consolidated financial report for the first quarter of ... · consolidated financial report for the...

Consolidated financial report for the first quarter of fiscal 2015

ended December 31, 2014

HIGHLIGHTS

VALENER INC. 3 months ended December 31

(in millions of dollars, except for share data, which is in dollars, and unless otherwise indicated) 2014 2013

(unaudited) (unaudited)

CONSOLIDATED INCOME AND CASH FLOWS

Share in the net income of Gaz Métro $ 21.1 $ 21.7

Net income attributable to common shareholders $ 15.3 $ 15.8

Basic and diluted net income per common share $ 0.40 $ 0.42

Cash flows related to operating activities $ 11.0 $ 7.8

Normalized operating cash flows per common share (1) $ 0.26 $ 0.18

Dividends declared per common share $ 0.25 $ 0.25

Basic and diluted weighted average number of common shares outstanding (in millions) 38.1 37.8

OTHER INFORMATION

Market prices of the common shares on the TSX:

High $ 16.38 $ 15.77

Low $ 15.21 $ 15.17 Close $ 16.02 $ 15.23

CONSOLIDATED BALANCE SHEETS December 31, 2014 September 30, 2014


Total assets $ 831.1 $ 815.7

Total debt $ 69.8 $ 66.8

Shareholders’ equity $ 725.3 $ 713.5

GAZ MÉTRO LIMITED PARTNERSHIP 3 months ended December 31

(in millions of dollars, except for unit data, which is in dollars, and unless otherwise indicated) 2014 2013 (3)


CONSOLIDATED INCOME AND CASH FLOWS

Revenues $ 696.0 $ 675.5

Gross margin $ 294.0 $ 277.9

Net income attributable to Partners $ 72.6 $ 75.8

Cash flows related to operating activities $ 104.0 $ 62.2

Purchases of property, plant and equipment $ 142.6 $ 154.8

Basic and diluted net income per unit attributable to Partners $ 0.48 $ 0.50

Distributions declared per unit to Partners $ 0.28 $ 0.28

Weighted average number of units outstanding (in millions) 151.8 151.8

OTHER INFORMATION

Credit ratings

First mortgage bonds (S&P/DBRS) (2) A+/A A+/A

Commercial paper (S&P/DBRS) (2) A-1(mid)/R-1(low) A-1(mid)/R-1(low)

CONSOLIDATED BALANCE SHEETS December 31, 2014 September 30, 2014


Total assets $ 6,452.8 $ 6,144.2

Total debt $ 3,352.3 $ 3,167.8

Partners’ equity attributable to Partners $ 1,486.2 $ 1,441.6

Partners’ equity per unit attributable to Partners $ 9.79 $ 9.50

(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. (2) Through its General Partner, GMi. (3) Certain figures from the period ended December 31, 2013 have been adjusted to reflect the presentation adopted for the current fiscal year.

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 Farms in Quebec ........................................................................................................................................................................................... 2

Glossary ............................................................................................................................................................................................................... 36

VALENER INC. GAZ MÉTRO LIMITED PARTNERSHIP

A) Overview of the Company and Other ............................................. 4 J) Overview of the Partnership and Other ........................................ 12

B) Consolidated Financial Performance Summary .............................. 5 K) Conditions in the Energy Market and for Gaz Métro ..................... 13

C) Consolidated Financial Position ..................................................... 6 L) Consolidated Financial Performance Summary ........................... 14

D) Cash and Capital Management ...................................................... 6 M) Segment Results ......................................................................... 16

E) Recent Accounting Changes ......................................................... 9 N) Consolidated Financial Position ................................................... 27

F) Financial Instruments ................................................................... 10 O) Cash and Capital Management ................................................... 28

G) Additional Information .................................................................. 10 P) Recent Accounting Changes ....................................................... 32

H) Quarterly Results ......................................................................... 10 Q) Financial Instruments .................................................................. 33

I) Subsequent Events ...................................................................... 11 R) Additional Information .................................................................. 33

S) Quarterly Results ......................................................................... 34

T) Subsequent Events ..................................................................... 35

FINANCIAL REPORTS

THREE-MONTH PERIOD ENDED DECEMBER 31, 2014

VALENER INC. GAZ MÉTRO LIMITED PARTNERSHIP

Interim Consolidated Financial Statements ......................................... 37 Interim Consolidated Financial Statements ........................................ 45

Notes to the Interim Consolidated Financial Statements ..................... 42 Notes to the Interim Consolidated Financial Statements .................... 50


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VALENER INC. AND GAZ MÉTRO LIMITED PARTNERSHIP

Valener owns a 29% interest in Gaz Métro, whose core business operations are natural gas distribution in Quebec and Vermont as well as electricity distribution in Vermont. The Company also owns indirect interests in wind farms through its wholly owned subsidiaries Valener Éole and Valener Éole 4. These two subsidiaries respectively own an interest of 49% in Beaupré Éole and Beaupré Éole 4, which, respectively, own an interest of 50% in Wind Farms 2 and 3 and Wind Farm 4, whose core business operations are to develop, own and operate wind farms. 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 developments that have had significant impacts on the financial performance of the Company and Gaz Métro for the first quarter ended December 31, 2014. 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 periods ended December 31, 2014 and 2013, with Valener’s MD&A as at September 30, 2014, and with the annual audited consolidated financial statements of Valener and of Gaz Métro for the fiscal years ended September 30, 2014 and 2013. 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”, “is expected”, “budgeted”, “scheduled”, “estimated”, “forecasts”, “intends”, “anticipates”, “believes”, or by statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur, or be achieved and other variants and similar expressions as well as the negative or conjugated forms, 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, including but not limited to, the production and commercialization of LNG and CNG, (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, including the impact of the sharp drop in global oil prices, (v) anticipated distribution payments by Wind Farms 2 and 3 and Wind Farm 4, (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, (x) the post-merger integration of CVPS’s operations into GMP’s operations and the resulting synergies, (xi) VGS’s system development projects, and (xii) Gaz Métro’s anticipated distribution payments and Valener’s anticipated dividend payments and its related growth. 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 historical results or current expectations, as described in the forward-looking statements, including but not limited to the general nature of the aforementioned: terms of decisions rendered by regulatory agencies, uncertainty that approvals will be obtained from regulatory agencies and interested parties to carry out activities in Gaz Métro’s various business segments and the socio-economic risks associated with such activity, the competitiveness of natural gas in relation to other energy sources in the context of falling global oil prices, the reliability or costs of natural gas supply and electricity supply, the integrity of the natural gas and electricity distribution systems, the evolution and profitability of Wind Farms 2 and 3 and Wind Farm 4 and other development projects, the ability for Valener to generate sufficient cash to support its anticipated target annual dividend growth rate on its common share, the ability to complete attractive acquisitions and the related financing and integration aspects, the ability to complete new development projects, the ability to secure future financing, general economic conditions, exchange rate and interest rate fluctuations, 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 year ended September 30, 2014 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 the supply of natural gas and electricity will be maintained or will be available at competitive costs; that no significant event occurring outside the ordinary


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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 Wind Farms 2 and 3 and Wind Farm 4 will be able to make distribution payments to their Partners; that Valener will be able to generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares; that GMP will be able to quickly and effectively integrate CVPS’s operations; that liquidity needs for Gaz Métro’s development projects will be obtained through a combination of operating cash flows, borrowings on credit facilities, capital injections from Partners, and issuances of debt securities; and that the subsidiaries will obtain the required authorizations and funds needed to finance their development projects; in addition to the other assumptions described in 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. All forward-looking statements in this MD&A are qualified by these cautionary statements. 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 first quarter ended December 31, 2014, 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. Their evaluation uncovered no such changes.

WIND FARMS IN QUEBEC

Beaupré Éole and Boralex inc. (Boralex) are equal-share partners in Wind Farms 2 and 3, two wind farms with an installed capacity of 272 megawatts that began commercial operations in late November and early December 2013, respectively. Beaupré Éole 4 and Boralex are also equal-share partners in Wind Farm 4, which has an installed capacity of 68 megawatts. In this regard, the Wind Farm 4 management committee is proud to confirm that its wind farm began commercial operations on December 1, 2014. This total investment of approximately $190 million (including financing costs) was completed on schedule and within budget.

The following table presents an overview of the performance of the wind farms during the first quarter of fiscal 2015.

(1) Includes a $34.3 million refund related to an amount of taxes receivable incurred primarily in fiscal 2013.

The increase in the wind power production of Wind Farms 2 and 3 and Wind Farm 4 is mostly attributable to the fact that wind parks 2 and 3 were operational throughout the entire first quarter of fiscal 2015 whereas they had begun commercial operations in November and December 2013, respectively, and because wind park 4 began its commercial operations in December 2014.

3 months ended December 31 2014 2013 Change

WIND FARMS 2 AND 3

Actual output (MWh) 234,655 44,161 190,494

Average price ($/MWh) 107.90 107.85 0.05

Cash flows related to operating activities (in

millions of $) 18.5 27.6 (1) (9.1)

WIND FARM 4

Actual output (MWh) 15,627 - 15,627

Average price ($/MWh) 102.22 - 102.22


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The commercial operation of these wind farms is going as planned, and the favourable winds experienced, particularly in October and November 2014, have helped Wind Farms 2 and 3 to generate operating cash flows of $18.5 million. A portion of these cash flows and of those accumulated last year, are expected to be distributed to the partners, including Valener and Gaz Métro, during the second quarter of fiscal 2015.

According to the terms of the 20-year electricity supply contracts with Hydro-Québec, the average electricity selling price for the first quarter of fiscal 2015 was set at $107.90 per MWh ($107.85 per MWh for the first quarter of fiscal 2014) for Wind Farms 2 and 3, and at $102.22 per MWh for Wind Farm 4. These prices will be indexed over the term of the contracts on January 1 of each year.

As mentioned in Valener’s MD&A for the year ended September 30, 2014, Gaz Métro and its partners participated in a call for tenders issued by Hydro-Québec, following the adoption of a decree by the Government of Quebec, for the supply of power

produced by wind turbines with a total installed capacity of 450 megawatts. The results of this call for tenders were announced in December 2014, and the bids submitted by Gaz Métro and its partners were not selected by Hydro-Québec.

Valener and Gaz Métro are staying apprised of potential opportunities to invest in other wind power projects.


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VALENER INC.

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, 2014.

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, 2014, 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 risk factors that could affect the Company’s activities, refer to Valener’s MD&A for the fiscal year ended September 30, 2014, 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 considered useful for analyzing Valener’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 measures used by other issuers and should therefore be considered only as complementary information.


Consolidated net income (loss) attributable to common shareholders, excluding the non-recurring items of Valener and 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 non-recurring items of Valener and 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. This measure is used by the management of the manager to measure Valener’s profitability on a recurring basis.

Consolidated net income (loss) attributable to common shareholders, excluding the non-recurring items of Valener and 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 non-recurring items of Valener and the share in the non-recurring items of Gaz Métro, net of income taxes, divided by the basic and diluted weighted average number of common shares outstanding of Valener. This measure is used by the management of the manager to measure Valener’s profitability on a recurring basis.

Debt / total capitalization ratio (2) The total amount of long-term debt, net of financing costs, divided by capitalization. Capitalization is equal to the total amount of long-term debt, net of financing costs, and shareholders’ equity. The management of the manager uses this ratio to measure Valener’s accessibility to a source of financing for purposes of participating in Gaz Métro’s development and seizing future growth opportunities.

Normalized operating cash flows (2) Normalized operating cash flows corresponds to cash flows related to operating activities less dividends paid to preferred shareholders. This measure is used by the management of the manager to evaluate the Company’s financial performance and ability to pay dividends to common shareholders.

Normalized operating cash flows per common share (2)

Normalized operating cash flows per common share corresponds to normalized operating cash flows divided by the weighted average number of common shares outstanding of Valener. This measure is used by the management of the manager to evaluate the Company’s financial performance and ability to pay dividends to common shareholders.

(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 M) SEGMENT RESULTS of Gaz Métro provides a quantitative reconciliation of the measure established by Gaz Métro with the GAAP-compliant measure.

(2) Section D) CASH AND CAPITAL MANAGEMENT provides a quantitative reconciliation of these measures with GAAP-compliant measures.

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


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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 the Company’s net income or net loss attributable to common shareholders, as defined in Canadian GAAP.

B) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY

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

3 months ended December 31

(in millions of dollars, unless otherwise indicated) 2014 2013

Consolidated net income 16.4 16.9 Non-recurring items of Valener (1) 1.5 - Share in the non-recurring items of Gaz Métro - - Income taxes on the non-recurring items of Valener and on the share in the non-

recurring items of Gaz Métro (0.4) -

Consolidated net income, excluding the non-recurring items of Valener and the share in the non-recurring items of Gaz Métro, net of income taxes 17.5 16.9

Less: Cumulative dividends on Series A preferred shares 1.1 1.1

Consolidated net income attributable to common shareholders, excluding the non-recurring items of Valener and the share in the non-recurring items of Gaz Métro, net of income taxes (2) 16.4 15.8

Basic and diluted weighted average number of common shares outstanding (in millions of common shares) 38.1 37.8

Consolidated net income attributable to common shareholders, excluding the non-recurring items of Valener and the share in the non-recurring items of Gaz Métro, net of income taxes, per common share (in $) (2) 0.43 0.42

(1) Unrealized loss related to swaps, entered into in October 2014, resulting from a decrease in interest rates. It should be noted that hedge accounting cannot be applied to these financial instruments, as described in section F) FINANCIAL INSTRUMENTS of this MD&A.

(2) 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) 2014 2013 Change

Share in the net income of Gaz Métro 21.1 21.7 (0.6) Share in the net income (loss) of Beaupré Éole 1.2 (0.2) 1.4 Net income attributable to common shareholders 15.3 15.8 (0.5) Basic and diluted net income per common share (in $) 0.40 0.42 (0.02) Dividends declared per common share (in $) 0.25 0.25 - Dividends declared per preferred share (in $) 0.27 0.27 - Cash flows related to operating activities 11.0 7.8 3.2 Normalized operating cash flows per common share (in $) (1) 0.26 0.18 0.08 Interests in entities subject to significant influence 813.9 800.7 13.2 Total assets 831.1 819.6 11.5 Total debt 69.8 71.7 (1.9) Debt / total capitalization ratio (in %) (1) 8.8 9.1 (0.3) (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.

ANALYSIS OF RESULTS FOR THE FIRST QUARTER OF FISCAL 2015

For the first quarter of fiscal 2015, net income attributable to common shareholders decreased by $0.5 million year over year, mainly due to:

a $1.5 million loss (before income taxes) related to swaps, entered into in October 2014, resulting from a decrease in interest rates. It should be noted that hedge accounting cannot be applied to these financial instruments, as described in section F) FINANCIAL INSTRUMENTS of this MD&A; and

a $0.6 million decrease in the share in the net income of Gaz Métro, which represents 29% of Gaz Métro’s net income, as described in section L) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY of Gaz Métro;

partly offset by:

a $1.4 million increase in the share in the net income of Beaupré Éole, mainly due to the fact that wind parks 2 and 3 were operational throughout the entire first quarter of fiscal 2015 whereas they had begun commercial operations only


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in November and December 2013, respectively, and given the favourable winds experienced particularly in October and November 2014.

C) CONSOLIDATED FINANCIAL POSITION

The table below compares the main consolidated balance sheet amounts as at December 31, 2014 with those of December 31, 2013.

Balance sheet items (in millions of dollars) December 31

Increase (Decrease) Explanation

2014 2013

Distributions receivable from Gaz Métro

12.3 12.3 - Comparable

Interests in entities subject to significant influence

813.9 800.7 13.2 Increase comes mainly from (i) the shares in the net income and other comprehensive income of Gaz Métro, (ii) investments of $2.1 million and $3.6 million in Beaupré Éole and Beaupré Éole 4, respectively, partly mitigated by (iii) the distributions from Gaz Métro and (iv) the share in other comprehensive income of Beaupré Éole

Long-term debt 69.8 71.7 (1.9) Decrease attributable to changes in the credit facility used for the general needs of the Company

Net future income tax liability, including current portion

22.5 18.8 3.7 Increase comes mainly from (i) a change in the temporary differences of Wind Farms 2 and 3, partly mitigated by (ii) the net tax impact of changes in derivative financial instruments of entities subject to significant influence and (iii) changes in the temporary differences of Gaz Métro

Derivative financial instruments liability

1.5 - 1.5 Increase comes from the effect of the decrease in interest rates on the new swaps entered into during the first quarter of fiscal 2015

Share capital 738.4 733.9 4.5 Increase comes from the common shares issued under the DRIP

Accumulated other comprehensive income (loss)

(0.4) (10.5) 10.1 Change comes mainly from the shares in the other comprehensive income of Beaupré Éole and Gaz Métro

D) CASH AND CAPITAL MANAGEMENT

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

HIGHLIGHTS FOR THE FIRST QUARTER OF FISCAL 2015

Distributions totalling $12.3 million were received from Gaz Métro;

Dividends totalling $9.5 million were paid in cash and shares to common shareholders; and

$1.1 million in dividends was paid in cash to preferred shareholders.

CASH FLOW SUMMARY

For the 3 months ended December 31

(in millions of dollars) 2014 2013 Change

Cash flows related to operating activities a $ 11.0 $ 7.8 $ 3.2 Cash flows related to investing activities b $ (3.7) $ (1.7) $ (2.0) Cash flows related to financing activities c $ (6.4) $ (5.5) $ (0.9)


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a) Cash flows related to operating activities

Cash flows related to operating activities increased by $3.2 million, due to, among other things:

a tax advantage arising from an accelerated amortization of wind farm assets; and

the effect of the distributions received on the units subscribed by Valener, in proportion to its interest in Gaz Métro, during the fourth quarter of fiscal 2013.

b) Cash flows related to investing activities

The $2.0 million change in cash flows related to investing activities is detailed in the following table:

Purchases of units in entities subject to significant influence and other

For the 3 months ended December 31 2014 2013 Change

Beaupré Éole Amount (in millions of dollars) $ 0.1 $ 0.2 $ (0.1) Number of units 72,095 194,591 Beaupré Éole 4 Amount (in millions of dollars) $ 3.6 $ 1.4 $ 2.2 Number of units 3,616,635 1,362,607 Other Amount (in millions of dollars) $ - $ 0.1 $ (0.1)

Total $ 3.7 $ 1.7 $ 2.0

c) Cash flows related to financing activities

The $0.9 million change in cash flows related to financing activities is detailed in the following table:



Net issuances of the credit facility $ 3.0 $ 4.0 $ (1.0) Dividends to common shareholders (8.3) (8.4) 0.1 Dividends to preferred shareholders (1.1) (1.1) -

Total $ (6.4) $ (5.5) $ (0.9)

Net issuances of the credit facility

The $3.0 million in net issuances during the first quarter of fiscal 2015 were mainly due to the fact that Valener had to borrow on its credit facility to finance its subscriptions of Beaupré Éole 4 units in an amount of $3.6 million.

Dividends to common shareholders

Cash dividends paid to common shareholders decreased by $0.1 million as there was a larger contribution to the DRIP compared to the same period last year.

The following table shows the dividends paid to common shareholders in the first quarter of fiscal 2015:

Dividend payment date Dividend declaration date Dividend amount per common share (in $)

Cash amount

(in millions of $)

October 15, 2014 August 8, 2014 0.25 8.3

On January 15, 2015, Valener paid a dividend of $0.25 per common share to common shareholders of record at the close of business on December 31, 2014.

Given the strong performance of wind parks 2 and 3 since they began commercial operations in November and December 2013, the commercial start-up of wind park 4 in December 2014, and the expected distributions from these assets in fiscal 2015 and beyond, the board of directors approved, on February 12, 2015, a 4.0% increase in its dividend and set an annual dividend growth target of 4% for the next three fiscal years. As such, on February 12, 2015, the board of directors declared a quarterly dividend of $0.26 per common share, payable on April 15, 2015 to common shareholders of record at the close of business on March 31, 2015, corresponding to an increase in the annualized dividend from $1.00 to $1.04 per common share, or 4%.

4% INCREASE IN THE DIVIDEND AND 4%ANNUAL GROWTH TARGET FOR

VALENER’S DIVIDEND FOR THE NEXT

THREE FISCAL YEARS: A RESULT OF THE

PERFORMANCE OF THE WIND FARMS


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Dividends to preferred shareholders

The following table shows the dividends paid to preferred shareholders in the first quarter of fiscal 2015:

Dividend payment date

Dividend declaration date

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

Cash amount (in millions of $)

October 15, 2014 August 8, 2014 July 16 to October 15, 2014 0.271875 1.1

On February 12, 2015, the board of directors also declared a dividend of $0.271875 per Series A preferred share for the period of January 16, 2015 to April 15, 2015, payable on April 15, 2015 to the preferred shareholders of record at the close of business on April 9, 2015.

Share capital

As at December 31, 2014, Valener’s share capital consisted of:

38,119,603 paid and issued common shares totalling $640.9 million, including the 82,317 common shares issued for an amount of $1.2 million under the DRIP since the beginning of fiscal 2015; and

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

CAPITAL STRUCTURE AND DEBT RATIO

(in millions of dollars, unless otherwise indicated) December 31, 2014 September 30, 2014

Long-term debt, net of financing costs (1) $ 69.8 $ 66.8 Shareholders’ equity (2) 725.3 713.5

Total capitalization $ 795.1 $ 780.3 Debt / total capitalization ratio (3) 8.8% 8.6% (1) The change in long-term debt, net of financing costs, is explained above in heading c) Cash Flows Related to Financing Activities. (2) For additional information on the composition of shareholders’ equity, refer to the consolidated statements of shareholders’ equity of the

Company’s interim consolidated financial statements for the three-month periods ended December 31, 2014 and 2013. (3) 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.

The debt / total capitalization ratio remains low, enabling Valener to turn to debt financing in order to participate in Gaz Métro’s development and seize future growth opportunities.

Credit facility and financing outlook

Valener has a guaranteed credit facility with a maximum authorized amount of $200.0 million that expires in October 2016. As at December 31, 2014, 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 December 31, 2014 was $129.2 million.

Over the next three quarters of fiscal 2015, the Company expects to generate the cash required to meet its general needs, which will consist mainly of quarterly dividend payments to common and preferred shareholders. The Company also expects to use its credit facility to finance capital contributions to its entity subject to significant influence, Gaz Métro, estimated at $35 million, which could be higher given the purchase of GHG emission allowances under the CATS Regulation. This amount will be used for Gaz Métro’s development projects and to rebalance its capital structure. Furthermore, it is expected that Wind Farms 2 and 3 will pay its first distributions to its partners during the second quarter of fiscal 2015. During the next three quarters, it is also expected that another distribution will be paid by Wind Farms 2 and 3 and possibly by Wind Farm 4, subject to certain conditions, which should raise the cash flow levels generated in fiscal 2015. Should additional cash be required, the available sources of financing are:

cash flows related to operating activities;

the unused balance of the credit facility; and

if necessary, new financings through issuances of debt, common shares or preferred shares.

The amount of financing needs during a fiscal year is subject to volatility, which is likely to be greater given, among other things:

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, including the capital required for growth and to rebalance Gaz Métro’s capital structure.


9

The Company must therefore:

remain vigilant in establishing appropriate dividend levels to common shareholders 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 eventuality.

Credit ratings

The S&P and DBRS credit ratings were as follows:

As at December 31

2014 2013

Series A preferred shares (S&P/DBRS) P-2(low)/Pfd-2(low) P-2(low)/Pfd-2(low)

NORMALIZED OPERATING CASH FLOWS PER COMMON SHARE

The following table presents the calculation of normalized operating cash flows per common share:


(in millions of dollars, unless otherwise indicated) 2014 2013

Cash flows related to operating activities $ 11.0 $ 7.8 Dividends to preferred shareholders (1.1) (1.1)

Normalized operating cash flows (1) $ 9.9 $ 6.7 Weighted average number of common shares outstanding 38.1 37.8

Normalized operating cash flows per common share (in $) (1) $ 0.26 $ 0.18 (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.

The increase in normalized operating cash flows per common share is due to the higher cash flows related to operating activities, as explained in heading a) Cash Flows Related to Operating Activities of this section. The operating cash flows were sufficient to cover the dividend payment to common shareholders, despite the fact that Wind Farms 2 and 3 has not yet started to pay distributions to its partners.

E) RECENT ACCOUNTING CHANGES

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 years ended September 30, 2014 and 2013, except for the following.

Derivative financial instruments

Derivative financial instruments classified as held-for-trading financial assets and liabilities are recognized at fair value on the consolidated balance sheet. Gains and losses arising from changes in fair value are recognized in the income of the period in which they occur. For additional information on the fair value hierarchy, refer to Note 3 of the interim consolidated financial statements for the three-month periods ended December 31, 2014 and 2013.

FUTURE ACCOUNTING CHANGE

Change in accounting framework

Valener elected 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, for fiscal 2015, Valener is presenting its consolidated financial statements in accordance with Canadian GAAP.

Valener has decided to adopt IFRS as of its 2016 fiscal year and plans to apply IFRS 14 Regulatory Deferral Accounts. Based on the status of the conversion project, the Company cannot yet quantify how the future conversion to IFRS will impact its consolidated financial statements and accompanying notes. Given the differences that exist between Canadian GAAP and IFRS, the impacts may be significant. Additional information will be disclosed as the conversion project advances.

Gaz Métro is currently assessing how IFRS application will impact its consolidated financial statements and, at the same time, Valener is assessing the impact on its own consolidated financial statements. Valener expects that IFRS adoption could lead to accounting policy changes other than those presented in section P) RECENT ACCOUNTING CHANGES in this MD&A. At this time,


10

Gaz Métro cannot say which accounting policy changes will be required or what impacts they will have upon the conversion to IFRS.

Detailed information about Gaz Métro’s IFRS conversion project is provided in section P) RECENT ACCOUNTING CHANGES in this MD&A. The detailed information on governance, the conversion plan, information systems, and internal control over financial reporting apply to both Valener’s and Gaz Métro’s IFRS conversion projects.

F) FINANCIAL INSTRUMENTS

On October 23, 2014, Valener entered into swaps for a total nominal value of $44.8 million with a mandatory early termination date of October 31, 2016 to cover the risk of interest rate fluctuations on a potential future debt issuance. Since these swaps do not meet the conditions for hedge accounting, changes in fair value are therefore recognized in income. These swaps are recognized at fair value, which is determined using the forward rates at the close of markets as at the balance sheet date. The fair value of these swaps was calculated using the discounted future cash flows method.

As at December 31, 2014, the derivative financial instruments liability increased by $1.5 million since October 23, 2014, an increase that was entirely due to the lower interest rates that led to a higher swap-related liability.

No other changes were made with respect to financial instruments during the first quarter of fiscal 2015. For additional information, refer to section G) FINANCIAL INSTRUMENTS of Valener’s MD&A for the fiscal year ended September 30, 2014 and to Note 9 of the interim consolidated financial statements for the three-month periods ended December 31, 2014 and 2013.

RISKS RELATED TO DERIVATIVE FINANCIAL INSTRUMENTS

Valener is exposed to the market risk and liquidity risk arising from these transactions. Market risk is dependent on changes in interest rates, which have an impact on the fair value of the swaps.

G) ADDITIONAL INFORMATION

SHARES OUTSTANDING

As at February 10, 2015, the number of common shares and Series A preferred shares outstanding totalled 38,198,625 and 4,000,000, respectively. Only the Company’s common shares are voting shares.

H) QUARTERLY RESULTS

As Valener owns an economic interest in Gaz Métro and indirectly in Wind Farms 2 and 3 and Wind Farm 4, its interim period operating results reflect the seasonal nature of the interim results of these economic interests. 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 and wind fluctuations influence the energy consumption levels of customers and energy production levels of the wind farms, which in turn influence Valener’s interim consolidated financial results, as shown in the table below. Historically, Valener’s revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.

Unaudited 2015 2014 2014 2014 (in millions of dollars, unless otherwise indicated) 1st 4th 3rd 2nd

Share in the net income (loss) of Gaz Métro $ 21.1 $ (8.8) $ (0.9) $ 38.4 Net income (loss) attributable to common shareholders $ 15.3 $ (6.5) $ (1.7) $ 29.1 Basic and diluted net income (loss) per common share (in $) $ 0.40 $ (0.17) $ (0.04) $ 0.77

Unaudited 2014 2013 2013 2013 (in millions of dollars, unless otherwise indicated) 1st 4th 3rd 2nd

Share in the net income (loss) of Gaz Métro $ 21.7 $ (5.9) $ 0.7 $ 33.6 Net income (loss) attributable to common shareholders $ 15.8 $ (4.2) $ (0.2) $ 24.0 Basic and diluted net income (loss) per common share (in $) $ 0.42 $ (0.11) $ (0.01) $ 0.64


11

Summary of quarterly results

Net income attributable to Valener’s common shareholders for the first quarter of fiscal 2015 totalled $15.3 million compared to $15.8 million in the first quarter of fiscal 2014. An analysis of the fiscal 2015 first-quarter results is presented in section B) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY.

Changes in Valener’s net income (loss) attributable to the common shareholders for each quarter is mainly due to its share in the changes of Gaz Métro’s net income (loss), as described in section S) QUARTERLY RESULTS of Gaz Métro, mitigated by changes in the income taxes applicable to this share in the net income (loss) of Gaz Métro, and the fact that, during fiscal 2014, Valener no longer benefited from the increase in Gaz Métro’s distributions that were otherwise payable, as had been planned during the September 2010 reorganization of Gaz Métro.

I) SUBSEQUENT EVENTS

Declaration of a dividend to common shareholders

On February 12, 2015, the board of directors declared a quarterly dividend of $0.26 per common share for the quarter ending March 31, 2015, payable on April 15, 2015 to common shareholders of record at the close of business on March 31, 2015. In the context of the dividend increase, the board of directors approved the reinvestment of dividends into additional common shares, for the dividend payable on April 15, 2015, by way of an issuance of new common shares of the Company, at a 2% discount (vs. 5% for the previous quarter), in accordance with the terms and conditions of the DRIP.

Declaration of a dividend to preferred shareholders

On February 12, 2015, the board of directors also declared a dividend of $0.271875 per Series A preferred share for the period of January 16 to April 15, 2015, payable on April 15, 2015 to the preferred shareholders of record at the close of business on April 9, 2015.


12

GAZ MÉTRO LIMITED PARTNERSHIP

J) OVERVIEW OF THE PARTNERSHIP AND OTHER

OVERVIEW OF THE PARTNERSHIP

With more than $6 billion in assets, Gaz Métro is a leading energy provider. It is the largest natural gas distribution company in Quebec, where its network of over 10,000 km of underground pipelines serves 300 municipalities and more than 195,000 customers. Gaz Métro is also present in Vermont, producing electricity and distributing electricity and natural gas to meet the needs of more than 305,000 customers. Gaz Métro is actively involved in the development and operation of innovative, promising energy projects such as the production of wind power, the use of natural gas as a transportation fuel and the development of biomethane. Gaz Métro is a major energy sector player who takes the lead in responding to the needs of its customers, regions and municipalities, local organizations, and communities while also satisfying the expectations of its Partners (GMi and Valener) 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, 2014.

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, 2014, which is available on SEDAR at www.sedar.com.

NON-GAAP FINANCIAL MEASURES AND ADDITIONAL GAAP MEASURES

The financial information has been prepared in accordance with Canadian GAAP. In management’s opinion, certain financial measures provide readers with information considered 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 financial measures used by other issuers and should therefore be considered only as complementary information.


Standardized distributable cash (deficiency) (1) (2)

It corresponds to cash flows related to operating activities less 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 be available for distributions to Partners.

Net income (loss) attributable to Partners, excluding non-recurring items (3)

It is the net income (loss) attributable to Partners, net of items that management considers non-recurring, i.e., that are unlikely to recur in the next two fiscal years or did not occur in the two fiscal years preceding the fiscal year during which they were realized. The Partnership uses this measure to assess and compare, between periods, net income or net loss generated from ongoing operations.

Debt / total capitalization ratio (1)

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. The Partnership uses this ratio to measure its accessibility to a source of financing that enables it to seize future growth opportunities.

(1) Section O) CASH AND CAPITAL MANAGEMENT provides 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. 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 it does not take into account certain factors that are specific to its operations.

(3) Section M) SEGMENT RESULTS provides a quantitative reconciliation of this measure with the GAAP-compliant measure.

To assess financial performance, management also uses another financial measure that is not one of the minimum items to be included in Canadian GAAP financial statements but that is nonetheless compliant with Canadian GAAP. As such, management considers IBIT or loss before income taxes to be a useful indicator for measuring the financial performance of the Partnership and its business segments.


13

K) CONDITIONS IN THE ENERGY MARKET AND FOR GAZ MÉTRO

NATURAL GAS IN NORTH AMERICA

Environment and competition

CATS Regulation

As indicated in Valener’s MD&A for the fiscal year ended September 30, 2014, the second CATS Regulation compliance period came into effect on January 1, 2015, replacing the Green Fund Regulation. Fuel distributors must now cover both their own GHG emissions and those of their customers that are not already subject to the CATS regulation through the carbon market. It is important to note that this consumer awareness initiative, undertaken by the Government of Quebec, is part of the government’s strategy to fight climate change and targets a 20% reduction in GHG emissions by 2020 from 1990 levels.

The coming into force of the CATS Regulation should have no significant impact on the favourable competitive position of natural gas in Quebec, since the other forms of energy, such as fuel oil, are also subject to the program. For additional information on the impacts of the CATS Regulation, refer to the Energy Distribution Segment heading of section M) SEGMENT RESULTS.

Drop in oil prices

During the first quarter of fiscal 2015, prices for petroleum products fell in Quebec and international markets. Despite this decline, natural gas remains a competitive form of energy in Quebec when compared to all other forms of energy distributed. Compared to light oil (No. 2) and electricity, natural gas remains more cost-effective in the industrial, commercial and residential markets.

In comparison to heavy oil (No. 6) used by industrial customers, the competitive position of natural gas has narrowed but remains in favor of natural gas.

Prices

As evidenced by the natural gas prices at Empress, averaging $3.61/GJ in the first quarter of fiscal 2015, the downward price trend that began in summer 2014 continued during the first quarter as there is abundant supply in the North American market. This situation was due to rapid growth of gas production in the U.S. over the past year, where record levels of output were recorded combined with relatively weak demand in summer 2014. This was an ideal environment for replenishing storage facilities that had been largely depleted during the very cold weather in winter 2014.

Over the longer term, expert studies project that natural gas supply will remain abundant in North America and will easily meet rising demand in both Canada and the United States. The financial markets also envision such a situation, as reflected in the curve for forward contracts for the coming years. The consensus among financial analysts is that natural gas prices in Alberta should not exceed $3.74/GJ between 2015 and 2020.


14

L) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY

SEASONAL ACTIVITIES

It should be noted that the interim period operating results are not necessarily representative of the results to be expected for the fiscal year, as seasonal temperature and wind fluctuations influence both the energy consumption levels of customers and energy production levels of the wind farms, 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 December 31, 2014.

1. HIGHLIGHTS

3 months ended December 31 (in millions of dollars, unless otherwise indicated) 2014 2013 (2) Change

Revenues 696.0 675.5 20.5 Gross margin 294.0 277.9 16.1 IBIT 87.8 89.4 (1.6) Net income 73.7 75.5 (1.8) Net income (loss) attributable to: Non-controlling interests 1.1 (0.3) 1.4 Partners 72.6 75.8 (3.2)

Basic and diluted net income per unit attributable to Partners (in $) 0.48 0.50 (0.02) Distributions declared per unit to Partners (in $) 0.28 0.28 - Total assets 6,452.8 5,963.0 489.8 Total debt 3,352.3 3,042.0 310.3 Debt / total capitalization ratio (1) (in %) 68.7 67.1 1.6 (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. (2) Certain figures from the period ended December 31, 2013 have been adjusted to conform to the current year’s presentation.

2. REVENUES

The change in revenues between the first quarters of fiscal 2015 and fiscal 2014 was mainly due to:

Up $20.5 million or 3.0%

$16.7 million from a favourable exchange rate impact on the revenues generated by Vermont energy distribution activities; and

an $11.1 million increase in the revenues generated by energy production activities given the favourable winds experienced, particularly in October and November 2014, since wind parks 2 and 3 were commissioned in November and December 2013, respectively, and because wind park 4 was commissioned in December 2014;

a $6.3 million decline in the revenues generated by Vermont energy distribution activities, excluding the impact of exchange rate changes, mainly due to a 1.46% decline in GMP’s electricity rates and to an unfavourable impact of less cold temperatures.

It should be noted that, in accordance with the regulatory mechanisms currently in effect, the sale of the natural gas commodity to Gaz Métro-QDA’s and VGS’s customers has an insignificant impact on gross margin and, in turn, on the Partnership’s consolidated net income, as explained in greater detail in the Energy Distribution Segment heading of section M) SEGMENT

RESULTS.


15

3. IBIT

The change in IBIT between the first quarters of fiscal 2015 and fiscal 2014 was mainly due to:

Down $1.6 million or 1.8%

a $2.0 million increase in Gaz Métro LNG’s IBIT owing to the performance of short-term LNG supply contracts; and

a $2.0 million favourable exchange rate impact on the IBIT generated by Vermont energy distribution activities;

a $3.8 million decrease from Gaz Métro-QDA, mainly due to a timing difference between the

revenue recognition profile, which follows the consumer’s consumption profile, and that of costs in an amount of $2.4 million as well as to higher financial expenses; and

a $2.8 million decrease in the IBIT from Vermont energy distribution activities, excluding the impact of exchange rate changes, mainly due to a decline in GMP’s gross margin arising from a decline in electricity sales revenues.

4. INCOME TAXES

For the first quarter of fiscal 2015, income taxes stood at $14.2 million, up $0.3 million from $13.9 million in the same quarter last year. This increase was mainly due to the unfavourable impact of the depreciation of the Canadian dollar against the U.S. dollar, mitigated by the lower IBIT generated by the U.S. subsidiaries.

5. NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

For the first quarter of fiscal 2015, net income attributable to non-controlling interests posted a $1.4 million year-over-year increase, mainly due to the results generated by energy production activities.

6. NET INCOME AND BASIC AND DILUTED NET INCOME PER UNIT ATTRIBUTABLE TO PARTNERS

6.1 NET INCOME ATTRIBUTABLE TO PARTNERS

For the first quarter of fiscal 2015, net income attributable to Partners decreased $3.2 million or 4.2% year over year, mainly due to the reasons discussed above.

The net income generated by Gaz Métro-QDA, which is significantly influenced by the rate of return authorized by the Régie on deemed common equity, represents more than 73% of the consolidated net income attributable to Partners for the first quarter of fiscal 2015, which is comparable to that of 2014.

56.8

53.0

16.1

15.9

4.1

3.9

0.8

0.6

(0.2

)

1.3

2014 2015

Energy DistributionGaz Métro-QDA

Energy DistributionGMP and VGS

Natural GasTransportation

Energy Production

Energy Services,Storage and Other

Net income (loss) attributable to Partners1st quarters

(in millions of $)


16

7. BASIC AND DILUTED NET INCOME PER UNIT ATTRIBUTABLE TO PARTNERS

For the first quarter of fiscal 2015, basic and diluted net income per unit attributable to Partners was $0.48, down $0.02 from the same period last year.

M) SEGMENT RESULTS

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



Energy Distribution Gaz Métro-QDA 53.0 56.8 (3.8) GMP and VGS 22.6 21.4 1.2 Financing costs of investments in this segment (1) (6.7) (5.3) (1.4)

68.9 72.9 (4.0)

Natural Gas Transportation TQM, PNGTS and Champion 4.4 4.5 (0.1) Financing costs of investments in this segment (1) (0.5) (0.4) (0.1)

3.9 4.1 (0.2)

Energy Production Gaz Métro Éole and Gaz Métro Éole 4 0.8 0.8 - Financing costs of investments in this segment (1) (0.2) - (0.2)

0.6 0.8 (0.2)

Energy Services, Storage and Other Energy and storage 1.6 - 1.6 Financing costs of investments in this segment (1) (0.3) (0.2) (0.1)

1.3 (0.2) 1.5

Corporate Affairs Corporate Affairs (2.1) (1.8) (0.3)

(2.1) (1.8) (0.3)

Consolidated net income attributable to Partners, excluding non-recurring items (2) 72.6 75.8 (3.2)

Non-recurring items - - -

Consolidated net income attributable to Partners 72.6 75.8 (3.2) (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) 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.

0.5

0

0.4

8

2014 2015

Basic and diluted net income per unit attributable to Partners

1st quarters(in dollars)


17

1. ENERGY DISTRIBUTION SEGMENT

1.1 GAZ MÉTRO-QDA

Gaz Métro-QDA



Revenues 440.3 441.9 (1.6)

Gross margin 172.0 173.9 (1.9)

IBIT 53.0 56.8 (3.8)

Net income attributable to Partners 53.0 56.8 (3.8)

Revenues

In December 2014, the Régie approved the application of fiscal 2015 interim rates starting January 1, 2015. For the period of October 1, 2014 to December 31, 2014, the Régie had maintained the rates in effect as at September 30, 2014 on an interim basis. For the first quarter of fiscal 2015, Gaz Métro-QDA has accounted for its distribution revenues using the interim rates approved by the Régie in December 2014 assuming they have been applied since October 1, 2014. The difference between the distribution revenues billed to customers for the months of October to December 2014 and those that would have been generated using the interim rates approved by the Régie has been recognized in a deferred charges account.

Therefore, in this section, the 2015 rate case refers to the interim rates approved by the Régie in December 2014.

The following table highlights Gaz Métro-QDA’s results for the first quarter of fiscal 2015, in terms of volume and revenue changes, compared with the same quarter of fiscal 2014.

For the 3 months ended December 31, 2014

Volume change Revenue change (106 m3) (%) (millions $)

Distribution: Residential and commercial 5.6 0.8 $ (11.0) Industrial (12.1) (1.3) (2.0)

Total distribution (6.5) (0.4) (13.0) Supply and compression (73.1) (8.0) (1.9) Transportation (4.2) (0.3) 0.4 Load-balancing (66.6) (4.0) 3.8 Other revenues 9.1

Total $ (1.6)

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.

For the first quarter of fiscal 2015, Gaz Métro-QDA’s revenues decreased by $1.6 million or 0.4% year over year, mainly due to:

an $11.0 million decrease in residential and commercial distribution revenues, mainly due to a 4.7% decrease in the average distribution rates authorized on an interim basis by the Régie, partly offset by a 0.8% increase in normalized natural gas deliveries to these markets;

partly offset by:

a $9.1 million increase in other revenues that essentially came from (i) an increase in the anticipated shortfall in transportation and load-balancing services, fully borne by customers, resulting primarily from the late application of rates in the first quarter of fiscal 2015 and from (ii) the fact that no share of overearnings attributed to customers was expected in the distribution service for the first three months of fiscal 2015, whereas this was the case in the same period of fiscal 2014. These overearnings resulted in part from increased deliveries caused by considerably colder-than-normal temperatures in the first quarter of fiscal 2014.

Distribution revenues include the annual Green Fund duty amounts. The costs of this duty, which were $6.5 million for fiscal 2015 (1) and $24.2 million for fiscal 2014, are determined in accordance with the Green Fund Regulation and are included in

(1) This reduction is due to the elimination of the annual Green Fund duty as at December 31, 2014, which was replaced by the CATS

Regulation as of January 1, 2015. The compliance costs of the Regulation could have a net impact of approximately $45 million on Gaz Métro-QDA’s customers for fiscal 2015.


18

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. The distribution revenues from the annual Green Fund duty therefore have no impact on the consolidated net income attributable to Partners.

Supply revenues come from the sale of the natural gas commodity to Gaz Métro-QDA customers who subscribe to this service. These revenues have 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

For the first quarter of fiscal 2015, Gaz Métro-QDA’s normalized natural gas deliveries totalled 1,621 million cubic metres, down 0.4% from 1,628 million cubic metres in the first quarter last year.

Normalized deliveries in Gaz Métro-QDA’s industrial market were

down 1.3% in the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014, mainly due to lower deliveries in the petrochemical sector. This decline was partially offset by a positive change in consumption in the metallurgy sector.

In Gaz Métro-QDA’s residential market, first-quarter normalized

deliveries decreased 2.3% year over year, whereas in the commercial market, normalized deliveries increased 1.8% year over year.

The lower residential market deliveries came essentially from a slowdown in the maturation of new sales and from considerably colder-than-normal temperatures in the first quarter of 2014. While the distribution service is partly normalized for temperature and wind, 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 during the first quarter of fiscal 2014.

The higher commercial market deliveries came from greater consumption, particularly in the construction sector, mitigated by lower consumption in the institutional sector.

IBIT

For the first quarter of fiscal 2015, Gaz Métro-QDA’s IBIT decreased $3.8 million or 6.7% year over year, mainly due to:

an amount of $2.4 million resulting from a timing difference between the revenue recognition profile, which follows the customers’ consumption profile, and that of costs. This difference, anticipated in the 2015 rate case and whose annual impacts are explained below, is expected to reverse by the end of fiscal 2015;

lower distribution revenues resulting from lower deliveries; and

an increase in financial expenses resulting from a decrease in capitalized interest on non-rate-base investments.

Regulatory matters

Impacts of Gaz Métro-QDA’s 2015 rate case filed with the Régie

It should be noted that the 2015 rate case, as submitted to the Régie, translates into a $2.5 million increase in IBIT compared to the IBIT realized in fiscal 2014 ($2.4 million decrease for the first quarter). The increase on an annual basis stems mainly from:

an increase in the average rate base; and

higher capitalized interest on non-rate-base investments; mitigated by:

the fact that no overearnings were anticipated in the 2015 rate case, whereas a $2.5 million share was realized by the distribution service in fiscal 2014; and

the fact that no revenues related to the GEEP performance incentive was anticipated in the 2015 rate case, whereas $1.0 million in revenues was realized in fiscal 2014.

943

511

174

1,6

28

931

520

170

1,6

21

Industrial Commercial Residential Total volume

2014

2015

Gaz Métro-QDANormalized natural gas deliveries

1st quarters(in millions of cubic metres)


19

Summary of Gaz Métro-QDA’s regulatory framework

Fiscal years ended September 30 2015 2014 2013

Rate case period 2014-10-01

to 2015-09-30 2013-10-01

to 2014-09-30 2012-10-01

to 2013-09-30

Authorized rate of return on deemed common equity

8.90% 8.90% 8.90%

Capital structure (Debt; Equity) (1)

54%; 46% 54%; 46% 54%; 46%

Average rate base in rate case $1,937 million (2) $1,902 million $1,836 million (1) Deemed equity is divided as follows: 7.5% preferred equity and 38.5% common equity. (2) The projected average rate base in Gaz Métro-QDA’s 2015 rate case is $35 million higher than that of the 2014 rate case. This increase

was mainly due to increased investments in property, plant and equipment.

Regulatory filings

The following table provides an update on recent developments in regulatory filings since September 30, 2014. For additional information on regulatory filings, refer to Valener’s MD&A for the fiscal year ended September 30, 2014.

Fiscal 2014

2014 annual regulatory report

Gaz Métro-QDA’s annual regulatory report for the fiscal year ended September 30, 2014 was filed with the Régie in December 2014, and a final decision is expected during summer 2015.

Fiscal 2015

2015 rate case Phase I

Regulatory relief

Seeking regulatory relief, Gaz Métro-QDA proposed a simplified and equitable regulatory environment to the Régie for fiscal years 2015 to 2017, the aim being to fix operating expenditure increases to inflation and to equitably share potential variances. This environment would be a transitional measure until implementation of the next incentive mechanism that will be applicable as of the 2018 rate case. In its June 2014 decision, the Régie denied Gaz Métro-QDA’s proposal and ordered that the 2015 and 2016 rate cases be filed no later than March 2015. In July 2014, Gaz Métro-QDA filed a request to have this decision reviewed. In December 2014, following the hearing on this review, the Régie invalidated the first decision on the matter and requested a review of the merits of Gaz Métro-QDA’s proposal. A final decision on this matter is expected in winter 2015.

Phase II

In June 2014, Gaz Métro-QDA submitted evidence to the Régie relating, in particular, to the gas supply, follow-up information on saturation rates on certain sections of the network, the sale of LNG, and the GEEP. In December 2014, following the hearings on Phase II, the Régie approved the 2015-2018 supply plan, subject to certain modifications. The Régie also acknowledged the evidence on the saturation of certain sections of the network, deferred the matter of additional LNG sales to Phase III of the 2015 rate case, and approved, subject to certain modifications, the GEEP budget.

Phase III

As indicated in Valener’s MD&A for the fiscal year ended September 30, 2014, Gaz Métro-QDA filed, in October 2014, its cost of service and the rate impact. In December 2014, Gaz Métro-QDA filed a

Phase III update to reflect the decisions received from the Régie since October 2014. This update changed the average increase in rates from 1.8% to 3.0% and changed the decrease in distribution service rates from 3.9% to 4.0% compared to the rates approved for fiscal 2014. However, this decrease is still neutralized by higher transportation rates attributable to higher supply costs in the secondary market to mitigate reduced transportation capacity available from TCPL. A decision by the Régie is expected in summer 2015.

Outlook

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


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Transportation rates

As indicated in Valener’s MD&A for the fiscal year ended September 30, 2014, Gaz Métro and the Ontario gas distributors signed, in September 2013, an agreement in principle with TCPL (Agreement) to ensure access to the diverse and affordable sources of natural gas from the Dawn hub. In December 2014, the NEB issued a favourable decision on this agreement, making the new TCPL rates applicable as of January 1, 2015. This agreement increased TCPL’s rates. This rate increase had no significant impact on the competitiveness of natural gas. Moreover, given the move from Empress to Dawn that is planned for the medium term and which will be facilitated by the approval of the said Agreement, overall supply costs of Gaz Métro-QDA’s customers should reflect a lasting decrease.

As for the King’s North project, in November 2014 the NEB issued a procedural ruling through which it will examine this application according to a procedure to be written in winter 2015. Gaz Métro, which is recognized by the NEB for this application, intends to participate favourably as part of this procedure. A decision is expected in the 2015 calendar year.

However, as mentioned in Valener’s MD&A for the year ended September 30, 2014, in October 2014 TCPL also filed an application with the NEB to carry out the Energy East and Eastern Mainline projects. The Energy East project is proposing the construction and operation of a pipeline that would carry oil from Western Canada to Eastern Canada refineries and new marine terminals. As presented, the project would convert a portion of TCPL’s natural gas transportation assets between Alberta and Quebec for the purpose of oil transportation. As for the Eastern Mainline project, it proposes the construction of a new natural gas pipeline between Markham and Iroquois, Ontario, to partially mitigate the loss of natural gas transportation capacity that would result from the Energy East project. The NEB is expected to issue a procedural decision on these projects in winter 2015.

1.2 GMP AND VGS

GMP and VGS


(in millions of dollars) 2014 2013

Impact of exchange rate

changes

Change, excluding the impact of

exchange rate changes

Revenues 221.0 210.6 16.7 (6.3)

Gross margin 87.1 83.2 6.6 (2.7)

Share in earnings of entities subject to significant influence 16.5 14.0 1.3 1.2

IBIT 25.3 26.1 2.0 (2.8)

Net income attributable to Partners 15.9 16.1 1.2 (1.4)

Revenues

The revenues of GMP and VGS, excluding the impact of exchange rate changes, decreased $6.3 million year over year, due to:

Revenues

GMP – Down $6.9 million

a net increase in the number of customers in the residential market and in the small commercial and industrial market.

an unfavourable impact on electricity deliveries of warmer temperatures in the first quarter of fiscal 2015 compared to the same year-earlier period when temperatures were cold;

a 1.46% decrease in the overall rates since October 1, 2014 stemming from its 2015 rate case parameters; and

lower demand from the large commercial and industrial market due mainly to lower consumption among major customers.


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Deliveries

GMP – The electricity distributed by GMP is mainly used for

lighting, heating and generating purposes. As such, demand is influenced by economic ups and downs, customer efforts to conserve energy, and temperature fluctuations. For the first quarter of fiscal 2015, GMP’s electricity deliveries totalled 1,073 gigawatthours, down 1.5% from the same period last year. Deliveries to the residential market were down 1.8%, mainly due to the unfavourable impact of warmer temperatures, as explained above. Deliveries to the small commercial and industrial market increased 0.8%, mainly due to a net increase in the number of customers in this market. Deliveries to the large commercial and industrial market decreased by 3.9% due to weaker demand from GMP’s major customers.

VGS – For the first quarter of fiscal 2015, VGS’s normalized natural

gas deliveries are comparable to those of the same quarter last year.

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 23, 2014, GMP invested $26.6 million (US$23.4 million) in Transco, one of its entities subject to significant influence, raising its ownership interest from 70.0% to 70.6%, given that some of Transco’s other partners invested less and thereby reduced their ownership stake in the company. These funds are intended to finance capital investments in electricity transmission activities.

The net investment in its entities subject to significant influence is included in GMP’s rate base, which enables it to generate a return. The fact that GMP invested $26.6 million in December 2014 and $24.4 million in December 2013 has enabled it to raise its rate base and thereby generate additional net income for the three-month period ended December 31, 2014 compared to the same period of fiscal 2014.

For the first quarter of fiscal 2015, GMP’s share in the earnings of entities subject to significant influence, excluding the impact of exchange rate changes, rose $1.2 million year over year. This increase is mainly due to the greater ownership in these entities subject to significant influence, as explained above. These shares in earnings are returned in full to customers through rates and therefore have a negligible impact on GMP’s net income.

86

85

2014 2015

VGSNormalized natural gas deliveries

1st quarters(in millions of cubic metres)

399

386

304

1,0

89

392

389

292

1,0

73

Residential Smallcommercial

and industrial

Largecommercial

and industrial

Total volume

2014

2015

GMPElectricity deliveries

1st quarters(in gigawatthours)


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IBIT

For the first quarter of fiscal 2015, GMP’s and VGS’s IBIT, excluding the impact of exchange rate changes, decreased $2.8 million year over year, mainly due to:

IBIT

GMP – Down $2.6 million

the impact of a higher rate base arising, among other factors, from the December 2014 investment in Transco, as explained above.

a $3.2 million decrease in the gross margin, stemming mainly from lower revenues, as explained above.

VGS – Up $0.5 million

the impact of an increase in the average balance of non-rate-base investments, which performed well, in VGS’s system development projects.

It should be noted that, because GMP met all of the service quality performance indicators set by the VPSB during the 2014 calendar year, it has not incurred penalties that would have reduced its IBIT in the first quarter of fiscal 2015.

Regulatory matters

Summary of the regulatory framework for GMP and VGS

Fiscal years ended September 30 2015 2014 2013

GMP VGS GMP VGS GMP VGS


to 2015-09-30 2014-10-01

to 2015-09-30 2013-10-01

to 2014-09-30 2013-10-01

to 2014-09-30 2012-10-01

to 2013-09-30 2012-10-01

to 2013-09-30

Authorized rate of return on common equity 9.60% 10.20% 9.58% 10.26% 8.84% 9.75%

Capital structure (Debt; Equity) 50%; 50% 45%; 55% 50.4%; 49.6% 45%; 55% 48.4%; 51.6% 45%; 55%

Average rate base in rate case (US$) $1,165 million (1) $216 million (2) $1,159 million $144 million (2) $1,093 million $107 million (2)

(1) The projected average rate base in GMP’s 2015 rate case is US$6 million higher than that of the 2014 rate case. This increase was mainly due to increased investments in property, plant and equipment and the additional investment in Transco.

(2) Including US$89 million (US$33 million in 2014 and US$5 million in 2013) related to the projected investments in the Addison County system development project. The increase in the average rate base came mainly from other system development projects commissioned towards the end of fiscal 2014.

Regulatory filings


Regulatory outlook

VGS - System development project

Phase I of VGS’s system development project consists of extending the natural gas distribution service to the communities of Vergennes and Middlebury in Addison County. After obtaining all the necessary construction and environmental permits in June 2014, VGS began pre-construction work on the extension and started installing the pipelines at the end of June 2014. As at December 31, 2014, US$50.5 million has been invested in the project.

In December 2014, VGS submitted a letter to the VPSB presenting updated costs for Phase I of the project, indicating that the projected costs had increased from US$121.6 million to US$153.6 million. The updated costs include adjustments to the estimated construction and project management costs, VGS’s indirect costs (including the provision for the funds used during construction) and right of way costs, taking into account the cost of construction work completed to date as well as the cost of work planned for the winter period according to the current construction schedule. Given this cost update, VGS expects an additional regulatory review will be carried out. Delays can therefore be expected for the ongoing construction work and for the commissioning of this phase, which is now scheduled for fiscal 2016. The project continues to be viewed as a beneficial solution for the State of Vermont. Aside


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from the environmental advantages, natural gas remains a competitive energy source compared to other sources of fossil fuel.

In this same letter tabled with the VPSB in December 2014, VGS also asked the VPSB to indefinitely postpone the technical hearings on Phase II of the project aimed at extending the natural gas distribution service to International Paper Company (IP), in New York State, to update the budget. However, in February 2015, IP notified VGS of its decision to exercise its rights to terminate the contract, after VGS had reviewed the schedule and costs to complete Phase II under current business conditions, resulting in Phase II being no longer commercially practical for IP. Therefore, VGS will ask the VPSB to dismiss VGS’s pending petition for approval of Phase II.

Due to these delays, VGS’s investment forecasts were revised downwards for fiscal 2015. In the coming quarters, VGS plans to focus its efforts and spending on reaffirming the Phase I Certificate of Public Good at the higher budgeted level and obtaining remaining Phase I right of way, as well as focusing on project management.

In recent months, the project has been contested by citizens and various interest groups, although it is largely supported by businesses and related groups, government organizations and the public. Although Phase I of the project has received VPSB approval and VGS has begun the related construction work, certain agreements still need to be signed with individual land owners. Although VGS is confident it will be able to reach agreements with these parties, the possibility remains that some work could be delayed.

Major snow storm in Vermont

In December 2014, a major snow storm hit the State of Vermont, dumping huge amounts of wet, heavy snow on the entire area for 24 hours. In many areas, 8 to 15 centimetres of snow accumulated on electrical cables. Many large tree branches snapped under the weight of this snow, and there were damages to GMP’s entire network. The total storm-related costs are estimated to be between US$18 million and US$20 million. According to the regulatory mechanisms in effect, substantially all of these costs may be recovered through rates. This storm caused the most damage to GMP’s network in close to 20 years.

Operational integration of GMP and CVPS

During the first quarter of fiscal 2015, GMP continued to merge its operations with those of CVPS, as planned and in accordance with its three-year plan outlined in Valener’s MD&A for the year ended September 30, 2014, such that it and its customers may continue to benefit from the resulting efficiencies and synergies.

For fiscal years 2014 and 2015, amounts of US$5.0 million and US$8.0 million, respectively, were included in GMP’s rate cases for those years, such that the synergy savings could be returned to customers as per the required terms. For fiscal 2015, GMP expects to be able to achieve sufficient synergies to reach the US$8.0 million attributable to its customers.

2. NATURAL GAS TRANSPORTATION SEGMENT

Transportation



Revenues 11.8 11.5 0.3

Gross margin 11.8 11.5 0.3

Share in earnings of an entity subject to significant influence 5.3 4.9 0.4

IBIT 7.7 7.9 (0.2)


Revenues

For the first quarter of fiscal 2015, the Natural Gas Transportation segment’s revenues, which are also equal to the segment’s gross margin, increased $0.3 million or 2.6% year over year. This increase came essentially from TQM and primarily reflects its rate case, which allows the expected increase in operating expenses to be recovered through rates.

Share in earnings 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. The $0.4 million increase in this share came mainly from higher short-term revenues, as new short-term contracts increased transported volumes.


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IBIT

The Natural Gas Transportation segment’s 2015 first-quarter IBIT decreased $0.2 million or 2.5% year over year, mainly due to:

an unfavourable impact on TQM’s IBIT due to a smaller rate base; offset by:

a $0.4 million increase in the share of PNGTS’s IBIT, as previously explained.

Regulatory matters

Summary of TQM’s regulatory framework


to 2015-12-31 2014-01-01

to 2014-12-31

2013-01-01 to 2013-12-31

Rate principles Interim rates based on the multiyear plan (2014-2016) negotiated with interested

parties

Final rates based on the multiyear plan (2014-2016) negotiated with interested

parties

Final rates based on the annual plan (2013)

negotiated with interested parties

Decision issued by the NEB December 2014 April 2014 May 2013

Average rate base in rate case $340 million $353 million $363 million

Regulatory filings


Fiscal 2015

TQM - 2015 rate case

In November 2014, TQM filed an application with the NEB for approval of its fiscal 2015 interim rates. These rates, approved in December 2014, took effect on January 1, 2015 and will remain in effect until the final rates are approved. Final rates are expected to be submitted in the second quarter of fiscal 2015, and NEB approval of the final rates is expected in the third quarter of fiscal 2015.

Regulatory outlook

TQM - Future pipeline abandonment costs

In September 2014, TQM submitted, for NEB approval, the trust agreement that would permit TQM to retain amounts collected from customers. In December 2014, the NEB issued a decision and asked TQM and the other pipeline companies proposing to use a trust mechanism to make certain amendments to the proposed trust agreements. All actions required to establish the trust and begin collecting a surcharge are in place, including the execution of a trust agreement which was filed with the NEB for approval in January 2015.

In November 2014, TQM also submitted a request seeking NEB approval for interim surcharges on transportation services and approval for certain changes to the rates related to the amounts to be collected from customers during fiscal 2015 to finance future pipeline abandonment costs. In December 2014, the NEB approved this request and the interim surcharges have been in effect since January 1, 2015. The final surcharges are expected to be approved during the third quarter of fiscal 2015 since they will be included in the final rates filing.

PNGTS - Rate cases

In May 2010, PNGTS filed a rate case with the FERC to have its rate increase recognized, and a decision on this application was issued in March 2013. In April 2013, PNGTS filed a request asking the FERC to review this decision and seeking to have certain specific aspects re-examined. Pending the FERC’s decisions on the rate case review, PNGTS has been recording its revenues based on the latest FERC-approved rates. The difference between the interim rates billed by PNGTS and the latest FERC-approved rates was recorded in a liability account.


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3. ENERGY PRODUCTION SEGMENT

Energy Production



Revenues 13.6 2.5 11.1


IBIT 1.9 0.4 1.5


Revenues

For the first quarter of fiscal 2015, the Energy Production segment’s revenues consisted of 50% of the revenues generated by Wind Farms 2 and 3 and by Wind Farm 4, the latter having begun commercial operations in December 2014. As explained in the Wind Farms in Quebec section in the VALENER INC. AND GAZ MÉTRO LIMITED PARTNERSHIP heading of this MD&A, the $11.1 million increase in revenues and the 206,121 MWh increase in production during the first quarter of fiscal 2015 were mainly due to:

the fact that wind parks 2 and 3 were in operation for the entire first quarter of 2015 whereas they had started commercial operations only in November and December 2013, respectively;

the commercial start-up of wind park 4 in December 2014; and

favourable winds, particularly in October and November 2014.

IBIT

The Energy Production segment’s 2015 first-quarter IBIT increased by $1.5 million year over year, mainly due to:

an increase in the IBIT generated by Wind Farms 2 and 3 due primarily to higher revenues, as mentioned above. Given this level of IBIT, Wind Farms 2 and 3 generated operating cash flows totalling $18.5 million during the first quarter of fiscal 2015;

mitigated by:

an unfavourable net impact of changes in the ineffective portion of the Wind Farms 2 and 3 swaps.

Since wind park 4 was commissioned only in early December 2014, it had a negligible impact on the segment’s IBIT.

The changes in the ineffectiveness related to the swaps are explained by the application of the accounting standard for measuring ineffectiveness, which can sometimes produce unexpected results, through the incorporation of counterparty credit risk, among other reasons. Under Canadian GAAP, the ineffective portion of derivative financial instruments designated for hedge accounting is recorded in income.

Wind power projects

As explained in greater detail in the Wind Farms in Quebec section in the VALENER INC. AND GAZ MÉTRO LIMITED PARTNERSHIP heading of this MD&A, wind park 4 began commercial operations in December 2014. The results of the call for tenders issued by Hydro-Québec, in which Gaz Métro and its partners participated, were announced in December 2014. The tenders submitted by Gaz Métro and its partners were not selected by Hydro-Québec.

4. ENERGY SERVICES, STORAGE AND OTHER SEGMENT

Energy Services, Storage and Other



Revenues 17.1 14.6 2.5


IBIT 2.0 0.5 1.5

Net income (loss) attributable to Partners 1.3 (0.2) 1.5

Revenues

The Energy Services, Storage and Other segment’s revenues increased by $2.5 million or 17.1% year over year, mainly due to a $3.0 million increase in Gaz Métro LNG’s revenues upon the performance of short-term LNG supply contracts resulting from growing demand. Specifically, during the first quarter of fiscal 2015, Gaz Métro LNG delivered 12.5 million cubic metres versus


26

5.3 million cubic metres during last year’s first quarter. The segment’s other business activities remained relatively stable during the first quarter of fiscal 2015.

IBIT

The segment’s IBIT increased by $1.5 million year over year, mainly due to a $2.0 million increase in Gaz Métro LNG’s IBIT upon the performance of short-term LNG supply contracts, as explained above.

Outlook

LNG

As indicated in Valener’s MD&A for the year ended September 30, 2014, Gaz Métro is involved in developing LNG production and commercialization activities through Gaz Métro LNG. During the first quarter of fiscal 2015, Gaz Métro LNG signed a cooperation agreement with Fluxys, a Belgian group also active in the LNG sector, to provide mutual assistance in developing strategies to promote and market this product. In addition, discussions are still being held with several potential customers.

Gaz Métro LNG has also continued to market LNG based on the LSR plant’s current capacity. Short-term sales contracts have therefore been signed with various LNG wholesalers.

5. CORPORATE AFFAIRS SEGMENT

Corporate Affairs



Revenues (7.9) (5.5) (2.4)

Gross margin (0.2) (0.2) -

Loss before income taxes (2.1) (2.4) 0.3

Net loss attributable to Partners (2.1) (1.8) (0.3)

Loss before income taxes

This segment’s gross margin reflects the elimination of intersegment revenues and direct costs. The segment’s loss before income taxes reflects, among other items, the development expenses incurred for various projects as well as corporate expenses and revenues not allocated to other segments of the Partnership.

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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N) CONSOLIDATED FINANCIAL POSITION

The table below compares the main consolidated balance sheet amounts as at December 31, 2014 with those of December 31, 2013.

Balance sheet items

(in millions of dollars) December 31

Increase

(Decrease) Explanation

2014 2013 (1)

Trade and other receivables

322.2 411.7 (89.5) Decrease comes from (i) Gaz Métro-QDA’s sale of trade accounts receivable to a securitization trust and (ii) the net effect of Hydro-Québec’s payment of a note receivable for the reimbursement of certain construction costs of wind parks 2 and 3 and the increase in the note receivable related to wind park 4

Inventories 112.7 82.5 30.2 Increase comes from (i) a higher natural gas price and (ii) higher natural gas volumes being stored due to warmer temperatures during the first quarter of fiscal 2015

Property, plant and equipment

4,090.2 3,719.2 371.0 Increase comes from the appreciation of the U.S. dollar against the Canadian dollar and from investments in (i) Gaz Métro-QDA’s natural gas distribution systems, (ii) wind park 4, (iii) GMP’s electricity distribution system, (iv) VGS’s system development projects (including the Addison project) and (v) the LSR plant expansion project

Restricted cash 26.7 54.3 (27.6) Decrease comes mainly from the use of restricted cash for the construction costs of wind parks 2 and 3 and wind park 4 for the purpose of (i) repaying holdbacks to suppliers related to investments in wind parks 2 and 3 and (ii) making investments in wind park 4

Intangible assets 113.6 66.6 47.0 Increase comes mainly from (i) Gaz Métro-QDA’s purchase of GHG emission allowances under the CATS Regulation and (ii) greater investment in IT development

Deferred charges and credits

63.5 155.9 (92.4) Decrease comes from (i) an increase in the deferred credits related to Gaz Métro-QDA’s rate stabilization accounts given colder temperatures in fiscal 2014, (ii) a decrease in the deferred charges accounts related to the cost of natural gas for Gaz Métro-QDA given the late application of rates, (iii) an increase in the deferred credit related to future retirement costs for Gaz Métro-QDA, and (iv) lower charges related to funding GMP’s pension plans, offset by (v) a decrease in the deferred credit related to the customers’ share in overearnings of Gaz Métro-QDA

Investments and other 803.4 685.7 117.7 Increase comes mainly from the appreciation of the U.S. dollar against the Canadian dollar and from GMP’s investment in Transco

Goodwill 361.2 331.8 29.4 Increase comes from the appreciation of the U.S. dollar against the Canadian dollar

Other long-term assets 78.2 71.8 6.4 Increase comes mainly from (i) an increase in the accrued benefit assets of Gaz Métro-QDA’s pension plans and (ii) the appreciation of the U.S. dollar against the Canadian dollar, partly mitigated by (iii) the short-term reclassification of a note receivable in Trade and other receivables due to the reimbursement of certain wind park 4 construction costs

Accounts payable and accrued liabilities

346.6 348.6 (2.0) Decrease comes from lower investments in the construction of wind parks 2 and 3 since these projects were commissioned in November and December 2013, offset by higher investments in the LSR plant expansion project

Long-term debt, including current portion

3,352.3 3,019.1 333.2 Increase comes from (i) the financing of investments in the development of Gaz Métro-QDA’s, GMP’s and VGS’s systems and (ii) the appreciation of the U.S. dollar against the Canadian dollar

Net future income tax liability, including current portion

395.8 331.1 64.7 Increase comes mainly from the change in the temporary differences of U.S. companies and from the appreciation of the U.S. dollar against the Canadian dollar

Net liability related to derivative financial instruments, including current portion

40.0 21.2 18.8 Increase comes from (i) an unfavourable impact of a lower interest rate on the fair value of the derivative financial instruments and (ii) settlements of natural gas financial derivatives, partly mitigated by (iii) the settlement of electricity and interest rate financial derivatives

Other long-term liabilities

380.8 352.3 28.5 Increase comes mainly from (i) the subscription of Gaz Métro LNG units by Investissement Québec, (ii) an increase in the accrued benefit liability of Gaz Métro-QDA’s postretirement benefits and (iii) the appreciation of the U.S. dollar against the Canadian dollar, partly mitigated by (iv) a decrease in the accrued benefit liability of GMP’s pension plans

(1) Certain figures from the period ended December 31, 2013 have been adjusted to conform to the current year’s presentation.


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O) 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 QUARTER OF FISCAL 2015

Issuance by GMi, as the General Partner of Gaz Métro, of senior notes guaranteed by Gaz Métro totalling US$100.0 million, the proceeds of which were loaned to Gaz Métro under similar conditions;

Credit ratings of Gaz Métro and GMi maintained by S&P and DBRS;

Debt / total capitalization ratio of 68.7%; and

$142.6 million invested in purchases of property, plant and equipment.

2. CASH FLOW SUMMARY (1)


(in millions of dollars) 2014 2013 (2) Change

Cash flows related to operating activities a $ 104.0 $ 62.2 $ 41.8 Cash flows related to investing activities b $ (208.9) $ (236.0) $ 27.1 Cash flows related to financing activities c $ 99.9 $ 156.2 $ (56.3)

(1) The standardized cash deficiency was $38.6 million for the first quarter of fiscal 2015 compared to $92.6 million for the first quarter last year. This is a non-GAAP financial measure that is included in the recommendations made by the CICA in Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities – MD&A Guidance on Preparation and Disclosure. The purpose of this measure is to present the cash flows generated by the Partnership’s operations over a given period that could be available for distributions to Partners. It corresponds to cash flows related to operating activities less purchases of property, plant and equipment. 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 it does not take into account certain factors that are specific to its operations.

(2) Certain figures from the period ended December 31, 2013 have been adjusted to reflect the presentation adopted for the current fiscal year.

a) Cash flows related to operating activities

Cash flows related to operating activities increased by $41.8 million, in part due to:

a $60.9 million favourable change in non-cash working capital items, mainly due to: o a $91.9 million favourable impact on Gaz Métro-QDA’s trade and other receivables resulting from the transfer

of receivables totalling $59.0 million to a securitization trust and warmer temperatures during the first quarter of fiscal 2015 compared to the cold temperatures in the first quarter of fiscal 2014;

partly mitigated by: o a $20.1 million unfavourable impact on Gaz Métro-QDA’s accounts payable and accrued liabilities, as lower

volumes of natural gas were purchased during the first quarter of fiscal 2015 given the warmer temperatures when compared to the same period last year;

o a $14.2 million unfavourable impact on the trade and other receivables of Wind Farms 2 and 3 attributable to a larger amount of sales tax receivable at the start of fiscal 2014 as construction on wind parks 2 and 3 was nearing completion; and

o a $9.7 million unfavourable impact on Gaz Métro-QDA’s inventories resulting from higher natural gas transportation prices during the first quarter of fiscal 2015 and higher volumes of stored natural gas due to warmer temperatures during the period; and

higher cash inflows generated by the Energy Production segment, which is explained by three months of operation for wind parks 2 and 3 during the first quarter of fiscal 2015, whereas these projects were commissioned in November and December 2013 respectively;

partly mitigated by:

an $8.8 million decrease in distributions received from entities subject to significant influence.


29

b) Cash flows related to investing activities


(in millions of dollars) 2014 2013 (1) Change

Change in restricted cash $ 19.4 $ (39.6) $ 59.0 Purchases of property, plant and equipment (142.6) (154.8) 12.2 Change in deferred charges and credits (21.9) (15.4) (6.5) Purchases of intangible assets (36.5) (0.8) (35.7) Net change in investment fund units (0.2) (0.3) 0.1 Change in an interest in an entity subject to significant influence and other (26.8) (24.5) (2.3)

Other (0.3) (0.6) 0.3

Total $ (208.9) $ (236.0) $ 27.1 (1) Certain figures from the period ended December 31, 2013 have been adjusted to reflect the presentation adopted for the current fiscal year.

Change in restricted cash

The $59.0 million favourable change in restricted cash came mainly from an amount of $74.8 million (Gaz Métro’s share: $37.4 million) drawn during the first quarter of fiscal 2014 by Wind Farm 4 after its financing was completed and from the use of restricted cash to pay the construction costs incurred by Wind Farms 2 and 3 and Wind Farm 4.

Purchases of property, plant and equipment

Purchases of property, plant and equipment decreased by $12.2 million, mainly due to:

a $25.2 million decrease in investments by the energy production segment given less investment in wind parks 2 and 3, as they were completed in the first quarter of fiscal 2014, as scheduled, partly offset by greater investments in wind park 4;

partly offset by:

an $11.2 million increase in investments by the energy distribution segment, mainly due to VGS’s investments in its system development project in Addison County.

Change in deferred charges and credits

Invested funds increased $6.5 million, partly due to:

a $12.0 million increase in investments made by GMP, mainly reflecting the recognition, during the first quarter of fiscal 2015, of a deferred charge related to the December 2014 snow storm, as described under the Regulatory Matters of GMP and VGS heading in section M) SEGMENT RESULTS;


a $6.4 million decrease in certain deferred charges of Gaz Métro-QDA, mainly due to the late application of the 2014 rates, net of the impact of considerably colder-than-normal temperatures in the first quarter of fiscal 2014.

Purchases of intangible assets

This item increased by $35.7 million, mainly due to Gaz Métro-QDA’s purchase of GHG emission allowances under the CATS Regulation, as explained in section M) SEGMENT RESULTS.

Change in an interest in an entity subject to significant influence and other

The net change of $26.8 million came mainly from GMP’s $26.6 million investment (US$23.4 million) in Transco on December 23, 2014, which was $2.2 million (US$0.1 million) higher than the one in December 2013.

c) Cash flows related to financing activities



Issuances of units $ 3.7 $ 1.6 $ 2.1 Distributions (42.5) (41.6) (0.9) Change in other long-term liabilities 9.5 - 9.5 Other financing activities 129.2 196.2 (67.0)

Total $ 99.9 $ 156.2 $ (56.3)


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Distributions

The following table shows the distributions paid to Partners during fiscal 2015:

Distribution payment date

Distribution declaration date

Per-unit distribution amount (in $)

Cash amount (in millions of $)

October 1, 2014 August 7, 2014 0.28 42.5

Gaz Métro plans on maintaining the distribution level at $0.28 per unit for each quarter of fiscal 2015. Accordingly, on February 11, 2015, 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 $42.5 million, payable to its Partners on April 1, 2015.

Change in other long-term liabilities

During the first quarter of fiscal 2015, Investissement Québec subscribed 9,516,360 units of Gaz Métro LNG for a total cash consideration of $9.5 million. The equity instruments issued to Investissement Québec are considered long-term liabilities because they are redeemable at the option of the holder.

Other financing activities

Other financing activities resulted in net issuances of $129.2 million (excluding a $32.7 million exchange rate impact) for the first quarter of fiscal 2015 and were essentially due to:

the issuance by GMi, as General Partner of Gaz Métro, of senior notes guaranteed by Gaz Métro, in an amount of $114.4 million (US$100.0 million). These notes bear interest at an annual rate of 3.22% and will mature on December 9, 2024. The proceeds of the issuance were loaned to Gaz Métro at similar conditions to be used to refinance existing debt and for general business purposes; and

a $41.9 million increase in the term loans of GMP, which contracted a new credit facility, $46.6 million (US$40.0 million) higher than the old credit facility, which was cancelled, in order to finance, among other things, the additional investment in Transco;


a $31.0 million decrease in Gaz Métro-QDA’s term loans, as it turned to other sources of financing such as long-term debt, as described above, and securitization.

3. CAPITAL STRUCTURE AND DEBT RATIO

(in millions of dollars, unless otherwise indicated) December 31, 2014 September 30, 2014

Current portion of long-term debt $ 31.9 $ 27.0 Long-term debt, net of financing costs 3,320.4 3,140.8

Total debt (1) 3,352.3 3,167.8 Partners’ equity (2) 1,528.9 1,482.4

Total capitalization $ 4,881.2 $ 4,650.2 Debt / total capitalization ratio (3) 68.7% 68.1% (1) The change in long-term debt, net of financing costs, is explained above in the Other Financing Activities heading. (2) For additional information on the composition of Partners’ equity, refer to the consolidated statements of Partners’ equity in Gaz Métro’s

interim consolidated financial statements for the period ended December 31, 2014. (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.

At 68.7%, the debt / total capitalization ratio increased by 0.6%. This increase was mainly due to the above-described financing activities. This debt ratio falls within Gaz Métro’s targeted range.

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 quarter of fiscal 2015, the Partnership increased the value of its U.S.-dollar net assets by $18.3 million due to the appreciation of the U.S. dollar versus the Canadian dollar.

The value of the Partnership’s U.S.-dollar net assets exposed to exchange risk stood at $534.1 million (US$460.4 million) as at December 31, 2014 compared with $424.6 million (US$399.2 million) as at December 31, 2013.


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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:

December 31, 2014 December 31, 2013 Increase

U.S. dollar $1.1601 $1.0636 9.1%

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

December 31, 2014 December 31, 2013 Increase

U.S. dollar $1.1357 $1.0498 8.2%

Unused credit facilities and financing outlook

As at December 31, 2014, the Partnership, in part through its General Partner GMi, had several term credit facilities totalling $1,309.5 million and an operating credit facility totalling $50.0 million, including the debt financing of Wind Farms 2 and 3 and Wind Farm 4, which can be used to finance current operations and various development activities. Given the amounts borrowed and letters of credit issued by Gaz Métro and its subsidiaries and joint ventures, the unused credit facilities stood at $374.1 million as at December 31, 2014.

As indicated in Valener’s MD&A for the year ended September 30, 2014, Gaz Métro may transfer receivables to a securitization trust, with limited recourse, on a monthly basis. The maximum amount negotiated with the securitization trust was $85.0 million as at December 31, 2014 and 2013. During the first quarter of fiscal 2015, the Partnership transferred receivables totalling $59.0 million, net of the subordinated interests retained by Gaz Métro, and recognized a $0.1 million sale of receivables expense. The Partnership had not used this source of financing during the same period of fiscal 2014.

During the next three quarters of fiscal 2015, the Partnership expects to require funds to finance:

investments in property, plant and equipment that could amount to approximately $227 million and related mainly to extensions and improvements to be made to the energy distribution systems in Quebec and Vermont (approximately $180 million) and to the LSR plant expansion project (approximately $47 million). Investments in property, plant and equipment for Vermont were revised downwards due to construction delays for the Addison project, as explained in section M) SEGMENT RESULTS;

investment opportunities;

capital contributions needed for Gaz Métro’s subsidiaries, joint ventures and entities subject to significant influence;

the purchase of Gaz Métro-QDA’s GHG emission allowances under the CATS Regulation;

the refinancing or repayment of $31.9 million in long-term debt maturing 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;

Gaz Métro’s securitization program as previously described; and

if necessary, new financings in the form of debt or unit issuances.

Restrictive covenants

As at December 31, 2014, GMi and Gaz Métro and its subsidiaries and joint ventures were in compliance with all of the requirements of the trust deeds and term loan agreements governing long-term debt. 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

During the quarter ended December 31, 2014, Gaz Métro’s and GMi’s S&P and DBRS credit ratings were maintained. In December 2014, S&P revised GMP’s BBB+ corporate credit rating outlook from stable to positive.


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P) RECENT ACCOUNTING CHANGES

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 years ended September 30, 2014 and 2013, except for the following:

Transfer of receivables

Gaz Métro’s receivables securitization program meets the sale of assets criteria and is therefore not recorded on the balance sheet. The excess of receivables transferred over cash receipts is the amount of subordinated interests retained by Gaz Métro, which are recorded and combined under Trade and other receivables on the consolidated balance sheet. The fair value of these subordinated interests approximates the carrying amount since the receivables sold will be recovered over a short period of time. The expenses related to the securitization program are recorded under Financial and other expenses in the consolidated statement of income.

FUTURE ACCOUNTING CHANGES


Gaz Métro elected 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, for fiscal 2015, Gaz Métro is presenting its consolidated financial statements in accordance with Canadian GAAP.

The Partnership has decided to adopt IFRS as of its 2016 fiscal year and plans to apply IFRS 14 Regulatory Deferral Accounts. Based on the current status of the conversion project, the Partnership cannot yet quantify how the future conversion to IFRS will impact its consolidated financial statements and accompanying notes as well as rate-setting for Gaz Métro’s regulated entities. Given the differences that exist between Canadian GAAP and IFRS, the impacts could be significant. Additional information will be disclosed as the conversion project advances.

Development of the IASB’s project on rate-regulated activities

In September 2014, the IASB issued a discussion paper exploring what information on rate-regulated activities is most useful to financial statement users as well as the possible approaches for reporting the financial effects of rate regulation. The stakeholders had until January 15, 2015 to submit comments directly to the IASB. Gaz Métro joined a group of companies in the Canadian natural gas distribution industry to submit a letter supporting the project and is continuing to actively monitor the discussions and developments surrounding the implementation of a final standard on rate-regulated activities.

IFRS conversion project

The conversion project comprises four steps: initial assessment, detailed assessment, design, and implementation. During fiscal 2014, the Partnership began the initial assessment and detailed assessment steps. These steps are still in progress and are expected to be finalized in the second half of fiscal 2015. No significant changes have been made to the conversion plan presented in Valener’s MD&A for the fiscal year ended September 30, 2014.

Significant accounting impacts

To date, the preliminary detailed assessment has identified certain differences between current accounting policies and those that will have to be applied when preparing IFRS consolidated financial statements. These differences were presented in Valener’s MD&A for the fiscal year ended September 30, 2014. During the first quarter of fiscal 2015, other differences were identified and have been described below. This assessment is not final and the list not exhaustive. Rather, it aims to identify the accounting areas where the Partnership currently thinks the differences will be most significant. Changes may be made between now and the end of the detailed assessment stage, which is scheduled for the second half of fiscal 2015.

SIGNIFICANT ACCOUNTING IMPACTS

Jointly controlled enterprises (joint ventures)

IFRS 11 Joint Arrangements sets out the financial reporting principles to be applied by entities that are party to an arrangement in which two or more parties have joint control (joint arrangements). IFRS 11 requires entities to determine the type of joint arrangement (joint operations or joint venture) in which they are involved by assessing their rights and obligations and to account for those rights and obligations in accordance with the type of joint arrangement.

A joint operator must recognize its interest in a joint operation by recording its share of the assets, liabilities, revenues and expenses from the joint operation, whereas a joint venture must recognize its interest in a joint


33

venture using the equity method. Under the equity method, the interest is initially recognized at cost and the carrying value is subsequently increased or decreased based on the joint venture’s share of earnings.

Accordingly, certain interests in joint ventures that had previously been recognized using the proportionate consolidation method under Canadian GAAP may now be recognized using the equity method. The Partnership is currently assessing how this standard will impact its interests in joint ventures.

Impairment of assets Unlike Canadian GAAP, IAS 36 Impairment of Assets prescribes a one-step process to test and measure impairment. The approach involves directly comparing the carrying amount of assets with the higher of the fair value less costs to sell or value in use (determined using the present value of future cash flows). Canadian GAAP uses a two-step approach, first comparing the carrying amount of assets to undiscounted future cash flows to determine whether impairment exists and then, if this first step is not conclusive, recognizing the difference between the carrying amount and the fair value in the statement of income. Using the IFRS method could change impairments to be recognized because, under Canadian GAAP, the carrying amounts of assets are justified based on the undiscounted value of the cash flows.

Under IFRS, the Partnership is also required to test the following assets for impairment at the IFRS transition date: (i) goodwill, (ii) property, plant and equipment to which the exemption under IFRS 1.D8 (b) is used, and (iii) interests in joint arrangements that are changing from the proportionate consolidation method to the equity method. Other assets will be tested for impairment only if there is an indication of impairment.

The Partnership is currently assessing how this standard will impact its consolidated financial statements.

Information systems and internal control over financial reporting

No significant changes have been made since Valener’s MD&A for the fiscal year ended September 30, 2014. The Partnership is continuing to assess the impacts of the IFRS conversion on its information systems and internal control over financial reporting.

Q) FINANCIAL INSTRUMENTS

All financial instruments reported on the Partnership’s consolidated balance sheet as at December 31, 2014 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, 2014. In addition, the fair value of derivative financial instruments is determined using the spot rates or forward prices or rates at the close of markets as at the balance sheet date. Furthermore, changes in the fair value of most of the derivative financial instruments appearing in Gaz Métro’s consolidated balance sheet as at December 31, 2014 are either recognized in deferred charges and credits accounts, in accordance with regulatory treatments, or in Other comprehensive income because they qualify for hedge accounting, 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 December 31, 2014, increased by $16.6 million since September 30, 2014. This situation was primarily due to:

a decrease in the forward prices of natural gas on financial markets in an amount of $13.6 million; and

lower interest rates that led to a $10.9 million higher swap-related liability; partly offset by:

a $5.3 million decrease in electricity prices resulting in a lower liability related to the 9701 Agreement.

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 December 31, 2014, the credit risk relating to counterparties to derivative financial instruments is virtually non-existent, as the Partnership is in a liability position with all of its counterparties. No changes have been made to the methods used to manage the credit and liquidity risk related to the counterparties of derivative financial instruments since September 30, 2014. The Partnership is therefore continuing to carefully monitor and manage the credit and liquidity risk relating to these counterparties.

R) ADDITIONAL INFORMATION

Units outstanding

As at February 10, 2015, a total of 151,796,363 units were outstanding.


34

S) QUARTERLY RESULTS

Unaudited 2015 2014 2014 2014 (in millions of dollars, unless otherwise indicated) Quarters 1st 4th 3rd 2nd

Revenues $ 696.0 $ 411.5 $ 480.0 $ 969.7 Net income (loss) attributable to Partners $ 72.6 $ (30.3) $ (3.3) $ 132.5 Basic and diluted net income (loss) per unit attributable to Partners (in $) $ 0.48 $ (0.20) $ (0.02) $ 0.87

Unaudited 2014 2013 2013 2013 (in millions of dollars, unless otherwise indicated) Quarters 1st 4th 3rd 2nd

Revenues $ 675.5 $ 375.1 $ 437.5 $ 782.0 Net income (loss) attributable to Partners $ 75.8 $ (20.3) $ 2.4 $ 115.8 Basic and diluted net income (loss) per unit attributable to Partners (in $) $ 0.50 $ (0.14) $ 0.02 $ 0.77

Summary of quarterly results

As shown in the above table, seasonal temperature fluctuations and wind variations influence the energy consumption levels of customers and the energy production levels of wind parks, which in turn influence the Partnership’s interim consolidated financial results. These interim financial results also depend, although not solely, on overearnings or shortfalls, decisions made by the agencies that regulate the rates of the Partnership and its subsidiaries, joint ventures and entities subject to significant influence, and the impact of fluctuations of 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:

1st quarters: The 2015 first-quarter net income attributable to Partners decreased $3.2 million ($0.02 per unit) year

over year, as explained in section L) CONSOLIDATED FINANCIAL PERFORMANCE SUMMARY.

4th quarters: The 2014 fourth-quarter net loss attributable to Partners increased $10.0 million ($0.06 per unit) year over

year, mainly due to: o a $12.2 million increase in Gaz Métro-QDA’s loss before income taxes, primarily due to the impact of a timing

difference between revenue and cost recognition, as anticipated in the 2014 rate case; and o a $7.6 million increase in income taxes primarily due to higher IBIT generated by the U.S. subsidiaries;

mitigated by: o a $9.8 million increase in the IBIT generated by energy distribution in Vermont (excluding the impact of

exchange rate changes), which came essentially from GMP and was mostly due to (i) lower operating and maintenance expenses owing to the synergies generated by the integration of GMP’s and CVPS’s operations and (ii) the impact on gross margin of an overall 2.46% increase in rates since October 1, 2013, stemming from its rate case parameters, partly mitigated by (iii) an unfavourable impact of colder temperatures in the fourth quarter that reduced air conditioning usage.

3rd quarters: The 2014 third-quarter net loss attributable to Partners increased $5.7 million ($0.04 per unit) year over

year, mainly due to: o a $5.1 million decrease in IBIT generated by Gaz Métro-QDA, mainly due to the impact of a timing difference

between revenue and cost recognition, as anticipated in the 2014 rate case; and o a $4.0 million increase in income taxes, mainly given the higher IBIT generated by the U.S. subsidiaries and

an unfavourable impact of the depreciation of the Canadian dollar against the U.S. dollar; mitigated by:

o a $3.0 million increase in GMP’s IBIT (excluding the impact of exchange rate changes), mainly because of lower operating and maintenance expenses owing to the synergies generated by the integration of GMP’s and CVPS’s operations.

2nd quarters: The 2014 second-quarter net income attributable to Partners increased $16.7 million ($0.10 per unit)

year over year, mainly due to: o a $15.1 million increase in Gaz Métro-QDA’s IBIT, mainly due to (i) a timing difference between the revenue

recognition profile, which follows the customers’ consumption profile, and that of costs, and (ii) increased deliveries to the commercial market due to considerably colder-than-normal temperatures, despite application of the temperature normalization mechanism on part of the distribution service deliveries;

o a $3.2 million favourable exchange rate impact on the IBIT generated by Vermont distribution activities; and


35

o a $1.7 million increase in GMP’s IBIT (excluding the impact of exchange rate changes), mainly due to the favourable impact of colder temperatures.

T) SUBSEQUENT EVENTS

GMi’s credit facility

On January 28, 2015, GMi, as General Partner of Gaz Métro, amended its credit agreement to raise the maximum authorized amount to $800 million and extended the maturity to March 2020.

Declaration of a distribution

On February 11, 2015, the board of directors of GMi, acting in its capacity as General Partner of Gaz Métro, declared a quarterly distribution of $42.5 million, payable on April 1, 2015, to its Partners. This MD&A has been prepared as of February 12, 2015. Additional information about Valener, including its Annual Information Form, MD&A, and Annual Report for the fiscal year ended September 30, 2014 can be found on SEDAR at www.sedar.com and on Valener’s website at www.valener.com/investisseurs.


36

GLOSSARY

The most commonly used abbreviations in this report are listed in the table below. UNITS OF MEASURE AND GENERAL TERMS CATS Regulation Regulation respecting a cap-and-trade

system for greenhouse gas emission allowances (Quebec)

CNG Compressed natural gas DBRS Dominion Bond Rating Service GEEP Global Energy Efficiency Plan GHG Greenhouse gas GJ Gigajoule Green Fund

Regulation Regulation respecting the annual duty payable to the Green Fund

Km Kilometre LNG Liquefied natural gas LSR Plant Gaz Métro-QDA’s natural gas

liquefaction, storage and regasification plant

Management The management of GMi, in its capacity as General Partner of Gaz Métro

Management of the manager

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

MWh Megawatthour S&P Standard & Poor’s

Series A preferred shares

Series A cumulative rate reset preferred shares

TSX Toronto Stock Exchange Wind park 4 Wind park of Wind Farm 4 Wind parks 2 and 3 Wind parks of Wind Farms 2 and 3 GOVERNMENT AND REGULATORY AGENCIES

FERC Federal Energy Regulatory Commission (United States)

NEB National Energy Board Régie Régie de l’énergie (Quebec) VDPS Vermont Department of Public Service VPSB Vermont Public Service Board

ACCOUNTING AND FINANCIAL TERMS

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

CICA Canadian Institute of Chartered Accountants

DRIP Dividend Reinvestment Plan Handbook CPA Canada Handbook – Accounting IASB International Accounting Standards

Board

IBIT Income before income taxes IFRS International Financial Reporting

Standards

ENTITIES

Beaupré Éole Beaupré Éole General Partnership Beaupré Éole 4 Beaupré Éole 4 General Partnership Champion Champion Pipe Line Corporation

Limited CVPS Central Vermont Public Service

Corporation Gaz Métro / the

Partnership Gaz Métro Limited Partnership

Gaz Métro Éole Gaz Métro Éole Inc. Gaz Métro Éole 4 Gaz Métro Éole 4 Inc. Gaz Métro LNG Gaz Métro LNG 2013 L.P., or

Gaz Métro LNG L.P., depending on the context

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

GMi Gaz Métro inc. GMP Green Mountain Power Corporation PNGTS Portland Natural Gas Transmission

System TCPL TransCanada PipeLines Limited TQM Trans Québec & Maritimes Pipeline

Inc., as mandatary for TQM Pipeline and Company, Limited Partnership

Transco Vermont Transco LLC Valener / the Company Valener Inc. Valener Éole Valener Éole Inc. Valener Éole 4 Valener Éole 4 Inc. Velco Vermont Electric Power Company, Inc. VGS Vermont Gas Systems, Inc. Wind Farm 4 Seigneurie de Beaupré Wind Farm 4

General Partnership Wind Farms 2 and 3 Seigneurie de Beaupré Wind Farms 2

and 3 General Partnership

37

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 2014 AND 2013

VALENER INC. CONSOLIDATED STATEMENTS OF INCOME AND

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of dollars – unaudited)

38

CONSOLIDATED STATEMENTS OF INCOME


2014 2013

SHARE IN THE NET INCOME OF GAZ MÉTRO $ 21,060 $ 21,695 SHARE IN THE NET INCOME (LOSS) OF BEAUPRÉ ÉOLE 1,159 (235) SHARE IN THE NET LOSS OF BEAUPRÉ ÉOLE 4 (139) (80) OTHER REVENUES RELATED TO THE ADMINISTRATION AND MANAGEMENT

SUPPORT AGREEMENT 497 465

22,577 21,845

EXPENSES General and administrative expenses 565 591 Interest on long-term debt 381 220 Financial and other expenses 116 142 Loss on derivative financial instruments (Note 9) 1,459 -

2,521 953

INCOME BEFORE INCOME TAXES 20,056 20,892

Income taxes Current 1,748 3,959 Future 1,862 34

3,610 3,993

NET INCOME $ 16,446 $ 16,899

BASIC AND DILUTED NET INCOME PER COMMON SHARE (in dollars) (Note 6) $ 0.40 $ 0.42

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


2014 2013

NET INCOME $ 16,446 $ 16,899 OTHER COMPREHENSIVE INCOME

Share in the other comprehensive income of Gaz Métro 6,713 6,225 Income taxes (6) 719 Share in the other comprehensive (loss) income of Beaupré Éole (2,688) 861 Income taxes 724 (235) Share in the other comprehensive (loss) income of Beaupré Éole 4 (5) 389 Income taxes 1 (105)

OTHER COMPREHENSIVE INCOME 4,739 7,854

COMPREHENSIVE INCOME $ 21,185 $ 24,753

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

VALENER INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

3 months ended December 31, 2014 and 2013


39

Share capital

Deficit

Accumulated other comprehensive loss

(Note 7)

Shareholders’

equity

Balance as at September 30, 2013 $ 732,810 $ (17,192) $ (18,384) $ 697,234 Net income - 16,899 - 16,899 Other comprehensive income - - 7,854 7,854 Dividend Reinvestment Plan (Note 6) 1,065 - - 1,065 Dividends to common shareholders - (9,454) - (9,454) Dividends to preferred shareholders - (1,088) - (1,088)

Balance as at December 31, 2013 $ 733,875 $ (10,835) $ (10,530) $ 712,510

Balance as at September 30, 2014 $ 737,126 $ (18,476) $ (5,187) $ 713,463

Net income - 16,446 - 16,446

Other comprehensive income - - 4,739 4,739

Dividend Reinvestment Plan (Note 6) 1,225 - - 1,225

Dividends to common shareholders - (9,530) - (9,530)

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

Balance as at December 31, 2014 $ 738,351 $ (12,648) $ (448) $ 725,255


VALENER INC.

CONSOLIDATED BALANCE SHEETS


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December 31 September 30

2014 2014

ASSETS Current assets Cash $ 1,692 $ 757 Amount receivable from Gaz Métro 1,035 464 Distributions receivable from Gaz Métro 12,327 12,327 Income taxes receivable 1,370 3,001 Future income taxes - 50 Other assets 29 4

16,453 16,603

Interests in entities subject to significant influence (Note 5) 813,933 797,121 Future income taxes 721 2,018

$ 831,107 $ 815,742

LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 721 $ 921 Dividends payable to common shareholders 9,530 9,509 Dividends payable to preferred shareholders 1,088 1,088 Future income taxes - 292

11,339 11,810

Long-term debt 69,835 66,780 Future income taxes 23,219 23,689 Derivative financial instruments (Note 9) 1,459 -

105,852 102,279

SHAREHOLDERS’ EQUITY Share capital (Note 6) 738,351 737,126 Deficit (12,648) (18,476) Accumulated other comprehensive loss (Note 7) (448) (5,187)

(13,096) (23,663)

725,255 713,463

$ 831,107 $ 815,742

Subsequent events (Note 10) The accompanying notes to the interim consolidated financial statements are an integral part of these statements.

VALENER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


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2014 2013

OPERATING ACTIVITIES Net income $ 16,446 $ 16,899 Distributions received from Gaz Métro 12,327 12,073 Non-cash items:

Share in the net income of Gaz Métro (21,060) (21,695) Share in the (net income) net loss of Beaupré Éole (1,159) 235 Share in the net loss of Beaupré Éole 4 139 80 Loss on derivative financial instruments 1,459 - Future income taxes 1,862 34 Other 59 60

10,073 7,686 Change in non-cash working capital items (Note 8) 954 77

Cash flows related to operating activities 11,027 7,763

INVESTING ACTIVITIES Purchase of units in Beaupré Éole (Note 5) (72) (195) Purchase of units in Beaupré Éole 4 (Note 5) (3,617) (1,363) Other (27) (158)

Cash flows related to investing activities (3,716) (1,716)

FINANCING ACTIVITIES Long-term debt:

Issuances 70,496 75,492 Repayments (67,500) (71,500)

Dividends to common shareholders (8,284) (8,371) Dividends to preferred shareholders (1,088) (1,088)

Cash flows related to financing activities (6,376) (5,467)

NET INCREASE IN CASH 935 580 CASH AT BEGINNING 757 482

CASH AT END $ 1,692 $ 1,062


VALENER INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

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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 are prepared in accordance with the Canadian generally accepted accounting principles (Canadian GAAP) included in Part V of the CPA Canada Handbook – Accounting (Handbook), Pre- changeover Accounting Standards. The Canadian GAAP used are those that apply 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 and the accompanying notes for the fiscal year ended September 30, 2014. The interim consolidated financial statements are also prepared in accordance with the accounting policies described in the audited consolidated financial statements for the fiscal year ended September 30, 2014. 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) and indirectly in Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership and Seigneurie de Beaupré Wind Farm 4 General Partnership, its interim period operating results reflect the seasonal nature of the interim results of these economic interests. 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 and wind fluctuations influence the energy consumption levels of customers and the energy production levels of the wind farms, which in turn influence Valener’s interim consolidated financial results. Historically, Valener’s revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.

3. ACCOUNTING POLICIES

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments classified as held-for-trading financial assets and liabilities are recognized at fair value on the consolidated balance sheet. Gains and losses arising from changes in fair value are recognized in the income of the period in which they occur.

The derivative financial instruments measured at fair value are categorized into a three-level hierarchy that is based on the observable nature of the data used to measure the fair value. The three levels of the fair value hierarchy are as follows:

Level 1 - This category includes assets and liabilities measured at fair value on the basis of unadjusted prices applied to identical assets and liabilities in active and accessible markets at the measurement date. An active market for an asset or liability means a market where operations occur at sufficient frequency and volumes to provide a constant flow of information on prices.

Level 2 - This category includes measurements based on directly or indirectly observable data other than the quoted prices included in Level 1. Financial instruments in this category are measured using models or other standard industry valuation techniques, techniques that are derived from observable market data. These valuation techniques use data such as quoted prices in the forward market, time value, volatility factors and prices quoted by brokers that can be observed or corroborated on the market for the entire term of the derivative financial instrument.

Level 3 - This category includes measurements based on data that is less observable or unavailable or for which the observable data does not largely substantiate the fair value of the financial instruments. In general, Level 3 measurements relate to long-term operations that are transacted in less active markets or in places where it is impossible to obtain information on the price, or for which no price quoted by brokers is sufficiently enforceable to justify a Level 2 classification.

The fair value hierarchy requires the use of observable market data each time that such data exists. A financial instrument is classified according to the lowest level from which significant data was used in measuring its fair value.

VALENER INC.



43

4. ACCOUNTING CHANGES



Valener elected 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, for fiscal 2015, Valener is presenting its consolidated financial statements in accordance with the Canadian GAAP included in Part V of the Handbook (Canadian GAAP).

Valener has decided to adopt IFRS as of its 2016 fiscal year and plans to apply IFRS 14 Regulatory Deferral Accounts. Based on the status of the conversion project, the Company cannot yet quantify how the future conversion to IFRS will impact its consolidated financial statements and accompanying notes. Given the differences that exist between Canadian GAAP and IFRS, the impacts may be significant. Additional information will be disclosed as the conversion project advances.

5. INTERESTS IN ENTITIES SUBJECT TO SIGNIFICANT INFLUENCE

Valener subscribed, in proportion to its current interest, 72,095 units in Beaupré Éole General Partnership (Beaupré Éole) for a total cash consideration of $72,000 during the first quarter of fiscal 2015.

Valener subscribed, in proportion to its current interest, 3,616,635 units in Beaupré Éole 4 General Partnership (Beaupré Éole 4) for a total cash consideration of $3,617,000 during the first quarter of fiscal 2015.

6. SHARE CAPITAL

DECLARED


2014 2014

38,119,603 common shares (38,037,286 as at September 30, 2014) $ 640,871 $ 639,646 4,000,000 Series A preferred shares (1) 97,480 97,480

$ 738,351 $ 737,126 (1) Series A cumulative rate reset preferred shares.

During the first quarter of fiscal 2015, as part of the Dividend Reinvestment Plan, 82,317 common shares were issued for a total amount of $1,225,000 (72,770 common shares were issued for a total amount of $1,065,000 during the first quarter of fiscal 2014).

BASIC AND DILUTED NET INCOME PER COMMON SHARE


2014 2013

Net income $ 16,446 $ 16,899 Less: Cumulative dividends on Series A preferred shares 1,088 1,088

Net income attributable to common shareholders $ 15,358 $ 15,811

Basic and diluted weighted average number of common shares outstanding (in thousands) 38,107 37,806

Basic and diluted net income per common share (in dollars) $ 0.40 $ 0.42

VALENER INC.



44

7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


2014 2014

Share in the other comprehensive income of Gaz Métro,

net of income taxes $ 15,807 $ 9,100 Share in the other comprehensive loss of Beaupré Éole,

net of income taxes (16,255) (14,291) Share in the other comprehensive income of Beaupré Éole 4,

net of income taxes - 4

Accumulated other comprehensive loss $ (448) $ (5,187)

8. CASH FLOWS


2014 2013

Change in non-cash working capital items:

Amount receivable from Gaz Métro $ (571) $ (218) Other assets (25) (38) Accounts payable and accrued liabilities (200) (1,058) Income taxes receivable 1,750 1,391

$ 954 $ 77

Other information: Interest paid $ 381 $ 220 Income taxes (received) paid $ (3) $ 2,568

9. DERIVATIVE FINANCIAL INSTRUMENTS

SIGNING OF SWAP AGREEMENTS

On October 23, 2014, Valener entered into swaps for a total nominal value of $44,757,000 with a mandatory early termination date of October 31, 2016 to cover the risk of interest rate fluctuations on a potential future debt issuance. Since these swaps do not meet the conditions for hedge accounting, changes in fair value are therefore recognized in income.

The fair value of these swaps was calculated using the discounted future cash flows method. As at December 31, 2014, the fair value of the swaps was measured based on Level 2, as described in Note 3.

Valener is exposed to the market risk and liquidity risk arising from these transactions. Market risk is dependent on changes in interest rates, which have an impact on the fair value of the swaps. A 100-basis-point increase in interest rates, with all other variables being constant, would have increased consolidated net income by $5,006,000, whereas a 100-basis-point decrease in interest rates would have decreased consolidated net income by $6,018,000.

10. SUBSEQUENT EVENTS

DECLARATION OF A DIVIDEND TO COMMON SHAREHOLDERS

On February 12, 2015, the board of directors declared a quarterly dividend of $0.26 per common share for the quarter ending March 31, 2015, payable on April 15, 2015 to common shareholders of record at the close of business on March 31, 2015.

DECLARATION OF A DIVIDEND TO PREFERRED SHAREHOLDERS

On February 12, 2015, the board of directors also declared a dividend of $0.271875 per Series A preferred share for the period of January 16 to April 15, 2015, payable on April 15, 2015 to the preferred shareholders of record at the close of business on April 9, 2015.

45

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED DECEMBER 31, 2014 AND 2013

GAZ MÉTRO LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


46

CONSOLIDATED STATEMENTS OF INCOME


2014 2013

REVENUES $ 695,988 $ 675,455 DIRECT COSTS 401,955 397,566

GROSS MARGIN 294,033 277,889

EXPENSES Operating and maintenance 125,322 118,938 Amortization 63,136 56,254 Interest on long-term debt 41,572 35,106 Financial and other expenses (2,021) (2,874)

228,009 207,424

INCOME BEFORE THE UNDERNOTED 66,024 70,465 Share in earnings of entities subject to significant influence 21,787 18,903

INCOME BEFORE INCOME TAXES 87,811 89,368

Income taxes Current 2,617 3,926 Future 11,541 9,954

14,158 13,880

NET INCOME $ 73,653 $ 75,488

NET INCOME (LOSS) ATTRIBUTABLE TO:

Non-controlling interests $ 1,040 $ (315) Partners 72,613 75,803

$ 73,653 $ 75,488

BASIC AND DILUTED NET INCOME PER UNIT ATTRIBUTABLE TO PARTNERS

(in dollars) $ 0.48 $ 0.50

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING

(in thousands of units) 151,796 151,796

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 3 months ended December 31

2014 2013

NET INCOME $ 73,653 $ 75,488 OTHER COMPREHENSIVE INCOME Change in translation adjustments of self-sustaining foreign operations 41,594 32,255 Change in translation adjustments related to net investment hedging activities (23,311) (19,449) Change in the fair value of derivative financial instruments designated as hedges (7,441) 2,844 Income taxes 889 (161)

OTHER COMPREHENSIVE INCOME 11,731 15,489

COMPREHENSIVE INCOME $ 85,384 $ 90,977

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

Non-controlling interests $ (1,653) $ 935 Partners 87,037 90,042

$ 85,384 $ 90,977


GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY


47


Attributable to Partners

Capital

Retained earnings (Deficit)

Accumulated other

comprehensive loss (Note 8)

Total

Non-controlling interests

Partners’ equity

Balance as at September 30, 2013 $ 1,496,825 $ (30,464) $ (63,533) $ 1,402,828 $ 41,235 $ 1,444,063 Net income (loss) - 75,803 - 75,803 (315) 75,488 Other comprehensive income - - 14,239 14,239 1,250 15,489 Issuances of units - - - - 1,557 1,557 Distributions - (42,503) - (42,503) - (42,503)

Balance as at December 31, 2013 $ 1,496,825 $ 2,836 $ (49,294) $ 1,450,367 $ 43,727 $ 1,494,094

Balance as at September 30, 2014 $ 1,496,825 $ (25,792) $ (29,406) $ 1,441,627 $ 40,727 $ 1,482,354 Net income - 72,613 - 72,613 1,040 73,653 Other comprehensive income

(loss) - - 14,424 14,424 (2,693) 11,731 Issuances of units - - - - 3,689 3,689 Distributions - (42,503) - (42,503) - (42,503)

Balance as at December 31, 2014 $ 1,496,825 $ 4,318 $ (14,982) $ 1,486,161 $ 42,763 $ 1,528,924

GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS


48

Subsequent events (Note 12)



2014 2014

ASSETS Current assets Cash and cash equivalents $ 105,436 $ 103,657 Restricted cash 2,011 27,175 Trade and other receivables (Note 5) 322,176 211,865 Income taxes receivable 1,564 3,206 Inventories 112,725 114,905 Prepaid expenses 18,697 14,987 Future income taxes 25,968 37,053 Derivative financial instruments - 1,057

588,577 513,905

Property, plant and equipment 4,090,179 3,973,508

Restricted cash 24,722 18,373 Intangible assets 113,645 78,543 Deferred charges 388,883 394,804 Investments and other (Note 6) 803,361 736,755 Goodwill 361,150 348,969 Future income taxes 4,131 4,676 Derivative financial instruments - 86 Other long-term assets 78,175 74,595

1,774,067 1,656,801

$ 6,452,823 $ 6,144,214

LIABILITIES Current liabilities Bank overdraft $ 10,359 $ 5,422 Accounts payable and accrued liabilities 346,597 341,073 Income taxes payable 107 199 Distributions payable 42,503 42,503 Derivative financial instruments 19,392 11,882 Current portion of long-term debt (Note 7) 31,938 27,016

450,896 428,095

Long-term debt (Note 7) 3,320,340 3,140,762 Deferred credits 325,355 304,801 Future income taxes 425,894 416,041 Derivative financial instruments 20,652 12,691 Other long-term liabilities 380,762 359,470

4,923,899 4,661,860

PARTNERS’ EQUITY Capital 1,496,825 1,496,825 Retained earnings (deficit) 4,318 (25,792) Accumulated other comprehensive loss (Note 8) (14,982) (29,406)

(10,664) (55,198)

1,486,161 1,441,627

Non-controlling interests 42,763 40,727

1,528,924 1,482,354

$ 6,452,823 $ 6,144,214

GAZ MÉTRO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS


49


2014 2013

OPERATING ACTIVITIES Net income $ 73,653 $ 75,488 Distributions received from entities subject to significant influence 10,038 18,879 Non-cash items:

Amortization of property, plant and equipment 47,506 42,093 Amortization of deferred charges and credits, intangible assets and financing costs 15,874 14,823 Change in deferred charges related to the cost of energy 35,528 42,152 Change in the rate stabilization accounts (2,418) 8,261 Share in earnings of entities subject to significant influence (21,787) (18,903) Future income taxes 11,541 9,954 Other (1,067) (4,807)

168,868 187,940 Change in non-cash working capital items (Note 9) (64,821) (125,765)

Cash flows related to operating activities 104,047 62,175

INVESTING ACTIVITIES Change in restricted cash 19,438 (39,648) Purchases of property, plant and equipment (142,552) (154,797) Change in deferred charges and credits (21,883) (15,407) Purchases of intangible assets (36,538) (764) Purchases of investment fund units (107,717) (60,584) Disposals of investment fund units 107,472 60,362 Change in an interest in an entity subject to significant influence and other (Note 6) (26,810) (24,534) Other (266) (625)

Cash flows related to investing activities (208,856) (235,997)

FINANCING ACTIVITIES Change in bank loans - 2,498 Increase in term loans 1,068,221 633,705 Repayments of term loans (1,045,556) (497,786) Issuances of long-term debt (Note 7) 113,845 64,597 Repayments of long-term debt (7,346) (6,772) Change in other long-term liabilities 9,521 - Issuances of units 3,689 1,557 Distributions (42,503) (41,628)

Cash flows related to financing activities 99,871 156,171

IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH AND CASH

EQUIVALENTS AND BANK OVERDRAFT 1,780 908

NET CHANGE IN CASH AND CASH EQUIVALENTS, NET OF BANK OVERDRAFT (3,158) (16,743)

CASH AND CASH EQUIVALENTS, NET OF BANK OVERDRAFT, AT BEGINNING 98,235 56,119

CASH AND CASH EQUIVALENTS, NET OF BANK OVERDRAFT, AT END (1) $ 95,077 $ 39,376 (1) As at December 31, 2014, the cash and cash equivalents item consisted of $88,251 in cash, $17,185 in short-term investments, and $10,359

in bank overdraft. As at December 31, 2013, these items totalled $41,704, $9,537 and $11,865, respectively.


GAZ MÉTRO LIMITED PARTNERSHIP NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


50

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 investments in jointly controlled enterprises (joint ventures) are accounted for using the proportionate consolidation method.

The interim unaudited consolidated financial statements are prepared in accordance with the Canadian generally accepted accounting principles (Canadian GAAP) included in Part V of the CPA Canada Handbook – Accounting (Handbook), Pre-changeover Accounting Standards. The Canadian GAAP used are those that apply 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 and the accompanying notes for the fiscal year ended September 30, 2014. The interim consolidated financial statements are also prepared in accordance with the accounting policies described in the audited consolidated financial statements for the fiscal year ended September 30, 2014. 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 and wind fluctuations influence the energy consumption levels of customers and energy production levels of the wind farms, which 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.

3. ACCOUNTING POLICIES

TRANSFER OF RECEIVABLES

Gaz Métro’s receivables securitization program meets the sale of assets criteria and is therefore not recorded on the balance sheet. The excess of receivables transferred over cash receipts is the amount of subordinated interests retained by Gaz Métro, which are recorded and combined under Trade and other receivables on the consolidated balance sheet. The fair value of these subordinated interests approximates the carrying amount since the receivables sold will be recovered over a short period of time. The expenses related to the securitization program are recorded under Financial and other expenses in the consolidated statement of income.

76

132

(3)

(30)

73

1er 2e 3e 4eQuarter

2014

2015

Net income (loss)attributable to Partners

(in millions of dollars)

1st 2nd 3rd 4th

0.50

0.87

(0.02)

(0.20)

0.48

1er 2e 3e 4eQuarter

2014

2015

Net income (loss) per unitattributable to Partners

(in dollars)

1st 2nd 3rd 4th



51

4. ACCOUNTING CHANGES



Gaz Métro elected 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, for fiscal 2015, Gaz Métro is presenting its consolidated financial statements in accordance with the Canadian GAAP included in Part V of the Handbook (Canadian GAAP).

The Partnership has decided to adopt IFRS as of its 2016 fiscal year and plans to apply IFRS 14 Regulatory Deferral Accounts. Based on the current status of the conversion project, the Partnership cannot yet quantify how the future conversion to IFRS will impact its consolidated financial statements and accompanying notes as well as rate-setting for Gaz Métro’s regulated entities. Given the differences that exist between Canadian GAAP and IFRS, the impacts could be significant. Additional information will be disclosed as the conversion project advances.

5. TRADE AND OTHER RECEIVABLES

TRANSFER OF RECEIVABLES

Gaz Métro is party to a receivables purchase agreement (called the “securitization agreement”) under which it may assign receivables to a securitization trust, with limited recourse, on a monthly basis. The securitization agreement has no expiry date. The securitization trust has no recourse against the other assets of Gaz Métro for failure of the debtors to pay when due.

Gaz Métro retained responsibility for the management, administration and collection of the receivables sold. No asset or liability with respect to the management of the receivables has been recorded, given that the monetary benefits that Gaz Métro derives in this regard are almost equal to the value of the services provided.

Gaz Métro accounts for this revolving sales agreement as a sale since control over the transferred receivables has been surrendered.

As at December 31, 2014, the amount of receivables derecognized, net of the subordinated interests retained by Gaz Métro, amounted to $59,000,000 (nil as at September 30, 2014). The maximum amount of the securitization agreement is $85,000,000 ($85,000,000 as at September 30, 2014).

The expense recorded as a sale of receivables was $131,000 for the first quarter of fiscal 2015 (nil during the first quarter of fiscal 2014). These costs include interest, program costs, and charges related to unused availability and are recorded under Financial and other expenses in the consolidated statement of income.

6. INVESTMENTS

INVESTMENT IN VERMONT TRANSCO LLC

During the first quarter of fiscal 2015, through one of its U.S. subsidiaries, Gaz Métro invested $26,600,000 (US$23,421,000) in one of its entities subject to significant influence, i.e., Vermont Transco LLC (Transco), raising its ownership interest from 70.0% to 70.6%. These funds are intended to finance capital investments in electricity transmission activities.



52

7. LONG-TERM DEBT

GMI’S PRIVATE PLACEMENT

On December 9, 2014, GMi entered into a purchase agreement for secured senior notes in an amount of $114,400,000 (US$100,000,000). These notes bear interest at an annual rate of 3.22% and will mature on December 9, 2024. The proceeds of the issuance were loaned to Gaz Métro at similar conditions to be used to refinance existing debt and for general business purposes. These notes are guaranteed by Gaz Métro with respect to the payment of principal and interest and also contain an hypothec on the universality of present and future movable and immovable property of Gaz Métro and GMi located in the Province of Quebec. The creditors are thus covered by a first immovable hypothec on the Partnership’s present and future natural gas system and pipelines.

GMP’s CREDIT FACILITY

On December 15, 2014, GMP’s credit facility, totalling $81,592,000 (US$70,000,000), was repaid using a new credit facility. This new credit facility authorizes a $128,216,000 (US$110,000,000) term loan and expires on December 14, 2019.

8. ACCUMULATED OTHER COMPREHENSIVE LOSS


2014 2014

Translation adjustments of self-sustaining foreign operations $ 105,268 $ 63,674 Translation adjustments related to net investment hedging activities (85,273) (61,962) Adjustments related to the fair value of derivative financial instruments

designated as hedges, net of income taxes (34,977) (31,118)

Accumulated other comprehensive loss $ (14,982) $ (29,406)

9. CASH FLOWS


2014 2013

Change in non-cash working capital items:

Trade and other receivables $ (106,987) $ (187,736) Inventories 3,878 10,328 Prepaid expenses (3,321) (3,423) Accounts payable and accrued liabilities 40,055 51,901 Income taxes payable and receivable 1,554 3,165

$ (64,821) $ (125,765)

Other information: Interest received $ 646 $ 892 Interest paid $ 60,623 $ 53,380 Income taxes paid $ 3,264 $ 2,833

Accounts payable and accrued liabilities include an amount of $25,027,000 as at December 31, 2014 related to the purchase of property, plant and equipment ($35,506,000 as at December 31, 2013). These transactions have no impact on cash and are therefore not reflected in the consolidated statement of cash flows.



53

10. EMPLOYEE FUTURE BENEFITS

The following table provides the total cost related to defined benefit pension plans and other postretirement benefits:


2014 2013

Pension

plans

Other postretirement

benefits Pension

plans

Other postretirement

benefits

Accrued benefit cost (1) $ 7,854 $ 2,671 $ 7,394 $ 1,872 Unrecognized revenue (cost) of

Gaz Métro-QDA (2) 2,108 (2,108) 5,200 (1,350)

Recognized cost $ 9,962 $ 563 $ 12,594 $ 522

(1) Accrued benefit cost is the cost determined in accordance with the standards set out in Section 3461, Employee Future Benefits, of Part V of the Handbook.

(2) The unrecognized revenue (cost) of natural gas distribution in Quebec (Gaz Métro-QDA) is the difference between the cost recognized in income under regulatory treatments and the actuarially determined cost using the projected benefit method prorated on eligible years of service for Gaz Métro-QDA. This difference is recorded in deferred charges.



54

11. SEGMENT INFORMATION

3 months ended December 31, 2014

Energy Distribution Natural Gas

Transportation Energy

Production

Energy Services,

Storage and Other

Corporate Affairs Total

Gaz Métro-QDA

GMP and VGS

Total

Revenues from external customers $ 435,828 $ 220,997 $ 656,825 $ 11,098 $ 13,634 $ 14,414 $ 17 $ 695,988

Intersegment revenues 4,512 - 4,512 666 - 2,725 (7,903) -

Total revenues 440,340 220,997 661,337 11,764 13,634 17,139 (7,886) 695,988

Direct costs 265,128 133,928 399,056 - - 2,899 - 401,955

Intersegment direct costs 3,171 - 3,171 - - 4,502 (7,673) -

Total direct costs 268,299 133,928 402,227 - - 7,401 (7,673) 401,955

Gross margin 172,041 87,069 259,110 11,764 13,634 9,738 (213) 294,033

Operating and maintenance expenses 65,138 45,994 111,132 4,931 1,973 5,385 1,901 125,322

Share in earnings of entities subject to significant influence - (16,460) (16,460) (5,327) - - - (21,787)

EBITA (1) 106,903 57,535 164,438 12,160 11,661 4,353 (2,114) 190,498

Amortization 37,888 16,011 53,899 2,916 4,872 1,449 - 63,136

Interest on long-term debt 15,437 18,719 34,156 1,508 4,944 964 - 41,572

Financial and other expenses 596 (2,460) (1,864) 27 (84) (100) - (2,021)

Income (loss) before income taxes 52,982 25,265 78,247 7,709 1,929 2,040 (2,114) 87,811

Income taxes (recovered) - 9,360 9,360 3,821 263 726 (12) 14,158

Net income (loss) $ 52,982 $ 15,905 $ 68,887 $ 3,888 $ 1,666 $ 1,314 $ (2,102) $ 73,653

Net income (loss) attributable to:

Non-controlling interests $ - $ - $ - $ - $ 1,040 $ - $ - $ 1,040

Partners $ 52,982 $ 15,905 $ 68,887 $ 3,888 $ 626 $ 1,314 $ (2,102) $ 72,613

Interests in entities

subject to significant influence $ - $ 491,667 $ 491,667 $ 101,927 $ - $ - $ - $ 593,594

Assets $ 2,487,786 $ 2,952,464 $ 5,440,250 $ 329,390 $ 469,300 $ 221,247 $ (7,364) $ 6,452,823

(1) EBITA is not a measurement defined by Canadian GAAP. The Partnership defines it as income (loss) before amortization, interest on long-term debt, financial and other expenses, and income taxes (recovered).



55

3 months ended December 31, 2013

Energy Distribution Natural Gas

Transportation Energy

Production

Energy Services,

Storage and Other

Corporate Affairs Total

Gaz Métro-QDA

GMP and VGS

Total

Revenues from external customers $ 439,579 $ 210,550 $ 650,129 $ 11,016 $ 2,479 $ 11,831 $ - $ 675,455

Intersegment revenues 2,300 - 2,300 525 - 2,721 (5,546) -

Total revenues 441,879 210,550 652,429 11,541 2,479 14,552 (5,546) 675,455

Direct costs 264,994 127,396 392,390 - 464 4,763 (51) 397,566

Intersegment direct costs 3,030 - 3,030 - - 2,239 (5,269) -

Total direct costs 268,024 127,396 395,420 - 464 7,002 (5,320) 397,566

Gross margin 173,855 83,154 257,009 11,541 2,015 7,550 (226) 277,889

Operating and maintenance expenses 66,281 41,026 107,307 4,158 405 4,960 2,108 118,938

Share in earnings of entities subject to significant influence - (13,981) (13,981) (4,922) - - - (18,903)

EBITA (1) 107,574 56,109 163,683 12,305 1,610 2,590 (2,334) 177,854

Amortization 35,382 15,026 50,408 2,870 1,649 1,327 - 56,254

Interest on long-term debt 15,607 15,544 31,151 2,840 1,591 1,679 (2,155) 35,106

Financial and other expenses (255) (549) (804) (1,343) (2,077) (915) 2,265 (2,874)

Income (loss) before income taxes 56,840 26,088 82,928 7,938 447 499 (2,444) 89,368

Income taxes (recovered) - 10,042 10,042 3,849 (9) 716 (718) 13,880

Net income (loss) $ 56,840 $ 16,046 $ 72,886 $ 4,089 $ 456 $ (217) $ (1,726) $ 75,488

Net income (loss) attributable to:

Non-controlling interests $ - $ - $ - $ - $ (315) $ - $ - $ (315)

Partners $ 56,840 $ 16,046 $ 72,886 $ 4,089 $ 771 $ (217) $ (1,726) $ 75,803

Interests in entities subject to significant influence $ - $ 407,970 $ 407,970 $ 89,119 $ - $ - $ - $ 497,089

Assets $ 2,460,260 $ 2,534,517 $ 4,994,777 $ 325,017 $ 470,547 $ 175,259 $ (2,578) $ 5,963,022

(1) EBITA is not a measurement defined by Canadian GAAP. The Partnership defines it as income (loss) before amortization, interest on long-term debt, financial and other expenses, and income taxes (recovered).



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12. SUBSEQUENT EVENTS

GMI’S CREDIT FACILITY

On January 28, 2015, GMi, as General Partner of Gaz Métro, amended its credit agreement to raise the maximum authorized amount to $800,000,000 and extended the maturity to March 2020.

DECLARATION OF A DISTRIBUTION

On February 11, 2015, the board of directors of GMi, acting in its capacity as General Partner of Gaz Métro, declared a quarterly distribution of $42,503,000, payable on April 1, 2015, to its Partners.

13. COMPARATIVE FIGURES

Certain prior year comparative figures have been reclassified to conform to the current year’s presentation.

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SHAREHOLDER INFORMATION

VALENER MARKET INFORMATION

Common shares

Common shares are listed on the Toronto Stock Exchange under the “VNR” trading symbol. Change in common share prices over the last three months (October 1, 2014 to December 31, 2014): High: $16.38;

Low: $15.21. 38.1 million common shares outstanding with a market capitalization of $610.7 million as at December 31, 2014.

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 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 April 15, 2015, by way of an issuance of new common shares by Valener at a 2% 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, CST Trust Company, at 1-800-387-0825 or by email: [email protected] 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

CST 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: 2nd quarter: May 14, 2015 3rd quarter: August 7, 2015 4th quarter: November 27, 2015

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 Valener’s website (www.valener.com/investisseurs) and on the SEDAR website (www.sedar.com) managed by the Canadian Securities Administrators.

mailto:[email protected]

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