AltaGas Ltd. Reports First Quarter 2018 Results

CALGARY, April 26, 2018 /CNW/ -

Highlights
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

• Achieved normalized EBITDA¹ of $223 million in the first quarter of 2018;
• Achieved normalized funds from operations¹ of $169 million in the first quarter of 2018;
• Received regulatory approval from Maryland Public Service Commission (PSC of MD) for the approximately $9 billion transformational pending acquisition of WGL Holdings, Inc. (WGL Acquisition);
• Propane secured for close to 75 percent of Ridley Island Propane Export Terminal (RIPET) export capacity; construction of the facility remains on-time and on-budget for start-up in the first quarter of 2019;
• Signed new long-term take-or-pay agreement with Birchcliff Energy Ltd. (Birchcliff); and
• Awarded a second Resource Adequacy contract at the Ripon facility for October through December 2018.

AltaGas Ltd. (AltaGas) (TSX:ALA) today reported that normalized EBITDA in the first quarter of 2018 was $223 million, compared to $228 million in the same quarter in 2017. Normalized funds from operations were $169 million ($0.96 per share) for the first quarter of 2018, compared to $170 million ($1.01 per share) in the same period of 2017. On a U.S. GAAP basis, net income applicable to common shares for the first quarter of 2018 was $49 million ($0.28 per share) compared to $32 million ($0.19 per share) in the first quarter of 2017. Normalized net income¹ was $70 million ($0.40 per share) for the first quarter of 2018, compared to $65 million ($0.39 per share) in the same period of 2017.

"2018 is off to a great start, both from a financial perspective as well as from the advancements made toward closing the WGL Acquisition," said David Harris, President and Chief Executive Officer of AltaGas. "We have just one approval remaining before we are in a position to close the WGL Acquisition. We are excited about the benefits that our combination with WGL will bring to customers, shareholders and all stakeholders. Together with WGL, AltaGas will have over $20 billion in robust, high quality, low-risk, long-lived assets across all three of our business segments with great scale and diversity."

Significant progress on WGL Acquisition

On April 4, 2018, the PSC of MD approved the proposed merger of AltaGas and WGL. The 4:1 favourable decision by the PSC of MD followed a comprehensive public process and contained a number of conditions which were in line with the merger commitments offered up by the companies. On April 5, 2018, both AltaGas and WGL accepted the conditions.

The WGL Acquisition is expected to provide strong accretion to earnings per share and normalized funds from operations per share through 2021. Starting with the first full year in 2019, the WGL Acquisition is expected to support visible dividend growth through 2021, while allowing AltaGas to maintain a conservative payout of normalized funds from operations. Dividend growth is expected to be further supported by AltaGas' portfolio of highly contracted assets. In the first full year 2019, AltaGas expects approximately 85 percent of its EBITDA to come from contracted or regulated assets.

With the WGL Acquisition, AltaGas will have a larger, diversified platform for growth with approximately $4.5 billion in secured growth projects and approximately $1.5 billion of additional growth opportunities in advanced stages of development through 2021. Combined, AltaGas will have a significant platform of diversified energy infrastructure assets in all three of its business segments - Gas, Power and Utilities - across North America. AltaGas' Gas segment will have a premier footprint in two of North America's most prolific gas plays, the Montney and Marcellus, and is uniquely positioned to grow energy exports to premium markets including Asia. AltaGas' Power segment presents significant opportunities to continue to grow its clean energy portfolio of renewables, battery storage and distributed generation, while the Utilities business segment will have a combined rate base of approximately $4.5 billion and close to $3 billion in opportunities over the next several years, through customer additions, accelerated replacement programs and general system betterment capital expenditures. 

Together AltaGas and WGL will have over $20 billion in energy infrastructure assets and an enterprise value of over $17 billion. Closing of the WGL Acquisition continues to be on track for mid-2018. Financing to close the WGL Acquisition is fully backstopped with $2.6 billion in proceeds from AltaGas' bought deal and private placement of subscription receipts which closed in the first quarter of 2017, and a US$3 billion fully committed bridge facility which may be drawn upon for closing and could remain in place for up to 12 to 18 months thereafter.

With all financing in place to close the WGL Acquisition, AltaGas continues to evaluate and advance an asset monetization strategy in a prudent and timely fashion in step with the regulatory process and consistent with AltaGas' long-term strategic vision. Management expects the repayment of the bridge facility to result from the monetization of over $2 billion from its asset sale processes and from offerings of senior debt and hybrid securities, subject to prevailing market conditions.

"As we enter into the final phase of the WGL Acquisition and gain certainty around regulatory approvals, we will be able to provide more concrete details on our asset monetization processes," said Mr. Harris. "We are actively in discussions on several fronts, including the potential sale of appropriate minority interest(s) in our Northwest B.C. Hydro Facilities. Ultimately, we expect to deliver a strong financial outcome for AltaGas and meaningful financial returns for our shareholders."

Ridley Island Propane Export Terminal

AltaGas has significantly advanced its propane supply contracting efforts for RIPET, and now has close to 75 percent of supply secured for the start-up of the facility, with third party arrangements subject to customary conditions. A portion of these volumes are under tolling arrangements and AltaGas expects approximately 40 percent of RIPET's annual expected capacity to be under tolling arrangements.

RIPET is expected to be the first propane export facility off the west coast of Canada. The site is near Prince Rupert, British Columbia, has a locational advantage given very short shipping distances to markets in Asia, notably a 10-day shipping time compared to 25 days from the U.S. Gulf Coast. The brownfield site also benefits from excellent railway access and ample deep water access to the Pacific Ocean. AltaGas' arrangements with Ridley Terminals Inc. (RTI) give AltaGas access to extensive land and water rights and a world class marine jetty, which allows for the efficient loading of Very Large Gas Carriers that can access key global markets. Propane from British Columbia and Alberta will be transported to the facility using 50-60 rail cars per day through the existing CN rail network. RIPET is expected to ship 1.2 million tonnes of propane per annum (which is equivalent to approximately 40,000 Bbls/d of export capacity).

"We are pleased with the progress being made on RIPET and producers are starting to see the benefits of having access to a new premium market for their propane," said Mr. Harris. "We are uniquely positioned to offer energy exports to producers and are excited about the potential future growth of this business."

New long-term take-or-pay agreement with Birchcliff

On April 3, 2018, Birchcliff and AltaGas announced a definitive agreement effective January 1, 2018 for a long-term natural gas processing arrangement at AltaGas' deep-cut sour gas processing facility located in Gordondale, Alberta, replacing the parties' existing Gordondale processing arrangement. Under the new processing arrangement, Birchcliff is being provided with up to 120 MMcf/d of natural gas processing on a firm-service basis, and Birchcliff's take-or-pay obligation is 100 MMcf/d. The term of the processing arrangement is for at least 15 years, subject to extension in accordance with the terms of the arrangement.

The new arrangement allows AltaGas to maximize the long-term value and returns from the Gordondale Facility as it fills the existing capacity and significantly enhances the potential to flow third-party volumes through the facility and to grow those volumes. This will allow AltaGas to optimize the facility and bring the operating capacity up to 150 MMcf/d. The long-term commitment from Birchcliff, potential for third-party volumes and the strategic proximity of this asset to the liquids-rich Montney fairway further supports AltaGas' plans for future expansion of the Gordondale Facility. In addition, AltaGas will benefit from growing propane volumes which will be dedicated to RIPET as part of the commercial arrangements.

First quarter 2018 results

Normalized EBITDA in the quarter was $223 million compared to $228 million for the same quarter of 2017. Normalized EBITDA from the Gas segment increased compared to the first quarter of 2017, benefitting from the higher realized frac spread and frac exposed volumes, as well as contributions from the Townsend 2A and North Pine facilities which entered into commercial operations in the fourth quarter of 2017. Gains in the Gas segment were partially offset by the sale of the EDS and JFP transmission pipelines in March of 2017, as well as lower natural gas storage margins and lower equity earnings from Petrogas Energy Corp. (Petrogas). Normalized EBITDA results in AltaGas' Utilities segment were also strong; however, they were impacted slightly due to the U.S. tax reform effect at SEMCO, as well as due to unfavourable foreign exchange rates. In Power, normalized EBITDA decreased approximately $9 million, primarily as a result of planned outages at the Blythe and Craven facilities, lower renewable generation from both the Northwest Hydro Facilities and the Bear Mountain wind facility, and due to unfavourable foreign exchange rates.

Normalized funds from operations for the first quarter of 2018 were $169 million ($0.96 per share), compared to $170 million ($1.01 per share) for the same quarter in 2017, reflecting the same drivers as normalized EBITDA, partially offset by lower current income tax expense. In the first quarter of 2018, AltaGas received $3 million of dividends from the Petrogas Preferred Shares (2017 - $3 million) and $1 million of common share dividends from Petrogas (2017 - $1 million).

AltaGas recorded income tax expense of $18 million for the first quarter of 2018 compared to $21 million in the same quarter of 2017. The decrease was mainly due to the recently enacted change in U.S. Federal tax rate from 35 percent to 21 percent. 

Net income applicable to common shares for the first quarter of 2018 was $49 million ($0.28 per share), compared to $32 million ($0.19 per share) for the same quarter in 2017. The increase was mainly due to lower transaction costs incurred on the pending WGL Acquisition, and lower interest and income tax expense, partially offset by the same previously referenced factors resulting in the decrease in normalized EBITDA, higher losses on investments, higher preferred share dividends, and higher depreciation and amortization expense. 

Normalized net income was $70 million ($0.40 per share) for the first quarter of 2018, compared to $65 million ($0.39 per share) reported for the same quarter in 2017. The increase was mainly due to lower interest and income tax expense, partially offset by the same previously referenced factors resulting in the decrease in normalized EBITDA, higher preferred share dividends, and higher depreciation and amortization expense. Normalizing items in the first quarter of 2018 included after‑tax amounts related to losses on investments, transaction costs on acquisitions, financing costs associated with the bridge facility for the pending WGL Acquisition, unrealized gains on risk management contracts, and gain on sale of certain non-core gas assets. In the first quarter of 2017, normalizing items included after-tax amounts related to transaction costs on acquisitions, unrealized gains on risk management contracts, loss on sale of assets, and amortization of financing costs associated with the bridge facility.

2018 Outlook

AltaGas expects the WGL Acquisition to close in mid-2018. As a combined entity, AltaGas expects normalized EBITDA to increase by approximately 25 to 30 percent and normalized funds from operations to increase by approximately 15 to 20 percent.

The WGL Acquisition is expected to drive growth in all three business segments. The combined Utilities segment is expected to have the largest contribution to EBITDA, followed by the Gas segment. Specifically for Utilities, the combined segment is expected to have an overall rate base of approximately $5 billion and is expected to grow through planned capital investments in 2018. The WGL Acquisition will also increase the number of utility customers by approximately 1.2 million. The Gas segment is expected to benefit from the addition of WGL's pipeline investments in the prolific Marcellus/Utica gas resource regions as well as a gas supply agreement associated with the Cove Point LNG Terminal which recently began exporting LNG. WGL's investment in the Stonewall Gas Gathering System is currently in-service and WGL expects the Central Penn and Mountain Valley pipelines to be operational by the end of 2018. The Gas segment will also benefit from a full year of contributions from AltaGas' Townsend 2A Facility and the first train of the North Pine Facility. Finally, the Power segment is expected to benefit from the addition of WGL's distributed generation assets to its portfolio.

The overall forecasted normalized EBITDA and funds from operations for the combined business include assumptions around the timing of closing of the WGL Acquisition, the U.S./Canadian dollar exchange rate, the impact of certain contemplated asset monetizations and other financing initiatives as part of the WGL financing plan, and the impact of U.S. tax reform. Any variance from AltaGas' current assumptions could impact the forecasted increase to normalized EBITDA and funds from operations.

On a standalone basis, excluding the WGL Acquisition and potential asset monetizations, AltaGas expects a moderate increase to both normalized EBITDA and funds from operations in 2018 compared to 2017 related to its base business, mainly as a result of growth in the Gas segment. The moderate increase to normalized EBITDA and funds from operations for AltaGas' standalone base business is primarily due to full year contributions from Townsend 2A and the first train of the North Pine Facility, higher realized frac spread mainly due to higher hedged prices, higher expected earnings from the Northwest Hydro Facilities due to contractual price increases and continued efficiency improvements, and colder weather and rate base and customer growth at certain of the Utilities. These increases may be partially offset by the impact of a weaker U.S. dollar on reported results of the U.S. assets, the impact of planned turnarounds at the Harmattan and JEEP facilities, and the expiry of the Power Purchase Agreement (PPA) at the Ripon facility in the second quarter of 2018. U.S. tax reform is expected to be immaterially negative to normalized EBITDA and funds from operations for AltaGas' U.S. businesses while, on a net income basis, the impact of U.S. tax reform is expected to be immaterially positive. This 2018 outlook does not include any potential upside associated with new developments in either the Gas or Power segments.

AltaGas estimates an average of approximately 10,500 Bbls/d will be exposed to frac spreads prior to hedging activities. For 2018, AltaGas has frac hedges in place for approximately 7,500 Bbls/d at an average price of approximately $33/Bbl excluding basis differentials.

Growth Capital and Project Updates

Based on projects currently under review, development or construction, AltaGas expects net capital expenditures in the range of $500 to $600 million (excluding WGL) for 2018. AltaGas' Gas segment will account for approximately 50 to 55 percent of the total capital expenditures, while AltaGas' Utilities segment will account for approximately 30 to 35 percent and the Power segment will account for the remainder. Gas and Power maintenance capital is expected to be approximately $25 to $35 million of the total capital expenditures in 2018. The majority of AltaGas' capital expenditures is focused on the continued construction at RIPET, maintaining and growing rate base at its existing utilities, pre-construction design, engineering, and right-of-way procurement for the Marquette Connector Pipeline (MCP), and growth capital associated with the tie-in of incremental third party gas volumes. The Corporation continues to focus on enhancing productivity and streamlining businesses, including the disposition of smaller non‑core assets.

AltaGas' 2018 committed capital program is expected to be funded through internally‑generated cash flow and the Premium DividendTM, Dividend Reinvestment and Optional Cash Purchase Plan (DRIP).

Following the close of the WGL Acquisition (expected close date in mid-2018), the consolidated 2018 capital program on a combined basis, including capital for WGL, is expected to be in the range of approximately $1.0 to $1.3 billion. Close to half of this total will be allocated to the Gas segment, with the majority of the remaining expected capital for the Utilities segment, followed by the Power segment. AltaGas expects that the largest portion of WGL's 2018 capital program subsequent to close will be allocated to investments in the Central Penn and Mountain Valley gas pipeline developments in the Marcellus region. Capital allocated to WGL's utilities business will represent most of the remaining 2018 capital subsequent to close, with spending consistent with recent levels.

RIPET Construction

At RIPET, the LPG storage tank, rail infrastructure, and balance of plant construction remain on track to meet the expected commercial operation date of the first quarter of 2019. With the LPG storage tank inner steel roof installed and final roof concrete pours scheduled, the team is simultaneously progressing construction of the rail and marine infrastructure and receiving and setting of equipment modules for the balance of plant.  The site construction management team and project support teams have successfully hit all critical milestones to date on the RIPET master schedule. The project cost of RIPET is on budget and is estimated to be approximately $450 to $500 million.

Marquette Connector Pipeline (MCP)

On August 23, 2017, the Michigan Public Service Commission (MPSC) approved SEMCO Gas' application to construct, own, and operate the MCP. The MCP is a proposed new pipeline that will connect the Great Lakes Gas Transmission Pipeline to the Northern Natural Gas Pipeline in Marquette, Michigan, which will provide system redundancy and increase deliverability, reliability and diversity of supply to SEMCO Gas' approximately 35,000 customers in Michigan's Western Upper Peninsula. The MCP is estimated to cost between US$135 to $140 million. Engineering work and property acquisitions have begun and will continue throughout 2018. The application for all environmental permits has been submitted and approval is expected to be received by the end of the third quarter of 2018. Construction is expected to be completed in 2019, with an anticipated in-service date by the end of the fourth quarter of 2019.

Monthly Common Share Dividend and Quarterly Preferred Share Dividends

• The Board of Directors approved a dividend of $0.1825 per common share. The dividend will be paid on June 15, 2018, to common shareholders of record on May 25, 2018. The ex‑dividend date is May 24, 2018. This dividend is an eligible dividend for Canadian income tax purposes;
• The Board of Directors approved a dividend of $0.21125 per share for the period commencing March 31, 2018 and ending June 29, 2018, on AltaGas' outstanding Series A Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex‑dividend date is June 14, 2018; 
• The Board of Directors approved a dividend of $0.23872 per share for the period commencing March 31, 2018 and ending June 29, 2018, on AltaGas' outstanding Series B Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex‑dividend date is June 14, 2018;
• The Board of Directors approved a dividend of US$0.330625 per share for the period commencing March 31, 2018 and ending June 29, 2018, on AltaGas' outstanding Series C Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex‑dividend date is June 14, 2018;
• The Board of Directors approved a dividend of $0.3125 per share for the period commencing March 31, 2018, and ending June 29, 2018, on AltaGas' outstanding Series E Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex‑dividend date is June 14, 2018;
• The Board of Directors approved a dividend of $0.296875 per share for the period commencing March 31, 2018, and ending June 29, 2018, on AltaGas' outstanding Series G Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex-dividend date is June 14, 2018;
• The Board of Directors approved a dividend of $0.328125 per share for the period commencing March 31, 2018, and ending June 29, 2018, on AltaGas' outstanding Series I Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex‑dividend date is June 14, 2018; and
• The Board of Directors approved a dividend of $0.3125 per share for the period commencing March 31, 2018, and ending June 29, 2018, on AltaGas' outstanding Series K Preferred Shares. The dividend will be paid on June 29, 2018 to shareholders of record on June 15, 2018. The ex-dividend date is June 14, 2018.

Consolidated Financial Review

CONFERENCE CALL AND WEBCAST DETAILS:

AltaGas will hold a conference call today at 9:00 a.m. MT (11:00 a.m. ET) to discuss 2018 first quarter results, progress on construction projects and other corporate developments.

Members of the investment community and other interested parties may dial 1-647-427-7450 or toll free at 1-888-231-8191. Please note that the conference call will also be webcast. To listen, please go to http://www.altagas.ca/invest/events-and-presentations. The webcast will be archived for one year.

Shortly after the conclusion of the call, a replay will be available commencing at 12:00 p.m. MT (2:00 p.m. ET) on April 26, 2018 by dialing 403-451-9481 or toll free 1-855-859-2056. The passcode is 5067807. The replay will expire at 9:59 p.m. MT (11:59 p.m. ET) on May 3, 2018.

Additional information relating to AltaGas' results can be found in the Management's Discussion and Analysis and unaudited condensed interim consolidated financial statements for the three months ended March 31, 2018 available through AltaGas' website at www.altagas.ca  or through SEDAR at www.sedar.com.

AltaGas is an energy infrastructure company with a focus on natural gas, power and regulated utilities. AltaGas creates value by acquiring, growing and optimizing its energy infrastructure, including a focus on clean energy sources. For more information visit: www.altagas.ca

FORWARD LOOKING INFORMATION

This news release contains forward-looking information (forward-looking statements). Words such as "may", "can", "would", "could", "should", "will", "intend", "plan", "anticipate", "believe", "aim", "seek", "propose", "contemplate", "estimate", "focus", "strive", "forecast", "expect", "project", "target", "potential", "objective", "continue", "outlook", "vision", "opportunity" and similar expressions suggesting future events or future performance, as they relate to the Corporation or any affiliate of the Corporation, are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results.

Specifically, such forward-looking statements included in this document include, but are not limited to, statements with respect to the following: the implementation and success of AltaGas' strategy for the Corporation as a whole and each of its business segments; expected asset base and enterprise value of the combined company; expected cash flow stability and increase in operating capacity at Gordondale; potential expansion of the Gordondale facility; the expected propane volumes from Gordondale to RIPET; the expected closing of the WGL Acquisition and the expected timing of the WGL Acquisition; the expected growth in normalized EBITDA and normalized funds from operations of the combined entity; the expected benefits of the WGL Acquisition, including growth across all three of the business segments, accretion and dividend growth; the expected in-service dates for WGL's midstream investments; the expected growth of the Corporation on a standalone basis; the estimated exposure to frac spreads; the expected asset and customer base, post-close; the expected timing of the DC PSC decision; the expected sources of funds for the WGL Acquisition and potential asset monetizations and value, including the potential sale of minority interest(s) in the NW BC Hydro Facilities, the potential offerings of securities; expected capital expenditures, including by segment and project, and the expected capital program post-close; expected cost, timing, size, and capacity and tolling arrangements for RIPET; expectation that RIPET will be the first propane export facility on the West Coast; potential growth of AltaGas' energy export business; expected cost, scale and timing of the MCP; and expected maintenance of the Corporation's investment grade credit rating. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events and achievements to differ materially from those expressed or implied by such statements. Such statements reflect AltaGas' current expectations, estimates and projections based on certain material factors and assumptions at the time the statement was made. Material assumptions include: expected commodity supply, demand and pricing; volumes and rates; exchange rates; inflation; interest rates; credit rating; regulatory approvals and policies; future operating and capital costs; project completion dates; capacity expectations; implications of recent U.S. tax legislation changes; the outcomes of significant commercial contract negotiations; financing of the WGL Acquisition; and timing and completion of the WGL Acquisition. 

AltaGas' forward-looking statements are subject to certain risks and uncertainties which could cause results or events to differ from current expectations, including, without limitation: access to and use of capital markets; market value of AltaGas' securities; AltaGas' ability to pay dividends; AltaGas' ability to service or refinance its debt and manage its credit rating and risk; prevailing economic conditions; potential litigation; AltaGas' relationships with external stakeholders, including Aboriginal stakeholders; volume throughput and the impacts of commodity pricing, supply, composition and other market risks; available electricity prices; interest rate, exchange rate and counterparty risks; the Harmattan Rep agreements; legislative and regulatory environment; underinsured losses; weather, hydrology and climate changes; the potential for service interruptions; availability of supply from Cook Inlet; availability of biomass fuel; AltaGas' ability to economically and safely develop, contract and operate assets; AltaGas' ability to update infrastructure on a timely basis; AltaGas' dependence on certain partners; impacts of climate change and carbon taxing; effects of decommissioning, abandonment and reclamation costs; impact of labour relations and reliance on key personnel; cybersecurity risks; risks associated with the acquisition of WGL, the financing of the WGL Acquisition and the underlying business of WGL; and the other factors discussed under the heading "Risk Factors" in the Corporation's AIF for the year ended December 31, 2017.

Many factors could cause AltaGas' or any particular business segment's actual results, performance or achievements to vary from those described in this news release, including, without limitation, those listed above and the assumptions upon which they are based proving incorrect. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release as intended, planned, anticipated, believed, sought, proposed, estimated, forecasted, expected, projected or targeted and such forward-looking statements included in this news release, should not be unduly relied upon. The impact of any one assumption, risk, uncertainty or other factor on a particular forward-looking statement cannot be determined with certainty because they are interdependent and AltaGas' future decisions and actions will depend on management's assessment of all information at the relevant time. Such statements speak only as of the date of this news release. AltaGas does not intend, and does not assume any obligation, to update these forward-looking statements except as required by law. The forward-looking statements contained in this news release are expressly qualified by these cautionary statements.

Financial outlook information contained in this news release about prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.

This news release contains references to certain financial measures that do not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other entities. The non-GAAP measures and their reconciliation to GAAP financial measures are shown in AltaGas' Management's Discussion and Analysis (MD&A) as at and for the three months ended March 31, 2018. These non-GAAP measures provide additional information that management believes is meaningful regarding AltaGas' operational performance, liquidity and capacity to fund dividends, capital expenditures, and other investing activities. The specific rationale for and incremental information associated with each non-GAAP measure is discussed in AltaGas' MD&A as at and for the three months ended March 31, 2018. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to other measures of financial performance calculated in accordance with GAAP.

Normalized EBITDA is a measure of AltaGas' operating profitability prior to how business activities are financed, assets are amortized, or earnings are taxed. EBITDA is calculated from the Consolidated Statement of Income using net income adjusted for pre-tax depreciation and amortization, interest expense, and income tax expense. Normalized EBITDA includes additional adjustments for unrealized gains (losses) on risk management contracts, gains (losses) on investments, transaction costs related to acquisitions, gains (losses) on the sale of assets, and accretion expenses related to asset retirement obligations and the Northwest Transmission Line liability.. AltaGas presents normalized EBITDA as a supplemental measure. Normalized EBITDA is frequently used by analysts and investors in the evaluation of entities within the industry as it excludes items that can vary substantially between entities depending on the accounting policies chosen, the book value of assets and the capital structure.

Normalized net income represents net income applicable to common shares adjusted for the after-tax impact of unrealized gains (losses) on risk management contracts, gains (losses) on investments, transaction costs related to acquisitions, gains (losses) on the sale of assets, and financing costs associated with the bridge facility for the pending WGL Acquisition. This measure is presented in order to enhance the comparability of AltaGas' earnings, as it reflects the underlying performance of AltaGas' business activities.

Normalized funds from operations is used to assist management and investors in analyzing the liquidity of the Corporation without regard to changes in operating assets and liabilities in the period and non‑operating related expenses (net of current taxes) such as transaction and financing costs related to acquisitions. Funds from operations are calculated from the Consolidated Statement of Cash Flows and are defined as cash from operations before net changes in operating assets and liabilities and expenditures incurred to settle asset retirement obligations. Management uses this measure to understand the ability to generate funds for capital investments, debt repayment, dividend payments and other investing activities. Funds from operations and normalized funds from operations should not be viewed as an alternative to cash from operations or other cash flow measures calculated in accordance with U.S. GAAP.

SOURCE AltaGas Ltd.

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