GMP, Vermont Gas owner reports strong Q2 2014 results

Seigneurie de Beaupré wind power projects

As initially scheduled, these projects began commercial operations at the end of 2013, and the 126 wind turbines of the first phase are now in service.

"Since it began operations last December, the 272-megawatt first phase of the Seigneurie de Beaupré wind power projects has generated more than 277,000 MWh of electricity, exceeding our expectations thanks to favourable winds. This is encouraging news for Valener's shareholders, as the cash flows from these projects will support the current dividend level, as planned," saidPierre Monahan, Chairman of Valener's board of directors.

As planned, construction work on the second phase resumed inMay 2014.

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. Project start-up is still scheduled forDecember 2014.

For the second quarter of fiscal 2014, normalized operating cash flows1stood at$9.7million($0.26per common share), which was enough to cover the dividend payment to common shareholders during the quarter.

GazMétro's results

Recurring net income attributable to the Partners of GazMétro totalled$132.5millionin the second quarter of fiscal 2014, up$16.7millionor 14.4% from$115.8millionin the same quarter last year. For the first six months of fiscal 2014, GazMétro recorded recurring net income attributable to Partners of$208.3million, up$24.7millionor 13.5% from$183.6millionin the same period last year.

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1Cash flows related to operating activities less dividends paid to preferred shareholders

Energy Distribution

Pending a new incentive mechanism, the 2014 rate case filed inOctober 2013was developed on a cost-of-service basis. As part of that rate case, the Régie de l'énergie (Régie) approved a renewal of the 8.90% rate of return on deemed common equity. To avoid delays in applying the rates based on the 2014 rate case, in November 2013the Régie approved the application of interim rates startingDecember 1, 2013but limited the increase in the distribution cost of service to inflation rather than based on GazMétro-QDA's request. Hearings on the 2014 rate case were held inMarch 2014, and a final decision by the Régie is expected before summer 2014. Based on those interim rates, the 2014 rate case translates into a$0.8millionincrease in net income attributable to Partners compared to the net income realized in fiscal 2013.

GazMétro-QDA's net income attributable to Partners totalled$110.1millionfor the second quarter and$166.9millionfor the first six months of fiscal 2014, respective increases of$15.1millionand$22.4millionyear over year.

These increases were essentially due to:

• a timing difference between the revenue recognition profile, which follows the customers' consumption profile, and that of costs; this difference should largely reverse by the end of fiscal 2014; and
• higher deliveries to the commercial market given considerably colder-than-normal temperatures in the first six months of fiscal 2014, as the temperature normalization mechanism had a certain degree of inaccuracy and because a portion of the deliveries is not normalized.

The net income attributable to the Partners of GazMétro fromVermontenergy distribution activities totalled $18.4million2for the second quarter and$34.5million2for the first six months of fiscal 2014, respective year-over-year increases of$3.8millionand$7.2million.

These increases were mainly due to:

• the favourable impact from the 2014 rate cases of GMP and VGS;
• the favourable impact on GMP's deliveries of colder temperatures in the second quarter and first six months of fiscal 2014 compared with the same periods of fiscal 2013;
• synergy savings achieved from the operational integration of GMP and CVPS; and
• the favourable impact of an appreciation of the U.S. dollar against the Canadian dollar.

GMP continues to integrate its operations with those of CVPS by way of a three-year plan, the aim being to deliver to its customers and itself, as quickly as possible, efficiencies and synergies resulting from the CVPS merger. For fiscal 2014, GMP expects to be able to achieve sufficient synergies to reach theUS$5.0millionattributable to its customers. GMP is currently ahead of schedule.

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1Projected rate base in the 2014 rate case filed with the Régie de l'énergie
2Net of financing costs of investments in this segment

VGS continues to work on its system development project to serve the communities ofVergennesandMiddleburyinAddison County(Phase I) and International Paper Company inNew York state(Phase II).

With respect to PhaseI, inDecember 2013VGS received authorization from the Vermont Public Service Board (VPSB) to begin construction, and work is expected to begin in summer 2014. However, before beginning the work, VGS must await certain construction and environmental permits from the Vermont Agency of Natural Resources and sign certain agreements with citizens affected by the pipeline route. Although VGS is confident that it will be able to sign agreements with these parties, the possibility remains that some work could be delayed. As atMarch 31, 2014,US$19.4millionhad been invested in the project.

InNovember 2013, VGS filed an application with the VPSB seeking regulatory approval to begin PhaseII of the project. A decision is expected byDecember 2014. While Phase II is currently being examined by the VPSB, it is being contested by certain municipalities that will be affected by the project. InFebruary 2014, VGS also filed an application with the Federal Energy Regulatory Commission seeking authorization to cross theVermont/New Yorkborder. VGS's goal is to supply gas to this customer by the end of 2015.

Natural Gas Transportation

In the Natural Gas Transportation segment, net income attributable to the Partners of GazMétro totalled$6.2million1for the second quarter and$10.3million1for the first six months of fiscal2014, a year-over-year increase of$0.2millionfor the quarter and a year-over-year decrease of$0.1millionfor the six-month period.

For the second quarter, the higher net income came mainly from an increase in the share in the income of Portland Natural Gas Transmission System (PNGTS), as short-term sales were up given the signing of new short-term contracts and demand was higher given the colder temperatures compared to the same quarter last year, offset by an increase in income tax expense related to PNGTS and by the higher maintenance costs of Trans Québec & Maritimes Pipeline (TQM). For the six-month period, the change in net income was due to the same reasons provided for the quarter, although in different proportions.

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, GazMétro and BoralexInc. on the private lands of Seigneurie de Beaupré.

Since commercial commissioning in November andDecember 2013, Seigneurie de Beaupré WindFarms2and3, General Partnership (Wind Farms 2 and 3) has generated 277,241megawatthours (233,080megawatthours for the second quarter). According to the terms of the 20-year electricity supply contracts with Hydro-Québec, the average price at the start-up date had been set at$107.85per megawatthour. OnJanuary 1, 2014, this price was indexed to$107.90per megawatthour. It will subsequently be indexed over the term of the contracts onJanuary1of each year.

The net income attributable to the Partners of GazMétro from energy production activities was nil for the second quarter and$0.8million1for the first six months of fiscal 2014, up$0.1millionand$1.0million, respectively, compared with the same periods last year. These increases were mainly due to the net income generated by WindFarms2and3, as the projects were put into service during the first quarter of fiscal 2014, offset by the ineffective portion of the WindFarms2and3 swaps, designated for hedge accounting, recognized in the second quarter of fiscal 2014. For the first six months of fiscal 2014, the net impact of the changes in the ineffective portion of these swaps was rather favourable compared to the same period last year.

Energy Services, Storage and Other

In the Energy Services, Storage and Other segment, aside from the$14.7millionnet gain that had been realized on the disposal of the interest in HydroSolution, L.P. (HydroSolution) in the first quarter of fiscal 2013, the net loss attributable to the Partners of GazMétro was$0.2million1in the second quarter of fiscal 2014 and$0.4million1for the first six months of fiscal 2014, decreases of$2.2millionand$5.0million, respectively, from the same periods last year.

These decreases were mainly due to lower net income from Intragaz, as storage revenues decreased following the Régie'sMay 2013decision, and to a decline in profitability at Climatisation et Chauffage Urbains de Montréal, s.e.c. resulting from higher fuel costs given the cold temperatures in winter 2014.

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1Net of financing costs of investments in this segment

Conference call

Valener will hold a conference call with financial analysts today,Wednesday, May 14, 2014at3pm (Eastern Time)to discuss its results and those of GazMétro for the second quarter endedMarch 31, 2014.

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: 27624773). 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 GazMétro. Valener therefore has a stake in the energy industry and benefits from GazMétro'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 developed with GazMétro and BoralexInc., with the 272-megawatt Phase I in service sinceDecember 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 GazMétro

With more than$5 billionin assets, GazMétro is a leading energy provider. It is the largest natural gas distribution company inQuebec, where its network of over 10,000 km of underground pipelines serves 300 municipalities and more than 190,000 customers. GazMétro is also present inVermont, producing electricity and distributing electricity and natural gas to meet the needs of more than 305,000 customers. GazMétro 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. GazMétro 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 (GazMétroinc. and Valener) and employees.www.gazmetro.com

SOURCE MONTREAL,May 14, 2014/CNW Telbec/ -Valener Inc.