Financial Report - Veresen Inc.

Alliance Pipeline
Alliance has firm-service transportation service contracts with primary terms extending to December 1, 2015 with a group of
27 shippers. Alliance U.S. has one additional shipper with a firm-transportation contract that extends to February 2020. Under
the transportation service contracts, each shipper is obligated to pay monthly demand charges based on their contracted firm
volume, regardless of volumes actually transported. These transportation contracts provide toll revenues sufficient to recover the
costs of providing transportation service to shippers, including depreciation, debt financing costs and an allowed return on equity.
Operational Highlights
Transportation deliveries for the three and 12 months ended December 31, 2012 averaged 1.561 bcf/d and 1.553 bcf/d, respectively,
compared to 1.562 bcf/d and 1.564 bcf/d for the same periods last year. The Authorized Overrun Service volumes shipped on
the Alliance pipeline were lower for the three and 12-month periods in 2012 due to routine maintenance work. AOS levels were
further impacted by Alliance’s fall system outage, discussed below. The lower AOS volumes did not impact firm transportation
service or earnings.
Fall System Outage
On October 1, 2012, the Alliance system had a planned shut down to accommodate the relocation of a short section of the mainline in
northwestern Alberta. This action was taken in response to a safety-related National Energy Board order, driven by recent commercial
development close to the pipeline.
The duration of the outage was approximately four days while the new segment of pipeline was successfully connected, tested and put
into operation. Firm service on the pipeline was impacted during this period and AOS was impacted in the days leading up to and after
the outage. Alliance expects to recover through its 2013 tolls all costs associated with the NEB order. Total project costs included in the
2013 tolls were forecasted at $7.5 million (100% – $15.0 million).
Tioga Lateral Pipeline
In 2011, Alliance filed project plans with the FERC to construct a new lateral pipeline, the Tioga Lateral, to transport liquids-rich natural
gas. The 127-km (79-mile) lateral pipeline, underpinned with a long-term shipper contract, will connect new natural gas supply from
the Bakken region of North Dakota to the Alliance system, for onward shipment to the Chicago market hub. The lateral has an initial
design capacity of 126 mmcf/d and can be expanded based on shipper demand. This new infrastructure will enable producers to
economically move natural gas and natural gas liquids produced in association with oil production to market.
The FERC approved construction of the Tioga Lateral on September 20, 2012. Construction of the Tioga Lateral is progressing on plan
and commercial in-service is expected in the third quarter of 2013.
Appointment of President and Chief Executive Officer
Mr. Terrance Kutryk was appointed President and Chief Executive Officer of Alliance effective October 1, 2012, replacing Mr. Murray
Birch who retired on July 31, 2012.
Financial Highlights
Equity income for the three months ended December 31, 2012 was $20.4 million, down marginally from $21.7 million for the same
period last year.
Equity income for the year ended December 31, 2012 was $82.2 million compared to $87.0 million for the prior year. The decrease
results from lower returns as a result of a declining investment base and lower income tax recoveries.
Opportunities and Developments
Alliance’s key business objective for the period post-2015 is to transition to a multi-service business model, providing shippers with
competitively priced infrastructure and energy transportation services to deliver natural gas to major markets in North America.
Alliance is in close proximity to significant natural gas production areas in northeastern British Columbia and northwestern Alberta.
In this region, approximately 5.5 bcf/d of natural gas production is within a 40-km distance to the pipeline system. The Alliance
system is also ideally positioned relative to unconventional liquids-rich shale developments in the Montney and Bakken regions.
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