Third Quarter Report

Transcription

1 Third Quarter Report

2 Summary Table of Facilities Facility Percentage Owned Installed Capacity (MW) Expected Annual Production (MWhr) Electricity Purchaser Expiry of Power Purchase Agreement SaintPaulin % ,082 HydroQuébec 2014 Windsor % ,000 HydroQuébec 2016 Chaudière % ,651 HydroQuébec 2019 Portneuf % ,822 HydroQuébec 2021 Portneuf % ,496 HydroQuébec 2021 Portneuf % ,379 HydroQuébec 2021 Montmagny % 2.1 8,000 HydroQuébec 2021 Rutherford Creek % ,000 BCHPA (1) 2024 Batawa % ,938 OEFC (2) 2029 Horseshoe Bend % ,800 Idaho Power Company 2030 BaiedesSables 38.0 % 41.6 (3) 113,360 (3) HydroQuébec 2026 L AnseàValleau 38.0 % 38.2 (3) 113,240 (3) HydroQuébec 2027 TOTAL ,768 REMAINING WEIGHTED AVERAGE LIFE OF POWER PURCHASE AGREEMENTS 14.6 YEARS (1) British Columbia Hydro and Power Authority (2) Ontario Electricity Financial Corporation (3) Represents the Fund s interest in the facilities Highlights Power generated (MWhr) 223, , , ,095 Gross operating revenues $ 14,981,887 $ 15,370,039 $ 45,441,533 $ 44,771,711 EBITDA $ 11,919,829 $ 12,476,453 $ 36,564,896 $ 36,120,012 Net earnings $ 2,833,954 $ 3,774,098 $ 19,206,420 $ 10,520,476 Net distributable cash $ 7,726,079 $ 8,163,381 $ 23,599,597 $ 21,896,871 Net distributable cash per trust unit $ $ $ $ Distributions declared $ 7,351,657 $ 7,348,128 $ 22,052,619 $ 22,044,385 Distributions declared per trust unit $ $ $ $ 0,750 Distribution payout ratio 95% 90% 93% 101% Innergex Power Income Fund Third Quarter Report 2

3 Consolidated Financial Statements Consolidated Balance Sheets Assets Current assets Cash and cash equivalents Accounts receivable Funds held in trust Current portion of reserve accounts Future income tax assets Derivative financial instruments Other current assets Reserve accounts Property, plant and equipment Intangible assets Derivative financial instruments Future income tax assets Goodwill (Note 3) (Unaudited) December 31, (Audited) $ 13,069,704 4,716,854 10, ,135 1,074,559 2,298,404 $ 8,636,864 7,411,947 1,585, , , ,163 2,352,555 $ 21,293,656 $ 21,149,053 15,246, ,889, ,000,228 7,709,718 2,494,760 8,268,692 14,632, ,218, ,577,067 7,484,770 3,041,471 8,905,029 $ 513,902,746 $ 530,007,626 Liabilities and Unitholders Equity Current liabilities Accounts payable and accrued liabilities Distributions payable to unitholders Future income tax liabilities Derivative financial instruments Current portion of longterm debt $ 10,373,995 $ 11,535,154 2,450,552 2,449, ,317 5,561,898 4,590,761 2,709,026 2,563,035 $ 21,617,788 $ 21,138,326 Derivative financial instruments Longterm debt Asset retirement obligations Future income tax liabilities 8,110, ,782, ,514 70,642,461 18,903, ,866, ,252 69,532,083 Unitholders equity 189,792, ,665,658 $ 513,902,746 $ 530,007,626 See accompanying notes to the unaudited consolidated financial statements. Innergex Power Income Fund Third Quarter Report 3

4 Consolidated Financial Statements Consolidated Statements of Earnings (Unaudited) Gross operating revenue $ 14,981,887 $ 15,370,039 $ 45,441,533 $ 44,771,711 Operating expenses 2,177,974 2,031,548 6,181,634 6,114,506 Operating income $ 12,803,913 $ 13,338,491 $ 39,259,899 $ 38,657,205 General and administrative expenses 884, ,038 2,695,003 2,537,193 Earnings before interest, provision for income taxes, depreciation and amortization, other revenues and expenses and minority interest ( EBITDA ) $ 11,919,829 $ 12,476,453 $ 36,564,896 $ 36,120,012 Interest on longterm debt 3,317,905 3,369,686 9,964,614 9,618,216 Depreciation and amortization 5,329,918 5,151,992 15,997,933 15,377,193 Other expenses and (revenues) (Note 4) 490,886 (83,583) (11,536,857) 1,581,566 Earnings before provision for income taxes and minority interest $ 2,781,120 $ 4,038,358 $ 22,139,206 $ 9,543,037 (Recovery of) provision for income taxes Income taxes payable Future income taxes $ 329,332 (382,166) $ 615,213 (350,953) $ 565,185 2,367,601 $ 1,024,482 (2,931,670) $ (52,834) $ 264,260 $ 2,932,786 $ (1,907,188) Earnings before minority interest Earnings allocated to minority interest $ 2,833,954 $ 3,774,098 $ 19,206,420 $ 11,450, ,749 Net earnings $ 2,833,954 $ 3,774,098 $ 19,206,420 $ 10,520,476 Weighted average number of trust units outstanding 29,404,276 29,404,276 29,404,276 29,404,276 Net earnings per trust unit $ 0.10 $ 0.13 $ 0.65 $ 0.36 See accompanying notes to the unaudited consolidated financial statements. Innergex Power Income Fund Third Quarter Report 4

5 Consolidated Financial Statements Consolidated Statements of Comprehensive Income (Unaudited) Net earnings $ 2,833,954 $ 3,774,098 $ 19,206,420 $ 10,520,476 Other comprehensive income Unrealized foreign exchange (loss) gain on translation of selfsustaining foreign subsidiary $ (323,595) $ 147,145 $ (469,287) $ 219,247 Unrealized foreign exchange gain (loss) on portion of the US$ denominated debt designated as a hedge of the investment in a selfsustaining foreign subsidiary 303,060 (132,941) 442,078 (203,814) $ (20,535) $ 14,204 $ (27,209) $ 15,433 Comprehensive income $ 2,813,419 $ 3,788,302 $ 19,179,211 $ 10,535,909 Consolidated Statements of Changes in Unitholders Equity (Unaudited) Number of units beginning and end 29,404,276 29,404,276 Unitholders capital account beginning and end $ 309,681,275 $ 309,681,275 Deficit beginning $ (117,113,511) $ (84,482,827) Net earnings 19,206,420 10,520,476 Distributions declared to unitholders (22,052,619) (22,044,385) Deficit end $ (119,959,710) $ (96,006,736) Cumulative other comprehensive income beginning Other comprehensive income $ 97,894 (27,209) $ 90,297 15,433 Cumulative other comprehensive income end $ 70,685 $ 105,730 Total deficit and cumulative other comprehensive income $ (119,889,025) $ (95,901,006) Unitholders equity end $ 189,792,250 $ 213,780,269 See accompanying notes to the unaudited consolidated financial statements. Innergex Power Income Fund Third Quarter Report 5

6 Consolidated Financial Statements Consolidated Statements of Cash Flows (Unaudited) Cash flows from operating activities Net earnings Adjustments for: Depreciation of property, plant and equipment Amortization of intangible assets Accretion expense on asset retirement obligations Provision for future income taxes Unrealized loss (gain) on derivative financial instruments Earnings allocated to minority interest Unrealized foreign exchange (gain) loss Effect of exchange rate fluctuations Change in noncash working capital items (Note 5) Cash flows from financing activities Distributions paid to unitholders Proceeds from issue of longterm debt Financing fees Repayment of longterm debt Cash flows from investing activities Additions to property, plant and equipment Business acquisitions (Note 3) Net funds withdrawn from the levelization reserve Investments in other reserve accounts $ 2,833,954 2,885,422 2,444,496 18,754 (382,166 ) 793,052 (161,822 ) (257,026 ) $ 3,774,098 2,869,601 2,282,391 17,299 (350,953 ) 606,191 90,259 33,036 $ 19,206,420 8,660,237 7,337,696 56,262 2,367,601 (10,978,044 ) (297,804 ) (330,382 ) $ 10,520,476 8,527,761 6,849,432 51,899 (2,931,670 ) 1,694, , ,995 75,152 2,122,881 1,752,088 3,954,937 (613,480) $ 10,297,545 $ 11,074,010 $ 29,976,923 $ 25,264,606 $ (7,351,657) (646,744) $ (7,348,128) (600,931) $ (22,051,443) (1,905,672) $ (21,959,613) 70,800,000 (842,690) (58,575,286) $ (7,998,401) $ (7,949,059) $ (23,957,115) $ (10,577,589) $ (101,449 ) 636,337 $ (902,747 ) $ (1,803,646 ) 636,337 $ (2,568,963 ) (14,431,924 ) 444, , , ,396 (245,000) (241,606) (735,000) (722,760) $ 734,771 $ (771,256) $ (1,636,804) $ (17,463,251) Translation adjustment on cash and cash equivalents $ 48,113 $ 86,246 $ 49,836 $ 96,431 Net change in cash and cash equivalents $ 3,082,028 $ 2,439,941 $ 4,432,840 $ (2,679,803 ) Cash and cash equivalents beginning 9,987,676 7,030,613 8,636,864 12,150,357 Cash and cash equivalents end $ 13,069,704 $ 9,470,554 $ 13,069,704 $ 9,470,554 Cash and cash equivalents Cash Shortterm investments $ 4,805,855 8,263,849 $ 2,703,131 6,767,423 $ 4,805,855 8,263,849 $ 2,703,131 6,767,423 $ 13,069,704 $ 9,470,554 $ 13,069,704 $ 9,470,554 See Note 5 for supplemental information. See accompanying notes to the unaudited financial statements. Innergex Power Income Fund Third Quarter Report 6

7 Notes to the Consolidated Financial Statements For the threemonth and ninemonth periods ended (Unaudited) Innergex Power Income Fund (the Fund ) is an unincorporated openended trust established on October 25, 2002 under the laws of the Province of Quebec. An unlimited number of trust units may be issued pursuant to the trust indenture. The Fund, which began operations on July 4, 2003, was established to indirectly acquire and own interests in renewable power generating facilities (the Facilities ) and to indirectly acquire loans relating to some of the Facilities. As at, the Fund indirectly held interests in the following subsidiaries: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Innergex, Limited Partnership ( Innergex LP ), which owns the three Portneuf facilities, the Chaudière facility, and the SaintPaulin facility. TrentSevern Power, Limited Partnership ( Trent LP ), which owns the Batawa facility. Innergex Montmagny, Limited Partnership ( Innergex Montmagny LP ), which owns the Montmagny facility. HydroWindsor, Limited Partnership ( HydroWindsor LP ), which owns the Windsor facility. Horseshoe Bend Hydroelectric Company ( Horseshoe Bend ), which owns the Horseshoe Bend facility. Rutherford Creek Power Limited Partnership ( Rutherford LP ), which owns the Rutherford Creek facility. Innergex BDS, Limited Partnership ( BDS LP ), which as undivided joint owner owns 38% of the Baiedes Sables wind farm. Innergex AAV, Limited Partnership ( AAV LP ), which as undivided joint owner owns 38% of the L Anseà Valleau wind farm. Innergex Renewable Energy Inc., (the Manager ), administers the Fund. The manager manages Innergex Power Trust ( IPT ), a wholly owned subsidiary of the Fund; IPT indirectly owns the Fund s assets and investments. The Manager also provides management services to the operators of the Fund s Facilities. 1. Basis of Presentation : The interim consolidated financial statements included in this report reflect normal and recurring adjustments which are, in the opinion of the Fund s Manager, considered necessary for a fair presentation. These financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ( GAAP ). The same accounting policies and methods of application as described in the Fund s latest annual report have been used, with the exception of the changes described in Note 2. However, these consolidated financial statements do not include all disclosures required under Canadian GAAP and, accordingly, should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Fund s latest annual report. The Fund s revenues vary by season and, as a result, the earnings of interim periods should not be considered indicative of results for an entire year. These interim financial statements have neither been audited nor reviewed by the Fund external auditors. Innergex Power Income Fund Third Quarter Report 7

8 Notes to the Consolidated Financial Statements For the threemonth and ninemonth periods ended (Unaudited) 2. Changes in Accounting Policies: (a) Changes made in : CICA Handbook Section 3064, Goodwill and Intangible Assets, replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. Various changes related to standardization were made to other sections of the CICA Handbook. The new Section, issued in February, applies to the financial statements of fiscal years beginning on or after October 1,. Consequently, the Fund adopted the new standard for its fiscal year beginning on January 1,. This Section provides new guidelines for the recognition, measurement, presentation and disclosure of goodwill after initial recognition and intangible assets of profitoriented organizations. The goodwill standards are the same as the standards in the old Section The application of Section 3064 by the Fund had no impact on its consolidated financial statements. (b) International Financial Reporting Standards: The Canadian Accounting Standards Board has announced the convergence of Canadian GAAP with International Financial Reporting Standards ( IFRS ) for publiclylisted companies. The official changeover date for using IFRS, replacing Canadian GAAP, is for interim and annual financial statements relating to fiscal years beginning on or after January 1, The Fund has begun assessing major items requiring adjustments in connection with the adoption of IFRS. A schedule has been prepared of the steps to be followed by the Fund in order to meet the changeover date. This IFRS conversion schedule is subject to changes based on the progress of analytical work and on the updates in IFRS standards and interpretations. During, the accounting staff of the Manager has followed intensive IFRS training. The Fund has started its detailed assessment and evaluation of the impact the IFRS will have on accounting and financial disclosure as well as the various accounting policies that the Fund could adopt. To this end, the Fund has started the evaluation of the different choices provided under IFRS 1 Firsttime Adoption of International Financial Reporting Standards to establish the values of the January 1, 2010 opening balance sheet and this was discussed with the auditors. The analysis of specific financial statements accounts has begun. A first draft of the fixed assets components has been developed by management. A first draft of the 2011 first quarter financial statements has been prepared including all related notes needed to be disclosed as per IFRS. During the next quarters, the Fund will continue to evaluate the impact the IFRS will have on its reporting. (c) Future Accounting Changes: CICA Handbook Section 1582, Business Combinations, will be applicable to business combinations for which the acquisition date is on or after the Fund s interim and fiscal year beginning January 1, Early adoption is permitted. This section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. The Section 1582, constitutes the Canadian equivalent to International Financial Reporting Standard IFRS 3, Business Combinations. CICA Handbook Section 1601, Consolidated financial statements, will be applicable to financial statements relating to the Fund s interim and fiscal year beginning on or after January 1, Early adoption is permitted. This section establishes standards for the preparation of consolidated financial statements. The Fund has not yet determined the impact of the adoption of this new Section on the consolidated financial statements. The Section 1601, constitute the Canadian equivalent of International Financial Reporting Standard IAS 27, Consolidated and Separate Financial Statements. Innergex Power Income Fund Third Quarter Report 8

9 Notes to the Consolidated Financial Statements For the threemonth and ninemonth periods ended (Unaudited) 3. Acquisition of IHI Hydro Inc. ( IHI ): During the second quarter of, an adjustment was made to the purchase price of IHI. This $ 636,337 adjustment was a refund to be received as part of the purchase price resulting from compensation for working capital deficiency. Accordingly, the goodwill was decreased by $ 636,337. The final purchase price of IHI was allocated as follows: Allocation Price as at December 31, Adjustment Revised Allocation Price Net working capital $ (900,002) $ $ (900,002) Property, plant and equipment 7,188,376 7,188,376 Goodwill 8,905,029 (636,337) 8,268,692 Minority interest 15,318,747 15,318,747 Future income tax liabilities (including a current asset portion of $ 263,665) (16,030,226) (16,030,226) $ 14,481,924 $ (636,337) $ 13,845, Other Expenses and (Revenues): The account Other expenses and (revenues) includes the following: Investment revenues Unrealized loss (gain) on derivative financial instruments Realized loss on a derivative financial instrument Compensation for defective equipment Realized foreign exchange (gain) loss Unrealized foreign exchange (gain) loss $ (35,496) 793,052 $ (169,132) 606,191 $ (100,695) (10,978,044) $ (674,610) 1,694,292 (104,848) (161,822) (644,910) 34,009 90,259 (160,314) (297,804) 1,001,325 (644,910) 44, ,995 $ 490,886 $ (83,583) $ (11,536,857) $ 1,581,566 Innergex Power Income Fund Third Quarter Report 9

10 Notes to the Consolidated Financial Statements For the threemonth and ninemonth periods ended (Unaudited) 5. Additional Information concerning Consolidated Statements of Cash Flows: Changes in noncash working capital items Accounts receivable Funds held in trust Other current assets Accounts payable and accrued liabilities Demand notes $ 2,137,749 46,099 (381,430) $ 3,188,900 (12,486) 127,626 $ 2,695,093 1,575,550 54,151 $ 16,152, ,633 (576,176) 320,463 (271,006) (369,857) (3,565,962) (1,280,946) (12,870,946) $ 2,122,881 $ 1,752,088 $ 3,954,937 $ (613,480) Supplemental information Interest paid Income taxes paid Unpaid additions to property, plant and equipment $ 3,291,848 $ 27,300 $ 309,711 $ 3,707,297 $ 39,635 $ 1,256,729 $ 9,623,628 $ 127,189 $ 309,711 $ 10,533,070 $ 534,096 $ 1,256,729 The refund of $ 636,337 described in Note 3 was received during the third quarter of. 6. Segmented Information: (a) Geographic Segments The Fund has operations in Canada and the United States. The segment information by geographic area is as follows: Gross Operating Revenue Canada United States $ 13,486,995 $ 13,960,301 $ 42,317,481 $ 42,126,481 1,494,892 1,409,738 3,124,052 2,645,230 $ 14,981,887 $ 15,370,039 $ 45,441,533 $ 44,771,711 Innergex Power Income Fund Third Quarter Report 10

11 Notes to the Consolidated Financial Statements For the threemonth and ninemonth periods ended (Unaudited) Property, Plant and Equipment, Intangible Assets and Goodwill December 31, Property, plant and equipment Canada United States Intangible assets Canada United States $ 331,978,144 $ 339,488,480 4,910,940 5,729,745 $ 336,889,084 $ 345,218,225 $ 120,282,204 $ 127,552,048 1,718,024 2,025,019 $ 122,000,228 $ 129,577,067 Goodwill Canada $ 8,268,692 $ 8,905,029 (b) Reportable Segments The Fund has two reportable segments: hydroelectric generation and wind power generation. The hydroelectric generation segment sells electricity generated by hydroelectric facilities to public utilities. The wind power generation segment sells electricity generated by wind farms to public utilities. The accounting policies for the reportable segments are identical to those described in the summary of significant accounting policies of the latest annual report. The Fund evaluates the total return based on earnings before interest, provisions for income taxes, depreciation and amortization, other revenues and expenses and minority interest ( EBITDA ). The Fund s reportable segments conduct their operations using different means of generation managed by different teams since each segment has different operating skill requirements. Reportable Segments Hydroelectric Generation Wind Power Generation Total Gross operating revenues from external clients $ 11,887,282 $ 3,094,605 $ 14,981,887 Operating expenses 1,693, ,203 2,177,974 Operating income $ 10,193,511 $ 2,610,402 $ 12,803,913 General and administrative expenses 663, , ,084 EBITDA $ 9,530,142 $ 2,389,687 $ 11,919,829 Gross operating revenues from external clients $ 12,259,961 $ 3,110,078 $ 15,370,039 Operating expenses 1,592, ,642 2,031,548 Operating income $ 10,667,055 $ 2,671,436 $ 13,338,491 General and administrative expenses 620, , ,038 EBITDA $ 10,046,675 $ 2,429,778 $ 12,476,453 Innergex Power Income Fund Third Quarter Report 11

12 Notes to the Consolidated Financial Statements For the threemonth and ninemonth periods ended (Unaudited) Reportable Segments Hydroelectric Generation Wind Power Generation Total Gross operating revenues from external clients $ 33,100,796 $ 12,340,737 $ 45,441,533 Operating expenses 4,796,661 1,384,973 6,181,634 Operating income $ 28,304,135 $ 10,955,764 $ 39,259,899 General and administrative expenses 1,970, ,465 2,695,003 EBITDA $ 26,333,597 $ 10,231,299 $ 36,564,896 Gross operating revenues from external clients $ 33,655,702 $ 11,116,009 $ 44,771,711 Operating expenses 4,777,366 1,337,140 6,114,506 Operating income $ 28,878,336 $ 9,778,869 $ 38,657,205 General and administrative expenses 1,969, ,038 2,537,193 EBITDA $ 26,909,181 $ 9,210,831 $ 36,120,012 As at Goodwill $ 8,268,692 $ $ 8,268,692 Total assets $ 333,615,105 $ 180,287,641 $ 513,902,746 Acquisition of property plant and equipment since the beginning of the year $ 733,427 $ 278,917 $ 1,012,344 As at December 31, Goodwill $ 8,905,029 $ $ 8,905,029 Total assets $ 339,979,718 $ 190,027,908 $ 530,007, Comparative Figures: Certain amounts were reclassified to conform to the financial statement presentation adopted for the current year. Innergex Power Income Fund Third Quarter Report 12

13 For the three and ninemonth periods ended This Management s Discussion and Analysis ( MD&A ) was prepared on November 9,. OVERVIEW Innergex Power Income Fund (the Fund ) is an unincorporated openended trust that indirectly owns interests in ten hydroelectric power plants and two wind farms with a total net installed capacity of 210 MW. These hydroelectric power plants and wind farms are managed by Innergex Renewable Energy Inc. (the Manager ) under longterm agreements with the Fund. The objective of the Fund is to distribute on a monthly basis the cash flows it generates to the unitholders. Standard & Poor s Rating Service ( S&P ) has issued a stability rating of SR2 ( stable outlook, with a moderate distribution profile ) to the Fund s units, indicating a high level of cash distribution stability. The purpose of this MD&A is to provide the reader with an overview of the financial position, operating results and cash flows of the Fund for the three and ninemonth periods ended. This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements of the Fund for the third quarter and ninemonth period ended, and with the notes thereto as well as the Fund s Annual Report. The consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ( GAAP ). The Fund reports its results in Canadian dollars. Certain amounts included in this MD&A are rounded to make reading easier. These rounded numbers may affect certain sums. EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES The President and Chief Executive Officer and the Vice President and Chief Financial Officer of the Manager have designed, or caused to be designed, under their supervision: Disclosure controls and procedures ( DC&P ) to provide reasonable assurance that (i) the information required to be disclosed by the Fund in its annual filings, interim filings or other reports filed or submitted by it under applicable securities legislation is recorded, processed, summarized and reported within the prescribed time periods; and, (ii) material information regarding the Fund is accumulated and communicated by others to the Fund s Manager, including its President and Chief Executive Officer and the Vice President and Chief Financial Officer, in a timely manner, particularly during the period in which the interim filings are being prepared; Internal control over financial reporting ( ICFR ) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with Canadian GAAP. During the period beginning on July 1,, and ended, there was no change in the ICFR that has materially affected, or is reasonably likely to affect, the ICFR. FORWARDLOOKING STATEMENTS In order to inform holders of units of the Fund as well as potential investors on future prospects of the Fund, sections of this MD&A may contain forwardlooking statements within the meaning of securities legislation ( ForwardLooking Statements ). ForwardLooking Statements can generally be identified by the use of words and phrases, such as may, will, estimates, anticipates, plans, expects or does not expect, is expected, budget, scheduled, forecasts, intends or believes, or variations on such words and phrases that state that certain events will occur. ForwardLooking Statements represent, as at the date of this MD&A, the estimates, forecasts, projections, expectations or opinions of the Manager relating to future events or results. ForwardLooking Statements involve known and unknown risks, uncertainties and other important factors which may cause the actual results or performance to be materially different from those expressed or implied by the Forward Looking Statements. The material risks and uncertainties that may cause the actual results and developments to be materially different from the current expressed expectations are discussed in this MD&A under the heading Risk and Uncertainties and include risks relating to operations, hydrology and wind regime, large customers, interest rates, exchange rate, separation agreement, tax treatment of distributions, amendments to laws, regulations and permits and conversion into a corporation. Although the Manager believes that the expectations instigated by the ForwardLooking Statements are based on reasonable and valid hypotheses, there is a risk that the ForwardLooking Statements may be incorrect. The reader of this MD&A is cautioned not to rely unduly on these ForwardLooking Statements. The ForwardLooking Statements, expressed verbally or in writing, by the Fund or by a person acting on its behalf, are expressly qualified by this cautionary statement. The Fund does not undertake any obligation to update or revise any ForwardLooking Statements, whether as a result of events or circumstances occurring after the date hereof, unless required by legislation. Innergex Power Income Fund Third Quarter Report 13

14 For the three and ninemonth periods ended KEY PERFORMANCE INDICATORS The Fund measures its performance using key performance indicators that include power generated in megawatthours ( MWhr ), net distributable cash, net distributable cash per trust unit, adjusted net earnings (loss) and EBITDA, defined as earnings before interest, provision for income taxes, depreciation and amortization, other revenues and expenses, and minority interest. Other revenues and expenses include investment revenues, realized or unrealized losses and gains on derivative financial instruments and realized or unrealized foreign exchange losses and gains. These indicators are not recognized measures under Canadian GAAP. Consequently, they may not be comparable to measures presented by other issuers. The Fund believes that these indicators are important since they provide the reader with additional information about production, available cash and the Fund s ability to meet its cash distribution objectives to unitholders. The Fund also believes that they facilitate the comparison of results over different periods. Adjusted Net Earnings The Manager believes that adjusted net earnings represent important additional information for the reader because it provides a profitability measure which excludes certain elements that have no impact on cash on hand. Adjusted net earnings exclude unrealized foreign exchange gain/loss and unrealized gain/loss on derivative financial instruments as well as any future income tax impact associated. Adjusted net earnings also exclude some nonrecurring items such as the impact on future income taxes emanating from modifications to fiscal laws or from changes in tax rates. The Fund calculates adjusted net earnings as shown below: Adjusted Net Earnings Net earnings $ 2,833,954 $ 3,774,098 $ 19,206,420 $ 10,520,476 Add/(deduct): Unrealized loss (gain) on derivative financial instruments 793, ,191 (10,978,044) 1,694,292 Unrealized foreign exchange (gain) loss (161,822) 90,259 (297,804) 160,995 Future income taxes relating to unrealized gains/losses on foreign exchange and on derivative financial instruments (700,366) (163,672) 2,011,853 (457,459) Increase (decrease) in future income tax rates (2,680,653) Adjusted net earnings $ 2,764,818 $ 4,306,876 $ 9,942,425 $ 9,237,651 Adjusted net earnings per unit $ 0.09 $ 0.15 $ 0.34 $ 0.31 Innergex Power Income Fund Third Quarter Report 14

15 For the three and ninemonth periods ended Seasonality The Fund's results have a seasonal aspect due to variations in water and wind conditions from quarter to quarter in a typical year. The second and third quarters of the year are generally those in which electricity production is at its highest. However, due to higher average rates during the winter months, gross operating revenues are generally higher in the fourth quarter than in the third quarter. Interim results should not be considered representative of the results of a full year. The complementary nature of production from hydroelectric facilities and from wind farms mitigates seasonal variations. Operating Facilities LongTerm Average Project name Location Gross installed capacity (MW) Fund s interest (%) Net installed Average longterm production (MWhr) (Fund s interest) capacity (MW) Q1 Q2 Q3 Q4 Total HYDRO StPaulin Québec % 8.0 7,434 15,532 8,038 10,078 41,082 Portneuf1 Québec % 8.0 4,290 14,861 11,525 10,146 40,822 Portneuf2 Québec % ,033 20,061 19,264 19,138 68,496 Portneuf3 Québec % 8.0 4,398 15,625 11,913 10,443 42,379 Chaudière Québec % ,999 40,827 17,642 32, ,651 Batawa Ontario % ,803 8,945 3,720 9,470 32,938 Montmagny Québec % 2.1 1,433 3,241 1,044 2,282 8,000 Windsor Québec % 5.5 9,730 7,763 5,628 7,879 31,000 Rutherford Creek British Columbia % ,000 63,700 80,000 25, ,000 Horseshoe Bend Idaho, USA % 9.5 7,927 16,956 16,694 5,223 46,800 Subtotal , , , , ,168 WIND Baiedes Sables ( BDS ) Québec % ,697 24,962 18,591 34, ,360 L Anseà Valleau ( AAV ) Québec % ,185 22,863 16,533 35, ,240 Subtotal ,882 47,825 35,124 69, ,600 Total , , , , ,768 Innergex Power Income Fund Third Quarter Report 15

16 For the three and ninemonth periods ended IMPACT OF THE FINANCIAL CRISIS In view of the current period of volatility and uncertainty with which most developed countries are dealing, this section is intended to inform investors about five key parameters that have changed due to the crisis: (i) credit availability and cost; (ii) customer demand; (iii) exchange rates; (iv) raw materials; and (v) counterparties. Credit Availability and Cost Although financial institutions are continuing to lend, they are doing so much more cautiously and imposing conditions that can increase the cost of or restrict access to credit. However, the Manager considers that the Fund has the credit facilities and loans necessary to smoothly run its operations, as all the financing required for the Fund is in place and the Fund does not face any debt maturity before May Customer Demand The Fund sells its electrical power to major public utilities under longterm Power Purchase Agreements ( PPA ) that had a remaining weighted average life of 14.6 years as at. These public utilities have credit ratings issued by S&P that range from BBB to AAA. Furthermore, they all benefit (with the exception of Idaho Power Company) from the support of their respective provincial governments (Québec, Ontario and British Columbia), which guarantee most of their respective indebtedness. As such, the financial crisis has no impact on the Fund s customers demand for its electricity, although the financial crisis could ultimately result in a decrease in overall electricity consumption by the endcustomers of these public utilities. However, the Fund believes that renewable energy will continue to be the favoured source of supply for new energy and that the public utilities will continue to favour this power source for meeting their objectives relating to the renewal and growth on their electrical power generating capacity. Exchange Rate The Fund owns a power plant in the United States that represents approximately 6% of its total estimated annual production. In order to lessen the exchange rate risk associated with this asset, the Manager decided to draw a portion of the Fund s longterm debt into U.S. dollars. This strategy provides a hedge between revenue and outflows in U.S. dollars. Therefore, the Manager considers that the Fund does not have significant exposure to exchange rate fluctuations. Raw Materials The Fund generates electrical power from water and wind, which are renewable sources, and all of its facilities are operational. The Fund is therefore not subject to fluctuations in the price of raw materials. Counterparties The financial crisis may affect various stakeholders such as customers, suppliers and financial institutions, among others. The Fund considers that its counterparty risk is not significant for the following reasons: i. Its customers are major public utilities that have credit ratings issued by S&P that range from BBB to AAA; ii. The Fund has no facilities currently under construction. It is therefore not exposed to contractors or subcontractors performance or credit risk; iii. The Fund has entered into its loan agreements and derivative financial instruments with major financial institutions to which S&P has assigned a credit rating of A+ or higher. Innergex Power Income Fund Third Quarter Report 16

17 For the three and ninemonth periods ended OPERATING RESULTS The Fund s operating results for the third quarter of and the ninemonth period ended, are compared with the operating results for the same periods in. When evaluating its operating results, the Fund compares generation of electricity with a longterm average for each hydroelectric power plant and each wind farm. These longterm averages are determined carefully and prudently to allow longterm forecasting of the expected generation of each of the Fund s facilities. To define the longterm average of a power generating facility, independent engineers carry out studies that take into consideration a number of important factors: for hydroelectricity, engineers consider the historically observed flows of the river, the operating head and the reserved aesthetic and ecological flows; and for wind energy, they consider wind conditions. The engineers also take into account the site topography, installed capacity, energy losses, operational features, maintenance, etc. Year to year, production will fluctuate, but over an extended period, production should approach the forecast longterm average. Production Production (MWhr) Longterm average (MWhr) Production (MWhr) Longterm average (MWhr) SaintPaulin 10,147 8,038 15,610 8,038 Portneuf1 11,811 11,525 11,734 11,525 Portneuf2 19,734 19,264 19,599 19,264 Portneuf3 12,196 11,913 11,971 11,913 Chaudière 27,024 17,642 28,637 17,642 Batawa 6,208 3,720 7,318 3,720 Montmagny 1,418 1,044 1,862 1,044 Windsor 6,869 5,628 7,646 5,628 Rutherford Creek 72,102 80,000 75,553 80,000 Horseshoe Bend 16,564 16,694 17,098 16,694 BaiedesSables ( BDS ) 1 19,128 18,591 19,354 18,591 L AnseàValleau ( AAV ) 1 20,101 16,533 20,396 16,533 Total 223, , , , Representing the Fund s 38% interest in the wind farm. Production Production (MWhr) Longterm average (MWhr) Production (MWhr) Longterm average (MWhr) SaintPaulin 37,147 31,004 44,285 31,004 Portneuf1 29,292 30,676 31,690 30,676 Portneuf2 47,776 49,358 50,798 49,358 Portneuf3 30,261 31,936 32,501 31,936 Chaudière 105,148 84, ,073 84,468 Batawa 28,415 23,468 27,535 23,468 Montmagny 5,407 5,718 5,824 5,718 Windsor 26,914 23,121 27,259 23,121 Rutherford Creek 127, , , ,700 Horseshoe Bend 40,106 41,577 38,635 41,577 BaiedesSables ( BDS ) 1 77,985 79,250 74,132 79,250 L AnseàValleau ( AAV ) 1 79,048 77,581 67,942 77,581 Total 634, , , , Representing the Fund s 38% interest in the wind farm. Innergex Power Income Fund Third Quarter Report 17

18 For the three and ninemonth periods ended Production The Fund s facilities produced 223,302 MWhr during the third quarter of, 6% above the 210,592 MWhr longterm average due to hydrologic and wind conditions generally more favourable than anticipated. The performance of the hydroelectric facilities in Québec and Ontario and of the wind farms more than compensated for the less favourable hydrologic conditions that affected the Rutherford Creek facility in British Columbia. During the third quarter of, when the Fund s facilities benefited from hydrologic and wind conditions more favourable than in the corresponding quarter of, production totalled 236,778 MWhr, 12% above the longterm average. In the ninemonth period ended, the Fund s facilities generated 634,978 MWhr, a level slightly above the longterm average. These results are explained by the favourable hydrologic conditions at the SaintPaulin, Chaudière, Batawa and Windsor facilities, which were partially offset by the weak hydrologic conditions at the Rutherford Creek facility and by the production shutdown at the three Portneuf facilities in June. Had it not been for the 13day production shutdown at the three Portneuf facilities due to transmission line work carried out by HydroQuébec in June, the Fund s total production would have exceeded the longterm average by 2% and been slightly higher than in the corresponding period of. It should be kept in mind that, although the three Portneuf are exempt from annual hydrological variations under the virtual energy provisions included in the longterm PPAs with HydroQuébec, they must remain in operation in order to receive financial compensation. The overall performance of the Fund s facilities in the quarter and ninemonth period ended, demonstrates the benefits of the geographic diversification of the Fund s facilities and the complementarity of hydroelectric and wind power generation. Operating Results Gross operating revenue $ 14,981,887 $ 15,370,039 $ 45,441,533 $ 44,771,711 Operating expenses 2,177,974 2,031,548 6,181,634 6,114,506 General and administrative expenses 884, ,038 2,695,003 2,537,193 EBITDA $ 11,919,829 $ 12,476,453 $ 36,564,896 $ 36,120,012 Interest on longterm debt 3,317,905 3,369,686 9,964,614 9,618,216 Depreciation and amortization 5,329,918 5,151,992 15,997,933 15,377,193 Other (revenues) and expenses 490,886 (83,583) (11,536,857) 1,581,566 Provision for (recovery of) income taxes (52,834) 264,260 2,932,786 (1,907,188) Earnings allocated to minority interest 929,749 Net earnings $ 2,833,954 $ 3,774,098 $ 19,206,420 $ 10,520,476 Gross Operating Revenues The Fund generated $15.0 million in gross operating revenues in the third quarter of, a decrease of $0.4 million or 3% from the same period of. This performance is mainly due to the drop in production ($0.9 million), which was partially offset by selling price increases ($0.5 million). The latter are the result of increases in electricity rates associated with inflation clauses under the longterm PPAs with HydroQuébec and the British Columbia Hydro and Power Authority ( BC Hydro ). With regard to the hydroelectric facilities in Québec, the PPAs provide for rate increases based on changes in the Consumer Price Index ( CPI ) for a minimum of 3% and a maximum of 6% per year. The PPA for the Rutherford Creek facility in British Columbia includes an electricity rate adjustment of 50% of the change in the CPI. Lastly, the PPAs for the two wind farms in Québec include an electricity rate adjustment of approximately 18% of the change in the CPI. Generally speaking, inflation has a positive impact on the Fund s results, since the related increase in revenues exceeds the increase in operating costs. For the ninemonth period ended, gross operating revenues totalled $45.4 million, a $0.7 million or 1% increase from the corresponding period of. This increase is entirely due to higher sales prices ($1.2 million), which were partially offset by the decrease in production ($0.5 million). Innergex Power Income Fund Third Quarter Report 18

19 For the three and ninemonth periods ended EXPENSES Operating Expenses Operating expenses for the most recent quarter stood at $2.2 million ($2.0 million in ). For the first ninemonth period of, operating expenses totalled $6.2 million ($6.1 million in ). General and Administrative Expenses General and administrative expenses for the third quarter of stood at $0.9 million, a level similar to that for the corresponding quarter of. For the ninemonth period ended, general and administrative expenses totalled $2.7 million, compared with $2.5 million for the corresponding period of. This increase is mainly attributable to the capital tax applicable since the Fund s acquisition of IHI Hydro Inc. ( IHI ) on May 29,. Interest on LongTerm Debt Interest expenses totalled $3.3 million in the most recent quarter of ($3.4 million in ). For the ninemonth period ended, interest expenses totalled $10.0 million ($9.6 million in ). This increase is mainly due to the increased debt of $15.0 million incurred as part of the acquisition of IHI by the Fund on May 29,. As at, 92% of the Fund s total debt was fixed or hedged against interest rate movements. Please see the Risk Management section for more information. Given this hedging, the Fund is not significantly affected by interest rate fluctuations. Accordingly, the average interest rate was 5.86% for the most recent quarter (5.91% in ) and 5.84% for the ninemonth period ended (5.81% in ). Depreciation and Amortization For the three and ninemonth periods ended, depreciation and amortization totalled $5.3 million ($5.2 million in ) and $16.0 million ($15.4 million in ) respectively. This increase is mainly due to the acquisition of IHI on May 29,. Other Revenues and Expenses Other revenues and expenses include investment revenues, realized and unrealized gains and losses on derivative financial instruments and realized and unrealized foreign exchange gains and losses. Investment revenues consist of interest earned on the reserve accounts and cash on hand. Other (Revenues) and Expenses Investment revenues $ (35,496) $ (169,132) $ (100,695) $ (674,610) Unrealized loss (gain) on derivative financial instruments 793, ,191 (10,978,044) 1,694,292 Realized loss on derivative financial instruments 1,001,325 Compensation for defective equipment (644,910) (644,910) Realized foreign exchange (gain) loss (104,848) 34,009 (160,314) 44,474 Unrealized foreign exchange (gain) loss (161,822) 90,259 (297,804) 160,995 $ 490,886 $ (83,583) $ (11,536,857) $ 1,581,566 In the most recent quarter, investment revenues decreased by $0.1 million, due to the lower rate of return obtained. The Fund also recorded an unrealized loss on derivative financial instruments of $0.8 million ($0.6 million loss in ). These variations correspond to the changes in the fair market valuations of the derivative financial instruments related to interest rates or imbedded in the electricity purchase contracts. Such gains, which result from interest rate and inflation rate movements, do not have an impact on the Fund s distributable cash. In the most recent quarter, the Fund recorded realized and unrealized foreign exchange gains of $0.1 million (immaterial losses in ) and $0.2 million (losses of $0.1 million in ) respectively. These unrealized gains (losses in ) result from a revaluation of the U.S.dollardenominated debt following the appreciation (depreciation in ) of the Canadian dollar during the periods concerned. Innergex Power Income Fund Third Quarter Report 19

20 For the three and ninemonth periods ended For the ninemonth period ended, investment revenues decreased $0.6 million compared with the corresponding period of due to the lower rate of return obtained. The Fund also recorded an unrealized gain on changes in the value of its derivative financial instruments of $11.0 million (loss of $1.7 million in ). In the corresponding period of, the Fund realized a loss of $1.0 million (nil in ) on the settlement of a derivative financial instrument and obtained $0.6 million (nil in ) in compensation for defective equipment. For the ninemonth period ended, the Fund recorded realized and unrealized foreign exchange gains of $0.2 million (immaterial losses in ) and $0.3 million (losses of $0.2 million in ) respectively. It should be noted that these interest raterelated derivative financial instruments provide the Fund s assets with an economic hedge and ensure the longterm stability of its cash flows. Through its hedging program, the Fund protects itself from interest rate fluctuations and ensures the stability of the financing costs of its projects. The Fund does not own or issue financial instruments for speculative purposes. Provision for Income Taxes For the third quarter ended, the Fund recorded a current income tax provision of $0.3 million ($0.6 million in ) and a future income tax recovery of $0.4 million (idem in ). For the ninemonth period ended, the Fund recorded a current income tax provision of $0.6 million ($1.0 million in ) and a future income tax provision of $2.4 million (recovery of $2.9 million in ). The recoveries for the ninemonth period ended, were mainly due to the reduction of the Fund s future income tax rate following passage of Bill C50 by the government of Canada in June. Earnings Allocated to Minority Interest On May 29,, the Fund completed the IHI acquisition. IHI owned a net interest of 22.4% in five hydroelectric facilities of the Fund, namely the SaintPaulin and Chaudière facilities as well as the three Portneuf facilities. The minority interest represents the share of earnings attributable to IHI. Since IHI was acquired in the second quarter of, no amount was allocated to this item in the quarter and ninemonth period ended. By way of comparison, the Fund allocated no amount in the third quarter of and a total of $0.9 million in the corresponding ninemonth period of. Since acquiring IHI on May 29,, the Fund no longer allocates earnings to minority interest. Net Earnings (Net Loss) For the three and ninemonth period ended, the Fund recorded net earnings of $2.8 million ($0.10 per trust unit) and $19.2 million ($0.65 per trust unit) respectively. For the corresponding periods of, the Fund recorded net earnings of $3.8 million ($0.13 per trust unit) and $10.5 million ($0.36 per trust unit) respectively. The earnings per trust unit for the three and ninemonth periods ended and, are based on a weighted average number of 29,404,276 outstanding trust units. Innergex Power Income Fund Third Quarter Report 20

21 For the three and ninemonth periods ended LIQUIDITY AND CAPITAL RESOURCES Cash Flows from Operating Activities In the most recent quarter of, the Fund generated $10.3 million in cash flows from operating activities ($11.1 million in ). This decrease is due to a $0.6 million decrease in EBITDA and to the $0.6 million in compensation for defective equipment received in (nil in ), which were partially offset by a $0.3 million decrease in the current income tax expense and by the $0.4 million increase in the change in noncash working capital items. In the most recent quarter of, the $2.1 million change in noncash working capital items is due mainly to the decrease in accounts receivable. For the ninemonth period ended, the Fund s operating activities generated cash flows of $30.0 million ($25.3 million in ). This increase is mainly due to a $0.4 million increase in EBITDA and the change in noncash working capital items, which generated $4.0 million in (use of $0.6 million in ). In the first nine months of, the decrease in accounts receivable and the collection of funds held in trust, offset by a decrease in accounts payable and accrued liabilities, were the main factors responsible for this $4.0 million change in noncash working capital items. Cash Flows from Financing Activities Disbursements related to financing activities for the third quarter of totalled $8.0 million ($7.9 million in ), of which $7.4 million was distributed to unitholders ($7.3 million in ) and $0.6 million used to pay down longterm debt (idem in ). In the ninemonth period ended, disbursements related to financing activities totalled $24.0 million ($10.6 million in ), of which $22.1 million was distributed to unitholders ($22.0 million in ) and $1.9 million used to pay down longterm debt ($2.8 million in ). In the corresponding period of, the Fund benefited from the net proceeds of $14.2 million from the issuance of longterm debt that had been used to finance the acquisition of IHI and refinance the debt of BDS. Cash Flows from Investing Activities Cash flows from investing activities in the third quarter of represented a cash inflow of $0.7 million (outflow of $0.8 million in ). In the most recent quarter of, the Fund paid $0.1 million in additions to property, plant and equipment, received $0.6 million in repayment for part of the acquisition price of IHI, deposited $0.2 million in the Major maintenance reserve accounts and withdrew $0.4 million from the Levelization reserve. In the same threemonth period of, the Fund paid $0.9 million for additions to property, plant and equipment related to the wind farms acquired in December 2007 and to the Rutherford Creek facility, deposited $0.2 million in the Major maintenance reserve accounts and withdrew $0.4 million from the Levelization reserve. In the ninemonth period ended, cash flows from investing activities represented a cash outflow of $1.6 million ($17.5 million in ). In the first nine months of, the Fund invested $1.8 million in the acquisition of capital assets, received $0.6 million in repayment for part of the acquisition price of IHI, deposited $0.7 million in the Major maintenance reserve and withdrew $0.3 million from the Levelization reserve. The acquisitions of capital assets were related mainly to the Rutherford Creek facility and to unpaid property, plant and equipment since the acquisition of the AAV wind farm, which were paid during the period. In the same ninemonth period of, $2.6 million was invested in the acquisition of capital assets, $14.4 million was paid to acquire IHI, $0.7 million was deposited in the Major maintenance reserve and $0.2 million was withdrawn from the Levelization reserve. Cash and Cash Equivalents In the third quarter of, the Fund generated $3.1 million in cash and cash equivalents ($2.4 million in ). In the ninemonth period ended, the Fund generated $4.4 million in cash and cash equivalents, compared with the use of $2.7 million in the corresponding period of. As at, the Fund held $13.1 million in cash and cash equivalents, compared with $9.5 million on. Innergex Power Income Fund Third Quarter Report 21