Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASDAQ 4,095.52 9.29 0.23%
Ticker Volume Price Price Delta
STOXX 50 3,155.81 16.55 0.53%
FTSE 100 6,625.25 41.08 0.62%
DAX 9,409.71 91.89 0.99%
Ticker Volume Price Price Delta
NIKKEI 14,516.27 98.74 0.68%
TOPIX 1,173.37 6.78 0.58%
HANG SENG 22,760.24 64.23 0.28%

EPCOR Announces Quarterly Results


EDMONTON, Nov. 9, 2012 /CNW/ - EPCOR Utilities Inc. (EPCOR) today filed its quarterly results for the period ended September 30, 2012.

"Results for the quarter were good marking three consecutive quarters in a row where income from core operations increased year over year, reflective of strong operations and successful execution of our growth strategy. Our post-acquisition integration of the Arizona and New Mexico operations continued without interruption and met our expectations," said EPCOR President and CEO Don Lowry.

Highlights of EPCOR's financial performance are as follows:


    --  Net income was $63 million on revenues of $512 million for the
        three months ended September 30, 2012 compared with net income
        of $59 million on revenues of $480 million for the
        corresponding period in the previous year.
    --  Net income was $87 million on revenues of $1,436 million for
        the nine months ended September 30, 2012 compared with net
        income of $91 million on revenues of $1,282 million for the
        corresponding period in the previous year.
    --  Cash flow from operating activities for the nine months ended
        September 30, 2012 was $241 million compared with $86 million
        for the corresponding period in the previous year.
    --  Other comprehensive loss was $2 million for the three months
        ended September 30, 2012 compared with other comprehensive
        income of $27 million for the corresponding period in the
        previous year.
    --  Other comprehensive income was $2 million for the nine months
        ended September 30, 2012 compared with other comprehensive loss
        of $1 million for the corresponding period in the previous
        year.
    --  Investment in capital projects for the three months ended
        September 30, 2012 was $97 million compared with $77 million
        for the corresponding period in the previous year.
    --  Investment in capital projects for the nine months ended
        September 30, 2012 was $220 million compared with $186 million
        for the corresponding period in the previous year.

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

EPCOR's wholly-owned subsidiaries build, own and operate electrical 
transmission and distribution networks in Canada and water and wastewater 
treatment facilities and infrastructure in Canada and the United States. 
EPCOR, headquartered in Edmonton, is an Alberta top 55 employer.

EPCOR Utilities Inc.
Interim Management's Discussion and Analysis September 30, 2012
_______________________________________________________________________________
__________________________________________________________ 

This management's discussion and analysis (MD&A), dated November 9, 2012, 
should be read in conjunction with the condensed consolidated interim 
financial statements of EPCOR Utilities Inc. and its subsidiaries for the nine 
months ended September 30, 2012 and 2011, the consolidated financial 
statements and MD&A for the year ended December 31, 2011 and the cautionary 
statement regarding forward-looking information on pages 13 and 14. 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 requires. 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. The Board of Directors has approved this 
MD&A.

OVERVIEW

EPCOR is wholly-owned by The City of Edmonton (the City). EPCOR builds, owns 
and operates electrical transmission and distribution networks in Canada as 
well as water and wastewater treatment facilities and infrastructure in Canada 
and the United States (U.S.). EPCOR also provides electricity and water 
services and products to residential and commercial customers. EPCOR's 
electricity (collectively the Distribution and Transmission and Energy 
Services segments) and water (including wastewater treatment) businesses 
consist primarily of rate-regulated and long-term commercial contracted 
operations. EPCOR's continuous improvement objective is to seek out ways of 
maximizing the efficiency of its electricity and water operations.

EPCOR's net income was $63 million and $87 million, respectively, for the 
three and nine months ended September 30, 2012, compared with net income of 
$59 million and $91 million, respectively, for the comparative periods in 
2011. EPCOR's core operations performed well in the third quarter without any 
significant issues or disruptions to customers and reported $6 million and $23 
million higher income for the three and nine months ended September 30, 2012, 
respectively, than the corresponding periods in 2011. EPCOR's equity share of 
income of Capital Power, net of income taxes, was $2 million lower and $9 
million higher for the three and nine months ended September 30, 2012, 
respectively, than the corresponding periods in 2011.

Our 2012 capital expenditure plan includes work on a number of significant 
projects such as a water distribution system renewal program within the city 
of Edmonton, a replacement and extension of underground electricity 
distribution cable program, and, in partnership with Altalink, L.P., 
construction of the Heartland electricity transmission line. Work on these 
projects and others will continue through 2012 and into 2013. This plan is 
aimed towards better water management practices and improvement of electricity 
distribution and transmission infrastructure to replace aging infrastructure 
and meet the growing demand for electricity.

EPCOR closed its Calgary contact center at the end of May 2012 as the result 
of a review that determined efficiencies could be gained by consolidating the 
Company's customer contact centers. Employees in Calgary who chose to relocate 
to Edmonton to continue their careers with EPCOR had their relocation costs 
paid by the Company. Those employees not remaining with EPCOR received 
severance and outplacement services.

In April 2012, EPCOR sold 9,775,000 common shares of Capital Power at an 
offering price of $23.55 per share for aggregate gross proceeds of $230 
million. Following the completion of the offering, EPCOR indirectly owns 29% 
of the common shares of Capital Power on a fully diluted basis. EPCOR incurred 
a non-cash loss of $36 million related to the sale.

On January 31, 2012, the Company completed the acquisition of 100% of the 
stock of Arizona-American Water Company and New Mexico-American Water Company, 
Inc. from American Water Works Company, Inc. for total consideration of $460 
million (US$458 million) and the assumption of $9 million (US$9 million) in 
long-term debt, subject to certain adjustments. The acquired companies were 
renamed EPCOR Water Arizona Inc. (Arizona Water) and EPCOR Water New Mexico 
Inc. (New Mexico Water), respectively. Arizona Water and New Mexico Water are 
public utility companies engaged principally in the purchase, production, 
distribution and sale of water to approximately 123,000 customers and 
wastewater treatment and related services to approximately 51,000 customers. 
These customers live in 13 municipalities in the states of Arizona and New 
Mexico. This investment provides the Company with a strong hub in the U.S. 
Southwest, consistent with the Company's strategic plan for expansion.

Consolidated results of operations                                

Net Income                                                        
                                                                  

Three Nine (Unaudited, $ millions) months months

Net income for the periods ended September 30, 2011 $ 59 $ 91

Higher (lower) equity share of income from Capital (2) 9 Power (net of income taxes)

Loss on sale of a portion of investment in Capital - (36) Power


                                                            57      64

Higher Water segment operating income                       23      36

Higher Distribution and Transmission segment operating       6      25
income

Higher Energy Services segment operating income              2       -

Floating-rate notes                                          -     (6)

Higher net financing expenses                              (4)    (13)

No unrealized gain on foreign exchange derivative         (17)    (19)
instruments in 2012

Other                                                      (4)       -

Increase in income from core operations                      6      23

Net income for the periods ended September 30, 2012    $   63  $    87

Explanations of the primary period-over-period changes in net income are as 
follows:
    --  The Company's equity share of Capital Power's income was lower
        for the three months and higher for the nine months ended
        September 30, 2012, respectively, compared with the
        corresponding periods in 2011. The changes reflect EPCOR's
        equity share of Capital Power's increases or decreases in
        income from the corresponding periods, compounded by the impact
        of EPCOR's reduced economic interest in Capital Power as a
        result of the Company's sale of portions of its investment in
        Capital Power in April 2012 and December 2011 in addition to
        dilutions of our economic interest resulting from Capital
        Power's issuances of common shares in 2011 and 2012.
    --  Loss on sale of a portion of our investment in Capital Power
        reflects the difference between the carrying amount of the
        portion of our investment that was sold, and the consideration
        received less direct expenses plus reclassified accumulated
        other comprehensive income.
    --  The changes in each business segment's operating results for
        the three and nine months ended September 30, 2012 compared
        with the corresponding periods in 2011 are described under
        Segment Results below.
    --  We recorded a gain on the sale of our floating-rate notes in
        the second quarter of 2011 and a negative fair value adjustment
        in the first quarter of 2011 with no corresponding gain or fair
        value adjustment in 2012.
    --  Net financing expenses were higher for the three and nine
        months ended September 30, 2012 compared with the corresponding
        periods in 2011 primarily due to higher debt levels and lower
        income from the sinking fund associated with certain long-term
        debt.
    --  Foreign exchange expense was higher for the three and nine
        months ended September 30, 2012 compared with the corresponding
        periods in 2011 primarily due to positive fair value
        adjustments on foreign exchange forward contracts in 2011 with
        no corresponding adjustments in 2012. In the first quarter of
        2012, we recorded a loss on the settlement of these contracts
        at less than their fair value since their revaluation to market
        at December 31, 2011. The foreign exchange forward contracts
        were entered into in April 2011 as cash flow hedges to manage
        the foreign exchange risk related to the January 2012
        acquisition of Arizona Water and New Mexico Water. The forward
        contracts were effective in removing the foreign exchange risk
        associated with the acquisition.

Revenues                                                     
                                                             

Three Nine (Unaudited, $ millions) months months

Revenues for the periods ended September 30, 2011 $ 480 $ 1,282

Higher U.S. water operating revenues 36 89

Higher (lower) retail regulated rate tariff (11) 23 electricity revenues

Higher Canadian water operating revenues 9 18

Higher (lower) electricity distribution and (1) 16 transmission tariff revenues

Higher (lower) transportation services revenues (1) 8

Increase in revenues from core operations 32 154

Revenues for the periods ended September 30, 2012 $ 512 $ 1,436

Consolidated revenues were higher for the three and nine months ended September 30, 2012 compared with the corresponding periods in 2011 primarily due to the net impact of the following:


    --  U.S. water operating revenues were higher for the three and
        nine months ended September 30, 2012 compared with the
        corresponding periods in 2011 due to the expansion of U.S.
        operations with the 2012 acquisition of Arizona Water and New
        Mexico Water, compared with only four months of revenue from
        Chaparral City Water Company (Chaparral) in 2011. Chaparral was
        acquired in May 2011.
    --  Retail Regulated Rate Tariff (RRT) electricity revenues were
        lower for the three months ended September 30, 2012 primarily
        due to lower customer electricity volumes and customer RRT
        rates, as set by the associated Energy Price Setting Plan
        (EPSP) and reflective of market rates.
        RRT electricity revenues were higher for the nine months ended
        September 30, 2012 primarily due to higher customer RRT rates,
        as set by the EPSP and reflective of market rates, partially
        offset by lower customer electricity volumes.
    --  Canadian water operating revenues were higher for the three and
        nine months ended September 30, 2012 primarily due to higher
        approved customer rates, a new commercial water contract in
        2012 and a lower provision recorded in 2012 compared with 2011
        related to a regulatory decision with respect to a Regional
        Water Customer Group (RWCG) rate complaint hearing. These
        increases were partially offset by lower commercial water
        construction activity in 2012 compared with 2011.
    --  Electricity distribution and transmission tariff revenues were
        lower for the three months ended September 30, 2012 primarily
        due to increased costs charged by the Alberta Electric System
        Operator (AESO) and lower approved transmission customer rates,
        partially offset by higher system access revenues. The higher
        system access revenues were due to higher approved rates.
        Electricity distribution and transmission tariff revenues were
        higher for the nine months ended September 30, 2012 primarily
        due to higher approved distribution customer rates and higher
        system access revenue. The higher system access revenues were
        due to higher approved rates, partially offset by increased
        costs charged by the AESO and lower approved transmission
        customer rates.
    --  Transportation services activity, within the Distribution and
        Transmission business segment, was lower for the three months
        ended September 30, 2012 primarily due to lower rates charged
        under an agreement with the City in 2012 compared with 2011.
        Transportation services activity was higher for the nine months
        ended September 30, 2012 primarily due to increased contract
        services provided in 2012 compared with 2011.

Capital Spending and Investment          
                                         

(Unaudited, $ millions)

Nine months ended September 30,    2012  2011

Water Services                  $    71 $  63

Distribution and Transmission       141   100

Energy Services                       3     -

Corporate                             5    23
                                   220    186

Business acquisition                460    29
                                $   680 $ 215

Capital expenditures for property, plant and equipment and investments were 
higher for the nine months ended September 30, 2012 compared with the 
corresponding period in 2011 primarily due to the acquisition of Arizona Water 
and New Mexico Water on January 31, 2012 and construction activity on the 
Heartland Transmission project. This was partially offset by lower 
construction activity on EPCOR Tower leasehold improvements in 2012 as most of 
the construction was completed in 2011. Capital spending includes EPCOR's 50% 
joint venture share of the Heartland Transmission project's capital 
expenditures.

SEGMENT RESULTS 

In the third quarter of 2011, management of the Company's Technologies 
business was transferred from Water Services to Distribution and Transmission. 
As a result, Water Services' and Distribution and Transmission's 2011 
comparative operating income numbers in the tables below were restated to 
reflect the transfer.

Water Services                               
                                             

Three months ended Nine months ended (Unaudited, $ millions) September 30, September 30,

(including intersegment 2012 2011 2012 2011 transactions)

Revenues $ 130 $ 85 $ 339 $ 232

Expenses 88 66 259 188

Operating income $ 42 $ 19 $ 80 $ 44

Water Services' operating income increased $23 million and $36 million for the three and nine months ended September 30, 2012, respectively, compared with the corresponding periods in 2011 due primarily to the net impact of the following items:


    --  U.S. water operating income for the three and nine months ended
        September 30, 2012 was higher due to the Arizona Water and New
        Mexico Water operations acquired in January 2012 and Chaparral
        operations acquired in May 2011, compared with only four months
        of income from Chaparral in 2011; and
    --  Edmonton water and wastewater operating income was higher for
        the three and nine months ended September 30, 2012 compared
        with the corresponding periods in 2011 primarily due to higher
        approved customer rates, lower chemical costs and a lower
        provision recorded in 2012 related to a regulatory decision
        with respect to a RWCG complaint hearing compared with 2011.
        Chemical costs were higher in 2011 due to high snowpack and
        extended spring run-off as well as higher precipitation which
        resulted in higher levels of silt (turbidity) in the North
        Saskatchewan River, requiring more chemical treatment.

Distribution and Transmission                      
                                                   

Three months ended Nine months ended (Unaudited, $ millions) September 30, September 30,

(including intersegment 2012 2011 2012 2011 transactions)

Revenues $ 138 $ 136 $ 381 $ 345

Expenses 118 122 316 305

Operating income $ 20 $ 14 $ 65 $ 40

Distribution and Transmission's operating income increased $6 million and $25 million for the three and nine months ended September 30, 2012, respectively, compared with the corresponding periods in 2011 primarily due to increased revenues from higher approved electricity distribution customer rates and electricity sales volumes, partially offset by lower approved transmission customer rates and increased costs charged by the AESO in 2012. In addition, improved timing of approvals to bill and collect electricity transmission flow-through costs from customers in 2012 compared to 2011 also contributed to increased operating income.

Energy Services

Three months ended Nine months ended (Unaudited, $ millions) September 30, September 30,

(including intersegment 2012 2011 2012 2011 transactions)

Revenues $ 289 $ 300 $ 845 $ 822

Expenses 295 308 833 810

Operating income (loss) $ (6) $ (8) $ 12 $ 12

Energy Services' operating loss decreased $2 million for the three months ended September 30, 2012 compared with the corresponding period in 2011 primarily due to slightly improved margins under the Company's EPSP, including any fair value adjustment on the related financial electricity purchase contracts, in addition to lower customer contact centre costs as a result of consolidating the Edmonton and Calgary contact centres in the second quarter of 2012. This was partially offset by lower billing charge income due to a lower number of customer sites billed in 2012.

CONSOLIDATED BALANCE SHEETS

September 30, December 31, Increase Explanation of (Unaudited, 2012 2011 (decrease) material $ millions) changes

Cash and $ 292 $ 316 $ (24) Refer to cash liquidity and equivalents capital

resources


                                                      section.

Trade and              364          372           (8) Decrease
other                                                 primarily due
receivables                                           to lower
                                                      electricity
                                                      prices and
                                                      accrued
                                                      interest
                                                      income,
                                                      partially
                                                      offset by
                                                      assumption of
                                                      Arizona Water
                                                      and New Mexico
                                                      Water accounts
                                                      receivable.

Inventories             13           12             1  

Derivatives            (2)           11          (13) Decrease
                                                      primarily
                                                      reflects the
                                                      settlement of
                                                      foreign
                                                      exchange
                                                      forward
                                                      contracts.

Finance                126          127           (1)  
lease
receivables

Other                  385          402          (17) Primarily
financial                                             reflects the
assets                                                collection of
                                                      certain notes
                                                      receivable.

Deferred tax            44           43             1  
assets

Investment             745          987         (242) Reflects the
in Capital                                            sale of a
Power                                                 portion of the
                                                      investment in
                                                      2012 and
                                                      limited
                                                      partnership
                                                      distributions,
                                                      partially
                                                      offset by
                                                      equity share of
                                                      income of
                                                      Capital Power.

Intangible             203          104            99 Reflects the
assets                                                acquisition of
                                                      Arizona Water
                                                      and New Mexico
                                                      Water goodwill
                                                      and other
                                                      intangible
                                                      assets,
                                                      partially
                                                      offset by
                                                      amortization of
                                                      intangible
                                                      assets with
                                                      finite useful
                                                      lives.

Property,            3,425        2,658           767 Reflects
plant and                                             capital
                                                      expenditures
                                                      and the
                                                      acquisition of
                                                      Arizona Water
                                                      and New Mexico
                                                      Water,
                                                      partially
                                                      offset by
                                                      depreciation
                                                      expense.

  equipment                                            

Trade and              291          264            27 Increase
other                                                 primarily due
payables                                              to higher
                                                      electricity
                                                      purchases
                                                      payable as a
                                                      result of the
                                                      timing of the
                                                      payment and the
                                                      assumption of
                                                      Arizona Water
                                                      and New Mexico
                                                      Water trade
                                                      payables,
                                                      partially
                                                      offset by lower
                                                      accrued
                                                      interest
                                                      expense on
                                                      long-term debt.

Other                   33           34           (1)  
current
liabilities

Loans and            1,972        1,699           273 Reflects
borrowings                                            issuance of
                                                      long-term debt,
                                                      partially
                                                      offset by
                                                      scheduled
                                                      repayment of
                                                      long-term debt.

  (including                                           
  current
  portion)

Deferred               873          602           271 Primarily
revenues                                              reflects the
                                                      assumption of
                                                      Arizona Water
                                                      and New Mexico
                                                      Water deferred
                                                      revenues.

  (including                                           
  current
  portion)

Deferred tax             1            1             -  
liabilities

Provisions              73           51            22 Primarily
                                                      reflects the
                                                      assumption of
                                                      Arizona Water
                                                      and New Mexico
                                                      Water
                                                      provisions,
                                                      partially
                                                      offset by
                                                      settlement of
                                                      the Rossdale
                                                      power plant
                                                      decommissioning
                                                      liability.

  (including                                           
  current
  portion)

Other                   18           30          (12) Primarily
non-current                                           reflects Gold
liabilities                                           Bar asset
                                                      transfer fee
                                                      payment to the
                                                      City in the
                                                      first quarter
                                                      of 2012.

Equity               2,334        2,351          (17) Decrease
attributable                                          reflects total
to the                                                comprehensive
                                                      income,   more
                                                      than offset by
                                                      dividends paid.

  Owner of                
  the
  Company

LIQUIDITY AND CAPITAL RESOURCES
    Cash inflows (outflows)
                     Three months ended
                       September 30,

(Unaudited,            2012           2011       Increase
$ millions)                                     (decrease) Explanation

Operating         $      74       $     23        $     51 Increase
                                                           primarily
                                                           reflects
                                                           higher cash
                                                           flow from core
                                                           operations and
                                                           increased cash
                                                           flow resulting
                                                           from the
                                                           year-over-year
                                                           change in
                                                           non-cash
                                                           operating
                                                           working
                                                           capital.

Investing                                               16 Increase
                       (54)           (70)                 primarily
                                                           reflects
                                                           increased cash
                                                           flow generated
                                                           by the change
                                                           in non-cash
                                                           investing
                                                           working
                                                           capital.

Financing                               29                 Primarily
                       (42)                           (71) reflects net
                                                           issuance of
                                                           short-term
                                                           debt in 2011
                                                           with no
                                                           corresponding
                                                           issuance in
                                                           2012
                                                                         
                                                                         
                                                                          

Cash inflows (outflows)
                     Nine months ended
                       September 30,

(Unaudited,            2012           2011       Increase
$ millions)                                     (decrease) Explanation

Operating         $     241        $    86       $     155 Increase
                                                           primarily
                                                           reflects
                                                           higher cash
                                                           flow from
                                                           operations and
                                                           increased cash
                                                           flow resulting
                                                           from the
                                                           year-over-year
                                                           change in
                                                           non-cash
                                                           operating
                                                           working
                                                           capital.

Investing                                                  Decrease
                      (430)          (119)           (311) primarily
                                                           reflects the
                                                           acquisition of
                                                           Arizona Water
                                                           and New Mexico
                                                           Water, higher
                                                           capital
                                                           expenditures
                                                           in 2012 and
                                                           cash flow from
                                                           the sale of
                                                           floating-rate
                                                           notes in 2011,
                                                           partially
                                                           offset by cash
                                                           flow from the
                                                           sale of a
                                                           portion of the
                                                           investment in
                                                           Capital Power
                                                           in 2012.

Financing               165                            215 Increase
                                      (50)                 primarily
                                                           reflects
                                                           higher net
                                                           issuance of
                                                           long-term
                                                           debt,
                                                           partially
                                                           offset by
                                                           lower net
                                                           issuance of
                                                           short-term
                                                           debt.

In February 2012, the Company issued $300 million, 4.55% medium-term notes due 
February 28, 2042 under its base shelf prospectus. The notes were priced to 
yield 4.565%, pay interest semi-annually and rank equally, except as to 
sinking fund and statutory preferred exceptions, with all other unsecured and 
unsubordinated indebtedness of the Company. The notes were used to pay down 
commercial paper indebtedness and for general corporate purposes. The Company 
has a Canadian shelf prospectus under which it may raise up to $1 billion of 
debt with maturities of not less than one year. At September 30, 2012, the 
available amount remaining under this shelf prospectus was $700 million. The 
shelf prospectus expires in January 2014.

The Company has credit facilities, which are used principally for the purpose 
of backing the Company's commercial paper program and providing letters of 
credit, as outlined below:
                                                                       

Letters of (Unaudited, Banking credit and $ millions) commercial other Net September Total paper facility amounts 30, 2012 Expiry facilities issued draws available

Committed

Syndicated bank credit facility November 2014 $ 250 $ - $ - $ 250

Syndicated bank credit facility January 2015 400 - 118 282

Syndicated bank credit facility November 2016 250 - - 250

Total committed 900 - 118 782

Uncommitted

Bank line of credit No expiry 25 - - 25

Bank line of credit November 2012 20 - - 20

Total uncommitted 45 - - 45

$ 945 $ - $ 118 $ 827

Effective November 9, 2012, the Company's committed syndicated bank credit facilities were extended. The expiry dates of the two $250 million syndicated bank credit facilities were extended to November 2015 and November 2017 respectively, and the expiry date of the $400 million syndicated bank credit facility was extended to November 2015.

Letters of (Audited, $ Banking credit and millions) commercial other Net December 31, Total paper facility amounts 2011 Expiry facilities issued draws available

Committed

Syndicated bank credit facility November 2014 $ 250 $ - $ - $ 250

Syndicated bank credit facility November 2016 250 - 203 47

Total committed 500 - 203 297

Uncommitted

Bank lines of credit No expiry 120 - 50 70

Bank line of credit November 2012 20 - 19 1

Total uncommitted 140 - 69 71


                           $      640 $         - $       272 $     368

The Company's working capital and contractual obligations for the remainder of 
2012 will be funded from cash on hand, operating cash flows, limited 
partnership distributions from Capital Power, interest received in relation to 
the long-term receivable from Capital Power, and, if necessary, commercial 
paper issuance and the Company's credit facilities. In addition, the Company 
may issue additional private or public medium-term notes or sell a portion of 
its interest in Capital Power to fund its long-term obligations.

EFFECTS OF ECONOMIC AND MARKET UNCERTAINTY

During the third quarter of 2012, Canadian and U.S. economies showed mixed 
signs of recovery and the sovereign debt crisis in Europe remains unresolved 
as the European recession worsens. As a result, there is a continuing risk of 
a stalled economic recovery and a potential world-wide recession. If the 
economy were to deteriorate in the longer term, particularly in Canada and the 
U.S., the Company's ability to renew credit facilities, arrange long-term 
financing for its capital expenditure programs and acquisitions, or refinance 
outstanding indebtedness when it matures could be adversely impacted. If 
market conditions worsen, the Company may be unable to renew its credit 
facilities or access the public debt markets and may suffer a credit rating 
downgrade. We continue to believe that these circumstances have a low 
probability of occurring, however, we continue to monitor EPCOR's capital 
programs and operating costs to minimize the risk that the Company becomes 
short of cash or unable to honour its obligations.

In the first three months of 2012, the Company secured financing to fund a 
portion of its capital expenditures and working capital requirements at a 
weighted average interest rate of 1.069% per annum through the issue of 
commercial paper. No commercial paper was issued in the second or third 
quarters of 2012. The Company also issued $300 million in 30-year medium-term 
notes in the first quarter of 2012. Should the credit and economic 
environments worsen, they may adversely affect the interest rates at which we 
are able to borrow.

CONTRACTUAL OBLIGATIONS

Arizona Water maintains agreements with the Central Arizona Water Conservation 
District for the purchase and transportation of water. These agreements are 
for terms of 100 years expiring at the end of 2107. Under the terms of these 
agreements, certain minimum payments of approximately $0.5 million are due 
each year in order to maintain the agreements until they expire. Additional 
payment obligations related to orders placed in the fall of each year for 
water to be purchased and transported the following year, commit the Company 
only for the amount of the water ordered. The obligations are $4 million in 
2012, $6 million in total from 2013 through 2016, and $1 million in total from 
2017 through 2018.

The Company has entered into an agreement for billing and customer care 
services for Arizona Water and New Mexico Water. The contract term is for ten 
years, expiring on August 31, 2021. The payments are estimated to be $5 
million in 2012, $18 million in total between 2013 and 2016, and $13 million 
in aggregate thereafter.

For further information on the Company's contractual obligations, refer to the 
2011 annual MD&A.

CRITICAL ACCOUNTING ESTIMATES

In preparing the condensed consolidated interim financial statements, 
management necessarily made estimates in determining transaction amounts and 
financial statement balances. The following are the items for which 
significant estimates were made in the condensed consolidated interim 
financial statements: electricity revenues and costs, unbilled consumption of 
electricity and water, fair values, allowance for doubtful accounts, useful 
lives of assets, income taxes and allocation of purchase price. Interim 
results will fluctuate due to the seasonal demands for electricity and water, 
changes in electricity prices, and the timing and recognition of regulatory 
decisions. Consequently, interim results are not necessarily indicative of 
annual results.

Significant accounting estimates were made in determining the fair value of 
identifiable assets acquired and liabilities assumed in connection with the 
Arizona Water and New Mexico Water acquisition including discount rates, 
future income, replacement costs, useful lives, residual values and weighted 
average cost of capital. The fair values were determined using generally 
accepted methods and the assistance of a third party valuation expert.

For further information on the Company's other critical accounting estimates, 
refer to the 2011 annual MD&A.

NON-IFRS FINANCIAL MEASURES

Management uses funds from operations to measure the Company's ability to 
generate funds from current operations. Funds from operations is a non-IFRS 
financial measure, does not have any standardized meaning prescribed by IFRS 
and is unlikely to be comparable to similar measures published by other 
entities. However, it is presented since it is commonly referred to by debt 
holders and other interested parties in evaluating the Company's financial 
position and in assessing its creditworthiness. A reconciliation of funds from 
operations to cash flows from operating activities is as follows:
                                                  

Three months ended Nine months ended (Unaudited, $ millions) September 30, September 30,

2012 2011 2012 2011

Funds from operations $ 78 $ 46 $ 196 $ 109

Change in non-cash operating (4) (23) 45 (23) working capital

Cash flows from operating $ 74 $ 23 $ 241 $ 86 activities

Income from core operations is used to distinguish operating results from the Company's core water and electricity businesses from results with respect to its investment in Capital Power. It is a non-IFRS financial measure, which does not have any standardized meaning prescribed by IFRS and is unlikely to be comparable to similar measures published by other entities. However, it is presented since it provides a useful measure of the Company's primary operations and it is referred to by debt holders and other interested parties in evaluating the Company's financial position and in assessing its creditworthiness.

A reconciliation of income from core operations to net income is as follows:

Three months ended Nine months ended (Unaudited, $ millions) September 30, September 30,

2012 2011 2012 2011

Income from core operations $ 35 $ 29 $ 87 $ 64

Loss on sale of a portion of - - (36) - investment in Capital Power

Equity share of income from 26 23 33 28 Capital Power

Income tax recovery (expense) 2 7 3 (1) related to the above item

Net income $ 63 $ 59 $ 87 $ 91

RISK MANAGEMENT

This section should be read in conjunction with the Risk Management section of the most recent annual MD&A. EPCOR faces a number of risks including risks related to its investment in Capital Power, operational risks, political, legislative and regulatory risk, strategy execution risk, weather risk, financial liquidity risk, project risk, availability of people risk, electricity price and volume risk, environment risk, regulated rate option and default supply credit risk, water credit risk, health and safety risk, conflicts of interest risk, foreign exchange risk and general economic conditions and business environment risks. The Company employs active programs to manage these risks.

Following the Alberta Utilities Commission's (AUC) approval of the Heartland Transmission project facility application on November 1, 2011, appeals were filed with the AUC and the Alberta Court of Appeal. Strathcona County and the citizens' group "Responsible Electricity Transmission for Albertans" (RETA) filed their appeals with the AUC, asking it to review and vary its original decision. The AUC denied those appeals. The Alberta Court of Appeal granted local residents leave to appeal to determine whether the AUC correctly interpreted legislation on critical transmission infrastructure and heard oral arguments on October 12, 2012. The Court will render its decision at a later date.

As part of ongoing risk management practices, the Company reviews current and proposed transactions to consider their impact on the risk profile of the Company. There have been no material changes to the risk profile or risk management strategies of EPCOR as described in the annual MD&A for 2011 that have affected the condensed consolidated financial statements for the nine months ended September 30, 2012.

OUTLOOK

Income from core operations for the year is expected to be higher than 2011 primarily due to better than anticipated results from Arizona Water and New Mexico Water which were acquired at the beginning of 2012.

In February 2012, the Government of Alberta announced a number of initiatives including a rate freeze on electricity distribution, transmission, and administrative charges and an independent panel review of the retail electricity market in Alberta. As a result, the Retail Market Review Committee was established to review the regulated rate option to help address volatility and costs. The committee reported its findings to the Alberta government in September 2012. The outcome and any consequential actions of the review will impact Energy Services and Distribution and Transmission. The Alberta government stated that it will not make any decisions regarding the report until a thorough analysis of the recommendations is complete. If the rate freeze continues to the end of 2012, Distribution and Transmission expects it could result in a revenue shortfall between $2 million and $5 million.

In May 2012, Energy Services filed its 2012 - 2013 regulated rate tariff application with the AUC. A decision is expected in 2013.

Energy Services and other regulated rate option electricity providers in Alberta are seeking changes to their EPSP with the objective of improving the margin earned relative to the risk assumed by the regulated electricity retailers under their EPSP and moderating the volatility of regulated electricity prices for consumers. Ongoing negotiations with interveners commenced in August 2012.

In December 2006, the RWCG filed a complaint with the Alberta Energy and Utilities Board, the AUC's predecessor, with respect to water rates charged by EPCOR in 2004-2007. In June 2011, the AUC issued its decision on the proceeding and in September 2011, EPCOR filed its compliance filing. In June 2012, EPCOR filed its second compliance filing in accordance with an April 2012 AUC decision. In August 2012, the AUC accepted the second re-filing, establishing final rates for the 2004 - 2007 period.

In September 2012, the AUC published its decision on Distribution and Transmission's 2013 - 2017 performance based regulation (PBR) plan. The decision was primarily a generic decision with most of the approved PBR elements applying to all electricity and natural gas distribution utility companies in Alberta. The unique aspects that each company applied for were mostly denied, including Distribution and Transmission's proposal to include its transmission operations with the PBR plan and exclude capital costs from its PBR proposal. Under the approved PBR framework, rates will change annually based on a formula comprised of the following factors: inflation factor, productivity factor, capital trackers, flow-through items and exogenous adjustments. The productivity factor approved in the PBR plan decision was higher than what the Company included in its plan and will challenge the Company's ability to meet its approved target return on equity. The Company's PBR plan contemplated the capital component of customer rates continuing to be set under cost of service. However, the AUC's PBR plan decision approved the use of a capital tracker factor. While further clarification of the capital tracker factor is required, the Company believes that it could restrict the amount of necessary capital investment permitted to be recovered through customer rates, further challenging the Company's ability to meet its approved target return on equity. The PBR plan decision relative to the other factors in the PBR formula more closely aligned with the Company's expectations. In October 2012, a number of Alberta electricity and natural gas distribution utilities, including EPCOR, filed notices of leave to appeal the AUC's PBR plan decision. In November 2012, the Company plans on filing a request for review and variance of the AUC's PBR plan decision as it relates to the capital tracker factor, among other things. The complete impact of the PBR plan decision on the Company will not be known until management has completed its assessment and further clarity is provided relative to the capital tracker factor.

Distribution and Transmission submitted its 2012 cost of service rate application in November 2011. In December 2011, the Company requested, and the AUC accepted, that common matters such as corporate costs for 2012, between Distribution and Transmission's cost of service rate application and Energy Services' 2012 - 2013 regulated rate tariff application, be addressed once only in Distribution and Transmission's 2012 cost of service rate application. A decision on Distribution and Transmission's cost of service rate application, including common matters also relating to Energy Services' 2012 - 2013 regulated rate tariff application, was received in October 2012. Among other things, the decision significantly reduced the amount of corporate costs permitted to be recovered through customer rates compared to what was applied for in Distribution and Transmission's 2012 cost of service rate application and Energy Services' 2012 - 2013 regulated rate tariff application. Most of the other elements of the decision were consistent with Distribution and Transmission's 2012 rate application. While Distribution and Transmission's cost of service rate application was for 2012, to a certain degree the decision will also impact Distribution and Transmission's 2013 - 2017 PBR plan with 2012 being the year in which certain costs will be based. Management is assessing the impact of this decision on the Company and will take the appropriate action necessary to mitigate the financial impact of the decision on the Company.

QUARTERLY RESULTS


                                     

(Unaudited, $ millions)              Net income
Quarters ended             Revenues       (loss)

September 30, 2012      $       512 $         63

June 30, 2012                   424         (20)

March 31, 2012                  500           44

December 31, 2011               512           53

September 30, 2011              480           59

June 30, 2011                   391           23

March 31, 2011                  411            9

December 31, 2010               383            6

Events for the past eight quarters compared to the same quarter of the prior 
year that have significantly impacted net income include:
    --  September 30, 2012 third quarter results include increased
        income primarily due to higher approved electricity
        distribution and water and wastewater customer rates, higher
        electricity distribution and transmission sales volumes, the
        addition of Arizona Water and New Mexico Water operations, and
        slightly improved margins under the Company's EPSP, including
        any fair value adjustment on the related financial electricity
        purchase contracts. This was partially offset by lower billing
        charge income due to lower number of sites, and lower income
        from our equity share of Capital Power.
    --  June 30, 2012 second quarter results included lower income from
        our equity share of Capital Power, a loss on sale of a portion
        of our interest in Capital Power, and decreased income in
        Energy Services primarily due to reduction in the fair value of
        financial electricity purchase contracts and losses on the sale
        of excess electricity purchases, fees no longer earned as a
        result of the expiration of the AES contract in November 2011
        and costs related to the contact center consolidation,
        partially offset by increased income in Distribution and
        Transmission primarily due to increased volumes and approved
        customer rates, increased income in Water Services primarily
        due to the addition of Arizona Water and New Mexico Water
        operations, increase in Edmonton water and wastewater approved
        customer rates, decreased provision related to a regulatory
        decision and lower chemical costs.
    --  March 31, 2012 first quarter results included higher income
        from our equity share of Capital Power, increased income in
        Distribution and Transmission primarily due to increased rates,
        and increased income in Energy Services primarily due to
        positive fair value adjustments on financial electricity
        purchase contracts, partially offset by fees no longer earned
        as a result of the expiration of the AES contract in November
        2011, costs related to the contact center consolidation and
        losses on the sale of excess electricity purchased.
    --  December 31, 2011 fourth quarter results included higher income
        from our equity share of Capital Power, increased income in
        Distribution and Transmission primarily due to increased rates
        and a lower loss on sale of a portion of our interest in
        Capital Power, partially offset by negative fair value
        adjustments on foreign exchange forward contracts and
        integration expenses relating to the Arizona Water and New
        Mexico Water acquisition.
    --  September 30, 2011 third quarter results included higher income
        from our equity share of Capital Power, positive fair value
        adjustments on foreign exchange forward contracts, lower Energy
        Services operating income primarily due to negative fair value
        adjustments on financial electricity purchase contracts, lower
        Water Services operating income due to higher maintenance and
        chemical costs and lower commercial services margins, and
        higher Distribution and Transmission operating income primarily
        due to increased transmission and distribution tariff rates.
    --  June 30, 2011 second quarter results included higher income
        from our equity share in Capital Power, a gain on sale of our
        floating-rate notes, higher Energy Services operating income
        primarily due to positive fair value adjustments on financial
        electricity purchase contracts, lower Water Services operating
        income due to higher maintenance and chemical costs and lower
        commercial services margins and lower Distribution and
        Transmission operating income primarily due to higher
        electricity system operator costs.
    --  March 31, 2011 first quarter results included lower equity in
        the net income of Capital Power due to our reduced investment
        and lower Capital Power net income, lower Water Services
        operating income and higher Distribution and Transmission
        operating income.
    --  December 31, 2010 fourth quarter results included the loss on
        sale of a portion of the investment in Capital Power and lower
        revenues due to the sale of the power generation business in
        2009, partially offset by operating income as a result of
        increased rates in Distribution and Transmission and Energy
        Services, transfer of Gold Bar from the City to the Company on
        March 31, 2009, the acquisition of Alberta oil sands related
        water and wastewater treatment operations in the fourth quarter
        of 2009 and interest revenue on the long-term loans receivable
        from Capital Power.

FORWARD-LOOKING INFORMATION

Certain information in this MD&A is forward-looking within the meaning of 
Canadian securities laws as it relates to anticipated financial performance, 
events or strategies. When used in this context, words such as "will", 
"anticipate", "believe", "plan", "intend", "target", and "expect" or similar 
words suggest future outcomes.

The purpose of forward-looking information is to provide investors with 
management's assessment of future plans and possible outcomes and may not be 
appropriate for other purposes. Forward-looking information in this MD&A 
includes: (i) expectations regarding the Company's 2012 capital expenditure 
plan; (ii) sources of funding for 2012 working capital and contractual 
obligations; (iii) expectations regarding the impact on the Company of the 
capital and credit market instability and expected risk mitigation plans; and 
(iv) expected timing and impact of regulatory decisions.

These statements are based on certain assumptions and analyses made by the 
Company in light of its experience and perception of historical trends, 
current conditions and expected future developments and other factors it 
believes are appropriate. The material factors and assumptions underlying this 
forward-looking information include, but are not limited to: (i) the operation 
of the Company's facilities; (ii) the Company's assessment of the markets and 
regulatory environments in which it operates; (iii) weather; (iv) availability 
and cost of labour and management resources; (v) performance of contractors 
and suppliers; (vi) availability and cost of financing; (vii) foreign exchange 
rates; (viii) management's analysis of applicable tax legislation; (ix) 
currently applicable and proposed tax laws will not change and will be 
implemented; * counterparties will perform their obligations; (xi) expected 
interest rates and related credit spreads; (xii) ability to implement 
strategic initiatives which will yield the expected benefits; (xiii) the 
Company's assessment of capital markets; and (xiv) factors and assumptions in 
addition to the above related to the Company's equity interest in Capital 
Power.

Whether actual results, performance or achievements will conform to the 
Company's expectations and predictions is subject to a number of known and 
unknown risks and uncertainties which could cause actual results and 
experiences to differ materially from EPCOR's expectations. The primary risks 
and uncertainties relate to: (i) operation of the Company's facilities; (ii) 
unanticipated maintenance and other expenditures; (iii) electricity load 
settlement; (iv) regulatory and government decisions including changes to 
environmental, financial reporting and tax legislation; (v) weather and 
economic conditions; (vi) competitive pressures; (vii) construction; (viii) 
availability and cost of financing; (ix) foreign exchange; * availability of 
labor and management resources; (xi) performance of counterparties, partners, 
contractors and suppliers in fulfilling their obligations to the Company; 
(xii) availability and price of electricity; (xiii) customer consumption 
volumes of water and electricity; and (xiv) risks in addition to the above 
related to the Company's equity interest in Capital Power, including power 
plant availability and performance.

This MD&A includes the following updates to previously issued forward-looking 
statements: (i) income from core operations is now expected to be higher than, 
rather than lower than, 2011; ii) the obligations under the agreements with 
the Central Arizona Water Conservation District have been extended to $4 
million in 2012, $6 million in total from 2013 through 2016, and $1 million in 
total from 2017 through 2018, previously only $4 million in 2012 was 
disclosed; and iii) the payment terms under the contract to provide billing 
and customer care services for Arizona Water and New Mexico Water are 
estimated to be $5 million in 2012, $18 million in total between 2013 and 
2016, and $13 million in aggregate thereafter as opposed to previously stated 
amounts of $4 million in 2012, $18 million in total between 2013 and 2016, and 
$15 million in aggregate thereafter.

Readers are cautioned not to place undue reliance on forward-looking 
statements as actual results could differ materially from the plans, 
expectations, estimates or intentions expressed in the forward-looking 
statements. Except as required by law, EPCOR disclaims any intention and 
assumes no obligation to update any forward-looking statement even if new 
information becomes available, as a result of future events or for any other 
reason.

ADDITIONAL INFORMATION

Additional information relating to EPCOR, including EPCOR's annual information 
form, is available on SEDAR at www.sedar.com.

 

Media Relations: Tim le Riche (780) 969-8238 tleriche@epcor.com

Corporate Relations: Claudio Pucci (780) 969-8245 or toll free (877) 969-8280 
cpucci@epcor.com

SOURCE: Epcor Utilities Inc.

To view this news release in HTML formatting, please use the following URL: 
http://www.newswire.ca/en/releases/archive/November2012/09/c6712.html

CO: Epcor Utilities Inc.
ST: Alberta
NI: UTI ERN 

-0- Nov/09/2012 22:01 GMT

Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement