consolidated financial report for the third quarter … · highlights valener inc. 3 months ended...

CONSOLIDATED FINANCIAL REPORT

FOR THE THIRD QUARTER OF FISCAL 2013 ENDED JUNE 30, 2013

HIGHLIGHTS

VALENER INC. 3 months ended June 30 9 months ended June 30 (in millions of dollars, except for share data, which is in dollars, and unless 2013 2012 2013 2012 otherwise indicated) (unaudited) (unaudited) (unaudited) (unaudited)

CONSOLIDATED INCOME AND CASH FLOWS

Share in the net income (loss) of Gaz Métro $ 0.7 $ (0.5) $ 58.2 $ 46.2

Net income (loss) attributable to common shareholders $ (0.2) $ (0.8) $ 41.3 $ 31.0

Basic and diluted net income (loss) per common share $ (0.01) $ (0.02) $ 1.10 $ 0.83

Cash flows related to operating activities $ 11.7 $ 9.0 $ 33.6 $ 14.1

Dividends declared per common share $ 0.25 $ 0.25 $ 0.75 $ 0.75

Weighted average number of common shares outstanding (in millions) 37.7 37.5 37.6 37.4

OTHER INFORMATION

Market prices of the common shares on the Toronto Stock Exchange (TSX):

High $ 16.44 $ 15.48 $ 16.47 $ 16.50

Low $ 15.97 $ 14.60 $ 15.68 $ 13.55

Close $ 16.02 $ 15.29 $ 16.02 $ 15.29

CONSOLIDATED BALANCE SHEETS

June 30,

2013 September 30,

2012

(unaudited) (unaudited)

Total assets $ 804.9 $ 765.5

Total debt $ 53.1 $ 51.4

Shareholders’ equity $ 713.7 $ 675.7

GAZ MÉTRO LIMITED PARTNERSHIP 3 months ended June 30 9 months ended June 30

(in millions of dollars, except for unit data, which is in dollars, and unless 2013 2012 2013 2012 otherwise indicated) (unaudited) (unaudited) (unaudited) (unaudited)

CONSOLIDATED INCOME AND CASH FLOWS

Revenues $ 437.5 $ 334.3 $ 1,842.3 $ 1,549.9

Gross margin $ 195.0 $ 156.7 $ 764.8 $ 613.6

Net income (loss) attributable to Partners $ 2.4 $ (1.8) $ 200.7 $ 159.3


Purchases of property, plant and equipment $ 107.3 $ 105.4 $ 280.6 $ 281.6

Change in deferred charges and credits $ 39.7 $ 41.6 $ 137.9 $ 109.5

Basic and diluted net income (loss) per unit attributable to Partners $ 0.02 $ (0.01) $ 1.35 $ 1.26

Distributions declared per unit to Partners $ 0.28 $ 0.28 $ 0.84 $ 0.84

Weighted average number of units outstanding (in millions) 148.7 126.9 148.7 126.5

OTHER INFORMATION

Authorized rate of return on deemed common equity (Gaz Métro’s natural gas distribution activity in Quebec)

(1) (3) 8.90% 9.69%

Credit ratings

First mortgage bonds (Standard & Poor’s (S&P) / DBRS Limited (DBRS))

(2) A/A A/A

Commercial paper (S&P/DBRS) (2)

A-1(low)/R-1(low) A-1(low)/R-1(low)

CONSOLIDATED BALANCE SHEETS

June 30,

2013 September 30,

2012

(unaudited) (unaudited) Total assets $ 5,431.2 $ 5,132.0

Total debt $ 2,665.6 $ 2,474.1

Partners’ equity attributable to Partners $ 1,416.4 $ 1,303.3

Partners’ equity per unit attributable to Partners $ 9.53 $ 8.77 ____________________________ (1)

Including the sharing of productivity gains, if applicable, and excluding the Global Energy Efficiency Plan incentive.

(2) Through its General Partner, Gaz Métro inc.

(3) According to the Régie’s decision issued on March 5, 2013, as explained in section K) RECENT SIGNIFICANT EVENTS.

GLOSSARY

The most commonly used abbreviations in this report are listed in the table below.

Term Description Term Description

AcSB Accounting Standards Board LNG Liquefied natural gas

Beaupré Éole Beaupré Éole General Partnership Management of the manager

The management of GMi, in its capacity as General Partner of Gaz Métro, and acting as manager of Valener

Beaupré Éole 4 Beaupré Éole 4 General Partnership NEB National Energy Board (Canada)

Canadian GAAP Canadian generally accepted accounting principles (according to Part V of the Handbook, Pre-changeover Accounting Standards)

PNGTS Portland Natural Gas Transmission System

Champion Champion Pipe Line Corporation Limited Régie Régie de l’énergie (Québec)

CICA Canadian Institute of Chartered Accountants Seigneurie projects

Wind power projects located on the private lands of Seigneurie de Beaupré

CVPS Central Vermont Public Service Corporation Series A preferred shares

Series A cumulative rate reset preferred shares

DRIP Dividend Reinvestment Plan Servitech Servitech Energy Limited Partnership

FERC Federal Energy Regulatory Commission (U.S.A.) TCPL TransCanada PipeLines Limited

Gaz Métro Éole Gaz Métro Éole inc. TQM Trans Québec & Maritimes Pipeline Inc., as mandatary for TQM Pipeline and Company, Limited Partnership

Gaz Métro Plus Gaz Métro Plus Limited Partnership Transco Vermont Transco LLC

Gaz Métro-QDA Gaz Métro’s natural gas distribution activity in Quebec

Transport Solutions

Gaz Métro Transport Solutions, L.P.

Gaz Métro / the Partnership

Gaz Métro Limited Partnership TSX Toronto Stock Exchange

GEEP Global Energy Efficiency Plan U.S. GAAP U.S. generally accepted accounting principles

GHG Greenhouse gas Valener Éole Valener Éole Inc.

Gj Gigajoule Valener Éole 4 Valener Éole 4 Inc.

GMi Gaz Métro inc. Valener / the Company

Valener Inc.

GMP Green Mountain Power Corporation Velco Vermont Electric Power Company, Inc.

Handbook CICA Handbook VGS Vermont Gas Systems, Inc.

HydroSolution HydroSolution, L.P. VPSB Vermont Public Service Board

IFRS International Financial Reporting Standards Wind Farm 4 Seigneurie de Beaupré Wind Farm 4 General Partnership

Intragaz Intragaz Group Wind Farms 2 and 3

Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership

ISO-NE ISO-New England Inc. Wind power projects 2 and 3

Wind power projects of Wind Farms 2 and 3

KCW Kingdom Community Wind Wind power project 4

Wind power project of Wind Farm 4

Km Kilometres

MANAGEMENT’S DISCUSSION AND ANALYSIS

VALENER INC. AND GAZ MÉTRO LIMITED PARTNERSHIP Cautionary Note Regarding Forward-Looking Statements .................................................................................................................................................. 1

Disclosure Controls and Procedures and Internal Control Over Financial Reporting ........................................................................................................... 2

Wind Power Projects .......................................................................................................................................................................................................... 2

VALENER INC. GAZ MÉTRO LIMITED PARTNERSHIP A) Overview of the Company and Other .............................................. 4 J) Overview of the Partnership and Other ............................................. 13

B) Consolidated Financial Performance Summary ............................... 5 K) Recent Significant Events ................................................................. 14

C) Consolidated Financial Position ...................................................... 6 L) Conditions in the Energy Market and for Gaz Métro .......................... 15

D) Cash and Capital Management ....................................................... 7 M) Consolidated Financial Performance Summary................................. 17

E) Recent Accounting Changes ........................................................ 10 N) Segment Results .............................................................................. 21

F) Financial Instruments .................................................................... 10 O) Consolidated Financial Position ........................................................ 40

G) Additional Information ................................................................... 11 P) Cash and Capital Management ......................................................... 41

H) Quarterly Results .......................................................................... 11 Q) Recent Accounting Changes.. ........................................................... 48

I) Subsequent Events ....................................................................... 12 R) Financial Instruments ........................................................................ 49

S) Additional Information ....................................................................... 50

T) Quarterly Results .............................................................................. 50

U) Subsequent Event ............................................................................ 52

FINANCIAL REPORTS

9 MONTHS ENDED JUNE 30, 2013

VALENER INC. GAZ MÉTRO LIMITED PARTNERSHIP Interim Consolidated Financial Statements .......................................... 53 Interim Consolidated Financial Statements .............................................. 61

Notes to the Interim Consolidated Financial Statements ...................... 58 Notes to the Interim Consolidated Financial Statements .......................... 66


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Valener owns an approximate 29% interest in Gaz Métro, whose core business is natural gas distribution in Quebec and Vermont as well as electricity distribution in Vermont. The Company also owns an indirect interest in wind power projects through its wholly owned subsidiaries Valener Éole and Valener Éole 4. Valener Éole owns a 49% interest in Beaupré Éole, which owns a 50% interest in Wind Farms 2 and 3, whose core business is developing wind power projects 2 and 3. Valener Éole 4 owns a 49% interest in Beaupré Éole 4, partner at 50% in Wind Farm 4, whose business is the development of wind power project 4. The financial statements of Valener Éole and Valener Éole 4 are consolidated in the financial statements of Valener. The Company recognizes its other investments using the equity method and therefore does not consolidate the financial results of Gaz Métro, Beaupré Éole and Beaupré Éole 4. To help the Company’s shareholders better understand the results of its operations, the consolidated financial statements of both Valener and Gaz Métro are presented. This Management’s Discussion and Analysis (MD&A) reports on the significant developments that have affected the financial performance of the Company and of Gaz Métro for the third quarter and the nine-month period ended June 30, 2013. This MD&A should be read in conjunction with the interim unaudited consolidated financial statements of Valener and of Gaz Métro for the three-month and nine-month periods ended June 30, 2013, the MD&A of Valener as at September 30, 2012, and the annual audited consolidated financial statements of Valener and of Gaz Métro for the fiscal year ended September 30, 2012. These interim consolidated financial statements have been prepared in accordance with Canadian GAAP and the reporting currency is the Canadian dollar. All amounts in this report are in millions of Canadian dollars, unless otherwise indicated. Variances may exist as numbers have been rounded. “Gaz Métro” and “the Partnership” refer to the consolidated activities, whereas “Gaz Métro-QDA” refers specifically to Gaz Métro’s natural gas distribution activity in Quebec.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

To help investors better understand the future outlook of the Company and Gaz Métro and thereby make more informed investment decisions, certain statements in this MD&A may be forward-looking, in particular statements that describe actions, activities, events, results or developments that the Company or Gaz Métro expect or anticipate will or may occur in the future as well as other statements that are not historical facts. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of the manager regarding the future growth, operating results, performance and business prospects and opportunities of the Company or Gaz Métro. Forward-looking statements are often identified by words and expressions such as “plans,” “expects” or “does not expect,” “is expected,” “budgeted,” “scheduled,” “estimated,” “forecasts,” “intends,” “anticipates” or “does not anticipate,” “believes,” or variations of such words and expressions. They are also identified by statements that certain actions, events or results “may,” “could,” “would,” “might” or “will” be taken, occur, be achieved, and similar expressions as they relate to the Company or Gaz Métro. The forward-looking statements in this MD&A include, in particular, statements on (i) the general development of the business, (ii) growth or profitability outlooks, (iii) decisions made by regulatory agencies, in particular decisions made by the Régie as well as the nature and timing of these decisions, (iv) the competitive landscape, (v) the future commissioning of the wind power projects in which Valener and Gaz Métro are indirectly involved, (vi) the development of natural gas as fuel for the transport industry, (vii) the potential distribution of biomethane through the Gaz Métro-QDA system, (viii) the consequences of the potential change in accounting framework, (ix) the liquidity position and financing capability of the Company and Gaz Métro, and (x) the post-merger integration of CVPS’s operations into GMP’s operations and the resulting synergies. Such forward-looking statements reflect the current opinions of the management of the manager and are based on information currently available to the management of the manager.

Forward-looking statements involve known and unknown risks and uncertainties and other factors outside the control of the management of the manager. A number of factors could cause the actual results of the Company or of Gaz Métro to differ significantly from 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, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas and electricity supply, the integrity of the natural gas and electricity distribution systems, the progress of wind power projects and other development projects, the ability to complete attractive acquisitions and the related financing and integration aspects, the ability to secure future financing, general economic conditions, exchange rate and interest rate fluctuations, weather conditions and other factors described in section E) RISK

FACTORS RELATING TO VALENER and in section S) RISK FACTORS RELATING TO GAZ MÉTRO of Valener’s MD&A for the fiscal year ended September 30, 2012 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, the management of the manager cannot assure investors that actual results will be consistent with these forward-looking statements. Assumptions underlying the forward-looking statements contained in this MD&A include, among others, assumptions 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 will be approved as submitted; that natural gas prices will remain competitive; that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur; that Gaz Métro can continue to distribute substantially all of its net income (excluding non-recurring items); that the wind power projects in which Valener and Gaz Métro are indirectly involved will be completed on time and within the defined parameters; and that GMP will be able to quickly and effectively integrate CVPS’s operations in addition

VALENER INC. AND GAZ MÉTRO LIMITED PARTNERSHIP


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to the other assumptions described in this MD&A. These forward-looking statements are made as of the date of this MD&A, and the management of the manager assumes no obligation to update or revise them to reflect new events or circumstances, except as required under 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.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The President and Chief Executive Officer and the Executive Vice-President, Corporate Affairs and Chief Financial Officer of GMi, in its capacity as General Partner of Gaz Métro, acting as manager of Valener, are responsible for establishing and

maintaining disclosure controls and procedures. The Company’s disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified under Canadian securities laws and that the controls and procedures are designed to ensure that this information is gathered and communicated to the management of the manager, including the President and Chief Executive Officer and the Executive Vice-President, Corporate Affairs and Chief Financial Officer of GMi, in its capacity as General Partner of Gaz Métro, acting as manager of Valener, to allow for timely decisions

regarding disclosures.

The President and Chief Executive Officer and the Executive Vice-President, Corporate Affairs and Chief Financial Officer of GMi, in its capacity as General Partner of Gaz Métro, acting as manager of Valener, are also responsible for establishing and

maintaining adequate internal control over financial reporting in order to provide reasonable assurance that the financial information is reliable and that the consolidated financial statements have been prepared, for reporting purposes, in accordance with Canadian GAAP. The President and Chief Executive Officer and the Executive Vice-President, Corporate Affairs and Chief Financial Officer of GMi, in its capacity as General Partner of Gaz Métro, acting as manager of Valener,

have evaluated whether, during the third quarter ended June 30, 2013, the Company made changes to its internal control over financial reporting that would have a significant impact or that would be reasonably likely to have a significant impact on the Company’s internal control over financial reporting. During the second quarter of fiscal 2013, as part of the integration of GMP’s and CVPS’s operations, GMP merged their financial operations, controls and reporting and also implemented a new long-term customer information and billing system. These activities are considered a significant change in internal control over financial reporting, as several new internal financial controls continued to be implemented during the third quarter of fiscal 2013 in order to complement or replace certain existing controls related to these processes.

WIND POWER PROJECTS

Wind power projects 2 and 3 Beaupré Éole and Boralex inc. (Boralex) are equal-share partners in two wind power projects with an installed capacity of 272 megawatts, namely, wind power projects 2 and 3 scheduled for start-up in December 2013. Completion of wind power projects 2 and 3 represents a total investment of approximately $750 million (including financing costs). It is one of the largest wind power projects currently under construction in Canada. This investment is financed by Wind Farms 2 and 3 through debt and equity financing of about 80% debt and 20% equity. With the $724.0 million in total financing completed in autumn 2011 and the $153.4 million in total investments made by the partners of Wind Farms 2 and 3, wind power projects 2 and 3 are fully funded. As at June 30, 2013, Beaupré Éole had invested a total of $76.7 million in Wind Farms 2 and 3.

On December 21, 2012, the construction site closed for the winter with activity resuming on February 25, 2013. Since then, 34 concrete towers have been delivered, 43 assembled and 29 completed, and the entire electrical collector system has been buried. Moreover, construction of the interconnection line to Hydro-Québec’s transmission system has been completed and initial energization took place on July 11, 2013, which will power the turbines. To date, more than 59 wind turbines have been completed. Given a construction industry strike that slowed work progress from June 17 to 24, 2013, Wind Farms 2 and 3 is examining action plans that will make up the delay caused by this strike in Quebec and complete construction according to the initial schedule. These wind farms are still expected to be operational by December 1, 2013.

Wind power project 4 In addition to wind power projects 2 and 3, the Seigneurie projects can include the development, construction and operation of other wind power projects developed on the private lands of Seigneurie de Beaupré. In November 2010, the consortium acquired the rights and the contract to sell electricity generated by a project with an installed capacity of 68 megawatts, assigned by Kruger Energy Bas-St-Laurent LP (Kruger) with the consent of Hydro-Québec. This third project, called wind power project 4, is also being developed on the private lands of Seigneurie de Beaupré and will benefit from the site’s significant wind power and environmental advantages as well as from the existing infrastructure. The return on this future wind farm will also enjoy the logistical synergies that will be achieved during its construction and operation. Completion of this project represents a total investment of approximately $190 million (including financing costs).

In May 2013, the consortium made up of Beaupré Éole 4 and its partner, Boralex, created a joint venture, Seigneurie de Beaupré Wind Farm 4 General Partnership, to oversee the development and future operation of wind power project 4.


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Having successfully completed the key environmental approvals stage, Wind Farm 4 is proceeding with the work needed for project start-up and is on course with the key stages of the project schedule. The final agreement with Borea Construction (for the civil engineering work) was signed in May 2013 and the agreement with Enercon (the supplier of turbines and maintenance services whose expertise is world-renowned) is expected to be signed soon. On-site work began on May 13, 2013. To date, land clearing has been completed and road construction work is in progress.

In addition to implementing financing, planned for summer 2013, Wind Farm 4 expects to complete all of the foundation and road construction work as well as a significant portion of the collector system by the end of the work season. This wind power project is scheduled for start-up on December 1, 2014.


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A) OVERVIEW OF THE COMPANY AND OTHER

The Company’s mission and objectives have not changed from those stated in its MD&A for the fiscal year ended September 30, 2012.

OVERVIEW OF THE COMPANY

Valener is incorporated under the Canada Business Corporations Act (CBCA). Valener’s common shares and Series A preferred shares are listed and traded on the TSX under the “VNR” and “VNR.PR.A” trading symbols, respectively. For additional information on the corporate structure, refer to Valener’s MD&A for the fiscal year ended September 30, 2012, which is available on SEDAR at www.sedar.com.

RISK MANAGEMENT

The Company has established and applies practices for identifying, assessing, and managing risk in order to reduce the nature and scope of the main risks that could have a significant influence on its activities, financial position and net income. For additional information on the Company’s risk factors that may affect its activities, refer to Valener’s MD&A for the fiscal year ended September 30, 2012, which is available on SEDAR at www.sedar.com.

NON-GAAP FINANCIAL MEASURES

The financial information has been prepared in accordance with Canadian GAAP. In the opinion of the management of the manager, certain financial measures provide readers with information they consider useful for analyzing Valener’s financial performance. However, certain financial measures are not defined in Canadian GAAP and should not be considered in isolation or as substitutes for other financial measures that are in accordance with Canadian GAAP. The results obtained might not be comparable with similar indicators used by other issuers and should therefore be considered only as complementary information.

Non-GAAP financial measures

Consolidated net income (loss) attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes

(1)

The consolidated net income (loss) attributable to common shareholders, net of the share in the non-recurring items of Gaz Métro and Valener’s income taxes related to those non-recurring items, i.e., items that are unlikely to recur in the next two fiscal years or did not occur in the two fiscal years preceding the fiscal year in which they were realized.

Consolidated net income (loss) attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes, per common share

(1)

The consolidated net income (loss) attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes, divided by the weighted average number of common shares outstanding of Valener.

Debt / total capitalization ratio The total amount of long-term debt, net of financing costs, divided by capitalization. Capitalization is equal to the total amount of debt, net of financing costs and shareholders’ equity.

(1) Section B) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY provides a quantitative reconciliation of the measure established by Gaz Métro

with that established by Valener in accordance with Canadian GAAP. Section N) SEGMENT RESULTS of Gaz Métro provides a quantitative reconciliation of the measure established by Gaz Métro with the GAAP-compliant measure.

The management of the manager considers these non-GAAP financial measures to be indicators of the Company’s financial performance that can be used to measure and compare, between periods, the net income or net loss attributable to common shareholders from the normal operations of Valener and Gaz Métro. The management of the manager also believes that it is useful for investors and other users of this MD&A to be informed of specific non-recurring items that had a positive or negative impact on net income or net loss attributable to the Company’s common shareholders, as defined in Canadian GAAP.

VALENER INC.


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B) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY

Seasonal activities

As Valener owns an economic interest in Gaz Métro, its interim period operating results reflect the seasonal nature of Gaz Métro’s interim results. As such, Valener’s interim period operating results are not necessarily representative of the results to be expected for the fiscal year, as seasonal temperature fluctuations influence the energy consumption levels of customers, which in turn influence Gaz Métro’s interim consolidated financial results and consequently Valener’s interim consolidated financial results.

CONSOLIDATED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS, EXCLUDING THE SHARE IN THE NON-RECURRING ITEMS OF GAZ MÉTRO, NET OF INCOME TAXES

3 months ended June 30 9 months ended June 30

(in millions of dollars, unless otherwise indicated) 2013 2012 2013 2012

Consolidated net income (loss) 0.9 (0.5) 44.6 31.3

Share in the non-recurring items of Gaz Métro - 2.3 (4.3) 2.3 Income taxes on the share in the non-recurring items of

Gaz Métro - - 1.1 -

Consolidated net income, excluding the share in the non-recurring items of Gaz Métro, net of income taxes 0.9 1.8 41.4 33.6

Less: Cumulative dividends on Series A preferred shares 1.1 0.3 3.3 0.3

Consolidated net income (loss) attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes

(1) (0.2) 1.5 38.1 33.3

Weighted average number of common shares outstanding (in millions of common shares) 37.7 37.5 37.6 37.4

Consolidated net income (loss) attributable to common shareholders, excluding the share in the non-recurring items of Gaz Métro, net of income taxes, per common share (in $)

(1) (0.01) 0.04 1.01 0.89

(1) These measures are non-GAAP financial measures. For additional information, refer to the Non-GAAP Financial Measures heading in section A) OVERVIEW OF THE COMPANY AND OTHER.

HIGHLIGHTS


(in millions of dollars, unless otherwise indicated) 2013 2012 2013 2012

Share in the net income (loss) of Gaz Métro 0.7 (0.5) 58.2 46.2

Net income (loss) attributable to common shareholders (0.2) (0.8) 41.3 31.0

Basic and diluted net income (loss) per common share (in $) (0.01) (0.02) 1.10 0.83

Dividends declared per common share (in $) 0.25 0.25 0.75 0.75

Dividends declared per preferred share (in $) 0.27 - 0.81 -

Cash flows related to operating activities 11.7 9.0 33.6 14.1

Interests in entities subject to significant influence 784.5 754.0 784.5 754.0

Total assets 804.9 773.8 804.9 773.8

Total debt 53.1 26.9 53.1 26.9

Debt / total capitalization ratio (in %) (1)

6.9 3.7 6.9 3.7 (1)

This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in section A) OVERVIEW OF THE COMPANY AND OTHER.

ANALYSIS OF RESULTS

For the third quarter of fiscal 2013, net loss attributable to common shareholders stood at $0.2 million, a $0.6 million lower loss than the $0.8 million loss in the third quarter of last year. The lower loss was mainly due to: a $1.2 million increase in the share in the net income of Gaz Métro, which represents 29% of Gaz Métro’s net income,

as described in section M) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY of Gaz Métro; offset by: a $1.1 million impact from the portion of Valener’s net income attributable to preferred shareholders, representing the

cumulative dividends on the Series A preferred shares declared on May 10, 2013 and paid on July 15, 2013.


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For the first nine months of fiscal 2013, net income attributable to common shareholders totalled $41.3 million, up $10.3 million from $31.0 million in the same nine-month period of fiscal 2012. This increase was mainly due to: a $12.0 million increase in the share in the net income of Gaz Métro, which repesents 29% of Gaz Métro’s net income,

as described in section M) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY of Gaz Métro; and a $1.4 million decrease in the income tax expense that, among other factors, was due to the net impact of Gaz Métro’s

disposal of its interest in HydroSolution. While the share in the net income of Gaz Métro increased, as explained in section M) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY of Gaz Métro, that increase was partly attributable to an increase in the net income of companies whose income tax expense was recognized by Gaz Métro, consequently having no impact on Valener’s income tax expense;

mitigated by: a $3.3 million impact from the portion of Valener’s net income attributable to preferred shareholders, representing the

cumulative dividends on the Series A preferred shares.

C) CONSOLIDATED FINANCIAL POSITION

The table below compares the main consolidated balance sheet amounts as at June 30, 2013 and as at June 30, 2012.

Balance sheet item (in millions of dollars) June 30

Increase (Decrease) Explanation

2013 2012 (1)

Distributions receivable from Gaz Métro

13.7 11.9 1.8 Constitutes the share in Gaz Métro’s distributions plus an increase in the Gaz Métro distributions otherwise payable to Valener in an amount of $1.7 million

(2) ($1.7 million in 2012); the increase

comes from Valener’s subscription, in proportion to its interest in Gaz Métro, during the last two quarters of fiscal 2012

Interests in entities subject to significant influence

784.5 754.0 30.5 Increase comes mainly from (i) investments of $21.8 million in Gaz Métro in fiscal 2012 and of $3.6 million in Beaupré Éole and (ii) the share in the net income and other comprehensive income of Gaz Métro, partly mitigated by (iii) the distributions received from Gaz Métro, and (iv) a transfer of net future income tax liabilities related to TQM, Intragaz and Rabaska Limited Partnership (Rabaska) to a wholly owned subsidiary of Gaz Métro, whereas they had been previously recognized by Valener and GMi

Dividends payable to common shareholders

9.4 9.4 - Dividend of $0.25 per common share declared by the board of directors on May 10, 2013 and paid on July 15, 2013 ($0.25 per common share in 2012)

Long-term debt 53.1 26.9 26.2 Increase comes from the use of the credit facility (combined with the use of the net proceeds from the preferred share issuance) for the subscriptions of Gaz Métro and Beaupré Éole units and for general needs of the Company

Net future income tax liability, including current portion

15.5 28.2 (12.7) Decrease comes mainly from (i) the above-explained transfer of the net future income tax liabilities related to TQM, Intragaz and Rabaska and (ii) the reversal of the future income tax liability related to HydroSolution after Gaz Métro sold its interest in this company

Share capital 731.9 728.7 3.2 Increase comes from the common shares issued under the DRIP

Accumulated other comprehensive loss

(14.6) (28.2) 13.6 Increase comes from the share in other comprehensive income of Beaupré Éole and Gaz Métro

(1) The figures as at June 30, 2012 have been adjusted to reflect the presentation adopted for current fiscal year.

(2) As planned at the time of the reorganization of Gaz Métro, Valener benefited from an increase in the Gaz Métro distributions that would

have otherwise been payable to Valener in an aggregate amount of $20.0 million over a three-year period ending on September 30, 2013, i.e., an additional distribution of approximately $6.7 million per fiscal year or $1.7 million quarterly. This increase in Gaz Métro distributions otherwise payable to Valener has totalled $6.7 million during fiscal 2013.


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D) CASH AND CAPITAL MANAGEMENT

This section discusses the Company’s financial position, cash flows and liquidity.

HIGHLIGHTS FOR THE FIRST NINE MONTHS OF FISCAL 2013

On October 1, 2012, January 3, 2013, and July 2, 2013, Valener received a distribution of $13.3 million and two distributions of $13.7 million, respectively, from Gaz Métro;

Three quarterly dividends of $9.4 million each were paid to common shareholders, in cash and shares, on October 15, 2012, January 15, 2013, and April 15, 2013;

Dividends of $1.6 million and two of and $1.1 million were paid in cash to preferred shareholders on October 15, 2012, January 15, 2013, and April 15, 2013, respectively; and

Valener subscribed, in proportion to its interest to 4,132,935 Beaupré Éole 4 units for a total cash consideration of $4.1 million.

CASH FLOW SUMMARY


(in millions of dollars) 2013 2012 2013 2012

Cash flows related to operating activities a $ 11.7 $ 9.0 $ 33.6 $ 14.1

Purchases of interests in entities subject to significant influence and other b (3.8) (80.4) (5.1) (120.1)

Dividends to common shareholders c (8.7) (8.6) (26.0) (26.1)

Dividends to preferred shareholders c (1.0) - (3.7) -

Financing needs d (1.8) (80.0) (1.2) (132.1)

Financing activities

Issuance of preferred shares, net of related costs e - 97.1 - 97.1

Other financing activities e 1.4 (17.3) 1.5 27.5

e 1.4 79.8 1.5 124.6

Net increase (decrease) in cash and cash equivalents $ (0.4) $ (0.2) $ 0.3 $ (7.5)

a - Cash flows related to operating activities

For the third quarter of fiscal 2013, cash flows related to operating activities totalled $11.7 million, a $2.7 million year-over-year increase that came primarily from a $1.8 million favourable change in distributions received from Gaz Métro during the third quarter of fiscal 2013, as Valener had subscribed, in proportion to its interest in Gaz Métro, 6,477,573 Gaz Métro units in fiscal 2012.

For the first nine months of fiscal 2013, cash flows related to operating activities totalled $33.6 million, a $19.5 million year-over-year increase that was mainly due to:

a $16.4 million favourable change in non-cash working capital items that was mainly due to the fact that, during the first nine months of fiscal 2012, Valener had to pay the current income taxes of its first fiscal year, i.e., 2011; and

a $5.0 million favourable change in distributions received from Gaz Métro during the first nine months of fiscal 2013 due to the above-mentioned Valener subscriptions.

b - Purchases of interests in entities subject to significant influence and other

For the third quarter of fiscal 2013, purchases of interests in entities subject to significant influence and other totalled $3.8 million, $76.6 million less than in the same quarter last year. This decrease was mainly due to:

the subscription by Valener, in the third quarter of fiscal 2012, to 5,027,370 Gaz Métro units for a total cash consideration of $75.4 million; and

the subscription by Valener, in the third quarter of fiscal 2012, to 4,578,743 Beaupré Éole units for a total cash consideration of $4.6 million;

partly offset by: the subscription by Valener, in the third quarter of fiscal 2013, to 3,470,615 Beaupré Éole 4 units for a total cash

consideration of $3.5 million.


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For the first nine months, purchases of interests in entities subject to significant influence and other totalled $5.1 million, $115.0 million less than in the same period of fiscal 2012. This decrease was mainly due to:

the subscription by Valener, in the third quarter of fiscal 2012, to 5,027,370 Gaz Métro units for a total cash consideration of $75.4 million; and

the subscription by Valener, in the first nine months of fiscal 2012, to 43,573,252 Beaupré Éole units for a total cash consideration of $43.6 million;

partly offset by: the subscription by Valener, in the first nine months of fiscal 2013, to 4,132,935 Beaupré Éole 4 units for a total cash

consideration of $4.1 million.

c - Dividends to shareholders

Dividends to common shareholders

For the third quarter of fiscal 2013, dividends paid in cash to common shareholders totalled $8.7 million, $0.1 million more than in the same quarter last year. For the first nine months of fiscal 2013, cash dividends to common shareholders totalled $26.0 million, $0.1 million less than in the same period of fiscal 2012. This decrease is explained by a larger contribution to the DRIP. These cash dividends, paid to common shareholders on October 15, 2012, January 15, 2013, and April 15, 2013, as well as the shares issued under the DRIP, represented an amount of $0.25 per common share per quarter, as had been planned at the time of the reorganization of Gaz Métro in September 2010. Including the dividend paid to common shareholders on July 15, 2013, Valener has paid, as planned, an annual dividend of $1.00 per common share for fiscal 2013.

It should be noted that the July 15, 2013 dividend is the last one that will include the increase in Gaz Métro distributions otherwise payable to Valener, as had been planned at the time of the September 2010 reorganization of Gaz Métro. During the last three fiscal years, Gaz Métro has paid a total of $20.0 million in distributions to Valener in addition to those that were otherwise payable.

The following table shows dividends declared and paid to common shareholders in the first nine months of fiscal 2013:

Dividend declaration date Dividend payment date

Dividend amount per common share (in $)

Cash amount (in millions of $)

August 9, 2012 October 15, 2012 0.25 8.7

November 28, 2012 January 15, 2013 0.25 8.7

February 8, 2013 April 15, 2013 0.25 8.6

May 10, 2013 July 15, 2013 0.25 8.6

Valener expects to maintain the dividend at $0.25 per common share for each quarter of fiscal 2014. Accordingly, on August 9, 2013, the board of directors declared a quarterly dividend of $0.25 per common share payable on October 15, 2013 to common shareholders of record at the close of business on September 30, 2013.

Dividends to preferred shareholders

For the third quarter of fiscal 2013, dividends paid in cash to preferred shareholders totalled $1.0 million, $1.0 million more than in the same quarter last year. For the first nine months of the current fiscal year, cash dividends to preferred shareholders totalled $3.7 million, $3.7 million more than in the same period of fiscal 2012. These increases came from the payment of the first three dividends to preferred shareholders, as the Series A preferred shares were issued on June 6, 2012.

The following table shows dividends declared and paid to preferred shareholders in the first nine months of fiscal 2013:

Dividend declaration date

Dividend payment date

Period covered Dividend amount per Series A preferred share (in $)


August 9, 2012 October 15, 2012 June 6, 2012 to October 15, 2012

0.39031 1.6

November 28, 2012 January 15, 2013 October 16, 2012 to January 15, 2013

0.271875 1.1

February 8, 2013 April 15, 2013 January 16, 2013 to April 15, 2013

0.271875 1.1

May 10, 2013 July 15, 2013 April 16, 2013 to July 15, 2013

0.271875 1.1


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On August 9, 2013, the board of directors also declared a dividend of $0.271875 per Series A preferred share for the period of July 16, 2013 to October 15, 2013, payable on October 15, 2013 to the preferred shareholders of record at the close of business on October 8, 2013.

d - Financing needs

Financing needs for the third quarter and first nine months of fiscal 2013 stood at $1.8 million and $1.2 million, respectively, or year-over-year decreases of $78.2 million and $130.9 million, as explained above in headings a - Cash flows related to operating activities, b - Purchases of interests in entities subject to significant influence and other, and c - Dividends to shareholders.

The amount of financing needs during a fiscal year is subject to volatility, which is likely to be greater given: the amount of distributions received from Gaz Métro, Beaupré Éole, and Beaupré Éole 4; and the amount of investment required in its entities subject to significant influence.

The Company must therefore: remain vigilant in establishing appropriate dividend levels so as to not unduly pass on this volatility; and maintain a sufficient level of unused credit facilities such that it may respond to any situation.

e - Financing activities

Issuances of shares Series A preferred shares On June 6, 2012, the Company issued 4,000,000 Series A preferred shares at a per-share price of $25.00, for proceeds of $97.1 million, net of the related issuance costs.

The Company had used a portion of the net proceeds to subscribe additional Gaz Métro units so that Gaz Métro could partially finance its indirect acquisition of all the issued and outstanding shares of CVPS as well as for general purposes of the Company.

Share capital As at June 30, 2013, Valener’s share capital consisted of:

37,688,370 issued common shares totalling $634.5 million, including the 145,548 common shares issued for an amount of $2.2 million under the DRIP since the beginning of fiscal 2013; and

4,000,000 paid and issued Series A preferred shares totalling $97.5 million.

Other financing activities Other financing activities for the third quarter of fiscal 2013 resulted in $1.4 million in net issuances of the credit facility compared to net repayments of $17.3 million in the third quarter of fiscal 2012. This increase was due to the fact that, during the third quarter of fiscal 2012, a portion of the net proceeds from the issuance of the Series A preferred shares had been used to repay part of the credit facility.

For the first nine months of fiscal 2013, other financing activities resulted in net issuances of $1.5 million compared to $27.5 million for the same period in fiscal 2012, a decrease of $26.0 million. This decrease was mainly due to the use, during the first nine months of fiscal 2012, of the credit facility to finance Valener’s $43.6 million investment in Beaupré Éole, whereas during the first nine months of fiscal 2013, Valener invested an amount of $4.1 million in Beaupré Éole 4. It should also be noted that a portion of the net proceeds from the issuance of the Series A preferred shares had been used to temporarily repay part of the credit facility during the same period the previous fiscal year.

CAPITAL STRUCTURE AND DEBT RATIO

(in millions of dollars, unless otherwise indicated) June 30

2013 September 30

2012 June 30

2012

Long-term debt, net of financing costs $ 53.1 $ 51.4 $ 26.9 Shareholders’ equity 713.7 675.7 696.6

Total capitalization $ 766.8 $ 727.1 $ 723.5 Debt / total capitalization ratio

(1) 6.9% 7.1% 3.7%

(1) This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in section A) OVERVIEW OF THE COMPANY AND OTHER.


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Long-term debt increased by $1.7 million since September 30, 2012, as previously explained in heading e - Financing Activities. At $713.7 million, shareholders’ equity rose $38.0 million during the first nine months of fiscal 2013, mainly due to:

net income that exceeds declared dividends to common and preferred shareholders by $13.1 million; a $22.8 million favourable adjustment to shareholders’ equity related to the share in other comprehensive income of

Gaz Métro and of Beaupré Éole, net of income taxes; and common shares issued under the DRIP.

Credit facility As at June 30, 2013, the Company had a $200.0 million committed credit facility, expiring in October 2016, secured by Valener’s units in Gaz Métro and its shares in Valener Éole and Valener Éole 4. This credit facility bears interest at floating rates based on bankers’ acceptance rates or the prime rate, adjusted according to the terms of this credit facility. Under the terms of this credit facility, the Company must comply with restrictive covenants requiring it to satisfy certain financial ratios or conditions at all times. As at June 30, 2013, Valener was in compliance with all of the conditions of its credit facility. After all amounts borrowed and letters of credit issued, the unused credit facility as at June 30, 2013 was $145.5 million.

Credit ratings The Standard & Poor’s (S&P) and DBRS Limited (DBRS) credit ratings were as follows:

(1) The credit ratings on the Series A preferred shares were assigned during fiscal 2012 as part of their issuance on June 6, 2012.

Financing outlook For the next quarter of fiscal 2013, the Company expects that it will need approximately $19.5 million in cash to finance capital contributions to its entities subject to significant influence, i.e., Gaz Métro (approximately $14.5 million) and Beaupré Éole 4 (approximately $5.0 million). Gaz Métro will use the capital to re-establish Gaz Métro-QDA’s capital structure and to finance capital contributions to its joint venture, Wind Farm 4, to cover the development costs of wind power project 4.

The available sources of financing are: cash flows related to operating activities; the unused balance of the $200.0 million maximum authorized committed credit facility, expiring in October 2016; and if necessary, new financings through issuances of debt, common shares or preferred shares.

E) RECENT ACCOUNTING CHANGES

FUTURE ACCOUNTING CHANGE

CHANGE IN ACCOUNTING FRAMEWORK

Valener has chosen to use the exemption set out in the Introduction to Part I of the Handbook, International Financial Reporting Standards, under which qualifying entities with rate-regulated activities may defer application of Part I to fiscal periods beginning on or after January 1, 2015. Consequently, Valener will continue to present its consolidated financial statements in accordance with the Canadian GAAP included in Part V of the Handbook for fiscal years 2013 to 2015.

Given the uncertainty surrounding a definitive IFRS standard on rate-regulated activities and its eventual implementation, Valener is currently planning to apply U.S. GAAP when preparing its interim and annual consolidated financial statements for fiscal 2016 and thereafter, subject to obtaining a new exemption from the Canadian Securities Administrators (CSA).

Valener cannot report on the accounting policy changes that will be required upon the change in accounting framework nor their impacts. Additional information will be disclosed as it becomes available.

Additional information about Gaz Métro’s change in accounting framework is provided in section Q) RECENT ACCOUNTING

CHANGES of Gaz Métro in this MD&A.

F) FINANCIAL INSTRUMENTS

The Company’s consolidated balance sheet contains financial instruments. The Company’s financial assets include cash, the amount receivable from Gaz Métro, and distributions receivable from Gaz Métro. The Company’s financial liabilities include accounts payable and accrued liabilities, dividends payable to common and preferred shareholders, and long-term debt. The Company’s financial assets consist of loans and receivables whereas the financial liabilities are not held for trading, and they are measured at amortized cost. However, the carrying amounts of these items approximate their fair values given the short periods to maturity or since their terms and conditions are comparable to market rates for similar instruments.

As at June 30 2013 2012

Series A preferred shares (S&P/DBRS) (1)

P-2(low)/Pfd-2(low) P-2(low)/Pfd-2(low)


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Although Valener does not hold derivative financial instruments, it is exposed to liquidity risk. No changes have been made to the methods for managing liquidity risk since September 30, 2012.

G) ADDITIONAL INFORMATION

SHARES OUTSTANDING

As at August 7, 2013, the number of common shares and Series A preferred shares outstanding totalled 37,744,787 and 4,000,000, respectively. Only the Company’s common shares are voting shares.

RELATED PARTY TRANSACTIONS

Related party transactions are carried out in the normal course of operations and, unless otherwise indicated, are measured at the exchange amount, i.e., the amount of consideration established and agreed to by the related parties.

As per the administration and management support agreement entered into with Gaz Métro, Valener charged Gaz Métro an amount of $0.3 million for the third quarter of fiscal 2013 ($0.4 million in fiscal 2012) and of $1.6 million for the first nine months of fiscal 2013 ($1.4 million in fiscal 2012) for administration and management support services solely in respect of its interest in Gaz Métro and related public company matters.

H) QUARTERLY RESULTS

As Valener owns an economic interest in Gaz Métro, its interim period operating results reflect the seasonal nature of Gaz Métro’s interim results. As such, Valener’s interim period operating results are not necessarily representative of the results to be expected for the fiscal year, as seasonal temperature fluctuations influence the energy consumption levels of customers, which in turn influence Gaz Métro’s interim consolidated financial results and consequently Valener’s interim consolidated financial results, as shown in the table below. Historically, Gaz Métro’s revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.

Unaudited 2013 2013 2013 2012

(in millions of dollars, unless otherwise indicated) 3rd

2nd

1st 4

th

Share in the net income (loss) of Gaz Métro $ 0.7 $ 33.6 $ 23.9 $ (4.5)

Net income (loss) attributable to common shareholders $ (0.2) $ 24.0 $ 17.5 $ (3.0)

Basic and diluted net income (loss) per common share (in $) $ (0.01) $ 0.64 $ 0.47 $ (0.08)

Dividends declared per common share (in $) $ 0.25 $ 0.25 $ 0.25 $ 0.25


Market prices of the common shares on the TSX (in $):

High $ 16.44 $ 16.47 $ 16.27 $ 16.47

Low $ 15.97 $ 15.90 $ 15.68 $ 15.00

Close $ 16.02 $ 16.10 $ 16.05 $ 16.02



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Unaudited 2012 2012 2012 2011 (in millions of dollars, unless otherwise indicated) 3

rd 2

nd 1

st 4

th

Share in the net income (loss) of Gaz Métro $ (0.5) $ 30.8 $ 15.9 $ (4.7)

Net income (loss) attributable to common shareholders $ (0.8) $ 21.7 $ 10.1 $ (3.5)

Basic and diluted net income (loss) per common share (in $) $ (0.02) $ 0.58 $ 0.27 $ (0.09)

Dividends declared per common share (in $) $ 0.25 $ 0.25 $ 0.25 $ 0.25

Cash flows related to operating activities $ 9.0 $ 9.4 $ (4.3) $ 13.1

Market prices of the common shares on the TSX (in $):

High $ 15.48 $ 16.50 $ 16.29 $ 16.49

Low $ 14.60 $ 15.17 $ 13.55 $ 13.96

Close $ 15.29 $ 15.37 $ 15.98 $ 14.42


Summary of quarterly results

The net loss attributable to common shareholders for the third quarter of fiscal 2013 stood at $0.2 million compared to a $0.8 million loss during the third quarter of fiscal 2012. An analysis of the results for the third quarter of fiscal 2013 is presented in section B) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY.

The change in net income (loss) attributable to Valener’s common shareholders for each quarter mainly reflects the changes in the share in the net income (loss) of Gaz Métro, as described in section T) QUARTERLY RESULTS of Gaz Métro, mitigated by the changes in the income tax expense applicable to this share in the net income (loss) of Gaz Métro and by the reversal of temporary differences related to Gaz Métro’s rate-regulated activities.

I) SUBSEQUENT EVENTS

Declaration of a dividend to common shareholders

On August 9, 2013, the board of directors declared a quarterly dividend of $0.25 per common share for the quarter ending September 30, 2013, payable on October 15, 2013 to common shareholders of record at the close of business on September 30, 2013. The board of directors also approved the reinvestment of dividends into additional common shares, for the dividend payable on October 15, 2013, by way of an issuance of new common shares of the Company, at a 5% discount, in accordance with the terms and conditions of the DRIP.

Declaration of a dividend to preferred shareholders



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J) OVERVIEW OF THE PARTNERSHIP AND OTHER

OVERVIEW OF THE PARTNERSHIP

With over $5 billion in assets, Gaz Métro is a leading energy provider. It is the largest natural gas distribution company in Quebec, where its 10,000-km underground network of pipelines serves 300 municipalities and more than 185,000 customers. Gaz Métro is also present in Vermont, producing electricity and distributing electricity and natural gas to meet the needs of some 300,000 customers. Gaz Métro is actively involved in the development of innovative, sustainability-oriented energy projects such as the production of wind power, the use of natural gas as a transportation fuel and the development of biomethane as a renewable energy source. Gaz Métro is committed to ensuring the satisfaction of its customers, providing support to businesses, local organizations, families and communities, and meeting the needs of its Partners (Valener and GMi) and employees.

The Partnership’s mission and objectives have not changed from those stated in Valener’s MD&A for the fiscal year ended September 30, 2012.

OVERVIEW OF THE BUSINESS SEGMENTS

During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures given the sale of certain companies and the development of important wind power projects. Created for this new structure was the Energy Production segment, which had previously been included in the Corporate Affairs and Other segment. The Partnership also combined the Storage segment with the Energy Services and Other segment to create a single segment named Energy Services, Storage and Other. Last year’s figures for the first nine months have been reclassified to present financial information that reflects the new business segments.

For additional information about the various business segments, refer to Note 9 to the Partnership’s interim consolidated financial statements as at June 30, 2013.

RISK MANAGEMENT

The Partnership has established and applies practices for identifying, assessing, and managing risk in order to reduce the nature and scope of the main risks that could have a significant impact on its activities, financial position and consolidated net income.

For additional information on the Partnership’s risk factors, refer to Valener’s MD&A for the fiscal year ended September 30, 2012, which is available on SEDAR at www.sedar.com.

GAZ MÉTRO LIMITED PARTNERSHIP


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NON-GAAP FINANCIAL MEASURES

The financial information has been prepared in accordance with Canadian GAAP. In management’s opinion, certain financial measures provide readers with information they consider useful for analyzing Gaz Métro’s financial performance. However, certain financial measures are not defined by Canadian GAAP and should not be considered in isolation or as substitutes for other financial measures that are in accordance with Canadian GAAP. The results obtained might not be comparable with similar indicators used by other issuers and should therefore be considered only as complementary information.

Non-GAAP Financial Measures

Maintenance CAPEX (1)

The lesser of: purchases of property, plant and equipment for a particular segment, regardless of the

nature of such purchases; and the amortization expense for that same segment.

Development CAPEX (1)

The excess of property, plant and equipment purchases over the maintenance CAPEX for each segment.

Investments in development activities

(1)

The sum of: investments in development CAPEX; and investments made to acquire new businesses or increase an economic interest;

net of: amounts received subsequent to the discontinuation of operations or a reduction in an

interest; and amounts received subsequent to the sale of subsidiaries.

Standardized distributable cash (deficiency)

(1) (2)

Cash flows related to operating activities less purchases of property, plant and equipment.

Distributable cash (deficiency)

(1)

The amount of standardized distributable cash (deficiency) and development CAPEX, net of: changes in deferred charges and credits; purchases of intangible and other assets; and the increase (decrease) in restricted cash.

Net income (loss) attributable to Partners, excluding non-recurring items

(3)

Net income (loss) attributable to Partners, net of items that management considers non-recurring, i.e., that they are unlikely to recur in the next two fiscal years or did not occur in the two fiscal years preceding the fiscal year in which they were realized.

Debt / total capitalization ratio This ratio consists of total debt divided by capitalization. Total debt is the sum of bank loans, the current portion of long-term debt and long-term debt, net of financing costs. Capitalization is the sum of total debt and Partners’ equity.

(1) Section P) CASH AND CAPITAL MANAGEMENT provides a more detailed description of the use of non-GAAP financial measures and a

quantitative reconciliation of these measures with GAAP-compliant measures. (2)

This MD&A complies in all material respects with the recommendations in CICA publication, Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities - Guidance on Preparation and Disclosure.

(3) Section N) SEGMENT RESULTS provides a more detailed description of the use of this non-GAAP financial measure.

K) RECENT SIGNIFICANT EVENTS

GAZ MÉTRO-QDA’S 2013 RATE CASE

Pending a new incentive mechanism, Gaz Métro-QDA’s 2013 rate case was developed on a cost-of-service basis. In Phase II of its 2013 rate case, filed in December 2012, Gaz Métro-QDA proposed that the Régie suspend application of the automatic adjustment formula on the established rate of return on deemed common equity. The request for suspension reflected Gaz Métro-QDA’s opinion that the rate obtained using this automatic adjustment formula was not reasonable for fiscal 2013, in particular because of the low long-term interest rates prevailing in the market. In March 2013, the Régie stated that it was authorizing suspension of the application of the automatic adjustment formula for fiscal 2013 and maintaining the 8.90% base rate of return on deemed common equity set in 2012. As such, Gaz Métro-QDA recognized its revenues for the first nine months of fiscal 2013 at this authorized base rate of return on deemed common equity, as it will continue to do until the end of fiscal 2013. Gaz Métro-QDA’s revenues for the first nine months of fiscal 2013 also reflect the cost-of-service parameters included in the 2013 rate case.

In April 2013, the Régie issued a decision regarding the performance indicator aimed at optimizing supply tools for fiscal 2013. In the decision, all transportation and load-balancing overearnings or shortfalls are to be attributed to customers. Given the distributor’s efforts to reduce the transportation costs supported by customers, the Régie set a new, additional incentive return for the Partners of Gaz Métro-QDA that could be achieved in the transportation service subject to the optimization of the supply plan during the final quarter of fiscal 2013.


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On July 15, 2013, the Régie issued its decision on all the items in the 2013 rate case. The Régie’s decision translates, among other things, into a $5.0 million decrease in the operating expense budget. The Régie also authorized a sharing of distribution overearnings as follows: (1) the first 50 basis points shall be allocated 50% to customers of Gaz Métro-QDA and 50% to the Partners of Gaz Métro and (2) beyond the first 50 basis points, 100% of distribution overearnings shall be attributed to the customers of Gaz Métro-QDA. The Régie determined that shortfalls shall be fully borne by the Partners of Gaz Métro. Given that the Régie’s decision was issued more than nine months into fiscal 2013, Gaz Métro-QDA will, during the fourth quarter of fiscal 2013, attempt to limit the impact of the reduction to the operating expense budget. Although the impact of this decision on its net income will be known only in the fourth quarter of fiscal 2013, and given the potential transportation service incentive return, Gaz Métro-QDA does not expect a significant variance from the net income anticipated in the 2013 rate case. GAZ MÉTRO-QDA’S 2014 RATE CASE

On April 9, 2013, as part of Phase I of the 2014 rate case, Gaz Métro-QDA requested that the Régie renew, for fiscal 2014, the 8.90% rate of return on deemed common equity authorized by the Régie for fiscal 2013. The rationale for the request was that the economic criteria used to determine the rate of return have remained relatively unchanged since the last decision on this matter in March 2013. On June 6, 2013, the Régie approved the renewal for fiscal 2014 of the fiscal 2013 authorized rate of return, i.e., 8.90%. DISPOSAL OF AN INTEREST IN A JOINT VENTURE

On November 27, 2012, the Partnership completed the sale of all the units it held in HydroSolution, its joint venture, for a cash consideration of $44.4 million, net of related costs. HydroSolution, which owns a large number of rental residential electric water heaters, was formerly included in the Partnership’s Energy Services, Storage and Other segment. The transaction, effective November 27, 2012, generated a net gain on disposal of $14.7 million, freed up cash flow to be allocated to projects in line with Gaz Métro’s strategy of focusing on energy distribution, energy transportation and energy production in Quebec and Vermont, and improved Gaz Métro’s cash position.

GMP-CVPS MERGER

On October 1, 2012, by way of a merger, CVPS combined its operations with those of GMP to form a single entity, which has kept the name GMP. Following the merger, CVPS’s first mortgage bonds were exchanged for new bonds issued under GMP’s first mortgage bonds deed of trust. The new bonds have the same face values, maturities, repayment terms and interest rates as the former CVPS bonds. GMP’s first mortgage bonds deed of trust has been amended to require that a long-term debt / total capitalization ratio of no more than 65% be maintained. In addition, on October 1, 2012, GMP’s and CVPS’s credit facilities were cancelled and the amounts owing were repaid using a new credit facility contracted by GMP. This new credit facility authorizes a US$70.0 million term loan, which can be increased by an additional amount of up to US$15.0 million, subject to the lender’s approval, and will expire on September 30, 2016.

TAX IMPACT OF A LEGISLATIVE MEASURE

The 2011 Federal Budget, which became law on December 15, 2011, had included a legislative measure that limited a corporation’s ability to defer the taxation of income earned through a partnership. Among other things, this measure required multi-tiered partnerships to adopt a common fiscal year-end. Since the Partnership and its subsidiaries and joint ventures formed as limited partnerships constituted a multi-tiered partnership structure, they had to comply with this new legislative measure. However, since some of the Partnership’s joint ventures wanted to maintain December 31 fiscal year-ends, a reorganization was implemented on September 30, 2012 to transfer the interests held in those joint ventures to 92650860 Québec inc., a wholly owned corporation of the Partnership. The transfer led to an increase in the net future income tax liability, as the income taxes related to those joint ventures are now payable by 9265-0860 Québec inc. and not by the Partners of the Partnership (Valener and GMi).

L) CONDITIONS IN THE ENERGY MARKET AND FOR GAZ MÉTRO

Natural gas Among all the forms of energy distributed in Quebec, in all market segments, natural gas is currently the most competitive. Compared to oil and electricity, natural gas has been the most cost-effective form of energy in the industrial, commercial and residential markets in recent years. For instance, industrial customers can cut energy costs by more than 50% by using natural gas instead of heavy oil (n

o 6), and commercial and residential customers can reduce their energy costs by 15% to 50%

annually by using natural gas instead of light oil (no 2).


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This economic advantage over other sources of energy has grown out of the abundant continental supply that has driven down the price of natural gas. The abundant North American supply arises mainly from the new gas reserves discovered on the continent and, moreover, from the exploitation of many of these reserves, concentrated particularly in the United States. Increased natural gas production in the U.S. comes primarily from:

increased shale gas production; and increased gas production associated with oil drillings.

What’s more, the revenues generated by the extraction and sale of liquids contained in natural gas are helping to genera te a return from the development of reserves despite lower natural gas prices. The market value of liquid hydrocarbons, such as pentane, butane and propane, remains high compared to natural gas, even though the correlation between the price of liquids and crude oil is lower than in the past.

This low natural gas price reflects a trend of more than four years. In spring 2012, natural gas prices in Canada and the U.S. were at their lowest level in the past 14 years. Although natural gas prices have since risen, they continue to remain relatively low.

Most analysts believe that natural gas prices will remain competitive due to the size and low development cost of new gas reserves available in North America. The financial markets also envision such a situation, as reflected in the curve for forward contracts for the coming years. The following graph shows the past and future trend of the monthly Empress natural gas price from July 2009 to July 2014. In the longer term and in light of the above discussion, the consensus among financial analysts is that natural gas prices at the AECO Hub in Alberta should remain under $4.25/Gj until 2018.

In addition to the indisputable economic benefits of natural gas, the use of natural gas also provides major ecological benef its. Since natural gas is the cleanest fossil fuel, natural gas used in replacement of other energies such as diesel and heavy oil cuts GHG emissions by approximately 25% and 32%, respectively. As a replacement for coal, natural gas can reduce GHG emissions by more than 40%. Prioritizing the use of natural gas in place of these more polluting sources is the logical choice for the environment and for attaining Quebec’s GHG reduction targets. Knowing that everyone is responsible for attaining GHG reduction targets, the Partnership undertook several promising energy projects to reduce the environmental footprint, such as replacing diesel with natural gas as a fuel in the freight transportation sector and projects to extend the Gaz Métro-QDA system to several remote industrial regions, such as Thetford Mines, in order to give the industries of these regions an opportunity to benefit from the advantages of replacing fuel oil with natural gas.

Given the economic and environmental advantages related to natural gas, Gaz Métro has, in recent years, been supporting and developing various ways of using natural gas in other forms and for other purposes.

Interest rate Much like the Bank of Canada’s discount rate, long-term interest rates (30-year Canada bonds) kept with the North American trend and remained stable and low during the first nine months of fiscal 2013. However, given the current regulatory framework, the low interest rates on long-term Canada bonds have had an unfavourable impact on the authorized rate of return on the deemed common equity of Gaz Métro-QDA. This unfavourable impact is explained by the fact that the authorized rate of return is determined using an automatic adjustment formula that is based on interest rate forecasts on 30-year Canada bonds. To offset this situation, in December 2012 and as part of its 2013 rate case, Gaz Métro-QDA filed a request with the

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Empress Monthly Spot Price ($CAN/Gj)

Monthly average daily spot price - Empress (Direct Energy)

Empress price - August 2013 to July 2014 ("Indicative Foward Price") by JP Morgan Commodities Canada Corporation dated July 31, 2013


17

Régie aimed at suspending the application of the automatic adjustment formula and setting a reasonable rate of return on deemed common equity for fiscal 2013. On March 5, 2013, the Régie stated that it was authorizing the suspension of the application of the automatic adjustment formula for fiscal 2013 and maintaining the 8.90% base rate of return on deemed common equity set in 2012, as explained in section K) RECENT SIGNIFICANT EVENTS. What’s more, on June 6, 2013, the Régie renewed this decision for fiscal 2014.

The most recent maturity date for Gaz Métro first mortgage bonds, amounting to $150.0 million and payable through General Partner GMi, was April 15, 2013. To refinance this debt, on April 10, 2013 GMi issued, by way of private placement, notes secured by Gaz Métro for a total capital amount of US$200.0 million, the proceeds of which were subsequently loaned to Gaz Métro under similar conditions. This financing enabled the Partnership to benefit from favourable market conditions and low interest rates. For additional information, refer to section P) CASH AND CAPITAL MANAGEMENT.

M) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY

Seasonal activities

Interim period operating results are not necessarily representative of the results to be expected for the fiscal year, as seasonal temperature fluctuations influence the energy consumption levels of customers and in turn influence Gaz Métro’s interim consolidated financial results, as presented in Note 2 to the Partnership’s interim consolidated financial statements as at June 30, 2013.

1. HIGHLIGHTS

3 months ended June 30


(in millions of dollars, unless otherwise indicated) 2013 2012 2011 2013 2012 2011

Revenues 437.5 334.3 364.1 1,842.3 1,549.9 1,676.4

Gross margin 195.0 156.7 158.1 764.8 613.6 624.9

Net income (loss) (a) 1.8 (1.9) 11.2 199.6 158.3 180.0

Net income (loss) attributable to:

Non-controlling interests (a) (0.6) (0.1) (0.3) (1.1) (1.0) (0.4)

Partners (a) 2.4 (1.8) 11.5 200.7 159.3 180.4

Basic and diluted net income (loss) per unit attributable to Partners (in $) 0.02 (0.01) 0.09 1.35 1.26 1.43

Distributions declared per unit to Partners (in $) 0.28 0.28 0.28 0.84 0.84 0.84

Distributable cash (b) 13.3 1.4 33.1 147.9 187.7 238.2

Total assets 5,431.2 4,999.5 3,519.4 5,431.2 4,999.5 3,519.4

Total debt 2,665.6 2,370.3 1,614.2 2,665.6 2,370.3 1,614.2

Debt / total capitalization ratio (b) (in %) 64.7 63.6 59.7 64.7 63.6 59.7

(a) For fiscal 2012, Gaz Métro is applying Handbook Section 1602, Non-controlling interests, whereby non-controlling interests must be presented as a separate item of equity rather than as a liability and, therefore, are no longer recognized as a charge to income.

(b) This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

THIRD QUARTER FIRST NINE MONTHS

$437.5 million in revenues, up 30.9% from the third quarter of fiscal 2012;

$1,842.3 million in revenues, up 18.9% from the first nine months of fiscal 2012;

Net income attributable to Partners of $2.4 million, up $4.2 million from the third quarter of last year;

Net income attributable to Partners of $200.7 million, up $41.4 million (26.0%) from the nine-month period last year;

Distributions declared of $0.28 per unit; and Distributions declared of $0.84 per unit; and

Distributable cash of $13.3 million, up $11.9 million from the third quarter of fiscal 2012.

Distributable cash of $147.9 million, down $39.8 million from the first nine months of fiscal 2012.

2. REVENUES

For the third quarter of fiscal 2013, consolidated revenues totalled $437.5 million, a $103.2 million or 30.9% increase from $334.3 million in the third quarter of last year. For the first nine months of the fiscal year, revenues totalled $1,842.3 million, a


18

$292.4 million or 18.9% increase from $1,549.9 million in the same period last year. These revenue increases were mainly due to:

a $96.6 million increase ($296.4 million for the first nine months) in revenues from GMP, excluding the impact of the fluctuation in the Canadian dollar versus the U.S. dollar, owing mainly to: (i) additional GMP revenues resulting from the June 27, 2012 acquisition of CVPS and (ii) a favourable impact on volumes of colder temperatures in the first nine months of fiscal 2013 versus the same period last year;

a $6.8 million increase in Gaz Métro-QDA’s revenues explained mainly by changes in the customers’ share in overearnings for the third quarter of fiscal 2013 compared to the same quarter of fiscal 2012. A $3.6 million increase in Gaz Métro-QDA’s revenues for the first nine months resulted mainly from different rate case parameters authorized by the Régie on July 15, 2013, partly mitigated by a decrease in supply and compression revenues resulting from a lower average supply rate; and

a $1.5 million increase ($4.4 million for the first nine months) in VGS’s revenues, mainly from an increase in natural gas deliveries due to the favourable impact of normalization on deliveries in the third quarter and the first nine months of fiscal 2013, whereas warmer-than-normal temperatures during the same periods last year combined with the absence of a normalization mechanism reduced the deliveries results, partly mitigated by the impact of the customers’ share in the profit-sharing mechanism, as VGS expects to realize a return exceeding the authorized return for fiscal 2013;

partly mitigated by: a $4.6 million decrease ($10.0 million for the first nine months) in revenues from HydroSolution, as this joint venture

was sold on November 27, 2012.

As indicated in section K) RECENT SIGNIFICANT EVENTS, consolidated revenues for the first nine months of fiscal 2013 reflect the fact that Gaz Métro-QDA recognized its revenues based on the 8.90% rate of return on deemed common equity authorized by the Régie in its March 5, 2013 decision and on the cost-of-service parameters in the 2013 rate case authorized on July 15, 2013.

In accordance with Gaz Métro-QDA’s current regulatory mechanism, natural gas deliveries in Quebec are normalized based on normal temperature and wind velocity. Since October 1, 2012, under a new regulatory mechanism approved by the VPSB, VGS now also applies a normalization mechanism for natural gas deliveries based on normal temperatures. For the third quarter of fiscal 2013, normalized natural gas deliveries in Quebec and Vermont totalled 1,095 million cubic metres (10

6m

3), up 1.8% from 1,076 million cubic metres in the same

quarter last year. This increase was mainly due to (i) higher normalized deliveries in Gaz Métro-QDA’s commercial market resulting mainly from an increase in consumption in the institutional sector in the third quarter of fiscal 2013 and (ii) a favourable impact of normalization on deliveries made by VGS in the third quarter of fiscal 2013, whereas warmer-than-normal temperatures in the last fiscal year combined with the absence of a normalization mechanism had reduced the deliveries results.

For the first nine months of fiscal 2013, normalized deliveries totalled 4,816 million cubic metres, a 1.3% increase from 4,756 million cubic metres in the same period of fiscal 2012. This increase was mainly due to (i) greater consumption, particularly in the metallurgy and pulp & paper sectors, partly mitigated by lower consumption in Gaz Métro-QDA’s electricity generation and petrochemical sectors and to (ii) a favourable impact of the normalization of VGS’s deliveries during the first nine months of fiscal 2013, as previously explained.

It is important to note that the natural gas purchased by Gaz Métro-QDA is billed to customers at cost, practically cancelling out the impact on gross margin and therefore on the Partnership’s consolidated net income, as explained in greater detail in the Energy Distribution Segment heading of section N) SEGMENT RESULTS. In addition, according to current regulatory mechanisms, the sale of the natural gas commodity to the customers of VGS also had an insignificant impact on its gross margin and, in turn, on the Partnership’s consolidated net income.

1,1

16

1,0

76

1,0

95

4,8

26

4,7

56

4,8

16

2011 2012 2013

3 months 9 months

Consolidated normalized natural gas deliveries

(in millions of cubic metres)


19

3. NET INCOME (LOSS) AND NET INCOME (LOSS) PER UNIT ATTRIBUTABLE TO PARTNERS

3.1 NET INCOME (LOSS) ATTRIBUTABLE TO PARTNERS

For the third quarter of fiscal 2013, net income attributable to Partners totalled $2.4 million, up $4.2 million from a $1.8 million net loss attributable to Partners in the third quarter of last year. This increase was mainly due to:

a $17.2 million increase, excluding the impact of exchange rate changes, in the net income attributable to Partners generated by energy distribution activities in Vermont, the main underlying factors being (i) the higher net income of GMP, given the June 27, 2012 acquisition of CVPS and (ii) the costs related to the CVPS acquisition and severance benefits payable to certain CVPS officers that had been incurred in the third quarter of fiscal 2012 partly mitigated by (iii) higher income taxes resulting from higher income before income taxes;

mitigated by: an $8.4 million decrease in Gaz Métro-QDA’s net income attributable to Partners, mainly as a result of (i) a timing

difference between the revenue recognition profile of the distribution service, which follows the customers’ consumption profile, and that of costs and (ii) an unfavourable impact of a decrease in the rate of return on deemed common equity, offset by (iii) the impact of lower load-balancing and transportation costs in the third quarter of fiscal 2013 compared to those of fiscal 2012 whereas the higher average costs for transportation tools due to the industrial market customers’ changing demand had adversely affected the net income of the third quarter of fiscal 2012; and

the allocation of a $0.8 million income tax expense of 9265-0860 Québec inc. resulting from a reorganization implemented on September 30, 2012 to offset the impacts of the Income Tax Act amendment applicable to multi-tiered partnership structures, as explained in section K) RECENT SIGNIFICANT EVENTS.

For the first nine months of fiscal 2013, net income attributable to Partners totalled $200.7 million, up $41.4 million or 26.0% from $159.3 million in the same nine-month period last year. This increase was mainly due to:

a $14.7 million net gain, realized in the first quarter of fiscal 2013, on the sale of its interest in HydroSolution; and a $31.0 million increase, excluding the impact of exchange rate changes, in the net income attributable to Partners

generated by energy distribution activities in Vermont, as explained by the same items mentioned previously; mitigated by:

the allocation of a $3.1 million income tax expense of 9265-0860 Québec inc. as previously explained.

Gaz Métro-QDA’s net income, which is significantly influenced by the rate of return on deemed common equity authorized by the Régie, accounted for close to 70% of the consolidated net income attributable to Partners in the first nine months of fiscal 2013. If not for the $14.7 million net gain realized in the first quarter of this fiscal year on the sale of Gaz Métro’s interest in HydroSolution, the net income generated by Gaz Métro-QDA would have accounted for approximately 75% of the consolidated net income attributable to Partners during the first nine months of fiscal 2013 compared to 83% during the same period last fiscal year, excluding the $7.9 million in costs incurred for the CVPS acquisition. However, it is important to note that the results of the first nine months of fiscal 2013 reflected an increase in income generated by the Energy Distribution segment in Vermont as a result of the June 27, 2012 CVPS acquisition.

2.9

(5.5

)

(9.3

)

7.9

3.5

2.7

(0.2

)

(0.5

)

1.6

0.1

2012 2013

3 months

Net income (loss) attributable to Partners(in millions of $)

Energy DistributionGaz Métro-QDA

Energy DistributionVGS and GMP

Natural Gas Transportation

Energy Production

Energy Services, Storageand Other

139.0

139.0

4.5

35.2

13.0

13.1

(0.9

)

(0.7

)

6.4

4.7

2012 2013

9 months

Net income (loss) attributable to Partners(in millions of $)

Energy DistributionGaz Métro-QDA

Energy DistributionVGS and GMP


Energy Production

Energy Services, Storage andOther


20

3.2 NET INCOME (LOSS) PER UNIT ATTRIBUTABLE TO PARTNERS

For the third quarter of fiscal 2013, net income per unit attributable to Partners was $0.02, up $0.03 from the same period last year. For the first nine months, net income per unit attributable to Partners was $1.35, up $0.09 from the same period last year.

0.0

5

0.0

6

0.0

9

(0.0

1)

0.0

2

1.6

2

1.5

7

1.4

3

1.2

6

1.3

5

2009 2010 2011 2012 2013

3 months 9 months

Net income (loss) per unit attributable to Partners(in dollars)


21

N) SEGMENT RESULTS

CONSOLIDATED NET INCOME (LOSS) ATTRIBUTABLE TO PARTNERS, EXCLUDING NON-RECURRING ITEMS

As described in section J) OVERVIEW OF THE PARTNERSHIP AND OTHER, net income (loss) attributable to Partners, excluding non-recurring items, is a non-GAAP financial measure. Management considers this measure to be an indicator of the Partnership’s financial performance that can be used to measure and compare, between periods, net income or net loss from ongoing operations. Management also believes that it is useful for investors and other users of this MD&A to be informed of the specific non-recurring items that had a positive or negative impact on net income or net loss, as defined in Canadian GAAP.


(in millions of dollars) 2013 2012 Change 2013 2012 Change

Energy Distribution

Gaz Métro-QDA (5.5) 2.9 (8.4) 139.0 139.0 -

VGS and GMP 12.6 (6.8) 19.4 49.3 8.9 40.4 Financing costs of investments in this

segment (1)

(4.7) (2.5) (2.2) (14.1) (4.4) (9.7) Costs related to the CVPS acquisition

(net of income taxes) - 7.9 (7.9) - 7.9 (7.9)

2.4 1.5 0.9 174.2 151.4 22.8


TQM, PNGTS and Champion 3.0 4.1 (1.1) 14.1 15.3 (1.2) Financing costs of investments in this

segment (1)

(0.3) (0.6) 0.3 (1.0) (2.3) 1.3

2.7 3.5 (0.8) 13.1 13.0 0.1

Energy Production (2)

Gaz Métro Éole and Gaz Métro Éole 4 (0.5) (0.2) (0.3) (0.7) (0.9) 0.2 Financing costs of investments in this

segment (1)

- - - - - -

(0.5) (0.2) (0.3) (0.7) (0.9) 0.2

Energy Services, Storage and Other (2)

Energy and storage 0.3 2.2 (1.9) 20.2 8.3 11.9 Financing costs of investments in this

segment (1)

(0.2) (0.6) 0.4 (0.8) (1.9) 1.1 Net gain on the disposal of the interest

in HydroSolution - - - (14.7) - (14.7)

0.1 1.6 (1.5) 4.7 6.4 (1.7)

Corporate Affairs (2)

Corporate affairs (2.3) (0.3) (2.0) (5.3) (2.7) (2.6)

(2.3) (0.3) (2.0) (5.3) (2.7) (2.6)

Consolidated net income attributable to Partners, excluding non-recurring items

(3) 2.4 6.1 (3.7) 186.0 167.2 18.8

Non-recurring items - (7.9) 7.9 14.7 (7.9) 22.6

Consolidated net income (loss) attributable to Partners 2.4 (1.8) 4.2 200.7 159.3 41.4

(1) These costs consist of the interest on the long-term debt incurred by the Partnership to finance investments in the subsidiaries, joint

ventures and entities subject to significant influence of each segment. (2)

As previously discussed, during the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures to better reflect the way management analyzes financial results for purposes of operational decision-making and performance assessment. For additional information on these financial reporting changes for segment disclosures, refer to section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

(3) This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in

section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.


22

1. ENERGY DISTRIBUTION SEGMENT

1.1 GAZ MÉTRO-QDA

Gaz Métro-QDA



Revenues 238.6 231.8 6.8 1,200.1 1,196.5 3.6

Gross margin 108.0 108.1 (0.1) 479.5 451.7 27.8

Net income (loss) attributable to Partners (5.5) 2.9 (8.4) 139.0 139.0 -

Revenues

Gaz Métro-QDA’s revenues totalled $238.6 million during the third quarter of fiscal 2013, up $6.8 million or 2.9% from the same quarter last year. For the first nine months, revenues totalled $1,200.1 million, up $3.6 million or 0.3% from the first nine months of fiscal 2012.

As mentioned in section K) RECENT SIGNIFICANT EVENTS, the Régie’s decision on the complete 2013 rate case was issued on July 15, 2013. The new rates are being applied since August 1, 2013 with retroactive effect to October 1, 2012. For the period of October 1, 2012 to July 31, 2013, the Régie had maintained the rates in effect as at September 30, 2012 on an interim basis. It is important to note that Gaz Métro-QDA’s revenues for the third quarter and first nine months of fiscal 2013 reflect both the impact of the Régie’s decision to set the authorized rate of return on deemed common equity at 8.90% as well as the impact of the July 15 decision regarding all matters in the 2013 rate case. The difference between the revenues billed to customers and those that would have been generated based on rates authorized by the Régie has been recognized in a deferred charges account.

The following table highlights the results of Gaz Métro-QDA for the third quarter and first nine months of fiscal 2013, in terms of revenue and volume changes, compared with the same periods of fiscal 2012.

3rd

quarter Cumulative

Volume change Revenue

change Volume change Revenue

change

(106

m3) (%) (millions $) (10

6 m

3) (%) (millions $)

Distribution

Residential and commercial 14 4.4 $ (2.3) - - $ 25.3

Industrial (1) (0.2) (0.6) 31 1.2 0.4

Total distribution 13 (2.9) 31 25.7

Supply and compression (5) (0.9) 2.5 43 1.8 (31.5)

Transportation (17) (1.9) (6.1) 43 1.1 (17.3)

Load-balancing 13 1.2 5.0 6 0.1 26.7

Other revenues 8.3 -

Total $ 6.8 $ 3.6

Since Gaz Métro-QDA’s revenues are divided into five service categories, namely, distribution, supply, compression, transportation, and load-balancing, the Régie authorizes a specific rate for each service and, for certain services, for each category of customer.

The third-quarter and nine-month revenue increases for Gaz Métro-QDA’s activities were mainly due to: other revenues increased $8.3 million for the third quarter while remaining stable for the nine-month period compared

to the same periods in fiscal 2012, due to: o a reversal in the third quarter of fiscal 2013 of the $4.3 million provision recognized in the first quarter of

fiscal 2013 as the customers’ share in overearnings combined with the fact that, in the same period of fiscal 2012, the customers’ share in overearnings of $3.5 million had been recognized for transportation and load-balancing services and on financial optimization transactions. However, this position with respect to the share in overearnings attributable to customers is likely to change based on the fourth quarter 2013 results; and

o a $0.6 million incentive return related to the GEEP performance incentive recognized in revenues for the third quarter of 2013 as per the directives issued by the Régie in its decision on the new incentive mechanism application, whereas no amount had been recorded in the third quarter of fiscal 2012, as the full $4.0 million incentive had been recognized in the first quarter of that fiscal year;


23

723

230

83

1,0

36

722

245

82

1,0

49

Industrial Commercial Residential Total volume

3 months

Normalized natural gas deliveries (in millions of cubic metres)

2012

2013

2,5

92

1,4

45

523

4,5

60

2,6

23

1,4

32

536

4,5

91

Industrial Commercial Residential Total volume

9 months

Normalized natural gas deliveries (in millions of cubic metres)

2012

2013

a $5.0 million increase ($26.7 million for the first nine months) in load-balancing revenues that came mainly from a 24.7% increase in the average load-balancing rate authorized by the Régie as a result of changes in the costs of tools for this service; and

a $2.5 million increase ($31.5 million decrease for the first nine months) in supply and compression revenues that stems mainly from a 7.4% increase (9.3% decrease for the first nine months) in the average supply rate, partly mitigated by a 0.9% decrease in supply service volume (1.8% increase for the first nine months). The impact of closer-to-normal temperatures, especially during the first six months of 2013, compared to the same period of fiscal 2012 when temperatures were much warmer than normal, explains the increase in supply service volume since the beginning of the year. It is important to point out that this service is not normalized for temperature;

partly mitigated by: a $2.3 million decrease (increase of $25.3 million for the first nine months) in distribution revenues from the residential

and commercial markets caused mainly by the unfavourable impact of the Régie’s July 15, 2013 decision on Gaz Métro-QDA’s 2013 rates, as previously explained, offset by a 4.4% increase in normalized natural gas deliveries (stable for the first nine months) and a 5.2% increase in distribution rates authorized by the Régie. The Régie’s decision translated into a $4.0 million adjustment to Gaz Métro-QDA’s third quarter revenues for fiscal 2013 to reflect the difference between (i) the rates billed to its customers from October 1, 2012 to June 30, 2013 and (ii) the rates authorized by the Régie on July 15, 2013; and

a $6.1 million decrease ($17.3 million for the first nine months) in transportation revenues due to an 11.4% decrease in transportation rates authorized by the Régie (partly offset by higher natural gas deliveries in the first nine months).

The revenue changes presented above account for the effects of normalization. Gaz Métro-QDA benefits from a revenue normalization mechanism for its natural gas distribution and load-balancing revenues, which varies depending on normal temperatures and normal wind velocity. Gaz Métro-QDA normalizes natural gas deliveries and then reflects the resulting adjustment to revenues using rate stabilization accounts, which are later recovered from or returned to customers over a fiveyear period as of the second subsequent fiscal year. Given the close-to-normal temperatures in the third quarter of fiscal 2013, revenues were adjusted upward by $0.1 million (up $10.6 million for the first nine months). It is important to note that the fundamentals on which application of the normalization mechanism is based are such that, given extreme temperature changes, a certain degree of inaccuracy could occur and not entirely neutralize the impacts on Gaz Métro-QDA’s results, as was the case for the first six months of fiscal 2012.

Distribution revenues include the annual Green Fund duty amounts. The costs of this duty, which were $41.7 million in fiscal 2013 and $39.6 million in fiscal 2012, are determined in accordance with the Regulation respecting the annual duty payable to the Green Fund and are included in Gaz Métro-QDA’s operating and maintenance expenses. The amounts collected from

customers cover the payments made by Gaz Métro-QDA to settle this duty, meaning, the distribution revenues from the annual Green Fund duty have no impact on the consolidated net income attributable to Partners.

Gaz Métro-QDA’s supply revenues come from the sale of the natural gas commodity to customers who subscribe to this service. It has no impact on gross margin since Gaz Métro-QDA is not authorized to generate any profit from the sale of natural gas. As for revenues from compression, transportation and load-balancing activities, they generate very low margins. Consequently, distribution revenues are the main source of gross margin, since there are practically no direct costs associated with these revenues.

Normalized deliveries

Gaz Métro-QDA’s normalized natural gas deliveries totalled 1,049 million cubic metres in the third quarter of fiscal 2013, up 1.3% from 1,036 million cubic metres in the third quarter of last year. For the first nine months of fiscal 2013, deliveries totalled 4,591 million cubic metres, up 0.7% from 4,560 million cubic metres during the same nine-month period last year.


24

Nine-month normalized deliveries in Gaz Métro-QDA’s industrial market increased 1.2% year over year due to greater consumption, particularly in the metallurgy and pulp & paper sectors, mitigated somewhat by lower consumption in the electricity generation and petrochemical sectors.

In Gaz Métro-QDA’s residential market, the 2.5% year-over-year increase in nine-month deliveries was due to the maturation of new sales in fiscal 2013.

Normalized deliveries in Gaz Métro-QDA’s commercial market declined 0.9% from the first nine months of fiscal 2012, essentially due to energy conservation measures undertaken by Gaz Métro-QDA’s customers combined with relatively weak economic growth. These decreases were, however, partly offset by an increase in institutional customers in the third quarter of fiscal 2013.

During the third quarter of fiscal 2013, normalized deliveries in Gaz Métro-QDA’s residential and industrial markets were relatively stable compared to the same period of fiscal 2012. The increase in third-quarter normalized deliveries in the commercial market was primarily due to increased consumption in the institutional sector, as previously explained.

Net income (loss) attributable to Partners

Gaz Métro-QDA posted a net loss attributable to Partners of $5.5 million in the third quarter of fiscal 2013, an $8.4 million decrease from the same quarter last year. For the first nine months, Gaz Métro-QDA’s net income attributable to Partners totalled $139.0 million, unchanged from the same period in fiscal 2012. The stability of Gaz Métro-QDA’s nine-month net income between fiscal 2013 and fiscal 2012 was essentially due to:

the impact of a decrease in load-balancing and transportation costs in the first nine months of fiscal 2013 compared to those of fiscal 2012 resulting from the temperatures in 2012, as previously explained, and from the higher average costs for transportation tools resulting from changing demand of customers in the industrial market, both of which had adversely affected the net income for that period; and

a decrease in financial expenses resulting from an increase in capitalized interest; mitigated by:

a timing difference between the revenue recognition profile of the distribution service, which follows the customers’ consumption profile, and that of costs; this difference should reverse at the end of fiscal 2013; an unfavourable impact of a decrease in the authorized rate of return on deemed common equity; and a $3.4 million decrease in revenues related to the GEEP performance incentive.

The $8.4 million year-over-year decrease in third-quarter net income attributable to Partners was primarily due to the same reasons provided above for the first nine months of fiscal 2013, although in different proportions, combined with the retroactive adjustment of billing differences recognized between October 1, 2012 and March 31, 2013. This adjustment reflects the Régie’s July 15, 2013 decision, as previously described. Impacts of the 2013 Gaz Métro-QDA rate case authorized by the Régie The 2013 rate case, as submitted to the Régie, would have translated into a $6.6 million decline in net income attributable to Partners compared to fiscal 2012. This decrease would have resulted primarily from the following factors:

a lower authorized rate of return on deemed common equity for 2013 compared to that authorized in 2012; a $4.0 million decrease in revenues related to the GEEP performance incentive; and the impact of having no share in overearnings anticipated in the 2013 rate case, whereas a $1.0 million share had been

realized in fiscal 2012; partly offset by:

an increase in the average rate base combined with an increase in investments not included in the rate base.

On July 15, 2013, the Régie issued its decision on this rate case, in particular reducing Gaz Métro-QDA’s operating expense budget by $5.0 million, as mentioned in section K) RECENT SIGNIFICANT EVENTS. Given that the Régie’s decision was issued more than nine months into fiscal 2013, Gaz Métro-QDA will, during the fourth quarter of fiscal 2013, attempt to limit the impact of the reduction to the operating expense budget. Although the impact of this decision on its net income will be known only in the fourth quarter of fiscal 2013 and given the potential new transportation service incentive return, Gaz Métro-QDA does not expect a significant variance from the net income anticipated in the 2013 rate case.

The quarterly breakdown of how the 2013 rate case authorized by the Régie affects net income attributable to Partners shows higher net income attributable to Partners in the first two quarters of fiscal 2013 and lower net income attributable to Partners in the last two quarters compared to the same periods in fiscal 2012.


25

Return on Gaz Métro-QDA’s deemed common equity The projected average rate base in Gaz Métro-QDA’s 2013 rate case is $16 million higher than that of fiscal 2012. This increase is mainly due to increased investments in property, plant and equipment and in IT developments and to a decrease in deferred credits related to overearnings, partly mitigated by lower inventory levels, deferred charges related to temperature normalization as well as the regulatory cash.

The base rate of return on Gaz Métro-QDA’s deemed common equity for fiscal 2013 is 8.90%, the same rate as that authorized in fiscal 2012. It should be noted that the authorized rate of return for fiscal 2013 did not include a productivity gain.

Regulatory matters

Summary of the regulatory framework for Gaz Métro-QDA

Fiscal years ended September 30 2013 2012 2011

Rate case period

2012-10-01 to 2013-09-30

2011-10-01 to 2012-09-30

2010-10-01 to 2011-09-30

Authorized rate of return on deemed common equity

(1) 8.90%

(2) 9.69% 9.09%

Capital structure (Debt; Equity) 54%; 46%

(3) 54%; 46%

(3) 54%; 46%

(3)

Average rate base in rate case $1,836 million $1,792 million $1,772 million

(1) No productivity gain has been included for fiscal 2013 (0.79% in fiscal 2012 and none in fiscal 2011).

(2) Rate of return authorized by the Régie in its March 5, 2013 decision.

(3) Deemed equity is divided as follows: 7.5% preferred equity and 38.5% common equity.

2009 2010 2011 2012 2013

Authorized base rate of return and authorized rate of return on deemed common equity

(%)

Authorized base rate of return on deemed common equity

Authorized rate of return on deemed common equity

1,8

07

1,7

79

1,7

57

1,8

20

1,8

36

2009 2010 2011 2012 (b) 2013 (a)

Average rate base evolution (in millions of dollars)

(a) The rate base for fiscal 2013 reflects the one in the rate case whereas the rate bases for fiscal years 2009 to 2012 are the actual rate bases.

(b) Subject to Régie approval.


26

Regulatory filings

Fiscal 2012

2012 annual regulatory report

Gaz Métro-QDA’s annual regulatory report for the fiscal year ended September 30, 2012 was filed with the Régie on December 21, 2012, and a final decision from the Régie, initially expected in spring 2013, is now expected in summer 2013.

Fiscal 2013

2013 rate case Pending a new incentive mechanism, Gaz Métro-QDA’s 2013 rate case was developed on a cost-of-service basis. Phase I of Gaz Métro-QDA’s 2013 rate case was filed with the Régie in July 2012 and updated in October 2012. Of note in the Phase I filings were the 2013-2015 supply plan (which included a relocation of the supply structure to Dawn, Ontario, as of November 2015), the financial derivatives program, and a proposed performance indicator for transportation and load-balancing tools.

In November 2012, the Régie issued a decision approving the gas supply plan for 2013 and suspending the financial derivatives program until a decision is issued on a new proposal from Gaz Métro-QDA. In December 2012, the Régie approved the supply plan for 2014 and 2015 as well as the strategy to relocate the supply structure to Dawn.

In April 2013, the Régie issued a decision approving, with some changes, the method for sharing overearnings or shortfalls applicable to the transportation and load-balancing activities proposed for fiscal 2013. It also set a new, additional incentive return for the Partners of Gaz Métro-QDA that could be realized in transportation service, subject to optimization of the gas supply plan during the last quarter of fiscal 2013.

However, in its final decision of June 20, 2013, the Régie rejected the performance indicator proposed by Gaz Métro-QDA and asked it to file a new indicator applicable as of October 1, 2016. The Régie considers that the 2017 rate year would be more appropriate as the first year of application of a performance indicator for transportation, load-balancing and compression tools, since the migration of supply to Dawn should be nearly completed.

In September 2012, the Régie approved the interim rates for fiscal 2013 until a final decision is made. These interim rates were set on the basis of a 9.69% rate of return on deemed common equity (including productivity gains).

Phase II of the 2013 rate case, addressing rate-setting was filed in December 2012. As indicated in section K) RECENT SIGNIFICANT EVENTS, Gaz Métro-QDA has asked the Régie to recognize that the rate of return determined using the automatic adjustment formula is not reasonable for 2013. On March 5, 2013, the Régie issued a decision to suspend the application of the automatic adjustment formula for 2013 and to maintain the 8.90% rate of return on deemed common equity set in 2012.

The Phase II hearings ran from April 24 to May 3, 2013. A decision on the complete 2013 rate case was issued on July 15, 2013. In its decision, the Régie authorized a fiscal 2013 operating expense budget of $182.7 million, a $5.0 million reduction from that included in the 2013 rate case submitted by Gaz Métro-QDA. The Régie also established the method for sharing distribution service overearnings or shortfalls as follows: (1) the first 50 basis points shall be allocated 50% to Gaz Métro-QDA customers and 50% to Gaz Métro Partners and (2) beyond the first 50 basis points, 100% of distribution overearnings will be attributed to Gaz Métro-QDA’s customers. The Régie has determined that any shortfalls will be fully borne by Gaz Métro’s Partners.

Fiscal 2014

2014 rate case On April 9, 2013, as part of Phase I of the 2014 rate case, Gaz Métro-QDA filed a rate of return application with the Régie for the fiscal year beginning October 1, 2013. Gaz Métro-QDA has requested that the Régie renew, for that fiscal year, the 8.90% rate of return on deemed common equity authorized by the Régie for fiscal 2013. The rationale for the request is that the economic criteria used to determine the rate of return have essentially remained unchanged since the most recent decision on this matter. On June 6, 2013, the Régie approved the renewal for fiscal 2014 of the fiscal 2013 authorized rate of return, i.e., 8.90%.

Phase II of the 2014 rate case, addressing the 2014-2016 supply plan, was filed with the Régie on June 7, 2013. It is expected that the other parts of the rate case will be filed in September 2013.


27

Regulatory outlook

Incentive mechanism

The Gaz Métro-QDA incentive mechanism, in effect since October 1, 2007, expired on September 30, 2012. Following an evaluation of this mechanism and negotiation meetings held with intervenors, on September 2, 2011 Gaz Métro-QDA filed an incentive mechanism proposal with the Régie that was supported by a majority of the intervenors. Hearings on the proposal were held in February 2012 with a view to implementing a new incentive mechanism as of October 1, 2012.

On June 28, 2012, the Régie issued a decision denying the mechanism proposed by the working group. However, it still considers that an eventual balanced and well-calibrated incentive mechanism, as opposed to a regulation based solely on cost of service, is a tangible benefit for Gaz Métro-QDA, its customers and the Régie. It has therefore asked Gaz Métro-QDA to file a new incentive mechanism proposal as part of a more traditional framework.

Pending a new incentive mechanism, the Régie indicated in its June 2012 decision that the 2013 rate case must be treated solely on a cost-of-service basis. At the Régie’s request, as part of Phase II of its 2013 rate case, Gaz Métro-QDA proposed a method for sharing overearnings or shortfalls related to its fiscal 2013 distribution activities.

On November 30, 2012, Gaz Métro-QDA also filed a new incentive mechanism proposal for distribution activities to be applicable for a five-year period as of fiscal 2014, which begins on October 1, 2013. In a letter dated March 26, 2013, the Régie stated that the proposed mechanism failed to meet the concerns expressed by the Régie, which considers that the revenue cap should be set by rate category.

At the Régie’s request, Gaz Métro-QDA and all intervenors in this matter sent written comments to the Régie on scenarios that could be considered in the circumstances. On April 24, 2013, the Régie issued a decision to stop reviewing this application and asked Gaz Métro-QDA to file a new proposal for an incentive mechanism that would take into account the Régie’s directives and the coming changes in rate structures. In the meantime, the Régie determined that Gaz Métro-QDA will be regulated on a cost-of-service basis.

Request concerning changes to accounting policies for regulatory purposes

During fiscal 2011, Gaz Métro-QDA requested that the Régie recognize, for rate-setting purposes, certain changes to accounting policies, mainly concerning the treatment of property, plant and equipment, IT developments, accrued vacation and post-employment benefits. The main purpose of these accounting changes is to harmonize the regulatory treatments for these items with the treatments used by Canadian peers and with Canadian GAAP and U.S. GAAP.

On June 28, 2012, the Régie issued its decision approving, as requested, the accounting policy changes on property, plant and equipment, IT developments and accrued vacation.

The Régie did not, however, approve all of the accounting policy changes proposed by Gaz Métro-QDA regarding the accounting for post-employment benefits. In its decision on this aspect, the Régie had favoured a non-standard approach involving errors considered serious and fundamental that could have significant unfavourable impacts on Gaz Métro-QDA and its customers, from both a regulatory and a financial standpoint.

Gaz Métro-QDA therefore filed a request with the Régie on July 27, 2012 to have this decision reviewed. On May 17, 2013, the Régie determined that the decision of June 28, 2012 had a key error since it was based on the possible transition to IFRS without knowing what the content of those standards would be in 2015. It therefore revoked all of the conclusions of the June 28, 2012 decision regarding post-employment benefits. Given the uncertainty surrounding Gaz Métro’s move to IFRS in 2015, the Régie is maintaining the status quo, that is, application of the disbursement method for treatment of post-employment benefits.

Storage costs application

On June 28, 2012, Intragaz filed a complete rate case with the Régie for its two storage sites for a 10-year period beginning May 1, 2013.

Simultaneously with the Intragaz filing, Gaz Métro-QDA filed an application with the Régie for the recognition, in its annual supply plan, of two contracts related to the Intragaz request with a 10-year term beginning May 1, 2013.

On May 17, 2013, the Régie issued a decision authorizing Gaz Métro-QDA to recover, through its rates, the costs of using the Intragaz storage sites for a 10-year period (from May 1, 2013 to April 30, 2023).


28

Biomethane An initial application to use the receipt tariff was planned as part of a biomethanation project. An investment project to receive biomethane produced by the city of Saint-Hyacinthe was filed with the Régie on September 28, 2012. In a decision issued on March 20, 2013, the Régie ruled that some of this project’s investments are not assets for natural gas distribution purposes under section 73 of the Act respecting the Régie de l’énergie, and therefore denied Gaz Métro-QDA’s application for the investment project. The biomethanation project is of great importance to Gaz Métro and, as such, Gaz Métro-QDA is currently working to redefine the conditions for injecting biomethane into its system in order to find an optimal solution.

Outlook

For next year and future years, Gaz Métro plans on pursuing the profitable development of Gaz Métro-QDA, mainly by achieving greater penetration for all markets while also carefully controlling costs and ensuring that its system remains safe, reliable and sustainable.

Transportation rates TCPL’s transportation rates have increased significantly in recent years; the two most recent increases were approved by the NEB in fiscal years 2010 and 2011, raising the rates from $1.19/Gj to $2.24/Gj.

TCPL’s transportation system is regulated on a cost-of-service basis. Pipeline costs are therefore distributed over the volumes that pass through the pipeline based largely on distance travelled.

These rate increases are due, among other factors, to the fact that the overall volumes transported over TCPL’s system have decreased significantly in recent years and continue to decline. Since the costs are mostly fixed, this drop in volume creates sustained pressure on the transportation rates for users who remain on the system.

In an effort to ease the impact of lower volumes, in September 2011, TCPL filed a rate application with the NEB for its 2012 and 2013 fiscal years. The application proposed an in-depth review of the rate principles that have been applied to date and on which TCPL’s system is historically built. In March 2013, the NEB issued a decision denying a number of key elements in TCPL’s rate application. However, in its decision, the NEB approved a higher rate of return for TCPL, authorized multiyear rates until 2017, and set rates at $1.42/Gj from Empress, in Alberta, to Dawn, in Ontario, for that period, stating that this was a reasonable upper limit on fixed tolls.

In May 2013, TCPL submitted its compliance filing with the NEB to specify the revised tolls for all routes and services related to its main system for the years 2013 to 2017. TCPL also requested a review of the decision to modify rates and certain service conditions. In June 2013, the NEB rejected TCPL’s review application and confirmed that the new rates would take effect on July 1, 2013. Considering the market impact of this decision, and although the authorized rates are lower for Gaz Métro-QDA and VGS customers, it is not yet possible to measure the exact impacts of this NEB decision.

In addition, on July 17, 2013, Gaz Métro and the Ontario distributors filed a complaint with the NEB against TCPL, exposing TCPL’s behaviour in recent months and use of its power to control the market. In their complaint, Gaz Métro and the Ontario distributors assert that TCPL is offering its services under unjustly discriminatory conditions to captive shippers, that the rates proposed in TCPL’s calls for tenders are not in line with NEB-authorized rates, and that TCPL is using its market power to prevent shippers from obtaining supplies at the desired location.

This situation could lead Gaz Métro-QDA and VGS to use more expensive facilities to obtain their supplies, thereby raising the overall billing to their respective customers. To counter the potential consequences of this situation, on July 31, 2013, Gaz Métro and Union Gas announced that they would hold a binding open season to solicit eastern Ontario and Quebec market support to contract additional natural gas transportation capacity from the Dawn hub, as discussed in greater detail in heading Natural Gas Transportation segment of this section. Remember that the costs of service of Gaz Métro-QDA and VGS reflect transportation costs billed by TCPL and that TCPL’s rate adjustments are reflected directly in their respective transportation rates.

Service to the Côte-Nord region The Côte-Nord region is the last of Quebec’s major industrial regions that does not yet benefit from the environmental and economic advantages of natural gas. Large amounts of heavy oil are currently consumed in the Côte-Nord. However, the distance separating the Côte-Nord from Gaz Métro-QDA’s existing infrastructures is considerable. The project to provide service to the Côte-Nord region requires constructing a pipeline almost 450 km long. However, on March 21, 2013, Gaz Métro announced that it was postponing any project-related activities. After completing the feasibility studies, Gaz Métro concluded that global metals market conditions, particularly in iron ore and iron processing, make it very difficult to reach long-term agreements with major industrial customers in the Côte-Nord. Moreover, in recent months, decisions announced by companies to defer major investments and discontinue indefinitely plant operations have caused further complications. Consequently, the minimum volumes of natural gas that would be required to launch the next phase of the project are not


29

there. Financial contributions or other forms of support from different levels of government would be needed to resume project activities. At this time, Gaz Métro is unable to predict when the project might be relaunched.

The main feasibility studies also identified a least-impact route, in cooperation with several regional organizations. As at June 30, 2013, the total cost of these studies for Gaz Métro-QDA stood at $17.3 million and were recognized in a non-rate-base interest-bearing deferred charges account, as authorized by the Régie last September. In the months ahead, Gaz Métro will keep a close watch on developments in the metals markets and the potential energy needs of Côte-Nord businesses and institutions.

Biomethanation Gaz Métro believes that waste reclamation is a promising way to meet Quebec’s energy requirements while helping to reduce GHG emissions. Gaz Métro is therefore very receptive to the Government of Quebec’s biomethanation program, which aims to divert organic waste from landfills for reclamation purposes. Gaz Métro expects to play a key role in promoting the economic viability of such initiatives, specifically by providing access to Gaz Métro-QDA’s network to distribute biomethane. Gaz MétroQDA is continuing its discussions with various partners and working to define the conditions for injecting this new supply source into its network in order to continue to ensure safe and reliable service.

In the last year, agreements have been reached with the city of Saint-Hyacinthe and Quebec City. The agreements stipulate that Gaz Métro-QDA would purchase the energy produced by those cities and install the infrastructures needed to inject biomethane into its distribution network and make it available to its customers. These projects are subject to the Régie’s approval. On March 20, 2013, the Régie denied Gaz Métro-QDA’s request concerning the investment project to receive biomethane produced by the city of Saint-Hyacinthe.

The biomethanation project is of great importance to Gaz Métro and, as such, Gaz Métro-QDA is currently working to redefine the conditions for injecting biomethane into its system in order to find an optimal solution.

Environment

During the third quarter and the first nine months of fiscal 2013, environmental protection requirements had no significant financial or operational impacts on (i) purchases of property, plant and equipment, (ii) Gaz Métro’s consolidated net income, and (iii) Gaz Métro-QDA’s competitive position, except for the obligation to pay the Green Fund duty, which influenced competitive position, as previously described in the Revenues heading of this section. However, the costs related specifically to environmental protection requirements cannot be easily identified since they are incorporated into Gaz Métro-QDA’s system maintenance and development programs.

Subject to the impacts of the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances, as described in Valener’s MD&A for the fiscal year ended September 30, 2012, management believes that the environmental protection requirements will not have any significant financial or operational impacts over the next fiscal years. If this were not the case, Gaz Métro-QDA would seek to recover these costs in the rates of future fiscal years. Gaz Métro-QDA is continuing to closely monitor changes to the cap-and-trade system for GHG allowances.


30

1.2 VGS and GMP

VGS and GMP


(in millions of dollars) 2013 2012

Impact of exchange

rate changes

Change, excluding the

impact of exchange rate

changes 2013 2012

Impact of exchange

rate changes

Change, excluding the

impact of exchange rate

changes

Revenues 180.6 80.1 2.4 98.1 580.3 281.4 (1.9) 300.8

Gross margin 70.0 27.2 0.9 41.9 228.6 95.7 (0.9) 133.8

Share in earnings of entities subject to significant influence 13.6 2.1 0.1 11.4 37.9 12.8 (0.2) 25.3

Net income (loss) attributable to Partners 7.9 (9.3) - 17.2 35.2 4.5 (0.3) 31.0

Costs related to the CVPS acquisition (net of income taxes) - 7.9 - (7.9) - 7.9 - (7.9)

Net income (loss) attributable to Partners, excluding non-recurring items

(1) 7.9 (1.4) - 9.3 35.2 12.4 (0.3) 23.1

(1) This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in section

J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

Revenues

For the third quarter of fiscal 2013, the revenues of VGS and GMP, excluding the impact of exchange rate changes, increased $98.1 million year over year. For the first nine months, excluding the impact of exchange rate changes, these revenues were up $300.8 million year over year. The increases were mainly due to:

a $96.6 million increase ($296.4 million for the first nine months) in GMP’s revenues, mainly due to: o additional GMP revenues that came from the June 27, 2012 acquisition of CVPS; and o a favourable impact of higher deliveries due to colder temperatures in the first nine months of fiscal 2013

compared with the same period of fiscal 2012; partly mitigated by:

o a decrease in GMP’s revenues resulting from a 0.40% decrease in electricity rates since October 1, 2012 stemming from its 2013 rate case. Given the merger between GMP and CVPS on October 1, 2012, the two entities filed, for fiscal 2013, a combined rate case that reflected a rate decrease. For additional information on GMP’s 2013 rate case, refer to the Regulatory Filings heading of this section; and

a $1.5 million increase ($4.4 million for the first nine months) in VGS’s revenues, mainly due to: o an increase in natural gas deliveries, for all market segments, due to the favourable impact of normalization

on deliveries in the third quarter and first nine months of fiscal 2013, whereas in the same periods last year, warmer-than-normal temperatures combined with the absence of a normalization mechanism had a downward impact on deliveries;

o a rate increase in accordance with the rate case, including a reduction in the price of natural gas; and o an increase in the number of customers;

partly mitigated by: o the impact of the customers’ share in the profit-sharing mechanism of VGS, as it expects to achieve a return

exceeding the authorized return for fiscal 2013.


31

451

438

996

1,4

15

1,3

81

3

,18

5

2011 2012 2013

3 months 9 months

GMPElectricity deliveries

(in gigawatthours)

Deliveries VGS - Since October 1, 2012, in accordance with the new regulatory

mechanism approved by the VPSB, VGS has been applying a mechanism for normalizing natural gas deliveries based on normal temperatures. Since VGS had not applied a temperature normalization mechanism in previous fiscal years, and because its customers are highly concentrated in the market that uses natural gas for space heating, its profitability had been influenced by temperature changes. For the third quarter of fiscal 2013, VGS’s normalized natural gas deliveries totalled 46 million cubic metres, up 15.0% from the same quarter last year. For the first nine months, VGS’s normalized natural gas deliveries totalled 225 million cubic metres, an increase of 14.8% year over year. These increases were mainly due to the effect of normalizing volumes based on temperature during the third quarter and first nine months of fiscal 2013, whereas during the previous fiscal year, warmer-than-normal temperatures combined with the absence of a normalization mechanism had a downward effect on deliveries. As per the regulatory mechanism in effect, the sale of the natural gas commodity to VGS’s customers had a negligible impact on its gross margin.

GMP - The electricity distributed by GMP is mainly used for lighting and

generating purposes. As such, demand is influenced by economic ups and downs, customer efforts to conserve energy and temperature fluctuations. For the third quarter of fiscal 2013, GMP’s electricity deliveries totalled 996 gigawatthours, up 127.4% from the same period last fiscal year. For the first nine months of fiscal 2013, GMP’s electricity deliveries totalled 3,185 gigawatthours, up 130.6% from the same period last fiscal year. These increases stem mainly from additional deliveries resulting from the acquisition of and merger with CVPS, as well as from the favourable impact of colder temperatures, as previously explained.

Share in earnings of entities subject to significant influence

The share in earnings of entities subject to significant influence is Gaz Métro’s share, through GMP, in the earnings of Velco and Transco.

On December 27, 2012, GMP invested $33.2 million (US$33.5 million) in one of its entities subject to significant influence, Transco, raising its interest from 68.5% to 69.1%. These funds are intended to finance capital investments in electricity transmission activities.

The net investment in these entities subject to significant influence is included in GMP’s rate base, helping it to generate a return. Besides the impact of the June 2012 acquisition of CVPS, which had also owned interests in these entities subject to significant influence, the fact that GMP had invested $33.2 million in December 2012 has enabled it to raise its rate base and thereby generate additional net income for the nine-month period ended June 30, 2013 versus the same period of fiscal 2012.

GMP’s third-quarter and nine-month shares in the earnings of entities subject to significant influence, excluding the impact of exchange rate changes, increased $11.4 million and $25.3 million, respectively, year over year. The increases were mainly due to greater ownership in these entities following the acquisition of CVPS. These shares in earnings are fully returned to customers through rates and therefore have a negligible impact on GMP’s net income.

Net income attributable to Partners

The net income attributable to Partners generated by VGS and GMP, excluding the impact of exchange rate changes, was up $17.2 million from the third quarter of fiscal 2012. For the first nine months, the net income attributable to Partners generated by VGS and GMP, excluding the impact of exchange rate changes, was up $31.0 million from the same period of fiscal 2012. These increases were mainly due to:

a $41.4 million increase ($130.4 million for the first nine months) in the gross margin realized by GMP attributable primarily to the June 27, 2012 CVPS acquisition;

a favourable impact from the fact that $11.1 million in costs related to the CVPS acquisition and severance benefits payable to certain CVPS officers had been incurred during the third quarter of fiscal 2012; and

an increase in the gross margin realized by VGS, mainly attributable to the previously explained increase in revenues; partly mitigated by:

a $25.0 million increase ($77.4 million for the first nine months) in GMP’s operating and maintenance expenses, net of the synergies realized from the merger with CVPS, mainly due to:

o the CVPS acquisition; and

42

40

46

222

196

22

5

2011 2012 2013

3 months 9 months

VGSNormalized natural gas deliveries (1)

(in millions of cubic metres)

(1) Normalization of VGS's deliveries began on

October 1, 2012, as approved by the VPSB.Therefore, the comparative volumes presented for 2011 and 2012 are not normalized.


32

o a US$1.2 million unfavourable first-quarter impact of costs incurred in the wake of Hurricane Sandy, net of the portion recoverable through future rates in accordance with the profit and loss sharing mechanism;

an increase in financial expenses resulting mainly from the additional financings taken for the CVPS acquisition and for GMP’s KCW project;

an increase in GMP’s amortization expense, mainly due to the CVPS acquisition; and an increase in income taxes primarily for GMP and VGS due to higher income before income tax.

Regulatory matters

Summary of the regulatory framework for VGS and GMP

Fiscal years ended September 30 2013 2012 2011

VGS GMP (1)

VGS GMP CVPS VGS GMP

Rate case period 2012-10-01

to 2013-09-30 2012-10-01

to 2013-09-30 2011-10-01

to 2012-09-30 2011-10-01

to 2012-09-30 2012-01-01

to 2012-09-30 2010-10-01

to 2011-09-30 2010-10-01

to 2011-09-30

Authorized rate of return on common equity 9.75% 8.84% 10.25% 9.93% 9.17% 10.25% 9.45%

Capital structure (Debt; Equity) 45%; 55% 48.4%; 51.6% 45%; 55% 50.7%; 49.3% 47.2%; 52.8% 45%; 55% 48.3%; 51.7%

Average rate base in rate case (US$) $110 million $1,093 million $101 million $468 million $498 million $99 million $366 million

(1) GMP has been merged with CVPS since October 1, 2012, as explained in section K) RECENT SIGNIFICANT EVENTS.

Regulatory filings

Fiscal 2013

VGS - 2013 Alternative Regulation Plan and 2013 rate case

On August 21, 2012, the VPSB approved the negotiated settlement between VGS and the Vermont Department of Public Service regarding the 2013 Alternative Regulation Plan and the cost of service. The new Alternative Regulation Plan took effect on October 1, 2012 and will expire on September 30, 2015. It includes provisions for two 2-year extensions, which would bring the expiry date to September 30, 2019. The Alternative Regulation Plan includes the elimination of the sharing of losses or profits on the cost of natural gas, a temperature normalization mechanism, and the indexation of VGS’s return on equity to 10-year U.S. Treasury Bonds. The approved cost of service under this regulation reflects an initial return on equity of 9.75% and a capital structure consisting of 55.0% equity. The overall rate change that came into effect November 1, 2012 following approval of the settlement and filing of the declaration of compliance on August 28, 2012 represents an overall increase of 1.45%, which can be broken down into a 3.0% increase in base rates and a 0.06% increase in natural-gas-related rates.

GMP - 2013 rate case

In June 2012, Gaz Métro completed the acquisition of CVPS. As a condition of the acquisition, GMP filed an application with the VPSB to modify its Alternative Regulation Plan so as to implement the merger of GMP and CVPS. This application was approved by the VPSB. Subsequently, GMP and CVPS filed a base rate application in August 2012 covering the period from October 1, 2012 to September 30, 2013. This application provides for an 8.84% rate of return on common equity and a 51.58% common equity ratio. It also includes a provision under which electricity customers and the distributor will share the synergies resulting from the merger over an eight-year period. As part of this application, GMP also asked the VPSB to lower the rates paid by its customers by 0.4% as of October 1, 2012. The US$2.5 million in savings resulting from the merger that were guaranteed by the merged entity for the first year of the new company contributed to that rate decrease. Following approval by the VPSB, the rate reduction took effect on October 1, 2012. In December 2012, the VPSB decided not to submit the rates of GMP, the entity resulting from the merger, to further review.

Regulatory outlook

VGS - 2014 rate case

On June 28, 2013, the 2014 rate case was previewed with the Vermont Department of Public Service and the VPSB. The preview reflected an overall 2.51% decrease in rates. The final rate filing will be filed in late August 2013 and will be based on actual wholesale gas costs at the time as well as a more current review of the required base rates. The new rates will be effective November 1, 2013.


33

VGS - System development project

In December 2012, VGS filed an application seeking regulatory approval for a project to extend its system into Addison County to serve the communities of Vergennes and Middlebury by the end of 2014 (Phase I).

The VPSB held a pre-hearing conference in January 2013 that was followed by a public hearing on March 21, 2013. The regulatory filing made in December 2012 was substantially revised with a second filing in February 2013. The revisions included in the second filing essentially reflect modifications to the route of the transmission pipe and related changes to the project budget. The work done during the third quarter of fiscal 2013 dealt mainly with obtaining information from intervenors. A second public hearing is scheduled for September 11, 2013, and the intervenors’ testimonies will be heard during the week of September 16. A decision is expected by the end of the 2013 calendar year such that construction may begin in 2014.

GMP - 2014 rate case

On August 1, 2013, GMP filed its 2014 rate case for the period of October 1, 2013 to September 30, 2014. This application provides for a 9.58% rate of return on common equity and a 49.5% common equity ratio. It also includes a provision under which electricity customers and the distributor will share the synergies resulting from the merger with CVPS. As part of this application, GMP is also asking the VPSB to increase the rates paid by its customers by 2.46% as of October 1, 2013. The application includes an agreement with the Vermont Department of Public Service to defer approximately US$4.9 million of 2014 transmission-related costs and recover such costs (without a return) in 2015. The agreement also includes a provision capping any 2015 rate increase at no more than 2.5%. The US$5.0 million in savings resulting from the merger that were guaranteed by the merged entity for the second year of the new company helped reduce the impact related to the rate increase.

GMP’s wind power project At the end of fiscal 2011, GMP began construction of its KCW project, a 63-megawatt wind power project located in Lowell, Vermont. This US$150 million, 21-turbine wind power project can supply power to more than 24,000 households consisting of GMP’s customers and members of the Vermont Electric Cooperative, Inc. Construction of the wind farm has been completed, and the 21 turbines have been in service since November 20, 2012. As at June 30, 2013, GMP had invested US$145.0 million in this project.

Actual output from the KCW project has been lower than estimated, principally resulting from limits on output (“curtailments”) imposed by the Independent System Operator, ISO-NE. GMP expects to experience such curtailments until the implementation of a voltage regulation device planned to be in service in December 2013. GMP has therefore implemented other measures such as local transmission system upgrades and close collaboration with Velco and ISO-NE to mitigate the risks of curtailments and their financial impacts.

Outlook

Implementation of a smart electricity distribution system by GMP In November 2009, Transco, on behalf of GMP, CVPS and most other Vermont electricity distributors received a grant of US$69.0 million, as part of U.S. federal government stimulation measures, to implement a state-wide smart electricity distribution system. The three-year project consists of, among other activities, replacing the current customer information system, purchasing and installing approximately 275,000 smart meters for customers, incorporating certain detection and automation capacities to the distribution system, and participating in dynamic-rate pilot projects with other electricity distributors in Vermont. GMP and the other Vermont electricity distributors began implementation of this major project in fiscal 2010 and, to date, the work has been progressing as scheduled.

As at June 30, 2013, GMP had invested US$111.4 million in this project, US$47.4 million of which may be reimbursed under the terms of the grant. Of this amount, US$45.6 million has already been received as at June 30, 2013.

VGS system development projects In October 2012, VGS announced an agreement with International Paper Company under which natural gas service would be extended to one of that company’s mills, under a long-term contract, starting at the end of the 2015 calendar year. The required system extension for this project (Phase II) would be an expansion of the planned VGS system extension into Addison County to serve the communities of Vergennes and Middlebury (Phase I).

VGS plans to seek the regulatory approvals for extending service to International Paper Company by the end of the 2013 calendar year (Phase II). As previously indicated in the Regulatory Outlook heading, in December 2012, VGS filed for regulatory approval to extend its system into Addison County. If approved, the system extensions (phases I and II) could increase VGS’s average rate base by approximately US$100 million over time.


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Operational integration of GMP and CVPS To proceed with the operational integration of GMP and CVPS in an effective manner, GMP has developed a three-year plan for merging the processes of the two entities. The plan covers the merger of IT systems, work procedures, safety programs, financial controls and reporting, labour agreements and other operational facets of GMP and CVPS. As at June 30, 2013, GMP had completed a number of integration milestones, including:

negotiation of a new single labour agreement between GMP and unionized workers that will expire in January 2018; merger of financial operations, controls and reporting; deployment of a new long-term customer information and billing system that will become the target platform for

converting CVPS customer data and operations; and consolidation of pension plans and other employee benefits.

GMP is working to accelerate implementation of its three-year plan so that it and its customers can benefit from the efficiencies and synergies as soon as possible. At present, GMP is ahead of schedule.

Environment

GMP is subject to a state policy that encourages development of renewable energy resources in Vermont as well as the purchase of renewable forms of energy by state electricity distributors. In 2005, the Vermont legislature adopted the Sustainably Priced Energy Development (SPEED) program, the objective of which is to ensure that, starting January 1, 2017, 20% of state-wide electric retail sales must be generated by new and renewable energy sources. Although this program has not had a major impact on electricity rates, GMP is monitoring closely the program’s potential impacts in terms of its costs and competitive position. During the third quarter and first nine months of fiscal 2013, environmental protection requirements had no significant financial or operational impacts for GMP. As is the case for Gaz Métro-QDA, most of GMP’s environmental protection initiatives are part of system maintenance programs. Moreover, as new practices are proposed or required by regulation, GMP will seek to recover the related costs in its future rates.

2. NATURAL GAS TRANSPORTATION SEGMENT

Transportation



Revenues 9.8 10.4 (0.6) 30.3 31.8 (1.5)

Gross margin 9.8 10.4 (0.6) 30.3 31.8 (1.5)

Share in earnings (loss) of an entity subject to significant influence 0.4 (0.5) 0.9 9.8 4.4 5.4

Net income attributable to Partners 2.7 3.5 (0.8) 13.1 13.0 0.1

Revenues

At $9.8 million for the third quarter of fiscal 2013, Natural Gas Transportation revenues, which are also equal to the segment’s gross margin, decreased $0.6 million year over year. The segment’s nine-month revenues were also down year over year, declining $1.5 million to total $30.3 million. These decreases came essentially from TQM, primarily due to the lower final rates approved by the NEB on May 16, 2013 based on previously approved interim rates. These rates came into effect, on a retroactive basis, on January 1, 2013.

Share in earnings (loss) of an entity subject to significant influence

For this segment, Gaz Métro’s share in earnings of an entity subject to significant influence is its share in PNGTS’s income before income taxes. For the third quarter of fiscal 2013, its share in earnings totalled $0.4 million, a $0.9 million year-over-year increase. For the first nine months, the share in PNGTS’s income before income taxes stood at $9.8 million, up $5.4 million. These increases came mainly from a $1.0 million increase ($5.2 million for the first nine months) in short-term and interruptible service revenues owing to a higher volume of natural gas transported by PNGTS, partly due to the fact that less natural gas was available on systems other than that of PNGTS’s, mitigated by the unfavourable impact of the decision issued by the FERC in March 2013, as described in the Regulatory Matters heading. Although the FERC issued its decision on the 2008 and 2010 rate cases and PNGTS has filed a request to have the decision reviewed, PNGTS had to account for interest payable to its customers for the difference between the rates billed to customers and those approved by the FERC.


Net income attributable to Partners from the Natural Gas Transportation segment was down $0.8 million compared to the third quarter of fiscal 2012. For the first nine months, net income attributable to Partners from the Natural Gas Transportation segment was up $0.1 million compared to the same period in fiscal 2012. The decrease and increase were mainly due to:

a decrease in TQM’s revenues, as previously explained;


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a $0.5 million allocation ($2.2 million for the first nine months) of 9265-0860 Québec inc.’s income tax expense to TQM. As explained in section K) RECENT SIGNIFICANT EVENTS, 9265-0860 Québec inc. was created in fiscal 2012 to offset the effects of a change in fiscal year-end imposed by the Income Tax Act for multi-tiered partnership structures. Since

October 1, 2012, the income tax expense related to TQM has been recognized by Gaz Métro rather than by its Partners (Valener and GMi); and

higher income taxes for PNGTS resulting from the increase in its income before income taxes; offset by:

a $0.9 million increase ($5.4 million for the first nine months) in the share of PNGTS’s income before income taxes, as previously explained.

Regulatory matters

Summary of TQM’s regulatory framework

Regulatory filings

Fiscal 2013

TQM - 2013 rate case

Because the multiyear plan negotiated and concluded with the interested parties in July 2010 expired at the end of the 2012 calendar year, TQM concluded a new annual rate plan with the interested parties for fiscal year 2013. On December 7, 2012, TQM filed an application with the NEB for approval of its interim rates for its 2013 fiscal year based on the annual agreement negotiated with interested parties, in addition to an application for approval of this same agreement. In December 2012, the NEB approved the interim rates, which took effect on January 1, 2013. Approval of the annual agreement with the interested parties was obtained in February 2013. On April 1, 2013, TQM filed a rate application with the NEB for its final rates for fiscal 2013; the final rates were approved on May 16, 2013.

TQM -

Future pipeline abandonment costs

The NEB’s Land Matters Consultation Initiative addresses the issue of pipeline abandonment and the related financial matters. The goal of this initiative is to have all pipeline companies regulated under the National Energy Board Act (Canada) to begin collecting and setting aside funds to cover future abandonment costs. In its May 2009 decision, the NEB established several filing deadlines relating to the financial matters, including deadlines for the preparation and submission of abandonment cost estimates, to be used to begin collecting funds, developing a proposal for collecting these funds through rates or some other satisfactory method and preparing a proposed process for setting aside the funds collected. Accordingly, in April 2013, TQM filed a document providing revised abandonment cost estimates further to the NEB’s request.

In February 2013, the Group 1 pipeline companies, including TQM, submitted a joint application to approve a process for setting aside funds that will be used to cover future abandonment costs. In addition, on May 31, 2013, TQM filed an application for approval of its mechanism for collecting funds, which proposes a surcharge on transportation services. The hearings on these matters are expected to begin in the first quarter of fiscal 2014 while a decision is expected in summer 2014 such that pipeline companies may begin collecting funds as of May 2015.

Rate case period

2013-01-01 to 2013-12-31

2012-01-01 to 2012-12-31

2011-01-01 to 2011-12-31

Rate principles

Final rates based on the annual plan

(2013) negotiated with interested parties

Final rates based on the multiyear plan

(2010-2012) negotiated with interested parties

Final rates based on the multiyear plan

(2010-2012) negotiated with interested parties

Decision issued by the NEB May 2013

August 2012

June 2011

Average rate base in rate case $363 million

$373 million $395 million


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PNGTS - Rate cases

PNGTS filed a rate case with the FERC in April 2008 seeking to have its rates increased. The hearings ended in July 2009 and some administrative procedures took place in autumn 2009. In addition to this rate case, PNGTS submitted another rate case with the FERC in May 2010, which includes the reduction in the PNGTS pipeline capacity to 168,000 dth/day, as approved by the FERC. The hearings regarding this second rate proceeding ended in May 2011. While awaiting the decisions by the FERC with respect to the rate cases, PNGTS recorded its revenues based on the most recent FERC-approved rates. The difference between the interim rates charged by PNGTS and most recent FERC-approved rates was recorded in a liability account.

In March 2013, the FERC issued decisions regarding both rate proceedings. The effective transportation rate resulting from the 2008 rate case decision is US$0.85 per dth/day. The transportation rate resulting from the 2010 rate case decision is US$0.87 per dth/day, effective December 1, 2010. In April 2013, PNGTS requested a rehearing of the FERC decisions, seeking to have specific aspects of the decisions re-examined. Gaz Métro is currently unable to determine the final impacts of these decisions on its consolidated financial results. In the meantime, PNGTS continues to bill the interim rates to its customers and record the difference between these billed rates and the rates approved by the FERC in March 2013 to a liability account.

Outlook

Parkway extension project On July 31, 2013, Gaz Métro and Union Gas announced that they would be holding a binding open season to solicit eastern Ontario and Quebec market support to contract additional natural gas transportation capacity from the Dawn hub. To do so, a new 26-km pipeline, the Parkway extension project, would be built jointly by Gaz Métro and Union Gas in southwestern Ontario (between Parkway and Maple outside the Greater Toronto Area) in order to relieve a major bottleneck.

This is a large-scale project that contributes to Gaz Métro-QDA’s objective of ensuring secure, diverse and affordable supply sources such that it can provide customers with secure access to natural gas under the best possible terms and conditions.

The Parkway extension project follows up on the decision issued by the Régie in 2012 authorizing the migration of substantially all Gaz Métro-QDA’s supply to the Dawn hub. Although part of its supply currently originates in Dawn, Gaz Métro-QDA needs additional capacity on its existing sections to be able to source more of its needs from that important gas hub. PNGTS The loss of two major customers in recent years with whom PNGTS had long-term contracts, combined with difficulties in concluding the same type of contracts with other customers to replace the lost volumes, has undermined the results expected from this investment. PNGTS’s main challenge is therefore to remain vigilant and active in the market such that it can seize business opportunities that would allow it to maximize the capacity of its transmission system.

3. ENERGY PRODUCTION SEGMENT

Energy Production (1)



Revenues - - - - - -

Gross margin - - - - - -

Net loss attributable to Partners (0.5) (0.2) (0.3) (0.7) (0.9) 0.2 (1)

During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures to better reflect the way management analyzes financial results for purposes of operational decision-making and performance assessment. For additional information on these financial reporting changes for segment disclosures, refer to section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

Revenues

This segment consists of non-regulated energy production activities related to wind power projects 2 and 3 and wind power project 4. The Energy Production segment’s revenues were nil for the three-month and nine-month periods ended June 30, 2013 and 2012 because the wind power projects are under construction and therefore have not yet generated revenues.

Net loss attributable to Partners

For the Energy Production segment, the net losses attributable to Partners for the three-month and nine-month periods ended June 30, 2013 were comparable to the losses in the same periods last year.


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Outlook

Wind power projects As explained in greater detail in the VALENER INC. AND GAZ MÉTRO LIMITED PARTNERSHIP section of this MD&A, Gaz Métro is contributing to the completion of wind power projects 2 and 3 and wind power project 4. Completion of wind power projects 2 and 3 represents a total investment of approximately $750 million (including financing costs) for Wind Farms 2 and 3, while completion of wind power project 4 represents a total investment of approximately $190 million (including financing costs) for Wind Farm 4.

4. ENERGY SERVICES, STORAGE AND OTHER SEGMENT

Energy Services, Storage and Other (1)



Revenues 12.6 16.8 (4.2) 45.9 54.7 (8.8)

Gross margin 7.4 11.1 (3.7) 27.0 35.0 (8.0)

Net income attributable to Partners 0.1 1.6 (1.5) 19.4 6.4 13.0

Net gain on the disposal of the interest in HydroSolution - - - 14.7 - 14.7

Net income attributable to Partners, excluding non-recurring items

(2) 0.1 1.6 (1.5) 4.7 6.4 (1.7)

(1) During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures to better reflect the way management analyzes financial results for purposes of operational decision-making and performance assessment. For additional information on these financial reporting changes for segment disclosures, refer to section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

(2) This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

Revenues

At $12.6 million, third-quarter revenues from the Energy Services, Storage and Other segment decreased $4.2 million or 25.0% year over year. The segment’s nine-month revenues totalled $45.9 million, down $8.8 million or 16.1% from the same period last year. These decreases were mainly due to:

a $4.6 million decrease ($10.0 million for the first nine months) in revenues from HydroSolution, as this joint venture was sold on November 27, 2012; and

a $1.3 million decrease in Servitech’s revenues for the first nine months stemming mainly from lower demand for its turnkey services in heating, air conditioning and plumbing, as well as from revenues that had been realized by the Quebec office in the first quarter of last year, whereas the activities of this office were sold in November 2012;

partly offset by: a $0.5 million increase ($1.4 million for the first nine months) in revenues realized by Transport Solutions, which

increased its LNG fuelling operations for trucks compared with the same periods last year.


For the third quarter of fiscal 2013, the net income attributable to Partners from the Energy Services, Storage and Other segment totalled $0.1 million, down $1.5 million from the same period in fiscal 2012. This decrease was mainly due to:

$1.1 million in net income that had been realized by HydroSolution in the third quarter of last year, whereas the interest in this company was sold during the first quarter of fiscal 2013; and

a $0.3 million income tax expense allocated from 9265-0860 Québec inc. to Intragaz. As explained in section K) RECENT

SIGNIFICANT EVENTS, 9265-0860 Québec inc. was created in fiscal 2012 to offset the effects of a change in fiscal year-end imposed by the Income Tax Act for multi-tiered partnership structures. Since October 1, 2012, the income tax expense related to Intragaz has been recognized by Gaz Métro rather than by its Partners (Valener and GMi).

For the first nine months, the net income attributable to Partners from the Energy Services, Storage and Other segment totalled $19.4 million, up $13.0 million from the same period in fiscal 2012. This increase was mainly due to:

a $14.7 million net gain realized on the disposal of the interest in HydroSolution; partly mitigated by:

$2.0 million in net income earned by HydroSolution in the first nine months of fiscal 2012, whereas the interest in this company was sold in the first quarter of fiscal 2013; and

a $0.9 million income tax expense allocated from 9265-0860 Québec inc. to Intragaz, as previously explained.


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Regulatory matters

Regulatory filings

Fiscal 2013

Intragaz - 2013 rate case

In June 2012, Intragaz filed, as planned, a complete rate case with the Régie for a 10-year period beginning May 1, 2013. Among other items, the application proposed a cost-of-service rate-setting method and an 11.75% return on common equity. The rate case hearings were held in January 2013. On May 17, 2013, the Régie issued a decision approving a deemed capital structure composed of 46% of deemed equity starting May 1, 2013 for a 10-year period. In addition, the decision set the standard revenue requirement for the Pointe-du-Lac and Saint-Flavien sites combined, providing Intragaz with a rate of return on shareholder’s equity of 8.50%. In its decision, the Régie determined that the development of Intragaz’s storage sites no longer posed a risk and that the operational risk was minor. The Régie also noted that the risk associated with Intragaz’s small size should be taken into account when considering the lack of competition faced by Intragaz within Quebec for similar services. Accordingly, the Régie established that Intragaz’s risk is lower than that of Gaz Métro, which explains the 8.50% authorized rate of return. Intragaz’s final rates were approved by the Régie on July 5, 2013. In light of the Régie’s decision, Intragaz’s net income is expected to decline in the coming years.

Sale of Servitech’s assets On July 4, 2013, Servitech, a subsidiary of the Partnership, sold certain of its assets, including the “Servitech” business name. This transaction is in line with Gaz Métro’s strategy of focusing on energy distribution, energy transportation and energy production in Quebec and Vermont. The transaction will not have a significant impact on Gaz Métro’s net income. Outlook

Transport Solutions Gaz Métro is involved in developing natural gas to be used as fuel by the transport industry, freight transportation in particular. The most promising market is that of heavy transport, for which natural gas, both compressed and liquefied, is a real alternative to diesel fuel. Transport Solutions, an indirect subsidiary of Gaz Métro created for this market, entered into an agreement for the LNG fuelling of trucks with Transport Robert 1973 Ltée (Robert Transport) in summer 2010. For Transport Solutions, the project represents an initial investment of approximately $5 million. Since July 2011, Transport Solutions has been installing the facilities needed to supply 180 trucks. Two private stations set up at Robert Transport’s terminals in Boucherville and Mississauga are currently in service. Last October, pending completion of the permanent public station in Lévis, Transport Solutions installed a temporary mobile fuelling station on the Robert Transport property in Lévis (Saint-Nicolas), which can also service other carriers. Initially projected for fiscal 2013, two other permanent public stations will be built in Rivière-du-Loup and Cornwall in fiscal 2014. In order to accelerate the development of the public supply network, two other mobile fuelling stations have been ordered. These mobile stations will be deployable in different locations while the permanent stations are being built.

During the first nine months of fiscal 2013, Transport Solutions purchased two properties, one in Saint-Nicolas and the other in Cornwall, for the next public stations. A $4.1 million equipment supply contract has also been granted for three public stations. Finally, Robert Transport placed an order for 50 new LNG-fuelled trucks, delivery of which has already begun and will bring its total number of LNG trucks to 130.

Furthermore, on July 18, 2013, Transport Solutions and La Coop fédérée announced a partnership agreement for the deployment of an innovative, multi-energy service station concept. These public stations will be the first in Eastern Canada to offer LNG as fuel. In addition to LNG and compressed natural gas (CNG), in certain cases they will distribute diesel, gas, propane, and biofuel and make electric charging stations available to users. This partnership fits into the Blue Road, which provides for the deployment of a public network of LNG refuelling stations for the heavy transportation industry in the Highway 20 and Highway 401 corridor.

Transport Solutions is also taking part in other projects. For instance, Transport Solutions expects to supply LNG, in replacement of marine diesel, to three ferries operated by the Société des traversiers du Québec in 2014 and 2015. Transport Solutions is also working with two innovative partners, Westport Innovations and Canadian National, at developing a new LNG engine technology for locomotives, a first in Canada.


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5. CORPORATE AFFAIRS SEGMENT

Corporate Affairs (1)



Revenues (4.0) (4.6) 0.6 (14.3) (14.4) 0.1

Gross margin (0.2) (0.2) - (0.6) (0.6) -

Net loss attributable to Partners (2.3) (0.3) (2.0) (5.3) (2.7) (2.6) (1)

During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures to better reflect the way management analyzes financial results for purposes of operational decision-making and performance assessment. For additional information on these financial reporting changes for segment disclosures, refer to section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

For the third quarter of fiscal 2013, the Corporate Affairs segment posted a $2.3 million net loss attributable to Partners, a $2.0 million greater loss compared to the same quarter last year. For the first nine months, the segment posted a net loss attributable to Partners of $5.3 million, a $2.6 million greater loss than in the same period last year. This segment’s gross margin reflects the elimination of intersegment revenues and direct costs. The segment’s net loss attributable to Partners encompasses, among other items, the development expenses incurred for various projects as well as corporate expenses and revenues not allocated to the Partnership’s other segments.

Year-over-year, the $2.0 million third-quarter and $2.6 million nine-month higher net losses attributable to Partners came mainly from fees incurred on a variety of projects during those periods of fiscal 2013.

Outlook

Overall, Gaz Métro will continue to expand by seeking investment opportunities in the energy sector that will improve its profitability while maintaining a similar risk profile.


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O) CONSOLIDATED FINANCIAL POSITION

The table below compares the main consolidated balance sheet amounts as at June 30, 2013 and as at June 30, 2012.

Balance sheet item (in millions of dollars) June 30

Increase (Decrease) Explanations

2013 2012 (1)

Trade and other receivables

206.1 189.0 17.1 Increase comes from a greater volume of deliveries given colder-than-normal temperatures and from the appreciation of the U.S. dollar versus the Canadian dollar

Inventories 69.4 80.8 (11.4) Decrease comes from a decrease in stored natural gas in light of the Régie’s decision, partly offset by higher natural gas prices

Property, plant and equipment

3,458.0 3,163.6 294.4 Increase attributable to the appreciation of the U.S. dollar against the Canadian dollar and to investments in (i) Gaz Métro-QDA’s natural gas distribution systems, (ii) wind power projects 2 and 3 and (iii) GMP’s KCW project and smart electricity distribution system

Intangible assets 59.8 52.6 7.2 Increase comes mainly from a greater investment in IT development, partly mitigated by the impact of the disposal of the interest in HydroSolution

Deferred charges and credits

214.9 204.4 10.5 Increase comes from (i) an increase in GMP’s deferred charges and credits related to the cost of energy and the smart meters project, (ii) an increase in deferred charges related to income taxes following the transfer of TQM’s future income tax liabilities, as explained below, (iii) an increase in deferred charges related to the cost of natural gas and (iv) a decrease in the customers’ share in overearnings, partly mitigated by a decrease in deferred charges related to Gaz Métro-QDA’s financial instruments

Investments and other 649.5 565.3 84.2 Increase comes from GMP’s investment in Transco made during the first quarter of fiscal 2013 and from the appreciation of the U.S. dollar against the Canadian dollar

Goodwill 326.9 331.7 (4.8) Decrease comes from the disposal of the interest in HydroSolution, partly offset by the appreciation of the U.S. dollar against the Canadian dollar

Other long-term assets 65.5 29.2 36.3 Increase comes partly from an increase in a note receivable related to the reimbursements of certain construction costs for Wind Farms 2 and 3 and from an increase in the accrued benefit assets of Gaz Métro-QDA’s pension plans

Accounts payable and accrued liabilities

259.7 293.2 (33.5) Decrease comes mainly from the different work performance schedules of Wind Farms 2 and 3 and Gaz Métro-QDA and from the severance benefits payable to certain CVPS officers following the June 2012 acquisition

Long-term debt, including current portion

2,656.4 2,365.5 290.9 Increase related to (i) the financing of investments in the development of the Gaz Métro-QDA and GMP system and investments in wind power projects 2 and 3 and (ii) the appreciation of the U.S. dollar against the Canadian dollar

Net future income tax liability, including current portion

317.9 236.2 81.7 Increase comes mainly from (i) the transfer of the future income tax liabilities of TQM and Intragaz to a wholly owned subsidiary of Gaz Métro, whereas they were formerly recognized by Valener and GMi, from (ii) the change in temporary differences of U.S. companies, and from (iii) the appreciation of the U.S. dollar against the Canadian dollar

Net liability related to derivative financial instruments, including current portion

32.0 105.6 (73.6) Decrease comes from (i) settlements of natural gas financial derivatives in light of the Régie’s decision, as explained in the Gaz Métro-QDA Regulatory Filings heading of section N) SEGMENT RESULTS, (ii) settlements of electricity financial derivatives and (iii) the favourable impact of higher interest rates on the fair value of the financial derivatives, partly offset by (iv) an unfavourable impact of the lower forward price of natural gas on the fair value of the derivative financial instruments

Other long-term liabilities

349.9 318.1 31.8 Increase comes mainly from a higher accrued benefit liability for Gaz Métro-QDA’s pension plans and from an increase in deferred revenues related to the reimbursements of certain construction costs for Wind Farms 2 and 3

Capital 1,446.8 1,371.8 75.0 Issuance of units to Partners in September 2012 to finance part of GMP’s KCW project

(1) The figures as at June 30, 2012 have been adjusted to reflect the presentation adopted for fiscal 2013.


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P) CASH AND CAPITAL MANAGEMENT

Gaz Métro’s cash and capital management strategy focuses on maintaining a sound and flexible financial position and on generating sufficient cash. In so doing, Gaz Métro can meet its financial obligations, reinvest in existing assets to sustain its income-generating capacity in accordance with rate regulation, and carry out the projects underpinning its growth strategy.

This section discusses the Partnership’s financial position, cash flows and liquidity.

1. HIGHLIGHTS FOR THE FIRST NINE MONTHS OF FISCAL 2013

$157.7 million invested in development activities, net of the disposal of the interest in HydroSolution; Gaz Métro’s issuance, through GMi, of secured senior notes totalling US$200.0 million and repayment of a $150.0

million first mortgage bond, as described later; Debt / total capitalization ratio of 64.7%; and Credit ratings of Gaz Métro and GMi maintained.

2. CASH FLOW SUMMARY


(in millions of dollars) 2013 2012 (2)

2013 2012 (2)

Cash flows related to operating activities a $ 100.6 $ 79.3 $ 426.9 $ 405.0

Purchases of property, plant and equipment b (107.3) (105.4) (280.6) (281.6)

Standardized distributable cash (deficiency) (1)

c (6.7) (26.1) 146.3 123.4

Gaz Métro’s adjustments

Change in restricted cash - (2.4) (8.1) 4.3

Change in deferred charges and credits d (39.7) (41.6) (137.9) (109.5)

Purchases of intangible and other assets (9.4) (2.3) (18.6) (13.1)


b 69.1 73.8 166.2 182.6

Distributable cash (1)

d 13.3 1.4 147.9 187.7

Distributions e (41.6) (35.3) (123.5) (106.1)

Investments in development activities (1)

f (75.7) (560.4) (157.7) (667.2)

Financing needs (104.0) (594.3) (133.3) (585.6)

Financing activities

Issuances of units g 3.6 264.8 4.5 304.2

Other financing activities g 96.7 340.0 128.9 307.5

g 100.3 604.8 133.4 611.7

Impact of exchange rate fluctuations on cash and cash equivalents and bank overdraft 0.4 2.3 1.3 1.2

Net (decrease) increase in cash and cash equivalents, net of bank overdraft $ (3.3) $ 12.8 $ 1.4 $ 27.3

(1) These measures are non-GAAP financial measures. For additional information, refer to the Non-GAAP Financial Measures heading in

section J) OVERVIEW OF THE PARTNERSHIP AND OTHER. (2)

During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures, as explained in section J) OVERVIEW OF THE PARTNERSHIP AND OTHER. Last year’s figures for the third quarter and first nine months have been adjusted to present financial information that reflects the new business segments.

a - Cash flows related to operating activities

For the third quarter of fiscal 2013, cash flows related to operating activities totalled $100.6 million, a $21.3 million year-over-year increase. For the first nine months of fiscal 2013, cash flows related to operating activities totalled $426.9 million, a $21.9 million increase from the same period of fiscal 2012.

The $21.3 million third-quarter increase in cash flows related to operating activities was in part due to the following: the fact that, in the third quarter of fiscal 2013, the Partnership benefited from the operating cash flows generated by

GMP since the acquisition of CVPS, whereas no CVPS operating cash flows had been recognized in the third quarter of fiscal 2012;

an $8.0 million favourable change in non-cash working capital items attributable mainly to:


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o the impact on Gaz Métro-QDA’s trade and other receivables of larger receipts in the third quarter of fiscal 2013 following colder temperatures in winter 2013 than in winter 2012; and

o a favourable impact of a decrease in stored natural gas; partly mitigated by:

o the impact of lower natural gas storage levels on Gaz Métro-QDA’s accounts payable and accrued liabilities; and

o a decrease in GMP’s accounts payable and accrued liabilities given the costs that had been incurred as at June 30, 2012 for the acquisition of CVPS; and

a $6.0 million increase in distributions received from entities subject to significant influence. The $21.9 million increase in nine-month cash flows related to operating activities was mainly due to:

the fact that, for the first nine months of fiscal 2013, the Partnership benefited from the operating cash flows generated by GMP since the acquisition of CVPS, as previously described;

an $18.7 million favourable change resulting from changes in Gaz Métro-QDA’s rate stabilization accounts, which is mainly attributable to the effect of closer-to-normal temperatures in the first nine months of fiscal 2013 versus the first nine months of 2012 when temperatures had been much warmer than normal. Remember that Gaz Métro-QDA normalizes unforeseeable temperature-related impacts on natural gas consumption such that they are returned or recovered through rates over a five-year period; and

a $2.6 million increase in distributions received from entities subject to significant influence; partly mitigated by:

a $42.3 million unfavourable change in non-cash working capital items attributable mainly to: o the impact on Gaz Métro-QDA’s trade and other receivables of higher natural gas prices combined with

higher deliveries resulting from colder temperatures in 2013 versus 2012; o the impact on Gaz Métro-QDA’s inventories of a higher natural gas price, which had decreased during the

first nine months of fiscal 2012, partly offset by the favourable impact of lower natural gas in storage; and o a decrease in GMP’s accounts payable and accrued liabilities given the costs that had been incurred as at

June 30, 2012 for the acquisition of CVPS; partly offset by:

o the net impact on Gaz Métro-QDA’s accounts payable and accrued liabilities from higher natural gas prices and from a decrease in stored natural gas.

b - Purchases of property, plant and equipment

For the third quarter of fiscal 2013, purchases of property, plant and equipment totalled $107.3 million, a $1.9 million increase from the same period last year. For the first nine months, they totalled $280.6 million, a $1.0 million year-over-year decrease that was mainly due to a decline in acquisitions in the Energy Distribution segment mainly because (i) GMP had made significant investments in the first nine months of fiscal 2012 for the KCW project and (ii) Gaz Métro-QDA received another portion of the federal subsidy (recognized as a reduction to property, plant and equipment) for the Thetford Mines system extension, as explained in Valener’s MD&A for the fiscal year ended September 30, 2012, partly offset by (iii) an increase in acquisitions by the Energy Distribution segment, as Gaz Métro-QDA, GMP and VGS invested more in system development and improvement. In addition, VGS began making the investments needed to carry out its project to extend its system into Addison County to serve the communities of Vergennes and Middlebury. The $1.0 million decrease was also partly offset by the Energy Production segment’s greater investment in wind power projects 2 and 3 during the first nine months of fiscal 2013, as set out in the project schedule.


43

Management deems it important to clearly identify the potential for generating cash flows from operating activities in the future. Management evaluates this potential by the amounts invested in property, plant and equipment, which are the investments made in the networks and assets that enable the Partnership to provide products and services to its customers and ultimately generate a return. To do this, management deems it necessary to differentiate between maintenance CAPEX and development CAPEX, as explained below. The following table shows, by business segment, maintenance CAPEX and development CAPEX for the third quarters and first nine months of fiscal years 2013 and 2012.

(1) These measures are non-GAAP financial measures. For additional information, refer to the Non-GAAP Financial Measures heading in section J) OVERVIEW OF

THE PARTNERSHIP AND OTHER.

(2) During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures, as explained in section J) OVERVIEW OF

THE PARTNERSHIP AND OTHER. Last year’s figures for the third quarter and first nine months have been adjusted to present financial information that reflects the new business segments.

Maintenance CAPEX Maintenance CAPEX corresponds to the amounts that the Partnership invests in property, plant and equipment to maintain its income-generation capacity, regardless of the nature of the investment (maintenance or development of the system).

An investment level that is less than the amortization expense for a particular year could, depending on the context, be interpreted as being insufficient for maintaining the Partnership’s, or a particular segment’s, capacity to generate income. During the third quarter and first nine months of fiscal 2013, only the Natural Gas Transportation segment did not invest enough to offset the decline in the net value of property, plant and equipment related to the amortization expense in contrast with the other segments, which show sufficient investment levels to maintain their capacity to generate income.

For the quarters ended June 30 (in millions of dollars)

Energy Distribution


Energy Production

(2)

Energy Services,

Storage and Other

(2)

Corporate Affairs

(2) Total

2013 Purchases of property, plant and

equipment $ 50.7 $ 0.7 $ 54.0 $ 1.8 $ 0.1 $ 107.3 Amortization of property, plant and

equipment 36.1 2.9 - 1.4 - 40.4


$ 36.1 $ 0.7 $ - $ 1.4 $ - $ 38.2


$ 14.6 $ - $ 54.0 $ 0.4 $ 0.1 $ 69.1


equipment $ 88.1 $ 1.5 $ 13.2 $ 2.6 $ - $ 105.4 Amortization of property, plant and

equipment 27.9 2.7 - 2.2 - 32.8


$ 27.9 $ 1.5 $ - $ 2.2 $ - $ 31.6


$ 60.2 $ - $ 13.2 $ 0.4 $ - $ 73.8

For the first nine months ended June 30 (in millions of dollars)

Energy Distribution


Energy Production

(2)

Energy Services,

Storage and Other

(2) Corporate

Affairs (2)

Total


equipment $ 189.9 $ 5.4 $ 77.9 $ 7.2 $ 0.2 $ 280.6 Amortization of property, plant and

equipment 104.2 8.5 - 4.8 - 117.5


$ 104.2 $ 5.4 $ - $ 4.8 $ - $ 114.4


$ 85.7 $ - $ 77.9 $ 2.4 $ 0.2 $ 166.2


equipment $ 215.5 $ 9.3 $ 49.6 $ 7.2 $ - $ 281.6 Amortization of property, plant and

equipment 84.5 8.2 - 6.3 - 99.0


$ 84.5 $ 8.2 $ - $ 6.3 $ - $ 99.0


$ 131.0 $ 1.1 $ 49.6 $ 0.9 $ - $ 182.6


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Development CAPEX Development CAPEX is the portion of investments in property, plant and equipment associated with the increase in the potential for generating cash flows from operating activities in the future.

Development CAPEX invested in the third quarter and first nine months of fiscal 2013 was mainly concentrated in the Energy Distribution segment, which continues to connect new customers and invest in new projects such as the Addison project in Vermont, and in the Energy Production segment given the investments in wind power projects 2 and 3.

c - Standardized distributable cash (deficiency)

The standardized cash deficiency was $6.7 million for the third quarter of fiscal 2013, a $19.4 million improvement from the same quarter of last year. After nine months, standardized distributable cash stood at $146.3 million, an increase of $22.9 million from the same period of fiscal 2012, as previously explained in headings a - Cash Flows Related to Operating Activities and b - Purchases of Property, Plant and Equipment.

The purpose of this measure is to present the cash flows generated by the Partnership’s operations over a given period that could potentially be available for distributions to Partners. While the computation of this measure is standard and comparable for all enterprises, in management’s opinion, it is not the most accurate reflection of the Partnership’s economic reality because, unlike distributable cash (explained below), it does not take into account certain factors that are specific to its operations.

d - Distributable cash

Distributable cash indicates whether the Partnership has generated sufficient funds from operating activities during the fiscal year to finance distributions to Partners.

Distributable cash totalled $13.3 million in the third quarter of fiscal 2013, an increase of $11.9 million from the same period in fiscal 2012. This improvement was due to:

an improvement in standardized cash deficiency, as previously explained; partly mitigated by:

a $39.7 million change in deferred charges and credits for the third quarter of fiscal 2013 compared to $41.6 million in the same period of fiscal 2012, as explained later in the Change in Deferred Charges and Credits heading;

an increase in purchases of intangible and other assets, as a greater investment was made in IT development following the June 2012 acquisition of CVPS; and

a decrease in development CAPEX, which is excluded from the calculation of distributable cash, as explained in heading b - Purchases of Property, Plant and Equipment.

For the first nine months, distributable cash totalled $147.9 million versus $187.7 million in the first nine months of fiscal 2012, a $39.8 million decrease that was mainly due to:

a $137.9 million change in deferred charges and credits for the first nine months compared to $109.5 million in the same period of fiscal 2012, as explained later in the Change in Deferred Charges and Credits heading;

a decrease in development CAPEX, which is excluded from the calculation of distributable cash, as explained in heading b - Purchases of Property, Plant and Equipment;

a change in restricted cash mainly related to wind power projects 2 and 3; and an increase in purchases of intangible and other assets, as previously explained;

partly offset by: an increase in standardized distributable cash, as previously explained.

Distributable cash per unit stood at $0.09 for the third quarter of fiscal 2013 and at $1.00 per unit for the first nine months compared to $0.01 and $1.49 per unit in the same periods of fiscal 2012.

As in the first nine months of fiscal 2012, the Partnership did not have to rely on external financing to cover the payment of distributions to Partners during the first nine months of fiscal 2013. Despite insufficient distributable cash in the third quarters of fiscal years 2012 and 2013, given the seasonal nature of its activities, Gaz Métro was able to pay distributions to Partners thanks to the distributable cash generated in the first six months of fiscal years 2012 and 2013.

Volatility of distributable cash The risks related to the volatility of distributable cash and the measures that Gaz Métro takes to mitigate those risks, as described in the MD&A for the fiscal year ended September 30, 2012, remain unchanged.

Change in deferred charges and credits The net increase in deferred charges and credits during the third quarter of fiscal 2013 was $39.7 million compared to a net increase of $41.6 million in the same quarter last year. For the first nine months, the net increase in deferred charges and


45

credits was $137.9 million compared to a $109.5 million net increase during the same period of fiscal 2012. The $28.4 million increase in invested funds for the first nine months was partly due to:

a $14.3 million increase in deferred charges related to the cost of natural gas recoverable from Gaz Métro-QDA’s customers, reflecting billing differences related to the late application of the 2013 rates compared to billing differences in 2012;

an $11.9 million increase arising from the deferred charges account for the studies and preparatory work for the project to serve the Côte-Nord region with natural gas; and

an investment of $5.9 million (US$6.0 million) by GMP, in the first quarter of fiscal 2013, in an energy efficiency fund created following the CVPS acquisition, as prescribed by the VPSB. GMP must invest approximately US$21 million over five years in this fund in order to achieve US$46 million in savings for customers residing in CVPS’s pre-merger service territory;

partly mitigated by: a $4.8 million decrease in deferred charges related to the cost of natural gas for VGS, which amounts to $1.7 million

reimbursable to customers during the first nine months of fiscal 2013 compared to $3.1 million in charges recoverable from its customers in the same period of the previous year.

e - Distributions

The following table shows the distributions paid to Partners during fiscal 2013:

Distribution declaration date Distribution payment date Per-unit distribution amount (in $)


August 8, 2012 October 1, 2012 0.28 40.2

November 27, 2012 January 3, 2013 0.28 41.6

February 7, 2013 April 2, 2013 0.28 41.6

May 10, 2013 July 2, 2013 0.28 41.6

Gaz Métro plans to maintain the distribution level at $0.28 per unit for each quarter of fiscal 2014. Accordingly, on August 8, 2013, the board of directors of GMi, in its capacity as General Partner of Gaz Métro, declared a quarterly distribution of $0.28 per unit, totalling $41.6 million, payable to its Partners on October 1, 2013.

f - Investments in development activities

Investments in Gaz Métro’s development activities consist of the amounts invested in its property, plant and equipment or to acquire businesses in order to increase the potential for generating cash flows from operating activities in the future, as previously explained.

INVESTMENTS IN DEVELOPMENT ACTIVITIES 3 months ended June 30 9 months ended June 30

(in millions of dollars) 2013 2012 2013 2012

Development CAPEX $ 69.1 $ 73.8 $ 166.2 $ 182.6 Change in an interest in an entity subject to significant

influence and other (0.1) 1.6 35.7 (0.4) Disposal of an interest in a joint venture, net of the

disposed cash - - (42.4) - Acquisition of a subsidiary - 485.0 - 485.0

Other 6.7 - (1.8) -

Total $ 75.7 $ 560.4 $ 157.7 $ 667.2

Gaz Métro’s investments in development activities for the third quarter of fiscal 2013 totalled $75.7 million, a $484.7 million year-over-year decrease that was mainly due to:

the June 27, 2012 acquisition of CVPS for a cash consideration of $505.0 million, $20.0 million of which was disbursed in the fourth quarter of fiscal 2011; and

a decrease in development CAPEX, as explained in heading b - Purchases of Property, Plant and Equipment.

The investments totalled $157.7 million in the first nine months of fiscal 2013, a $509.5 million year-over-year decrease that was mainly due to:

the acquisition of CVPS on June 27, 2012, as previously explained; a decrease in development CAPEX, as explained in heading b - Purchases of Property, Plant and Equipment; and the disposal of the interest in HydroSolution on November 27, 2012 for a cash consideration of $42.4 million (net of


46

related transaction costs and disposed cash); offset, among other factors, by:

GMP’s $33.2 million (US$33.5 million) investment in Transco on December 27, 2012.

g - Financing activities

Issuance of units During the third quarter of fiscal 2013, Beaupré Éole issued 129,205 units (4,578,743 units in the third quarter of fiscal 2012) to its non-controlling partners for net proceeds of $0.1 million ($4.6 million in the third quarter of fiscal 2012), bringing the total to 335,134 units and net proceeds of $0.3 million for the first nine months of fiscal 2013 (43,573,252 units and net proceeds of $43.6 million in the first nine months of fiscal 2012).

During the third quarter of fiscal 2013, Beaupré Éole 4 issued 3,470,615 units (230,300 units in the third quarter of fiscal 2012) to its non-controlling partners for net proceeds of $3.5 million ($0.2 million in the third quarter of fiscal 2012), bringing the total to 4,132,935 units and net proceeds of $4.1 million for the first nine months of fiscal 2013 (646,848 units and net proceeds of $0.6 million in the first nine months of fiscal 2012).

On June 28, 2012, the Partnership issued, by way of private placement, 17,333,333 new units to the Partners at a per-unit price of $15.00 for proceeds of $260.0 million to partially finance the acquisition of CVPS.

Other financing activities Other financing activities resulted in $96.7 million in net issuances for the third quarter of fiscal 2013 and were essentially due to:

Gaz Métro’s issuance, through GMi, of two secured senior notes, Series C and Series D, with a capital amount of US$100.0 million each to repay the $150.0 million in Series L First Mortgage Bonds that matured in April 2013. These two notes, bearing 4.04% and 4.19% annual interest, mature on April 10, 2043 and April 10, 2048, respectively; and

a $47.4 million net increase in term loans due mainly to the financing of investments in wind power projects 2 and 3; partly mitigated by:

a $1.8 million decrease in bank loans, excluding the exchange rate impact.

For the first nine months of fiscal 2013, other financing activities resulted in net issuances of $128.9 million and were essentially due to:

a $126.7 million net increase in long-term debt, which was mainly attributable to: o Gaz Métro’s issuance, through GMi, of two secured senior notes of US$100.0 million each to repay the

$150.0 million in first mortgage bonds that matured in April 2013, as previously explained; and o GMP’s issuance, by way of private placement, of first mortgage bonds in the amount of US$85.0 million, to

finance a portion of its investments in property, plant and equipment and to reimburse certain existing short-term debts. These first mortgage bonds bear interest at an annual rate of 3.99% and will mature on December 1, 2042; and

a $7.5 million net increase in term loans, mainly due to the financing of investments in wind power projects 2 and 3, mitigated by the seasonal nature of Gaz Métro-QDA’s activities;

mitigated by: a $5.3 million decrease in bank loans, excluding the exchange rate impact.

The net effect of financing needs and financing activities for the third quarter resulted in a $3.3 million net decrease in cash and cash equivalents, net of the bank overdraft, whereas the net effect for the first nine months resulted in a $1.4 million increase. In the third quarter and first nine months of fiscal 2012, cash and cash equivalents, net of bank overdraft, had increased by $12.8 million and $27.3 million, respectively.


47

3. CAPITAL STRUCTURE AND DEBT RATIO

(in millions of dollars, unless otherwise indicated)

June 30 2013

September 30 2012

June 30 2012

Bank loans 9.3 $ 13.7 $ 4.8 $

Current portion of long-term debt 19.3 164.6 23.1

Long-term debt, net of financing costs 2,637.0 2,295.8 2,342.4

Total debt 2,665.6 2,474.1 2,370.3

Partners’ equity 1,455.3 1,330.7 1,354.6

Total capitalization 4,120.9 $ 3,804.8 $ 3,724.9 $

Debt / total capitalization ratio (1)

64.7 % 65.0 % 63.6 %

(1) This measure is a non-GAAP financial measure. For additional information, refer to the Non-GAAP Financial Measures heading in

section J) OVERVIEW OF THE PARTNERSHIP AND OTHER.

At $2,665.6 million, debt rose $191.5 million since September 30, 2012, mainly due to Gaz Métro’s cash situation as previously explained in heading g - Financing Activities.

Partners’ equity totalled $1,455.3 million in the first nine months of fiscal 2013, rising $124.6 million, mainly due to: net income that exceeds distributions by $74.7 million; a favourable $29.8 million adjustment affecting Partners’ equity related to unrealized exchange gains on the translation

of financial statements of self-sustaining foreign operations, net of unrealized exchange losses on the hedging of net investments of self-sustaining foreign operations; and

a $17.9 million favourable change in the fair value of derivative financial instruments designated as hedges. As at June 30, 2013, the capital included in consolidated Partners’ equity consisted of 148,671,363 units issued in the amount of $1,446.8 million.

The debt / total capitalization ratio was 64.7% as at June 30, 2013, higher than the 63.6% ratio as at June 30, 2012.

Impacts of exchange rate fluctuations on the capital structure The Partnership, which owns investments in U.S. companies, is exposed to the risk of a fluctuating U.S. dollar in relation to the Canadian dollar, since it has to revalue the assets and liabilities (net assets) of its U.S. subsidiaries and entities subject to significant influence at the exchange rate prevailing at the end of each period and record the impact of this revaluation in Partners’ equity.

In the first nine months of fiscal 2013, the Partnership increased the value of its U.S.-dollar net assets by $29.8 million due to the depreciation of the Canadian dollar versus the U.S. dollar.

The value of the Partnership’s U.S.-dollar net assets exposed to exchange risk stood at $382.3 million (US$363.5 million) as at June 30, 2013 compared with $521.0 million (US$511.7 million) as at June 30, 2012.

The following end-of-period exchange rates were used to translate U.S.-dollar-denominated assets and liabilities into Canadian dollars for the quarters ended:

June 30, 2013 June 30, 2012 Increase

U.S. dollar $1.0518 $1.0181 3.3%

The following average exchange rates were used to translate U.S.-dollar-denominated revenues and expenses into Canadian dollars for the quarters ended:

June 30, 2013 June 30, 2012 Decrease

U.S. dollar $1.0059 $1.0116 0.6%

Unused credit facilities

As at June 30, 2013, the Partnership, in part through its General Partner GMi, had various term credit facilities totalling $1,111.1 million and various operating credit lines totalling $96.9 million, including debt financing for wind power projects


48

2 and 3, which can be used to finance current operations and the construction of wind power projects 2 and 3. Given the amounts borrowed and the letters of credit issued by Gaz Métro, its subsidiaries and joint ventures, the unused credit facilities stood at $618.0 million as at June 30, 2013.

On March 20, 2013, Gaz Métro, through its General Partner GMi, extended to March 2018, the maturity of its credit agreement of a maximum authorized amount of $600.0 million.

Restrictive covenants

As at June 30, 2013, GMi as well as Gaz Métro and its subsidiaries and joint ventures were in compliance with all of the covenants of the various long-term debt trust deeds and all the requirements of their credit facilities. Subject to the usual restrictions in the credit facilities of the Partnership’s subsidiaries, joint ventures and entities subject to significant influence, there are no legal or practical restrictions on the ability of the subsidiaries, joint ventures and entities subject to significant influence to transfer funds to Gaz Métro.

Credit ratings

The Standard & Poor’s (S&P) and DBRS Limited (DBRS) credit ratings were maintained by those rating agencies, as shown in the following table:

(1) Through its General Partner, GMi.

Financing outlook

During the next quarter of fiscal 2013, the Partnership expects to require funds to finance: investments in property, plant and equipment that could amount to approximately $295 million and related mainly to

extensions and improvements to be made to the energy distribution systems in Quebec and Vermont (approximately $130 million) and to wind power projects 2 and 3 and wind power project 4 (approximately $165 million);

investment opportunities; capital contributions needed for Gaz Métro’s subsidiaries, joint ventures and entities subject to significant influence; the refinancing of $19.3 million in long-term debt coming due within 12 months; and distributions to Partners.

The available sources of financing are: cash flows related to operating activities; available credit facilities and operating credit lines of the Partnership, its General Partner GMi, and some of its

subsidiaries and joint ventures; and if necessary, new financings in the form of debt or unit issuances.

4. OFF-BALANCE-SHEET ARRANGEMENTS

Securitization program

As indicated in Valener’s MD&A as at September 30, 2012, Gaz Métro may assign claims to a securitization trust, with limited recourse, on a monthly basis. The maximum authorized amount negotiated with the securitization trust was $85.0 million as at June 30, 2013 and 2012. The Partnership chose not to use this source of financing during the first three quarters of fiscal years 2013 and 2012 as it was able to obtain financing under more favourable conditions through its credit facilities. This program expires on September 30, 2013.

Commitments

Wind power project 4 In May 2013, Wind Farm 4 was created and the new entity entered into a contract for the preparation of work areas and the construction of roads, foundations and power grid for wind power project 4. Disbursements under this contract are being made based on the stage of completion of the work. As at June 30, 2013, Beaupré Éole 4 General Partnership’s share in the commitments of Wind Farm 4 under this contract stood at $13.9 million.

Q) RECENT ACCOUNTING CHANGES

1. ACCOUNTING CHANGE

The financial information in this MD&A has been prepared in accordance with the accounting policies described in the audited consolidated financial statements for the fiscal year ended September 30, 2012, except for the following.

As at June 30 2013 2012

First mortgage bonds (S&P/DBRS) (1)

A/A A/A

Commercial paper (S&P/DBRS) (1)

A-1(low) / R-1(low) A-1(low) / R-1(low)


49

Accrued vacation

In June 2012, the Régie issued a decision under which Gaz Métro-QDA must use, effective October 1, 2012, the accrual basis accounting method rather than the disbursements method to recognize the cost of employee vacation. The deferred charges related to the vacation allowance will be subject to a return on invested capital and to straight-line amortization over a five-year period. Gaz Métro-QDA has therefore been applying this new method on a prospective basis since October 1, 2012, without restatement of prior periods. This change has no significant impact on the Partnership’s consolidated net income for the three-month and nine-month periods ended June 30, 2013.

2. FUTURE ACCOUNTING CHANGE

Change in accounting framework

Gaz Métro and its Partners, GMi and Valener, have chosen to use the exemption set out in the Introduction to Part I of the Handbook, International Financial Reporting Standards, under which qualifying entities with rate-regulated activities may defer application of Part I to fiscal periods beginning on or after January 1, 2015. Consequently, Gaz Métro and its Partners will continue to present their consolidated financial statements in accordance with the Canadian GAAP included in Part V of the Handbook for fiscal years 2013 to 2015.

This deferral period was granted by the AcSB in light of the International Accounting Standards Board’s (IASB) decision, in December 2012, to include a project on rate-regulated activities and the development of an interim IFRS standard in its work plan. The interim IFRS standard on rate-regulated activities would be released while awaiting the final version of the standard and would apply only to entities that have not yet adopted IFRS. The IASB’s objective is to publish the interim IFRS standard by December 31, 2013. Gaz Métro continues to closely monitor IASB and AcSB developments and will modify its strategy, as necessary.

Given the uncertainty surrounding a definitive IFRS standard on rate-regulated activities and its eventual implementation, Gaz Métro and its Partners are currently planning to apply U.S. GAAP when preparing their interim and annual consolidated financial statements for fiscal year 2016 and thereafter, subject to obtaining new exemptions from the CSA.

The Partnership cannot report on the accounting policy changes that will be required upon the change in accounting framework nor their impacts. Additional information will be disclosed as it becomes available.

R) FINANCIAL INSTRUMENTS

All financial instruments reported on the Partnership’s consolidated balance sheet as at June 30, 2013 reflect the current financial market situation since they are recorded at fair value, except for loans and receivables and financial liabilities not held for trading, which are measured at amortized cost. However, the carrying amount of the latter items is equal to fair value, except for long-term debt, as explained in the Partnership’s MD&A as at September 30, 2012. Furthermore, the fair value of derivative financial instruments is determined using the spot rate or forward prices or rates at the close of markets as at the balance sheet date. The Partnership believes that the assumptions underlying the fair value measurement of derivative financial instruments as at June 30, 2013 are prudent. Moreover, in accordance with regulatory treatments, changes in the fair value of most of the derivative financial instruments appearing in Gaz Métro’s consolidated balance sheet as at June 30, 2013 are recognized in deferred charges and credits rather than being recognized in the consolidated statement of income.

The derivative financial instruments liability, net of the related asset (including the current portion) as at June 30, 2013, decreased by $53.2 million since September 30, 2012. This situation is primarily due to $43.3 million in settlements of natural-gas-related derivative financial instruments. Moreover, fluctuations in interest rates on the financial markets have raised the fair value of interest rate swaps, partly mitigated by a decrease in the fair value of natural-gas-related derivative financial instruments caused by variations in natural gas prices on the financial markets.

RISKS RELATED TO DERIVATIVE FINANCIAL INSTRUMENTS

Although Gaz Métro does not hold or issue derivative financial instruments for speculative purposes, it is exposed to market, credit and liquidity risks. As at June 30, 2013, the credit risk relating to counterparties to derivative financial instruments is virtually non-existent, as the Partnership is in a liability position with substantially all of its counterparties. The Partnership may therefore be exposed to liquidity risk if an event resulting in cancellation occurred, forcing the Partnership to settle the financial instrument liability balance prior to maturity. Gaz Métro manages liquidity risk by forecasting its cash flows in order to determine its financing needs, and by ensuring that it has sufficient cash and credit facilities to fulfill its needs and to meet its financial obligations as they become due. In addition, most of these counterparties have a high credit rating at least equal to those of Gaz Métro and of GMi, which significantly limits credit risk. No changes have been made to the methods used to manage credit and liquidity risk related to counterparties for derivative financial instruments since September 30, 2012. The Partnership is therefore continuing to carefully monitor and manage the credit and liquidity risk relating to these counterparties.


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S) ADDITIONAL INFORMATION

Units outstanding

As at August 7, 2013, a total of 148,671,363 units were outstanding.

Related party transactions


During the third quarter of fiscal 2013, the Partnership incurred natural gas storage costs totalling $4.8 million ($5.7 million in fiscal 2012) with Intragaz, one of its joint ventures held in partnership with GDF Québec Inc. and $16.3 million for the first nine months of fiscal 2013 ($17.1 million in fiscal 2012). The Partnership’s share in Intragaz’s revenues, which is eliminated upon proportionate consolidation, was $2.9 million during the third quarter of fiscal 2013 ($3.4 million in fiscal 2012) and $9.8 million for the first nine months of fiscal 2013 ($10.2 million in fiscal 2012). The non-eliminated portion of these natural gas storage costs is presented as direct costs in the consolidated statement of income.

Transco, an entity subject to significant influence, provided electricity transmission services to GMP totalling $6.8 million in the third quarter of fiscal 2013 ($9.5 million in fiscal 2012) and $15.1 million in the first nine months of fiscal 2013 ($20.1 million in fiscal 2012), presented as direct costs in the consolidated statement of income.

As per the administration and management support agreement entered into with Valener, Valener charged Gaz Métro an amount of $0.3 million for the third quarter of fiscal 2013 ($0.4 million in fiscal 2012) and of $1.6 million for the first nine months of fiscal 2013 ($1.4 million in fiscal 2012) for administration and management support services solely in respect of Valener’s interest in Gaz Métro and related public company matters. These expenses are presented as operating and maintenance expenses in the consolidated statement of income.

T) QUARTERLY RESULTS

Unaudited 2013 2013 2013 2012

(in millions of dollars, unless otherwise indicated) Quarters 3rd

2nd

1st 4

th

Revenues $ 437.5 $ 782.0 $ 622.8 $ 357.7

Gross margin $ 195.0 $ 309.2 $ 260.6 $ 167.0

Net income (loss) attributable to Partners $ 2.4 $ 115.8 $ 82.5 $ (15.5)

Basic and diluted net income (loss) per unit attributable to Partners (in $) $ 0.02 $ 0.77 $ 0.56 $ (0.11)

Distributions declared per unit (in $) $ 0.28 $ 0.28 $ 0.28 $ 0.28

Partners’ equity per unit attributable to Partners (in $) $ 9.53 $ 9.86 $ 9.10 $ 8.77

Weighted average number of units outstanding (in millions) 148.7 148.7 148.7 143.8

Unaudited 2012 2012 2012 2011

(in millions of dollars, unless otherwise indicated) Quarters 3rd

2nd

1st 4

th

Revenues $ 334.3 $ 679.0 $ 536.6 $ 286.4

Gross margin $ 156.7 $ 254.1 $ 202.8 $ 122.5

Net income (loss) attributable to Partners $ (1.8) $ 106.3 $ 54.8 $ (16.4)

Basic and diluted net income (loss) per unit attributable to Partners (in $) $ (0.01) $ 0.85 $ 0.43 $ (0.13)

Distributions declared per unit (in $) $ 0.28 $ 0.28 $ 0.28 $ 0.28

Partners’ equity per unit attributable to Partners (in $) $ 9.25 $ 8.77 $ 8.23 $ 8.10

Weighted average number of units outstanding (in millions)

126.9 126.3 126.3 126.3

Summary of quarterly results

As shown in the above table, seasonal temperature fluctuations influence the energy consumption levels of customers, which in turn influence the Partnership’s interim consolidated financial results. These interim financial results also depend, although not solely, on overearnings and productivity gains and losses realized by Gaz Métro-QDA, decisions made by the agencies


51

that regulate the rates of the Partnership and its subsidiaries, joint ventures and entities subject to significant influence, and the impact of fluctuations in the U.S. dollar versus the Canadian dollar. Given the seasonal nature of its operations and the normally low demand for energy during the summer months, revenues and profitability are historically higher in the first two quarters of a fiscal year than in the last two quarters.

The significant items that have affected results over the past eight quarters are as follows: 3

rd quarters: Net income attributable to Partners for the third quarter of fiscal 2013 totalled $2.4 million versus a net

loss attributable to Partners of $1.8 million for the same period of fiscal 2012, an increase of $4.2 million. Net income per unit attributable to Partners was $0.02 in the third quarter of fiscal 2013 versus a net loss per unit attributable to Partners of $0.01 in the same quarter of fiscal 2012, an increase of $0.03 per unit. Refer to section M) CONSOLIDATED

FINANCIAL PERFORMANCE SUMMARY for an analysis of results for the third quarter of fiscal 2013.

2nd

quarters: Net income attributable to Partners for the second quarter of fiscal 2013 totalled $115.8 million versus

$106.3 million for the same period of fiscal 2012, an increase of $9.5 million. Net income per unit attributable to Partners was $0.77 in the second quarter of fiscal 2013 versus $0.85 in the same quarter of fiscal 2012, a decrease of $0.08 per unit. The $9.5 million increase in net income attributable to Partners compared to the second quarter of fiscal 2012 was mainly due to:

o a $7.1 million increase, excluding the impact of exchange rate changes, in the net income attributable to Partners generated by energy distribution activities in Vermont, the main underlying factors being (i) a higher gross margin, mainly attributable to GMP, given the June 27, 2012 acquisition of CVPS, partly mitigated by (ii) higher operating, financial and amortization expenses arising mainly from the CVPS acquisition and (iii) higher income taxes resulting from higher income before income taxes; and

o a $2.6 million increase in Gaz Métro-QDA’s net income attributable to Partners, mainly as a result of (i) a timing difference between the revenue recognition profile of the distribution service, which follows the customers’ consumption profile, and that of costs, (ii) a favourable impact of closer-to-normal temperatures in the second quarter of fiscal 2013, whereas temperatures were considerably warmer than normal in the second quarter of fiscal 2012. These weather conditions, which were unique to the first six months of fiscal 2012, had adversely affected the net income of this period because, while the normalization mechanism had been applied, it did not fully eliminate the impact on revenues, and (iii) the impact of lower load-balancing and transportation costs in the second quarter of fiscal 2013 compared to those in fiscal 2012, which were resulting in 2012, from temperatures, and from higher average costs for transportation tools resulting from changing demand of customers in the industrial market, both of which adversely affected the net income for the period, partly mitigated by (iv) the unfavourable impact of a decrease in the rate of return on deemed common equity and in revenues related to the GEEP performance incentive;

mitigated by: o the allocation of a $0.9 million income tax expense of 9265-0860 Québec inc. resulting from a reorganization

implemented on September 30, 2012 to offset the impacts of the Income Tax Act amendment applicable to

multi-tiered partnership structures, as explained in section K) RECENT SIGNIFICANT EVENTS.

1st

quarters: Net income attributable to Partners for the first quarter of fiscal 2013 totalled $82.5 million versus

$54.8 million in the same period of fiscal 2012, up $27.7 million. Net income per unit attributable to Partners was $0.56 in the first quarter of fiscal 2013 versus $0.43 in the same quarter of fiscal 2012, an increase of $0.13 per unit. The $27.7 million year-over-year increase in first-quarter net income attributable to Partners was mainly due to:

o a $14.7 million net gain realized on the sale of its interest in HydroSolution; o a $6.7 million increase, excluding the impact of exchange rate changes, in the net income attributable to

Partners generated by energy distribution activities in Vermont, the main underlying factors being (i) a higher gross margin, mainly attributable to GMP, given the June 27, 2012 acquisition of CVPS, partly mitigated by (ii) higher operating, financial and amortization expenses arising mainly from the CVPS acquisition; and

o a $5.8 million increase in Gaz Métro-QDA’s net income attributable to Partners, mainly as a result of (i) a timing difference between the revenue recognition profile of the distribution service, which follows the customers’ consumption profile, and that of costs, (ii) a favourable impact of closer-to-normal temperatures in the first quarter of fiscal 2013, whereas temperatures were considerably warmer than normal in the first quarter of fiscal 2012. These weather conditions, which were unique to the first quarter of fiscal 2012, had adversely affected the net income of this period because, while the normalization mechanism had been applied, it did not fully eliminate the impact on revenues, (iii) the impact of higher load-balancing and transportation costs in the first quarter of fiscal 2012 resulting from temperatures, as previously explained, and of the higher average costs for transportation tools resulting from changing demand, in the first quarter of fiscal 2012, of customers in the industrial market, both of which adversely affected the net income for the period, and (iv) an increase in the gross margin of the distribution service due to higher industrial deliveries compared to the 2013 rate case, partly mitigated by (v) lower deliveries of short-term interruptible service sales, and (vi) the unfavourable impact of a decrease in the rate of return on deemed common equity and in revenues related to the GEEP performance incentive;


52

mitigated by: o the allocation of a $1.4 million income tax expense of 9265-0860 Québec inc. resulting from a reorganization

implemented on September 30, 2012 to offset the impacts of the Income Tax Act amendment applicable to

multi-tiered partnership structures, as explained in section K) RECENT SIGNIFICANT EVENTS.

4th

quarters: Net loss attributable to Partners recorded for the fourth quarter of fiscal 2012 totalled $15.5 million versus

$16.4 million for the same period of fiscal 2011, a $0.9 million lower net loss. Net loss per unit attributable to Partners was $0.11 in the fourth quarter of fiscal 2012 compared to $0.13 in fiscal 2011, a $0.02 lower net loss per unit. The $0.9 million lower net loss attributable to Partners compared to the fourth quarter of fiscal 2011 was mainly due to:

o a lower net loss of $9.3 million realized by Gaz Métro-QDA that was mainly the result of lower operating and amortization expenses combined with a decrease in overearnings attributed to customers. These favourable factors were, however, partly mitigated by a decrease in the gross margin from the transportation and load-balancing services; and

o a $7.9 million increase in the income of energy distribution activities in Vermont, excluding the impact of exchange rate changes, mainly due to (i) the higher earnings generated by GMP following the CVPS acquisition at the end of the third quarter of fiscal 2012, (ii) a favourable impact of GMP’s rate case, which includes an increase in its authorized rate of return and its rate base and (iii) GMP’s lower direct costs for electricity, mitigated by (iv) an increase in financial expenses resulting mainly from the additional financing associated with the CVPS acquisition and the financing related to GMP’s KCW project;

offset by: o a $17.5 million net gain realized in the last quarter of fiscal 2011 on the sale of all Gaz Métro Plus’s shares in

MTO Telecom Inc.

U) SUBSEQUENT EVENT

Declaration of a distribution

On August 8, 2013, the board of directors of GMi, acting in its capacity as General Partner of Gaz Métro, declared a quarterly distribution of $41.6 million payable to its Partners on October 1, 2013. This MD&A has been prepared as of August 9, 2013. Additional information about Valener, including its Annual Information Form, MD&A, and Annual Report for the fiscal year ended September 30, 2012 can be found on SEDAR at www.sedar.com and on Valener’s website at www.valener.com/investisseurs.

53

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012

54

VALENER INC. CONSOLIDATED STATEMENTS OF INCOME AND

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of dollars - unaudited) CONSOLIDATED STATEMENTS OF INCOME


2013 2012 2013 2012

SHARE IN THE NET INCOME (LOSS) OF GAZ MÉTRO $ 705 $ (522) $ 58,214 $ 46,208

SHARE IN THE NET LOSS OF BEAUPRÉ ÉOLE (502) (109) (866) (974)

SHARE IN THE NET LOSS OF BEAUPRÉ ÉOLE 4 (105) (22) (238) (38)

OTHER REVENUES RELATED TO THE ADMINISTRATION AND

MANAGEMENT SUPPORT AGREEMENT (Note 7) 310 396 1,562 1,411

408 (257) 58,672 46,607

EXPENSES

General and administrative expenses 277 426 1,643 1,512

Interest on long-term debt 79 23 229 208

Financial and other expenses 114 92 397 305

470 541 2,269 2,025

INCOME (LOSS) BEFORE INCOME TAXES (62) (798) 56,403 44,582

Income taxes

Current (1,139) (1,353) 13,675 12,145

Future 188 1,032 (1,836) 1,118

(951) (321) 11,839 13,263

NET INCOME (LOSS) $ 889 $ (477) $ 44,564 $ 31,319

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE (in dollars) (Note 5) $ (0.01) $ (0.02) $ 1.10 $ 0.83



2013 2012 2013 2012

NET INCOME (LOSS) $ 889 $ (477) $ 44,564 $ 31,319

OTHER COMPREHENSIVE INCOME (LOSS)

Share in the other comprehensive income (loss) of Gaz Métro 7,599 806 15,515 (1,667)

Income taxes 823 38 1,278 (608) Share in the other comprehensive income (loss) of

Beaupré Éole 7,575 (5,445) 8,207 (8,836)

Income taxes (2,038) 1,465 (2,208) 2,377

OTHER COMPREHENSIVE INCOME (LOSS) 13,959 (3,136) 22,792 (8,734)

COMPREHENSIVE INCOME (LOSS) $ 14,848 $ (3,613) $ 67,356 $ 22,585

The accompanying notes to the interim consolidated financial statements are an integral part of these statements.

55

VALENER INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

9 months ended June 30, 2013 and 2012

(in thousands of dollars - unaudited)

Share capital

Deficit

Accumulated other

comprehensive loss

Shareholders' equity

Balance as at September 30, 2011 $ 629,313 $ (7,173) $ (19,510) $ 602,630

Net income - 31,319 - 31,319

Other comprehensive loss - - (8,734) (8,734)

Issuance of preferred shares 97,455 - - 97,455

Dividend Reinvestment Plan 1,979 - - 1,979

Dividends to common shareholders - (28,076) - (28,076)

Balance as at June 30, 2012 $ 728,747 $ (3,930) $ (28,244) $ 696,573

Balance as at September 30, 2012 $ 729,725 $ (16,629) $ (37,436) $ 675,660

Net income - 44,564 - 44,564

Other comprehensive income - - 22,792 22,792

Dividend Reinvestment Plan (Note 5) 2,214 - - 2,214

Dividends to common shareholders - (28,228) - (28,228)

Dividends to preferred shareholders - (3,264) - (3,264)

Balance as at June 30, 2013 $ 731,939 $ (3,557) $ (14,644) $ 713,738


56

VALENER INC. CONSOLIDATED BALANCE SHEETS


June 30 September 30

2013 2012

ASSETS

CURRENT ASSETS

Cash $ 836 $ 492

Amount receivable from Gaz Métro 321 418

Distributions receivable from Gaz Métro 13,740 13,334

Income taxes receivable - 1,708

Future income taxes 255 104

Other current assets 17 55

15,169 16,111

INTERESTS IN ENTITIES SUBJECT TO SIGNIFICANT INFLUENCE (Note 4) 784,530 742,287

FUTURE INCOME TAXES 5,152 7,096

$ 804,851 $ 765,494

LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities $ 1,337 $ 1,422

Income taxes payable 5,243 -

Dividends payable to common shareholders 9,422 9,386

Dividends payable to preferred shareholders 1,088 1,561

Future income taxes - 1,424

17,090 13,793

LONG-TERM DEBT 53,105 51,427 FUTURE INCOME TAXES 20,918 24,614

91,113 89,834

SHAREHOLDERS’ EQUITY

SHARE CAPITAL (Note 5) 731,939 729,725

DEFICIT (3,557) (16,629)

ACCUMULATED OTHER COMPREHENSIVE LOSS (14,644) (37,436)

(18,201) (54,065)

713,738 675,660

$ 804,851 $ 765,494

Subsequent events (Note 8) The accompanying notes to the interim consolidated financial statements are an integral part of these statements.

57

VALENER INC. CONSOLIDATED STATEMENTS OF CASH FLOWS



2013 2012 2013 2012

OPERATING ACTIVITIES

Net income (loss) $ 889 $ (477) $ 44,564 $ 31,319

Distributions received from Gaz Métro 13,740 11,926 40,814 35,778

Non-cash items:

Share in the net (income) loss of Gaz Métro (705) 522 (58,214) (46,208)

Share in the net loss of Beaupré Éole 502 109 866 974

Share in the net loss of Beaupré Éole 4 105 22 238 38

Future income taxes 188 1,032 (1,836) 1,118

Other 76 60 212 179

14,795 13,194 26,644 23,198

Change in non-cash working capital items (Note 6) (3,050) (4,156) 6,967 (9,067)

CASH FLOWS RELATED TO OPERATING ACTIVITIES 11,745 9,038 33,611 14,131

INVESTING ACTIVITIES

Purchase of units in Gaz Métro - (75,411) - (75,411)

Purchase of units in Beaupré Éole (Note 4) (129) (4,578) (335) (43,573)

Purchase of units in Beaupré Éole 4 (Note 4) (3,470) (230) (4,133) (647)

Other (200) (183) (584) (445)

CASH FLOWS RELATED TO INVESTING ACTIVITIES (3,799) (80,402) (5,052) (120,076)

FINANCING ACTIVITIES

Issuance of preferred shares, net of related costs - 97,105 - 97,105

Long-term debt:

Issuances 94,945 78,588 219,000 183,399

Repayments (93,500) (96,000) (217,500) (156,000)

Dividends to common shareholders (8,630) (8,531) (25,978) (26,063)

Dividends to preferred shareholders (1,088) - (3,737) -

CASH FLOWS RELATED TO FINANCING ACTIVITIES (8,273) 71,162 (28,215) 98,441

NET INCREASE (DECREASE) IN CASH (327) (202) 344 (7,504)

CASH AT BEGINNING 1,163 865 492 8,167

CASH AT END $ 836 $ 663 $ 836 $ 663


VALENER INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts are in thousands of dollars) (unaudited)

58

1. CONSOLIDATED FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements of Valener Inc. (Valener or the Company) include the accounts of Valener and its subsidiaries. All intercompany transactions and balances are eliminated.

The interim unaudited consolidated financial statements of Valener are prepared in accordance with the Canadian generally accepted accounting principles (Canadian GAAP) included in Part V of the Canadian Institute of Chartered Accountants Handbook (Handbook), Pre-changeover Accounting Standards. The Canadian GAAP used are applicable to interim financial statements and do not include all the information required for annual financial statements. The interim consolidated financial statements and accompanying notes should be read in conjunction with the most recent audited consolidated financial statements of Valener and the accompanying notes for the fiscal year ended September 30, 2012. The interim consolidated financial statements are also prepared in accordance with the accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended September 30, 2012. Where necessary, the interim consolidated financial statements include amounts based on informed estimates and management’s best judgment.

2. SEASONAL ACTIVITIES

As Valener owns an economic interest in Gaz Métro Limited Partnership (Gaz Métro), its interim period operating results reflect the seasonal nature of Gaz Métro’s interim results. As such, Valener’s interim period operating results are not necessarily representative of the results to be expected for the fiscal year, as seasonal temperature fluctuations influence the energy consumption levels of customers, which in turn influence Gaz Métro’s interim consolidated financial results and consequently Valener’s interim consolidated financial results. Historically, Gaz Métro’s revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.

3. FUTURE ACCOUNTING CHANGE

CHANGE IN ACCOUNTING FRAMEWORK

Valener has chosen to use the exemption set out in the Introduction to Part I of the Handbook, International Financial Reporting Standards (IFRS), under which qualifying entities with rate-regulated activities may defer application of Part I to fiscal periods beginning on or after January 1, 2015. Consequently, Valener will continue to present its consolidated financial statements in accordance with the Canadian GAAP included in Part V of the Handbook for fiscal years 2013 to 2015.

Given the uncertainty surrounding a definitive IFRS standard on rate-regulated activities and its eventual implementation, Valener is currently planning to apply U.S. generally accepted accounting principles when preparing its interim and annual consolidated financial statements for fiscal 2016 and thereafter, subject to obtaining a new exemption from the Canadian Securities Administrators.

Valener cannot report on the accounting policy changes that will be required upon the change in accounting framework nor their impacts. Additional information will be disclosed as it becomes available.

VALENER INC.



59

4. INTERESTS IN ENTITIES SUBJECT TO SIGNIFICANT INFLUENCE

Valener Éole Inc. subscribed, in proportion to its current interest, 129,205 units in Beaupré Éole General Partnership for a total cash consideration of $129,000 during the third quarter of fiscal 2013 and 335,134 units for a total cash consideration of $335,000 during the first nine months of fiscal 2013.

Valener Éole 4 Inc. subscribed, in proportion to its current interest, 3,470,615 units in Beaupré Éole 4 General Partnership for a total cash consideration of $3,470,000 during the third quarter of fiscal 2013 and 4,132,935 units for a total cash consideration of $4,133,000 during the first nine months of fiscal 2013.

5. SHARE CAPITAL

DECLARED June 30 September 30

2013 2012

37,688,370 common shares (37,542,822 as at September 30, 2012) $ 634,459 $ 632,245

4,000,000 Series A preferred shares (1)

(4,000,000 as at September 30, 2012) 97,480 97,480

$ 731,939 $ 729,725 (1)

Series A cumulative rate reset preferred shares.

As part of the Dividend Reinvestment Plan, 50,741 common shares were issued for a total amount of $779,000 during the third quarter of fiscal 2013 and 145,548 common shares for a total amount of $2,214,000 during the first nine months of fiscal 2013.

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE


2013 2012 2013 2012

Net income (loss) $ 889 $ (477) $ 44,564 $ 31,319

Less:

Cumulative dividends on Series A preferred shares 1,088 286 3,264 286

Net income (loss) attributable to common shareholders $ (199) $ (763) $ 41,300 $ 31,033

Basic and diluted weighted average number of common shares outstanding (in thousands) 37,680 37,477 37,630 37,427

Basic and diluted net income (loss) per common share (in dollars) $ (0.01) $ (0.02) $ 1.10 $ 0.83

VALENER INC.



60

6. CASH FLOWS


2013 2012 2013 2012

Change in non-cash working capital items:

Amount receivable from Gaz Métro $ 490 $ 251 $ 97 $ 534

Other current assets 40 14 38 (15)

Accounts payable and accrued liabilities (294) (345) (119) (45)

Income taxes payable (receivable) (3,286) (4,076) 6,951 (9,541)

$ (3,050) $ (4,156) $ 6,967 $ (9,067)

Other information:

Interest paid $ 77 $ 23 $ 229 $ 208

Income taxes paid $ 2,160 $ 3,294 $ 6,723 $ 21,686

7. RELATED PARTY TRANSACTIONS


As per the administration and management support agreement entered into with Gaz Métro, Valener charged Gaz Métro an amount of $310,000 for the third quarter of fiscal 2013 ($396,000 in fiscal 2012) and of $1,562,000 for the first nine months of fiscal 2013 ($1,411,000 in fiscal 2012) for administration and management support services solely in respect of its interest in Gaz Métro and related public company matters.

8. SUBSEQUENT EVENTS

DECLARATION OF A DIVIDEND TO COMMON SHAREHOLDERS

On August 9, 2013, the board of directors declared a quarterly dividend of $0.25 per common share for the quarter ending September 30, 2013, payable on October 15, 2013 to common shareholders of record at the close of business on September 30, 2013. The board of directors also approved the reinvestment of dividends into additional common shares, for the dividend payable on October 15, 2013, by way of an issuance of new common shares of the Company, at a 5% discount, in accordance with the terms and conditions of the reinvestment plan.

DECLARATION OF A DIVIDEND TO PREFERRED SHAREHOLDERS


61

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012

62

GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF INCOME AND


(in thousands of dollars - unaudited) CONSOLIDATED STATEMENTS OF INCOME


2013 2012 2013 2012

REVENUES $ 437,469 $ 334,310 $ 1,842,256 $ 1,549,917 DIRECT COSTS 242,515 177,683 1,077,459 936,344

GROSS MARGIN 194,954 156,627 764,797 613,573

EXPENSES Operating and maintenance 119,315 97,139 356,615 266,686 Amortization 51,955 38,697 150,154 116,318 Interest on long-term debt 31,870 26,290 95,223 77,563 Financial and other expenses (453) 1,118 (1,647) 3,276

202,687 163,244 600,345 463,843

INCOME (LOSS) BEFORE THE UNDERNOTED (7,733) (6,617) 164,452 149,730 Share in earnings of entities subject to significant influence 14,048 1,653 47,710 17,204 Net gain on the disposal of an interest in a joint

venture (Note 4) - - 14,749 -

INCOME (LOSS) BEFORE INCOME TAXES 6,315 (4,964) 226,911 166,934

Income taxes Current 6,043 (854) 3,195 (86) Future (1,550) (2,177) 24,099 8,707

4,493 (3,031) 27,294 8,621

NET INCOME (LOSS) $ 1,822 $ (1,933) $ 199,617 $ 158,313

NET INCOME (LOSS) ATTRIBUTABLE TO: NON-CONTROLLING INTERESTS (607) (132) (1,104) (1,013) PARTNERS 2,429 (1,801) 200,721 159,326

$ 1,822 $ (1,933) $ 199,617 $ 158,313

BASIC AND DILUTED NET INCOME (LOSS) PER UNIT ATTRIBUTABLE

TO PARTNERS (in dollars) $ 0.02 $ (0.01) $ 1.35 $ 1.26

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF UNITS

OUTSTANDING (in thousands of units) 148,671 126,909 148,671 126,528



2013 2012 2013 2012

NET INCOME (LOSS) $ 1,822 $ (1,933) $ 199,617 $ 158,313 OTHER COMPREHENSIVE INCOME (LOSS) Change in translation adjustments of self-sustaining foreign

operations 33,298 3,151 63,434 (9,278) Change in translation adjustments related to net investment

hedging activities (21,276) (1,001) (33,586) (1,001) Change in the fair value of derivative financial instruments

designated as hedges 15,384 (11,227) 17,883 (8,483) Income taxes (2,121) 1,525 (2,298) 2,474

OTHER COMPREHENSIVE INCOME (LOSS) 25,285 (7,552) 45,433 (16,288)

COMPREHENSIVE INCOME (LOSS) $ 27,107 $ (9,485) $ 245,050 $ 142,025

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

NON-CONTROLLING INTERESTS $ 6,968 $ (5,577) $ 7,103 $ (9,849) PARTNERS 20,139 (3,908) 237,947 151,874

$ 27,107 $ (9,485) $ 245,050 $ 142,025


63

GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

9 months ended June 30, 2013 and 2012


Attributable to Partners

Capital

Retained earnings

(deficit)

Accumulated other

comprehensive loss

Total

Non-

controlling interests

Partners’ equity

Balance as at September 30, 2011 $ 1,111,825 $ (6,673) $ (81,809) $ 1,023,343 $ (8,843) $ 1,014,500 Net income (loss) - 159,326 - 159,326 (1,013) 158,313 Other comprehensive loss - - (7,452) (7,452) (8,836) (16,288) Issuances of units 260,000 - - 260,000 44,220 304,220 Distributions - (106,125) - (106,125) - (106,125)

Balance as at June 30, 2012 $ 1,371,825 $ 46,528 $ (89,261) $ 1,329,092 $ 25,528 $ 1,354,620

Balance as at September 30, 2012 $ 1,446,825 $ (50,620) $ (92,870) $ 1,303,335 $ 27,358 $ 1,330,693

Net income (loss) - 200,721 - 200,721 (1,104) 199,617

Other comprehensive income - - 37,226 37,226 8,207 45,433

Issuances of units - - - - 4,468 4,468

Distributions - (124,884) - (124,884) - (124,884)

Balance as at June 30, 2013 $ 1,446,825 $ 25,217 $ (55,644) $ 1,416,398 $ 38,929 $ 1,455,327


64

GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS


June 30 September 30

2013 2012

ASSETS CURRENT ASSETS Cash and cash equivalents $ 39,676 $ 47,583 Restricted cash 15,692 7,475

Trade and other receivables 206,144 194,737 Income taxes receivable 2,808 10,229

Inventories 69,407 118,939 Prepaid expenses 14,552 12,033

Future income taxes 25,238 10,779 Derivative financial instruments 1,386 2,133

374,903 403,908

PROPERTY, PLANT AND EQUIPMENT 3,457,964 3,248,642

INTANGIBLE ASSETS 59,793 58,322

DEFERRED CHARGES 487,118 498,463

INVESTMENTS AND OTHER (Note 5) 649,507 550,773

GOODWILL 326,937 321,247

FUTURE INCOME TAXES 5,391 7,505

DERIVATIVE FINANCIAL INSTRUMENTS 4,141 685

OTHER LONG-TERM ASSETS 65,459 42,434

1,598,346 1,479,429

$ 5,431,213 $ 5,131,979

LIABILITIES

CURRENT LIABILITIES

Bank overdraft $ 770 $ 10,097 Bank loans 9,289 13,753

Accounts payable and accrued liabilities 259,655 295,360 Income taxes payable 79 -

Distributions payable 41,628 40,228 Future income taxes 1,416 -

Derivative financial instruments 30,412 51,988 Current portion of long-term debt (Note 6) 19,346 164,616

362,595 576,042

LONG-TERM DEBT (Note 6) 2,637,004 2,295,763

DEFERRED CREDITS 272,201 284,593 FUTURE INCOME TAXES 347,078 293,189 DERIVATIVE FINANCIAL INSTRUMENTS 7,146 36,108

OTHER LONG-TERM LIABILITIES 349,862 315,591

3,975,886 3,801,286

PARTNERS’ EQUITY

CAPITAL 1,446,825 1,446,825

RETAINED EARNINGS (DEFICIT) 25,217 (50,620)

ACCUMULATED OTHER COMPREHENSIVE LOSS (55,644) (92,870)

(30,427) (143,490)

1,416,398 1,303,335

NON-CONTROLLING INTERESTS 38,929 27,358

1,455,327 1,330,693

$ 5,431,213 $ 5,131,979

Commitments (Note 11) Subsequent event (Note 12) The accompanying notes to the interim consolidated financial statements are an integral part of these statements.

65

GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS



2013 2012 2013 2012

OPERATING ACTIVITIES

Net income (loss) $ 1,822 $ (1,933) $ 199,617 $ 158,313 Distributions received from entities subject to significant

influence 10,210 4,226 25,332 22,778 Non-cash items:

Amortization of property, plant and equipment 40,422 32,790 117,480 98,991 Amortization of deferred charges and credits, financing

costs and intangible assets 12,072 6,387 34,555 19,086

Reduction in deferred charges related to the cost of energy 901 205 99,815 99,554

Rate stabilization accounts (1,546) (3,841) (15,937) (33,787)

Share in earnings of entities subject to significant influence (14,048) (1,653) (47,710) (17,204) Net gain on disposal of an interest in a

joint venture (Note 4) - - (14,749) -

Future income taxes (1,550) (2,177) 24,099 8,707

Other 2,426 3,423 3,708 5,632

50,709 37,427 426,210 362,070

Change in non-cash working capital items (Note 7) 49,934 41,962 685 42 970

CASH FLOWS RELATED TO OPERATING ACTIVITIES 100,643 79,389 426,895 405,040

INVESTING ACTIVITIES

Change in restricted cash 20 (2,313) (8,095) 4,346

Purchases of property, plant and equipment (107,250) (105,448) (280,557) (281,647) Change in deferred charges and credits (39,662) (41,639) (137,875) (109,493) Purchases of intangible and other assets (9,413) (2,276) (18,620) (13,113) Change in an interest in an entity subject to significant

influence and other (Note 5) 86 (1,579) (35,692) 409

Acquisition of a subsidiary - (484,972) - (484,972) Disposal of an interest in a joint venture, net of disposed

cash (Note 4) - - 42,362 -

Other (6,667) - 1,843 -

CASH FLOWS RELATED TO INVESTING ACTIVITIES (162,886) (638,227) (436,634) (884,470)

FINANCING ACTIVITIES

Change in bank loans (1,782) (5,740) (5,336) (42,613)

Increase in term loans 519,726 670,669 1,479,107 1,471,664

Repayments of term loans (472,302) (611,603) (1,471,638) (1,399,009)

Issuances of long-term debts (Note 6) 201,476 287,119 284,710 335,416

Repayments of long-term debts (150,512) (502) (157,980) (7,982)

Settlements of derivative financial instruments - - - (49,995)

Issuances of units 3,600 264,808 4,468 304,220 Distributions (41,628) (35,375) (123,484) (106,125)

CASH FLOWS RELATED TO FINANCING ACTIVITIES 58,578 569,376 9,847 505,576

IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH AND CASH

EQUIVALENTS AND BANK OVERDRAFT 408 2,273 1,312 1,198

NET CHANGE IN CASH AND CASH EQUIVALENTS, NET OF BANK OVERDRAFT (3,257) 12,811 1,420 27,344

CASH AND CASH EQUIVALENTS, NET OF BANK OVERDRAFT, AT BEGINNING 42,163 47,012 37,486 32,479

CASH AND CASH EQUIVALENTS, NET OF BANK OVERDRAFT, AT END

(1) $ 38,906 $ 59,823 $ 38,906 $ 59,823

(1) As at June 30, 2013, the cash and cash equivalents balance consists of $25,676 in cash, $14,000 in short-term investments, and $770 in

bank overdraft. As at June 30, 2012, these amounts were, respectively, $49,921, $14,536 and $4,634.





66

55

161

159

144

82

198

201

1st 2nd 3rd 4th

Cumulative

2012 2013

NET INCOMEATTRIBUTABLE TO PARTNERS

(in millions of dollars)

0.4

3

0.8

5

(0.0

1)

(0.1

1)

0.5

6

0.7

7

0.0

2

1st 2nd 3rd 4th

Quarters

2012 2013

NET INCOME (LOSS) PER UNITATTRIBUTABLE TO PARTNERS

(in dollars)

55

10

6

(2)

(15

)

82

116

2

1st 2nd 3rd 4th

Quarters

2012 2013

NET INCOME (LOSS)ATTRIBUTABLE TO PARTNERS

(in millions of dollars)0

.43

1.2

8

1.2

6

1.1

6

0.5

6

1.3

3

1.3

5

1st 2nd 3rd 4th

Cumulative

2012 2013

NET INCOME PER UNITATTRIBUTABLE TO PARTNERS

(in dollars)

1. CONSOLIDATED FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements of Gaz Métro Limited Partnership (Gaz Métro or the Partnership) include the accounts of Gaz Métro and all its subsidiaries. All intercompany transactions and balances are eliminated. The Partnership’s investments in jointly controlled enterprises (joint ventures) are accounted for using the proportionate consolidation method.

The interim unaudited consolidated financial statements of the Partnership are prepared in accordance with the Canadian generally accepted accounting principles (Canadian GAAP) included in Part V of the Canadian Institute of Chartered Accountants Handbook (Handbook), Pre-changeover Accounting Standards. The Canadian GAAP used are applicable to interim financial statements and do not include all the information required for annual financial statements. The interim consolidated financial statements and accompanying notes should be read in conjunction with the most recent audited consolidated financial statements of Gaz Métro and the accompanying notes for the fiscal year ended September 30, 2012. The interim consolidated financial statements are also prepared in accordance with the accounting policies described in the Partnership’s audited consolidated financial statements for the fiscal year ended September 30, 2012, except for the accounting change described in Note 3. Where necessary, the interim consolidated financial statements include amounts based on informed estimates and management’s best judgment.

2. SEASONAL ACTIVITIES

Interim period operating results are not necessarily representative of the results to be expected for the fiscal year, as seasonal temperature fluctuations influence the energy consumption levels of customers and in turn influence Gaz Métro’s interim consolidated financial results, as presented in the following graphs:

Historically, revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.




67

3. ACCOUNTING CHANGES

Accrued vacation

In June 2012, the Régie de l’énergie (Régie) issued a decision under which the natural gas distribution activity in Quebec (Gaz Métro-QDA) must use, effective October 1, 2012, the accrual basis accounting method rather than the disbursements method to recognize the cost of employee vacation. The deferred charges related to the vacation allowance will be subject to a return on invested capital and to straight-line amortization over a five-year period. Gaz Métro-QDA has therefore been applying this new method on a prospective basis since October 1, 2012, without restatement of prior periods. This change has no significant impact on the Partnership’s consolidated net income for the three-month and nine-month periods ended June 30, 2013.

FUTURE ACCOUNTING CHANGE

Change in accounting framework

Gaz Métro and its Partners, Gaz Métro inc. (GMi) and Valener Inc. (Valener) have chosen to use the exemption set out in the Introduction to Part I of the Handbook, International Financial Reporting Standards (IFRS) under which qualifying

entities with rate-regulated activities may defer application of Part I to fiscal periods beginning on or after January 1, 2015. Consequently, Gaz Métro and its Partners will continue to present their consolidated financial statements in accordance with the Canadian GAAP included in Part V of the Handbook for fiscal years 2013 to 2015.

Given the uncertainty surrounding a definitive IFRS standard on rate-regulated activities and its eventual implementation, Gaz Métro and its Partners are currently planning to apply U.S. generally accepted accounting principles when preparing their interim and annual consolidated financial statements for fiscal year 2016 and thereafter, subject to obtaining new exemptions from the Canadian Securities Administrators.

The Partnership cannot report on the accounting policy changes that will be required upon the change in accounting framework nor their impacts. Additional information will be disclosed as it becomes available.

4. ACQUISITION AND DISPOSAL OF INTERESTS IN A SUBSIDIARY AND IN A JOINT VENTURE

Acquisition of an interest in a subsidiary

The purchase price allocation of Central Vermont Public Service Corporation (CVPS), whose shares were acquired in their entirety on June 27, 2012, was finalized in June 2013. No significant adjustment was made to the CVPS purchase price allocation presented in the Partnership’s audited consolidated financial statements and accompanying notes for the fiscal year ended September 30, 2012.

Disposal of an interest in a joint venture

On November 27, 2012, the Partnership completed the sale of all the units it held in HydroSolution, L.P. (HydroSolution), its joint venture, for a cash consideration of $44,378,000, net of related costs. The transaction, effective November 27, 2012, generated a net gain on disposal of $14,749,000. This joint venture had previously been included in the Energy Services, Storage and Other segment.




68

The share in the sold assets and liabilities of HydroSolution are as follows:

Current assets, including disposed cash of $2,016 $ 4,345

Property, plant and equipment 28,050

Intangible assets 9,108

Investments and other 67

Goodwill 13,342

54,912

Current liabilities 1,649

Long-term debt 21,454

Other long-term liabilities 2,180

25,283

Net value of assets sold 29,629

Consideration received (net of related transaction costs) 44,378

Net gain on disposal of an interest in a joint venture $ 14,749

5. INVESTMENTS AND OTHER

On December 27, 2012, Green Mountain Power Corporation (GMP) invested $33,181,000 (US$33,473,000) in one of its entities subject to significant influence, Vermont Transco LLC (Transco), raising its interest from 68.5% to 69.1%. These funds are intended to finance capital investments in electricity transmission activities.

6. LONG-TERM DEBT

GMP-CVPS merger

On October 1, 2012, by way of a merger, CVPS combined its operations with those of GMP to form a single entity, which has kept the name GMP. Following the merger, CVPS’s first mortgage bonds were exchanged for new bonds issued under GMP’s first mortgage bonds deed of trust. The new bonds have the same face values, maturities, repayment terms and interest rates as the former CVPS bonds. GMP’s first mortgage bonds deed of trust has been amended to require that a long-term debt / total capitalization ratio of no more than 65% be maintained. In addition, on October 1, 2012, GMP’s and CVPS’s credit facilities were cancelled and the amounts owing were repaid using a new credit facility contracted by GMP. This new credit facility authorizes a US$70,000,000 term loan, which can be increased by an additional amount of up to US$15,000,000, subject to the lender’s approval, and will expire on September 30, 2016.

GMP’s private placement

On December 6, 2012, GMP issued, by way of private placement, first mortgage bonds in the amount of US$85,000,000 to finance a portion of its investments in property, plant and equipment and to reimburse certain existing short-term debts. These first mortgage bonds bear interest at an annual rate of 3.99% and will mature on December 1, 2042.

GMi’s private placement and repayment of Series L bonds

On February 5, 2013, GMi entered into a note purchase agreement with investors, by way of private placement, secured by Gaz Métro. On April 10, 2013, GMi issued two secured senior notes, Series C and Series D, with a capital amount of US$100,000,000 each. These notes, maturing on April 10, 2043, and April 10, 2048, bear 4.04% and 4.19% annual interest, respectively. The proceeds of the issuance were loaned to Gaz Métro at conditions similar to those of the secured notes, to be used for general business purposes and to repay the $150,000,000 in Series L First Mortgage Bonds on April 15, 2013, which matured on that date.




69

GMi’s credit agreement

On March 20, 2013, Gaz Métro, through its General Partner GMi, extended to March 2018, the maturity of its credit agreement of a maximum authorized amount of $600,000,000.

7. CASH FLOWS


2013 2012 2013 2012

Change in non-cash working capital items:

Trade and other receivables $ 125,470 $ 127,354 $ (16,499) $ 6,301

Inventories (17,351) (29,545) 45,725 78,970

Prepaid expenses 8,209 7,205 (2,233) (4,075)

Accounts payable and accrued liabilities (72,835) (62,130) (34,316) (36,928)

Income taxes payable (receivable) 6,441 (922) 8,008 (1,298)

$ 49,934 $ 41,962 $ 685 $ 42,970

Other information:

Interest received $ 1,194 $ 1,899 $ 3,560 $ 5,619

Interest paid $ 58,207 $ 35,360 $ 119,408 $ 84,916

Income taxes received $ 464 $ 1,232 $ 4,868 $ 97

Accounts payable and accrued liabilities include an amount of $41,316,000 as at June 30, 2013 relating to the acquisition of property, plant and equipment ($33,915,000 as at June 30, 2012). These transactions have no impact on cash flows and are therefore not reflected in the consolidated statement of cash flows.

8. EMPLOYEE FUTURE BENEFITS

The following table provides the total cost related to defined benefit pension plans and other postretirement benefits:


2013 2012

Pension plans

Other post-retirement

benefits Pension

plans


benefits

Accrued benefit cost (1)

$ 10,071 $ 3,071 $ 4,952 $ 2,284

Unrecognized revenue (cost) of Gaz Métro-QDA

(2) 4,311 (1,717) 2,154 (1,400)

Recognized cost $ 14,382 $ 1,354 $ 7,106 $ 884




70


2013 2012

Pension plans


benefits Pension

plans


benefits

Accrued benefit cost (1)

$ 29,207 $ 8,419 $ 14,917 $ 6,826

Unrecognized revenue (cost) of Gaz Métro-QDA

(2) 12,923 (5,103) 6,463 (4,634)

Recognized cost $ 42,130 $ 3,316 $ 21,380 $ 2,192 (1)

Accrued benefit cost is the cost determined in accordance with the standards set out in Section 3461, Employee Future Benefits, included in Part V of

the Handbook. (2)

The unrecognized revenue (cost) of Gaz Métro-QDA is the difference between the cost recognized in income in accordance with regulatory treatments

and the accrued benefit cost for Gaz Métro-QDA. This difference is recorded as deferred charges.

9. SEGMENT INFORMATION

During the first quarter of fiscal 2013, the Partnership modified its financial reporting structure for segment disclosures given the sale of certain companies and the development of important wind power projects. Created for this new structure was the Energy Production segment, which had previously been included in the Corporate Affairs and Other segment. The Partnership also combined the Storage segment with the Energy Services and Other segment to create a single segment named Energy Services, Storage and Other. The figures for the three-month and nine-month periods ended June 30, 2012 have been reclassified to present financial information that reflects the new business segments, which are as follows:

Energy Distribution: This segment encompasses Gaz Métro-QDA’s activities and the natural gas and electricity

distribution activities in Vermont (Vermont Gas Systems, Inc. (VGS) and GMP). These activities are subject to rate regulation by regulatory agencies in Quebec and Vermont.

Natural Gas Transportation: This segment reflects the results from Gaz Métro’s interests in three natural gas transportation companies, i.e., Trans Québec & Maritimes Pipeline Inc., Champion Pipe Line Corporation Limited and Portland Natural Gas Transmission System.

Energy Production: This segment encompasses the non-regulated energy production activities related to the wind power projects currently under construction on the private lands of Seigneurie de Beaupré.

Energy Services, Storage and Other: This segment combines Intragaz Group’s (Intragaz) underground natural gas

storage activities in Quebec and all of the Partnership’s other non-regulated commercial activities, in particular those related to the sale of natural gas as fuel for transportation as well as the sale, leasing and maintenance of natural gas appliances.

Corporate Affairs: This segment encompasses all of the Partnership’s other activities that are not directly attributable to the other segments as well as intersegment eliminations.




71

3 months ended June 30, 2013

Energy Distribution Natural Gas

Transportation Energy

Production

Energy Services,

Storage and Other

Corporate Affairs Total

Gaz Métro-QDA

VGS and GMP Total

Customer revenues $ 237,997 $ 180,536 $ 418,533 $ 9,415 $ - $ 9,503 $ 18 $ 437,469

Intersegment revenues 532 - 532 383 - 3,085 (4,000) -

Total revenues 238,529 180,536 419,065 9,798 - 12,588 (3,982) 437,469

Direct costs 127,077 110,522 237,599 - - 4,718 198 242,515

Intersegment direct costs 3,511 - 3,511 - - 479 (3,990) -

Total direct costs 130,588 110,522 241,110 - - 5,197 (3,792) 242,515

Gross margin 107,941 70,014 177,955 9,798 - 7,391 (190) 194,954

Operating and maintenance expenses 67,675 41,381 109,056 2,446 465 5,217 2,131 119,315

EBITA (a) 40,266 28,633 68,899 7,352 (465) 2,174 (2,321) 75,639

Amortization 30,871 16,778 47,649 2,909 - 1,397 - 51,955

Interest on long- term debt 15,512 14,674 30,186 2,908 - 1,259 (2,483) 31,870

Financial and other expenses (614) (790) (1,404) (1,386) 771 (917) 2,483 (453)

Share in earnings of entities subject to significant influence - (13,675) (13,675) (373) - - - (14,048)

Income (loss) before income taxes (5,503)

11,646

6,143 3,294 (1,236) 435 (2,321) 6,315

Income taxes - 3,747 3,747 665 (157) 267 (29) 4,493

Net income (loss) $ (5,503) $ 7,899 $ 2,396 $ 2,629 $ (1,079) $ 168 $ (2,292) $ 1,822


Non-controlling interests $ - $ - $ - $ - $ (607) $ - $ - $ (607)

Partners $ (5,503) $ 7,899 $ 2,396 $ 2,629 $ (472) $ 168 $ (2,292) $ 2,429

(a) EBITA is a non-GAAP financial measure. The Partnership defines it as income or loss before amortization, interest on long-term debt, financial and other expenses, share in earnings of entities subject to significant influence and income taxes.




72




Production

Energy Services,

Storage and Other


Gaz Métro-QDA

VGS and GMP

Total

Customer revenues $ 1,197,441 $ 580,275 $ 1,777,716 $ 28,934 $ - $ 35,558 $ 48 $ 1,842,256

Intersegment revenues 2,636 - 2,636 1,358 - 10,350 (14,344) -

Total revenues 1,200,077 580,275 1,780,352 30,292 - 45,908 (14,296) 1,842,256

Direct costs 708,983 351,663 1,060,646 - - 16,271 542 1,077,459

Intersegment direct costs 11,628 - 11,628 - - 2,610 (14,238) -

Total direct costs 720,611 351,663 1,072,274 - - 18,881 (13,696) 1,077,459

Gross margin 479,466 228,612 708,078 30,292 - 27,027 (600) 764,797

Operating and maintenance expenses 202,253 125,021 327,274 7,801 1,243 15,471 4,826 356,615

EBITA (a) 277,213 103,591 380,804 22,491 (1,243) 11,556 (5,426) 408,182

Amortization 91,926 44,798 136,724 8,547 - 4,883 - 150,154

Interest on long- term debt 47,244 42,719 89,963 8,647 - 4,059 (7,446) 95,223

Financial and other expenses (958) (1,974) (2,932) (4,181) 1,018 (2,983) 7,431 (1,647)

Share in earnings of entities subject to significant influence - (37,932) (37,932) (9,778) - - - (47,710)

Net gain on disposal of an interest in a joint venture - - - - - (14,749) - (14,749)

Income (loss) before income taxes 139,001 55,980 194,981 19,256 (2,261) 20,346 (5,411) 226,911

Income taxes - 20,756 20,756 6,194 (445) 859 (70) 27,294

Net income (loss) $ 139,001 $ 35,224 $ 174,225 $ 13,062 $ (1,816) $ 19,487 $ (5,341) $ 199,617


Non-controlling interests $ - $ - $ - $ - $ (1,104) $ - $ - $ (1,104)

Partners $ 139,001 $ 35,224 $ 174,225 $ 13,062 $ (712) $ 19,487 $ (5,341) $ 200,721

Interests in entities subject to significant influence $ - $ 372,330 $ 372,330 $ 90,866 $ - $ - $ - $ 463,196

Assets $ 2,280,203 $ 2,372,381 $ 4,652,584 $ 319,380 $ 285,082 $ 170,657 $ 3,510 $ 5,431,213

(a) EBITA is a non-GAAP financial measure. The Partnership defines it as income or loss before amortization, interest on long-term debt, financial and other expenses, share in earnings of entities subject to significant influence, net gain on the disposal of an interest in a joint venture and income taxes.




73




Production

Energy Services,

Storage and Other


Gaz Métro-QDA

VGS, GMP

and CVPS (a)

Total

Customer revenues $ 231,062 $ 80,039 $ 311,101 $ 10,093 $ - $ 13,102 $ 14 $ 334,310

Intersegment revenues 689 - 689 334 - 3,612 (4,635) -

Total revenues 231,751 80,039 311,790 10,427 - 16,714 (4,621) 334,310

Direct costs 119,629 52,868 172,497 - - 4,942 244 177,683

Intersegment direct costs 3,961 - 3,961 - - 724 (4,685) -


Gross margin 108,161 27,171 135,332 10,427 - 11,048 (180) 156,627

Operating and maintenance expenses 62,049 26,077 88,126 2,169 268 6,057 519 97,139

EBITA (b) 46,112 1,094 47,206 8,258 (268) 4,991 (699) 59,488

Amortization 27,126 6,497 33,623 2,770 - 2,304 - 38,697

Interest on long- term debt 16,358 7,210 23,568 1,621 - 1,101 - 26,290

Financial and other expenses (265) 1,263 998 184 - (63) (1) 1,118

Share in (earnings) losses of entities subject to significant influence - (2,153) (2,153) 500 - - - (1,653)

Income (loss) before income taxes 2,893

(11,723)

(8,830) 3,183 (268) 1,649 (698) (4,964)

Income taxes - (2,407) (2,407) (226) 135 - (533) (3,031)

Net income (loss) $ 2,893 $ (9,316) $ (6,423) $ 3,409 $ (403) $ 1,649 $ (165) $ (1,933)


Non-controlling interests $ - $ - $ - $ - $ (132) $ - $ - $ (132)

Partners $ 2,893 $ (9,316) $ (6,423) $ 3,409 $ (271) $ 1,649 $ (165) $ (1,801)

(a) On October 1, 2012, CVPS combined its operations with those of GMP. For additional information, refer to Note 6. (b) EBITA is a non-GAAP financial measure. The Partnership defines it as income or loss before amortization, interest on long-term debt, financial and

other expenses, share in earnings of entities subject to significant influence and income taxes.




74




Production

Energy Services,

Storage and Other


Gaz Métro-QDA

VGS, GMP and CVPS (a)

Total

Customer revenues $ 1,193,922 $ 281,364 $ 1,475,286 $ 30,721 $ - $ 43,870 $ 40 $ 1,549,917

Intersegment revenues 2,575 - 2,575 1,080 - 10,821 (14,476) -

Total revenues 1,196,497 281,364 1,477,861 31,801 - 54,691 (14,436) 1,549,917

Direct costs 732,997 185,695 918,692 - - 17,072 580 936,344

Intersegment direct costs 11,785 - 11,785 - - 2,669 (14,454) -


Gross margin 451,715 95,669 547,384 31,801 - 34,950 (562) 613,573

Operating and maintenance expenses 180,149 56,529 236,678 7,289 848 18,346 3,525 266,686

EBITA (b) 271,566 39,140 310,706 24,512 (848) 16,604 (4,087) 346,887

Amortization 82,210 19,069 101,279 8,259 - 6,780 - 116,318

Interest on long- term debt 50,609 17,122 67,731 5,209 1,095 3,528 - 77,563

Financial and other expenses (271) 2,896 2,625 606 127 (81) (1) 3,276

Share in earnings of entities subject to significant influence - (12,822) (12,822) (4,382) - - - (17,204)

Income (loss) before income taxes 139,018 12,875 151,893 14,820 (2,070) 6,377 (4,086) 166,934

Income taxes - 8,364 8,364 1,845 (139) - (1,449) 8,621

Net income (loss) $ 139,018 $ 4,511 $ 143,529 $ 12,975 $ (1,931) $ 6,377 $ (2,637) $ 158,313


Non-controlling interests $ - $ - $ - $ - $ (1,013) $ - $ - $ (1,013)

Partners $ 139,018 $ 4,511 $ 143,529 $ 12,975 $ (918) $ 6,377 $ (2,637) $ 159,326

Interests in entities subject to significant influence $ - $ 307,912 $ 307,912 $ 78,376 $ - $ - $ - $ 386,288

Assets $ 2,268,579 $ 2,117,576 $ 4,386,155 $ 283,359 $ 115,772 $ 217,391 $ (3,175) $ 4,999,502

(a) On October 1, 2012, CVPS combined its operations with those of GMP. For additional information, refer to Note 6. (b) EBITA is a non-GAAP financial measure. The Partnership defines it as income or loss before amortization, interest on long-term debt, financial and

other expenses, share in earnings of entities subject to significant influence and income taxes.




75

10. RELATED PARTY TRANSACTIONS


During the third quarter of fiscal 2013, the Partnership incurred natural gas storage costs totalling $4,813,000 ($5,698,000 in fiscal 2012) with Intragaz, one of its joint ventures held in partnership with GDF Québec Inc. and $16,265,000 for the first nine months of fiscal 2013 ($17,069,000 in fiscal 2012). The Partnership’s share in Intragaz’s revenues, which is eliminated upon proportionate consolidation, was $2,888,000 during the third quarter of fiscal 2013 ($3,418,000 in fiscal 2012) and $9,759,000 for the first nine months of fiscal 2013 ($10,241,000 in fiscal 2012). The non-eliminated portion of these natural gas storage costs is presented as direct costs in the consolidated statement of income.

Transco, an entity subject to significant influence, provided electricity transmission services to GMP totalling $6,800,000 in the third quarter of fiscal 2013 ($9,494,000 in fiscal 2012) and $15,068,000 in the first nine months of fiscal 2013 ($20,096,000 in fiscal 2012), presented as direct costs in the consolidated statement of income.

As per the administration and management support agreement entered into with Valener, Valener charged Gaz Métro an amount of $310,000 for the third quarter of fiscal 2013 ($396,000 in fiscal 2012) and of $1,562,000 for the first nine months of fiscal 2013 ($1,411,000 in fiscal 2012) for administration and management support services solely in respect of Valener’s interest in Gaz Métro and related public company matters. These expenses are presented as operating and maintenance expenses in the consolidated statement of income.

11. COMMITMENTS

Wind power project 4

In May 2013, Seigneurie de Beaupré Wind Farm 4 General Partnership (Wind Farm 4) was created and the new entity entered into a contract for the preparation of work areas and the construction of roads, foundations and power grid for wind power project 4. Disbursements under this contract are being made based on the stage of completion of the work. As at June 30, 2013, Beaupré Éole 4 General Partnership’s share in the commitments of Wind Farm 4 under this contract stood at $13,940,000.

12. SUBSEQUENT EVENT

Declaration of a distribution

On August 8, 2013, the board of directors of GMi, acting in its capacity as General Partner of Gaz Métro, declared a quarterly distribution of $41,628,000, payable to its Partners on October 1, 2013.

13. COMPARATIVE FIGURES

Certain prior-year comparative figures have been reclassified to conform to the current year’s presentation.

76

SHAREHOLDER INFORMATION

MARKET INFORMATION FOR VALENER

Common shares

Common shares are listed on the Toronto Stock Exchange under the “VNR” trading symbol. Change in common share prices over the last nine months (from October 1, 2012 to June 30, 2013): high: $16.47; low:

$15.68. 37.7 million common shares outstanding with a fair value of $603.8 million as at June 30, 2013.

DIVIDEND REINVESTMENT PLAN

Valener offers shareholders a Dividend Reinvestment Plan (DRIP) pursuant to which they may elect to reinvest their cash dividends in additional Valener common shares. Subject to limited exceptions, only residents of Canada may enrol in the plan. The DRIP enables shareholders to increase their investment in Valener common shares thanks to the conveniences and attractive cost savings it offers: dividends are reinvested automatically; share price discount of up to 5%; no brokerage and administrative fees; and plan administered for shareholders. The board of directors approved the reinvestment of dividends into additional common shares, for the dividend payable on October 15, 2013, by way of an issuance of new common shares by Valener, at a 5% discount compared to the weighted average price for the five trading days immediately preceding the dividend payment date. The process of enrolling in the DRIP is different for registered shareholders and non-registered shareholders (also called beneficial shareholders). A person is a registered shareholder if his/her name appears on the physical share certificate representing his/her shares. An eligible registered shareholder may enrol in the DRIP by contacting the transfer agent, Canadian Stock Transfer Company Inc., in its capacity as administrative agent for CIBC Mellon Trust Company, at 1-800-387-0825 and completing the necessary enrolment form. A non-registered shareholder is a person whose shares are held on his/her behalf by a securities broker, dealer, bank, trust company or other financial institution. Eligible non-registered shareholders who wish to enrol in the plan must contact the intermediary that holds their shares. The complete text of the DRIP is available in the “Investors” section of Valener’s website at www.valener.com.

TRANSFER AGENT AND REGISTRAR

Canadian Stock Transfer Company Inc. (CST), administrative agent for CIBC Mellon Trust Company Telephone: 1-800-387-0825 Email: [email protected]

PUBLICATION OF RESULTS

Following approval by the board of directors, the quarterly and annual results will be published around the following dates:

4

th quarter of fiscal 2013: November 27, 2013

1st quarter of fiscal 2014: February 7, 2014

2nd

quarter of fiscal 2014: May 14, 2014 3

rd quarter of fiscal 2014: August 8, 2014

4th

quarter of fiscal 2014: November 27, 2014

INVESTOR RELATIONS

1717 Du Havre, Montreal, Quebec H2K 2X3 Telephone: 514-598-3039 Fax: 514-521-8168 Email: [email protected]

Quarterly and annual reports as well as press releases are available in the “Investors” section of the Company’s website (www.valener.com/investisseurs) and on the website (www.sedar.com) managed by the Canadian Securities Administrators.

http://www.valener.com/

mailto:[email protected]

mailto:[email protected]

consolidated financial report for the third quarter … · highlights valener inc. 3 months ended...

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