Valener's recurring net income increases 21.3% in the second quarter of fiscal 2014

MONTREAL, May 14, 2014 /CNW Telbec/ - Valener Inc. (Valener) (TSX: VNR), the public investment vehicle in Gaz Métro Limited Partnership (Gaz Métro), is today announcing its financial results.

For the second quarter of fiscal 2014, recurring net income attributable to common shareholders totalled $29.1 million ($0.77 per common share), up $5.1 million or 21.3% compared with the same period last year. For the first six months of fiscal 2014, it totalled $44.9 million ($1.19 per common share), up $6.6 million or 17.2% year over year.

These increases reflect the strong operational and financial performance of Gaz Métro, as it benefited from higher natural gas and electricity deliveries in Quebec and Vermont, synergies from the operational integration of Green Mountain Power (GMP) and Central Vermont Public Service (CVPS), and a favourable impact of the depreciation of the Canadian dollar versus the U.S. dollar on the results of its activities in the United States. "Gaz Métro's higher results show that the targeted geographic and commercial diversification of our operations since 2006 is paying off. This is something we intend to continue in the coming years," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

Seigneurie de Beaupré wind power projects

As initially scheduled, these projects began commercial operations at the end of 2013, and the 126 wind turbines of the first phase are now in service.

"Since it began operations last December, the 272-megawatt first phase of the Seigneurie de Beaupré wind power projects has generated more than 277,000 MWh of electricity, exceeding our expectations thanks to favourable winds. This is encouraging news for Valener's shareholders, as the cash flows from these projects will support the current dividend level, as planned," said Pierre Monahan, Chairman of Valener's board of directors.

As planned, construction work on the second phase resumed in May 2014.

To date, the land has been cleared, the foundations and the road construction allowing concrete mixers to pass have been completed, and the collector systems are about 60% complete. Project start-up is still scheduled for December 2014.

For the second quarter of fiscal 2014, normalized operating cash flows¹ stood at $9.7 million ($0.26 per common share), which was enough to cover the dividend payment to common shareholders during the quarter.

Gaz Métro's results

Recurring net income attributable to the Partners of Gaz Métro totalled $132.5 million in the second quarter of fiscal 2014, up $16.7 million or 14.4% from $115.8 million in the same quarter last year. For the first six months of fiscal 2014, Gaz Métro recorded recurring net income attributable to Partners of $208.3 million, up $24.7 million or 13.5% from $183.6 million in the same period last year.

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1} Cash flows related to operating activities less dividends paid to preferred shareholders

Energy Distribution

Pending a new incentive mechanism, the 2014 rate case filed in October 2013 was developed on a cost-of-service basis. As part of that rate case, the Régie de l'énergie (Régie) approved a renewal of the 8.90% rate of return on deemed common equity. To avoid delays in applying the rates based on the 2014 rate case, in November 2013 the Régie approved the application of interim rates starting December 1, 2013 but limited the increase in the distribution cost of service to inflation rather than based on Gaz Métro-QDA's request. Hearings on the 2014 rate case were held in March 2014, and a final decision by the Régie is expected before summer 2014. Based on those interim rates, the 2014 rate case translates into a $0.8 million increase in net income attributable to Partners compared to the net income realized in fiscal 2013.

Gaz Métro-QDA's net income attributable to Partners totalled $110.1 million for the second quarter and $166.9 million for the first six months of fiscal 2014, respective increases of $15.1 million and $22.4 million year over year.

These increases were essentially due to:

• a timing difference between the revenue recognition profile, which follows the customers' consumption profile, and that of costs; this difference should largely reverse by the end of fiscal 2014; and
  
  
• higher deliveries to the commercial market given considerably colder-than-normal temperatures in the first six months of fiscal 2014, as the temperature normalization mechanism had a certain degree of inaccuracy and because a portion of the deliveries is not normalized.
  
  
  

The net income attributable to the Partners of Gaz Métro from Vermont energy distribution activities totalled $18.4 million² for the second quarter and $34.5 million² for the first six months of fiscal 2014, respective year-over-year increases of $3.8 million and $7.2 million.

These increases were mainly due to:

• the favourable impact from the 2014 rate cases of GMP and VGS;
• the favourable impact on GMP's deliveries of colder temperatures in the second quarter and first six months of fiscal 2014 compared with the same periods of fiscal 2013;
• synergy savings achieved from the operational integration of GMP and CVPS; and
• the favourable impact of an appreciation of the U.S. dollar against the Canadian dollar.

GMP continues to integrate its operations with those of CVPS by way of a three-year plan, the aim being to deliver to its customers and itself, as quickly as possible, efficiencies and synergies resulting from the CVPS merger. For fiscal 2014, GMP expects to be able to achieve sufficient synergies to reach the US$5.0 million attributable to its customers. GMP is currently ahead of schedule.

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1} Projected rate base in the 2014 rate case filed with the Régie de l'énergie
² Net of financing costs of investments in this segment

VGS continues to work on its system development project to serve the communities of Vergennes and Middlebury in Addison County (Phase I) and International Paper Company in New York state (Phase II).

With respect to Phase I, in December 2013 VGS received authorization from the Vermont Public Service Board (VPSB) to begin construction, and work is expected to begin in summer 2014. However, before beginning the work, VGS must await certain construction and environmental permits from the Vermont Agency of Natural Resources and sign certain agreements with citizens affected by the pipeline route. Although VGS is confident that it will be able to sign agreements with these parties, the possibility remains that some work could be delayed. As at March 31, 2014, US$19.4 million had been invested in the project.

In November 2013, VGS filed an application with the VPSB seeking regulatory approval to begin Phase II of the project. A decision is expected by December 2014. While Phase II is currently being examined by the VPSB, it is being contested by certain municipalities that will be affected by the project. In February 2014, VGS also filed an application with the Federal Energy Regulatory Commission seeking authorization to cross the Vermont / New York border. VGS's goal is to supply gas to this customer by the end of 2015.

Natural Gas Transportation

In the Natural Gas Transportation segment, net income attributable to the Partners of Gaz Métro totalled $6.2 million¹ for the second quarter and $10.3 million¹ for the first six months of fiscal 2014, a year-over-year increase of $0.2 million for the quarter and a year-over-year decrease of $0.1 million for the six-month period.

For the second quarter, the higher net income came mainly from an increase in the share in the income of Portland Natural Gas Transmission System (PNGTS), as short-term sales were up given the signing of new short-term contracts and demand was higher given the colder temperatures compared to the same quarter last year, offset by an increase in income tax expense related to PNGTS and by the higher maintenance costs of Trans Québec & Maritimes Pipeline (TQM). For the six-month period, the change in net income was due to the same reasons provided for the quarter, although in different proportions.

Energy Production

This segment consists of non-regulated energy production activities, in particular wind power projects 2 and 3 and wind power project 4 jointly developed by Valener, Gaz Métro and Boralex Inc. on the private lands of Seigneurie de Beaupré.

Since commercial commissioning in November and December 2013, Seigneurie de Beaupré Wind Farms 2 and 3, General Partnership (Wind Farms 2 and 3) has generated 277,241 megawatthours (233,080 megawatthours for the second quarter). According to the terms of the 20-year electricity supply contracts with Hydro-Québec, the average price at the start-up date had been set at $107.85 per megawatthour. On January 1, 2014, this price was indexed to $107.90 per megawatthour. It will subsequently be indexed over the term of the contracts on January 1 of each year.

The net income attributable to the Partners of Gaz Métro from energy production activities was nil for the second quarter and $0.8 million¹ for the first six months of fiscal 2014, up $0.1 million and $1.0 million, respectively, compared with the same periods last year. These increases were mainly due to the net income generated by Wind Farms 2 and 3, as the projects were put into service during the first quarter of fiscal 2014, offset by the ineffective portion of the Wind Farms 2 and 3 swaps, designated for hedge accounting, recognized in the second quarter of fiscal 2014. For the first six months of fiscal 2014, the net impact of the changes in the ineffective portion of these swaps was rather favourable compared to the same period last year.

Energy Services, Storage and Other

In the Energy Services, Storage and Other segment, aside from the $14.7 million net gain that had been realized on the disposal of the interest in HydroSolution, L.P. (HydroSolution) in the first quarter of fiscal 2013, the net loss attributable to the Partners of Gaz Métro was $0.2 million¹ in the second quarter of fiscal 2014 and $0.4 million¹ for the first six months of fiscal 2014, decreases of $2.2 million and $5.0 million, respectively, from the same periods last year.

These decreases were mainly due to lower net income from Intragaz, as storage revenues decreased following the Régie's May 2013 decision, and to a decline in profitability at Climatisation et Chauffage Urbains de Montréal, s.e.c. resulting from higher fuel costs given the cold temperatures in winter 2014.

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1} Net of financing costs of investments in this segment

Conference call

Valener will hold a conference call with financial analysts today, Wednesday, May 14, 2014 at 3 pm (Eastern Time) to discuss its results and those of Gaz Métro for the second quarter ended March 31, 2014.

The call will be broadcast live and is accessible by dialling 647-427-7450 or toll-free 1-888-231-8191. It will also be available via webcast on Valener's website (www.valener.com) in the Events and Presentations page of the Investors section.

For 30 days afterward, a rebroadcast will be accessible by dialling 416-849-0833 or toll-free 1-855-859-2056 (access code: 27624773). For 90 days afterward, the call can be played back on the above-mentioned website.

Overview of Valener

Valener owns an economic interest of approximately 29% in Gaz Métro. Valener therefore has a stake in the energy industry and benefits from Gaz Métro's diversified profile, both in terms of geography and business segment. Valener also owns a 24.5% indirect interest in the Seigneurie de Beaupré Wind Farms developed with Gaz Métro and Boralex Inc., with the 272-megawatt Phase I in service since December 2013. Valener's common shares and preferred shares are listed on the Toronto Stock Exchange under the "VNR" symbol for common shares and under the "VNR.PR.A" symbol for Series A preferred shares. www.valener.com

Overview of Gaz Métro

With more than $5 billion in assets, Gaz Métro is a leading energy provider. It is the largest natural gas distribution company in Quebec, where its network of over 10,000 km of underground pipelines serves 300 municipalities and more than 190,000 customers. Gaz Métro is also present in Vermont, producing electricity and distributing electricity and natural gas to meet the needs of more than 305,000 customers. Gaz Métro is actively involved in the development of innovative, promising energy projects such as the production of wind power, the use of natural gas as a transportation fuel and the development of biomethane. Gaz Métro is a major energy sector player that takes the lead in responding to the needs of its customers, regions and municipalities, local organizations and communities, while also satisfying the expectations of its Partners (Gaz Métro inc. and Valener) and employees. www.gazmetro.com

Cautionary note regarding forward-looking statements

This press release may contain forward-looking information within the meaning of applicable securities laws. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of Gaz Métro inc. (GMi), in its capacity as General Partner of Gaz Métro, and acting as manager of Valener (the management of the manager) and is based on information currently available to the management of the manager and assumptions about future events. Forward-looking statements can often be identified by words such as "plans," "expects," "estimates," "forecasts," "intends," "anticipates" or "believes" or similar expressions, including the negative and conjugated forms of these words. Forward- looking statements involve known and unknown risks and uncertainties and other factors beyond the control of the management of the manager. A number of factors could cause the actual results of Valener or of Gaz Métro to differ significantly from current expectations, as they are described in the forward-looking statements, including but not limited to the general nature of the aforementioned, terms of decisions rendered by regulatory agencies, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas and electricity supply, the integrity of the natural gas and electricity distribution systems, the progress and profitability of wind power projects and other development projects, the ability to complete attractive acquisitions and the related financing and integration aspects, the ability to secure future financing, general economic conditions, exchange rate and interest rate fluctuations, weather conditions and other factors described in the "Risk Factors Relating to Valener" and the "Risk Factors Relating to Gaz Métro" sections of Valener's MD&A for the year ended September 30, 2013 and in Gaz Métro's and Valener's disclosure filings. Although the forward-looking statements contained herein are based on what the management of the manager believes to be reasonable assumptions, in particular assumptions to the effect that no unforeseen changes in the legislative and regulatory framework of energy markets in Quebec and in the New England states will occur; that the applications filed with the Régie will be approved as submitted; that natural gas prices will remain competitive; that the supply of natural gas and electricity will be maintained; that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur; that Gaz Métro will be able to continue distributing substantially all of its net income (excluding non-recurring items); that the wind power project in which Valener and Gaz Métro own indirect interests will be completed on schedule and as per specification; that Wind Farms 2 and 3 will be able to make distributions to its Partners; that GMP will be able to continue to quickly and effectively integrate CVPS's operations; that liquidity needs for Gaz Métro's development projects will be obtained through a combination of operating cash flows, borrowings on credit facilities, capital injections from Partners, and issuances of debt securities; and that the subsidiaries will obtain the required authorizations and funds needed to finance their development projects; in addition to the other assumptions described in the Valener and Gaz Métro MD&As for the quarter ended March 31, 2014, the management of the manager cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of this date, and the management of the manager assumes no obligation to update or revise them to reflect new events or circumstances, except as required pursuant to applicable securities laws. These statements do not reflect the potential impact of any unusual item or any business combination or other transaction that may be announced or that may occur after the date hereof. Readers are cautioned to not place undue reliance on these forward-looking statements.

SOURCE Valener Inc.