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EPCOR
EPCOR Announces Quarterly Results



Aug 7, 2017

EPCOR Utilities Inc. (EPCOR) filed its quarterly results for the three months and year-to-date period ended June 30, 2017.

"EPCOR's financial performance was in line with expectations for the quarter," said Stuart Lee, EPCOR President & CEO. "It was a productive quarter for EPCOR, as we completed the acquisition of Hughes Gas Resources, Inc., a natural gas distribution utility operating northwest of Houston, Texas, which marks our entrance into the natural gas distribution business and further builds out our footprint in Texas."

"We also made excellent progress in preparing for the transfer of the City of Edmonton's Drainage Services utility to EPCOR," said Mr. Lee. "We look forward to welcoming Drainage employees and customers on September 1." The City of Edmonton approved the transfer of its Drainage Services utility to EPCOR on April 12. With the transfer, EPCOR will oversee the City's entire water utility cycle.

Results were lower than the same periods in 2016 owing to events in 2016 that were not present in 2017. Highlights of EPCOR's financial performance are as follows:

  • Net income was $56 million and $94 million for the three and six months ended June 30, 2017, respectively, compared with $67 million and $145 million for the corresponding periods in the previous year. Net income was lower primarily due to lower income from core operations, as described below, and no dividend income due to the final sale of Capital Power shares. Partially offsetting these decreases were greater favorable fair value adjustments related to financial electricity purchase contracts in 2017 and unfavorable fair value adjustments related to interest swaps in the corresponding periods in 2016. In addition, the six months ended June 30, 2017 include the recognition of the fair value gain resulting from the final sale of Capital Power shares.
  • Income from core operations was $52 million and $90 million for the three and six months ended June 30, 2017, respectively, compared with $68 million and $143 million for the corresponding periods in the previous year. Income from core operations was lower primarily due to lower income from industrial services contracts resulting from the termination of the Suncor financing and operating agreements in 2016, lower Energy Price Setting Plan margins, lower water and wastewater volumes due to higher precipitation in the city of Edmonton, higher water treatment costs and a loss on sale of surplus land, partially offset by higher electricity transmission and water customer rates. In addition, the decrease for the six months ended June 30, 2017 was also due to lower net system access service collections and lower gains as a result of sales of surplus land in the first quarter of 2016.
  • Net cash flows from operating activities was $132 million for the six months ended June 30, 2017, compared with $223 million for the corresponding period in the previous year. The decrease reflects reduced income from operations and lower funds from changes in non-cash operating working capital.
  • Investment in capital projects and acquisitions was $154 million and $252 million for the three and six months ended June 30, 2017, respectively, compared with $122 million and $210 million for the corresponding periods in the previous year. The year-to-date increase of $42 million was primarily due to the acquisition of Hughes Gas Resources, Inc., partially offset by decreased spending in Distribution and Transmission on growth and lifecycle projects.

Management's discussion and analysis (MD&A) of the quarterly results are shown below. The MD&A and the unaudited condensed consolidated interim financial statements are available on EPCOR's website (www.epcor.com) and SEDAR (www.sedar.com).

EPCOR, through its subsidiaries, builds, owns and operates electrical and natural gas transmission and distribution networks, water and wastewater treatment, collection and distribution facilities and networks in Canada and the United States. The Company also provides electricity, natural gas and water products and services to residential and commercial customers. EPCOR, headquartered in Edmonton, is an Alberta Top 70 employer. EPCOR's website address is www.epcor.com.

EPCOR Utilities Inc.
Interim Management's Discussion and Analysis
June 30, 2017

This management's discussion and analysis (MD&A) dated August 3, 2017, should be read in conjunction with the condensed consolidated interim financial statements of EPCOR Utilities Inc. for the three months and six months ended June 30, 2017 and 2016 including business transfer and acquisition (note 4), changes in liabilities arising from financing activities (note 5), financial instruments (note 6) and the consolidated financial statements and MD&A for the year ended December 31, 2016, including standards and interpretations not yet applied (note 3(v)), related party transactions (note 27) and financial instruments (note 28), and the cautionary statement regarding forward-looking information at the end of this MD&A. In this MD&A, any reference to "the Company", "EPCOR", "it", "its", "we", "our" or "us", except where otherwise noted or the context otherwise indicates, means EPCOR Utilities Inc., together with its subsidiaries. In this MD&A, Capital Power refers to Capital Power Corporation and its directly and indirectly owned subsidiaries including Capital Power L.P., except where otherwise noted or the context otherwise indicates. Financial information in this MD&A is based on the condensed consolidated interim financial statements, which were prepared in accordance with International Financial Reporting Standards (IFRS), and is presented in Canadian dollars unless otherwise specified. In accordance with its terms of reference, the Audit Committee of the Company's Board of Directors reviews the contents of the MD&A and recommends its approval by the Board of Directors. This MD&A was approved and authorized for issue by the Board of Directors on August 3, 2017.

OVERVIEW

EPCOR is wholly owned by the City of Edmonton (the City). EPCOR, through its subsidiaries, builds, owns and operates electrical and natural gas transmission and distribution networks and provides Regulated Rate Option (RRO) and default supply electricity related services. EPCOR sells electricity and natural gas to Alberta residential consumers under contracts through its Encor brand. In addition, EPCOR builds, owns and operates water treatment facilities and distribution networks, and wastewater treatment facilities and collection networks in Canada and the Southwestern United States (U.S.). The water and wastewater business also includes design, build, finance, operating and maintenance services for municipal and industrial customers in Western Canada.

Net income was $56 million and $94 million for the three and six months ended June 30, 2017, respectively, compared with net income of $67 million and $145 million for the comparative periods in 2016, respectively. The decrease of $11 million and $51 million, respectively, from the comparative periods was in part due to lower income from core operations, as described below, and no dividend income due to the sale of remaining Capital Power shares (also referred to as the "available-for-sale investment in Capital Power"). Partially offsetting these decreases were greater favorable fair value adjustments related to financial electricity purchase contracts in 2017 and unfavorable fair value adjustments related to interest swaps in 2016 with no corresponding transaction in the current year. In addition, the six months ended June 30, 2017 include the recognition of the fair value gain resulting from the final sale of Capital Power shares.

Net income from core operations was $52 million and $90 million for the three and six months ended June 30, 2017, respectively, compared with $68 million and $143 million for the comparative periods in 2016, respectively, as described in the net income table on page 4 of this MD&A. The decrease in income from core operations for the three and six months ended June 30, 2017 was driven in part by lower income from industrial services contracts due primarily to the termination of the Suncor financing and operating agreements in 2016, lower Energy Price Setting Plan margins, lower water and wastewater volumes due to higher precipitation, higher water treatment costs due to poor river quality conditions in the city of Edmonton and loss on sale of surplus land in 2017. The decreases for the three months ended June 30, 2017 were partially offset by higher electricity transmission, water and wastewater rates and higher net system access service collections. In addition, the decrease for the six months ended June 30, 2017 was also due to lower gains as a result of sales of surplus land in the first quarter of 2016 and lower net system access service collections. Partially offsetting these decreases were higher water, wastewater and electricity distribution and transmission rates. Income from core operations is a non-IFRS financial measure as described in Net Income on page 3 of this MD&A.

Click here to read the full press release.

For more information:

Organization:
EPCOR

Address:
13410 Saint-Albert Trail
Edmonton, Alberta
Canada, T5L 4P2
www.epcor.ca
Tel: (780) 412-3800


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