Energy Savings Income Fund
TSX : SIF.UN

Energy Savings Income Fund

November 06, 2006 09:00 ET

Energy Savings Income Fund: Second Quarter Results for 3 and 6 Months Ending September 30, 2006

MANAGEMENT REAFFIRMS PUBLISHED GUIDANCE FOR YEAR EXECUTIVE CHAIR REBECCA MACDONALD COMMENTS ON PROPOSED TAXATION OF TRUST DISTRIBUTIONS

TORONTO, ONTARIO--(CCNMatthews - Nov. 6, 2006) - Energy Savings Income Fund (TSX:SIF.UN) -

Highlights for the three months ended September 30, 2006 included:

- Gross customer additions of 93,000 with net additions of 59,000. Energy Savings' customer base reached 1,647,000, up 24% year over year.

- Gross margin (seasonally adjusted) of $44.2 million, up 12% quarter over quarter.

- Net loss of $1.3 million, down from net income of $9.8 million, primarily due to non-cash mark to market valuation of hedge positions.

- Distributable cash after customer replacement of $24.8 million ($0.23 per unit), down 6% quarter over quarter.

- Distributions of $0.25 per unit, up 12% quarter over quarter.

- Completion of successful test marketing allowing entry into the Indiana natural gas market.

- Reaffirmation of management guidance for the fiscal 2007 annual results versus fiscal 2006:



Gross Margin growth 15% - 20%

Distributable Cash growth 15% - 20%


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 Fund's customer base.

Energy Savings Income Fund announced its results for the three and six months ended September 30, 2006.



-------------------------------------------------------------------------
Three months ended September 30, F2007 Per F2006 Per
($ millions except per Unit) Unit Unit
-------------------------------------------------------------------------
Sales(1) $330.1 $270.9
-------------------------------------------------------------------------
Gross Margin(1) $ 44.2 $0.41 $ 39.3 $0.37
-------------------------------------------------------------------------
Distributable Cash(1)
-------------------------------------------------------------------------
- After Customer Replacement $ 24.8 $0.23 $ 26.5 $0.25
-------------------------------------------------------------------------
- After Marketing for New Customers $ 19.1 $0.18 $ 20.8 $0.19
-------------------------------------------------------------------------
Distributions $ 26.9 $0.25 $ 24.0 $0.22
-------------------------------------------------------------------------
Long Term Customers 1,647,000 1,327,000
-------------------------------------------------------------------------
Six months ended September 30, F2007 Per F2006 Per
($ millions except per Unit) Unit Unit
-------------------------------------------------------------------------
Sales(1) $651.2 $533.9
-------------------------------------------------------------------------
Gross Margin(1) $ 92.4 $0.86 $ 82.0 $0.77
-------------------------------------------------------------------------
Distributable Cash(1)
-------------------------------------------------------------------------
- After Customer Replacement $ 55.2 $0.51 $ 53.6 $0.50
-------------------------------------------------------------------------
- After Marketing for New Customers $ 40.6 $0.38 $ 42.3 $0.40
-------------------------------------------------------------------------
Distributions $ 52.5 $0.49 $ 47.5 $0.44
-------------------------------------------------------------------------

(1) Seasonally adjusted


Operationally, we faced a number of challenges during the quarter. In particular, excess gas from last year's warm winter in Ontario was released from local utility storage and was sold during a period of low spot prices. In the US, the growth of our business has been slowed because of credit screening of contracts in Illinois and high customer losses prior to flow and heavy attrition in New York due to customer switching.

There is little that Energy Savings can do about lower gas consumption during warm winters and we cannot control the times at which excess gas is released from utility storage. Our risk management policy requires excess supply to be sold immediately. As has been stated in the past, we are exposed to the extent of 3% to 4% of our margin in a record warm winter. Despite this setback, we expect our year over year margin increase to be in the 15% to 20% range assuming a normal winter season.

We have taken steps to deal with each of the US issues. In Illinois, tight credit processes have been accepted by our independent sales agents and they are modifying their sales techniques accordingly. We expect a ramp-up in Illinois production, particularly as the agents expand their market territory to include newly opened Indiana.

In New York, we have worked collaboratively with the local utility and regulators to institute what is known in all our other markets as a Contest Period. Many of our New York customers are being switched, without the opportunity to make an informed decision, to other suppliers. Without the ability to contest this switch, it is often several months before the customer can be returned to our service. This inconveniences suppliers, customers and the utility alike.

We are currently petitioning for a Contest Period system with the support of the utility and many other industry participants under which the existing suppliers to switched customers can contact the customer and receive authority to stop the switch. The results of experience in existing jurisdictions show lower attrition and an increase in the ratio of signed contracts submitted to contracts which eventually flow. Management is optimistic that a Contest Period will be approved prior to calendar year end.

Our expectation is that US customer aggregation will ramp up in Q3 and Q4. While we will not reach our US target of 190,000 new customers for the year, strong results in Canada (where we are 60% of the way to the published annual target after 6 months) sees us 47% of the way to our overall target of 475,000 gross additions and 307,000 net additions after the second quarter.

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



----------------------------------------------------------------------
Market Published F2007 Q2 F2007 YTD % of F2006 YTD
Target Additions Additions Target Additions
----------------------------------------------------------------------
Ontario - Gas 50,000 9,000 23,000 46% 32,000
----------------------------------------------------------------------
Other provinces - Gas 60,000 17,000 40,000 67% 43,000
----------------------------------------------------------------------
Canada - Electricity 175,000 41,000 108,000 62% 85,000
----------------------------------------------------------------------
United States - Gas 100,000 20,000 37,000 37% 34,000
----------------------------------------------------------------------
U.S. - Electricity 90,000 6,000 13,000 14% 1,000
----------------------------------------------------------------------
Total 475,000 93,000 221,000 47% 195,000
----------------------------------------------------------------------
Net Additions 307,000 59,000 145,000 47% 106,000
----------------------------------------------------------------------


Overall, our customer base stands at 1,647,000, up 24% in the last 12 months. Customer aggregation, always the key to Energy Savings' success remains strong. We are very pleased to announce that, following successful test marketing, Energy Savings has entered the Indiana natural gas market with the opening of our first office in September. Because of its proximity to Illinois and a regulatory environment very close to Ontario, we believe Indiana will be a low cost but profitable market in the coming years.

Our business has become more seasonal and this shift toward Q3 and Q4 will continue as we grow in markets like the US and Alberta. To aid our Unitholders' ability to understand the financial impact of this seasonality, we placed a presentation entitled "Business Seasonality" on our web site www.esif.ca.

This presentation looks at our published guidance of 15% to 20% growth in both gross margin and distributable cash and indicates the quarterly results necessary to meet the middle of our guidance based on expected seasonality. The table below highlights our position after the second quarter versus these necessary levels:



------------------------------------------------------------------
Gross Margin Q1 Q2 Q3 Q4 Year Year
(after Bad Debt) over Year
------------------------------------------------------------------
Quarterly 20% 19% 28% 33%
Seasonality
------------------------------------------------------------------
Pro Rata $44 m $42 m $60 m $71 m $217 m 17.5%
------------------------------------------------------------------
Actual $47 m $42 m
------------------------------------------------------------------
Distributable Cash
After Customer
Replacement
------------------------------------------------------------------
Quarterly 19% 17% 29% 35%
Seasonality
------------------------------------------------------------------
Pro Rata $28 m $26 m $44 m $54 m $152 m 16.9%
------------------------------------------------------------------
Actual $30 m(1) $25 m
------------------------------------------------------------------

(1) Excludes $2.8 million tax recovery.


As you can see, after two quarters we are at a pace that would see us meet our guidance for the year. Our ability to actually do so will be dependent on some factors beyond our control such as another record warm winter.

Our payout ratio after customer replacement is higher quarter over quarter, up from 91% in Q2 last year to 109% this year. This is due to two factors, firstly, the greater seasonality this year versus last and, secondly, the inclusion of a tax recovery last year. Without this recovery, Q2 F2006 would have shown a 100% payout ratio. After all marketing, our ratio was 141%, up from 116% for the prior comparable quarter. Without the tax recovery, the prior comparable period would have been 132% after marketing.

Our payout ratio for the first six months was 95% after customer replacement versus 89% last year (91% excluding the tax recovery). Management is comfortable that the payout ratios on an annual basis will be within the target ranges of 75%-80% for payout ratio after customer replacement and less than 100% for the payout ratio after the deduction of marketing expenses.

Regarding the second quarter results, CEO Brennan Mulcahy stated: "In our Annual Report and again in our First Quarter Report, I provided guidance indicating that management expects our margin and distributable cash to grow between 15% and 20% this year. Given the uncertainty in the Trust sector following the announcement of the Federal Government proposal to tax Income Trust distributions, I felt it would be useful to clearly reaffirm Management guidance for the remainder of this year."

"Because of the matched nature of our supply and demand plus the lead time required for customers signed during the remainder of the year to flow, we have a clear picture of our gross margin for Q3 and Q4. As our G&A and marketing costs are reasonably predictable, management has a similarly clear view of distributable cash through to March 31, 2007. This view is based on normal winter weather and there inevitably will be some balancing adjustments (up or down) to reach the final number. That said, based on results to date, management believes that year end results will be in line with our published guidance."

"Regarding our marketing results, clearly our additions in Illinois and New York are lagging the rates necessary to reach our U.S. target. At the same time, additions in Canada are well ahead of pace to meet targets. We stand at 47% of our 475,000 gross and 307,000 net addition targets after six months. While we are disappointed in the U.S. additions to date, we believe that changes to our customer credit policy in Illinois and the potential introduction of a Contest Period in New York will bring improved results in these markets for the second half of the year. Our independent sales agents tell us that the customers in Illinois and New York are as receptive to our long term fixed contracts as are customers in Ontario. If this holds true, the United States will be an Energy Savings growth market for decades to come."

Executive Chair Rebecca MacDonald commented on the Federal Government's proposal to tax Income Trust distributions: "I am gravely disappointed by the Government's reversal of policy on Trust taxation. While I fully understand the need to halt the total conversion of corporate Canada to the Trust structure, I believe this could have been accomplished without the substantial damage to the value of existing Trusts. Many Trusts, including ours, have never operated in the corporate form. Energy Savings chose to go public as a Trust, not in an attempt to reduce corporate tax but rather to highlight our unique ability to both grow very rapidly and pay out substantial cash flow. The measures as proposed would deny us access to capital and essentially force us to convert to a corporation."

"The rationale for not "grandfathering" existing trusts is that Canadian capital is being channeled away from growth industries toward low-growth income trusts, harming our long term national competitiveness. Let us examine this in our context. The deregulation of utility services is sweeping across North America. It has been and continues to be one of the highest growth sectors of the economy. Energy Savings, a Canadian founded and owned company, is a North American industry leader in this growing market. We have had compound growth in sales and cash flow of over 40% per year for the five years since we went public. We have delivered exceptional returns to our Unitholders over the same period. Energy Savings is exactly the type of company the Government should encourage the capital markets to support. Constraining future conversions does not require prejudicing existing entities invested in and operated in good faith for years."

"At this writing, Energy Savings units are down almost 20% on this news. Logic would suggest that a tax on distributions four years out should most harm low growth Trusts whose value stems predominantly from their distribution rate rather than capital gain generated by growth. Market analysts have consistently rated Energy Savings as one of the fastest growing Canadian Trusts in both the near and longer term. Nothing in this announcement changes our growth plans or expectations. As well, unlike many other Trusts, we have no long term debt which could threaten the stability of a Trust as it adjusts to a new tax regime. This should further reinforce our value."

"I am optimistic that the market will recognize that Energy Savings' value as a unique growth/income vehicle remains intact and that the market price lost last week will be recovered. Your management team will do everything within its power to see that this happens."

Ms. MacDonald added: "Energy Savings is a unique growth Trust. Our track record is tangible in terms of the 23 distribution rate increases seen by our Unitholders over the past five years. While our operating performance is strong, all things considered, an increase in distribution rate would be imprudent at this time. Historically, as our customer base and cashflows have grown, our distributions have increased. I do not anticipate that changing in the future."

The Fund

Energy Savings' business, which is conducted in Ontario, Manitoba, Alberta, Quebec, British Columbia, Illinois, Indiana and New York, involves the sale of natural gas to residential, small to mid-size commercial and small industrial customers under long term, irrevocable fixed price contracts. Energy Savings also supplies electricity to Ontario, Alberta and New York customers. By fixing the price of natural gas or electricity under its fixed price 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.

Non GAAP Measures

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.

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") - October 31, 2006

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 three and six months ended September 30, 2006. This analysis should be read in conjunction with the unaudited interim consolidated financial statements for the three and six months ended September 30, 2006 as well as the audited consolidated financial statements and related MD&A for the year ended March 31, 2006 contained in the 2006 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 website 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 Ontario to hold securities and to distribute the income of its wholly owned operating subsidiaries and affiliates: Ontario Energy Savings L.P. ("OESLP"), Energy Savings (Manitoba) Corp. ("ESMC"), 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") and Indiana Energy Savings Corp. ("INESC").

Energy Savings' business involves the sale of natural gas to residential and small to mid-size commercial customers under long term, irrevocable fixed price contracts. Energy Savings also supplies electricity to Ontario, Alberta and New York customers. By fixing the price of natural gas or electricity under its fixed price 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:

"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 expect to have the opportunity to renew at the end of their contract.

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

"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) 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 used by a typical household in Ontario.

Non GAAP Measures

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 gross margin is not a defined performance measure under Canadian GAAP. Seasonally adjusted analysis applies solely to the Canadian gas market and specifically Ontario, Quebec and Manitoba.

No seasonal adjustment is required for electricity as the supply is balanced daily.

Cash Available for Distribution

Cash available for distribution is not a defined term under Canadian GAAP. It refers to the net cash received by the Fund that is available for distributions 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 items 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 before marketing expenses" represents the net cash available for distribution to Unitholders prior to marketing expenses and is calculated by deducting cash expenses, including general and administrative expense, bad debts, capital tax, income taxes and other expenses, from seasonally adjusted gross margin. This calculation is not defined under Canadian GAAP. This non-GAAP measure may not be comparable to other income funds.

"Distributable cash after customer replacement" represents the net cash available for distribution to Unitholders as defined above with the deduction of marketing expenses necessary to maintain the Fund's customer base at a stable level equal to that in place at the beginning of the year. This calculation is not defined under Canadian GAAP. This non-GAAP measure may not be comparable to other income funds.

"Distributable cash after marketing expenses" represents the net cash available for distribution to Unitholders as defined above after the deduction of marketing expenses utilized to both maintain and expand the Fund's customer base. This calculation is not defined under Canadian GAAP. This non-GAAP measure may not be comparable to other income funds.



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

2006 2005
Per Per
$ Unit $ Unit Change

Cash available for distribution
After customer replacement 24,755 $0.23 26,465 $0.25 (6)%
After marketing expense to add
new customers 19,068 $0.18 20,760 $0.19 (8)%
Distributions 26,891 $0.25 24,043 $0.22 12%

Payout ratio
After customer replacement 109% 91%
After marketing expense to add
new customers 141% 116%



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

2006 2005
Per Per
$ Unit $ Unit Change

Cash available for distribution
After customer replacement 55,241 $0.51 53,640 $0.49 3%
After marketing expense to
add new customers 40,557 $0.38 42,325 $0.40 (4)%
Distributions 52,450 $0.49 47,506 $0.44 10%
Payout ratio
After customer replacement 95% 89%
After marketing expense to
add new customers 129% 112%


Operations

Gas - Canadian markets

Ontario, Quebec and British Columbia

In each of the markets that Energy Savings operates, it is required to deliver gas to the LDCs for its customers throughout the year. 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 in winter months is higher than in the spring and summer months. Consequently, cash received from customers and LDCs is 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.

Gas - U.S. markets

Cash flow from Illinois and New York 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 - Canadian and U.S markets

Cash flow from electricity operations will be greatest during the summer and winter quarters as electricity consumption is typically highest during these periods.



Distributable cash and cash distributions
For the three months ended September 30
(thousands of dollars except per unit amounts)


2006 2005
------- -------
Per Unit Per Unit
-------- --------

Cash available for distribution
Gross margin per financial statements $31,305 $0.29 $23,124 $0.22
Adjustments required to reflect net
cash receipts from gas sales 12,940 16,217
------- -------
Seasonally adjusted gross margin $44,245 $0.41 $39,341 $0.37
------- -------
General and administrative (10,999) (8,500)
Capital tax expense (180) (207)
Bad debt expense (2,441) (1,644)
Income tax recovery - 2,517
Interest and other bank charges (868) (16)
------- -------
(14,488) (7,850)
------- -------

Cash available for distribution
before marketing expenses 29,757 $0.28 31,491 $0.29
Marketing expenses to maintain
customer base (5,002) (5,026)
------- -------

Cash available for distribution
after customer replacement 24,755 $0.23 26,465 $0.25
------- -------
Marketing expenses to add
new customers (5,687) (5,705)
------- -------

Cash available for distribution $19,068 $0.18 $20,760 $0.19
------- -------
------- -------

Reconciliation to Statements
of Cash Flow

Cash inflow from operations $4,379 $26,046
Add:
Increase (decrease) in non-cash
working capital 18,577 (6,117)
Tax effect on distributions paid
to the holders of Class A
preference shares 800 831
Current income tax recovery (4,688) -
------- -------
$19,068 $20,760
------- -------
------- -------

Distributions
Unitholder distributions $24,580 $21,675
Class A preference share
distributions 2,214 2,301
Unit appreciation rights
distributions 93 64
------- -------
26,887 24,040
Non-cash distributions - deferred
unit grants 4 3
------- -------
Total distributions $26,891 $0.25 $24,043 $0.22
------- -------
------- -------

Diluted average number of
units outstanding 107.4m 106.9m


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

2006 2005
------- -------
Per Unit Per Unit
-------- --------
Cash available for distribution
Gross margin per financial
statements $72,465 $0.67 $60,226 $0.56
Adjustments required to reflect
net cash receipts from gas sales 19,893 21,781
------- -------
Seasonally adjusted gross margin $92,358 $0.86 $82,007 $0.77
------- -------
General and administrative (21,490) (16,801)
Capital tax expense (360) (414)
Bad debt expense (3,718) (2,178)
Income tax recovery - 1,170
Interest and other bank charges (1,084) (29)
------- -------
(26,652) (18,252)
------- -------
Cash available for distribution
before marketing expenses 65,706 $0.61 63,755 $0.60
Marketing expenses to maintain
customer base (10,465) (10,115)
------- -------
Cash available for distribution
after customer replacement 55,241 $0.51 53,640 $0.50
------- -------
Marketing expenses to add new
customers (14,684) (11,315)
------- -------
Cash available for distribution $40,557 $0.38 $42,325 $0.40
------- -------
------- -------

Reconciliation to Statements
of Cash Flow
Cash inflow from operations $39,088 $36,702
Add:
Increase in non-cash working
capital 7,311 3,980
Tax effect on distributions paid
to the holders of Class A
preference shares 1,640 1,643
Current income tax recovery (7,482) -
------- -------
$40,557 $42,325
------- -------
------- -------

Distributions
Unitholder distributions $47,712 $42,833
Class A preference share
distributions 4,539 4,549
Unit appreciation rights
distributions 192 119
------- -------
52,443 47,501
Non-cash distributions - deferred
unit grants 7 5
------- -------
Total distributions $52,450 $0.49 $47,506 $0.44
------- -------
------- -------

Diluted average number of
units outstanding 107.4m 106.9m


Sales and gross margin analysis
-------------------------------

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


2006 2005
------ ------
United United
Sales Canada States Total Canada States Total

Gas $79,629 $13,559 $93,188 $71,786 $6,031 $77,817
Electricity 130,579 12,360 142,939 102,194 38 102,232
--------------------------------------------------------------------
$210,208 $25,919 $236,127 $173,980 $6,069 $180,049
Increase 21% NMF(1) 31%


United United
Gross Margin Canada States Total Canada States Total

Gas $11,734 $1,898 $13,632 $13,594 $766 $14,360
Electricity 16,834 839 17,673 8,747 17 8,764
--------------------------------------------------------------------
$28,568 $2,737 $31,305 $22,341 $783 $23,124
--------------------------------------------------------------------
Increase 28% NMF(1) 35%

(1) Not Meaningful Figure.


Sales and gross margin - Per financial statements
For the six months ended September 30
(thousands of dollars)

2006 2005
------ ------
United United
Sales Canada States Total Canada States Total
-----

Gas $221,610 $32,257 $253,867 $208,807 $12,643 $221,450
Electricity 246,431 21,379 267,810 192,966 38 193,004
-----------------------------------------------------------------
$468,041 $53,636 $521,677 $401,773 $12,681 $414,454
-----------------------------------------------------------------
Increase 16% NMF1 26%


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

Gas $36,241 $3,587 $39,828 $39,330 $1,707 $41,037
Electricity 31,346 1,291 32,637 19,172 17 19,189
-----------------------------------------------------------------
$67,587 $4,878 $72,465 $58,502 $1,724 $60,226
-----------------------------------------------------------------
Increase 16% NMF(1) 20%

(1) Not Meaningful Figure.


Canada

Sales were $210.2 million and $468.0 million for the three and six months ended September 30, 2006, up 21% and 16%, respectively, from the prior comparative periods. Margins were $28.6 million for the quarter, an increase of 28% over the prior comparative quarter. Margins for the six months ended September 30, 2006 were $67.6 million, an increase of 16% from the prior comparative period. Refer to "Sales and gross margin - Seasonally adjusted" for further details.

United States

Sales and margins were $25.9 million and $2.7 million for the three months ended September 30, 2006. For the six month period, sales and margins amounted to $53.6 million and $4.9 million, respectively. The increase in sales and margin reflects the growth in customer base over the past year. Refer to "Sales and gross margin - Seasonally adjusted" for further details.



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

2006 2005
------ ------

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

Gas $79,629 $13,559 $93,188 $71,786 $6,031 $77,817
Adjustments 93,929 - 93,929 90,837 - 90,837
-----------------------------------------------------------------
173,558 $13,559 187,117 162,623 6,031 168,654
Electricity 130,579 12,360 142,939 102,194 38 102,232
-----------------------------------------------------------------
$304,137 $25,919 $330,056 $264,817 $6,069 $270,886
-----------------------------------------------------------------
Increase 15% NMF2 22%


United United
Gross margin Canada States Total Canada States Total
------------

Gas $11,734 $1,898 $13,632 $13,594 $766 $14,360
Adjustments 12,940 - 12,940 16,217 - 16,217
-----------------------------------------------------------------
24,674 1,898 26,572 29,811 766 30,577
-----------------------------------------------------------------
Electricity 16,834 839 17,673 8,747 17 8,764
$41,508 $2,737 $44,245 $38,558 $783 $39,341
-----------------------------------------------------------------
Increase 8% NMF2 12%


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

2006 2005
------ ------

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

Gas $221,610 $32,257 $253,867 $208,807 $12,643 $221,450
Adjustments 129,530 - 129,530 119,480 - 119,480
-----------------------------------------------------------------
351,140 $32,257 383,397 328,287 12,643 340,930
Electricity 246,431 21,379 267,810 192,966 38 193,004
-----------------------------------------------------------------
$597,571 $53,636 $651,207 $521,253 $12,681 $533,934
-----------------------------------------------------------------
Increase 15% NMF(2) 22%


United United
Gross margin Canada States Total Canada States Total
------------

Gas $36,241 $3,587 $39,828 $39,330 $1,707 $41,037
Adjustments 19,893 - 19,893 21,781 - 21,781
-----------------------------------------------------------------
56,134 3,587 59,721 61,111 1,707 62,818
Electricity 31,346 1,291 32,637 19,172 17 19,189
-----------------------------------------------------------------
$87,480 $4,878 $92,358 $80,283 $1,724 $82,007
-----------------------------------------------------------------
Increase 9% NMF(2) 13%


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

(2) Not Meaningful Figure.


As noted above, total sales and margin for the three months ended September 30, 2006 were $330.1 million and $44.2 million, an increase of 22% and 12%, respectively, over the second quarter of fiscal 2006.

Total sales and margin for the six months ended September 30, 2006 were $651.2 million and $92.4 million for the quarter, up 22% and 13%, respectively, over the prior comparable period.

Canada

On a seasonally adjusted basis, sales were $304.1 million for the quarter, up 15% from $264.8 million in fiscal 2006. Margins were $41.5 million for the quarter, up 8% from the same quarter in the previous year. The increase in total sales and margin is directly attributable to the 18% increase in long term customers. The increase in sales and margin was lower than the increase in customers primarily due to the changing customer base mix toward a higher percentage of electricity customers. Electricity customers, which have a lower target margin than gas, account for 44% of the long term customers.

Gas

Gas sales increased by 7% from the prior comparable quarter to $173.6 million while margins decreased by 17% to $24.7 million. During the quarter, margins were reduced by $3.4 million as a result of dispositions of excess gas held in storage by the LDCs from prior year's warm winter. This excess gas can be sold in the open market only during times permitted by the LDCs. Dispositions occurred during a period of low spot prices, resulting in lost margin in excess of the weighted average cost of supply. In contrast, the second quarter of the prior comparable year, the sale of excess gas supply resulted in an addition to gross margin of $2.9 million. On an annual basis, the impact of an unseasonably warm winter period could be 3-4% of gross margin.

Gas sales were $351.1 million for the six months ended September 30, 2006, an increase of 7% over the prior comparable period. Margins were $56.1 million, a decrease of 8% over the first six months of fiscal 2006.

Electricity

Electricity sales and margins for the three months ended September 30, 2006 increased by 28% and 92%, respectively. The increase in sales is attributable to the increase in long-term customers. The large increase in gross margin versus the prior comparable quarter is primarily a result of the improved profitability and reduction in the number of acquired load following customers and the renewal of low margin acquired customers to Energy Savings' target margin. In the prior comparable quarter, a loss of $1.3 million in balancing costs was realized on the load following portfolio. Load following results in Energy Savings bearing the risk and benefits of fluctuations in consumption from the standard customer usage profile. During the current fiscal year, there has been less volatility from the standard customer usage profile than the prior year. In addition, there were fewer load following customers than the prior comparable year due to the expiration of their contracts. At September 30, 2006, the acquired load following contracts account for approximately 7% of the electricity long-term customers; these contracts have an average remaining life of less than one year.

For the six months ending September 30, 2006, sales and margins were $246.4 million and $31.3 million, an increase of 28% and 63%, respectively.

Customers aggregated during the period generate margins at or above Energy Savings' average annual target margins of $175/RCE for gas and $110/RCE for electricity.

United States

Sales and margins for the quarter were $25.9 million and $2.7 million, the same as on a financial statement basis. Gas sales and margins were $13.6 million and $1.9 million, respectively. The increase in gas sales and margins over the prior comparable period reflects the fact that the customer base has increased by 82% from the prior comparative quarter.

Electricity sales and margins were $12.4 million and $0.8 million, respectively. Energy Savings entered the New York market in the fall of 2005.

For the six months ended September 30, 2006, sales and margins for the U.S. amounted to $53.6 million and $4.9 million, respectively.

Customers aggregated during the period generate margins at or above Energy Savings' average annual target margins of $140/RCE for gas and $110/RCE for electricity. The $140/RCE target margin in Illinois includes an allowance for anticipated bad debt expense.

Distributable Cash

Distributable cash after customer replacement for the quarter was $24.8 million ($0.23 per unit), a decrease of 6% from $26.5 million ($0.25 per unit) in the second quarter of fiscal 2006. The decrease in distributable cash after customer replacement is primarily related to lower gas margins related to the warm winter in Ontario, higher general and administrative expenses reflecting the increased size of Energy Savings and a $2.5 million tax recovery recognized in the prior comparative period. In 2006, Energy Savings implemented a tax reorganization which is expected to result in an efficient flow-through of funds generated by the operations of the business. Consequently, management does not expect to pay any material Canadian income tax during the fiscal year. Based on the implementation of this reorganization, management does not expect to receive any additional recovery of income tax.

Marketing expenses to maintain the customer base were $5.0 million for the quarter, flat compared to the prior comparable quarter despite the fact that there were fewer customers lost due to attrition and failure to renew in the current quarter. Approximately 70% of the total marketing expenses represent commission paid to independent sales agents. The remaining 30% relates to other marketing expenses such as rent for sales offices, customer service sales support team and brochures. The non-commission related costs occur evenly throughout the year while customer additions vary from quarter to quarter. As a result, the aggregation cost per RCE will vary quarter by quarter. In addition, management increased its customer aggregation costs at the beginning of the fiscal year. Management believes that aggregation costs per RCE on an annual basis will approximate the targets of $160 and $95 for gas and electricity in Canada, respectively and $110 and $100 for gas and electricity in the United States, respectively.

Distributable cash after customer replacement for the six months ended September 30, 2006 was $55.2 million ($0.51 per unit), an increase of 3% from $53.6 million in the prior comparable period. The income tax recovery from the first quarter has been removed from the year to date amounts.

Distributable cash after marketing expenses was $19.1 million ($0.18 per unit) for the quarter, a decrease of 8% from $20.8 million in the prior comparable quarter. The decrease is primarily attributable to the non-recurring tax recovery as indicated above.

Payout ratios after customer replacement were 109% and 95% for the three and six months ended September 30, 2006, respectively, compared with 91% and 89% in the prior comparable periods. Excluding the tax recovery, payout ratios after customer replacement would have been 100% and 91% for the three and six months ended September 30, 2005, respectively.

In line with management's expectations, payout ratios after marketing expenses were 141% and 129% for the three and six months ended September 30, 2006, compared with 116% and 112% in the prior comparable periods. Payout ratios in the prior year were assisted by the tax recovery. Excluding the tax recovery, payout ratios after marketing expenses for the three and six months ended September 30, 2005 would have been 132% and 115%, respectively.

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 will remain appropriate, sequential quarters will vary materially. The main impact of this will be higher distributable cash with a lower payout ratio in Q3 and Q4 and lower distributable cash with a higher payout ratio in Q1 and Q2. This seasonality has increased versus the prior year and will continue to increase as Energy Savings expands in Alberta and the U.S.

Management is comfortable that the payout ratios on an annual basis will be within the target ranges of 75%-80% for payout ratio after customer replacement and less than 100% for the payout ratio after the deduction of marketing expenses.



Net income (loss)

Reconciliation to Statement Three months ending Six months ending
of Operations September 30 September 30
2006 2005 2006 2005
---------------------------------------

Net income (loss) $(1,257) $9,396 $9,748 $20,521
Adjustments required to reflect
net cash receipts from sales 12,940 16,217 19,893 21,781
Items not affecting cash 11,273 (5,684) 16,758 (1,620)
Tax effect on distributions
paid to holders of Class A
preference shares 800 831 1,640 1,643
Current income tax recovery (4,688) (7,482)
---------------------------------------
Cash available for distribution $19,068 $20,760 $40,557 $42,325
---------------------------------------
---------------------------------------


Energy Savings had net income (loss) for the three and six months ended September 30, 2006 of $(1.3) million (2005 - $9.4 million) and $9.7 million (2005 - $20.5 million), respectively. Net income has decreased over the prior comparative periods as a result of the change in market value of certain derivative financial instruments. An expense of $5.3 million and $4.2 million was recognized during the current three and six month periods, respectively, versus income of $14.4 million and $16.8 million for the prior comparative three and six month periods. These instruments form part of the Fund's hedge positions intended to ensure stable margins over the term of customer contracts. The financial statements are in compliance with AcG-13, which requires a determination of fair value for certain derivative financial instruments that do not meet hedge accounting requirements. This fair value is determined using market information at the end of each quarter. Management believes the Fund remains effectively hedged operationally across all jurisdictions.



Summary of Quarterly Results
(thousands of dollars except per unit amounts)

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 customer replacement $24,755 $30,486(1) $41,136 $35,245
After marketing expense to add new
customers 19,068 21,489(1) 32,293 26,582
Payout ratio
After customer replacement 109% 84%(1) 61% 69%
After marketing expense to add
new customers 141% 119%(1) 77% 92%


F2006 F2005
---------------------------------------
Q2 Q1 Q4 Q3
-------- -------- -------- --------
Sales per financial statements $180,049 $234,405 $406,901 $213,649
Net income 9,396 11,125 27,268 7,042
Net income per unit - basic $0.09 $0.11 $0.26 $0.07
Net income per unit - diluted 0.09 0.10 0.26 0.07
Amount available for distribution
After customer replacement $26,465 $27,175 $22,612(2) $28,700(2)
After marketing expense to add
new customers 20,760 21,565 19,454 23,603
Payout ratio
After customer replacement 91% 86% 102% 79%
After marketing expense to add
new customers 116% 109% 118% 96%

(1) Restated to eliminate income tax recovery.

(2) Allocated based on the annual average for fiscal 2005.


Energy Savings' operations are seasonal. Gas consumption is typically highest in the third and fourth quarters while electricity consumption is highest in the second and fourth quarters. As a result, quarter over quarter comparisons are a more reliable basis for analysis than sequential quarter comparisons, as results from quarter to quarter may vary materially due to seasonality.



Long-term Customers
-------------------
-------------------------------------------------------
Attrition Failed To
Beginning Additions (5) Renew(6) Ending
-------------------------------------------------------
Canada
Gas
Ontario 607,000 9,000 (3,000) (5,000) 608,000
Other markets1 211,000 17,000 (2,000) - 226,000
---------------------------------------------------------------------------
Total - Gas 818,000 26,000 (5,000) (5,000) 834,000
Electricity2 622,000 41,000 (13,000) (2,000) 648,000
---------------------------------------------------------------------------
Total - Canada 1,440,000 67,000 (18,000) (7,000) 1,482,000
---------------------------------------------------------------------------

United States
Gas(3) 118,000 20,000 (5,000) - 133,000
Electricity(4) 30,000 6,000 (4,000) - 32,000
---------------------------------------------------------------------------
Total - United States 148,000 26,000 (9,000) - 165,000
---------------------------------------------------------------------------

Combined 1,588,000 93,000 (27,000) (7,000) 1,647,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

(2) Includes Ontario and Alberta.

(3) Includes Illinois and New York.

(4) Includes New York only.

(5) Attrition - Customers whose contracts were terminated primarily due to
relocation or death, or cancelled 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 an additional 70,000 electricity customers which were acquired through various acquisitions of customer contracts. These customers generate substantially less margin than is typically realized on customers aggregated by Energy Savings and on average have less than one year remaining until the end of their contracts. All gas contracts which were not expected to renew have expired as of September 30, 2006.

Attrition

Overall, attrition was 7% on an annualized basis. Attrition in Canada was 6%, which is below the 10% rate used for internal purposes. While this is a positive result from slowing housing sales, management continues to monitor whether this represents an ongoing improvement in attrition levels.

Attrition in the U.S. was 20%, at the upper end of management's target range of 15% to 20%. As was stated in the first quarter, the increase in the expected U.S. attrition rate from 15% to a range of 15% to 20% was attributable to the higher attrition level experienced to date in New York. The regulatory environment in New York provided for higher customer mobility. Management continues to work effectively with the regulators in New York as well as the local utility to modify the existing rules which govern customer mobility processes. Should the change occur, management expects the results will show a reduction in attrition rates as well as a reduction in the loss of customers between contract signature and flow.

Management continues to monitor attrition and is actively pursuing measures to minimize attrition in all markets.

Failed to renew

The renewal rate for gas customers who have completed the term of their contract remains above 80%. To date, less than 1% of electricity customers aggregated by Energy Savings have reached their first renewal date. The renewal process is multi-faceted and aims to maximize the number of customers which renew prior to the end of their contract term. Efforts begin up to fifteen months in advance with contracts providing for renewal for an additional five years. In the Ontario gas market, customers who do not positively elect, either renewal or termination, receive a one-year fixed price for the ensuing year. The 80% renewal rate is a blend of both one and five year fixed price contracts. Management continues to be pleased with the success of its renewal program.

Gross Additions (excluding acquisitions)

Energy Savings' published targets for fiscal 2007 were gross customer additions, excluding acquisitions of 475,000. The following table shows the aggregation to date compared with these targets. Overall, Energy Savings aggregated 221,000 RCEs during the first half of the fiscal year. For the quarter, gross additions were 93,000 down from 102,000 in Q2 of fiscal 2006. Net additions were 59,000, up from 50,000, reflecting improved customer attrition rates. Overall, Energy Savings' customer base reached 1,647,000, up 24% from the year prior.



Annual
Gross Customer Q1 Q2 YTD Published Realized YTD Increase
Additions F2007 F2007 F2007 Target To Date F2006 (Decrease)
---------------------------------------------------------------------------

Canada
Gas
Ontario 14,000 9,000 23,000 50,000 46% 32,000 (28%)
Other
markets(1) 23,000 17,000 40,000 60,000 67% 43,000 (7%)
---------------------------------------------------------------------------
Total - Gas 37,000 26,000 63,000 110,000 57% 75,000 (16%)
Electricity(2) 67,000 41,000 108,000 175,000 62% 85,000 27%
---------------------------------------------------------------------------
Total Canada 104,000 67,000 171,000 285,000 60% 160,000 7%

United States
Gas(3) 17,000 20,000 37,000 100,000 37% 34,000 9%
Electricity(4) 7,000 6,000 13,000 90,000 14% 1,000 N/A
---------------------------------------------------------------------------
Total United
States 24,000 26,000 50,000 190,000 26% 35,000 43%
---------------------------------------------------------------------------

Combined 128,000 93,000 221,000 475,000 47% 195,000 13%
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

(2) Includes Ontario and Alberta.

(3) Includes Illinois and New York.

(4) Includes New York only.


Canada

Gas

Total gross gas customer additions in Canada for the second quarter were 26,000, bringing the total additions to 63,000 for the six months ended September 30, 2006 (57% of the published annual target). Gas additions in Ontario are effectively on pace to meet the published annual target. The number of customers signed in the Ontario gas market during the quarter was slightly above the number of customers lost through attrition and failure to renew. Other markets in Canada exceeded the target pace with 67% of the published annual target being achieved after the second quarter.

The Canadian gas customers added through marketing efforts during the period were matched with supply to generate margins at or above Energy Savings' average annual target margin of $175/RCE over the life of the contract.

Electricity

Total electricity additions were 41,000 for the quarter, bringing the total additions to 108,000 for the six months ended September 30, 2006 (62% of the published annual target). Electricity customer aggregation remains strong.

The Canadian electricity customers added through marketing efforts during the period were matched with supply to generate margins expected to be at or above Energy Savings' average annual target margin of $110/RCE over the life of the contract.

United States

Customer additions in the Illinois and New York gas markets were 20,000 for the quarter, bringing the total number of additions to 37,000 for the six months ended September 30, 2006, representing 37% of the published annual target. Customer additions in the New York electricity market were 6,000, bringing the total number of additions to 13,000, representing 14% of the published annual target.

While management is pleased with the progress being made in New York regarding customer mobility and related issues, the high attrition and loss of signed customers before flow experienced to date have directly impacted customer aggregation in the U.S. Energy Savings does not count a customer until it has been enrolled with the LDC and confirmed by its internal customer service department.

In Illinois, U.S. Energy Savings Corp. ("USESC"), a subsidiary of the Fund, has entered into discussions on a settlement with the Citizen's Utility Board ("CUB") to resolve a complaint filed before the Illinois Commerce Commission concerning USESC's marketing practices. Energy Savings does not believe the impact of the settlement will have a material impact on its U.S. business or guidance for 15-20% growth in fiscal 2007.

As a result of these operational challenges, customer aggregation in the first six months lag the levels necessary to meet our 190,000 customer aggregation target for the year. While aggregation levels are ramping up to date in Q3 and are expected to continue to rise particularly due to reduced mobility in New York, management does not believe that the fiscal 2007 U.S. aggregation target will be met. While the U.S. target will not be achieved, Canadian results remain strong. On a combined basis, Energy Savings is 47% of the way to overall target of 475,000 gross additions.

The U.S. customers added through marketing efforts during the quarter were matched with supply to generate margins at or above Energy Savings' average annual target margin of $140/RCE for gas customers and $110/RCE for electricity customers over the life of the contract.

General and administrative expenses

General and administrative costs were $11.0 million for the three months ended September 30, 2006 representing an increase of 29% from the second quarter of the previous fiscal year. The increase in general and administrative costs over the prior comparable quarter was primarily driven by the additional infrastructure and support necessary to support the Fund's continued customer growth, up 24% year over year, as well as the expansion into a third U.S. market, Indiana.

General and administrative expenditures for the six months ended September 30, 2006 were $21.5 million, an increase of 28% from $16.8 million in the prior comparable period as a result of the additional costs listed 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 $0.9 million (2005 - $0.9 million) and $1.7 million (2005 - $2.0 million) for the three and six ended September 30, 2006, respectively.

Marketing expenses

Marketing expenses, which consist of commissions paid to independent sales agents for signing new customers as well as corporate overhead, were $10.7 million for the three months ended September 30, 2006, the same amount as in the prior comparable quarter. Marketing expenses remained constant despite the fact that the number of customers aggregated was lower for the current quarter. Contributing to this is the fact that approximately 30% of the marketing costs relate to corporate overhead expenses which occur evenly throughout the year while customer additions vary quarter to quarter. In addition to this, management announced an increase in target aggregation costs per customer reflecting the impact of inflation and the increased effort required to secure customers at the beginning of the year. The increase in rates is as follows:



Fiscal 2006 Fiscal 2007
Gas
Ontario $160/RCE $160/RCE
Other markets - Canada $140/RCE $160/RCE
United States $90/RCE $110/RCE
Electricity
Canada $85/RCE $95/RCE
United States $90/RCE $100/RCE


For the six months ended September 30, 2006, the marketing expense amounted to $25.1 million, an increase of 17% over the prior comparable period compared to a 13% increase in customers added.

Bad debt expense

In Illinois and Alberta, 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 in its margin expectations for both Illinois and Alberta.

Bad debt expense for the three and six months ended September 30, 2006 was $2.4 million and $3.7 million, respectively. The increase in bad debts during the second quarter reflects bad debts associated with prior year's winter, for which the full impact has now been recognized. Based on results to date, management anticipates that bad debt expense for the year will approximate 4.0% of revenue earned in both Illinois and Alberta. Management has increased the default rate in its margin expectations to ensure target gross margins per RCE continue to be achieved including the higher levels of bad debt. Management continuously reviews and monitors the credit approval process in order to mitigate customer delinquency.

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

Bank indebtedness

As at September 30, 2006, Energy Savings had utilized $39.6 million of its operating line for working capital needs and $41.9 million in letters of credit were issued, primarily as security for commodity supply commitments. The operating line bears interest at bank prime plus 0.5% and letters of credit bear interest at 1.5% . Total interest expense for the three and six months ending September 30, 2006 amounted to $0.5 million (2005 - $0.2 million) and $1.0 million (2005 - $0.02 million), respectively. Energy Savings is required to meet a number of financial covenants under the credit facility agreement. As at September 30, 2006, all of these covenants have been met.

On October 30, 2006, Energy Savings renewed the credit facility for a period of one year to October 31, 2007. The operating credit facility was also increased from $100 million to $120 million.

Foreign exchange

Energy Savings has an exposure to U.S. dollar exchange rates as a result of its U.S. operations. Changes in the applicable exchange rate may result in a decrease or increase in income. A non-cash loss of $0.4 million (2005 - $0.3 million) was recognized for the six months ended September 30, 2006.

Energy Savings has entered into foreign exchange forward contracts in order to hedge its exposure to fluctuations in cross border cash flow.

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 a comparable number of units. The total amount paid during the three and six months periods ending September 30, 2006 amounted to $2.2 million (2005 - $2.3 million) and $4.5 million (2005 - $4.5 million), respectively. These payments are reflected in the "Statement of Unitholders' Equity" of the Fund's consolidated financial statements, net of tax.



Income tax recovery
-------------------

Income Tax Breakdown Three months ended Six months ended
(thousands of dollars) September 30 September 30
2006 2005 2006 2005
------------------------------------

Income tax recovery $(4,688) $(2,517) $(7,482) $(1,170)
Amount credited to Unitholders' equity 800 831 1,640 1,643
------------------------------------

Current income tax provision (recovery) (3,888) (1,686) (5,842) 473
Future tax recovery (652) (2,204) (1,205) (6,169)
------------------------------------
Recovery of income tax $(4,540) $(3,890) $(7,047) $(5,696)
------------------------------------
------------------------------------


For the three and six months ended September 30, 2006, there was a income tax recovery in the amount of $4.7 million and $7.5 million, an increase from $2.5 million and $1.2 million, respectively, in the prior comparative period. It is anticipated that the earnings in the second half of the fiscal year will result in a tax provision which will offset the recovery recognized for the six months ended September 30, 2006. It is anticipated that there will be minimal income taxes owing at the end of the fiscal year as a result of taxable income in the Province of Manitoba.

Management expects to receive a ruling from the Canada Revenue Agency shortly in order to complete the final stage of the tax reorganization. As a result of the reorganization, Energy Savings will move from a "trust on corporation" structure to a "trust on trust on partnership" structure.

The decrease in the future tax liability of $0.7 million and $1.2 million for the three and six months ended September 30, 2006, respectively, is attributable to the decrease in the difference between the tax and accounting cost bases for the acquired gas and electricity contracts. The majority of these assets are deducted for tax at a rate greater than that for accounting purposes.




Liquidity and Capital Resources
-------------------------------

Summary of Cash Flows Three months ending Six months ending
(thousands of dollars) September 30 September 30
2006 2005 2006 2005
--------------------------------------

Operating activities $4,379 $26,046 $39,088 $36,702
Investing activities (959) (1,107) (1,829) (8,586)
Financing activities, excluding
distributions 20,163 (541) 15,149 10,743
Gain (loss) on foreign exchange 18 (448) (309) (267)
--------------------------------------
Increase in cash before distributions 23,601 23,950 52,099 38,592
Distributions (cash payments) (25,840) (22,960) (50,204) (45,589)
--------------------------------------
Increase (decrease in cash) (2,239) 990 1,895 (6,997)
Cash - beginning of period 15,797 8,071 11,663 16,058
--------------------------------------
Cash - end of period $13,558 $9,061 $13,558 $9,061
--------------------------------------
--------------------------------------


Operating activities

Cash flows from operating activities for the three months ended September 30, 2006 were $4.4 million, a decrease from $26.0 million in the prior comparative quarter. Cash flows from operating activities have decreased primarily due to the injection of gas into storage in Illinois. Cash flow from operating activities for the six months ended September 30, 2006 increased from $36.7 million in the prior comparable period to $39.1 million. Cash flows from operating activities have increased primarily as a result of the increase in gross margin, offset by an increase in gas in storage.

Investing activities

Energy Savings purchased capital assets totaling $1.0 million during the quarter, compared with $1.3 million in the prior comparable quarter. Capital asset purchases amounted to $1.8 million for the six months ended September 30, 2006, compared with $2.0 million in the prior comparable period. The purchases were primarily for information technology systems supporting the Fund's expanding customer base within the various geographical segments. In the prior comparable period, Energy Savings also purchased the EPCOR Ontario electricity customer contracts for $6.7 million (net of adjustments).

Financing activities

Financing activities excluding distributions relate primarily to the drawdowns or repayments of the operating line for working capital requirements. During the three months ended September 30, 2006, Energy Savings had drawn an additional $19.5 million of the operating line while during the three months ended September 30, 2005, Energy Savings had repaid $0.7 million.

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 it expects to enter, funding requirements will be supported through the credit facility. As a result, the credit facility was increased from $100 million to $120 million effective October 30, 2006.

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 agent's commission payment is made following reaffirmation 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 2 - 6 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, Energy Savings receives payment directly from the customer.

Distributions (cash payments)

The Fund made distributions of $25.8 million compared to $23.0 million in the prior comparative quarter, an increase of 13%. For the six months ended September 30, 2006, Energy Savings distributed $50.2 million, an increase of 10% from the prior comparable period. Energy Savings will continue to utilize its cash resources for expansion into new markets as well as distributions to its Unitholders. Management continues to target its payout ratios after customer replacement to be 75%-80%.

As at the end of the quarter, the annual rate for distributions per unit was $1.005.

Balance Sheet September 30, 2006 compared to March 31, 2006

Cash increased from $11.7 million to $13.6 million. The operating line of credit increased from $25.2 million to $39.6 million as a result of additional working capital requirements in the U.S as well as the electricity business segment. Working capital in the U.S. results from the timing difference between customer consumption and cash receipts as receipts lag consumption and injections of gas into storage for the Illinois segment from April through November, a period of low customer consumption. For electricity, working capital is required to fund the lag between settlements with the supplier and settlement with the LDC.

The decrease in accounts receivable from $149.4 million to $117.6 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. The accounts payable and accrued liabilities also decreased due to lower consumption from $113.1 million to $106.5 million.

At the end of the quarter, Energy Savings had delivered more gas to the LDCs in Ontario, Manitoba 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 $92.5 million and gas delivered in excess of consumption of $79.7 million. At March 31, 2006, customers had consumed more than had been delivered to the LDCs, thereby resulting in unbilled revenues amounting to $37.0 million and accrued gas accounts payable of $29.9 million.

Gas in storage has increased from $4.8 million to $28.9 million as a result of the lower customer consumption in the spring and summer than that experienced in the winter months. In addition, the balance reflects injections into storage which typically occur from April through September.

Corporate taxes recoverable increased from $4.3 million at March 31, 2006 to $12.2 million as at September 30, 2006 as a result of the lower sales and higher expenditures experienced in the first half of the year. Management anticipates that the income from the second half of the fiscal year will offset this, resulting in small income tax payable position as a result of operations in Manitoba.

Contractual obligations

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



Payments due by period Total Less 1 - 3 4 - 5 After 5
(thousands of dollars) than 1 years years years
year
--------------------------------------------------
Property and equipment
lease agreements $17,202 $1,661 $6,576 $5,414 $3,551
EPCOR billing, collections
& supply commitments 25,271 4,332 15,740 5,199 -
Commodity supply purchase
commitments 3,815,479 652,072 1,954,121 1,093,324 115,962
--------------------------------------------------
$3,857,952 $658,065 $1,976,437 $1,103,937 $119,513
--------------------------------------------------
--------------------------------------------------


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 which have not been either included in its accrued liabilities or in the financial statements.

Transactions with Related Parties

The Fund does not currently 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 and 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. For a detailed discussion of the significant judgments and estimates used in the preparation of the Fund's interim consolidated financial statements, refer to the Fund's annual MD&A. There are no material updates to these estimates based on events from April 1, 2006 to October 31, 2006.

Derivative Financial instruments

The Fund has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas and electricity. Energy Savings enters into contracts with customers to provide electricity and gas at fixed prices. These 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 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 volumes of natural gas and electricity at fixed prices for terms equal to those of the customer contracts.

Energy Savings' entry into Illinois, New York and Indiana, as well as the intention for further expansion in the U.S. has introduced foreign exchange related risks. As a result, Energy Savings entered into foreign exchange forwards in order to hedge the exposure to fluctuations in cross border cash flow.

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.

Adoption of new accounting policies

There have been no new accounting policies adopted by the Fund for the period April 1, 2006 to October 31, 2006. Commencing April 1, 2007, Energy Savings will be required to comply with three new standards: Hedge Accounting, Financial Instruments and Other Comprehensive Income. These standards will require all derivative financial instruments to be fair valued and recognized in Other Assets as opposed to recognizing only the fair value of derivative financial instruments that do not meet hedge accounting requirements as is currently the case. Changes in the fair value will flow through the new Statement of Other Comprehensive Income if hedges are effective. Due to the size of the electricity derivative financial instruments, which are not currently recognized in Other Assets, these new standards will have a significant impact on the Other Assets caption of the balance sheet. Due to the volatility of market prices, it is expected that there will be significant changes flown through Other Comprehensive Income on a quarterly basis. There will be no change to management's hedge strategy as the plans are effective; the change in measurement is simply the adoption of the new accounting standards.

Risks and uncertainties

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 2006 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, 2006 to October 31, 2006 that require an update to the discussion of the applicable risks.

Tax Related Risks

On October 31, 2006, the Minister of Finance (Canada) announced a Tax Fairness Plan that proposes to enact legislation that will amend the taxation of Flow Through Entities ("FTE's") including Trusts. This plan proposes to tax distributions from existing trusts starting in 2011. In addition, the plan proposes to tax distributions from trusts received by foreign investors and tax-exempt entities differently than they are currently taxed. The release from the Minister of Finance (Canada) states "The FTE's that will be subject to these new rules will be fully defined in the legislation to implement these measures. As a practical matter, however, it can be assumed that the new rules will apply to any publicly-traded Income Trust (or publicly-traded partnership), other than one that only holds passive real estate investments." The pending legislation should clarify the meaning of this quote.

Corporate governance

Energy Savings is committed to transparency in its operations and its approach to governance meets all recommended standards. Full disclosure of its compliance with existing corporate governance rules is available on our website at www.esif.ca. Energy Savings actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.

Class A preference shares of OESC and Trust Units

As at October 31, 2006 there were 8,902,512 Class A preference shares of OESC outstanding and 97,876,872 units of the Fund outstanding.

Taxability of 2006 Unitholder distributions

Management estimates that substantially all of the distributions paid to Unitholders during calendar 2006 will be taxable as interest and other income.

Outlook

While the recently proposed tax on Income Trusts does not affect existing Income Trusts until 2011, management will continue to investigate measures to mitigate its future tax exposure. Regardless of this proposed new tax structure, Energy Savings remains committed to growth.

Energy Savings opened a sales office and began test marketing in Indiana during September, 2006. The Indiana market currently has approximately 0.9 million natural gas customers eligible for deregulated supply and no mobility. Results to date indicate strong receptivity to the five-year product offering. Ramp-up to full scale marketing will begin in the third quarter.

It is anticipated that overall aggregation in the U.S. will continue to ramp up during the second half of the fiscal year. Management anticipates a positive impact to customer aggregation and a reduction of customer attrition in New York should the regulatory change respecting customer mobility occur in New York.

In the ordinary course of its business, Energy Savings regularly reviews possible acquisition or merger opportunities. To the extent that management believes that such transactions are accretive to Unitholders in the near and long term, acquisitions may be used to expand the Fund's customer base or to add other strategic assets.

Energy Savings continues to actively monitor the progress of the deregulated markets in various jurisdictions, including Virginia, Maryland, New Jersey, Michigan, Texas, as well as the residential gas market in British Columbia and the Illinois electricity market.



ENERGY SAVINGS INCOME FUND

CONSOLIDATED BALANCE SHEETS
(Unaudited - thousands of dollars)

---------------------------------------------------------------------
---------------------------------------------------------------------
SEPTEMBER 30, MARCH 31,
2006 2006

ASSETS

CURRENT
Cash $ 13,558 $ 11,663
Restricted cash (Note 4) 2,414 4,452
Accounts receivable 117,555 149,424
Gas delivered in excess of consumption 79,736 -
Gas in storage 28,886 4,796
Unbilled revenues - 36,982
Prepaid expenses 1,827 1,479
Corporate taxes recoverable 12,156 4,308
---------------------------------------------------------------------

256,132 213,104

GAS CONTRACTS (less accumulated
amortization - $236,033;
March 31, 2006 - $228,314) 7,896 15,615

ELECTRICITY CONTRACTS (less
accumulated amortization - $21,505;
March 31, 2006 - $14,810) 4,916 11,611

GOODWILL 94,576 94,576

CAPITAL ASSETS (less accumulated
amortization $7,491; March 31, 2006- $6,054) 11,655 11,263

OTHER ASSETS (Note 9a) 1,374 4,056
---------------------------------------------------------------------

$ 376,549 $ 350,225
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES

CURRENT
Bank indebtedness (Note 5) $ 39,648 $ 25,184
Accounts payable and accrued liabilities 106,545 113,137
Customer rebates payable (Note 4) 2,414 4,452
Management incentive program payable 1,075 1,260
Unit distribution payable 8,197 7,591
Corporate taxes payable - 382
Deferred revenue 92,548 -
Accrued gas accounts payable - 29,901
---------------------------------------------------------------------
250,427 181,907

DEFERRED CHARGES (less accumulated
amortization - $7,104;
March 31, 2006 - $4,440) 888 3,552

OTHER LIABILITIES (Note 9a) 1,885 1,499

FUTURE INCOME TAXES (Note 6) 15,183 16,388
---------------------------------------------------------------------

268,383 203,346
---------------------------------------------------------------------

EQUITY
Unitholders' equity $ 100,602 $ 138,443
Contributed surplus (Note 8d) 7,564 8,436
---------------------------------------------------------------------
108,166 146,879
---------------------------------------------------------------------

$ 376,549 $ 350,225
---------------------------------------------------------------------
---------------------------------------------------------------------



ENERGY SAVINGS INCOME FUND

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

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

Unitholders'
Capital Accumulated Distri-
(Note 7) Earnings butions 2006 2005

Unitholders'
equity,
beginning of
period $ 324,650 $ 143,890 $(330,097) $ 138,443 $ 173,106

Trust units
exchanged 3,166 - - 3,166 -

Trust units
issued on
exercise/exchange
of unit
compensation (Note 8) 3,221 - - 3,221 1,651

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

Net income - 9,748 - 9,748 20,521

Distributions - - (47,911) (47,911) (42,957)

Class A
preference
share
distributions -
net of tax - - (2,899) (2,899) (2,906)
-------------------------------------------------------------------------

Unitholders'
equity,
end of period $ 327,871 $ 153,638 (380,907) $ 100,602 $ 149,415
-------------------------------------------------------------------------
-------------------------------------------------------------------------



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

2006 2005 2006 2005

SALES $ 236,127 $ 180,049 $ 521,677 $414,454
COST OF SALES 204,822 156,925 449,212 354,228
----------------------------------------------------------------------

GROSS MARGIN 31,305 23,124 72,465 60,226
----------------------------------------------------------------------

EXPENSES
General and administrative
expenses 10,999 8,500 21,490 16,801
Capital tax 180 207 360 414
Marketing expenses 10,689 10,731 25,149 21,430
Unit based compensation
(Note 8) 918 864 1,658 2,036
Bad debt expense 2,441 1,644 3,718 2,178
Amortization of gas
contracts 3,860 7,479 7,719 14,916
Amortization of
electricity contracts 2,015 2,008 4,031 3,314
Amortization of capital
assets 710 579 1,437 1,123
----------------------------------------------------------------------
31,812 32,012 65,562 62,212
----------------------------------------------------------------------
INCOME (LOSS) BEFORE OTHER
INCOME (EXPENSE) (507) (8,888) 6,903 (1,986)

OTHER INCOME (EXPENSE)
(Note 9a) (5,290) 14,394 (4,202) 16,811
----------------------------------------------------------------------

INCOME (LOSS) BEFORE INCOME
TAX (5,797) 5,506 2,701 14,825

RECOVERY OF INCOME TAX
(Note 6) (4,540) (3,890) (7,047) (5,696)
----------------------------------------------------------------------

NET INCOME (LOSS) $ (1,257) $ 9,396 $ 9,748 $ 20,521
----------------------------------------------------------------------
----------------------------------------------------------------------

Net income (loss) per unit
(Note 10)
Basic $ (0.01) $ 0.09 $ 0.09 $ 0.19
Diluted $ (0.01) $ 0.09 $ 0.09 $ 0.19



ENERGY SAVINGS INCOME FUND

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - thousands of dollars)

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2006 2005 2006 2005

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

OPERATING
Net income (loss) $ (1,257) $ 9,396 $ 9,748 $ 20,521
---------------------------------------------------------------------

Items not affecting
cash
Amortization of gas
contracts 3,860 7,479 7,719 14,916
Amortization of
electricity contracts 2,015 2,008 4,031 3,314
Amortization of
capital assets 710 579 1,437 1,123
Unit based compensation 918 864 1,658 2,036
Future income taxes (652) (2,204) (1,205) (6,169)
Loss (gain) on
foreign exchange
(unrealized) (15) 448 390 267
Other (income)
expenses (unrealized) 4,437 (14,858) 2,728 (17,107)
---------------------------------------------------------------------
11,273 (5,684) 16,758 (1,620)
---------------------------------------------------------------------
Adjustments required
to reflect net cash
receipts from gas sales 12,940 16,217 19,893 21,781
---------------------------------------------------------------------
22,956 19,929 46,399 40,682
---------------------------------------------------------------------
Changes in non-cash
working capital (18,577) 6,117 (7,311) (3,980)
---------------------------------------------------------------------
Cash inflow from
operations 4,379 26,046 39,088 36,702
---------------------------------------------------------------------

FINANCING
Exercise of trust unit
options (Note 8) 619 157 685 1,441
Distributions paid
to Unitholders (24,426) (21,490) (47,305) (42,683)
Distributions to Class
A preference
shareholders (2,214) (2,301) (4,539) (4,549)
Tax impact on
distributions to
Class A preference
shareholders 800 831 1,640 1,643
Bank indebtedness
(Note 5) 19,544 (698) 14,464 9,302
---------------------------------------------------------------------
(5,677) (23,501) (35,055) (34,846)
---------------------------------------------------------------------

INVESTING
Purchase of capital assets (959) (1,253) (1,829) (1,993)
Acquisition of
customer contracts - 146 - (6,593)
---------------------------------------------------------------------
(959) (1,107) (1,829) (8,586)
---------------------------------------------------------------------
Gain (loss) on
foreign exchange
(unrealized) 15 (448) (390) (267)
Other income foreign
exchange (unrealized) 3 - 81 -
---------------------------------------------------------------------

NET CASH INFLOW
(OUTFLOW) (2,239) 990 1,895 (6,997)

CASH, BEGINNING OF
PERIOD 15,797 8,071 11,663 16,058
---------------------------------------------------------------------

CASH, END OF PERIOD $ 13,558 $ 9,061 $ 13,558 $ 9,061
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplemental
Information

Interest paid $ 519 $ 168 $ 1,013 $ 193
Income taxes paid $ 360 $ 1,522 $ 1,041 $ 11,308


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 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 2006. The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles applicable to interim consolidated financial statements and follow the same accounting policies and methods in their applications as the most recent annual financial statements.

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) Corp. ("ESMC"), 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") and Indiana Energy Savings Corp. ("INESC").

3. 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.

4. RESTRICTED CASH/CUSTOMER REBATES PAYABLE

Restricted cash represents rebate monies received from Local Distribution Companies ("LDCs") in Ontario as provided by the Independent Electricity System Operator ("IESO"). OESLP is obligated to disperse the monies to eligible end-use customers in accordance with the Market Power Mitigation Agreement as part of OESLP's Retailer License conditions.

5. BANK INDEBTEDNESS

An operating credit facility in the amount of $100,000 is available to Energy Savings to meet working capital requirements. The operating line of credit bears interest at bank prime plus 0.5% and the letters of credit bear interest at 1.5% . As at September 30, 2006 the Canadian prime rate was 6.0% and the U.S. prime rate was 8.25% . As at September 30, 2006, Energy Savings had drawn $39,648 against the facility and total letters of credit outstanding amounted to $41,862. Energy Savings has $18,490 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, 2006 and 2005, all of these covenants have been met. On October 30, 2006, the credit facility was renewed for a period of one year to October 31, 2007. The operating credit facility was also increased from $100,000 to $120,000.

6. 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% (2005 - 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

2006 2005 2006 2005

Net income (loss) before
income tax $ (5,797) $ 5,506 $ 2,701 $ 14,825
---------- --------- --------- ----------
---------- --------- --------- ----------

Income tax expense at the
combined basic rate of 36%
(2005-36%) (2,087) 1,982 972 5,337
Taxes on income
attributable to
Unitholders (5,947) (6,580) (13,336) (13,076)
Large corporations tax - 76 - 95
Benefit of U.S. accounting
losses not recognized 3,137 486 4,689 1,324
Non-deductible expenses 357 146 628 624
---------- --------- --------- ----------
Recovery of income tax $ (4,540) $ (3,890) $ (7,047) $ (5,696)
---------- --------- --------- ----------
---------- --------- --------- ----------

Components of Energy Savings'
income tax provision are as 2006 2005 2006 2005
follows:
Income tax recovery $ (4,688) $ (2,517) $ (7,482) $ (1,170)
Amount credited to
Unitholders' equity 800 831 1,640 1,643
---------- --------- --------- ----------
Current income tax
provision (recovery) (3,888) (1,686) (5,842) 473
Future tax recovery (652) (2,204) (1,205) (6,169)
---------- --------- --------- ----------
Recovery of income tax $ (4,540) $ (3,890) $ (7,047) $ (5,696)
---------- --------- --------- ----------
---------- --------- --------- ----------

Components of Energy Savings'
net future income tax
liability are 2006 2005
as follows:
Carrying value of gas and electricity contracts in
excess of tax value $ 6,754 $ 10,715
Partnership income deferred for tax purposes 4,501 -
Other 3,928 4,136
-------- ---------
$ 15,183 $ 14,851
-------- ---------
-------- ---------


7. 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.

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, 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 which they would receive if they exercised their shareholder exchange rights. Class A preference shareholders have equal entitlement to distributions from the Fund as Unitholders.



2006 2005
Issued and Units/Shares Units/Shares
Outstanding

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

Balance, beginning
of period 96,391,991 $ 299,228 95,515,617 $ 147,684
Options exercised 61,883 623 303,330 1,651
Unit appreciation
rights exchanged 153,532 2,598 - -
Exchanged from Class
A preference shares 1,266,183 3,166 - -
-----------------------------------------------
Balance, end of
period 97,873,589 305,615 95,818,947 149,335
-----------------------------------------------

Class A preference shares
-------------------------

Balance, beginning
of period 10,168,695 25,422 10,168,695 25,422
Exchanged into units (1,266,183) (3,166) - -
-----------------------------------------------
Balance, end of
period 8,902,512 22,256 10,168,695 25,422
-----------------------------------------------
Balance, end of
period 106,776,101 $ 327,871 105,987,642 $ 174,757
-----------------------------------------------
-----------------------------------------------


8. 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, 2006, there were 736,666 options still available for grant under the plan. Of the options issued, 1,288,334 options remain outstanding at quarter end. 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 ten years from the grant date.

A summary of the changes in the Fund's unit option plan during the six month period and status at September 30, 2006 is outlined below:



Outstanding Range of Exercise
Options prices

Balance, beginning of period 1,227,667 $6.09 - $18.70
Granted 140,000 $16.65 - $17.47
Forfeited/cancelled (17,500) $15.63 - $16.65
Exercised (61,833) $8.75 - $16.58
---------
Balance, end of period 1,288,334 $6.09 - $18.70
---------
---------


Weighted average Weighted average grant
exercise price(1) date fair value(2)

Balance, beginning of period $13.44
Granted $17.01 $2.62
Forfeited/cancelled $16.52
Exercised $11.08

Balance, end of period $13.90


(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

Weighted average
Number remaining
Range of exercise prices outstanding contractual life

$6.09 - $8.75 34,168 1.17
$10.68 - $12.01 76,666 1.72
$12.17 600,000 1.50
$14.25 - $18.70 577,500 3.47
----------
Balance, end of period 1,288,334
----------
----------


Options exercisable

Weighted Weighted
average average
exercise Number exercise
Range of exercise prices price exercisable price

$6.09 - $8.75 $7.91 34,168 $7.91
$10.68 - $12.01 $11.10 76,666 $11.10
$12.17 $12.17 600,000 $12.17
$14.25 - $18.70 $16.42 116,167 $16.40
----------

Balance, end of period $13.90 827,001 $12.49
----------
----------


Options available for grant

Available for grant 11,300,000
Less: granted in prior years (11,358,000)
Add: cancelled/forfeited in prior years 917,166
------------
Balance, beginning of period 859,166
Less: granted during the period (140,000)
Add: cancelled/forfeited during the period 17,500
------------

Balance, end of period 736,666
------------
------------


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 2007:



Risk free rate 4.10 - 4.48%
Expected volatility 25.50% - 25.60%
Expected life 5 years
Expected distributions $0.945 - $1.005 per year


(b) Unit appreciation rights

The Fund grants awards under its 2004 unit appreciation rights ("UARs") plan to senior officers or service providers of its subsidiaries and affiliates in the form of fully paid UARs. In accordance with the unit appreciation rights plan, the Fund may grant UARs to a maximum of 1,000,000. As at September 30, 2006, there were 500,799 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, (ii) 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 1,000,000
Less: granted in prior years (501,209)
Balance, beginning of period 498,791
Less: granted during the period (70,365)
Add: forfeited/cancelled during the period 72,373
---------
Balance, end of period 500,799
---------
---------


(c) Deferred unit grants

The Fund grants awards under its 2004 Directors' deferred compensation plan to all independent directors. In accordance with the deferred compensation plan, the Fund may grant deferred unit grants ("DUGs") to a maximum of 100,000. The DUGs vest 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, 2006, there were 78,418 DUGs available for grant under the plan.



Deferred unit grants
Available for grant 100,000
Less: granted in prior years (17,219)
Balance, beginning of period 82,781
Less: granted during the period (4,363)
--------
Balance, end of period 78,418
--------
--------


(d) Contributed surplus

Amounts credited to contributed surplus include option awards, UARs and DUGs. Amounts charged to contributed surplus are awards exercised during the year.



Three months ended Six months ended
September 30 September 30
Contributed Surplus 2006 2005 2006 2005
------------------ ----------------
Balance, beginning of period 7,686 5,861 8,436 4,881
Add: unit based compensation
awards 918 864 1,658 2,036
Less: unit based awards exercised (1,040) (14) (2,529) (206)
---------- ------- -------- ------
Balance, end of period 7,564 6,711 7,565 6,711
---------- ------- -------- ------
---------- ------- -------- ------


Total amounts credited to Unitholders' capital in respect of options and UARs exercised or exchanged during the three and six months ended September 30, 2006 amounted to $1,662 (2005 - $175) and $3,221 (2005 - $1,651), respectively. Cash received from options exercised for the three and six months ended September 30, 2006 amounted to $619 (2005 - $157) and $685 (2005 - $1,441), respectively.

9. FINANCIAL INSTRUMENTS

(a) Fair value

The Fund has a variety of gas and electricity supply contracts that are considered derivative financial instruments. The fair value of derivative financial instruments is the estimated amount the Energy Savings would pay or receive to dispose of these supply contracts in the market. Management has estimated the value of electricity and gas swap contracts using a discounted cash flow method which employs market forward curves as well as a forward curve compiled by management for Alberta electricity (electricity information is based on market). 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)(a) At September 30, 2006, Energy Savings had electricity fixed-for-floating swap contracts in Ontario designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:




Notional volumes (peak, flat, off peak
and weekend) 5.0-50.0 MW/h
Total remaining notional volume 15,149,843 MWh
(peak, flat off peak and weekend)
Maturity dates October 31, 2006 - July 31, 2012
Fixed price per MWh (in dollars) $45.00 - $118.00
Fair value $182,699 unfavourable
Notional value $1,099,388


(i)(b) At September 30, 2006, Energy Savings had electricity fixed-for-floating swap contracts in Alberta 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 -7.9 MW/h
Total remaining estimated notional volume 3,427,032 MWh
(peak, off peak and load following)
Maturity dates October 31, 2006 - May 31, 2012
Fixed price per MWh (in dollars) $55.80 - $81.48
Fair value $9,318 favourable
Notional value $243,834


(i)(c) At September 30, 2006, Energy Savings had electricity fixed-for-floating swap contracts in New York 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) 0.9 -14.4 MW/h
Total remaining notional volume 1,354,051 MWh
(peak and off peak)
Maturity dates October 31, 2006 - April 30, 2011
Fixed price per MWh (in dollars) $104.42 - $127.36 (US $93.42 - $113.95)
Fair value $35,105 (US $31,408 unfavourable)
Notional value $165,288 (US $147,882)


Since hedge accounting has been applied to these swaps, no recognition of the mark to market gain/loss has been recognized in the financial statements. 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 and New York wherein the quantity of electricity is established but varies throughout the term of the contracts.

(ii) At September 30, 2006, Energy Savings had other gas puts and calls in Manitoba which have been marked to market with the following terms:



Notional volume 450 - 51,750 GJ/month
Total remaining notional volume 1,486,625 GJ
Maturity dates October 31, 2006 - September 30, 2011
Fixed price per GJ (in dollars) $5.48 - $9.18
Fair value $62 unfavourable


The gain of $354 (2005 - $1,022 loss) and the gain of $616 (2005 - $6 gain) for the three and six months ended September 30, 2006, respectively, have been recorded in other liabilities with its offsetting value being recorded in other income (expense). The fair value of the options is net of the present value of premiums which have yet to be paid.

(iii) At September 30, 2006, Energy Savings had other gas puts and calls in Alberta which have been marked to market with the following terms:



Notional volume 500 - 48,000 GJ/month
Total remaining notional volume 7,885,000 GJ
Maturity dates October 31, 2006 - September 30, 2011
Fixed price per GJ (in dollars) $5.50 - $12.40
Fair value $1,338 unfavourable


The loss of $1,082 (2005 - $5,449 gain) and $767 (2005 - $5,759 gain) for the three and six months ended September 30, 2006, respectively, has been recorded in other liabilities with its offsetting value being recorded in other income (expense). The fair value of the options is net of the present value of premiums which have yet to be paid.

(iv) At September 30, 2006, Energy Savings had other gas put and call options in Illinois which have been marked to market with the following terms:



Notional volume 500 - 134,000 Mm BTU/month
Total remaining notional volume 7,567,000 MmBTU
Maturity dates October 31, 2006 - May 31, 2011
Fixed price per MmBTU (in dollars) $6.15 - $11.62 (US $5.50 -$10.40)
Fair value $552 unfavourable (US $494)


The fair value is net of prepaid premiums of $1,781 (US $1,593). These premiums are included in other assets. The loss of $3,694 (US $3,305) (2005 - gain of $10,583 (US $9,149)) and $2,476 (US $2,215) (2005 - gain of $11,639 (US $10,010)) for the three and six months ended September 30, 2006, respectively, has been recorded in other assets with its offsetting value being recorded in other income (expense).

(v) At September 30, 2006, Energy Savings had gas put and call options in New York which have been marked to market with the following terms:



Notional volume 50 - 1,755 Mm BTU/month
Total remaining notional volume 811,591 MmBTU
Maturity dates October 31, 2006 - August 31, 2011
Fixed price per MmBTU (in dollars) $9.05 - $12.70 (US $8.10 - $11.36)
Fair value $485 unfavourable (US $434)


The loss of $160 (US $143) (2005 - $157 (US $135))and $246 (US $220) (2005 - $157 (US $135)) for the three and six months ended September 30, 2006, respectively, has been recorded in other liabilities with its offsetting value being recorded in other income (expense). The fair value of the options is net of the present value of premiums which have yet to be paid.

(vi) 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 which employs market forward curves. Hedge accounting has been applied to these forwards, however required hedge accounting effectiveness was not fully achieved and resulted in $145 gain being booked to the Statement of Operations at September 30, 2006. The remaining mark to market gain has not been recognized in these financial statements as effectiveness was otherwise achieved. At September 30, 2006 Energy Savings had foreign exchange forwards designated as hedges of Energy Savings' anticipated cross border cash flows 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 $1,933 favourable


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.

Energy Savings' physical gas supply contracts are not considered derivative financial instruments and a fair value has therefore not been assessed.

The carrying value of cash and cash equivalents, 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.

(b) Customer credit risk

In Illinois and Alberta, Energy Savings assumes the credit risk associated with the 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 the 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. 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.

(c) 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 customers is reliant upon the ongoing operations of these suppliers, and their ability to fulfill their contractual obligations. A significant portion of these gas and electricity purchases is from Coral Energy, an affiliate of Shell Trading.

(d) Foreign currency risk

The Fund 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 income. A non-cash gain of $15 (2005 - $448 loss) and $390 loss (2005 - $267 loss) for the three and six months ended September 30, 2006 has been recorded in other income (expense).

Energy Savings has entered into foreign exchange forward contracts in order to hedge its exposure to fluctuations in cross border cash flow (see Note 9(a) (vi)).

10. INCOME (LOSS) PER UNIT



Three months ended Six months ended
September 30 September 30
2006 2005 2006 2005

Basic income (loss) per unit
Net income (loss) available
to Unitholders $ (1,257) $ 9,396 $ 9,748 $ 20,521
--------- ----------- --------- ------------
Weighted average number of
units outstanding 97,790 95,798 97,121 95,746

Weighted average number of
Class A preference shares 8,902 10,169 9,532 10,169
--------- ----------- --------- ------------

Basic units and shares
outstanding 106,692 105,967 106,653 105,915
--------- ----------- --------- ------------

Basic income (loss) per unit $ (0.01) $ 0.09 $ 0.09 $ 0.19
--------- ----------- --------- ------------
--------- ----------- --------- ------------

Diluted income (loss) per unit

Net income (loss) available
to Unitholders $ (1,257) $ 9,396 $ 9,748 $ 20,521
--------- ----------- --------- ------------

Basic units and shares
outstanding 106,692 105,967 106,653 105,915

Dilutive effect of:
Unit options 301 657 285 695
Unit appreciation rights 398 269 410 255
Deferred unit grants 16 11 15 10
--------- ----------- --------- ------------
Units outstanding on a
diluted basis 107,407 106,904 107,363 106,875
--------- ----------- --------- ------------
Diluted income (loss) per
unit $ (0.01) $ 0.09 $ 0.09 $ 0.19
--------- ----------- --------- ------------
--------- ----------- --------- ------------


11. 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 the U.S. operations have gas and electricity business segments.

Energy Savings evaluates segment performance based on gross margin.

The following tables present Energy Savings' results from continuing operations by geographic segment:



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 operating expenses 18,101 7,126 25,227
Other expense 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
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Three months ended September 30, 2005

Canada United States Consolidated
---------- ------------- ------------
Sales - gas $ 71,786 $ 6,031 $ 77,817
Sales - electricity 102,194 38 102,232
---------------------------------------------------------------------------
Sales $ 173,980 $ 6,069 $ 180,049
---------------------------------------------------------------------------

Gross margin $ 22,341 $ 783 $ 23,124
Amortization of gas contracts 7,479 - 7,479
Amortization of electricity
contracts 2,008 - 2,008
Amortization of capital assets 564 15 579
Other expenses 14,684 7,262 21,946
Other income (4,221) (10,173) (14,394)
Recovery of income tax (3,893) 3 (3,890)
---------------------------------------------------------------------------
Net income $ 5,720 $ 3,676 $ 9,396
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Additions to capital assets $ 1,216 $ 37 $ 1,253
---------------------------------------------------------------------------
---------------------------------------------------------------------------



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



Six months ended September 30, 2005

Canada United States Consolidated

---------- ------------- --------------
Sales - gas $ 208,807 $ 12,643 $ 221,450
Sales - electricity 192,966 38 193,004
---------------------------------------------------------------------------
Sales $ 401,773 $ 12,681 $ 414,454
---------------------------------------------------------------------------

Gross margin $ 58,502 $ 1,724 $ 60,226
Amortization of gas
contracts 14,916 - 14,916
Amortization of electricity
contracts 3,314 - 3,314
Amortization of capital
assets 1,095 28 1,123
Other operating expenses 31,111 11,748 42,859
Other income (5,406) (11,405) (16,811)
Recovery of income tax (5,699) 3 (5,696)
---------------------------------------------------------------------------
Net income $ 19,171 $ 1,350 $ 20,521
---------------------------------------------------------------------------

Additions to capital assets $ 1,944 $ 49 $ 1,993
---------------------------------------------------------------------------

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

Total assets $ 317,202 $ 34,881 $ 352,083
---------------------------------------------------------------------------


12. 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 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 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 payable under these guarantees is estimated to be $29,000.

13. COMMITMENTS

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



2007 $ 1,661
2008 3,301
2009 3,275
2010 3,037
2011 2,378
--------
$ 13,652
--------
--------


(b) Commitments under the Master Service agreement with EPCOR for each of the next four years are as follows:



2007 $ 4,332
2008 7,942
2009 7,798
2010 5,199
--------
$ 25,271
--------
--------


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



2007 $ 652,072
2008 1,090,681
2009 863,439
2010 663,351
2011 429,973
-----------
$ 3,699,516
-----------
-----------


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.

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
    Ms. Mary Meffe, C.A.
    Chief Financial Officer
    (905) 795-4206
    Website: www.esif.ca