you wanted to… by, "utility," are you including gas-distribution utility?

[inaudible]

Could we look at potential pipeline investments associated with gas distribution, utilities or generation?

Yes. I think at this stage, we're primarily focused on electricity and the things that are ancillary to it. So, for instance, if you have a pipe investment that connects to a generating system that’s integral to that generation station’s activity, then that’s one thing. Purely for the sake of gas infrastructure, then, no.

Okay. So, no gas infrastructure. Now, has the regulator looked at any sort of affiliate relationship transactions between Maritimes & Northeast Pipeline? And do you consider that being more of a consideration, if LNG does come on more in the future, as many people are anticipating?

I think we maintain a strict code of conduct, with our relationship to Maritimes. And we would continue to do that. I don’t see it as being an issue. We see that pipeline as being a couple of things to us. One is, it’s an investment and an expansion of it – relative to LNG, it would be a good thing. Relative to our activity on it, we're also a shipper. And we move a fair bit of gas on the pipe. But those are separate activities, and they're connected under a code of conduct.

And the regulator has recently commented on that code of conduct? I can’t remember if they did in the 2005 decision?

Right. I think in that case, though, you're talking about the NEP and the [Firk] as being the regulator that’s appropriate?

No, but as the affiliate relationship, the Nova Scotia regulator would be commenting on any sort of transactions, would they not?

They could, certainly. If you're talking about shipping transactions. But they wouldn’t comment on investments that we ultimately make.

Have they commented on that in the 2005 decision? And can you remind me of what it was?

No, they haven’t.

So they've been silent?

They have.

Okay. Thank you.

Thank you. The following question is from Gail [Milsworthy] from Beacon Securities. Please go ahead.

Hi, there. I'm looking for some clarification. Just with the benefit of the gas agreement that you have. I know when you talked about the 2006 rate hearing, you incorporated the benefit, in terms of rates in the future. So until a decision is made, are we to assume that the benefit goes right to the bottom line, for the first part of the year until new rates are brought into effect? And then after that, that it would really impact rates? Is that a fair assumption?

Until we… Because until we see the decision, I can’t say exactly how it will work, I can’t tell you what we have proposed.

What we have proposed is that we submitted a fuel budget as part of the rate filing. To the extent that we beat that budget, as a result of gas sales, then we would set aside any additional benefits for customers in future years. So again, we would have to – at least – have made our fuel budget net of all other costs.

So that’s in future years. Does that mean it won’t impact 2006?

It’ll potentially affect 2006. Depending upon how the regulator chooses to handle that amount. It was our recommendation that the regulator take a thoughtful approach. The reason being is, there obviously is… These are very volatile markets – which affect the value of that fuel. At the time we submitted additional information to the regulator, gas prices have come off, significantly – as we look out into '07, in particular. What we are trying to do is generate a strategy that will produce rate stability for our customers.

So is it fair, then, to assume, though – that until the rate decision is received… Let’s say for January, for example… That net earnings could be impacted by the benefit of the gas agreement?

That is correct.

And after that, it just depends what the decision says.

Correct.

Thank you very much. That’s great.

Thank you.

Thank you. Once again, please press *1 at this time, if you have a question. The following question is from Winfried Fruehauf – National Bank Financial. Please go ahead.

Thank you. Regarding the disposition of your interest in the Greyhawk Storage venture. If you had to make this decision today, would you have still terminated our involvement with Greyhawk?

Winfried, it’s Chris. Yes, I think we would. Because the decision we made was around our view of that particular investment. It didn’t have to do with the issues of storage or anything around that. It had to do with that particular investment. I'd say that would still be our decision, today.

Regarding your marine terminal. Has a decision been made as to what you may be doing with this terminal? Whether you're going to keep it, or whether you're still trying to sell it?

Today, the marine terminal is certainly providing benefits to our customer. And as part of our rate filing, we sought to recover its costs. At the same time, we would and are entertaining offers for its purchase. It’s simply a question of economics.

With respect to the NRI transmission line. I take it that you're expecting to earn a rate of return on equity investment in this line. Is that correct?

Yes. That’s right.

Do you also expect to perhaps achieve net sales of electricity? I understand this line will be working both ways – albeit not simultaneously. So in others words, is there an expectation that upon completion of that line, you expect to export more electricity than you import? And to thereby derive an extra benefit over and above the rate of return on your investment?

Yes. Win, I think what we believe about that line is that we would look at it in this kind of way. In Maine, we are a provider of transmission service. And as such, what we're looking to do is to provide opportunities for more of the market to work in a better way. We think that providing this particular transmission investment will cause more transactions to take place between Maine and the Maritimes.

As you said earlier, they could be in either direction. Certainly, having that line in service while New Brunswick Power is moving toward a refurbishment of the Point Lepreau plant, is going to be a good thing. Subsequent to that, I think there’ll be opportunities for generation to flow out of the Maritimes.

So we look at it in that way. We think it’ll help the market. We think it’ll very much help reliability in the region. So it’s just a very good investment. And whether or not that provides more generation opportunities for our generating company, that’s another issue that I think will… We’ll see what happens, over time.

So are you then saying that if markets cooperate with Nova Scotia Power and Emera, there may be an opportunity for earnings over and above the earnings you derive from your investment in that line?

Well, no – I don’t think we're going that far. I think what we're saying is that that line will make doing business between the Maritimes and Maine better. Both from a reliability perspective and also from a market perspective. And we think that that’ll be good for the utilities on both sides of that line.

Yes. But wouldn’t you think that if there are reliability benefits, they're going to be reflected – perhaps – in lower investments in plant, property and equipment for reliability?

Well, no – I don’t think so. I think what we're trying to do is continue to improve both the way that the system works, with the markets that are there, and also from a reliability perspective. I think if that line does that, I think there are other investments that will also do the same thing. And we would be looking to those investments, as well.

We think that there's a great opportunity to invest in transmission in New England. And so, as soon as the one that we're working on today is done, we'd be looking to other projects of a similar type.

Thanks very much.

Thank you.

Thank you. As there are no further questions registered at this time, I would now like to turn the meeting back over to you, Ms. Steele.

Thank you very much. Before I sign off, I'd just like to thank everyone very much for your participation, today – and your interest in Emera – and I hope you all have a great day. Thank you.