Valener's recurring net income increases 10.5% in the first quarter of fiscal 2014

HIGHLIGHTS
Valener
  • $15.8 million in recurring net income, up $1.5 million (10.5%);
  • Seigneurie de Beaupré wind power projects 2 and 3 begin commercial operations in December 2013.
 
Gaz Métro
  • $75.8 million in recurring net income, up $8.0 million (11.8%);
  • Energy Distribution:
    • Increase in natural gas and electricity deliveries;
    • Regulatory approval of Phase I of Vermont Gas Systems' system extension project to Addison County.

 

MONTREAL, Feb. 7, 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 first quarter of fiscal 2014, recurring net income attributable to common shareholders totalled $15.8 million ($0.42 per common share) versus $14.3 million ($0.38 per common share) for the same period last year. This $1.5 million or 10.5% increase ($0.04 per common share) came mainly from an increase in the recurring net income of Gaz Métro, its main investment, as energy distribution activities saw excellent performance from higher natural gas and electricity deliveries in Quebec and Vermont. Also contributing to the increase were the synergies stemming from the operational integration of Green Mountain Power Corporation (GMP) and Central Vermont Public Service Corporation (CVPS).

Valener continued to pursue its core strategy during this first quarter, investing $1.7 million in the development of the wind power projects, with most going towards development of wind power project 4.

"The first, 272-megawatt phase of the Seigneurie de Beaupré wind power projects, is now complete, and, as scheduled, operations began in December 2013. Valener is proud of the teams—for their expertise, achievement, and proficiency in executing these major projects. This success is testament to Valener's ability to bring its growth aspirations to fruition and do so by surrounding itself with the right partners," said Pierre Monahan, Chairman of Valener's board of directors.

In fiscal 2014, Valener plans to pay out $1.00 in dividends per common share, in cash and stock, the same amount as in fiscal 2013.

Seigneurie de Beaupré wind power projects

 
Wind power projects 2 and 3
Installed capacity
Commercial
start-up
Total investment
Valener
Gaz Métro
272 MW Dec. 2013 ~$750M 24.5% 25.5%

The project management committee is proud to confirm that Wind Farm 2 began commercial operations on November 28, 2013 and Wind Farm 3 on December 10, 2013, as initially scheduled, and that the 126 wind turbines are now in service. This success owes largely to the tireless work of the construction crew and thorough oversight by the projects' management committee.

 
Wind power project 4
Installed capacity
Scheduled
start-up
Total investment
Valener
Gaz Métro
68 MW Dec. 2014 ~$190M 24.5% 25.5%

The work needed for project start-up is proceeding in accordance with the key stages of the schedule. 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. In December 2013, the site closed for the winter and is scheduled to reopen in May 2014, with project start-up planned for December 2014. During the first quarter, $166.1 million in financing, an essential step in the project, was completed. With this financing and given the investments and commitments totalling $43.8 million by its partners, Valener, Gaz Métro and Boralex Inc., wind power project 4 is fully funded.

 
Consolidated net income attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes
For the quarters ended December 31   2013   2012  
(in millions of dollars, unless otherwise indicated)          
Consolidated net income   16.9   18.6  
Share in the non-recurring items of Gaz Métro   -   (4.3)  
Income taxes on the share in the non-recurring items of Gaz Métro   -   1.1  
Consolidated net income, excluding the share in the non-recurring items of Gaz Métro, net of income taxes    16.9   15.4  
Less: Cumulative dividends on Series A preferred shares   1.1   1.1  
Consolidated net income attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes (1)   15.8   14.3  
Weighted average number of common shares outstanding
   (in millions of common shares)
  37.8   37.6  
Consolidated net income attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes, per common share (in $) (1)   0.42   0.38  
(1)  These measures are financial measures that are not defined in Canadian generally accepted accounting principles (GAAP). For additional information, refer to the Non-GAAP Financial Measures heading in Valener's MD&A for the quarter ended December 31, 2013.

For the first quarter of fiscal 2014, normalized operating cash flows totalled $6.7 million ($0.18 per common share1), a $2.2 million year-over-year decrease ($0.06 per common share) that is essentially due to a lower distribution from Gaz Métro in the first quarter of fiscal 2014, as Valener no longer receives the $1.7 million increase in Gaz Métro's quarterly distributions, as has been the case since the September 2010 reorganization of Gaz Métro. Wind power projects 2 and 3 are expected to begin making distributions once certain conditions related to their loan agreement have been met. In the interim, Valener expects to use its credit facility to finance a portion of its dividend payments to common shareholders, as it did in the first quarter of fiscal 2014.

____________________
1 Cash flows related to operating activities less dividends paid to preferred shareholders divided by the weighted average number of common shares outstanding

Gaz Métro's results

Excluding non-recurring items, net income attributable to the Partners of Gaz Métro totalled $75.8 million in the first quarter of fiscal 2014 versus $67.8 million in the same quarter last year, an $8.0 million or 11.8% year-over-year increase that was generated mainly in the Energy Distribution segment.

"In terms of our distribution activities, major projects have moved forward this past quarter, both in Quebec and Vermont. In Saint-Félicien, Lac Saint-Jean, our team completed a major, 22-kilometre network extension to deliver natural gas to the Resolute Forest Products plant. In addition to providing tangible environmental impacts of reduced GHG emissions and less air pollution, this important project will help ensure the viability of a key employer in the region. As for Vermont Gas Systems, the approval of Phase I of its system extension to Addison County also positions us for positive economic and environmental spinoffs in that region. Both projects help bring energy further while effecting positive changes in our society," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

Energy Distribution

 
Quebec natural gas distribution (Gaz Métro-QDA)
       
Rate base Authorized return Distribution network Customers
$1.9B1 8.90% 10,000 km ~192,000

The 2014 rate case, submitted in October 2013, was developed on a cost-of-service basis, as was the 2013 rate case, pending a new incentive mechanism. For the 2014 rate case, the Régie de l'énergie (Régie) approved a renewal of the 8.90% authorized rate of return on deemed common equity. On November 28, 2013, the Régie agreed to Gaz Métro's request and approved the application of interim rates as of December 1, 2013 but limited the increase in the distribution cost of service to inflation rather than on Gaz Métro-QDA's request. Based on those interim rates, the 2014 rate case translates into a $0.8 million increase in net income attributable to Partners (increase of $5.6 million for the first quarter, which is expected to mostly reverse by the end of fiscal 2014) compared to the net income realized in fiscal 2013.

For the first quarter of fiscal 2014, net income attributable to the Partners of Gaz Métro from Gaz Métro-QDA totalled $56.8 million, up $7.3 million year over year, being $1.7 million more than had been anticipated in the rate case.

This increase in net income was mainly due to the impact on deliveries of considerably colder-than-normal temperatures, as certain deliveries are not normalized. And even for normalized deliveries, the extreme temperature changes caused a certain degree of inaccuracy in applying the normalization mechanism.

____________________
1 Projected rate base in the 2014 rate case filed with the Régie de l'énergie

 
Energy Distribution in Vermont
Green Mountain Power (GMP) Vermont Gas Systems (VGS)
           
Rate base Authorized return Customers Rate base Authorized return Customers
US$1.2B 9.58% ~260,000 US$144M 10.26% ~46,000

The net income attributable to the Partners of Gaz Métro from Vermont energy distribution activities totalled $16.1 million1 for the first quarter of fiscal 2014, up $3.4 million year over year.

This increase was due to:

  • the increase in GMP's overall rates since October 1, 2013 stemming from its 2014 rate case;
  • the favourable impact on GMP's deliveries from colder temperatures in the first quarter of fiscal 2014 compared with the same quarter of fiscal 2013, as these deliveries are not normalized;
  • synergy savings from the operational integration of GMP and CVPS;
  • the favourable impact on deliveries from greater consumption by VGS's customers; and
  • the favourable impact from the appreciation of the U.S. dollar versus the Canadian dollar.

With respect to the operational integration of GMP and CVPS, GMP is working to accelerate implementation of its three-year plan such that it and its customers may benefit from the merger-related efficiencies and synergies as soon as possible. GMP is currently ahead of schedule and, for fiscal 2014, expects to generate sufficient synergies to reach the US$5.0 million attributable to customers.

After filing an application for regulatory approval with the VPSB in December 2012, VGS received in December 2013 the authorization to begin construction of Phase I of its system development project to serve the communities of Vergennes and Middlebury in Addison County. Provided that the necessary permits are obtained, construction work for Phase I is expected to begin in fiscal 2014. As at December 31, 2013, US$15.1 million had been invested in the project. The project includes a second phase to extend natural gas service to one of International Paper Company's mills in New York State such that this customer may begin receiving service at the end of the 2015 calendar year. In November 2013, VGS filed the application seeking the regulatory approval of this second phase. These system developments (Phases I and II) could more than double VGS's average rate base over time.

Natural Gas Transportation

In the Natural Gas Transportation segment, net income attributable to the Partners of Gaz Métro totalled $4.1 million1 for the first quarter of fiscal 2014, a slight $0.3 million decline from the same quarter last year.

This change came mainly from lower revenues from Trans Québec & Maritimes Pipeline (TQM) given that, in May 2013, the National Energy Board approved final rates below the rates applicable in the first quarter of fiscal 2013, partly offset by an increase in the share in the income of Portland Natural Gas Transmission System (PNGTS), as short-term and interruptible service revenues increased upon the performance of new short-term contracts due to the higher demand caused by colder temperatures in the first quarter of fiscal 2014.

____________________
1 Net of financing costs of investments in this segment


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.

The segment's results consist of 50% of the operations of Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership (Wind Farms 2 and 3) since their commissioning. During this first month of operation, Wind Farms 2 and 3 generated 44,161 megawatthours. According to the terms of the 20-year electricity supply contracts with Hydro-Québec, the average price for the first month of operation was set at $107.85 per megawatthour. This price is indexed over the term of the contracts on January 1 of each year, starting January 1, 2014.

Net income attributable to the Partners of Gaz Métro from energy production activities totalled $0.8 million1 for the first quarter of fiscal 2014, up $0.9 million year over year. This increase was mainly due to a reversal of the ineffective portion of the Wind Farms 2 and 3 swaps, designated for hedge accounting, recognized in previous periods.

Energy Services, Storage and Other

Excluding 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 Energy Services, Storage and Other segment recorded a $0.2 million1 net loss attributable to the Partners of Gaz Métro for the first quarter of fiscal 2014, down $2.8 million year over year.

This decrease was due to the decrease in Intragaz's net income resulting from lower storage revenues following the Régie's May 2013 decision and to the net income that had been earned by HydroSolution in the first quarter of fiscal 2013, whereas the interest in this company was sold in November 2012.

____________________
1 Net of financing costs of investments in this segment

 
Gaz Métro's segment results - Consolidated net income attributable to Partners,
excluding non-recurring items
For the quarters ended December 31            
(in millions of dollars)   2013   2012   Change
Energy Distribution            
  Gaz Métro-QDA   56.8   49.5   7.3
  VGS and GMP   21.4   17.6   3.8
  Financing costs of investments in this segment (1)   (5.3)   (4.9)   (0.4)
    72.9   62.2   10.7
Natural Gas Transportation            
  TQM, PNGTS and Champion Pipe Line Corporation Ltd.   4.5   4.8   (0.3)
  Financing costs of investments in this segment (1)   (0.4)   (0.4)   -
    4.1   4.4   (0.3)
Energy Production            
  Gaz Métro Éole inc. and Gaz Métro Éole 4 Inc.   0.8   (0.1)   0.9
  Financing costs of investments in this segment (1)   -   -   -
    0.8   (0.1)   0.9
Energy Services, Storage and Other            
  Energy and storage   -   17.7   (17.7)
  Financing costs of investments in this segment (1)   (0.2)   (0.4)   0.2
  Net gain on the disposal of the interest in HydroSolution, L.P.   -   (14.7)   14.7
    (0.2)   2.6   (2.8)
Corporate Affairs            
  Corporate Affairs   (1.8)   (1.3)   (0.5)
    (1.8)   (1.3)   (0.5)
Consolidated net income attributable to Partners,
excluding non-recurring items (2)
  75.8   67.8   8.0
Non-recurring items   -   14.7   (14.7)
Consolidated net income attributable to Partners   75.8   82.5   (6.7)

(1)  These costs consist of the interest on the long-term debt incurred by Gaz Métro to finance investments in the subsidiaries, joint ventures and entities subject to significant influence of each segment.
(2)  This measure is a financial measure not defined in Canadian GAAP. For additional information, refer to the Non-GAAP Financial Measures heading in Valener's MD&A for the quarter ended December 31, 2013.

Conference call

Valener will hold a conference call with financial analysts today, Friday, February 7, 2014 at 2:30 pm (Eastern Time) to discuss its results and those of Gaz Métro for the first quarter ended December 31, 2013.

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: 34179049). 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 jointly 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 Farm 2 and 3 will be able to make distributions to its Partners; that GMP will be able 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 long-term 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 December 31, 2013, 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.



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