November 15, 2006 - Financial releases
Montreal, November 15, 2006 – Énergir Limited Partnership (TSX: GZM.UN, “Énergir”) today released its results for the fiscal year ended September 30, 2006. Partners’ income is $147.2 million, or $1.25 per unit, compared to $154.4 million, or $1.33 per unit last year, a decrease of $7.2 million.
A combination of factors are responsible for this decrease, including the reductions in the authorized base rate of return and the incentive return on equity invested in the gas distribution activity as well as a decrease in the deemed income taxes recoverable through distribution rates. In addition, non-recurring items in 2005 in Trans Quebec & Maritimes Pipeline (TQM) and Cable VDN (now MTO Telecom) and higher interest costs on the debt required to finance investments in subsidiaries and other interests were contributing factors.
“Our efforts to grow the residential and commercial markets have paid off with 7,978 new customers and natural gas being used in 20% of new homes in the Greater Montreal Area. However, the overall increase and volatility of energy prices over the past few years have rightly caused our customers to be more energy efficient, which means our deliveries have levelled off. Nevertheless, we remain confident that broader acceptance of the right energy in the right place will translate into greater demand for natural gas in future years”, stated Robert Tessier, President and Chief Executive Officer.
“We have also pursued our development in accordance with the Strategic Plan adopted last fall. Énergir’s objective is to be recognized as a North American distributor of energy services and solutions, investing in targeted projects that create value and have a similar risk profile. Over the past 12 months, we made an offer to purchase an electricity distributor in Vermont and entered into a joint venture with Dalkia to develop district heating and cooling plants”, added Mr. Tessier.
Consolidated revenues for the 2006 fiscal year are up by $195.6 million, or 10.8%, to $2,003.8 million compared to the 2005 fiscal year. This increase reflects primarily the 16.7% increase in the average selling price of system gas from $6.75/Gigajoule in 2005 to $7.88/Gigajoule in 2006. In Quebec, natural gas is billed to customers at its cost to the Partnership and, therefore, has no direct impact on gross margin or Partners' income.
Consolidated gross margin is up by 2.3%, or $13.2 million, to $576.3 million. The increase is mainly attributable to consolidation of the results of the Intragaz group and HydroSolution for a full year and the increase in the gross margin generated by the Quebec distribution activity (“Énergir-QDA”). Consolidated gross margin also reflects the reduction of Énergir’s interest in Climatisation et Chauffage Urbains de Montréal (CCUM) from 100% to 50% when its units were transferred to CDH Solutions & Operations on February 14, 2006.
Consolidated cash flows from operating activities, before the change in non-cash working capital items, are down $48.2 million from the 2005 fiscal year to $297.3 million for the 2006 fiscal year. The reduction is mainly attributable to the significant change in the rate stabilization accounts as a result of warmer temperatures than last year over the past 12 months.
Distributions per unit were $1.33 for the 2006 fiscal year, compared to $1.36 for the previous year following the reduction in the quarterly distribution from $0.34 to $0.31 announced on May 3, 2006. Énergir inc., in its capacity as General Partner of Énergir, today declared a distribution of $0.31 per unit, payable January 3, 2007 to Partners of record at the close of business on December 15, 2006.
Deliveries (normalized for temperatures, in Quebec) for the 2006 fiscal year are up by 1.8% to 5,717 million cubic metres, compared to 5,618 million cubic metres in 2005. This increase is largely attributable to higher spot sales to industrial interruptible customers.
These higher deliveries, combined with transportation and storage capacities sold at a premium, increased gross margin over the preceding year by 1.2% to $485.2 million. However, Partners’ income from the Sector is down by $4.4 million to $123.1 million, from $127.5 million for the 2005 year, primarily because of higher operating expenses and amortization of property, plant and equipment.
On September 26, 2006, the Régie de l’énergie approved Énergir-QDA’s rates for the fiscal year starting October 1, 2006. These rates were agreed on by Énergir and the interveners recognized by the Régie before it approved them. The new rates represent an average increase for customers of 5.35% for distribution, transportation and load-balancing services. The price of natural gas supplied by Énergir continues to vary each month to reflect the cost of purchasing the commodity.
The distribution rates approved by the Régie include a rate of return on Partners’ equity of 9.57% for the 2007 fiscal year, i.e. 8.73% based on the formula for establishing the base rate of return plus an incentive return of 0.84% based on anticipated productivity gains. This rate of return is after deemed income taxes on Partners’ equity allocated to Énergir-QDA. For the 2006 fiscal year, the authorized rate of return was 9.33%, including an incentive return of 0.38%. The actual rate of return was 9.66%, i.e. 0.33% more than projected in rates, following the recording of a $3.2 million share of overearnings.
The Vermont Public Service Board (VPSB), the regulatory body in Vermont, approved a new regulatory framework for Vermont Gas Systems, Inc. (VGS), effective for the 2007 fiscal year. The new framework includes a price adjustment mechanism to reflect the cost of purchasing gas sold to customers. The VPSB also approved VGS’ rates, which have been effective since October 1, 2006 and which reflect a rate of return on equity of 10.5%.
Partners’ income from transportation activities for the 2006 fiscal year is $22.3 million, compared to $24.7 million for the 2005 year. The $2.4 million decrease is mainly attributable to the reversal last year of a reserve related to a TQM dispute, offset in part by the recording this year of the preliminary settlement in connection with the bankruptcy of a former customer of Portland Natural Gas Transmission System (PNGTS).
The Storage Sector represents Énergir’s interest in the Intragaz group since January 1, 2005.
For the 2006 fiscal year, income from this Sector is up $2.1 million to $5.6 million. Apart from recording results for 12 months, the increase is due to the collection by Intragaz of a balance of sale that had been assumed uncollectible when the interest was acquired as well as the favourable settlement of a lawsuit.
Energy Services and Other Sector
Net income from the Energy Services and Other Sector was $3.7 million for the 2006 fiscal year, compared to $5.0 million for the previous year. The decrease of $1.3 million relates mainly to the recording last year of a non-recurring revenue of $2.5 million under a commercial agreement by Cable VDN (now MTO Telecom).
On February 14, 2006, Énergir announced that its wholly-owned subsidiary, Énergir Plus Limited Partnership (“Énergir Plus”), the parent of CCUM, had just joined forces with Dalkia, an internationally renowned partner in energy production and district heating.
Purchase Offer in Electric Distribution Sector
On June 22, 2006, Énergir announced it had made an offer to purchase Green Mountain Power Corporation (GMP), the second largest electricity distributor in Vermont, through its wholly-owned subsidiary, Northern New England Energy Corporation (formerly Northern New England Gas Corporation). The offer was US$35.00 per share for an approximate total price of US$187 million. On October 31, 2006, GMP’s shareholders approved the transaction by a vote of more than 97%. This approval represents the achievement of another milestone in the approval process that should be completed around June 2007.
The transaction is still subject to Vermont State and U.S. federal regulatory approvals.
During the 2006 fiscal year, the Partnership incurred net development costs of $7.6 million, compared to $6.3 million last year. Most of these costs, i.e. $6.6 million ($0.2 million more than last year), were for the Rabaska LNG terminal. The amounts are and will continue to be expensed as long as Énergir does not have reasonable assurance the project will generate future benefits.
For the 2007 fiscal year, Énergir does not foresee any significant expenses in connection with this project. The recommendations of the Bureau des audiences publiques sur l'environnement (BAPE) should be known in the spring of 2007.
On October 10, 2006, Énergir concluded a private placement of $50 million with SNC-Lavalin Inc., one of the ultimate shareholders of its General Partner. Énergir issued 2,913,753 units for $17.16 per unit.
On October 31, 2006, the Canadian federal government proposed significant changes to the tax regime for listed flow-through entities, which include Énergir. Among other things, the plan proposes to tax these entities on the same basis as corporations, effective in 2011 for existing partnerships. Énergir is evaluating the impacts of these changes which, if approved, would apply to it as of October 1, 2010.
Énergir Limited Partnership will hold a telephone conference with financial analysts to discuss its results for the 2006 fiscal year on Wednesday, November 15, 2006 at 4:00 p.m. (Eastern time). Interested parties are invited to listen in.
Robert Tessier, President and Chief Executive Officer, and Pierre Despars, Executive Vice President, Finance and Business Development, will be the speakers.
The conference can be accessed live by telephone and will also be webcast on Énergir’s website (www.gazmetro.com/investors) in the “Webcasts” section. Conference rebroadcasts will be available for 90 days on the Partnership’s Internet site.
To participate in conference call:
North America: 1-866-521-6084
Conference #: 9721150 (required to access conference call)
To listen to conference at a later date (until December 15, 2006):
North America: 1-800-365-8354
Access code: 9721150
With more than $2.7 billion of assets and more than 1,500 employees in Quebec, Énergir is a leading Quebec energy company and one of Canada’s largest natural gas distributors. Énergir serves about 167,000 customers in Quebec through an underground pipeline network of almost 10,000 km. A subsidiary, Vermont Gas Systems, serves about 38,000 customers.
Énergir also owns significant investment interests in two natural gas transportation enterprises (Trans Quebec & Maritimes Pipeline and Portland Natural Gas Transmission System) and in an enterprise specializing in underground natural gas storage facilities (Intragaz). A subsidiary of Énergir, Énergir Plus, provides maintenance and repair services for natural gas, cooling and district heating equipment (CDH Solutions & Operations) and leases water heaters, including electric water heaters (HydroSolution). Through its various subsidiaries and joint ventures, Énergir also provides diagnosis and rehabilitation services for water and waste water infrastructures (Aqua Data and Aqua-Rehab) and fibre optics (MTO Telecom).
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