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| Press Release

Valener and Énergir, L.P. Report Their Fiscal 2018 First Quarter Results

MONTRÉAL, Feb. 09, 2018 (GLOBE NEWSWIRE) --  

Valener

  • Adjusted net income (1) (2) of $0.51 per common share in the first quarter of fiscal 2018 compared to $0.52 per share in the first quarter of fiscal 2017;
  • Normalized operating cash flows (1) per common share of $0.29 for the first quarter of fiscal 2018 compared to $0.32 per common share for the first quarter of fiscal 2017

Énergir, L.P., the new Gaz Métro

  • Adjusted net income (1) (3) of $84.5 million for the first quarter of fiscal 2018 compared to $88.9 million for the first quarter of fiscal 2017;
  • Adjusted net income (1) (3) per unit of $0.49 for the first quarter of fiscal 2018 compared to $0.53 per unit in the same quarter of fiscal 2017;
  • Excellent results from the Québec Energy Distribution segment: at $64.1 million, net income (3) exceeded the rate case projection, mainly due to a notable increase in consumption; 
  • First injections of renewable natural gas into QDA’s distribution network; and
  • A negative $24.2 million one-time impact on net income arising from the U.S. tax reform. 

(1) Financial measures not defined by U.S. generally accepted accounting principles (“GAAP”). A reconciliation of non-GAAP financial measures is presented hereafter.
(2) Adjusted net income (loss) attributable to common shareholders.
(3) Adjusted net income (loss) attributable to Partners.

Valener Inc. (“Valener”) (TSX:VNR) (TSX:VNR.PR.A), the public investment vehicle in Énergir, L.P., today reported its fiscal 2018 first quarter results.

“On the strength of an unflagging Québec economy and cold December temperatures, our gas distribution activities in Québec more than offset the earnings reduction anticipated in the 2018 rate case,” said Sophie Brochu, President and Chief Executive Officer. “South of the border, the U.S. tax reform is proving to be a net positive for customers of our regulated businesses. Both Green Mountain Power and Vermont Gas Systems have announced that they will reduce customer energy bills by returning all of the legislation-generated savings to customers for the current fiscal year. We are beginning our first fiscal year as Énergir, the new Gaz Métro, and this first quarter has us favourably positioned to realize our ambitions for 2018.”

On December 22, 2017, the U.S. government adopted exhaustive tax legislation commonly referred to as the Tax Cuts and Jobs Act tax reform. This reform has introduced complex and significant U.S. tax code changes that are applicable to Énergir, L.P.’s U.S. subsidiaries and entities subject to significant influence. Given that Énergir, L.P.’s businesses in the U.S. consist essentially of regulated utilities, most of the tax reductions will prove beneficial to customers through rate reductions.

With respect to Énergir, L.P.’s consolidated financial statements for the first quarter of fiscal 2018, the impact of this reform is a reduction in the U.S. federal income tax rate (from 35% to 21%), which reduced deferred income tax liabilities, resulting in an amount of approximately $245 million (regulatory liabilities) to be returned to customers as well as a one-time decrease in net income attributable to Partners of $24.2 million while having no impact on cash flows for the first quarter.

The regulatory liabilities recorded as a result of these adjustments are the amounts collected using past rates in excess of the new 21% rate and that are expected to be repaid through future rates over amortization periods to be subsequently set and approved by the regulatory agencies. The U.S. subsidiaries and entities subject to significant influence are currently examining the impacts of various changes resulting from the tax reform, notably impacts on their future rates.

Valener’s results

Valener reported adjusted net income attributable to common shareholders of $20.0 million for the first quarter of fiscal 2018 compared to $20.3 million in the first quarter of fiscal 2017. This result stems mainly from a $4.4 million decrease in the adjusted net income of Énergir, L.P., partly offset by favourable wind conditions at the Seigneurie de Beaupré wind farms.

Net income attributable to shareholders totalled $13.2 million in the first quarter of fiscal 2018 compared to $23.0 million in the first quarter of fiscal 2017. This result stems from a decrease in the share in the earnings of Énergir, L.P., mainly due to the impact of the U.S. tax reform.

For the first quarter of fiscal 2018, Valener generated normalized operating cash flows of $11.3 million compared to $12.2 million in the first quarter of fiscal 2017. This change came mainly from a $1.6 million increase in income taxes paid related to a timing difference in the payment of income taxes payable, partly offset by an increase in the distributions received from Énergir, L.P.

“Énergir, Québec’s leading natural gas distributor, had the foresight to transform itself from a public utility to a driving force and visionary in both renewable energy development and sustainable growth in Québec and the U.S.,” said Pierre Monahan, Chairman of Valener’s board of directors. “Valener is proud to be so closely associated with such a dynamic leader in the energy industry.”


Summary of Valener’s results
  For the quarters
ended December 31
(in millions of dollars, unless otherwise indicated)20172016
Net income     14.424.1
Net income attributable to common shareholders13.223.0
Adjusted net income attributable to common shareholders (1)20.020.3
Per common share (in $) (1)0.510.52
Normalized operating cash flows (1)11.312.2
Per common share (in $) (1)0.290.32
(1) These financial measures are not defined by GAAP. A reconciliation of non-GAAP financial measures is presented hereafter



Results of Énergir, L.P.

For the first quarter of fiscal 2018, and excluding one-time adjustments, Énergir, L.P.’s adjusted net income attributable to Partners totalled $84.5 million compared to $88.9 million in the first quarter of fiscal 2017. This change came mainly from higher expenses incurred in the Corporate Affairs segment and from an unfavourable impact of the appreciation of the Canadian dollar.

Énergir, L.P.’s net income attributable to Partners totalled $60.3 million for the first quarter of fiscal 2018 compared to $101.4 million in the first quarter of fiscal 2017 as a result of the above-mentioned factors and from one-time adjustments recorded to reflect the impact of the U.S. tax reform.

Seigneurie de Beaupré wind farms – Valener and Énergir, L.P.
 For the quarters
ended December 31
(in millions of dollars, unless otherwise indicated)20172016
Actual output (in MWh)               341,995268,544
Cash flows related to operating activities23.715.8
Distributions paid1.60.7

In the first quarter of fiscal 2018, 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”) generated a combined 341,995 MWh of electricity, a 27% increase driven by stronger winds than those of the first quarter of fiscal 2017.

The resulting operating cash flows totalled $23.7 million in the first quarter of fiscal 2018, up $7.9 million from the first quarter of fiscal 2017.

Énergir, L.P.’s segment results – Adjusted net income (loss) attributable to Partners (1)
 For the quarters
ended December 31
 
(in millions of dollars)2017 2016 
Energy Distribution  
QDA               64.1  64.1 
Vermont (2)27.1    27.3 
Impact of the U.S. tax reform (2)(6.4)- 
Natural Gas Transportation 4.0 5.5 
Impact of the U.S. tax reform (2)2.5 - 
Electricity Production 0.7 0.8 
Energy Services, Storage and Other 1.8 1.4 
Gain on remeasuring CDH following the acquisition (3)- 12.5 
Corporate Affairs(13.2)(10.2)
Impact of the U.S. tax reform (2)(20.3)- 
Net income attributable to Partners60.3 101.4 
Adjustments (2) (3)24.2 (12.5)
Adjusted net income attributable to Partners (1)84.5 88.9 
(1) This financial measure is not defined by GAAP. A reconciliation of non-GAAP financial measures is presented hereafter.  
(2) Corresponds to the impacts of the above-explained tax reform in the U.S. 
(3) A $12.5 million gain recognized during the first quarter of fiscal 2017 upon remeasurement at fair value of Énergir, L.P.’s ownership interest in CDH Solutions & Operations Limited Partnership (“CDH”), an      entity that owns 100% of the issued and outstanding units of Climatisation et Chauffage Urbains de Montréal, s.e.c., ("CCUM") following Énergir, L.P.’s acquisition of an additional 50% equity interest. 


SEGMENT INFORMATION

Energy Distribution

In Québec

Énergir L.P.’s distribution activities, carried out through QDA, generated net income attributable to Partners of $64.1 million in the first quarter of fiscal 2018, unchanged from the same quarter of last year, mainly due to:

  • the positive impact of a timing difference between revenue and expense recognition, with most of the difference expected to reverse at the end of fiscal 2018; and
  • the favourable impact of an increase in normalized natural gas deliveries as a result of economic growth;

offset by certain parameters in the 2018 rate case, as filed with the Régie de l’énergie (the “Régie”), which had anticipated a $12.4 million decrease in net income.

Given the change in volumes during the first quarter of 2018, Énergir, L.P. expects the fiscal 2018 net income generated by the Québec Energy Distribution segment to exceed earnings anticipated in the 2018 rate case by at least $3 million.

2019 rate case

In December 2017, the Régie issued a favourable decision under which it renewed, for the 2019 rate year, the 8.90% rate of return on deemed common equity as well as the method for sharing performance variances in effect since fiscal 2015.

Renewable natural gas (“RNG”)

Énergir, L.P. began distributing RNG in Québec in November 2017. The city of Saint-Hyacinthe, the leading municipal producer injecting RNG into the Énergir, L.P. network, is expected to inject approximately 13 million cubic metres this year. Ultimately, the city plans on injecting between 13 and 16 million cubic metres of RNG per year.

In addition, L'Oréal Canada, an Énergir, L.P. customer, has committed to achieving carbon neutrality and has been purchasing RNG since December 2017. Other customers interested in joining the energy transition will also be able to purchase RNG, depending on the quantities available.

In Vermont

Through Green Mountain Power Corporation (“GMP”) and Vermont Gas Systems, Inc. (“VGS”), the Energy Distribution segment in Vermont recorded adjusted net income attributable to Partners of $27.1 million in the first quarter of fiscal 2018 compared to $27.3 million in the same quarter last year. This change was mainly due to:

  • the impact of VGS’s 2018 rate case parameters, which anticipates an increase in the rate base to reflect the April 2017 commissioning of the Addison project; and
  • a timing difference between revenue and expense recognition;

partly offset by an unfavourable exchange rate impact.

In the first quarter of fiscal 2018, the Vermont energy distribution activities generated net income attributable to Partners of $20.7 million, as a one-time impact of U.S. tax reform reduced net income by $6.4 million but did not affect the quarter’s cash flows.

As per current regulations, GMP and VGS will pass on the savings resulting from the U.S. tax reform to their customers. Most of the impact of remeasuring deferred income tax liabilities as a result of the reform has been recognized in regulatory liabilities. The $6.4 million decrease in this quarter’s net income is related to the portion not included in rate setting.

As for the current year’s income taxes, GMP and VGS announced that, starting with the February 2018 billing cycle, they would be remitting, respectively, amounts of US$6 million and US$2.4 million. It should be noted that this remittance will not affect return, as it is offset by an equivalent reduction in income tax expense.

Natural Gas Transportation

For the first quarter of fiscal 2018, the Natural Gas Transportation segment generated adjusted net income attributable to Partners of $4.0 million, down $1.5 million year over year mainly because of a decrease in volumes transported by Portland Natural Gas Transmission Systems (“PNGTS”) given fewer short-term contracts. 

As for the segment’s first-quarter net income attributable to Partners, it stood at $6.5 million, up $1.0 million year over year, as the one-time impact of the U.S. tax reform generated a $2.5 million favourable impact on net income but had no impact on this quarter’s cash flows, partly offset by the above-explained decrease in volumes transported by PNGTS.

Electricity Production

For the first quarter of fiscal 2018, the Electricity Production segment recorded net income attributable to Partners of $0.7 million, a comparable result to the $0.8 million posted in the same quarter of fiscal 2017. Higher first-quarter revenues driven by favourable winds in the first three months of fiscal 2018 were offset by a net loss recorded by Standard Solar Inc. (“Standard Solar”) as it continues to implement the new business model.

Development of Standard Solar

Standard Solar has now completed two projects totalling 1.9 MW that came into service in fall 2017. At present, projects with a total installed capacity of 21.1 MW are under construction.

In October 2017, Standard Solar signed an agreement with an investor to finance solar farms in exchange for tax benefits. The agreement calls for a total amount of approximately US$50 million to be invested in Solar Project I LLC, with US$31 million coming from Standard Solar and US$19 million from the investor.

U.S. decision to impose tariffs on foreign solar panels

On January 22, 2018, the White House announced its decision to impose tariffs on solar panels. Declining safeguard tariffs will be imposed on solar panel and cell manufacturers for the next five years, starting at 30% and reaching 15% in the fourth year. Neither Mexico nor Canada will be exempt from these tariffs. The decision also exempts 2.5 GW of solar cell imports per year.

Energy Services, Storage and Other

The Energy Services, Storage and Other segment generated adjusted net income attributable to Partners of $1.8 million in the first quarter of fiscal 2018, a $0.4 million year-over-year increase resulting, among other factors, from an increase in CCUM’s net income (given the acquisition of an additional ownership interest in this entity in December 2016) and from higher LNG deliveries, partly offset by a portion of Gaz Métro LNG’s net income being attributed to Investissement Québec (42%) since the second liquefaction train was put into service in April 2017.

Corporate Affairs (4)

Reflected in the Corporate Affairs segment are, among other items, the costs of financing equity interests, various project development costs, and corporate revenues and expenses not allocated to other Énergir, L.P. segments. In the first quarter of fiscal 2018, this segment recorded an adjusted net loss attributable to Partners of $13.2 million compared to $10.2 million during the first quarter of fiscal 2017. The increase in corporate expenses is essentially due to an increase in interest expenses arising from the issuance of long-term debt in the third quarter of fiscal 2017 but also to an increase in tax burdens in certain subsidiaries related to various reforms presently underway and certain changes to holding structures made during this quarter.

As for the segment’s first-quarter net loss attributable to Partners, it stood at $33.5 million, a $20.3 million increase from the $10.2 million loss posted in the first quarter of fiscal 2017. This increase stems mainly from a one-time impact of the U.S. tax reform, specifically a decrease in the deferred tax assets of Northern New England Energy Corporation related to net deferred operating losses.

(4)In the first quarter of fiscal 2018, the financial reporting structure for segment information was changed to better reflect how management analyzes this information. As a result of these changes, the interest portion of long-term debt and the income taxes related to the financing of Énergir, L.P.'s ownership interests were reported in the Corporate Affairs segment. These items were previously being allocated to each business segment using a method based on the carrying values of the ownership interests. Prior-year figures were reclassified to conform to the current quarter’s presentation.

Reconciliation of non-GAAP financial measures

For additional information on non-GAAP financial measures, refer to Valener’s MD&A for the quarters ended December 31, 2017 and 2016.

Valener 
Reconciliation of normalized operating cash flows
 For the quarters ended
December 31
 
(in millions of dollars)  2017  2016 
Cash flows related to operating activities                    12.4 13.3 
Dividends to preferred shareholders(1.1)(1.1)
Normalized operating cash flows11.3 12.2 
Per common share (in $)                                                    0.29     0.32 

 

Valener
Reconciliation of adjusted net income attributable to common shareholders
  For the quarters ended
December 31
 
(in millions of dollars)2017 2016 
Net income14.4 24.1 
Gain on derivative financial instruments (0.8)
Income taxes on the gain (loss) on derivative financial instruments- 0.2 
Share in Énergir, L.P.’s net income adjustments7.0 (3.6)
Income taxes on Énergir, L.P.’s net income adjustments- 0.7 
Deferred income taxes related to the outside-basis temporary difference on the interest in Énergir, L.P.(0.2)0.8 
Cumulative dividends on Series A preferred shares(1.2)(1.1)
Adjusted net income (loss) attributable to common shareholders20.0 20.3 
Per common share (in $)0.51 0.52 

 

Énergir, L.P.
Reconciliation of adjusted net income attributable to Partners
  For the quarters ended
December 31
 
(in millions of dollars)         2017 2016 
Net income (loss) attributable to Partners                         60.3 101.4 
Impact of U.S. tax reform  24.2 - 
Gain on remeasuring CDH following the acquisition- (12.5)
Adjusted net income (loss) attributable to Partners84.5 88.9 
Per unit, basic and diluted (in $)0.49 0.53 

Conference call

Valener will hold a conference call today at 1:30 pm (Eastern Time) to discuss its results and those of Énergir, L.P. for the period ended December 31, 2017. The public is invited to join the call at 647-788-4922 or toll-free at 877-223-4471. A simultaneous webcast will also be available using the link provided under “Events and Presentations” in the “Investors” section of www.valener.com. A replay of the webcast will be archived on the Company’s website for 365 days following the call; a phone replay will be available for 30 days by dialing 416-621-4642 or toll-free 800-585-8367 (access code: 3091506).

Overview of Valener

Valener is a public company held entirely by its shareholders and serves as the investment vehicle in Énergir, L.P. Through its investment in Énergir, L.P., Valener offers its shareholders a solid investment in a diversified and largely regulated energy portfolio in Québec and Vermont. As a strategic partner, Valener, on the one hand, contributes to the growth of Énergir, L.P., and on the other, invests in wind power production in Québec alongside Énergir, L.P. Valener favours energy sources and uses that are innovative, clean, competitive and profitable. Valener’s common and preferred shares are listed on the Toronto Stock Exchange under the “VNR” symbol for common shares and the “VNR.PR.A” symbol for Series A preferred shares. www.valener.com

Overview of Énergir, L.P.

With more than $7 billion in assets, Énergir, L.P. is a diversified energy company whose mission is to meet the energy needs of approximately 520,000 customers and the communities it serves in an increasingly sustainable way. Énergir, L.P. is the largest natural gas distribution company in Québec; through its subsidiaries, it also generates electricity from wind power. In the United States, through its subsidiaries, the company operates in nearly fifteen states, where it produces electricity from hydraulic, wind and solar sources, in addition to being the leading electricity distributor and the sole natural gas distributor in Vermont. Énergir, L.P. values energy efficiency and invests both resources and efforts in innovative energy projects such as renewable natural gas and liquefied and compressed natural gas. Through its subsidiaries, it also offers a wide range of energy services. Énergir, L.P. hopes to become the partner of choice for those striving toward a better energy future. www.energir.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 Énergir Inc., in its capacity as General Partner of Énergir, L.P., 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,” “seeks,” “targets,” “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 Énergir, L.P. 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 that approvals will be obtained by Énergir, L.P. from regulatory agencies and interested parties to carry out all of its activities and the socio-economic risks associated with such activities, uncertainty related to the implementation of Québec’s 2030 Energy Policy, the competitiveness of natural gas in relation to other energy sources in the context of fluctuating global oil prices, the reliability or costs of natural gas supply and electricity supply, the integrity of the natural gas and electricity distribution and transportation 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 GP (“Wind Farm 4”) and other development projects, Valener’s ability 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, uncertainty surrounding the December 2017 U.S. tax reform commonly referred to as Tax Cuts and Jobs Act, the weather conditions and other factors described in section E) Risk Factors Relating to Valener and in section R) Risk Factors Relating to Énergir, L.P. (formerly Gaz Métro Limited Partnership) of Valener’s MD&A for the fiscal year ended September 30, 2017 and in subsequent Valener quarterly MD&As that might address changes to these risks. Although the forward-looking statements contained herein are based on what the management of the manager believes to be reasonable assumptions, in particular assumptions that no unforeseen changes in the legislative and regulatory framework of energy markets in Québec and in the United States will occur; that the applications filed with various regulatory agencies 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 will occur outside the ordinary course of business, such as a natural disaster or any other type of calamity, a major service interruption, or a threat to cybersecurity (or cyberattack); that Énergir, L.P. can continue to distribute substantially all of its adjusted net income; 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 Green Mountain Power Corporation will be able to continue achieving efficiency gains and synergies from the merger with Central Vermont Public Service Corporation; that Valener and Énergir, L.P. will be able to present their information in accordance with U.S. GAAP beyond 2018 or, after 2018, will adopt International Financial Reporting Standards (“IFRS”) that permit the recognition of regulatory assets and liabilities; that liquidity needs for Énergir, L.P.’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 the Valener MD&A for the quarter ended December 31, 2017, 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.

For additional information:

Investors and AnalystsMedia
Mariem ElsayedMarie-Christine Demers
Investor RelationsPublic Affairs and Communications
514-598-3253
www.valener.com
514-598-3449
Twitter: @Energir_
 www.energir.com/news/   
  

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