Emera Q3 Earnings Increase to $40.9 million



    HALIFAX, Nov. 2 /CNW/ - (EMA-TSX): Emera Inc.'s consolidated net earnings
increased to $40.9 million in the third quarter of 2007 compared to
$19.5 million in Q3, 2006. The increase in the quarter was largely due to a
$10.8 million income tax recovery in Nova Scotia Power Inc.(NSPI). Earnings
per share were $0.37 in Q3 2007 compared to $0.18 in the same period last
year. Strong results year to date are driven by solid performance from Bangor
Hydro-Electric (BHE) and the Bear Swamp hydro-electric generating station.
    "We continue to see progress in our business," said Chris Huskilson,
President and Chief Executive Officer of Emera Inc. "The Brunswick Pipeline
has cleared all regulatory hurdles and construction is about to begin. In
addition, construction of the Northeast Reliability Interconnect (NRI)
transmission line is complete and the line will be in-service in December as
planned."
    NSPI earned $14.2 million before a $10.8 million income tax recovery in
the third quarter compared to $12.7 million in Q3, 2006. This tax recovery is
the result of the Canada Revenue Agency's approval of the deductibility of
certain capitalized expenses as requested by NSPI for the years 2000 to 2004
inclusive.
    Bangor Hydro-Electric earned $9.1 million in the quarter compared to
$5.1 million in Q3 last year. The increase relates to increased revenue and
capitalized costs associated with the NRI development partially offset by the
strong Canadian dollar.
    Emera's other operations contributed $6.8 million in Q3, 2007 compared to
$1.7 million in Q3, 2006. The Bear Swamp generating facility had higher energy
and capacity sales as well as strengthened mark-to-market on energy positions,
primarily associated with the company's long term contract with the Long
Island Power Authority, in the third quarter of 2007 compared to Q3 of 2006.
The Maritimes & Northeast Pipeline also reported increased earnings this
quarter.
    Consolidated cash from operations was $82.8 million in Q3, 2007, compared
to $98.8 million in Q3 2006 reflecting increased operating working capital
requirements.

    Teleconference Call

    Emera will be hosting a teleconference at 4:00 pm Atlantic time today
(3:00 pm Toronto/Montreal/New York; 2:00 pm Winnipeg; 12:00 pm Vancouver) to
discuss the Q3 2007 financial results.
    Analysts and other interested parties wanting to participate in the call
should dial 1-888-575-8232 (in Toronto 416-406-6419) at least 10 minutes prior
to the start of the call. No pass code is required. The teleconference will be
recorded. If you are unable to join the teleconference live, you can dial for
playback toll-free at 1-800-408-3053 (in Toronto 416-695-5800), access code
3238704# (available until midnight, Friday, November 16, 2007). The
teleconference will also be web cast live at www.emera.com and available for
playback for one year.

    Forward Looking Information

    This news release contains forward-looking information. Actual future
results may differ materially. Additional financial and operational
information is filed electronically with various securities commissions in
Canada through the System for Electronic Document Analysis and Retrieval
(SEDAR).

    About Emera Inc.

    (EMA-TSX) is an energy and services company with $4.0 billion in assets.
Electricity is Emera's core business. The company has two wholly-owned
regulated electric utility subsidiaries, Nova Scotia Power Inc. and Bangor
Hydro-Electric Company, which together serve 590,000 customers. Emera also
owns 19% of St. Lucia Electricity Services Limited, which serves more than
50,000 customers on the Caribbean island of St. Lucia. In addition to its
electric utility investments, Emera has a joint venture interest in Bear
Swamp, a 600 megawatt pumped storage hydro-electric facility in northern
Massachusetts; a 12.9% interest in the Maritimes & Northeast Pipeline; and
Emera Energy Services which manages energy assets on behalf of third parties.
Visit Emera on the web at www.emera.com.


    Management's Discussion & Analysis
    As at November 2, 2007

    Management's Discussion and Analysis ("MD&A") provides a review of the
results of operations of Emera Inc. and its primary subsidiaries and
investments during the third quarter of 2007 relative to 2006, year to date
2007 relative to 2006, and its financial position at September 30, 2007
relative to 2006. Certain factors that may affect future operations are also
discussed. Such comments will be affected by, and may involve, known and
unknown risks and uncertainties that may cause the actual results of the
company to be materially different from those expressed or implied. Those
risks and uncertainties include, but are not limited to, weather, commodity
prices, interest rates, foreign exchange, regulatory requirements and general
economic conditions. To enhance shareholders' understanding, certain
multi-year historical financial and statistical information is presented.
    This discussion and analysis should be read in conjunction with the Emera
Inc. unaudited consolidated financial statements and supporting notes as at
and for the nine month period ended September 30, 2007 and the Emera Inc. MD&A
and annual audited consolidated financial statements and supporting notes as
at and for the year ended December 31, 2006. Emera follows Canadian Generally
Accepted Accounting Principles ("GAAP"). Emera's wholly-owned subsidiary, Nova
Scotia Power Inc.'s accounting policies are subject to examination and
approval by the Nova Scotia Utility and Review Board. Emera's wholly-owned
subsidiary, Bangor Hydro-Electric Company's accounting policies are subject to
examination and approval by the Maine Public Utilities Commission and the
Federal Energy Regulatory Commission. The rate-regulated accounting policies
of Nova Scotia Power and Bangor Hydro may differ from GAAP for non
rate-regulated companies.
    Throughout this discussion, "Emera Inc." and "Emera" refer to Emera Inc.
and all of its consolidated subsidiaries and affiliates.
    All amounts are in Canadian dollars ("CAD") except for the Bangor Hydro
section of the MD&A, which is reported in US dollars ("USD") unless otherwise
stated.
    Additional information related to Emera, including the company's Annual
Information Form, can be found on SEDAR at www.sedar.com.

    
    Introduction and Strategic Overview

    The core business of Emera is electricity. The company owns and operates
two regulated electric utilities in northeastern North America. Both
businesses operate as monopolies in their service territories, and together
typically comprise over 80% of Emera's consolidated earnings:

    - Nova Scotia Power Inc. ("NSPI") is an electricity generation,
      transmission and distribution company, providing service to the vast
      majority of the province of Nova Scotia. NSPI has over $3 billion in
      assets, and 475,000 customers.

    - Bangor Hydro-Electric Company ("BHE") is an electricity transmission
      and distribution company with $610 million in assets serving
      115,000 customers in eastern Maine. BHE is a cost of service utility,
      with an alternate rate plan ("ARP") for its distribution operations.

    The success of Emera's electric utilities is integral to the creation of
shareholder value, providing substantial earnings and cash flow to fund
dividends and reinvestment. Nova Scotia and Maine are mature electricity
markets, with annual demand growth of approximately 2%. Accordingly, Emera
must look beyond its existing regulated electricity business to supplement
organic growth.
    Emera's plan for growth leverages its core strength in the electricity
business. Emera will pursue investments in both acquisitions and greenfield
development opportunities in regulated electricity transmission and
distribution and low risk generation. Emera will also capitalize on investment
opportunities in related energy infrastructure businesses appropriate to its
risk profile, where its development, commercial and operational skills are
needed.

    Emera's other investments include:

    - Emera Energy Services, a wholly owned subsidiary, which purchases and
      sells natural gas and electricity on behalf of third parties and
      provides related energy asset management services.

    - Bear Swamp, a 50/50 joint venture in a 600 megawatt pumped storage
      hydro-electric facility in northern Massachusetts.

    - A 12.9% interest in the $2 billion, 1,400 kilometer Maritimes &
      Northeast Pipeline ("M&NP") that transports Nova Scotia's offshore
      natural gas to markets in Maritime Canada and the northeastern United
      States.

    - Brunswick Pipeline, a 145 kilometer greenfield pipeline project under
      development that will deliver natural gas from the planned Canaport(TM)
      Liquefied Natural Gas import terminal near Saint John, New Brunswick,
      to markets in Canada and the US northeast.

    - In January 2007, Emera invested $22 million USD to acquire a 19% equity
      interest in St. Lucia Electricity Services Limited ("Lucelec"), a
      vertically integrated electric utility serving more than
      50,000 customers on the Caribbean island of St. Lucia.

    Income Tax Recovery in Nova Scotia Power

    NSPI prepared and filed with Canada Revenue Agency ("CRA") amended tax
returns for the years 2000 to 2004 inclusive. CRA reviewed and approved the
amended filings, which has resulted in accelerated deductibility of certain
capitalized expenses. NSPI intends to amend tax returns for 2005 and 2006
using the same methodology and will continue to use this methodology when
filing its future tax returns. As a result, NSPI has recorded an income tax
recovery of $25.4 million, of which $14.6 million has been recorded as a
reduction of deferred charges, specifically the regulatory asset related to
its pre-2003 income tax liability. The remaining $10.8 million has been
recorded as a reduction of current income tax expense. Refund interest has not
been estimated on the recovery as it is not reasonably determinable at this
time.

    Implementation of New Accounting Standards in Q1 2007

    The Canadian Institute of Chartered Accountants ("CICA") has introduced
new classification and measurement requirements for financial instruments,
which Emera adopted in the preparation of its Q1 2007 financial statements.
These changes affect the accounting for several elements of Emera's business
including:

    - hedges the company uses to manage risk of fluctuations in commodity
      prices, interest rates, and foreign exchange; and
    - Nova Scotia Power's natural gas supply contracts.

    In some instances, the new accounting requirements result only in a
reclassification of amounts to new balance sheet accounts. For example,
"energy marketing assets and liabilities" have been reclassified as "held for
trading derivatives". An effect of the new requirement is to record the fair
value of hedges, and Nova Scotia Power's natural gas contracts as assets and
liabilities on the company's balance sheet. The recognition of these items
beginning January 1, 2007 increased Emera's total assets by $193.6 million,
with a corresponding increase of $193.6 million on the liabilities and
shareholders' equity side of the balance sheet. The net effect of the
implementation of these changes is a $0.1 million after-tax increase in net
earnings in Q3 2007 and a $1.6 million after-tax increase in net earnings
year-to-date 2007.
    More detail on the implementation of these new accounting standards is
provided later in this Management's Discussion and Analysis, and in Note 3 to
the financial statements.

    Structure of MD&A

    This MD&A has been prepared in accordance with the Canadian Securities
Administrators National Instrument 51-102 Management's Discussion & Analysis.
    This Management's Discussion and Analysis begins with an overview of
consolidated results; then presents information on the company's two primary
subsidiaries, NSPI and BHE. All other operations, including Bear Swamp, Emera
Energy Services, Brunswick Pipeline, Maritimes & Northeast Pipeline, Lucelec,
and corporate activities are grouped and discussed as "Other". Significant
changes in the consolidated balance sheets, outstanding share data, liquidity
and capital resources, financial and commodity instruments, transactions with
related parties, changes in accounting policies, dividends and selected
quarterly trend information are presented on a consolidated basis.

    EMERA CONSOLIDATED

    Q3 Operating Unit Contributions
    millions of dollars
     (except earnings             Three months ended       Nine months ended
     per common share)                  September 30            September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Nova Scotia Power          $    25.0   $    12.7   $    75.0   $    74.4
    Bangor Hydro-Electric            9.1         5.1        20.8        11.5
    Other                            6.8         1.7        18.9         6.4
    -------------------------------------------------------------------------
    Consolidated net earnings  $    40.9   $    19.5   $   114.7   $    92.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per common
     share - basic             $    0.37   $    0.18   $    1.03   $    0.84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per common
     share - diluted           $    0.35   $    0.18   $    1.00   $    0.82
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Review of 2007

    Emera Inc.'s consolidated net earnings increased $21.4 million to
$40.9 million in Q3 2007 compared to $19.5 million for the same period in
2006. Year to date Emera's consolidated net earnings increased $22.4 million
to $114.7 million in 2007 compared to $92.3 million in 2006. Highlights of the
changes are summarized in the following table:

                                                  Three months   Nine months
                                                         ended         ended
    millions of dollars                           September 30  September 30
    -------------------------------------------------------------------------
    Consolidated net earnings - 2006                 $    19.5     $    92.3
    -------------------------------------------------------------------------
    Decreased year-to-date net earnings in
     NSPI due to increased fuel expense and
     a new regulatory amortization partially
     offset by increased revenue                           1.5         (10.2)
    Income tax recovery in NSPI                           10.8          10.8
    Increased net earnings in Bangor Hydro due
     to increased revenue and capitalized costs
     associated with the Northeast Reliability
     Interconnect transmission project partially
     offset by increased income taxes and the
     effect of the stronger Canadian dollar                4.0           9.3
    Increased net earnings in Other due mainly
     to Bear Swamp's increased energy and
     capacity sales and  mark-to-market positions
     and M&NP's capitalization of prior years'
     expansion costs in Q1 2007                            5.1          12.5
    -------------------------------------------------------------------------
    Consolidated net earnings - 2007                 $    40.9     $   114.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Q3 basic earnings per share were $0.37 in 2007 compared to $0.18 in 2006;
and $1.03 year to date in 2007 compared to $0.84 for the first nine months of
2006.

    NOVA SCOTIA POWER INC.

    Overview

    NSPI is the primary electricity supplier in Nova Scotia, providing over
95% of electricity generation, transmission and distribution in the province.
Nova Scotia Power is regulated under a cost of service model, with rates set
to recover prudently incurred costs of providing electricity service to
customers, and provide an opportunity to earn a prescribed return on equity.
The company is regulated by the Nova Scotia Utility and Review Board ("UARB").

    Income Tax Recovery

    NSPI prepared and filed with CRA amended tax returns for the years 2000 to
2004 inclusive. CRA reviewed and approved the amended filings, which has
resulted in accelerated deductibility of certain capitalized expenses. NSPI
intends to amend tax returns for 2005 and 2006 using the same methodology and
will continue to use this methodology when filing its future tax returns. As a
result, NSPI has recorded an income tax recovery of $25.4 million, of which
$14.6 million has been recorded as a reduction of deferred charges,
specifically the regulatory asset related to its pre-2003 income tax
liability. The remaining $10.8 million has been recorded as a reduction of
current income tax expense. Refund interest has not been estimated on the
recovery as it is not reasonably determinable at this time.

    2007 Rate Decision

    In February 2007 the UARB approved an average increase in electricity
rates of 3.8% effective April 1, 2007. The rate increase was part of a
settlement agreement between NSPI and key stakeholders. NSPI's return on
equity range was unchanged at 9.3% to 9.8%.
    A central provision of the settlement is an agreement in principle that
the UARB should establish a fuel adjustment mechanism ("FAM") for Nova Scotia
Power to ensure actual fuel costs are recovered from customers. FAM hearings,
which were scheduled to begin June 18, 2007, are now scheduled for November 5,
2007.

    Review of 2007

    NSPI Q3 Net Earnings
    millions of dollars
     (except earnings             Three months ended       Nine months ended
     per common share)                  September 30            September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Electric revenue           $   249.2   $   219.9   $   818.9   $   710.0
    -------------------------------------------------------------------------
    Fuel for generation and
     purchased power                94.5        68.0       323.4       205.1
    Operating, maintenance
     and general                    50.1        53.5       150.7       151.0
    Provincial grants and
     taxes                          10.2        10.1        30.3        30.2
    Depreciation                    32.8        32.0        98.0        95.7
    Regulatory amortization          5.6         1.6        12.7         4.7
    Other                           (3.6)       (3.1)       (8.9)       (8.3)
    -------------------------------------------------------------------------
    Earnings before interest
     and income taxes               59.6        57.8       212.7       231.6
    Interest                        28.3        27.0        79.1        78.0
    Amortization of
     defeasance costs                3.2         3.2         9.5         9.5
    -------------------------------------------------------------------------
    Earnings before income
     taxes                          28.1        27.6       124.1       144.1
    Income taxes                    (0.2)       11.6        39.2        59.8
    -------------------------------------------------------------------------
    Net earnings before
     preferred dividends            28.3        16.0        84.9        84.3
    Preferred dividends              3.3         3.3         9.9         9.9
    -------------------------------------------------------------------------
    Contribution to
     consolidated net
     earnings                  $    25.0   $    12.7   $    75.0   $    74.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Contribution to
     consolidated earnings
     per common share          $    0.22   $    0.11   $    0.67   $    0.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NSPI's contribution to consolidated net earnings increased $12.3 million
to $25.0 million in Q3 2007 compared to $12.7 million in Q3 2006. Year to date
NSPI's contribution to consolidated net earnings increased $0.6 million to
$75.0 million in 2007 compared to $74.4 million in 2006. Highlights of the
earnings changes are summarized in the following table:

                                                  Three months   Nine months
                                                         ended         ended
    millions of dollars                           September 30  September 30
    -------------------------------------------------------------------------
    Contribution to consolidated net
     earnings - 2006                                 $    12.7     $    74.4
    Increased electric revenue due to an
     electricity price increase on April 1, 2007,
     higher industrial sales volume, partially
     offset by lower export sales volume; year to
     date increase is also due to electricity
     price increase in mid-March 2006, colder
     weather, and increased residential and
     commercial sales volume                              29.3         108.9
    Increased fuel expense                               (26.5)       (118.3)
    Increased regulatory amortization due to
     the start of a new regulatory amortization
     on April 1, 2007                                     (4.0)         (8.0)
    Decreased income taxes due to the income
     tax recovery                                         10.8          10.8
    Decreased income taxes primarily due to lower
     taxable income                                        1.0           9.8
    All other                                              1.7          (2.6)
    -------------------------------------------------------------------------
    Contribution to consolidated net
     earnings - 2007                                 $    25.0     $    75.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Electric Revenue

    Q3 Electric Sales Volume             Q3 Electric Sales Revenues
    Gigawatt hours ("GWh")               millions of dollars
    -----------------------------------  ------------------------------------
                  2007    2006    2005                  2007    2006    2005
    -----------------------------------  ------------------------------------

    Residential    771     763     783   Residential  $ 95.8  $ 90.1  $ 85.1
    Commercial     747     743     731   Commercial     72.7    70.0    63.8
    Industrial   1,089     675   1,076   Industrial     70.0    44.8    61.2
    Other           93     180     104   Other          10.7    15.0    11.4
    -----------------------------------  ------------------------------------
    Total        2,700   2,361   2,694   Total        $249.2  $219.9  $221.5
    -----------------------------------  ------------------------------------
    -----------------------------------  ------------------------------------


    Year-to-Date ("YTD") Electric        YTD Electric Sales Revenues
     Sales Volume                        millions of dollars
    GWh
    -----------------------------------  ------------------------------------
                  2007    2006    2005                  2007    2006    2005
    -----------------------------------  ------------------------------------
    Residential  3,081   2,911   3,001   Residential  $359.9  $324.4  $307.2
    Commercial   2,368   2,281   2,276   Commercial    229.1   213.2   198.3
    Industrial   3,145   1,949   3,176   Industrial    199.1   126.3   176.6
    Other          266     565     292   Other          30.8    46.1    30.0
    -----------------------------------  ------------------------------------
    Total        8,860   7,706   8,745   Total        $818.9  $710.0  $712.1
    -----------------------------------  ------------------------------------
    -----------------------------------  ------------------------------------


    Q3 Average Revenue / Megawatt hour
     ("MWh")
    -----------------------------------
                  2007    2006    2005
    -----------------------------------
    Dollars per
     MWh        $   92  $   93  $   82
    -----------------------------------
    -----------------------------------


    YTD Average Revenue / MWh
    -----------------------------------
                  2007    2006    2005
    -----------------------------------
    Dollars per
     MWh        $   92  $   92  $   81
    -----------------------------------
    -----------------------------------

    Electric revenues increased by $29.3 million to $249.2 million in Q3 2007
compared to $219.9 million in Q3 2006. Revenue increases are substantially due
to increased sales volume due to a large industrial customer returning to
operations in late 2006, and a 3.8% rate increase effective April 1, 2007,
partially offset by lower export sales.
    Year-to-date electric revenues increased by $108.9 million to
$818.9 million in 2007 from $710.0 million in 2006. Revenue increases are
substantially due to the 8.7% rate increase effective March 10, 2006 and a
3.8% rate increase effective April 1, 2007, increased sales volume due to a
large industrial customer returning to operations in late 2006, colder
weather, and increased residential and commercial sales volume, partially
offset by lower export sales.
    The average revenue per MWh is lower in the quarter and unchanged year to
date reflecting the rate increases noted above, offset by a change in sales
mix, specifically the increase in lower priced industrial sales from the
return to operations of a large industrial customer.


    Fuel for Generation and Purchased Power

    Q3 Production Volume                 YTD Production Volume
    GWh                                  GWh
    -----------------------------------  ------------------------------------
                  2007    2006    2005                  2007    2006    2005
    -----------------------------------  ------------------------------------
    Coal &                               Coal &
     petcoke     2,292   2,121   2,153    petcoke      7,042   6,760   6,835
    Natural gas    315     122      67   Natural gas     724     262     162
    Oil              4       -     336   Oil             470     257   1,139
    Renewable      152     205     146   Renewable       693     765     755
    Purchased                            Purchased
     power         105      78     120    power          465     225     404
    -----------------------------------  ------------------------------------
    Total        2,868   2,526   2,822                 9,394   8,269   9,295
    -----------------------------------  ------------------------------------
    -----------------------------------  ------------------------------------
    Purchased power includes 27 GWh of   Purchased power includes 111 GWh of
     renewables in Q3 2007                renewables in 2007
     (2006 - 20 GWh; 2005 - 15 GWh).      (2006 - 76 GWh; 2005 - 54 GWh)


    Q3 Average Unit Fuel Costs
    -----------------------------------
                  2007    2006    2005
    -----------------------------------
    Dollars per
     MWh        $   33  $   27  $   35
    -----------------------------------
    -----------------------------------


    YTD Average Unit Fuel Costs
    -----------------------------------
                  2007    2006    2005
    -----------------------------------
    Dollars per
     MWh        $   34  $   25  $   32
    -----------------------------------
    -----------------------------------

    Fuel for generation and purchased power increased $26.5 million to
$94.5 million in Q3 2007 compared to $68.0 million in Q3 2006. Year-to-date
fuel for generation and purchased power increased $118.3 million to
$323.4 million in 2007 compared to $205.1 million in 2006. Highlights of the
changes are summarized in the following table:

                                                  Three months   Nine months
                                                         ended         ended
    millions of dollars                           September 30  September 30
    -------------------------------------------------------------------------
    Fuel for generation and purchased
     power - 2006                                    $    68.0     $   205.1
    Increased sales volume due to the return
     to operation of a large industrial
     customer that had been shut-down for
     most of 2006, partially offset by lower
     export sales; year to date increase is
     also due to colder weather and increased
     residential and commercial sales volume              21.5          89.7
    Commodity price increases                                -          16.9
    Decreased net proceeds from the resale of
     natural gas                                           9.1          34.1
    Deferral of fuel costs as discussed below                -          (3.0)
    Decreased export sales volume                         (3.3)        (11.6)
    Changes in generation mix                             (0.2)         (3.3)
    All other                                             (0.6)         (4.5)
    -------------------------------------------------------------------------
    Fuel for generation and purchased
     power - 2007                                    $    94.5     $   323.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Q3 and year-to-date average unit fuel costs increased in 2007 because
sales volume increases necessitated the use of higher marginal cost
production, and due to reductions in natural gas margins. A provision of the
2007 rate case settlement agreement allows NSPI to defer, for future recovery
in rates, up to $8 million of fuel costs should natural gas margins be less
than $47 million. Year to date 2007 NSPI deferred $3.0 million.

    Regulatory Amortization

    The UARB has approved recovery, over eight years, of a $147.1 million
regulatory asset related to pre-2003 income taxes that have been paid, but not
yet recovered from customers; and a $16.7 million regulatory asset related to
Q1 2005 taxes not previously included in rates. Amortization of these
regulatory assets began on April 1, 2007 and increased regulatory amortization
by $4.0 million in Q3 2007 and $8.0 million year-to-date 2007.
    In Q3 2007, the regulatory asset related to pre-2003 income taxes was
reduced by the $14.6 million income tax recovery as discussed below.

    Income Taxes

    NSPI prepared and filed with CRA amended tax returns for the years 2000 to
2004 inclusive. CRA reviewed and approved the amended filings, which has
resulted in accelerated deductibility of certain capitalized expenses. NSPI
intends to amend tax returns for 2005 and 2006 using the same methodology and
will continue to use this methodology when filing its future tax returns. As a
result, NSPI has recorded an income tax recovery of $25.4 million, of which
$14.6 million has been recorded as a reduction of deferred charges,
specifically the regulatory asset related to its pre-2003 income tax
liability. The remaining $10.8 million has been recorded as a reduction of
current income tax expense. Refund interest has not been estimated on the
recovery as it is not reasonably determinable at this time.

    Outlook

    NSPI expects to earn within its allowed regulated return on equity for
2007. NSPI has also announced it will not file a general rate application for
2008.

    BANGOR HYDRO-ELECTRIC COMPANY

    All amounts in the Bangor Hydro section are reported in US dollars unless
otherwise stated.

    Overview

    BHE's core business is the transmission and distribution ("T&D") of
electricity. Electricity generation is deregulated in Maine, and several
suppliers compete to provide customers with the commodity that is delivered
through the BHE T&D network. BHE is a cost of service utility with an
alternate rate plan for its distribution operations.
    The construction of the Northeast Reliability Interconnect ("NRI")
electricity transmission line was complete at the end of the quarter, and on
schedule to be in service in Q4 of this year. In Q2 2007, BHE filed updates to
its total project cost estimate with regulatory agencies and the Independent
System Operator in New England. The filing was based on BHE's total project
cost of $141 million, an approximate 20% increase over earlier estimates. The
change reflects higher costs of mitigating the effect of the line on the
Maritimes & Northeast Pipeline, with which it shares a utility corridor; and
increased construction costs due to a wet fall and short winter construction
season. The new cost estimate was incorporated into rates, which are
recognized in other revenue, effective June 1, 2007.

    Leadership

    Effective October 5, 2007 Robert J.S. Hanf was appointed President and
Chief Operating Officer for Bangor Hydro. Prior to his position with Bangor
Hydro, Mr. Hanf acted as General Counsel for Emera Inc., and its affiliates,
where he and his internal legal team provided legal and regulatory services to
Emera and its various operating subsidiaries in Canada and the Northeast
United States. Before joining Emera in 2002, he was Partner in the law firm of
McCarthy Tétrault LLP, Calgary, Alberta, specializing in energy law.

    Review of 2007

    Bangor Hydro Q3 Net Earnings
    millions of dollars
     (except earnings             Three months ended       Nine months ended
     per common share)                  September 30            September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    T&D electric revenues      $    25.3   $    26.5   $    75.8   $    76.3
    Resale of purchased power        3.1         3.6        10.9        11.5
    Other revenue                    6.2           -         8.2           -
    -------------------------------------------------------------------------
    Total revenue                   34.6        30.1        94.9        87.8
    Purchased power and fuel
     for generation                  7.2         6.7        23.6        23.2
    Operating, maintenance and
     general                         6.3         6.3        18.3        20.1
    Property taxes                   1.0         1.3         4.0         4.0
    Depreciation                     3.3         3.2         9.8         9.7
    Regulatory amortization          3.6         4.4        10.0        10.6
    Other                           (3.2)       (1.4)       (8.6)       (3.8)
    -------------------------------------------------------------------------
    Earnings before interest
     and income taxes               16.4         9.6        37.8        24.0
    Interest                         3.3         2.4         9.3         7.6
    -------------------------------------------------------------------------
    Earnings before income
     taxes                          13.1         7.2        28.5        16.4
    Income taxes                     4.4         2.6         9.5         6.2
    -------------------------------------------------------------------------
    Contribution to
     consolidated net
     earnings - USD            $     8.7   $     4.6   $    19.0   $    10.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Contribution to
     consolidated net
     earnings - CAD            $     9.1   $     5.1   $    20.8   $    11.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Contribution to
     consolidated earnings
     per common share - CAD    $    0.09   $    0.05   $    0.19   $    0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings weighted
     average foreign exchange
     rate - CAD/USD            $    1.04   $    1.11   $    1.09   $    1.13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Bangor Hydro's contribution to consolidated net earnings increased by $4.1
million to $8.7 million in Q3 2007 compared to $4.6 million in Q3 2006. Year
to date Bangor Hydro's contribution to consolidated net earnings increased
$8.8 million to $19.0 million in 2007 compared to $10.2 million in 2006.
Highlights of the earnings changes are summarized in the following table:

                                                  Three months   Nine months
                                                         ended         ended
    millions of dollars                           September 30  September 30
    -------------------------------------------------------------------------
    Contribution to consolidated net
     earnings - 2006                                 $     4.6     $    10.2
    Other revenue associated with the recovery
     of the NRI project beginning in June 2007             6.2           8.2
    Increased overheads and AFUDC capitalized
     primarily as a result of capital
     expenditures on the NRI transmission
     project                                               1.3           4.7
    Increased income taxes due to increased
     earnings                                             (1.8)         (3.3)
    All other                                             (1.6)         (0.8)
    -------------------------------------------------------------------------
    Contribution to consolidated net
     earnings - 2007                                 $     8.7     $    19.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Bangor Hydro's increased contribution to consolidated net earnings in CAD
was partially offset by the $0.6 million effect of the stronger Canadian
dollar in the quarter and the $0.7 million effect of the stronger Canadian
dollar year to date.

    Electric Revenue

    Q3 Electric Sales Volume             Q3 Electric Sales Revenues
    GWh                                  millions of dollars
    -----------------------------------  ------------------------------------
                  2007    2006    2005                  2007    2006    2005
    -----------------------------------  ------------------------------------
    Residential    141     144     146   Residential  $ 11.7  $ 12.1  $ 12.2
    Commercial     161     164     167   Commercial      9.5     9.8     9.2
    Industrial     103      91     109   Industrial      2.7     2.6     3.6
    Other            3       3       3   Other           1.4     2.0     1.3
    -----------------------------------  ------------------------------------
    Total          408     402     425   Total        $ 25.3  $ 26.5  $ 26.3
    -----------------------------------  ------------------------------------
    -----------------------------------  ------------------------------------


    YTD Electric Sales Volume            YTD Electric Sales Revenues
    GWh                                  millions of dollars
    -----------------------------------  ------------------------------------
                  2007    2006    2005                  2007    2006    2005
    -----------------------------------  ------------------------------------
    Residential    437     434     446   Residential  $ 36.6  $ 36.2  $ 38.1
    Commercial     457     457     463   Commercial     27.5    27.3    28.0
    Industrial     277     279     304   Industrial      8.4     8.5     9.6
    Other            9       9       9   Other           3.3     4.3     3.9
    Total        1,180   1,179   1,222   Total        $ 75.8  $ 76.3  $ 79.6
    -----------------------------------  ------------------------------------


    Q3 Average Revenue / MWh
    -----------------------------------
                  2007    2006    2005
    -----------------------------------
    Dollars per
     MWh        $   62  $   66  $   62
    -----------------------------------
    -----------------------------------


    YTD Average Revenue / MWh
    -----------------------------------
                  2007    2006    2005
    -----------------------------------
    Dollars per
     MWh        $   64  $   65  $   65
    -----------------------------------
    -----------------------------------


    Other Revenue

    Other revenue was $6.2 million in Q3 2007 and $8.2 million year to date
2007, which resulted from the recovery of NRI projects costs, starting in June
2007, from the New England Power Pool.
    Depreciation associated with the NRI project will begin in Q4 2007 when
the NRI project goes into service.

    Interest Expense

    Interest expense increased $0.9 million to $3.3 million in Q3 2007
compared to $2.4 million in Q3 2006 and increased $1.7 million to $9.3 million
in 2007 compared to $7.6 million in 2006 primarily due to increased debt used
to finance the NRI project.

    Other

    Other recoveries increased $1.8 million to $3.2 million in Q3 2007
compared to $1.4 million in Q3 2006 and increased $4.8 million to $8.6 million
in 2007 compared to $3.8 million in 2006 due to increased AFUDC related to the
NRI project.

    OTHER

    All activities of Emera other than its two wholly-owned regulated electric
utilities are incorporated into Other, including:

    - Bear Swamp, a 50/50 joint venture in a 600 megawatt pumped storage
      hydro-electric facility in northern Massachusetts. Bear Swamp typically
      pumps water into its reservoir using lower priced off-peak power, and
      uses that hydro capacity to generate electricity during higher priced
      on-peak periods.

    - Emera Energy Services, a wholly owned subsidiary, which purchases and
      sells natural gas and electricity on behalf of third parties and
      provides related energy asset management services. Emera Energy
      Services operates with minimal day-to-day commodity risk exposure.
      Volatility in natural gas markets usually results in increased
      opportunities for Emera Energy Services.

    - Brunswick Pipeline, a 145 kilometer greenfield pipeline project under
      development that will deliver natural gas from the planned Canaport(TM)
      Liquefied Natural Gas import terminal near Saint John, New Brunswick,
      to markets in Canada and the US northeast. The project is expected to
      be in service as targeted by the end of 2008.

    - A 12.9% interest in the $2 billion, 1,400 kilometer Maritimes &
      Northeast Pipeline that transports Nova Scotia's offshore natural gas
      to markets in Maritime Canada and the northeastern United States.

    - A 19% interest in St. Lucia Electricity Services ("Lucelec"), a
      vertically integrated electric utility on the Caribbean Island of
      St. Lucia, which was acquired in January 2007. Additional details are
      provided below.

    - Certain corporate-wide functions such as executive management,
      strategic planning, treasury services, tax planning, business
      development, and corporate governance; and financing for the
      corporation's business outside of its regulated electric utilities.

    Investment in St. Lucia Electricity Services

    St. Lucia Electricity Services Limited is a vertically integrated electric
utility serving more than 50,000 customers on the Caribbean island of St.
Lucia. Emera acquired a 19% equity interest in Lucelec for $22 million USD in
January 2007.
    Lucelec has an exclusive license to generate, transmit and distribute
electricity on the island to 2045. The utility has 77 MW of generating
capacity, primarily oil fired, and 800 kilometers of electricity transmission
and distribution assets. Lucelec is a cost of service utility, with a minimum
rate of return of 10% on a 50% equity base. Emera financed the acquisition
with existing credit facilities. Lucelec is expected to add approximately
$1 million - $2 million to Emera's annual consolidated net earnings.
    Emera's strategy recognizes that the Caribbean market has attractive
growth prospects and opportunities for the company to deploy its operational
expertise. This modest investment in Lucelec provides Emera with a low risk
vehicle to assess whether there is broader business potential for the company
in the region, and at the same time, provides immediately accretive and
attractive returns.

    Review of 2007

    Other Q3 Net Earnings
    millions of dollars
     (except earnings             Three months ended       Nine months ended
     per common share)                  September 30            September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Bear Swamp earnings
     before interest and
     taxes ("EBIT")            $     5.1   $     0.4   $    15.1   $     2.2
    Emera Energy Services
     EBIT                            2.3         5.1        10.3        10.5
    M&NP equity earnings             2.1         1.2         8.0         3.7
    Lucelec equity earnings          0.5           -         1.3           -
    Corporate costs and other       (2.3)       (2.5)       (9.6)       (6.0)
    -------------------------------------------------------------------------
    Earnings before interest
     and income taxes                7.7         4.2        25.1        10.4
    Interest                         0.8         2.5         5.0         6.4
    -------------------------------------------------------------------------
    Earnings before income
     taxes                           6.9         1.7        20.1         4.0
    Income taxes                     0.1           -         1.2        (2.4)
    -------------------------------------------------------------------------
    Contribution to conso-
     lidated net earnings      $     6.8   $     1.7   $    18.9   $     6.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Contribution to conso-
     lidated earnings per
     common share              $    0.06   $    0.02   $    0.17   $    0.06
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The contribution of Other to consolidated net earnings increased
$5.1 million to $6.8 million in Q3 2007 compared to $1.7 million in Q3 2006.
The year-to-date contribution of Other to consolidated net earnings increased
$12.5 million to $18.9 million in 2007 compared to $6.4 million in 2006. 
Highlights of the earnings changes are summarized in the following table:

                                                  Three months   Nine months
                                                         ended         ended
    millions of dollars                           September 30  September 30
    -------------------------------------------------------------------------
    Contribution to consolidated net
     earnings - 2006                                 $     1.7     $     6.4
    Increased Bear Swamp EBIT due to
     increased energy and capacity sales                   2.8           6.9
    Increased Bear Swamp EBIT due to
     changes in mark-to-market positions                   1.9           6.0
    Decreased Emera Energy Services EBIT
     as a result of changes in supply,
     market performance,and a stronger
     Canadian dollar                                      (2.8)         (0.2)
    Increased M&NP equity earnings due to
     expansion costs that were expensed
     throughout 2006 and capitalized
     in Q1 2007                                            0.9           4.3
    Equity earnings from Lucelec                           0.5           1.3
    Increased year-to-date corporate
     costs due primarily to increased
     business development activity                         0.2          (3.6)
    Increased income taxes related to
     increased earnings                                   (0.1)         (3.6)
    All other                                              1.7           1.4
    -------------------------------------------------------------------------
    Contribution to consolidated net
     earnings - 2007                                 $     6.8     $    18.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Bear Swamp

    During Q2, Bear Swamp completed a $125 million USD financing using a
senior secured non-revolving credit facility. The five-year credit facility
bears interest at a LIBOR-based facility rate, is secured by the assets of
Bear Swamp, and is due in May 2012. Proceeds of the financing were distributed
equally to Emera and Brookfield Power.
    During Q1, Bear Swamp finalized a long-term agreement with the Long Island
Power Authority ("LIPA") providing LIPA with 345 MW of capacity to May 31,
2010 (approximately 55% of Bear Swamp's total capacity); and 100 MW
thereafter, to April 30, 2021. In addition, Bear Swamp will provide LIPA with
12,200 MWh of super-peak and peak energy weekly, (approximately 35% of the
plant's available energy) at a fixed price, with an annual increase, over the
14 year term of the agreement. Bear Swamp has contracted with its parent
companies, Emera and Brookfield Power for the power supply necessary to
produce the requirements of the LIPA agreement.

    Brunswick Pipeline

    The National Energy Board ("NEB") issued a Certificate of Public
Convenience and Necessity on June 11, 2007 reflecting approval for the project
from both the Governor in Council and the NEB. There are no outstanding
appeals. The project continues to progress on track with Right of Way
acquisition and construction planning. Clearing will begin in November 2007
and the pipeline is expected to be in service as targeted by the end of 2008.

    Consolidated Balance Sheets

    Significant changes in the consolidated balance sheets between
September 30, 2007 and December 31, 2006 include:

                          Increase
    millions of dollars  (Decrease)  Explanation
    -------------------------------------------------------------------------
    Assets
    Accounts receivable      $57.8   Lower accounts receivable securitized,
                                     higher sales due to a rate increase and
                                     a higher receivable from a natural gas
                                     supplier in NSPI, partially offset by a
                                     decrease in Emera Energy Services due to
                                     decreased trading activity, a stronger
                                     Canadian dollar and lower commodity
                                     prices.
    Income tax receivable     31.0   Income tax recovery in NSPI.
    Prepaid expenses         (11.3)  Decreased posted margin paid to
                                     counterparties and a stronger Canadian
                                     dollar in Emera Energy Services.
    Derivatives in a valid    25.3   Implementation of new accounting
     hedging relationship            standards related to financial
     (including long-term            instruments and hedges. Balance
     portion)                        primarily represents the fair value of
                                     NSPI's hedges.
    Held for trading          99.9   Implementation of new accounting
     derivatives (including          standards related to financial
     long-term portion)              instruments and hedges. Balance
                                     represents the fair value of certain of
                                     NSPI's natural gas contracts, trading
                                     instruments in Emera Energy Services,
                                     and instruments held by NSPI that are
                                     not considered valid hedges.
    Deferred charges         (84.4)  As a result of implementing new
                                     accounting standards, reclassification
                                     of deferred financing costs, now netted
                                     against long-term debt. An income tax
                                     recovery in NSPI, ongoing and new
                                     amortizations, lower accounts receivable
                                     securitized in NSPI, and a stronger
                                     Canadian dollar also contributed to the
                                     decrease.
    Goodwill                 (13.6)  Stronger Canadian dollar.
    Investments subject to    20.3   Q1 2007 investment in Lucelec
     significant influence
    ------------------------------------------------------------------------
    Liabilities and
     Shareholders' Equity

    Short-term debt           67.2   Increased issuance of short-term notes
                                     in NSPI and increased borrowings to
                                     finance the NRI project in Bangor Hydro.
    Accounts payable         (65.3)  Timing of payments in NSPI,and reduced
     and accrued charges             trading activity, a stronger Canadian
                                     dollar, along with lower commodity
                                     prices in Emera Energy Services.
    Income tax payable       (37.0)  Increased installments in NSPI.
    Derivatives in a valid    86.8   Implementation of new accounting
     hedging relationship            standards related to financial
     (including long-term            instruments and hedges. Balance
     portion)                        primarily represents the fair value of
                                     NSPI's hedges.
    Held for trading         (10.1)  Implementation of new accounting
     derivatives (including          standards related to financial
     long-term portion)              instruments and hedges. Balance
                                     represents the fair value of certain of
                                     NSPI's natural gas contracts, trading
                                     instruments in Emera Energy Services,
                                     and instruments held by NSPI that are
                                     not considered valid hedges.
    Deferred credits          93.4   Implementation of new accounting
                                     standards. Change primarily represents
                                     the new regulatory liability recognized
                                     in NSPI as a result of fair valuing
                                     certain natural gas contracts partially
                                     offset by the effect of a stronger
                                     Canadian dollar in Bangor Hydro.
    Long-term debt            53.2   Increased borrowing in Bangor Hydro and
     (including current              Bear Swamp partially offset by the
     portion)                        netting of deferred financing costs
                                     against long-term debt as a result of
                                     implementing new accounting standards,
                                     and a stronger Canadian dollar.
    Accumulated other       (121.1)  Implementation of new accounting
     comprehensive income            standards related to financial
                                     instruments, hedges, and comprehensive
                                     income. Balance represents the effective
                                     portion of the fair value of NSPI's
                                     hedges and the cumulative foreign
                                     exchange translation loss on foreign
                                     self-sustaining operations. Change
                                     primarily represents the effect of the
                                     strengthening Canadian dollar relative
                                     to NSPI's existing foreign exchange
                                     hedges and on the company's investment
                                     in Bangor Hydro.
    Retained earnings         37.5   Net earnings in excess of dividends
                                     paid.
    -------------------------------------------------------------------------

    Additional information on the new accounting standards is outlined in the
Changes in Accounting Policies section below.


    Outstanding Share Data
                                                                Common Share
                                                                     Capital
                                                   Millions of   millions of
    Issued and Outstanding:                             Shares       dollars
    -------------------------------------------------------------------------
    January 1, 2006                                     110.10     $1,039.2
    Issued for cash under purchase plans                  0.45          8.6
    Options exercised under senior management
     share option plan                                    0.38           6.7
    Share-based compensation                                 -           0.7
    -------------------------------------------------------------------------
    December 31, 2006                                   110.93      $1,055.2
    Issued for cash under purchase plans                  0.35           7.2
    Options exercised under senior management
     share option plan                                    0.08           1.6
    Share-based compensation                                 -           0.2
    -------------------------------------------------------------------------
    September 30, 2007                                  111.36      $1,064.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at October 19, 2007 the number of issued and outstanding common shares
was 111.40 million.

    Liquidity and Capital Resources

    Emera and Nova Scotia Power's debt shelf prospectuses in the amounts of
$300 million and $400 million respectively expired in April 2007 and will be
renewed by the end of 2007.
    North American financial markets have experienced significant volatility
in Q3 due to ongoing U.S. sub-prime mortgage concerns. This has pressured
global debt markets and in turn affected the Canadian asset-backed commercial
paper market. Emera and its subsidiaries have no investments in asset-backed
commercial paper. Nova Scotia Power issues commercial paper to finance
short-term cash requirements and has been able to continue to access the
market as required.
    During Q3, BHE completed a $50 million USD financing using senior
unsecured promissory notes. Proceeds were used to pay down a $40 million USD
interim bank credit line used as a bridge financing, and short-term debt.
    During Q2, Bear Swamp completed a $125 million USD financing using a
senior secured non-revolving credit facility. The five-year credit facility
bears interest at a LIBOR-based facility rate, is secured by the assets of
Bear Swamp, and is due in May 2012. Proceeds of the financing were distributed
equally to Emera and Brookfield Power.

    Consolidated Cash Flow Highlights

    Significant changes in the consolidated cash flow statements between
September 30, 2007 and September 30, 2006 include:

    Three months ended
     September 30
    millions of dollars          2007    2006   Explanation
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     beginning of period       $  8.3  $ 26.4
    Provided by (used in):
    Operating activities         82.8    98.8   In 2007, cash earnings
                                                partially offset by increased
                                                non-cash working capital.
                                                In 2006, cash earnings and
                                                decreased non-cash working
                                                capital.
    Investing activities        (80.0)  (57.4)  In 2007, capital spending,
                                                including NRI and Brunswick
                                                Pipeline projects.
                                                In 2006, capital spending,
                                                including NRI.
    Financing activities         (2.5)  (63.3)  In 2007, dividends on common
                                                shares offset by increased
                                                debt levels.
                                                In 2006, decreased debt
                                                levels and dividends on
                                                common shares.
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $  8.6  $  4.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Nine months ended
     September 30
    millions of dollars          2007    2006   Explanation
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     beginning of period       $  7.6  $ 21.5
    Provided by (used in):
    Operating activities        153.4   239.1   In 2007, cash earnings
                                                partially offset by increased
                                                non-cash working capital.
                                                In 2006, cash earnings.
    Investing activities       (197.2) (120.0)  In 2007, capital spending,
                                                including NRI and Brunswick
                                                Pipeline projects, and
                                                acquisition of 19% interest
                                                in Lucelec.
                                                In 2006, capital spending,
                                                including NRI.
    Financing activities         44.8  (136.1)  In 2007, increased debt
                                                levels, partially offset by
                                                dividends on common shares
                                                and decreased accounts
                                                receivable securitized.
                                                In 2006, dividends on common
                                                shares, decreased debt
                                                levels, and decreased
                                                accounts receivable
                                                securitized.
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $  8.6  $  4.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Financial and Commodity Instruments

    The company enters into swap contracts on commodities to limit exposure to
(hedge) fluctuations in natural gas and oil prices; foreign exchange forwards,
options and swap contracts to hedge currency rate fluctuations; and interest
rate contracts to hedge interest rate fluctuations. In addition, the company
has contracts for physical purchases and sales of natural gas. Collectively,
these contracts are referred to as derivatives.
    Derivatives that meet stringent documentation requirements, and can be
proven to be effective hedges both at the inception and over the term of the
derivative qualify for hedge accounting. That enables amounts paid or received
to be deferred and recognized in earnings in the same period that the related
hedged item is realized.
    As a result of implementing new accounting standards related to financial
instruments and hedges in 2007, the company is recognizing the fair value of
derivatives in valid hedging relationships on its balance sheet. Further, the
effective portion of the hedging relationship is recognized in other
comprehensive income. Any ineffective portion of the hedging relationship is
recognized in net earnings in the reporting period. The total ineffectiveness
recognized by the company was a $0.2 million gain in Q3 2007 and no gain or
loss recognized year-to-date 2007.
    Amounts paid or received in connection with derivatives that do not
qualify as hedges are in net earnings in the period.
    Derivatives held for trading are recorded on the balance sheet at fair
value, with changes normally recorded in net earnings of the period, unless
deferred as a result of regulatory accounting.
    Where the documentation or effectiveness requirements are not met, the
derivative instruments are recognized at fair value with any changes in fair
value recognized in net earnings in the reporting period.
    The company has the following categories on the balance sheet related to
derivatives in valid hedging relationships:

    Hedging Items Recognized on the Balance Sheet
    millions of dollars
    -------------------------------------------------------------------------
                                                  September 30   December 31
                                                          2007          2006
    -------------------------------------------------------------------------
    Inventory                                        $     4.2    $      5.2
    Derivatives in a valid hedging relationship          (61.5)            -
    Long-term debt                                         0.7             -
    Deferred charges                                         -           0.9
    -------------------------------------------------------------------------
                                                     $   (56.6)   $      6.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three and nine month periods ended September 30, the impacts of
derivatives in valid hedging relationships recognized in earnings were
recorded in the following categories:

    Hedging Impact Recognized
     in Earnings                   Three months ended      Nine months ended
    millions of dollars                  September 30           September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Fuel and purchased power
     (increase) decrease       $    (8.9)  $     9.6   $   (18.2)  $    30.2
    Interest expense increase       (0.1)       (0.1)       (0.3)       (0.2)
    -------------------------------------------------------------------------
    Hedging earnings impact    $    (9.0)  $     9.5   $   (18.5)  $    30.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Held for Trading Items Recognized on the Balance Sheet

    The company has recognized a net unrealized fair value of held for trading
derivatives of $111.2 million (December 31, 2006 - $1.2 million) on the
balance sheet. The company has recognized the following realized and
unrealized gains and losses with respect to held for trading derivatives in
earnings:

    Held for Trading Derivatives
     Gains (Losses) Recognized in
     Earnings                      Three months ended      Nine months ended
    millions of dollars                  September 30           September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Electric revenue           $     0.5   $    (2.4)  $     0.9   $    (2.5)
    Other revenue                    4.0         5.9        21.4        14.5
    Fuel and purchased power         2.1           -        (0.5)          -
    -------------------------------------------------------------------------
    Held for trading
     derivatives gains         $     6.6   $     3.5   $    21.8   $    12.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In determining the fair value of derivative financial instruments, the
company has relied on quoted market prices as at the reporting date.

    Transactions With Related Parties

    In the ordinary course of business, Emera purchased natural gas
transportation capacity totaling $5.9 million (2006 - $7.4 million) during the
three months ended September 30, 2007 and $20.3 million (2006 - $23.1 million)
during the nine months ended September 30, 2007 from the Maritimes & Northeast
Pipeline, an investment under significant influence of the company. The amount
is recognized in fuel for generation and purchased power or netted against
energy marketing margin in other revenue, and is measured at the exchange
amount. As at September 30, 2007 the amount payable to the related party is
$3.9 million (December 31, 2006 - $3.4 million), is non-interest bearing and
is under normal credit terms.

    Changes in Accounting Policies

    The Canadian Institute of Chartered Accountants ("CICA") has introduced
new classification and measurement requirements for financial instruments,
including increased use of fair value measurement. These new accounting
standards are incorporated in CICA Handbook Sections 1530 Comprehensive
Income, 3855 Financial Instruments - Recognition and Measurement, and
3865 Hedges, and are effective as of January 1, 2007 for Emera Inc.
    In accordance with the new accounting standards, the accounting policy
changes were applied retroactively without restatement of prior periods. The
following provides more information on each standard.

    Comprehensive Income

    As a result of the recently issued standard, a new item, accumulated other
comprehensive income ("AOCI"), is recognized in the shareholders' equity
section of the consolidated balance sheets. AOCI includes the unrealized
foreign exchange translation adjustments on the company's self-sustaining
foreign operations, the effective portion of changes in fair value of
derivatives meeting the requirements for cash flow hedges, and unrealized
gains and losses on financial assets classified as available-for-sale.

    Financial Instruments - Recognition and Measurement

    According to the new standard, financial assets are now classified as
loans and receivables, held for trading, available for sale, or held to
maturity. Financial liabilities are classified as either held for trading, or
other than held for trading. The financial assets and liabilities are subject
to different methods of measurement and classification in the financial
statements, as set out in the accompanying table:

    -------------------------------------------------------------------------
    Financial Instrument            Measured at      Classified in
    -------------------------------------------------------------------------
    - Loans and receivables         Amortized cost   N/A
    - Held to maturity financial
      assets
    - Other than held for trading
      financial liabilities
    -------------------------------------------------------------------------
    - Held for trading financial    Fair value       Net earnings unless
      assets and liabilities                         deferral permitted under
                                                     regulatory accounting
    -------------------------------------------------------------------------
    - Available for sale financial  Fair value       Other comprehensive
      assets                                         income
    -------------------------------------------------------------------------

    In accordance with the new standard, transaction costs associated with the
issuance of long-term debt are included in long-term debt and amortized using
the effective interest method.

    Hedges

    The new standard outlines the criteria for applying hedge accounting to
cash flow hedges, fair value hedges, and hedging foreign currency fluctuations
on self-sustaining foreign operations.
    Cash flow hedges are recognized on the balance sheet at fair value with
the effective portion of the hedging relationship recognized in other
comprehensive income. Any ineffective portion of the cash flow hedge is
recognized in net earnings. Amounts recognized in AOCI are reclassified to net
income in the same periods in which the hedged item is recognized in net
earnings.
    Fair value hedges and the related hedged items are recognized on the
balance sheet at fair value with any changes in fair value recognized in net
income. To the extent the fair value hedge is effective, the changes in fair
value of the hedge and the hedged item will offset each other.
    Hedges of self-sustaining foreign operations are recognized at fair value
with any changes in fair value recognized in other comprehensive income.

    Accounting for the impact of rate-regulation:

    In accordance with the new accounting standards as outlined above,
Nova Scotia Power determined that its contracts for the purchase or sale of
natural gas for its Tufts Cove generating station ("TUC") should be considered
derivative financial instruments and accordingly recognized at fair value as a
held for trading ("HFT") asset or liability as applicable. This reflects
NSPI's history of buying and reselling any natural gas not used in the
production of electricity at TUC.
    Changes in the fair value of HFT assets and liabilities are recognized in
net earnings. In accordance with Nova Scotia Power's accounting policy
covering physical and financial contracts relating to fuel at TUC, NSPI has
deferred any changes in fair value to a regulatory asset or liability as
appropriate, which are reflected in deferred assets or credits. Upon
implementation of these accounting standards at January 1, 2007, the fair
value of these contracts was $171.9 million. Absent this accounting policy,
which has been approved by the UARB, retained earnings would have increased by
$171.9 million at January 1, 2007. As of September 30, 2007, the fair value of
the HFT asset and liability was $97.8 million. Absent this accounting policy,
the decrease of $74.1 million ($45.9 million after-tax) would have decreased
NSPI's year to date earnings.
    Details of the amounts recognized upon implementation of the new
accounting standards, and the effect on the consolidated balance sheet as at
January 1, 2007 are summarized below:

    Consolidated
     Balance Sheet            Balance Before       Effect of   Balance After
    Selected Information      Implementation  Implementation  Implementation
    millions of dollars           Adjustment      Adjustment      Adjustment
    -------------------------------------------------------------------------
    Current assets
      Energy marketing assets      $    37.3       $   (37.3)              -
      Derivatives in valid
       hedging relationship                -            13.9       $    13.9
      Held for trading derivatives         -            76.0            76.0
    Energy marketing assets              2.0            (2.0)              -
    Derivatives in a valid hedging
     relationship                          -            17.9            17.9
    Held for trading derivatives           -           136.4           136.4
    Deferred charges                   468.2           (11.3)          456.9
    Investments                         98.5           (98.5)              -
    Investments subject to
     significant influence                 -            98.5            98.5
    -------------------------------------------------------------------------
                                                   $   193.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current liabilities
      Current portion of long-term
       debt                        $     3.4       $    (0.2)      $     3.2
      Energy marketing liabilities      36.7           (36.7)              -
      Derivatives in a valid hedging
       relationship                        -            26.6            26.6
      Held for trading derivatives         -            39.7            39.7
    Energy marketing liabilities         1.4            (1.4)              -
    Derivatives in a valid hedging
     relationship                          -            10.6            10.6
    Held for trading derivatives           -             2.6             2.6
    Deferred credits                    66.1           173.1           239.2
    Long-term debt                   1,657.4           (12.7)        1,644.7
    Shareholders' equity
      Foreign exchange translation
       adjustment                     (100.2)          100.2               -
      Accumulated other
       comprehensive income                -          (105.5)         (105.5)
      Retained earnings                450.9            (2.7)          448.2
    -------------------------------------------------------------------------
                                                   $   193.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The effect on the January 1, 2007 balances can be further explained as
follows:

    Energy marketing assets and liabilities: The balances have been
reclassified to held for trading derivatives.
    Derivatives in a valid hedging relationship: This new account represents
the fair value of Nova Scotia Power's hedges. These derivatives are all
designated as hedging future expected cash flows.
    Held for trading derivatives: This new account includes the fair value of
certain of Nova Scotia Power's natural gas contracts, amounts previously
recognized as energy marketing assets and liabilities, and the fair value of
any derivatives that are not considered valid hedges.
    Deferred charges: The adjustment represents the reclassification of
deferred financing costs which are now netted against the related debt,
partially offset by the regulatory asset resulting from the fair value
recognition of certain of Nova Scotia Power's natural gas contracts.
    Investments: The adjustment represents the reclassification of equity
accounted investments to investments subject to significant influence.
    Investments subject to significant influence: This new account represents
the reclassification of equity accounted investments from the investments
account as noted above.
    Deferred credits: The adjustment represents the regulatory liability
resulting from the fair value recognition of certain of Nova Scotia Power's
natural gas contracts.
    Long-term debt (including current portion): The adjustment represents the
netting of deferred financing costs against the related debt.
    Foreign exchange translation adjustment: The adjustment represents the
reclassification of foreign exchange losses on self-sustaining foreign
operations to accumulated other comprehensive income.
    Accumulated other comprehensive income: The adjustment represents the
effective portion of the fair value of Nova Scotia Power's hedges and the
cumulative foreign exchange loss on self-sustaining foreign operations.
    Retained earnings: The adjustment represents the fair value of Bear
Swamp's interim LIPA contract.

    As a result of implementing the accounting policy changes, earnings have
increased by $0.2 million ($0.1 million after-tax) in Q3 2007 and $2.7 million
($1.6 million after-tax) year to date 2007, which represents the change in
fair value of Bear Swamp's interim LIPA contract and the ineffective portion
of the company's hedges. There has been no effect on the consolidated
statement of changes of cash flow.
    The fair value of derivatives held in a valid hedging relationship and
held for trading derivatives are estimated by obtaining prevailing market
rates from investment dealers.

    Future Accounting Policy Changes

    The CICA has issued new accounting standards 1535 Capital Disclosures,
3031 Inventories, 3862 Financial Instruments - Disclosures, and 3863 Financial
Instruments - Presentation which are applicable to Emera's 2008 fiscal year.
The following provides more information on each new accounting standard.
    Capital Disclosures: This new standard requires disclosure of the
company's objectives, policies, and processes for managing capital;
quantitative data about what the company regards as capital; whether the
company has complied with capital requirements; and, if the company has not
complied, the consequences of such non-compliance. The new accounting standard
covers disclosure only and will have no effect on the financial results of the
company.
    Inventories: The new standard provides more guidance on the measurement
and disclosure requirements for inventories than the previous standard,
3030 Inventories. Specifically, the new standard requires that inventories be
measured at the lower of cost and net realizable value, and provides more
guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realizable value. The company is
assessing the effect of the new standard on its financial results but does not
anticipate any material effect on its results.
    Financial Instruments - Disclosures and Financial Instruments -
Presentation: These new standards replace accounting standard 3861 Financial
Instruments - Disclosure and Presentation. Presentation requirements have not
changed. Enhanced disclosure is required to assist users of the financial
statements in evaluating the significance of financial instruments on the
company's financial position and performance, including qualitative and
quantitative information about the company's exposure to risks arising from
financial instruments. The new accounting standards cover disclosure only and
will have no effect on the financial results of the company.

    Dividends

    In July 2007, the Board of Directors approved a quarterly dividend of
$0.2275 per common share, reflecting an increase on an annualized basis to
$0.91 from $0.89.

    Summary of Quarterly Reports

    For the quarter ended
    millions of dollars (except earnings per common share)
    -------------------------------------------------------------------------
                                      Q3          Q2          Q1          Q4
                                    2007        2007        2007        2006
    -------------------------------------------------------------------------
    Total revenues             $   310.3   $   325.4   $   359.9   $   307.0
    -------------------------------------------------------------------------
    Net earnings applicable
     to common shares               40.9        34.1        39.7        33.5
    -------------------------------------------------------------------------
    Earnings per common share
     - basic                        0.37        0.30        0.36        0.30
    -------------------------------------------------------------------------
    Earnings per common share
     - diluted                      0.35        0.30        0.35        0.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                      Q3          Q2          Q1          Q4
                                    2006        2006        2006        2005
    -------------------------------------------------------------------------
    Total revenues             $   272.4   $   275.9   $   310.7   $   297.1
    -------------------------------------------------------------------------
    Net earnings applicable
     to common shares               19.5        29.2        43.6        37.7
    -------------------------------------------------------------------------
    Earnings per common share
     - basic                        0.18        0.26        0.40        0.34
    -------------------------------------------------------------------------
    Earnings per common share
     - diluted                      0.18        0.26        0.38        0.34
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Quarterly total revenues and net earnings applicable to common shares are
affected by seasonality, with Q1 and Q4 the strongest periods, reflecting
colder weather and fewer daylight hours at those times of year.


    Financial Statements

    Consolidated Statements of Earnings (Unaudited)

    -------------------------------------------------------------------------
    For the
    millions of dollars (except   Three months ended        Six months ended
     earnings per common share)         September 30            September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Revenue
      Electric                 $   290.3   $   261.1   $   947.5   $   830.4
      Other                         20.0        11.3        48.1        28.6
    -------------------------------------------------------------------------
                                   310.3       272.4       995.6       859.0
    -------------------------------------------------------------------------
    Cost of operations
      Fuel for generation and
       purchased power (note 6)    109.5        81.2       370.5       245.4
      Operating, maintenance,
       and general                  64.9        66.2       193.3       190.6
      Provincial, state, and
       municipal taxes              11.6        12.2        36.1        36.3
      Depreciation                  36.8        36.1       111.2       108.3
      Regulatory amortization        9.2         6.4        23.6        16.6
      Allowance for funds used
       during construction          (3.5)       (1.4)       (9.1)       (3.7)
    -------------------------------------------------------------------------
                                   228.5       200.7       725.6       593.5
    -------------------------------------------------------------------------
    Earnings from operations        81.8        71.7       270.0       265.5
    Equity earnings                  2.6         1.2         9.3         3.7
    -------------------------------------------------------------------------
    Earnings before interest and
     income taxes                   84.4        72.9       279.3       269.2
    Interest (note 8)               32.5        32.2        94.3        92.9
    Amortization of defeasance
     costs                           3.2         3.2         9.5         9.5
    -------------------------------------------------------------------------
    Earnings before income taxes    48.7        37.5       175.5       166.8
    Income taxes (note 9)            4.5        14.7        50.8        64.5
    -------------------------------------------------------------------------
    Net earnings before
     non-controlling interest       44.2        22.8       124.7       102.3
    Non-controlling interest         3.3         3.3        10.0        10.0
    Net earnings applicable to
     common shares             $    40.9   $    19.5   $   114.7   $    92.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share
     - basic                   $    0.37   $    0.18   $    1.03   $    0.84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share
     - diluted                 $    0.35   $    0.18   $    1.00   $    0.82
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the unaudited consolidated financial
    statements.

    Weighted average number of common
     shares outstanding (millions)
    - basic                        111.3       110.6       111.2       110.4
    - diluted (note 11)            125.1       110.6       124.5       116.8


    Consolidated Balance Sheets (Unaudited)
    -------------------------------------------------------------------------
    As at                                         September 30   December 31
    millions of dollars                                   2007          2006
    -------------------------------------------------------------------------
    Assets
    Current assets
      Cash and cash equivalents                      $     8.6     $     7.6
      Restricted cash                                      4.0          11.9
      Accounts receivable                                311.4         253.6
      Income tax receivable                               36.3           5.3
      Inventory                                          104.8         113.6
      Prepaid expenses                                    42.6          53.9
      Future income tax assets                             9.5          18.9
      Derivatives in a valid hedging relationship
       (note 3)                                           23.3             -
      Held for trading derivatives (note 3)               60.7          37.3
    -------------------------------------------------------------------------
                                                         601.2         502.1
    -------------------------------------------------------------------------
    Derivatives in a valid hedging relationship
     (note 3)                                              2.0             -
    -------------------------------------------------------------------------
    Held for trading derivatives (note 3)                 78.5           2.0
    -------------------------------------------------------------------------
    Deferred charges (note 3)                            383.8         468.2
    -------------------------------------------------------------------------
    Future income tax assets                              19.3          10.0
    -------------------------------------------------------------------------
    Goodwill                                              83.5          97.1
    -------------------------------------------------------------------------
    Investments subject to significant influence
     (note 3)                                            118.8          98.5
    -------------------------------------------------------------------------
    Property, plant and equipment                      2,678.5       2,756.4
    Construction work in progress                        209.6         125.5
    -------------------------------------------------------------------------
                                                       2,888.1       2,881.9
    -------------------------------------------------------------------------
                                                     $ 4,175.2     $ 4,059.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
      Current portion of long-term debt
       (notes 3 and 10)                              $   122.2     $     3.4
      Short-term debt                                    200.4         133.2
      Accounts payable and accrued charges               220.7         286.0
      Income tax payable                                   2.3          39.3
      Dividends payable                                    3.2           3.2
      Future income tax liabilities                        3.4             -
      Derivatives in a valid hedging relationship
       (note 3)                                           43.4             -
      Held for trading derivatives (note 3)               20.7          36.7
    -------------------------------------------------------------------------
                                                         616.3         501.8
    -------------------------------------------------------------------------
    Derivatives in a valid hedging relationship
     (note 3)                                             43.4             -
    -------------------------------------------------------------------------
    Held for trading derivatives (note 3)                  7.3           1.4
    -------------------------------------------------------------------------
    Future income tax liabilities                         81.2          86.2
    -------------------------------------------------------------------------
    Asset retirement obligations                          81.1          78.1
    -------------------------------------------------------------------------
    Deferred credits (note 3)                            159.5          66.1
    -------------------------------------------------------------------------
    Long-term debt (notes 3 and 10)                    1,591.8       1,657.4
    -------------------------------------------------------------------------
    Non-controlling interest                             260.6         260.7
    -------------------------------------------------------------------------
    Shareholders' equity
      Common shares (note 11)                          1,064.2       1,055.2
      Contributed surplus                                  2.7           2.2
      Accumulated other comprehensive income (note 3)   (221.3)       (100.2)
      Retained earnings                                  488.4         450.9
    -------------------------------------------------------------------------
                                                       1,334.0       1,408.1
    -------------------------------------------------------------------------
                                                     $ 4,175.2     $ 4,059.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited consolidated financial
    statements.


    Approved on behalf of the Board of Directors

    "Derek Oland"         "Christopher Huskilson"

    Derek Oland           Christopher Huskilson
    Chairman              President and Chief Executive Officer


    Consolidated Statements of Cash Flow (Unaudited)

    For the                       Three months ended       Nine months ended
    millions of dollars                 September 30            September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Operating activities
    Net earnings before
     non-controlling
     interest                  $    44.2   $    22.8   $   124.7   $   102.3
    Non-cash items:
      Depreciation                  36.8        36.1       111.2       108.3
      Amortization of deferred
       charges                       3.6         3.6        10.6        10.4
      Equity earnings               (2.6)       (1.2)       (9.3)       (3.7)
      Regulatory amortization        9.2         6.4        23.6        16.6
      Allowance for funds used
       during construction          (3.5)       (1.4)       (9.1)       (3.7)
      Future income taxes            1.3         2.1         5.2         6.1
      Post-retirement benefits       4.0        (0.4)       11.1         6.5
      Reduction in regulatory
       asset (note 9)               14.6           -        14.6           -
      Other non-cash operating
       items                        (6.1)       (4.5)      (13.0)       (3.7)
    Other cash operating items       0.4         1.5         1.6         2.0
    -------------------------------------------------------------------------
                                   101.9        65.0       271.2       241.1
    Change in non-cash operating
     working capital               (19.1)       33.8      (117.8)       (2.0)
    -------------------------------------------------------------------------
    Net cash provided by
     operating activities           82.8        98.8       153.4       239.1
    -------------------------------------------------------------------------
    Investing activities
      Property, plant and
       equipment                   (81.9)      (52.9)     (176.9)     (109.7)
      Acquisition (note 4)             -           -       (25.7)          -
      Retirement spending net
       of salvage                   (0.7)       (0.6)       (2.2)       (2.2)
      Decrease (increase) in
       restricted cash               2.9        (4.3)        7.9        (8.5)
      Other investing activities    (0.3)        0.4        (0.3)        0.4
    -------------------------------------------------------------------------
    Net cash used in investing
     activities                    (80.0)      (57.4)     (197.2)     (120.0)
    -------------------------------------------------------------------------
    Financing activities
      Retirement of long-term debt  (1.0)          -        (2.0)     (150.8)
      Issuance of long-term debt    50.2           -       117.1        40.0
      (Decrease) increase in
        short-term debt            (24.6)      (41.8)       62.8        76.5
      Issuance of common shares      2.6         6.0         8.8        12.1
      Dividends on common shares   (25.1)      (24.5)      (74.5)      (73.6)
      Dividends paid by
       subsidiaries to
       non-controlling interest     (3.3)       (3.3)      (10.0)      (10.0)
      Accounts receivable
       securitization                  -           -       (55.0)      (30.0)
      Other financing               (1.3)        0.3        (2.4)       (0.3)
    -------------------------------------------------------------------------
    Net cash (used in) provided
     by financing activities        (2.5)      (63.3)       44.8      (136.1)
    -------------------------------------------------------------------------
    Increase (decrease) in cash
     and cash equivalents            0.3       (21.9)        1.0       (17.0)
    Cash and cash equivalents,
     beginning of period             8.3        26.4         7.6        21.5
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $     8.6   $     4.5   $     8.6   $     4.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents
     consists of:
    Cash                       $     4.2   $     3.0   $     4.2   $     3.0
    Cash equivalents                 4.4         1.5         4.4         1.5
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $     8.6   $     4.5   $     8.6   $     4.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental disclosure
     of cash paid:
      Interest                 $    34.0   $    34.7   $    94.6   $    93.0
      Income and capital taxes      25.2         0.2       106.6        32.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited consolidated financial
    statements.


    Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
    -------------------------------------------------------------------------
    For the nine months                             Accu-
    ended September 30, 2007                     mulated
    millions of dollars                            Other
                                                  Compre-              Total
                                        Contri-  hensive            AOCI and
                              Common     buted    Income  Retained  Retained
                              Shares   Surplus   ("AOCI") Earnings  Earnings
    -------------------------------------------------------------------------
    Balance, December 31,
     2006                   $1,055.2  $    2.2  $ (100.2) $  450.9  $  350.7
    -------------------------------------------------------------------------
    Implementation
     adjustment (note 3)           -         -      (5.3)     (2.7)     (8.0)
    -------------------------------------------------------------------------
    Comprehensive Income:
    Net earnings applicable
     to common shares              -         -         -     114.7     114.7
    Net loss on derivatives
     in a valid hedging
     relationship                  -         -     (74.3)        -     (74.3)
    Reclassification of
     hedging losses
     included in income            -         -      18.5         -      18.5
    Reclassification of
     hedging gains
     included in inventory         -         -      (1.0)        -      (1.0)
    Unrealized loss on
     translation of
     self-sustaining
     foreign operations            -         -     (59.0)        -     (59.0)
    -------------------------------------------------------------------------
    Total comprehensive
     income                        -         -    (115.8)    114.7      (1.1)
    -------------------------------------------------------------------------
    Dividends declared on
     common shares                 -         -         -     (74.5)    (74.5)
    Common shares issued
     under purchase plans        7.2         -         -         -         -
    Senior management stock
     options exercised           1.6         -         -         -         -
    Stock option expense           -       0.5         -         -         -
    Other share-based
     compensation                0.2         -         -         -         -
    -------------------------------------------------------------------------
    Balance, September 30,
     2007                   $1,064.2  $    2.7  $ (221.3)  $ 488.4  $  267.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    For the nine months                                                Total
    ended September 30, 2006            Contri-                     AOCI and
    millions of dollars       Common     buted            Retained  Retained
                              Shares   Surplus      AOCI  Earnings  Earnings
    -------------------------------------------------------------------------
    Balance, December 31,
     2005                   $1,039.2  $    1.8  $  (98.2)  $ 423.4  $  325.2
    -------------------------------------------------------------------------
    Comprehensive Income:
    Net earnings applicable
     to common shares              -         -         -      92.3      92.3
    Unrealized loss on
     translation of
     self-sustaining
     foreign operations            -         -     (18.3)        -     (18.3)
    -------------------------------------------------------------------------
    Total comprehensive
     income                        -         -     (18.3)     92.3      74.0
    -------------------------------------------------------------------------
    Dividends declared on
     common shares                 -         -         -     (73.6)    (73.6)
    Common shares issued
     under purchase plans        6.4         -         -         -         -
    Senior management stock
     options exercised           6.2      (0.4)        -         -         -
    Stock option expense           -       0.6         -         -         -
    Other share-based
     compensation                0.2         -         -         -         -
    -------------------------------------------------------------------------
    Balance, September 30,
     2006                   $1,052.0  $    2.0  $ (116.5)  $ 442.1  $  325.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited consolidated financial
    statements.


    Notes to the Interim Unaudited Consolidated Financial Statements
    September 30, 2007

    1. Basis of Presentation

    The disclosures in these unaudited interim consolidated financial
statements do not conform in all respects to the requirements of Canadian
Generally Accepted Accounting Principles for annual audited financial
statements and should be read in conjunction with Emera Inc.'s annual
consolidated financial statements as at and for the year ended December 31,
2006.
    These consolidated financial statements follow the same accounting
policies and methods of computation as Emera Inc.'s annual audited
consolidated financial statements as at and for the year ended December 31,
2006, with the exception of the accounting policy changes disclosed in Note 3.

    2. Seasonal Nature of Operations

    Interim results are not necessarily indicative of results for the full
year due primarily to seasonal factors. Sales and related production vary
significantly over the year, with Q1 and Q4, the strongest periods, reflecting
colder weather and fewer daylight hours in the winter season.

    3. Changes in Accounting Policy

    The Canadian Institute of Chartered Accountants ("CICA") has issued new
accounting standards 1530 Comprehensive Income, 3855 Financial Instruments -
Recognition and Measurement, and 3865 Hedges, which were applicable to the
Company effective January 1, 2007. In accordance with the new accounting
standards, the accounting policy changes were applied retroactively without
restatement of prior periods. The following provides more information on each
standard.

    Comprehensive Income

    As a result of the recently issued standard, a new item, accumulated other
comprehensive income ("AOCI"), is recognized in the shareholders' equity
section of the consolidated balance sheets. AOCI includes the unrealized
foreign exchange translation adjustments on the Company's self-sustaining
foreign operations, the effective portion of changes in fair value of
derivatives meeting the requirements for cash flow hedges, and unrealized
gains and losses on financial assets classified as available-for-sale.

    Financial Instruments - Recognition and Measurement

    According to the new standard, financial assets are now classified as
loans and receivables, held for trading, available for sale, or held to
maturity. Financial liabilities are classified as either held for trading, or
other than held for trading. The financial assets and liabilities are subject
to different methods of measurement and classification in the financial
statements as follows:

    ------------------------------------------------------------------------
    Financial Instrument            Measured at      Classified in
    ------------------------------------------------------------------------
    - Loans and receivables         Amortized cost   N/A
    - Held to maturity financial
      assets
    - Other than held for trading
      financial liabilities
    ------------------------------------------------------------------------
    - Held for trading financial    Fair value       Net earnings unless
      assets and liabilities                         deferral permitted under
                                                     regulatory accounting
    ------------------------------------------------------------------------
    - Available for sale financial  Fair value       Other comprehensive
      assets                                         income
    ------------------------------------------------------------------------

    In accordance with the new standard, transaction costs associated with the
issuance of long-term debt are included in long-term debt and amortized using
the effective interest method.
    The Company has chosen January 1, 2003 as the transition date for embedded
derivatives and as a result, embedded derivatives existing prior to the
transition date are not reflected as separate assets and liabilities on the
balance sheet. An embedded derivative is a component of a contract with
characteristics similar to a derivative.

    Hedges

    The new standard outlines the criteria for applying hedge accounting to
cash flow hedges, fair value hedges, and hedging foreign currency fluctuations
on self-sustaining foreign operations.
    Cash flow hedges are recognized on the balance sheet at fair value with
the effective portion of the hedging relationship recognized in other
comprehensive income. Any ineffective portion of the cash flow hedge is
recognized in net earnings. Amounts recognized in AOCI are reclassified to net
income in the same periods in which the hedged item is recognized in net
earnings.
    Fair value hedges and the related hedged items are recognized on the
balance sheet at fair value with any changes in fair value recognized in net
income. To the extent the fair value hedge is effective, the changes in fair
value of the hedge and the hedged item will offset each other.
    Hedges of self-sustaining foreign operations are recognized at fair value
with any changes in fair value recognized in other comprehensive income.

    Accounting for the impact of rate-regulation:

    In accordance with the new accounting standards as outlined above, Nova
Scotia Power determined that its contracts for the purchase or sale of natural
gas for its Tufts Cove generating station ("TUC") should be considered
derivative financial instruments and accordingly recognized at fair value as a
held for trading ("HFT") asset or liability as applicable. This reflects
NSPI's history of buying and reselling any natural gas not used in the
production of electricity at TUC.
    Changes in the fair value of HFT assets and liabilities are recognized in
net earnings. In accordance with Nova Scotia Power's accounting policy
covering physical and financial contracts relating to fuel at TUC, NSPI has
deferred any changes in fair value to a regulatory asset or liability as
appropriate, which are reflected in deferred assets or credits. Upon
implementation of these accounting standards at January 1, 2007, the fair
value of these contracts was $171.9 million. Absent this accounting policy,
which has been approved by the UARB, retained earnings would have increased by
$171.9 million at January 1, 2007. As of September 30, 2007, the fair value of
the HFT asset and liability was $97.8 million. Absent this accounting policy,
the decrease of $74.1 million ($45.9 million after-tax) would have decreased
NSPI's year to date earnings.
    Details of the amounts recognized upon implementation of the new
accounting standards, and the effect on the consolidated balance sheet as at
January 1, 2007 are summarized below:

    Consolidated
     Balance Sheet            Balance Before       Effect of   Balance After
    Selected Information      Implementation  Implementation  Implementation
    millions of dollars           Adjustment      Adjustment      Adjustment
    -------------------------------------------------------------------------
    Current assets
      Energy marketing assets         $ 37.3          $(37.3)              -
      Derivatives held in
       valid hedging
       relationship                        -            13.9          $ 13.9
      Held for trading
       derivatives                         -            76.0            76.0
    Energy marketing assets              2.0            (2.0)              -
    Derivatives in a valid
     hedging relationship                  -            17.9            17.9
    Held for trading derivatives           -           136.4           136.4
    Deferred charges                   468.2           (11.3)          456.9
    Investments                         98.5           (98.5)              -
    Investments subject to
     significant influence                 -            98.5            98.5
    -------------------------------------------------------------------------
                                                      $193.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current liabilities
      Current portion of
       long-term debt                 $  3.4          $ (0.2)         $  3.2
      Energy marketing
       liabilities                      36.7           (36.7)              -
      Derivatives held in a
       valid hedging
       relationship                        -            26.6            26.6
      Held for trading
       derivatives                         -            39.7            39.7
    Energy marketing
     liabilities                         1.4            (1.4)              -
    Derivatives in a valid
     hedging relationship                  -            10.6            10.6
    Held for trading derivatives           -             2.6             2.6
    Deferred credits                    66.1           173.1           239.2
    Long-term debt                   1,657.4           (12.7)        1,644.7
    Shareholders' equity
      Foreign exchange
       translation adjustment         (100.2)          100.2               -
      Accumulated other
       comprehensive income                -          (105.5)         (105.5)
      Retained earnings                450.9            (2.7)          448.2
    -------------------------------------------------------------------------
                                                      $193.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The effect on the January 1, 2007 balances can be further explained as
follows:

    Energy marketing assets and liabilities: The balances have been
reclassified to held for trading derivatives.
    Derivatives in a valid hedging relationship:  This new account represents
the fair value of Nova Scotia Power's hedges.  These derivatives are all
designated as hedging future expected cash flows.
    Held for trading derivatives: The new account includes the fair value of
certain of Nova Scotia Power's natural gas contracts, amounts previously
recognized as energy marketing assets and liabilities, and the fair value of
any derivatives that are not valid hedges.
    Deferred charges: The adjustment represents the reclassification of
deferred financing costs which are now netted against the related debt,
partially offset by the regulatory asset resulting from the fair value
recognition of certain of Nova Scotia Power's natural gas contracts.
    Investments: The adjustment represents the reclassification of equity
accounted investments to investments subject to significant influence.
    Investments subject to significant influence: This new account represents
the reclassification of equity accounted investments from the investments
account as noted above.
    Deferred credits: The adjustment represents the regulatory liability
resulting from the fair value recognition of certain of Nova Scotia Power's
natural gas contracts.
    Long-term debt (including current portion): The adjustment represents the
netting of deferred financing costs against the related debt.
    Foreign exchange translation adjustment: The adjustment represents the
reclassification of foreign exchange losses on self-sustaining foreign
operations to accumulated other comprehensive income.
    Accumulated other comprehensive income: The adjustment represents the
effective portion of the fair value of Nova Scotia Power's hedges, and the
cumulative foreign exchange loss on self-sustaining foreign operations.
    Retained earnings: The adjustment represents the fair value of Bear
Swamp's interim contract with the Long Island Power Authority ("LIPA").

    As a result of implementing the accounting policy changes, earnings have
increased by $0.2 million ($0.1 million after-tax) in Q3 2007 and $2.7 million
($1.6 million after-tax) year to date 2007, which represents the change in
fair value of Bear Swamp's interim LIPA contract and the ineffective portion
of the Company's hedges.
    The pre-tax effect of hedges recognized in earnings was a $9.0 million
loss in Q3 2007 (2006 - $9.5 million gain) and an $18.5 million loss year to
date 2007 (2006 - $30.0 million gain).
    The fair value of derivatives in a valid hedging relationship and held for
trading derivatives are estimated by obtaining prevailing market rates from
investment dealers.

    Future Accounting Policy Changes

    The CICA has issued new accounting standards 1535 Capital Disclosures,
3031 Inventories, 3862 Financial Instruments - Disclosures, and 3863 Financial
Instruments - Presentation which are applicable to Emera's 2008 fiscal year.
The following provides more information on each new accounting standard.
    Capital Disclosures: This new standard requires disclosure of the
Company's objectives, policies, and processes for managing capital;
quantitative data about what the Company regards as capital; whether the
Company has complied with any capital requirements; and, if the Company has
not complied, the consequences of such non-compliance. The new accounting
standard covers disclosure only and will have no effect on the financial
results of the Company.
    Inventories: The new standard provides more guidance on the measurement
and disclosure requirements for inventories than the previous standard,
3030 Inventories. Specifically, the new standard requires that inventories be
measured at the lower of cost and net realizable value, and provides more
guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realizable value. The Company is
assessing the effect of the new standard and does not anticipate a material
effect on its results.
    Financial Instruments - Disclosures, and Financial Instruments -
Presentation: These new standards replace accounting standard 3861 Financial
Instruments - Disclosure and Presentation. Presentation requirements have not
changed. Enhanced disclosure is required to assist users of the financial
statements in evaluating the significance of financial instruments on the
Company's financial position and performance, including qualitative and
quantitative information about the Company's exposure to risks arising from
financial instruments. The new accounting standards cover disclosure only and
will have no effect on the financial results of the Company.

    4. Acquisition

    On January 16, 2007 Emera acquired a 19% interest in St. Lucia Electricity
Services Limited ("Lucelec") for a purchase price of $25.7 million. Lucelec is
a vertically integrated electric utility with an exclusive license to
generate, transmit and distribute electricity on the island of St. Lucia to
2045. The utility has 77 MW of generating capacity and 800 kilometers of
electricity transmission and distribution assets. Lucelec is a cost of service
utility, with a minimum rate of return of 10% on a 50% equity basis.
    The acquisition has been accounted for as an equity investment, and
accordingly, the investment was initially recorded at cost. Emera's pro-rata
share of the results since acquisition have been included in the investment
and consolidated statements of earnings. Any dividends received or receivable
reduces the investment. Lucelec is included in the segment "Other" in Note 5
Segment Information.

    5. Segment Information
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                    Nova
                                  Scotia      Bangor
    millions of dollars            Power       Hydro       Other(*)    Total
    -------------------------------------------------------------------------
    Three months ended
     September 30, 2007:
    Revenues from external
     customers                 $   252.4   $    36.2   $    21.7   $   310.3
    Net inter-segment
     revenues (expenses)            14.4        (0.5)      (13.9)          -
    Net earnings applicable
     to common shares               25.0         9.1         6.8        40.9
    Nine months ended
     September 30, 2007:
    Revenues from external
     customers                     826.9       105.9        62.8       995.6
    Net inter-segment
     revenues (expenses)            71.7        (1.5)      (70.2)          -
    Net earnings applicable
     to common shares               75.0        20.8        18.9       114.7
    As at September 30, 2007
    Total assets                 3,218.2       608.5       348.5     4,175.2
    -------------------------------------------------------------------------

    Three months ended
     September 30, 2006:
    Revenues from external
     customers                 $   222.6   $    34.2   $    15.6   $   272.4
    Net inter-segment
     revenues (expenses)            32.9        (0.8)      (32.1)          -
    Net earnings applicable
     to common shares               12.7         5.1         1.7        19.5
    Nine months ended
     September 30, 2006:
    Revenues from external
     customers                     717.2       101.1        40.7       859.0
    Net inter-segment
     revenues (expenses)           122.0        (2.2)     (119.8)          -
    Net earnings applicable
     to common shares               74.4        11.5         6.4        92.3
    As at September 30, 2006
    Total assets                 3,066.7       581.9       310.9     3,959.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)Other consists of corporate activities and adjustments to reconcile
       to consolidated balances.

    6. Fuel for Generation and Purchased Power

    Accounting for the impact of rate regulation:

    In February 2007, the UARB approved an average increase in electricity
rates for NSPI of 3.8% effective April 1, 2007. The rate increase was part of
a settlement agreement between NSPI and key stakeholders. A provision of the
settlement agreement allows NSPI to defer, for future recovery in rates, up to
$8 million of fuel costs should natural gas margins be less than $47 million.
In Q2 2007 NSPI deferred $3.0 million. In the absence of the UARB's approval,
these costs would have been expensed as incurred and year-to-date 2007
earnings would be $3.0 million lower.

    7. Employee Future Benefits

    Emera maintains contributory defined-benefit and defined-contribution
pension plans, which cover substantially all of its employees, and plans that
provide non-pension benefits for its retirees. The Company's estimated total
benefit cost, related to these plans, for the three month period ended
September 30, 2007 is $10.4 million (2006 - $10.7 million), and for the nine
month period ended September 30, 2007 is $31.4 million (2006 - $32.2 million).

    8. Interest

    Interest expense consists of the following:

                                  Three months ended       Nine months ended
                                        September 30            September 30
    -------------------------------------------------------------------------
    million of dollars              2007        2006        2007        2006
    -------------------------------------------------------------------------
    Interest on long-term debt    $ 24.7      $ 25.6      $ 76.6      $ 78.8
    Interest on short-term debt      5.8         5.4        16.8        10.9
    Amortization of debt
     financing                       0.5         0.5         1.4         1.5
    Foreign exchange losses
     (gains)                         1.5         0.7        (0.5)        1.7
    -------------------------------------------------------------------------
                                  $ 32.5      $ 32.2      $ 94.3      $ 92.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9. Income Taxes

    NSPI prepared and filed with Canada Revenue Agency ("CRA") amended tax
returns for the years 2000 to 2004 inclusive. CRA reviewed and approved the
amended filings, which has resulted in accelerated deductibility of certain
capitalized expenses. NSPI intends to amend tax returns for 2005 and 2006
using the same methodology and will continue to use this methodology when
filing its future tax returns. As a result, NSPI has recorded an income tax
recovery of $25.4 million, of which $14.6 million has been recorded as a
reduction of deferred charges, specifically the regulatory asset related to
its pre-2003 income tax liability. The remaining $10.8 million has been
recorded as a reduction of current income tax expense. Refund interest has not
been estimated on the recovery as it is not reasonably determinable.

    Accounting for the impact of rate regulation:

    Absent NSPI's regulator approved taxes payable accounting policy, the
recovery would have no effect on the total current and future income tax
expense and net earnings for Q3 and year-to-date 2007 would be $10.8 million
lower.

    10. Long-Term Debt

    As of September 30, 2007, long-term debt includes $1.3 million
(December 31, 2006 - $3.8 million) in capital lease obligations.

    11. Common Shares

    As at September 30, 2007 there were 111.4 million (December 31, 2006 -
110.9 million) issued and outstanding common shares, 4.8 million (December 31,
2006 - 4.9 million) common shares reserved and available for issuance under
the senior management stock option plan, and 1.0 million (December 31, 2006 -
1.2 million) common shares reserved and available for issuance under the
employee common share purchase plan.
    During the nine months ended September 30, 2007, the Company issued
0.4 million (2006 - 0.7 million) common shares. Common shares were issued
through the employee common share purchase plan, the senior management stock
option plan, and the dividend reinvestment plan.
    Diluted weighted average number of common shares outstanding includes the
conversion of preferred shares of NSPI, restricted share units, and deferred
share units.

    12. Comparative Information

    Certain of the comparative figures have been reclassified to conform to
the consolidated financial statement presentation adopted for 2007.
    




For further information:

For further information: Nancy Tower, FCA, Chief Financial Officer,
(902) 428-6991; Jennifer Nicholson, CA, Director, Investor Relations and
Strategic Development; (902) 428-6347

Organization Profile

Emera Inc.

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