Valener announces its financial results for the second quarter of fiscal 2013

RECURRING NET INCOME RISES 10% ON SOUND PERFORMANCE ACROSS ALL GAZ MÉTRO SEGMENTS

Highlights:

Valener

• At $24.0 million, recurring net income rises $2.2 million; and
• Quarterly dividend maintained at $0.25 per common share.

Gaz Métro

• At $115.8 million, recurring net income rises $9.2 million;
• A $7.2 million¹ increase in net income generated in Vermont following the June 2012 acquisition of Central Vermont Public Service;
• Natural gas maintains a favourable competitive position in all market segments; and
• An 8.90% rate of return on common equity authorized by the Régie de l'énergie for natural gas distribution activities in Quebec for fiscal 2013.

MONTREAL, May 13, 2013 /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 second quarter ended March 31, 2013.

Valener's results

Excluding non-recurring items, Valener's net income attributable to common shareholders totalled $24.0 million ($0.64 per common share) for the second quarter of fiscal 2013 compared to $21.8 million ($0.58 per common share) for the year-earlier second quarter. For the first six months of fiscal 2013, Valener posted recurring net income attributable to common shareholders of $38.3 million ($1.02 per common share) compared to $32.0 million ($0.86 per common share) for the first six months of fiscal 2012.

This $2.2 million second-quarter increase and $6.3 million first-half increase came mainly from additional net income generated by Gaz Métro from energy distribution activities in Vermont since the acquisition of Central Vermont Public Service Corporation (CVPS) and from higher net income realized on natural gas distribution activities in Quebec.

"Valener's shareholders continue to benefit from the strength of Gaz Métro's energy distribution activities in Vermont. The results generated from the acquisitions over the years are testament to Gaz Métro's ability to lead strategic initiatives that create value for its Partners," said Pierre Monahan, Chairman of the Board of Valener.

Economic and environmental advantages: natural gas as a driver of commercial development

For more than four years, natural gas prices have remained low, making it the most competitive energy source distributed in Quebec, in all markets. Moreover, since natural gas is the cleanest fossil fuel, using it as a replacement for other energies such as diesel and heavy oil reduces greenhouse gas (GHG) emissions by approximately 25% and 32%, respectively. In recent years, Gaz Métro has initiated several promising energy projects that will reduce Quebec's environmental footprint, such as using natural gas instead of diesel in heavy transport and extending the gas distribution network to remote industrial regions in Quebec.

"Gaz Métro is relying on the economic and environmental advantages of natural gas as the foundation for its development initiatives and to promote natural gas as the fuel of choice in a number of sectors, especially in the industrial and heavy transportation markets. In Quebec, there is already a movement toward using natural gas vehicles in heavy transport. Gaz Métro Transport Solutions is deploying fuelling stations to meet growing demand among freight carriers seeking to fuel part of their fleet with liquefied natural gas. In Vermont, our subsidiary Vermont Gas Systems is working on a network extension to serve industrial demand—a project that could double its current assets. Once again, natural gas stands out as the winning solution for meeting numerous energy needs while responding to economic and environmental imperatives," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

Seigneurie de Beaupré wind power projects: proceeding on schedule

Valener and Gaz Métro indirectly own interests of 24.5% and 25.5%, respectively, in the Seigneurie de Beaupré wind power projects developed jointly with Boralex inc. (the consortium).

Wind power projects 2 and 3

After the construction site shut down for the winter last December, work resumed on February 25, 2013. Since then, 11 concrete towers have been delivered and erection work began with a reduced number of teams. As of mid-May, the construction site will resume normal operations. Work is progressing within the established budgets and schedules. Wind power projects 2 and 3, which together will have an installed capacity of 272 megawatts and constitute a total investment of about $750 million (including financing costs), are located on the private lands of Seigneurie de Beaupré and are still expected to be fully operational by December 1, 2013.

Wind power project 4

Having successfully completed the key environmental approvals stage, the consortium is proceeding with the work needed for start-up of wind power project 4 and is on course with the key stages planned to complete the project. The negotiations have concluded for the signing of definitive agreements with Enercon (the supplier of turbines and maintenance services) and with Borea Construction (for the civil engineering work). Tree cutting has been completed and the consortium is awaiting the issuance of certain authorizations to pursue the work. On-site construction is expected to begin in mid-May. In addition to arranging the financing, the consortium expects to complete a significant portion of the foundation, road, and collector system work by the end of the work season. Wind power project 4, which is also located on the private lands of Seigneurie de Beaupré, constitutes a total investment of about $190 million (including financing costs) for a total installed capacity of 68 megawatts. Start-up is scheduled for December 2014.

Declaration of quarterly dividends

Valener expects to maintain the dividend at $0.25 per common share for each quarter of fiscal 2013. As such, Valener's board of directors has declared a dividend of $0.25 per common share for the quarter ending June 30, 2013, payable on July 15, 2013 to common shareholders of record at the close of business on June 28, 2013. This dividend reflects the fact that, during fiscal 2013, Valener will receive $6.7 million in distributions from Gaz Métro in addition to those that would otherwise be payable, as had been planned at the time of the reorganization of Gaz Métro in September 2010. The next distribution to be paid by Gaz Métro will constitute the last distribution that includes the increase in Gaz Métro distributions otherwise payable to Valener in an amount of $1.7 million. Once paid, the amount will have totalled $20.0 million over a three-year period ending September 30, 2013.

The board of directors also declared a quarterly dividend of $0.271875 per Series A preferred share for the period of April 16, 2013 to July 15, 2013, payable on July 15, 2013 to the preferred shareholders of record at the close of business on July 9, 2013.

5% discount maintained under the dividend reinvestment plan

Under Valener's dividend reinvestment plan, the board of directors approved the reinvestment of dividends into additional common shares, for the dividend payable on July 15, 2013, by way of an issuance of new common shares of Valener, at a 5% discount compared to the weighted average price for the five trading days immediately preceding the dividend payment date.

Consolidated net income attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes

Gaz Métro's results

Excluding non-recurring items, net income attributable to the Partners of Gaz Métro totalled $115.8 million for the second quarter of fiscal 2013 versus $106.6 million for the same quarter last year. For the first six months of fiscal 2013, Gaz Métro recorded recurring net income attributable to Partners of $183.6 million compared to $161.9 million in the first six months of fiscal 2012.

These increases, of $9.2 million for the quarter and $21.7 million for the first six months, stem in part from a $7.2 million² second-quarter increase and a $13.5 million² first-half increase in net income from Vermont energy distribution activities owing mainly to the June 2012 acquisition of CVPS. Quebec natural gas distribution activities added $2.6 million in the second quarter and $8.4 million in the first six months, as explained below.

Quebec natural gas distribution (Gaz Métro-QDA)

Gaz Métro-QDA's normalized natural gas deliveries totalled 1,960 million cubic metres in the second quarter of fiscal 2013, down 1.3% from 1,985 million cubic metres in the second quarter last year.

For the first six months of fiscal 2013, deliveries totalled 3,542 million cubic metres, up 0.5% from 3,524 million cubic metres during the same six-month period last year.

In the industrial market, first-half volumes rose 1.7% year over year due to greater consumption, particularly in the metallurgy and pulp and paper sectors, partly mitigated by lower consumption in the electricity generation and petrochemical sectors. The 1.9% decline in normalized deliveries in the industrial market during the second quarter of fiscal 2013 was mainly due to lower consumption in the electricity generation and petrochemical sectors.

First-half normalized deliveries in the residential market rose 3.2% compared to the first six months of fiscal 2012 (up 5.6% for the second quarter), mainly due to the greater maturation of new sales in the first six months of fiscal 2013.

Normalized deliveries in the commercial market declined 2.3% in the first six months of this year (down 2.9% during the second quarter), essentially due to energy conservation measures undertaken by Gaz Métro-QDA's customers combined with relatively weak economic growth.

Gaz Métro-QDA's net income attributable to Partners totalled $95.0 million for the second quarter and $144.5 million for the first six months of fiscal 2013, year-over-year increases of $2.6 million and $8.4 million, respectively. These increases were essentially due to:

• a timing difference between the revenue recognition profile of the distribution service, which follows the customers' consumption profile, and that of costs. This difference, amounting to $2.9 million in the first quarter, partially reversed during the second quarter, as had been anticipated in the previous quarter;
• a favourable impact of closer-to-normal temperatures in the first six months of fiscal 2013, whereas temperatures had been considerably warmer than normal in the first six months of fiscal 2012. These weather conditions, which were unique to the first six months of fiscal 2012, had adversely affected the net income of that period, as the normalization mechanism did not fully eliminate the impact on revenues; and
• the impact of lower load-balancing and transportation costs in the first six months of fiscal 2013 compared to those of fiscal 2012 resulting from the temperatures in 2012, as previously explained, and from the higher average costs for load-balancing tools resulting from the changing demand of customers in the industrial market, both of which had adversely affected the net income for that period;

These items were mitigated by:

• an unfavourable impact of a lower authorized rate of return on deemed common equity and a decline in revenues related to the Global Energy Efficiency Plan (GEEP) performance incentive.

Anticipated impacts of the 2013 Gaz Métro-QDA rate case proposed to the Régie de l'énergie (the Régie)

On March 5, 2013, the Régie stated that it was authorizing the suspension of the application of the automatic adjustment formula to determine the base rate of return on deemed common equity and maintaining, for fiscal 2013, the 8.90% base rate of return set in 2012. Gaz Métro's revenues reflect this 8.90% authorized rate of return on deemed common equity as well as the cost-of-service parameters included in the 2013 rate case. Customers are billed based on the rates in effect as at September 30, 2012, authorized on an interim basis by the Régie. The difference between the revenues billed to customers and the revenues recognized was recorded in a deferred charges account.

The rate case proposed to the Régie for fiscal 2013, based on an 8.90% authorized rate of return on deemed common equity, is expected to translate into a $6.6 million decrease in net income attributable to Partners for the 12 months of fiscal 2013 compared to the net income realized in fiscal 2012. This decrease would primarily stem from the following factors:

• a lower authorized rate of return on deemed common equity in 2013 (8.90%) compared to the 9.69% rate (including productivity gains) authorized in 2012;
• a $4.0 million decrease in revenues related to the GEEP performance incentive; and
• the impact of having no share in overearnings anticipated in the 2013 rate case, whereas a $1.0 million share had been realized in fiscal 2012;

partly offset by:

• an increase in the average rate base combined with an increase in investments not included in the rate base.

The quarterly breakdown of the impact of the 2013 rate case proposed to the Régie on net income attributable to Partners shows higher net income attributable to Partners in the first two quarters of fiscal 2013 and lower net income attributable to Partners in the last two quarters compared to the same periods in fiscal 2012.

Incentive mechanism

The Gaz Métro-QDA incentive mechanism, in effect since October 1, 2007, expired on September 30, 2012. On September 2, 2011, a working group made up of Gaz Métro-QDA and intervenors filed an initial incentive mechanism proposal but it was denied by the Régie. On November 30, 2012, Gaz Métro-QDA filed a new incentive mechanism proposal for distribution activities to be applicable for a five-year period as of fiscal 2014. On April 24, 2013, the Régie issued a decision to stop reviewing this application and asked Gaz Métro-QDA to file a new proposal for an incentive mechanism that would take into account its directives and the coming changes in rate structures. In the meantime, the Régie determined that Gaz Métro-QDA will be regulated on a cost-of-service basis.

Project to serve the Côte-Nord region

The Côte-Nord region is the last of Quebec's major industrial regions that does not yet benefit from the environmental and economic advantages of natural gas. The project to provide service to the Côte-Nord region requires constructing a pipeline almost 450 km long to connect Saguenay to Sept-Îles. On March 21, 2013, Gaz Métro announced that it was postponing any project-related activities. After completing the feasibility studies, Gaz Métro concluded that global metals market conditions, particularly in iron ore and iron processing, make it very difficult to reach long-term agreements with major industrial customers in the Côte-Nord. Recently announced decisions by companies to defer major investments and discontinue indefinitely plant operations have caused further complications. Consequently, the minimum volumes of natural gas that would be required to launch the next phase of the project are not there. Financial contributions or other forms of support from different levels of government would be needed to resume project activities. At this time, Gaz Métro is unable to predict when the project might be relaunched.

Biomethanation

The Government of Quebec has implemented a program for processing organic matter through biomethanation or composting and thereby divert it from landfills and produce biomethane, a new green energy that will increasingly replace fossil fuels.

Last year, agreements were reached with the city of Saint-Hyacinthe and Quebec City. Under the agreements, Gaz Métro-QDA would purchase the energy produced by those cities and install the infrastructures needed to inject biomethane into its distribution network and make it available to its customers. These projects are subject to the Régie's approval.

On September 28, 2012, Gaz Métro-QDA filed with the Régie an investment project to receive biomethane produced by the city of Saint-Hyacinthe.

On March 20, 2013, the Régie denied Gaz Métro-QDA's application, ruling that some of the project's investments are not assets for natural gas distribution purposes under the Act respecting the Régie de l'énergie. The biomethanation project is of great importance to Gaz Métro and, as such, Gaz Métro-QDA is currently working to redefine the conditions for injecting biomethane into its system in order to find an optimal solution.

Energy Distribution in Vermont

Net income attributable to the Partners of Gaz Métro from energy distribution activities in Vermont stood at $14.6 million³ for the second quarter and $27.3 million³ for the first six months of fiscal 2013, up $7.2 million and $13.5 million, respectively, from the same periods last year.

These increases were mainly due to:

• an increase in the net income of Green Mountain Power Corporation (GMP) given the June 2012 CVPS acquisition, mitigated by a $1.2 million unfavourable impact from costs incurred in the first quarter of fiscal 2013 in the wake of Hurricane Sandy, net of the portion that can be recovered in future rates through the profit and loss sharing mechanism;
• an increase in the net income of Vermont Gas Systems, Inc. (VGS) resulting from higher natural gas deliveries due to the favourable impact of colder temperatures than in the first half of last year, a favourable impact of the new temperature normalization mechanism, and a greater number of customers;

partly mitigated by:

• a $3.7 million increase in financing costs for the quarter ($7.5 million for the first six months) resulting mainly from the additional financing assumed for the CVPS acquisition.

Operational integration of GMP and CVPS

To effectively integrate GMP's and CVPS's operations, GMP has developed a three-year plan for merging the processes of the two entities. The plan covers the merger of IT systems, work procedures, safety programs, financial controls and reporting, labour agreements and other operational facets of GMP and CVPS. As at March 31, 2013, GMP had completed a number of integration milestones, including:

• negotiation of a new single labour agreement between GMP and unionized workers that will expire in January 2018;
• merger of financial operations, controls and reporting;
• deployment of a new long-term customer information and billing system that will become the target platform for converting CVPS customer data and operations; and
• consolidation of pension plans and other employee benefits.

GMP is accelerating the implementation of its three-year plan such that it and its customers may benefit from the efficiencies and synergies as quickly as possible. At present, GMP is ahead of schedule. As per the mechanism for sharing synergies, GMP must return $2.5 million to customers through its rates for fiscal 2013.

VGS system development projects

On October 17, 2012, VGS announced an agreement with International Paper Company under which gas service would be extended to one of that company's mills, under a long-term contract, starting at the end of the 2015 calendar year. The required system extension for this project would be an expansion of the planned VGS system extension into Addison County to serve the communities of Vergennes and Middlebury for which, in December 2012, VGS filed for the related regulatory approval. A decision is expected from the Vermont Public Service Board (VPSB) by the end of fiscal 2013 such that construction can begin in 2014.

VGS plans on seeking the regulatory approvals for extending service to International Paper Company by the end of 2013. If approved, these VGS system extensions could give rise to investments of approximately US$100 million.

Natural Gas Transportation

Net income attributable to the Partners of Gaz Métro from natural gas transportation activities totalled $6.0 million⁴ for the second quarter and $10.4 million⁴ for the first six months of fiscal 2013, up $0.6 million and $0.9 million, respectively, from the same periods last year. These increases were mainly due to a $3.0 million increase ($4.5 million for the first six months) in the share of the income before income taxes of Portland Natural Gas Transmission System (PNGTS), partly because less natural gas was available on other systems, thus helping to raise its short-term sales, mitigated by a $0.6 million income tax expense allocation ($1.7 million for the first six months) from Gaz Métro's wholly owned subsidiary 9265-0860 Québec inc. (9265-0860) to Trans Québec & Maritimes Pipeline (TQM).

9265-0860 was created in fiscal 2012 to offset the effects of a change in fiscal year-end imposed by the Income Tax Act (Canada) applicable to multi-tiered partnership structures. Since October 1, 2012, the income tax expense related to TQM has been recognized by Gaz Métro rather than by its Partners, Valener and Gaz Métro inc. (GMi).

PNGTS's rate cases

On March 20, 2013, the U.S. Federal Energy Regulatory Commission (FERC) issued decisions on two rate cases filed by PNGTS on April 1, 2008 and May 12, 2010. The effective transportation rate resulting from the 2008 rate case decision is US$0.85 per dth and the transportation rate resulting from the 2010 rate case decision is US$0.87 per dth, effective December 1, 2010. On April 19, 2013, PNGTS requested rehearing of the FERC decisions, seeking to have specific aspects of the decisions re-examined.

Gaz Métro is currently unable to determine the final impacts of these decisions on its consolidated financial results. While awaiting the decisions by the FERC with respect to the rate cases, PNGTS recorded its revenues based on the most recent FERC approved rates. The difference between the interim rates charged by PNGTS and most recent FERC approved rates was recorded in a liability account.

Energy Production

This new segment consists of non-regulated energy production activities related to the wind farm construction projects located on the private lands of Seigneurie de Beaupré. The wind power projects are under construction and therefore have not yet begun to generate revenue.

Energy Services, Storage and Other

Excluding a $14.7 million net gain realized on the disposal of the interest in HydroSolution, L.P. (HydroSolution) in the first quarter of fiscal 2013, this segment's net income attributable to the Partners of Gaz Métro totalled $2.0 million⁵ in the second quarter and $4.6 million⁵ for the first six months of fiscal 2013, down $0.5 million and $0.2 million, respectively, from the same periods in fiscal 2012.

These decreases were mainly due to the net income generated by HydroSolution in the first half of last fiscal year, while the interest in this company was sold during the first quarter of fiscal 2013, to the impact on net income of the increase in fuel costs for Climatisation et Chauffage Urbains de Montréal, s.e.c. that was higher than in the first half of last year, and to the allocation of 9265­0860's income tax expense, amounting to $0.3 million for the quarter ($0.6 million for the first six months), to Intragaz. As is the case for TQM, since the creation of 9265-0860, the income tax expense related to Intragaz has been recognized by Gaz Métro rather than by its Partners, Valener and GMi.

Natural gas as transportation fuel

Since July 2011, Gaz Métro Transport Solutions, L.P. (Transport Solutions) has been installing the facilities needed to supply liquefied natural gas (LNG) to 180 freight trucks under an agreement entered into with Transport Robert 1973 Ltée (Robert Transport). For Transport Solutions, the project constitutes an initial investment of about $5 million. Two private stations set up at Robert Transport's terminals in Boucherville and Mississauga are currently in service. Pending completion of a permanent public station in Lévis, in October 2012 Transport Solutions installed a temporary mobile fuelling station on the Robert Transport property in Lévis, which can also service other carriers. In fiscal 2013, there are also plans for building two other permanent public stations in Rivière-du-Loup and Cornwall.

Gaz Métro's segment results - Consolidated net income attributable to Partners

Conference call

Valener will hold a conference call with financial analysts today, Monday, May 13, 2013 at 11 am (Eastern Time) to discuss its results and those of Gaz Métro for the second quarter ended March 31, 2013.

Pursuant to an administration and management support agreement entered into between Valener and Gaz Métro on September 30, 2010, Gaz Métro acts as manager of Valener. As such, Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice-President, Corporate Affairs and Chief Financial Officer of Gaz Métro, will be the speakers, and a question period will follow.

The call will be broadcast live and will be accessible by dialling 647-427-7450 or toll-free 1­888­231-8191. It will also be available via webcast on Valener's website (www.valener.com) in the Events & Presentations page of the Investors section.

The media and other interested parties are invited to listen in. After the conference call, the speakers will be available for media questions.

For 30 days afterward, a rebroadcast will be accessible by dialling 416-849-0833 or toll-free 1-855-859-2056 (access code: 33265883). 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 wind power projects jointly developed with Gaz Métro and Boralex Inc. on the private lands of Séminaire de Québec. Valener's common shares and preferred shares are listed on the Toronto Stock Exchange under the "VNR" trading 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 10,000 km underground network of pipelines serves 300 municipalities and more than 185,000 customers. Gaz Métro is also present in Vermont, producing electricity and distributing electricity and natural gas to cater to the needs to some 300,000 customers. Gaz Métro is actively involved in the development of innovative, sustainability-oriented energy projects such as the production of wind power, the use of natural gas as a transportation fuel and the development of biomethane as a renewable energy source. Gaz Métro is committed to ensuring the satisfaction of its customers, providing support to businesses, local organizations, families and communities, and meeting the needs 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 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 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, 2012 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, in particular the rate and incentive mechanism applications will be approved as submitted; that natural gas prices will remain competitive; and 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 projects in which Valener and Gaz Métro own indirect interests will be completed on schedule and as per specification; that GMP will be able to quickly and effectively integrate CVPS's operations; in addition to the other assumptions described in the Valener and Gaz Métro MD&As for the quarter ended March 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. Readers are cautioned to not place undue reliance on these forward-looking statements.

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¹ Net of financing costs
² Net of financing costs
³ Net of financing costs
^{4 5} Net of financing costs

SOURCE: VALENER INC.