Pre-Effective Amendment to Application or Declaration — Form U-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: U-1/A Pre-Effective Amendment to Application or 59± 262K
Declaration
2: EX-99.1 Ex A-1 Memorandum of Association of Emera 4± 19K
11: EX-99.10 Ex D-5 Ferc Order 9 28K
12: EX-99.11 Ex G-1 Emera's Annual Report 46 256K
13: EX-99.12 Ex K-1 Emera Inc. Group of Companies 2± 15K
3: EX-99.2 Ex A-2 Articles of Association of Emera 42± 170K
4: EX-99.3 Ex A-3 Articles of Organization of Bhe 144 382K
5: EX-99.4 Ex A-4 By-Laws of Bhe 42 83K
6: EX-99.5 Ex A-5 Articles of Bangor Var 9 44K
7: EX-99.6 Ex A-6 Bylaws of Bangor Var 8 21K
8: EX-99.7 Ex A-7 Partnership Agreement 23± 96K
9: EX-99.8 Ex D-2 Order of Maine Public Utilities Commission 17 58K
10: EX-99.9 Ex D-3 Mpuc Certification 1 8K
EXHIBIT G-1
[PICTURE OMITTED]
NS Power Holdings Inc. is a diversified energy and services company, with
440,000 customers, and $2.8 billion in assets. Our primary operating subsidiary,
Nova Scotia Power, is the dominant electricity supplier in Nova Scotia. Our
energy product line also includes bunker oil, and diesel fuel, and we deliver
100 million litres of light fuel oil annually. We have a 12.5% interest in the
Maritimes & Northeast Pipeline. At NS Power Holdings, we are realizing our
vision to be the customers' choice in energy and services.
Earnings
(in millions)
94.8 90.0 92.7 85.4 100.4
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95 96 97 98 99
Dividends
($)
0.78 0.80 0.81 0.82 0.83
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95 96 97 98 99
Dividend Yield
* Average Canadian 10-Year Bond Yield
* NSH
8.50______________________________________
7.00______________________________________
5.50______________________________________
4.00______________________________________
95 96 97 98 99
Cash from Operations
(in millions)
197.1 194.0 304.7 228.0 223.7
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95 96 97 98 99
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1999 Corporate Highlights
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Earnings of $100.4 million, an 18% increase over 1998
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Earnings per share of $1.16
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Record electrical energy sales of $790.2 million (10,365 GWh)
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Third consecutive year without an electricity price increase
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10.8% return on equity in electric utility, near the top of allowed
range
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Maritimes & Northeast Pipeline makes first Sable Gas deliveries
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Home heating and light fuel oil sales of more than 100 million litres
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Dividend increase in 1999 and 2000
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Natural gas development driving strong regional economy
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[PICTURE OMITTED]
2 Letter to Shareholders
6 Progress Report
8 Customer Advantage
10 Operations Efficiency
12 Business Development
14 Community Investment
16 Management Discussion and Analysis
30 Management Report
31 Auditors' Report
32 Financial Statements
46 Corporate Governance
IBC Executives and Directors
[PICTURE OMITTED]
fellow shareholders
----------------------------------------------------------------------
In 1999 our company delivered more energy,
in more forms, to more customers, than
ever before. The Nova Scotia economy surged,
and that meant record numbers of residential,
commercial and industrial customers, and
record sales.
02 We can capture the essence of everything that went on in our company in
1999 with eight simple, but powerful words - we accomplished what we set
out to do. We faced challenges, we seized opportunities, we made progress,
and we positioned ourselves for continued growth.
We said we would restore earnings success, and we did. In 1999 earnings
were $100.4 million, an 18% increase from $85.4 million in 1998. The
majority of these earnings flowed from the strength of our regulated
electric utility, which achieved a satisfying return on common equity of
10.8%, compared to 9.5% last year, despite continued warmer-than-normal
temperatures. Industrial sales drove revenue growth, increasing 12% over
1998, due largely to expanded operations at our largest industrial
customer, Stora Enso, Port Hawkesbury.
We said we would capitalize on Sable Gas, and we did. One of the most
exciting devel-opments in 1999 was the completion of the Maritimes &
Northeast Pipeline (M&NP), which delivered Sable Island natural gas to its
first customers just before year-end. Our 12.5% interest in the pipeline
gives us a unique vantage point on Sable gas development and its promise of
other potential investment opportunities for our company. More than half
the pipeline is in the northeastern United States, marking NS Power
Holdings' first investment in operating interests outside Nova Scotia.
Management will continue to carefully assess investment opportunities
beyond our provincial borders, where we con-tribute unique strengths and
can achieve significant gains for our shareholders.
We said we would become more than an electricity company, and we did. In
less than a year, we have built our home heating business to deliver over
100 million litres annually. We
[PICTURE OMITTED]
Derek Oland Chairman of the Board
David Mann President and Chief Executive Officer
also expanded our heavy fuel oil business in 1999, and added diesel oil and
industrial lubricants to our product mix. Providing these complementary energy
products builds revenues and grows earnings, as operational synergies are
achieved in areas such as customer service, billing systems and buying power.
We said we would build success through our customers, and we did. Our
competitive growth opportunity is grounded in the value of our solid
relationship with our existing customers. That relationship is built on trust,
created by reliably and safely delivering the energy, and providing the
services, that are essential to their comfort, success and well being. We
strengthened that customer connection in 1999, by making it our third
consecu-tive year without an electricity price increase. Strong customer
confidence in our core electric business accelerates customer acceptance of the
new products and services we introduce.
We said we would stay focused on cost management, and we did. It is essential to
our profitability today, and to our competitiveness tomorrow. Fuel for
generation comprises over one-third of our total costs. We use more coal in our
power generation than any other fuel source. We cannot overstate the importance
of a reliable, high quality and competitively priced source of this staple input
to our business. In 1999, close attention to fuel pricing and plant efficiency,
and effective fuel switching strategies kept fuel cost increases to 4% in spite
of a 6% increase in production. Operating, maintenance and general expenses
increased as our customer base grew, and demand for electricity and other
services rose, but efficiency gains across the organization mitigated these
volume-related increases. As we move into 2000 and beyond, increasing capacity
utilization will be critical to managing our costs downward. By encouraging
customers to move some of their demand to off-peak hours, we will be able to
defer investment in additional generation assets.
Our advance into competitive energy businesses
has important implications for our regulated electric
business. The sales, marketing and customer service
skills, and entrepreneurial mindset necessary for
success in these businesses become more critical
to our electric business every day.
04 We said we would enhance earnings quality, and we did. 1998 reminded us
that while the shareholders' opportunity for reward from the regulated
utility is limited, their opportunity for risk is not. During 1999, we
implemented a progressive Enterprise Risk Management system to ensure
dynamic management of commodity prices and fuel sources, foreign exchange,
interest rates, and even the effects of weather variance on our revenues.
Our strategy enjoyed considerable success, not the least of which was the
realization of $2.7 million of net proceeds from weather-risk contracts
that substantially offset the effects of warmer temperatures this year.
We said we would prepare for increased competition, and we did. The arrival
of natural gas in Nova Scotia will present challenges as well as
opportunities. Our exposure is limited by the fact that only 20% of our
residential electric demand comes from space heating. As well, costs to
convert to gas from both electricity and oil are high. Our ongoing success
in maintaining stable prices, and in giving customers options for managing
their energy costs positions us to manage natural gas competition when it
arrives. We are also working proactively with our industrial customers to
implement a new, favourable, "load retention" rate, which would make
electricity pricing competitive with self-generation using alternative fuel
sources.
Our advance into competitive energy businesses has important implications
for our regulated electric business. The sales, marketing and customer
service skills, and entrepreneurial mindset necessary for success in these
businesses become more critical to our electric business every day. In
diversifying our company, we provide an opportunity for all of our
employees to benefit from the knowledge and experience in these areas that
staff members
from our new ventures bring to the company. The transfer of those skills
strengthens the customer focus in our core electric business. By operating with
the customer interest at the forefront of every decision and every action, we
will be ready for deregulation whenever it arrives.
We said we would live up to our environmental responsibilities, and we did.
As a consumer of primary energy sources, we must utilize those resources in an
efficient manner, minimizing and managing the impact we have on the environment
where we, and our customers, work and live. In 1999 we made good progress in
achieving our environmental goals. In 2000, the completion of the conversion of
our Tufts Cove generator to burn natural gas as well as oil will further reduce
our emissions.
Our employees made this year the success that it was. They continue to rise
to the chal-lenges of increased competitiveness, and to embrace our
customer-focused strategy. Their commitment strengthened our organization and
turned our goals into reality. In addition to their contribution to our company,
many helped extend our commitment to improving the quality of life, and the
environment, in our communities. On behalf of management and the Board of
Directors, we express sincere thanks for a job well done.
Operational expertise in our core electric utility, increased customer
focus, disciplined growth in complementary lines of business, and sophisticated
risk management, work together to increase the quality of earnings. This gives
the Board of Directors confidence to once again increase the dividend payable to
all common shareholders.
In closing, we would like to acknowledge the expert guidance provided by
the Board of Directors of the company and offer our thanks to them. In
particular, we acknowledge the outstanding contribution made by Mr. Thomas R.
Hall, a director since 1992, who will be retiring in May of 2000.
We entered 1999 with the strategy to be our customers' choice in energy and
services. We accomplished much in the year. We enter 2000 with the foundation of
people, performance, growth opportunities, and customer focus to declare that we
are indeed on course.
Derek Oland Chairman of the Board (signed)
David Mann President and Chief Executive Officer (signed)
[PICTURE]
At NS Power Holdings Inc., our vision is to be the customers' choice in energy
and services. We live that vision every day, through accomplishments in four key
areas.
o Customer Advantage - acknowledging our customers as our greatest asset, and
treating them accordingly;
o Operations Efficiency - maintaining high reliability, and service
excellence, while keeping costs down for our customers;
o Business Development - offering our customers a full complement of energy
products and services; and
o Community Investment - investing in the communities where our customers and
employees work and live.
We have set a focused and disciplined course for success and growth. We are
achieving results through the execution of our own unique plan. The progress
report in the following pages proves that we are on course.
Above, Left to right > Trudy Cromwell, Customer Representative, Call Centre;
Point Tupper Generating Station; Maritimes & Northeast Pipeline under
construction; Erin C. MacNeil, Centennial Scholarship Winner, Sydney, Nova
Scotia Opposite > Katherine Barss, residential customer, Hammonds Plains, Nova
Scotia
our greatest asset
---------------------------------------------
Our company has 440,000 customers, and every
one of them relies on us to provide a
service that is integral to their
well-being, success and comfort. We do it,
reliably and efficiently. Their trust, and
our ability to deliver, is the foun-dation
for a relationship with our customers that
is, quite simply, our single greatest asset,
and the one on which we will build our
success in the 21st century.
08 Maintaining customers' confidence, and developing our relationship to
provide other products and services, depends on our ability to provide the
best service at the best price. We're proud of the fact that our customers
have not faced an electricity price increase in three years. We have no
plans to interrupt that trend in 2000.
We are going further, helping customers to reduce energy costs by offering
lower rates for electricity purchased outside of peak periods. Electric thermal
storage units, part of our product mix, make this possible, enabling residential
and commercial customers to bank energy at night and use it during the day. In
addition, we are seeking regulatory approval to offer new, competitive, "load
retention" rates to major industrial customers, to ensure they continue to look
to us for their electricity needs. Keeping industrial users on the system helps
keep prices stable for all of our customers, because it ensures the system's
fixed costs continue to be shared over a wide customer base.
Standards for service have never been higher than they are now. Our
customers' expec-tations of us are not only driven by what we do, but also by
every other service provider they encounter. Nothing less than excellence will
suffice. Accordingly, in 1999 No va Scotia Power created a "Customer Needs
Team", in which operations staff, field personnel and customer service staff
work together to fundamentally change the way we serve customers. We also
installed High Volume Call Answering technology, to increase the information
flow during times when weather or other difficulties disrupt power supply. We
enhanced our Interactive Voice Response telephone system to make it easier for
customers to communicate with us every day, and, toward the end of the year, we
introduced the convenience of Internet billing ("e-bill") for residential
customers.
440
000
customers strong
Our customers are responding to our efforts. Each year we conduct a
customer survey, and the 1999 results show overall opinion of us is high and
continuing to increase. The importance of this result cannot be overstated. Our
customers' impressions of Nova Scotia Power as knowledgeable, dependable,
responsive, friendly and trustworthy will one day influence their decision to
continue to do business with us when competition for electricity arrives. And it
will also persuade them to purchase other products and services that are key to
our growth.
We entered the year with a strategy to be our customers' choice for energy
and related services. We're on course, with a greater portfolio of energy
products and related services, an improved ability to deliver them, and a larger
and more loyal customer base choosing to buy from NS Power.
A DIVERSIFIED CUSTOMER BASE
37% Industrial 34% Residential 25% Commercial 4% Other
2 > O P E R AT I O N S E F F I C I E N C Y
essential service
---------------------------------------------------------------------
Electricity generation, transmission and distribution
have comprised the core of our business for more than
75 years. In 1999, we achieved record volumes,
delivering essential energy services to a broad base
of residential, commercial, and industrial customers.
essential services
Competitive benchmarking in our power generation business places Nova Scotia
Power in the top third of North American utilities for reliability and cost of
service. Our success in generation is evidenced by the high reliability,
low-cost production, and fuel efficiency that we achieved during 1999. While
sales volumes increased, plant operating and fuel costs were closely controlled
by managing the increased volumes through improved asset utilization, shifting
demand to off-peak times, and managing our fuel mix to increase efficiency. A
number of employee-driven production improvements during the year, as well as
enhanced staffing flexibility, also helped increase overall operations
efficiency.
Fuel accounts for over one-third of our power generation expense, so not
surprisingly, the company places particular focus on managing these costs. In
1999, the Cape Breton Development Corporation was unable to deliver a portion of
the coal they supply to the company under a long-term contract, which led Nova
Scotia Power to increase its use of lower-priced, imported coal. We also
utilized fuel-switching strategies to reduce our oil consumption; particularly
important in light of the increase in the price of this commodity during the
year.
We're expanding our fuel sources to further increase fuel management
opportunities. The Tufts Cove generating station is in the final stages of the
conversion that will enable it to operate with either natural gas or oil. The
Point Aconi plant, with its advanced emissions-control equipment, has the
capacity to burn a significant amount of petroleum coke, which is considerably
lower in cost than coal.
[PICTURE]
Our progressive Enterprise Risk Management program will greatly enhance our
control over our fuel costs in 2000, and beyond. Dynamic management of commodity
price and foreign exchange, with a comprehensive portfolio of fixed price, swap
and option contracts, has eliminated substantially all of the variability in
fuel prices for 2000.
Emphasis on meeting customers' needs while controlling costs drove the
creative initiative that will allow us to deliver the increased electric energy
needs of one growing Nova Scotia community without making a significant capital
investment. By re-routing services and making only minor upgrades to existing
infrastructure and distribution networks, we will eliminate the need for a major
new distribution system. Strategic and creative thinking will turn a potential
$10 million expenditure into a $1 million expenditure!
Our efficiency gains never come at the expense of safety. In 1999, the Nova
Scotia Construction Safety Association recognized Nova Scotia Power workers with
one of the highest scores ever awarded in a safety audit. Extending our safety
commitment to overall health, we implemented a program that offers health risk
assessment to all employees. Our power production unit broadened the company's
safety initiative, piloting a home safety awareness program that makes safety a
24-hour a day focus.
Above, Left > Ken Francis, System Operator, Ragged Lake Control Centre Centre >
Ken Wentzell, Maintenance Services Supervisor, Tufts Cove Generating Station
Right > Top: Wayne Joudrey, Leading Power Line Technician, Metro Region; Bottom:
Phil Stevens, Leading Power Line Technician, Metro Region
3 > B U S I N E S S D E V E L O P M E N T
energy solutions for customers
------------------------------
"Knowledgeable", "trustworthy", "friendly" and
"reliable". These words are frequently used by
customers to describe our core electric utility, Nova
Scotia Power. Building on the strength of this
existing relationship with customers, we are becoming
their clear choice for a new array of energy products
and services.
Through our growth-oriented subsidiary, Enercom, we have expanded our product
line to provide more choices in energy, including home heating fuel, industrial
lubricants, bunker oil and diesel fuel. Nova Scotia Power is also providing
customers with new and value-added services like "Log One", an automated system
that uses motion sensors to determine when residential apartments are
unoccupied, and then slowly lowers the room temperature, enabling building
managers to control costs on an apartment-by-apartment basis. On a recent pilot,
Log One proved it could reduce winter energy costs by as much as 33%. Many
customers have embraced our broader product and service offerings. For example:
o Maritime Life, a prominent Canadian insurance company headquartered in
Halifax, worked with us to better understand their energy use, and contracted
for furnace oil and other services.
o A commercial customer, Urchin Property Management, with 18 apartment and
business complexes under management, purchases furnace oil, uses our energy
management services, and installed Electric Thermal Storage units to lower
energy costs.
o Eastlink Cable, which serves 190,000 customers across the province relies on
us for fibre optic design engineering and construction services.
We're not only expanding our product and service line - we are expanding
geographically too. Our 12.5% interest in the Maritimes & Northeast Pipeline has
enabled us to diversify our energy platform, and stretched our boundaries into
the northeastern United States. The pipeline is now delivering Sable Island
natural gas to its first customers in Maine and Massachusetts.
The success and strength of our core electric business positions us now, more
than any other time in our history, to grow with the energy and services
opportunities available to us in Nova Scotia, throughout the Maritimes, and
beyond.
Opposite, Inset > Diesel Cardlock System Top > Bill Camp, Manager Development
and Systems, ABT Canada Left > Raw material prior to processing Right > Exterior
hardboard siding awaiting shipment to customers
[PICTURE]
ABT Canada Limited, a Louisiana Pacific Company operates a 240,000 square foot
facility in East River, Nova Scotia. The plant produces exterior hardboard
siding, door facings, industrial hardboard products and wall panelling for
customers in 25 countries around the world.
NS Power Holdings supplies Bunker C oil, light fuel oil and electricity for ABT
Canada's operations and installed structured wiring for their communications
systems.
NS Power Holdings also operates a state-of-the-art cardlock system at the site
for convenient, high speed dispensing of diesel oil for trucks.
C O M M U N I T Y I N V E S T M E N T
doing well by doing good
-------------------------------------------------------------------------
Together with our employees, NS Power Holdings
commits more than three quarters of a million
dollars, and countless hours each year supporting our
com-munity. Helping young people has long been a
focus of these contributions. In addition, we
concentrate our efforts on safety and the
environment; two areas where we have particular
interest and expertise.
We made a significant investment in the young people of Nova Scotia in 1999,
funding 80 university scholarships. We also contributed to Regional Science
Fairs, the Junior Achievement Economics of Staying in School program, and
sponsored children to attend Sunship Earth, a five-day summer camp, where fun
and environmental awareness go hand-in-hand.
Our focus on youth extends to their safety. We partner with the IWK Grace Health
Centre in funding the Nova Scotia Child Safety and Injury Prevention Program,
which focuses on reducing the incidence and severity of childhood injuries. Our
safety projects expanded in 1999, when we responded to a pressing community need
by sponsoring a province-wide Crosswalk Safety Program in partnership with
several other leading Nova Scotia companies.
Environmental considerations play an important part in all our business
decisions. We contribute directly to improving our environment through a variety
of community-run programs. Our Waterwork program, which began in 1992 in
partnership with the Nova Scotia Department of the Environment, has funded over
140 projects improving and protecting Nova Scotia waterways. In 1999, the Nova
Scotia Nature Trust was one of several environmental enhancement programs we
supported. Clean Nova Scotia honoured us as their "Sponsor of the Year" for our
support of their environmental focus efforts.
Our employees are at the heart of our giving - their dedication is inspiring.
Spreading the "Good Neighbour" philosophy, NS Power staff have raised funds for
numerous charities, volunteered with the IWK Grace Children's Miracle Network
Telethon, donated money, food, and toys to families in need, and provided their
time, their skills, and their hard work, for all types of worthwhile community
endeavours.
At NS Power Holdings, we sincerely believe that supporting our communities is an
investment in our employees, our customers, and our future.
[PICTURE]
M A N A G E M E N T D I S C U S S I O N A N D A N A LY S I S
1 9 9 9 NS P o w e r H o l d i n g s I n c .
The Management Discussion and Analysis (MD&A) provides a review of the
significant developments that affected NS Power Holdings Inc.'s performance
during 1999 relative to 1998, and its current financial position. Factors that
could impact future operations are also discussed. Such comments will be
affected by, and may involve, known and unknown risks and uncertainties which
may cause the actual results of the company to be materially different from
those expressed or implied. To enhance shareholders' understanding, certain
multi-year historical financial and statistical information is presented.
Throughout this discussion, "NS Power Holdings Inc." and "NSH" refer to NS Power
Holdings Inc. and all of its consolidated subsidiaries and affiliates.
F i n a n c i a l H i g h l i g h t s
NS Power Holdings Inc.'s success in implementing its strategic objectives is
reflected in the following financial performance indicators:
Revenues - Despite continued warmer-than-normal temperatures, electric revenues
increased 5%, to $790.2 million in 1999, from $750.8 million in 1998. Other
revenues increased 54%, from $22.3 million in 1998 to $34.4 million in 1999,
reflecting growth in new lines of business.
Earnings - Net earnings applicable to common shares increased to $100.4 million
or $1.16 per share in 1999 from $85.4 million or $0.99 per share in 1998.
Dividends - NSH maintained its commitment to dividend growth, increasing the
common share dividend by $0.01, to $0.83 in 1999. A further $0.01 annual
increase commenced in January 2000. Higher earnings in 1999 resulted in an
improvement in the dividend payout ratio, from 83% to 72%.
Cash from Operations - Net cash provided by operating activities was
significant, at $223.7 million, comparable to the $228.0 million generated in
1998.
I n t ro d u c t i o n
NS Power Holdings Inc. (NSH) is a diversified energy and services company, which
incorporates three primary operating units:
o NSH's primary subsidiary is Nova Scotia Power Inc. (NSPI), a wholly-owned,
fully-integrated electric utility, with $2.8 billion of assets, that serves
440,000 customers in Nova Scotia. NSPI is the primary electricity supplier in
Nova Scotia, providing the vast majority of the generation, transmission and
distribution of electricity in the province.
o NSH's vehicle for growth and diversification outside of its core electric
business is its Enercom Inc. subsidiary. Enercom's mandate is to lever assets,
including strong customer relationships and operational expertise, into new
lines of business, complementary to NSH's existing energy and services
portfolio. Accordingly, Enercom has expanded NSH's energy product line to
include distribution of a wide range of fuel oil products, and related products
and services.
o NSH has a 12.5% equity investment in the Maritimes & Northeast Pipeline
(M&NP), which transports Sable Island natural gas to markets in Maritime Canada
and the northeastern United States.
In addition to these operating units, certain functions are carried out in the
NS Power Holdings Inc. corporation, including strategic planning and business
development activities. The individual corporation is referred to herein as
Holdings Corporate, to distinguish it from the NSH consolidated entity.
ORGANIZATION STRUCTURE
NSH
------------------------------------------------------------------
| | |
NSPI (100%) ENERCOM (100%) M&NP (12.5%)
This Management Discussion and Analysis presents information by operating unit,
beginning with an overview of each business; followed by discussion of its 1999
operating results and liquidity and capital resource details; then the outlook
for 2000. The MD&A concludes with a discussion of business risks and enterprise
risk management on a consolidated basis.
Enercom and M&NP are of strategic importance to NSH, and are expected to have a
significant financial impact over time. Accordingly, detailed commentary on each
of these operations is provided in this report
1999 Financial Highlights Earnings before
Interest
----------------------------------------- ------- ------ -------- -------------
NSPI $ 242.9
Enercom 1.3
M&NP 7.4
Holdings Corporate (3.4)
----------------------------------------- ------- ------ -------- -------------
Total $ 248.2
Less:
Interest 136.5
Preferred shares 11.3
----------------------------------------- ------- ------ -------- -------------
Consolidated net earnings $ 100.4
----------------------------------------- ------- ------ -------- -------------
1999 1998 1997
Cash provided by 223.7 228.0 304.7
Operating activities (millions of $)
Dividends per common share $ 0.83 $ 0.82 $ 0.81
Earnings per common share $ 1.16 $ 0.99 $ 1.07
N o v a S c o t i a P o w e r I n c .
Overview
-----------------------------------------------------------------------
The core business of NSH is electricity. The sustained success of its electric
utility, NSPI, is integral to the creation of shareholder value, providing a
quality earnings stream and cash flow to support growth and diversification.
NSPI is the primary electricity supplier in Nova Scotia with 97% of the
generation, 99% of the transmission and 95% of the distribution in the province.
Approximately 70% of the company's generation is coal-fired, with oil-fired
generation and hydro production offering generation management options. In 2000,
the conversion of NSPI's Tufts Cove generating station to burn natural gas as
well as oil will be complete, providing the company with additional fuel
switching capabilities, and improved environmental emissions performance.
1999 was a record year for NSPI, despite the fact that Nova Scotia experienced
its second consecutive year of warmer-than-normal temperatures. The company
utilized weather contracts to mitigate the impact of warm weather on
space-heating revenue; successfully managed coal supply issues created by
ongoing production difficulties at its primary coal supplier by increasing
consumption of import coal; and utilized fuel switching strategies to manage
generation costs in the face of increasing oil prices.
NSPI's commitment to being the customers' choice in energy and services is
stronger than ever. The rational customer chooses the supplier that provides the
best quality service at the best value, and NSPI is determined to deliver on
both counts. The company has successfully executed a cost-management strategy
that resulted in 1999 being the third consecutive year without price increases.
1999 also saw an increased focus on the quality service component of the
customer value equation. NSPI created a "Customer Needs Team", where operations
staff, field personnel and customer service staff work together to fundamentally
change the way we serve our customers. We also installed High Volume Call
Answering technology, and enhanced our Interactive Voice Response system to
increase our capacity to answer customer calls and improve service.
MANAGEMENT DISCUSSION AND ANALYSIS
We are also coordinating customers' desire for stable pricing with our
objective of moving electrical load off peak. This will enhance our capacity
utilization, and enable NSPI to delay or avoid investment in increased
generation, while maintaining highly reliable service, and keeping overall
costs, and prices, as low as possible.
The regional economy is strong, largely due to the development of Sable
Island natural gas reserves. Provincial economic growth was 3% in 1999, and is
expected to maintain that level in 2000. Employment grew 3% in the past year,
and retail sales were 4% higher in 1999.
Review of 1999
-----------------------------------------------------------------------
1999 was NSPI's most successful year ever. The electric ----------------
utility's contribution to consolidated net earnings | Net Earnings |
increased to $100.1 million from $85.5 million in 1998. The | Increase |
contribution is net of $3.1 million gain on the sale of | |
Enercom shares to NSH, which is eliminated on consolidation. | GRAPH |
NSPI earned a return on common equity of 10.8% in 1999 | |
compared to 9.5% in 1998. The utility is pleased to have | |
pro-vided a return near the top of its allowed range of | |
10.5% - 11%. ----------------
[Enlarge/Download Table]
REVENUE 1999 Sales % Change 1998 Sales % Change 1997 Sales Mix %
Electric Sales Volume Mix % 1998-1999 Mix % 1997-1998
(GWh)
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Residential 3,494.6 33.7 3.5 3,377.9 34.6 (3.5) 3,498.9 36.8
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Commercial 2,582.8 24.9 3.9 2,485.9 25.4 (0.8) 2,506.7 26.3
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Industrial 3,834.8 37.0 12.0 3,423.7 35.0 20.4 2,842.6 29.9
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Other 453.2 4.4 (6.4) 484.4 5.0 (27.5) 667.7 7.0
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
10,365.4 100.0 6.1 9,771.9 100.0 2.7 9,515.9 100.0
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Electric Sales Revenue 1999 Sales % Change 1998 Sales % Change 1997 Sales Mix %
(millions of $) Mix % 1998-1999 Mix % 1997-1998
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Residential 340.6 43.1 2.7 331.5 44.2 (2.2) 339.0 45.7
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Commercial 221.3 28.0 2.9 215.1 28.6 0.2 214.6 29.0
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Industrial 193.7 24.5 11.7 173.4 23.1 17.2 147.9 19.9
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
Other 34.6 4.4 12.3 30.8 4.1 (22.8) 39.9 5.4
----------------------- ---------------- ---------- ------------- ------------- ---------- ----------- -------------- --------------
790.2 100.0 5.2 750.8 100.0 1.3 741.4 100.0
Residential Revenue - Residential revenue increased 3% to $340.6 million in 1999
from $331.5 million in 1998, largely due to the relative strength of the Nova
Scotia economy. NSPI's residential load generally comprises appliance usage and
lighting (60%); space heating (20%); and water heating (20%). A 31% increase in
housing starts in 1999 led to three thousand new residential customers, and a
positive impact on revenues.
During the first and fourth quarters, continued warmer temperatures negatively
affected residential demand from space heating needs. The warm weather continued
through the summer, but only resulted in a slight revenue increase since less
than 5% of NSPI's residential customers utilize air conditioning. Weather risk
management contracts mitigated the negative impact of warmer-than-normal
temperatures on the residential load. These simple option contracts protected a
significant portion of the lost space heating margin from unanticipated
variations caused by warmer-than-normal winter temperatures. Weather risk
management contracts are fully described in the Business Risks and Enterprise
Risk Management section. Proceeds from weather risk management contracts are
included in Other Electric Revenue.
Commercial Revenue - Commercial revenue increased 3% from $215.1 million in 1998
to $221.3 million in 1999. NSPI's commercial customer base includes everything
from small retail operations, to large office and commercial complexes, and the
province's universities and hospitals. The strong Nova Scotian economy had a
positive impact on the commercial sector, and unlike the residential sector,
warmer summer temperatures increased the commercial cooling load. Weather risk
management contracts mitigated the negative impact of warm weather on
electricity consumption for space heating needs during the winter months.
Industrial Revenue - Industrial revenue increased 12%, from $173.4 million in
1998 to $193.7 million in 1999. Much of this increase was driven by the growth
of NSPI's largest industrial customer, Stora Enso Port Hawkesbury. In addition,
growth in the provincial economy, including development of Sable Island natural
gas and construction of the Maritimes & Northeast Pipeline, resulted in a 6%
increase in the small and medium industrial categories.
Revenue / MWh - Revenue / MWh decreased slightly from $77 to $76, due to the
increased weighting of industrial sales in the sales mix. The regulated rates
established by the Utility and Review Board for industrial sales are lower than
for residential and commercial sales, in recognition of the lower cost of
service for industrial customers.
Other Electric Revenue
Other electric revenue/1 increased $3.8 million from $30.8 million in 1998 to
$34.6 million in 1999. This increase is primarily due to $2.7 million net
proceeds realized from weather risk management contracts (referred to in the
discussion of residential/commercial revenue), which were in place in the first
and fourth quarters.
FUEL FOR GENERATION AND POWER PURCHASED
Capacity - Management of capacity is a critical element of operating efficiency.
The provision of sufficient generating capacity to meet peak demand inevitably
results in excess capacity in non-peak periods. NSPI's daily load is highest in
the early evening; its seasonal load is highest through the winter months.
Summer cooling load is not a significant factor.
To ensure reliability of service, NSPI maintains a generating capacity
greater than firm peak demand. Generating capacity is composed of 2,183
megawatts of thermal and hydroelectric plant and 25 megawatts contracted with
independent power producers. This capacity maintains a planned generation
reserve margin of at least 20%, which can be expanded further with an
interruptible load of 16%.
Over time, NSPI's capacity management strategy is to encourage customers to
consume electricity in non-peak periods, to enhance overall plant utilization to
meet higher demand, and to defer investment in additional generation capacity.
--------
1. In October 1998, NSPI purchased Kentville Electric Commission and is now
serving its 3,600 Residential and Commercial customers. Prior to this date, NSPI
sold electricity to the municipality who then resold it to Kentville customers.
For comparative purposes, Kentville Electric Commission revenue for 1998 has
been reclassified from "Other" revenue to the appropriate NSPI customer classes.
[Enlarge/Download Table]
Production Volume (GWh) 1999 Mix % % Change 1998 Mix % % Change 1997 Mix %
1998-1999 1997-1998
--------------------------- ------------ ----------- --------------- ------------- --------- ------------ ------------ ---------
Coal 7,816.0 70.5 11.4 7,015.0 66.8 (14.9) 8,246.5 80.0
Oil 1,870.9 16.9 (20.7) 2,358.3 22.4 202.0 781.4 7.6
Hydro 980.7 8.9 10.1 890.9 8.5 (4.7) 934.9 9.1
Purchased Power 411.3 3.7 70.0 242.0 2.3 (28.9) 340.2 3.3
---------------------------- ------------ --------- ------------- --------- ------------ ---------
Total 11,078.9 100.0 5.5 10,506.2 100.0 2.0 10,303.0 100.0
---------------------------- ------------ ----------- --------------- ------------- --------- ------------ ------------ ---------
Average Unit Fuel
Costs % Change % Change
($ per MWh) 1999 1998-1999 1998 1997-1998 1997
---------------------------- ------------ ----------- --------------- ------------- --------- ------------ ------------ ---------
$24.15 (1.4) $24.49 2.3 $23.92
---------------------------- ------------ ----------- --------------- ------------- --------- ------------ ------------ ---------
M A N A G E M E N T D I S C U S S I O N A N D A N A LY S I S
Fuel Expense - Total cost of fuel for generation and power purchased increased
by 4.0% over 1998, from $257.3 million to $267.5 million, reflecting a 6%
increase in production to meet higher sales volumes.
Coal, the utility's dominant fuel source, has the lowest per unit fuel
cost, after hydro production, which of course has no fuel cost component. Oil is
more expensive, and purchased power can be 2.5 to 3 times as costly as coal. The
average fuel cost per MWh of power produced was reduced slightly to $24.15 in
1999, from $24.49 in 1998, the result of a combination of fuel mix and pricing
factors, including:
o decreased oil-fired generation in 1999 compared to the prior year, when coal
supply interruptions with the Cape Breton Development Corporation (CBDC)
necessitated a greater reliance on oil;
o increased hydro production, which approached normal levels after a
particularly dry year in 1998;
o increased consumption of lower-priced import coal;
o an increase in the cost of CBDC coal, primarily due to volume-related
discounts imbedded in the 1998 pricing structure, as well as small inflationary
increases pursuant to the contract; and
o an increase in purchased power, as the Point Aconi generating station
underwent maintenance and modifications to enable it to burn petroleum coke, a
low-cost fuel.
CBDC, historically the company's primary coal supplier, permanently closed
its Phalen mine in 1999, due to ongoing geological difficulties. Output from the
other CBDC colliery, Prince, was less than anticipated. As a result, in 1999
NSPI purchased significant amounts of its coal from international suppliers.
While international coal spot prices were approximately 25% lower than the CBDC
contracted amounts, the higher cost of arranging for transportation of shipments
on short notice eroded much of the fuel price benefit in 1999.
The company manages exposure to commodity price risk through fixed price
contracts, as well as swap and option contracts; foreign exchange risk is
managed through forward and option contracts. Further details on the company's
fuel cost risk management strategies are included in the Business Risks and
Enterprise Risk Management section.
OPERATING, MAINTENANCE AND GENERAL EXPENSES
NSPI's continued emphasis on cost management kept operating, maintenance and
general expense (OM&G) increases at less than 3% over 1998, despite growth in
the company's customer base, and the ensuing increase in demand for electricity
and related services. OM&G costs in 1999 were $144.0 million, compared to $140.1
million in the prior year. Efficiency gains and costs savings across the entire
company mitigated the impact of higher payroll costs associated with the 6%
increase in electricity production and higher amortization costs associated with
the 1997 Early Retirement Incentive Program.
GRANTS IN LIEU OF PROPERT Y TAXES
NSPI pays annual grants to municipalities in Nova Scotia, in lieu of all
municipal taxation other than deed transfer tax. Since 1998, it has also been
required to make a grant to the Province of Nova Scotia, commencing with $2
million in the first year, and increasing by $2 million each year, to an annual
maximum of $10 million. In 1999 these expenses totaled $8.9 million compared to
$5.5 million in 1998.
DEPRECIATION
Depreciation expense increased slightly in 1999 to $94.2 million from $91.1
million in 1998 as a result of a higher level of in-service assets throughout
1999. Depreciation expense will increase marginally in 2000 largely as a result
of capital investment in the gas conversion project at the Tufts Cove generating
station.
INTEREST
Interest expense was $131.5 million in 1999 compared to $132.3 million in 1998,
a decrease of 1%. The $88.1 million reduction in total debt outstanding led to
interest savings of $2.6 million; debt refinancings at lower rates reduced
interest expense by another $2.9 million. Interest on loans to affiliated
companies contributed $0.5 million in earnings. These savings were offset by a
$5.2 million reduction in defeasance gains. During 1998 NSPI capitalized on
downturns in the stock market, which increased the spread between Federal and
Provincial bonds, by selling certain defeasance investments and acquiring
replacement qualifying investments for a net gain of $7.0 million.
The company manages exposure to interest rate risk through a combination of
fixed and floating borrowing, and hedging. Interest rate swaps are the principal
instrument used to hedge interest rate risk. Further details on the company's
interest rate risk management strategies are included in the Business Risks and
Enterprise Risk Management section.
AMORTIZATION OF POINT ACONI EXPENSES
The regulator-approved plan for deferral and amortization of Point Aconi
expenses was completed in 1999. The final year's amortization of Point Aconi
expense was $23.1 million, an increase of $6.4 million from 1998.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
NSPI provides for the borrowing costs of construction work-in-progress by
capitalizing an allowance for funds used during construction (AFUDC) as an
addition to the cost of property constructed. This amount is charged to
operations through depreciation over the service life of the related assets, and
recovered through future revenues. The capitalization rate for 1999 was 8.71%
(1998 - 8.89%), resulting in $4.8 million in AFUDC (1998 - $3.8 million).
TAXES
NSPI is subject to provincial capital tax (0.25%), large corporations tax
(0.225%), corporate income tax (45.12%) and Part VI.1 tax relating to preferred
dividends (40%).
NSPI used sufficient capital cost allowance, cumulative eligible capital
deductions and loss carry-forwards to eliminate corporate income tax in 1998,
and 1999, and expects to do the same in 2000.
Therefore, in 1999 income tax costs consisted only of Part VI.1 tax on NSPI
preferred dividends of $5.3 million. In 1998, income tax costs were $6.8
million, which included $1.9 million representing the final portion of
amortization of an uncollectible rebate under the Public Utilities Income Tax
Transfer Act (PUITTA). For financial reporting purposes, the Part VI.1 tax must
be allocated between income tax expense, and preferred dividends as illustrated
in the following table:
(In millions of dollars) 1999 1998
----------------------------------------------- ---------------- -------------
Income Tax expense $ 7.3 $7.6
Preferred dividends ($2.0) ($0.8)
----------------------------------------------- ---------------- -------------
Total tax cost $5.3 $6.8
The company has filed amended income tax returns for previous years that
increase the tax depreciation (capital cost allowance) available to be deducted
against the company's future taxable income. Those returns were reassessed by
Revenue Canada to disallow the deductions claimed. The reassessments have been
objected to and the issue is expected to be litigated.
Liquidity and Capital Resources
-------------------------------------------------------------------------
CASH FLOW HIGHLIGHTS
NSPI's operations consistently generate substantial cash resources, sufficient
to fund the utility's capital expenditure requirements, and still provide for an
increasing dividend.
During 1999, NSPI's operations generated $264.7 million, compared to $198.1
million in 1998. This $66.6 million increase included $17.8 million of increased
earnings, and $6.4 million from increased Point Aconi amortization. The balance
is primarily due to changes in working capital.
Net capital expenditures were $118.9 million in 1999, as compared to $131.2
million in 1998. Included in the total is $13.6 million related to the gas
conversion project at the Tufts Cove generating station; $14.2 million for
thermal plant reliability enhancements; $13.3 million in hydro projects; Year
2000 com-pliance testing and upgrades of $2.5 million; and routine distribution
system capital replacement of approximately $33.0 million. In the year, NSPI
also issued $180.0 million in mid-term notes, and raised $31.3 million through a
preferred share and purchase warrant offering. The proceeds were used to
refinance $158.4 million of maturing debt.
PREFERRED SHARES
In order to capitalize on favorable interest rates, and reduce refinancing
exposure on the redemption in September, 2000 of $200 million, 6%, Series A
Preferred Shares , new preferred equity shares were issued in March, 1999. The
First Preferred Share Units were issued at $6.25 each, and comprised one Series
B share, and one Series C Purchase Warrant. Beginning in October, 2000, unit
holders can acquire one Series C share in exchange for one Series B share, one
purchase warrant and $18.75. Series C will have a dividend rate of 4.9% and
matures October, 2009. $31.3 million was raised from the March issue, which was
applied
M A N A G E M E N T D I S C U S S I O N A N D A N A LY S I S
to reduce debt until the funds are required to finance the Series A redemption.
If all warrants are exercised, an additional $93.7 million in preferred equity
will be raised, bringing the total from this issue to $125 million. Full details
of the First Preferred Shares are provided in Note 9 to the financial
statements.
COMMON EQUITY
The Utility and Review Board regulates NSPI's capital structure, limiting common
equity (common share capital and retained earnings) to 35% of total
capitalization. In 1999, NSPI reached that common equity limit. The limit will
not increase unless there are additions to the asset base, and since NSPI's
strategy is to service additional demand through enhanced capacity utilization,
the company is not anticipating significant new investment in generating and
other assets. This means that common equity, which would otherwise grow every
year with the addition of earnings less dividends, must be maintained at its
year-end 1999 level by paying out earnings in their entirety to the parent
company, NS Power Holdings Inc.
DEBT Long-Term Debt Levels
($ millions)
Success in operations, and the resulting
cash flows enabled NSPI to reduce its debt by || ||
5% in 1999, to $1,507.7 million from $1,595.8 || || || ||
million in 1998. || || || || || || ||
|| || || || || || ||
The weighted-average coupon rate on || || || || || || ||
NSPI's long-term debt outstanding at ____________________________
December 31, 1999, was 7.58% (1998 - 7.99%). 93 94 95 96 97 98 99
This debt matures over the next 97 years as
shown in Note 10 to the financial statements. 1993 $1,710.1 1994 $1,553.0
The quoted market-weighted-average interest 1995 1,713.3 1996 1,468.2
rates for the same or similar issues of the 1997 1,308.1 1998 1,247.2
same remaining maturities was 7.16% as of 1999 1,268.6
December 31, 1999 (1998 - 6.27%).
In 1999, NSPI issued $180.0 million of medium-term notes, with interest
rates ranging from 5.20% to 5.65%, maturing over seven to 10 years. These notes
were issued primarily to replace maturing long-term obligations of $158.4
million, with a weighted-average interest rate of 8.44%.
NSPI has established the following short-term credit facilities:
o $350 million commercial paper program secured with a 100% backup line of
credit; and
o $150 million operating line of credit.
The company has a shelf prospectus for the issue of $500 million of debt
securities to the public. The securities may be either long-term debt or
medium-term notes, and are available as funds are required until the prospectus
expires in August 2001. These funds will be used to refinance maturing debt and
to provide financing for investment opportunities. At December 31, 1999, $450
million of the shelf prospectus remains available.
Based on our available credit and credit ratings, and past experience in
public financing since privatization, NSPI expects to have access to capital
when needed.
Accounts Receivable Securitization - NSPI signed an agreement with the Canadian
Imperial Bank of Commerce in March, 1997, whereby it can sell accounts
receivable and unbilled revenue to the bank on a revolving basis. As of December
31, 1999, the company had sold $81.4 million of accounts receivable and unbilled
revenue, net of a $7.4 million holdback (1998 - $82.5 million net of $7.5
million holdback). The net proceeds from the sale were used to repay a portion
of the company's debt, thereby reducing net interest costs. The agreement is in
place until 2002.
Outlook
--------------------------------------------------------------------------------
ELECTRIC SALES
Volume - Electric sales volume in 2000 is expected to increase approximately 2%
over 1999 levels.
Residential and commercial sales are expected to increase with an expected
return to normal weather and continued economic growth in Nova Scotia. Weather
risk management contracts have been purchased for the first and fourth quarters
of 2000 which protect approximately 90% of the profit margin at risk from
unanticipated weather-related variations in residential and commercial demand.
Industrial sales are expected to increase slightly in 2000, with Stora Enso
maintaining its demand, and planned expansions by other large industrial
customers. Other electric revenue is projected to show a 4% increase over 1999
due to continued strong demand in export markets.
Pricing - As part of its strategy to retain industrial market share with the
arrival of natural gas to Nova Scotia, NSPI is seeking regulatory approval to
implement favourable "load retention" rates for certain qualifying industrial
customers. If approved, the company anticipates that this will result in a
marginal reduction in industrial revenue in 2000, while maintaining a broad
customer base for system cost recovery.
In addition, NSPI has applied to the UARB to implement an enhanced "time-of-use"
rate structure, which, if applied, would provide the company's customers with an
additional tool for energy cost management, and improve our capacity
utilization.
The combined effect of the proposed load retention and time-of-use rate changes
is estimated to reduce annual revenues by approximately 2%.
FUEL
Fuel and purchased power costs in 2000 are expected to increase marginally over
1999, to support increased generation to meet anticipated higher sales volumes.
This increase in generation-related fuel costs will be largely offset by an
anticipated reduction in coal prices. Coal is expected to make up the majority
of 2000 generation, at 80%, with oil/gas comprising 11% and hydro at 9%.
In 2000, the majority of NSPI's fuel supply is expected to come from
international suppliers, and is subject to commodity price and foreign exchange
risk. As part of its Enterprise Risk Management (ERM) program, the company
manages commodity pricing risk through fixed price contracts and swap and option
contracts; forward contracts are used to manage the exposure to fluctuating U.S.
dollar exchange rates. Additional details on the company's ERM are included in
the Business Risks and Enterprise Risk Management section.
CBDC's Prince Colliery in Cape Breton is expected to supply much of the
company's remaining coal requirements for 2000. The company's long-term contract
with CBDC provides for renegotiation of both prices and minimum quantities at
periodic intervals. NSPI is now negotiating price and quantity details to cover
the time period until the Government of Canada completes the sale of CBDC.
In the fall of 2000, NSPI will complete the conversion of its Tufts Cove
generating station to allow that plant to burn natural gas in addition to heavy
fuel oil. The completion coincides with the expected in-service date of the
Halifax lateral of the Maritimes & Northeast Pipeline, which will deliver gas to
the plant. The company has entered into a long-term contract for gas supply for
the plant, which fixes the price for a substantial portion of the gas volumes.
OPERATING, MAINTENANCE AND GENERAL EXPENSES
Operating, maintenance and general expenses are expected to increase in 2000 due
primarily to increased pension expense due to earlier expense recording
following adoption of new accounting standards as outlined below:
o Liability for pension benefits payable upon retirement must be accrued as
earned over the service lives of the employees. Effective in 2000, there is a
new requirement to include non-pension post-retirement benefits, (such as
retirement awards and health benefits payable to retirees) in the accrual
instead of accounting for the benefits on a pay-as-you-go basis. This difference
in accounting treatment will increase the company's current benefit expense.
o In 1999, the discount rate used to calculate the liability accrual was based
on management's best estimate of the pension plan's long-term rate of return on
its pension fund assets. Beginning in 2000, the company must use a market-based
discount rate which will be based on high quality bond yields. The market-based
discount rate is lower than management's best estimate of the pension fund's
long-term rate of return. The use of a lower discount rate results in an
increase in the present value of the pension liabilities and an increase in the
company's current annual pension expense.
o There is a one-time transitional liability of approximately $50.0 million,
which is intended to reflect what the deferred pension amount would have been
had the new rules always been in effect. The transitional amount is required to
be written off over the expected average service life of the employee group.
However, in a regulated entity, it is important that past costs not be borne by
future ratepayers. Accordingly, NSPI has applied to the UARB for permission to
accelerate the write-off of the transitional amount.
M A N A G E M E N T D I S C U S S I O N A N D A N A LY S I S
Partially offsetting this increase will be reduced amortization costs of early
retirement incentive programs, and the cessation of Year 2000 remediation costs.
GRANTS IN LIEU OF PROPERTY TAXES
In accordance with the annual escalation in provincial grants, grants in lieu is
expected to increase by approximately $2.0 million, in 2000, to approximately
$11.0 million.
INTEREST
Interest expense in 2000 is anticipated to be consistent with 1999 levels,
reflecting the company's mature capital structure.
NET EARNINGS
The cessation of Point Aconi amortization, and the anticipated reduction in unit
fuel costs achieved through increased use of imported coal have a significant
positive impact on net earnings beginning in 2000. NSPI is working with the UARB
to implement a strategy that would share this benefit with customers through an
enhanced "time-of-use" price. The balance will be preserved through an
accelerated write-off of the transitional pension costs. In addition to
providing effective rate reduction through time-of-use pricing, this strategy
would support continued price stability, further enhancing customer value.
CAPITAL EXPENDITURES
NSPI expects capital expenditures to be approximately $113.0 million in 2000,
including $10.0 million to complete the Tufts Cove gas conversion. Other 2000
capital program spending will be directed at maintaining the electric generation
infrastructure, hydro safety and information technology to support system
reliability and enhance customer service. Expenditures will be financed by cash
flow from the company's operations.
Regulation
Nova Scotia Power Inc. is a public utility as defined in the Public Utilities
Act (Nova Scotia) and is subject to regulation under the Act by the Utility and
Review Board (UARB). The Act gives the UARB supervisory powers over NSPI's
operations and expenditures. Electricity rates for NSPI customers are also
subject to UARB approval. The UARB also regulates NSPI's capital structure,
limiting common equity (common share capital and retained earnings) to 35% of
total capitalization. The company is not subjected to an annual rate review
process, but rather participates in hearings from time-to-time at the company's
or the regulator's request.
Enercom Inc.
Overview
Enercom Inc. is the NSH subsidiary leading the corporation's pursuit of
growth and diversification outside of the core electric utility. Enercom's
growth strategy focuses on leveraging corporate assets, including operational
expertise and solid customer relationships, into complementary lines of
business, and bundled product offerings. Enercom intends to build success in
local markets, which can then be replicated elsewhere.
Enercom has expanded NSH's energy product line through acquisition of
independent fuel distribution businesses, which accounted for 59% of its revenue
in 1999. Industrial cabling operations comprised another 27% of revenue, with
the remaining 14% derived from an array of smaller product and service lines
that have since been discontinued in keeping with the company's refined focus.
Building on the corporation's superior operational expertise gained in Nova
Scotia, Enercom is investigating opportunities for electrical distribution
outside the province, in recently restructured marketplaces.
Fundamental to the successful execution of Enercom's strategy is the
company's ability to leverage customer relationships to expand its share of
customer spending, and to realize operational synergies in areas such as
service, call centers, billing systems, and buying power, to enhance both gross
and net margins.
Expansion into non-regulated businesses increases the overall NSH risk
profile modestly. Accordingly, additional investments are expected to generate
returns higher than those of the regulated entity.
Review of 1999
Revenues increased 70%, to $29.0 million in 1999, from $17.1 million in
1998. This growth was largely driven by the acquisition of several independent
fuel distribution businesses in Nova Scotia. As a result, Enercom will deliver
approximately 100 million litres of fuel annually to 11,000 customers throughout
the province. Furnace fuel comprises the majority of sales. The product line
also includes heavy fuel oil, diesel, lubricants and related products and
services such as furnaces and maintenance. 1999 earnings before interest and
taxes of $1.0 million reflect the fact that the fuel businesses were acquired
after the winter-heating season, as well as significant business development
spending appropriate for a company in the early stages of a growth mandate.
In 1999, Enercom invested $11.5 million in its business-building
activities. These investments were substantially financed with a $10.3 million
debenture from NSH, bearing interest at prime plus 0.5%. Cash from operations
was affected by increased investments in accounts receivable and inventories as
a result of the company's entry into the fuel distribution business. In total,
Enercom's operating, financing and investing activities absorbed $1.3 million in
cash in 1999.
Outlook
Enercom anticipates building its energy business in Nova Scotia, and
beyond, through acquisition over the next three years. Continuing its
disciplined approach to growth, Enercom will concentrate on opportunities of
sufficient scale, that provide appropriate returns. Further investment will be
funded with free cash flow from the parent company, NSH. In addition, Enercom
will focus on realizing operational synergies in its complementary lines of
business.
M a r i t i m e s & N o r t h e a s t P i p e l i n e
Overview
NS Power Holdings Inc. owns a 12.5% interest in the 1000 kilometre
Maritimes & Northeast Pipeline (M&NP), which transports natural gas from the
Sable Offshore Energy Project, to markets in Nova Scotia, New Brunswick and the
Northeastern United States. The investment provides an excellent opportunity to
pursue growth and diversification in the energy industry, while maintaining an
appropriate risk profile. The other owners of M&NP are Duke Energy, Westcoast
Energy and Exxon Mobil.
The M&NP has an estimated in-service cost of $2.0 billion, including $215.0
million for the Halifax, Point Tupper and Saint John laterals. NSH's total
equity investment to date is $54.7 million. The M&NP, which is regulated by the
National Energy Board (NEB) in Canada and the Federal Energy Regulatory
Commission (FERC) in the U.S., has an overall allowed rate of return of
approximately 13.5%. The investment is accounted for on the equity basis.
Review of 1999
M&NP came into service at the end of 1999, with the successful completion of the
mainline from Nova Scotia to Massachusetts. The Point Tupper, Nova Scotia
lateral was also completed.
Due to the regulated nature of the pipeline, M&NP is entitled to a return
on its investment as funds are advanced during the construction period.
Accordingly, in 1999, M&NP contributed $6.3 million of equity earnings to NSH.
M A N A G E M E N T D I S C U S S I O N A N D A N A LY S I S
In 1999, $24.2 million was invested as an additional equity contribution.
The investment in the pipeline is currently being financed through an NSH line
of credit bearing interest at prime plus 0.5%.
Outlook
Laterals to Halifax, Nova Scotia and Saint John, New Brunswick are planned to be
in service by late 2000. Projected levels of demand indicate that M&NP will earn
an annual return toward the top of its allowed range of approximately 13.5%.
H o l d i n g s C o r p o r a t e
Overview and Review of 1999
The unconsolidated NSH entity, referred to herein as Holdings, serves as the
financing vehicle for the corporation's business outside of the electric
utility. In addition, certain corporate functions are carried out within
Holdings, including strategic planning, and investigation of potential business
opportunities beyond the scope of Enercom. These costs, and interest expenses
related to its financing activities noted above, had a combined impact of $2.2
million on consolidated net earnings. In addition, in 1999, Holdings expensed
$2.9 million of deferred costs related to one of two geographically distinct
coal bed methane projects, because of concerns regarding the economic
feasibility of developing a market for production from this site. Holdings
revenue consists of intercorporate interest, which is eliminated on
consolidation, and therefore has no impact on net earnings. Holdings cash flow
is sustained by its earnings from NSPI and M&NP.
DEBT MANAGEMENT
NSH increased its debt by $76.0 million in 1999, to finance its own activities,
and those of its subsidiaries and investments. $51.0 million is invested in the
Maritimes & Northeast Pipeline, and $15.0 million provided to Enercom.
NSH has established a $150 million operating line of credit.
DIVIDEND POLICY AND PAYOUT RATIOS
For 1999, NS Power Holdings' common dividend rate increased to $0.83 per common
share. Higher earnings improved the payout ratio to 72%, from 83% in 1998. In
January 2000, the Board of Directors declared an increase in the 2000 first
quarter common share dividend from $0.2075 to $0.21 per share. Earnings growth
is anticipated to exceed dividend growth over the next several years resulting
in a continuing improvement in the dividend payout ratio.
Business Risks and Enterprise Risk Management
Risk Management at NS Power Holdings Inc.
NS Power Holdings Inc. understands the risks inherent in its business and is
taking a disciplined and comprehensive approach to risk management. NSH defines
risk broadly, as anything which could impact its ability to achieve its
strategic objectives. The company's sophisticated approach to risk management
ensures the consolidated risk portfolio is dynamically managed and that
management decisions are optimized within a predefined level of risk tolerance.
All significant risk management activities for NSH are monitored by the
Executive Risk Management Committee to ensure the resulting exposure is within
predefined tolerance levels. The Board of Directors will receive quarterly
reports from the Committee and must approve the strategic direction and annual
risk management program parameters prior to implementation.
Financial Risks
NSH's risk management objective is to ensure predictable and stable earnings and
cash flow from the company's core electric business. Achieving the maximum
allowable return on equity in NSPI will provide cash flow for investment in
growth opportunities, support price stability for customers, and solidify the
dividend to shareholders. Accordingly, the company's risk management activities
have been focussed on those areas which most significantly impact profitability
and quality of earnings. These risks include, but are not limited to, exposure
to commodity prices, foreign exchange, interest rates and weather, and are
discussed below.
Commodity Prices
In the past, NSH's exposure to commodity price risk has been limited, with
approximately 85% of fuel requirements supplied by CBDC and other indigenous
coal suppliers under long-term, fixed-price contracts. With the closure of
CBDC's Phalen Colliery and addition of natural gas as a fuel source, exposure to
commodity price risk has increased. Approximately 60% of the company's annual
fuel requirement for 2000 is subject to fluctuations in commodity market prices.
COAL
With the restructuring of the coal industry in Cape Breton, the majority of the
company's coal supply will come from international suppliers at prevailing
market prices. To ensure reliability of both fuel supply and price, the company
has entered into fixed-price contractual arrangements with several coal
suppliers. Approximately 70% of anticipated import requirements for 2000 have
been fixed. Physical contracts are used to hedge coal price risk due to the lack
of liquidity in the financial markets for coal.
HEAVY FUEL OIL
Heavy fuel oil will meet approximately 10% of the company's 2000 fuel
requirements. NSH manages exposure to changes in the market price of heavy fuel
oil through the use of swap and option contracts. As of December 31, 1999, the
price for approximately 88% of the anticipated heavy fuel oil purchases for 2000
was set at an average of $US12.56 per barrel.
NATURAL GAS
Beginning in late 2000, NSH expects to consume natural gas at its Tufts Cove
Generating Station. The company has entered into a ten-year contract to purchase
62 million cubic feet of natural gas per day from Shell Canada Limited. The
contract fixes the price for a substantial portion of the gas volumes; the
balance is exposed to market price fluctuations, and will be managed using
financial instruments.
FUEL MIX
The risk inherent in the Canadian dollar cost of fuel is measured and managed on
a portfolio basis. The ability to fuel switch provides a dynamic, operational
and very effective option in managing commodity price and supply risk and
capitalizing on opportunities for revenue growth.
Foreign Exchange
In 2000, the company expects approximately 60% of its anticipated fuel costs to
be denominated in US dollars. Forward and option contracts are used to manage
the exposure to fluctuating $US exchange rates. Foreign exchange contracts are
in place for all of 2000's anticipated $US fuel costs. $US income from NSH's
12.5% interest in the Maritimes & Northeast Pipeline will provide a natural
hedge against a portion of $US denominated fuel costs.
Weather
Warm winters can have a negative impact on earnings. Electricity and fuel oil
sales to residential and commercial customers for space heating during the
winter months contribute significantly to the company's annual earnings. In
1999, the company piloted the use of financial instruments to protect earnings
in the event of warmer-than-normal winter temperatures. As a result, the company
realized proceeds of $2.7 million, which mitigated the effect of 1999's warm
weather on earnings. A similar instrument has been purchased for 2000. This
simple option contract will protect, after a reasonable deductible,
approximately 90% of the lost space heating margin from unanticipated variations
caused by warmer-than-normal winter temperatures.
Interest Rates
NSH manages interest rate risk through a combination of fixed and floating
borrowing and a hedging program. Floating-rate debt is estimated to represent
approximately 16% of total debt in 2000. Interest rate caps are used to insure
against extreme movements in interest rates on floating debt. In 2000, interest
on approximately 67% of the company's anticipated floating debt is limited to an
average rate of 6.6%.
Interest rate collars are used to hedge reinvestment risk on long-term
fixed-rate debt. Fixed-rate debt maturities are limited in any one year and
continually monitored to reduce rollover exposure.
Counterparty Risk
NSH reduces its exposure to financial counterparty default by dealing only with
counterparties who have a credit rating of A or better and by allocating
derivative positions to several counterparties.
Strategic Risks
NSH's comprehensive risk management program also includes risks having a
long-term impact on the company's competitiveness. These risks have been
identified, assessed and are being managed through the design and implementation
of the company's strategic plan.
Deregulation of the Electricity Industry
Deregulation of the electric industry in Nova Scotia is not on the immediate
horizon, but in all likelihood will eventually occur. When electric competition
arrives, the province's geographic location, the limits of intra-provincial
transmission links, and the diversity of the company's customer base will help
to reduce the impact on NSPI. In addition, the company is committed to enhancing
its strong competitive and financial position by:
o maintaining rate stability;
o working with customers to help them reduce energy costs further, including
providing them with greater access to time-of-use pricing;
o continuously improving customer service;
o managing costs through enhanced capacity management, reduced fuel and
operating costs and efficient capital investment; and
o ensuring that employees are prepared and committed to carry out its strategy.
The ability to lever existing customer relationships into complementary
energy and services businesses, and to invest cash flow in quality growth
opportunities is integral to the company's strategy and its future success in a
competitive marketplace.
Introduction of Natural Gas
Natural gas will be available in Nova Scotia in 2000. Provincial distribution
rights have been awarded, and the completion of the Halifax lateral, late in
2000, will provide customers in the most densely populated area of the province
with the option of using natural gas for heating and other uses.
In 1998, after much consideration, the company elected not to pursue natural
gas distribution rights. A clear benefit gained from the research associated
with the project was an enhanced understanding of the impact natural gas will
have in the province.
The major residential use expected for natural gas is for space heating,
which makes up less than 20% of NSPI's total electrical load. The costs to
convert from electric heat are significant. Accordingly, natural gas may have
little appeal for existing homes, but be more popular in new construction.
NSPI's ongoing success in maintaining rate stability, and its efforts to provide
customers with options for managing their energy needs, with such things as
electric thermal storage units which allow customers to store heat during
non-peak hours, will position the company to manage natural gas competition when
it arrives.
The relative price of natural gas versus furnace oil is a critical factor
customers will consider when choosing between these two fuel sources. Current
and forward prices for both commodities suggest the costs to convert from oil to
natural gas may outweigh price savings for many years, reducing the likelihood
that existing customers will make the switch. Enercom's customer service staff
are working with our fuel oil customers to help them understand their energy
needs and how best to manage them, to ensure that furnace oil continues to be an
attractive fuel source.
NSPI has applied to its regulator for permission to introduce a favorable
"load retention" rate - aimed at those industrial customers who are considering
self generation using alternative fuel sources. NSPI is of the opinion that if
this rate is approved, electrical pricing to industrial customers will be
competitive with alternative fuel sources.
Environmental Considerations
NS Power Holdings is committed to conducting its business in a manner which is
respectful and protective of the environment, and which complies with
environmental laws and regulations. Environmental management systems have been
established to maintain and enhance environmental performance and verify
compliance with all significant aspects of current environmental regulations.
Details of the company's environmental programs can be found on its website at
www.nspower.ca.
ISO 14001
By the end of 1999, the company had processes and procedures in place
substantially equivalent to the ISO 14001 standard. This voluntary standard
provides a framework for the implementation and maintenance of environmental
policy throughout the company.
GREENHOUSE GAS EMISSIONS
In 1995, Canada established a National Action Program on Climate Change. In
1998, Canada signed the Kyoto Protocol, which commits to a reduction in
greenhouse gas (GHG) emissions. The Protocol, which awaits ratification by most
countries, including Canada, requires Canada to reduce its GHG emissions by 6%
from 1990 levels during the period 2008 - 2012. While the specific requirements
associated with, and potential impact of these initiatives will not be known for
some time, they will influence the company's choice of fuel and the technology
that will replace or improve generating facilities as they age.
This is an important issue for NSH as 90% of the company's generation comes
from CO2-emitting fossil fuels. Throughout 1999, NSH has been a full participant
in both the federal and provincial processes aimed at developing Canada's and
Nova Scotia's strategies for reducing emissions of greenhouse gases. One such
program is the Voluntary Challenge and Registry program. NSH supports this
program and has offered a number of initiatives to reduce emissions of GHGs.
With success of these initiatives, the emission rate of GHG per unit of power
sold is projected to decrease from 0.791 kg/kWh in 1990 to 0.66 kg/kWh in 2008.
SULPHUR DIOXIDE
The Air Quality Regulations under the Nova Scotia Environment Act currently
limit NSPI's emission of sulphur dioxide to a maximum of 145,000 tonnes per
year. Further reductions from this limit are expected as a result of two ongoing
initiatives: The Canadian Post-2000 Acid Rain Strategy and the Acid Rain Action
Plan of the Conference of New England Governors and Eastern Canadian Premiers.
The company continues to reduce sulphur dioxide emissions. The plan has, as its
cornerstone, the circulating fluidized bed combustion technology at the Point
Aconi generating station. Compared to a conventional pulverized coal plant,
Point Aconi is designed to achieve a 90% reduction in sulphur dioxide emissions
as well as a 65% to 75% reduction in nitrogen oxide emissions. In addition to
reductions achieved at Point Aconi, lower sulphur coal is an increasing part of
the fuel mix throughout the system. Finally, as part of the company's long-term
strategy to reduce sulphur dioxide emissions, the Tufts Cove generating station,
which now burns oil, will be converted by Fall 2000 to enable it to burn cleaner
natural gas as well. In 1999, sulphur dioxide emissions were 141,644 tonnes, a
decrease from 143,546 tonnes in 1998.
F I N A N C I A L I N F O R M A T I O N
Management Report
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of NS Power Holdings Inc.
(NSH) and the information in this annual report are the responsibility of
management and have been approved by the Board of Directors (Board).
The consolidated financial statements have been prepared by management in
accordance with generally accepted accounting principles. When alternative
accounting methods exist, management has chosen those it deems most appropriate
in the circumstances. Nova Scotia Power Inc. (NSPI), NS Power Holdings Inc.'s
electric utility and principal subsidiary, is regulated by the Nova Scotia
Utility and Review Board, which also examines and approves NSPI's accounting
policies and practices. In preparation of these statements, estimates are
sometimes necessary when transactions affecting the current accounting period
cannot be finalized with certainty until future periods. Management believes
that such estimates, which have been properly reflected in the accompanying
consolidated financial statements, are based on careful judgements and are
within reasonable limits of materiality. Management has determined such amounts
on a reasonable basis in order to ensure that the consolidated financial
statements are presented fairly in all material respects. Management has
prepared the financial information presented elsewhere in the annual report and
has ensured that it is consistent with that in the consolidated financial
statements.
NSH maintains systems of internal accounting and administrative controls of high
quality, consistent with reasonable cost. Such systems are designed to provide
reasonable assurance that the financial information is relevant, reliable and
accurate and that NSH's assets are appropriately accounted for and adequately
safeguarded.
The Board is responsible for ensuring that management fulfills its
responsibilities for financial reporting and is ultimately responsible for
reviewing and approving the consolidated financial statements. The Board carries
out this responsibility principally through its Audit Committee.
The Audit Committee is appointed by the Board, and its members are directors who
are not officers or employees of NS Power Holdings Inc. The Audit Committee
meets periodically with management, as well as with the internal auditors and
with the external auditors, to discuss internal controls over the financial
reporting process, auditing matters and financial reporting issues, to satisfy
itself that each party is properly discharging its responsibilities, and to
review the annual report, the consolidated financial statements and the external
auditors' report. The Audit Committee reports its findings to the Board for
consideration when approving the consolidated financial statements for issuance
to the shareholders. The Audit Committee also considers, for review by the Board
and approval by the shareholders, the appointment of the external auditors. The
consolidated financial statements have been audited by Ernst & Young LLP, the
external auditors, in accordance with generally accepted auditing standards on
behalf of the shareholders. Ernst & Young LLP has full and free access to the
Audit Committee.
February 1, 2000
David Mann President and Chief Executive Officer (signed)
Jay Forbes, CA Senior Vice President and Chief Financial Officer (signed)
A u d i t o r s ' R e p o r t
TO THE SHAREHOLDERS OF NS POWER HOLDINGS INC.
We have audited the consolidated balance sheets of NS Power Holdings Inc. as at
December 31, 1999 and 1998, and the consolidated statements of earnings,
retained earnings and changes in cash position for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December 31,
1999 and 1998 and the results of its operations and the changes in its cash
flows for the years then ended in accordance with accounting principles
generally accepted in Canada.
Halifax, Canada
February 1, 2000
Ernst & Young LLP Chartered Accountants (signed)
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Consolidated statement of earnings
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 (millions of dollars, except earnings per common share) 1999 1998
------------------------------------------------------------------------------------------------------ --------------- -------------
Revenue
Electric (note 1c) $790.2 $750.8
Other 34.4 22.3
------------------------------------------------------------------------------------------------------ --------------- -------------
824.6 773.1
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Cost of operations
Fuel for generation and power purchased 267.5 257.3
Cost of goods sold 23.3 14.0
Operating, maintenance and general 155.5 142.5
Grants in lieu of property taxes 8.9 5.5
Provincial capital tax (note 4) 7.0 6.7
Depreciation 94.8 91.3
------------------------------------------------------------------------------------------------------ --------------- -------------
557.0 517.3
------------------------------------------------------------------------------------------------------ --------------- -------------
Earnings from operations 267.6 255.8
Equity earnings in Maritimes & Northeast Pipeline 6.3 -
Amortization of Point Aconi expenses (notes 1d and 7) (23.1) (16.7)
Allowance for funds used during construction (note 1e) 4.8 3.8
------------------------------------------------------------------------------------------------------ --------------- -------------
Earnings before interest and taxes 255.6 242.9
Interest (note 3) 136.5 132.7
------------------------------------------------------------------------------------------------------ --------------- -------------
Earnings before taxes 119.1 110.2
Large corporations tax (note 4) 6.1 5.9
Income tax - current (note 4) 7.5 7.7
Income tax - deferred (note 4) (6.2) -
------------------------------------------------------------------------------------------------------ --------------- -------------
Net earnings before minority interest 111.7 96.6
Minority interest (notes 1a and 4) 11.3 11.2
------------------------------------------------------------------------------------------------------ --------------- -------------
Net earnings applicable to common shares $100.4 $85.4
------------------------------------------------------------------------------------------------------ --------------- -------------
Earnings per common share $1.16 $.99
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See accompanying notes to the financial statements.
------------------------------------------------------------------------------------------------------ --------------- -------------
consolidated statement of retained earnings
------------------------------------------------------------------------------------------------------ --------------- -------------
Year Ended December 31 (millions of dollars) 1999 1998
------------------------------------------------------------------------------------------------------ --------------- -------------
Retained earnings at beginning of year $238.7 $224.4
Reorganization costs (note 1a) (1.1) -
Net earnings applicable to common shares 100.4 85.4
------------------------------------------------------------------------------------------------------ --------------- -------------
338.0 309.8
------------------------------------------------------------------------------------------------------ --------------- -------------
Dividends
Common 72.2 71.1
------------------------------------------------------------------------------------------------------ --------------- -------------
Retained earnings at end of year $265.8 $238.7
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See accompanying notes to the financial statements.
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Consolidated balance sheet
------------------------------------------------------------------------------------------------------ --------------- -------------
As at December 31 (millions of dollars) 1999 1998
------------------------------------------------------------------------------------------------------ --------------- -------------
Assets
------------------------------------------------------------------------------------------------------ --------------- -------------
Property, plant and equipment (notes 1f and 5) $2,315.0 $2,298.4
Construction work in progress 47.3 30.5
------------------------------------------------------------------------------------------------------ --------------- -------------
2,362.3 2,333.9
------------------------------------------------------------------------------------------------------ --------------- -------------
Investment in Maritimes & Northeast Pipeline (note 1n) 54.7 30.5
------------------------------------------------------------------------------------------------------ --------------- -------------
Other assets
Deferred charges (note 7) 319.5 361.4
Deferred income tax (note 4) 6.2 -
Goodwill (note 1o) 6.8 -
------------------------------------------------------------------------------------------------------ --------------- -------------
332.5 361.4
------------------------------------------------------------------------------------------------------ --------------- -------------
Current assets
Cash 2.7 0.1
Accounts receivable (note 6) 35.6 24.0
Unbilled revenue (notes 1c and 6) 30.4 25.6
Inventory (note 1h) 82.4 58.6
Income taxes recoverable (note 4) 0.6 -
------------------------------------------------------------------------------------------------------ --------------- -------------
151.7 108.3
------------------------------------------------------------------------------------------------------ --------------- -------------
$2,901.2 $2,834.1
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Shareholders' Equity and Liabilities 1999 1998
------------------------------------------------------------------------------------------------------ --------------- -------------
Shareholders' equity
Common
Shares (note 8) $676.5 $672.5
Retained earnings 265.8 238.7
------------------------------------------------------------------------------------------------------ --------------- -------------
Minority interest (note 9) 942.3 911.2
231.3 200.0
------------------------------------------------------------------------------------------------------ --------------- -------------
1,173.6 1,111.2
------------------------------------------------------------------------------------------------------ --------------- -------------
Long-term debt (note 10) 1,260.7 1,083.7
------------------------------------------------------------------------------------------------------ --------------- -------------
Deferred credits 2.2 2.2
------------------------------------------------------------------------------------------------------ --------------- -------------
Current liabilities
------------------------------------------------------------------------------------------------------ --------------- -------------
Debt due within one year (note 11) 328.3 517.4
Accounts payable and accrued charges 105.8 87.3
Dividends payable 3.4 3.0
Income taxes payable (note 1g) - 1.0
Accrued interest on long-term debt 27.2 28.3
------------------------------------------------------------------------------------------------------ --------------- -------------
464.7 637.0
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2,901.2 2,834.1
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Commitments and contingencies (note 14)
See accompanying notes to the financial statements
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
(signed) (signed)
Derek Oland David Mann
Chairman President and Chief Executive Officer
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Consolidated statement of changes in cash position
------------------------------------------------------------------------------------------------------ --------------- -------------
Year Ended December 31 (millions of dollars) 1999 1998
------------------------------------------------------------------------------------------------------ --------------- -------------
Operating activities
Net earnings before minority interest $111.7 $96.6
Non-cash items:
Depreciation 94.8 91.3
Amortization of deferred charges 24.0 25.6
Amortization of Point Aconi expenses 23.1 16.7
Equity earnings in Maritimes & Northeast Pipeline (note 1n) (6.3) -
Change in operating working capital (23.6) (2.2)
------------------------------------------------------------------------------------------------------ --------------- -------------
Net cash provided by operating activities 223.7 228.0
------------------------------------------------------------------------------------------------------ --------------- -------------
Financing activities
(Repayment of) increase in short-term debt (33.6) 28.1
Proceeds from issue of common shares, net 4.0 4.9
Increase in minority interest 31.3 -
Proceeds from long-term debt, net 180.0 140.0
Repayment of long-term debt (158.4) (200.9)
Net changes in matching notes receivable (sinking funds) - 47.7
Other financing activities, net (30.5) (14.7)
------------------------------------------------------------------------------------------------------ --------------- -------------
Net cash (used in) provided by financing activities (7.2) 5.1
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Investing activities:
Property, plant and equipment, net (112.0) (114.2)
Construction work in progress, net (11.8) (17.9)
Investment in Maritimes & Northeast Pipeline (17.9) (30.5)
------------------------------------------------------------------------------------------------------ --------------- -------------
Net cash used in investing activities (141.7) (162.6)
------------------------------------------------------------------------------------------------------ --------------- -------------
Dividends:
Common shares (72.2) (71.1)
------------------------------------------------------------------------------------------------------ --------------- -------------
Increase (decrease) in cash position 2.6 (0.6)
Cash position at beginning of year $0.1 $0.7
------------------------------------------------------------------------------------------------------ --------------- -------------
Cash position at end of year $2.7 $0.1
------------------------------------------------------------------------------------------------------ --------------- -------------
See accompanying notes to the financial statements.
Notes to the Consolidated Financial Statements
December 31, 1999
NS Power Holdings (NSH or the company), through its principal subsidiary, Nova
Scotia Power Inc. (NSPI), is engaged in the production and sale of electric
energy, which is regulated by the Nova Scotia Utility and Review Board (UARB).
NSH follows generally accepted accounting principles (GAAP). NSPI's accounting
policies are in accordance with GAAP and are subject to examination and approval
by the UARB and are similar to those being used by other companies in the
electric utility industry.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Reorganization Effective January 1, 1999, the common shareholders of NSPI
exchanged their common shares for common shares of NS Power Holdings Inc. on a
one-for-one basis. NSPI became a subsidiary of NSH. The NSH common shares have
substantially the same rights, privileges, restrictions and conditions as the
NSPI common shares. NSPI's existing preferred shares are recorded as minority
interest in NSH. Reorganization costs of $1.1 million were charged to retained
earnings.
b. Consolidation The consolidated financial statements include the accounts of
the company and its wholly-owned subsidiaries NSPI, Enercom Inc., NSP Pipeline
Inc., NSP U.S. Holdings Inc., Strait Energy Inc., NS Power Services Inc. and
Stellarton Basin Coal Gas Inc. (SBCGI).
c. Revenue Recognition Revenues are recognized on the accrual basis, which
includes an estimate of the value of electricity consumed by customers in the
year but billed subsequent to year-end.
d. Amortization of Point Aconi Expenses The Point Aconi generating station
became operational in March 1994. To enhance rate stability, the UARB approved
NSPI's request to defer a portion of the depreciation and interest expense
pertaining to Point Aconi, together with an imputed cost-of-capital charge, at a
rate of 50% in 1994 and 33 1/3% in 1995. An amount representing the interest
cost of carrying the previously deferred balance was deferred in 1996. The
deferred amount was amortized to earnings annually from 1997 through 1999.
Amortization is now complete.
e. Allowance for Funds Used During Construction For the regulated electric
business carried on by NSPI, the company provides for the cost of financing
construction work in progress by including an allowance for funds used during
construction as an addition to the cost of property constructed, using a
weighted average cost-of-capital. This allowance will be charged to operations
through depreciation over the service life of the related assets and recovered
through future revenues.
f. Property, Plant and Equipment Property, plant and equipment are recorded at
original cost net of contributions in aid of construction. Expenditures for
additions, replacements and improvements, which comprise direct labour,
material, engineering, and related overhead costs, are capitalized whereas
repairs and maintenance are charged to operations. When property, plant and
equipment are replaced or retired, the original cost plus any removal costs
incurred, (net of salvage), are charged to accumulated depreciation.
Depreciation is determined by the straight-line method, based on the
estimated remaining service lives of the depreciable assets in a category. The
estimated average service lives and average depreciation rates for the major
categories of plant in service are summarized as follows:
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Functions Average Service Life in Years Average Depreciation Rate
------------------------------------------------- -------------------------------------- -----------------------------------
Generation: Thermal 43.3 2.33%
Gas Turbine 33.9 2.04%
Hydroelectric 77.4 1.18%
------------------------------------------------- -------------------------------------- -----------------------------------
Transmission 45.4 2.71%
Distribution 31.2 3.82%
General Plant 15.4 5.28%
------------------------------------------------- -------------------------------------- -----------------------------------
N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l
S t a t e m e n t s
The estimated service lives of depreciable assets and the significant
assumptions underlying the estimates of removal costs for NSPI are subject to
periodic review by the UARB. Provisions for future removal and site restoration
costs are charged to depreciation expense over the life of the related assets.
As at December 31, 1999, the company had recorded an estimated liability for
future removal and site restoration costs of $16.6 million (1998 - $15.4
million).
In accordance with regulatory authority, assets of NSPI which are not
currently being used, but will be useful in providing future service to
customers, are not depreciated. Financing costs associated with assets not
currently being used are deferred as incurred. Depreciation will occur when the
asset goes into service. Significant costs in removing the asset from service
may be deferred and amortized to earnings over a five-year period, subject to
regulatory approval. Significant costs to return the asset to service are added
to the capital cost of the asset.
g. Income Taxes NSH and its subsidiaries, except for NSPI, follow the deferral
method of income tax allocation for providing for income taxes. NSPI, as a
rate-regulated utility, uses the taxes-payable method as there is a reasonable
expectation that all taxes payable in future years will be included in approved
rates and recoverable from customers of NSPI at that time.
h. Inventory Inventories of materials and supplies are valued at average cost.
Coal and oil inventory is valued at cost using the first-in, first-out method.
i. Deferred Severance Costs In order to achieve rate stability, the UARB allows
NSPI to defer the cost of large early retirement and severance programs, and
amortize the resulting deferred charges on a straight-line basis over a
three-year period, commencing in the period in which the program is initiated.
j. Pension Plans and Post-Retirement Benefits Pension costs are actuarially
determined using the projected unit credit method prorated on services and
management's best estimate assumptions. Adjustments arising from plan
amendments, experience gains and losses, and changes in actuarial assumptions
are amortized on a straight-line basis over the estimated average remaining
service life of employees. Pension fund asset values are calculated using market
values at year-end. The difference between pension expense and pension funding
is recorded as a deferred asset or credit.
NSPI provides medical care and life insurance benefits to eligible retirees and
their dependents. Post-retirement benefit costs are expensed as paid.
k. Foreign Currency Translation Monetary assets and liabilities denominated in
foreign currencies are converted to Canadian dollars at rates of exchange
prevailing at the balance sheet date. The resulting differences between the
translation at the original transaction date and the balance sheet date are
charged to operations as they arise.
Non-monetary items are translated to Canadian dollars at historical
exchange rates.
Revenue and expenses are converted at rates of exchange in effect at the
date of the transaction.
l. Debt Financing and Defeasance Costs Financing costs pertaining to debt issues
are amortized over the life of the related debt. The excess of the cost of
defeasance investments over the face value of the related debt is deferred and
amortized over the life of the defeased debt.
m. Hedging Instruments The company is party to derivative financial instrument
contracts, mainly interest rate contracts, forward foreign exchange contracts,
oil swap and weather temperature agreements, all of which are used to hedge
existing exposures. Premiums paid are deferred and recognized over the life of
the agreements.
n. Investment in Maritimes & Northeast Pipeline The company's 12.5% equity
investment in Maritimes & Northeast Pipeline is accounted for using the equity
method whereby the amount of the investment is adjusted annually for the
company's pro-rata share of the income or loss of Maritimes & Northeast Pipeline
and reduced by the amount of any dividends received.
o. Goodwill Goodwill is stated at cost and is amortized using the straight-line
method over 20 years.
p. Stock Based Compensation Plan No compensation expense is recognized for the
plan when stock options are issued to executives. Any consideration paid by
participants in the plan on exercise of stock options is credited to share
capital.
NOTE 2. SEGMENT INFORMATION
The company has three reportable segments: Nova Scotia Power Inc., Enercom Inc.
and Maritimes & Northeast Pipeline.
a. Measurement of segment income (loss) and segment assets The company evaluates
performance based on earnings before interest and taxes. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies.
b. Factors management uses to identify the enterprise's reportable segments
Reportable segments are determined based on NSH's operating activities and
regulation. NSPI is engaged in the production and sale of electric energy, which
is regulated by the Nova Scotia Utility and Review Board (UARB). Maritimes &
Northeast Pipeline companies (NSP Pipeline Inc. and NSP U.S. Holdings Inc.) own
a 12.5% equity investment in Maritimes & Northeast Pipeline, which is regulated
by the National Energy Board (NEB) in Canada and the Federal Energy Regulatory
Commission (FERC) in the U.S. Enercom Inc. is an unregulated subsidiary which
has expanded NSH's energy product line to include distribution of a full range
of fuel oil products.
c. Segment information
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Years ended December 31, 1999 and 1998 (millions of dollars)
Nova Scotia Enercom Maritimes & Other Total
Power Inc. Inc. Northeast
Pipeline
------------------------ ----------- ----------- --------- ---------- --------- -------- --------- --------- ----------- -----------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
------------------------ ----------- ----------- --------- ---------- --------- -------- --------- --------- ----------- -----------
Revenues from
External customers $798.9 $756.1 $29.0 $17.1 - - ($3.3) ($0.1) $824.6 $773.1
Depreciation expense 94.2 91.1 0.6 0.2 - - - - 94.8 91.3
Operating expenses 521.4 500.7 33.9 16.5 0.5 0.1 1.2 - 557.0 517.3
Net intersegment
Revenues/expenses 4.3 5.3 (4.3) (5.3) - - - - - -
Equity earnings - - - - 6.3 - - - 6.3 -
Earnings before
Interest and taxes 259.2 242.5 1.0 0.6 - - (4.6) (0.2) 255.6 242.9
Segment assets 2,811.2 2,828.3 26.4 8.6 56.5 30.5 7.1 (33.3) 2,901.2 2,834.1
Capital expenditures 117.6 129.4 11.5 1.4 17.9 30.5 - - 147.0 161.3
------------------------ ----------- ----------- --------- ---------- --------- -------- --------- --------- ----------- -----------
1. Other consists of items related to SBCGI, corporate activities and other
affiliates.
------------------------------------------------------------------------------------------------------------------------------------
NOTE 3. INTEREST
------------------------------------------------------------------------------------------------------------------------------------
Millions of dollars 1999 1998
------------------------------------------------------------------------------------------------------------- ----------- ----------
Interest on long-term debt $98.2 $103.7
------------------------------------------------------------------------------------------------------------- ----------- ----------
Amortization of debtfinancing and defeasance costs 20.8 21.4
------------------------------------------------------------------------------------------------------------- ----------- ----------
Interest on short-term debt 18.6 13.9
------------------------------------------------------------------------------------------------------------- ----------- ----------
Foreign exchange costs 0.7 0.8
------------------------------------------------------------------------------------------------------------- ----------- ----------
138.3 139.8
------------------------------------------------------------------------------------------------------------- ----------- ----------
Less:
Defeasance earnings and other interest income 1.8 7.1
------------------------------------------------------------------------------------------------------------- ----------- ----------
$136.5 $132.7
------------------------------------------------------------------------------------------------------------- ----------- ----------
NOTE 4. TAXES
PROVINCIAL CAPITAL TAX
Effective April 1, 1997, the company became subject to a provincial capital tax
at a rate of 0.25% of taxable capital. This provincial capital tax is a
temporary tax, in effect for five years.
LARGE CORPORATIONS TAX
NSH is subject to federal large corporations tax (LCT) at a rate of 0.225%. As a
percent of income, the LCT is 5.1% (1998 - 5.3%).
INCOME TAX
With the exception of the Part VI.1 tax on NSPI preferred dividends, the company
has claimed sufficient capital cost allowance, cumulative eligible capital
deductions and loss carry-forwards to eliminate all income tax payable in 1999
and 1998.
[Enlarge/Download Table]
--------------------------------------------------------- -------------------------- ------------------------
1999 1998
Percent of Income Percent of Income
--------------------------------------------------------- -------------------------- ------------------------
Statutory income tax 41.1% 45.1%
Public Utilities Income Tax Transfer Act,
Net of clawback - 1.7
Excess deductions for tax purposes (38.8) (39.8)
Tax losses (5.2) -
--------------------------------------------------------- -------------------------- ------------------------
Effective income tax rate 1.1% 7.0%
--------------------------------------------------------- -------------------------- ------------------------
NSPI has filed amended income tax returns for previous years that increase the
tax depreciation (capital cost allowance) available to be deducted against the
company's future taxable income. Those returns were reassessed by Revenue Canada
to disallow the deductions claimed. The reassessments have been objected to and
the issue is expected to be litigated. Without the benefit of this additional
deduction, it is estimated that the company's tax liability in 1999 would have
been approximately $39 million. If the company is unsuccessful in this matter,
it would be entitled to recover these costs through the regulatory process.
At December 31, 1999, providing for the effect of the amended returns, the
tax value of the company's assets exceeded the related carrying value by
approximately $1.0 billion (1998 - $1.1 billion). The company also has
non-capital loss carry forwards of approximately $156 million: $36.2 million
expiring in 2001, $80.5 million expiring in 2002, $30.3 million expiring in
2003, and $9.0 million expiring in 2004. These losses are attributable to NSPI.
In accordance with the taxes payable accounting method, which is used by NSPI,
the potential tax benefits related to these amounts have not been reflected in
these financial statements. Such potential benefits will be recognized as
realized for income tax purposes.
MINORITY INTEREST
Minority Interest relates to NSPI preferred dividends and includes Part VI.1 tax
of $5.3 million (1998 - $4.8 million), net of a recovery of Part I tax of $7.3
million (1998 - $5.6 million) resulting from using Part VI.1 tax deductions to
reduce income tax payable in the current year.
[Enlarge/Download Table]
-------------------------------------------------------- -------------------------- ------------------------
Millions of dollars 1999 1998
-------------------------------------------------------- -------------------------- ------------------------
Preferred share dividend $13.3 $12.0
Part VI.1 (recovery) (2.0) (0.8)
-------------------------------------------------------- -------------------------- ------------------------
$11.3 $11.2
-------------------------------------------------------- -------------------------- ------------------------
[Enlarge/Download Table]
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
------------------------------------------------- -------------------------- -------------------------- --------------------
Millions of dollars Property, Plant 1999 Net
and Equipment Accumulated Depreciation Book Value
------------------------------------------------- -------------------------- -------------------------- --------------------
Generation:
Thermal $1,498.7 $475.6 $1,023.1
Gas turbine 27.4 20.0 7.4
Hydroelectric 325.6 103.6 222.0
Transmission 543.9 294.2 339.7
Distribution 854.1 321.7 532.4
Other plant, land and equipment 232.2 41.8 190.4
------------------------------------------------- -------------------------- -------------------------- --------------------
$3,481.9 $1,166.9 $2,315.0
------------------------------------------------- -------------------------- -------------------------- --------------------
------------------------------------------------- -------------------------- -------------------------- --------------------
Millions of dollars Property, Plant 1999 Net
and Equipment Accumulated Depreciation Book Value
------------------------------------------------- -------------------------- -------------------------- --------------------
Generation:
Thermal $1,471.9 $450.4 $1,021.5
Gas turbine 27.1 19.3 7.8
Hydroelectric 316.0 100.5 215.5
Transmission 539.2 190.7 348.5
Distribution 823.4 295.8 527.6
Other plant, land and equipment 214.5 37.0 177.5
------------------------------------------------- -------------------------- -------------------------- --------------------
$3,392.1 $1,093.7 $2,298.4
------------------------------------------------- -------------------------- -------------------------- --------------------
Thermal Generation includes the Glace Bay generating station at a net book value
of $32.3 million (1998 - $29.3 million). The plant has not been depreciated
since it was removed from service in 1995 (note 1f).
NOTE 6. ACCOUNTS RECEIVABLE SECURITIZATION
On March 5, 1997, NSPI entered into an agreement with a financial institution to
sell up to $88 million of trade receivables and unbilled revenue on a revolving
basis. At December 31, 1999, trade receivables and unbilled revenue sold
amounted to $74 million compared to $75 million in 1998. The agreement is
scheduled to expire in 2002.
[Enlarge/Download Table]
NOTE 7. DEFERRED CHARGES
------------------------------------------------------------------------------------ ------------------- -----------------
Millions of dollars 1999 1998
------------------------------------------------------------------------------------ ------------------- -----------------
Unamortized debt financing and defeasance costs $ 272.4 $ 287.6
Unamortized Point Aconi expenses - 23.1
Deferred pension assets and retiree benefits 14.8 9.2
Unamortized severance costs (note 1i) 9.0 13.3
Holdback on accounts receivable securitization 7.4 7.5
Deferred coal bed methane exploration costs (SBCGI) 5.5 7.2
Other 10.4 13.5
------------------------------------------------------------------------------------ ------------------- -----------------
$319.5 $361.4
------------------------------------------------------------------------------------ ------------------- -----------------
N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l
S t a t e m e n t s
NOTE 8. COMMON SHARES
Authorized:
Unlimited number of non-par value Common Shares.
Issued and outstanding:
[Enlarge/Download Table]
Millions of Shares Common Share Capital
------------------------------------------------------------------------------ ----------------------- ------------------------
December 31, 1997 86.50 $667.6
Issued for cash under the Dividend Reinvestment Plan in 1998 0.20 3.9
Issued under the Employee Common Share Purchase Plan 0.05 0.8
Options exercised 0.05 0.2
------------------------------------------------------------------------------ ----------------------- ------------------------
December 31, 1998 86.80 $672.5
------------------------------------------------------------------------------ ----------------------- ------------------------
January 1, 1999
Issued in exchange for all issued and outstanding common 86.80 $672.5
Shares of NSPI under the reorganization described in note 1a
Issued for cash under the Dividend Reinvestment Plan in 1999 Issued under 0.20 3.2
the Employee Common Share Purchase Plan 0.05 0.8
Options exercised - -
------------------------------------------------------------------------------ ----------------------- ------------------------
December 31, 1999 87.05 $676.5
------------------------------------------------------------------------------ ----------------------- ------------------------
DIVIDEND REINVESTMENT AND EMPLOYEE COMMON SHARE PURCHASE PLANS
The company has a Common Shareholder Dividend Reinvestment Plan and an Employee
Common Share Purchase Plan, which provide an opportunity for shareholders and
company employees to reinvest dividends and make cash contributions, for the
purpose of purchasing common shares.
STOCK-BASED COMPENSATION PLAN
a. Description The company has a stock option plan which grants options to
Executive Officers of NSH for a maximum term of ten years. The option price for
the shares that are the subject of any option is the market price of the shares
on the day the option is granted.
All options granted to date are exercisable on a graduated basis with up to
25 percent of options exercisable on the first anniversary date and in further
25 percent increments on each of the second, third and fourth anniversaries of
the grant. If an option is not exercised within ten years, it expires and the
optionee loses all rights thereunder. The holder of the option has no rights as
a shareholder until the option is exercised and shares have been issued. The
maximum number of such shares optioned to any one Executive Officer cannot
exceed one percent of the issued and outstanding common shares on the date the
option is granted.
b. Status of Plan
[Enlarge/Download Table]
------------------------------------------------ ---------------- ---------------- ------------------- --------------------
1999 Weighted-average 1998 Shares under Weighted-average
Shares under exercise price option exercise price
option
------------------------------------------------ ---------------- ---------------- ------------------- --------------------
Outstanding at beginning of year 308.750 $15.13 193,750 $12.65
Exercisable at end of year 228,750 $14.46 208,750 $14.22
Granted 122,500 $17.00 115,000 $19.32
Exercised - - 17,500 $11.31
Outstanding at end of year 431,250 $15.66 308,750 $15.13
------------------------------------------------ ---------------- ---------------- ------------------- --------------------
NOTE 9. MINORITY INTEREST
The minority interest represents preferred shares that are held in Nova Scotia
Power Inc.
Authorized:
Unlimited number of First Preferred Shares, issuable in series.
Unlimited number of Second Preferred Shares, issuable in series.
[Enlarge/Download Table]
Issued and outstanding:
-------------------------------------------------------------------------------- ---------------- --------------------------
Millions of Dollars Millions of Common Share Capital
Shares
-------------------------------------------------------------------------------- ---------------- --------------------------
December 31, 1997
6% Cumulative, Redeemable Series A First Preferred Shares 8.0 $200.0
-------------------------------------------------------------------------------- ---------------- --------------------------
December 31, 1998 8.0 $200.0
5.15% Cumulative, Redeemable Series B First Preferred Shares
with non-detachable Series C Purchase Warrants 5.0 $31.3
-------------------------------------------------------------------------------- ---------------- --------------------------
December 31, 1999 13.0 $231.3
-------------------------------------------------------------------------------- ---------------- --------------------------
SERIES A PREFERRED SHARES
The Series A preferred shares are redeemable at $25 per share.
Prior to the reorganization, NSPI had the option to redeem the Series A
preferred shares. Following the reorganization, NSPI became obligated to redeem
the Series A preferred shares by September 1, 2000.
SERIES B PREFERRED SHARES AND SERIES C PURCHASE WARRANTS
On March 8, 1999, NSPI issued 5,000,000 First Preferred Share Units (Units) with
each Unit consisting of one non-detachable Cumulative Redeemable First Preferred
Share, Series B (Preferred Share Series B) and one Cumulative Redeemable First
Preferred Share, Series C Purchase Warrant (Warrant) at a price of $6.25 per
Unit. Until October 1, 2000, each Preferred Share Series B is entitled to a
fixed cumulative preferential cash dividend of 5.15% per share per annum, as and
when declared by the Board of Directors of NSPI (the Board of Directors), which
accrue from the date of issue and are payable quarterly on the first day of
January, April, July and September of each year. After October 1, 2000, the
Series B shares will be entitled to a $0.04 per share per annum fixed cumulative
preferential cash dividend as and when declared by the Board of Directors. Unit
holders have the right to convert their units with a cash payment of $18.75 on
October 1, 2000, January 1, 2001 and April 1, 2001, to one Cumulative Redeemable
First Preferred Share, Series C (Preferred Share Series C) of NSPI.
Each Preferred Share Series C will be entitled to a $1.225 per share per
annum fixed cumulative preferential dividend, as and when declared by the Board
of Directors, which will accrue from the date of issue and be payable quarterly
on the first day of January, April, July and September of each year. On or after
April 1, 2009, NSPI may redeem for cash the Preferred Share Series C, in whole
at any time or in part from time to time at $25.00 per share plus accrued and
unpaid dividends.
[Enlarge/Download Table]
NOTE 10. LONG-TERM DEBT
-------------------------------------------------------------------------------- ---------------- --------------------------
Millions of Dollars 1999 1998
-------------------------------------------------------------------------------- ---------------- --------------------------
Debentures and notes payable $ 1,268.8 $ 1,247.2
Less: Current portion (8.1) (163.5)
-------------------------------------------------------------------------------- ---------------- --------------------------
$ 1,260.7 $1,083.7
-------------------------------------------------------------------------------- ---------------- --------------------------
All long-term debt instruments are issued under trust indentures at fixed
interest rates, and are unsecured.
Long-term debt is summarized by year of maturity in the following table:
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------------------
Millions of dollars December 31, 1999 December 31, 1998
----------------------------------------------------------------------------------------------------------------------------
Year of Maturity Principal Weighted Average Principal Weighted Average Coupon Rate
Outstanding Coupon Rate Outstanding
-------------------------- -------------------- ------------------------ --------------------- -----------------------------
% %
-------------------------- -------------------- ------------------------ --------------------- -----------------------------
1999 $163.5
2000 $8.1 3.2
2001 120.7 120.5
2002 120.0 120.0
2003 150.0 150.0
2004 50.0 -
-------------------------- -------------------- ------------------------ --------------------- -----------------------------
Total 1 - 5 Years 448.8 7.56 557.2 7.83
6 - 10 Years 380.0 6.29 250.0 7.07
11 - 15 Years - - - -
16 - 20 Years 165.0 9.18 70.0 8.40
21 - 25 Years - - 95.0 9.75
26 - 30 Years 165.0 8.77 165.0 8.77
31 - 40 Years 60.0 8.30 60.0 8.30
41 - 100 Years 50.0 7.60 50.0 7.60
-------------------------- -------------------- ------------------------ --------------------- -----------------------------
$1,268.8 7.58 $1,247.2 7.99
-------------------------- -------------------- ------------------------ --------------------- -----------------------------
NOTE 11. DEBT DUE WITHIN ONE YEAR
Debt due within one year is normally refinanced from the proceeds of long-term
financing. Short-term debt consists of commercial paper, bankers' acceptances
and libor loans issued against an operating line of credit. Commercial paper,
bankers' acceptances and libor loans bear interest at prevailing market rates
which on December 31, 1999, averaged 5.15%, 5.55% and 6.63% respectively (1998 -
5.13%, 5.55% and nil). The operating line of credit is due on demand and bears
interest at prime which on December 31, 1999, was 6.50% (1998 - 6.75%).
[Enlarge/Download Table]
millions of dollars 1999 1998
-------------------------------------------------------------------------------------------- ---------------- --------------
Short-term debt $320.2 $353.9
Current portion of long-term debt (note 10) 8.1 163.5
-------------------------------------------------------------------------------------------- ---------------- --------------
$328.3 $517.4
NOTE 12. PENSION PLANS
NSPI maintains contributory defined-benefit pension plans that cover
substantially all of its employees. The market value of pension fund assets at
December 31, 1999, was $402.3 million (1998 - $360.4 million). The estimated
actuarial present value of accrued pension benefits attributed to services
rendered to December 31, 1999, was $382.9 million (1998 - $358.6 million).
NOTE 13. FINANCIAL INSTRUMENTS
[Enlarge/Download Table]
------------------------------- --------------------------------------- ---------------------------------------------------
Carrying Amount Fair Value
------------------------------- ------------------ -------------------- --------------------------- -----------------------
Millions of dollars 1999 1998 1999 1998
------------------------------- ------------------ -------------------- --------------------------- -----------------------
Long-term debt ($ 1,268.8) ($ 1,247.2) ($ 1,326.8) ($ 1,429.4)
Short-term debt ($ 320.2) ($ 353.9) ($ 318.4) ($ 355.3)
Hedging instruments ($ 0.3) ($ 0.4) $ 1.4 ($ 0.6)
------------------------------- ------------------ -------------------- --------------------------- -----------------------
LONG-TERM DEBT AND SHORT-TERM DEBT
The fair value of NSH's long-term and short-term debt is estimated based on the
quoted market prices for the same or similar issues, or on the current rates
offered to NSH, for debt of the same remaining maturities.
HEDGING INSTRUMENTS
The fair value of hedging instruments is estimated by obtaining prevailing
market rates from invest-ment dealers.
The company uses derivative instruments to reduce specific underlying
interest rate, commodity price, foreign exchange and weather exposure.
The company periodically enters into interest rate contracts to convert the
interest characteristics of outstanding short-term debt from floating to a fixed
rate basis.
Interest rate contracts converting floating interest on average borrowings
of $265.0 million (1998 - $395.0 million) to a weighted average fixed interest
rate of 6.20% (1998 - 6.66%) were outstanding at December 31, 1999.
The company enters into oil swap and option contracts to limit exposure to
fluctuations in world prices of heavy fuel oil. As at December 31, 1999, the
company had entered into oil swap contracts that fix 0.9 million barrels of oil
at an average price of U.S. $12.56 per barrel.
Oil and part of the company's coal requirements are priced in U.S. dollars.
NSH enters into foreign exchange forward and option contracts to limit exposure
to currency rate fluctuations. Currency forwards are used to fix the Canadian
dollar cost to acquire U.S. dollars, eliminating exposure to currency rate
fluctuations. Forward contracts to buy U.S. $107 million at an average rate of
CAD $1.4706 were out-standing for 2000 and U.S. $4 million at an average rate of
CAD $1.4565 were outstanding for 2001, at December 31, 1999. Foreign exchange
options to buy U.S. $4 million with an average rate of CAD $1.5400 were
outstanding at December 31, 1999.
The company enters into weather temperature contracts that limit its
exposure to revenue losses from abnormally warm weather during the winter
heating season. At December 31, 1999 the company limited its exposure to a
significant portion of the first and fourth quarters of 2000 space heating
losses.
NSH is exposed to credit-related losses in the event of nonperformance of
counterparties to financial instruments. The company has a policy of accepting
as counterparties only those institutions meeting the three highest rating
categories as determined by two recognized security rating institutions.
Accordingly, it does not expect any counterparties to fail to meet their
obligations.
NOTE 14. COMMITMENTS AND CONTINGENCIES
NSH had the following significant commitments at December 31, 1999:
o A requirement to purchase the coal output of the Cape Breton Development
Corporation's (CBDC) Prince Mine which is not expected to exceed 1.1
million tonnes of coal. Purchases from CBDC may be reduced to the extent
that the company purchases coal from alternative sources in the event of
production problems at CBDC, as was the case in 1999.
o Annual requirement to purchase approximately $15 million of electricity
from independent power producers for each of the next five years.
o NSH is responsible for managing a portfolio of approximately $1.6 billion
of defeasance securities held in trust. The defeasance securities must
provide the principal and interest streams of the related defeased debt.
Approximately 68%, or $1.0 billion, of the defeasance portfolio consists of
investments in the related debt, eliminating all risk associated with this
portion of the portfolio.
NOTE 15. COMPARATIVE INFORMATION
The comparative financial statements have been presented as if NSH was the
parent company as of January 1, 1998. (See note 1a.)
Certain of the comparative figures have been reclassified to conform with
the financial statement presentation adopted for 1999.
[Enlarge/Download Table]
Operating Statistics 7-year summary
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Electric energy sales
(GWh)
Residential 3,494.6 3,377.9 3,498.9 3,471.9 3,380.3 3,445.3 3,400.3
Commercial 2,582.8 2,485.9 2,506.7 2,505.7 2,483.9 2,455.4 2,440.1
Industrial 3,834.8 3,423.7 2,842.6 2,754.1 2,820.9 2,715.0 2,706.3
Other 453.2 484.4 667.7 413.9 349.7 350.2 347.4
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Total electric energy sales 10,365.4 9,771.9 9,515.9 9,145.6 9,034.8 8,965.9 8,894.1
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Sources of energy
(GWh)
Thermal - coal 7,816.0 7,015.0 8,246.5 7,850.3 7,053.1 7,159.7 6,345.6
- oil 1,870.9 2,358.3 781.4 608.7 1,239.4 1,205.7 2,117.2
Hydro 980.7 890.9 934.9 1,111.6 883.2 1,012.0 877.6
Purchases 411.3 242.0 340.2 254.6 499.5 216.2 218.9
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Total generation
And purchases 11,078.9 10,506.2 10,303.0 9,825.2 9,675.2 9,593.6 9,559.3
Losses and internal use 713.5 734.3 787.1 679.6 640.4 627.7 665.2
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Total electric energy sold 10,365.4 9,771.9 9,515.9 9,145.6 9,034.8 8,965.9 8,894.1
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Customers
Residential 397,406 394,012 388,386 384,856 380,055 375,553 371,270
Commercial 31,753 31,942 31,727 32,329 32,383 32,342 32,289
Industrial 2,118 2,096 1,998 1,686 1,633 1,581 1,537
Other 6,760 6,343 5,917 5,908 5,892 5,731 5,596
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Total customers 438,037 434,393 428,028 424,779 419.963 415,207 410,692
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Capacity
Generating nameplate
Capacity (MW)
Coal Fired 1,272 1,272 1,272 1,272 1,388 1,388 1,218
Heavy Fuel Oil-Fired 350 350 350 350 350 350 350
Gas Turbine 180 180 180 180 180 180 180
Hydroelectric 381 381 381 381 381 381 381
Independent power producers 25 25 25 25 3 -- --
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
2,208 2,208 2,208 2,208 2,302 2,299 2,129
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Number of employees 1,588 1,634 1,742 1,907 1,935 2,181 2,213
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Km of transmission lines
(69 kV and over) 5,250 5,250 5,236 5,213 5,212 5,208 5,339
---------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------ ------------
Km of distribution lines
(25 kV and under) 24,000 23,711 23,155 23,238 23,226 24,362 24,344
[Enlarge/Download Table]
Financial Information 7-year summary
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993
(millions of dollars)
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Total revenue $824.6 $773.1 $748.7 $741.2 $720.6 $715.6 $709.1
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Cost of operations
Fuel for generation and
Power purchased 267.5 257.3 246.4 238.7 244.8 246.6 246.7
Cost of goods sold 23.3 14.0 - - - - -
Operating, maintenance
and general 155.5 142.5 138.6 157.7 147.7 151.3 150.5
Grants in lieu of property taxes 8.9 5.5 5.3 5.2 5.2 5.1 5.0
Voluntary separation program - - - - - - 21.7
Provincial capital tax 7.0 6.7 5.2 - - - -
Depreciation 94.8 91.3 87.8 85.0 86.5 83.1 70.6
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
557.0 517.3 483.3 486.6 484.2 486.1 494.5
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Earnings from operations 267.6 255.8 265.4 254.6 236.4 229.5 214.6
(Amortization) deferral of
Point Aconi expenses (23.1) (16.7) (12.8) 5.1 22.6 24.9 -
Allowance for funds used
During construction 4.8 3.8 4.0 4.2 1.3 9.6 46.1
Equity earnings in pipeline 6.3 - - - - - -
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Earnings before interest and
Income taxes 255.6 242.9 256.6 263.9 260.3 264.0 260.7
Interest 136.5 132.7 140.2 148.9 143.5 152.2 160.5
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Earnings before income taxes 119.1 110.2 116.4 115.0 116.8 111.8 100.2
Income and large corporations tax 7.4 13.6 14.2 11.4 5.2 1.0 4.8
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Net earnings before
Minority interest 111.7 96.6 102.2 103.6 111.6 110.8 95.4
Minority interest 11.3 11.2 9.5 13.6 16.8 16.8 3.9
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Net earnings applicable
To common shares 100.4 85.4 92.7 90.0 94.8 94.0 91.5
Common dividends 72.2 71.1 69.9 68.7 66.7 64.8 63.9
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Earnings retained for use
In company $28.2 $14.3 $22.8 $21.3 $28.1 $29.2 $27.6
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Property, plant and
equipment, net $2,362.3 $2,333.9 $2,293.1 $2,280.6 $2,277.1 $2,275.6 $2,264.0
Matching notes receivable - - - 46.1 325.8 368.0 379.5
Other assets 332.5 361.4 430.4 435.4 355.5 272.1 180.8
Pipeline investment 54.7 30.5 - - - - -
Current assets 151.7 108.3 157.7 302.6 185.6 212.9 234.2
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Total assets $2,901.2 $2,834.1 $2,881.2 $3,064.7 $3,144.0 $3,128.6 $3,058.5
Common shares $676.5 $672.5 $667.6 $661.3 $655.9 $653.4 $650.7
Retaained earnings 265.8 238.7 2224.4 201.6 180.3 152.2 123.0
Minority interest 231.3 200.0 200.0 200.0 200.0 200.0 200.0
Long-term debt 1,260.7 1,083.7 1,107.5 1,258.1 1,640.2 1,469.2 1,679.2
Deferred credits 2.2 2.2 26.9 13.4 14.7 16.0 16.0
Current liabilities 464.7 637.0 654.8 730.3 452.9 637.8 389.6
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Total equity and liabilities $2,901.2 $2,834.1 $2,881.2 $3,064.7 $3,144.0 $3,128.6 $3,058.5
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Capital expenditures $141.7 $162.6 $100.3 $88.5 $88.0 $94.7 $125.9
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Cost of fuel - coal $186.4 $164.8 $189.2 $198.9 $189.5 $204.4 $179.6
- oil 56.1 76.2 35.7 22.6 39.0 35.2 60.5
Power purchased 25.0 16.3 21.5 17.2 16.3 7.0 6.6
--------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------
Total cost of fuel and
Power purchased $267.5 $257.3 $246.4 $238.7 $244.8 $246.6 $246.7
C O R P O R A T E G O V E R N A N C E
Statement of Corporate Governance Practices
NS Power Holdings' framework for corporate governance enables the Board of
Directors to effectively contribute to the management of the Company.
BOARD MANDATE
The Board of Directors is responsible for management of the business and affairs
of the Company. The Board has established three committees which assist it in
fulfilling its responsibilities. The Board appoints the Company's management and
delegates authority and responsibility to management for all aspects of NS Power
Holdings' business and affairs. Management is expected to achieve objectives
established by the Board and its performance is evaluated against such
objectives.
Management's discussion and analysis of the Company's operating performance
for 1999 is included in this Annual Report.
BOARD COMPOSITION
The Company's by-laws provide that the size of the Board be no less than 10
members and no more than 15 members. To assure the independence of the Board of
Directors, the Company's by-laws also provide that no more than two Directors
may be employees of the Company or of a subsidiary or affiliate of the Company.
The Chair of the Board and the Chief Executive Officer must be separate
individuals. Each Board Committee is made up of Directors who are not employees
of the Company or its subsidiaries or affiliates.
The Board is satisfied this number of Directors results in effective
decision-making by the Board. One Director, Mr. David Mann, is the President and
Chief Executive Officer and is an employee of the Company. The Board believes
that all of the other current Directors are unrelated Directors. Each of those
Directors is independent of management, none has any interest, business or other
relationship that could or could reasonably be perceived to materially interfere
with his or her ability to act in the best interests of the Company. None of the
Directors receive remuneration from the Company other than Directors' retainers,
fees or retainers for service as Chair of the Board or Chair of a Committee.
The Board has adopted a number of operating procedures to address issues
associated with Directors' performance, Board composition, and conflict of
interest. These procedures are intended to enhance the ability of Directors to
carry out their duties and to ensure an orderly rotation of Board members
without impairing Board operations.
Upon reaching age 70, a Director is not eligible for re-election at the
next annual meeting. No person may hold the position of Chair of the Board for
three consecutive years without a review by the Board.
The Company's voting shares are widely held and there are legislative
provisions which prohibit an individual shareholder from holding more than 15
percent of the voting shares of the Company. There is currently no shareholder
with the ability to exercise a majority of the votes for the election of the
Board of Directors.
BOARD COMMUNICATION
A regular flow of information from management to the Board of Directors ensures
that the Board has sufficient and timely information concerning the Company's
affairs. This information is used by the Board to assess both the direction of
the Company's business and the performance of management. The Board of Directors
receives a briefing package from management in advance of all meetings. The
Directors also receive regular communications between meetings which include
information respecting any new developments which might affect NS Power
Holdings' business and that of its subsidiaries, in addition to specific
information provided to individual Directors to allow them to fulfil their
duties as members of a Board committee.
The Directors are kept informed of Company operations at the meetings of
the Board and its committees and through reports from and discussions with
Management. Board and committee meetings are held on a regularly scheduled basis
and communications between the Directors and management occur apart from
regularly scheduled Board and committee meetings in the form of oral and written
briefings or specially-called meetings. Management reports on Company operations
and results at such meetings and responds to questions from the Directors.
An orientation and education program is provided to all new members of the
Board. New members of the Board are given briefings on the Company, its
strategic plan, and past history of Board operations.
The Board and its Committees, at their option, regularly meet independently
of management to discuss various issues. While there is no specific provision in
the by-laws, the Board has engaged outside advisors in appropriate circumstances
in the past.
BOARD FUNCTIONS
The Board makes all major decisions for the Company, including those set out
below. Many Board functions are carried out by the three Committees of the
Board. The Board and its Committees are responsible for these main functions:
o adopting a strategic planning process and overseeing its implementation;
o identifying principal risks in the business and implementing systems to
manage these risks;
o ensuring business risks are properly identified and managed, and approving
decisions involving significant risks to the Company;
o monitoring the effectiveness of the Company's corporate governance
practices and approving any necessary changes;
o succession planning for senior management and monitoring, appointing and
training senior management;
o setting performance objectives and monitoring results;
o overseeing communications with shareholders and other stakeholders,
including reviewing the quarterly financial statements, and approving the
annual financial statements, annual report and annual information form;
o approving the financial statements and the Management Discussion and
Analysis in the Annual Report;
o ensuring proper financial reporting and financial control systems are in
place including proper inspection, control and audit systems;
o approving the issue of securities;
o the integrity of internal control and management information systems;
o approving operating and capital budgets and specific requests for major
capital expenditures;
o developing position descriptions for the Board and for the Executive
Officers of the Company, including the corporate objectives for the
President and Chief Executive Officer;
o reviewing and approving compensation for Directors and Executive Officers
and compensation policies for the Company; and
o establishing general corporate policies.
SHAREHOLDER FEEDBACK
NS Power Holdings provides information to, and responds to, inquiries from
shareholders. Through toll-free lines, shareholders, customers and others
receive information from the Company and may also contact the Company.
Shareholders may contact the Company at the Office of the Corporate Secretary
and General Counsel or through its Investor Services group. Shareholder
inquiries or suggestions that are addressed to the Board, a specific department
or person, are forwarded to the intended recipient.
BOARD COMMITTEES
NS Power Holdings' Board of Directors has three Committees to assist it in
carrying out its duties. The Company's by-laws provide that Committees must
consist of Directors who are not employees of the Company or its subsidiaries or
affiliates. Board Committees are appointed annually and the composition and
Chair of all Committees is reviewed at least every three years.
The by-laws of the Company state that the Board of Directors may establish
an Executive Committee of the Board of Directors which may include members of
management. The Directors have determined, however, that because of the
relatively small size of the Board, it is not appropriate to constitute such a
Committee at this time. This helps to ensure that all Directors are equally and
fully briefed on issues relating to the Company's business and affairs.
AUDIT COMMITTEE
The Audit Committee must consist of at least three Directors. This Committee is
responsible for ensuring that appropriate internal control procedures are in
place relating to the internal and external audit of the Company's accounts. The
Audit Committee reviews investment issues and policies. It also reviews and
recommends to the Board of Directors for approval, documents such as the Annual
Report, the Annual Information Form, the Management Discussion and Analysis, the
audited financial statements and the unaudited interim reports to shareholders.
The Audit Committee meets at least quarterly with the internal and external
auditors and management and at each quarterly meeting, meets independently with
each of these parties to the exclusion of the others.
This Committee also receives reports on and reviews the financial
performance of Company pension plans, including pension fund and fund manager
performance, and reviews investment guidelines for the pension plans.
This Committee currently consists of the following Directors:
Mr. Thomas R. Hall, Committee Chair
Mr. M. Edward MacNeil
Mr. Kenneth C. Rowe
Ms. Rosemary Scanlon
MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE
The Management Resources and Compensation Committee (the "MRC Committee")
reviews compensation policies, benefits and other matters relating to senior
management and monitors succession planning. It reviews the annual incentive
plan for all Executive Officers, makes recommendations to the Board of Directors
in respect of these matters and evaluates the performance of the President and
Chief Executive Officer.
The MRC Committee consists of three Directors and is required to meet at
least annually. The MRC Committee reports regularly to the Board.
The MRC Committee currently consists of the following directors:
Mr. Purdy Crawford, Committee Chair
Mrs. R. Irene d'Entremont
Dr. E. Parr-Johnston
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee consists of three Directors.
It is responsible for developing and communicating the Company's approach to
corporate governance issues. It also identifies nominees for election as
Directors and ensures that such nominees are, in the reasonable opinion of the
Committee, individuals who have the ability to contribute and devote the
necessary time to the Board of Directors.
The effectiveness of the Board, individual Directors, and the Committees is
assessed by the Nominating and Corporate Governance Committee which solicits and
reviews Directors' comments and may propose modifications to improve the Board
functions, Committee functions, composition, and the Company's corporate
governance processes.
The Nominating and Corporate Governance Committee currently consists of the
following Directors:
Mr. Paul D. Sobey, Committee Chair
Mr. George A. Caines
Mr. James K. Gray
CORPORATE GOVERNANCE COMPLIANCE
Corporate governance is the process and structure used to direct and manage the
business and affairs of the Company with the objective of enhancing shareholder
value, which includes ensuring the financial viability of the business. The
process and structure define the division of power and establish mechanisms for
achieving accountability among shareholders, the Board of Directors and
management. The direction and management of NS Power Holdings' business also
takes into account the impact on other stakeholders such as employees,
customers, suppliers and communities.
The Company's corporate governance practices comply with the guidelines for
corporate governance of The Toronto Stock Exchange.
EXECUTIVES ---------------
| |
David Mann, President and Chief Executive Officer | |
(pictured on page 3) | [PICTURE] |
| |
Standing (left to right) | |
Jay Forbes, Senior Vice President and Chief Financial | |
Officer; Phil Sidebottom, Vice President, Power Production; | |
Liz MacDonald, Vice President, Human Resources; Chris | |
Huskilson, Executive Vice President, Operations: Wayne | |
Crawley, Vice President, Marketing and Growth, President and | |
CEO, Enercom. ---------------
Seated (left to right)
Murray Coolican, Vice President, Public Affairs; Rick Smith, Corporate Secretary
and General Counsel
BOARD OF DIRECTORS
Derek Oland
(Chairman of the Board)
Chairman and
Chief Executive Officer
Moosehead Breweries Limited
New River Beach, New Brunswick
David McD. Mann, Q.C.
President and
Chief Executive Officer
NS Power Holdings
Incorporated and
Nova Scotia Power Incorporated
Halifax, Nova Scotia
George A. Caines, Q.C.
Nova Scotia Managing Partner
Stewart McKelvey Stirling Scales
Halifax, Nova Scotia
Purdy Crawford, O.C.
Counsel, Osler, Hoskin & Harcourt
Chair, AT&T Canada Corp.
Toronto, Ontario
R. Irene d'Entremont
President
M.I.T. Electronics Inc.
Yarmouth, Nova Scotia
James K. Gray
Chairman
Canadian Hunter
Exploration Ltd.
Calgary, Alberta
Thomas R. Hall (1)
Company Director
Halifax, Nova Scotia
M. Edward MacNeil
Company Director
Sydney, Nova Scotia
Dr. Elizabeth Parr-Johnston
President and Vice-Chancellor
University of New Brunswick
Fredericton, New Brunswick
Kenneth C. Rowe
Chairman and Chief
Executive Officer
IMP Group International Inc.
Halifax, Nova Scotia
Rosemary Scanlon
Economic Consultant
New York City, New York
Paul D. Sobey
President and
Chief Executive Officer
Empire Company Limited
New Glasgow, Nova Scotia
COMMITTEES:
AUDIT COMMITTEE
Thomas R. Hall (Chair)
M. Edward MacNeil
Kenneth C. Rowe
Rosemary Scanlon
MANAGEMENT RESOURCES
AND COMPENSATION
COMMITTEE
Purdy Crawford (Chair)
R. Irene d'Entremont
Dr. Elizabeth Parr-Johnston
NOMINATING AND
CORPORATE GOVERNANCE
Paul D. Sobey (Chair)
George A. Caines
James K. Gray
CREDITS
Design Ove Design & Communications Ltd.
Photography John Sherlock (Excepting Mr.
Oland & Mr. Mann, Page 3: Don Robinson; 1. Retiring May, 2000
Ms. Cromwell, Page 6: Marvin Moore; Point Tupper, Page 6: Roger Cormier; M&NP
Construction, Page 6: Courtesy of M&NP; Ms. MacNeil, Page 6: Owen Fitzgerald.)
Printing Atlantic Nova Print Co. Inc.
[Enlarge/Download Table]
Dividend Payments in 2000 Head Office
------------------------- -----------
Subject to approval by the Board of Directors, common share
dividends for NS Power Holdings Inc. are payable on or about Nova Scotia Power Inc.
the 15th of February, May, August and November. A first P.O. Box 910
quarter dividend of $0.21 has been declared payable February Halifax, Nova Scotia B3J 2W5
15th, 2000. T: 902.428.6250
A quarterly dividend of $0.375 is payable on the first day of Transfer Agent
January, April, July and October for Nova Scotia Power Inc.'s Montreal Trust
Series A 6% Preferred Shares. P.O. Box 36012, 1465 Brenton Street
Halifax, Nova Scotia B3J 3S9
A quarterly dividend of $0.0804687 is payable on the first day T: 902.420.2211
of January, April, July and October for Nova Scotia Power F: 902.420.2764
Inc.'s Series B First Preferred Share Units.
Investor Services
Dividend Reinvestment and Share Purchase Plan T: 902.428.6060 or 1.800.358.1995
NS Power Holdings Inc.'s Dividend Reinvestment and Share F: 902.428.6181
Purchase Plan is available to shareholders resident in Canada. E: investors@nspower.ca
The Plan provides shareholders with a convenient and Financial Analysts, Portfolio Managers
economical means of acquiring additional common shares through and other Institutional Investors
the reinvestment of dividends. Plan participants may also T: 902.428.6999
contribute cash payments of up to $5,000 per quarter. F: 902.428.6181
Participants of the plan pay no commissions, E: judy.steele@nspower.ca
service charges or brokerage fees for shares purchased under
the Plan. Share Listings
Toronto Stock Exchange (TSE)
Please contact Investor Services if you have questions or wish Common shares: NSH
to receive a copy of the plan brochure and enrollment form. Preferred shares: NSI.PR.A, NSI.UN
Direct Deposit Service Shares Outstanding
Shareholders may have dividends deposited directly into (as at December 31, 1999)
accounts held at financial institutions which are members of Common shares: 87 million
the Canadian Payments Association. To arrange this service,
please contact Investor Services. Share Trading Summary
(TSE, January 1 to December 31, 1999)
Earnings Reporting High $19.30
Quarterly earnings are expected to be announced Low $13.00
on May 3rd, August 10th and November 10th, 2000. Close $14.40
Year end results for 2000 will be released in February 2001. Volume 26.4 million
Annual General Meeting
Wednesday, May 3, 2000; 11:00 A.M.; World Trade Dividends Paid in 1999
and Convention $0.83 per common share
Centre, Halifax, Nova Scotia
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