Regulation: In 1998, the Government of Ontario passed the Electricity Act, 1998 to initiate restructuring of the Ontario electricity industry. To meet the regulatory requirements of this legislation, Canadian Niagara Power incorporated a new subsidiary in 1999, Canadian Niagara Power Inc. (“CNPI”), to hold and operate its transmission and distribution business. 

The regulatory structure contemplates separating Ontario electricity rates between distribution, transmission and the energy commodity. Distribution rates will be established for each local distributor based on applications made to the Ontario Energy Board (“OEB”). A non-competitive service rate, which will include transmission, ancillary services, stranded debt and other fixed charges, will also be established by the OEB for each service area while the energy commodity charges will be determined in a competitive market environment. 

On November 29, 2000, the Company applied to the OEB to increase its distribution rates. In December 2001, the OEB approved a rate increase of 3.0 per cent effective January 1, 2002. The OEB also approved Canadian Niagara Power’s transmission revenue requirement effective May 1, 2002. 

The electricity market in Ontario is expected to open for competition on May 1, 2002. At that time, all of Canadian Niagara Power’s energy generation will be sold in the competitive markets and the Company will no longer be the supplier for Fort Erie. On market opening, Canadian Niagara Power will also no longer be subject to $1.6 million in facility and load balancing charges as these services will be provided by the Independent Electricity Market Operator and charged directly to customers. 

Outlook: In the medium- to long-term, Canadian Niagara Power anticipates improved earnings performance on its distribution and transmission activities as a result of the changing regulatory structure in Ontario. 

Canadian Niagara Power will continue to explore growth opportunities arising from the restructuring of Ontario’s electricity industry. In July 2001, CNPI signed an agreement 

to lease the electricity distribution business of Port Colborne Hydro Inc. for ten years with an option to purchase such assets at the end of its lease term for fair market value. The total value of the transaction is estimated at $15.7 million and is subject to approval by the OEB. 

## Caribbean Utilities 

In March 2000, Fortis acquired a 20 per cent interest in Caribbean Utilities. This investment is accounted for on a cost basis and, therefore, only dividend income received from Caribbean Utilities is included in the income of the Corporation. 

Dividend Income : Dividend income received from Caribbean Utilities in 2001 totalled $4.2 million compared to $3.1 million in 2000. On October 26, 2001, Caribbean Utilities increased its regular quarterly dividend to US$0.155 from US$0.145 per Class A Ordinary Share. On an annualized basis, dividends per share increased 7.0 per cent to US$0.62 from US$0.58. Fortis holds 4.78 million Class A Ordinary Shares. 

Financial Results: For the fiscal year ended April 30, 2001, earnings applicable to common shares were US$19.3 million, an increase of US$1.3 million or 7.2 per cent over earnings of US$18.0 million in 2000. Earnings applicable to common shares for the nine months ended January 31, 2002 were US$15.5 million, an increase of US$0.7 million, or 4.7 per cent, over the same period in 2001. 

Generation: The Company continues to achieve new records in net generation. In August 2001, demand peaked at 75.99 MW, an 8.3 per cent increase over the summer peak in 2000. Caribbean Utilities currently serves more than 19,500 customers. 

Regulation: Caribbean Utilities operates the only public electrical utility in Grand Cayman, Cayman Islands pursuant to a 25-year exclusive license, expiring in 2011. Under the terms of the license, the Company is permitted to earn a rate of return on rate base of 15 per cent with fuel prices passed through to customers. 

