EPCOR Announces Quarterly Results



    EDMONTON, July 31 /CNW/ - EPCOR Utilities Inc. (EPCOR) today released its
quarterly results for the period ended June 30, 2008.
    "The second quarter saw EPCOR reach milestones in our capital and
maintenance programs, and sustain good operating performance," said EPCOR
President and CEO Don Lowry. "In June we celebrated the opening of the
upgraded E.L. Smith water treatment plant, which has already been recognized
with two awards for environmental leadership. At the Genesee Generating
Station, EPCOR and its contractors completed sequential maintenance
turnarounds for all three power units - a first for EPCOR. Our capital program
gained momentum in the first half of 2008, with significant increases in
capital investment and construction activity for the Clover Bar Energy Centre
and Downtown Edmonton Supply and Substation projects, and for Keephills 3, in
which we are a 50% partner."

    
    Highlights of EPCOR's financial performance:

    -   Cash flow from operating activities for the three months ended
        June 30, 2008 was $41 million compared with $55 million for the
        corresponding period in the previous year.

    -   Cash flow from operating activities for the six months ended June 30,
        2008 was $139 million compared with $219 million for the
        corresponding period in the previous year.

    -   Net income was $16 million on revenues of $865 million for the three
        months ended June 30, 2008 compared with $53 million on revenues of
        $865 million for the corresponding period in the previous year.

    -   Net income was $84 million on revenues of $1,664 million for the six
        months ended June 30, 2008 compared with $151 million on revenues of
        $1,764 million for the corresponding period in the previous year.

    -   Other comprehensive income was $1 million for the three months ended
        June 30, 2008 compared with $20 million for the corresponding period
        in the previous year.

    -   Other comprehensive income was $24 million for the six months ended
        June 30, 2008 compared with other comprehensive loss of $3 million
        for the corresponding period in the previous year.

    -   Investment in capital projects for the three months ended June 30,
        2008 was $186 million compared with $112 million for the
        corresponding period in the previous year.

    -   Investment in capital projects for the six months ended June 30, 2008
        was $294 million compared with $187 million for the corresponding
        period in the previous year.
    

    Management's discussion and analysis (MD&A) of the quarterly results are
shown below. The MD&A and the unaudited interim financial statements are
available on EPCOR's website (www.epcor.ca), and will be available on SEDAR
(www.sedar.com).

    EPCOR Utilities Inc. builds, owns and operates power plants, electrical
transmission and distribution networks, water and wastewater treatment
facilities and infrastructure in Canada and the United States. EPCOR has been
named one of Canada's Top 100 employers for eight consecutive years, and one
of only 10 companies to be selected as Canada's Most Earth-Friendly Employers.
EPCOR is headquartered in Edmonton, Alberta. EPCOR's website is www.epcor.ca.


    EPCOR Utilities Inc.
    Interim Management's Discussion and Analysis
    June 30, 2008
    -------------------------------------------------------------------------

    This management's discussion and analysis (MD&A), dated July 31, 2008,
should be read in conjunction with the unaudited interim consolidated
financial statements of EPCOR Utilities Inc. (hereinafter "the Company",
"EPCOR", "we", "our" or "us") for the three and six months ended June 30, 2008
and 2007 and in conjunction with the audited consolidated financial statements
and MD&A for the year ended December 31, 2007. EPCOR is a wholly owned
subsidiary of The City of Edmonton. Financial information in this MD&A is
based on the unaudited interim consolidated financial statements, which were
prepared in accordance with Canadian generally accepted accounting principles
(GAAP), and is presented in Canadian dollars unless otherwise specified. In
accordance with its terms of reference, the Audit Committee of the Company's
Board of Directors reviews the contents of the MD&A and recommends its
approval by the Board of Directors. The Board of Directors has approved this
MD&A upon the recommendation of the Audit Committee.

    FORWARD-LOOKING STATEMENTS

    Certain information in this MD&A is forward-looking and related to
anticipated financial performance, events and strategies. When used in this
context, words such as "will", "anticipate", "believe", "plan", "intend",
"target", and "expect" or similar words suggest future outcomes. By their
nature, such statements are subject to significant risks, assumptions and
uncertainties, which could cause EPCOR's actual results and experience to be
materially different than the anticipated results. Such risks, assumptions and
uncertainties include, but are not limited to, operating performance,
commodity prices and volumes, load settlement, regulatory and government
decisions including changes to environmental and tax legislation, weather and
economic conditions, competitive pressures, construction risks, availability
and cost of financing, foreign exchange risks, availability of labour and
management resources and the performance of partners, contractors and
suppliers.
    Readers are cautioned not to place undue reliance on forward-looking
statements as actual results could differ materially from the plans,
expectations, estimates or intentions expressed in the forward-looking
statements. Except as required by law, EPCOR disclaims any intention and
assumes no obligation to update any forward-looking statement even if new
information becomes available, as a result of future events or for any other
reason.

    OVERVIEW

    Despite three major turnarounds at our Genesee facilities, EPCOR
maintained good operating results for the second quarter by managing our
commodity positions well. It was a period of high power prices in Alberta and
the length in our merchant portfolio resulted in healthy contributions to our
earnings.
    The turnarounds at Genesee commenced in March and were completed in June.
These turnarounds were for required maintenance and were scheduled
back-to-back to accommodate the Alberta Electric System Operator's upgrade of
the new high-voltage transmission lines in the Genesee and Keephills area. The
timing of the outages coincided with periods of high Alberta power prices
which increased the cost of replacement power and resulted in significant
availability penalties under the terms of the Genesee Power Purchase
Arrangement (PPA).
    The E.L. Smith water treatment plant upgrade was substantially completed
in June and is now capable of serving the growing Edmonton region for the next
15 years. The first unit of the Clover Bar Energy Centre, which was
commissioned in the first quarter, contributed positively to operating
earnings in the second quarter. Construction of the remaining two Clover Bar
units, the Downtown Edmonton Supply Station and the Keephills 3 power plant
continues.
    In the second quarter, we received the Alberta Utilities Commission's
decision on our 2007-2009 Regulated Rate Tariff Application for non-energy
charges. Although the approved rates were lower than interim rates, the
adjustment to earnings for prior periods was insignificant and we were able to
manage our costs to the new rates.
    We successfully raised $400 million in 10 year and 30 year medium-term
note financing in April. The proceeds from these financings were used to repay
short-term and maturing long-term indebtedness, to fund a portion of the 2008
capital program and for general corporate purposes. The timing of the
restructuring of asset-backed commercial paper (ABCP) has been delayed from
our earlier estimates by motions filed with the Ontario Appeals Court for
leave to appeal the judge's ruling on the fairness of the restructuring plan.
There was no significant change in our ABCP holdings or assessment of their
fair value in the quarter. We now expect the restructuring to be completed in
the third quarter of 2008.

    SIGNIFICANT EVENTS

    Opening of the upgraded E.L. Smith water treatment plant

    On June 20, 2008, the Company officially opened the newly upgraded
E.L. Smith water treatment plant. The upgrades, which cost approximately
$140 million, are designed to increase drinking water supply by 25% for
Edmonton and the capital region, ensuring that demand can be met until at
least 2023. The water rate increases that were previously approved by The City
of Edmonton Council for 2007 and 2008 under the performance-based rates bylaw
include costs associated with the E.L. Smith water treatment plant upgrade.

    $400 million of debt offerings

    On April 15, 2008, the Company completed a $375 million public offering
of unsecured medium-term note debentures consisting of issues of $200 million
and $175 million. On April 28, 2008 the Company completed an additional issue
of $25 million of unsecured medium-term note debentures. The $200 million
issue has a coupon rate of 5.80% and a maturity date of January 31, 2018. The
$175 million and $25 million issues have a coupon rate of 6.65% and a maturity
date of April 15, 2038. Net proceeds from these offerings were used to repay
short-term indebtedness, to repay debentures which matured in June 2008, to
fund a portion of the 2008 capital program and for general corporate purposes.

    Asset-backed commercial paper

    At June 30, 2008, the Company held $51 million ($71 million original
cost) in Canadian non-bank sponsored ABCP, all of which was purchased during
the third quarter of 2007. The Company's ABCP is part of the broader
$35 billion ABCP market that has been disrupted by the significant lack of
liquidity that emerged in August 2007 and as a result, all of the Company's
ABCP matured with no payment of principal, accrued interest or roll over.
    A Pan-Canadian Investors Committee (Investors Committee) comprised of a
consortium representing banks, asset providers and major investors, is
overseeing the proposed restructuring of the ABCP. In March 2008, the
Investors Committee distributed to affected ABCP investors an information
package and voting materials in respect of the restructuring. Under the
proposed restructuring, the affected ABCP would be converted into term
floating-rate notes (notes) maturing no earlier than the scheduled termination
dates of the underlying assets. The restructuring documents and subsequent
presentations and conference calls provided additional information and
clarification on the proposed restructuring. The key new information as it
relates to EPCOR is as follows:

    
    (i)    EPCOR expects its breakdown of new notes under the proposed
           restructuring, based on EPCOR's original book value of the
           investments, to be as follows:

           ------------------------------------------------------------------
           ------------------------------------------------------------------
           Pool              Series       Rating       Amount
                                                  ($ millions)
           ------------------------------------------------------------------
           MAV2           Class A-1           AA   $        48            67%
                          Class A-2           AA             9            13%
                            Class B      Unrated             2             2%
                            Class C      Unrated             1             2%
           MAV3         IA Tracking      Unrated            11            16%
           ------------------------------------------------------------------
                                                   $        71           100%
           ------------------------------------------------------------------
           ------------------------------------------------------------------

    (ii)   The expected lives of the assets underlying the new notes that
           EPCOR expects to receive are longer than previously forecast. For
           the Master Asset Vehicle 2 (MAV2) pool notes (84% of the new notes
           EPCOR expects to receive), the underlying asset lives are
           anticipated to average nine years. Our previous expectation for
           these notes was seven years. The remaining notes are expected to
           come from Master Asset Vehicle 3 (MAV3) in the form of Ineligible
           Asset Tracking (IA Tracking) notes which represent 16% of the new
           notes EPCOR expects to receive. These notes are expected to
           amortize over the lives of the underlying assets which have a
           weighted average life of approximately 18 years. Under the
           proposed restructuring, in certain limited circumstances, the
           expected repayment dates could be longer than the expected asset
           lives.

    (iii)  ABCP investors, including EPCOR, expect to be paid the accumulated
           accrued interest, net of any restructuring fees, collateral
           requirements and other costs, on their existing ABCP from the date
           of the standstill in August 2007 to the date of the restructuring.

    (iv)   The costs of the restructuring are higher than originally
           expected, but not material to our valuation.

    (v)    The note holder information included indicative valuation data on
           the various ABCP conduits which was used by the Investors
           Committee for allocating the existing notes among the classes and
           series of new notes. EPCOR considered this information in
           assessing its valuation.
    

    On April 25, 2008, ABCP investors voted in favour of the proposed
restructuring plan. After extending the time for his review, on June 6, 2008,
the judge presiding over the restructuring process ruled that the
restructuring plan was fair after giving effect to amendments to the
restructuring to allow for certain claims for fraud. Certain ABCP note holders
filed motions with the Ontario Appeals Court for leave to appeal the ruling.
On June 25, 2008, the Appeals Court reserved judgement resulting in further
extensions of the standstill. These events have delayed the timing of the
restructuring from our earlier estimates and we now expect the restructuring
will be completed in the third quarter of 2008.
    EPCOR's ABCP is a financial instrument and is classified as held for
trading and therefore is recorded at fair value. EPCOR's estimate of the fair
value of its ABCP at June 30, 2008 was $51 million compared with $60 million
at December 31, 2007. The estimated fair value decreased by $9 million
primarily due to lower interest rates, higher observed and estimated credit
spreads over the yields of long-term Government of Canada bonds and longer
expected note lives based on new information provided by the Investors
Committee. EPCOR estimated the fair value using a probability-weighted
discounted cash flow approach based on the assumed credit ratings and
potential ratings actions on the applicable ABCP conduits under the proposed
restructuring, observable interest rates and credit spreads for estimating
future interest payments and applicable discount rates, the cost of margin
call facilities, the cost of the proposed restructuring, estimated recovery
periods based on the estimated lives of the underlying assets of the proposed
restructuring conduits and ranges of recoverability based on publicly
available default statistics for credit-rated entities.
    The estimate of fair value of ABCP is subject to significant risks and
uncertainties including the timing and amount of future cash payments, market
liquidity, the quality and tenor of the underlying assets and instruments in
the applicable conduits including the possibility of margin calls, and the
future market for the restructured notes. Accordingly, the estimate of fair
value of ABCP may change materially as events unfold and more information
becomes available.
    The Company continues to be in compliance with the financial covenants of
its credit facilities and publicly issued debt and has sufficient credit
facilities and cash flows from operations to satisfy its financial obligations
as they come due. Based on current information, the Company does not expect
there will be a material adverse impact on its business as a result of this
current ABCP liquidity issue.

    
    CONSOLIDATED RESULTS OF OPERATIONS

    Net income
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (Unaudited, $ millions)                                  Three       Six
                                                            months    months
    -------------------------------------------------------------------------
    Net income for the periods ended June 30, 2007         $    53   $   151
    Higher income from Power LP                                 14        10
    Higher Alberta energy margins                                4        17
    Higher water rates                                           3         8
    Lower (higher) administration expenses, excluding
     Power LP administration                                     2       (11)
    Impact of recording a net future income tax asset
     associated with the Energy Services reorganization
     on January 1, 2007                                          1       (10)
    Fair value reduction in ABCP                                 -        (9)
    Higher interest expense and preferred share dividends,
     excluding Power LP interest expense and preferred
     share dividends                                            (9)       (7)
    Maintenance expenses for Genesee outages in 2008           (11)      (19)
    Lower Genesee PPA availability and capacity payment
     income                                                    (19)      (24)
    Unrealized fair value changes on derivative
     instruments and natural gas inventory held for
     trading                                                   (22)      (21)
    Other                                                        -        (1)
    -------------------------------------------------------------------------
    Decrease in net income                                     (37)      (67)
    -------------------------------------------------------------------------
    Net income for the periods ended June 30, 2008         $    16   $    84
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Net income was $16 million and $84 million for the three and six months
ended June 30, 2008 respectively, compared with $53 million and $151 million
for the corresponding periods in 2007. The decreases were due to the net
impact of the following:

    -   Net income from EPCOR Power L.P. (Power LP) was higher primarily due
        to unrealized fair value changes on natural gas supply, forward
        foreign exchange and interest rate contracts. In the three months
        ended June 30 these increases were partly offset by a smaller foreign
        exchange gain in 2008 compared with 2007, on the translation of
        United States (U.S.) debt. In the six months ended June 30, 2008,
        foreign exchange losses were incurred on the translation of U.S. debt
        whereas foreign exchange gains were incurred in the corresponding
        period in 2007. The U.S. dollar strengthened relative to the Canadian
        dollar in the first half of 2008 and weakened in the corresponding
        period in 2007.

    -   Alberta electricity margins increased primarily due to increased
        length in the portfolio of derivative financial contracts that
        settled at higher Alberta power prices.

    -   Water revenues, net of franchise fees, were higher primarily due to
        rate increases which became effective on April 1, 2007 and April 1,
        2008.

    -   Administration expenses, excluding Power LP's administration,
        increased in the first half of 2008 compared with the corresponding
        period in 2007 primarily due to a reduction of the Company's
        liability for its Long-Term Incentive Plan (LTIP) in the first
        quarter of the prior year. A similar but smaller adjustment was
        recorded in the first quarter of 2008. The LTIP is a notional stock
        option plan for senior management. Adjustments were recorded based on
        the results of the quarterly valuations of the plan. In addition, in
        the first six months of 2008, costs for management incentive
        compensation other than LTIP were higher and there were fewer staff
        vacancies compared with the corresponding period in the prior year.

    -   On January 1, 2007, the Company reorganized two subsidiaries within
        the Energy Services segment that operate the regulated retail
        business. As part of the reorganization, one of the subsidiaries,
        which was previously exempt from income taxes became subject to
        income tax under the Income Tax Act and recognized future income tax
        assets of $10 million and a corresponding reduction in income tax
        expense. There was no similar transaction in 2008.

    -   Interest expense, excluding Power LP interest expense, was higher
        primarily due to higher debt balances following the $200 million and
        $400 million public debt offerings in January and April 2008,
        respectively, partly offset by higher capitalized interest as a
        result of increased capital construction activity. Excluding Power LP
        subsidiary preferred share dividends there were no preferred share
        dividends in 2008 as the Company's other subsidiary preferred shares
        were redeemed on September 30, 2007. In 2007 preferred share
        dividends for the three and six month periods ended June 30 were more
        than offset by a reduction reflecting the substantive enactment of an
        income tax rate reduction attributable to preferred share dividends
        paid commencing in 2003.

    -   Maintenance expenses for Genesee outages were higher as there were no
        outages in the first half of 2007. In 2008, the Genesee 1 outage
        started in the first quarter and was completed in the second quarter,
        and the Genesee 2 and 3 outages occurred in the second quarter.

    -   A net availability penalty was incurred in the first half of 2008
        under the terms of the Genesee 1 and 2 PPA compared with availability
        incentive revenue recognized in the corresponding period in 2007. The
        net penalty in 2008 was due to the major outages at these units.
        Capacity payment revenue under this PPA was also lower as a result of
        a lower return from a declining PPA rate-base and reduced tax
        recoveries related to lower federal income tax rates.

    -   The unrealized fair value changes in our financial electricity
        contracts that were not designated as hedges for accounting purposes
        were unfavourable in the first half of 2008 compared with the
        corresponding period in 2007 due to larger net short positions
        combined with greater increases in Alberta forward power prices in
        2008. The unrealized fair value changes in our natural gas portfolio
        were also unfavourable due to net short positions in both years
        combined with increases in forward prices in the first half of 2008
        compared with decreases in forward prices in the corresponding period
        in 2007. An unrealized fair value loss was recognized on the Joffre
        contract-for-differences (CfD) in 2008 due to an unfavourable forward
        spark spread compared with an unrealized fair value gain and
        favourable forward spark spread in 2007. Spark spread represents the
        difference between power prices and the cost of natural gas required
        to produce electricity. If the price of power is higher than the cost
        of natural gas to produce electricity, the spark spread is favourable
        and vice versa. These unfavourable changes were partly offset by
        unrealized fair value gains on forward foreign exchange contracts for
        U.S. dollars in the first half of 2008 compared with unrealized fair
        value losses in the corresponding period in 2007.

    Revenues
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (Unaudited, $ millions)                                  Three       Six
                                                            months    months
    -------------------------------------------------------------------------
    Revenues for the periods ended June 30, 2007           $   865   $ 1,764
    Higher (lower) physical natural gas trading activities      31       (59)
    Higher trading activities in the north eastern U.S.
     and Ontario                                                17        19
    Higher Alberta energy revenues                               4        16
    Higher water rates                                           3         9
    Higher energy revenues from trading activities in the
     western U.S.                                                1         9
    Lower Power LP revenues                                    (17)      (39)
    Unrealized fair value changes on derivative
     instruments and natural gas inventory held for
     trading                                                   (25)      (41)
    Lower Genesee PPA availability and capacity payment
     revenues                                                  (27)      (34)
    Commercial and other revenues                               13        20
    -------------------------------------------------------------------------
    Decrease in revenues                                         -      (100)
    -------------------------------------------------------------------------
    Revenues for the periods ended June 30, 2008           $   865   $ 1,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consolidated revenues for the three months ended June 30, 2008 were
unchanged from the corresponding period in 2007, and for the six months ended
June 30, 2008 were lower than for the corresponding period in 2007. Further
information on the year over year changes is summarized as follows:

    -   Alberta energy revenues included higher electricity pricing for our
        Regulated Rate Tariff (RRT) customers and increased revenues from the
        Alberta Power Pool due to higher prices. These increases were partly
        offset by derivative financial sell contracts that settled at losses
        in 2008 resulting from Alberta power prices that exceeded the
        contracts' strike prices.

    -   Water sales were higher primarily due to a rate increase effective
        April 1, 2007 and an additional smaller increase effective April 1,
        2008.

    -   Revenues from Power LP were lower primarily due to unrealized fair
        value changes on forward foreign exchange contracts for U.S. dollars
        used to hedge U.S. dollar operating cash flows. Sales of natural gas
        to utilize excess transmission capacity at the Castleton facility
        were also lower.

    -   Unrealized fair value losses on derivative financial sell contracts
        that were not designated as hedges for accounting purposes were
        higher due to an increased short position and larger increases in
        forward Alberta power prices.

    -   Commercial services and other revenues were higher primarily due to
        new water and wastewater facility construction contracts with the
        City of Wetaskiwin and the Towns of Taber and Chestermere and higher
        transportation revenues from The City of Edmonton. Transportation
        revenues were primarily derived from the construction and maintenance
        of street lighting, traffic signal, light rail transit and trolley
        assets owned by The City of Edmonton.

    Capital spending and investment
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (Unaudited, $ millions)
    Six months ended June 30                                  2008      2007
    -------------------------------------------------------------------------
    Generation                                             $   197   $    87
    Distribution and Transmission                               63        36
    Energy Services                                              2         7
    Water Services                                              26        49
    Corporate - other                                            6         8
    -------------------------------------------------------------------------
                                                           $   294   $   187
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Capital expenditures for property, plant and equipment were higher for
the six months ended June 30, 2008 compared with the same period in 2007
primarily due to increased construction activity on the Keephills 3 and Clover
Bar Energy Centre generation projects and on the Downtown Edmonton Supply and
Substation (DESS) project in Distribution and Transmission.
    Keephills 3 is a 495-MW supercritical coal-fired generation plant which
is a joint development of EPCOR and TransAlta Corporation at TransAlta's
Keephills site. Construction is expected to be completed by 2011.
    The Clover Bar Energy Centre will be composed of three natural gas-fired
peaking power generation units. The first unit was commissioned in the first
quarter of 2008 and construction of the remaining two units will continue
through 2010.
    In the first quarter of 2007, Distribution and Transmission commenced
construction of the DESS project which consists of a new high-voltage
transmission line, which will supply electricity to downtown Edmonton. The
project is scheduled for completion in 2008.
    Water Services' construction on the E.L. Smith water treatment plant
upgrade continued in 2008, but spending decreased compared with 2007 as the
project is now substantially complete.

    
    SEGMENT RESULTS

    Generation
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Generation results (including
     intersegment transactions)        Three months ended   Six months ended
    (Unaudited, $ millions)                  June 30             June 30
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    Revenues                           $   234   $   265   $   455   $   509
    Expenses                               118       212       250       329
    -------------------------------------------------------------------------
    Operating income                   $   116   $    53   $   205   $   180
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (Unaudited, $ millions)                                  Three       Six
                                                            months    months
    -------------------------------------------------------------------------
    Operating income for the periods ended June 30, 2007   $    53   $   180
    Higher Power LP operating income                           106        88
    Unrealized fair value changes on derivative instruments     (2)        2
    Increased maintenance for Genesee outages in 2008          (15)      (26)
    Lower Genesee PPA availability and capacity payment
     revenues                                                  (27)      (34)
    Other                                                        1        (5)
    -------------------------------------------------------------------------
    Increase in operating income                                63        25
    -------------------------------------------------------------------------
    Operating income for the periods ended June 30, 2008   $   116   $   205
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Generation's operating income for the quarter and half year ended June 30,
2008 increased $63 million and $25 million respectively, over the
corresponding periods in 2007. Further information on the year over year
changes is as follows:

    -   Power LP contributed $118 million of operating income in the second
        quarter and $182 million in the first six months of 2008 compared
        with $12 million and $94 million respectively, for the corresponding
        periods in 2007.

        Power LP's revenues decreased $17 million in the second quarter and
        $39 million for the first half of 2008 compared with the
        corresponding periods in the prior year, primarily due to unrealized
        changes in the fair value of forward foreign exchange contracts for
        U.S. dollars used to hedge operating cash flow.

        Power LP's expenses decreased $123 million in the second quarter and
        $127 million in the first half of 2008 compared with the
        corresponding periods in the prior year primarily due to unrealized
        gains in 2008 and unrealized losses in 2007 for changes in the fair
        value of the natural gas supply contracts. The decrease in expenses
        was also due to losses realized in 2007 on forward foreign exchange
        and interest rate contracts that were entered into in anticipation of
        permanent financing of acquisitions completed in 2006, whereas no
        similar contracts were settled in 2008. The decrease in expenses was
        partly offset by higher foreign exchange expense on the translation
        of U.S. debt in 2008.

    -   Unrealized changes in the fair value of the Joffre contract-for-
        differences (CfD) increased expenses and revenues in the three and
        six month periods ended June 30, 2008 compared with the corresponding
        periods in the prior year. The net impact of the fair value changes
        on the Joffre CfD was to decrease operating income by $9 million in
        the second quarter and $12 million in the first half of 2008 due to a
        decrease in the forward spark spread in 2008 and an increase in 2007.
        These decreases in operating income were offset by unrealized fair
        value changes on forward foreign exchange contracts for U.S. dollars
        entered into in anticipation of asset purchases related to the Clover
        Bar Energy Centre and Keephills 3 projects, which decreased expenses
        by $7 million in the three months and $14 million in the six months
        ended June 30, 2008 compared with the corresponding periods in 2007.
        The impact of the unrealized fair value changes for both the Joffre
        CfD and the forward foreign exchange contracts was to increase
        revenues and expenses by $6 million and $8 million respectively, in
        the second quarter and by $8 million and $6 million respectively, in
        the six months ended June 30, 2008 compared with the corresponding
        periods in the prior year.

    -   The new Clover Bar Energy Centre turbine, included in other in the
        table above, contributed $2 million in revenues and incurred
        $1 million in expenses since it commenced operations in the first
        quarter of 2008.

    Distribution and Transmission

    -------------------------------------------------------------------------
    Distribution and Transmission
     results (including intersegment
     transactions)                    Three months ended    Six months ended
    (Unaudited, $ millions)                  June 30             June 30
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    Revenues                           $    59   $    59   $   118   $   118
    Expenses                                53        50       100        98
    -------------------------------------------------------------------------
    Operating income                   $     6   $     9   $    18   $    20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    There were no material changes in Distribution and Transmission revenues,
expenses and operating income, for the three and six months ended June 30,
2008 compared with the same periods in the prior year. Distribution and
Transmission expects to receive a final decision from the Alberta Utilities
Commission on its 2007-2009 General Tariff Application in early 2009.

    
    Energy Services

    -------------------------------------------------------------------------
    Energy Services results
     (including intersegment
     transactions)                    Three months ended    Six months ended
    (Unaudited, $ millions)                  June 30             June 30
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    Revenues                           $   567   $   544   $ 1,095   $ 1,160
    Expenses                               575       528     1,089     1,135
    -------------------------------------------------------------------------
    Operating income (loss)            $    (8)  $    16   $     6   $    25
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    (Unaudited, $ millions)                                  Three       Six
                                                            months    months
    -------------------------------------------------------------------------
    Operating income for the periods
     ended June 30, 2007                                   $    16   $    25
    Higher Alberta electricity margins                           5        23
    Unrealized fair value change in natural gas inventory
     held for trading                                            3         3
    Higher energy margin from trading activities in the
     north eastern U.S. and Ontario                              3         3
    Lower natural gas margin                                    (1)       (3)
    Unrealized fair value changes in derivative instruments    (35)      (40)
    Other                                                        1        (5)
    -------------------------------------------------------------------------
    Decrease in operating income                               (24)      (19)
    -------------------------------------------------------------------------
    Operating income (loss) for the periods ended
     June 30, 2008                                         $    (8)  $     6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Energy Services' operating income decreased $24 million for the quarter
and $19 million for the six months ended June 30, 2008 compared with the
corresponding periods in 2007. Additional information on the year over year
changes is as follows:

    -   Alberta electricity margins increased primarily due to increased
        length in the portfolio of derivative financial contracts that
        settled at higher Alberta power prices compared with the prior year.

        The generation from our interests in the Battle River and Sundance
        acquired PPAs was sold at higher prices to the Alberta Power Pool
        subsequent to the expiry of a long-term sales contract with a third
        party customer at the end of 2007. The impact of this favourable
        pricing more than offset the impact of our reduced interest in the
        Battle River PSA (Power Syndicate Agreement) following the sale on
        January 15, 2008.

        The increase was partly offset by the impact of lower generation from
        Genesee 3 under an intercompany contract between Generation and
        Energy Services, and our acquired PPAs resulting from plant outages
        and incidences of reduced plant availability in the second quarter
        of 2008.

    -   In the second quarter of 2008 Energy Services' revenues and expenses,
        excluding unrealized fair value changes, increased $54 million and
        $46 million respectively, compared with the corresponding period in
        2007. These increases were primarily due to higher physical natural
        gas revenues and expenses, $31 million and $32 million respectively,
        increased trading activities in the north eastern U.S. and Ontario
        and higher prices for energy sales and purchases in Alberta. In
        addition, energy revenues from our RRT customers increased due to
        higher pricing. These increases were partly offset by derivative
        financial sell contracts that settled at losses in 2008 resulting
        from Alberta power prices that exceeded the contracts' strike prices.

        Energy Services' revenues and expenses, excluding unrealized fair
        value changes, decreased $17 million and $34 million, respectively in
        the six months ended June 30, 2008 compared with the corresponding
        period in 2007. These decreases were primarily due to lower physical
        natural gas trading activities in the first quarter of 2008 which
        more than offset the increase in activity in the second quarter.
        Natural gas sales and purchases decreased $59 million and $56 million
        respectively, in the six months ended June 30, 2008 compared with the
        corresponding period in 2007. In the six months ended June 30, the
        lower physical gas trading activity was partly offset by the same
        items identified above for the second quarter as well as increased
        trading activities in the western U.S. in the first quarter.

    -   The unrealized fair value changes in our derivative financial
        electricity contracts that were not designated as hedges for
        accounting purposes were unfavourable compared with the prior year
        due to the impact of a greater increase in forward Alberta power
        prices on larger net short positions in the three and six month
        periods ended June 30, 2008. Unrealized fair value changes reduced
        energy revenues by $31 million and increased energy purchases by
        $1 million in the second quarter and reduced energy revenues by
        $48 million and energy purchases by $12 million in the first half of
        2008. Fair value reductions on a net short position of derivative
        financial contracts are not necessarily indicative of economic
        performance as EPCOR's overall position for both physical and
        derivative financial contracts, including hedges, was long and we
        therefore benefited economically when power prices increased.
    

    On April 30, 2008, the Alberta Utilities Commission released its decision
on the Company's 2007 - 2009 Regulated Rate Tariff Application related to its
RRT operations. The impact of the decision was recorded in the second quarter
of 2008 and did not have a material impact on Energy Services' revenues,
expenses or net income.

    
    Water Services

    -------------------------------------------------------------------------
    Water Services results (including
     intersegment transactions)       Three months ended    Six months ended
    (Unaudited, $ millions)                  June 30             June 30
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    Revenues                           $    70   $    61   $   128   $   104
    Expenses                                55        46       102        81
    -------------------------------------------------------------------------
    Operating income                   $    15   $    15   $    26   $    23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Water Services' revenues from water sales were $3 and $9 million higher
in the three and six months ended June 30, 2008 respectively, compared with
the corresponding periods in the prior year primarily due to increased rates
effective April 1, 2007 and April 1, 2008. Transportation and other commercial
services revenues and expenses were higher by $6 million and $9 million
respectively, in the second quarter and $15 million and $17 million
respectively, in the first half of 2008 compared with the corresponding
periods in the prior year. The increases were primarily due to new commercial
services construction projects for the City of Wetaskiwin and the Towns of
Taber and Chestermere and higher business development costs. Maintenance
expenses were higher in the first half of 2008 compared with the corresponding
period in 2007 primarily due to a higher incidence of water main breaks and
additional reservoir maintenance.

    
    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
    Significant changes in consolidated assets
    -------------------------------------------------------------------------
                      June 30, December  Increase
    ($ millions)         2008  31, 2007 (decrease)    Explanation
    -------------------------------------------------------------------------
    Cash and cash       $ 126      $ 79      $ 47     Refer to liquidity and
     equivalents                                      capital resources
                                                      section.
    -------------------------------------------------------------------------
    Accounts receivable   473       591      (118)    Two months of Alberta
     (including income                                wholesale electricity
     taxes recoverable)                               settlements and Genesee
                                                      generation revenues at
                                                      December 31, 2007
                                                      compared with one month
                                                      at June 30, 2008.
                                                      December balance also
                                                      reflects excess sinking
                                                      fund earnings received
                                                      from The City of
                                                      Edmonton in the first
                                                      quarter of 2008.
    -------------------------------------------------------------------------
    Derivative            249       104       145     Increase in fair value
     instruments                                      of natural gas and
     assets (current)                                 power derivative
                                                      contracts due to
                                                      increased forward
                                                      prices.
    -------------------------------------------------------------------------
    Other current assets  100        74        26     Addition of natural gas
                                                      inventory held for
                                                      trading and normal
                                                      increase in prepaid
                                                      property taxes and
                                                      insurance at mid year.
    -------------------------------------------------------------------------
    Property, plant     4,405     4,216       189     2008 capital
     and equipment                                    expenditures partly
                                                      offset by depreciation
                                                      and amortization
                                                      expense.
    -------------------------------------------------------------------------
    Power purchase        631       679       (48)    Sale of 10% interest in
     arrangements (PPAs)                              Battle River PSA and
                                                      ongoing amortization of
                                                      remaining PPAs in 2008.
    -------------------------------------------------------------------------
    Contract and          175       179        (4)
     customer rights
     and other
     intangible assets
    -------------------------------------------------------------------------
    Derivative            257       116       141     Increase in fair value
     instruments assets                               of natural gas and
     (non-current)                                    power derivative
                                                      contracts due to
                                                      increases in forward
                                                      prices, partly offset
                                                      by decrease in fair
                                                      value of foreign
                                                      currency forward
                                                      contracts.
    -------------------------------------------------------------------------
    Future income tax     135       103        32     Change in the expected
     assets (non-current)                             timing of the use of
                                                      tax loss carryforward
                                                      balances from current
                                                      to long-term and
                                                      increase in deductions
                                                      available for tax
                                                      purposes for unrealized
                                                      fair value changes in
                                                      derivative instruments.
    -------------------------------------------------------------------------
    Goodwill              185       185         -
    -------------------------------------------------------------------------
    Other assets          250       236        14     Increase in rights to
                                                      Keephills 3 mining
                                                      asset and in long-term
                                                      receivables associated
                                                      with the Taber,
                                                      Wetaskiwin and
                                                      Chestermere projects,
                                                      partly offset by a
                                                      reduction in fair value
                                                      of ABCP.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    Significant changes in consolidated liabilities and shareholder's equity
    -------------------------------------------------------------------------
                      June 30, December  Increase
    ($ millions)         2008  31, 2007 (decrease)    Explanation
    -------------------------------------------------------------------------
    Short-term debt     $ 171     $ 138      $ 33     Commercial paper issued
                                                      during the first six
                                                      months of 2008.
    -------------------------------------------------------------------------
    Accounts payable      517       615       (98)    Two months of Alberta
     and accrued                                      wholesale electricity
     liabilities                                      settlements at
                                                      December 31, 2007
                                                      compared with one month
                                                      at June 30, 2008, and
                                                      lower payables and
                                                      accruals for natural
                                                      gas, merchant and Water
                                                      Services capital
                                                      projects at June 30,
                                                      partly offset by
                                                      increased payables and
                                                      accruals for Generation
                                                      capital projects and
                                                      Genesee operations at
                                                      June 30.
    -------------------------------------------------------------------------
    Derivative            229       136        93     Increase in fair value
     instruments                                      of derivative natural
     liabilities                                      gas and power contracts
     (current)                                        due to increases in
                                                      forward prices.
    -------------------------------------------------------------------------
    Other current          86        98       (12)    Reflects payment of
     liabilities                                      income taxes related to
                                                      the 2006 Battle River
                                                      PPA gain on sale,
                                                      partly offset by
                                                      increased current
                                                      future income tax
                                                      liabilities.
    -------------------------------------------------------------------------
    Long-term debt      2,362     2,139       223     Medium-term note
     (including current                               debentures issued in
     portion)                                         January and April 2008,
                                                      partly offset by
                                                      ongoing debt repayments
                                                      to The City of Edmonton
                                                      and repayment of debt
                                                      issued under credit
                                                      facilities.
    -------------------------------------------------------------------------
    Derivative            151        78        73     Increase in fair value
     instruments                                      of derivative power
     liabilities                                      and natural gas
     (non-current)                                    contracts due to
                                                      increases in forward
                                                      prices.
    -------------------------------------------------------------------------
    Other non-current     121       125        (4)
     liabilities
    -------------------------------------------------------------------------
    Future income tax     150       126        24     Increase in taxable
     liabilities                                      temporary differences
     (non-current)                                    relating to unrealized
                                                      fair value changes in
                                                      derivative instruments.
    -------------------------------------------------------------------------
    Non-controlling       795       740        55     Reflects non-
     interests                                        controlling interests'
                                                      share of Power LP
                                                      income less
                                                      distributions.
    -------------------------------------------------------------------------
    Shareholder's       2,404     2,367        37     Reflects net income
     equity                                           and other comprehensive
                                                      income, partly offset
                                                      by common share
                                                      dividends and
                                                      refundable income
                                                      taxes.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    LIQUIDITY AND CAPITAL RE

SOURCES ------------------------------------------------------------------------- Cash inflows (outflows) ------------------------------------------------------------------------- Three months ended June 30 ---------------- Increase ($ millions) 2008 2007 (decrease) Explanation ------------------------------------------------------------------------- Operating $ 41 $ 55 $ (14) Payment of Genesee PPA availability penalties in the second quarter of 2008 compared with receipt of incentive income in 2007, payments for major maintenance for Genesee turnarounds in 2008, partly offset by realized losses on forward foreign exchange and interest rate contracts in 2007 and changes in non-cash operating working capital, primarily four months of sales receipts for the Ontario plants in 2008 compared with three months of receipts in 2007. Investing (146) (91) (55) Higher capital expenditures in 2008, primarily on the Keephills 3, Clover Bar Energy Centre and DESS projects. Financing 129 (104) 233 Net financing receipts in 2008 included the issuance of $400 million of medium- term note debentures, partly offset by long- term debt repayments. Net financing outlays in 2007 included repayment of Power LP's borrowing under its bridge acquisition credit facility, partly offset by the issuance of preferred shares by a subsidiary. ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash inflows (outflows) ------------------------------------------------------------------------- Six months ended June 30 ---------------- Increase ($ millions) 2008 2007 (decrease) Explanation ------------------------------------------------------------------------- Operating $ 139 $ 219 $ (80) Payment of Genesee PPA availability penalties in 2008 compared with the receipt of availability incentive income 2007, payment in 2008 of income taxes related to the 2006 gain on sale of the Battle River PPA and payments for major maintenance for Genesee turnarounds in 2008, partly offset by losses on forward foreign exchange and interest rate contracts realized in 2007. Investing (221) (130) (91) Reflects higher capital expenditures, primarily on the Keephills 3, Clover Bar Energy Centre and DESS projects. Financing 131 (200) 331 Net financing receipts in 2008 included the issuance of $600 million of medium- term note debentures and $32 million of commercial paper, partly offset by long- term debt repayments. Net financing outlays in 2007 included repayment of Power LP's borrowing under its bridge acquisition credit facility, partly offset by the issuance of preferred shares by a subsidiary. ------------------------------------------------------------------------- ------------------------------------------------------------------------- At June 30, 2008 the Company had letters of credit outstanding of $219 million (December 31, 2007 - $357 million) to meet the credit requirements of energy market participants, to meet conditions of certain debt and service agreements, and to satisfy legislated reclamation requirements. CONTRACTUAL OBLIGATIONS In January 2008, the Company repaid its $155 million of long-term debt outstanding under a bank credit facility with proceeds from short-term indebtedness. On January 31, 2008, the Company issued $200 million unsecured medium-term note debentures and the proceeds were used to pay down short-term indebtedness. In April 2008, the Company issued $400 million unsecured medium-term note debentures as described under Significant Events. Net proceeds from these offerings were used to repay short-term indebtedness, to repay debentures which matured in June 2008, to fund a portion of the 2008 capital program and for general corporate purposes. In May 2008, the Company entered into an agreement with Suncor Energy (Suncor) to design, build, own and operate a potable water and wastewater treatment plant for Suncor's Voyageur project over a twenty-year term, in return for payments totaling approximately $99 million commencing upon completion of the design-build phase in 2009. The project will require a capital outlay of approximately $30 million to be incurred in 2008 and 2009. Power LP has committed up to US$80 million for the enhancement of the Southport and Roxboro facilities, to be spent over 2008 and 2009. There have been no other material changes to the Company's purchase obligations, including payments for the next five years and thereafter, during the first and second quarters. For further information on these obligations, refer to the 2007 annual MD&A. CHANGES IN ACCOUNTING STANDARDS Accounting changes for 2008 Commencing January 1, 2008, the Company adopted new accounting standards as issued by the Canadian Institute of Chartered Accountants (CICA) for Capital Disclosures, Financial Instruments - Disclosures and Presentation, and Inventories. The new accounting standards have been applied prospectively and the comparative financial statements have not been restated. Financial instruments - presentation and disclosures The new accounting standards establish requirements for the reporting and presentation of quantitative and qualitative information that is intended to provide users of the financial statements with additional insight into the Company's risks associated with financial instruments and how these risks are managed. These risks include credit, liquidity and market risks. The disclosures required under these new standards have been incorporated into the unaudited interim consolidated financial statements and are discussed in Note 5 - Fair Value and Classification of Non-derivative Financial Assets and Liabilities, Note 6 - Derivative Instruments and Hedge Accounting and Note 7 - Risk Management. Sensitivity analyses of the impact on net income of changes in the fair value of derivative instruments for changes in their underlying risk factors, such as natural gas prices and foreign exchange rates, are included in the unaudited interim consolidated financial statements. Changes in the fair value of Power LP's natural gas contracts has limited economic impact on the Company as the majority of the gas supplied under long-term contracts is used for power generation. Changes in the value of the foreign exchange contracts are offset by changes in the value of expected foreign currency cash flows. Therefore readers should be cautious in assessing the disclosed sensitivities. Capital disclosures The new accounting standard requires qualitative information about the Company's objectives, policies and processes for managing capital and quantitative data related to the Company's capital, as discussed in Note 8 - Capital Management of the unaudited interim consolidated financial statements. Inventories The new accounting standard requires the Company's inventories to be measured at the lower of cost and net realizable value except for natural gas inventories held for trading purposes which are measured at fair value less costs to sell. Our adoption of the new standard did not have a material impact on the unaudited interim consolidated financial statements. The additional disclosures required under the new standard are included in Note 9 - Inventories of the unaudited interim consolidated financial statements. Future accounting changes Rate-regulated operations In December 2007, the CICA amended Handbook Sections 1100 - Generally Accepted Accounting Principles and 3465 - Income Taxes, and made consequential amendments to Accounting Guideline 19 - Disclosures by Entities Subject to Rate Regulation. The amendments removed the temporary exemption from the requirement to apply Section 1100 to the recognition and measurement of assets and liabilities arising from rate regulation. They also require rate-regulated enterprises to recognize future income taxes separate from the regulatory asset or liability for the future recovery from or refund to customers for those income taxes. We will assess our accounting for rate-regulated operations in relation to these amendments but do not expect the impact to be material. These amendments are effective January 1, 2009 and will be adopted by the Company as of that date. Goodwill and intangible assets In February 2008, the CICA issued Handbook Section 3064 - Goodwill and Intangible Assets and consequential amendments to Section 1000 - Financial Statement Concepts. The new section establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally generated intangible assets, are equivalent to the corresponding provisions in International Financial Reporting Standards (IFRS). We will review our capitalization policies and practices for compliance with the new standard, which will determine the impact of the amendments to the financial statements. These amendments are effective January 1, 2009 and will be adopted by the Company as of that date. International financial reporting standards In February 2008, the CICA confirmed that Canadian reporting issuers will be required to report under IFRS effective January 1, 2011, including comparative figures for the prior year. In April 2008, the CICA released an exposure draft of the coming standards. We have developed a high level IFRS implementation plan, and an assessment of the impact of the accounting standard differences to the financial statements is currently in progress. Based on our analysis to date, the most significant differences for EPCOR are anticipated to be related to property, plant and equipment, joint arrangements, business combinations, emission credits, asset retirement obligations and financial statement disclosure. We also expect to make changes to certain processes and systems before 2010 to ensure transactions are recorded in accordance with IFRS for comparative reporting purposes on the required implementation date. We will report on the key elements and timing of our IFRS implementation plan in our interim MD&A for the third quarter of 2008. CRITICAL ACCOUNTING ESTIMATES In preparing the consolidated financial statements, management necessarily made estimates in determining transaction amounts and financial statement balances. The following are the items for which significant estimates were made in the consolidated financial statements: electricity revenues, costs and unbilled consumption, fair values, allowance for doubtful accounts, useful lives of assets, income taxes and PPA availability incentives. For further information on the Company's accounting estimates, refer to the 2007 annual MD&A. RISK MANAGEMENT This section should be read in conjunction with the Risk Management section of the most recent annual MD&A. EPCOR faces a number of risks including electricity price and volume risk, natural gas price and volume risk, operational risk, government and regulatory risk, supply risk of acquired PPAs, credit risk, environmental risk, project risk, availability of people risk, weather risk, foreign exchange risk, conflicts of interest risk, and general economic conditions and business environment risks. The Company employs active programs to manage these risks. As part of ongoing risk management practices, the Company reviews current and proposed transactions to consider their impact on the risk profile of the Company. There have been no material changes to the risk profile or risk management strategies of EPCOR as described in the annual MD&A for 2007. INTERNAL CONTROLS OVER FINANCIAL REPORTING During the first quarter of 2008, the Company implemented a new Human Resources Information System which covers several aspects of human resource management including payroll. The system and related control framework are appropriately designed; however management is still working through post implementation issues typical of a new application system. There were no other changes in the Company's internal controls over financial reporting during the interim period ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting. OUTLOOK With the major outages at Genesee now complete, net income before the impact of fair value changes is expected to return to pre-outage levels. The major outages at Genesee combined with the high Alberta power prices in the second quarter resulted in higher Genesee PPA availability penalties and higher major maintenance costs than anticipated. For the balance of the year we expect higher generation from Genesee 3, reduced Genesee availability penalties and lower Generation maintenance costs compared to the first half of the year. However, we expect increased costs for business development activity related to water and power initiatives. On July 8, 2008 we disposed of an equity investment and recognized a $9 million pre-tax gain in net income which was previously recorded as a fair value change in accumulated other comprehensive income. QUARTERLY RESULTS Net income Net income from (loss) from continuing discontinued Quarter ended Revenues operations operations Net income ------------------------------------------------------------------------- (Unaudited, $ millions) ------------------------------------------------------------------------- June 30, 2008 $ 865 $ 16 $ - $ 16 March 31, 2008 799 68 - 68 December 31, 2007 969 59 - 59 September 30, 2007 930 67 - 67 June 30, 2007 865 53 - 53 March 31, 2007 899 98 - 98 December 31, 2006 728 16 1 17 September 30, 2006 702 47 9 56 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Events for 2008, 2007 and 2006 quarters that have significantly impacted net income from continuing operations, net income and the comparability between quarters are: - March 31, 2008 first quarter results included a $30 million gain on the sale of a 10% interest in the Battle River PSA and the favourable impact of high Alberta power prices on our financial contract portfolio which was in a net long position. These gains were partly offset by maintenance costs and Genesee PPA availability penalties resulting from a major planned outage at Genesee 1, and a fair value reduction of ABCP. - December 31, 2007 fourth quarter results included unrealized fair value gains on derivative financial instruments in our Alberta merchant and wholesale portfolio which were not designated as hedges for accounting purposes, and unrealized fair value gains on Power LP's natural gas supply contracts. These gains were partly offset by a reduction in the fair value of ABCP and a future income tax charge for the impact of future tax rate reductions which were substantively enacted in December 2007. - September 30, 2007 third quarter results included higher Alberta electricity margins due to favourable settlements on financial sales as a result of higher contract prices and lower Alberta power prices. In addition, the results included favourable unrealized fair value changes in financial and non-financial derivative instruments, which were not designated as hedges for accounting purposes, in Alberta merchant and wholesale positions due to lower forward power prices combined with a net short position. - June 30, 2007 second quarter results included unrealized fair value decreases in derivative financial instruments which were not designated as hedges for accounting purposes, resulting from increasing forward market prices. In addition, income from Power LP included unrealized fair value decreases for the natural gas supply contracts resulting from decreasing forward natural gas prices and contract price changes for the Tunis plant. - March 31, 2007 first quarter results included a $30 million gain from the sale of a 10% interest in the Battle River PSA, an $11 million reduction of future income tax expense resulting from a reorganization of two subsidiaries within the Energy Services segment, and income from Power LP due to favourable fair value changes in the natural gas supply contracts for its Ontario generation plants which were required under the implementation of the new accounting standard for financial instruments effective January 1, 2007. These gains were partly offset by unrealized fair value decreases in derivative financial instruments resulting from a combination of increasing volumes of financial sales contracts not qualifying for hedge accounting and increasing Alberta forward electricity prices. - December 31, 2006 fourth quarter results included unrealized fair value decreases in derivative financial instruments which were not designated as hedges for accounting purposes, resulting from increasing forward market prices. In addition, income from Power LP included unrealized foreign exchange losses on the translation of U.S. debt. These events were partly offset by increased generation from a short-term tolling arrangement with Calpine Power Income Fund, higher generation incentive income and realized gains on foreign currency forward contracts. - September 30, 2006 third quarter results included an increase in net income from discontinued operations of $10 million for the reduction of the Clover Bar asset retirement obligation offset by reduced Alberta electricity margins from the Battle River and Sundance PPAs resulting from the sale of partial interests in these agreements in the second quarter of 2006. Additional information Additional information relating to EPCOR, including EPCOR's annual information form, is available on SEDAR at www.sedar.com.

For further information:

For further information: Media inquiries: Tim le Riche, (780) 969-8238;
Shareholder and analyst inquiries: Randy Mah, (780) 412-4297 or toll free
(866) 896-4636

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