Fortis Earns $49 Million in the Third Quarter

Market Wire, October, 2008

Earnings: Earnings were $2 million higher quarter over quarter, driven by increased future income tax recoveries primarily associated with the regulator-approved Alberta Electric System Operator ("AESO") charges deferral account. Quarter over quarter, the impact of the increase in customer distribution rates, customer and load growth, and a higher allowed ROE was more than offset by increased amortization costs associated with continued investment in capital assets and higher amortization rates provided for in the 2008/2009 Negotiated Settlement Agreement ("NSA"), and increased finance charges due to higher debt levels in support of the Company's significant capital expenditure program.

Earnings were $7 million lower year to date compared to the same period last year, driven by lower future income tax recoveries primarily associated with the regulator-approved AESO charges deferral account. Additionally, the impact of the increase in customer distribution rates, customer and load growth, and a higher allowed ROE was partially offset by: (i) higher operating expenses due to increased contracted manpower costs, higher labour and employee-benefit costs associated with increased salaries and number of employees, and higher general operating expenses; and (ii) increased amortization costs and finance charges for the reasons as described above for the quarter.

FortisAlberta's AESO charges deferral account captures variances between amounts charged by the AESO to FortisAlberta for transmission tariffs and amounts collected by FortisAlberta from customers through the transmission tariff component of basic customer rates. Subject to regulatory approval, amounts charged by the AESO in excess of amounts collected from customers are deferred as a regulatory asset for future recovery from customers and amounts collected from customers in excess of amounts charged are deferred as a regulatory liability for future refund to customers. Generally, there is a two-year lag between the deferral of amounts in the AESO charges deferral account and when they are collected from, or refunded to, customers in rates.

FortisAlberta records income taxes on the cash taxes payable method, as approved by its regulator, except for certain deferral accounts, including the AESO charges deferral account, whereby income taxes are recorded using the liability method. During the third quarter of 2008, FortisAlberta identified that taxable income from operations, before considering impacts associated with the AESO charges deferral account, could be fully offset by utilizing capital cost allowance deductions. Then, by applying the tax deductions related to transmission tariff payments made to the AESO, a tax loss carryforward could be created and a future income tax recovery could be recorded. Under the liability method of recording income taxes, a future income tax asset associated with the tax loss carryforward is not recorded unless there is certainty of recovery. The transmission tariff payments made to the AESO are recoverable from customers in the future; therefore, a future income tax asset has been recorded in the third quarter of 2008 which has been offset against FortisAlberta's long-term future income tax liability.