May 13, 2010 - Press releases
Competitive advantage of natural gas contributes to 4.5% increase in deliveries in Quebec and will drive more than $19 million back to Gaz Métro’s customers through rates
Energy Services and Other
Adjusted net income3 for the Energy Services and Other segment was $1.4 million for the second quarter of the 2010 fiscal year and $3.1 million for the first six months, down $1.7 million and $1.4 million respectively from the corresponding periods of the previous fiscal year. These decreases are mainly due to the recognition of $2.0 million in March 2009, being the last third of the gain on the sale of 50% of the units of Climatisation et Chauffage Urbains de Montréal, s.e.c. (CCUM) to Dalkia Canada Inc. in February 2006. This unfavourable item is partially offset by an increase in the net income of certain subsidiaries of Gaz Métro Plus Limited Partnership as well as the sale of all of the shares of Teldig Systems Inc. in November 2009, which generated a gain of $0.8 million.
Cash and Capital Management
During the first six months of the current fiscal year, cash flows from operations of $318.1 million were down $39.4 million compared to the corresponding period of the previous fiscal year. This decrease basically reflects lower natural gas and electricity deliveries because of warmer temperatures ($27.1 million), and the $5.1 million reduction in distributions received from companies subject to significant influence.
The debt/total capitalization ratio is 61.6% as at March 31, 2010, compared to 65.1% as at September 30, 2009, and is similar to the ratio as at March 31, 2009.
In coming months, Gaz Métro has a number of projects that flow from its complementary and inclusive energy vision, which is counting on the compatibility of energy and environment. A few of these projects are described below.
Wind power: After receiving a decree from the government of Quebec, Gaz Métro and its partner, Boralex Inc. are proceeding with the development of the two Seigneurie de Beaupré wind power projects in accordance with the planned timetable. The specific steps planned to carry out the projects are applying for construction permits, signing a final agreement with Enercon Canada Inc., the turbine supplier, signing a final agreement for the civil engineering work and arranging financing. The private land of the Séminaire de Québec, where the consortium’s projects will be located, gives them a distinct advantage. Apart from the exceptional wind resources, the site is not close to any urban or residential centres, thereby making the visual and noise impacts almost non-existent for the neighbouring communities. The projects, which will have total installed capacity of 272 megawatts, should be commissioned around December 2013.
Smart electricity distribution system in Vermont: In connection with the U.S. federal government’s stimulus package for businesses, Green Mountain Power Corporation (GMP) was awarded a grant for financial assistance for a smart electricity distribution system in the State of Vermont. The assistance was in the form of a subsidy of US$19.0 million to finance part of the total investment of US$ 38.0 million that GMP will make over the next three years. This three-year project involves, among other things, replacing the present customer information system, purchasing and installing smart meters for customers and participating in dynamic rates pilot projects with other utilities in Vermont. GMP and the other utilities are collaborating closely to finalize the contract and the planning for the implementation of this major project. In GMP’s opinion, the success of the project could transform its customer relationships and the way it manages its operations, by incorporating advanced technology into its activities.
Natural gas for the transportation industry: Gaz Métro is working on expanding its commercial offer in the road transportation sector, which is responsible for 40% of greenhouse gas (GHG) emissions in Quebec. It is specifically targeting heavy-duty diesel fleets. Vehicles that use natural gas emit 25% less GHG than diesel. This solution is accessible in the short-term to reduce the environmental impact of that economic activity. Gaz Métro recently signed an agreement in principle with a major freight carrier aiming to supply several trucks with liquefied natural gas (LNG). To this end,
Gaz Métro will have to build two refuelling stations to supply the trucks. Even though it is a non-regulated activity, on March 31, 2010 Gaz Métro requested the Régie’s approval for a method of calculating the costs billed for the use of the LSR plant in connection with the sale of LNG. Gaz Métro is expecting a decision on this case by the summer of 2010. The parties intend to have signed the contract and built the facilities by the end of the 2010 calendar year. As Gaz Métro already has liquefaction equipment at the LSR plant, the investments required would be limited to the refuelling stations and the tanks for transporting LNG.
Biomethanation: Gaz Métro believes that waste reclamation is a promising solution to Quebec’s energy needs and would reduce GHG emissions. The Partnership is therefore very receptive to the government of Quebec’s biomethanation program, which aims to divert organic residues from landfill sites for reclamation purposes. Gaz Métro intends to play a key role in promoting these initiatives are economically viable, in particular by providing access to its distribution system.
Gaz Métro wants to facilitate the short-term development of this activity and is working with various partners to define the technical and economic modalities for injecting this new natural gas supply source into its network, while continuing to provide reliable safe service.
Taxation of Flow-through Entities
The new tax rules for “specified investment flow-through entities” (SIFTs) will apply to the Partnership as of October 1, 2010 and will transfer the payment of income taxes to Gaz Métro (presently paid by each Partner) at the corporate tax rate and treat after-tax income distributions as dividends for tax purposes.
In its present form, this amendment would reduce Gaz Métro’s distributable net income because it would be after income taxes. During the 2009 fiscal year, approximately 85% of Gaz Métro’s pre-tax income came from entities that were not taxable at Gaz Métro’s level. Only that portion of its income would be affected by the change in the law. The impact on Partners will depend on their individual tax status.
In this context, the Board of Directors of GMi, the General Partner of Gaz Métro and a wholly-owned subsidiary of Noverco Inc., continues to examine the various options available to it in the interest of Partners and other stakeholders. A Board committee composed solely of independent directors has been created to assess how the options would impact the public unitholders, and discussions have been initiated with the Canada Revenue Agency. The intention is that the public unitholders would remain stakeholders of Gaz Métro. Whatever option is chosen, it is expected to be effective on or around September 30, 2010 in order to benefit from the attractive tax treatment of the current structure for as long as possible.
Gaz Métro will hold a telephone conference with financial analysts on Thursday, May 13, 2010, at 3:00 p.m. (Eastern time) to discuss the results for its second quarter ended March 31, 2010. Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice President, Corporate Affairs and Chief Financial Officer, will be the speakers. This will be followed by a question period. Media and other interested individuals are invited to listen in.
The conference can be accessed live by dialling 647-427-7450 or toll-free 1-888-231-8191. It will also be Webcast on Gaz Métro’s Web site in the “Webcasts” section.
Rebroadcasts can be accessed for 30 days by telephone at 416-849-0833 or toll-free at 1-800-642-1687 (access code: 69341749), and for 90 days on Gaz Métro’s Web site.
Gaz Métro Overview
With over $3.6 billion in assets, Gaz Métro is Quebec’s leading natural gas distributor. Operating in this regulated industry for over 50 years, Gaz Métro has become the trusted energy provider to some 180,000 customers in Quebec and 136,000 customers in Vermont while developing the skills and expertise needed to diversify beyond natural gas. Gaz Métro’s prudent growth strategy has been marked by the successful entry into electricity distribution in Vermont and development of wind power projects in Quebec. Offering historically strong and stable distributions and showing a competitive spirit, Gaz Métro is committed to its customers, Partners, employees and the community. Gaz Métro’s units are listed on the Toronto Stock Exchange under the symbol GZM.UN.
Cautionary note regarding forward-looking statements
Certain statements in this press release may be forward-looking pursuant to applicable securities laws. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of Gaz Métro inc. (GMi), Gaz Métro’s general partner, and is based on information currently available to management and on assumptions with respect to future events. The words “plans”, “expects”, “estimates”, “forecasts”, “intends”, “anticipates” or “believes”, or similar expressions, including the negative of these terms and future or conditional forms, often identify forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties and other factors outside management’s control. A number of factors could cause actual results of Gaz Métro and GMi to differ materially from the results discussed in the forward-looking statements, including, but not limited to, terms of decisions rendered by regulatory bodies, general economic conditions, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas supplies, the integrity of the natural gas distribution system, exchange rates fluctuations, the evolution of development projects, SIFT rules and other factors described in the 2009 Annual Information Form of each of Gaz Métro and GMi under the item “Risks”, and in the Management’s Discussion and Analysis of each of Gaz Métro and GMi for the fiscal year ended September 30, 2009. Although the forward looking statements contained herein are based upon what management believes to be reasonable assumptions, including assumptions to the effect that no unforeseen changes in the legislative and regulatory framework of energy markets in Quebec and in the State of Vermont will occur, that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur, and other assumptions described in the Management’s Discussion and Analysis of each of Gaz Métro and GMi for the quarter ended March 31, 2010, management 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 management 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 not to place undue reliance on these forward-looking statements.
Non-GAAP financial measures
In management’s view, certain “adjusted” indicators, such as adjusted net income and adjusted net income per unit provide readers with information it considers useful for analyzing its financial results. However, they are not standardized in accordance with 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.
1Adjusted net income excludes an unfavourable non-monetary adjustment of $0.1 million in the second quarter of the 2010 fiscal year ($1.1 million unfavourable for the first half of the 2010 fiscal year) and an unfavourable non-monetary adjustment of $0.6 million in the second quarter of the 2009 fiscal year ($1.3 million unfavourable for the first half of the 2009 fiscal year), related to future income taxes.
2Net of financing costs.
3Adjusted net income excludes non-monetary adjustments related to future income taxes.
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