strength. stability. growth.

Transcription

1 strength. stability. growth First Quarter Report

2 the complete package Strength. Fort Chicago is comprised of long-life, high quality, energy infrastructure assets underpinned by a prudent capital structure and investment grade credit ratings. Stability. Long-term contracts provide predictable and consistent financial performance and support a stable distribution being paid to unitholders. Growth. Energy market fundamentals and an experienced management team are fuelling a growing portfolio of greenfield projects, which together with targeted acquisitions, are expected to add diversity and create Unitholder value over time. Fort Chicago owns and operates energy infrastructure assets across North America within three principal business segments pipeline transportation, natural gas liquids and power. Each of these businesses plays an important role in meeting North American energy requirements and is positioned for growth. Greenfield projects currently being developed include LNG and pipeline facilities on the U.S. west coast, Alberta-based ethane and NGL extraction facilities, repowering and expansion opportunities at the California power facilities and a Nova Scotia underground natural gas storage and pipeline project. Fort Chicago Energy Partners is a TSX-listed (FCE.UN) Canadian limited partnership based in Calgary, Alberta. Established in 1997, Fort Chicago has generated consistent and growing distributions per Unit that were increased in November 2007 by $0.07 to $1.00 per year. For more information about Fort Chicago, please visit Strong. Stable. Growing.

3 fort chicago 2008 first quarter report Letter to unitholders As President and Chief Executive Officer, I am pleased to report on the financial and operating results of Fort Chicago Energy Partners L.P. ( Fort Chicago or the Partnership ) for the three months ended March 31, The Partnership and its businesses performed very well this quarter, generating solid earnings and cash flows. Key Strategic Initiatives During the quarter we continued to advance a number of growth initiatives. Steady progress is being made on various projects that are under construction or are being developed. In March, Alliance announced it had entered into a memorandum of understanding with Questar Overthrust Pipeline Company to develop the Rockies Alliance Pipeline, a proposed 42-inch natural gas transmission system with an initial design capacity of 1.2 billion cubic feet per day. The proposed pipeline would connect Rockies natural gas with markets in the U.S. midwest and central Canada. A binding open season is expected to commence in May Aux Sable continues to focus on initiatives that will secure optimal levels of rich gas for delivery into the Alliance pipeline for processing at the Channahon Facility. Fort Chicago Power continues to evaluate expansion and repowering opportunities at its U.S. cogeneration facilities. We are also pursuing, on an ongoing basis, opportunities to diversify into new businesses, including the integrated Jordan Cove LNG terminal and Pacific Connector gas pipeline facilities, and the Alton gas storage facility. Alton also announced the development of a 1.2 bcf/d natural gas transmission system that would be integrated with its storage facility and transport Atlantic natural gas to markets in eastern Canada and the northeastern U.S. During the first quarter, we made an $11.3 million investment in an independent power company that is developing new technology for solar power, marking our entry into the renewable power generation business. This is consistent with our strategy to grow and diversify our power business. Further details concerning these and Fort Chicago s other development initiatives can be found in Management s Discussion and Analysis contained later in this interim report. Financial and Operating Results Distributable cash for the three months ended March 31, 2008 was $42.8 million or $0.325 per Unit compared to $30.7 million or $0.234 per Unit for the same period last year. First quarter 2008 distributable cash for the Pipeline business includes $10.3 million or $0.08 per Unit received in settlement from Calpine Energy Services Canada Partnership ( CESCA ) in connection with the repudiation of its Alliance transportation contracts. Continued strong NGL market conditions in the first three months of 2008 resulted in $21.2 million of marginbased lease revenues being generated by Aux Sable, $11.4 million of which has been recognized in distributable cash and revenues. Barring an abrupt and significant shift in NGL market conditions, the balance of the margin-based lease revenues generated in the first quarter is expected to be recognized during the remainder of the year. During the first quarter of 2007 no portion of the $7.1 million margin-based lease revenues generated in that period was recognized; however all such amounts were recognized by the end of Our Power business did not generate distributable cash this quarter due to our decision to accelerate major maintenance

4 fort chicago 2008 first quarter report at the Ripon Facility. First quarter 2008 distributable cash also reflects higher corporate costs, due to incremental administration and interest costs related to the Countryside acquisition and the effect of the strong Canadian dollar. (See reconciliation of distributable cash to cash flow from operating activities in Management s Discussion and Analysis contained later in this interim report.) Net income for the three months ended March 31, 2008 was $32.0 million or $0.24 per Unit, compared to $13.9 million or $0.11 per Unit for the same period in 2007, reflecting the same factors that drove the increase in distributable cash. Further, earnings included a gain of $4.8 million related to the initial public offering of common shares by Pristine Power Inc., resulting in Fort Chicago s ownership interest in Pristine being diluted from approximately 20 percent to approximately 11 percent. The increases were partially offset by higher corporate costs which primarily reflect increased foreign exchange losses previously deferred and recorded as cumulative translation adjustment and increased taxes related to higher earnings. Cash generated from operating activities during the three months ended March 31, 2008 was $95.6 million compared to $58.5 million for the same period last year, resulting from Aux Sable s increased net income, Alliance s settlement with CESCA and an increase in changes in non-cash working capital, reflecting a greater amount of unrecognized margin-based lease revenues at Aux Sable. For the three months ended March 31, 2008 Fort Chicago paid distributions of $0.25 per Unit compared to $ per Unit for the same period last year, as a result of the increase of the Partnership s annualized per Unit distribution from $0.93 to $1.00 in November. Our payout ratio for the first quarter of 2008 was 77 percent, resulting in the Distribution Account increasing by $49.1 million year-over-year to $77.1 million due, primarily, to increased distributable cash being generated by Aux Sable and the CESCA settlement. For the three months ended March 31, 2008 Alliance exceeded its contracted bcf/d of firm-service capacity, with shippers utilizing very high levels of the Authorized Overrun Service available on the system. Actual transportation deliveries, including utilized AOS, averaged bcf/d, up from bcf/d in 2007, reflecting the reliability of Alliance s equipment and an aggressive focus on planning and scheduling of maintenance to limit outage times. Aux Sable also continued to operate reliably, with year-to-date volumes of 70.6 thousand barrels per day, consistent with the prior year. The timing of major maintenance at Fort Chicago Power s Ripon Facility was accelerated to the first quarter of 2008 in order to occur during a contractual off-peak period. Results from Fort Chicago Power otherwise continue to be in line with our expectations. NRGreen s Kerrobert waste heat generation facility experienced a second outage in the first quarter that had a negative impact on earnings. The unit has since been repaired and brought back on line, with no subsequent operational issues.

5 fort chicago 2008 first quarter report 2008 Guidance Over the balance of the year we expect NGL market fundamentals to continue to support strong earnings and cash flows from Aux Sable. The Pipeline business is expected to continue to generate stable earnings and cash flows, which are underpinned by long-term contracts. Earnings and cash flows from our Power business are also expected to increase as the U.S. cogeneration facilities enter the second and third quarters when electrical demand in California is highest. Based on our year-to-date performance and our current outlook, 2008 distributable cash is expected to be in the range of $1.13 per Unit to $1.70 per Unit, up from our previous 2008 guidance of $1.10 per Unit to $1.45 per Unit, and our payout ratio for the year is expected to be between 59 percent and 88 percent. Further details concerning our 2008 guidance can be found in the Investor Information section of our website at Respectfully, Stephen H. White President and Chief Executive Officer May 6, 2008

6 fort chicago 2008 first quarter report MANAGEMENT S DISCUSSION AND ANALYSIS Three months ended March 31, 2008 This Management s Discussion and Analysis ( MD&A ) dated May 5, 2008 provides a review of the significant events and transactions that impacted Fort Chicago s performance during 2008 relative to Certain forward-looking statements and information are provided. Forward-looking statements and information, by their nature, involve risk and uncertainty, which may cause actual results to differ materially from those expressed or implied herein. This MD&A should be read in conjunction with the interim consolidated financial statements of Fort Chicago for the three months ended March 31, 2008 and the consolidated financial statements and MD&A included in the 2007 Annual Report. Capitalized terms used herein and not otherwise defined have the same meanings attributed to them in the March 31, 2008 and December 31, 2007 consolidated financial statements. All financial information is in Canadian dollars unless otherwise noted and, as it relates to Fort Chicago s financial results, has been derived from information used to prepare its quarterly unaudited consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles in Canada ( GAAP ). Financial information pertaining to the jointly held businesses reflect Fort Chicago s proportionate share unless otherwise noted. Additional information concerning the Partnership is available on SEDAR at or on the Partnership s website at FINANCIAL AND OPERATING HIGHLIGHTS Three months ended March 31 ($ Thousands, except where noted) Operating Highlights Average daily volumes (100%) Pipeline Alliance billion cubic feet per day ( bcf/d ) AEGS - thousand barrels per day ( mbbls/d ) (1) NGL Aux Sable (mbbls/d) Power Fort Chicago Power megawatt hours ( MWh ) 119,165 - NRGreen (MWh) 8,497 11,196 Financial Results Revenues 173, ,207 Net income 32,045 13,902 Per Unit ($) - basic and diluted Cash from operating activities 95,599 58,490 Distributable cash (2) 42,815 30,666 Per Unit ($) Distributions paid/payable (2) 32,941 30,425 Per Unit ($) Distribution account (2) 77,064 27,952 Payout ratio (%) (2) Capital expenditures Growth (2) 22,775 13,109 Maintenance and sustaining (2) 5, Continued on next page

7 fort chicago 2008 first quarter report 7 ($Thousands except where noted) Financial Position March 31, 2008 December 31, 2007 As at March 31, Cash and short-term investments 110,813 47,191 67,330 Total assets 2,986,995 2,871,364 2,708,808 Long-term senior debt and capital leases 1,699,267 1,652,133 1,478,394 Long-term subordinated convertible debentures 23,799 23,783 50,578 Partners equity 778, , ,758 Units Units outstanding as at period-end (3) 131,908, ,668, ,197,737 Average daily volume (Units) 188, , ,841 Price per Unit close ($) Market capitalization (2) 1,412,743 1,427,282 1,377,576 (1) Average daily volumes in respect of AEGS are based on toll volumes. (2) This item is not a standard measure under GAAP and may not be comparable to similar measures presented by other entities. See section entitled Non-GAAP Financial Measures contained in the 2007 Annual Report. (3) As at the close of markets on May 1, 2008, Fort Chicago had 132,034,613 Units outstanding STRATEGY AND BUSINESS OF THE PARTNERSHIP Strategy Strategically, Fort Chicago is committed to actively managing and growing its existing businesses and to making targeted accretive investments in long-life infrastructure assets that provide additional diversity and contribute toward stable and growing distributions. Existing Businesses Fort Chicago is a limited partnership engaged in three principal segments including a pipeline transportation business comprised of a 50 percent ownership interest in Alliance Pipeline and a 100 percent ownership interest in AEGS; an NGL extraction business, comprised of a 42.7 percent ownership interest in Aux Sable Liquid Products and Alliance Canada Marketing, a 47.4 percent ownership interest in Aux Sable Canada ( percent) and a 50 percent ownership interest in Sable Canada (collectively Aux Sable ); and a power business comprised of a 100 percent ownership interest in Fort Chicago Power (the assets of which were acquired from Countryside Power Income Fund or Countryside in August 2007), a 50 percent ownership interest in NRGreen, 50 percent ownership interest in East Windsor Cogeneration and a 10.9 percent ownership interest in Pristine ( percent). The Pipeline, NGL and Power segments represent approximately 79 percent, 6 percent and 15 percent, respectively, of Fort Chicago s total assets. Each of Fort Chicago s businesses own and operate high-quality, long-life assets that are uniquely positioned to provide Unitholders with relatively stable cash distributions and potential growth in the future.

8 fort chicago 2008 first quarter report 8 New Business Initiatives Fort Chicago continues to advance a number of growth initiatives within its existing operations and to pursue opportunities to diversify into new businesses, including the Jordan Cove LNG terminal, the Pacific Connector gas pipeline and the Alton gas storage facility. Alton also recently announced the development of a 1.2 bcf/d natural gas transmission system that would be integrated with the storage facility and transport Atlantic natural gas to markets in eastern Canada and the northeastern United States. During the first quarter, Fort Chicago made an $11.3 million investment in an independent power company that is developing new technology for solar power, marking the Partnership s entry into the renewable power generation business. This is consistent with the Partnership s strategy to grow and diversify its power business. OVERALL PERFORMANCE Distributable cash and net income for the three months ended March 31, 2008, by business segment, are highlighted in the tables below. The factors contributing to these results are discussed more fully in the section entitled Results of Operations - By Business Segment. Cash from operating activities is discussed in the section entitled Liquidity and Capital Resources. Distributable Cash Three months ended March 31 ($ Thousands) Pipeline 41,440 34,200 NGL 10,240 1,130 Power (135) 310 Fort Chicago - Corporate (8,730) (4,974) 42,815 30,666 Distributable cash for the three months ended March 31, 2008 was $42.8 million or $0.325 per Unit, compared to $30.7 million or $0.234 per Unit for the same period in First quarter 2008 distributable cash for the Pipeline business includes $10.3 million or $0.08 per Unit received in settlement from Calpine Energy Services Canada Partnership ( CESCA ) in connection with the repudiation of its Alliance transportation contracts. Continued strong NGL market conditions in the first three months of 2008 resulted in $21.2 million of marginbased lease revenues being generated by Aux Sable, $11.4 million of which has been recognized in distributable cash and revenues. Barring an abrupt and significant shift in NGL market conditions, the balance of the margin-based lease revenues generated in the first quarter is expected to be recognized in the remainder of the year. During the first quarter of 2007, no portion of the $7.1 million margin-based lease revenues generated in that period was recognized; however all such amounts were recognized by the end of Fort Chicago s Power business did not generate distributable cash this quarter, due to the decision to accelerate major maintenance at the Ripon Facility. First quarter 2008 distributable cash also reflects higher corporate costs, due to incremental administration and interest costs related to the Countryside acquisition and the effect of the strong Canadian dollar.

9 fort chicago 2008 first quarter report 9 Net Income Three months ended March 31 ($ Thousands) Net income before tax Pipeline 36,156 27,317 NGL 10,707 (1,506) Power 5, Fort Chicago Corporate (17,400) (9,516) Taxes 35,363 16,334 (3,318) (2,432) 32,045 13,902 Net income for the three months ended March 31, 2008 was $32.0 million or $0.24 per Unit, compared to $13.9 million or $0.11 per Unit for the same period in 2007, reflecting the same factors that drove the increase in distributable cash. Further, in March 2008, Pristine Power Inc. ( Pristine ), an entity in which Fort Chicago previously held an approximate 20 percent ownership interest, issued common shares pursuant to its initial public offering. Fort Chicago did not participate in the offering and, as a result, its ownership interest in Pristine was diluted to approximately 11 percent and a gain of $4.8 million was recorded in first quarter 2008 earnings. The increases were partially offset by higher corporate costs, which primarily reflect increased foreign exchange losses previously deferred and recorded as a cumulative translation adjustment and increased taxes related to higher reported earnings. RESULTS OF OPERATIONS BY BUSINESS SEGMENT Pipeline Business Three months ended March 31 ($ Thousands, except where noted) Net Income before Tax Alliance Pipeline 34,795 26,161 AEGS 1,361 1,156 36,156 27,317 Volumes Alliance Pipeline (100%) (bcf/d) AEGS (mbbls/d) (1) (1) Average daily volumes for AEGS are based on toll volumes. Alliance Pipeline Transportation revenues for the three months ended March 31, 2008 were $89.1 million, a $4.7 million decrease compared to $93.8 million for the same period last year, which primarily reflects the effect of the stronger Canadian dollar. This decrease was partially offset by higher 2008 tolls, which include increased cost of service recoveries in respect of income taxes and operating costs. Effective January 1, 2008, compressor overhaul costs, which were previously capitalized and depreciated, are being expensed.

10 fort chicago 2008 first quarter report 10 Net income before taxes for the three months ended March 31, 2008, amounted to $34.8 million, an $8.6 million increase compared to $26.2 million the same period last year. In the first quarter of 2008, Alliance received $10.3 million in full settlement of its claim in respect of CESCA s 2006 repudiation of Alliance transportation contracts. This increase was partially offset by the effect of the stronger Canadian dollar and a reduction in the equity return due to the depreciating investment base. Transportation deliveries, including utilized Authorized Overrun Service ( AOS ), averaged bcf/d in 2008 ( bcf/d), a new first quarter record for Alliance, reflecting the reliability of Alliance s equipment and an aggressive focus on planning and scheduling of the required maintenance actions to limit outage times. In October 2007, Alliance commenced field activities on the B.C. Expansion ( BCX ) project. In the first quarter of 2008 detailed engineering activities and compressor equipment procurement was undertaken. Construction of the project, which is estimated to cost $15.2 million, commenced in April The facility is expected to be placed into service in December On March 25, 2008, Alliance and Questar Overthrust Pipeline Company entered into a joint memorandum of understanding to develop the Rockies Alliance Pipeline ( RAP ). If constructed, the proposed 42-inch pipeline, having an initial design capacity of 1.2 bcf/d, will connect Rockies natural gas with markets in the U.S. midwest and central Canada. A binding open season is expected to commence in May Subject to obtaining shipper commitments for this system and regulatory approvals, the pipeline could be placed into service as early as the third quarter of AEGS AEGS revenues for the three months ended March 31, 2008 were $10.3 million, a $1.0 million increase compared to $9.3 million for the same period last year, primarily reflecting increased operating and overhead cost recoveries. First quarter 2008 net income before tax amounted to $1.4 million, a $0.2 million increase compared to $1.2 million for the same period last year. Toll volumes for the three months ended March 31, 2008 decreased slightly as the result of softer demand for natural gas in the Alberta export markets during the quarter, which reduced gas supply to the straddle plants connected to AEGS at Alberta border locations. NGL Business Three months ended March 31 ($ Thousands, except where noted) Net Income before Tax Aux Sable 10,707 (1,506) Margin-based fees under NGL Sales Agreement Estimated amounted generated during period 21,222 7,054 Unrecognized margin generated in period (9,848) (7,054) Amount recognized as revenue 11,374 - Average daily NGL sales volumes (100%) (mbbls/d) Ethane indigenous Propane plus NGL injections

11 fort chicago 2008 first quarter report 11 Average natural gas prices increased by 20 percent from US $7.13 per million British thermal units ( mmbtu ) in the first quarter of 2007 to US $8.57 per mmbtu in the first quarter of Crude oil prices rose 68 percent from US $58.28 per barrel in the first quarter of 2007 to US $97.67 per barrel in the first quarter of As a result, the relative value of crude oil to natural gas for the first quarter of 2008 is comparatively higher than the same period last year, with the crude oil to natural gas ratio increasing to 11.4 from 8.2. Record crude prices are keeping fractionation margins at relatively high levels. Ethane fractionation margins averaged US $0.44 per gallon in the first quarter of 2008 compared to US $0.12 per gallon in the first quarter of 2007, a 266 percent increase. Propane plus margins averaged US $0.80 per gallon in the first quarter of 2008 compared to US $0.37 per gallon in the first quarter of 2007, a 116 percent increase. Mont Belvieu to Edmonton basis differentials for propane over the first quarter of 2008 decreased by US $0.04 per gallon to US $0.08 per gallon versus US $0.12 cents per gallon in the same period last year. NGL volumes were 70.6 mbbls per day during the first quarter 2008, up from 70.2 mbbls per day for the same period in Ethane volumes for the first quarter of 2008 were 39.4 mbbls per day, up from 36.6 mbbls per day in the same period last year, driven by increased gas flows, higher inlet composition and higher recoveries. Propane Plus volumes were 26.7 mbbls per day compared to 29.9 mbbls per day in the same period of 2007 driven by lower inlet composition and purchased volumes, partially offset by increased gas flows and recoveries. For the three months ended March 31, 2008, Aux Sable recognized $23.6 million of lease revenues ( $11.6 million). This reflects higher cost recoveries relative to the same period last year and includes $11.4 million of margin-based lease revenues (2007 nil), which have been recognized due to continued strong NGL market fundamentals in the first three months of Under GAAP, the margin-based component of the lease, which is determined on an annual basis, can only be recognized to the extent its realization is certain. Operations and maintenance costs for the first quarter of 2008 were $23.0 million compared to $20.5 million for the first quarter of 2007, reflecting increased power and fuel costs due to increased prices, partially offset by the effect of the stronger Canadian dollar. Aux Sable is focused on a number of initiatives to ensure that the optimal level of rich gas is secured for delivery into the Alliance pipeline for processing at the Channahon Facility and secured several opportunities during 2007, with further developments planned over the next few years. These developments have largely been focused on northwest Alberta and northeast B.C. but with new oil and gas developments in the upper U.S. midwest (primarily North Dakota) and Saskatchewan, new rich gas supply opportunities are also being developed by Aux Sable in these areas. Construction of Aux Sable s Heartland Off-gas Facility is progressing on budget and on schedule. The estimated capital cost of the facility remains at $22.3 million, excluding capitalized interest. Commencement of commercial operations has been delayed to coincide with start up of the BA Energy Upgrader. In January 2008, Aux Sable and Dow Chemical entered into an exclusive strategic alliance agreement to jointly pursue new off-gas processing opportunities in Alberta. Under the terms of the agreement, Aux Sable will own and operate new off-gas facilities, while Dow Chemical will be the purchaser of all ethane/ethylene from these facilities. Aux Sable will market the propane/propylene and heavier products. This agreement is expected to enhance Aux Sable s ability to capture future off-gas processing opportunities on its 240-acre property in Fort Saskatchewan. Aux Sable has entered into confidentiality agreements with essentially all Alberta upgraders and is currently developing plans to secure commitments from each to process the off-gas produced by each of their facilities.

12 fort chicago 2008 first quarter report 12 Aux Sable is continuing to develop its logistics infrastructure in the Chicago area through new and converted pipelines in order to more effectively manage NGL product storage and distribution in the area. Aux Sable is developing several potential processing arrangements for NGL to be delivered directly to the Channahon Facility by rail or pipeline. Aux Sable is also pursuing several growth initiatives in the upper U.S. midwest. These plans are in the early stages of development and will be further developed over the next few years. These growth initiatives are expected to provide accretive earnings in addition to the cash flow generated from Aux Sable s existing facilities. Power Business Three months ended March 31 ($ Thousands, except where noted) Net Income before Tax Fort Chicago Power (1) 657 NRGreen East Windsor Cogeneration 567 (29) Pristine 4,675 (100) 5, Volumes Fort Chicago Power Electricity (MWh) 119,165 Steam thousand pounds ( Mlbs ) 237,278 Hot Water (MMBtus) 135,473 NRGreen Electricity (MWh) 8,497 11,196 (1) Assets acquired August 10, Fort Chicago Power The discussion below compares Fort Chicago Power s first quarter 2008 results to approximate results generated during the same period last year, based on records obtained from Countryside. The U.S. Cogeneration Facilities generated $13.8 million in revenues during the three months ended March 31, 2008, a decrease of approximately $2.3 million compared to the same period last year which reflects the effect of a stronger Canadian dollar. These results were partially offset by stronger than expected results from the District Energy Systems, which generated $7.4 million of revenues during the first three months of 2008, an increase of approximately $0.8 million compared to the same period last year, reflecting increased energy volumes, coupled with a slight increase in pricing.

13 fort chicago 2008 first quarter report 13 Fuel and consumable costs decreased by approximately $1.6 million to $13.4 million and operations and maintenance expenses increased by $0.8 million to $3.5 million, for the three months ended March 31, 2008, compared to the same period last year. These variances are primarily the result of the accelerated major maintenance performed at the Ripon Cogeneration Facility, coupled with the effect of the stronger Canadian dollar. EBITDA of $3.8 million for the three months ended March 31, 2008 reflects a decrease of approximately $0.7 million compared to the same period last year, due primarily to the accelerated maintenance and the effect of the stronger Canadian dollar. For the three months ended March 31, 2008, electricity volumes decreased by approximately 13 percent to 119,165 MWh, compared to the same period last year, due primarily to economic dispatch at the San Gabriel Facility, coupled with the accelerated maintenance at the Ripon Facility. Steam volumes for the period decreased by approximately eight percent to 237,278 Mlbs due to the loss of the San Gabriel Facility s steam host, partially offset by an increase at the District Energy Systems due mainly to slightly cooler weather compared to the same period last year. Hot water volumes for the period increased approximately eight percent to 135,473 MMBtus due to new customer connections coupled with the cooler weather. NRGreen On January 29, 2008, NRGreen s Kerrobert facility experienced a second outage due to a mechanical seal failure. The impact of the 26-day outage was a loss of approximately 120 MW of electricity per day or $0.1 million in revenue which, in conjunction with incremental repair costs and $0.1 million of project development costs, resulted in no meaningful earnings from NRGreen this quarter. The unit was restarted on February 24, 2008 and has not encountered any subsequent operational issues. Insurance and warranty claims are being pursued in respect of the losses incurred from this outage, as well as for the outage experienced in the fall of 2007, although no recoveries have been accrued to date. East Windsor Cogeneration East Windsor Cogeneration s first quarter 2008 net income before tax is primarily comprised of $0.4 million and $0.2 million of unrealized gains related to interest rate and foreign currency hedges, respectively. Pristine On March 18, 2008, Pristine issued common shares through its initial public offering. Fort Chicago did not participate in the offering, resulting in a decrease of its ownership interest in Pristine from approximately 20 percent to approximately 11 percent and the recognition of a $4.8 million dilution gain. This was partially offset by Fort Chicago s share of Pristine s $0.2 million net loss for the period January 1 to March 18, 2008, after which Fort Chicago no longer records its share of Pristine s net income or loss.

14 fort chicago 2008 first quarter report 14 Fort Chicago - Corporate Three months ended March 31 ($ Thousands) Net expenses Net expenses before taxes 17,400 9,516 Current taxes Future taxes 3,202 2,211 20,735 11,811 During the first three months of 2008, Fort Chicago Corporate incurred net expenses of $20.7 million, compared to $11.8 million during the same period last year. The increase is primarily due to the recognition of $6.8 million of foreign exchange losses, an increase of $5.0 million compared to the same period last year, due to increased distributions from the Partnership s U.S. investments, partially offset by translation gains in respect of U.S. denominated debt resulting from the strengthening Canadian dollar. Interest and other finance costs increased by $2.0 million to $4.6 million due primarily to the Partnership funding the Countryside acquisition with its Revolving Credit Facility. General and administrative costs increased by $1.3 million to $3.1 million, reflecting incremental administration costs related to Fort Chicago Power, and higher personnel and advisory costs. Project development costs decreased by $0.7 million to $2.0 million due primarily to lower spending on the Pacific Connector gas pipeline project. Future taxes increased by $1.0 million to $3.2 million, primarily reflecting the impact of increased earnings. SELECTED QUARTERLY FINANCIAL INFORMATION ($ Thousands, except where noted) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Revenues 173, , , , , , , ,820 Net income 32,045 24,910 24,536 22,809 13,902 10,067 24,001 30,303 Net income per Unit ($) Distributable cash 44,145 56,845 49,948 39,980 30,666 41,915 42,790 36,792 Distributable cash per Unit ($) Cash from operating activities 95,599 50,551 62,122 33,689 58,490 14,320 95,940 44,533 Significant items that impacted quarterly financial results include the following: First quarter 2008 reflects incremental earnings and cash flows resulting from the CESCA settlement and the recognition of a portion of the record first quarter margin-based lease revenues generated by Aux Sable during the period. Increases to net income are partially offset by higher foreign exchange losses related to increased distributions from the Partnership s U.S. investments. Fourth quarter 2007 reflected record earnings and cash flows from Aux Sable, a full quarter s contribution from the August 2007 Countryside acquisition, and the impact of the reduction in federal tax rates, partially offset by higher corporate costs.

15 fort chicago 2008 first quarter report 15 Third quarter 2007 reflected record earnings and cash flows from Aux Sable and the new contribution from the Countryside acquisition. Second quarter 2007 cash from operating activities reflected working capital changes at Aux Sable. First quarter 2007 reflected no recognition of the margin-based lease revenues generated by Aux Sable during the period, which were deferred and recognized over the balance of the year. Fourth quarter 2006 net income reflected the recognition of foreign exchange losses related to increased distributions from the Partnership s U.S. investments, while cash from operating activities reflected the payment of funds from Aux Sable to BP which had accumulated during transition under the NGL Sales Agreement. Third quarter 2006 cash from operating activities reflected the accumulation of cash at Aux Sable during transition to BP under the NGL Sales Agreement. Second quarter 2006 net income reflected the effect of federal and provincial income tax rate reductions, which resulted in the recognition of a future tax recovery. LIQUIDITY AND CAPITAL RESOURCES Overall, there has not been any significant change in the financial condition or liquidity of Fort Chicago or any of its businesses compared with their position as at December 31, Fort Chicago expects that cash from operations and from available committed credit facilities will be more than sufficient to pay distributions in 2008 and finance planned capital expenditures. Cash and short-term investments at March 31, 2008 totalled $110.8 million ( $67.3 million), of which $52.6 million ( $45.4 million) represents funds held in trust accounts pursuant to applicable security and financing agreements. The majority of these trust funds are used by Alliance for current operating and working capital purposes, including scheduled principal and interest payments each June and December. At March 31, 2008, trust funds also included approximately $10.3 million of settlement funds received from CESCA. Restricted cash in the amount of $65.0 million represents East Windsor Cogeneration cash which, pursuant to its financing agreement, is restricted to funding certain expenditures related to the construction of the East Windsor Cogeneration Facility and is, therefore, reported separately on the Partnership s Consolidated Statement of Financial Position. Operating Activities Cash generated from operating activities during the first quarter of 2008 was $95.6 million compared to $58.5 million for the same period last year. This increase primarily reflects higher earnings from Aux Sable, Alliance s settlement with CESCA and an increase in changes in non-cash working capital, reflecting a greater amount of unrecognized margin-based lease revenues at Aux Sable. Financing Activities For the three months ended March 31, 2008, financing activities included: (i) the issuance of $6.6 million of debt under the Partnership s revolving credit facility, $21.7 million under NRGreen s new credit facilities, and $3.4 million related to Alliance s U.S. credit facilities; (ii) the repayment of $8.1 million of debt, of which $0.8 million related to scheduled principal repayments on senior debt by the Partnership, $5.8 million related to Alliance s Canadian credit facilities, $1.1 million related to Aux Sable s credit facilities and $0.4 million related

16 fort chicago 2008 first quarter report 16 to the redemption of Fort Chicago Power s Exchangeable Debentures; and (iii) $32.9 million of cash distributions paid by the Partnership compared with $30.4 million in 2007, reflecting an increase in the number of outstanding Units and an increase in the monthly distribution effective November 2007 from $ per Unit to $ per Unit. For the three months ended March 31, 2007, financing activities included: (i) the issuance of $10.8 million of debt under the Partnership s revolving credit facility and $2.9 million under Aux Sable s U.S. credit facility; (ii) the repayment of $2.6 million of debt, and (iii) $30.4 of cash distributions paid by the Partnership. In March 2008, NRGreen entered into credit facilities comprised of a $26.3 million Construction Facility and a $2.5 million Operating Facility (collectively the NRGreen Credit Facilities ). Upon the earlier of the completion of construction of the Loreburn, Estlin and Alameda Facilities or December 31, 2008, the Construction Facility converts to a two-year revolving term facility. After completion of construction, NRGreen may request that all or any part of the Construction Facility be converted into the Operating Facility by increasing the Operating Facility and decreasing the Construction Facility by the same amount. The Operating Facility is a four-year extendible revolving facility with an initial maturity date of August 31, Interest on the NRGreen Credit Facilities is based on floating interest rates, plus applicable margins. A standby fee applies to any undrawn amounts under these facilities. On March 20, 2008, Aux Sable extended the term of its U.S. Revolving Credit Facility such that it now matures on August 16, On May 2, 2008, the Partnership filed with Canadian securities regulators a short form base shelf prospectus, which allows the Partnership to offer for sale, from time to time, over a 25-month period, up to $1.5 billion of debt and equity, or a combination thereof. Proceeds therefrom are expected to be used to reduce outstanding indebtedness, to finance future growth opportunities (including acquisitions and investments) and/or for general partnership purposes. These securities may be offered for sale separately or together. The specific terms of any offering under this prospectus will be set forth in a prospectus supplement or supplements. Investing Activities Investing activities for the three months ended March 31, 2008, reflect capital expenditures of $28.1 million, the $10.6 million drawdown of restricted cash to fund construction costs related to the East Windsor Cogeneration Facility, and Fort Chicago s $11.3 million investment in a private power company. The capital expenditures relate primarily to: (i) BCX, enhancement capital and pipeline maintenance in respect of Alliance ($5.1 million); (ii) Aux Sable s Heartland Off-gas Facility ($2.1 million); (iii) Fort Chicago Power s London Cogeneration Facility ($3.5 million) and maintenance capital ($3.5 million); (iv) NRGreen s Loreburn, Estlin and Alameda Facilities ($0.4 million); and (v) the East Windsor Cogeneration Facility ($12.7 million). Asset-backed Commercial Paper During the third quarter of 2007, Alliance made an investment in asset-backed commercial paper ( ABCP ) of approximately $6.0 million (100 percent - $12.0 million), issued by a structured investment trust ( Trust ). As a result of the liquidity issues arising in the asset-backed commercial paper market, the Trust was unable to redeem this investment on its initial maturity date of August 31, A restructuring plan that will attempt to re-establish an active market for asset-backed securities was approved by note holders on April 25, A court hearing on the restructuring plan is scheduled for mid-may During the first quarter of 2008, Alliance accrued an additional $0.8 million unrealized loss in respect of this investment based on its estimate of fair value.

17 fort chicago 2008 first quarter report 17 Contractual Obligations and Commitments As at March 31, 2008, contractual arrangements having an aggregate value of $72.4 million exist in respect of several construction projects. DISTRIBUTIONS Policy The Partnership pays distributions on a monthly basis to Unitholders of record as at the last business day of each month on the 23rd day of the month following such record date, or if not a business day, then on the preceding business day. The Partnership s general distribution policy is to establish and maintain a sustainable and stable monthly distribution over time, having regard for the accumulated Distribution Account balance, forecast distributable cash, and the Partnership s growth capital requirements. Sustainability of Distributions and Productive Capacity The Partnership intends to continue to make cash distributions although such distributions are not guaranteed and do not represent a legal obligation of the Partnership. The sustainability of distributions is a function of several factors including, among other things: the earnings and cash flows generated by the Partnership and its businesses, including Alliance Pipeline, a rate-regulated business; the ongoing maintenance of each business physical and economic productive capacity; and the ability to comply with debt covenants and refinance debt as it comes due. For a complete discussion of significant risks and uncertainties affecting the Partnership and each of its businesses, see Risk Factors contained in the Annual Information Form for the year ended December 31, Distributions Paid/Payable Relative to Cash from Operating Activities and Net Income Three months ended March 31 Year ended December 31 ($ Thousands) Cash from operating activities 95,599 58, , ,463 Net income 32,045 13,902 86,157 80,954 Distributions paid/payable 32,941 30, , ,404 Excess of cash from operating activities over distributions paid/payable 62,658 28,065 81, ,059 Shortfall of net income over distributions paid/payable (896) (16,523) (37,542) (40,450) The excess of cash from operating activities over distributions paid/payable generally represents the cash used for maintenance capital expenditures, scheduled amortization of any long-term debt, and cash retained to fund growth, including cash held in trust. Distributions paid/payable are generally more than net income because the Partnership s net income includes certain non-cash expenses such as depreciation and future income taxes, which are not reflected in calculating the amount of cash available for distribution.

18 fort chicago 2008 first quarter report 18 Determination of Distributable Cash The amount of distributable cash earned by the Partnership is comprised of and will vary depending on: (i) distributions received/receivable from its operating businesses, which, in each case, are after providing for scheduled amortization of any long-term debt and any capital expenditures that are not growth-oriented or recoverable; (ii) any operating support payments required by any of the Partnership s businesses; (iii) all cash taxes and financing costs incurred by Fort Chicago, including scheduled principal repayments on long-term debt; (iv) the general and administrative costs of the Partnership; and (v) any cash held in reserve by the Partnership. The calculation of distributable cash for the three months ended March 31, 2008 and 2007 is set out below. Three months ended March 31 ($ Thousands, except where noted) Cash inflows Alliance distributions, prior to withholdings for capital expenditures and net of debt service 37,498 30,439 AEGS distributable cash, after non-recoverable capital expenditures and debt service 3,942 3,761 Aux Sable distributions, net of support payments, non-recoverable debt service costs and maintenance capital 10,240 1,130 Fort Chicago Power distributable cash, after maintenance capital expenditures and debt service (1) (385) NRGreen distributions, prior to withholding for project development costs Interest income and other Cash outflows 51,871 35,865 General and administrative (3,066) (1,727) Interest and other finance (5,054) (2,506) Taxes (133) (84) Principal repayments on senior debt (803) (882) Distributable cash (2) 42,815 30,666 Distributable cash per Unit ($) (3) Distributions paid/payable 32,941 30,425 Distributions paid/payable per Unit ($) (1) Assets acquired August 10, (2) See table below for reconciliation of distributable cash to cash flows from operating activities. (3) The number of Units used to calculate distributable cash per Unit is based on the average number of Units outstanding at each record date. For the three months ended March 31, 2008, the average number of Units outstanding for this calculation was 131,816,446 ( ,162,293) and 136,483,012 ( ,483,012) on a basic and diluted basis, respectively. The number of Units outstanding would increase by 4,574,174 (2007 5,320,719) Units if the outstanding Convertible Debentures as at March 31, 2008 were converted into Units.

19 fort chicago 2008 first quarter report 19 For the three months ended March 31, 2008, distributable cash increased by $12.1 million to $42.8 million due primarily to funds received from the settlement of Alliance s claim against CESCA and record first quarter NGL margins, which allowed Aux Sable to recognize a portion of the margin-based lease revenues that were generated. For the three months ended March 31, 2008, an additional $9.8 million of margin-based lease revenues were generated and have not been recognized in earnings or distributed ( million). Fort Chicago Power did not generate distributable cash this quarter, due to the decision to accelerate major maintenance at the Ripon Cogeneration Facility. First quarter 2008 distributable cash also reflects higher corporate costs, due to incremental administration and interest costs related to the Countryside acquisition and the effect of the strong Canadian dollar. Reconciliation of Distributable Cash to Cash Flow from Operating Activities Three months ended March 31 ($ Thousands) Consolidated cash flow from operating activities 95,599 58,490 Deduct: Cash flow from operating activities applicable to jointly held businesses (1) (53,404) (28,275) Cash flow from operating activities applicable to wholly-owned businesses (2) 42,195 30,215 Add (Deduct): Corporate project development costs 2,043 2,734 Change in non-cash working capital applicable to wholly-owned businesses (1,123) 39 Maintenance capital expenditures applicable to wholly-owned businesses (3,512) - Principal repayments on senior notes (1,399) (1,446) Distributions earned greater (less) than distributions received (3) 4,611 (877) Distributable cash 42,815 30,666 (1) Represents cash flow from operating activities applicable to jointly held businesses which is not under the sole control of the Partnership and, as a consequence, is not included in distributable cash until such time as distributions are declared by the jointly held businesses. (2) Net of support payments made to Aux Sable of $1.1 million for the three months ended March 31, 2008 (2007 $0.7 million). (3) Represents the difference between distributions declared by jointly held businesses and distributions received.

20 fort chicago 2008 first quarter report 20 Distribution Account The Partnership s Distribution Account reflects the extent to which distributable cash earned by the Partnership s operating businesses exceeds distributions paid/payable and project development costs, in each case, since inception. Project development costs are funded from the Distribution Account and are excluded from the calculation of distributable cash as they represent discretionary costs, the recoverability of which has not been established, and are incurred to assess the commercial viability of new greenfield business initiatives unrelated to the Partnership s existing operating businesses. The Distribution Account does not represent a cash balance, as cash retained by the Partnership is generally used to reduce debt or fund investments, including acquisitions, expected to generate additional distributable cash and earnings. During the first three months of 2008, the Distribution Account increased by $7.3 million to $77.1 million, primarily reflecting funds received in respect of the CESCA settlement and strong cash flow generation from Aux Sable, which more than offset higher distributions and project development costs of $2.6 million (2007 $3.3 million). Three months ended March 31 ($ Thousands) Beginning balance 69,799 30,989 Distributable cash in excess of distributions paid/payable 9, Project development costs (1) (2,609) (3,278) Ending balance 77,064 27,952 (1) Reflects project development costs funded by the Partnership, the majority of which relate to Jordan Cove and Pacific Connector.

21 fort chicago 2008 first quarter report 21 Consolidated Statement of Financial Position ($ Thousands; unaudited) March 31, 2008 December 31, 2007 Assets Current assets Cash and short-term investments 110,813 47,191 Restricted cash 65,025 75,236 Transportation security deposits and revenue adjustments 1,969 5,991 Receivables 62,494 59,568 Inventory 3,276 2,623 Prepaid expenses and other 6,220 6, , ,930 Long-term receivables 229, ,701 Pipeline, plant and other capital assets 2,356,331 2,326,057 Intangible assets 100,205 98,876 Goodwill 19,901 19,104 Other assets 30,925 11,696 2,986,995 2,871,364 Liabilities Current liabilities Payables 109,779 69,677 Transportation security deposits 5,176 5,275 Distribution payable 10,988 10,968 Current portion of long-term senior debt and capital leases 66,679 65,292 Subordinated convertible debentures and exchangeable debentures 44,255 46, , ,995 Long-term senior debt and capital leases 1,699,267 1,652,133 Subordinated convertible debentures 23,799 23,783 Future taxes 209, ,985 Other long-term liabilities 38,752 43,015 2,208,270 2,115,911 Partners Equity Partners capital account 993, ,294 Cumulative other comprehensive loss (80,089) (102,092) Cumulative net income 516, ,644 Cumulative distributions (651,334) (618,393) 778, ,453 2,986,995 2,871,364 See accompanying Notes to the Consolidated Financial Statements

22 fort chicago 2008 first quarter report 22 Consolidated Statement of Income and Cumulative Income Three months ended March 31 ($ Thousands, except per unit amounts; unaudited) Revenues Operating revenues 156, ,746 Interest and other 16,448 1, , ,207 Expenses Operations and maintenance 54,248 33,899 Depreciation and amortization 31,781 31,135 Interest and other finance 28,367 27,370 General, administrative and project development 16,700 15,489 Foreign exchange and other 6,758 1, , ,873 Net income before taxes 35,363 16,334 Current taxes Future taxes 3,152 2,342 Net income 32,045 13,902 Cumulative net income at the beginning of the period 484, ,487 Cumulative net income at the end of the period 516, ,389 Net income per Unit Basic and diluted Consolidated Statements of Comprehensive Income and Cumulative Other Comprehensive Income Three months ended March 31 ($ Thousands; unaudited) Net income 32,045 13,902 Other comprehensive income (loss), net of taxes Cumulative translation adjustment Unrealized foreign exchange gain (loss) on translation of self-sustaining foreign operations 13,023 (3,820) Deemed realization of cumulative translation adjustment reclassified to net income 8,843 2,184 Loss on hedge of self-sustaining foreign operation (3,184) Other 3,321 22,003 (1,636) Comprehensive income 54,048 12,266 Cumulative other comprehensive loss at the beginning of the period (102,092) (70,892) Other comprehensive income (loss), net of taxes 22,003 (1,636) Cumulative other comprehensive loss at the end of the period (80,089) (72,528) See accompanying Notes to the Consolidated Financial Statements

23 fort chicago 2008 first quarter report 23 Consolidated Statement of Cash Flows Three months ended March 31 ($ Thousands; unaudited) Operating Net income 32,045 13,902 Less: Non-cash transportation revenue (748) (6,203) Add: Depreciation, amortization and other non-cash items 24,245 29,490 Unrealized foreign exchange loss 6,665 1,526 Future taxes 3,142 2,342 Changes in non-cash working capital 30,250 17,433 Financing 95,599 58,490 Long-term debt issued, net of issue costs 30,668 13,676 Long-term debt repaid (8,145) (2,635) Distributions paid (32,921) (30,380) Other 856 Investing (9,542) (19,339) Pipeline, plant and other capital assets (28,120) (13,246) Restricted cash 10,608 Other (11,307) Changes in non-cash investing working capital 5,330 (3,043) Increase in cash and short-term investments before the effect of foreign exchange rate changes on cash and short-term investments (23,489) (16,289) 62,568 22,862 Effect of foreign exchange rate changes on cash and short-term investments 1,054 (250) Cash and short-term investments at the beginning of the period 47,191 44,718 Cash and short-term investments at the end of the period 110,813 67,330 Cash and short-term investments 58,239 21,924 Cash and short-term investments in trust 52,574 45, ,813 67,330 Supplemental disclosure of cash flow information Interest paid 7,446 4,613 Taxes paid, net of refunds received See accompanying Notes to the Consolidated Financial Statements

24 fort chicago 2008 first quarter report 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three months ended March 31, 2008 and 2007 ($ Thousands, except where noted; unaudited) 1. Business and Structure of the Partnership Fort Chicago Energy Partners L.P. (the Partnership ) is a publicly traded limited partnership, which was originally created under the laws of the Province of Alberta on October 9, The Partnership s principal investments are in pipeline, NGL and power businesses. The pipeline business is comprised of Alliance Pipeline Limited Partnership ( Alliance Canada ), Alliance Pipeline L.P. ( Alliance U.S. and, together with Alliance Canada, and each of their managing general partners, collectively referred to as Alliance or Alliance Pipeline ) and Alberta Ethane Gathering System L.P. (together with its general partner, collectively referred to as AEGS ). The NGL business is comprised of Aux Sable Canada L.P. ( Aux Sable Canada ), Sable Canada NGL Limited Partnership ( Sable Canada ), Aux Sable Liquid Products L.P. ( Aux Sable U.S. ) and Alliance Canada Marketing L.P. ( Alliance Canada Marketing and, together with Aux Sable Canada, Sable Canada, Aux Sable U.S., and each of their managing general partners, collectively referred to as Aux Sable or the NGL Business ). The power business is comprised of Fort Chicago Power (formerly Countryside Power Income Fund ), NRGreen Power Limited Partnership (together with its managing general partner, referred to as NRGreen ), East Windsor Cogeneration LP (together with its managing general partner, referred to as East Windsor Cogeneration ), and Pristine Power Inc. ( Pristine ). During the three months ended March 31, 2008, the Partnership made contributions to Aux Sable Canada in the aggregate amount of $2.2 million, thereby increasing its ownership interest in Aux Sable Canada from 46.9 percent to 47.4 percent. 2. Basis of Presentation These interim consolidated financial statements of the Partnership have been prepared by management in accordance with accounting principles generally accepted in Canada following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended December 31, These interim consolidated financial statements include the accounts of the Partnership and its intermediary subsidiary partnerships and corporations (collectively Fort Chicago ), AEGS and Fort Chicago Power and the Partnership s proportionate interests in Alliance, Aux Sable, NRGreen and East Windsor Cogeneration, which are jointly controlled businesses and are, therefore, proportionately consolidated. Operating results for the three months ended March 31, 2008 and March 31, 2007 are not necessarily indicative of the results for the full year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements in the Partnership s annual report for the year ended December 31, New Accounting Policies Effective January 1, 2008, the Partnership adopted the new CICA Handbook Sections 1535 Capital Disclosures, 3862 Financial Instruments Presentation and 3863 Financial Instruments Disclosures (note 5). The adoption of these new standards requires additional disclosures in the following areas:

25 fort chicago 2008 first quarter report 25 (a) Capital Disclosures The new standard establishes qualitative and quantitative disclosures about the Partnership s objectives, policies and processes for managing capital. It also requires disclosure of externally imposed capital requirements. Information related to comparative years has been provided in accordance with the transitional provisions of the new standard. (b) Financial Instruments The new standards replace Handbook Section 3861 Financial Instruments Disclosure and Presentation, revising and enhancing disclosure requirements but carrying forward unchanged presentation requirements. The new requirements expand disclosure about the significance of financial instruments to the Partnership s financial position and performance, the nature and extent of risks arising from financial instruments, and how the Partnership manages these risks. Information related to comparative years has been provided in accordance with the transitional provisions for the new standards. New Accounting Pronouncements Effective January 1, 2009, the Partnership will adopt the new CICA Handbook Section 3064 Goodwill and Intangible Assets. The new standard replaces Handbook Section 3062 Goodwill and Other Intangible Assets, establishing standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets. Adoption of this new standard is not expected to have a material impact on the Partnership. 4. Partners Capital (i) Authorized The Partnership is authorized to issue an unlimited number of Class A Units ( Class A Units or Units ) and Class B Units, issuable in series. (ii) Issued Units Number Value Number Value January 1 opening balance 131,668, , ,030, ,595 Convertible Debentures converted into Units, net of $5 ( $16) of issue costs 240,752 2, ,442 1,491 March ,908, , ,197, ,086 The weighted average number of Units outstanding used to determine net income per Unit on a basic and diluted basis for the period ended March 31, 2008 was 131,748,393 ( ,112,043) and 136,322,567 ( ,650,454), respectively.

26 fort chicago 2008 first quarter report Financial Instruments and Risk Management Financial Instruments The composition of the Partnership s financial instruments by classification and their carrying values are summarized in the table below: March 31, 2008 December 31, 2007 Assets held-for-trading 181, ,302 Measured at fair value. Cash and short-term investments Restricted cash Prepaid assets and other Other assets Includes derivative financial assets measured at fair value. For the three months ended March 31, 2008, net income before tax includes a fair value gain of $0.4 million (2007 nil). Includes investments in debt instruments measured at fair value. For the three months ended March 31, 2008, net income before tax includes a fair value loss of $0.8 million (2007 nil). Loans and receivables 294, ,260 Measured at amortized cost, which approximates fair value. For the three months ended March 31, 2008, no interest revenue Transportation security deposits and was earned in respect of these assets (2007 nil). revenue adjustments Receivables Long-term receivables Assets available-for-sale 24,654 3,933 Measured at fair value. Includes investments in equity instruments Other assets measured at fair value where quoted market prices exist, otherwise at cost. For the three months ended March 31, 2008, an after-tax fair value gain of $3.8 million was recognized in other comprehensive income (2007 nil). Liabilities held-for-trading 23,487 23,920 Measured at fair value. For the three months ended March 31, 2008, Exchangeable debentures no fair value adjustment was recognized in net income before tax (2007 nil). Other financial liabilities 1,960,336 1,878,355 Measured at amortized cost. Payables Carrying value approximates fair value. Transportation security deposits Distribution payable Other long-term liabilities, excluding asset retirement obligations Senior debt and capital leases Carrying value of $1.8 billion ( $1.7 billion), compared to fair value of $1.9 billion ( $1.8 billion). For the three months ended March 31, 2008, net income before tax includes interest expense of $27.2 million (2007 $26.5 million). Subordinated convertible debentures Carrying value of $45.0 million ( $47.2 million), compared to fair value of $49.9 million ( $52.4 million). For the three months ended March 31, 2008, net income before tax includes interest expense of $0.8 million (2007 $0.9 million). Currency Risk At March 31, 2008, approximately 41 percent of Fort Chicago s net assets were situated in the U.S., exposing the Partnership to fluctuations in the foreign exchange rate between Canadian and U.S. dollars. For the three months ended March 31, 2008, the pro forma impact on net income of a one Canadian cent movement in the foreign exchange with the U.S. would be $0.1 million. The Partnership utilizes U.S. denominated debt to hedge a portion of the net investment in its self-sustaining

27 fort chicago 2008 first quarter report 27 U.S. operations. To the extent these hedges are deemed to be effective, any such gains or losses are recorded in other comprehensive income. For the three months ending March 31, 2008, a $3.2 million gain has been recognized in other comprehensive income (2007 nil). Interest Rate Risk At March 31, 2008, 18 percent of consolidated long-term debt was floating-rate debt ( percent). For the three months ended March 31, 2008, the pro forma impact on net income of a 100 basis point movement in interest rates would be $0.8 million. Fort Chicago and its businesses periodically enter into interest rate swaps to manage interest rate exposures. The following is a summary of the interest rate swap contracts in place as at March 31, 2008: Variable Rate Fixed Rate Notional Amount Maturity Date London Interbank Offered Rate 4.71% US 9,063 June 23, 2008 Bankers Acceptance Rate 4.34% 70,433 August 31, 2009 The fair values approximate the amount that the Partnership would either pay or receive to settle the contract at March 31, As at March 31, 2008, the Partnership had recognized a financial derivative instrument asset of $0.4 million. Credit Risk Fort Chicago and its businesses are exposed to credit risk as their revenues are dependent upon the ability of customers to fulfill their contractual obligations, the failure of which could adversely affect the ability of Fort Chicago and its businesses to recover their operating and financing costs or make distributions. In the case of Alliance, this exposure is reduced, in part, by requiring shippers to provide letters of credit or other suitable security unless they maintain specified credit ratings or a suitable financial position. Commodity Risk Through Fort Chicago s ownership interest in Aux Sable, Fort Chicago is exposed to fluctuations in the prices of NGL and natural gas. This exposure has been significantly reduced with the establishment of the NGL Sales Agreement. Management continues to monitor this exposure, but has not entered into any material hedges to reduce this exposure further. Liquidity Risk Fort Chicago and its businesses manage their liquidity requirements, utilizing cash from operations, excess cash and undrawn committed credit facilities. The Partnership also has the ability to access up to $1.5 billion of public debt and equity, subject to market conditions under its short form base shelf prospectus, filed with Canadian securities regulators May 2, The Partnership believes these sources of funding are more than sufficient to meet its expected liquidity requirements. All financial liabilities classified as current on the balance sheet are expected to be settled within one year.

28 fort chicago 2008 first quarter report 28 Capital Management The Partnership is committed to maintaining a prudent capital structure comprised primarily of equity and long-term amortizing senior debt, backed with investment grade credit ratings. At March 31, 2008, substantially all of its consolidated debt is long-term and, with the exception of its Convertible Unsecured Subordinated Debentures, Exchangeable Debentures and borrowings under long-term revolving credit facilities, contain amortization periods that are designed to provide for the repayment of all principal over the estimated useful economic life of the applicable underlying assets. This debt is generally issued by the Partnership s subsidiaries and operating businesses, on a non-recourse basis, bearing fixed-rates of interest, insulating the Partnership and its businesses from potentially higher future interest rates and reducing the default risk associated with any one operating entity. Canadian and U.S. denominated debt is used to match the currency of the underlying assets being financed and thereby serve as a partial hedge against any future movements in the Canadian/U.S. dollar exchange rate. The Partnership and its operating businesses also maintain committed credit facilities to fund operating or capital requirements that, from time to time, may be in excess of their available cash balances. Each debt agreement contains covenants customary for such issuances, which are monitored on an ongoing basis. As at March 31, 2008, Fort Chicago and each of its operating businesses are in compliance with their respective debt agreements. This strategy remains unchanged from December 31, The Partnership s components of capital are summarized below: March 31, 2008 December 31, 2007 Senior debt, capital leases and exchangeable debentures 1,789,433 1,741,344 Subordinated convertible debentures 44,567 46,647 Partners equity 778, ,453 Total capital 2,612,725 2,543,444

29 fort chicago 2008 first quarter report Segmented Information Pipeline NGL Power Corporate (1) Total (2) Three months ended March Revenues (3) (4) 110, ,153 37,856 24,246 26, , ,207 Operations and maintenance (3) 16,008 15,246 22,980 20,542 17, ,248 33,899 Depreciation and amortization 27,329 28, ,517 2, , ,781 31,135 Interest and other finance 22,934 24, ,619 2,646 28,367 27,370 General, administrative and project development 7,599 7,651 3,247 3, ,109 4,479 16,700 15,489 Foreign exchange and other - - (1) 73 (38) 100 6,797 1,807 6,758 1,980 Net income (loss) before taxes 36,156 27,317 10,707 (1,506) 5, (17,400) (9,516) 35,363 16,334 Total assets 2,347,900 2,505, , , ,713 24,479 30,998 11,057 2,986,995 2,708,808 Capital expenditures 5,124 4,236 2,530 4,673 20,113 4, ,120 13,246 (1) Reflects unallocated amounts applicable to Fort Chicago s head office activities. Corporate office general and administrative costs for the three months ended March 31, 2008 include project development costs of $2.0 million ( $2.7 million). (2) After giving effect to intersegment eliminations and allocations to businesses. (3) For the three months ended March 31, 2008, Pipeline revenues include $1.8 million ( $1.9 million) of transportation revenue from the NGL Business that eliminates upon consolidation. The operations and maintenance costs of the NGL Business include the corresponding cost amount. (4) For the three months ended March 31, 2008, Pipline revenues include $10.3 miliion received by Alliance in settlement from Calpine Energy Services Canada Partnership in connection with the repudiation of its Alliance transportation contracts ( nil). Also for the three months ended March 31, 2008, Power revenues include a $4.8 million gain ( nil) related to the initial public offering of common shares by Pristine, which resulted in Fort Chicago s ownership interest in Pristine being diluted from approximately 20 percent to approximately 11 percent. 7. Recent Tax Developments On June 22, 2007, Bill C-52, an Act to implement certain tax legislation relating to the taxation of specified investment flow-through entities, became law. Consequently, a portion of the Partnership s taxable income will be subject to 29.5 percent tax, similar to that of a corporation, commencing in 2011, provided it complies with the related normal growth guidelines. Generally accepted accounting principles require the estimated future tax liability related to this legislation to be recorded commencing in the period such legislation is substantially enacted. As at March 31, 2008, Fort Chicago recognized a future tax asset of $0.4 million on temporary differences applicable to the Partnership. To the extent that temporary differences change in subsequent periods, future tax will be recorded at that time. 8. Commitments As at March 31, 2008, contractual arrangements having an aggregate value of $72.4 million exist in respect of the several construction projects. 9. Subsequent Event On April 16, 2008, the Partnership declared its April distribution of $ per Unit, payable on May 23, 2008 to Unitholders of record on April 30, Comparative Figures Certain comparative figures have been reclassified to conform to the presentation adopted in 2008.

30 fort chicago 2008 first quarter report 30 Executive Officers from left to right: Stephen H. White, President & CEO, Kevan S. King, Vice President, General Counsel & Secretary, Hume D. Kyle, Vice President, Finance & CFO, John J. O Rourke, Vice President, Power, Vern A. Wadey, Vice President, Business Development corporate and investor information Officers Verne G. Johnson Chairman Stephen H. White President and Chief Executive Officer Kevan S. King Vice President, General Counsel and Secretary Hume D. Kyle Vice President, Finance and Chief Financial Officer John J. O Rourke Vice President, Power Vern A. Wadey Vice President, Business Development Theresa Jang Controller Board Of Directors David J. Drybrough (1, 2), Winnipeg, Manitoba John E. Feick (2, 3), Calgary, Alberta Robert J. Iverach (1, 2), Calgary, Alberta Verne G. Johnson (2, 3), Calgary, Alberta Stephen W.C. Mulherin (1, 3), Calgary, Alberta Robert T.F. Reid (1, 3), White Rock, British Columbia Stephen H. White, Calgary, Alberta (1) Member of the Audit Committee (2) Member of the Corporate Governance and Nominating Committee (3) Member of the Compensation Committee Head Office Fort Chicago Energy Partners L.P. 440, 222 3rd Avenue S.W. Calgary, Alberta T2P OB4 Phone: (403) Fax: (403) Unitholder Inquiries If you have inquiries regarding the DRIP, address information, Unit transfers, distributions, or duplicate mailings, please contact our Transfer Agent and Registrar, Computershare Trust Company of Canada. For all other inquiries, please contact Fort Chicago s Investor Relations personnel or visit Fort Chicago s website. Investor Relations Fort Chicago Energy Partners L.P. Phone: (403) investor-relations@fortchicago.com Website: Transfer Agent and Registrar Computershare Trust Company Of Canada 600, 530 8th Avenue S.W. Calgary, Alberta T2P 3S8 Phone: Toll Free Fax: Computershare also has offices in Vancouver, Toronto, Winnipeg, Montreal