News Column

EPCOR Announces Quarterly Results

August 12, 2014

EDMONTON, ALBERTA--(Marketwired - Aug. 12, 2014) - EPCOR Utilities Inc. (EPCOR) today filed its quarterly results for the three month and year-to-date periods ended June 30, 2014.

"EPCOR had a strong second quarter with solid financial performance," said David Stevens, EPCOR President & CEO. "We are also pleased with the announcement that a group led by EPCOR will design and build, and finance, operate and maintain a new wastewater treatment plant in the City of Regina under a 30 year contract."

Highlights of EPCOR's financial performance are as follows:

-- Net income was $55 million on revenues of $435 million for the three months ended June 30, 2014 compared with $45 million on revenues of $469 million for the corresponding period in the previous year. -- Net income was $93 million on revenues of $899 million for the six months ended June 30, 2014 compared with $102 million on revenues of $922 million for the corresponding period in the previous year. -- Net cash flows from operating activities were $188 million for the six months ended June 30, 2014 compared with $105 million for the corresponding period in the previous year. -- Investment in capital projects was $91 million for the three months ended June 30, 2014 compared with $86 million for the corresponding period in the previous year. -- Investment in capital projects was $154 million for the six months ended June 30, 2014 compared with $179 million for the corresponding period in the previous year. The decrease of $25 million was primarily due to lower expenditure on the Heartland electricity transmission line which was completed in December 2013.



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

EPCOR's wholly owned subsidiaries build, own and operate electrical transmission and distribution networks, water and wastewater treatment facilities and infrastructure in Canada and the United States. The Company's subsidiaries also provide electricity and water services and products to residential and commercial customers. EPCOR, headquartered in Edmonton, is an Alberta top 65 employer. EPCOR's website address is www.epcor.com.

EPCOR Utilities Inc.

Interim Management's Discussion and Analysis

June 30, 2014

This management's discussion and analysis (MD&A) dated August 12, 2014, should be read in conjunction with the condensed consolidated interim financial statements of EPCOR Utilities Inc. and its subsidiaries for the three and six months ended June 30, 2014 and 2013, the consolidated financial statements and MD&A for the year ended December 31, 2013 and the cautionary statement regarding forward-looking information on page 12 and 13 of this MD&A. In this MD&A, any reference to "the Company", "EPCOR", "it", "its", "we", "our" or "us", except where otherwise noted or the context otherwise indicates, means EPCOR Utilities Inc., together with its subsidiaries and joint arrangements. In this MD&A, Capital Power refers to Capital Power Corporation and its directly and indirectly owned subsidiaries including Capital Power L.P., except where otherwise noted or the context otherwise indicates. Financial information in this MD&A is based on the condensed consolidated interim financial statements, which were prepared in accordance with International Financial Reporting Standards (IFRS), and is presented in Canadian dollars unless otherwise specified. In accordance with its terms of reference, the Audit Committee of the Company's Board of Directors reviews the contents of the MD&A and recommends its approval by the Board of Directors. This MD&A was approved and authorized for issue by the Board of Directors on August 12, 2014.

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 maximize the efficiency of its electricity and water operations.

EPCOR's net income was $55 million and $93 million, respectively, for the three and six months ended June 30, 2014 compared with net income of $45 million and $102 million, respectively, for the comparative periods in 2013.

EPCOR's core operations performed well in the second quarter without any significant issues or disruptions to customers. Net income from core operations was $53 million and $82 million, respectively, for the three and six months ended June 30, 2014, compared with $39 million and $79 million for the comparative periods in 2013. Income from core operations is a non-IFRS financial measure; see Non-IFRS Financial Measure on page 10 of this MD&A.

Our 2014 capital expenditure plan includes work continued from 2013 on several significant upgrade projects such as the annual water main renewal program to improve Edmonton's water distribution system, a new water laboratory and related office building, upgrades to a digester and pre-treatment tanks and solids handling infrastructure at the Gold Bar wastewater treatment facility (Gold Bar), distribution system relocation work as a result of the City's Light Rail Transit expansion, an underground electricity distribution cable replacement and extension program, the Genesee Interface to High Voltage Direct Current Converter Station project which constitutes part of Altalink's West Alberta Transmission Line project, and the completion of work associated with the Heartland electricity transmission line, which has since been partitioned between Altalink L.P. and EPCOR in accordance with their respective service territories. Our capital expenditure plan also includes new capital placement such as a lagoon treatment project at Gold Bar, construction of new reservoirs and water system upgrades at the White Rock water treatment facility and various annual recurring projects, such as the underground residential distribution servicing project to meet continuing customer growth in the City of Edmonton. This plan is aimed towards better water management practices and improvement of electricity distribution and transmission infrastructure to replace aging assets and meet the growing demand for electricity.

In May 2014, an EPCOR led consortium won a bid to design, build, finance, operate and maintain a new wastewater treatment facility in the City of Regina under a public private partnership. The contract was signed July 3, 2014. In August 2014, EPCOR took over operations of the existing wastewater treatment plant in Regina. Construction on the new plant has commenced and will be completed by December 2016. The agreement includes operation of the new and existing facilities for a term of 30 years. Undiscounted cash flows from this project are projected to be $444 million.

Consolidated Results of Operations

Revenues

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Six (Unaudited, $ millions) months Months ---------------------------------------------------------------------------- Revenues for the periods ended June 30, 2013 $ 469$ 922 Higher Water Services segment revenues 5 10 Lower electricity distribution and transmission segment revenues (15) (5) Lower Energy Services segment revenues (30) (34) Other 6 6 ---------------------------------------------------------------------------- Decrease in revenues from core operations (34) (23) ---------------------------------------------------------------------------- Revenues for the periods ended June 30, 2014 $ 435$ 899 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Consolidated revenues were lower by $34 million and $23 million for the three and six months ended June 30, 2014, respectively, compared with the corresponding periods in 2013 primarily due to the net impact of the following:

-- Water Services segment revenues were higher for the three and six months ended June 30, 2014 compared with the corresponding periods in 2013 primarily due to higher approved customer rates and increased volumes partially offset by lower commercial services activity. -- Electricity distribution and transmission revenues were lower for the three and six months ended June 30, 2014, compared with the corresponding period in 2013 primarily due to refunds to customers. The refunds in 2014 relate to the 2012 and first quarter of 2013 interim to final true-ups of system access rates. This was partially offset by higher approved electricity rates. -- Energy Services segment revenues were lower for the three and six months ended June 30, 2014 compared with the corresponding periods in 2013 primarily due to lower electricity prices and volumes.



Net Income

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Six (Unaudited, $ millions) months Months ---------------------------------------------------------------------------- Net income for the periods ended June 30, 2013 $ 45$ 102 Lower equity share of income from Capital Power (net of income tax) (4) (12) ---------------------------------------------------------------------------- 41 90 Higher Water Services segment operating income 5 10 Lower Distribution and Transmission segment operating income (1) (7) Higher Energy Services segment operating income 12 6 Other (2) (6) ---------------------------------------------------------------------------- Increase in income from core operations 14 3 ---------------------------------------------------------------------------- Net income for the periods ended June 30, 2014 $ 55$ 93 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Net income was higher for the three and lower for the six months ended June 30, 2014 compared with the corresponding periods in 2013 primarily due to the net impact of the following:

-- EPCOR's equity share of income of Capital Power was lower for the three and six months ended June 30, 2014 compared with the corresponding periods in 2013 reflective of the Company's equity share of lower Capital Power net income and the impact of EPCOR's reduced economic interest in Capital Power. -- Changes in each business segment's operating results for the three and six months ended June 30, 2014 compared with the corresponding periods in 2013 as described under Segment Results below.



Segment Results

Water Services

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, -------------------- -------------------- (Unaudited, $ millions, including intersegment transactions) 2014 2013 2014 2013 ---------------------------------------------------------------------------- Revenues $ 139$ 134$ 259$ 249 Expenses (98) (98) (189) (189) ---------------------------------------------------------------------------- Operating income $ 41$ 36$ 70$ 60 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Water Services' operating income increased by $5 million and $10 million for the three and six months ended June 30, 2014, respectively, compared with the corresponding periods in 2013 primarily due to higher approved customer rates and increased volumes.

Distribution and Transmission

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, -------------------- -------------------- (Unaudited, $ millions, including intersegment transactions) 2014 2013 2014 2013 ---------------------------------------------------------------------------- Revenues $ 125$ 140$ 254$ 259 Expenses (110) (124) (221) (219) ---------------------------------------------------------------------------- Operating income $ 15$ 16$ 33$ 40 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Distribution and Transmission's operating income decreased by $1 million for the three months ended June 30, 2014, compared with the corresponding period in 2013 primarily due to refunds to customers. The refunds in 2014 relate to the 2012 and first quarter of 2013 interim to final true-ups of system access rates. This was partially offset by lower electricity charges due to pool price differences and higher approved rates.

Operating income decreased by $7 million for the six months ended June 30, 2014, compared with the corresponding period in 2013 primarily due to refunds in 2014 to customers related to the 2012 and first quarter of 2013 interim to final true-ups of system access rates. Also, there was a refund from the Alberta Electric System Operator in 2013 with no comparable refund in 2014. This was partially offset by higher approved rates.

Energy Services

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, -------------------- -------------------- (Unaudited, $ millions, including intersegment transactions) 2014 2013 2014 2013 ---------------------------------------------------------------------------- Revenues $ 206$ 236$ 463$ 497 Expenses (185) (227) (433) (473) ---------------------------------------------------------------------------- Operating income $ 21$ 9$ 30$ 24 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Energy Services' operating income increased by $12 million and $6 million for the three and six months ended June 30, 2014, respectively, compared with the corresponding periods in 2013 primarily due to higher favorable fair value adjustments related to financial electricity purchase contracts.

In March 2014, EPCOR completed its restructuring of Energy Services. The services formerly offered directly by EPCOR Energy Alberta Inc. are now provided by EPCOR Energy Alberta Limited Partnership, through its general partner EPCOR Energy Alberta GP Inc.

Capital Spending and Investment

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Unaudited, $ millions) Six months ended June 30, 2014 2013 ---------------------------------------------------------------------------- Water Services $ 66$ 43 Distribution and Transmission 84 130 Energy Services 2 3 Corporate 2 3 ---------------------------------------------------------------------------- Total capital spending and investment $ 154$ 179 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Total capital spending and investment was lower for the six months ended June 30, 2014, compared with the corresponding period in 2013 primarily due to the decreased construction activity in the Distribution and Transmission segment on the Heartland electricity transmission line, reflecting EPCOR's 50% share of the project. This was partially offset by increased construction activity in the Water Services segment at the Rossdale water treatment and Gold Bar wastewater treatment plants.

Consolidated Statements of Financial Position

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- December3 (Unaudited, $ June 30, 1, Increase Explanation of material millions) 2014 2013 (decrease) changes ---------------------------------------------------------------------------- Cash and cash $ 101$ 130$ (29) Refer to liquidity and equivalents capital resources section. ---------------------------------------------------------------------------- Trade and other 289 360 (71) Decrease primarily due to receivables higher collections from customer and lower accruals and billings resulting from lower customer electricity volumes partially offset by higher customer water and electricity rates. ---------------------------------------------------------------------------- Derivative assets 2 - 2 Increase due to electricity price spread between market and contract value, partially offset by cash settlements. ---------------------------------------------------------------------------- Inventories 14 14 - ---------------------------------------------------------------------------- Finance lease 120 122 (2) Decrease due to scheduled receivables collection of finance leases. ---------------------------------------------------------------------------- Other financial 362 367 (5) Decrease due to assets collection of long-term receivables. ---------------------------------------------------------------------------- Deferred tax assets 53 53 - ---------------------------------------------------------------------------- Investment in 381 385 (4) Decrease primarily due to Capital Power limited partnership distributions and equity share of other comprehensive loss, partially offset by equity share of Capital Power income. ---------------------------------------------------------------------------- Property, plant and 3,875 3,776 99 Increase primarily due to equipment capital expenditures, partially offset by depreciation expense. ---------------------------------------------------------------------------- Intangible assets 236 240 (4) Decrease primarily due to amortization expense on assets with finite lives, partially offset by capital expenditures. ---------------------------------------------------------------------------- Trade and other 224 245 (21) Decrease primarily due to payables lower electricity accruals resulting from lower volumes. ---------------------------------------------------------------------------- Loans and borrowings 1,962 1,972 (10) Decrease primarily due to (including current payment of Chaparral loan portion) and City of Edmonton debentures. ---------------------------------------------------------------------------- Deferred revenue 818 806 12 Increase primarily due to (including current contributed assets portion) received, partially offset by revenue recognized. ---------------------------------------------------------------------------- Provisions 97 109 (12) Decrease primarily due to (including current lower employee benefit portion) obligations, partially offset by contributions from developers. ---------------------------------------------------------------------------- Derivative 1 1 - liabilities (including current portion) ---------------------------------------------------------------------------- Other liabilities 34 40 (6) Decrease primarily due to (including current the scheduled Gold Bar portion) asset transfer fee payment to the City. ---------------------------------------------------------------------------- Deferred tax 15 12 3 Increase due to reduction liabilities in losses carried forward and increases in other taxable temporary differences. ---------------------------------------------------------------------------- Equity attributable 2,282 2,262 20 Increase due to to the Owner of the comprehensive income, Company partially offset by dividends paid. ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Consolidated Statements of Cash Flows

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Unaudited, $ millions) Cash inflows (outflows) ---------------------------------------------------------------------------- Increase Three months ended June 30, 2014 2013 (decrease) Explanation ---------------------------------------------------------------------------- Operating $ 87$ 30$ 57 Increase primarily reflects changes in non- cash operating working capital resulting from a decrease in accounts receivable. Investing (68) (98) 30 Increase primarily due to lower capital expenditures on the Heartland transmission line, changes in non-cash investing working capital and higher scheduled collections on long-term receivables, partially offset by higher capital expenditures in Water Services. Financing (44) (35) (9) Decrease primarily due to higher scheduled principal repayments. Opening cash and 126 183 (57) cash equivalents ---------------------------------------------------------------------------- Closing cash and $ 101$ 80$ 21 cash equivalents ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Unaudited, $ millions) Cash inflows (outflows) ---------------------------------------------------------------------------- Increase Six months ended June 30, 2014 2013 (decrease) Explanation ---------------------------------------------------------------------------- Operating $ 188$ 105$ 83 Increase primarily reflects changes in non- cash operating working capital resulting from a decrease in accounts receivable. Investing (137) (182) 45 Increase primarily due to lower capital expenditures on the Heartland transmission line, changes in non-cash investing working capital and higher scheduled collections on long-term receivables, partially offset by higher capital expenditures in Water Services. Financing (80) (75) (5) Decrease primarily due to higher scheduled principal repayments. Opening cash and 130 232 (102) cash equivalents ---------------------------------------------------------------------------- Closing cash and $ 101$ 80$ 21 cash equivalents ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Liquidity and Capital Resources

The Company has bank 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 Banking credit and commercial other Net (Unaudited, $ millions) Total paper facility amounts June 30, 2014 Expiry facilities issued draws available ---------------------------------------------------------------------------- Committed Syndicated bank credit November facility(1) 2016$ 400$ - $ 96$ 304 Syndicated bank credit November facility Tranche A 2016 250 - - 250 Syndicated bank credit November facility Tranche B 2018 250 - - 250 ---------------------------------------------------------------------------- Total committed 900 - 96 804 ---------------------------------------------------------------------------- Uncommitted Bank line of credit No expiry 25 - - 25 Bank line of credit November 2014 21 - - 21 ---------------------------------------------------------------------------- Total uncommitted 46 - - 46 ---------------------------------------------------------------------------- Total credit facilities $ 946$ - $ 96$ 850 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Restricted to letters of credit.

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Letters of Banking credit and (Unaudited, $ commercial other millions) Total paper facility Net amounts December 31, 2013 Expiry facilities issued draws available ---------------------------------------------------------------------------- Committed Syndicated bank November credit facility(1) 2016 $ 400 $ - $ 100$ 300 Syndicated bank credit facility November Tranche A 2016 250 - - 250 Syndicated bank credit facility November Tranche B 2018 250 - - 250 ---------------------------------------------------------------------------- Total committed 900 - 100 800 ---------------------------------------------------------------------------- Uncommitted Bank line of credit No expiry 25 - - 25 Bank line of credit November 2014 21 - - 21 ---------------------------------------------------------------------------- Total uncommitted 46 - - 46 ---------------------------------------------------------------------------- Total credit facilities $ 946 $ - $ 100$ 846 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Restricted to letters of credit.



Letters of credit are issued to meet the credit requirements of energy market participants and conditions of certain service agreements.

The Company has a Canadian base shelf prospectus under which it may raise up to $1 billion of debt with maturities of not less than one year. At June 30, 2014, the available amount remaining under this shelf prospectus was $1 billion (December 31, 2013 - $1 billion). The shelf prospectus expires in December 2015.

The Company's working capital and contractual obligations for the remainder of 2014 will be funded from cash on hand, operating cash flows, limited partnership distributions from Capital Power, interest and principal payments related to the long-term receivable from Capital Power, and if necessary, commercial paper issuance, drawing upon existing credit facilities, public and private debt offerings or the sale of a portion of our interest in Capital Power. Cash flows from operating activities could be impaired by storm events that cause severe damage to our facilities and would require unplanned cash outlays for repairs for system restoration. Under those circumstances, more reliance would be placed on our credit facilities for working capital requirements until a regulatory approved recovery mechanism or insurance proceeds were in place.

No commercial paper was issued and outstanding at June 30, 2014 (December 31, 2013 - nil).

EPCOR is currently in compliance with all of its financial covenants as set out in its bank credit agreements and the financial covenants of its Canadian public medium-term notes and U.S. private-debt notes. Based on current financial covenant calculations, the Company has sufficient capacity to borrow to fund current and long-term requirements. Although the risk is low, breaching these covenants could potentially result in a revocation of EPCOR's credit facility causing a significant loss of access to liquidity.

If the economy were to deteriorate, particularly in Canada and the U.S., the Company's ability to extend the maturity or revise the terms of the bank 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 suffer a credit rating downgrade and be unable to extend the maturity or revise the terms of its bank credit facilities or access the public or private debt markets. We believe that these circumstances have a low probability of occurring. However, we continue to monitor our capital programs and operating costs to minimize the risk that the Company becomes short of cash or unable to honor its obligations. If required, the Company would look to reduce capital expenditures and operating costs and / or sell a portion of its investment in Capital Power pursuant to applicable agreements with Capital Power and as market conditions permit.

Contractual Obligations

During the second quarter of 2014, there were no material changes to the Company's purchase obligations, including payments for the next five years and thereafter except as noted below.

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total (Unaudited, $ 2019 and contractual millions) 2014 2015 2016 2017 2018 thereafter cash flows ---------------------------------------------------------------------------- Interest rate swaps - net $ - $ - $ - $ 1$ 1$ 4$ 6 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



For further information on the Company's contractual obligations, refer to the 2013 annual MD&A.

Changes in Accounting Policies

Effective January 1, 2014, the Company adopted accounting policies in accordance with the following new and amended accounting standards relevant to EPCOR:

IFRS 10 - Consolidated Financial Statements (Amendment) IFRS 12 - Disclosure of Interests in Other Entities (Amendment) IAS 32 - Financial Instruments: Presentation (Amendment) IAS 36 - Impairment of Assets (Amendment) IAS 39 - Financial Instruments: Recognition and Measurement (Amendment) IFRIC 21 - Levies



There was no significant impact on the Company as a result of accounting policies adopted.

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 and income taxes. Although the current condition of the economy has not impacted our methods of estimating accounting values, it has impacted the inputs in those determinations and the resulting values. 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.

For further information on the Company's other critical accounting estimates, refer to the 2013 annual consolidated financial statements and 2013 annual MD&A.

Non-IFRS Financial Measure

We use income from core operations 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 Six months ended June 30, June 30, -------------------- -------------------- (Unaudited, $ millions) 2014 2013 2014 2013 ---------------------------------------------------------------------------- Income from core operations $ 53$ 39$ 82$ 79 Equity share of income from Capital Power 3 7 12 24 Income tax expense related to the above items (1) (1) (1) (1) ---------------------------------------------------------------------------- Net income $ 55$ 45$ 93$ 102 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Risk Management

This section should be read in conjunction with the Risk Management section of the 2013 annual MD&A. EPCOR faces a number of risks including risk related to its investment in Capital Power, operational risks, political and legislative risk, regulatory risk, strategy execution risk, weather risk, financial liquidity risk, environment risk, electricity price and volume risk, project risk, availability of people, credit risk, health and safety risk, information technology related security risks, conflicts of interest, foreign exchange risk, and general economic conditions, business environment and other risks. The Company employs active programs to manage these risks.

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 2013 annual MD&A that have affected the condensed consolidated interim financial statements for the three and six months ended June 30, 2014.

In May 2014, the Company entered into interest rate swaps to manage its interest rate risk related to the Regina Wastewater project. The counterparty to the swap arrangements is a major Canadian financial institution. The swaps will be net cash settled on a monthly basis. The Company does not anticipate any material adverse effect on its financial covenants resulting from its involvement in this swap arrangement, nor does it anticipate non-performance by the counterparty. Detailed information regarding the interest rate swaps can be found in note 4 of the Company's 2014 second quarter condensed consolidated interim financial statements.

Outlook

In 2014, we intend to continue to focus on growth in rate-regulated water and electricity infrastructure. We expect this growth to come from new infrastructure to accommodate growth and operational improvements in both rate-regulated water and electricity businesses. We also intend to expand our water and electricity commercial services offerings.

Demand for water is expected to continue to increase and we anticipate increased requirements for better water management practices including watershed management and conservation. With municipal budgets under pressure, municipal governments are considering the opportunities presented by public-private partnerships. We will pursue expansion of our portfolio of commercial water contracts.

Quarterly Results

---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Unaudited, $ millions) Quarters ended Revenues Net income (loss) ---------------------------------------------------------------------------- June 30, 2014 $ 435 $ 55 March 31, 2014 464 38 December 31, 2013 492 23 September 30, 2013 515 50 June 30, 2013 469 45 March 31, 2013 453 57 December 31, 2012 495 (68) September 30, 2012 512 63 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Events for the past eight quarters compared to the same quarter of the prior year that have significantly impacted net income include:

-- June 30, 2014 second quarter results included higher favorable fair value adjustments on financial electricity purchase contracts and higher approved water and electricity rates partially offset by lower income from our equity share of Capital Power. -- March 31, 2014 first quarter results included lower income from our equity share of Capital Power and lower fair value adjustments on financial electricity purchase contracts, partially offset by higher approved water and electricity rates. -- December 31, 2013 fourth quarter results included increased income primarily due to a lower impairment charge related to the investment in Capital Power, higher income from our equity share of Capital Power and increased income from higher approved water and electricity customer rates, partially offset by a loss on sale of the partial investment in Capital Power. -- September 30, 2013 third quarter results included lower income primarily due to higher transmission flow-through charges not yet approved to be billed to customers and lower income from our equity share of Capital Power, partially offset by increased income from higher approved water customer rates. -- June 30, 2013 second quarter results included increased income primarily due to higher approved customer water rates, higher electricity system access service revenues, higher transmission tariff revenues and higher income from our equity share of Capital Power, partially offset by higher transmission flow-through charges not yet approved to be billed to customers. -- March 31, 2013 first quarter results included increased income primarily due to higher approved water rates, a refund from the Alberta Electric System Operator for the true-up of 2011 transmission flow-through charges, and lower losses on selling excess electricity purchased, partially offset by lower income from our equity share of Capital Power and lower favorable fair value adjustments on financial electricity purchase contracts. -- December 31, 2012 fourth quarter results included an impairment charge related to the investment in Capital Power, lower income from our equity share of Capital Power, lower water sales, increased staff and employee benefit costs, partially offset by positive fair value adjustments on financial electricity purchase contracts. -- September 30, 2012 third quarter results included 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 Water Arizona and Water New Mexico 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.



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.

Material forward-looking information within this MD&A, including related material factors or assumptions and risk factors, are noted in the table below:

---------------------------------------------------------------------------- Forward-looking Material Factors or Risk Factors Information Assumptions ---------------------------------------------------------------------------- The Company expects to EPCOR is able to EPCOR's operations do not have sufficient liquidity generate the expected generate the expected to finance its plans and cash flow from level of cash flow and / fund its obligations in operations and various or circumstances arise 2014. means of funding remain limiting or restricting available to the the Company's ability to Company. access funds through the various means otherwise available. ---------------------------------------------------------------------------- EPCOR plans to eventually EPCOR is able to find EPCOR is unsuccessful in sell all or a substantial suitable lower-risk finding suitable portion of its ownership businesses and / or businesses and / or interest in Capital assets to invest the assets to invest in, Power. sell-down proceeds in. therefore negating further sell downs to Market conditions permit raise funds. the sale of Capital Power shares at a price The market price of suitable to EPCOR. Capital Power shares declines to an amount that EPCOR no longer deems it feasible to sell all or substantially all of its interest in Capital Power. ----------------------------------------------------------------------------



There are no updates to previously disclosed forward-looking information.

There are presently no differences between actual results and future-oriented-financial information previously disclosed.

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 experience to differ materially from EPCOR's expectations. The primary risks and uncertainties relate to: (i) the Company's assessment of the economy, markets and regulatory environments in which it operates; (ii) operation of the Company's facilities; (iii) availability and price of electricity; (iv) regulatory and government decisions including changes to environmental, financial reporting and tax legislation; (v) weather conditions; (vi) competitive pressures; (vii) construction; (viii) availability and cost of financing; (ix) foreign exchange; (x) availability and cost of labor and management resources; (xi) performance of counterparties, including but not limited to, contractors and suppliers in fulfilling their obligations to the Company; (xii) quality and sufficiency of water supply; (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.

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 the Company's 2013 Annual Information Form is available on SEDAR at www.sedar.com.

FOR FURTHER INFORMATION PLEASE CONTACT: EPCOR Utilities Inc. Tim le Riche Media Relations (780) 969-8238 tleriche@epcor.comEPCOR Utilities Inc.Claudio Pucci Corporate Relations (780) 969-8245 or toll free (877) 969-8280 cpucci@epcor.comwww.epcor.com Source: EPCOR Utilities Inc.


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