Energy Savings Income Fund
TSX : SIF.UN

Energy Savings Income Fund

May 15, 2008 11:49 ET

Energy Savings Reports Fourth Quarter and Fiscal 2008 Results - Distributable Cash up 18%, Earnings per Unit up 63% for the Year, Distributable Cash up 2%, Earnings per Unit up 32% for Q4

TORONTO, ONTARIO--(Marketwire - May 15, 2008) - Energy Savings Income Fund (TSX:SIF.UN) -

Highlights for the year ended March 31, 2008 included:

- Customer base reached 1,687,000 RCEs, up 2% year over year. Gross additions through marketing were 342,000 versus 348,000 in fiscal 2007.

- Sales (seasonally adjusted) up 13% reaching $1.7 billion.

- Gross margin (seasonally adjusted) of $272.2 million, up 18% year over year.

- Distributable cash of $152.8 million ($1.41 per unit), up 18% year over year.

- Net income of $152.8 million including an $11.2 million non-cash tax recovery.

- Earnings per unit of $1.41 versus from $0.88 in the prior year, up 63%.

- Ordinary distributions up 19% year over year. Including a $0.41 Special Distribution, distributions were up 60% year over year. Annual distribution rate increased three times to $1.21 per unit from $1.065 per unit.

- Payout ratio on ordinary distributions of 84%, the same as in fiscal 2007.

Highlights for the three months ended March 31, 2008 included:

- Gross customer additions were 54,000, down 13% compared to Q4 of fiscal 2007. Sales were $652.6 million, up 11% compared to fiscal 2007.

- Earnings per unit were $0.87, up from $0.66 in fiscal 2007.

- Distributable cash was $54.0 million, up 2% year over year.

- Payout ratio of 61% versus 54% for the comparable quarter.

Energy Savings Fiscal 2008 Results

Energy Savings Income Fund announced its results for the year ended March 31, 2008.



----------------------------------------------------------------------------
Year ended March 31, F2008 Per Unit F2007 Per Unit
($ millions except per unit)
----------------------------------------------------------------------------
Sales $ 1,730.6 $ 1,530.1
----------------------------------------------------------------------------
Gross Margin(1) 272.2 $ 2.51 230.4 $ 2.15
----------------------------------------------------------------------------
Net Income 152.8(2) $ 1.41(2) 93.9 $ 0.88
----------------------------------------------------------------------------
Distributable Cash(1)
----------------------------------------------------------------------------
- After Gross Margin
Replacement 170.0 $ 1.57 152.8 $ 1.42
----------------------------------------------------------------------------
- After Marketing 152.8 $ 1.41 130.0 $ 1.21
----------------------------------------------------------------------------
Distributions - Ordinary 128.8 $ 1.19 108.7 $ 1.01
----------------------------------------------------------------------------
Distributions - Special 44.7 $ 0.41
----------------------------------------------------------------------------
Long Term Customers 1,687,000 1,659,000
----------------------------------------------------------------------------



----------------------------------------------------------------------------
Three Months ended March 31, F2008 Per Unit F2007 Per Unit
($ millions except per unit)
----------------------------------------------------------------------------
Sales(1) $ 515.1 $ 461.7
----------------------------------------------------------------------------
Gross Margin(1) 88.0 $ 0.80 76.4 $ 0.71
----------------------------------------------------------------------------
Net Income 94.0(2) 0.87(2) 70.1 0.66
----------------------------------------------------------------------------
Distributable Cash(1)
----------------------------------------------------------------------------
- After Gross Margin Replacement 54.3 $ 0.50 54.9 $ 0.51
----------------------------------------------------------------------------
- After Marketing 54.0 $ 0.49 52.9 $ 0.49
----------------------------------------------------------------------------

(1) Seasonally adjusted. Please refer to the MD&A for discussion regarding
non-GAAP disclosure.

(2) Includes $11.2 million non-cash, non-operating tax recovery related to
the change in fair market value of certain supply positions which are
accounted for in Other Comprehensive Income. Excluding this recovery,
earnings per unit for the three months and year ended March 31, 2008
would have reduced by $0.11 and $0.10, respectively. Management does not
believe that this tax recovery is reflective of operations during the
year.


Energy Savings is an Income Fund and it reports in the attached Management's Discussion and Analysis a detailed calculation of distributable cash after gross margin replacement and after all marketing expenditures to expand the customer base which will increase future gross margin.

The Energy Savings' operating results were strong in fiscal 2008. Both gross margin and distributable cash were up 18% year over year. These results were in line with previously published and reaffirmed guidance of 15% to 20% for the year. In light of the 2% net growth of the Fund's customer base, the results reflected very strong margins per customer, improved control of bad debt expense and carefully managed operating expenses.

Energy Savings' management was able to achieve strong margins at the higher end of our target levels despite, on average, falling commodity prices during the year. Five year prices were held firm, allowing the Fund to lock in the higher margins shown in the table below. Customers who locked in at these prices are now seeing the benefit of our insurance product as commodity prices (in particular natural gas prices) were rising sharply at year end.



--------------------------------------------------------------------------
Annual gross margin per customer(1) Fiscal Annual target
2008 F2008
--------------------------------------------------------------------------
Customers added in the year
--------------------------------------------------------------------------
- Canada - gas $ 190 $ 175
--------------------------------------------------------------------------
- Canada - electricity $ 156 $ 150
--------------------------------------------------------------------------
- United States - gas $ 188 $ 160
--------------------------------------------------------------------------
- United States - electricity $ 145 $ 125
--------------------------------------------------------------------------
Customers lost in the year(2)
--------------------------------------------------------------------------
- Canada - gas $ 178
--------------------------------------------------------------------------
- Canada - electricity $ 105
--------------------------------------------------------------------------
- United States - gas $ 180
--------------------------------------------------------------------------
- United States - electricity $ 120
--------------------------------------------------------------------------

(1) Customer sales price less cost of matched supply and allowance for
bad debt and U.S. working capital. Annual amount is based on
residential standard annual consumption of 2,815 m3 (or 106 GJs or
1,000 therms or 1,025 CCFs) of natural gas and 10,000 kWh of
electricity.

(2) Gross margin as calculated above for customers in place at March 31,
2007 and includes balancing and low margin acquired customers.


The table highlights how the Fund was able to grow margin and distributable cash despite a relatively flat customer base. By locking in new customers for up to five years at these margins, replacing customers at much lower margins, Energy Savings has also contributed to cash flow growth in future years.

Fiscal 2008 saw the Fund's first United States acquisition, the purchase of Just Energy in Texas. This acquisition brought a number of benefits to the company. Just Energy brought a fully operational platform to accelerate our entry into the Texas electricity market and a proven experienced executive team which is assisting in the Fund's expansion into other U.S. markets.

The Texas acquisition came with a book of customers on short term contracts which were not included as customer additions. Experience has shown, however, that these customers generate attractive margins and renew at a rate that makes them as valuable as an Energy Savings U.S. customer on a five year contract. In order to meet the needs of our customers, management is reviewing the possibility of offering shorter term contracts in other U.S. markets.

Given the initial success of the Just Energy acquisition, management is actively reviewing other possible purchases in both the United States and Canada. As in past transactions, it is expected that any acquisitions will be accretive to distributable cash.

Energy Savings is also planning to begin the provision of supply to certain larger volume commercial and industrial customers. Approximately one third of current volumes go to commercial customers. Management believes that a number of profitable customers are only available with flexible price/flexible term contracts. Because these are larger customers with low attrition, they can be aggregated at a cost which generates returns on investment which match those of traditional Energy Savings customers.

Energy Savings completed a second challenging year of customer aggregation. Customer additions were 342,000 down 1% from fiscal 2007 where 348,000 customers were added. This was 82% of the target of 415,000 additions. The shortfall was primarily from Canada where the newly opened British Columbia residential gas market was over-marketed due to heavy competition while both Ontario and Alberta suffered from very tight labour markets and accordingly, difficulty in independent sales contractor recruitment. Current economic conditions indicate that the labour markets may be more favourable for recruiting, at least in Ontario, during the next fiscal year.

In the United States, aggregation numbers and associated gross margins were on track with expectations but attrition (particularly in New York) remained higher than target. Energy Savings has taken steps to deal with these issues and management is optimistic that customer growth, on both a gross and net basis, will return to expected levels in fiscal 2009. The Fund expects to enter at least one new state in fiscal 2009.

Energy Savings made significant improvements to its infrastructure in fiscal 2008. The result was a platform that is ready to meet the challenges of continued growth, whether they come through newly aggregated customers or the consolidation of acquired competitors. A new 450 seat call centre was constructed to meet not only customer inquiries but also to better handle the very important taped reaffirmation calls with each new customer.

Unitholders received two forms of distributions in fiscal 2008. The ordinary annual distribution rate rose from $1.065 to $1.21 per unit with three increases in the rate during the year. Ordinary distributions paid were up 19% year over year. In addition to the ordinary distributions, the Fund paid a special distribution of $0.41 per unit to avoid higher taxation on income that had not yet been distributed. In total, the Fund paid $1.62 per unit, an increase of 60% over what was paid in fiscal 2007.

Late in the year, Energy Savings began the sale of Green Energy Option products ("GEO"). The electricity GEO product offers the customer the option of having all or a portion of his or her electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas GEO offers purchased carbon offset credits which will allow the customer to reduce or eliminate the carbon footprint for their home or business. The third and fourth quarters saw significant take up of the GEO product with well over 20,000 customers electing to take all or a portion of their energy from green sources. Management believes that this product will not only add to profits but also increase sales receptivity and improve renewal rates.

Guidance for Fiscal 2009

As Energy Savings moves into more U.S. markets and adds larger commercial customers, it has become clear that differences in customer consumption, attrition and term make the continued use of an Ontario RCE as a measure of expected volumes inappropriate. In particular, equating an RCE in a low attrition market to one in a high attrition market is misleading. Similarly, a one year term customer is not the same as a five year customer. As an RCE is intended to be a volumetric measure, on a go forward basis, the Fund will identify volumes rather than customers with a renewal schedule appended. Management believes that this information will be more useful for analysis.

Management's expectations for fiscal 2009 are as follows:

Electricity volumes are expected to grow by approximately 15% and gas margins by 5%. Based on this growth in volumes, both gross margin and distributable cash after margin replacement are expected to grow by approximately 10% organically. The Fund intends to supplement this growth with accretive acquisitions. There are a number of such acquisitions currently under review in the United States and management believes that Canadian opportunities will arise as well.

Co-CEO Ken Hartwick stated: "Fiscal 2008 was a challenging and, in the end, very successful year for Energy Savings. We entered the year with guidance of 15% to 20% growth with commensurate distribution growth as has been seen in the past. We had a challenging year aggregating customers in Canada with the result being a 2% growth in customer base, much lower than we had targeted a year earlier. Due to a very tight market for agent recruitment and heavy competition in the newly opened B.C. residential market, we were unable to meet our customer addition expectations. We are in the process of ensuring that each of our sales offices has the resources and support so that they can return to a level of production that is expected. Our sales organization is exceptionally strong and will continue to be the driving force behind the success of the Company."

"In light of this shortfall, Energy Savings' team focused on developing sources of margin to offset lower additions. Our team was successful in a number of ways. Our supply team worked with Bruce Power and our other electricity suppliers to improve our margin per customer. On the gas side, we took advantage of supply price declines prior to the recent sharp price rise and again locked in margins well above target levels. Our GEO product also saw significant take up and contributed to our margin growth during the year. Our operational team did an excellent job of controlling costs and, in particular, we saw a 36% decline in bad debt expense despite a 39% growth in Illinois, Texas and Alberta where we are exposed to customer credit."

"The end result was 18% growth in margin and distributable cash, consistent with the guidance we provided a year ago. Our entire team has worked very hard for these results and Energy Savings has delivered."

Chair and Co-CEO Rebecca MacDonald added: "We have consistently portrayed the Fund as a predictable, reliable source of income and growth. Once again, Energy Savings has provided that stability. Over the past few years, we have seen record warm weather, aggressive competition, unforeseen regulatory setbacks and tough economic conditions. Over that period, we have never missed or cut a distribution and our distributable cash has shown the reliability and growth we promised."

"As a major Unitholder, I understand the importance of providing a growing yield to our holders. In fiscal 2008, we increased our ordinary distributions by 19% tracking the growth of our business. Our payout ratio on ordinary distributions was 84%, the same as fiscal 2007. Over and above this, we paid a $0.41 special distribution which took the increase year over year to 60%. Energy Savings has consistently ensured that Unitholders directly receive the cash generated by the Fund's continued growth."

"As we have in past years, we include within this release our guidance for operating performance in the coming year. We expect volumes delivered to customers to be up approximately 10% organically, year over year. We expect to achieve this growth through a combination of traditional marketing, our Green initiative, selected offering of short term contracts and some new larger volume customers (either marketed or purchased).

Gross margin and distributable cash after gross margin replacement should grow by a similar 10%. Profitability rather than top line growth is what drives our business model. Energy Savings is being operated by a strong team and I thank them for their efforts in fiscal 2008."

The Fund

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

Non GAAP Measures

Please refer to the Fund's Management Discussion and Analysis for a discussion of the Non-GAAP measures. This information can be can be accessed through the SEDAR website at www.sedar.com or through the Fund's website at www.esif.ca.

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") - May 15, 2008

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 year ended March 31, 2008 and has been prepared with all information available up to and including May 15, 2008. This analysis should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2008. 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 the Province of Ontario to hold securities and to distribute the income of its directly or indirectly wholly owned operating subsidiaries and affiliates: Ontario Energy Savings L.P. ("OESLP"), Energy Savings (Manitoba) L.P. ("ESMLP"), Energy Savings (Quebec) L.P. ("ESPQ"), ES (B.C.) Limited Partnership ("ESBC"), Alberta Energy Savings L.P. ("AESLP"), Illinois Energy Savings Corp. ("IESC"), New York Energy Savings Corp. ("NYESC"), Indiana Energy Savings Corp. ("INESC") and Energy Savings Texas Corp. ("ESTC").

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

Forward-looking information

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

Key terms

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

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

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

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

"RCE" means residential customer equivalent or the "customer", which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs ) of natural gas on an annual basis and, as regards electricity, 10,000 kWh of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario.

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

Non-GAAP financial measures

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

Seasonally Adjusted Sales and Seasonally Adjusted Gross Margin

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

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

Cash Available for Distribution

"Distributable cash after marketing expenses" refers to the net cash available for distribution to Unitholders. Seasonally adjusted gross margin is the principal contributor to cash available for distribution. Distributable cash is calculated by the Fund as seasonally adjusted gross margin, adjusted for cash items including general and administrative expenses, marketing expenses, capital tax, bad debt expense, interest expense, corporate taxes and other adjustments. This non-GAAP measure may not be comparable to other income funds.

"Distributable cash after gross margin replacement" represents the net cash available for distribution to Unitholders as defined above. However, only the marketing expenses associated with maintaining the Fund's gross margin at a stable level equal to that in place at the beginning of the year are deducted. This methodology is comparable to distributable cash after customer replacement which was used in calculations prior to fiscal 2007. The Fund previously matched each customer lost with the marketing cost associated with signing a new customer of the same type to recognize a constant customer base. Management believes this is more representative of the operating performance of the Fund and a measure used internally. Management believes that this information will be more useful for analysis. This non-GAAP measure may not be comparable to other income funds.

For reconciliation to cash from operating activities please refer to the "Cash Available for Distribution and Distributions" analysis.

Standardized Distributable Cash

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

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

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



Financial highlights
For the years ended March 31
(thousands of dollars except where indicated and per unit amounts)

Fiscal 2008 Fiscal 2007 Fiscal 2006
Per Per Per
$ Unit Change $ Unit Change $ Unit

Sales 1,738,690 $16.04 13% 1,532,317 $14.28 26% 1,212,314 $11.33
Net
income 152,761 $1.41 63% 93,912 $0.88 82% 51,563 $0.48
Distrib-
utable
Cash

- After
gross
margin/
customer
replac-
ement 169,997 $1.57 11% 152,788 $1.42 18% 130,021 $1.22
- After
mark-
eting
expen-
se 152,834 $1.41 18% 129,984 $1.21 28% 101,200 $0.95

Distrib-
utions
(Including
Special
Distrib-
ution(1))173,531 $1.60 60% 108,652 $1.01 12% 96,758 $0.90

Distrib-
utions
(Excluding
Special
Distrib-
ution) 128,840 $1.19 19% 108,652 $1.01 12% 96,758 $0.90

General
and
adminis-
trative 51,638 $0.48 23% 41,892 $0.39 22% 34,318 $0.32

Distrib-
utable
Cash
Payout
ratio(1)
(Includ-
ing
Special
Distrib-
ution)
- After
gross
margin/
customer
replac-
ement 102% 71% 74%
- After
market-
ing
expense 114% 84% 96%

Distribut-
able
Cash
Payout
ratio(2)
(Excluding
Special
Distrib-
ution)
- After
gross
margin/
customer
replace-
ment 76% 71% 74%
- After
market-
ing
expense 84% 84% 96%

(1) The Fund declared a Special Distribution in December 2007, in addition
to its regular monthly distributions. Refer to "Special Distribution"
for further information.
(2) Management targets an annual payout ratio after all marketing expenses
(excluding any Special Distributions) of less than 100%.


Operations

Gas

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

Ontario, Quebec and British Columbia

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

Manitoba and Alberta

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

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

New York, Illinois and Indiana

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

Electricity

Ontario, Alberta, New York and Texas

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

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



Cash available for distribution and Distributions
For the years ended March 31
(thousands of dollars except per unit amounts)

Fiscal 2008 Fiscal 2007 Fiscal 2006
----------- ----------- -----------
Per Unit Per Unit Per Unit
-------- -------- --------

Reconciliation
to statements
of cash flow
Cash inflow
from operations $136,007 $98,354 $69,582
Add:
Increase in
non-cash working
capital 11,879 28,311 28,277
Tax effect on
distributions
paid to holders
of Class A
preference
shares 4,948 3,319 3,341
----------- ----------- -----------
Cash available
for
distribution $152,834 $129,984 $101,200
----------- ----------- -----------
----------- ----------- -----------

Cash available
for
distribution
Gross margin per
financial
statements $274,800 $2.53 $229,444 $2.14 $186,085 $1.74
Adjustments
required to
reflect net
cash receipts
from gas sales (2,620) 924 2,555
----------- ----------- -----------
Seasonally
adjusted
gross margin $272,180 $2.51 $230,368 $2.15 $188,640 $1.76
----------- ----------- -----------
Less:
General and
administrative (51,638) (41,892) (34,318)
Capital tax
expense (827) (850) (691)
Bad debt
expense (6,951) (10,882) (5,107)
Income tax
recovery
(expense) 757 (539) 1,764
Interest
Expense (5,346) (3,942) (1,367)
Other
Adjustments(1) 780 690 517
----------- ----------- -----------
(63,225) (57,415) (39,202)
----------- ----------- -----------
Distributable
cash before
marketing
expenses 208,955 $1.93 172,953 $1.61 149,438 $1.40
Marketing
expenses to
maintain
gross margin (38,958) (20,165) (19,417)
----------- ----------- -----------
Distributable
cash after
gross margin
replacement/
customer
replacement 169,997 $1.57 152,788 $1.42 130,021 $1.22
Marketing
expenses to
add new gross
margin (17,163) (22,804) (28,821)
----------- ----------- -----------
Cash available
for
distribution $152,834 $1.41 $129,984 $1.21 $101,200 $0.95
----------- ----------- -----------
----------- ----------- -----------

Distributions
(Includes
Special
Distribution)
Unitholder
distributions $158,511 $99,036 $87,220
Class A
preference
share
distributions 13,699 9,188 9,251
Unit
appreciation
rights and
deferred unit
grants
distributions 1,321 428 287
----------- ----------- -----------
Total
distributions $173,531 $1.60 $108,652 $1.01 $96,758 $0.90
----------- ----------- -----------
----------- ----------- -----------

Distributions
(Excludes
Special
Distribution)
Unitholder
distributions $117,720 $99,036 $87,220
Class A
preference
share
distributions 10,130 9,188 9,251
Unit
appreciation
rights and
deferred unit
grants
distributions 990 428 287
----------- ----------- -----------
Total
distributions $128,840 $1.19 $108,652 $1.01 $96,758 $0.90
----------- ----------- -----------
----------- ----------- -----------
Diluted average
number of
units
outstanding 108.4m 107.3m 107.0m

(1)Other adjustments relates to interest income and other items.


Distributable cash

Throughout fiscal 2008, management was able to utilize favourable market conditions to secure supply at costs that facilitated increased customer margins for contracts signed. Accordingly, average gross margin per customer was higher for customers signed in fiscal 2008 to replace customers that were lost through attrition and failure to renew.

The table below highlights the gross margin on new customers for fiscal 2008 versus the gross margin for the customers lost during the year:



Annual gross margin per customer(1) Annual target
Fiscal 2008 Fiscal 2008
----------------------------------
Customers added in the year
- Canada - gas $190 $175
- Canada - electricity $156 $150
- United States - gas $188 $160
- United States - electricity $145 $125
Customers lost in the year(2)
- Canada - gas $178
- Canada - electricity $105
- United States - gas $180
- United States - electricity $120

(1) Customer sales price less cost of matched supply and allowance for bad
debt and U.S. working capital. Annual amount is based on residential
standard annual consumption of 2,815 m3 (or 106 GJs or 1,000 Therms or
1,025 CCFs) of natural gas and 10,000 kWh of electricity.
(2) Gross margin as calculated above for customers in place at March 31,
2007 includes balancing and low margin acquired customers.


Distributable cash after gross margin replacement for the current year was $170.0 million ($1.57 per unit), an increase of 11% from $152.8 million ($1.42 per unit) in fiscal 2007. The increase in distributable cash after gross margin replacement is due to higher customer gross margins and a small increase in the customer base. The increase was partially offset by higher spending on marketing costs on a per customer basis to renew and replace expiring or lost customers and higher general and administrative expenditures. The number of customers up for renewal in the year was 151% higher than the previous year, with the largest number of renewals in Ontario electricity. Energy Savings spent $39.0 million in marketing expenses to maintain its current level of gross margin, which represents 69% of the total marketing expense for fiscal 2008. General and administrative costs increased by 23% in the current year due to infrastructure investment, additional employees within our Texas operations which will support the Fund's geographical growth into retailer consolidated billing markets and the departure costs related to two senior executives. Bad debt expenses decreased by 36% due to effective credit and collection processes implemented during fiscal 2008.

Energy Savings paid out 76% (102% including special distribution) of the cash available for distribution after gross margin replacement. The comparable payout ratio in fiscal 2007 was 71%.

Distributable cash after marketing expenses amounted to $152.8 million ($1.41 per unit) for fiscal 2008, an increase of 18% from $130.0 million ($1.21 per unit) in the prior comparable year. The increase is attributable to the higher gross margin, and lower bad debt expense, offset by increased marketing and general and administrative expenses.

Excluding the Special Distribution, the payout ratio after marketing expenses for the year ended March 31, 2008, was 84%, unchanged from the prior year.

Standardized Distributable Cash and Cash Available for Distribution
For the years ended March 31
(thousands of dollars except per unit amounts)



Fiscal 2008 Fiscal 2007
----------- -----------
Reconciliation to statements of
cash flow
Cash inflow from operations $136,007 $98,354
Capital expenditures(1) (7,842) (3,726)
-----------------------------------
Standardized Distributable Cash $128,165 $94,628
-----------------------------------

Adjustments to Standardized
Distributable Cash
Change in non-cash working capital(2) $11,879 $28,311
Tax effect on holders of Class A
preference shares(3) 4,948 3,319
Capital expenditures(1) 7,842 3,726
-----------------------------------
Cash available for distribution $152,834 $129,984
-----------------------------------
Standardized Distributable Cash
- per unit basic 1.19 0.89
Standardized Distributable Cash
- per unit diluted 1.18 0.88

Payout Ratio based on Standardized
Distributable Cash(4) (Includes
Special Distribution) 135% 115%

Payout Ratio based on Standardized
Distributable Cash (Excludes
Special Distribution) 100% 115%

(1)The vast majority of capital expenditures are for expansion rather than
maintenance of the Fund's productive capacity and are funded out of the
Credit Facility.
(2)Change in non-cash working capital is excluded from the calculation of
Cash Available for Distribution as the Fund currently has a $150.0
million credit facility which is available for use to fund working
capital requirements. This eliminates the potential impact of timing
distortions relating to the respective items.
(3)Payments to the holders of Class A preference shares are equivalent to
distributions. The number of Class A preference shares outstanding is
included in the denominator of any per unit calculation.
(4)The Special Distribution relating to calendar 2007 has significantly
increased the overall payout ratios for fiscal 2008. Refer to "Special
Distribution" for further details.


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

Financing Strategy

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

Productive Capacity

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

The productive capacity of the Fund is achieved through the retention of existing customers and the addition of new customers to replace those lost through attrition or that have not been renewed. The productive capacity of the Fund is maintained through our independent contractors, call centre renewal efforts and various mail campaigns to achieve customer growth.

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



Discussion of Distributed Cash
For the years ended March 31
(in thousands of dollars)

Fiscal 2008 Fiscal 2007 Fiscal 2006
----------- ----------- -----------

Cash flow from operations(1)(A) $136,007 $98,354 $69,582

Net income(B) $152,761 $93,912 $51,563

Total distributions(C)(2) $173,531 $108,652 $96,758

Shortfall of cash flows from
operating activities over
distributions paid (A-C) $(37,524) $(10,298) $(27,176)

Shortfall of net income over
distributions paid (B-C) $(20,770) $(14,740) $(45,195)

(1) Includes non-cash working capital balances
(2) Includes a one-time Special Distribution of $44.7 million declared
during the third quarter of fiscal 2008


As can be seen in the table above, the Fund has historically paid out annual distributions that were higher than both financial statement net income and operating cash flow. In the view of management, the non-GAAP measure, distributable cash, has been an appropriate measure of the Fund's ability to distribute funds, as the cost of carrying incremental working capital necessary for the growth of the business has been deducted in the distributable cash calculation. Capital has not been deducted from distributable cash but the cost of financing the capital has been deducted. As noted above, the vast majority of the Fund's capital expenditures are for expansion, rather than maintenance of productive capacity. Further, investment in the addition of new customers intended to increase cash flow is expensed in the financial statements while the original customer base was capitalized. The Fund declared a Special Distribution in December 2007 relating to the under-distribution of cash in prior periods. Refer to "Special Distribution" for further information.

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

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



Financial Statement Analysis

Sales and gross margin - Per financial statements
For the years ended March 31
(thousands of dollars)

Fiscal 2008 Fiscal 2007
----------- -----------

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

Gas $785,788 $247,463 $1,033,251 $782,506 $172,225 $954,731
Electricity 544,278 161,161 705,439 530,388 47,198 577,586
----------------------------------------------------------------------------
$1,330,066 $408,624 $1,738,690 $1,312,894 $219,423 $1,532,317
----------------------------------------------------------------------------

Increase 1% 86% 13%



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

Gas $140,443 $38,149 $178,592 $131,235 $26,128 $157,363
Electricity 79,804 16,404 96,208 70,202 1,879 72,081
----------------------------------------------------------------------------
$220,247 $54,553 $274,800 $201,437 $28,007 $229,444
----------------------------------------------------------------------------
Increase 9% 95% 20%


Canada

Sales were $1.3 billion for the year, an increase of 1% over the prior comparable year. Gross margin was $220.2 million for fiscal 2008, up 9% from $201.4 million in fiscal 2007. The increase in sales is attributable to an increase in the average customer selling price but was offset by a decline in the customer base and a shift of that existing base toward lower revenue electricity customers. The relatively greater increase in gross margin is attributable to higher realized margin per customer. Refer to "Seasonally adjusted analysis" for further details.

United States

Sales in the U.S. were $408.6 million for fiscal 2008, an increase of 86% from $219.4 million last year. Gross margin increased 95% from $28.0 million in fiscal 2007 to $54.6 million. The increase in sales and gross margin reflects 68% growth in the customer base as well as the increase in average sales price and realized gross margin per customer over the prior year. The acquisition of Just Energy completed on May 24, 2007 has positively impacted both sales and gross margin for the year. For additional information, see "Seasonally adjusted analysis".



Seasonally Adjusted Analysis

Sales and gross margin - Seasonally adjusted(1)
For the years ended March 31
(thousands of dollars)

Fiscal 2008 Fiscal 2007
----------- -----------

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

Gas $785,788 $247,463 $1,033,251 $782,506 $172,225 $954,731
Adjustments(1) (8,085) - (8,085) (2,232) - (2,232)
----------------------------------------------------------------------------
$777,703 $247,463 $1,025,166 $780,274 $172,225 $952,499
Electricity 544,278 161,161 705,439 530,388 47,198 577,586
----------------------------------------------------------------------------
$1,321,981 $408,624 $1,730,605 $1,310,662 $219,423 $1,530,085
----------------------------------------------------------------------------
Increase 1% 86% 13%



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

Gas $140,443 $38,149 $178,592 $131,235 $26,128 $157,363
Adjustments(1) (2,620) - (2,620) 924 - 924
----------------------------------------------------------------------------
$137,823 $38,149 $175,972 $132,159 $26,128 $158,287
Electricity 79,804 16,404 96,208 70,202 1,879 72,081
----------------------------------------------------------------------------
$217,627 $54,553 $272,180 $202,361 $28,007 $230,368
----------------------------------------------------------------------------
Increase 8% 95% 18%

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



Gross margin analysis
For the years ended March 31
(thousands of dollars)

Fiscal 2008 Fiscal 2007
----------- -----------

United United
Canada States Total Canada States Total

Gas
Customer
margin $143,649 $40,179 $183,828 $134,112 $28,413 $162,525
Loss from
dispositions
of excess
supply and
financial
reconcil-
iations(1) (5,826) (2,030) (7,856) (1,953) (2,285) (4,238)
----------------------------------------------------------------------------
Gas margin $137,823 $38,149 $175,972 $132,159 $26,128 $158,287
----------------------------------------------------------------------------
Electricity
Customer
margin $ 84,087 $16,607 $100,694 $ 74,111 $ 3,597 $ 77,708
Loss from
dispositions
of excess
supply(2) (4,283) (203) (4,486) (3,909) (1,718) (5,627)
----------------------------------------------------------------------------
Electricity
margin $ 79,804 $16,404 $ 96,208 $ 70,202 $ 1,879 $ 72,081
----------------------------------------------------------------------------
Total $217,627 $54,553 $272,180 $202,361 $28,007 $230,368
----------------------------------------------------------------------------

(1) Results from variances in customer demand and associated gas
reconciliations.
(2) Results from excess supply purchased in advance of customer usage or
fluctuations in customer usage attributable to acquired customers on
load following contracts.


On a seasonally adjusted basis, sales increased by 13% to $1.7 billion as compared to $1.5 billion in fiscal 2007. Margins were $272.2 million in fiscal 2008, up 18% from the comparable prior year. The increase in sales for both gas and electricity is attributable to an overall 2% increase in the customer base and the higher realized average customer gross margin and sales price.

Canada

Sales were $1.3 billion for the year, up slightly from the same comparable period in fiscal 2007. Margins were $217.6 million in fiscal 2008, an increase of 8% from $202.4 million in the prior fiscal year.

Gas

Gas sales in fiscal 2008 were flat as compared to fiscal 2007 and totaled $777.7 million. Gross margin increased by 4% for the year to $137.8 million. The increase in customer gross margin was attributable to higher average margins during the fiscal year and increased Alberta customer consumption offsetting a decreased customer base.

Excess volumes sold during the year due to lower than anticipated additions as well as higher than expected customer attrition and financial reconciliations for past periods resulted in a balancing loss of $5.8 million versus a $2.0 million loss in the comparable prior year. The losses were higher in the current year due to the depressed gas spot market which existed until the fourth quarter. Prices have subsequently moved to much higher levels.

After allowance for balancing and inclusive of acquisitions, average gross margin per RCE ("GM/RCE") for the 12 months ended March 31, 2008 amounted to $193/RCE, compared to $174/RCE from the prior year. The GM/RCE value for Alberta includes a full allowance for bad debt expense.

Electricity

Electricity annual sales increased by 3%, from $530.4 million to $544.3 million, despite a decline in the customer base in both Ontario and Alberta. The increase in sales is attributable to pricing for new customers. Total gross margin increased by 14% from the prior year to $79.8 million. The increase was due to higher margin per customer and the expiry of acquired load following customers that produce low margins and were not expected to renew. The increase in margin per customer significantly exceeded the increase in selling price due to long-term supply purchases at attractive prices.

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

Most of the acquired low margin, load following customer contracts from First Source Energy Corp. ("First Source") and EPCOR in Ontario expired or were converted to Energy Savings contracts during fiscal 2008. A load following contract requires Energy Savings to bear the risk and benefits of fluctuation in consumption from the standard customer usage profile.

During the year, excess volume due to lower than expected customer additions resulted in supply being sold in the spot market at unfavourable prices. Balancing losses for the year due to lower customer consumption amounted to $4.3 million, an increase of 10% from a loss of $3.9 million in the prior year.

Average gross margin per RCE after all balancing and including acquisitions for fiscal 2008 amounted to $124/RCE, up 25% compared to $99/RCE from the prior year. The GM/RCE values for Alberta include a full allowance for bad debt expense.

United States

Sales for the 2008 fiscal year were $408.6 million, an increase of 86% from $219.4 in the prior comparable period. Gross margin was $54.6 million, up 95% from $28.0 million in fiscal 2007. The increase in sales and gross margin relates to a 68% increase in the U.S. customer base, contribution from the acquired Texas contracts, as well as an increase in the average customer selling price and contract margin.

The significant decline in the United States dollar versus the Canadian dollar had a limited negative impact on the overall Fund's operating results during fiscal 2008. The decline in the US dollar adversely impacted sales and gross margin but resulted in lower operating costs and commissions when translated to Canadian dollars. The net impact was not material. The Fund continues to reinvest operating cash flow into the United States to fund continued growth.

Gas

Gas sales in the U.S. increased by 44% from $172.2 million to $247.5 million, year over year. Gas margin increased 46% for the year ended March 31, 2008, to $38.1 million from $26.1 million in fiscal 2007. The increase in sales and gross margin for the 2008 fiscal year is related to the 43% increase in the customer base and increased per customer margin offset by lower exchange rates.

Excess volumes were sold during the year at unfavourable prices in the spot market resulting in a current year balancing loss of $2.0 million versus $2.3 million in the prior comparable year.

Average gross margin after all balancing costs was $175/RCE, an increase of 8% above the prior year of $162/RCE. The GM/RCE value for Illinois includes a full allowance for bad debt expense.

Electricity

Electricity sales and margin were $161.2 million and $16.4 million, respectively, for the current fiscal year. In fiscal 2007, sales and gross margin amounted to $47.2 million and $1.9 million, respectively. The increase in both sales and gross margin was due to a 160% increase in customers versus the prior year and higher margins per customer offset by lower exchange rates. Texas customers acquired with Just Energy showed lower attrition and better renewals than anticipated on acquisition. This contributed to higher sales and gross margin and a number of these Texas customers have been subsequently added to the Energy Savings long-term customer base. In addition, we have lower margin short-term Texas customers which generated gross margin of approximately $7.6 million for the year which are not expected to renew and are not included as long-term customers.

Customer margins were offset by the sale of excess supply in the current year resulting in a loss of $0.2 million versus $1.7 million in the prior year.

Customer margin for electricity was $102/RCE including acquisitions, compared to $65/RCE from the prior year comparable period. The GM/RCE value for Texas includes a full allowance for bad debt expense.

Selected Consolidated Financial Data

(thousands of dollars except where indicated and per unit amounts)

The consolidated financial statements of the Fund are prepared in accordance with Canadian GAAP and are expressed in Canadian dollars. The following table provides selected financial information for the last three fiscal years.



Statements of Operations Data 2008 2007 2006
For the years ended March 31 ---- ---- ----

Sales per financial statements $1,738,690 $1,532,317 $1,212,314
------------------------------------
------------------------------------
Net income $ 152,761 $ 93,912 $ 51,563
------------------------------------
------------------------------------

Net income per unit - basic $ 1.42 $ 0.88 $ 0.49
------------------------------------
------------------------------------
Net income per unit - diluted $ 1.41 $ 0.88 $ 0.48
------------------------------------
------------------------------------

Balance Sheet Data 2008 2007 2006
As at March 31 ---- ---- ----

Total assets $ 709,115 $ 357,227 $ 350,225
Long-term liabilities $ 246,248 $ 19,509 $ 21,439
------------------------------------
------------------------------------


2008 compared with 2007

The increase in sales is primarily a result of the increase in the average sales price and customer base. Energy Savings acquired Just Energy in Texas on May 24, 2007 which contributed to the sales increase. The Fund also had a full twelve months of results from National Fuel Gas ("NFG") in New York and Northern Indiana Public Service Company ("NIPSCO") in Indiana which were two new jurisdictions entered in 2007.

The increase in net income from $93.9 million to $152.8 million and in net income per unit is a result of an increase in gross margin per customer as well as a decrease in bad debt expense, offset by increases in general and administrative costs, marketing expenses and other expenses relating primarily to the change in market value of derivative financial instruments. Effective credit and collection processes implemented during the year have reduced the bad debt expense. In addition, collections from the prior year's winter billings were higher than anticipated which resulted in a reduction in the associated reserve. General and administrative expenses increased primarily as a result of the additional number of employees and infrastructure necessary to support the Fund's expansion into Texas. The increase in marketing expenses is due to higher overhead costs associated with opening additional offices and additional recruiting expenses.

Total assets increased by 99% primarily as a result of the implementation of a new accounting standard for derivative financial instruments. Energy Savings was required to record other assets and liabilities representing the estimated fair value on a mark to market basis of all financial instruments effective fiscal 2008. In fiscal 2007, only certain financial instruments were required to be fair valued and recorded in the financial statements.

Long-term liabilities increased in fiscal 2008 primarily due to the increase in other liabilities - long-term as a result of the implementation of a new accounting standard for derivative financial instruments. In addition, there was a reclassification of the debt from current to long-term on the change of the credit facility renewal period to three years from a previous annual renewal term.

2007 compared with 2006

The increase in sales is primarily a result of the 10% increase in customers during the fiscal year as well as an increase in the average sales price. During fiscal 2007, Energy Savings entered two new utility jurisdictions, NFG in New York and NIPSCO in Indiana. In addition, Energy Savings had 12 months of results from the New York market compared with only five months in fiscal 2006 (entered during third quarter of fiscal 2006).

The increase in net income from $51.6 million to $93.9 million and the related increase in net income per unit is a result of an increase in gross margin per customer as well as the growth in the number of customers, offset by increases in bad debt expense, general and administrative costs and other expenses relating primarily to the change in market value of derivative financial instruments. The increase in bad debt expense is attributable to the growth in customer base while general and administrative expenses increased primarily as a result of the additional number of employees and infrastructure necessary to support the Fund's expansion into new utility jurisdictions.

Total assets increased by 2% primarily as a result of the increase in accounts receivable offset by a decrease in the book value of acquired gas and electricity contracts, as these contracts are amortized over their average remaining life.

Long-term liabilities are primarily future income taxes and other liabilities. The decrease in future income tax is attributable to the decrease in the difference between the tax and accounting cost base of the acquired gas and electricity contracts. The majority of these assets are deducted for tax at a rate greater than that for accounting. The increase in other liabilities is attributable to the change in fair value of derivative financial instruments.



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

Fiscal 2008 Q1 Q2 Q3 Q4 Total
----------- -------- -------- -------- -------- ----------
Sales per
financial
statements $352,869 $283,531 $449,673 $652,617 $1,738,690
Net income 25,918 4,754 28,064 94,025 152,761
Net income
per unit
- basic $ 0.24 $ 0.05 $ 0.26 $ 0.87 $ 1.42
Net income
per unit
- diluted 0.24 0.04 0.26 0.87 1.41
Amount
available
for
distribution
After gross
margin
replacement $ 30,832 $ 37,589 $ 47,242 $ 54,334 $ 169,997
After
marketing
expense 26,690 29,690 42,462 53,992 152,834
Payout ratio
After gross
margin
replacement 99% 86% 164%(1) 61% 102%(1)
After
marketing
expense 114% 109% 183%(1) 61% 114%(1)



Fiscal 2007 Q1 Q2 Q3 Q4 Total
----------- -------- -------- -------- -------- ----------

Sales per
financial
statements $285,550 $236,127 $422,230 $588,410 $1,532,317
Net income
(loss) 11,005 (1,257) 14,112 70,052 93,912
Net income
(loss) per
unit - basic $0.10 $ (0.01) $ 0.13 $ 0.66 $ 0.88
Net income
(loss) per
unit - diluted 0.10 (0.01) 0.13 0.66 0.88
Amount
available for
distribution
After gross
margin/
customer
replacement(2) $31,598 $ 26,490 $ 39,772 $ 54,928 $ 152,788
After
marketing
expense 21,489 19,068 36,500 52,927 129,984
Payout ratio
After gross
margin/
customer
replacement(2) 81% 102% 69% 52% 71%
After
marketing
expense 119% 141% 75% 54% 84%

(1) Includes the Special Distribution. If the Special Distribution figure
of $44.7 million is removed the payout ratios would be 70% after gross
margin replacement and 77% after marketing expense for Q3. For fiscal
2008, the payout ratio would be 76% after gross margin replacement and
84% after marketing expense.
(2) Allocation of marketing expenses has been restated to reflect the cost
of maintaining customer gross margin versus historical method of
customer replacement.


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

Analysis of the fourth quarter

Sales are typically higher in the third and fourth quarters because gas consumption is highest during the winter months and approximately 58% of the current customer base are gas customers. The 11% increase in sales compared to the prior comparable quarter is primarily attributable to the increase in the average customer sales price. Net income for the fourth quarter of fiscal 2008 increased by 34% over the prior comparable quarter to $94.0 million in fiscal 2008 primarily due to the decrease in unit based compensation and bad debt expenses, an increase in other income and an $11.2 million non-cash, non-operating tax recovery.

Unit based compensation decreased due to fewer unit option grants and the issuance of fewer unit appreciation rights. Bad debt expense decreased as a result of effective collection changes implemented earlier in the fiscal year. The increase in other income is a result of the change in fair value associated with certain financial instruments.

The distributable cash after customer gross margin replacement was $54.3 million, slightly below the $54.9 million recorded in the prior comparable quarter. Distributable cash after marketing expenses was $54.0 million, an increase of 2% from $52.9 million in the prior comparable quarter. The increase in gross margin was offset by higher general and administrative and marketing expenses resulting in flat distributable cash.



Customer aggregation

Long-term customers - Fiscal 2008

Failed To
Beginning Additions Attrition(5) Renew(6) Ending
----------------------------------------------------------------------------
Canada
Gas(1) 808,000 45,000 (71,000) (21,000) 761,000
Electricity(2) 662,000 95,000 (83,000) (65,000) 609,000
----------------------------------------------------------------------------
Total Canada 1,470,000 140,000 (154,000) (86,000) 1,370,000
----------------------------------------------------------------------------

United States
Gas(3) 149,000 119,000 (55,000) - 213,000
Electricity(4) 40,000 83,000 (19,000) - 104,000
----------------------------------------------------------------------------
Total - U.S. 189,000 202,000 (74,000) - 317,000
----------------------------------------------------------------------------

Combined 1,659,000 342,000 (228,000) (86,000) 1,687,000
----------------------------------------------------------------------------

Fiscal 2007 1,502,000 348,000 (158,000) (33,000) 1,659,000
----------------------------------------------------------------------------

(1) Includes Ontario, Quebec, British Columbia, Manitoba and Alberta.
(2) Includes Ontario and Alberta.
(3) Includes Illinois, New York and Indiana.
(4) Includes New York and Texas.
(5) Attrition - customers whose contracts were terminated primarily due to
relocation or delinquency.
(6) Failed to renew - customers who did not renew expiring contracts at the
end of their term.


Attrition

Attrition in Canada was 11% on an annualized basis, slightly above management's target of 10%. In the U.S., attrition was 29%, on an annualized basis, a decrease from the 33% rate noted at March 31, 2007, but above management's annual target of 20%. The previously favourable downward trend in U.S. attrition reversed in the fourth quarter as adverse news coverage surrounding perceived high fixed prices and aggressive independent sales contractor practices resulting in high levels of cancellations in Illinois and New York. Higher spot commodity prices since year end have improved the attractiveness of the fixed price option and management is optimistic that U.S. attrition will improve in subsequent quarters.

Failed to renew

The Energy Savings renewal process is a multi-faceted program which aims to maximize the number of customers who remain with Energy Savings rather than transfer to system supply or obtain supply through a competitor. The process includes both customers who sign a new contract prior to the end of their existing contract term and those who renew their existing contract. Efforts begin up to 15 months in advance of a customer's end of term through the recontract program (which allows a customer to re-contract for an additional four or five years). Presently, the only contracts that have completed their term and therefore are eligible for recontract or renewal are the Ontario gas and electricity customers and an immaterial number of Manitoba customers.

In the Ontario gas market, customers who do not positively elect to renew or terminate their contract receive a one-year fixed-price for the ensuing year. During the year, renewals on an annualized basis were 82%. This renewal rate is a blend of one-year and four- or five-year contracts, and 30% of these customers have renewed for a one-year term. Management continues to anticipate that renewals for gas customers in fiscal 2009 will be 80% or above.

In the Ontario electricity market, there is no opportunity to renew a residential or small volume customer for a one-year term should the customer fail to positively renew or terminate his or her contract. As a result of current market conditions, management targets a renewal rate for electricity customers of 60%. For the fiscal year ended March 31, 2008, 55% of all expiring electricity customer volumes were successfully renewed.

Gas and Electricity Contract Renewals

This table shows the percentage of long-term customers up for renewal in each of the following years:



Canada - Canada - U.S. - U.S. -
Fiscal year Gas Electricity Gas Electricity
------------------------------------------------------
2009 17% 15% 2% 26%
2010 24% 6% 13% 19%
2011 24% 23% 21% 10%
2012 19% 23% 18% 17%
2013 14% 31% 43% 24%
Beyond 2013 2% 2% 3% 4%
------------------------------------------------------
Total 100% 100% 100% 100%


Energy Savings continuously monitors its customer renewal rates with the goal of maximizing the number of customers who renew their contract.

Customer additions

Energy Savings' published targets for fiscal 2008 were gross customer additions of 415,000 and net customer additions of 125,000. There were a large number of Ontario electricity customers up for renewal in the third quarter representing the five-year anniversary of the first marketing campaign following deregulation.

The Fund fell short of its annual target for both gross and net additions for the 2008 fiscal year. Growth was lower than expected in both New York and B.C., delays were experienced in the opening of our Texas offices and Ontario performance in both gas and electricity was below forecast. Energy Savings remains disciplined in the management of the gross margin targets, which has resulted in higher margins than targeted across all markets. These higher margins per customer have offset any shortfall in net additions allowing the Fund to meet its published guidance for both gross margin and distributable cash.



Published
Customer Additions Fiscal 2008 target % Realized
----------------------------------------------------------------------------
Canada
Gas(1) 45,000 100,000 45%
Electricity(2) 95,000 115,000 83%
----------------------------------------------------------------------------
Total Canada 140,000 215,000 65%
----------------------------------------------------------------------------

United States
Gas(3) 119,000 110,000 108%
Electricity(4) 83,000 90,000 92%
----------------------------------------------------------------------------
Total United States 202,000 200,000 101%
----------------------------------------------------------------------------

Gross Additions 342,000 415,000 82%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net Additions 28,000 125,000 22%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Includes Ontario, Quebec, British Columbia, Manitoba and Alberta.
(2) Includes Ontario and Alberta.
(3) Includes Illinois, New York and Indiana.
(4) Includes New York and Texas. The figure includes 29,000 Texas customers
acquired with Just Energy who have been renewed by Energy Savings at
margins at or above the $120 annual target for U.S. electricity
customers or are customers under long-term contract at or above these
margins that have remained current under Energy Savings' billing.


Canada

Gas

Total gross gas additions in Canada were 45,000 representing 45% of the annual published target of 100,000. Additions for the year were lower than expected as a result of heavy competition in the B.C. residential market as well as tight markets for independent sales contractors. Customers lost in Canadian gas markets due to attrition and failure to renew exceeded customer additions by 47,000 RCEs. Management is continuing its efforts to increase sales channels as well as to maximizing the number of customer renewals.

The Canadian gas customers added through marketing efforts during the year were matched with supply to generate margins of $190/RCE over the life of the contract, 9% higher than the published target.

Electricity

Additions in the Canadian electricity market were 95,000 for the year, representing 83% of the published annual target of 115,000. In addition to the new customers, significant effort was applied to renewing our existing book of Ontario customers. A large number of customers were up for renewal during this fiscal year which resulted in high customer loss. Management believes that the additions have fallen short of targeted levels as a result of adverse current market pricing, increased competition in the Ontario market and a very tight labour market for new sales contractors.

The electricity customers signed during the year were matched with supply to generate margins of $156/RCE consistent with the targeted rate of $150/RCE.

United States

Gas

Fiscal 2008 additions in the U.S. gas market were 119,000, representing 108% of the published annual target of 110,000. Illinois and New York continued to produce strong customer additions during the quarter following the successful rebuilding of the independent sales forces in those jurisdictions.

The U.S. gas customers signed during the year were matched with supply to generate margins of $188/RCE over the life of the contract, 18% higher than target. The higher realized total customer gross margin is directly related to the continued decline in the attrition rate and lower spot gas prices used to balance customer load.

Electricity

Electricity additions in New York and Texas were 83,000 for the year, representing 92% of the published annual target of 90,000.

The U.S. electricity customers added during the year were matched with supply to generate margins of $145/RCE over the life of the contract, 16% higher than target.

General and administrative expenses

General and administrative costs were $51.6 million for the year, representing a 23% increase from $41.9 million in fiscal 2007. The increase in general and administrative costs over the prior comparable year was primarily driven by the planned investment in infrastructure and employees within the Texas operations which will support the Fund's continued geographical customer growth into retailer consolidated billing markets. Also included in the increased expense were departure costs related to two senior executives.

Marketing expenses

Marketing expenses, which consist of commissions paid to independent sales contractors for signing new customers as well as an allocation of corporate overhead, were $56.1 million, an increase from $43.0 million last year. Marketing expenses increased as a result of a greater number of customer contracts up for renewal with the associated commission, marketing and customer service expense related to the successful renewals. Furthermore, overhead costs associated with opening additional offices and the related recruiting expenses resulted in increased costs. Also, increased aggregation costs noted below, which were reset to reflect market conditions at the end of fiscal 2007 have contributed to the increased expense.

The increase in target aggregation costs was as follows:



Fiscal 2008 Fiscal 2007

Canada
Gas $170/RCE $160/RCE
Electricity $120/RCE $95/RCE

United States
Gas $120/RCE $110/RCE
Electricity $120/RCE $100/RCE


Actual aggregation costs in Canada for fiscal 2008 were $215/RCE and $147/RCE for gas and electricity customers, respectively. The aggregation costs for Canadian gas and electricity customers were above target as a result of lower than expected additions and therefore, higher corporate, marketing and customer service costs allocated to each RCE addition. Approximately 36% of the total marketing expense relates to the costs associated with this overhead.

In the U.S., aggregation costs for fiscal 2008 were $160/RCE and $141/RCE for gas and electricity customers (excluding additions recognized from the Texas acquisition), respectively. Overhead costs in the U.S. associated with opening new offices that were not producing significant RCE additions in the year increased the aggregation costs above targeted levels.

Although the costs associated with signing a customer are recognized once the customer has been approved by the LDC, the payout of commissions is approximately 60% upon signing by the customer and approval by the LDC. A further 30% is paid approximately 60 days after the customer begins to flow and the remaining 10% paid one year after flow. If a customer is lost within 60 days from the start of flow, the initial commission paid is deducted from future commissions that may be earned by the independent sales contractor. Retention of the independent contractors is critical to the success of the Energy Savings. Compensation arrangements have been implemented which the Fund believes will result in higher independent contractor retention levels.

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 $3.1 million (2007 - $3.9 million). The decreased expense in fiscal 2008 is a result of fewer options and unit appreciation rights ("UARs") awarded during the year.

Bad debt expense

In Illinois, Alberta and Texas, Energy Savings assumes the credit risk associated with the collection of its customers' accounts. Credit review processes have been established to manage the customer default rate.

Bad debt expense for fiscal 2008 was $7.0 million (2007 - $10.9 million), representing approximately 1.5% of $453.5 million in revenues in these markets for the year. In fiscal 2007, the bad debt expense was 3.3% on $325.8 million in revenues. Effective credit and collection processes implemented during the year have reduced the bad debt expense. In addition, collections from the prior year's winter billings were higher than anticipated which resulted in a reduction in the associated reserve.

Management integrates its default rate for bad debts within its margin targets and continuously reviews and monitors the credit approval process to mitigate customer delinquency. Management expects that bad debt expense will be approximately 2.0% to 3.0% of annual revenue earned in Alberta, Illinois and Texas during fiscal 2009.

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

Interest Expense

Total interest expense for the 12 months ended March 31, 2008 amounted to $5.3 million (2007 - $3.9 million). The increase in interest expense is a result of increased utilization of the operating line. Energy Savings is required to meet a number of financial covenants under the credit facility agreement and as at March 31, 2008 and 2007, all of these covenants have been met.

Foreign exchange

Energy Savings has an exposure to U.S. dollar exchange rates as a result of its U.S. operations and any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income (loss) for fiscal 2008. In fiscal 2007, any change was reported in the statement of operations. For the twelve months ended March 31, 2008, the foreign exchange gain of $4.0 million was reported in other comprehensive income (loss) compared with a gain of $0.1 million reported in the Statement of Operations for fiscal 2007. The operations of the Fund's U.S.-based subsidiaries became self-sustaining effective April 1, 2007. See discussion under "Adoption of new accounting policies" for further details.

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

Class A preference share distributions

Each of the holders of the Ontario Energy Savings Corp. ("OESC") Class A preference shares (which are exchangeable into units on a 1:1 basis) is entitled to receive, on a quarterly basis, a payment equal to the amount paid or payable to a Unitholder on an equal number of units. The total Class A distributions in fiscal 2008 amounted to $13.7 million (2007 - $9.2 million) The payments are reflected in the Statement of Unitholders' Equity of the Fund's consolidated financial statements, net of tax.

Special Distribution

The Fund's regular monthly distributions were not sufficient to offset its taxable income. In order to ensure all of the taxable income was distributed to its Unitholders, Energy Savings declared a special distribution in December 2007, in addition to its monthly distributions. The special distribution of $44.7 million ($0.41 per unit) included a combination of 50% cash and 50% units.

The cash portion of the special distribution was paid in three equal installments on the last day of January, February and March 2008. The unit portion of the special distribution will be issued equally on the last day of June, September and December 2008. No fractional units will be issued.

Recovery of income tax



Income Tax Breakdown For the year ended
(thousands of dollars) March 31,
Fiscal Fiscal
2008 2007
----------------------

Income tax provision (recovery) $ (757) $ 539
Portion of tax provision credited to Unitholders'
equity 4,948 3,319
----------------------
Current income tax provision 4,191 3,858
Future tax recovery (18,692) (4,788)
----------------------
Recovery of income tax $(14,501) $ (930)
----------------------
----------------------


In fiscal 2007, a tax provision of $0.5 million was recorded versus a recovery of $0.8 million for the current year. The change is mainly attributable to the corporate reorganization noted below.

The income tax recovery has been reduced by the tax portion of the distributions paid to the holders of Class A preference shares of OESC. The tax benefit related to this distribution has been credited to Unitholders' equity. In accordance with EIC 151, "Exchangeable Securities Issued by Subsidiaries of Income Trusts", all Class A preference shares are included as part of Unitholders' equity and the distributions paid to the shareholders are included as distributions on the Statement of Unitholders' equity, net of tax. For the year ended March 31, 2008, the tax amount of these distributions amounted to $4.9 million (2007 - $3.3 million), based on a tax rate of 36%.

On March 30, 2007, Energy Savings received a favourable advance income tax ruling from the Canada Revenue Agency which enabled it to complete on April 30, 2007 an internal corporate reorganization of the Fund and certain of its affiliates. The reorganization was approved at the Fund's June 29, 2005 Annual and Special Meeting of Unitholders. The effect of the reorganization is that after April 30, 2007 the Fund is now organized in Canada as a trust on partnership rather than a trust on corporation structure so as to maximize funds available to grow the Fund's customer base and to maximize distributions to Unitholders. The reorganization predates and is unaffected by the imposition of a tax on certain income distributed by certain trusts which was announced by the federal government on October 31, 2006 and enacted on June 22, 2007.

The future tax recovery totaling $18.7 million for the year ended March 31, 2008 includes $7.5 million attributable to the corporate reorganization as outlined above. As a result of the conversion to a trust on partnership structure, Energy Savings has virtually eliminated its exposure to Canadian corporate income taxes for the period prior to January 1, 2011. The remaining $11.2 million relates to the value of past years U.S. tax losses which have been included in the current year's consolidated statement of operations as a result of an increase in the current fair market value of certain future commodity positions.

The Fund is a Specified Investment Flow-Through Trust ("SIFT") as defined in the SIFT Legislation. Commencing with its taxation year ending December 31, 2011, assuming the Fund does not exceed "normal growth guidelines" (in which case transitional relief deferring the application of the SIFT tax to 2011 would be lost), the Fund will be subject to taxes on certain income earned from investments in its subsidiaries distributed to Unitholders. The Fund is also required to recognize future income tax assets and liabilities calculated with respect to the temporary differences between the carrying amounts and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that a portion of its aggregate temporary differences and those of its flow-through subsidiaries will reverse in or after 2011 and as a consequence it has recorded a future tax asset of $9,420 during the current year, of which substantially all is related to temporary differences with respect to items included in accumulated other comprehensive income such as mark-to-market recording of derivative financial instruments. The Fund also anticipates possible material changes in such future tax amounts corresponding to the changes in the fair value of the financial instruments in future periods due to the volatile nature of such temporary differences. The Fund expects that it will not exceed its "normal growth" limitations, such that it will not be subject to tax on certain income distributed prior to 2011 and accordingly has not provided for future income taxes on the remaining portion of temporary differences which are expected to reverse prior to 2011. The SIFT Legislation does not affect the current and future tax amounts of the Fund's corporate subsidiaries.



Liquidity and Capital Resources

Summary of Cash Flows For the year ended
(thousands of dollars) March 31,
Fiscal 2008 Fiscal 2007
----------------------------------------------------------------------------
Operating activities $136,007 $98,354
Investing activities (41,242) (3,726)
Financing activities, excluding distributions 58,033 17,526
Gain (loss) on foreign exchange 707 82
----------------------------------------------------------------------------
Increase in cash before distributions 153,505 112,236
Distributions (cash payments) (142,981) (107,113)
----------------------------------------------------------------------------
Increase in cash 10,524 5,123
Cash - beginning of year 16,786 11,663
----------------------------------------------------------------------------
Cash - end of year $27,310 $16,786
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Operating activities

Cash flow from operating activities increased in fiscal 2008 over the prior year primarily as a result of the increase in gross margin slightly offset by increased marketing and general and administrative expenses.

Investing activities

The Fund purchased capital assets totaling $7.8 million during the year, an increase from $3.7 million in fiscal 2007. The purchases in both years were primarily for information technology systems associated with Customer Service operations supporting the Fund's expanding customer base within the various geographical segments.

Energy Savings completed the acquisition of Just Energy, including all of its electricity contracts in the first quarter of fiscal 2008 for a total, net of cash, of $33.4 million, of which $18.1 million involved the issuance of units of the Fund on October 9, 2007.

Financing activities

Financing activities excluding distributions relate primarily to the drawdown of the operating line for working capital requirements and the issue of $18.1 million in trust units relating to the Texas acquisition. During fiscal 2008, Energy Savings had drawn a total of $29.0 million against the credit facility versus $13.4 million in the last year for a total long-term debt of $67.6 million as at March 31, 2008.

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 that management expects to enter, funding requirements will be supported through the $150.0 million credit facility.

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

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

Distributions (cash payments)

During the year, the Fund made distributions to its Unitholders in the amount of $143.0 million (including $11.8 million to holders of the OESC Class A preference shares), compared to $107.1 million in the prior year, an increase of 33% primarily due to the special distribution explained and three increases in ordinary distribution rate during the year. Energy Savings will continue to utilize its cash resources for expansion into new markets including growth in its customer base as well as for distributions to its Unitholders.

At the end of the year, the annual rate for distributions per unit was $1.21. At a meeting of Unitholders on December 20, 2007, the creation of a distribution reinvestment program ("DRIP") was approved. Under the program, Unitholders can elect to receive their distributions in units at a 5% discount to the prevailing market price rather than the cash equivalent.

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

Balance Sheet as at March 31, 2008 compared to 2007

Cash increased from $16.8 million as at March 31, 2007 to $27.3 million. The credit facility also increased from $38.6 million to $67.6 million as a result of the acquisition of Just Energy, normal injection of gas into storage and various other working capital requirements. Under the terms of the credit facility, Energy Savings is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees of 150 basis points, prime rate advances at Canadian and U.S. prime plus 0.5%, and letters of credit at 1.5%. On October 26, 2007, the Fund renewed its credit facility agreement with its lenders for a three-year term expiring on October 29, 2010, versus previous annual renewals, and as a result, the debt has been reclassified to a long-term liability. Working capital requirements in the U.S. and Alberta result from the timing difference between customer consumption and cash receipts. For electricity, working capital is required to fund the lag between settlements with the suppliers and settlement with the LDCs.

The increase in accounts receivable from $176.5 million to $207.8 million is primarily attributable to the improved margin and increased customers for both gas and electricity. Accounts payable has also increased from $113.0 million to $128.7 million relating to increased customer consumption.

At the end of the year, customers in Ontario, Manitoba and Quebec had consumed more gas than was supplied to the LDCs for their use. 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 unbilled revenue amount of $47.3 million (2007 - $39.2 million) and accrued gas accounts payable of $38.5 million (2007 - $33.1 million). The increase from the prior year is a result of higher consumption with a larger customer base.

Gas in storage has decreased from $5.9 million to $4.3 million for the year ended March 31, 2008. The decreased balance reflects increased customer consumption due to colder temperatures.

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

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

Contractual Obligations

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



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

Long term debt $ 67,583 $ - $ 67,583 $ - $ -
Property and
equipment
lease agreements 27,037 5,183 8,870 5,818 7,166
EPCOR billing,
collections and
supply commitments 14,293 8,576 5,717 - -

Gas and electricity
supply purchase
commitments 3,437,830 1,251,191 1,656,943 518,724 10,972
----------------------------------------------------------------------------
$3,546,743 $1,264,950 $1,739,113 $524,542 $18,138
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Other obligations

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

Transactions with Related Parties

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

Critical Accounting Estimates

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

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

Unbilled revenues/Accrued gas accounts payable

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

Gas delivered in excess of consumption/Deferred revenues

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

Goodwill

In assessing the value of goodwill for potential impairment, assumptions are made regarding Energy Savings' future cash flow. If the estimates change in the future, the Fund may be required to record impairment charges related to goodwill. An impairment review of goodwill was performed during fiscal 2008 and as a result of the review, it was determined that no impairment of goodwill existed at March 31, 2008.

Fair Value of Derivative Financial Instruments and Risk Management

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

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

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

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

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

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

Preference Shares of OESC and Trust Units

As at May 15, 2008 there were 6,706,212 Class A preference Shares of OESC outstanding and 102,315,426 units of the Fund outstanding.

Taxability of distributions

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

Adoption of new accounting policies

There have been several new accounting policies adopted by the Fund for the period of April 1, 2007 to March 31, 2008.

Effective April 1, 2007, Energy Savings adopted the recommendations of the CICA Handbook sections 1530, Comprehensive Income; 3251, Equity; 3855, Financial Instruments - Recognition and Measurement; 3861, Financial Instruments - Disclosure and Presentation; and 3865, Hedges. These recommendations have been applied prospectively to fiscal years beginning on or after October 1, 2006, without restatements of prior period results. The recommendations provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities, non-financial derivatives and embedded derivatives, and describe when and how hedge accounting may be applied. Section 1530 establishes standards for reporting and presenting comprehensive income. These standards and the impact on the financial position and results of operations are discussed in Notes 3II and 3III of the audited consolidated financial statements.

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

Recently issued accounting standards

The following are the new standards, not yet in effect, which are required to be adopted by the Fund:

Capital Disclosures - CICA Section 1535

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

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

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

Goodwill and Intangible Assets - CICA Section 3064

As of April 1, 2009, the Fund will be required to adopt section 3064, Goodwill and Intangible Assets, which establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard is effective for fiscal years beginning on or after October 1, 2008. The Fund has not yet determined the impact of this standard on its financial statements.

Risk factors

Availability of Supply and Dependence on Shell Energy

The risk of supply default is mitigated through credit and supply diversity arrangements. The Energy Savings' business model is based on contracting for supply to lock in margin. While Energy Savings has the ability to select alternate commodity suppliers, subject to certain limitations contained in its agreement with Shell Energy, approximately 59% of its gas and 51% of its electricity supply contracts are currently with the Shell Entities. There is a risk that counterparties could not deliver due to business failure, not deliver due to supply shortage or be otherwise unable to perform their obligations under their agreements with Energy Savings, or that Energy Savings could not identify alternatives to Shell Energy. Energy Savings continues to investigate opportunities to identify or secure additional gas suppliers and electricity suppliers. In addition to the Shell Entities, Energy Savings has contracts with other commodity suppliers including the BP Entities, EPCOR, Bruce Power, Fortis and Constellation and over the past three years has reduced its dependency on the Shell Entities by 36% (natural gas) and 14% (electricity).

Volatility of Commodity Prices - Enforcement

A key risk to the Energy Savings' business model is a sudden and significant drop in the market price of gas or electricity resulting in some customers renouncing their contracts. Energy Savings may encounter difficulty or political resistance for enforcement of liquidated damages and/or enactment of force majeure provisions in such a situation and be exposed to spot prices with a material adverse impact to cash flow. Continual monitoring of margin and exposure allows management of Energy Savings time to adjust strategies, pricing and communications to mitigate this risk.

Availability of Credit

Energy Savings operates in the Illinois, Texas, Indiana and Alberta markets which provide for payment by LDCs only when the customer has paid for the consumed commodity (rather than when the commodity is delivered). Also, in the Illinois and Indiana markets, Energy Savings must inject gas inventory into storage in advance of payment. These factors, along with the seasonality of customer consumption, create working capital requirements necessitating the use of Energy Savings' available credit. In addition, some of Energy Savings' subsidiaries and affiliates are required to post collateral in connection with commodity supply contracts, license obligations and obligations owed to certain LDCs. Cash flow and distributions could be impacted by the ability of Energy Savings to fund such requirements or to provide other satisfactory collateral for such obligations. To mitigate credit availability risk and its potential impact to cash flows, Energy Savings has security arrangements in place pursuant to which commodity suppliers and the lenders under the Credit Facility hold security over substantially all of the assets of Energy Savings (other than AESLP). Other commodity suppliers' security requirements are met through cash margining, guarantees and letters of credit. The most significant assets of Energy Savings consist of its contracts with customers, which may not be suitable as security for some creditors and commodity suppliers. To date, the Credit Facility and related security agreements have met the collateral posting requirements of the business. Energy Savings continues to monitor its credit and security requirements. Energy Savings' business may be adversely affected if it is unable to meet its collateral posting requirements.

Legislative and Regulatory Environment

Energy Savings operates in the highly regulated natural gas and electricity retail sales industry in the provinces of Ontario, Manitoba, Quebec, British Columbia and Alberta and in the states of Illinois, Indiana, New York and Texas. It must comply with the legislation and regulations in these jurisdictions in order to maintain its licensed status and to continue its operations. There is potential for changes to this legislation and these regulatory measures that may, favourably or unfavourably, impact Energy Savings' business model. As part of doing business as a door-to-door marketing company, Energy Savings receives complaints from consumers which may involve sanctions from regulatory and legal authorities including those which issue marketing licences. See "Legal proceedings" for information on Energy Savings' litigation. Similarly, changes to consumer protection legislation in those provinces and states where Energy Savings markets to non-commercial customers may, favourably or unfavourably, impact Energy Savings' business model. Energy Savings has a dedicated team of in-house regulatory advisors to ensure adequate knowledge of the legislation and regulations in order that operations may be advised of regulations pursuant to which procedures are required to be implemented and monitored to maintain license status. When new markets are entered, the team assesses the market and determines if additional expertise (internal or external), is required.

In addition to the complaints and class actions referenced herein and litigation in the ordinary course of business, Energy Savings may in the future be subject to class actions, other litigation and other actions arising in relation to its consumer contracts and marketing practices. See the "Legal Proceedings" section of this report. This litigation is, and any such additional litigation could be, time consuming and expensive and could distract our executive team from the conduct of Energy Savings' daily business. The adverse resolution of any specific lawsuit could have a material adverse effect on our ability to favorably resolve other lawsuits and on the Fund's financial condition and liquidity.

Market Risk

Market risk is the potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity. Energy Savings is exposed to market risks associated with commodity prices and market volatility where estimated customer requirements do not match actual customer requirements. Energy Savings is also exposed to interest rates associated with its credit facility and foreign currency exchange rates associated with the repatriation of US denominated funds for Canadian denominated distributions. Energy Savings' exposure to market risk is affected by a number of factors, including accuracy of estimation of customer commodity requirements, commodity prices, volatility and liquidity of markets, and the absolute and relative levels of interest rates and foreign currency exchange rates. Energy Savings enters into derivative instruments in order to manage exposures to changes in commodity prices and foreign currency rates; current exposure to interest rates does not economically warrant the use of derivative instruments. The derivative instruments that are used are designed to fix the price of supply for estimated customer commodity demand in Canadian dollars and thereby fix margins such that Unitholder distributions can be appropriately established. Derivative instruments are generally transacted over-the-counter. The inability or failure of Energy Savings to manage and monitor the above market risks could have a material adverse effect on the operations and cash flow of Energy Savings.

Governance

Energy Savings has adopted a corporate-wide Risk Management Policy governing its market risk management and any derivative trading activities. A Risk Committee, consisting of senior officers of Energy Savings oversees company-wide energy risk management activities as well as foreign exchange and interest rate activities. The Risk Office and the Risk Committee monitor the results and ensure compliance with the Risk Management Policy. The Risk Office is responsible for ensuring that Energy Savings manages the market, credit and operational risks within limitations imposed by the Board of Directors in accordance with its Risk Management Policy. Market risks are monitored by the Risk Office and Risk Committee utilizing industry accepted mark-to-market techniques and analytical methodologies in addition to company specific measures. The Risk Office operates and reports independently of the traders. The failure or inability of Energy Savings to comply with and monitor its Risk Management Policy could have an adverse effect on the operations and cash flow of Energy Savings.

Energy Trading Inherent Risks

Energy trading subjects Energy Savings to some inherent risks associated with future contractual commitments, including market and operational risks, counterparty credit risk, product location differences, market liquidity and volatility. There is continuous monitoring and reporting of the valuation of identified risks to the Risk Committee and the Audit Committee of the Board of Directors. The failure or inability of Energy Savings to monitor and address the energy trading inherent risks could have a material adverse effect on its operations and cash flow.

Information Technology Systems

Energy Savings operates in a high-volume business with an extensive array of data interchanges and market requirements. Energy Savings is dependent on its management information systems to track, monitor and correct or otherwise verify a high volume of data to ensure the reported financial results are accurate. Management also relies on its management information systems to provide its independent contractors with compensation information and to electronically record each customer telephone interaction. Energy Savings' information systems also help management forecast new customer enrolments and their energy requirements, which helps ensure that the Fund is able to match all of its new customers' estimated average energy requirements without exposing the Fund to the spot market. The failure of Energy Savings to install and maintain these systems could have a material adverse effect on the operations and cash flow of Energy Savings.

Reliance on Third Party Service Providers

In all jurisdictions in which Energy Savings operates, the LDCs currently perform billing and collection services except as follows: in the province of Alberta and state of Texas, where Energy Savings is required to invoice and receive payments directly from its customers; in Illinois, where Energy Savings is responsible for collection of defaulted amounts; and in Ontario, where Energy Savings would be responsible for collection of defaulted amounts in respect of certain large volume users in one utility territory. To date, no defaults have been experienced in this last category. In 2005, Energy Savings entered into a five-year agreement with EPCOR for the provision of billing and collection services for all of Energy Savings' customers in Alberta. If the LDCs cease to perform these services, Energy Savings would have to seek a third party billing provider or develop internal systems to perform these functions. There is no assurance that the LDCs and EPCOR will continue to provide these services in the future.

Customer Credit Risk

In Alberta, Texas and Illinois, credit review processes have been implemented to manage customer default as Energy Savings has credit risk in these markets. If a significant number of customers were to default on their payments, it could have a material adverse affect on the operations and cash flow of Energy Savings. Management factors default from credit risk in its margin expectations for Illinois, Texas and Alberta.

For the remaining markets, the LDCs provide collection services and assume the risk of any bad debts owing from Energy Savings' customers for a fee. Management believes that the risk of the LDCs failing to deliver payment to Energy Savings is minimal. There is no assurance that the LDCs that provide these services will continue to do so in the future.

Counterparty Credit Risk

Counterparty credit risk represents the loss that Energy Savings would incur if a counterparty fails to perform under its contractual obligations. This risk would manifest itself in Energy Savings replacing contracted supply at prevailing market rates thus impacting the related customer margin or replacing contracted foreign exchange at prevailing market rates impacting the related Canadian dollar denominated distributions. Counterparty limits are established within the Risk Management Policy. Any exception to these limits requires approval from the Board of Directors of OESC. The Risk Office and Risk Committee monitor current and potential credit exposure to individual counterparties and also monitor overall aggregate counterparty exposure. However, the failure of a counterparty to meet its contractual obligations could have a material adverse effect on the operations and cash flow of Energy Savings.

Competition

Although Energy Savings believes it is currently either the largest or the second largest marketer of natural gas and electricity contracts in Canada based on the number of contracted customers, management estimates that a number of other companies (Direct Energy, Superior Energy, MX Energy and Universal Energy among them) and incumbent utility subsidiaries compete with it in the residential, small to mid-sized commercial and small industrial market. It is possible that new entrants may enter the market as marketers and compete directly for the customer base that Energy Savings targets, slowing or reducing its market share. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas at prices other than cost, their existing customer bases could provide them with a significant competitive advantage. This may limit the number of customers available for marketers including Energy Savings.

Dependence on Independent Sales Contractors

Energy Savings must retain qualified Independent Sales Contractors although competition among Energy Savings' competitors is strong. If Energy Savings is unable to attract a sufficient number of Independent Sales Contractors, Energy Savings revenues may decrease and the Fund may not be able to execute its business strategy. The continued growth of Energy Savings is reliant on distribution channels, including the services of its Independent Sales Contractors. There can be no assurance that competitive conditions will allow these Independent Contractors, who are not employees of Energy Savings or its affiliates, to achieve these customer additions. Although commission expenses are only incurred in connection with new flowing contracts which are secured by its Independent Sales Contractors, lack of success in these marketing programs would limit future growth of the cash flow of Energy Savings.

Energy Savings has consistently taken the position that its Independent Sales Contractors act independently pursuant to their contracts for service, which provide that Energy Savings does not control how, where or when they provide their services. On occasion, an independent contractor may make a claim that they are entitled to a benefit pursuant to legislation even though they have entered into a contract with Energy Savings that provides that they are not entitled to benefits normally available to employees and Energy Savings must respond to these claims. Energy Savings' position has been confirmed by regulatory bodies in many instances but Energy Savings is currently appealing the findings of two regulatory bodies (one in Canada and one in the U.S.). Should Energy Savings be unsuccessful in its appeals, Energy Savings would be required to remit unpaid amounts plus interest and might be assessed a penalty. It could also mean that Energy Savings would have to reassess its position in respect of other regulatory matters affecting its Independent Sales Contractors such as income tax treatment. Such a decision could have a material adverse effect on the operations and cash flow of Energy Savings.

Electricity Contract Renewals and Attrition Rates

As at March 31, 2008, Energy Savings held long-term electricity contracts reflecting approximately 713,000 long-term electricity RCEs, of which 16% renew in 2009, 8% renew in 2010, 21% renew in 2011, 22% in 2012, 30% in 2013 and 3% beyond 2013. Although Energy Savings has experienced electricity contract attrition rates of approximately 14% per year, there can be no assurance that this rate of annual attrition will not increase in the future or that Energy Savings will be able to renew its existing electricity contracts at the expiry of their terms. Changes in customer behaviour, government regulation or increased competition may affect (potentially adversely) attrition and renewal rates in the future and these changes could adversely impact the future cash flow of Energy Savings. See discussion under "Failed to renew". Energy Savings' experience is that approximately 55% of its electricity customers have renewed at the expiry of the term of their contract.

Gas Contract Renewals and Attrition Rates

As at March 31, 2008, Energy Savings had long-term gas contracts reflecting approximately 974,000 long-term gas RCEs, of which 13% renew in 2009, 21% renew in 2010, 23% renew in 2011, 19% in 2012, 21% in 2013 and 3% renew beyond 2013. The experience of Energy Savings is that approximately 80% of gas customers renew at the expiry of the term of their contract. Although Energy Savings has experienced gas contract attrition rates of approximately 13% per year, there can be no assurance that this rate of annual attrition will not increase in the future or that Energy Savings will be able to renew its existing gas contracts at the expiration of their terms. Changes in customer behaviour, government regulation or increased competition may affect (potentially adversely) attrition and renewal rates in the future and these changes could adversely impact the future cash flow of Energy Savings. See discussion under "Failed to renew".

Cash Distributions Are Not Guaranteed and Will Fluctuate with the Performance of Energy Savings

Although Energy Savings intends to distribute the interest and other income it earns less expenses and amounts, if any, paid by Energy Savings in connection with the redemption of units, there can be no assurance regarding the amounts of income to be generated by the Fund's affiliates and paid, directly or indirectly to the Fund. The ability to distribute and the actual amount distributed in respect of the units will depend upon numerous factors, including profitability, fluctuations in working capital, debt service requirements (including compliance with Credit Facility obligations), the sustainability of margins, the ability of Energy Savings to match, at favourable prices, its commitment to supply natural gas and electricity to their customers, the ability of Energy Savings to secure additional gas and electricity contracts and other factors beyond the control of Energy Savings. Management of Energy Savings cannot make any assurances that the Fund's affiliates will be able to pass any additional costs arising from legislative changes (or any amendments) on to customers. Cash distributions are not guaranteed and will fluctuate with the performance of the Fund's affiliates and other factors.

Commodity Alternatives

To the extent that natural gas and electricity enjoy a price advantage over other forms of energy, such price advantage may be transitory and consumers may switch to the use of another form of energy. The inherent volatility of natural gas and electricity prices could result in these other sources of energy providing more significant competition to Energy Savings.

Investment Eligibility

Energy Savings will endeavor to ensure that the units continue to be qualified investments for registered retirement savings plans, deferred profit sharing plans, registered retirement income funds and registered education savings plans. The Tax Act imposes penalties for the acquisition or holding of non-qualified or ineligible investments and there is no assurance that the conditions prescribed for such qualified or eligible investments will be adhered to at any particular time.

Nature of Units

Securities such as the units are hybrids in that they share certain attributes common to both equity securities and debt instruments. The units do not represent a direct investment in the natural gas or electricity wholesale business and should not be viewed by investors as shares or securities in any of the Fund's affiliates. As holders of units, subject to the Trust Beneficiaries' Liability Act, 2004, Unitholders do not have the statutory rights normally associated with ownership of shares of a company including, for example, the right to bring "oppression" or "derivative" actions. The units represent a fractional interest in the Fund. The Fund's primary assets are its direct and indirect interests in the securities of its affiliates. The price per unit is, among other things, a function of anticipated distributable income.

Redemption Right

It is anticipated that the redemption right will not be the primary mechanism for Unitholders to liquidate their investments. OESC Notes, Notes of OESC Exchangeco II Inc. ("Exchangeco II"), a wholly owned subsidiary of the Fund and the Fund Notes (of which none are outstanding) which may be distributed in specie to Unitholders in connection with a redemption will not be listed on any stock exchange and no established market is expected to develop for such OESC Notes, Exchangeco II Notes and the Fund Notes. Cash redemptions are subject to limitations.

Unitholder Limited Liability

The Declaration of Trust provides that no Unitholder will be subject to any liability in connection with the Fund or its assets or obligations and, in the event that a court determines that Unitholders are subject to any such liabilities, the liabilities will be enforceable only against, and will be satisfied only out of, the Unitholder's share of the Fund's assets.

The Declaration of Trust further provides that the trustee and the Fund shall make all reasonable efforts to include as a specific term of any obligations or liabilities being incurred by the Fund or the trustee on behalf of the Fund a contractual provision to the effect that neither the Unitholders nor the Trustee have any personal liability or obligations in respect thereof. The Administration Agreement contains such provisions. Personal liability may also arise in respect of claims against the Fund that do not arise under contracts, including claims in tort, claims for taxes and possibly certain other statutory liabilities. As the Fund's activities are generally limited to investing in securities issued by its affiliates, the possibility of any personal liability of this nature arising is considered remote.

On December 16, 2004, the Government of Ontario passed the Trust Beneficiaries' Liability Act, 2004 which limits the liability of holders of trust units, in a manner similar to that afforded to holders of shares of Ontario incorporated limited liability corporations. The legislation provides that the beneficiaries of a trust are not as beneficiaries, liable for any act, default, obligation or liability of the trust or any of its trustees that arises after the act became law if, when the act or default occurs or the obligation or liability arises: (a) the trust is a reporting issuer under the Securities Act (Ontario); and (b) the trust is governed by the laws of Ontario. The Fund is a reporting issuer under the Securities Act (Ontario) and is governed by the laws of Ontario. However, the courts have not yet had an opportunity to consider this legislation.

The operations of the Fund will be conducted, upon the advice of counsel, in such a way and in such jurisdictions as to avoid as far as possible any material risk of liability on the Unitholders for claims against the Fund.

Distribution of Common Shares and Notes on Termination of the Fund

Upon termination of the Fund, the trustee may distribute the common shares, Exchangeco common shares, OESC Notes, Exchangeco II Notes and the Fund Notes directly to the Unitholders, subject to obtaining all required regulatory approvals. There is currently no market for the common shares, Exchangeco common shares, Exchangeco II Notes, OESC Notes, or the Fund Notes. In addition, the common shares, Exchangeco common shares, Exchangeco II Notes, OESC Notes and the Fund Notes are not freely tradable and are not currently listed on any stock exchange.

The Fund May Issue Additional Units Diluting Existing Unitholders' Interests

The Declaration of Trust authorizes the OESC as administrator to cause the Fund to issue an unlimited number of units for such consideration and on such terms and conditions as shall be established by the Administrator without the approval of any Unitholders. Additional units have been and will be issued by the Fund on the exercise of the Exchangeco II Exchange Rights relating to the Class A preference shares.

Restrictions on Potential Growth

The payout by the Fund's affiliates of the vast majority of all of their operating cash flow will make additional capital and operating expenditures dependent on increased cash flow or additional financing in the future. Lack of such funds could limit the future growth of Energy Savings and its cash flow.

Changes in Legislation

There can be no assurance that the treatment of mutual fund trusts will not be changed in a manner which adversely affects Unitholders. If the Fund ceases to qualify as a "mutual fund trust" under the Tax Act, the units will cease to be qualified investments for registered retirement savings plans, deferred profit sharing plans, registered retirement income funds and registered education savings plans.

Foreign Exchange Risk

Affiliates of the Fund have an exposure to foreign currency exchange rates, as a result of their investments in U.S. operations. While the Fund has entered into foreign exchange forward contracts to hedge some of its exposure to fluctuation in cross border cash flows, changes in the applicable exchange rate may result in a decrease or increase in the Fund's income.

Capital Asset and Replacement Risk

The Fund does not invest in a significant capital asset program and the vast majority of capital asset expenditures are with respect to information technology including telephony. The capital asset expenditure cash flow in fiscal 2008 represents 7% of operating cash flow and has been funded through operations. Replacement of capital assets is not considered significant.

Material Debt Arrangements

The Fund's Credit Facility is in the amount of $150.0 million. There are various covenants pursuant to the Credit Facility that govern most of the Fund's subsidiaries and affiliates. In addition, the Fund is required to submit monthly reporting covering, among other things, mark to market exposure, borrowing base certificate and a supply/demand projection. To date, the Fund has met the requirements of the Credit Facility. Should the Credit Facility be unavailable, there would be a significant material adverse effect as the likely result would be either a replacement facility with increased costs or an inability to operate.

Electricity Supply - Balancing Risk

It is Energy Savings' policy to match the estimated electricity requirements of its customers by entering into offsetting electricity swaps in advance of obtaining customers. Depending on several factors, including weather, Energy Savings customers may use more or less electricity than the volume purchased by Energy Savings for delivery to them. Energy Savings is able to invoice its existing electricity customers for balancing charges or credits when the amount of energy used is greater than or less than the amount of energy that Energy Savings has estimated. In certain circumstances, there can be balancing issues for which Energy Savings is responsible when customer aggregation forecasts are not realized.

Natural Gas Supply - Balancing Risk

It is Energy Savings' policy to match the estimated gas requirements of its customers by entering into offsetting gas physical forwards in advance of obtaining customers. Depending on several factors, including weather, Energy Savings customers may use more or less gas than the volume purchased by Energy Savings for delivery to them. Energy Savings does not invoice its natural gas customers for balancing and, accordingly, bears the risk of fluctuation in customer consumption. Energy Savings monitors gas consumption and has an options strategy that covers forecast differences in customer consumption due to weather variations as well as forecast LDC balancing requirements. The cost of this strategy is incorporated in the price to the customer. To the extent that forecast balancing requirements are outside the options purchased, Energy Savings will bear financing responsibility, be exposed to market risk and, furthermore, may also be exposed to penalties by the LDCs. The inability or failure of Energy Savings to manage and monitor these balancing risks could have a material adverse effect on its operations and cash flow.

Disruptions to Infrastructure

Customers are reliant upon the LDCs to deliver their contracted commodity. LDCs are reliant upon the continuing availability of the distribution infrastructure. Any disruptions in this infrastructure would result in counterparties and thereafter Energy Savings enacting the force majeure clauses of their contracts. Under such severe circumstances there would be no revenue or associated cost of sales to report for the affected areas.

Expansion Strategy and Future Acquisitions

The Fund plans to grow its business by expansion into additional deregulated markets through organic growth and acquisitions. The expansion into additional markets is subject to a number of risks, any of which could prevent the Fund from realizing its business strategy.

Acquisitions involve numerous risks, any one of which could harm the Fund's business, including difficulties in integrating the operations, technologies, products, existing contracts, accounting processes and personnel of the target and realizing the anticipated synergies of the combined businesses; difficulties in supporting and transitioning customers, if any, or assets of the target company may exceed the value the Fund realizes, or the value it could have realized if it had allocated the purchase price or other resources to another opportunity; risks of entering new markets or areas in which Energy Savings has limited or no experience or are outside its core competencies; potential loss of key employees, customers and strategic alliances from either Energy Savings' current business or the business of the target; assumption of unanticipated problems or latent liabilities, such as problems with the quality of the products of the target; and inability to generate sufficient revenue to offset acquisition costs.

Future acquisitions or expansion could result in the incurrence of additional debt and related interest expense, as well as unforeseen liabilities, all of which could have a material adverse effect on the Fund's business, results of operations and financial condition. The failure to successfully evaluate and execute acquisitions or otherwise adequately address the risks associated with acquisitions could have a material adverse effect on Energy Savings' business, results of operations and financial condition. Energy Savings may require additional financing should an appropriate acquisition be identified and it may not have access to the funding required for the expansion of its business or such funding may not be available to Energy Savings on acceptable terms. There is no assurance that Energy Savings will determine to pursue any acquisition or that such an opportunity, if pursued, will be successful.

Legal Proceedings

On February 7, 2008, the Attorney General for Illinois filed a complaint for damages (restitution to consumers and cancellation of contracts), civil penalties and injunctive relief against IESC (the "Illinois AG Complaint"). The Illinois AG Complaint alleges that independent sales agents used deceptive practices in their sale of Energy Savings' contracts to Illinois customers. Energy Savings has commenced discussions with the Illinois Attorney General to address and defend the allegations and intends to seek a constructive resolution to the matter.

On March 3, 2008, the Citizen's Utility Board, AARP and Citizen Action/Illinois filed a complaint before the Illinois Commerce Commission alleging claims very similar to those in the Illinois AG Complaint.

On March 20, 2008, an Indiana resident filed a proposed consumer class action against IESC in Illinois also based on allegations similar to those made by the Illinois Attorney General.

In New York, we are in discussions with the Attorney General's office in Buffalo concerning the contract and practices of NYESC; no legal proceedings have been initiated by the NY Attorney General however, we do anticipate making changes to our business operations as a result of these discussions.

On April 4, 2008, NYESC was served with a complaint initiated by a commercial customer in New York that proposes a class action against NYESC, the Fund and the LDC (Consolidated Edison) on behalf of residents of New York City.

Energy Savings will resolve or vigorously contest the claims in these matters. Management believes that the pending legal actions against IESC, NYESC or the Fund are not expected to have a material impact on the financial condition and liquidity of the Fund at this time.

Controls and Procedures

Energy Savings maintains appropriate information systems, procedures and controls to ensure that information that is publicly disclosed is complete, reliable and timely. Our Co-Chief Executive Officers and Chief Financial Officer caused an evaluation under their direct supervision of the design and effectiveness of our disclosure controls and procedures (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings) as at March 31, 2008 and have concluded that such disclosure controls and procedures are operating effectively.

Management is responsible for establishing adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our Co-Chief Executive Officers and Chief Financial Officer assessed, or caused an assessment under their direct supervision of, the design of our internal controls over financial reporting (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings) as at March 31, 2008 and based on that assessment, determined that our internal controls over financial reporting were appropriately designed.

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

The Fund continually reviews and enhances its systems of controls and procedures. However, because of the inherent limitations in all control systems, the Fund's management acknowledges that its disclosure controls and procedures will not prevent or detect all misstatements due to error or fraud. In addition, management's evaluation of controls can provide only reasonable, not absolute, assurance that all control issues that may result in material misstatements, if any, have been detected.

Corporate governance

Energy Savings is committed to transparency in our operations and our approach to governance meets all recommended standards. Full disclosure of our compliance with existing corporate governance rules is available on our website at www.esif.ca and is included in the Fund's May 15, 2008 management proxy circular. Energy Savings actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.

Outlook

In past years, the Fund has published guidance on expected growth in gross margin, distributable cash and customer additions. The Fund intends to continue its geographic expansion into new markets in the United States both through organic growth and focused acquisitions. Management has concluded that this expansion should also include a broadening of the Energy Savings product offering to include some shorter term contract options as well as products that will appeal to larger industrial and commercial customers.

The continued growth of the business outside Ontario makes, in the view of management, the continued use of Ontario RCEs as a customer measurement inappropriate. With larger commercial and industrial customers and new markets where customer usage is materially different than Ontario, the Fund believes a move to straight volumetric measurement of the customer base (annual GJ for natural gas and annual MWh for electricity) will provide better information for analysis purposes. The Fund plans to report volumetric measures for gas and electricity in Canada and the United States on a go forward basis.

The Fund will also be changing from a distributable cash target to distributable cash after gross margin replacement as this is the measure that management believes is more representative of the short term performance of the company and a measure used internally. Management believes that this information will be more useful for analysis.

Consistent with past published guidance, management's best estimation is that Energy Savings will again grow its key operating measures during fiscal 2009. Electricity volumes are expected to grow by approximately 15% and gas volumes by 5%. The U.S. is expected to generate the vast majority of growth. As previously discussed, management intends to supplement this growth with selected accretive acquisitions.

In an attempt to reflect both inflation and the increased effort required to secure customers, management has increased its target for customer aggregation costs. The Fund has included a slight increase in its prices to generate higher target gross margins with the expectation that every market will continue to repay customer aggregation costs in one year. Consistent with management's new volumetric guidance, the new targets for both aggregation costs and gross margins are as follows:



Target
Aggregation Target
Cost/Unit Volume Margin/Unit Volume
---------------- -------------------
Gas (GJ) $1.60 $1.60
Electricity (MWh) $14.25 $14.25


Based on this growth in volumes, both gross margin and distributable cash after gross margin replacement are expected to grow by approximately 10% organically. Distributable cash after marketing expenses is expected to grow at a slightly lower rate due to the increased marketing expenses associated with the higher forecasted volume additions.

On April 28, 2008, Energy Savings began electricity marketing in the National Grid region in New York. Approximately 1.6 million eligible customer accounts are available.

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

Sales of the Fund's GEO product were very strong since the program's inception in Q2 with 29% of new customers electing GEO units with average take-up of 3.1 units per customer (63% of total consumption). It is management's expectation that customers who purchase GEO will have lower attrition rates with a higher level of customer loyalty and therefore increased likelihood of renewal at end of term. As GEO participation grows, gross margin from the product will meaningfully add to distributable cash in future periods.

While the October 31, 2006 announcement to tax income trusts does not affect existing income trusts until 2011 except as noted in the Future Tax provision discussion, the announcement has had a material impact on the trading value of Energy Savings' units. While the price declines have been felt across the entire income fund sector, management believes that the current unit price is not representative of the financial strength and sustainability inherent in the Energy Savings model. Management is presently investigating alternative corporate forms and is committed to reinstating value to Unitholders. Like many income trusts, Energy Savings is actively analyzing potential restructuring options which would see Energy Savings convert to corporate status.

The timing and design of any restructuring may be dependent on the announcement of further details of tax treatment of conversions and analysis of the relative market value of Energy Savings units versus the potential value after reorganization. Any reorganization would be intended to increase the long-term value of Energy Savings.

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



ENERGY SAVINGS INCOME FUND

CONSOLIDATED BALANCE SHEETS
(Unaudited - thousands of dollars)

AS AT MARCH 31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 2007
ASSETS

CURRENT
Cash $ 27,310 $ 16,786
Restricted cash (Note 5) 4,749 2,557
Accounts receivable 207,793 176,453
Gas in storage 4,268 5,877
Unbilled revenues 47,299 39,214
Prepaid expenses 2,343 2,115
Corporate taxes recoverable 2,665 4,326
Other assets - current (Note 13a) 193,398 -
----------------------------------------------------------------------------
489,825 247,328

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

ELECTRICITY CONTRACTS (less accumulated
amortization - $32,401; 2007 - $24,959) 1,527 1,462

GOODWILL 116,146 94,576

CAPITAL ASSETS (less accumulated
amortization - $13,378; 2007 - $9,158) 16,637 11,885

FUTURE INCOME TAX ASSETS (Note 8) 9,420 -

OTHER ASSETS - LONG TERM (Note 13a) 75,560 1,799
----------------------------------------------------------------------------
$ 709,115 $ 357,227
----------------------------------------------------------------------------
----------------------------------------------------------------------------


LIABILITIES

CURRENT
Bank indebtedness (Note 7) $ - $ 38,628
Accounts payable and accrued liabilities 128,682 112,950
Customer rebates payable (Note 5) 4,617 2,557
Management incentive program payable 2,235 1,254
Unit distribution payable (Note 11) 30,696 9,114
Accrued gas accounts payable 38,522 33,057
Other liabilities - current (Note 12) 59,150 -
----------------------------------------------------------------------------
263,902 197,560

LONG TERM DEBT (Note 7) 67,583 -

OTHER LIABILITIES - LONG TERM (Note 13a) 159,207 7,909

FUTURE INCOME TAX LIABILITIES (Note 8) 19,458 11,600
----------------------------------------------------------------------------
510,150 217,069
----------------------------------------------------------------------------

EQUITY
Deficit $ (211,931) $ (197,628)
Accumulated other comprehensive income 40,789 -
----------------------------------------------------------------------------
(171,142) (197,628)
Unitholders' capital 358,103 328,153
Contributed surplus 12,004 9,633
----------------------------------------------------------------------------
Unitholders' equity 198,965 140,158
----------------------------------------------------------------------------
$ 709,115 $ 357,227
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Guarantees (Note 16)
Commitments (Note 17)
Contingency (Note 18)

See accompanying notes to the consolidated financial statements



ENERGY SAVINGS INCOME FUND

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

FOR THE YEARS ENDED MARCH 31
----------------------------------------------------------------------------
----------------------------------------------------------------------------

2008 2007
ACCUMULATED EARNINGS

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

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

Net income 152,761 93,912
----------------------------------------------------------------------------

Accumulated earnings, end of year 392,082 237,802
----------------------------------------------------------------------------


DISTRIBUTIONS

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

Distributions (159,832) (99,464)

Class A preference share distributions -
net of income taxes of $4,948 (8,751) (5,869)
----------------------------------------------------------------------------

Distributions, end of year (604,013) (435,430)
----------------------------------------------------------------------------


DEFICIT (211,931) (197,628)
----------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income,
beginning of year - -

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

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

Other comprehensive loss (72,989) -
----------------------------------------------------------------------------

Accumulated other comprehensive income,
end of year 40,789 -
----------------------------------------------------------------------------


UNITHOLDERS' CAPITAL (Note 9)

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

Trust units exchanged 5,000 3,656

Trust units issued on exercise/exchange
of unit compensation (Note 10d) 4,793 3,503

Trust units issued 25,157 -

Class A preference shares exchanged (5,000) (3,656)
----------------------------------------------------------------------------

Unitholders' capital, end of year 358,103 328,153
----------------------------------------------------------------------------


CONTRIBUTED SURPLUS (Note 10d) 12,004 9,633
----------------------------------------------------------------------------


Unitholders' equity, end of year $ 198,965 $ 140,158
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements



ENERGY SAVINGS INCOME FUND

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

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

THREE MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31


2008 2007 2008 2007

SALES $652,617 $588,410 $1,738,690 $1,532,317

COST OF SALES 542,132 491,750 1,463,890 1,302,873
----------------------------------------------------------------------------
GROSS MARGIN 110,485 96,660 274,800 229,444
----------------------------------------------------------------------------

EXPENSES
General and administrative
expenses 17,138 10,226 51,638 41,892
Capital tax 1 310 827 850
Marketing expenses 12,125 7,768 56,121 42,969
Unit based compensation
(Note 10d) (160) 1,373 3,076 3,920
Bad debt expense 3,272 3,992 6,951 10,882
Amortization of gas contracts - 3,860 177 15,438
Amortization of
electricity contracts 2,034 916 7,384 6,597
Amortization of capital assets 2,484 900 5,110 3,104
----------------------------------------------------------------------------
36,894 29,345 131,284 125,652
----------------------------------------------------------------------------

INCOME BEFORE INTEREST EXPENSE
AND OTHER INCOME (EXPENSE) 73,591 67,315 143,516 103,792

INTEREST EXPENSE (Note 7) (1,531) (1,673) (5,346) (3,942)

OTHER INCOME (EXPENSE) 11,685 4,225 90 (6,868)
----------------------------------------------------------------------------

INCOME BEFORE INCOME TAX 83,745 69,867 138,260 92,982

RECOVERY OF INCOME TAX (Note 8) (10,280) (185) (14,501) (930)
----------------------------------------------------------------------------

NET INCOME $ 94,025 $ 70,052 $ 152,761 $ 93,912
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net income per unit (Note 14)

Basic $ 0.87 $ 0.66 $ 1.42 $ 0.88

Diluted $ 0.87 $ 0.66 $ 1.41 $ 0.88

See accompanying notes to the consolidated financial statements



ENERGY SAVINGS INCOME FUND

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

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

THREE MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31
2008 2007 2008 2007

NET INCOME $ 94,025 $70,052 $152,761 $ 93,912
----------------------------------------------------------------------------

Unrealized gains on translation
of self sustaining operations 4,098 - 3,951 -

Unrealized and realized gain (loss)
on derivative instruments designated
as cash flow hedges (net of income
taxes of $31,481 and ($15,266) for
the three months and year ended,
respectively) (Note 13a) 346,726 - (76,940) -
----------------------------------------------------------------------------

OTHER COMPREHENSIVE INCOME (LOSS) 350,824 - (72,989) -
----------------------------------------------------------------------------

COMPREHENSIVE INCOME $444,849 $70,052 $ 79,772 $ 93,912
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements



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

THREE MONTHS ENDED YEAR ENDED
MARCH 31 MARCH 31

Net inflow (outflow) of cash related
to the following activities 2008 2007 2008 2007
OPERATING
Net income $ 94,025 $ 70,052 $ 152,761 $ 93,912
----------------------------------------------------------------------------

Items not affecting cash
Amortization of gas contracts - 3,860 177 15,438
Amortization of electricity
contracts 2,034 916 7,384 6,597
Amortization of capital assets 2,484 900 5,110 3,104
Unit based compensation (160) 1,373 3,076 3,920
Future income taxes (Note 8) (11,260) (4,130) (18,692) (4,788)
Gain on foreign exchange
(unrealized) - (53) - (60)
Other (298) - (298) -
Other (income) expenses
(unrealized) (11,186) (3,556) 988 7,618
----------------------------------------------------------------------------
(18,386) (690) (2,255) 31,829
----------------------------------------------------------------------------
Adjustments required to reflect
net cash receipts from gas sales (22,525) (20,232) (2,620) 924
----------------------------------------------------------------------------
Changes in non-cash working capital 10,540 (2,385) (11,879) (28,311)
----------------------------------------------------------------------------
63,654 46,745 136,007 98,354
----------------------------------------------------------------------------

FINANCING
Exercise of trust unit
options (Note 10d) 1,305 40 4,053 763
Issue of trust units (Note 9) - - 18,079 -
Distributions paid to Unitholders (44,064) (25,681) (131,132) (97,925)
Distributions to Class A preference
shareholders (4,418) (2,367) (11,849) (9,188)
Tax impact on distributions to
Class A preference shareholders 878 855 4,948 3,319
Issuance of long-term debt and
increase in bank indebtedness 13,440 8,590 97,294 65,191
Repayment of long-term debt and
bank indebtedness (42,057) (37,089) (68,303) (51,747)
Increase in restricted cash 54 - 1,962 -
----------------------------------------------------------------------------
(74,862) (55,652) (84,948) (89,587)
----------------------------------------------------------------------------

INVESTING

Purchase of capital assets 242 (731) (7,842) (3,726)

Acquisition of subsidiary (Note 6) - - (33,400) -
----------------------------------------------------------------------------
242 (731) (41,242) (3,726)
----------------------------------------------------------------------------
Effect of foreign currency
translation on cash balances 1,502 64 707 82
----------------------------------------------------------------------------
NET CASH INFLOW (OUTFLOW) (9,464) (9,574) 10,524 5,123

CASH, BEGINNING OF PERIOD 36,774 26,360 16,786 11,663
----------------------------------------------------------------------------

CASH, END OF PERIOD $ 27,310 $ 16,786 $ 27,310 $ 16,786
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental information

Interest paid $ 1,525 $ 1,939 $ 5,545 $ 3,860
Income taxes paid $ 66 $ 180 $ 1,251 $ 1,581

Supplemental disclosure relating
to non-cash financing and
investing activities

Acquisition of capital assets
through lease inducements $ 2,817 $ - $ 2,817 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements


ENERGY SAVINGS INCOME FUND

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

1. INTERIM FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements do not conform in all respects to the requirements of Canadian generally accepted accounting principles ("GAAP") for annual financial statements and should therefore be read in conjunction with the audited consolidated financial statements and notes thereto included in the Fund's annual report for fiscal 2008. The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian GAAP applicable to interim consolidated financial statements and follow the same accounting policies and methods in their applications as the most recent annual financial statements, except as described in note 3.

2. ORGANIZATION

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

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

3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

(a) New accounting standards

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

Comprehensive Income

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

Equity

Section 3251 describes the changes in reporting and disclosing equity and changes in equity as a result of the new requirements of Section 1530, including the changes in equity for the period arising from OCI. Accumulated changes in OCI are included in AOCI and are presented as a separate component of Unitholders' equity.

Financial Instruments - Recognition and Measurement

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

Derivative instruments are recorded on the Consolidated Balance Sheets at fair value. Changes in the fair values of derivative instruments are recognized in net income with the exception of derivatives designated as effective cash flow hedges or hedges of foreign currency exposure of a net investment in a self-sustaining foreign operation.

Upon adoption of these new standards, the Fund designated its cash as held-for-trading, which is measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Long-term debt, accounts payable and accrued liabilities are classified as other financial liabilities, which are measured at amortized cost.

Financial Instruments - Presentation and Disclosure

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

Hedges

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

(b) Foreign currency translation

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

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

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

Energy Savings' various derivative instruments have been accounted for under section 3855, Financial Instruments - Recognition and Measurement. Financial instruments that meet hedging requirements are accounted for under section 3865, Hedges.

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

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

Energy Savings enters into hedges for its foreign exchange risk relating to its anticipated repatriation of U.S. denominated currency by entering into foreign exchange forward contracts with its lender. Energy Savings previously applied AcG-13 to these contracts and used the settlement method of accounting. As of December 31, 2006, these derivative financial instruments have been recorded on the balance sheet as either other assets or other liabilities measured at fair value, with changes in fair value recognized in income as other income (expense) and will henceforward be accounted for in accordance with section 3855.

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

(d) Derivative instruments and hedge accounting

Electricity:

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

Energy Savings continues to monitor its effective hedging relationship between retail consumption and its supply contracts and where required for hedge accounting purposes, evaluates the effectiveness of this relationship on a quarterly basis.

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

Gas:

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

Energy Savings continues to monitor its effective hedging relationship between retail consumption and its supply contracts and where required for hedge accounting purposes, evaluates the effectiveness of this relationship on a quarterly basis.

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

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

Foreign exchange:

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

Up until September 30, 2006, unrealized gains on foreign exchange contracts up to the date of de-designation of the hedging relationship were deferred to be recognized over the term of the contract based on the timing of the underlying hedged transactions. As of December 31, 2006, these derivative financial instruments have been recorded on the balance sheet as either other assets or other liabilities measured at fair value, with changes in fair value recognized in income as other income (expense) and the deferred gain has been reclassified in AOCI.



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

Other Assets - current $ 132,456

Other Assets - long term $ 151,804

Future Income taxes $ 1,487

Other Liabilities - current $ 36,228

Other Liabilities - long term $ 131,161

Accumulated Earnings (net of tax of $49) $ 1,519

Accumulated Other Comprehensive Income
(net of tax of $1,536) $ 113,952


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

(e) Recently issued accounting standards

The following are the new standards, not yet in effect, which are required to be adopted by the Fund on the effective date:

Capital Disclosures-CICA Section 1535

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

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

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

Goodwill and Intangible Assets - CICA Section 3064

As of April 1, 2009, the Fund will be required to adopt Section 3064, Goodwill and Intangible Assets, which establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard is effective for fiscal years beginning on or after October 1, 2008. The Fund has not yet determined the impact of this standard on its financial statements.

4. SEASONALITY OF OPERATIONS

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

5. RESTRICTED CASH/CUSTOMER REBATES PAYABLE

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

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

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

6. ACQUISITION OF JUST ENERGY TEXAS L.P.

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



The purchase price has been allocated as follows:

US$ CAD$
Net assets acquired:
Working capital
(including cash of US$3,373, CAD$3,659) $ 7,236 $ 7,849
Electricity contracts 8,213 8,908
Goodwill 21,013 22,793
Capital assets 18 20
Long-term liabilities (2,315) (2,511)
----------------------
$ 34,165 $ 37,059
----------------------
----------------------
Consideration:

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


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

7. BANK INDEBTEDNESS AND LONG TERM DEBT

A credit facility in the amount of $150,000 is available to Energy Savings to meet working capital requirements. Interest is payable on outstanding loans at rates that vary with Bankers' Acceptance, LIBOR, Canadian bank prime rate or U.S. prime rate. Under the terms of the operating credit facility, Energy Savings is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees of 150 basis points, prime rate advances at bank prime plus 0.5%, and letters of credit at 1.5% . On October 26, 2007, the credit facility was renewed for a period of three years to October 29, 2010 and the debt was reclassified to long-term debt. As at March 31, 2008, the Canadian and U.S. prime rates were both 5.25% . As at March 31, 2008, Energy Savings had drawn $67,583 against the facility and total letters of credit outstanding amounted to $8,149. Energy Savings has $74,268 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 March 31, 2008 and 2007, all of these covenants have been met. Interest expense for the three months and year ended March 31, 2008 was $1,531 (2007 - $1,673) and $5,346 (2007 - $3,942), respectively. Interest is expensed at the effective interest rate.

8. INCOME TAXES

The Fund is taxed as a "mutual fund trust" for income tax purposes. Pursuant to the Declaration of Trust, OESC, as administrator of the Trust, 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% (2007 - 36%).

The following table reconciles the difference between the income tax provision that would result by applying the Canadian corporate statutory tax rate to the income before income tax for Energy Savings and the income tax provision in the financial statements.



Three months ended Year ended
March 31 March 31
2008 2007 2008 2007
Income before income tax $ 83,745 $ 69,867 $138,260 $ 92,982
---------------------------------------
---------------------------------------

Income tax at the combined basic
tax rate of 36% (2007 - 36%) 30,149 25,153 49,774 33,474
Taxes on income attributable
to Unitholders (24,685) (21,908) (49,883) (36,853)
Tax impact on corporate
re-organization 34 - (7,021) -
Benefit of U.S. accounting losses
not recognized (8,407) (4,955) - -
Benefit of U.S. tax losses and other
tax assets not previously recognized (7,371) 1,023 (7,371) 1,023
Non-deductible expenses - 502 - 1,426
---------------------------------------

Recovery of income tax $(10,280) $ (185) $(14,501) $ (930)
---------------------------------------
---------------------------------------

Components of Energy Savings' income
tax recovery are as follows: 2008 2007 2008 2007

Income tax provision (recovery) $ 102 $ 3,090 $ (757) $ 539
Amount credited to
Unitholders' equity 878 855 4,948 3,319
---------------------------------------
Current income tax provision
(recovery) 980 3,945 4,191 3,858
Future tax recovery (11,260) (4,130) (18,692) (4,788)
---------------------------------------
Recovery of income tax $(10,280) $ (185) $(14,501) $ (930)
---------------------------------------
---------------------------------------

2008 2007
Components of the Fund's net future
income tax liabilities are as follows:
Partnership income deferred for tax
purposes and book carrying amount of
investments in partnerships in excess of
tax cost $ 4,055 $ 11,600
Accumulated other comprehensive
income 5,983 -
---------------------------------------
Future income tax liabilities (net) $ 10,038 $ 11,600
---------------------------------------
---------------------------------------


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

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

The Fund is specified investment flow-through entity as defined in the SIFT Legislation. Commencing with its taxation year ending December 31, 2011, assuming the Fund does not exceed "normal growth guidelines" (in which case transitional relief deferring the application of the SIFT tax to 2011 would be lost), the Fund will be subject to taxes on certain income earned from investments in its subsidiaries distributed to Unitholders. The Fund is also required to recognize future income tax assets and liabilities calculated with respect to the temporary differences between the carrying amounts and tax bases of its assets and liabilities and those of its flow-through subsidiaries that are expected to reverse in or after 2011. The Fund expects that a portion of its aggregate temporary differences and those of its flow-through subsidiaries will reverse in or after 2011 and as a consequence it has recorded a future tax asset of $9,420 during the current year, of which substantially all is related to temporary differences with respect to items included in AOCI such as mark-to-market recording of derivative financial instruments. The Fund also anticipates possible material changes in such future tax amounts corresponding to the changes in the fair value of the financial instruments in future periods due to the volatile nature of such temporary differences. The Fund expects that it will not exceed its "normal growth" limitations, such that it will not be subject to tax on certain income distributed prior to 2011 and accordingly has not provided for future income taxes on the remaining portion of temporary differences which are expected to reverse prior to 2011. The SIFT Legislation does not affect the current and future tax amounts of the Fund's corporate subsidiaries.

9. UNITHOLDERS' CAPITAL

Trust units of the Fund

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

The Fund intends to make distributions to its Unitholders based on the cash receipts of the Fund, excluding proceeds from the issuance of additional Fund units, adjusted for costs and expenses of the Fund, amounts which may be paid by the Fund in connection with any cash redemptions or repurchases of units and any other amounts that the Board of Directors considers necessary to provide for the payment of any costs which have been or will be incurred in the activities and operations of the Fund. The Fund's intention is for Unitholders of record on the 15th day of each month to receive distributions at the end of the month, excluding any Special Distributions (Note 11).

Class A preference shares of OESC

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



2008 2007
Issued and Outstanding Units/Shares Units/Shares
Trust units
-----------
Balance, beginning of year 98,082,535 $306,387 96,391,991 $299,228

Options exercised 345,833 4,556 71,834 869

Unit appreciation
rights exchanged 17,868 237 153,532 2,598

Deferred unit
grants exchanged - - 2,695 36

Distribution
reinvestment plan 536,559 7,078 - -

Units issued 1,169,399 18,079 - -

Exchanged from
Class A
preference shares 2,000,000 5,000 1,462,483 3,656
---------------------------------------------

Balance, end of year 102,152,194 341,337 98,082,535 306,387
---------------------------------------------
Class A preference shares
-------------------------
Balance, beginning of year 8,706,212 21,766 10,168,695 25,422

Exchanged into units (2,000,000) (5,000) (1,462,483) (3,656)
---------------------------------------------

Balance, end of year 6,706,212 16,766 8,706,212 21,766
---------------------------------------------

Unitholders' capital,
end of year 108,858,406 $358,103 106,788,747 $328,153
---------------------------------------------
---------------------------------------------


Distribution reinvestment plan

The Fund established a distribution reinvestment program ("DRIP") on December 19, 2007. Under the program, Unitholders holding a minimum of 100 units can elect to receive their distributions in units rather than cash at a 5% discount to the simple average closing price of the units for five trading days preceding the applicable distribution payment date.

10. UNIT BASED COMPENSATION PLANS

(a) Unit option plan

The Fund grants awards under its 2001 unit option plan to directors, officers, full-time employees and service providers (non-employees) of Energy Savings. In accordance with the unit option plan, the Fund may grant options to a maximum of 11,300,000 units. As at March 31, 2008, there were 698,666 options still available for grant under the plan. Of the options issued, 970,500 options remain outstanding at March 31, 2008. The exercise price of the unit options equals the closing market price of the Fund's units on the last business day preceding the grant date. The unit options will vest over periods ranging from three to five years from the grant date and expire after five or 10 years from the grant date.

A summary of the status of the Fund's unit option plan at March 31, 2008 is outlined below.



Weighted
Weighted average
Range of average grant
Outstanding exercise exercise date fair
options prices price(1) value(2)
Balance, beginning of year 1,202,333 $ 7.29 - $18.70 $ 13.74
Granted 158,000 $15.09 - $16.70 $ 15.61 $ 1.92
Forfeited/cancelled (44,000) $15.45 - $17.45 $ 16.33
Exercised (345,833) $ 7.29 - $12.17 $ 11.72
-----------
Balance, end of year 970,500 $11.25 - $18.70 $ 14.64
-----------
-----------

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



Options Outstanding Options Exercisable
----------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$ 11.25 - $12.69 360,000 0.53 $12.10 356,000 $12.09
$ 15.09 - $15.63 335,500 2.72 $15.46 112,600 $15.61
$ 15.90 - $18.70 275,000 2.76 $16.99 84,000 $17.10
------------ ------------
Balance,
end of year 970,500 1.92 $14.64 552,600 $13.57
------------ ------------
------------ ------------



Options available for grant
Available for grant 11,300,000
Less: granted in prior years (11,503,000)
Add: cancelled/forfeited in prior years 1,015,666
------------
Balance, beginning of year 812,666
Add: cancelled/forfeited during the year 44,000
Less: granted during the year (158,000)
------------
Balance, end of year 698,666
------------
------------


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 2008:



Risk free rate 3.76% - 4.64%
Expected volatility 27.13% - 27.18%
Expected life 3.35 - 5 years
Expected distributions $1.115 - $1.21 per year


(b) Unit appreciation rights

The Fund grants awards under its 2004 unit appreciation rights ("UARs") plan to senior officers, employees and service providers of its subsidiaries and affiliates in the form of fully paid UARs. During the Annual General and Special Meeting held on June 28, 2007, an amendment was made to the unit appreciation rights plan increasing the UARs that the Fund may grant from 1,000,000 to a maximum of 2,000,000. As at March 31, 2008 there were 804,170 UARs still available for grant under the plan. Of the UARs issued, 1,024,430 UARs remain outstanding at March 31, 2008. Except as otherwise provided, (i) the UARs vest from one to five years from the grant date providing, in most cases, on the applicable vesting date the UAR grantee continues as a senior officer, employee or service provider of the Fund or any affiliate thereof; (ii) the UARs expire no later than ten years from the grant date; (iii) a holder of UARs is entitled to distributions as if a UAR were a unit; and (iv) when vested, the holder of a UAR may exchange one UAR for one unit.



UARs Available for Grant

Available for grant at inception 1,000,000
Less: granted in prior years (994,096)
Add: forfeited/cancelled in prior years 72,373
-----------
Balance, beginning of year 78,277
Less: granted during the year (284,704)
Add: increase in UARs available for grant 1,000,000
Add: forfeited/cancelled during the year 10,597
-----------

Balance, end of year 804,170
-----------
-----------


(c) Deferred unit grants

The Fund grants awards under its 2004 Directors' deferred compensation plan to all independent directors on the basis each director is required to receive annually $15 of his compensation entitlement in deferred unit grants ("DUGs") and may elect to receive all or any portion of the balance of his annual compensation in DUGs. In accordance with the deferred compensation plan, the Fund may grant DUGs to a maximum of 100,000. The DUGs vest on the earlier of the date of the Director's resignation or three years following the date of grant and expire ten years following the date of grant. As of March 31, 2008, there were 56,537 DUGs available for grant under the plan. Of the DUGs issued, 37,561 DUGs remain outstanding at March 31, 2008.



DUGs Available for Grant

Available for grant 100,000
Less: granted in prior years (28,857)
-----------
Balance, beginning of year 71,143
Less: granted during the year (14,606)
-----------

Balance, end of year 56,537
-----------
-----------


(d) Contributed surplus

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



Three months ended Year ended
March 31 March 31
Contributed Surplus 2008 2007 2008 2007
--------- -------- --------- ---------

Balance, beginning of period $ 12,511 $ 8,302 $ 9,633 $ 8,436
Add: unit based compensation awards (160) 1,373 3,076 3,920
non-cash deferred unit grant
distributions 13 6 35 17
Less: unit based awards exercised (360) (48) (740) (2,740)
--------- -------- --------- ---------

Balance, end of period $ 12,004 $ 9,633 $ 12,004 $ 9,633
--------- -------- --------- ---------
--------- -------- --------- ---------


Total amounts credited to Unitholders' capital in respect of options and UARs exercised or exchanged during the three months and year ended March 31, 2008 amounted to $1,665 (2007 - $88) and $4,793 (2007 - $3,503), respectively.

Cash received from options exercised for the three months and year ended March 31, 2008 amounted to $1,305 (2007 - $40) and $4,053 (2007 - $763), respectively.

11. UNIT DISTRIBUTION PAYABLE

The Fund would have under-distributed its taxable income in calendar 2007 based on normal course distribution of the Fund and would have been subject to tax at 46% for any undistributed taxable income. In order to ensure all of the taxable income is distributed to its Unitholders, the Board of Energy Savings concluded that it would be preferable to pay out a Special Distribution to effectively allocate all of the taxable income to the holders of units, Class A preference shares, UARs and DUGs. The Special Distribution was $44,691 ($0.41 per unit) and is payable as to 50% cash and 50% units. The cash portion was paid over three distributions on the last day of January, February and March 2008. The unit portion will be paid over three distributions on the last day of June, September and December 2008.

12. OTHER LIABILITIES - LONG TERM



2008 2007
-------------------

Deferred lease inducement $ 2,817 $ -
Financial instruments (Note 13 (a)) 156,390 7,909
-------------------

$ 159,207 $ 7,909
-------------------
-------------------


13. FINANCIAL INSTRUMENTS

(a) Fair value

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

(i) At March 31, 2008, Energy Savings had electricity fixed-for-floating swap contracts in its Canadian subsidiaries and affiliates, the majority of which are designated as hedges of Energy Savings' anticipated cost of sales with the remainder being classified as held-for-trading to which it has committed with the following terms:



Designated as Hedges Held for Trading
Notional volumes (peak, flat,
off peak and weekend) 0.000063-35.0 MW/h 0.1-5 MW/h
Total remaining notional volume 15,967,759 MWh 297,226 MWh
(peak, flat, off peak
and weekend)
Maturity dates April 30, 2008 - April 30, 2008 -
December 31, 2013 August 31, 2013
Fixed price per MWh
(in dollars) $50.94 - $128.13 $65.80-$102.74
Fair value $158,264 unfavourable $5,535 unfavourable
Notional value $1,299,077 $30,164


With respect to the designated hedges, the gain of $69,283 (2007 - n/a) and the loss of $89,217 (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other liabilities. The offsetting values are recorded as to $57,100 gain (2007 - n/a) and $93,273 loss (2007 - n/a) in Other Comprehensive Income and $12,183 gain (2007 - n/a) and $4,057 gain (2007 - n/a) in other income (expense) respectively for each of the three months and year ended March 31, 2008. Held for trading loss of $3,025 (2007 - n/a) and loss of $5,535 (2007 - n/a) for the three and twelve months ended March 31, 2008 has been recorded in other liabilities with its offsetting value being recorded in other income (expense).

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

(ii) At March 31, 2008, Energy Savings had electricity fixed-for-floating swap contracts in its US subsidiaries and affiliates which are designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:



Notional volumes
(peak and off peak) 0.1 -14.7 MW/h
Total remaining estimated
notional volume 1,324,217 MWh
(peak, off peak and
load following)
Maturity dates April 30, 2008 - January 31, 2013
Fixed price per MWh
(in dollars) $90.64 - $116.97 (US$88.30 - US$113.95)
Fair value $2,590 (US$2,523) unfavourable
Notional value $139,831 (US$136,221)


The gain of $11,573 (US$11,550) (2007 - n/a) and a loss of $18,438 (US$18,322) (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other liabilities. The offsetting values are recorded as to a gain of $11,475 (US$11,452) (2007 - n/a) and gain of $18,821 (US$18,745) (2007 - n/a) in Other Comprehensive Income and a gain of $98 (US$98) (2007 - n/a) and loss of $383 (US$423) (2007 - n/a) in other income (expense) respectively for each of the three months and year ended March 31, 2008. There are load shaped fixed-for-floating contracts in New York wherein the quantity of electricity is established but varies throughout the term of the contracts.

(iii) At March 31, 2008, Energy Savings had electricity physical forward contracts in its US subsidiaries and affiliates which are designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:



Notional volumes
(peak and off peak) 1.0-15.0 MW/h
Total remaining
notional volume 1,304,744 MWh
(peak and off peak)
Maturity dates April 4, 2008 - February 28, 2013
Fixed price per MWh
(in dollars) $46.04 - $169.37 (US$44.85 - US$165.00)
Fair value $15,352 (US$14,956) favourable
Notional value $93,561 (US$91,146)


The gain of $18,371 (US$18,334) (2007 - n/a) and gain of $13,811 (US$14,344) (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other liabilities. The offsetting values are recorded as to a gain of $18,052 (US$18,016) (2007 - n/a) and a gain of $13,811 (US$14,344) (2007 - n/a) in Other Comprehensive Income and a gain of $319 (US$319) (2007 - n/a) and gain of $nil (US$nil) (2007 - n/a) in other income (expense) respectively for the three months and year ended March 31, 2008.

(iv) At March 31, 2008, Energy Savings had unforced capacity contracts in its US subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 55.1 - 83.8 MW-month
Total remaining notional volume 138.9 MW-month
Maturity dates April 30, 2008
Fixed price per GJ (in dollars) $1.08 (US$1.05)
Fair value $43 (US$42) unfavourable
Notional value $150 (US$146)


The loss of $115 (US$115) (2007 - n/a) and $39 (US$42) (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other liabilities with its offsetting values being recorded in other income (expense) and foreign exchange.

(v) As at March 31, 2008, Energy Savings had renewable energy certificates in its US subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 10,000 MWh
Total remaining notional volume 90,000 MWh
Maturity dates December 31, 2008 - December 31, 2012
Fixed price per MWh (in dollars) $5.13 - $6.16 (US$5.00 - US$6.00)
Fair value $77 (US$75) favourable
Notional value $503 (US$490)


The loss of $102 (US$102) (2007 - n/a) and gain of $75 (US$75) (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other assets with its offsetting values being recorded in other income (expense) and foreign exchange.

(vi) As at March 31, 2008, Energy Savings had verified emission reduction certificates in its US subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 10,000 MWh
Total remaining notional volume 80,000 MWh
Maturity dates December 31, 2008 - December 31, 2012
Fixed price per MWh (in dollars) $8.47 (US$8.25)
Fair value $nil
Notional value $677 (US$660)


There was no loss or gain recorded for the three months and year ended March 31, 2008 (2007 - n/a). Future changes to the fair value will be recorded in other assets (liabilities) and the offsetting values will be recorded in other income (expenses).

(vii) As at March 31, 2008, Energy Savings had renewable energy certificates in its Canadian subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 10 - 39,638 MWh
Total remaining notional volume 327,340 MWh
Maturity dates December 31, 2008 - December 31, 2013
Fixed price per MWh (in dollars) $3.00-$9.00
Fair value $854 favourable
Notional value $1,445


The gain of $644 (2007 - n/a) and gain of $854 (2007 - n/a) for the three and twelve months ended March 31, 2008, has been recorded in other assets with its offsetting values being recorded in other income (expense).

(viii) At March 31, 2008, Energy Savings had gas put and call options in its Canadian subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 33 - 47,250 GJ/month
Total remaining notional volume 8,962,956 GJ
Maturity dates April 30, 2008- April 30, 2013
Fixed price per GJ (in dollars) $5.19 - $13.20
Fair value $5,379 unfavourable


The fair value is net of the present value of premiums which have yet to be paid. The gain of $350 (2007 - $651 loss) and loss of $530 (2007 - $3,600 loss) for the three months and year ended March 31, 2008, has been recorded in other liabilities with its offsetting values being recorded in other income (expense).

(ix) At March 31, 2008, Energy Savings had other gas put and call options in its US subsidiaries and affiliates which have been classified as held-for-trading and marked to market with the following terms:



Notional volume 5 - 180,000 MmBTU/month
Total remaining notional volume 10,382,553 MmBTU
Maturity dates April 30, 2008 - February 28, 2013
Fixed price per MmBTU
(in dollars) $5.65 - $11.66 (US$5.50 - US$11.36)
Fair value $137 (US$133) favourable


The fair value is net of the present value of premiums which have yet to be paid. The gain of $4,569 (US$4,560) (2007 - $3,921 gain (US$3,402)) and the gain of $139 (US$264) (2007 - $1,890 loss (US$1,637)) respectively for the three months and year ended March 31, 2008, has been recorded in other assets with its offsetting values being recorded in other income (expense).

(x) The Fund has foreign exchange forwards that are considered derivative financial instruments. The fair value of derivative financial instruments is the estimated amount that Energy Savings would pay or receive to dispose of these forwards at market. Management has estimated the value of its foreign exchange forwards using a discounted cash flow method that employs market forward curves. Hedge accounting was applied to most of these forwards up to September 30, 2006. However, the hedge was de-designated and a loss of $195 for the year ended March 31, 2007 was recorded in other liabilities. As the required hedge accounting effectiveness was achieved for certain quarters of fiscal 2007, a $1,933 gain has been deferred and recorded in AOCI and is being recognized in the Statement of Operations over the remaining term of each hedging relationship. At March 31, 2008, Energy Savings had foreign exchange forwards classified as held-for-trading to which it has committed with the following terms:



Notional amount $2,258-$2,276 (US$2,000)
Total remaining notional amount $54,408 (US$48,000)
Maturity dates May 7, 2008 - April 7, 2010
Exchange rates $1.1289 - $1.1381
Fair value $4,577 favourable


The loss of $1,732 (2007 - $195) and gain of $4,772 (2007 - $195 loss) for the three months and year ended March 31, 2008, has been recorded in other liabilities with the offsetting values being recorded in other income (expense).

(xi) At March 31, 2008, Energy Savings had physical gas forward contracts in its Canadian subsidiaries and affiliates which are designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:



Notional volume 0.14-10,645 GJ/day
Total remaining notional volume 176,858,078 GJ
Maturity dates April 7, 2008 - December 31, 2013
Fixed price per GJ (in dollars) $5.05 - $9.87
Fair value $156,711 favourable
Notional value $1,346,945


The gain of $232,332 (2007 - n/a) and loss of $429,361 (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other assets with the offsetting values being recorded in Other Comprehensive Income.

(xii) At March 31, 2008, Energy Savings had gas transportation forward contracts in its Canadian subsidiaries and affiliates which are designated as hedges of Energy Savings' anticipated cost of sales to which it has committed with the following terms:



Notional volume 74 - 70,000 GJ/day
Total remaining notional volume 97,157,964 GJ
Maturity dates April 30, 2008 - July 31, 2013
Fixed price per GJ (in dollars) $0.01 - $1.68
Fair value $9,298 unfavourable
Notional value $89,875


The gain of $2,791 (2007 - n/a) and gain of $9,671 (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other liabilities with the offsetting values being recorded in Other Comprehensive Income.

(xiii) At March 31, 2008, Energy Savings had physical gas forward contracts in its US subsidiaries and affiliates the majority of which are designated as hedges of Energy Savings' anticipated cost of sales with the remainder being classified as held-for-trading to which it has committed with the following terms:



Notional volume 3 - 4,663 MmBTU/day
Total remaining notional volume 55,118,014 MmBTU
Maturity dates April 30, 2008- May 31, 2013
Fixed price per GJ (in dollars) $5.44 - $11.73 (US$5.30 - US$11.43)
Fair value $56,707 (US$55,243) favourable
Notional value $541,330 (US$527,355)


The gain of $56,165 (US$56,053) (2007 - n/a) and loss of $69,739 (US$66,720) (2007 - n/a) for the three months and year ended March 31, 2008, has been recorded in other liabilities with the offsetting values being recorded in Other Comprehensive Income.

(xiv) At March 31, 2008, Energy Savings had gas transportation forward contracts in its US subsidiaries and affiliates the majority of which are designated as hedges of Energy Savings' anticipated cost of sales with the remainder being classified as held-for-trading to which it has committed with the following terms:



Notional volume 180 - 21,392 MmBTU/day
Total remaining notional volume 25,988,403 MmBTU
Maturity dates April 30, 2008 - January 31, 2013
Fixed price per GJ (in dollars) $0.01 - $0.26 (US$0.01 - US$0.25)
Fair value $nil
Notional value $46 (US$45)


For the three months and year ended March 31, 2008, no entry was recorded in the financial statements as there was no change in fair value. Future changes to the fair value will be recorded in other assets (liabilities) and the offsetting values will be recorded in other comprehensive income and other income (expense) as applicable.

The following tables summarize certain aspects of the financial assets and liabilities recorded in the financial statements as at March 31, 2008.



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

Canada
Fixed for floating
electricity swaps $ 13,344 $ 12,517 $ 49,965 $ 139,695
Renewable Energy
Certificates $ 222 $ 632 - -
Options - - $ 1,937 $ 3,442
Physical Gas Forward
contracts $ 125,669 $ 36,270 - $ 5,228
Transportation forward
contract $ 520 - $ 6,915 $ 2,903
United States
Fixed for floating
electricity swaps $ 1,117 $ 232 - $ 3,939
Physical electricity
forwards $ 12,637 $ 2,715 - -
Unforced Capacity forward
contracts - - $ 43 -
Renewable Energy
Certificates $ 10 $ 67 - -
Options $ 1,610 - $ 290 $ 1,183
Physical Gas Forward
contracts $ 35,832 $ 20,875 - -
Transportation forward
contract - - - -
Foreign Exchange Forward
contracts $ 2,325 $ 2,252 - -

As at March 31, 2008 $ 193,286 $ 75,560 $ 59,150 $ 156,390


Three months ended Year ended
March 31, 2008 March 31, 2008

Gain (loss) Gain (loss)
on cash on cash
flow hedges flow hedges
transferred transferred
from Other Unrealized from Other Unrealized
Compre- gain (loss) Compre- gain (loss)
hensive recorded in hensive recorded in
Income Other Income Other
to the Compre- to the Compre-
Statement of hensive Statement of hensive
Operations Income Operations Income

Description
Canada
Fixed for floating
electricity swaps ($29,167) $ 84,653 ($93,999) ($9,490)
Physical Gas Forward
contracts and
transportation
forward contracts ($164,316) $399,440 ($523,116) $485,965

United States
Fixed for floating
electricity swaps ($13,504) $ 24,979 ($53,562) $ 72,339
Physical electricity
forwards ($18,957) $ 37,008 ($87,416) $101,215
Physical Gas
Forward contracts ($62,894) $119,059 ($165,012) $208,158

Amortization of
deferred unrealized
gains of
discontinued hedges $1,906 $3,244

Total realized
and unrealized
gains (losses) ($286,932) $665,139 ($919,861) $858,187


The estimated net amount of existing gains and losses reported in AOCI that is expected to be reclassified to net income within the next 12 months is a gain of $117,216.

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

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

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

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

(b) Supplier risk

Energy Savings purchases the majority of the gas and electricity delivered to its customers through long term contracts entered into with various suppliers. Energy Savings has an exposure to supplier risk as the ability to continue to deliver gas and electricity to its customers is reliant upon the ongoing operations of these suppliers and their ability to fulfill their contractual obligations. Energy Savings has discounted the fair value of its financial assets and liabilities by $1,271 to accommodate for its counterparties' risk of default. A significant portion of these gas and electricity purchases is from Shell Energy North America and its affiliates.

(c) Foreign currency risk

Energy Savings has an exposure to foreign currency exchange rates, as a result of its investment in U.S. operations. Changes in the applicable exchange rate may result in a decrease or increase in the AOCI. A non-cash gain for the three months and year ended March 31, 2008 of $4,098 and $3,951, respectively has been recorded in the Other Comprehensive Income. For the three months and year ended March 31, 2007, a non-cash gain of $53 and $60, respectively was recorded in other expense.



14. NET INCOME PER UNIT

Three months ended Year ended
March 31 March 31
2008 2007 2008 2007

Basic income per unit
---------------------
Net income available
to Unitholders $ 94,025 $ 70,052 $152,761 $ 93,912
--------------------------------------
Weighted average number
of units outstanding 99,764 97,882 98,830 97,499
Weighted average number
of Class A preference shares 8,684 8,827 8,701 9,218
--------------------------------------
Basic units and shares outstanding 108,448 106,709 107,531 106,717
--------------------------------------
Basic income per unit $ 0.87 $ 0.66 $ 1.42 $ 0.88
--------------------------------------
--------------------------------------

Diluted income per unit
-----------------------
Net income available to Unitholders $ 94,025 $ 70,052 $152,761 $ 93,912
--------------------------------------
Basic units and shares outstanding 108,448 106,709 107,531 106,717
Dilutive effect of:
Unit options 65 50 115 185
Unit appreciation rights 763 362 766 382
Deferred unit grants 33 20 28 17
--------------------------------------
Units outstanding on a diluted basis 109,309 107,141 108,440 107,301
--------------------------------------
Diluted income per unit $ 0.87 $ 0.66 $ 1.41 $ 0.88
--------------------------------------
--------------------------------------


15. REPORTABLE BUSINESS SEGMENTS

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

Energy Savings evaluates segment performance based on gross margin.

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



Three months ended March 31, 2008

Canada United States Consolidated
---------------------------------------
Sales gas $ 351,372 $ 126,553 $ 477,925
Sales electricity 136,247 38,445 174,692
----------------------------------------------------------------------------
Sales $ 487,619 $ 164,998 $ 652,617
----------------------------------------------------------------------------

Gross margin $ 84,001 $ 26,484 $ 110,485
Amortization of
electricity contracts (267) (1,767) (2,034)
Amortization of capital assets (1,407) (1,077) (2,484)
Other operating expenses (15,338) (17,038) (32,376)
Interest expense (719) (812) (1,531)
Other income 5,438 6,247 11,685
Recovery of (provision for)
income tax (916) 11,196 10,280
----------------------------------------------------------------------------
Net income $ 70,792 $ 23,233 $ 94,025
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Additions to capital assets $ (515) $ 273 $ (242)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Three months ended March 31, 2007

Canada United States Consolidated
---------------------------------------
Sales gas $ 346,240 $ 85,944 $ 432,184
Sales electricity 142,949 13,277 156,226
----------------------------------------------------------------------------
Sales $ 489,189 $ 99,221 $ 588,410
----------------------------------------------------------------------------

Gross margin $ 81,990 $ 14,670 $ 96,660
Amortization of gas contracts (3,860) - (3,860)
Amortization of
electricity contracts (916) - (916)
Amortization of capital assets (767) (133) (900)
Other operating expenses (16,935) (6,734) (23,669)
Interest expense (1,052) (561) (1,613)
Other income 484 3,681 4,165
Recovery of income tax 185 - 185
----------------------------------------------------------------------------
Net income $ 59,129 $ 10,923 $ 70,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Additions to capital assets $ 710 $ 21 $ 731
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Year ended March 31, 2008

Canada United States Consolidated
----------------------------------------------------------------------------
Sales gas $ 785,788 $ 247,463 $ 1,033,251
Sales electricity 544,278 161,161 705,439
----------------------------------------------------------------------------
Sales $ 1,330,066 $ 408,624 $ 1,738,690
----------------------------------------------------------------------------

Gross margin $ 220,247 $ 54,553 $ 274,800
Amortization of gas contracts (177) - (177)
Amortization of
electricity contracts (1,284) (6,100) (7,384)
Amortization of capital assets (3,647) (1,463) (5,110)
Other operating expenses (66,438) (52,175) (118,613)
Interest expense (2,174) (3,172) (5,346)
Other income (expense) 1,246 (1,156) 90
Recovery of income tax 3,353 11,148 14,501
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Net income $ 151,126 $ 1,635 $ 152,761
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Additions to capital assets $ 7,143 $ 699 $ 7,842
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Total goodwill $ 94,576 $ 21,570 $ 116,146
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Total assets $ 520,384 $ 188,731 $ 709,115
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Year ended March 31, 2007

Canada United States Consolidated
-----------------------------------------
Sales gas $ 782,506 $ 172,225 $ 954,731
Sales electricity 530,388 47,198 577,586
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Sales $ 1,312,894 $ 219,423 $ 1,532,317
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Gross margin $ 201,437 $ 28,007 $ 229,444
Amortization of gas contracts (15,438) - (15,438)
Amortization of
electricity contracts (6,597) - (6,597)
Amortization of capital assets (2,582) (522) (3,104)
Other operating expenses (74,084) (26,429) (100,513)
Interest expense (2,082) (1,860) (3,942)
Other expense (4,831) (2,037) (6,868)
Recovery of income tax 930 - 930
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Net income (loss) $ 96,753 $ (2,841) $ 93,912
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Additions to capital assets $ 3,124 $ 602 $ 3,726
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Total goodwill $ 94,576 $ - $ 94,576
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Total assets $ 293,228 $ 63,999 $ 357,227
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16. GUARANTEES

(a) Officers and Directors

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

(b) Operations

In the normal course of business, the Fund and/or the Fund's subsidiaries and affiliates have entered into agreements that include guarantees in favour of third parties, such as purchase and sale agreements, leasing agreements and transportation agreements. These guarantees may require the Fund and/or its subsidiaries and affiliates to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and regulations or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The maximum amount payable under these guarantees is estimated to be $61,000.

17. COMMITMENTS

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



2009 $ 5,183
2010 4,779
2011 4,091
2012 3,538
2013 2,280
Thereafter 7,166
---------

$ 27,037
---------
---------


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



2009 $ 8,576
2010 5,717
---------

$ 14,293
---------
---------


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



2009 $ 1,251,191
2010 969,894
2011 687,049
2012 374,829
2013 143,895
Thereafter 10,972
------------

$ 3,437,830
------------
------------


(d) The Fund has a commitment to repay the long-term debt in the amount of $67,583 by October 29, 2010.

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.

18. CONTINGENCY

On February 7, 2008, the Attorney General for Illinois filed a complaint for damages (restitution to consumers and cancellation of contracts), civil penalties and injunctive relief against IESC (the "Illinois AG Complaint"). The Illinois AG Complaint alleges that independent sales agents used deceptive practices in their sale of Energy Savings contracts to Illinois customers. Energy Savings has commenced discussions with the Illinois Attorney General to address and defend the allegations and intends to seek a constructive resolution to the matter.

At this time, the likelihood of damages or recoveries and the ultimate amounts, if any, with respect to this litigation is not determinable. Accordingly, no amount has been recorded in these consolidated financial statements as at March 31, 2008.

19. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

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

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

Contact Information

  • Energy Savings Income Fund
    Ms. Rebecca MacDonald
    Chair and Co-Chief Executive Officer
    (416) 367-2872
    or
    Energy Savings Income Fund
    Mr. Ken Hartwick C.A.
    Co-Chief Executive Officer
    (905) 795-3557
    or
    Energy Savings Income Fund
    Mr. Peter Bloch, C.A.
    Chief Financial Officer
    (905) 795-4206
    Website: www.esif.ca