## SUMMARY OF ACCOUNTING POLICIES 

## Consolidated Financial Statements 

Consolidated financial statements include the accounts of Fortis Inc. (the GLYPH<210>CorporationGLYPH<211>) and the following subsidiaries: 

Newfoundland Power Inc. (GLYPH<210>Newfoundland PowerGLYPH<211>) Maritime Electric Company, Limited (GLYPH<210>Maritime ElectricGLYPH<211>) and its wholly owned subsidiary, FortisUS Energy Corporation (GLYPH<210>FortisUS EnergyGLYPH<211>) Belize Electric Company Limited (GLYPH<210>BECOLGLYPH<211>) (Note 17) Belize Electricity Limited (GLYPH<210>Belize ElectricityGLYPH<211>) Fortis Properties Corporation (GLYPH<210>Fortis PropertiesGLYPH<211>) Fortis Trust Corporation (GLYPH<210>Fortis TrustGLYPH<211>) (Note 15) 11003 Newfoundland Limited (GLYPH<210>11003 NFGLYPH<211>) Central Newfoundland Energy Inc. (GLYPH<210>CNEGLYPH<211>) 

The accounts of Fortis Properties include its proportionate share of its 50% interest in Brunswick Square Limited to December 14, 2000 plus its 100% interest from December 15, 2000 thereafter (Note 17). 

The CorporationGLYPH<213>s 50% interest in a joint venture, Canadian Niagara Power Company, Limited (GLYPH<210>Canadian Niagara PowerGLYPH<211>), is reported on a proportionate consolidation basis. The accounts of Canadian Niagara Power include its wholly owned subsidiaries, Canadian Niagara Power Company Inc. and 1161557 Ontario Inc. Canadian Niagara Power wound up the operations of Ziegler Energy Demand Ltd. in September 2001. 

## Other Investments 

Investments in which the Corporation exercises significant influence would be accounted for on the equity basis. Portfolio investments are accounted for on the cost basis. Declines in value considered to be other than temporary are recorded in the period in which such deter- minations are made. 

## Reporting Currency 

All amounts presented are in Canadian dollars unless otherwise stated. 

## Goodwill 

Goodwill, representing the excess of the acquisition cost of shares of Maritime Electric and Canadian Niagara Power over the assigned value of identifiable net assets acquired, is being amortized on a straight-line basis over twenty-five and twelve years, respectively. The Corporation evaluates the carrying value of goodwill for potential permanent impairment through ongoing review and analysis of fair market value and expected earnings. Should a permanent impairment in the value of goodwill be identified, it will be written off against earnings in the period such impairment is recognized. 

## Employee Future Benefits 

The Corporation maintains defined benefit pension plans, defined contribution pension plans and group RRSPs for its employees. The pension costs of the defined benefit plans are actuarially determined using the projected benefits method prorated on service and best estimate assumptions. Pension plan assets are valued at fair value. The excess of any cumulative net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets is 

## FORTIS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

December 31, 2001 

deferred and amortized over the average remaining service period of active employees, except for early retirement offerings at Newfoundland Power which are being amortized on a straight-line basis over ten years in accordance with the requirements of the Newfoundland and Labrador Board of Commissioners of Public Utilities (GLYPH<210>PUBGLYPH<211>). The costs of the defined contribution pension plans and group RRSPs are expensed as incurred. 

The Corporation also offers other non-pension post retirement benefits to employees through defined benefit plans. The costs associated with these other future benefits are actuarially determined using the projected benefits method prorated on service and best estimate assumptions. 

Newfoundland Power has not accrued the costs associated with non- pension post employment benefits. In accordance with regulatory requirements the cost of these benefits is recorded in the year incurred. 

## Foreign Currency Translation 

The assets and liabilities of foreign operations, all of which are self- sustaining, are translated at the exchange rates in effect at the balance sheet dates. The resulting unrealized translation gains and losses are accumulated as a separate component of common shareholdersGLYPH<213> equity under the foreign currency translation adjustment heading. Revenue and expense items are translated at the average exchange rate for the year. 

Assets and liabilities denominated in foreign currencies, other than those of foreign operations, are translated into Canadian dollars at the exchange rate prevailing on the balance sheet date. Gains and losses on translation are included in the statement of earnings. Revenue and expense items denominated in foreign currencies are translated into Canadian dollars at the exchange rate prevailing on the transaction date. 

## Use of Accounting Estimates 

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from the current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the period in which they become known. 

## The accounting policies which follow relate to the utility operations of the Corporation. 

## Regulation 

Newfoundland Power is regulated by the PUB. Accounting policies conform to Canadian generally accepted accounting principles and to accounting requirements established from time to time by the PUB for Newfoundland Power. 

Newfoundland Power operates under cost of service regulation as prescribed by orders of the PUB. Earnings are regulated on the basis of rate of return on rate base. In 2000, the Company exceeded the maximum allowed rate of return resulting in excess revenue of $6.7 million and $1.0 million in Harmonized Sales Tax being subsequently refunded to customers. Further to reassessments issued by Canada 

