ST.JOHN'S, NEWFOUNDLAND AND LABRADOR--(CCNMatthews - June 2, 2005) - Newfoundland Power Inc. (TSX:FTS) today announced that it has settled an outstanding tax dispute with the Canada Revenue Agency (CRA). "We are very pleased to have successfully resolved this outstanding dispute." said Karl Smith, President and Chief Executive Officer.
At issue was the method used by the Company to recognize revenue from electricity sales. The Company's practice had been to record revenue on a billed basis, in accordance with regulatory practice. CRA's position was that revenue should be recorded on an accrual basis for income tax purposes. Had the Company used the accrual basis of revenue recognition in 1993 as asserted by CRA, it would have recognized an additional $16.9 million of revenue in that year.
As at March 31, 2005, the contingent liability associated with the dispute was estimated to be $16.4 million, inclusive of interest. No provision for this liability had been made in the Company's accounts, but a deposit of $6.9 million had been made with CRA, as required by the Income Tax Act.
Under the terms of the settlement: - Current proceedings before the Tax Court of Canada will be discontinued; - All outstanding reassessments will be cancelled; - CRA will refund the deposit made by Company plus interest; - Newfoundland Power will record revenue for income tax purposes using the accrual basis beginning in 2006; and, - Newfoundland Power will include in revenue for income tax purposes the value of electricity consumed by customers in December 2005, but not billed to customers until January 2006 over the three year period from 2006 to 2008. - Pending conclusion of this three year period, Newfoundland Power will provide CRA with waivers permitting limited rights of reassessment for taxation years 2000 through 2004.
"The Company has entered into an agreement with the Canada Revenue Agency that provides for full settlement of this long standing income tax dispute on a prospective basis" said Karl Smith. "This settlement eliminates uncertainty about past income tax obligations."
Newfoundland Power will file an Application with the Board of Commissioners of Public Utilities of Newfoundland and Labrador in the 3rd Quarter of 2005 that addresses the appropriate manner to deal with the treatment of revenue recognition for regulatory purposes on a prospective basis.
With a customer base of over 225,000 accounts, Newfoundland Power is dedicated to providing the highest level of customer service and reliability of electricity in the most cost-efficient manner possible. For more information on Newfoundland Power's programs, services and community partnerships, please visit http://www.newfoundlandpower.com.
All the common shares of Newfoundland Power are owned by Fortis Inc., a diversified, international electric utility holding company. The Common Shares, Series C First Preference Shares and Series E First Preference Shares of Fortis Inc. are traded on the Toronto Stock Exchange under the symbols FTS, FTS.PR.C and FTS.PR.E, respectively. Fortis Inc. information can be accessed at http://www.fortisinc.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
Newfoundland Power Inc.
Vice-President, Finance and Chief Financial Officer