Energy Savings Income Fund
TSX : SIF.UN

Energy Savings Income Fund

November 09, 2007 10:34 ET

Energy Savings Income Fund: Second Quarter Results for 3 Months and 6 Months Ended September 30, 2007

TORONTO, ONTARIO--(Marketwire - Nov. 9, 2007) - Energy Savings Income Fund (TSX:SIF.UN) -

Highlights for the second quarter ended September 30, 2007 included:

- Gross customer additions of 94,000.

- Gross margin (seasonally adjusted) of $57.7 million, up 30% year over year.

- Net income of $4.8 million ($0.04/unit), up from a net loss of $(1.3) million ($(0.01)/unit).

- Distributable cash after gross margin replacement of $37.6 million ($0.35 per unit), up 42% year over year.

- Distributable cash after marketing expenses of $29.7 million ($0.28 per unit), up 56% year over year.

- Distributions of $0.30 per unit, up 20% year over year.

- Strong customer receptivity for "Green Energy Option", a green electricity product. Roll out of a carbon neutral natural gas offering is underway.

Energy Savings Second Quarter Results

Energy Savings is an Income Fund and it reports in the attached Management's Discussion and Analysis a detailed calculation of distributable cash both before and after marketing expenditures to expand the gross margin from the Fund's customer base.

Energy Savings Income Fund announced its results for the three and six months ended September 30, 2007.



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Three months ended September 30 F2008 Per Unit F2007 Per Unit
($ millions except per Unit)
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Sales(1) $ 381.9 $ 330.1
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Gross Margin(1) 57.7 $ 0.53 44.2 $ 0.41
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Distributable Cash(1)
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- After Margin Replacement 37.6 $ 0.35 26.5 $ 0.25
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- After Marketing for New Customers 29.7 $ 0.28 19.1 $ 0.18
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Net Income (loss) 4.8 0.04 (1.3) (0.01)
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Distributions 32.3 $ 0.30 26.9 $ 0.25
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Long Term Customers 1,693,000 1,647,000
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Six months ended September 30 F2007 Per Unit F2006 Per Unit
($ millions except per Unit)
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Sales(1) $ 756.2 $ 651.2
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Gross Margin(1) 113.0 $ 1.05 92.4 $ 0.86
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Distributable Cash(1)
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- After Margin Replacement 68.4 $ 0.63 58.1 $ 0.54
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- After Marketing for New Customers 56.4 $ 0.52 40.6 $ 0.38
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Net Income 30.7 0.28 9.7 0.09
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Distributions 62.7 $ 0.58 52.5 $ 0.49
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(1) Seasonally adjusted


Energy Savings saw very strong operating results in the second quarter. All key financial measures saw year over year growth with a 16% increase in sales translating into 30% gross margin growth, 42% growth in distributable cash after gross margin replacement and 56% growth in distributable cash after marketing for new customers.

This performance reflected continued improvement in margin per customer in all markets. The Fund showed natural gas margins of 16.8% in Q2 versus 16.2% in Q1 and 14.2% a year earlier. Electricity margins also showed improvement at 13.3% up from 12.9% in Q1 and 12.4% a year earlier. The Fund was able to improve margins by maintaining disciplined pricing, while reducing supply costs.

The US market led the Fund's growth with sales up 168% and margin up 151%. Overall, sales and margins were adversely impacted by the decline in the US dollar exchange rate but distributable cash was relatively unaffected as investment into US growth continues to exceed US cash flow.

At the same time that margins were growing, operating productivity gains are being achieved resulting in lower fixed costs per customer. General and administrative costs were up 1% year over year and bad debt expense declined from $2.4 million a year ago to $0.8 million in Q2. The result was higher growth in distributable cash than either sales or gross margin.

General and administrative costs showed little growth as past spending on infrastructure has built a platform sufficient to handle continued revenue growth without significant cost inflation. Bad debt expense benefited from continued improvements in customer screening and more effective collection activity.

The chart below illustrates our marketing results in comparison to our published targets and the prior year.



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Market Published F2008 Q2 F2008 YTD % of F2007 Q2
Target Additions Additions Target Additions
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Canada - Gas 100,000 10,000 29,000 29 % 26,000
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Canada - Electricity 115,000 32,000 53,000 46 % 41,000
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United States - Gas 110,000 34,000 69,000 63 % 20,000
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U.S. - Electricity 90,000 18,000 38,000 42 % 6,000
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Total 415,000 94,000 189,000 46 % 93,000
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Net Additions 125,000 15,000 34,000 27 % 59,000
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Customer aggregation was again strong in Q2. After weak results in Q3 and Q4 of fiscal 2007, the Fund signed over 90,000 customers for the second consecutive quarter. Our strength was in the US market where the rebuilding of the Fund's sales force of independent contractors resulted in record additions. For the second consecutive quarter, US additions exceeded those in Canada. While Canadian sales are behind pace, overall additions are 46% of target after six months and prospects for a ramp up of US sales for the remainder of the year (particularly in New York and Texas) give support to meeting the overall annual target.

Net additions were impacted by very high volumes of Ontario electricity renewals. Renewal percentage for these customers was a disappointing 51% year to date.

This is due to a very large disparity between the current regulated floating utility price and the five year price. Given that all recent Ontario electricity "Requests for Proposals" have been filled at prices well above Energy Savings current offering price, management believes that this spread will contract and that improved renewal rates will be seen in the future. Renewal rates for natural gas were at the target 80% level.

At 9%, attrition was under the target 10% in Canada. In the US, attrition remained above our 20% target at an annualized 25%. This was, however, an improvement from 33% in fiscal 2007 and 31% in the first quarter. Management is optimistic that US attrition will reach target levels by year end with the slow down of US home sales and continued reduction in customer switching in New York.

Energy Savings saw high customer acceptance of its new Green Energy Option (GEO) product in the quarter. This product allows a customer to ensure that 20% to 100% of his or her electricity usage is matched by green source electricity purchased by Energy Savings. Given the success of the GEO product, the Fund is in the process of rolling out a carbon neutral natural gas product which will use purchased credits to allow customers to eliminate the carbon footprint of their home or business. Management believes that green offerings are an innovation that will improve marketing success and increase renewal rates.

Solid operating results and strong customer additions at high margins resulted in a 20% year over year growth in distributions. As in the past, Energy Savings has demonstrated that customer additions lead to higher gross margin and distributable cash. In turn, this leads to increased distributions.

The Fund's Board of Directors has approved a Special Distribution which will be declared on December 31, 2007 and will be paid during calendar 2008 in a combination of cash and units. The payment of this Special Distribution will substantially eliminate income tax payable by the Fund for the taxation year ended December 31, 2007. The potential tax liability occurred because the Fund has under-distributed its income in past quarters. The expected size of the distribution is between $35 and $40 million ($0.33 to $0.37 per unit). This is not expected be a recurring distribution. The Fund's core distribution rate remains $1.21 per year paid monthly.

A Special Meeting of Unitholders of the Fund and the holders of Class A Preference Shares is scheduled for December 20, 2007 to amend the Fund's Declaration of Trust. The Special Resolution which, if approved, will assume that all units issued as part of the Special Distribution will not be consolidated after their issue.

The Fund's payout ratio for the quarter was 86% after margin replacement versus 102% last year and 109% after all marketing down from 141% a year ago. Because the business is both predictable and seasonal, management is comfortable that the payout ratio on an annual basis will be less than 100% excluding any special distributions for tax purposes.

Regarding the second quarter results, CEO Brennan Mulcahy stated: "I am pleased to see another strong quarter in marketing for Energy Savings. While we had the expected high attrition from the rollover of our first Ontario electricity customers, our discipline in growing our margins allowed us to generate a 56% year over year growth in distributable cash. While we are currently ahead of pace to meet our target of 15% to 20% growth in both margin and distributable cash, we continue to believe that that range is realistic given the very warm fall we have experienced. Investors should not anticipate that we will exceed our annual targets."

"I am cautiously optimistic with respect to our customer addition target. We have added slightly less than half of our 415,000 annual target in six months. Prospects for higher additions as we build out in new territories in New York and Texas look solid. Net additions are behind pace but the bulk of our heavy electricity renewals have passed and we should see stronger net additions in Q3 and Q4."

Executive Chair Rebecca MacDonald noted: "Energy Savings remains unique. A 56% year over year growth in distributable cash is evidence that our growth is far from over. Our track record of 28 distribution rate increases reflects our past growth and profitability and our future remains bright. We have built a strong team and they continue to deliver."

The Fund

Energy Savings' business involves the sale of natural gas and electricity to residential, small to mid-size commercial and small industrial customers under long-term, irrevocable fixed price contracts (price protected for electricity). Energy Savings offers natural gas in Manitoba, Quebec, British Columbia, Illinois and Indiana and both gas and electricity in Ontario, Alberta and New York as well as electricity only in Texas. By securing the price for natural gas or electricity under such contracts for a period of up to five years, Energy Savings' customers reduce or eliminate their exposure to changes in the price of these essential commodities.

Non GAAP Measures

All non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.

Management believes the best basis for analyzing both the Fund's operating results and the amount available for distribution is to focus on amounts actually received ("seasonally adjusted"). Seasonally adjusted analysis applies solely to the Canadian gas market (excluding Alberta). In Canada (excluding Alberta), Energy Savings receives payment from the LDCs upon delivery of the commodity not when the customer actually consumes the gas. Seasonally adjusted analysis eliminates seasonal commodity consumption variances and recognizes amount available for distribution based on cash received from the LDCs.

"Distributable cash after gross margin replacement" represents the net cash available for distribution to Unitholders. However, only the marketing expenses associated with maintaining the Fund's gross margin at a stable level equal to that in place at the beginning of the year are deducted.

"Distributable cash after marketing expense" represents the net cash available for distribution to Unitholders as defined above after deduction of all marketing expenses.

Forward-Looking Statements

The Fund's press releases may contain forward-looking statements including statements pertaining to customer revenues and margins, customer additions and renewals, customer consumption levels, distributable cash and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, fluctuations in natural gas and electricity prices, changes in regulatory regimes and decisions by regulatory authorities, competition and dependence on certain suppliers. Additional information on these and other factors that could affect the Fund's operations, financial results or distribution levels are included in the Fund's annual information form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or through the Fund's website at www.esif.ca.

MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - November 9, 2007

Overview

The following discussion and analysis is a review of the financial condition and results of operations of Energy Savings Income Fund ("Energy Savings" or the "Fund") for the six months ended September 30, 2007 and has been prepared with all information available up to and including November 9, 2007. This analysis should be read in conjunction with the unaudited interim consolidated financial statements for the three and six months ended September 30, 2007 as well as the audited consolidated financial statements and related "MD&A" for the year ended March 31, 2007 contained in the Fund's 2007 Annual Report. The financial information contained herein has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). All dollar amounts are expressed in Canadian dollars. Quarterly reports, the annual report and supplementary information can be found under "reports and filings" on our corporate web site at www.esif.ca. Additional information can be found on SEDAR at www.sedar.com.

Energy Savings is an open-ended, limited-purpose trust established under the laws of the Province of Ontario to hold securities and to distribute the income of its directly or indirectly wholly owned operating subsidiaries and affiliates: Ontario Energy Savings L.P. ("OESLP"), Energy Savings (Manitoba) L.P. ("ESMLP"), Energy Savings (Quebec) L.P. ("ESPQ"), ES (B.C.) Limited Partnership ("ESBC"), Alberta Energy Savings L.P. ("AESLP"), Illinois Energy Savings Corp. ("IESC"), New York Energy Savings Corp. ("NYESC"), Indiana Energy Savings Corp. ("INESC") and Energy Savings Texas Corp. ("ESTC").

Energy Savings' business involves the sale of natural gas and electricity to residential and small to mid-size commercial customers under long term fixed price and price protected contracts. By fixing the price of natural gas or electricity under its fixed price or price protected program contracts for a period of up to five years, Energy Savings' customers offset their exposure to changes in the price of these essential commodities. Energy Savings, which commenced business in July of 1997, derives its margin or gross profit from the difference between the fixed price at which it is able to sell the commodities to its customers and the fixed price at which it purchases the matching volumes from its suppliers.

Forward-looking information

This MD&A contains certain forward looking information statements pertaining to customer additions and renewals, customer consumption levels, distributable cash and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, fluctuations in natural gas and electricity prices, changes in regulatory regimes and decisions by regulatory authorities, competition and dependence on certain suppliers. Additional information on these and other factors that could affect the Fund's operations, financial results or distribution levels are included in the Fund's annual information form and other reports on file with Canadian security regulatory authorities which can be accessed on our corporate website at www.esif.ca or through the SEDAR website at www.sedar.com.

Key terms

"Customers not expected to renew" are generally large volume and/or low margin customers who are not part of Energy Savings' target market.

"Gross Margin per RCE" represents the gross margin realized on Energy Savings' customer base, including both low margin customers acquired through various acquisitions and gains/losses from sales of excess commodity supply.

"LDC" means local distribution company, the natural gas or electricity distributor for a regulatory or governmentally defined geographic area.

"Long-term customers" represents customers that meet management's required margin thresholds and therefore management expects to have the opportunity to renew at the end of their contract.

"RCE" means residential customer equivalent or the "customer", which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or 1,000 Therms) of natural gas on an annual basis and, as regards electricity, 10,000 kWh of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario.

"Small volume electricity customers" represents customers that have annual usage of less than 150,000 kWh of electricity.

Non GAAP financial measures

All non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.

Seasonally Adjusted Sales and Seasonally Adjusted Gross Margin

Management believes the best basis for analyzing both the Fund's operating results and the amount available for distribution is to focus on amounts actually received ("seasonally adjusted"). Seasonally adjusted sales and gross margin are not defined performance measures under Canadian GAAP. Seasonally adjusted analysis applies solely to the Canadian gas market and specifically to Ontario, Quebec and Manitoba.

No seasonal adjustment is required for electricity as the supply is balanced daily. In the other gas markets, payments for supply by the utilities are aligned with customer consumption.

Cash Available for Distribution

"Cash available for distribution" refers to the net cash available for distribution to Unitholders. Seasonally adjusted gross margin is the principal contributor to cash available for distribution. Distributable cash is calculated by the Fund as seasonally adjusted gross margin, adjusted for cash items including general and administrative expenses, marketing expenses, capital tax, bad debt expense, other income/expense and corporate taxes. Management believes that this is the most useful measure of performance as it provides investors with an indication of the amount of cash available for distribution to Unitholders. This non-GAAP measure may not be comparable to other income funds.

"Distributable cash after gross margin replacement" represents the net cash available for distribution to Unitholders as defined above. However, only the marketing expenses associated with maintaining the Fund's gross margin at a stable level equal to that in place at the beginning of the year are deducted. This methodology is comparable to distributable cash after customer replacement. The Fund previously matched each customer lost with the marketing cost associated with signing a new customer of the same type to recognize a constant customer base.

"Distributable cash after marketing expense" represents the net cash available for distribution to Unitholders as defined above after deduction of all marketing expenses.

For reconciliation to cash from operating activities please refer to the Cash Available for Distribution analysis on page 5.

Standardized Distributable Cash

Standardized Distributable Cash is a non-GAAP measure developed to provide a consistent and comparable measurement of distributable cash across entities.

Standardized Distributable Cash is defined as cash flows from operating activities, as reported in accordance with GAAP, less adjustments for total capital expenditures as reported in accordance with GAAP and restrictions on distributions arising from compliance with financial covenants restrictive at the date of the calculation of Standardized Distributable Cash.

For reconciliation to cash from operating activities please refer to the Standardized Distributable Cash and Cash Available for Distribution analysis on page 8.



Financial highlights
--------------------
For the three months ended September 30
(thousands of dollars except where indicated and per unit amounts)

2007 2006
Per Per
$ Unit Change $ Unit

Revenue 283,531 $2.63 20% 236,127 $2.20

Net income (loss) 4,754 $0.04 (1,257) $(0.01)
Cash available for distribution
- After gross margin replacement 37,589 $0.35 42% 26,490 $0.25
- After marketing expense 29,690 $0.28 56% 19,068 $0.18
Distributions 32,291 $0.30 20% 26,891 $0.25
General and administrative 11,142 $0.10 1% 10,999 $0.10
Distributable Cash Payout ratio(1)
- After gross margin replacement 86% 102%
- After marketing expense 109% 141%


For the six months ended September 30
(thousands of dollars except where indicated and per unit amounts)

2007 2006
Per Per
$ Unit Change $ Unit

Revenue 636,400 $5.90 22% 521,677 $4.86

Net income 30,672 $0.28 9,748 $0.09
Cash available for distribution
- After gross margin replacement 68,421 $0.63 18% 58,088 $0.54
- After marketing expense 56,380 $0.52 39% 40,557 $0.38
Distributions 62,744 $0.58 20% 52,450 $0.49
General and administrative 22,084 $0.20 3% 21,490 $0.20
Distributable Cash Payout ratio(1)
- After gross margin replacement 92% 90%
- After marketing expense 111% 129%
(1)Management targets an annual payout ratio after all marketing expenses
of less than 100% excluding any special distribution for tax reasons.


Operations

Gas

In each of the markets that Energy Savings operates, it is required to deliver gas to the LDCs for its customers throughout the year. Gas customers are charged a fixed price for the full term of their contract. Energy Savings purchases gas supply in advance of marketing. The LDC provides historical customer usage to enable Energy Savings to purchase back to back matched supply. Furthermore, in many markets, Energy Savings has an option strategy that covers forecast differences in customer consumption due to weather variations. The cost of this strategy is incorporated in the price to the customer. To the extent that balancing requirements are outside the options purchased, Energy Savings bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. Excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. In the case of greater than expected gas consumption, Energy Savings must purchase the short supply at the market price, which may reduce or increase the customer gross margin typically realized.

Ontario, Quebec and British Columbia

In Ontario, Quebec and British Columbia, the volumes delivered for a customer typically remain constant throughout the year. Energy Savings does not recognize sales until the customer actually consumes the gas. During the winter months, gas is consumed at a rate which is greater than delivery and in the summer months, deliveries to LDCs exceed customer consumption. Energy Savings receives cash from the LDCs as the gas is delivered, which is even throughout the year.

Manitoba and Alberta

In Manitoba and Alberta, the volume of gas delivered is based on the estimated consumption for each month. Therefore, the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash received from customers and LDCs will be higher in the winter months.

Alberta's regulatory environment is different from the other Canadian provincial markets. In Alberta, Energy Savings is required to invoice and receive payments directly from customers. Energy Savings has entered into an agreement with EPCOR Utilities Inc. ("EPCOR") for the provision of billing and collection services in Alberta. EPCOR has been and will continue to be the billing agent for customers aggregated in Alberta.

New York, Illinois and Indiana

In New York, Illinois and Indiana, the volume of gas delivered is based on the estimated consumption and storage requirements for each month. Therefore the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash flow from the New York, Illinois and Indiana operations is greatest during the third and fourth (winter) quarters, as normally, cash is received from the LDC in the same period as customer consumption.

Electricity

Ontario, Alberta, New York and Texas

Energy Savings does not bear the risk for variations in customer consumption in any of the markets in which it operates other than the commercial customers acquired in Texas and a few remaining customers acquired in Ontario. In Ontario and New York, Energy Savings provides customers with price protection for the majority of their electricity requirements. The customers experience either a small balancing charge or credit on each billing due to fluctuations in prices applicable to their volume requirements not covered by a fixed price. In Alberta, Energy Savings offers a load following product for which it has matched back to back load following supply and therefore does not have exposure to variances in customer consumption. As part of the integration of Just Energy Texas LP ("Just Energy") into Energy Savings, substantially all future offerings for Texas residential and small commercial customers will be a load balanced product and Energy Savings will not bear the risk for variations in customer consumption.

Cash flow from electricity operations is greatest during the summer and winter quarters (Q2 and Q4) as electricity consumption is typically highest during these periods.



Cash Available for Distribution and Distributions
For the three months ended September 30
(thousands of dollars except per unit amounts)

2007 2006
---- ----
Per Unit Per Unit
-------- --------
Reconciliation to statements of cash
flow
Cash inflow from operations $20,983 $4,379
Add:
Increase in non-cash working capital 7,768 18,577
Tax effect on distributions paid to
holders of Class A preference shares 939 800

Current income tax recovery 0 (4,688)
--------- ---------

Cash available for distribution $29,690 $19,068
--------- ---------
--------- ---------

Cash available for distribution

Gross margin per financial statements $43,607 $0.40 $31,305 $0.29
Adjustments required to reflect net
cash receipts from gas sales 14,057 12,940
-------- --------

Seasonally adjusted gross margin $57,664 $0.53 $44,245 $0.41
-------- --------

Less:
General and administrative (11,142) (10,999)
Capital tax expense (264) (180)
Bad debt expense (757) (2,441)
Income tax recovery 907 0
Other expense(1) (1,168) (868)
--------- ---------
(12,424) (14,488)
--------- ---------
Cash available for distribution
before marketing expenses 45,240 $0.42 29,757 $0.28

Marketing expenses to maintain
gross margin (7,651) (3,267)
--------- ---------
Cash available for distribution
after gross margin replacement 37,589 $0.35 26,490 $0.25
Marketing expenses to add new
gross margin (7,899) (7,422)
--------- ---------
Cash available for distribution $29,690 $0.28 $19,068 $0.18
--------- ---------
--------- ---------

Distributions
Unitholder distributions $29,447 $24,580

Class A preference share distributions 2,601 2,214
Unit appreciation rights distributions
and Deferred unit grants 243 97
--------- ---------

Total distributions $32,291 $0.30 $26,891 $0.25
--------- ---------
--------- ---------

Diluted average number of units
outstanding 107.8m 107.4m

(1)Other expense relates to interest paid on the credit facility as well as
other bank charges, net of interest income.



Cash Available for Distribution and Distributions
For the six months ended September 30
(thousands of dollars except per unit amounts)

2007 2006
---- ----
Per Unit Per Unit
-------- --------

Reconciliation to statements of
cash flow
Cash inflow from operations $63,580 $39,088
Add:
Increase in non-cash working capital (9,029) 7,311
Tax effect on distributions paid to
holders of Class A preference shares 1,829 1,640

Current income tax recovery 0 (7,482)
--------- ---------

Cash available for distribution $56,380 $40,557
--------- ---------
--------- ---------

Cash available for distribution

Gross margin per financial statements $95,416 $0.89 $72,465 $0.67
Adjustments required to reflect net
cash receipts from gas sales 17,557 19,893
--------- ---------

Seasonally adjusted gross margin $112,973 $1.05 $92,358 $0.86
--------- ---------

Less:
General and administrative (22,084) (21,490)
Capital tax expense (795) (360)
Bad debt expense (2,526) (3,718)
Income tax recovery 872 0
Other expense(1) (2,000) (1,084)
--------- ---------
(26,533) (26,652)
--------- ---------
Cash available for distribution
before marketing expenses 86,440 $0.80 65,706 $0.61

Marketing expenses to maintain
gross margin (18,019) (7,618)
--------- ---------
Cash available for distribution
after gross margin replacement 68,421 $0.63 58,088 $0.54
Marketing expenses to add new gross
margin (12,041) (17,531)
--------- ---------

Cash available for distribution $56,380 $0.52 $40,557 $0.38
--------- ---------

Distributions

Unitholder distributions $57,201 $47,712

Class A preference share distributions 5,064 4,539
Unit appreciation rights distributions
and Deferred unit grants 479 199
--------- ---------

Total distributions $62,744 $0.58 $52,450 $0.49
--------- ---------
--------- ---------

Diluted average number of units
outstanding 107.8m 107.4m

(1)Other expense relates to interest paid on the credit facility as well as
other bank charges, net of interest income.


Distributable cash

In the fourth quarter of fiscal 2007, management reviewed its disclosure of distributable cash with a focus on marketing expenses. The Fund previously matched each customer lost with the marketing cost with signing a new associated customer of the same type or a new renewal contract to recognize a constant customer base. In order to better reflect a constant state of operations, a decision was made to capture the costs of replacing the actual lost margin rather than the physical customer. Accordingly, a new measure was developed, cash available for distribution after gross margin replacement. All comparatives have been restated to reflect the new method.

In the first two quarters of 2008, management was able to utilize favourable market conditions to secure supply at costs that facilitated increased customer margins for contracts signed. Accordingly, average gross margin per customer was higher for customers signed in the first six months of fiscal 2008 to replace customers than that lost per customer through attrition and failure to renew. The marketing costs to maintain the customer base have been allocated as required to maintain gross margin at a steady state. This adjustment is not necessary for prior periods as the margin gained on a new customer signed was not materially different than the gross margin lost through attrition and failure to renew.

The table below highlights the gross margin on new customers for the second quarter ended September 30, 2007 versus the gross margin for the customers lost during the year:



Quarterly gross margin per customer(1) Q2 Annual target
F2008 F2008
---------------------
Customers added in the quarter
- Canada - gas $209 $175
- Canada - electricity $159 $150
- United States - gas $198 $160
- United States - electricity $156 $125
Customers lost in the quarter(2)
- Canada - gas $178
- Canada - electricity $105
- United States - gas $180
- United States - electricity $120

(1) Customer sales price less cost of matched supply and allowance for bad
debt and U.S. working capital. Annual amount is based on residential
standard annual consumption of 2,815 m3 (or 106 GJs) of natural gas and
10,000 kWh of electricity.
(2) Gross margin as calculated above for customers in place at
March 31, 2007 and includes balancing and low margin acquired
customers.


Cash available for distribution after gross margin replacement for the current quarter was $37.6 million ($0.35 per unit), an increase of 42% from $26.5 million ($0.25 per unit) in the prior year comparable quarter. The increase in distributable cash after gross margin replacement is due to a 3% increase in customers and higher gross margins resulting from recent customer additions. The increase was partially offset by planned spending on marketing to renew and replace expiring or lost customers. The number of customers up for renewal in the quarter was significantly higher than the previous year, particularly in Ontario electricity. Energy Savings spent $7.7 million in marketing expenses to maintain its current level of gross margin, which represents 49% of the total marketing expense for the quarter.

Cash available after marketing expenses amounted to $29.7 million ($0.28 per unit) for the second quarter of fiscal 2008, an increase of 56% from $19.1 million ($0.18 per unit) in the prior quarter. The increase is attributable to the increase in gross margin offset by higher marketing and interest expense. After deduction of the marketing expenses, the payout ratio for the current quarter was 109%, versus 141% in the prior comparable quarter. Management targets an annual payout ratio after all marketing expenses of less than 100% on a cumulative basis and believes that this quarter's payout ratio is consistent with this annual target.

Distributable cash after gross margin replacement for the six months ended September 30, 2007 was $68.4 million ($0.63 per unit), an increase of 18% from $58.1 million ($0.54 per unit) in the prior comparable period.

Distributable cash after marketing expenses was $56.4 million ($0.52 per unit) for the six months of fiscal 2008, an increase of 39% from $40.6 million ($0.38 per unit) for the same period in fiscal 2007.

In fiscal 2007, Energy Savings paid out 84% of its distributable cash to Unitholders. Excess distributable cash related to fiscal 2007 and the subsequent tax reorganization will be approved for distribution prior to December 31, 2007 to eliminate the Fund's exposure to income taxes. The result may be a payout ratio in excess of 100% for the 2008 fiscal year and may also include a special one-time distribution in cash and/or Units payable during calendar 2008. See the "Outlook" section for further information.



Standardized Distributable cash and Cash Available for Distribution
For the three and six months ended September 30
(thousands of dollars except per unit amounts)

Three months ended Six months ended
September 30 September 30
2007 2006 2007 2006
Reconciliation to statements of
cash flow
Cash inflow from operations $20,983 $4,379 $63,580 $39,088
Capital Expenditures (1) (3,778) (959) (4,300) (1,829)
-------------------------------------
Standardized Distributable Cash $17,205 $3,420 $59,280 $37,259
-------------------------------------

Adjustments to Standardized
Distributable Cash

Change in non cash working
capital (2) $7,768 $18,577 $(9,029) $7,311
Tax Effect on Payments to
Preferred A unitholders (3) 939 800 1,829 1,640
Tax Recovery (4) 0 (4,688) 0 (7,482)

Capital Expenditures (1) 3,778 959 4,300 1,829
-------------------------------------

Cash Available for Distribution $29,690 $19,068 $56,380 $40,557
-------------------------------------

Standardized Distributable Cash -
per unit basic 0.16 0.03 0.55 0.35

Standardized Distributable Cash -
per unit diluted 0.16 0.03 0.55 0.35

Payout Ratio based on Standardized
Distributable Cash 188% 786% 106% 141%

(1) Capital expenditures are funded out of the Credit Facility.
(2) Change in non cash working capital is excluded from the calculation of
Cash Available for Distribution as the Fund currently has a $150.0
million bank credit facility which is available for use to fund working
capital requirements. This eliminates the potential impact of timing
distortions relating to the respective items.
(3) Payments to the Preferred A holders are the equivalent to
distributions. The number of Preferred A units outstanding is included
in the denominator of any per unit calculation.
(4) The Fund includes tax recoveries expected within the fiscal year in the
Cash Available for Distribution calculation.


In accordance with the Canadian Institute of Chartered Accountants July 2007 interpretive release "Standardized Distributable Cash in Income Trusts and other Flow-Through Entities", the Fund has amended the distributable cash calculation to conform to the current guidance. In summary, for the purposes of the Fund, standardized distributable cash is defined as the periodic cash flows from operating activities as reported in the GAAP financial statements, including the effects of changes in non cash working capital less total capital expenditures as reported in the GAAP financial statements.

Financing Strategy

The Fund's $150.0 million credit facility should be sufficient to meet the Fund's short-term working capital and capital expenditure requirements. Working capital requirements can vary widely due to seasonal fluctuations and U.S. related growth. In the long-term the Fund may be required to access the equity or debt markets in order to fund significant acquisitions.

Productive Capacity

Energy Savings' business involves the sale of natural gas and electricity to residential and small commercial customers under long-term, irrevocable fixed price contracts. As such, the Fund's productive capacity is determined by the gross margin earned from the contract price and the underlying matched supply cost.

The productive capacity of the company is achieved through the retention of existing customers and the addition of new customers to replace those that have not been renewed. The productive capacity of the company is maintained through our Independent Contractors, Call Centre renewal efforts and various mail campaigns to achieve customer growth.

All marketing costs associated with the customer contracts are expensed immediately but fall into two categories. The first represents marketing expenses to maintain gross margin at preexisting levels and therefore maintain productive capacity. The second category is marketing expenditures to add new margin which therefore expands productive capacity.



Discussion of Distributed Cash
------------------------------
(in thousands of dollars)
-------------------------

For For
the three the six
months ended months ended Fiscal Fiscal
September, September, Year Year
30, 2007 30, 2007 2007 2006
--------- --------- ---- ----

Cash flow from
operations(1) (A) $20,983 $63,580 $98,354 $69,582

Net Income (B) $4,754 $30,672 $93,912 $51,563

Total Distributions (C) $32,291 $62,744 $108,652 $96,758

Excess (shortfall) of cash
flows from operating
activities over distributions
paid (A-C) $(11,308) $836 $(10,298) $(27,176)

Shortfall of net income
over distributions paid (B-C) $(27,537) $(32,072) $(14,740) $(45,195)

(1) Includes non-cash working capital balances


As can be seen in the chart above, the Fund has historically paid out annual distributions that were higher than both financial statement net income and operating cash flow. In the view of management, the non-GAAP measure, Distributable Cash, has been an appropriate measure of the Fund's ability to distribute funds, as the cost of carrying incremental working capital necessary for the growth of the business has been deducted in the distributable cash calculation. Further, investment in the addition of new customers intended to increase cash flow is expensed in the financial statements while the original customer base was capitalized.

Net income includes non-cash gains and losses associated with the changes in the fair value of some of Energy Savings' financial instruments. These instruments form part of the Fund's commodity match position and, as such, quarterly changes in value do not impact the distribution policy.

The timing differences created by the cost of carrying incremental working capital due to business seasonality and expansion are funded by the operating credit facility.



Financial Statement Analysis
Sales and gross margin - Per financial statements
For the three months ended September 30
(thousands of dollars)

2007 2006
---- ----

United United
Sales Canada States Total Canada States Total
-----

Gas $77,185 $17,698 $94,883 $79,629 $13,559 $93,188
Electricity 136,935 51,713 188,648 130,579 12,360 142,939
------------------------------------------------------------------------
$214,120 $69,411 $283,531 $210,208 $25,919 $236,127
------------------------------------------------------------------------
Increase 2% 168% 20%


United United
Gross Margin Canada States Total Canada States Total
------------

Gas $16,976 $1,463 $18,439 $11,734 $1,898 $13,632
Electricity 19,770 5,398 25,168 16,834 839 17,673
------------------------------------------------------------------------
$36,746 $6,861 $43,607 $28,568 $2,737 $31,305
------------------------------------------------------------------------
Increase 29% 151% 39%


For the six months ended September 30
(thousands of dollars)

2007 2006
---- ----

United United
Sales Canada States Total Canada States Total
-----

Gas $239,851 $45,808 $285,659 $221,610 $32,257 $253,867
Electricity 270,665 80,076 350,741 246,431 21,379 267,810
-------------------------------------------------------------------------
$510,516 $125,884 $636,400 $468,041 $53,636 $521,677
-------------------------------------------------------------------------
Increase 9% 135% 22%


United United
Gross Margin Canada States Total Canada States Total
------------

Gas $43,881 $5,407 $49,288 $36,241 $3,587 $39,828
Electricity 38,285 7,843 46,128 31,346 1,291 32,637
-------------------------------------------------------------------------
$82,166 $13,250 $95,416 $67,587 $4,878 $72,465
-------------------------------------------------------------------------
Increase 22% 172% 32%


Canada

Sales were $214.1 million and $510.5 million for the three and six months ended September 30, 2007, up 2% and 9%, respectively, from the prior comparative periods. Gross margins were $36.7 million for the second quarter, an increase of 29% from the second quarter of fiscal 2007. Total gross margins for the six months ended September 30, 2007 were $82.2 million, an increase of 22% from $67.6 million in the prior comparable period. The increase in sales and margins is attributable to an increase in average customer selling price and margin per customer. Refer to "Sales and gross margin - Seasonally adjusted" for further details.

United States

Sales and gross margins in the U.S. were $69.4 million and $6.9 million for the second quarter, an increase of 168% and 151%, respectively, from the prior comparable periods. For the six-month period, sales and gross margins amounted to $125.9 million and $13.3 million, respectively. The increase in sales and margins reflects a 62% growth in the customer base as well as the increase in average sales price and margin per customer over the prior year. For additional information, see "Sales and gross margin - Seasonally adjusted".



Seasonally Adjusted Analysis

Sales and gross margin - Seasonally adjusted(1)
For the three months ended September 30
(thousands of dollars)


2007 2006
---- ----

United United
Sales Canada States Total Canada States Total
-----

Gas $77,185 $17,698 $94,883 $79,629 $13,559 $93,188
Adjustments(1) 98,342 - 98,342 93,929 - 93,929
------------------------------------------------------------------------
$175,527 $17,698 $193,225 $173,558 $13,559 $187,117
Electricity 136,935 51,713 188,648 130,579 12,360 142,939
------------------------------------------------------------------------
$312,462 $69,411 $381,873 $304,137 $25,919 $330,056
------------------------------------------------------------------------
Increase 3% 168% 16%


United United
Gross Margin Canada States Total Canada States Total
------------

Gas $16,976 $1,463 $18,439 $11,734 $1,898 $13,632
Adjustments(1) 14,057 - 14,057 12,940 - 12,940
------------------------------------------------------------------------
$31,033 $1,463 $32,496 $24,674 $1,898 $26,572
Electricity 19,770 5,398 25,168 16,834 839 17,673
------------------------------------------------------------------------
$50,803 $6,861 $57,664 $41,508 $2,737 $44,245
------------------------------------------------------------------------
Increase 22% 151% 30%

(1) For Ontario, Manitoba and Quebec gas markets.



Gross Margin Analysis
For the three months ended September 30
(thousands of dollars)

2007 2006
---- ----

United United
Canada States Total Canada States Total
Gas
Customer margin $31,911 $1,962 $33,873 $27,840 $2,030 $29,870
Loss from
dispositions of
excess supply and
financial
reconciliations(1) (878) (499) (1,377) (3,166) (132) (3,298)
--------------------------------------------------------------------------
Gas margin $31,033 $1,463 $32,496 $24,674 $1,898 $26,572
--------------------------------------------------------------------------
Electricity
Customer margin $21,404 $5,434 $26,838 $17,773 $960 $18,733
Loss from
dispositions of
excess supply(2) (1,634) (36) (1,670) (939) (121) (1,060)
--------------------------------------------------------------------------
Electricity margin $19,770 $5,398 $25,168 $16,834 $839 $17,673
--------------------------------------------------------------------------
Total $50,803 $6,861 $57,664 $41,508 $2,737 $44,245
--------------------------------------------------------------------------
(1) Results from variances in customer demand and associated gas
reconciliations.
(2) Results from excess supply purchased in advance of customer usage or
fluctuations in customer usage attributable to acquired customers.



Seasonally Adjusted Analysis

Sales and gross margin - Seasonally adjusted(1)
For the six months ended September 30
(thousands of dollars)

2007 2006
---- ----

United United
Sales Canada States Total Canada States Total
-----

Gas $239,851 $45,808 $285,659 $221,610 $32,257 $253,867
Adjustments(1) 119,751 - 119,751 129,530 - 129,530
------------------------------------------------------------------------
$359,602 $45,808 $405,410 $351,140 $32,257 $383,397
Electricity 270,665 80,076 350,741 246,431 21,379 267,810
------------------------------------------------------------------------
$630,267 $125,884 $756,151 $597,571 $53,636 $651,207
------------------------------------------------------------------------
Increase 5% 135% 16%


United United
Gross Margin Canada States Total Canada States Total
------------

Gas $43,881 $5,407 $49,288 $36,241 $3,587 $39,828
Adjustments(1) 17,557 - 17,557 19,893 - 19,893
------------------------------------------------------------------------
$61,438 $5,407 $66,845 $56,134 $3,587 $59,721
Electricity 38,285 7,843 46,128 31,346 1,291 32,637
------------------------------------------------------------------------
$99,723 $13,250 $112,973 $87,480 $4,878 $92,358
------------------------------------------------------------------------
Increase 14% 172% 22%

(1) For Ontario, Manitoba and Quebec gas markets.



Gross Margin Analysis
For the six months ended September 30
(thousands of dollars)

2007 2006
---- ----

United United
Canada States Total Canada States Total
Gas
Customer margin $66,577 $6,310 $72,887 $57,540 $4,082 $61,622
Loss from
dispositions of
excess supply and
financial
reconciliations(1) (5,139) (903) (6,042) (1,406) (495) (1,901)
-------------------------------------------------------------------------
Gas margin $61,438 $5,407 $66,845 $56,134 $3,587 $59,721
-------------------------------------------------------------------------
Electricity
Customer margin $40,587 $7,920 $48,507 $32,902 $1,614 $34,516
Loss from
dispositions of
excess supply(2) (2,302) (77) (2,379) (1,556) (323) (1,879)
-------------------------------------------------------------------------
Electricity margin $38,285 $7,843 $46,128 $31,346 $1,291 $32,637
-------------------------------------------------------------------------
Total $99,723 $13,250 $112,973 $87,480 $4,878 $92,358
-------------------------------------------------------------------------

(1) Results from variances in customer demand and associated gas
reconciliations.

(2) Results from excess supply purchased in advance of customer usage or
fluctuations in customer usage attributable to acquired customers.


On a seasonally adjusted basis, total sales and gross margin for the three months ended September 30, 2007 were $381.9 million and $57.7 million, an increase of 16% and 30%, respectively, over the second quarter of fiscal 2007.

Total sales and gross margin for the six months ended September 30, 2007 were $756.2 million and $113.0 million for the quarter, up 16% and 22%, respectively, over the prior comparable period. The increase in sales for both gas and electricity is attributable to a 3% increase in the customer base and the higher average customer gross margin and sales price.

Canada

Sales were $312.5 million for the quarter, up 3% from $304.1 million for the same comparable quarter in fiscal 2007. Margins were $50.8 million in the second quarter of fiscal 2008, an increase of 22% from the same quarter last year. For the six months ended September 30, 2007, sales and margins were $630.3 million and $99.7 million, an increase of 5% and 14%, respectively.

Gas

Gas sales and gross margins increased by 1% and 26% from the second quarter of fiscal 2007 to $175.5 million and $31.0 million, respectively. The increase in customer gross margins was attributable to higher average customer margin during the quarter.

Included in the third party losses are unfavourable financial reconciliations with the LDCs totaling $3.8 million for the quarter due to warmer winter months and lower customer consumption. These financial reconciliations typically occur six months after the last customer consumption report and therefore relate to the warm 2007 winter. This loss is offset by the sale of inventory gas from the financial reconciliations from the first quarter, resulting in a net balancing loss of $0.9 million. The gas that becomes available from the financial reconciliation with the LDCs is rolled over to active supply pools within six months of reconciliation. Thus, there is a timing difference between the negative financial reconciliation and the customer consumption or third party sale.

For the six months ended September 30, 2007, sales and margins were $359.6 million and $61.4 million, an increase of 2% and 9%, respectively, over the prior comparable period.

After allowance for balancing and inclusive of acquisitions, average gross margin per RCE ("GM/RCE") for the six months ended September 30, 2007 amounted to $182/RCE, compared to $163/RCE from the prior year. The GM/RCE value for Alberta includes a full allowance for the bad debt expense.

Electricity

Electricity sales were $136.9 million for the quarter, an increase of 5% from the second quarter of fiscal 2007. The increase in sales is attributable to higher average customer selling price over the prior year. Gross margin increased by 17% from the prior year to $19.8 million. The increase in gross margin was higher than the increase in sales due to the addition of new customers at margins above the annual target margin. Also, the number of acquired load following customers that produce low margins has decreased from the prior year.

In March 2007, Energy Savings announced a long term electricity supply alliance with Bruce Power L.P. ("BPLP") in which BPLP agreed to supply a significant portion of the electricity for Energy Savings' new price protected customer contracts in Ontario.

Most of the acquired low margin, load following customer contracts from First Source Energy Corp. ("First Source") and EPCOR in Ontario expired or were converted to Energy Savings contracts in the quarter. A load following contract requires Energy Savings to bear the risk and benefits of fluctuation in consumption from the standard customer usage profile. As at September 30, 2007, the load following electricity customers account for approximately 3% of the total electricity customer base. The load following customer contracts will expire by the end of the fiscal year.

During the quarter, excess volume due to lower customer consumption and lower than expected customer additions resulted in supply being sold in the spot market at unfavourable prices. Balancing losses for the quarter amounted to $1.6 million, an increase from a loss of $0.9 million in the prior comparable quarter.

For the six months ended September 30, 2007, sales and margins were $270.7 million and $38.3 million, an increase of 10% and 22%, respectively, over the prior year comparable period.

Average gross margin per RCE after all balancing and including acquisitions for the quarter ended September 30, 2007 in Canada amounted to $116/RCE, up 25% compared to $93/RCE from the prior comparable quarter. The GM/RCE values for Alberta include a full allowance for the bad debt expense.

United States

Sales for the second quarter of fiscal 2008 were $69.4 million, an increase of 168% from $25.9 million in the prior comparable quarter. Gross margins were $6.9 million, up 151% from $2.7 million from the same quarter last year. The increase in sales and margin relates to a 62% increase in the U.S. customer base as well as an increase in the average customer contract margin.

The significant decline in the United States dollar versus the Canadian dollar had limited impact on the overall Fund's operating results during the quarter. Sales and margins were adversely impacted but operating costs were lower. The Fund continues to reinvest dollars into the United States due to continued growth.

Gas

Gas sales in the U.S. increased by 31% from $13.6 million to $17.7 million for the quarter ended September 30, 2007. Gas margins decreased 23% for the second quarter of fiscal 2008 to $1.5 million from $1.9 million. The lower gross margins were impacted by the exchange rate and higher third party losses during the quarter.

Despite the increase in customer base, customer margin remained consistent with the prior comparable quarter as a result of lower customer consumption due to the warmer than forecasted weather. Excess volumes were sold during the quarter at unfavourable prices in the spot market resulting in a balancing loss of $0.5 million versus $0.1 million in the prior comparable quarter.

Sales and gross margins for the six months ended September 30, 2007 totaled $45.8 million and $5.4 million, respectively.

Average gross margin after all balancing costs was $155/RCE, consistent with the prior comparable quarter amounting to $156/RCE. The GM/RCE value for Illinois includes a full allowance for bad debt expense.

Electricity

Electricity sales and margin for the quarter were $51.7 million and $5.4 million, respectively. In the prior comparable period of fiscal 2007, sales and margin amounted to $12.4 million and $0.8 million, respectively. The increase in sales for the current year is related to the increase in the customer base. The acquisition of Just Energy completed on May 24, 2007 has positively impacted both sales and margin for the quarter.

Gross margin from customer consumption was $5.4 million for the second quarter, an increase from $1.0 million in the prior comparable quarter. This increase is attributable to the 119% expansion in customer base quarter over quarter as well as higher average customer margin per customer for contracts signed during the current period. The sale of excess supply was negligible for the quarter.

For the six months ended September 30, 2007 the sales and gross margins were $80.1 million and $7.8 million, respectively.

Customer margins for electricity were $101/RCE including acquisitions, compared to $84/RCE from the prior year comparable period. The GM/RCE value for Texas includes a full allowance for the bad debt expense.



Summary of quarterly results
(thousands of dollars except per unit amounts)

F2008 F2007
Q2 Q1 Q4 Q3
------ ----- ----- -----

Sales per financial statements $283,531 $352,869 $588,410 $422,230
Net income 4,754 25,918 70,052 14,112
Net income per unit - Basic $0.05 $0.24 $0.66 $0.13
Net income per unit - Diluted 0.04 0.24 0.66 0.13
Amount available for distribution
After gross margin replacement $37,589 $30,832 $54,928 $39,772(1)
After marketing expenses 29,690 26,690 52,927 36,500
Payout ratio
After gross margin replacement 86% 99% 52% 69%(1)
After marketing expense 109% 114% 54% 75%

F2007 F2006
Q2 Q1 Q4 Q3
------ ----- ----- -----

Sales per financial statements $236,127 $285,550 $476,699 $321,161
Net income (loss) (1,257) 11,005 17,825 13,217
Net income (loss) per unit
- Basic $(0.01) $0.10 $0.17 $0.12
Net income (loss) per unit
- Diluted (0.01) 0.10 0.17 0.12
Amount available for distribution
After gross margin/customer
replacement $26,490(1) $31,598(1) $41,136 $35,245
After marketing expenses 19,068 21,489 32,293 26,582
Payout ratio
After gross margin/customer
replacement 102%(1) 81%(1) 61% 69%
After marketing expense 141% 119% 77% 92%

(1) Allocation of marketing expenses has been restated to reflect the cost
of maintaining customer gross margin versus historical method of customer
replacement.


The Fund's results reflect greater seasonality as consumption is greatest during the third and fourth quarters (winter quarters). While year over year quarterly comparisons are relevant, sequential quarters will vary materially. The main impact of this will be higher distributable cash with a lower payout ratio in the third and fourth quarters and lower distributable cash with a higher payout ratio in the first and second quarters.

Analysis of the second quarter

Sales are typically lower in the first and second quarters because gas consumption is highest during the winter months and approximately 58% of the current customer base is gas customers. The 20% increase in sales compared to the prior comparable quarter is primarily attributable to the 3% increase in the customer base year over year as well as the increase in the average customer sales price. Net income increased from a net loss of $1.3 million to income of $4.8 million as a result of the higher gross margin per customer.

The cash available for distribution after customer gross margin replacement was $37.6 million, an increase of 42% from $26.5 million in the prior comparable quarter. The increase in gross margin per customer quarter over quarter was offset by higher marketing expenses to replace a larger number of customers up for renewal.

Cash available for distribution after marketing expenses was $29.7 million, an increase of 56% from $19.1 million in the prior comparable quarter.

Customer aggregation

Long-term customers



Failed
Beginning Additions Attrition(5) To Renew(6) Ending
------------------------------------------------------------
Canada
Gas(1) 803,000 10,000 (19,000) (4,000) 790,000
Electricity(2) 646,000 32,000 (19,000) (24,000) 635,000
---------------------------------------------------------------------------
Total Canada 1,449,000 42,000 (38,000) (28,000) 1,425,000
---------------------------------------------------------------------------
United States
Gas(3) 173,000 34,000 (9,000) - 198,000
Electricity(4) 56,000 18,000 (4,000) - 70,000
---------------------------------------------------------------------------
Total - U.S. 229,000 52,000 (13,000) - 268,000
---------------------------------------------------------------------------

Combined 1,678,000 94,000 (51,000) (28,000) 1,693,000

(1) Includes Ontario, Quebec, British Columbia, Manitoba and Alberta.

(2) Includes Ontario and Alberta.

(3) Includes Illinois, New York and Indiana.

(4) Includes New York and Texas.

(5) Attrition - Customers whose contracts were terminated primarily due to
relocation or death, or canceled by Energy Savings due to delinquent
accounts.

(6) Failed to Renew - Customers who did not renew expiring contracts at
the end of their term.


Customers not expected to renew

In addition to the long-term customers, Energy Savings has 5,000 additional electricity customers acquired through various purchases of customer contracts, which are not expected to renew at the end of their term.

Attrition

Canada

Attrition in Canada was 9% on an annualized basis, slightly below management's target of 10%. Customer moves have been fewer than anticipated.

United States

Attrition in the U.S. was 25%, on an annualized basis, a decrease from the 33% rate noted at March 31, 2007 and the 31% level noted in the first quarter of 2008, but currently above management's annual target of 20%. Management anticipates that its continued efforts will bring the attrition levels back to the targeted level of a 20% run rate by the end of fiscal 2008.

Failed to renew

The Energy Savings renewal process is a multi-faceted program and aims to maximize the number of customers who choose to sign a new contract prior to the end of their existing contract term. Efforts begin up to 15 months in advance allowing a customer to re-contract for an additional five years. Presently, the only contracts that have completed their term and therefore are eligible for renewal are the Ontario gas and electricity customers and an immaterial number of Manitoba customers.

In the Ontario gas market, customers who do not positively elect to renew or terminate their contract receive a one-year fixed price for the ensuing year. During the period, renewals on an annualized basis were 80%. This renewal rate is a blend of one-year and five-year contracts and 37% of these customers renewed for a one-year term. Management continues to anticipate that renewals for gas customers in fiscal 2008 will be 80% or above.

In the Ontario electricity market, there is no opportunity to renew a residential or small volume customer for a one-year term should the customer fail to positively renew or terminate their contract. As a result of the current market conditions, management targets a renewal rate for electricity customers of 60% for fiscal 2008. In the first half of fiscal 2008, 51% of all expiring electricity customer volumes were successfully renewed. Electricity prices under the regulated rate declined during the quarter while the cost of long term supply increased. The growing spread between the Energy Savings five-year fixed price and the regulated floating rate price adversely impacted electricity renewals during the period.

Gross customer additions

Energy Savings' published targets for fiscal 2008 were gross customer additions of 415,000 and net customer additions of 125,000. There were a large number of Ontario electricity customers up for renewal in the first and second quarters representing the five year anniversary of the first marketing campaign following deregulation. As anticipated, the renewal loss on these customers reduced net additions for the quarter. With fewer customer renewals in each of the following two quarters, management anticipates an increase in the net customer additions in the remaining six months. Energy Savings remains disciplined in the management of the gross margin targets, which has resulted in higher margins than targeted across all markets. These higher margins per customer have, in the past, offset any shortfall in net additions.



F2008
Gross Customer Q1 Q2 YTD Published
Additions F2008 F2008 F2008 Target % Realized
----------------------------------------------------------------------

Canada
Gas(1) 19,000 10,000 29,000 100,000 29%
Electricity(2) 21,000 32,000 53,000 115,000 46%
----------------------------------------------------------------------
Total Canada 40,000 42,000 82,000 215,000 38%
----------------------------------------------------------------------

United States
Gas(3) 35,000 34,000 69,000 110,000 63%
Electricity(4) 20,000 18,000 38,000 90,000 42%
----------------------------------------------------------------------
Total United States 55,000 52,000 107,000 200,000 54%
----------------------------------------------------------------------

Gross Additions 95,000 94,000 189,000 415,000 46%
----------------------------------------------------------------------
----------------------------------------------------------------------

Net Additions 19,000 15,000 34,000 125,000 27%
----------------------------------------------------------------------
----------------------------------------------------------------------

(1) Includes Ontario, Quebec, British Columbia, Manitoba and Alberta.

(2) Includes Ontario and Alberta.

(3) Includes Illinois, New York and Indiana.

(4) Includes New York and Texas.


Canada

Gas

Gross gas additions in Canada for the quarter were 10,000, bringing the total additions for the year to 29,000, which represents 29% of the annual target of 100,000. Additions for the quarter were lower than expected as a result of the increased competition in the B.C. residential market as well as tight markets for independent sales contractors. Although Canadian gas additions continue to be behind target, it is anticipated that the marketing efforts in other markets will compensate for this shortfall.

Customers lost in Canadian gas markets due to attrition and failure to renew exceeded customer additions by 13,000 RCEs. Management is continuing its efforts to increase sales channels as well as to maximize the number of customer renewals.

The Canadian gas customers added through marketing efforts during the quarter were matched with supply to generate margins of $209/RCE over the life of the contract, 19% higher than target.

Electricity

Additions in the Canadian electricity market were 32,000 for the quarter, bringing total additions to 53,000 year-to-date, representing 46% of the published annual target of 115,000. In addition to the new customers, significant effort was applied to renewing our existing book of Ontario customers. A large number of customers were up for renewal in the current quarter which resulted in higher customer loss. Management believes that the additions are slightly behind target as a result of current market pricing, increased competition in the Ontario market and a very tight labour market for new sales contractors.

The electricity customers signed during the quarter were matched with supply to generate margins of $159/RCE over the life of the contract, 6% higher than target.

United States

Gas

Additions in the U.S. gas market for the second quarter of fiscal 2008 were 34,000, bringing total additions year-to-date to 69,000, representing 63% of the published annual target of 110,000. Illinois and New York continued to produce strong customer additions during the quarter due to the successful rebuilding of the respective sales forces.

The U.S. gas customers signed during the quarter were matched with supply to generate margins of $198/RCE over the life of the contract, 16% higher than target.

Electricity

Electricity additions in New York and Texas were 18,000 for the quarter, bringing the total additions to 38,000, representing 42% of the published annual target of 90,000. The New York market benefited from continued growth in the sales team and a reduction in customer losses due to switching. Management anticipates that additions in the second half of the fiscal year will increase as marketing efforts in Texas continue to ramp up.

The U.S. electricity customers signed during the quarter were matched with supply to generate margins of $156/RCE over the life of the contract, 25% higher than target.

General and administrative expenses

General and administrative costs were $11.1 million for the three months ended September 30, 2007, representing a slight increase from $11.0 million in the second quarter of fiscal 2007. The increase in general and administrative costs over the comparable quarter in the prior year was primarily driven by the increase in the number of employees and systems necessary to support the Fund's continued geographical customer growth. Administration costs grew more slowly than sales and margins due to past investments which are now providing efficiencies and a scalable platform for future growth.

Expenditures for general and administrative costs for the six months ended September 30, 2007 were $22.1 million, an increase of 3% from $21.5 million in the prior comparable period as a result of the additional costs noted above.

Unit based compensation

Compensation in the form of units (non-cash) granted by the Fund to the directors, officers, full-time employees and service providers of its subsidiaries and affiliates pursuant to the 2001 unit option plan, the 2004 unit appreciation rights plan and the directors' deferred compensation plan amounted to $1.4 million (2006 - $0.9 million) and $2.6 million (2006 - $1.7 million) for the three and six months ended September 30 2007. The increased expense in the first six months of 2008 was a result of an increase in the number of fully paid unit appreciation rights awarded to employees in fiscal 2007 and increased costs in the form of additional fully paid unit appreciation rights related to the executive long-term incentive program.

Marketing expenses

Marketing expenses, which consist of commissions paid to independent sales contractors for signing new customers as well as corporate overhead, were $15.6 million, an increase from $10.7 million in the second quarter of fiscal 2007. For the six months ended September 30, 2007, marketing expenses were $30.1 million, an increase from $25.1 million for the comparable period in fiscal 2006. Marketing expenses increased as a result of the higher number of customer contracts up for re-contract and the associated commission, marketing and customer service expense related to the successful renewals. In addition, overhead costs associated with opening 4 additional offices (B.C. residential and Texas) resulted in increased costs in advance of significant customer additions being generated by these offices. Also, increased aggregation costs noted below, which were reset to reflect market conditions at the end of fiscal 2007 have contributed to the increased expense.

The increase in target aggregation costs was as follows:



Fiscal 2008 Fiscal 2007

Canada
Gas $170/RCE $160/RCE
Electricity $120/RCE $110/RCE

United States
Gas $120/RCE $95/RCE
Electricity $120/RCE $100/RCE


Actual aggregation costs in Canada to date for fiscal 2008 were $198/RCE and $121/RCE for gas and electricity customers, respectively. The aggregation costs for gas customers were above target as a result of lower than expected additions for the quarter and therefore, higher corporate, marketing and customer service costs were allocated to each RCE. Approximately 30% of the total marketing expense relates to the costs associated with corporate, marketing and customer service overhead. In the U.S., aggregation costs year-to-date were $150/RCE and $85/RCE for gas and electricity customers, respectively. The U.S. gas aggregation costs are higher than target due to the allocation of the corporate, marketing and customer service overhead expenses. Management expects to meet the targeted aggregation costs for Canadian and U.S. gas markets on an annual basis.

Although the costs associated with signing a customer are recognized once the customer has been approved by the LDC, the payout of commissions is only 60% upon signing by the customer and approval by the LDC, another 30% is paid approximately 60 days after the customer begins to flow and the remaining 10% paid one year after flow. If a customer is lost within 60 days from the start of flow, the initial commission paid is deducted from future commissions that may be earned by the independent sales contractor.

Bad debt expense

In Illinois, Alberta and Texas, Energy Savings assumes the credit risk associated with the collection of its customers' accounts. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above noted markets.

Bad debt expense for the three and six months ended September 30, 2007 was $0.8 million (2006 - $2.4 million) and $2.5 million (2006 - $3.7 million), representing approximately 1.7% of $148.4 million in revenues for the six months ended September 30, 2007. Effective credit and collection processes implemented in the past few quarters have reduced the bad debt expense. In addition, collections from the prior year's winter billings were higher than anticipated which resulted in a reduction in the associated reserve.

Management integrates its default rate for bad debts within its margin targets and continuously reviews and monitors the credit approval process to mitigate customer delinquency. Management expects that bad debt expense will be approximately 2.0% to 3.0% of annual revenue earned in Alberta, Illinois and Texas during fiscal 2008.

For Energy Savings' other markets, the LDCs provide collection services and assume the risk of any bad debt owing from Energy Savings' customers for a fee.

Bank indebtedness

As at September 30, 2007, Energy Savings had utilized $89.2 million (2006 - $39.6 million) of its operating line for working capital needs and $7.6 million (2006 - $41.9 million) in letters of credit were issued, primarily as security for the utilities. Under the terms of the operating credit facility, Energy Savings is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees of 150 basis points, prime rate advances at Canadian and U.S. prime plus 0.5% and letters of credit at 1.5% . On October 26, 2007, Energy Savings renewed the credit facility for a period of three years to October 29, 2010.

Total interest expense for the three and six months ending September 30, 2007 amounted to $1.6 million (2006 - $0.5 million) and $2.6 million (2006 - $1.0 million), respectively. The increase in interest expense is a result of increased utilization of the operating line. Energy Savings is required to meet a number of financial covenants under the credit facility agreement and as at September 30, 2007, all of these covenants have been met.

Foreign exchange

Energy Savings has an exposure to U.S. dollar exchange rates as a result of its U.S. operations and any changes in the applicable exchange rate may result in a decrease or increase in Other Comprehensive Income (Loss) for fiscal 2008. In fiscal 2007, any change was reported in the Statement of Operations. For the quarter, the foreign exchange gain of $1.2 million was reported in Other Comprehensive Income (Loss) versus a loss of $0.02 million reported in the Statement of Operations for the prior comparable quarter of fiscal 2007. For the six months ended September 30, 2007, the foreign exchange loss of $0.4 million was reported in Other Comprehensive Income (Loss) compared with a loss of the same amount reported in the Statement of Operations for the first six months of fiscal 2007. The operations of the Fund's U.S. based subsidiaries became self-sustaining effective April 1, 2007. See discussion under "Adoption of new accounting policies" for further details.

Energy Savings remains adequately hedged for any exposure to fluctuations in cross border cash flow. In fiscal 2008 to date, all monies earned in the U.S. have been redeployed in the U.S. to fund continued growth.

Class A preference share distributions

Each of the holders of the Ontario Energy Savings Corp. ("OESC") Class A Preference shares (which are exchangeable into units on a 1:1 basis) is entitled to receive, on a quarterly basis, a payment equal to the amount paid or payable to a Unitholder on an equal number of units. The total amount paid for the three and six months ending September 30, 2007 amounted to $2.6 million (2006 - $2.2 million) and $5.1 million (2006 - $4.5 million), respectively. These payments are reflected in the Statement of Unitholders' Equity of the Fund's consolidated financial statements, net of tax.

Provision for (Recovery of) income tax



Income Tax Breakdown For the three For the six
(thousands of dollars) months ended months ended
September 30, September 30,
2007 2006 2007 2006
--------------------------------------

Income tax recovery $(907) $(4,688) $(872) $(7,482)
Amount credited to Unitholders'
equity 939 800 1,829 1,640
--------------------------------------
Current income tax provision
(recovery) 32 (3,888) 957 (5,842)
Future tax provision (recovery) 62 (652) (7,296) (1,205)
--------------------------------------

Provision for (Recovery of)
income tax 94 $(4,540) $(6,339) $(7,047)
--------------------------------------
--------------------------------------


For the three and six month periods ended September 30, 2007, there was an income tax recovery of $0.9 million, a decrease from $4.7 million and $7.5 million, respectively, in the prior comparative periods. The decrease is mainly attributable to the corporate reorganization noted below.

Included in the income tax provision is an amount relating to the tax portion of the distributions paid to the Class A preference shareholders of OESC. In accordance with EIC 151, "Exchangeable Securities Issued by Subsidiaries of Income Trusts", all Class A preference shares are included as part of Unitholders' equity and the distributions paid to the shareholders are included as distributions on the Statement of Unitholders' equity, net of tax. For the three and six months ended September 30, 2007, the tax amount of these distributions amounted to $0.9 million and $1.8 million respectively, (2006 - $0.8 million and $1.6 million respectively) based on a tax rate of 36%.

On March 30, 2007, Energy Savings received a favourable advance income tax ruling from the Canada Revenue Agency which enabled it to complete on April 30, 2007 an internal corporate reorganization of the Fund and certain of its affiliates. The reorganization was approved at the Fund's June 29, 2005 Annual and Special Meeting of Unitholders. The effect of the reorganization is that post-April 30, 2007 the Fund now is organized in Canada as a trust on partnership rather than a trust on corporate structure so as to maximize funds available to grow the Fund's customer base and to maximize distributions to Unitholders. The reorganization predates and is unaffected by the proposed imposition of a tax on trust distributions announced by the federal government on October 31, 2006.

The future tax recovery of $7.3 million for the six months ended September 30, 2007 is primarily attributable to the corporate reorganization as outlined above. As a result of the conversion to a trust on partnership structure, Energy Savings has eliminated its exposure to Canadian corporate income taxes. The future income tax liability was substantially reduced in the prior quarter, as the reorganization became effective May 1, 2007.

The Fund is a Specified Investment Flow-through Entity as defined in the SIFT Legislation. Commencing with its taxation year ending December 31, 2011, the Fund will be subject to taxes on distributions of certain income earned from investments in its subsidiaries. The Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amounts and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that a portion of its aggregate temporary differences and those of its flow-through subsidiaries will reverse in or after 2011 and as a consequence it has booked a future tax asset of $13,829 during the current six-month period, of which substantially all is related to temporary differences with respect to items included in Accumulated Other Comprehensive Income items such as derivative instruments and hedges. The Fund also anticipates possible material changes in such future tax amounts in future quarters due to the volatile nature of such temporary differences. The Fund expects that its distributions will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on the remaining portion of temporary differences which are expected to reverse prior to 2011. The SIFT Legislation does not affect the current and future tax amounts of the Fund's corporate subsidiaries.

Liquidity and Capital Resources



Summary of Cash Flows For the three For the six
(thousands of dollars) months ended months ended
September 30, September 30,
2007 2006 2007 2006
----------------------------------------

Operating activities $20,983 $4,379 $63,580 $39,088
Investing activities (3,778) (959) (37,700) (1,829)
Financing activities, excluding
distributions 21,145 20,163 53,725 15,149
Gain (loss) on foreign exchange 3,124 18 999 (309)
----------------------------------------
Increase in cash before
distributions 41,474 23,601 80,604 52,099
Distributions (cash payments) (30,710) (25,840) (59,760) (50,204)
----------------------------------------
Increase in cash 10,764 (2,239) 20,844 1,895
Cash - beginning of period 26,866 15,797 16,786 11,663
----------------------------------------
Cash - end of period $37,630 $13,558 $37,630 $13,558
----------------------------------------
----------------------------------------


Operating activities

Cash flow from operating activities for the three and six months ended September 30, 2007 was $21.0 million and $63.6 million, an increase from $4.4 million and $39.1 million, respectively, in the prior comparable periods. The increase is primarily attributable to the working capital acquired from Just Energy.

Investing activities

The Fund purchased capital assets totaling $3.8 million during the quarter, an increase from $1.0 million in the prior comparable quarter. Capital assets purchases amounted to $4.3 million for the six months ended September 30, 2007, compared with $1.8 million in the prior comparable period. The purchases in both years were primarily for information technology systems primarily associated with Customer Service operations supporting the Fund's expanding customer base within the various geographical segments

Energy Savings completed the acquisition of Just Energy, including all of its electricity contracts in the first quarter of fiscal 2008 for a total, net of cash, of $33.4 million, approximately $18.0 million of which involved the issuance of units of the Fund on October 9, 2007.

Financing activities

Financing activities excluding distributions relate primarily to the drawdown or repayment of the operating line for working capital requirements or acquisitions. During the three months ended September 30, 2007, Energy Savings had drawn a total of $17.3 million against the credit facility versus $19.5 million in the second quarter of 2006. Credit facility drawdowns year-to-date have amounted to $50.6 million for a total bank indebtedness of $89.2 million as at September 30, 2007.

As Energy Savings continues to expand in the United States markets and Alberta, the need to fund working capital and security requirements will increase driven primarily by the number of customers aggregated and to a lesser extent by the number of new markets. Based on the new markets in which Energy Savings currently operates and those management expects to enter, funding requirements will be supported through the $150.0 million credit facility.

The Fund's liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. Approximately 60% of an independent sales contractor's commission payment is made following reaffirmation or verbal verification of the customer contract with the remaining 40% being paid after the energy commodity begins flowing to the customer.

The elapsed period between the times when a customer is signed to when the first payment is received from the customer varies with each market. The time delays per market are approximately two to six months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Energy Savings. In Alberta and Texas, Energy Savings receives payment directly from the customer.

Distributions (cash payments)

During the quarter, the Fund made distributions to its Unitholders in the amount of $30.7 million, compared to $25.8 million in the prior comparable quarter, an increase of 19%. For the six months ended September 30, 2007 Energy Savings distributed $59.8 million, an increase of 19% from the prior comparable period. Energy Savings will continue to utilize its cash resources for expansion into new markets including growth in its customer base as well as distributions to its Unitholders.

At the end of the quarter, the annual rate for distributions per unit was $1.21.

The Fund intends to make distributions to its Unitholders, based upon cash receipts of the Fund, excluding proceeds from the issuance of additional Fund units, adjusted for costs and expenses of the Fund. The Fund's intention is for Unitholders of record on the 15th day of each month to receive distributions at the end of the month.

Balance Sheet as at September 30, 2007 compared to March 31, 2007

Cash increased from $16.8 million as at March 31, 2007 to $37.6 million. The operating line of credit also increased from $38.6 million to $89.2 million as a result of the acquisition of Just Energy, normal injection of gas into storage and various other working capital requirements. Working capital requirements in the U.S. and Alberta result from the timing difference between customer consumption and cash receipts. For electricity, working capital is required to fund the lag between settlements with the supplier and settlement with the LDC.

Restricted cash has increased to $4.2 million from $2.6 million as a result of increased Ontario Power Generation rebates held on account for our customers and offset by the related customer rebates payable.

The decrease in accounts receivable from $176.5 million to $139.0 million is primarily attributable to the decrease in margin associated with the period of lower gas consumption in the second quarter in comparison with the fourth quarter.

Gas in storage has increased from $5.9 million to $33.1 million for the first six months of fiscal 2008 as a result of lower customer consumption in the spring and summer than that experienced in the winter months. The increased balance reflects injections into storage for the expanding Illinois and Indiana customer base, which occur from April to September.

At the end of the quarter, Energy Savings had delivered more gas to the LDCs in Ontario and Quebec than customers had consumed. Since Energy Savings is paid for this gas when delivered yet recognizes revenue when the gas is consumed by the customer, the result on the balance sheet is the deferred revenue amount of $81.2 million and gas delivered in excess of consumption of $69.6 million. At March 31, 2007, customers had consumed more than had been delivered to the LDCs, thereby resulting in unbilled revenues amounting to $39.2 million and accrued gas accounts payable of $33.1 million.

The Ontario gas contracts acquired by Energy Savings were fully amortized as at March 31, 2007. The acquisition of Just Energy during the first quarter of fiscal 2008 included the purchase of electricity contracts valued at $8.2 million which will be amortized over the average remaining life of the contracts estimated to be 14 months.

As of April 1, 2007, Energy Savings was required to record other assets and liabilities representing the estimated fair value on a mark to market basis of all financial instruments. Where the financial instruments qualify for hedge accounting, any changes to the fair value are calculated and the effective portion of the change is recorded in Other Comprehensive Income (Loss). All other changes in fair value are recorded in other income (expense). Hedge accounting has been applied to the Fund's fixed-for-floating swaps and forward contracts but certain other financial instruments, such as options, do not qualify for this treatment. The settlements of all these contracts are recognized as a component of cost of sales when settled. As at March 31, 2007, only certain of Energy Savings financial instruments were required to be fair valued and recorded in the financial statements.

Contractual Obligations

In the normal course of business, the Fund is obligated to make future payments for contracts and other commitments that are known and non-cancelable.



Payments due by period Total Less than 1 - 3 4 - 5 After 5
(thousands of dollars) ----- year years years years
------ ----- ----- -------

Property and equipment
lease agreements $29,817 $2,659 $10,208 $7,515 $9,435
EPCOR billing, collections
and supply commitments 19,912 4,595 15,317 - -

Gas and electricity
supply purchase
commitments 3,803,508 727,711 2,052,540 936,476 86,781
----------------------------------------------------
$3,853,237 $734,965 $2,078,065 $943,991 $96,216
----------------------------------------------------
----------------------------------------------------


Other obligations

The Fund is also subject to certain contingent obligations that become payable only if certain events or rulings were to occur. The inherent uncertainty surrounding the timing and financial impact of these events or rulings prevents any meaningful measurement, which is necessary to assess any material impact on future liquidity. Such obligations include potential judgments, settlements, fines and other penalties resulting from lawsuits, claims or proceedings. In the opinion of management, the Fund has no material pending lawsuits, claims or proceedings that have not been either included in its accrued liabilities or in the financial statements.

Transactions with Related Parties

The Fund does not have any transactions with any individuals or companies that are not considered independent to the Fund or any of its subsidiaries and /or affiliates.

Critical Accounting Estimates

The consolidated financial statements of the Fund have been prepared in accordance with Canadian GAAP. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, marketing and general and administrative expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

The following assessment of critical accounting estimates is not meant to be exhaustive. The Fund might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

Unbilled revenues/Accrued gas accounts payable

Unbilled revenues result when customers consume more gas than has been delivered by Energy Savings to the LDCs. These estimates are stated at net realizable value. Accrued gas accounts payable represents Energy Savings' obligation to the LDC with respect to gas consumed by customers in excess of that delivered. This obligation is also valued at net realizable value. This estimate is required for the gas business unit only, since electricity is consumed at the same time as delivery. Management uses the current average customer contract price and the current average supply cost as a basis for the valuation.

Gas delivered in excess of consumption/Deferred revenues

Gas delivered to LDCs in excess of consumption by customers is valued at the lower of cost and net realizable value. Collections from LDCs in advance of their consumption results in deferred revenues which are valued at net realizable value. This estimate is required for the gas business unit only since electricity is consumed at the same time as delivery. Management uses the current average customer contract price and the current average supply cost as a basis for the valuation.

Goodwill

In assessing the value of goodwill for potential impairment, assumptions are made regarding Energy Savings' future cash flow. If the estimates change in the future, the Fund may be required to record impairment charges related to goodwill. An impairment review of goodwill was performed during fiscal 2007 and as a result of the review, it was determined that no impairment of goodwill existed at March 31, 2007. There were no events during the quarter which triggered the requirement of an impairment test to be performed as at September 30, 2007.

Fair Value of Derivative Financial Instruments and Risk Management

The Fund has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and the green energy option. Energy Savings enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation. These customer contracts expose Energy Savings to changes in market prices to supply these commodities. To reduce the exposure to the commodity market price changes, Energy Savings uses derivative financial and physical contracts to secure fixed price commodity supply matching its delivery or green commitment obligations.

The Fund's business model objective is to minimize commodity risk other than consumption, usually attributable to weather. Accordingly, it is Energy Savings' policy to hedge the estimated requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Energy Savings price exposure and serves to fix Energy Savings acquisition costs of gas and electricity to be delivered under the fixed price or price protected customer contracts. Energy Savings policy is not to use derivative instruments for speculative purposes.

Energy Savings' expansion in the U.S. has introduced foreign exchange related risks. Energy Savings has entered into foreign exchange forwards in order to hedge the exposure to fluctuations in cross border cash flows.

The estimation of the fair value of certain electricity and gas supply contracts and foreign exchange risks requires considerable judgment and is based on market prices or management's best estimates if there is no market and/or if the market is illiquid.

The financial statements are in compliance with Sections 3855 and 3865 of the Canadian Institute of Chartered Accountants ("CICA") Handbook, which require a determination of fair value for all derivative financial instruments with further calculation for qualified and designated accounting hedges to determine the effective and ineffective portion of the hedge. This fair value and, where applicable, the ineffectiveness, is determined using market information at the end of each quarter. Management believes the Fund remains effectively hedged operationally across all jurisdictions.

Preference Shares of OESC and Trust Units

As at November 9, 2007 there were 8,706,212 Class A Preference Shares of OESC outstanding and 99,397,102 units of the Fund outstanding.

Taxability of distributions

Cash distributions received in calendar 2007 were allocated as 100% other income. Additional information can be found on our website at www.esif.ca. Management estimates the distributions for calendar 2008 to be allocated in a similar manner to that of 2007.

Adoption of new accounting policies

There have been several new accounting policies adopted by the Fund for the period of April 1, 2007 to September 30, 2007.

Effective April 1, 2007, Energy Savings adopted the recommendations of the CICA Handbook sections 1530, Comprehensive Income; 3251, Equity; 3855, Financial Instruments - Recognition and Measurement; 3861, Financial Instruments - Disclosure and Presentation; and 3865, Hedges. These recommendations apply prospectively to fiscal years beginning on or after October 1, 2006 and there have been no restatements of prior period results. The recommendations provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities, non-financial derivatives and embedded derivatives, and describe when and how hedge accounting may be applied. Section 1530 establishes standards for reporting and presenting comprehensive income. These standards and the impact on the financial position and results of operations are discussed in Notes 3a and 3d of the unaudited Interim Consolidated Financial Statements.

The operations of the Fund's US-based subsidiaries became self-sustaining effective April 1, 2007. Accordingly, monetary assets and liabilities of foreign subsidiaries are translated into Canadian dollars at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange for the period. The resulting gains and losses are accumulated as a separate component of Unitholders' Equity called Accumulated Other Comprehensive Income. Prior to April 1, 2007, the Fund's US-based subsidiaries were accounted for as an integrated operation and therefore, foreign exchange gains and losses were included in net income for the period.

Recently issued accounting standards

The following are the new standards, not yet in effect, which may impact the Fund:

Capital Disclosures-CICA Section 1535

As of April 1, 2008, the Fund will be required to adopt Section 1535 "Capital Disclosures", which will require disclosure of information related to the objectives, policies and processes for managing capital. In addition, disclosures will include whether externally imposed capital requirements have been complied with. The new standard is effective for fiscal years beginning on or after October 1, 2007 and as this standard only addresses disclosure requirements, there will be no impact on the Fund.

Financial Instruments - Disclosures (CICA Section 3862) and Financial Instruments - Presentation (CICA Section 3863)

As of April 1, 2008, the Fund will be required to adopt two new CICA standards, Section 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation", which will replace Section 3861 "Financial Instruments - Disclosure and Presentation". The new disclosure standards increase the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standards carry forward the former presentation requirements and are effective for years beginning on or after October 1, 2007. As these standards only address presentation and disclosure requirements, there will be no impact to the Fund.

Risk factors

The Fund is subject to a number of risks and uncertainties that could have a material adverse effect on the results of operations, business prospects, financial condition, distributions and the trading price of the Fund. A comprehensive discussion of these risks can be found in the Fund's annual information form and the 2007 Annual Report which is available on our corporate website under "reports and filings" at www.esif.ca and from SEDAR through its website at www.sedar.com. There have been no material changes for the period April 1, 2007 to November 9, 2007 that require an update to the discussion of applicable risks.

Controls and Procedures

Energy Savings maintains appropriate information systems, procedures and controls to ensure that information that is publicly disclosed is complete, reliable and timely. Our Chief Executive Officer and Chief Financial Officer caused an evaluation under their direct supervision of the design and effectiveness of our disclosure controls and procedures (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings) as at September 30, 2007 and have concluded that such disclosure controls and procedures are operating effectively.

During the most recent interim period, there have been no changes in the Fund's policies and procedures that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting.

Corporate governance

Energy Savings is committed to transparency in our operations and our approach to governance meets all recommended standards. Full disclosure of our compliance with existing corporate governance rules is available on our website at www.esif.ca and is included in the Fund's May 17, 2007 management proxy circular. Energy Savings actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.

Outlook

Energy Savings continues to actively monitor the progress of the deregulated markets in various jurisdictions, including Massachusetts, Connecticut, New York (National Grid territory), Maryland, New Jersey and Michigan.

The Fund has provided guidance indicating that management expects fiscal 2008 distributable cash will be 15% to 20% higher than fiscal 2007. After six months, distributable cash is up 39%. The disparity is primarily due to growing US revenue which is less seasonal than Canadian revenue. Management continues to believe that 15% to 20% growth in distributable cash is a reasonable expectation although, to date, fall gas consumption has been very low due to extremely warm weather in our key markets. Continuation of lower than normal gas consumption through the winter will adversely effect distributable cash and may result in lower than projected results.

The Fund significantly under-distributed its taxable income in calendar 2007 and would be subject to tax at 46% for any undistributed taxable income. In order to ensure all of the taxable income is distributed to its unitholders, the Board of Energy Savings has concluded that it will be preferable to pay out a Special Distribution to effectively allocate all of the taxable income to the unitholders. The expected size of the Special Distribution is between $35 -$40 million and will be paid with a combination of cash and units. A Special Meeting of unitholders of the Fund and the holders of the Class A Preference Shares is scheduled for December 20, 2007 to amend the Fund's Declaration of Trust to allow the non consolidation of units to be distributed under this Special Distribution. The cash portion of the distribution will be funded by operating cash flow and the Fund's credit facility.

On October 26, 2007, the Fund renewed its credit facility agreement with its lenders for a three year term which will allow for the Special Distribution.

The Fund has recently developed a Green Energy Option which allows customers to effectively purchase green-generated electricity and is now offering this product in Ontario, Alberta and Texas. An offering involving carbon neutral natural gas is currently being rolled out to all markets in the third quarter. Innovative product offerings such as these are expected to add to customer additions and assist in the retention of existing customers in the near future.

While the October 31, 2006 announcement to tax income trusts does not affect existing income trusts until 2011 except as noted in the Future Tax provision discussion, the announcement has had a material impact on the trading value of Energy Savings' units. While the price declines have been felt across the entire income fund sector, management believes that the current unit price is not representative of the financial strength and sustainability inherent in the Energy Savings model. Management is presently investigating alternative corporate forms and is committed to reinstating value to Unitholders. Any reorganization would be intended to increase the long term value of Energy Savings.

Any conversion to corporate form may have tax implications for holders. No decision has been made and the Fund directors may conclude that maintaining the current structure until 2011 is in the best interests of Unitholders.

Energy Savings continues to review other possible acquisitions with a view to completing those that are accretive to Unitholders.



ENERGY SAVINGS INCOME FUND

CONSOLIDATED BALANCE SHEETS
(Unaudited - thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

SEPTEMBER MARCH
ASSETS 30, 2007 31, 2007

CURRENT
Cash $ 37,630 $ 16,786
Restricted cash (Note 5) 4,228 2,557
Accounts receivable 138,989 176,453
Gas delivered in excess of consumption 69,593 -
Gas in storage 33,135 5,877
Unbilled revenues 685 39,214
Prepaid expenses 1,737 2,115
Corporate taxes recoverable 5,393 4,326
Other assets - current (Note 11a) 21,800 -
---------------------------------------------------------------------------
313,190 247,328

GAS CONTRACTS (less accumulated amortization
- $243,929; March 31, 2007 - $ 243,752) - 177

ELECTRICITY CONTRACTS (less accumulated
amortization - $28,176; March 31,
2007 - $24,959) 5,147 1,462

GOODWILL 115,480 94,576

CAPITAL ASSETS (less accumulated
amortization - $10,577; March 31, 2007 - $ 9,158) 14,955 11,885

FUTURE INCOME TAX ASSET (Note 8) 15,844 -

OTHER ASSETS - LONG TERM (Note 11a) 40,371 1,799
---------------------------------------------------------------------------
$ 504,987 $ 357,227
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES

CURRENT
Bank indebtedness (Note 7) $ 89,198 $ 38,628
Accounts payable and accrued liabilities 113,893 112,950
Customer rebates payable (Note 5) 4,137 2,557
Management incentive program payable 1,378 1,254
Unit distribution payable 10,022 9,114
Deferred revenue 81,222 -
Accrued gas accounts payable 456 33,057
Other liabilities - current (Note 11a) 200,032 -
---------------------------------------------------------------------------

500,338 197,560

OTHER LIABILITIES - LONG TERM (Note 11a) 268,677 7,909

FUTURE INCOME TAX LIABILITY (Note 8) - 11,600
---------------------------------------------------------------------------
769,015 217,069
---------------------------------------------------------------------------

EQUITY (DEFICIT)
Deficit $ (226,351) $ (197,628)
Accumulated other comprehensive loss (379,175) -
---------------------------------------------------------------------------
(605,526) (197,628)
Unitholders' capital 329,416 328,153
Contributed surplus 12,082 9,633
---------------------------------------------------------------------------
(264,028) 140,158
---------------------------------------------------------------------------

$ 504,987 $ 357,227
---------------------------------------------------------------------------
---------------------------------------------------------------------------



ENERGY SAVINGS INCOME FUND

CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
(Unaudited - thousands of dollars)

FOR THE SIX MONTHS ENDED SEPTEMBER 30
---------------------------------------------------------------------------
---------------------------------------------------------------------------

2007 2006

ACCUMULATED EARNINGS

Accumulated earnings, beginning of period $ 237,802 $ 143,890

Adjustment for change in accounting policy
- net of income taxes of $49 (Note 3d) 1,519 -

Net income 30,672 9,748
---------------------------------------------------------------------------

Accumulated earnings, end of period 269,993 153,638
---------------------------------------------------------------------------

DISTRIBUTIONS

Distributions, beginning of period (435,430) (330,097)

Distributions (57,679) (47,911)

Class A preference share distributions
- net of income taxes (3,235) (2,899)
---------------------------------------------------------------------------

Distributions, end of period (496,344) (380,907)
---------------------------------------------------------------------------

DEFICIT (226,351) (227,269)
---------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income,
beginning of period - -

Transitional adjustment upon implementation -
derivative instruments designated as cash
flow hedges and derivative gains previously
deferred - net of income taxes of $1,536 (Note 3d) 113,865 -

Adjustment upon conversion -- unrealized losses
on translation of self-sustaining foreign
operations (Note 3d) (87) -

Other Comprehensive Loss (492,953) -
---------------------------------------------------------------------------

Accumulated other comprehensive loss,
end of period (379,175) -
---------------------------------------------------------------------------

UNITHOLDERS' CAPITAL (Note 9)

Unitholders' capital, beginning of period 328,153 324,650

Trust units exchanged - 3,166

Trust units issued on exercise/exchange of unit
compensation (Note 10d) 1,263 3,221

Class A preference shares exchanged - (3,166)
---------------------------------------------------------------------------

Unitholders' capital, end of period 329,416 327,871
---------------------------------------------------------------------------

CONTRIBUTED SURPLUS (Note 10d) 12,082 7,564
---------------------------------------------------------------------------

Unitholders' equity (deficit), end of period $ (264,028) $ 108,166
---------------------------------------------------------------------------
---------------------------------------------------------------------------


ENERGY SAVINGS INCOME FUND

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - thousands of dollars except per unit amount)

---------------------------------------------------------------------------
---------------------------------------------------------------------------

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30

2007 2006 2007 2006

SALES $ 283,531 $ 236,127 $ 636,400 $ 521,677

COST OF SALES 239,924 204,822 540,984 449,212
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GROSS MARGIN 43,607 31,305 95,416 72,465
---------------------------------------------------------------------------

EXPENSES

General and administrative
expenses 11,142 10,999 22,084 21,490
Capital tax 264 180 795 360
Marketing expenses 15,550 10,689 30,060 25,149
Unit based compensation
(Note 10) 1,396 918 2,611 1,658
Bad debt expense 757 2,441 2,526 3,718
Amortization of gas contracts - 3,860 177 7,719
Amortization of electricity
contracts 2,106 2,015 3,355 4,031
Amortization of capital assets 836 710 1,602 1,437
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32,051 31,812 63,210 65,562
---------------------------------------------------------------------------

INCOME (LOSS) BEFORE OTHER
EXPENSE 11,556 (507) 32,206 6,903

OTHER EXPENSE (6,708) (5,290) (7,873) (4,202)
---------------------------------------------------------------------------

INCOME (LOSS) BEFORE INCOME TAX 4,848 (5,797) 24,333 2,701

PROVISION FOR (RECOVERY OF)
INCOME TAX (Note 8) 94 (4,540) (6,339) (7,047)
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NET INCOME (LOSS) $ 4,754 $ (1,257) $ 30,672 $ 9,748
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net income (loss) per unit
(Note 12)

Basic $ 0.05 $ (0.01) $ 0.29 $ 0.09

Diluted $ 0.04 $ (0.01) $ 0.28 $ 0.09



ENERGY SAVINGS INCOME FUND

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)
(Unaudited - thousands of dollars)

---------------------------------------------------------------------------
---------------------------------------------------------------------------

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30

2007 2006 2007 2006

NET INCOME (LOSS) $ 4,754 $ (1,257) $ 30,672 $ 9,748
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Unrealized gains (losses)
on translation of self
sustaining operations 1,193 - (422) -

Unrealized and realized losses
on derivative instruments
designated as cash flow hedges
(net of income taxes of $8,953
and $21,634 for the three months
and six months, respectively)
(Note 11a) (200,408) - (492,531) -

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OTHER COMPREHENSIVE LOSS (199,215) - (492,953) -
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COMPREHENSIVE (LOSS) INCOME (194,461) (1,257) (462,281) 9,748
---------------------------------------------------------------------------
---------------------------------------------------------------------------



ENERGY SAVINGS INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30

2007 2006 2007 2006

Net inflow (outflow) of cash
related to the following
activities

OPERATING

Net income (loss) $ 4,754 $ (1,257) $ 30,672 $ 9,748
---------------------------------------------------------------------------

Items not affecting cash
Amortization of gas
contracts - 3,860 177 7,719
Amortization of electricity
contracts 2,106 2,015 3,355 4,031
Amortization of capital
assets 836 710 1,602 1,437
Unit based compensation 1,396 918 2,611 1,658
Future income taxes 62 (652) (7,296) (1,205)
Loss (gain) on foreign exchange
(unrealized) - (15) - 390
Other expenses (unrealized) 5,540 4,437 5,873 2,728
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9,939 11,273 6,321 16,758
---------------------------------------------------------------------------
Adjustments required to
reflect net cash receipts
from gas sales 14,057 12,940 17,557 19,893
---------------------------------------------------------------------------

28,750 22,956 54,550 46,399
---------------------------------------------------------------------------

Changes in non-cash working
capital (7,768) (18,577) 9,029 (7,311)
---------------------------------------------------------------------------

20,983 4,379 63,580 39,088
---------------------------------------------------------------------------

FINANCING

Exercise of trust unit
options 1,033 619 1,088 685
Distributions paid to
Unitholders (29,186) (24,426) (56,759) (47,305)
Distributions to Class A
preference shareholders (2,463) (2,214) (4,830) (4,539)
Tax impact on distributions
to Class A preference
shareholders 939 800 1,829 1,640
Bank indebtedness 17,288 19,544 50,570 14,464
Restricted cash 2,824 - 2,067 -
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(9,565) (5,677) (6,035) (35,055)
---------------------------------------------------------------------------

INVESTING

Purchase of capital assets (3,778) (959) (4,300) (1,829)
Acquisition of subsidiary
(Note 6) - - (33,400) -
---------------------------------------------------------------------------

(3,778) (959) (37,700) (1,829)
---------------------------------------------------------------------------

Gain (loss) on foreign
exchange (unrealized) (1,449) 15 (2,915) (390)

Other income foreign exchange
(unrealized) - 3 - 81
Effect of foreign currency
translation on cash balances 4,573 - 3,914 -
---------------------------------------------------------------------------

NET CASH INFLOW (OUTFLOW) 10,764 (2,239) 20,844 1,895

CASH, BEGINNING OF PERIOD 26,866 15,797 16,786 11,663
---------------------------------------------------------------------------

CASH, END OF PERIOD $ 37,630 $ 13,558 $ 37,630 $ 13,558
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Supplemental Information

Interest paid $ 1,605 $ 519 $ 2,573 $ 1,013

Income taxes paid $ 410 $ 360 $ 803 $ 1,041


ENERGY SAVINGS INCOME FUND

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - thousands of dollars except where indicated and per unit amount)

1. INTERIM FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements do not conform in all respects to the requirements of Canadian generally accepted accounting principles ("GAAP") for annual financial statements and should therefore be read in conjunction with the audited consolidated financial statements and notes thereto included in the Fund's annual report for fiscal 2007. The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian GAAP applicable to interim consolidated financial statements and follow the same accounting policies and methods in their applications as the most recent annual financial statements, except as described in note 3.

2. ORGANIZATION

Energy Savings Income Fund ("Energy Savings" or the "Fund")

Energy Savings is an open-ended, limited-purpose trust established under the laws of the Province of Ontario to hold securities and to distribute the income of its directly or indirectly wholly owned operating subsidiaries and affiliates: Ontario Energy Savings L.P. ("OESLP"), Energy Savings (Manitoba) L.P. ("ESMLP"), Energy Savings (Quebec) L.P. ("ESPQ"), ES (B.C.) Limited Partnership ("ESBC"), Alberta Energy Savings L.P. ("AESLP"), Illinois Energy Savings Corp ("IESC"), New York Energy Savings Corp. ("NYESC"), Indiana Energy Savings Corp. ("INESC") and Energy Savings Texas Corp. ("ESTC") (collectively the "Energy Savings Group").

3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

(a) New accounting standards

On April 1, 2007, the Fund adopted five new accounting standards that were issued by the Canadian Institute of Chartered Accountants ("CICA"); Handbook Section 1530, Comprehensive Income; Handbook Section 3251, Equity; Handbook Section 3855, Financial Instruments - Recognition and Measurement; Handbook Section 3861, Financial Instruments - Disclosure and Presentation, and Handbook Section 3865, Hedges. Energy Savings adopted these standards prospectively and did not restate comparative amounts for prior periods as required by the standards.

Comprehensive Income

Section 1530 introduces comprehensive income, which consists of net income and other comprehensive income ("OCI"). OCI represents changes in equity during a period arising from transactions and other events with non- owner sources and includes unrealized gains and losses on financial assets classified as available-for-sale, unrealized foreign currency translation gains or losses arising from self-sustaining foreign operations, net of hedging activities, and changes in the fair value of the effective portion of cash flow hedging instruments. The cumulative changes in OCI are included in accumulated other comprehensive income ("AOCI"), which is presented as a new category of Unitholders' equity on the Consolidated Balance Sheets.

Financial Instruments - Recognition and Measurement

Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non- financial derivatives. It requires that financial assets and financial liabilities, including derivatives, be recognized on the Consolidated Balance Sheets when Energy Savings becomes a party to the contractual provisions of the financial instrument or non-financial derivative contract. Under this standard, all financial instruments are required to be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. After initial recognition, items classified as held-for-trading or available-for-sale are revalued at fair values, items classified as held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method. Transaction costs are expensed as incurred for financial instruments classified or designated as held-for-trading. For other financial instruments, the Fund records transaction costs as part of the underlying financial instrument and amortizes or accretes them into net income utilizing the effective interest method.

Derivative instruments are recorded on the Consolidated Balance Sheets at fair value, including those derivatives that are embedded in financial or non-financial contracts that are considered to be derivatives. Changes in the fair values of derivative instruments are recognized in net income with the exception of derivatives designated as effective cash flow hedges or hedges of foreign currency exposure of a net investment in a self-sustaining foreign operation.

Financial Instruments - Presentation and Disclosure

Section 3861 established standards for the presentation and disclosure of financial instruments and non-financial derivatives.

Hedges

Section 3865 specifies the criteria that must be satisfied in order for hedge accounting to be applied and the accounting for each of the permitted hedging strategies: fair value hedges, cash flow hedges and hedges of foreign currency exposures of net investments in self-sustaining foreign operations. The revised standards require the Fund to record all derivatives at fair value. Changes in the fair value from one period to the next are booked to Other Comprehensive Income to the extent that the hedges are effective with the remainder of the change being booked to the Statement of Operations.

(b) Foreign currency translation

On April 1, 2007 the operations of the Fund's US-based subsidiaries became self-sustaining due to the reassessment of its existing foreign currency translation policy. Accordingly, the assets and liabilities of foreign subsidiaries are translated into Canadian dollars at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange for the period. The resulting gains and losses are accumulated as a component of Unitholders' equity within Accumulated Other Comprehensive Income.

Prior to April 1, 2007 the Fund's investment in its US-based subsidiaries was accounted for as integrated operations. Accordingly, monetary assets and liabilities were translated at the exchange rates in effect at the consolidated balance sheet dates. Non-monetary assets and liabilities and related income statement charges were translated at historical rates. All other revenue and expense accounts were translated at the average rate for the period. Foreign exchange gains and losses were included in net income for the period.

(c) Other assets (liabilities) and other income (expense)

Energy Savings' various derivative instruments have been accounted for under section 3865 "Hedges", where they meet the standard's criteria. Otherwise, the derivatives have been recognized at fair value in the financial statements in accordance with 3855, Financial Instruments - Recognition and Measurement.

For derivative instruments accounted for under section 3865, Energy Savings formally documents the relationship between hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative financial instruments to anticipated transactions. Energy Savings also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative financial instruments that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. The derivatives are measured at fair value and booked to the Consolidated Balance Sheets. Changes in fair value between periods are booked to Other Comprehensive Income for the effective portion of the hedge with the remaining change being booked to other income or expense.

Energy Savings enters into hedges of its cost of sales relating to its fixed price electricity sales by entering into fixed-for-floating electricity swap contracts and physical forward contracts with electricity suppliers. These swaps and forwards are accounted for in accordance with Section 3865 and, in some limited circumstances, Section 3855.

Energy Savings enters into hedges for its foreign exchange risk relating to its anticipated repatriation of U.S. denominated currency by entering into foreign exchange forward contracts with its lender. Energy Savings previously applied AcG-13 to these contracts and used the settlement method of accounting. As of April 1, 2007, these derivative financial instruments have been recorded on the balance sheet as either other assets or other liabilities measured at fair value, with changes in fair value recognized in income as other income (expense) and will henceforward be accounted for in accordance with section 3855.

Energy Savings enters into hedges of its cost of sales relating to its fixed price gas contracts by entering into a combination of physical gas forwards, physical transportation forwards and option contracts. Physical gas forwards and transportation forwards are accounted for in accordance with section 3865. Option contracts are accounted for in accordance with section 3855 with the premiums and settlements for these derivative instruments recognized in cost of sales, when incurred.

(d) Derivative instruments and hedge accounting

Electricity:

Energy Savings has entered into contracts with customers to provide electricity at fixed prices ("customer electricity contracts"). Customer electricity contracts include requirements contracts and contracts with fixed or variable volumes at fixed prices. The customer electricity contracts expose Energy Savings to changes in market prices of electricity and consumption. To reduce its exposure to movements in commodity prices arising from the acquisition of electricity at floating rates, Energy Savings uses electricity derivative contracts ("electricity derivative contracts"). These electricity derivative contracts are fixed-for-floating swaps or physical electricity forward contracts. Energy Savings agrees to exchange the difference between the variable or indexed price and the fixed price on a notional quantity of electricity for a specified time frame in the fixed-for-floating contract arrangement. Energy Savings takes title to electricity at a fixed price for scheduling into the power grid under the forward contracts. These contracts are expected to be effective as hedges of the electricity price exposure.

Energy Savings continues to monitor its effective hedging relationship between retail consumption and its supply contracts.

The fair value of the electricity derivative contracts designated as hedging instruments are recorded in the Consolidated Balance Sheet with changes in the fair value being recorded in Other Comprehensive Income to the extent that the hedge measurement is effective with the remainder recorded in other income (expense). Any electricity derivative contracts that do not qualify for hedge accounting or are de-designated as a hedge are recorded at fair market value with the changes in fair value recorded in current period income as a component of other income (expense). Any gains or losses accumulated up to the date that the electricity derivative contract is terminated or de-designated as a hedge are deferred in accumulated other comprehensive income then recorded in cost of sales when the hedged customer electricity contract affects income.

Gas:

Energy Savings has entered into contracts with customers to provide gas at fixed prices ("customer gas contracts"). The customer gas contracts expose Energy Savings to changes in market prices of gas and consumption. To reduce its exposure to movements in commodity prices and usage, Energy Savings uses gas physical and financial contracts ("gas supply contracts"). These gas supply contracts are expected to be effective as hedges of the gas price exposure.

Energy Savings continues to monitor its effective hedging relationship between retail consumption and its supply contracts.

Energy Savings uses physical forwards, transportation forwards (together "physical gas supply contracts") and other gas financial instruments to fix the price of its gas supply. Under the physical gas supply contracts, Energy Savings agrees to pay a specified price per volume of gas or transportation. Other financial instruments are comprised of financial puts and calls that fix the price of gas in jurisdictions where Energy Savings has scheduling responsibilities and therefore is exposed to commodity price risk on volumes above or below its base supply.

The fair value of physical gas contracts designated as hedging instruments are recorded in the Consolidated Balance Sheet with changes in the fair value being recorded in Other Comprehensive Income to the extent that the hedge measurement is effective with the remainder recorded in other income (expense). Any physical gas contract that does not qualify for hedge accounting or is de-designated as an accounting hedge together with the gas financial instruments are valued at fair market value with the changes in fair value recorded in current period income as a component of other income (expense). Any gains or losses accumulated up to the date that the physical gas supply contract is terminated or dedesignated as a hedge are deferred in accumulated other comprehensive income then recorded in cost of sales when the hedged customer gas contract affects income.

Foreign exchange:

To reduce its exposure to movements in foreign exchange rates, Energy Savings uses foreign exchange forwards ("foreign exchange contracts"). These foreign exchange contracts are expected to be effective as hedges of the anticipated cross border cash flow but were found to not be effective during fiscal 2007.

Up until March 31, 2007, unrealized gains on foreign exchange contracts up to the date of de-designation of the hedging relationship were deferred to be recognized over the term of the contract based on the timing of the underlying hedged transactions and unrealized gains and losses subsequent to the de-designation date. As of September 30, 2007, these derivative financial instruments have been recorded on the balance sheet as either other assets or other liabilities measured at fair value, with changes in fair value recognized in income as other income (expense) and the deferred gain has been reclassified in Accumulated Other Comprehensive Loss.



Impact of Changes in Significant Accounting Policies
As a result of adopting these standards, Energy Savings recorded the
following:

Other Assets - current $ 132,456
Other Assets - long term $ 151,804
Future Income taxes $ 1,487
Other Liabilities - current $ 36,228
Other Liabilities - long term $ 131,161
Accumulated Earnings (net of tax of $49) $ 1,519
Accumulated Other Comprehensive Income (net of tax of $1,536) $ 113,865
Cumulative translation account $ 87


The other assets and liabilities represent the fair value of the financial assets and liabilities upon the implementation of the standards on April 1, 2007. The increase to the opening Unitholders' Equity represents the accumulated ineffective portion of qualified hedges at inception of the standard and the accumulated other comprehensive income represents the accumulated effective portion of qualified hedges at inception of the standard net of the related future income tax liability. While these entries are driven by the supply arrangements there has been no recognition given to the underlying customer contracts that are the offset to the supply arrangements. During the quarter $9,637 was reclassified from Accumulated Earnings to the Accumulated Other Comprehensive Income.

(e) Recently issued accounting standards

The following are the new standards, not yet in effect, which may impact the Fund:

Capital Disclosures-CICA Section 1535

As of April 1, 2008, the Fund will be required to adopt Section 1535 "Capital Disclosures", which will require disclosure of information related to the objectives, policies and processes for managing capital. In addition, disclosures will include whether externally imposed capital requirements have been complied with. The new standard is effective for fiscal years beginning on or after October 1, 2007 and as this standard only addresses disclosure requirements, there will be no impact on the Fund.

Financial Instruments - Disclosures (CICA Section 3862) and Financial Instruments - Presentation (CICA Section 3863)

As of April 1, 2008, the Fund will be required to adopt two new CICA standards, Section 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation", which will replace Section 3861 "Financial Instruments - Disclosure and Presentation". The new disclosure standards increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standards carry forward the former presentation requirements and are effective for years beginning on or after October 1, 2007. As this standard only addresses presentation and disclosure requirements, there will be no impact to the Fund.

4. SEASONALITY OF OPERATIONS

Energy Savings' operations are seasonal. Gas consumption by customers is typically highest in October through March and lowest in April through September. Electricity consumption is typically highest in January through March and July through September. Electricity consumption is lowest in October through December and April through June.

5. RESTRICTED CASH/CUSTOMER REBATES PAYABLE

Restricted cash and customer rebates payable represent, (i) rebate monies received from LDCs in Ontario as provided by the Independent Electricity System Operator ("IESO"), and (ii) funds held as security for payment of certain monthly charges in Texas.

(i) OESLP is obligated to disperse the monies to eligible end use customers in accordance with the Ontario Power Generation Rebate as part of OESLP's Retailer License conditions.

(ii) ESTC is required to post collateral to wire owners to secure payment of future expected charges under the Texas Electric Choice as required by the Public Utility Commission of Texas.

6. ACQUISITION OF JUST ENERGY TEXAS L.P.

On May 24, 2007, Energy Savings completed the acquisition of Just Energy Texas LP ("Just Energy"), including all of its electricity contracts. The aggregate cost of this transaction, including transaction costs, was US$34,165 including cash acquired in the amount of US$3,373. Pursuant to the agreement, Energy Savings acquired approximately 130,000 RCEs. The acquisition was funded through a credit facility withdrawal, of which $18,079 (US$18,362) including interest of $356 (US$362) was injected back into the Fund on October 9, 2007 in exchange for 1,169,399 units of the Fund issued from treasury. The units are subject to the terms of an escrow agreement and will vest over a three year period.



The purchase price has been allocated as follows:

US$ CAD$

Net assets acquired:
Working capital (including cash of US$3,373, CAD$3,659) $ 7,236 $ 7,710
Electricity contracts 8,213 8,751
Goodwill 21,013 22,388
Capital assets 18 20
Long-term liabilities (2,315) (2,511)
--------- --------

$ 34,165 $ 37,059
--------- --------
--------- --------

US$ CAD$

Consideration:
Cash
$ 34,165 $ 37,059
--------- --------
--------- --------


The acquisition of Just Energy has been accounted for using the purchase method of accounting. Energy Savings allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition. The purchase price allocation is considered preliminary and as a result it may be adjusted during the year. The electricity contracts acquired will be amortized over the average remaining life of the contracts, which at the time of acquisition was 14 months.

7. BANK INDEBTEDNESS

An operating credit facility in the amount of $150,000 is available to Energy Savings to meet working capital requirements. Interest is payable on outstanding loans at rates that vary with Bankers' Acceptance, LIBOR, Canadian bank prime rate or U. S. prime rate. Under the terms of the operating credit facility, Energy Savings is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees of 150 basis points, prime rate advances at bank prime plus 0.5%, and letters of credit at 1.5%. As at September 30, 2007, the Canadian and U.S. prime rates were 6.25% and 7.75%, respectively. As at September 30, 2007, Energy Savings had drawn $89,198 against the facility and total letters of credit outstanding amounted to $7,588. Energy Savings has $53,214 of the facility remaining for future working capital and security requirements. Energy Savings' obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates and secured by a pledge of the assets of Energy Savings and the majority of its operating subsidiaries and affiliates. Energy Savings is required to meet a number of financial covenants under the credit facility agreement. As at September 30, 2007, all of these covenants have been met.

On October 26, 2007, the credit facility was renewed for a period of three years to October 29, 2010.

8. INCOME TAXES

The Fund is taxed as a "mutual fund trust" for income tax purposes. Pursuant to the Declaration of Trust, the trustees will distribute all taxable income directly earned by the trust to the Unitholders and deduct such distributions for income tax purposes. Canadian based corporate subsidiaries are subject to tax on their taxable income at a rate of 36% (2006 - 36%). The following table reconciles the difference between the income taxes that would result solely by applying statutory tax rates to the pre tax income for Energy Savings and the income tax provision in the financial statements.



Three months ended Six months ended
September 30 September 30

2007 2006 2007 2006

Income (loss) before
income tax $ 4,848 $ (5,797) $ 24,333 $ 2,701
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Income tax expense (recovery)
at the combined basic rate
of 36% (2006-36%) 1,745 (2,087) 8,760 972
Taxes on income attributable
to Unitholders (6,392) (5,947) (15,442) (13,336)
Tax impact of corporate re-
organization 183 - (6,964) -

Benefit of U.S. accounting
losses not recognized 5,008 3,137 7,307 4,689
Non-deductible expenses (450) 357 - 628
--------- ---------- ---------- ----------

Provision for (recovery of)
income tax $ 94 $ (4,540) $ (6,339) $ (7,047)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------

Components of Energy Savings'
income tax provision are
as follows:

2007 2006 2007 2006

Income tax recovery $ (907) $ (4,688) $ (872) $ (7,482)
Amount credited to
Unitholders' equity 939 800 1,829 1,640
--------- ---------- ---------- ----------
Current income tax provision
(recovery) 32 (3,888) 957 (5,842)
Future tax recovery 62 (652) (7,296) (1,205)
--------- ---------- ---------- ----------

Recovery of income tax $ 94 $ (4,540) $ (6,339) $ (7,047)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------

Components of Energy Savings'
net future income tax
liability (asset) are 2007 2006
as follows:
Partnership income deferred
for tax purposes and book
carrying amount of
investments in partnerships
in excess of tax cost $ 679 $ 11,255
Other comprehensive income (20,098) -
Other 3,575 3,928
---------- ----------

$ (15,844) $ 15,183
---------- ----------
---------- ----------


On December 21, 2006 the Minister of Finance (Canada) (the "Minister") released draft legislation (the "SIFT Legislation") relating to the federal income taxation of publicly traded trusts and partnerships. On March 29, 2007, the Minister introduced Bill C-52 in the House of Commons to implement the SIFT Legislation. On June 22, 2007, Bill C-52 received royal assent.

The SIFT Legislation applies to a publicly traded trust that is a specified investment flow-through entity (a "SIFT") that was listed before November 1, 2006 ("Existing Trust") commencing with taxation years ending in or after 2011. Certain distributions attributable to a SIFT will not be deductible in computing the SIFT's taxable income, and the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. Distributions paid by a SIFT attributable to direct foreign investment income or dividend income or as a return of capital will not be subject to this tax. There will be circumstances where an Existing Trust may lose its transitional relief where its equity capital grows beyond certain dollar limits measured by reference to the Existing Trust's market capitalization at the close of trading on October 31, 2006.

The Fund is a SIFT as defined in the SIFT Legislation. Commencing with its taxation year ending December 31, 2011, the Fund will be subject to taxes on distributions of certain income earned from investments in its subsidiaries. The Fund is also required to recognize future income tax assets and liabilities with respect to the temporary differences between the carrying amounts and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that a portion of its aggregate temporary differences and those of its flow-through subsidiaries will reverse in or after 2011 and as a consequence it has booked a future tax asset of $13,829 during the six months ended September 30, 2007, of which substantially all is related to temporary differences with respect to Accumulated Other Comprehensive Income items such as derivative instruments and hedges. The Fund expects that its distributions will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on the remaining portion of temporary differences which are expected to reverse prior to then.

The SIFT Legislation does not affect the current and future tax amounts of the Fund's corporate subsidiaries.

9. UNITHOLDERS' CAPITAL

Trust units of the Fund

An unlimited number of units may be issued. Each unit is transferable, voting and represents an equal undivided beneficial interest in any distributions from the Fund whether of net income, net realized capital gains or other amounts, and in the net assets of the Fund in the event of termination or winding-up of the Fund.

The Fund intends to make distributions to its Unitholders based on the cash receipts of the Fund, excluding proceeds from the issuance of additional Fund units, adjusted for costs and expense of the Fund, amount which may be paid by the Fund in connection with any cash redemptions or repurchases of units and any other amount that the Board of Directors considers necessary to provide for the payment of any costs which have been or will be incurred in the activities and operations of the Fund. The Fund's intention is for Unitholders of record on the 15th day of each month to receive distributions at the end of the month.

Class A preference shares of OESC

Unlimited Class A preference shares, non-voting for OESC, non-cumulative, exchangeable into trust units in accordance with the OESC shareholders' agreement as restated and amended, with no priority on dissolution. Pursuant to the amended and restated Declaration of Trust which governs the Fund, the holders of Class A preference shares are entitled to vote in all votes of Unitholders as if they were the holders of the number of units that they would receive if they exercised their shareholder exchange rights. Class A preference shareholders have equal entitlement to distributions from the Fund as Unitholders.



2007 2006
Issued and Outstanding Units/Shares Units/Shares

Trust units
-----------

Balance, beginning
of period 98,082,535 $ 306,387 96,391,991 $ 299,228

Options exercised 92,500 1,226 61,833 623

Unit appreciation
rights exchanged 2,668 37 153,532 2,598

Exchanged from Class A
preference shares - - 1,266,183 3,166
-------------------------------------------------

Balance, end of period 98,177,703 307,650 97,873,539 305,615
-------------------------------------------------

Class A preference shares

Balance, beginning
of period 8,706,212 21,766 10,168,695 25,422

Exchanged into units - - (1,266,183) (3,166)
-------------------------------------------------

Balance, end of period 8,706,212 21,766 8,902,512 22,256
-------------------------------------------------

Unitholders' capital, end
of period 106,883,915 $ 329,416 106,776,051 $ 327,871
-------------------------------------------------
-------------------------------------------------


10. UNIT BASED COMPENSATION PLANS

(a) Unit option plan

The Fund grants awards under its 2001 unit option plan to directors, officers, full-time employees and service providers (non-employees) of Energy Savings. In accordance with the unit option plan, the Fund may grant options to a maximum of 11,300,000 units. As at September 30, 2007, there were 732,166 options still available for grant under the plan. Of the options issued, 1,190,333 options remain outstanding at September 30, 2007. The exercise price of the unit options equals the closing market price of the Fund's units on the last business day preceding the grant date. The unit options will vest over periods ranging from three to five years from the grant date and expire after five or 10 years from the grant date.

A summary of the status of the Fund's unit option plan at September 30, 2007 is outlined below.



Weighted
Weighted average
Range of average grant
Outstanding Exercise exercise date fair
Options prices price(1) value(2)

Balance, beginning
of period 1,202,333 $7.29 - $18.70 $13.74
Granted 108,000 $15.09 - $15.11 $15.10 $1.89
Forfeited/cancelled (27,500) $15.63 - $16.65 $16.17
Exercised (92,500) $7.29 - $12.17 $11.76
---------
Balance, end of period 1,190,333 $8.75 - $18.70 $13.96
---------
---------

(1) The weighted average exercise price is calculated by dividing the
exercise price of options granted by the number of options granted.

(2) The weighted average grant date fair value is calculated by dividing
the fair value of options granted by the number of options granted.


Options Outstanding Options Exercisable
---------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Life Price Number Price
Prices Outstanding Contractual Exercise Exercisable Exercise


$8.75 20,000 0.58 $8.75 20,000 $8.75
$10.68 - $12.01 63,333 0.71 $10.95 63,333 $10.95
$12.17 525,000 0.50 $12.17 525,000 $12.17
$12.69 - $18.70 582,000 3.04 $16.08 204,600 $16.24
--------- --------

Balance, end
of period 1,190,333 1.76 $13.96 812,933 $13.01
--------- --------
--------- --------

Options available
for grant

Available for grant 11,300,000
Less: granted in
prior years (11,503,000)
Add: cancelled/forfeited in
prior years 1,015,666
-----------

Balance, beginning
of period 812,666
Add: cancelled/forfeited
during the period 27,500
Less: granted
during the period (108,000)
------------

Balance, end of period 732,166
------------
------------


The Fund uses a binomial option pricing model to estimate the fair values. The binomial model was chosen because of the yield associated with the units. Fair values of employee unit options are estimated at grant date. Fair values of non-employee unit options are estimated and revalued each reporting period until a measurement date is achieved. The following weighted average assumptions have been used in the valuations for fiscal 2008:



Risk free rate 4.31% - 4.64%
Expected volatility 27.13% - 27.16%
Expected life 3.35 - 5 years
Expected distributions $1.115 per year


(b) Unit appreciation rights

The Fund grants awards under its 2004 unit appreciation rights ("UARs") plan to senior officers, employees and service providers of its subsidiaries and affiliates in the form of fully paid UARs. During the Annual General Meeting held on June 28, 2007, an amendment was made to the unit appreciation rights plan increasing the UARs that the Fund may grant from 1,000,000 to a maximum of 2,000,000, As at September 30, 2007 there were 1,072,389 UARs still available for grant under the plan. Except as otherwise provided, (i) the UARs vest from one to five years from the grant date providing, in most cases, on the applicable vesting date the UAR grantee continues as a senior officer, employee or service provider of the Fund or any affiliate thereof; (ii) the UARs expire no later than ten years from the grant date;

(iii) a holder of UARs is entitled to distributions as if a UAR were a unit; and (iv) when vested, the holder of a UAR may exchange one UAR for one unit.

UARs Available for Grant



Available for grant at inception 1,000,000
Less: granted in prior years (994,096)
Add: forfeited/cancelled in prior years 72,373
----------
Balance, beginning of period 78,277
Less: granted during the period (13,420)
Add: increase in UARs available for grant 1,000,000
Add: forfeited/cancelled during the period 7,532
----------
Balance, end of period 1,072,389
----------
----------


(c) Deferred unit grants

The Fund grants awards under its 2004 Directors' deferred compensation plan to all independent directors who elect to receive deferred units. In accordance with the deferred compensation plan, the Fund may grant deferred unit grants ("DUGs") to a maximum of 100,000. The DUGs vest on the earlier of the date of the Director's resignation or three years following the date of grant and expire ten years following the date of grant. As of September 30, 2007, there were 64,067 DUGs available for grant under the plan.



DUGs Available for Grant
Available for grant 100,000
Less: granted in prior years (28,857)
----------
Balance, beginning of period 71,143
Less: granted during the period (7,076)
----------

Balance, end of period 64,067
----------
----------


(d) Contributed surplus

Amounts credited to contributed surplus include unit based compensation awards, UARs and DUGs. Amounts charged to contributed surplus are awards exercised during the period.



Three months Six months
ended ended
September 30 September 30

Contributed Surplus 2007 2006 2007 2006
------- ------ ------ ---------

Balance, beginning of period 10,816 7,686 9,633 8,436
Add: unit based compensation awards 1,396 918 2,611 1,658
non-cash deferred unit grant
distributions 8 4 14 6

Less: unit based awards exercised (138) (1,044) (176) (2,536)
------- ------ ------ ---------

Balance, end of period 12,082 7,564 12,082 7,564
------- ------ ------ ---------
------- ------ ------ ---------


Total amounts credited to Unitholders' capital in respect of options and UARs exercised or exchanged during the three and six months ended September 30, 2007 amounted to $1,170 (2006 - $1,662) and $1,263 (2006 - $3,221), respectively.

Cash received from options exercised for the three and six months ended September 30, 2007 amounted to $1,033 (2006 - $619) and $1,088 (2006 - $685), respectively.

11. FINANCIAL INSTRUMENTS

(a) Fair value

The Fund has a variety of gas and electricity supply contracts that are captured under section 3855, Financial Instruments - Measurement and Recognition. Fair value is the estimated amount that Energy Savings would pay or receive to dispose of these supply contracts in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. Management has estimated the value of electricity and gas swap and forward contracts using a discounted cash flow method which employs market forward curves as well as a forward curve compiled by management for Alberta and Texas electricity (electricity information is based on market forward curves and available heat rates). Gas options have been valued using the Black option value model using the applicable market forward curves and the implied volatility from other market traded gas options.

(i) At September 30, 2007, Energy Savings had electricity fixed-for-floating swap contracts in its Canadian subsidiaries and affiliates, the majority of which are designated as hedges of Energy Savings' anticipated cost of sales with the remainder being classified as held-for-trading to which it has committed with the following terms:



Designated as Hedges Held for Trading
Notional volumes (peak, flat,
off peak and weekend) 0.001-35.0 MW/h 0.1-2.3 MW/h
Total remaining notional
volume (peak, flat, off peak 17,505,297 MWh 11,224 MWh
and weekend)
Maturity dates October 31, 2007 - October 31, 2007 -
July 31, 2013 February 1, 2013

Fixed price per MWh (in dollars) $45.00 - $118.00 $79.46-$102.74
Fair value $216,164 unfavourable $1,387 unfavourable
Notional value $1,309,406 $5,625


With respect to the designated hedges, the loss of $71,868 (2006 - n/a) and the loss of $147,116 (2006 - n/a) for the three and six months ended September 30, 2007, has been recorded in other liabilities. The offsetting values are recorded as to $70,931 and $144,227 in Other Comprehensive Income and $937 and $2,889 in other income (expense) respectively for each of the three and six months ended September 30, 2007. Held for trading loss of $477 (2006 - n/a) and loss of $1,387 for the three and six months ended September 30, 2007 has been recorded in other liabilities with its offsetting value being recorded in other income (expense).

The electricity fixed-for-floating contracts related to the Province of Alberta are predominantly load following, wherein the quantity of electricity contained in the supply contract "follows" the usage of customers designated by the supply contract. Notional volumes associated with these contracts are estimates and subject to change with customer usage requirements. There are also load shaped fixed-for-floating contracts in Ontario wherein the quantity of electricity is established but varies throughout the term of the contracts.

(ii) At September 30, 2007, Energy Savings had electricity fixed-for-floating swap contracts in its US subsidiaries and affiliates which are designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:



Notional volumes (peak and off peak) 0.1 -14.7 MW/h
Total remaining estimated notional volume 1,491,273 MWh
(peak, off peak and load following)
Maturity dates October 31, 2007 - October 31, 2012
Fixed price per MWh (in dollars) $87.84 - $113.36 (US$88.30 - US$113.95)
Fair value $22,465 (US$22,582) unfavourable
Notional value $154,074 (US$154,880)


The loss of $3,033 (US$2,904) (2006 - n/a) and loss of $1,790 (US$1,737) (2006 - n/a) for the three and six months ended September 30, 2007, has been recorded in other liabilities. The offsetting values are recorded as to a loss of $1,834 (US$1,756) and $1,303 (US$1,258) in Other Comprehensive Income and a loss of $1,199 (US$1,148) and $486 (US$479) in other income (expense) respectively for each of the three and six months ended September 30, 2007. There are load shaped fixed-for-floating contracts in New York wherein the quantity of electricity is established but varies throughout the term of the contracts.

(iii) At September 30, 2007, Energy Savings had electricity physical forward contracts in its US subsidiaries and affiliates which are designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:



Notional volumes (peak and off peak) 1.0-15.0 MW/h
Total remaining notional volume 1,431,632 MWh
(peak and off peak)
Maturity dates October 31, 2007 - August 31, 2012
Fixed price per MWh (in dollars) $42.68 - $112.91 (US$42.90 - US$113.50)
Fair value $9,605 (US$9,655) unfavourable
Notional value $191,547 (US$192,548)


The loss of $1,340 (US$1,282) (2006 - n/a) and $10,910 (US$10,267) (2006 - n/a) for the three and six months ended September 30, 2007, has been recorded in other liabilities. The offsetting values are recorded as to a loss of $1,106 (US$1,059) and $10,681 (US$10,047) in Other Comprehensive Income and a loss of $234 (US$224) and $229 (US$219) in other income (expense) respectively for the three and six months ended September 30, 2007.

(iv) At September 30, 2007, Energy Savings had unforced capacity contracts in its US subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 57.9 - 82.0 MW-month
Total remaining notional volume 139.9 MW-month
Maturity dates October 31, 2007
Fixed price per GJ (in dollars) $2.98 - $12.31 (US$3.00 - US$12.37)
Fair value $43 (US$44) favourable
Notional value $1,182 (US$1,188)

The loss of $14 (US$13) (2006 - n/a) and $33 (US$30) for the three and
six months ended September 30, 2007, has been recorded in other
liabilities with its offsetting values being recorded in other income
(expense).

(v) As at September 30, 2007, Energy Savings had renewable energy
certificates in its Canadian subsidiaries and affiliates which have been
classified as held-for-trading and marked to market with the following
terms:

Notional volume 10 - 28,500 MWh
Total remaining notional volume 171,117 MWh
Maturity dates December 31, 2007 - December 31, 2012
Fixed price per MWh (in dollars) $3.00 - $25.00
Fair value $nil
Notional value $870

For the three and six months ended September 30, 2007, no entry was
recorded in the financial statements as there was no change in fair
value. Future changes to the fair value will be recorded in other assets
and the offsetting values will be recorded in other income.

(vi) As at September 30, 2007, Energy Savings had renewable energy
certificates in its US subsidiaries and affiliates which have been
classified as held-for-trading and marked to market with the following
terms:

Notional volume 1,000 - 10,000 MWh
Total remaining notional volume 51,000 MWh
Maturity dates December 31, 2007 - December 31, 2012
Fixed price per MWh (in dollars) $5.97 (US$6.00)
Fair value $nil
Notional value $304 (US$ 306)

For the three and six months ended September 30, 2007, no entry was
recorded in the financial statements as there was no change in fair value.
Future changes to the fair value will be recorded in other assets and the
offsetting values will be recorded in other income.

(vii) At September 30, 2007, Energy Savings had gas put and call options
in its Canadian subsidiaries and affiliates which have been classified as
held-for-trading and marked to market with the following terms:

Notional volume 38 - 47,250 GJ/month
Total remaining notional volume 9,306,833 GJ
Maturity dates October 31, 2007 - September 30, 2012
Fixed price per GJ (in dollars) $5.19 - $13.20
Fair value $4,897 unfavourable

The fair value is net of the present value of premiums which have yet to
be paid. The gain of $111 (2006 - $728 loss) and loss of $48 (2006 -
$151 loss) for the three and six months ended September 30, 2007, has
been recorded in other liabilities with its offsetting values being
recorded in other income (expense).

(viii) At September 30, 2007, Energy Savings had other gas put and call
options in its US subsidiaries and affiliates which have been classified
as held-for-trading and marked to market with the following terms:

Notional volume 5 - 122,000 MmBTU/month
Total remaining notional volume 11,222,835 MmBTU
Maturity dates October 31, 2007 - June 30, 2012
Fixed price per MmBTU (in dollars) $5.47 - $11.30 (US$5.50 - US$11.36)
Fair value $2,860 (US$2,875) unfavourable

The fair value is net of the present value of premiums which have yet to
be paid. The loss of $2,529 (US$2,421) (2006 - 3,854 loss (US$3,448)) and
the loss of $2,873 (US$2,744) (2006 - $2,722 loss (US$2,435)) respectively
for the three and six months ended September 30, 2007, has been recorded
in other assets with its offsetting values being recorded in other
income (expense).

(ix) The Fund has foreign exchange forwards that are considered derivative
financial instruments. The fair value of derivative financial instruments
is the estimated amount that Energy Savings would pay or receive to
dispose of these forwards at market. Management has estimated the value of
its foreign exchange forwards using a discounted cash flow method that
employs market forward curves. Hedge accounting was applied to most of
these forwards up to September 30, 2006. However, the hedge was
de-designated and a loss of $195 for the year ended March 31, 2007 was
recorded in other liabilities. As the required hedge accounting
effectiveness was achieved for certain quarters of Fiscal 2007, a $1,933
gain has been deferred and recorded in accumulated other comprehensive
income and will be recognized in the Statement of Operations over the
remaining term of each hedging relationship. At September 30, 2007, Energy
Savings had foreign exchange forwards classified as held-for-trading to
which it has committed with the following terms:

Notional amount $2,258-$2,276 (US$2,000)
Total remaining notional amount $54,408 (US$48,000)
Maturity dates May 7, 2008 - April 7, 2010
Exchange rates $ 1.1289 - $1.1381
Fair value $6,234 favourable

The gain of $2,890 (2006 - n/a) and $6,428 ($2006 - n/a) for the three
and six months ended September 30, 2007, has been recorded in other
liabilities with the offsetting values being recorded in other income
(expense).

(x) At September 30, 2007, Energy Savings had physical gas forward
contracts in its Canadian subsidiaries and affiliates which are designated
as hedges of Energy Savings' anticipated cost of sales to which it has
committed with the following terms:

Notional volume 1-16,184 GJ/day
Total remaining notional volume 215,630,439 GJ
Maturity dates October 31, 2007 - July 31, 2013
Fixed price per GJ (in dollars) $4.93 - $9.76
Fair value $127,615 unfavourable
Notional value $1,535,285

The loss of $120,641 (2006 - n/a) and loss of $324,644 (2006 - n/a) for
the three and six months ended September 30, 2007, has been recorded in
other liabilities with the offsetting values being recorded in Other
Comprehensive Income.

(xi) At September 30, 2007, Energy Savings had gas transportation forward
contracts in its Canadian subsidiaries and affiliates which are designated
as hedges of Energy Savings' anticipated cost of sales to which it has
committed with the following terms:

Notional volume 250-65,325 GJ/day
Total remaining notional volume 90,670,701 GJ
Maturity dates October 31, 2007 - October 31, 2012
Fixed price per GJ (in dollars) $0.01 - $1.68
Fair value $8,989 unfavourable
Notional value $104,759

The loss of $627 (2006 - n/a) and gain of $3,473 (2006 - n/a) for the
three and six months ended September 30, 2007, has been recorded in
other liabilities with the offsetting values being recorded in Other
Comprehensive Income.

(xii) At September 30, 2007, Energy Savings had physical gas forward
contracts in its US subsidiaries and affiliates the majority of which
are designated as hedges of Energy Savings' anticipated cost of sales
with the remainder being classified as held-for-trading to which it
has committed with the following terms:

Notional volume 5-4,663 MmBTU/day
Total remaining notional volume 58,980,090 MmBTU
Maturity dates October 31, 2007 - December 31, 2012
Fixed price per GJ (in dollars) $5.27 - $11.37 (US$5.30 - US$11.43)
Fair value $19,550 (US$19,652) unfavourable
Notional value $489,485 (US$492,044)

The loss of $18,388 (US$17,603) (2006 - n/a) and $31,933 (US$30,319)
(2006 - n/a) for the three and six months ended September 30, 2007, has
been recorded in other liabilities with the offsetting values being
recorded in Other Comprehensive Income.

(xiii) At September 30, 2007, Energy Savings had gas transportation
forward contracts in its US subsidiaries and affiliates the majority of
which are designated as hedges of Energy Savings' anticipated cost of
sales with the remainder being classified as held-for-trading to which it
has committed with the following terms:

Notional volume 380 - 14,000 MmBTU/day
Total remaining notional volume 30,062,640 MmBTU
Maturity dates October 31, 2007 - January 31, 2013
Fixed price per GJ (in dollars) $0.01 - $0.60 (US$0.01 - US$0.60)
Fair value $nil
Notional value $4,286 (US$4,309)

For the three months ended September 30, 2007, no entry was recorded in
the financial statements as there was no change in fair value. Future
changes to the fair value will be recorded in other assets (liabilities)
and the offsetting values will be recorded in other comprehensive income
and other income (expense) as applicable.

The following tables summarize certain aspects of the financial assets
and liabilities recorded in the financial statements as at September
30, 2007.


Description Other Other Other Other
Assets Assets Liabilities Liabilities
- Current - Long Term - Current - Long Term

Canada
Fixed for floating
swaps $17,590 $28,388 $98,327 $165,202
Renewable Energy
Certificates - - - -
Options - - $1,507 $3,390
Physical Gas
Forward contracts - - $62,194 $65,421
Transportation
forward contract $71 - $4,220 $4,841
United States
Fixed for
floating swaps - - $9,212 $13,252
Physical
electricity forwards - - $7,521 $2,084
Unforced Capacity
forward contracts $30 - - -
Renewable Energy
Certificates - - - -
Options $463 $820 $1,623 $2,520
Physical Gas
Forward contracts $1,521 $6,324 $15,428 $11,967
Transportation
forward contract - - - -
Foreign Exchange
Forward contracts $1,395 $4,839 - -
Other non-derivative
assets $730 - - -


As at September
30, 2007 $21,800 $40,371 $200,032 $268,677

Three months ended Six months ended
September 30, 2007 September 30, 2007

Gain (loss) Unrealized Gain (loss) Unrealized
designated gain (loss) designated gain (loss
as cash flow recorded as cash flow recorded
hedges in Other hedges in Other
transferred Comprehensive transferred Comprehensive
from Other Income from Other Income
Comprehensive Comprehensive
Income to Income to
the Statement the Statement
of Operations of Operations

Description
Canada
Fixed for
floating swaps $18,526 ($52,405) $31,835 ($112,392)
Physical Gas
Forward contracts $21,299 ($99,342) $8,106 ($316,538)
Transportation
forward contract $399 ($229) $893 $4,366
United States
Fixed for
floating swaps $1,620 ($935) $5,651 $3,240

Physical electricity
forwards $2,383 $2,310 $3,407 ($6,859)

Physical Gas
Forward contracts $3,863 ($10,670) $7,815 ($28,275)

Total realized
and unrealized
gains (losses) $48,090 ($161,271) $57,707 ($456,458)


The estimated net amount of existing gains and losses reported in accumulated other comprehensive income that is expected to be reclassified to net income within the next 12 months is $177,720.

These derivative financial instruments create a credit risk for Energy Savings since they have been transacted with a limited number of counterparties. Should any counterparty be unable to fulfill its obligations under the contracts, Energy Savings may not be able to realize the other asset balance recognized in the financial statements.

The carrying value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, management incentive program payable and unit distribution payable approximates their fair value due to their short term liquidity.

In Illinois and Alberta, Energy Savings assumes the credit risk associated with cash collection from its customers. Credit review processes have been put in place for these markets where Energy Savings has credit risk to manage the customer default rate. If a significant number of customers were to default on their payments, it could have a material adverse effect on Energy Savings' operations and cash flow. Management factors default from credit risk in its margin expectations for both Illinois and Alberta.

For the remaining markets in which Energy Savings operates, the LDCs provide collection services and assume the risk of any bad debts owing from Energy Savings' customers for a fee. Therefore, Energy Savings receives the collection of customer account balances directly from the LDCs. Management believes that the risk of the LDCs failing to deliver payment to Energy Savings is minimal.

(b) Supplier risk

Energy Savings purchases the majority of the gas and electricity delivered to its customers through long term contracts entered into with various suppliers. Energy Savings has an exposure to supplier risk as the ability to continue to deliver gas and electricity to its customer is reliant upon the ongoing operations of these suppliers and their ability to fulfill their contractual obligations. Energy Savings has discounted the fair value of its financial assets and liabilities by $370 to accommodate for its counterparties risk of default. A significant portion of these gas and electricity purchases is from Shell Energy North America.

(c) Foreign currency risk

Energy Savings has an exposure to foreign currency exchange rates, as a result of its investment in U.S. operations. Changes in the applicable exchange rate may result in a decrease or increase in the Accumulated Other Comprehensive Loss. A non-cash gain (loss) for the three and six months ended September 30, 2007 of $1,193 and ($422), respectively has been recorded in the Other Comprehensive Loss. For the three and six months ended September 30, 2006, a non-cash gain (loss) of $15 and ($390), respectively was recorded in other expense.

12. NET INCOME (LOSS) PER UNIT



Three months ended Six months ended
September 30 September 30

2007 2006 2007 2006

Basic income (loss) per unit
----------------------------

Net income (loss)
available to Unitholders $ 4,754 $ (1,257) $ 30,672 $ 9,748
--------- ----------- ---------- -----------
Weighted average number
of units outstanding 98,140 97,790 98,114 97,121
Weighted average number of
Class A preference shares 8,706 8,902 8,706 9,532
--------- ----------- ---------- -----------
Basic units and shares
outstanding 106,846 106,692 106,820 106,653
--------- ----------- ---------- -----------

Basic income (loss)
per unit $ 0.05 $ (0.01) $ 0.29 $ 0.09
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------

Diluted income (loss)
per unit
--------------------

Net income (loss)
available to Unitholders $ 4,754 $ (1,257) $ 30,672 $ 9,748
--------- ----------- ---------- -----------

Basic units and shares
outstanding 106,846 106,692 106,820 106,653

Dilutive effect of:

Unit options 135 301 132 285

Unit appreciation rights 766 398 765 410

Deferred unit grants 26 16 24 15
--------- ----------- ---------- -----------
Units outstanding on a
diluted basis 107,773 107,407 107,741 107,363
--------- ----------- ---------- -----------
Diluted income (loss)
per unit $ 0.04 $ (0.01) $ 0.28 $ 0.09
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------

13. REPORTABLE BUSINESS SEGMENTS

Energy Savings operates in two reportable geographic segments, Canada and
the United States. Reporting by geographic region is in line with Energy
Savings' performance measurement parameters. Both the Canadian and U.S.
operations have both gas and electricity business segments.

Energy Savings evaluates segment performance based on gross margin.

The following table presents Energy Savings' results from continuing
operations by geographic segment:

Three months ended September 30, 2007

Canada United States Consolidated
---------- ------------- -------------
Sales - gas $ 77,185 $ 17,698 $ 94,883
Sales - electricity 136,935 51,713 188,648
---------------------------------------------------------------------------
Sales $ 214,120 $ 69,411 $ 283,531
---------------------------------------------------------------------------

Gross margin $ 36,746 $ 6,861 $ 43,607
Amortization of electricity
contracts 268 1,838 2,106
Amortization of capital assets 714 122 836
Other operating expenses 18,108 11,001 29,109
Other (income) expense (1,084) 7,792 6,708
Provision for income tax 94 - 94
---------------------------------------------------------------------------
Net income (loss) $ 18,646 $ (13,892) $ 4,754
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Additions to capital assets $ 3,565 $ 213 $ 3,778
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Three months ended September 30, 2006

Canada United States Consolidated
---------- ------------- -------------
Sales - gas $ 79,629 $ 13,559 $ 93,188
Sales - electricity 130,579 12,360 142,939
---------------------------------------------------------------------------
Sales $ 210,208 $ 25,919 $ 236,127
---------------------------------------------------------------------------

Gross margin $ 28,568 $ 2,737 $ 31,305
Amortization of gas contracts 3,860 - 3,860
Amortization of electricity
contracts 2,015 - 2,015
Amortization of capital assets 580 130 710
Other expenses 18,101 7,126 25,227
Other income 1,092 4,198 5,290
Recovery of income tax (4,540) - (4,540)
---------------------------------------------------------------------------
Net income (loss) $ 7,460 $ (8,717) $ (1,257)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Additions to capital assets $ 749 $ 210 $ 959
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Six months ended September 30, 2007

Canada United States Consolidated
---------- ------------- -------------
Sales - gas $ 239,851 $ 45,808 $ 285,659
Sales - electricity 270,665 80,076 350,741
---------------------------------------------------------------------------
Sales $ 510,516 $ 125,884 $ 636,400
---------------------------------------------------------------------------

Gross margin $ 82,166 $ 13,250 $ 95,416
Amortization of gas
contracts 177 - 177
Amortization of electricity
contracts 751 2,604 3,355
Amortization of capital
assets 1,355 247 1,602
Other operating expenses 36,706 21,370 58,076
Other (income) expense (1,504) 9,377 7,873
Provision for (recovery of)
income tax (6,374) 35 (6,339)
---------------------------------------------------------------------------
Net income (loss) $ 51,055 $ (20,383) $ 30,672
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Additions to capital assets $ 4,085 $ 215 $ 4,300
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Total goodwill $ 94,576 $ 20,904 $ 115,480
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Total assets $ 391,003 $ 113,985 $ 504,987
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Six months ended September 30, 2006

Canada United States Consolidated
---------- ------------- -------------
Sales - gas $ 221,610 $ 32,257 $ 253,867
Sales - electricity 246,431 21,379 267,810
---------------------------------------------------------------------------
Sales $ 468,041 $ 53,636 $ 521,677
---------------------------------------------------------------------------

Gross margin $ 67,587 $ 4,878 $ 72,465
Amortization of gas
contracts 7,719 - 7,719
Amortization of electricity
contracts 4,031 - 4,031
Amortization of capital
assets 1,186 251 1,437
Other operating expenses 38,400 13,975 52,375
Other expense 520 3,682 4,202
Recovery of income tax (7,047) - (7,047)
---------------------------------------------------------------------------
Net income (loss) $ 22,778 $ (13,030) $ 9,748
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Additions to capital assets $ 1,310 $ 519 $ 1,829
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Total goodwill $ 94,576 $ - $ 94,576
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Total assets $ 322,826 $ 53,723 $ 376,549
---------------------------------------------------------------------------
---------------------------------------------------------------------------


14. GUARANTEES

(a) Officers and Directors

Corporate indemnities have been provided by the Fund to all directors and certain officers of its subsidiaries and affiliates for various items including, but not limited to, all costs to settle suits or actions due to their association with the Fund and its subsidiaries and/or affiliates, subject to certain restrictions. The Fund has purchased directors' and officers' liability insurance to mitigate the cost of any potential future suits or actions. Each indemnity, subject to certain exceptions, applies for so long as the indemnified person is a director or officer of one of the Fund's subsidiaries and/or affiliates. The maximum amount of any potential future payment cannot be reasonably estimated.

(b) Operations

In the normal course of business, the Fund and/or the Fund's subsidiaries and affiliates have entered into agreements that include guarantees in favour of third parties, such as purchase and sale agreements, leasing agreements and transportation agreements. These guarantees may require the Fund and/or its subsidiaries and affiliates to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and regulations or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The maximum amount payable under these guarantees is estimated to be $59,000.

15. COMMITMENTS

(a) Commitments for premises and equipment under operating lease obligations for each of the next five years and thereafter are as follows:



2008 $ 2,659
2009 5,294
2010 4,914
2011 4,092
2012 3,423
Thereafter 9,435
------------

$ 29,817
------------
------------

(b) Commitments under the Master Service agreement with EPCOR for the
duration of the agreement are as follows:

2008 $ 4,595
2009 9,190
2010 6,127
------------

$ 19,912
------------
------------
(c) Commitments under long-term gas and electricity contracts with various
suppliers for each of the next five years and thereafter are as follows:


2008 $ 727,711
2009 1,167,199
2010 885,341
2011 622,524
2012 313,952
Thereafter 86,781
------------

$ 3,803,508
------------
------------

Energy Savings is also committed under long-term contracts with customers
to supply gas and electricity. These contracts have various expiry dates
and renewal options.


16. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

Certain figures from the comparative financial statements have been reclassified from statements previously presented to conform to the presentation of the current year's consolidated financial statements.

17. SUBSEQUENT EVENT

On October 9, 2007, Energy Savings issued and deposited in escrow 1,169,399 units of the Fund for the benefit of the former owners of Just Energy. The units were issued based on the simple average closing price from October 1, 2007 to October 5, 2007 and will vest over three years.

The Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.

Contact Information

  • Energy Savings Income Fund
    Ms. Rebecca MacDonald
    Executive Chair
    (416) 367-2872
    or
    Energy Savings Income Fund
    Mr. Brennan Mulcahy
    Chief Executive Officer
    (905) 795-4200
    or
    Energy Savings Income Fund
    Mr. Ken Hartwick, C.A.
    President and Chief Financial Officer
    (905) 795-3557
    Website: www.esif.ca