AltaGas Utility Group Inc.
TSX : AUI

AltaGas Utility Group Inc.

February 25, 2008 18:36 ET

AltaGas Utility Group Inc. Announces Fourth Quarter and Year-End 2007 Results and a Quarterly Dividend of $0.04 Per Share

CALGARY, ALBERTA--(Marketwire - Feb. 25, 2008) - The Board of Directors of AltaGas Utility Group Inc. (Utility Group) (TSX:AUI) today announced net income of $2.6 million ($0.31 per share) for the fourth quarter of 2007 and net income of $4.6 million ($0.56 per share) for the year ended December 31, 2007, compared to $2.6 million ($0.32 per share) for the fourth quarter of 2006 and net income of $4.2 million ($0.52 per share) for the year ended December 31, 2006. Results are representative of a normal fourth quarter in the seasonal natural gas distribution business, when delivered volumes increase in the fall and winter months. A dividend of $0.04 per common share payable on April 15, 2008 to shareholders of record at the close of business on March 31, 2008 was declared.

"The year 2007 was an exciting year for investment growth throughout Utility Group", said Patricia Newson, President and Chief Executive Officer of Utility Group. "The 30.8 million we invested was 61% more than in 2006. The $9.3 million Ikhil acquisition is performing very well, and system growth to meet customer demand in Alberta kept the AUI team busy managing $17.6 million of investment projects. Heritage Gas invested $3.9 million, most of which was for the Halifax Harbour crossing, providing access to one of the largest markets in Nova Scotia. Utility Group's 2007 investments will support income growth in 2008 and years to come."

The fourth quarter 2007 compared to 2006 was highlighted by growth in the AUI and Heritage Gas franchise areas and income from the acquisition of Ikhil, offset by slightly warmer weather, higher interest expense and the effects of the regulatory decision for AltaGas Utilities Inc.'s (AUI) 2007 applied-for tariff.

The year 2007 is highlighted by growth in our franchise areas operated by AUI and Heritage Gas, results from the acquisition of 33.3335% interest in the Ikhil Joint Venture (Ikhil) on July 31, 2007 and a colder winter in both Alberta and Nova Scotia. Net income was positively impacted from rate base growth by $0.6 million. Heritage Gas continued to grow in both the Halifax Regional Municipality and Amherst franchise areas and in 2007 completed the Halifax Harbour crossing. For AUI, colder weather in Alberta in 2007 than 2006 increased net income by $0.5 million, offset by the reduced regulated return on equity of $0.2 million to net income. Inuvik Gas Ltd's business growth and Ikhil's five months of operations combined to contribute $0.4 million to net income.

Utility Group's regulated businesses are allowed the opportunity to earn a return on invested rate base that is intended to provide shareholders with a fair return on investment and to cover the cost of debt. AUI's net rate base increased to $105.2 million in 2007 from $97.4 million in 2006, or 8.0 percent compared to 5.5 percent growth in 2006. Heritage Gas Limited's rate base increased to $81.9 million (Utility Group's proportionate share - $20.4 million) at the end of 2007 from $51.1 million (Utility Group's proportionate share - $12.7 million) at the end of 2006, a 60 percent growth rate indicative of the green field nature of the Nova Scotia franchise.

On a consolidated basis, Utility Group's rate base is expected to continue to grow. 2007 consolidated rate base growth was 13% and 2008 growth is expected to exceed the growth achieved in 2007. Subject to regulatory approvals, rate base growth will drive a similar growth in regulatory net income. There are opportunities to grow beyond the applied-for rate base. We will continue to pursue opportunities to grow our business and look forward to another busy year in 2008.



Financial and Operating Highlights
(unaudited, in millions of Canadian dollars except per share amounts or
otherwise indicated)
----------------------------------------------------------------------------

Q4 2007 Q4 2006 2007 2006
----------------------------------------------------------------------------
Revenue 40.4 44.3 132.5 130.9
Net revenue (1) 12.4 11.4 41.6 35.7
EBITDA (1) 6.6 5.8 18.2 15.5
Operating income (1) 4.5 4.2 10.4 8.8
Net income 2.6 2.6 4.6 4.2
----------------------------------------------------------------------------
Total assets 211.0 184.0 211.0 184.0
Current liabilities 36.0 31.8 36.0 31.8
Long-term liabilities 105.2 86.2 105.2 86.2

Net income per share - basic $ 0.31 $ 0.32 $ 0.56 $ 0.52
Net income per share -
diluted $ 0.31 $ 0.32 $ 0.56 $ 0.52

Deliveries (PJs) (2) 7.3 7.7 23.9 24.4
Service sites at period end 68,218 65,066 68,218 65,066
Degree day variance
(percent) 1.0 4.3 0.8 (5.3)
----------------------------------------------------------------------------
(1) Net revenue, earnings before interest, taxes, and depreciation and
amortization (EBITDA) and operating income are not measures under
Canadian Generally Accepted Accounting Principles (GAAP) and may not be
comparable to similar measures presented by other companies. Management
believes that this presentation provides useful information to investors
and shareholders as it provides increased predictive value and
performance trends. A reconciliation of these non-GAAP measures is set
out below.
(2) Deliveries (PJs) are totals.


Non-GAAP Measures
(in millions)
----------------------------------------------------------------------------
Q4 2007 Q4 2006 2007 2006
----------------------------------------------------------------------------
Net revenue 12.4 11.4 41.6 35.7
Add: Cost of natural gas 28.0 32.9 90.9 95.2
----------------------------------------------------------------------------
Revenue (GAAP financial
measure) 40.4 44.3 132.5 130.9
----------------------------------------------------------------------------
EBITDA 6.6 5.8 18.2 15.5
Deduct :
Depreciation and amortization 2.1 1.6 7.8 6.7
Interest expense 1.3 1.0 4.6 3.6
Income taxes (3) 0.6 0.6 1.2 1.0
----------------------------------------------------------------------------
Net income (GAAP financial
measure) 2.6 2.6 4.6 4.2
----------------------------------------------------------------------------
Operating income 4.5 4.2 10.4 8.8
Deduct:
Interest expense 1.3 1.0 4.6 3.6
Income taxes (3) 0.6 0.6 1.2 1.0
----------------------------------------------------------------------------
Net income 2.6 2.6 4.6 4.2
----------------------------------------------------------------------------
(3) Income taxes consist of current and future income taxes.


FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements. When used in this news release, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect", and similar expressions, as they relate to Utility Group or an affiliate of the Corporation, are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Such statements reflect the Corporation's current views with respect to future events based on certain material factors and assumptions and are subject to certain risks and uncertainties, including without limitation, changes in market, competition, governmental or regulatory developments, general economic conditions and other factors set out in the Corporation's public disclosure documents. Many factors could cause the Corporation's actual results, performance or achievements to vary from those described in this news release, including without limitation those listed above. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release as intended, planned, anticipated, believed, sought, proposed, estimated or expected, and accordingly such forward-looking statements included in, or incorporated by reference in this news release, should not be unduly relied upon. Such statements speak only as of the date of this news release. The Corporation does not intend, and does not assume any obligation, to update these forward-looking statements. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Additional information regarding Utility Group can be found on its website at www.altagasutilitygroup.com. The continuous disclosure materials of Utility Group, including its prospectus, MD&A and audited financial statements, Annual Information Form, Information Circular and Proxy Statement, material change reports and press releases issued by Utility Group, are available through the Utility Group's website or directly through the SEDAR system at www.sedar.com.



ALTAGAS UTILITY GROUP INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

($ thousands)
----------------------------------------------------------------------------
December 31 December 31
As at 2007 2006
----------------------------------------------------------------------------

ASSETS
Current assets
Cash $ 747 $ 296
Accounts receivable (note 8) 27,781 26,487
Inventory 270 231
Deferred cost of gas, net of income taxes - 1,057
Future income tax asset 15 16
Prepaid expenses and deferred charges 1,736 1,434
----------------------------------------------------------------------------

30,549 29,521
Property, plant and equipment (note 4) 141,220 117,723
Goodwill 31,575 31,575
Regulatory assets 6,717 4,983
Future income tax asset 99 87
Investments and other assets 785 142
----------------------------------------------------------------------------

$ 210,945 $ 184,031
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 1,666 $ 2,221
Accounts payable and accrued liabilities (note
8) 33,261 28,955
Dividends payable 328 246
Income and other taxes payable 748 382
Deferred cost of gas, net of income taxes 20 -
----------------------------------------------------------------------------

36,023 31,804
Long-term debt 101,917 83,157
Customer deposits and other liabilities 3,157 2,920
Future income tax liability 150 99
----------------------------------------------------------------------------

141,247 117,980
----------------------------------------------------------------------------
Shareholders' equity
Share capital 61,278 61,278
Contributed surplus 490 257
Retained earnings 7,930 4,516
----------------------------------------------------------------------------

69,698 66,051
----------------------------------------------------------------------------

$ 210,945 $ 184,031
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the interim consolidated financial statements


ALTAGAS UTILITY GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND RETAINED EARNINGS
(unaudited)

($ thousands except per share amounts)
----------------------------------------------------------------------------
Three months ended December 31 Year ended December 31
For the 2007 2006 2007 2006
----------------------------------------------------------------------------

REVENUE (note 8) $ 40,445 $ 44,337 $ 132,523 $ 130,864


EXPENSES
Cost of natural gas
(note 8) 28,008 32,982 90,881 95,200
Operating and
administrative (note 8) 5,844 5,567 23,444 20,175
Depreciation, depletion
and amortization 2,078 1,611 7,787 6,693
----------------------------------------------------------------------------

35,930 40,160 122,112 122,068
----------------------------------------------------------------------------

Operating income 4,515 4,177 10,411 8,796
Interest expense 1,338 999 4,587 3,566
----------------------------------------------------------------------------

Income before income
taxes 3,177 3,178 5,824 5,230
----------------------------------------------------------------------------
Income taxes
Current income taxes 571 659 1,182 989
Future income taxes 59 (86) 40 11
----------------------------------------------------------------------------

630 573 1,222 1,000
----------------------------------------------------------------------------

Net income and
comprehensive income 2,547 2,605 4,602 4,230
Retained earnings,
beginning of period 5,711 2,157 4,516 1,269
Dividends declared (328) (246) (1,188) (983)
----------------------------------------------------------------------------

Retained earnings, end
of period $ 7,930 $ 4,516 $ 7,930 $ 4,516
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Net income per share
(note 5)
Basic $ 0.31 $ 0.32 $ 0.56 $ 0.52
Diluted $ 0.31 $ 0.32 $ 0.56 $ 0.52


Number of shares
outstanding (note 5)
Basic 8,189,905 8,189,905 8,189,905 8,189,905
Diluted 8,189,905 8,189,905 8,197,096 8,202,295

See accompanying notes to the interim consolidated financial statements


ALTAGAS UTILITY GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

($ thousands)
----------------------------------------------------------------------------
Three months ended December 31 Year ended December 31
For the 2007 2006 2007 2006
----------------------------------------------------------------------------

CASH FROM OPERATIONS
Net income $ 2,547 $ 2,605 $ 4,602 $ 4,230
Items not involving cash:

Revenue deficiency
accrual (339) (282) (1,707) (1,222)
Allowance for funds used
during construction (145) (214) (448) (417)
Depreciation and
amortization 2,078 1,611 7,787 6,693
Operating and
administrative 171 189 1,525 1,009
Future income taxes 59 (87) 40 11
Other 76 88 233 301
----------------------------------------------------------------------------
Funds generated from
operations 4,447 3,910 12,032 10,605
Net change in non-cash
working capital (note 7) (3,627) (7,102) (785) (1,884)
----------------------------------------------------------------------------

820 (3,192) 11,247 8,721
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Additions to property,
plant and equipment (9,648) (6,315) (26,817) (20,544)
Net change in non-cash
working capital (note 7) 3,160 249 5,343 1,396
----------------------------------------------------------------------------
(6,488) (6,066) (21,474) (19,148)
Business acquisition - - (9,255) -
Contributions in aid of
construction (825) (48) 4,135 3,476
Proceeds on disposition
of property, plant
and equipment 130 73 167 200
Investment in regulatory
and other assets (896) (338) (2,338) (1,752)
----------------------------------------------------------------------------
(8,079) (6,379) (28,765) (17,224)
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Increase (decrease) in
short-term debt 1,069 2,015 (555) 2,221
Increase in long-term
debt 6,744 7,368 19,393 5,993
Dividends paid (287) (246) (1,106) (737)
Increase in customer
deposits and other
liabilities 87 90 237 941
----------------------------------------------------------------------------
7,613 9,227 17,969 8,418
----------------------------------------------------------------------------
Change in cash 354 (344) 451 (85)
Cash, beginning of period 393 640 296 381
----------------------------------------------------------------------------
Cash, end of period $ 747 $ 296 $ 747 $ 296
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements


AltaGas Utility Group Inc.

Selected Notes to the Consolidated Financial Statements

(Tabular amounts in thousands of dollars unless otherwise indicated)

1. STRUCTURE AND NATURE OF OPERATIONS

AltaGas Utility Group Inc. was incorporated with nominal capital under the Canada Business Corporations Act as 6414958 Canada Limited on July 6, 2005 and filed a certificate of amendment to change its name to AltaGas Utility Group Inc. (Utility Group) on July 28, 2005. Utility Group began active operations with the acquisition of all the issued and outstanding common shares of AltaGas Utility Holdings Inc. (AUHI) on November 17, 2005.

AUHI, through its ownership interests in AltaGas Utilities Inc. (AUI), AltaGas Utility Holdings (Nova Scotia) Inc. (AUH(NS)) and Inuvik Gas Ltd. (Inuvik Gas), holds interests in regulated natural gas distribution utility businesses operating in Alberta, Nova Scotia and the Northwest Territories, respectively. AUI and AUH(NS) are wholly owned subsidiaries of AUHI, while Inuvik Gas is one-third owned by AUHI. AUH(NS) owns a 24.9 percent interest in Heritage Gas Limited (Heritage Gas). The investments in Inuvik Gas and Heritage Gas are each jointly controlled by AUHI, along with their other shareholders.

On July 31, 2007 Utility Group acquired a 33.3335 percent interest in the Ikhil Joint Venture (Ikhil) through its wholly owned subsidiary Utility Group Facilities Inc. (Facilities). The investment in Ikhil is jointly controlled by Facilities, along with the other joint venture partners. Ikhil owns and operates two natural gas wells and gathering and processing facilities including a pipeline from the Ikhil gas field to the town of Inuvik, supplying Inuvik Gas and the Northwest Territories Power Corporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements include the accounts of Utility Group and all of its wholly owned subsidiaries and its proportionate interests in the jointly controlled investments in Heritage Gas, Inuvik Gas and Ikhil. Transactions between Utility Group, its wholly owned subsidiaries and the proportionately consolidated entities are eliminated on consolidation.

These consolidated financial statements are prepared by management in accordance with Canadian generally accepted accounting principles (GAAP), including accounting policies for which guidance has been provided by regulations and recommendations of the Alberta Utilities Commission (AUC) (formerly the Alberta Energy and Utilities Board (EUB)) and of the Nova Scotia Utility and Review Board (NSUARB). These consolidated financial statements do not include all of the disclosures required in the annual financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2006. The accounting policies applied in these consolidated financial statements are consistent with those outlined in Utility Group's annual financial statements, except as described below.

Certain comparative figures have been reclassified to conform to the current presentation.

Changes in Accounting Policy

Effective January 1, 2007 Utility Group adopted the Canadian Institute of Chartered Accountants Handbook Section 3855, Financial Instruments - Recognition and Measurement; Section 3861, Financial Instruments - Disclosure and Presentation; Section 3865, Hedges; and Section 1530, Comprehensive Income, retroactively without restatement. The adoption of these new financial instrument standards resulted in changes in the accounting as follows:

Financial Assets and Financial Liabilities

Under the new standards, financial assets and financial liabilities are initially recognized at fair value, except for related party financial liabilities originated as a result of related party transactions which are initially recognized at the exchange amount. Financial assets and liabilities must be classified into one of the following five categories: held-for trading; held-to maturity; loans and receivables; available-for-sale financial assets; or other financial liabilities. The classification depends on the purpose for which the financial instruments were acquired and their characteristics. All financial instruments are measured at fair value on initial recognition. Transaction costs are included in the initial carrying amount of financial instruments. Measurement in subsequent periods depends on the classification of the financial instrument.

Utility Group adopted the following four classifications:

- Cash is classified as "held for trading". Measurement made subsequent to the adoption date of this new standard is at fair value;

- Accounts receivable are classified as "loans and receivables". Measurements made subsequent to the adoption date of this new standard are recorded at amortized cost using the effective interest rate method. For Utility Group, this measurement generally corresponds to cost;

- Long term investments are classified as "available for sale". Measurements made subsequent to the adoption date of this new standard are recorded at fair value. Changes to fair value are recorded net of income taxes through other comprehensive income. For Utility Group, fair value generally corresponds to market rates of the securities traded on public markets; and

- Bank loans, accounts payable, accrued liabilities and long-term debt are classified under other financial liabilities. Measurements made subsequent to the adoption date of this new standard are recorded at amortized cost using the effective interest method. For Utility Group, this measurement generally corresponds to cost.

Derivatives and Hedge Accounting

Derivatives may be embedded in other financial instruments (the "host instrument"). Prior to the adoption of the new standards, such embedded derivatives were not accounted for separately from the host instrument. Under the new standards, embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host instrument, the terms of the embedded derivative are the same as those of the stand-alone derivative, and the combined contract is not held for trading or designated at fair value. A review of Utility Group's financial contracts determined that there were no embedded derivatives. In the event that Utility Group enters into a contract that contains an embedded derivative, the embedded derivative will be measured at fair value with subsequent changes recognized in income.

Comprehensive Income

Comprehensive income is the change in shareholders' equity during a period from transactions and other events and circumstances from non-owner sources. Accumulated other comprehensive income, if applicable, is included in the shareholders' equity section of the balance sheet. The components of the new category will include unrealized gains and losses on financial instruments classified as available-for-sale and the effective portion of cash flow hedges.

As at January 1, 2007 no transitional adjustments were made to the opening balance of retained earnings or to the opening balance of accumulated other comprehensive income arising from the adoption of sections 1530, 3855, and 3865.

Regulation

AUI and Heritage Gas engage in the delivery and sale of natural gas and are regulated by the AUC and the NSUARB, respectively. The AUC and NSUARB exercise statutory authority over matters such as tariffs, rates, construction, operations, financing, returns, accounting and certain contracts with customers. In order to recognize the economic effects of the actions and decisions of the AUC and NSUARB, the timing of recognition of certain assets, liabilities, revenues and expenses as a result of regulation may differ from that otherwise expected using Canadian GAAP for entities not subject to rate regulation.

Inuvik Gas is subject to light-handed regulation by the Northwest Territories Public Utilities Board (NWTPUB), whereby rates are set by Inuvik Gas based on a competitive market place. The NWTPUB is satisfied that competition for alternative fuel exists in Inuvik and that competition is sufficient to negate the need for full regulation. Inuvik Gas is required to file its rates, terms and conditions of service with the NWTPUB when they are revised. The NWTPUB can take action should any complaints be received and may review the affairs, earnings and accounts of Inuvik Gas as it deems necessary.

Utility Group records the impact of regulatory decisions in the period in which decisions are rendered.

3. UPDATE TO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net additions to property, plant and equipment for gas processing facilities and natural gas properties are amortized upon being brought into active service. Depletion of natural gas properties is provided using the unit of production method based upon estimated proven reserves before royalties. Depreciation of gathering and processing equipment is provided on a straight-line basis over the assets' 20-year estimated useful life.

4. PROPERTY, PLANT AND EQUIPMENT



Year ended Year ended
December 31, 2007 December 31, 2006
----------------------------------------------------------------------------

Accumu- Accumu-
lated lated
amorti- Net book amorti- Net book
Cost zation value Cost zation value
----------------------------------------------------------------------------
Transmission and
distribution
systems $ 178,935 $ 63,237 $ 115,698 $ 163,492 $ 61,173 $ 102,319
Buildings,
equipment and
administrative 28,988 12,643 16,345 26,149 10,999 15,150
Gas processing
facilities 5,648 117 5,531 - - -
Natural gas
properties 3,607 149 3,458 - - -
Other 890 702 188 789 535 254
----------------------------------------------------------------------------
$ 218,068 $ 76,848 $ 141,220 $ 190,430 $ 72,707 $ 117,723
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On July 31, 2007 Utility Group acquired a 33.3335 percent interest in Ikhil for $9.3 million including costs of acquisition from AltaGas Income Trust (the Trust). Ikhil owns and operates two natural gas wells and gathering and processing facilities including a pipeline from the Ikhil gas field to the town of Inuvik, supplying Inuvik Gas and the Northwest Territories Power Corporation. Ikhil is proportionately consolidated, with operating results included in these consolidated financial statements from the date of acquisition.



Net Assets Acquired
----------------------------------------------------------------------------
Gas processing facilities $ 5,648
Natural gas properties 3,607
----------------------------------------------------------------------------
$ 9,255
----------------------------------------------------------------------------
----------------------------------------------------------------------------


5. SHARE CAPITAL

Net Income Per Share

The options outstanding for the three months ended December 31, 2007 and December 31, 2006 are not included in the computation of diluted common shares outstanding as the effect would be anti-dilutive due to the weighted average share price for the period.

Stock Option Plan

Utility Group has an employee stock option plan under which both employees and directors are eligible to receive grants. At December 31, 2007, 818,990 shares were reserved for issuance under the plan. To December 31, 2007 options granted under the plan had a term of 10 years to expiry and vested no longer than over a four-year period.

At December 31, 2007 options outstanding under the plan have a weighted average exercise price of $7.12 and a weighted average remaining term of 8.9 years. Stock option compensation expense charged to operating and administrative expense for the quarter ended December 31, 2007 was $75,000 (2006 - $56,000), and for the year ended December 31, 2007 was $0.2 million (2006 - $0.3 million), with a corresponding increase to contributed surplus.



Year ended Year ended
December 31, 2007 December 31, 2006
----------------------------------------------------------------------------
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
----------------------------------------------------------------------------
Stock options outstanding,
beginning of period 310,500 $ 7.25 170,000 $ 7.50
Granted 163,000 6.84 150,500 6.98
Cancelled - - (10,000) 7.50
----------------------------------------------------------------------------
Stock options outstanding, end
of period 473,500 $ 7.12 310,500 $ 7.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable at end of period 157,625 $ 7.38 80,000 $ 7.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. PENSION AND OTHER RETIREMENT BENEFIT PLANS

Utility Group has pension plans which provide either defined benefit or defined contribution pension benefits for qualified employees. These pension plans are fully funded, partially funded, or unfunded. Utility Group also provides unfunded post-employment benefits other than pensions for qualifying retired employees. The expense recognized for these plans is as follows:



Three months ended Year ended
December 31 December 31
2007 2006 2007 2006
----------------------------------------------------------------------------
AUI defined benefit plans $ 228 $ 270 $ 931 $ 1,113
SERP defined benefit plan 41 27 164 105
Defined contribution plan 40 9 40 24
Other post-employment benefit plans 81 78 226 229
----------------------------------------------------------------------------
$ 390 $ 384 $ 1,361 $ 1,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. NET CHANGE IN NON-CASH WORKING CAPITAL

The net change in the following non-cash working capital items increased/(reduced) cash flows from operations as follows:



Three months ended December 31 Year ended December 31
2007 2006 2007 2006
----------------------------------------------------------------------------
Accounts receivable $ (17,072) $ (19,429) $ (1,294) $ 3,602
Inventory, prepaid
expenses and deferred
charges (6) 51 (341) (104)
Accounts payable and
accrued liabilities 14,430 12,952 4,306 (4,266)
Deferred cost of gas, net
of income taxes 878 (596) 1,077 494
Income and other taxes
payable 697 (17) 366 (69)
----------------------------------------------------------------------------
(1,073) (7,039) 4,114 (343)
Increase (decrease) in
accounts receivable
related to CIAC 606 186 444 (145)
Increase in accounts
payable related to
property,
plant and equipment (3,160) (249) (5,343) (1,396)
----------------------------------------------------------------------------
Net change in non-cash
working capital related
to operations $ (3,627) $ (7,102) $ (785) $ (1,884)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following cash payments have been included in the determination of net
income:

Three months ended December 31 Year ended December 31
2007 2006 2007 2006
----------------------------------------------------------------------------
Interest paid $ 1,253 $ 1,344 $ 4,293 $ 3,360
Income taxes paid $ 240 $ 187 $ 1,344 $ 1,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------


8. RELATED PARTY TRANSACTIONS

In the normal course of business, Utility Group and its affiliates transact with related parties. The following related party transactions were measured at their exchange amount:



Three months ended December 31 Year ended December 31
2007 2006 2007 2006
----------------------------------------------------------------------------
Fees for administration,
management and other
services paid by:
Utility Group to the Trust $ 7 $ 7 $ 30 $ 30
The Trust to Utility Group $ 48 $ 250 $ 174 $ 505
The Trust to AUI $ 2 $ 3 $ 9 $ 34
Ikhil to Inuvik Gas (1) $ - $ 173 $ 262 $ 461
Fees for operating services
paid by AUI to the
Trust $ 34 $ 126 $ 341 $ 469
Gas purchases for resale by
Inuvik Gas from
Ikhil (1) $ - $ 443 $ 843 $ 1,174
Transportation services
provided by AUI to the
Trust $ 117 $ 139 $ 478 $ 560
Gas purchases for resale by
AUI from the Trust $ 25,718 $ 31,112 $ 82,527 $ 82,872
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Transactions occurring prior to the July 31, 2007 purchase of Ikhil by
Utility Group.


The resulting amounts due from and to related parties are non-interest bearing and are related to transactions in the normal course of business.

Included in accounts receivable at December 31, 2007 is $0.1 million ($0.7 million at December 31, 2006) due to Utility Group from the Trust.

Included in accounts payable and accrued liabilities at December 31, 2007 is $13.5 million ($13.8 million at December 31, 2006) due from AUI to the Trust.

On July 31, 2007 Utility Group acquired a 33.3335 percent interest in Ikhil for $9.0 million from the Trust.

9. SEASONALITY

The natural gas distribution business is highly seasonal, with the majority of natural gas deliveries occurring during the winter heating season. Gas sales during the winter typically account for approximately two-thirds of annual revenue, resulting in strong first and fourth quarter results and losses in the second and third quarters.

ABOUT ALTAGAS UTILITY GROUP INC.

AltaGas Utility Group Inc. is a publicly traded company holding interests in AltaGas Utilities Inc., Heritage Gas Limited and Inuvik Gas Ltd. Combined, these regulated natural gas distribution businesses serve more than 66,000 customers in three areas of Canada through an infrastructure of nearly 20,000 kilometres of pipeline. Utility Group pursues opportunities to invest in infrastructure-based utility and related businesses with long-term, stable returns.

AltaGas Utility Group's 8.2 million common shares began trading on the Toronto Stock Exchange under the symbol AUI on November 17, 2005.

Contact Information