Content
Earnings
|
Year ended December 31, |
2008 |
2007 |
(millions of dollars) |
||
|
Earnings before the impact of tax changes |
63.1 |
57.0 |
|
Revalue future taxes due to tax rate changes |
– |
2.0 |
|
Earnings |
63.1 |
59.0 |
Earnings for the year ended December 31, 2008, were $4.1 million higher than the year ended December 31, 2007. This was primarily due to the CESCA bankruptcy settlement received in the first quarter of 2008 in respect of CESCA’s repudiated capacity commitment. The final settlement and interest accrued increased earnings by $6.1 million. Also contributing to earnings in 2008 was a higher allowance for income tax resulting from the change in the treatment of compressor maintenance expenditures. However, this increase was partially offset by a lower return on equity due to a declining investment base. In contrast, prior year earnings had a $2.0 million future tax recovery, increasing earnings as a result of future tax rate reductions enacted in 2007. Future taxes in Alliance Canada result from differences, which arose on the acquisition of Alliance Canada from Enbridge, between the accounting values and the tax bases of certain assets and liabilities.
Earnings reflect a return on equity applied to investment base accounts, as well as an allowance for deemed income and provincial capital taxes on regulated activities. The rate used to calculate the equity return is not expected to change; however, related annual earnings will decline over time as the investment base is depreciated.
Revenues for the year ended December 31, 2008, were $222.1 million compared with $209.1 million for the year ended December 31, 2007. The $13.0 million increase was primarily due to the change in accounting treatment for certain expenditures. In 2008, the treatment of expenditures for compressor overhaul maintenance and other replacement equipment was revised such that these costs are now expensed instead of capitalized as they were in prior years, increasing both operating and maintenance expense and toll revenue. Given the rapid consumption rate associated with these expenditures, and that overhaul maintenance expenditures relate primarily to the replacement of worn or obsolete equipment nearing the completion of its useful life, Alliance Canada determined that it is more appropriate to expense these items. Cost-of-service recoveries have also increased due to a higher allowance for income tax (as a result of the aforementioned change in accounting treatment), higher property taxes and the purchase of environmental credits in compliance with the Alberta Specified Emitters regulation. The increase to revenue was partially offset by a lower return on equity as a consequence of a declining investment base and a lower interest expense as a result of principal repayments made.