TSE:FTS Regulation: Newfoundland Power operates under cost  of service regulation as prescribed by orders of the Newfoundland and Labrador Board of Commissioners of Public Utilities (“PUB”). Earnings are regulated on the basis of rate of return on rate base. In 1998, an automatic adjustment formula was established by the PUB to annually determine the permitted rate of return on rate base. The allowed rate of return on rate base for 2001 remained unchanged from the 2000 level of 10.28 per cent, permitting the Company to earn within a range of 10.10 per cent to 10.46 per cent.  In 2001 Newfoundland Power received $1.7 million of interest on a corporate tax refund from CCRA. This refund contributed to excess earnings of $0.9 million in 2001. This amount has been set aside in an excess revenue account and will be accounted for as ordered by the PUB.  On November 28, 2001, the PUB ordered that application of the automatic adjustment formula would reduce Newfoundland Power’s allowed return on rate base for 2002 to 10.06 per cent, with a range of 9.88 per cent to 10.24 per cent to reflect a return on equity of 9.05 per cent. This change resulted in a 0.6 per cent reduction in electricity rates to be charged to customers in 2002. A review of the operation of the automatic adjustment formula will occur in 2002. Outlook: Independent forecasters predict continued strong economic growth for Newfoundland and Labrador in 2002, placing the province among the country’s economic leaders for the fifth consecutive year. Gross Domestic Product (“GDP”) growth is projected to be 6.3 per cent in 2002, the highest of all provinces. The service sector component of GDP, which is more predictive of Newfoundland Power’s energy sales, is forecast to grow at a more modest rate of 0.8 per cent. An Energy Policy Review was initiated by the Government of Newfoundland and Labrador in 1998. This review is examining a number of issues that could affect Newfoundland Power’s business including the appropriate form of utility regulation for the province. The Company supports a move to more flexible, incentive-based regulation that is reflective of global regulatory trends and is better aligned with the expectations of customers regarding reliability and price. It is expected that the results of the Energy Policy Review will be released for consultation in 2002. On May 31, 2001, Newfoundland Hydro filed an application with the PUB which, if approved, would result in an increase in the rate charged to Newfoundland Power’s customers in 2002 of approximately 6.4 per cent. The Company is concerned about the impact of these increases on its customers and the provincial economy.  As a result, Newfoundland Power fully participated in  the regulatory hearings on this issue, which started on September 24, 2001 and concluded on January 29, 2002.  The development of the natural gas industry in Atlantic Canada may affect energy supply options and may present new opportunities for energy generation. The Company will continue to strengthen its infrastructure and develop its expertise in energy services to be competitive in delivering low-cost environmentally friendly energy in an emerging competitive marketplace. The results reported below include those of Maritime Electric and its wholly owned subsidiary, FortisUS Energy. Earnings: Earnings were $6.1 million in 2001 compared to  a loss of $0.2 million in 2000. The increase over 2000 reflects the implementation of regulations associated with amendments to the Maritime Electric Company Limited Regulation Act (“Regulation Act”) and increased energy sales. Energy Sales: Annual energy sales on Prince Edward Island were 987 GWh, a 29 GWh increase over energy sales of 958 GWh for the previous year. Growth in energy sales was driven largely by increases in sales to commercial customers. Commercial energy sales increased 3.9 per cent reflecting growth in the tourism industry, increased 31 FORTIS Inc. 2OO1 Annual Report Maritime Electric 