SYS-CON MEDIA Authors: Doug Masi, Mat Mathews, PR.com Newswire, David Smith, Tim Crawford

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EPCOR Announces Quarterly Results

EDMONTON, ALBERTA -- (Marketwired) -- 08/12/14 -- EPCOR Utilities Inc. (EPCOR) today filed its quarterly results for the three month and year-to-date periods ended June 30, 2014.

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

Highlights of EPCOR's financial performance are as follows:


--  Net income was $55 million on revenues of $435 million for the three
    months ended June 30, 2014 compared with $45 million on revenues of $469
    million for the corresponding period in the previous year.

--  Net income was $93 million on revenues of $899 million for the six
    months ended June 30, 2014 compared with $102 million on revenues of
    $922 million for the corresponding period in the previous year.

--  Net cash flows from operating activities were $188 million for the six
    months ended June 30, 2014 compared with $105 million for the
    corresponding period in the previous year.

--  Investment in capital projects was $91 million for the three months
    ended June 30, 2014 compared with $86 million for the corresponding
    period in the previous year.

--  Investment in capital projects was $154 million for the six months ended
    June 30, 2014 compared with $179 million for the corresponding period in
    the previous year. The decrease of $25 million was primarily due to
    lower expenditure on the Heartland electricity transmission line which
    was completed in December 2013.

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

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

EPCOR Utilities Inc.

Interim Management's Discussion and Analysis

June 30, 2014

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

Overview

EPCOR is wholly-owned by The City of Edmonton (the City). EPCOR builds, owns and operates electrical transmission and distribution networks in Canada as well as water and wastewater treatment facilities and infrastructure in Canada and the United States (U.S.). EPCOR also provides electricity and water services and products to residential and commercial customers. EPCOR's electricity (collectively the Distribution and Transmission and Energy Services segments) and water (including wastewater treatment) businesses consist primarily of rate-regulated and long-term commercial contracted operations. EPCOR's continuous improvement objective is to maximize the efficiency of its electricity and water operations.

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

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

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

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

Consolidated Results of Operations

Revenues


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

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


--  Water Services segment revenues were higher for the three and six months
    ended June 30, 2014 compared with the corresponding periods in 2013
    primarily due to higher approved customer rates and increased volumes
    partially offset by lower commercial services activity.

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

--  Energy Services segment revenues were lower for the three and six months
    ended June 30, 2014 compared with the corresponding periods in 2013
    primarily due to lower electricity prices and volumes.

Net Income


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


--  EPCOR's equity share of income of Capital Power was lower for the three
    and six months ended June 30, 2014 compared with the corresponding
    periods in 2013 reflective of the Company's equity share of lower
    Capital Power net income and the impact of EPCOR's reduced economic
    interest in Capital Power.

--  Changes in each business segment's operating results for the three and
    six months ended June 30, 2014 compared with the corresponding periods
    in 2013 as described under Segment Results below.

Segment Results

Water Services


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

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

Distribution and Transmission


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

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

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

Energy Services


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

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

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

Capital Spending and Investment


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

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

Consolidated Statements of Financial Position


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

Consolidated Statements of Cash Flows


----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Unaudited, $ millions)
Cash inflows (outflows)
----------------------------------------------------------------------------
                                         Increase
Three months ended
 June 30,              2014      2013  (decrease)  Explanation
----------------------------------------------------------------------------
Operating          $     87  $     30  $       57  Increase primarily
                                                   reflects changes in non-
                                                   cash operating working
                                                   capital resulting from a
                                                   decrease in accounts
                                                   receivable.

Investing               (68)      (98)         30  Increase primarily due to
                                                   lower capital
                                                   expenditures on the
                                                   Heartland transmission
                                                   line, changes in non-cash
                                                   investing working capital
                                                   and higher scheduled
                                                   collections on long-term
                                                   receivables, partially
                                                   offset by higher capital
                                                   expenditures in Water
                                                   Services.

Financing               (44)      (35)         (9) Decrease primarily due to
                                                   higher scheduled
                                                   principal repayments.
Opening cash and        126       183         (57)
 cash equivalents
----------------------------------------------------------------------------
Closing cash and   $    101  $     80  $       21
 cash equivalents
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Unaudited, $ millions)
Cash inflows (outflows)
----------------------------------------------------------------------------
                                         Increase
Six months ended
 June 30,              2014      2013  (decrease)  Explanation
----------------------------------------------------------------------------
Operating          $    188  $    105  $       83  Increase primarily
                                                   reflects changes in non-
                                                   cash operating working
                                                   capital resulting from a
                                                   decrease in accounts
                                                   receivable.

Investing              (137)     (182)         45  Increase primarily due to
                                                   lower capital
                                                   expenditures on the
                                                   Heartland transmission
                                                   line, changes in non-cash
                                                   investing working capital
                                                   and higher scheduled
                                                   collections on long-term
                                                   receivables, partially
                                                   offset by higher capital
                                                   expenditures in Water
                                                   Services.

Financing               (80)      (75)         (5) Decrease primarily due to
                                                   higher scheduled
                                                   principal repayments.
Opening cash and        130       232        (102)
 cash equivalents
----------------------------------------------------------------------------
Closing cash and   $    101  $     80  $       21
 cash equivalents
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liquidity and Capital Resources

The Company has bank credit facilities, which are used principally for the purpose of backing the Company's commercial paper program and providing letters of credit, as outlined below:


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




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

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

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

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

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

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

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

Contractual Obligations

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


----------------------------------------------------------------------------
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                                                                       Total
(Unaudited, $                                          2019 and  contractual
 millions)             2014  2015  2016  2017  2018  thereafter   cash flows
----------------------------------------------------------------------------

Interest rate swaps -
 net                    $ -   $ -   $ -   $ 1   $ 1         $ 4          $ 6
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Changes in Accounting Policies

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


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

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

Critical Accounting Estimates

In preparing the condensed consolidated interim financial statements, management necessarily made estimates in determining transaction amounts and financial statement balances. The following are the items for which significant estimates were made in the condensed consolidated interim financial statements: electricity revenues and costs, unbilled consumption of electricity and water, fair values, allowance for doubtful accounts, useful lives of assets and income taxes. Although the current condition of the economy has not impacted our methods of estimating accounting values, it has impacted the inputs in those determinations and the resulting values. Interim results will fluctuate due to the seasonal demands for electricity and water, changes in electricity prices, and the timing and recognition of regulatory decisions. Consequently, interim results are not necessarily indicative of annual results.

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

Non-IFRS Financial Measure

We use income from core operations to distinguish operating results from the Company's core water and electricity businesses from results with respect to its investment in Capital Power. It is a non-IFRS financial measure, which does not have any standardized meaning prescribed by IFRS and is unlikely to be comparable to similar measures published by other entities. However, it is presented since it provides a useful measure of the Company's primary operations and it is referred to by debt holders and other interested parties in evaluating the Company's financial position and in assessing its creditworthiness.

A reconciliation of income from core operations to net income is as follows:


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

Risk Management

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

As part of ongoing risk management practices, the Company reviews current and proposed transactions to consider their impact on the risk profile of the Company. There have been no material changes to the risk profile or risk management strategies of EPCOR as described in the 2013 annual MD&A that have affected the condensed consolidated interim financial statements for the three and six months ended June 30, 2014.

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

Outlook

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

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

Quarterly Results


----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Unaudited, $ millions)
Quarters ended                                 Revenues   Net income (loss)
----------------------------------------------------------------------------
June 30, 2014                                 $     435   $              55
March 31, 2014                                      464                  38
December 31, 2013                                   492                  23
September 30, 2013                                  515                  50
June 30, 2013                                       469                  45
March 31, 2013                                      453                  57
December 31, 2012                                   495                 (68)
September 30, 2012                                  512                  63
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Events for the past eight quarters compared to the same quarter of the prior year that have significantly impacted net income include:


--  June 30, 2014 second quarter results included higher favorable fair
    value adjustments on financial electricity purchase contracts and higher
    approved water and electricity rates partially offset by lower income
    from our equity share of Capital Power.

--  March 31, 2014 first quarter results included lower income from our
    equity share of Capital Power and lower fair value adjustments on
    financial electricity purchase contracts, partially offset by higher
    approved water and electricity rates.

--  December 31, 2013 fourth quarter results included increased income
    primarily due to a lower impairment charge related to the investment in
    Capital Power, higher income from our equity share of Capital Power and
    increased income from higher approved water and electricity customer
    rates, partially offset by a loss on sale of the partial investment in
    Capital Power.

--  September 30, 2013 third quarter results included lower income primarily
    due to higher transmission flow-through charges not yet approved to be
    billed to customers and lower income from our equity share of Capital
    Power, partially offset by increased income from higher approved water
    customer rates.

--  June 30, 2013 second quarter results included increased income primarily
    due to higher approved customer water rates, higher electricity system
    access service revenues, higher transmission tariff revenues and higher
    income from our equity share of Capital Power, partially offset by
    higher transmission flow-through charges not yet approved to be billed
    to customers.

--  March 31, 2013 first quarter results included increased income primarily
    due to higher approved water rates, a refund from the Alberta Electric
    System Operator for the true-up of 2011 transmission flow-through
    charges, and lower losses on selling excess electricity purchased,
    partially offset by lower income from our equity share of Capital Power
    and lower favorable fair value adjustments on financial electricity
    purchase contracts.

--  December 31, 2012 fourth quarter results included an impairment charge
    related to the investment in Capital Power, lower income from our equity
    share of Capital Power, lower water sales, increased staff and employee
    benefit costs, partially offset by positive fair value adjustments on
    financial electricity purchase contracts.

--  September 30, 2012 third quarter results included increased income
    primarily due to higher approved electricity distribution and water and
    wastewater customer rates, higher electricity distribution and
    transmission sales volumes, the addition of Water Arizona and Water New
    Mexico operations, and slightly improved margins under the Company's
    EPSP, including any fair value adjustment on the related financial
    electricity purchase contracts. This was partially offset by lower
    billing charge income due to lower number of sites, and lower income
    from our equity share of Capital Power.

Forward-Looking Information

Certain information in this MD&A is forward-looking within the meaning of Canadian securities laws as it relates to anticipated financial performance, events or strategies. When used in this context, words such as "will", "anticipate", "believe", "plan", "intend", "target", and "expect" or similar words suggest future outcomes.

The purpose of forward-looking information is to provide investors with management's assessment of future plans and possible outcomes and may not be appropriate for other purposes.

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


----------------------------------------------------------------------------
Forward-looking           Material Factors or      Risk Factors
Information               Assumptions
----------------------------------------------------------------------------
The Company expects to    EPCOR is able to         EPCOR's operations do not
have sufficient liquidity generate the expected    generate the expected
to finance its plans and  cash flow from           level of cash flow and /
fund its obligations in   operations and various   or circumstances arise
2014.                     means of funding remain  limiting or restricting
                          available to the         the Company's ability to
                          Company.                 access funds through the
                                                   various means otherwise
                                                   available.
----------------------------------------------------------------------------

EPCOR plans to eventually EPCOR is able to find    EPCOR is unsuccessful in
sell all or a substantial suitable lower-risk      finding suitable
portion of its ownership  businesses and / or      businesses and / or
interest in Capital       assets to invest the     assets to invest in,
Power.                    sell-down proceeds in.   therefore negating
                                                   further sell downs to
                          Market conditions permit raise funds.
                          the sale of Capital
                          Power shares at a price  The market price of
                          suitable to EPCOR.       Capital Power shares
                                                   declines to an amount
                                                   that EPCOR no longer
                                                   deems it feasible to sell
                                                   all or substantially all
                                                   of its interest in
                                                   Capital Power.
----------------------------------------------------------------------------

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

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

Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from EPCOR's expectations. The primary risks and uncertainties relate to: (i) the Company's assessment of the economy, markets and regulatory environments in which it operates; (ii) operation of the Company's facilities; (iii) availability and price of electricity; (iv) regulatory and government decisions including changes to environmental, financial reporting and tax legislation; (v) weather conditions; (vi) competitive pressures; (vii) construction; (viii) availability and cost of financing; (ix) foreign exchange; (x) availability and cost of labor and management resources; (xi) performance of counterparties, including but not limited to, contractors and suppliers in fulfilling their obligations to the Company; (xii) quality and sufficiency of water supply; (xiii) customer consumption volumes of water and electricity; and (xiv) risks in addition to the above related to the Company's equity interest in Capital Power, including power plant availability and performance.

Readers are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements. Except as required by law, EPCOR disclaims any intention and assumes no obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.

Additional Information

Additional information relating to EPCOR including the Company's 2013 Annual Information Form is available on SEDAR at www.sedar.com.

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