Société en commandite Gaz Métro
Cause
tarifaire
2009, R-3662-2008
Report Date:
September
19, 2007
Press Release:
April 5, 2007
Previous Report: March 16, 2005
Rating Report
Gaz Métro inc.
Jade Freadrich/Adeola Adebayo
+1 416 597 7351/+ 1 416 597 7421
jfreadrich@dbrs.com / aadebayo@dbrs.com
RATING
Debt Rated
Commercial Paper
First Mortgage Bonds*
Rating Action Rating
Trend
Confirmed
R-1 (low) Stable
Confirmed
A
Stable
Current
2006
2005
2004
2003
2002
2001
RATING HISTORY
Commercial Paper
R-1 (low)
R-1 (low) R-1 (low) R-1 (low) R-1 (low) R-1 (low) R-1 (low)
First Mortgage Bonds*
A
A
A
A
A
A
A
* Guaranteed by Gaz Métro Limited Partnership
RATING UPDATE
DBRS confirmed the ratings of Gaz Métro inc. (GMi)
GMLP’s regulated gas distribution businesses remain
on April 5, 2007 based on the continued strong
the core component of business operations (86% of
business profile and credit metrics of its principal
2006 EBITDA) and provide stability of earnings and
operating entity Gaz Métro Limited Partnership
cash flow as the company seeks to grow via targeted
(GMLP or the Partnership), which guarantees the First
acquisitions and development projects in its other
Mortgage Bonds and a secured credit facility that
businesses. GMLP continues to generate cash flow
backs up the commercial paper. GMi is the general
from operations that is sufficient to internally finance
partner of the Partnership and serves as the financing
both its capital expenditures and distributions to GMi
entity for GMLP, and the funds that it raises are loaned
and public unitholders. Pending resolution of the tax
to the Partnership on similar terms and conditions.
issue as GMLP continues to operate in accordance
This removed the company from Under Review with
with current business and financial strategies, DBRS
Developing Implications where it was placed
expects this trend to continue over the medium term.
November 1, 2006, as a result of the proposed change
(Continued on page 2)
in tax law scheduled to take effect in 2011.
RATING CONSIDERATIONS
Strengths
• Core gas distribution companies operate in
supportive regulatory environments, exhibit low
business risk and provide financial stability
• Strong operating cash flow that finances capital
expenditures and distributions
• Investments in pipelines and non-domestic
operations diversify earnings base
• Strong sponsorship from Trencap shareholders,
Enbridge and Gaz de France
Challenges
• Earnings sensitivity to interest rates through
approved ROEs
• Cash flow sensitivity to weather and economic
cycles
• Relative pricing of competitive energy sources
• Operating challenges at PNGTS
FINANCIAL INFORMATION
Gaz Métro Limited Partnership
Consolidated
EBITDA interest coverage (times) *
Cash flow / CAPEX (times)
Percent debt in capital structure
Cash flow / Total debt
Operating income ($ millions)
Net income ($ millions)
Cash flow from operations ($ millions)
Approved total ROE for Québec gas distribution
* EBITDA does not reflect 38.3% ownership of PNGTS.
For the year ended September 30
2006
2005
3.90
4.11
1.82
1.67
60.8%
60.1%
19.5%
20.6%
12 mos ended
June 30, '07
3.79
2.26
61.2%
18.6%
240.1
150.9
302.2
9.57%
†
231.7
147.2
279.9
9.33%
242.2
154.4
290.2
11.64%
2004
4.14
2.37
58.3%
23.9%
2003
4.28
2.79
60.1%
22.4%
2002
4.24
3.06
60.7%
22.9%
243.0
160.4
295.2
10.96%
252.8
153.3
295.3
10.34%
244.0
154.6
290.9
9.69%
† Authorized ROE for fiscal 2007.
THE COMPANY
Gaz Métro inc. (GMi or the Company) is the general partner of Gaz Métro Limited Partnership (GMLP or the
Partnership) and currently owns 71% of the partnership units. GMi is indirectly owned by Trencap s.e.c. (50.4%),
Enbridge Inc. (Enbridge) (32.1%) and Gaz de France (17.6%). The operations of GMLP include natural gas
distribution in Québec and Vermont (86% of 2006 EBITDA); transportation (9%); storage (3%); energy services and
other; and electricity distribution (since April 2007). Gas transportation operations include wholly owned Champion
Pipeline, a 50% interest in Trans Québec & Maritimes Pipeline (TQM) and a 38.3% interest in Portland Natural Gas
Transmission System (PNGTS).
AUTHORIZED PAPER LIMIT
$400 million
Original : 2008.06.10
Energy
Gaz Métro - 8, Document 10
(12 pages)
DBRS
Gaz Métro inc. – Page 2
RATINGS UPDATED (Continued from page 1)
GMLP will evaluate strategies to mitigate the
impact of any new taxes, within the context of
maintaining the capital structure of its regulated
utility business in accordance with regulatory
approved levels. The confirmation of GMi’s
Commercial Paper rating is based on the credit
strength of GMi, as well as the credit facility
backing the commercial paper program which is
guaranteed by GMLP.
GMLP has experienced some weakness in earnings
in the domestic gas distribution business over the
last two years which remains sensitive to lower
return on equity due to interest rates and volume
throughputs. In addition, short-term profitability
has been challenged by its 38.3% owned Portland
Natural Gas Transmission System (PNGTS). As a
result of earnings pressure, management reduced
cash distributions paid by 9% in July 2006 in order
to preserve the equity base of the gas distribution
activity and the Partnership.
This near-term weakness has been partially offset
by completion of TransCanada Energy’s 550MW
Bécancour cogeneration plant and by interruptible
sales to industrial customers. Representing the
Partnership’s largest customer, the new
cogeneration facility will provide a benefit to both
earnings and cash flow as firm industrial deliveries
have increased 42% year-to-date (YTD).
The Partnership continues to explore ways to grow
and diversify its operations by implementing its
strategy to become an integrated energy provider.
Strategic diversification should improve the
Partnership’s overall business profile, and both
geographic and operational diversification benefits
are expected from the acquisition of electric utility
Green Mountain Power Corp. (Green Mountain)
completed in April 2007. The Green Mountain
acquisition is consistent with the company’s
business strategy to grow through targeted
acquisitions. Although the acquisition has resulted
in a temporary increase in leverage, DBRS notes
that management of the company has stated that it
expects to finance the acquisition with debt and
units in proportions that will leave the financing
structure at levels comparable with the past. At
these levels, DBRS would expect the acquisition,
after giving consideration to the incremental
earnings and cash flow of the acquired entity, to
have little net impact on those same credit metrics
for GMLP. Other projects under consideration that
could also provide growth include the Rabaska
LNG terminal and the Seigneurie de Beaupré wind
farm.
BASIS OF ANALYSIS
GMi as it is structured today came into existence
via a corporate reorganization in 1991 that also
established the funding parameters that are still
used. The Partnership assumed all of the
obligations then outstanding under the First
Mortgage Bonds with the assets of the Partnership
continuing to secure outstanding obligations. The
reorganization agreement also established the
terms of the subordinated debt at GMi that is
invested as equity into GMLP. Importantly, it
established that failure to pay interest or principal
would not cause either acceleration of that debt or
a cross default to senior debt, thus resulting in the
heavy equity treatment that is afforded that debt.
GMi is the financing vehicle for GMLP with funds
raised loaned to GMLP on similar terms and
conditions as those imposed on GMi. Given the
mirror like structure of the financing, the only
substantive difference between the two entities is
the subordinated debt at GMi and the guarantees
that exist. DBRS’s analysis will focus on the
operations and credit of GMLP (see section below
for a more complete description of operations).
Gaz Métro inc. – Page 3
DESCRIPTION OF CORPORATE STRUCTURE
Solidarity
Fund
QFL
Caisse de dépôt et
placement du Québec
(General Partner)
16.7%
51.1%
BC
Investment
Management
Corporation
SNC-Lavalin
Group Inc.
11.1%
11.1%
Enbridge Inc.
Trencap s.e.c
Gaz de France
32.1%
50.4%
17.6%
Régime des
rentes du
Mouvement
Desjardins
Régime de
Retraite de
l'Université
du Québec
8.3%
1.7%
Noverco Inc.
100%
Gaz Métro Inc. "GMi " (Québec, Canada)
Public
Unitholders
y $707.8 million - subordinate intercompany debt (Noverco)
y Commercial paper rated R1 (low)
{
y $400 million secured credit facility
y $1.025 billion First Mortgage Bonds rated 'A'
71% of units
(General Partner)
Guarantee
29% of units
(Limited Partners)
Gaz Métro Limited Partnership "GMLP" (Québec, Canada)
50%
TQM Pipeline & Company, Limited
Partnership (Québec, Canada)
y $137.5 million First Mortgage
Bonds rated A (low)
99.99%
Gaz Métro Plus
Limited
Partnership
(Québec,
Canada)
Northern New England Energy Corporation
(Vermont, USA)
38.29%
Intragas Holding, Limited
Partnership
(Québec, Canada)
y US$100 million
100%
Portland Natural Gas
Transmission System
(Maine, USA)
49.99%
100%
Northern New
England
Investment
Company, Inc.
(Vermont,
USA)
100%
Green Mountain
Power Corp.
(Vermont, USA)
y US$112.4 million
100%
Vermont Gas
Systems, Inc.
(Vermont, USA)
79.99%
Intragas Limited Partnership
(Québec, Canada)
y US$20.0
million notes
Notes:
ƒ Consolidated long-term debt amounts outstanding for GMLP and GMi were $1.6 billion and $2.3 billion respectively as of June 30, 2007.
ƒ GMLP’s subsidiaries and joint ventures can borrow up to $88.2 million under term loan agreements.
20%
Gaz Métro inc. – Page 4
RATING CONSIDERATIONS
Strengths
(1) Regulated gas distribution and transportation
operations account for almost all earnings and
provide GMLP with significant long-term stability.
Excluding Vermont Gas Systems (VGS) from
reported segregated earnings, DBRS estimates that
approximately 78% of EBITDA is derived solely
from gas distribution operations in Québec. These
domestic gas distribution operations are permitted
to utilize deferral accounts that smooth the
earnings impact of: a) weather-induced revenue
fluctuations, and (b) interest rate fluctuations on
floating rate debt, both of which are amortized and
recovered in future rates over a five-year period.
Note that while these deferral accounts smooth
income, they do not smooth cash flow from
operations.
(2) GMLP continues to generate cash flow from
operations that is sufficient to internally finance
both its capital expenditures and distributions to its
partners. DBRS expects this to continue over the
medium- to long–term, with credit metrics to
remain generally consistent with historical levels
with temporary variation due to acquisitions or
major project developments.
(3) GMLP continues to explore ways to diversify
its operations in connection with its strategy to
become an integrated energy provider. The
acquisition of Green Mountain will provide
geographic and operational diversification
benefits. Also, the 50% interest in Intragas
(acquired in December 2004) added underground
natural gas storage capability to the Partnership’s
activities.
(4) Construction of the 550MW Bécancour
cogeneration plant was completed September
2006. This represents GMLP’s biggest customer
and should increase deliveries by 15% on an
annual basis.
Challenges
(1) GMLP’s earnings and cash flow are sensitive to
interest rates through approved ROEs. A 25 basis
point change in approved ROE equates to
approximately a $2 million impact on earnings.
(2) GMLP’s cash flow is sensitive to changes in
economic cycles on a medium-term basis and
weather impacts cash flow on a short-term basis.
The rate stabilization account mitigates weatherinduced fluctuations on income. Approximately
55% of gas volumes are delivered to industrial
customers that are most sensitive to economic
conditions.
(3) Relative pricing of competitive energy sources
impacts volume throughputs over the medium to
longer term. Market penetration of natural gas in
Québec is well below the national Canadian
average resulting from the low cost of electricity in
Québec. Gas distribution throughputs are
somewhat volatile in conjunction with the tight
competitive situation between natural gas, fuel oil,
and electricity in Québec. The company continues
to look for ways to distribute greater volumes of
gas and has had recent success with interruptible
volumes to industrial customers and has increased
market penetration in new home construction.
(4) PNGTS’s earnings have been challenged by
loss of two major customers and subsequent excess
transportation capacity. A source of growth
however is expected from the Rabaska project
which is scheduled for completion in 2010 if the
decision is made to proceed.
Gaz Métro inc. – Page 5
EARNINGS AND OUTLOOK
Gaz Métro Limited Partnership
Consolidated
(CAD millions)
12 mos ended
June 30, 2007
For the year ended September 30
2006
2005
2004
2003
2002
Gross margin *
601.9
576.3
563.2
555.0
568.8
555.9
EBITDA
388.0
369.5
375.3
371.6
384.7
379.2
102.4
94.7
91.3
89.7
90.0
89.4
9.5
11.9
8.8
7.6
9.5
150.9
147.2
154.4
160.4
153.3
†
Interest expense
Income taxes
Net Income
154.6
Segmented EBITDA
For the year ended September 30
(CAD millions)
2006 (%)
2006
2005
2004
2003
2002
86%
317.1
317.4
329.0
331.3
325.6
Transportation
9%
34.6
43.9
Storage †
3%
11.8
7.0
4%
15.6
15.7
8.5
5.6
5.5
-3%
(9.6)
(8.7)
(5.3)
(3.7)
(0.8)
Distribution ‡
Energy services & other
Non-allocated expenses & eliminations
Total EBITDA
100%
369.5
375.3
39.4
51.5
48.9
-
-
-
371.6
384.7
379.2
* Net of direct co s ts as s o ciated with the purchas e of gas .
† EBITDA do es not reflect 38.3% owners hip o f P NGTS.
‡ Reflects reported s egmented res ults , which aggregates Québec and Vermont dis tribution. Excluding Vermont Gas Sys tems , DBRS es timates that
approximately 78% of EBITDA is derived s olely fro m Québec dis tribution operations .
Summary
• Recent weakness in distribution net income
was primarily the result of the reduced
authorized ROE as a result of a lower interest
rate environment, as well as reduced
normalized throughput.
− Fiscal 2007 authorized ROE has been
increased to 9.57% from 9.33% in 2006.
− Lower distribution throughputs resulted
from higher natural gas prices which
prompted customers (especially highvolume industrial and small commercial)
to reduce consumption. The Partnership
has worked to replace this volume with
short-term interruptible volumes and has
already begun to benefit from the start-up
of the Bécancour cogeneration unit.
− Loss of two significant customers at
PNGTS
has
negatively
impacted
transportation earnings but this volume
has recently been partially replaced on a
short-term basis.
Outlook
• Over the medium term, the outlook for
GMLP’s earnings remains stable. Modest
growth expected from the gas distribution
business may be partially offset by short-term
weakness in PNGTS.
− The penetration of natural gas in Québec
compared to other provinces is low. The
•
•
•
•
gas distribution segment will benefit from
continuing penetration of the new
residential construction sector and efforts
to increase industrial gas sales on an
interruptible basis.
Domestic gas distribution may benefit from
recently approved changes to the incentive
return, as well as proposed changes in the
2008 rate case to the rate of return allowed on
deemed equity to provide a better reflection of
GMLP’s
business
risk
and
market
expectations.
Bécancour represents GMLP’s biggest
customer and should increase deliveries by
15% on an annual basis.
The acquisition of Green Mountain will
provide
geographic
and
operational
diversification benefits to GMLP’s gasdistribution operations in Québec, which is
consistent with the strategy to become an
integrated energy provider.
TQM benefits from stable revenues as almost
all revenues are under long-term contracts with
TransCanada PipeLines Limited until 2018.
Gaz Métro inc. – Page 6
•
−
Over the longer term, DBRS expects
continued earnings stability, with potential
growth from various projects currently being
pursued, including the following:
− The Rabaska project, a liquefied natural
gas terminal in the eastern part of Québec.
GMLP intends to submit a joint bid with
Boralex Inc. into Hydro-Québec’s 2007
call for tender for the Seigneurie de
Beaupré wind project.
FINANCIAL PROFILE
Gaz Métro Limited Partnership
Consolidated Statement of Cash Flows
($ millions)
12 mos ended
June 30, '07
For the year ended September 30
2006
2005
2004
2003
2002
Net income before extras
150.9
147.2
154.4
160.4
153.3
154.6
Depreciation & amortization of def. charges
152.2
140.7
133.8
130.9
134.8
136.3
1.9
4.0
7.1
Other (future income taxes, adj. of equity income)
Cash flow from operations
Capital expenditures
Free cash flow before working capital changes
(0.9)
302.2
279.9
290.2
295.2
295.3
(133.9)
(153.9)
(174.2)
(124.4)
(105.7)
(95.0)
168.3
126.1
116.0
170.9
189.6
196.0
57.3
54.5
57.1
53.1
49.3
45.8
(23.0)
(37.1)
(1.7)
2.3
11.7
(50.5)
Reduction in def. charges related to gas costs
Rate stabilization
Working capital changes
Free cash flow before distributions
Distributions to Partners
Free cash flow after distributions
(8.0)
56.3
12.1
(26.1)
(57.3)
12.6
258.9
155.5
145.3
216.5
193.3
203.9
(147.5)
(156.3)
(157.7)
(154.3)
(148.0)
(141.4)
(0.7)
(12.5)
62.2
45.2
62.5
111.4
(9.8)
290.9
Acquisitions & Divestitures
(224.1)
14.6
(96.7)
(31.9)
(25.6)
(4.4)
Deferred charges
(102.9)
(37.0)
(64.8)
(215.6)
(23.2)
(174.0)
(65.9)
(35.6)
(129.7)
(110.1)
(12.0)
46.1
196.7
32.9
123.3
22.0
42.5
(39.2)
50.2
0.1
66.1
10.6
66.7
-
31.3
9.8
15.4
(3.0)
(0.9)
6.9
Cash flow to total debt
18.6%
19.5%
20.6%
23.9%
22.4%
22.9%
Percent debt in capital structure
61.2%
60.8%
60.1%
58.3%
60.1%
60.7%
Cash flow / CAPEX (times)
2.26
1.82
1.67
2.37
2.79
3.06
EBIT interest coverage (times) *
2.35
2.45
2.65
2.71
2.81
2.73
EBITDA interest coverage (times) *
3.79
3.90
4.11
4.14
4.28
4.24
Cash flows before financing
Net debt financing
Net equity financing
Net change in cash
Key Ratios:
* EBIT and EBITDA do not reflect GMLP 's 38.3% owners hip of P NGTS.
Summary
• The predominance of regulated operations
provides generally stable earnings and cash flow
resulting in a stable financial profile and credit
metrics.
• GMLP’s cash flow from operations is typically
strong enough to internally fund both capital
expenditures and distributions. This was not the
case in 2005 as a result of negative working
capital adjustments and high capital expenditures.
− 2005 capital expenditures were notably high
as a result of pipeline expansions in Eastern
Montreal and for the Bécancour cogeneration
plant.
• Free cash flow is sensitive to fluctuations in
weather and natural gas costs, however the
•
•
regulatory mechanism provides for normalization
in rates over future years.
− The recent impact of warmer than normal
temperature is seen in the change in the rate
stabilization account which will be recovered
in future rates over five years.
The acquisition of Green Mountain is relatively
modest in comparison with GMLP’s existing
operations.
A $50 million private placement of GMLP units
was completed in October 2006 with SNCLavalin. The proceeds were used to pay down a
portion of outstanding commercial paper and to
maintain the equity of the gas distribution activity
within regulatory parameters.
Gaz Métro inc. – Page 7
Outlook
• Over the medium term, cash flow from
operations will continue to remain relatively
stable and exhibit moderate growth. In the near
term, improvement is expected from:
− The Green Mountain acquisition is
expected to provide accretive cash flow.
− Completion of the 550MW Bécancour
cogeneration plant in September 2006
should increase gas deliveries 15% on an
annual basis.
•
•
Cash flow from operations is expected to
remain sufficient to fund capital expenditures
and distributions to partners.
− Capital expenditures over the medium
term will increase as a result of various
projects under development including the
Rabaska LNG terminal and Seigneurie de
Beaupré wind farm.
Over the longer term, DBRS expects key
financial ratios to remain in line with current
levels.
LONG-TERM DEBT MATURITIES AND BANK LINES
Annual Capital Repayments *
(CAD millions)
First mortgage bonds
Subordinated debt at GMi
Subsidiaries’ debt †
Total
F2007
75.0 ‡
6.0
81.0
F2008
0.7
0.7
F2009
100.0
58.4
158.4
F2010
100.0
151.2
251.2
F2011
47.1
47.1
*Capital required to meet maturities and sinking fund requirements, excluding redemptions before maturity at the Partnership’s option.
†Represents TQM (GMLP 50% ownership) and Canadian dollar equivalencies of Green Mountain Power, NNEEC and VGS notes.
‡$75 million of First Mortgage Bonds matured December 15, 2006.
Summary
• GMi’s debt maturities are reasonably spread
out over the next five years with refinancing
being straightforward, given the market and
the company’s strong rating.
• The acquisition of Green Mountain resulted in
a temporary increase in leverage. DBRS notes
that management of the company has stated
that it expects to finance the acquisition with
debt and units in proportions that will leave
the financing structure at levels comparable
with the past. At these levels, DBRS would
expect the acquisition, after giving
consideration to the incremental earnings and
cash flow of the acquired entity, to have little
net impact on credit metrics over the medium
term.
− USD 100 million of debt was issued by
Northern New England Energy Corp.
(NNEEC) in June 2007 to reimburse part
of the bridge loan put in place to fund the
acquisition.
− USD 113 million of additional debt was
assumed with the Green Mountain
acquisition completed in April 2007.
Green Mountain’s debt maturities are
spread out from F2018 to F2036.
• GMi has term credit facilities totalling $622.9
million and various operating credit facilities
totalling $164.9 million. Borrowings under
•
•
these facilities were $213.1 as of June 30,
2007, leaving the company with ample
liquidity to fund its business. Debt proceeds at
GMi are lent to GMLP on similar terms and
conditions as those incurred at the parent.
Notable credit facilities include:
− A $400 million five-year fully committed
credit facility that is guaranteed by
GMLP and backs GMi’s commercial
paper program. Maturity is currently
December 2011 and is extendible each
year.
− $100 million, unsecured 364-day
renewable lines of credit.
The Partnership’s subsidiaries can borrow up
to $88.2 million under term loan agreements.
These loans are secured by the assets of the
respective subsidiaries; however no recourse
exists to the Partnership.
The company was in compliance with its bond
covenants as of June 30, 2007 and DBRS
believes that GMi and GMLP will be able to
operate their business without being restricted
by the covenants. It is significant to note that
GMLP is restricted from incurring funded
debt greater than 65% of capitalization and
GMi is restricted from paying distributions if
the ratio of debt to capital were to increase to
greater than 75%.
Gaz Métro inc. – Page 8
REGULATION
Québec Gas Distribution: operations are
regulated by the Régie de l’énergie (Régie) by a
hybrid of cost of service/rate of return
methodology and performance-based regulation
(revenue cap).
• Deemed capital structure by the regulator is
38.5% common equity, 7.5% preferred shares
and 54% debt.
• Authorized ROE is derived from a base ROE
plus an incentive component.
− Base ROE is derived from: (1) the August
Consensus Forecast yield for ten-year
bonds plus the market spread between
Government of Canada ten- and thirtyyear bond yields; (2) 75% of the variance
in the August forecast rate of return on
30-year Government of Canada bonds.
− Fiscal 2007 authorized ROE is 9.57%,
derived from a base ROE of 8.73% plus
the incentive return of 0.84%.
• The gas costs are flowed through to customers
with monthly price adjustments.
• Favourable regulatory support is evidenced by
changes approved in April 2007 to the
incentive return that will likely benefit GMLP.
Additional changes to the rate of return
allowed on deemed equity to provide a better
reflection of GMLP’s business risk and market
expectations are proposed in the 2008 rate
case.
Vermont Gas and Electricity Distribution: VGS
and Green Mountain are regulated by the Vermont
Public Service Board (VPSB) on a compliant basis
based on a cost of service/rate of return
methodology.
• Temperature normalization reserve accounts
are disallowed.
• New regulatory framework came into effect
for VGS (October 2006) and Green Mountain
(February 2007) which includes a price
adjustment mechanism to reflect the cost of
purchasing gas or electricity sold to customers.
Canadian Gas Transportation: TQM is regulated
by the National Energy Board (NEB) on a rate of
return/cost of service basis.
• The allowed return on equity of 8.46% in 2007
(8.88% in 2006; 9.46% in 2005) is based on
forecasted long-term Government of Canada
bond yields.
• TQM is pursuing an increase in its deemed
equity to 36%, which is in line with other
Canadian pipelines regulated by the NEB.
U.S. Gas Transportation: PNGTS gas
transportation activities are regulated by the
Federal Regulatory Energy Commission (FERC).
• The last rate adjustment has been effective
since April 2002 and a new rate is expected in
April 2008.
• The implicit ROE is currently 12.33%.
Gaz Métro inc. – Page 9
DESCRIPTION OF OPERATIONS
Gas Distribution: represents the core business and
accounted for 86% of EBITDA in 2006. Excluding
Vermont Gas Systems (VGS) from reported
segregated earnings, DBRS estimates that
approximately 78% of EBITDA is derived solely
from gas distribution in Québec.
• The Partnership delivers approximately 97%
of the natural gas consumed in Québec,
serving approximately 167,000 customers and
is one of the largest natural gas distributors in
Canada.
• Vermont Gas Systems (VGS) is the sole gas
distributor in Vermont with approximately
40,000 customers.
•
•
•
•
Electric Distribution: represents a new line of
business for GMLP.
• Green Mountain is a utility operating company
that primarily transmits and distributes
electricity in the state of Vermont, serving
approximately 92,000 customers. Ancillary
businesses include sales of: (1) electric power
at wholesale in New England, and (2)
operations services to other utilities in
Vermont. Approximately 89% of the
electricity Green Mountain distributes is
purchased from others and the remaining 11%
is obtained through ownership interests in
generation facilities.
• The Partnership intends to submit a joint bid
with Boralex Inc. into Hydro Quebéc’s 2007
call for tender for the Seigneurie de Beaupré
wind project.
Gas Transportation: includes a 50% interest in
the TQM pipeline, 100% of the Champion pipeline
and a 38.3% interest in PNGTS. This segment
reflected about 14% of assets at the end of
September 2006 and contributed 15% of net
income in fiscal year 2006.
TQM operates a gas pipeline in Québec that
connects upstream with TransCanada and
downstream with PNGTS and Gaz Métro (see
separate DBRS report dated February 27,
2007).
The newly completed Lachenaie expansion
project improves compression on TQM’s
existing system. This expansion provides
natural gas to TransCanada’s recently
constructed Bécancour gas-fired power plant,
with the power sold to Hydro Québec under a
long-term contract.
PNGTS’s pipeline originates at the Québec
border and extends to the suburbs of Boston.
Over the medium- to long-term, throughput
volumes on the PNGTS pipeline may increase
as a result of increased demand for natural gas
in the U.S. Northeast to support required
capacity expansion in that region.
Gas Storage: The Partnership acquired an
ownership interest in Intragas in December 2004,
adding underground natural gas storage capability
to the Partnership’s activities (4% of GMLP’s
assets).
Energy Services and Other: includes nonregulated activities.
• Energy-related activities are focused on the
maintenance and repair of residential,
commercial and industrial equipment; the
heating and cooling of large buildings; and the
leasing of residential water heaters.
• Water-related activities are focused on
municipal water and wastewater services.
• Fibre optic activities exist mainly in Montreal,
Toronto and Ottawa through GMLP’s 48.8%
interest in MTO Telecom Inc.
Gaz Métro inc. – Page 10
Gaz Métro Limited Partnership
Consolidated Balance Sheet
(CAD millions)
As at
As at September 30
As at
2006
2005
Liabilities & Equity
60.1
32.0
22.2
Bank debt
Accounts receivable
140.7
102.4
86.7
Payables & Accruals
Inventories
153.7
250.4
287.4
10.3
5.9
5.6
June 30 '07
Assets
Cash
Prepaid expenses
Current Assets
364.8
390.6
401.9
Net fixed assets
2,161.2
64.5
1,923.6
49.9
1,881.3
26.4
211.8
221.9
168.5
154.6
124.2
116.8
26.4
18.7
228.3
131.8
3,115.1
54.2
2,783.2
56.9
2,880.1
Rate stabilization acct
Deferred charges
Investments and other
Financial instruments
Intangible assets
Total
Balance Sheet Ratios
Current ratio (times)
Accumulated depreciation / Gross fixed assets
Percent debt in capital structure
Payout Ratios
Declared distributions / Cash avail. for distribution † ‡
Distributions / Net income †
Cash Flow Ratios
Cash flow / CAPEX (times)
(Cash flow - Distributions) / CAPEX (times)
Cash flow / Total debt
Coverage Ratios
EBIT interest coverage (times) *
EBITDA interest coverage (times) *
Profitability Ratios
Operating margin
Net margin
Return on partners' equity
Québec Gas Distribution Regulatory Statistics
Approved base ROE
Approved total ROE
Deemed common equity
Rate base ($ millions)
Gas Distribution Normalized Volumes (bcf)
Firm industrial
Interruptible industrial
Commercial
Residential
12 mos ended
June 30 '07
1.32
n.a.
61.2%
58.3%
97.8%
June 30 '07
L.t.d. due in one year
Current Liabilities
29.8
263.6
243.1
251.0
2.6
81.0
28.0
276.0
361.2
308.9
Deferred credits
64.8
73.8
235.4
Future income taxes
87.1
51.8
43.6
Long-term debt
48.8
1,610.5
56.9
1,314.9
1,353.7
Partners' equity
1,027.8
924.6
938.4
Total
3,115.1
2,783.2
2,880.1
2004
1.10
37.0%
58.3%
2003
1.18
34.3%
60.1%
2002
0.85
33.3%
60.7%
59.3%
96.2%
56.9%
96.5%
54.2%
91.5%
Financial instruments
For the year ended September 30
2006
2005
1.08
1.30
36.6%
35.8%
60.8%
60.1%
68.9%
106.2%
62.6%
102.1%
2.26
1.82
1.67
2.37
2.79
3.06
1.16
18.6%
0.80
19.5%
0.76
20.6%
1.13
23.9%
1.39
22.4%
1.57
22.9%
2.35
3.79
2.45
3.90
2.65
4.11
2.71
4.14
2.81
4.28
2.73
4.24
39.9%
25.1%
15.5%
40.2%
25.5%
15.8%
43.0%
27.4%
16.9%
43.8%
28.9%
18.2%
44.4%
27.0%
18.1%
43.9%
27.8%
18.9%
8.73%
9.57%
38.5%
1,814.5 f
8.95%
9.33%
38.5%
1,733.9
9.69%
11.64%
38.5%
1,673.2
9.45%
10.96%
38.5%
1,666.3
9.89%
10.34%
38.5%
1,566.7
9.67%
9.69%
38.5%
1,545.6
104.2
28.3
66.4
25.8
79.4
30.6
66.1
25.7
81.3
24.1
67.0
25.9
82.4
27.7
67.7
26.6
‡ DBRS defines 'Cash available for distribution' as Cash flow from operations less maintenance CAPEX, but before growth CAPEX and working capital changes.
n.a. = not available
2005
37.1
* EBIT and EBITDA do not reflect 38.3% ownership of PNGTS.
= Fiscal 2007 forecast
2006
9.8
† Level of distributions paid were reduced 9% in July 2006.
f
As at September 30
82.5
25.9
67.2
26.2
77.5
37.8
67.6
26.1
Gaz Métro inc. – Page 11
Gaz Métro Inc.
Consolidated Balance Sheet
(CAD millions)
Assets
Cash
Accounts receivable
Inventories
Prepaid expenses
Current Assets
As at
June 30 '07
61.0
138.7
153.7
10.3
363.7
Net fixed assets
Deferred charges
Investments & other
Financial instruments
Intangible assets
Total
2,161.2
276.3
274.6
26.4
251.8
3,354.0
As at September 30
2006
2005
36.9
25.4
100.1
88.0
250.4
287.4
5.9
5.6
393.3
406.4
1,923.6
271.8
164.2
18.7
176.7
2,948.4
1,881.3
194.9
149.4
228.3
179.4
3,039.7
Liabilities & Equity
Bank debt
Payables & Accruals
L.t.d. due in one year
Current Liabilities
Future income taxes
Deferred credits
Financial instruments
Senior debt *
Subordinate debt ‡
Minority interest
Partners' equity
Total
12 mos ended
Key Ratios:
EBIT senior interest coverage (times) †
EBIT total interest coverage (times)
Cash flow / CAPEX (times)
Cash flow to senior debt *
Cash flow to total debt
Percent senior debt in capital structure *
Percent total debt in capital structure
June 30, '07
2.95
1.42
1.69
21.3%
9.7%
37.9%
83.1%
As at
June 30 '07
10.7
302.8
2.6
316.1
131.2
64.8
48.8
1,063.7
1,254.6
298.0
176.8
3,354.0
As at September 30
2006
2005
37.1
29.8
269.6
281.4
81.0
28.0
387.7
339.2
75.1
65.1
73.8
235.4
56.9
1,138.7
1,123.0
883.9
931.2
251.7
255.5
80.4
90.3
2,948.4
3,039.7
For the year ended September 30
2006
2005
2004
3.09
3.44
3.32
1.45
1.48
1.51
1.33
1.18
1.69
17.9%
18.3%
21.0%
9.5%
9.8%
10.8%
46.0%
45.7%
44.4%
86.6%
85.9%
86.3%
* Senior debt includes First Mortgage Bonds and drawdown on the $400 million secured credit facility.
June 30, 2007 secured credit facility drawdown is assumed to be the 2006 year-end amount of $38.7 million as this is not disclosed on an interim basis.
† Senior debt interest reflects DBRS' estimate as this is not publically disclosed by Gaz Métro.
‡ Reflects 100% debt treatment of subordinated debt issued by GMi and GMLP's subsidiaries.
Gaz Metro Inc.
Consolidated Statement of Cash Flows
($ millions)
Net income before extras *
Depreciation & amortization of def. charges
Share of non-controlling Partners
Other (future income taxes; adj. of equity income)
Cash flow from operations
Capital expenditures
Free cash flow before working capital changes
Reduction in def. charges related to gas costs
Rate stabilization
Working capital changes
Free cash flow before distributions
Distributions
Free cash flow after distributions
Acquisitions/Divestitures
Other (incl. deferred charges)
Cash flows before financing
Net debt financing
Net equity financing
Net change in cash
12 mos ended
June 30, '07
30.2
152.2
43.9
0.2
226.5
(133.9)
92.7
57.3
(23.0)
55.7
182.6
(76.2)
106.4
(224.1)
(102.9)
(220.6)
198.9
50.2
28.6
For the year ended September 30
2006
2005
2004
29.7
55.0
40.9
140.7
133.8
130.9
40.1
39.8
40.6
(6.2)
(22.6)
(2.8)
204.2
206.0
209.6
(153.9)
(174.2)
(124.4)
50.3
31.8
85.2
54.5
57.1
53.1
(37.1)
(1.7)
2.3
11.9
79.5
(78.6)
1.0
14.6
(37.0)
(21.4)
32.9
0.1
11.5
(23.8)
63.4
(79.5)
(16.1)
(96.7)
(64.8)
(177.6)
123.3
66.1
11.8
(11.8)
128.8
(58.0)
70.8
(32.7)
(65.0)
(26.9)
22.0
10.6
5.7
* Dilution gain of $16.7 million from the units issued to SNC-Lavalin realized during first quarter of 2007 has been treated as an extraordinary item.
Gaz Métro inc. – Page 12
Note:
All figures are in Canadian dollars unless otherwise noted.
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