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High Coal Prices and Low Canadian Dollar Drive Need for Changes in Electricity Rates during 2002

Halifax, NS 18 December 2001. Significantly higher prices for import coal, coupled with a weak Canadian dollar, are the reasons for Nova Scotia Power's request for changes in electricity rates to take effect spring 2002. If approved by the Nova Scotia Utility and Review Board (UARB), these would be the first changes to general rates since 1996.

"It's been six years since electricity rates were set in Nova Scotia and our world has changed. Extremely high coal prices on international markets and the weak Canadian dollar are causing new and dramatic changes in our planning for 2002 and beyond," said Nova Scotia Power's Chief Operating Officer Chris Huskilson.

Low and mid-sulphur coal, the fuel used to generate 60 to 70 percent of the province's electricity requirement, has risen sharply in price on world markets to record highs (over $3.00 Cdn. per MMBtu* compared to a historical norm of $2-$2.50 Cdn). At the same time, the Canadian dollar has been trading at record lows. It is estimated that the cost per MW/h in 2002 will be 23% higher than in 2001.

Under the power company's proposal, filed today with the UARB, 85 percent of residential customers will see their bills go up by $8 a month. The average increase will be about 8½ percent although increases will vary significantly by customer class. The Utility and Review Board has ordered that costs be allocated across customer classes to prevent cross-subsidization.

"There will be no increase in electricity prices for this winter's heating season. The earliest Nova Scotians will see a change will be spring of 2002," said Mr. Huskilson.

Nova Scotia Power has absorbed the effect of volatile and steadily increasing fuel prices over the past six years without any increase in price to customers. In 2001, fuel costs are expected to reach $296 million, compared to $240 million in 1996, the last year rates were set. In addition, revenue from the resale of natural gas worth $32 million went directly into the 2001 fuel budget offsetting increases in coal prices.

The company's 2002 fuel budget is projected to rise sharply by $76 million* to $372 million. No offset from natural gas sales will be available in 2002 as prices are lower, and as a result the power company expects to burn more natural gas at its Tuft's Cove plant.

In addition, the company's requirement for foreign exchange has increased dramatically. In 1996 Nova Scotia Power required $US13M (@ approx. $.74), and in 2002 will require $US170M (@ approx. $.64).
Two other pending issues will be also addressed during this fuel-cost driven rate case. These are the rebalancing of rates across classes and updating the capital structure of NSPI.

Changes to electricity prices in Nova Scotia can only be made upon application to the UARB, a quasi-judicial body that holds public hearings to review utility costs and proposed rate changes, a process that lasts several months. Upon Board approval new rates could take effect in the spring of 2002.

Nova Scotia Power is a wholly-owned subsidiary of Emera Inc. (TSE:EMA)