November 19, 2008 - Financial releases
HIGHLIGHTS OF 2008 FISCAL YEAR:
Investments in property, plant and equipment during the 2008 fiscal year are up
$10.7 million to $135.5 million, compared to the 2007 fiscal year. These investments relate primarily to extensions and improvements to the natural gas distribution system in Quebec.
Distributable cash, taking into account variations in deferred charges and credits and development CAPEX, is $85.1 million during the 2008 fiscal year compared to $184.9 million during the previous year. The main reasons for the decrease are the more significant change in non-cash working capital items and higher variations in deferred charges and credits.
Énergir inc., as the General Partner of Énergir, today declared a distribution of $0.31 per unit payable on January 5, 2009 to Partners of record at the close of business on December 15, 2008. Énergir expects to maintain this level of distribution in each quarter of the 2009 fiscal year.
Énergir distributed $0.31 per unit during each quarter of the 2008 fiscal year, for a total of $1.24 per unit, i.e. the same level as in 2007.
Energy Distribution Sector
In Quebec - Énergir-QDA
Deliveries of natural gas in Quebec (normalized based on normal temperature and, since October 1, 2007, on normal wind velocity) are down 7.1% to 5,805 million cubic metres during the 2008 fiscal year compared to 6,250 million cubic metres in the previous year. The main reason for the decrease is the suspension of electricity generation activities since January 1, 2008, of a large customer, TransCanada Energy Ltd. (TCE) in Bécancour, for a minimum of two years (impact of 646 million cubic metres during the 2008 fiscal year), partially offset by higher regular and short-term interruptible service sales in the industrial market as a result of a favourable competitive position for natural gas in relation to heavy fuel oil.
Net income of Énergir-QDA for the 2008 fiscal year is $125.3 million, which is up
$4.4 million from $120.9 million the previous year. This is mainly attributable to the recognition of the entire GEEP performance incentive of $4.0 million (in effect since October 1, 2007 under the new performance incentive mechanism) and Énergir's $4.3 million share ($3.2 million in 2007) of the $17.5 million overearnings. The positive impact of the higher regular and short-term interruptible sales in the industrial market more than offset the $3.9 million decrease in revenues caused by the reduction in TCE's consumption during the 2008 fiscal year.
For the 2008 fiscal year, the realized rate of return on deemed common equity is 10.37% compared to 9.90% the previous year. This is mainly attributable to the new GEEP performance incentive, equivalent to 0.41%, to the 0.32% increase in the authorized base rate of return (9.05% in 2008 compared to 8.73% in 2007), and to Énergir's increased share of the overearnings (equivalent to 0.11%), partially offset by lower anticipated and realized productivity gains (equivalent to 0.37%).
This year, in a particular financial context where, in Énergir's opinion, the increase in the credit spreads alone justified an increase in the allowed rate of return, application of the present formula produces the opposite result. In its 2009 rate case, Énergir therefore requested that application of the automatic adjustment formula be stayed for that year by maintaining the same base rate of return as authorized in 2008, i.e. 9.05%, and increasing it by 20 basis points to take account of higher issue costs incurred when Énergir issues units in the market. In a decision rendered on November 12, 2008, the Régie turned down Énergir's request because, in its opinion, lacking expert evidence, it would be inappropriate to stay the application of the rate of return adjustment formula. The Régie therefore fixed the authorized base rate of return on Partners' deemed common equity at 8.76% for the 2009 fiscal year.
In Vermont – VGS (natural gas distributor) and GMP (electricity distributor)
In Vermont, Vermont Gas Systems (VGS) delivered 244 million cubic meters of natural gas during the 2008 fiscal year, virtually the same level as the previous year.
Electricity volumes distributed by GMP during the 2008 fiscal year are 1,972.2 gigawatthours.
Net income from the energy distribution activities in Vermont (VGS and GMP) is
$12.4 million, up $7.8 million compared to the previous year. This is primarily attributable to the annualized impact of GMP, which generated net income before financing costs of
$11.8 million during the 2008 fiscal year, compared to $4.4 million for the period from April 12 to September 30, 2007.
Natural Gas Transportation Sector
Net income for the Sector is $18.1 million for the 2008 fiscal year, compared to $14.0 million in 2007, an increase of $4.1 million. The main reason for this increase is a pre-tax gain of $6.9 million ($5.3 million after tax) in the second quarter of the 2008 fiscal year following the partial settlement of a PNGTS claim against Calpine, partially offset by lower short-term sales that reduced PNGTS' income.
PNGTS filed a rate application with its regulatory body, the Federal Energy Regulatory Commission (FERC), on April 1, 2008 to get its tolls increased. The hearings are expected to start on March 10, 2009.
On December 17, 2007, Trans Québec & Maritimes Pipeline Inc. (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 were held in September and October 2008 and a decision is expected at the beginning of 2009. The impact of the decision will be recognized when it is announced.
Natural Gas Storage Sector
Adjusted net income from the Sector is $3.5 million for the 2008 fiscal year, up $0.3 million from the previous year. This is attributable to rate increases at the Pointe-du-Lac and St-Flavien storage sites.
Adjusted net income excludes a favourable non-monetary impact of $1.7 million for the 2008 fiscal year and an unfavourable non-monetary impact of $26.2 million in 2007 related to the future income taxes that should normally be paid by the parent company with respect to the activities of Intragaz in years after the new flow-through entity tax rules come into force, i.e. on October 1, 2010 in the case of Énergir. The income tax expense of
$26.2 million in the 2007 fiscal year and the $1.7 million adjustment in 2008 reflect the adoption of the Income Tax Act amendments in Bill C-52.
Including these adjustments, net income from the Sector is $5.2 million for the 2008 fiscal year, which is $28.2 million higher than the previous year.
Energy Services and Other Sector
The net loss from the Sector's activities, adjusted to exclude the impact of the unfavourable non-monetary adjustment of $1.7 million related to future income taxes, is $1.9 million for the 2008 fiscal year compared to net income of $8.0 million in 2007. The main reasons for this decrease are the payment of a $2.0 million contribution regarding the under-funding of the pension fund of Climatisation et Chauffage Urbains de Montréal, s.e.c. (CCUM) under the terms of the agreement reached on the sale of part of CCUM to Dalkia, delays in carrying out certain projects and cost overruns in a major project of Consulgaz Inc., of about $1.0 million, costs in excess of $1.0 million to recover trade receivables as well as a
$2.9 million writedown of part of the goodwill, both relating to HydroSolution, L.P., and recognition in the 2007 fiscal year of a $1.4 million tax benefit relating to prior years in MTO Telecom Inc.
In the second quarter of the 2008 fiscal year, the second third of the deferred gain on the sale of 50% of the units of CCUM to Dalkia in February 2006, i.e. $2.0 million, 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.
Including the adjustment to future income taxes, which represents the variation in the future income taxes that should normally be paid by the parent company, as explained above, the net loss related to the Sector's activities is $3.5 million compared to net income of
$8.0 million in 2007.
Development expenditures included in results and related to the Rabaska LNG terminal project are up $2.7 million to $2.9 million during the 2008 fiscal year compared to
$0.2 million in the previous year. Énergir and its partners, Enbridge Inc. and GDF SUEZ (formerly Gaz de France), believed these additional expenses were required to better position the project and make it easier to execute LNG service contracts, as described under the following heading.
Ongoing work on the Seigneurie de Beaupré wind power project did not generate significant expenses impacting results for the 2008 fiscal year.
Excluding the favourable non-monetary future income tax adjustment of $1.1 million, non-allocated expenses are $4.1 million for the 2008 fiscal year compared to $1.7 million in 2007. Including the adjustment, non-allocated expenses are $3.0 million for the 2008 fiscal year compared to $1.7 million the previous 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 in October 2007. Rabaska is currently endeavouring to secure its LNG supplies. On May 15, 2008, the partners of the Rabaska project signed a letter of intent with Gazprom Marketing and Trading USA, Inc. (GMT USA), Gazprom's U.S. subsidiary, for all of the terminal's regasification capacity. Following the signing of final agreements, GMT USA would acquire an equity interest in Rabaska which would dilute the interest of the initial partners. The partners originally contemplated to reach final agreements before the end of the year 2008. This schedule is now slightly postponed as the discussions are still progressing but at a slower pace. External factors and uncertainties in the financial, commodity and construction markets have slowed down the finalization of the agreements. In the meantime, Énergir maintains its approach of not capitalizing any costs related to the project development, excluding land purchases for which Rabaska intends to exercise its options.
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. On June 25, 2008, two 20-year electricity supply agreements expiring on
December 1, 2033 were signed by Hydro-Québec Distribution, Boralex and 9198-5218 Québec inc., a wholly-owned subsidiary of Énergir incorporated for this project. The Régie subsequently approved these two agreements on October 17, 2008. Until the in-service date, the consortium must, among others, obtain the authorization decree from the Ministère du Développement durable, de l'Environnement et des Parcs, pursue its discussions to obtain the appropriate financing and sign contracts with the turbine supplier during 2009.
The Partnership will hold a telephone conference with financial analysts to discuss its results for the fiscal year ended September 30, 2008 on Wednesday, November 19, 2008 at 4:00 p.m. (Eastern time). 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. This will be followed by a question period.
The conference can be accessed live by dialling 416 644 3414 or 1 800 732 0232. It will also be webcast on Énergir's Web site (www.gazmetro.com/investors) in the “Webcasts” section.
Rebroadcasts can be accessed for 30 days by dialling 416 640 1917 or 1 877 289 8525 (access code 21287461#), and for 90 days on Énergir's Web site.
With almost $3.3 billion of assets and more than 1,300 employees in Quebec, Énergir is a leading Quebec energy company and one of Canada's largest natural gas distributors. Énergir serves some 175,800 customers in Quebec through an underground pipeline network of more than 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 Inc., 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.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
To allow investors to better understand Énergir's outlook for the future as well as that of Énergir inc.'s (GMi), its General Partner, and make more informed investment decisions, certain statements in this release may be forward-looking, in particular those relating to actions, activities, events, results or developments that Énergir and GMi expect or anticipate will or may occur in the future, and other statements that are not historical facts. Such forward-looking statements reflect the intentions, plans, expectations and opinions of GMi's management regarding Énergir's future growth, operating results, performance and business prospects and opportunities. The words “plans”, “expects” or “does not expect”, “is expected”, “budgeted”, “scheduled”, “estimated”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and expressions or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur, be achieved, and similar expressions, as they relate to GMi and Énergir, often identify forward-looking statements. The forward-looking statements in this release include statements with respect to the general development of the business, growth or profitability outlook, the potential equity interest of Gazprom Marketing & Trading USA, Inc. in Rabaska Limited Partnership, the possible commissioning of the wind power projects in which Énergir is involved through one of its subsidiaries, the application of the specified investment flow-through entities rules to Énergir, the ability to maintain the level of distributions to Énergir's partners and the liquidity situation and financing capability of GMi and Énergir. Such forward-looking statements reflect management's current opinions and are based on information currently available to management. Forward-looking statements involve known and unknown risks and uncertainties and other factors outside management's control. A number of factors could cause actual results of GMi and Énergir to differ materially from the results discussed in the forward-looking statements, including, but not limited to, as described in the section entitled Risk Factors of the Management's Discussion and Analysis (MD&A) published today and in the GMi and Énergir's continuous disclosure filings. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. Assumptions underlying the forward-looking statements contained in this release and in the MD&A published today include assumptions to the effect that no unforeseen changes in the legislative and operating framework of energy markets in Quebec and in the State of Vermont will occur, and that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur. These forward-looking statements are made as of the date of this release and of the MD&A published today, and management 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 of any business combination or other transaction that may be announced or that may occur after the date hereof. Readers are cautioned not to place undue reliance on these forward-looking statements.
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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