Fortis to acquire Terasen Gas for $3.7 billion

COMMENT: In 2005, Kinder Morgan acquired all of the assets of Terasen (formerly BC Gas) for Cdn$6.9 billion (US$5.6 billion). In January 2006, KM sold the water and utility services division of Terasen to CAI Capital Management Co. for Cdn$125 million. Now KM is selling the gas distribution utility including the Vancouver Island utility for Cdn$3.7 billion.

Fortis now becomes a privately-owned mirror of what BC Hydro once was. Before the gas division was hived off in 1989 to become BC Gas. With its electricity generation and distribution components (once West Kootenay Power and Light, built by Cominco to provide power to its Trail smelter) and its newly acquired gas distribution business, Fortis is now no incidental player in the BC energy economy, and provides gas to 95% of gas-users in the province.

Fortis buys Terasen's natural gas retailing
Derrick Penner, Vancouver Sun, 27-Feb-2007

Fortis News Release

FOR IMMEDIATE RELEASE:

St. John's, NL (February 26, 2007):

FORTIS INC. TO ACQUIRE TERASEN GAS FOR $3.7 BILLION

Creates the Largest Investor-Owned Utility in Gas and Electric Distribution in Canada

Fortis Inc. (TSX:FTS) announced today that it has entered into an agreement to acquire all of the outstanding shares of Terasen Inc. ("Terasen") from a wholly owned subsidiary of Kinder Morgan Inc. (NYSE:KMI), a U.S. energy transportation, storage and distribution company based in Houston, Texas, for a purchase price of $3.7 billion, including the assumption of approximately $2.3 billion of debt. Terasen (formerly BC Gas Inc.) is a holding company headquartered in Vancouver, British Columbia, operating two lines of business: natural gas distribution and petroleum transportation. The purchase does not include the petroleum transportation assets of Kinder Morgan Canada (formerly Terasen Pipelines), which are comprised primarily of refined and crude oil pipelines.

The natural gas distribution business of Terasen, referred to as Terasen Gas, is one of the largest natural gas distribution utilities in Canada. Terasen Gas is the principal natural gas distribution utility in British Columbia, serving approximately 900,000 customers or 95% of natural gas customers in the province. Terasen Gas owns and operates 44,100 kilometres of natural gas distribution pipelines and 4,300 kilometres of natural gas transmission pipelines. Its service territory includes the populous lower mainland, Vancouver Island, and the southern interior of the province. As of September 30, 2006, Terasen Gas had an aggregate of $3.6 billion of assets, an aggregate rate base approaching $3.0 billion and approximately 1,200 employees. The Company is regulated by the British Columbia Utilities Commission.

"These are high-quality utility assets located in a region with strong economic growth," says Stan Marshall, President and Chief Executive Officer, Fortis Inc. "Through our FortisBC electric utility operations, we are very familiar with the regulatory environment and energy markets in British Columbia."

"Our expansion into the natural gas distribution business adds a third business segment and doubles the regulated rate base of Fortis to approximately $6.0 billion. The acquisition is expected to be immediately accretive to earnings per common share," explains Marshall.

Following the acquisition, the customer base of Fortis Inc. will almost double to approximately 1,900,000. Based on financial information as at September 30, 2006, following the acquisition, total assets of Fortis will increase by approximately 94% to $8.9 billion and regulated utility assets will comprise approximately 92% of total assets. Approximately 93% of these regulated assets will be located in Canada.

Terasen's subsidiary, Terasen Gas Inc., accounts for approximately 83% of the total assets being purchased. The remaining utilities are Terasen Gas (Vancouver Island) Inc. and Terasen Gas (Whistler) Inc. The unsecured long-term debt of Terasen Gas Inc. is rated 'A' by DBRS and 'A3' by Moody's.

"Terasen Gas is a well-run utility which will give Fortis a platform for further growth in the natural gas distribution business," says Marshall. "It will complement our electric utilities, providing value for our customers and shareholders," says Marshall.

"Terasen Gas will remain autonomous in the Fortis model. We welcome the employees of Terasen Gas to the Fortis Group and look forward to their continuing strong commitment to serving our customers," concludes Marshall.

The business operated by Terasen Gas is attractive to Fortis for the following reasons:

(i) Terasen Gas will significantly increase the earnings of Fortis from regulated utilities and be immediately accretive to earnings per common share of Fortis;

(ii) the regulated gas distribution business of Terasen Gas complements the regulated electric distribution business of Fortis; and

(iii) the service territory of Terasen Gas is experiencing strong economic growth and includes substantially all of the service territory of FortisBC Inc.

Fortis believes that the principal benefits of the acquisition are as follows:

(a) the purchase price represents approximately 1.2 times the approved rate base of Terasen Gas for 2007 and the acquisition is expected to be immediately accretive to earnings per share;

(b) the acquisition will increase the regulated rate base assets and utility earnings of Fortis. Similar to the electric distribution utilities of Fortis, Terasen Gas operates under principally cost-of-service regulation under which an appropriate return on capital is recovered in addition to prudently incurred operating and commodity costs;

(c) Terasen Gas has an attractive gas distribution franchise with a well-diversified, mature, principally residential, customer base. The acquisition is expected to improve the risk profile of Fortis by providing it with a more economically diverse portfolio of assets;

(d) following the acquisition, Fortis will be the largest investor-owned utility in gas and electric distribution in Canada with regulated electricity distribution utilities in five Canadian provinces and three Caribbean countries and regulated gas distribution utilities in British Columbia. Following the acquisition, a large proportion of the businesses of Fortis will serve the high-growth economies of western Canada; and

(e) Fortis believes the regulated gas distribution business of Terasen Gas are complementary to the Corporation's proven core competencies in managing regulated electric distribution utilities. The acquisition affords Fortis management an opportunity to deploy its regulatory, operating and financial management expertise to additional Canadian regulated utilities.

Fortis' approach to utility management is based on creating value for customers that ultimately translates into long-term value for shareholders. Fortis structures its operations as separate operating companies in each jurisdiction. Focused local management teams have the benefit of access to utility management experience and expertise of Fortis. The senior management team of Terasen Gas, which Fortis expects to retain, will add valuable operational expertise in natural gas distribution to existing expertise in the electric distribution operations of Fortis. This approach allows local managers to build relationships with, and be responsive to, both customers and regulators. Fortis recognizes that regulation is a key aspect of its core business and has developed a disciplined, cost-conscious asset investment and operating philosophy which is responsive to regulation.

The management of Fortis has substantial experience in integrating newly acquired enterprises into the Fortis Group. In 2004, Fortis acquired all of the issued and outstanding shares of FortisBC Inc. (formerly, Aquila Networks Canada (British Columbia) Ltd.) and FortisAlberta Inc. (formerly, Aquila Networks Canada (Alberta) Ltd.), and has successfully integrated these utilities into the Fortis Group.

The closing of the acquisition is subject to fulfillment of customary conditions including receipt of required regulatory approvals. The acquisition is expected to close in mid-2007. Fortis has obtained commitments from Canadian Imperial Bank of Commerce to provide the financing for the acquisition. The funding of the financing is subject to fulfillment of customary conditions. CIBC World Markets Inc. acted as exclusive financial advisor to Fortis on the acquisition.

Fortis is principally a diversified, international electric utility holding company with assets exceeding $5.4 billion and annual revenues of approximately $1.5 billion. Fortis has holdings in regulated electric distribution utilities in Alberta, British Columbia, Newfoundland, Ontario, Prince Edward Island, Belize, Grand Cayman and the Turks and Caicos Islands. It has non-regulated generation operations in Belize, Ontario, Newfoundland, British Columbia and upper New York State. Fortis also has investments in real estate and hotels through its wholly owned non-utility subsidiary.

The Common Shares, First Preference Shares, Series C; First Preference Shares, Series E; and First Preference Shares, Series F of Fortis are traded on the Toronto Stock Exchange under the symbols FTS, FTS.PR.C, FTS.PR.E and FTS.PR.F, respectively. Fortis information can be accessed at www.fortisinc.com.

Teleconference Call

Fortis will host a conference call for investors and analysts at 5:30 p.m. Newfoundland time (4:00 p.m. Eastern) on February 26, 2007 to discuss this transaction. Analysts and investors can participate in the conference call by calling 416-340-2216 or 1-866-898-9626 (within North America) or 800-8989-6323 (outside North America). To listen to a postview of the conference call, which will be available until April 26, 2007, interested parties can call 416-695-5800 or 1-800-408-3053 (passcode is 3215471#). The archived conference call will be available at www.fortisinc.com within approximately 24 hours following the conference call.

Fortis includes forward-looking statements in media releases which reflect management's expectations regarding the Corporation's future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as "anticipate", "believe", "expects", "intend" and similar expressions have been used to identify the forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to the Corporation's management. Forward-looking statements involve significant risk, uncertainties and assumptions. Certain material factors or assumptions have been applied in drawing the conclusions contained in the forward-looking statements. These factors or assumptions are subject to inherent risks and uncertainties surrounding future expectations generally. Such risk factors or assumptions include, but are not limited to, regulation, energy prices, general economic conditions, weather, derivatives and hedging, capital resources, loss of service area, licences and permits, environment, insurance, labour relations, human resources and liquidity risk. Fortis cautions readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on the forwardlooking statements. For additional information with respect to certain of these risks or factors, reference should be made to the Corporation's continuous disclosure materials filed from time to time with Canadian securities regulatory authorities. The Corporation disclaims any intention or obligation to update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise.

- 30 -

For further information, please contact:

Mr. Barry Perry
Vice President Finance and Chief Financial Officer
Fortis Inc.
Telephone: 709.737.2800
Facsimile: 709.737.5307

Ms. Donna Hynes
Manager, Investor & Public Relations
Fortis Inc.
Telephone: 709.737.5323
Facsimile: 709.737.5307

Terasen Gas, B.C.'s biggest natural gas distributor, will be Canadian-owned again after a $3.7-billion deal between East Coast utility Fortis Inc. and Texas pipeline giant Kinder Morgan Inc.

In a statement released Monday, Fortis said it had reached an agreement with Kinder Morgan to purchase all of Terasen Gas's outstanding shares and assume $2.3 billion in Terasen debt as part of the deal. The transaction is expected to close by mid-year.

The sale comes just over a year after Kinder Morgan bought Terasen Inc., along with its oil pipeline division, for $6.9 billion. The oil pipelines, including the Trans Mountain Pipeline, are not part of Monday's deal.

The transaction diversifies Fortis, a major power producer in Atlantic Canada, into natural gas distribution, and gets Kinder Morgan out of the regulated, retail delivery of natural gas.

Terasen Gas is a "strong local distribution company," Kinder Morgan chairman Richard Kinder said in a news release, but "our core business continues to be building and operating pipelines and terminals."

Terasen spokeswoman Joyce Wagenaar said Fortis has promised a "seamless" transition in ownership and the company's 900,000 gas-utility customers should notice no difference in service.

Terasen's rates will continue to be regulated by the B.C. Utilities Commission, and Fortis has promised that it will retain the company's 1,200 employees and will remain an autonomous entity within Fortis.

Terasen operates 4,300 kilometres of natural gas transmission and 44,100 km of distribution pipelines.

Change in ownership of any regulated utility must be approved by the B.C. Utilities Commission.

However, commission secretary Robert Pellatt said the BCUC has not yet received an application so would not speculate on whether such a review would trigger a hearing.

The commission did not call a full oral hearing when Kinder Morgan bought Terasen.

Consumers have noticed little change in the year that Kinder Morgan has owned Terasen, according to Jim Quail, executive director of the B.C. Public Interest Advocacy Centre.

And because of the way it has been regulated, Quail doubts a change of headquarters from Houston to St. John's will make any more of a difference, though he believes a lot of consumers "will be pleased to have a Canadian company rather than an American company operating the utility."

St. John's, Newfoundland-based Fortis is a major electric-utility company with operations in Atlantic Canada, Ontario, Central America and the Caribbean. It broke into the B.C. and Alberta markets in 2004 by buying the American utility firm Aquila Inc. for $1.36 billion.

Fortis's B.C. operations deliver electricity as a regulated utility to 152,000 customers in the southern Interior.

This expansion will almost double Fortis's customer base to 1.9 million, CEO Stan Marshall said in a statement.

"These are high-quality assets located in a region with strong economic growth," Marshall added.

"Terasen Gas is a well run utility which will give Fortis a platform for further growth in the natural gas distribution business," and "complement our electric utilities, providing value for our customers and shareholders."

Fortis, with $1.5 billion in annual revenues, turned a $147.2-million profit at the end of 2006.

depenner@png.canwest.com

TERASEN ON THE BLOCK

Terasen Gas is being sold for $3.7 billion to Newfoundland-based Fortis Inc. barely a year after Kinder Morgan bought B.C.'s biggest gas utility as part of a bigger, $6.9-billion deal.

TERASEN GAS

48,400 km of transmission and distribution pipeline.

900,000 customers.

$3.6 billion in assets.

$3 billion rate-base.

FORTIS INC.

1.05 million electric-utility customers.

195 megawatts of generation in Fortis Generation.

$5.4 billion in assets.

$1.5 billion annual revenue.

Ran with fact box "Terasen on the Block", which has been appended to the end of the story.

© The Vancouver Sun 2007