Financial Report - Veresen Inc.

Distributable cash for the three and 12 months ended December 31, 2012 was $56.5 million and $211.4 million, respectively, compared
to $53.2 million and $193.0 million for the same periods last year, reflecting increased cash flows from acquisitions in our Midstream
business and recently commissioned power facilities, partially offset by a significant decrease in margin-based earnings from Aux
Sable, lower contributions from Alliance, and higher corporate costs. On a per Common Share basis, distributable cash was $0.29
and $1.09 for the three and 12 months ended December 31, 2012, a $0.03 and $0.09 decrease relative to the same periods last year,
reflecting a higher number of Common Shares outstanding in the current year.
Our newly acquired Hythe/Steeprock complex generated $16.5 million and $60.3 million of distributable cash for the fourth quarter
of 2012 and for the period February 9 to December 31, 2012, respectively. Distributable cash from Hythe/Steeprock is primarily
comprised of the minimum volume and fee commitment generated under the MSA, including fee commitments in respect of the
reporting period where the recognition in earnings has been deferred for up to 12 months but where payment has been received.
Interest costs associated with the Hythe/Steeprock acquisition are included in the corporate segment.
Aux Sable distributed $19.8 million and $64.0 million to us in the three and 12 months ended December 31, 2012, a $14.8 million and
$30.2 million decrease compared to the same periods last year. The decreased distributions primarily resulted from lower realized
fractionation margins in comparison to record-level margins realized in the same periods last year. The decrease in margin-based
cash flows was partially offset by incremental fixed fee cash flows generated from Aux Sable’s processing and transportation assets
in Alberta and in the Bakken region of North Dakota.
Power distributable cash for the three and 12 months ended December 31, 2012 was $4.0 million and $27.1 million, respectively,
a $2.6 million and $1.3 million increase compared to the same periods last year. The increase reflects a $1.2 million and $3.5 million
increase from our gas-fired and district energy systems for the three and 12-month periods, respectively, a $0.9 million increase and a
$2.5 million decrease from our renewable facilities, and a $0.5 million and $0.2 million decrease in Power-Corporate costs. Within our
gas-fired and district energy systems portfolio, York Energy Centre distributed $1.8 million and $5.8 million for the three and 12-month
periods, respectively. Distributable cash from the remainder of our gas-fired and district energy systems was lower than amounts
generated in the same periods last year as increased debt service and maintenance capital expenditures offset higher EBITDA. Within
our renewable power portfolio, Grand Valley wind farm, which was placed into service at the end of the first quarter of 2012, contributed
$0.9 million and $1.7 million of distributable cash for the three and 12-month periods. These amounts, as well as higher distributable cash
from our B.C. run-of-river facilities, were offset by reduced EBITDA from Glen Park, particularly for the 12-month period.
Distributions from Alliance for the three and 12 months ended December 31, 2012 were $32.5 million and $130.7 million, respectively,
a $1.0 million and $4.5 million decrease compared to amounts distributed in the same periods last year. The decrease reflects a lower
return on equity due to the ongoing depreciation of Alliance’s investment base. The year-over-year decrease further reflects the impact
of additional amounts being distributed in the first quarter of 2011 arising from the minor realignment of Alliance U.S.’s capitalization.
Distributable cash from AEGS was $4.7 million and $16.8 million for the three and 12 months ended December 31, 2012, respectively,
a $0.8 million and $1.0 million increase compared to the same periods last year, reflecting higher EBITDA.
Corporate costs for the three and 12 months ended December 31, 2012 were $15.6 million and $64.4 million, a $3.7 million and
$15.0 million increase from the same periods last year. Recurring administrative costs for the fourth quarter were $0.9 million lower
in comparison to the same period last year, and for the year ended December 31, 2012 were approximately $0.9 million higher than
the prior year, reflecting increased costs incurred to support our growing businesses, offset by the downward revaluation of our
long-term incentive plan. Non-recurring administrative costs, primarily comprised of costs incurred to integrate the Hythe/Steeprock
acquisition in 2012 and the Pristine acquisition in 2011, were $0.3 million and $2.9 million higher for each of the three and 12 months
ended December 31, 2012, respectively, compared to the same periods last year. Debt service costs increased by $4.2 million and
$12.7 million, respectively, as a result of debt issuances in the first quarter of 2012 to fund the Hythe/Steeprock acquisition.
Cash taxes for the three and 12 months ended December 31, 2012 were $3.2 million and $15.4 million, respectively, a $5.1 million and
$13.2 million decrease compared to the same periods last year. The decrease results from reduced midstream earnings from Aux Sable
due to lower NGL margins in the United States.
Distributable cash for the three and 12 months ended December 31, 2012 was further reduced by $2.2 million and $7.7 million of
Preferred Share dividends. The Preferred Shares were issued on February 14, 2012 to fund the Hythe/Steeprock acquisition.
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