Valener announces its results for the second quarter of fiscal 2015

Solid performance by Gaz Métro and the wind farms

MONTREAL, May 14, 2015 /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 of fiscal 2015, Valener recorded normalized operating cash flows of $15.8 million, or $0.41 per common share, compared to $9.7 million, or $0.26 per common share, in the second quarter of fiscal 2014. Per common share, this was an increase of $0.15 or 57.7%. For the six-month period, normalized operating cash flows totalled $25.7 million or $0.67 per common share, resulting in a per-common-share increase of $0.24 or 55.8% year over year. These increases came mainly from a first distribution, in February 2015, made by the Seigneurie de Beaupré Wind Farms 2 and 3, representing $4.7 million or $0.12 per common share for Valener.

"During the second quarter, Valener continued to benefit from the solid performance of Gaz Métro and the Seigneurie de Beaupré wind farms, which continue to generate higher-than-expected energy output thanks to very favourable wind conditions. Furthermore, and as anticipated, Valener began receiving distributions from the wind power assets, which, when combined with Gaz Métro's performance, will support the dividend growth target of 4% per year for the next three fiscal years," said Pierre Monahan, Chairman of Valener's board of directors.

For the second quarter of fiscal 2015, Valener's recurring net income attributable to common shareholders totalled $34.0 million or $0.89 per common share, up $4.9 million or $0.12 per common share year over year. For the six-month period, it totalled $50.4 million or $1.32 per common share, up $5.5 million or $0.13 per common share year over year. These increases reflect the solid performances turned in by Gaz Métro and the wind farms.

Summary of Gaz Métro's financial results

For the second quarter of fiscal 2015, recurring net income attributable to the Partners of Gaz Métro totalled $143.7 million, up $11.2 million or 8.5% year over year. For the six-month period, it totalled $216.3 million, up $8.0 million or 3.8% year over year.

These increases came mainly from the favourable contributions made by the Energy Distribution and Energy Production segments combined with a favourable foreign exchange impact on net income from U.S. operations.

"Gaz Métro, as we know it today, is the Gaz Métro we had envisioned ten years ago. We've only just begun reaping the rewards of our vision, which has made us not only Quebec's natural gas distributor but also a major energy distributor in the northeastern United States, where over 35% of our annual earnings are now being generated. Gaz Métro has also become a wind power producer, and, this quarter, we saw a first distribution from our investment in the Seigneurie de Beaupré wind farms, the results of which have exceeded our expectations. To these new activities, Gaz Métro adds commercialization of liquefied natural gas, which will stand as a significant growth vector in the years ahead," explained Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

Highlights for the first six months – Valener and Gaz Métro

Seigneurie de Beaupré Wind Farms

These wind farms generated 281,311 megawatthours (MWh) during the second quarter of fiscal 2015 and 515,966 MWh during the six-month period, year-over-year increases of 48,251 MWh or 20.7% and of 238,745 MWh or 86.1%, respectively. These increases were essentially driven by favourable wind conditions and by the fact that these wind farms started commercial operations at the end of calendar year 2013.

These wind farms generated operating cash flows of $10.0 million in the second quarter of fiscal 2015 and of $28.5 million in the first six months. A portion of these cash flows, as well as a portion of those generated last fiscal year, were used to pay a $19.1 million distribution in February 2015. Valener and Gaz Métro received $4.7 million and $4.9 million, respectively, of that distribution. Another distribution is expected to be paid during the fourth quarter of fiscal 2015.

This wind farm generated 66,418 MWh during the second quarter of fiscal 2015 and 82,045 MWh since it began commercial operations on December 1, 2014. It generated operating cash flows of $4.7 million in the second quarter of fiscal 2015, and a first distribution will likely be paid to Valener and Gaz Métro during fiscal 2015.

Highlights for the first six months – Gaz Métro

Liquefied natural gas (LNG)

Gaz Métro is continuing to market LNG based on the current capacity of its Montreal-East liquefaction plant, which should triple by the end of 2016. During the first six months of fiscal 2015, Gaz Métro LNG delivered 16.0 million cubic metres compared to 6.0 million cubic metres in the same six-month period last year, an increase that contributed favourably to net income.

U.S. activities

Continued investments in Green Mountain Power's (GMP) rate base

In December 2014, GMP invested $26.6 million in its entity subject to significant influence, Vermont Transco LLC (Transco), which is active in electricity transmission. With this investment, GMP has increased its rate base and could therefore generate additional net income for the first six months of fiscal 2015 versus the same period of fiscal 2014.

Greater efficiency in electricity distribution operations in Vermont

During the first six months of fiscal 2015, GMP continued, as planned, to merge its operations with those of Central Vermont Public Service (CVPS) such that it and its customers may continue to benefit from the resulting efficiencies and synergies.

For fiscal 2015, GMP expects to achieve sufficient synergies to reach the US$8.0 million attributable to its customers.

Development project for the natural gas distribution system in Vermont

Phase I of the Vermont Gas Systems, Inc. (VGS) system development project consists of extending natural gas distribution service by 66 km to the communities of Vergennes and Middlebury in Addison County.

In December 2014, VGS submitted a Phase I cost update to the Vermont Public Service Board (VPSB) showing that the estimated costs now stand at US$153.6 million. The VPSB announced that hearings will be held in June 2015 to review the cost estimates and to reconfirm the Certificate of Public Good. At this time, Phase I is expected to come into service during fiscal 2016. The project continues to be viewed as a beneficial solution for the State of Vermont. Aside from the environmental advantages, natural gas remains a competitive energy source compared to other sources of fossil fuel. As at March 31, 2015, US$61.4 million had been invested in the project.

As for Phase II, which would have extended the natural gas distribution service to International Paper Company (IP) in New York State, VGS has withdrawn its application to the VPSB given that, in February 2015, IP terminated its contract with VGS on the grounds that, under current conditions, the project was no longer commercially practical for it.

Gaz Métro's financial results

Performance by the Energy Distribution segment

Gaz Métro-QDA's net income totalled $114.2 million in the second quarter of fiscal 2015 and $167.2 million in the first six months, year-over-year increases of $4.1 million and $0.3 million, respectively.

These increases were mainly due to:

• a timing difference between the revenue recognition profile and that of costs, which is expected to partially reverse during fiscal 2015;

partly offset by:

• higher financial expenses.

Note that, on an annual basis, the fiscal 2015 rate case, as submitted to the Régie de l'énergie, translates into an increase in net income of $2.5 million (decrease of $0.8 million for the first six-month period) compared to that generated during fiscal 2014, reflecting an increase in the average rate base and in capitalized interest on non-rate-base investments.

Net income from energy distribution activities in Vermont totalled $22.2 million in the second quarter of fiscal 2015 and $38.1 million in the first six months, year-over-year increases of $3.8 million and $3.6 million, respectively.

These increases were mainly due to:

• a favourable exchange rate impact from the appreciation of the U.S. dollar against the Canadian dollar;
• the impact of GMP's higher rate base resulting, among other factors, from additional investments in Transco; and
• the impact of an increase in return-generating non-rate-base investments in VGS's system development projects.

Performance by the other segments

Net income from the Natural Gas Transportation segment stood at $6.6 million for the second quarter of fiscal 2015 and at $10.5 million for the six-month period, year-over-year increases of $0.4 million and $0.2 million, respectively. These increases were essentially driven by a higher share in the earnings, net of income taxes, of Portland Natural Gas Transmission System (PNGTS), reflecting an increase in transported volumes resulting from the signing of new short-term contracts and from higher demand due to colder temperatures, partly offset by the unfavourable impact of the February 2015 decision on PNGTS's rates by the Federal Energy Regulatory Commission.

The Energy Production segment consists of the non-regulated energy production business of wind farms 2 and 3 and wind farm 4, which are jointly owned by Gaz Métro, Valener and Boralex Inc. on the private lands of the Seigneurie de Beaupré.

The net income from this segment stood at $1.8 million for the second quarter of fiscal 2015 and at $2.4 million for the six-month period, year-over-year increases of $1.8 million and $1.6 million, respectively. These increases were driven by favourable wind conditions, higher revenues generated by wind farms 2 and 3, which were put into service at the end of 2013, and by the start-up of wind farm 4 in December 2014.

Net income from the Energy Services, Storage and Other segment stood at $0.4 million for the second quarter of fiscal 2015 and at $1.7 million for the six-month period, year-over-year increases of $0.6 million and $2.1 million, respectively. These increases were driven by higher net income from Gaz Métro LNG owing to the performance of short-term LNG supply contracts and by greater profitability at Climatisation et Chauffage Urbains de Montréal, s.e.c. given a drop in its supply costs.

Conference call

Valener will hold a conference call with financial analysts today at 3:00 pm (Eastern Time) to discuss its results and those of Gaz Métro for the second quarter ended March 31, 2015.

The call will be broadcast live and is accessible by dialling 647-427-7450 or toll-free 1-866-865-3087. For 30 days afterward, a rebroadcast will be accessible by dialling 416-849-0833 or toll-free 1-855-859-2056 (access code: 25944792). It will also be available via webcast on Valener's website (www.valener.com) in the Events and Presentations page of the Investors section and can be heard during the 90 days following the initial call.

Overview of Valener

Valener is a widely held public company that serves as the investment vehicle in Gaz Métro. Through its investment in Gaz Métro, Valener offers its shareholders a solid investment in a diversified and largely regulated energy portfolio in Quebec and Vermont. As a strategic partner, Valener, on one hand, contributes to Gaz Métro's growth, and, on the other hand, invests in wind power production in Quebec together with Gaz Métro. Valener favours energy sources and uses that are innovative, clean, competitive and profitable. 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" trading symbol for Series A preferred shares. www.valener.com

Overview of Gaz Métro

With more than $6 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 over 300 municipalities and more than 195,000 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 and operation of innovative, promising energy projects, including natural gas as fuel and liquefied natural gas as a replacement to higher emission-producing energies, the production of wind power, 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, 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 historical results or current expectations, as described in the forward-looking statements, including but not limited to the general nature of the aforementioned, terms of decisions rendered by regulatory agencies, uncertainty on whether Gaz Métro will obtain approvals from regulatory agencies and interested parties to carry out all of its business activities and the socio-economic risks associated with those activities, the competitiveness of natural gas in relation to other energy sources in the context of falling global oil prices, the reliability or costs of natural gas supply and electricity supply, the integrity of the natural gas and electricity distribution systems, the evolution and profitability of Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership (Wind Farms 2 and 3) and Seigneurie de Beaupré Wind Farm 4 General Partnership (Wind Farm 4) and other development projects, the ability for Valener to generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares, the ability to complete attractive acquisitions and the related financing and integration aspects, the ability to complete new development projects, 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 section and in the Risk Factors Relating to Gaz Métro section of Valener's Management's Discussion and Analysis for the fiscal year ended September 30, 2014 and in Valener's and Gaz Métro'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 de l'énergie will be approved as submitted; that natural gas prices will remain competitive; that the supply of natural gas and electricity will be maintained or will be available at competitive costs; 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 Wind Farms 2 and 3 and Wind Farm 4 will be able to make distribution payments to their partners; that Valener will be able to generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares; that GMP will be able to continue 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 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 Valener's Management's Discussion and Analysis for the quarter ended March 31, 2015, 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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