## MANAGEMENT ’ SDISCUSSIONANDANALYSIS 

## CRITICAL ACCOUNTING POLICY 

The company accounts for the impacts of rate regulation in accordance with generally accepted accounting prin- ciples (GAAP) as outlined in Note 1 to the Consolidated Financial Statements. Three criteria must be met to use these accounting principles: the rates for regulated services or activities must be subject to approval by a regulator; the regulated rates must be designed to recover the cost of providing the services or products; and it must be rea- sonable to assume that rates set at levels to recover the cost can be charged to and will be collected from customers in view of the demand for services or products and the level of direct and indirect competitition. Management believes that all three of these criteria have been met. The most significant impact of the use of these accounting principles is that in order to achieve a proper matching of revenues and expenses, the timing of recognition of cer- tain expenses and revenues may differ from that otherwise expected under GAAP. The two most significant exam- ples of this relate to the recording of income taxes on the taxes payable basis and the deferral of foreign exchange losses as outlined in the Consolidated Financial Statements’ Note 13 and Note 7, respectively. 

## ACCOUNTING CHANGES 

## Earnings Per Share 

Effective January 1, 2001, the company adopted the new standard of the Canadian Institute of Chartered Accountants (CICA) with respect to earnings per share. The new standard requires a new basis for calculating diluted earnings per share using the treasury stock method instead of the imputed earnings approach to deter- mine the dilutive effects of warrants, options and equivalents. This accounting change was applied retroactively but did not significantly impact previously reported earnings per share. 

## Hedging Relationships 

In November 2001, the Accounting Standards Board of the CICA issued an Accounting Guideline “Hedging Relationships”, that establishes standards for the documentation and effectiveness of hedging relationships. These standards are substantially similar to the corresponding requirements under Statement of Financial Accounting Standards (SFAS) No. 133 which was adopted by the company for U.S. GAAP purposes, effective January 1, 2001. The company does not expect the new Canadian requirement to have a significant impact on its financial state- ments. 

## Foreign Currency Translation 

In November 2001, an amendment to the CICA Handbook Section “Foreign Currency Translation”, was issued and will be effective for the company as of January 1, 2002. The amendment eliminates the deferral and amorti- zation of unrealized translation gains and losses on foreign currency denominated monetary items that have a fixed or ascertainable life extending beyond the end of the fiscal year following the current reporting period. The impact on the company’s financial statements of implementing this amendment is not expected to be significant due to the company’s regulatory accounting policies and hedging practices. 

## Stock-Based Compensation 

In November 2001, the CICA Handbook Section “Stock-Based Compensation and Other Stock-Based Payments”, was issued and will be effective for the company as of January 1, 2002. This section is consistent with SFAS No. 123 which was adopted by the company for U.S. GAAP purposes. The impact on the company’s financial state- ments of implementing this amendment is not expected to be significant. 

