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Canadian Press: NS Power has natural gas deal with Shell; reduces rate hike application: “The utility, a division of Halifax-based Emera (TSX:EMA), said it reached a long-term arrangement late Friday evening with its natural gas supplier, Calgary-based Shell Canada”: Tuesday, November 22, 2005


Michael Tutton


HALIFAX (CP) - Nova Scotia Power Inc. announced Monday it is slicing its request for an average rate increase from 15 per cent to 13 per cent due to a natural gas price deal.


The utility, a division of Halifax-based Emera (TSX:EMA), said it reached a long-term arrangement late Friday evening with its natural gas supplier, Calgary-based Shell Canada (TSX:SHC).


Chris Huskilson, president and CEO of Nova Scotia Power, projects fuel costs for 2006 will be lower by an estimated $22 million as a result of the change in the contract. And he intends to pass those funds on to customers.


"It means shareholders will see a little more certainty from this particular contract," said Huskilson. "But the primary benefit of the contract will be to the customers.


"If, in fact, we're able to reduce costs more as a result of this contract, we'll pass those on as well because we believe customers are facing some very high costs."


The corporation is currently before the Nova Scotia Utility and Review Board, where it's asking the regulator to authorize price hikes to cover its skyrocketing coal, petroleum coke and heavy fuel oil costs.


The utility buys Sable Island gas from Shell for it Tufts Cove generation station, a prominent Dartmouth landmark that is capable of burning either natural gas or heavy fuel oil.


However, in recent years the company has resold the fuel at huge profits to American customers on the Maritimes and Northeast Pipeline.


The original long-term agreement, signed in 2000 for a 10-year period, was very favourable to Nova Scotia Power because it was based on natural gas prices that were very low compared to today's prices.


However, on Nov. 1, 2004, the original price came up for renegotiation and the two parties couldn't agree.


The matter went to a binding arbitration panel, which was considering the arguments of both sides when the negotiated deal was cut.


Huskilson said his company is pleased with the assurance of a steady supply gas, which appears to have been in doubt under terms of the existing contract.


He emphasized the deal means the company has secured a daily supply of 61,600 million BTUs of natural gas - equivalent to 18 per cent of its daily power output - until 2010.


The security of its lucrative supply had been uncertain, admitted Huskilson.


"The amount of gas we'll receive is now more secure, and that's what generated the additional value," he said.


The volumes of gas from the Sable offshore project have declined steadily in 2003, 2004 and 2005, as the reserve estimates declined.


Daily production has fallen by about a third over the past four years, to current daily production of between 400 and 450 MMBTUs of gas.


The regulator has been provided with details of the Emera-Shell agreement, which is confidential.


The company declined to provide the actual price formula it has agreed to use to purchase gas from Shell.


It also said that, for competitive reasons, it would not reveal how much of the gas it plans to burn at Tufts Cove and how much it will sell.


Dale Noseworthy, an analyst with Halifax-based Beacon Securities, said in an interview the news likely won't make a big difference to the stock price.


"It's one uncertainty that's taken off, and it's good they're reducing their rate requirement," she said.


She said she won't be changing her underperform rating, which is based on the uncertainty over whether Emera will receive its rate hike.


The stock was trading at $19.50 on Monday, down slightly from the close of $19.59 on Friday.


© The Canadian Press 2005


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