Gaz Métro Reports 2008 First Quarter Results

February 6, 2008 - Financial releases

Montreal, February 6, 2008 – Gaz Métro Limited Partnership (TSX: GZM.UN, Gaz Métro) reports net income of $69.6 million for the first quarter ended December 31, 2007, which is $2.2 million lower than for the corresponding period the previous year. Net income includes the $2.2 million favourable non-monetary impact of the adjustment to the future income tax liability recorded in the previous fiscal year to reflect an expected decline in future income tax rates. This future income tax liability results from amendments to the Income Tax Act implementing proposals in the Minister of Finance’s Tax Fairness Plan. Excluding this favourable adjustment, adjusted net income for the first quarter of the 2008 fiscal year is $67.4 million, down $4.4 million from the prior fiscal year’s first quarter.

The decline in net income is attributable, in part, to timing differences in recording income from natural gas distribution activities in Quebec and Vermont, which should reverse in the coming quarters. Additional factors include a circumstantial decline in profitability mainly in the Water Sector subsidiaries and a $0.9 million increase in expenditures recorded for the Rabaska liquefied natural gas (LNG) terminal project, all of which are partially offset by the inclusion of net income of $3.6 million from Green Mountain Power Corporation (GMP), acquired on April 12, 2007.

Net income per unit declined $0.02 to $0.58 compared to the corresponding quarter last year. Adjusted net income per unit, which does not include the previously-mentioned
$2.2 million impact of the non-monetary adjustment, is down $0.04 to $ 0.56. The average number of outstanding units during the quarter was 120.4 million units, unchanged from the first quarter of the previous year.

“In recent months, the competitive position of natural gas has improved significantly in all markets. As a result, Gaz Métro has made major strides in its short-term sales in the industrial market, partially replacing heavy fuel oil consumption with natural gas, a cleaner energy,” commented Sophie Brochu, President and Chief Executive Officer.

Ms. Brochu went on to say: “Gaz Métro plans to capitalize on the Quebec government’s large scale plan, announced on October 1, 2007, to cut down on greenhouse gas emissions in Quebec by reducing heavy fuel oil consumption. Gaz Métro considers this challenge as an opportunity to permanently recover most of the industrial customers who had switched to heavy fuel oil in the wake of the 2001 natural gas price hikes. There is a potential to gain 425 million cubic metres of natural gas, equivalent to approximately 7% of total natural gas distributed by Gaz Métro in Quebec last year. This is a major business opportunity for
Gaz Métro.”

Consolidated Results
Consolidated revenues for the first quarter of the 2008 fiscal year are up $83.8 million or 15.7%, from $534.0 million in the first quarter of the previous year to $617.8 million. Higher revenues from the Quebec distribution activity, as a result of higher normalized deliveries and revenues from the new Green Fund duty, and consolidation of GMP’s sales since         April 12, 2007, all contributed to this increase.

Consolidated gross margin of $205.8 million is up 11.0%, or $20.4 million, compared to the first quarter of the previous fiscal year. This is partially attributable to the increase in the gross margin generated by the Quebec distribution activity, primarily as a result of including revenues from the new Green Fund duty, amounting to $9.5 million in the first quarter of fiscal 2008, and to the inclusion of GMP’s gross margin in Gaz Métro’s results since
April 12, 2007.

It is important to indicate that Gaz Métro recorded a corresponding expense to offset the revenues of $9.5 million from the new Green Fund duty because, in accordance with the Regulation respecting the annual duty payable to the Green Fund, it paid the entire amount to the government of Quebec on December 31, 2007. This will be the case in each of the subsequent quarters.

Consolidated cash flows from operating activities, before changes in non-cash working capital items, are $128.4 million in the first quarter of fiscal 2008, up $2.0 million over the same period in the previous year. The increase is attributable, in part, to higher energy consumption by Quebec customers on account of colder average temperatures during the first quarter of the 2008 fiscal period than during the same period in the previous year, partially offset by lower adjusted net income and by lower distributions from companies subject to significant influence, compared with the prior year’s first quarter.

Purchases of property, plant and equipment amounted to $35.6 million in the first quarter of the 2008 fiscal year, a $1.2 million increase from the corresponding quarter last year.

Income Distribution
Gaz Métro inc., in its capacity as General Partner of Gaz Métro, declared today a distribution of $0.31 per unit, payable on April 1, 2008, to Partners of record at the close of business on March 17, 2008.

This is in addition to $0.31 per unit distributions paid on October 1, 2007 and January 3, 2008 respectively. Gaz Métro expects to maintain this distribution level for the remainder of the 2008 fiscal year.

Energy Distribution Sector
In Quebec – Gaz Métro QDA

Natural gas deliveries in Quebec (normalized for temperatures and, since October 1, 2007, for wind) are up 4.1% to 1,891 million cubic metres during the first quarter of the 2008 fiscal year. This increase is primarily in the industrial market and can be explained by higher short-term sales resulting from a particularly favourable market context during a certain period of the first quarter and by a significant increase in consumption by an important customer.

Net income from the Quebec distribution activity is $58.8 million, which is down $4.4 million from $63.2 million in the first quarter of the 2007 fiscal year. This decrease is primarily attributable, as previously explained, to a temporary situation that should reverse during the coming quarters.

In 2008, the authorized rate of return on common equity of 9.52% is relatively unchanged from the previous year’s authorized rate of 9.57%.

TransCanada Energy Ltd. (TCE) in Bécancour has halted its operations and, therefore, discontinued its consumption of natural gas since January 1, 2008 for an indefinite period of time. This estimated 654 million cubic metres reduction in natural gas consumption for the period from January 1 to September 30, 2008 could result in an approximate $4.1 million decrease in industrial market distribution revenues in the current year.

On November 26, 2007, the Partnership applied to the Régie de l’énergie (Régie) for authorization to change its rates effective January 1, 2008, which would offset the impact of this reduction in consumption on distribution revenues in the current year by $1.9 million. The hearings will be held in February 2008 and the decision should be announced in the spring of 2008. However, it is important to outline that if the consumption drop continues, its impact on the profitability of the Quebec distribution activity in the coming years would be minimized since it would be reflected in rates starting in the 2009 fiscal year.

The government of Quebec confirmed that the Regulation respecting the annual duty payable to the Green Fund came into force as of December 14, 2007. In accordance with this regulation, the first of four instalments, for a total annual duty of $38.0 million in the case of Gaz Métro, was due on December 31, 2007.

Pending a final ruling, the Régie authorized the Partnership to temporarily include the duty in customer billings as of January 1, 2008.

In Vermont – VGS and GMP
In Vermont, natural gas deliveries by Vermont Gas Systems (VGS) during the first quarter of the 2008 fiscal year are up 10.8% over the same period in 2007 to 72 million cubic metres.

Electricity volumes distributed by GMP, excluding volumes that generate gross margins redistributed to customers, totalled 491.5 gigawatthours.

Net income from the energy distribution activities in Vermont (VGS and GMP) is up
$1.3 million to $4.2 million, mainly on account of the recognition of $3.6 million in income from GMP, acquired on April 12, 2007. The increase is partially offset by lower earnings in VGS, primarily as a result of applying the adjustment mechanism for the price of gas sold to its customers, which led to a timing difference in the recording of income over the quarters during the previous fiscal year, and by higher financing costs due to the investment in GMP.

At the end of December 2007, through GMP, Gaz Métro injected equity of $46.1 million in one of its companies subject to significant influence, Vermont Transco LLC (Transco), thereby increasing its interest from 21.9% to 33.2%. This capital investment to finance electricity transmission activities will serve to improve sector profitability in the future.

Natural Gas Transportation Sector
Net income for the Natural Gas Transportation Sector is $4.4 million for the first quarter of the 2008 fiscal year, compared to $3.5 million for the same quarter in 2007, an increase of $0.9 million. The main reason for this increase is the recording in the first quarter of the previous fiscal year of a non-recurring negative adjustment to Trans Québec & Maritimes Pipeline (TQM) rates.

On December 17, 2007, TQM filed a rate application with the National Energy Board (NEB) regarding its 2007 and 2008 fiscal years to increase its rate of return so that it would reflect its economic reality and business risk exposure. It is expected that the decision will be announced at the end of TQM’s 2008 fiscal year or at the start of 2009 and its impact will be recognized when the decision is announced.

Portland Natural Gas Transmission System (PNGTS) is expected to file a rate application with its regulatory body (Federal Energy Regulatory Commission) in April 2008 for recognition of a rate increase and will maintain its current rates until a final decision is announced.

Within the context of the legal proceedings in the case of the bankruptcy of Calpine Corporation, one of PNGTS’ important customers, PNGTS was successful in having a claim of US$125 million recognized by the courts.  This claim is expected to be settled on or before February 10, 2008 when creditors are expected to receive shares in the reorganized Calpine.  These shares will be subject to market fluctuations after they begin to trade on the New York Stock Exchange.

Natural Gas Storage Sector
Net income for the Natural Gas Storage Sector is up $1.9 million, compared to the corresponding period in the previous year. The increase is attributable to a favourable non-monetary $2.2 million adjustment recognized in the quarter for changes in future income taxes that should normally be paid by the parent company related to Intragaz’s activities in subsequent years after the new flow-through entity tax rules come into force, on
October 1, 2010 in the case of Gaz Métro. The adjustment was recorded to reflect an expected decline in future income tax rates.

Net income in this sector, adjusted not to include the favourable impact of the non-monetary $2.2 million adjustment, is $0.8 million in the first quarter of 2008, down $0.3 million from the same period in the previous year.

Energy Services and Other Sector
The net loss from the sector’s activities is $0.1 million, which is down $1.2 million from the net income of $1.1 million in the first quarter of 2007. This reduced profitability can be explained primarily by less activity in certain companies, particularly in the Water Sector, where heavy snow falls hampered certain construction work and impeded progress.

Development Expenditures
During the first quarter of the 2008 fiscal year, development expenditures and net non-allocated expenses are $0.7 million, up by the same amount from the same period in the previous year. This increase is primarily attributable to $0.9 million in development expenditures included in results and related to the Rabaska LNG terminal. Gaz Métro and its partners in the project, Enbridge Inc. and Gaz de France, considered additional expenditures were required to better position the project and therefore make it easier to execute LNG supply agreements. Gaz Métro continues to work with its partners to secure a long-term gas supply contract for the project.

Annual Meeting
Gaz Métro Limited Partnership’s annual Partners’ meeting will be held on Wednesday,  February 6, 2008 at 2:00 p.m. (Eastern time) at the Palais des congrès de Montréal, 1001 place Jean-Paul-Riopelle, Room 511B, Montreal, Quebec, at which time it will report on its activities and discuss results for the 2007 fiscal year and the first quarter of the 2008 fiscal year. The annual meeting will be Webcast live on Gaz Métro’s Web site (www.gazmetro.com/investors) in the “Webcasts” section and a recording will be available for 90 days.

Conference Call
The Partnership will hold a telephone conference with financial analysts to discuss its results for the first quarter ended December 31, 2007 on Wednesday, February 6, 2008 at 4:00 p.m. (Eastern time). The 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.

The conference can be accessed live by dialling 416-644-3415 or toll-free 1-800-733-7560. It will also be Webcast on Gaz Métro’s Web site (www.gazmetro.com/investisseurs) in the “Webcasts” section.

Rebroadcasts can be accessed for 30 days by telephone at 416-640-1917 or toll-free 
1-877-289-8525 (access code: 21259978#), and for 90 days on Gaz Métro’s Web site.

Gaz Métro Overview
With more than $3.1 billion in assets and approximately 1,300 employees in Quebec, Gaz Métro is a leading Quebec energy company and one of Canada’s largest natural gas distributors. Gaz Métro serves about 171,000 customers in Quebec through an underground pipeline network of almost 10,000 km.

Through its wholly-owned subsidiary, Northern New England Energy Corporation (NNEEC), Gaz Métro has been active in New England’s energy industry since 1986 and has nearly 300 employees there. NNEEC includes Vermont Gas Systems, 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, Gaz Métro is active in natural gas transportation and storage as well as energy services and water and waste water systems and fibre optic networks. Gaz Métro also participates in various development projects in the energy sector.

FORWARD-LOOKING STATEMENTS
To enable investors to better understand the Partnership’s outlook for the future and make more informed decisions, the matters discussed in this release may contain forward-looking information about Gaz Métro’s objectives, strategies, financial condition, operating results and activities. Such information expresses, as of the date hereof, the estimates, forecasts, projections, expectations or opinions of the Partnership concerning future events or results. Actual results may differ materially from the results anticipated herein and, consequently, we cannot guarantee that any forward-looking statement will materialize. Forward-looking information does not take account of the impact transactions or non-recurring matters, announced or arising after the statements have been made, might have on the Partnership’s activities.

Significant risks and uncertainties could cause actual results and future events to differ materially from current expectations. For additional information on these and other factors, see the reports filed by Gaz Métro with Canadian securities regulators. Gaz Métro therefore cautions readers not to place too much reliance on forward-looking information.

Gaz Métro intends to update forward-looking information to the extent provided under applicable securities legislation.

ADJUSTED INDICATORS NOT STANDARDIZED IN ACCORDANCE WITH GAAP
In the view of Gaz Métro’s management, certain “adjusted” indicators, such as adjusted net income, adjusted net income per unit and others provide readers with information they consider useful for analyzing its financial results. However, they are not standardized by 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.

Sources: 

Investors and Analysts 
Caroline Warren
Investor Relations
514-598-3324

Media
Frédéric Krikorian
Public and Governmental Affairs
514-598-3656

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