August 6, 2008 - Financial releases
Montreal, August 6, 2008 – Énergir Limited Partnership (TSX: GZM.UN, Énergir) reports net income of $4.8 million, or $0.03 per unit, for the third quarter ended June 30, 2008, which is $3.7 million, or $0.02 per unit, higher than adjusted net income for the third quarter the previous year. Net income for the third quarter of the 2007 fiscal year was adjusted to exclude an unfavourable non-monetary adjustment of $26.2 million, or $0.22 per unit, related to future income taxes of Intragaz. While that future income tax expense was recorded as at September 30, 2007, the Partnership had to reclassify it as at June 30, 2007 to reflect the impact of Bill C-52 in the period it was adopted, i.e. on June 22, 2007.
For the first nine months of the current fiscal year, net income is $194.5 million, or $1.61 per unit, which is $43.5 million, or $0.36 per unit, higher than the same period the previous year. It reflects the $1.7 million favourable non-monetary impact for the first nine months of the 2008 fiscal year ($26.2 million unfavourable for the first nine months of the 2007 fiscal year) related to future income taxes of Intragaz. Excluding those adjustments, adjusted net income for the first nine months of the current fiscal year is $192.8 million, or $1.60 per unit, which is $15.6 million, or $0.13 per unit, higher than the first nine months of the 2007 fiscal year.
The increase in adjusted net income for the first nine months of the 2008 fiscal year is attributable to a number of factors, including the $7.9 million contribution, before financing costs, of GMP, acquired in April 2007, and the $5.3 million gain recorded by Énergir following the partial settlement of the Calpine Corporation (Calpine) bankruptcy with Portland Natural Gas Transmission System (PNGTS). Other favourable items include the results for the Quebec natural gas distribution activity, including recognition of the entire $4.0 million Global Energy Efficiency Plan (GEEP) performance incentive, recording of Énergir’s $2.7 million ($2.3 million in 2007 fiscal year) share of the anticipated overearnings of $10.9 million and higher revenues mainly due to the rate increase authorized by the Régie de l’énergie (Régie), which should be offset by higher expenses in the next quarter. These favourable items more than offset the $2.0 million increase over the 2007 fiscal year in expenditures for the Rabaska LNG terminal and the reduction in net income of the Energy Services and Other Sector.
“In Quebec, natural gas continued to be less expensive than heavy fuel oil during the last quarter in spite of higher gas prices. Since the beginning of the fiscal year, short-term contracts have pushed Énergir’s interruptible sales in the industrial market up substantially to 240 million cubic metres of natural gas, which confirms the heightened interest in natural gas”, commented Sophie Brochu, President and Chief Executive Officer.
“In Vermont, our successful entry into the electricity distribution market continues to produce positive results. For the first nine months of the 2008 fiscal year, income from our electric distribution activities in Vermont is $6 million higher than the same period last year, i.e. $0.05 per unit”, said Sophie Brochu.
“The third quarter also marks another important milestone for our development projects. On May 5, Énergir, jointly with Boralex Inc., was awarded two wind power projects totalling 272 MW in connection with Hydro-Québec’s call for tenders. On June 25, a firm 20-year contract for the sale of electricity was signed with Hydro-Québec Distribution. In addition, on May 15, Énergir and its partners in Rabaska signed a preliminary agreement with the U.S. subsidiary of Gazprom, which will become a partner in the terminal and take up its entire regasification capacity. These diversification projects represent attractive growth potential that may increase the return on equity with a risk profile similar to that of our regulated activities”, added Sophie Brochu.
Consolidated revenues for the third quarter of the 2008 fiscal year are up $20.5 million, or 5.3%, from $388.7 million in the third quarter of the previous fiscal year to $409.2 million. For the first nine months, consolidated revenues are $1,839.1 million, up $185.2 million, or 11.2%, from $1,653.9 million in the same period of the 2007 fiscal year.
Consolidated gross margin of $140.1 million is up 14.9%, or $18.1 million, compared to the third quarter of the previous fiscal year. It is $601.4 million after nine months, up 14.7% or $77.0 million compared to the same period of the 2007 fiscal year.
The main reasons for the increases in revenues and gross margin are the consolidation of GMP’s revenues since April 12, 2007, higher revenues from the Quebec distribution activity as a result of the rate increase authorized by the Régie, higher interruptible service sales and revenues of $9.5 million in each of the first three quarters of the 2008 fiscal year from the Quebec government’s new Green Fund duty. As amounts collected from customers by Énergir under the Regulation respecting the annual duty payable to the Green Fund are remitted in full to the government and included in operating expenses, this item has no impact on the Partnership’s net income.
Consolidated cash flows from operating activities, before change in working capital items, are $84.7 million during the third quarter of the 2008 fiscal year, which is $39.6 million higher than during the third quarter the previous year. For the first nine months of the current year, they are up $50.5 million to $387.8 million. Among other things, these increases are attributable to higher distributions received from companies subject to significant influence than in the corresponding period the previous year, the increase in adjusted net income for the current fiscal year and heavier energy consumption by Quebec customers because of colder than normal temperatures during the first nine months of the 2008 fiscal year than in the first nine months last year.
Investments in property, plant and equipment during the third quarter of the 2008 fiscal year are up $2.1 million to $30.4 million, compared to the third quarter of the 2007 year fiscal year. After nine months, they are up $6.2 million to $89.9 million. The level of capital expenditures is primarily a reflection of extensions and improvements to the natural gas distribution system in Quebec.
Distributable cash, adjusted for variations in deferred charges and credits, in the third quarter of the 2008 fiscal year is $68.6 million, compared to $52.6 million in the corresponding quarter the previous year. For the first nine months of the 2008 fiscal year, it is $215.7 million compared to $253.0 million for the first nine months of the previous year. The decrease is primarily attributable to variations in non-cash working capital items and in deferred charges and credits.
Énergir distributed $0.31 per unit during the first three quarters of the current fiscal year, the same amount as in the corresponding quarters last year. Énergir also distributed $0.31 per unit to its Partners on July 2, 2008.
Through its General Partner Énergir inc., Énergir today declared a distribution of $0.31 per unit payable on October 1, 2008 to Partners of record on September 15, 2008. Énergir expects to maintain this level of distributions.
Energy Distribution Sector
In Quebec - Énergir-QDA
Énergir-QDA's deliveries (normalized for temperatures and, since October 1, 2007, for wind) are down 16.6% to 1,017 million cubic metres during the third quarter of the 2008 fiscal year compared to 1,220 million cubic metres in the prior year's corresponding period. For the first nine months of the 2008 fiscal year, volumes are down 3.2% to 4,955 million cubic metres compared to 5,121 million cubic metres during the same period the previous year. These decreases can be explained by the suspension of the electricity generation activities of a large customer, TransCanada Energy Ltd. (TCE) in Bécancour, for an indefinite period of time, partially offset by higher regular and short-term interruptible service sales in the industrial market where natural gas is less expensive than heavy fuel oil.
Énergir-QDA’s net income in the third quarter of the 2008 fiscal year is $2.3 million, which is up $3.1 million compared to the same period the previous year. After nine months, net income is $164.0 million, up $10.4 million from $153.6 million in the first nine months of the 2007 fiscal year. The increase is mainly attributable to the rate increase authorized by the Régie, which increases revenues, recognition of the entire $4.0 million GEEP performance incentive and Énergir’s $2.7 million ($2.3 million in 2007 fiscal year) share of anticipated overearnings of $10.9 million. The increase attributable to the rate increase will be mostly offset by higher expenses in the next quarter.
For the 2008 fiscal year, the authorized rate of return on common equity of 9.52% is relatively unchanged from the previous year’s authorized rate of 9.57%.
On January 1, 2008, TCE suspended its electricity generation activities in Bécancour for an indefinite period of time. The 654-million cubic metre estimated reduction in consumption, for the period from January 1, 2008 to September 30, 2008, will reduce industrial distribution revenues by approximately $4.1 million in the current year.
On November 26, 2007, Énergir asked the Régie for authorization to change, as of January 1, 2008, its rates for the current fiscal year to reduce the impact of this reduction in consumption on distribution revenues by $1.9 million. The hearings were held on February 28 and 29, 2008 and the Régie rendered a decision on July 8, 2008. Although, in the opinion of the Régie, in the current context, the rate should be modified to partially reflect higher fixed costs, it has only authorized the Partnership to increase the portion of the revenues arising from the fixed portion of the rate applicable as of October 1, 2008.
The government of Quebec fixed December 14, 2007 as the date the Regulation respecting the annual duty payable to the Green Fund came into force. In accordance with this Regulation, Énergir’s annual duty amounts to $38.0 million. On July 8, 2008, the Régie rendered a decision approving the provisional methodology applied by Énergir since January 1, 2008.
In Vermont – VGS (natural gas distributor) and GMP (electricity distributor)
In Vermont, Vermont Gas Systems (VGS) delivered 215 million cubic metres of natural gas during the first nine months of the 2008 fiscal year, which is virtually unchanged from the previous fiscal year.
Electricity volumes distributed by GMP during the first nine months of the 2008 fiscal year, excluding volumes that generate gross margins redistributed to customers, totalled 1,469.8 gigawatthours.
Net income from the energy distribution activities in Vermont (VGS and GMP) is $0.9 million in the third quarter of the current fiscal year and $10.0 million after nine months, increases of $2.8 million and $5.8 million respectively compared to the same periods last year. The increase after nine months is primarily attributable to the consolidation of GMP’s results, which generated net income of $7.9 million before financing costs.
Natural Gas Transportation Sector
Net income for the Sector is $1.8 million in the third quarter of the 2008 fiscal year, down $0.7 million from $2.5 million in 2007. After nine months it is up $5.1 million to
$16.3 million from $11.2 million in the 2007 fiscal year. The main reason for the increase is the recording of a $6.9 million pre-tax gain ($5.3 million after tax) in the second quarter of the current fiscal year following the partial settlement of a PNGTS claim against Calpine.
PNGTS filed a rate application with its regulatory body (Federal Energy Regulatory Commission) on April 1, 2008 to get its tolls increased. It will maintain its current tolls until a final decision is announced.
On December 17, 2007, TQM Pipeline and Company Limited Partnership (TQM) filed a rate application with the National Energy Board (NEB) to have its authorized rate of return increased so it would better reflect its economic reality and business risk. The application covers its 2007 and 2008 fiscal years. The hearings will be held in September and the decision should be announced at the beginning of 2009. The impact of the decision will be recognized when it is announced.
Natural Gas Storage Sector
Net income from the Sector is up $27.1 million to $1.2 million for the third quarter of the 2008 fiscal year compared to the same quarter of the previous year. After nine months, net income is $4.2 million, up $28.2 million compared to the same period last year.
Net income includes a favourable non-monetary adjustment of $1.7 million for the first nine months of the 2008 fiscal year and an unfavourable non-monetary adjustment of
$26.2 million for the first nine months of the 2007 fiscal year related to future income taxes that should normally be paid by the parent company with respect to Intragaz’ activities during the years after the new flow-through entity tax rules come into force, i.e. on October 1, 2010 in the case of Énergir. The 26.2 million income tax expense in the third quarter of the previous fiscal year represents the implementation of the amendments to the Income Tax Act resulting from the adoption of Bill C 52. This adjustment, initially recognized as at September 30, 2007, has been reclassified to June 30, 2007 pursuant to EIC-167 of the Canadian Institute of Chartered Accountants Handbook to reflect the impact of the bill in the period it was adopted, i.e. on June 22, 2007.
Excluding those adjustments, adjusted net income from the Sector is $1.2 million in the third quarter of the current year, up $0.9 million compared to the corresponding period for the previous fiscal year. After nine months, it is $2.5 million, up $0.3 million compared to the corresponding period of the previous fiscal year. This is attributable to higher rates at the Pointe-du-Lac and St-Flavien storage sites.
Energy Services and Other Sector
The net loss from the Sector’s activities is $0.8 million in the third quarter of the current fiscal year compared to income of $0.4 million the previous year, down $1.2 million. Income earned by the Sector is down $3.8 million to $1.8 million for the first nine months of the 2008 fiscal year compared to $5.6 million in the 2007 fiscal year. This is primarily attributable to the recognition of a $1.4 million tax benefit in MTO Telecom Inc. in the second quarter of the 2007 fiscal year and lower earnings in the Énergir Plus group.
In the second quarter of the 2008 fiscal year, the second third, i.e. $2.0 million, of the deferred gain on the sale of 50% of the units of Climatisation et Chauffage Urbains de Montréal to Dalkia in February 2006 was recognized following receipt of the second third of the proceeds by the entity that sold the units to Dalkia. The first third, i.e. $2.0 million, of the gain on the sale had been recognized in the second quarter of the 2007 fiscal year.
Development expenditures included in results for the Rabaska LNG terminal amount to
$0.5 million in the third quarter of the 2008 fiscal year and $2.0 million after nine months, which are equivalent to the increases over the respective periods last year. Énergir and its partners, Enbridge Inc. and GDF SUEZ (formerly Gaz de France), felt the expenditures were required to better position the project and therefore make it easier to execute LNG supply contracts, as discussed below.
The items not allocated to a particular Sector total $0.7 million in the third quarter of the 2008 fiscal year and $1.8 million for the first nine months, up $1.2 million and $2.2 million respectively compared to the corresponding periods of the 2007 fiscal year.
On February 28, 2008, Rabaska received federal government authorization to build its LNG terminal in Lévis. This was the final key authorization expected, following receipt of the Quebec government’s authorization last October.
On May 15, 2008, the partners of the Rabaska project signed a letter of intent with Gazprom Marketing & Trading USA, Inc. (GMTUSA), a subsidiary of Gazprom, for all of the terminal’s regasification capacity. Under the terms of this letter and after the final agreements have been signed, GMTUSA will acquire an equity interest in Rabaska Limited Partnership, which will dilute the initial partners’ interest.
On May 5, 2008, following a call for tenders by Hydro-Quebec Distribution for 2,000 megawatts of wind power energy, Énergir, jointly with Boralex, was awarded two wind power projects for total installed capacity of 272 megawatts. The two wind farms, located on the private property of Séminaire de Québec, will be operational by December 1, 2013 at the latest. These two projects are subject to regulatory approvals. On June 25, 2008, a firm 20-year electricity supply agreement expiring on December 1, 2033 was signed by Hydro-Québec Distribution, Boralex and 9198-5218 Québec inc., a wholly-owned subsidiary of Énergir incorporated for purposes of the project.
The Partnership will hold a telephone conference with financial analysts to discuss its results for the third quarter ended June 30, 2008 on Wednesday, August 6, 2008 at 4:00 p.m. (Eastern time). The media and other interested parties are invited to listen in. Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice President and Chief Financial Officer, will be the main speakers.
The conference can be accessed live by dialling 416 644 3420 or toll-free 1 800 731 6941. It will also be webcast on Énergir’s website (www.gazmetro.com/investors) in the “Webcasts” section.
Rebroadcasts can be accessed for 30 days by dialling 416 640 1917 or toll-free
1 877 289 8525 (access code: 21278593#), and for 90 days on Énergir’s Website site.
With more than $3.3 billion of assets and approximately 1,300 employees in Quebec,
Énergir is a leading Quebec energy company and one of Canada’s largest natural gas distributors. Énergir serves some 171,000 customers in Quebec through an underground pipeline network of almost 10,000 km.
Through its wholly-owned subsidiary, Northern New England Energy Corporation (NNEEC),
Énergir has been active in New England’s energy industry since 1986 and has about 300 employees there. NNEEC includes Vermont Gas Systems, the sole gas distributor in Vermont, and Green Mountain Power Corporation, the second largest electricity distributor in that State.
Through subsidiaries or in partnership with other investors, Énergir is active in natural gas transportation and storage as well as energy services and water and waste water systems and fibre optic networks. Énergir also participates in various development projects in the energy sector.
To enable investors to better understand the Partnership’s outlook for the future and make more informed decisions, the matters discussed in this release may contain forward looking information about Énergir’s objectives, strategies, financial condition, operating results and activities. Such information expresses, as of the date hereof, the estimates, forecasts, projections, expectations or opinions of the Partnership concerning future events or results. Actual results may differ materially from the results anticipated herein and, consequently, we cannot guarantee that any forward-looking statement will materialize. Forward-looking information does not take account of the impact transactions or non-recurring matters, announced or arising after the statements have been made, might have on the Partnership’s activities.
The significant risks and uncertainties that could cause actual results and future events to differ materially from current expectations include factors related to the economy and markets, competition, commercial risk, regulation, energy supply, continuity of activities and the financing and value of investments owned as explained in detail in the Partnership’s annual report. Énergir therefore cautions readers not to place too much reliance on forward-looking information.
Énergir intends to update forward-looking information to the extent provided under applicable securities legislation.
ADJUSTED INDICATORS NOT STANDARDIZED IN ACCORDANCE WITH GAAP
In the view of Énergir’s management, certain “adjusted” indicators, such as adjusted net income, adjusted net income per unit and distributable cash provide readers with information they consider useful for analyzing its financial results. However, they are not standardized in accordance with Canadian generally accepted accounting principles (GAAP) and should not be considered in isolation or as substitutes for other performance measures that are in accordance with GAAP. The results obtained might not be comparable with similar indicators used by other issuers and should therefore only be considered as complementary information.
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