AltaGas Reports Strong Earnings of $32.9 Million in Second Quarter 2008 and Increases Distribution

CALGARY, ALBERTA, Aug 6, 2008 (Marketwire via COMTEX) -- ALAU | Quote | Chart | News | PowerRating -- AltaGas Income Trust (AltaGas or the Trust) (TSX:ALA.UN) today announced net income of $32.9 million ($0.49 per unit - basic) for the three months ended June 30, 2008, compared to $21.1 million ($0.37 per unit - basic) for the same period of 2007. Excluding the unrealized after-tax loss related to risk management contracts of $1.6 million and the after-tax charge related to project development costs of $1.9 million recorded in second quarter 2008, net income was $36.4 million ($0.54 per unit - basic). In second quarter of 2007, AltaGas reported a non-cash charge related to the tax on income trusts of $6.5 million. Excluding this non-cash tax charge, net income for the three months ended June 30, 2007 was $27.6 million ($0.48 per unit).

Net income for the six months ended June 30, 2008 was $70.5 million ($1.06 per unit - basic) compared to $45.6 million ($0.80 per unit - basic) for the same period in 2007. Excluding the unrealized after-tax loss related to risk management contracts of $1.3 million and the after-tax charges related to project development costs recorded in the first half of 2008, net income was $73.7 million ($1.11 per unit - basic). Excluding the non-cash tax charge reported in second quarter 2007, net income for the six months ended June 30, 2007 was $52.1 million ($0.92 per unit).

AltaGas also announced that the Board of Directors of AltaGas General Partner Inc., delegate of the Trustee, increased its monthly cash distribution to $0.18 per unit ($2.16 per unit annualized) from $0.175 per unit ($2.10 per unit annualized) payable on September 15, 2008 to unitholders of record on August 25, 2008. This is AltaGas' fifth distribution increase since converting to a trust in May 2004, which together represent a 20 percent increase. AltaGas' total distributions declared in the second quarter of 2008 were $0.525 per unit.

"Our second quarter results and distribution increase reflect the strong performance of our energy infrastructure business. The gas and power businesses reported solid results, delivering value to our investors," said David Cornhill, Chairman and CEO of AltaGas. "Looking ahead to the rest of 2008, we are continuing on track to deliver our estimated mid-to-high single digit growth in earnings per unit."

Despite turnarounds and operational downtime during the quarter, AltaGas' gas business performed well, primarily due to the Taylor acquisition. The Trust's effective commodity hedging and risk mitigation strategies continue to contribute to its solid earnings, complemented by strong Alberta power prices and fractionation (frac) spreads. AltaGas continues to lock in power and frac spread hedges to take advantage of favourable rates. This strategy worked well for the power business, which reported strong results due to higher hedge and spot prices.

AltaGas continues to grow its business by pursuing growth through acquisition and development, as well as increasing the profitability of existing assets. On July 31, 2008, the Trust announced a significant step in moving its renewable energy strategy forward with the addition of both wind and run-of-river hydroelectric development projects. The acquisitions will add approximately 325 MW of run-of-river development projects located in northwest British Columbia and more than 600 MW of wind development projects, located throughout Western Canada and the Western United States. The acquisitions bring AltaGas' total renewable energy capacity under construction and development to approximately 1,900 MW.

"These opportunities help to strategically balance AltaGas as a gas and power infrastructure builder and operator, and demonstrate our commitment to ensuring long-term, sustainable returns in the power business through a portfolio of renewable energy assets," said Mr. Cornhill.

Net income in second quarter 2008 was positively impacted by the addition of new gas infrastructure assets primarily in the E&T segment higher frac spreads and higher average prices received on the sale of power. These increases were partially offset by the impact of turnarounds and lower throughput at some of the facilities, higher costs related to the power purchase arrangements, higher environmental compliance and transmission costs in the power business, the unrealized loss on the fair value of risk management contracts and a charge related to project development costs as a project's commodity price exposures could not be aligned with the Trust's low-risk business model and commodity risk strategy. Net income was also impacted by higher interest expense and lower income taxes.

FINANCIAL HIGHLIGHTS (1)

- Earnings before interest, taxes, depreciation and amortization were $53.8 million ($0.80 per unit) for second quarter compared to $43.1 million ($0.75 per unit) in the same quarter in 2007.

- Cash from operations was $79.1 million ($1.17 per unit) for second quarter 2008 compared to $46.6 million ($0.81 per unit) for the same period in 2007.

- Funds from operations were $50.6 million ($0.75 per unit) for second quarter 2008 compared to $39.2 million ($0.69 per unit) for the same period in 2007.

- Total debt at June 30, 2008 was $504.3 million, compared to $639.8 million at March 31, 2008 and $220.7 million at December 31, 2007. The Trust's debt-to-total capitalization ratio at June 30, 2008 was 36.4 percent, versus 45.1 percent at March 31, 2008 and 27.4 percent at the end of 2007.

(1) Includes non-GAAP financial measures. Please see discussion in the Non-GAAP Financial Measures section of the Trust's second quarter Management's Discussion and Analysis.

IN THE SECOND QUARTER ALTAGAS:

- Announced plans to spend approximately $55 million on projects to increase volumes and boost efficiency at its Harmattan Complex. When the projects are completed in fourth quarter 2008, processing volumes at the Complex are expected to increase by 30 to 40 Mmcf/d and it will increase AltaGas' ethane extraction volumes by 1,800 to 2,400 Bbls/d.

- Filed a prospectus supplement to the Short Form Base Shelf prospectus dated August 8, 2007. The supplement establishes AltaGas' medium-term note (MTN) program and prepares AltaGas to access the Canadian MTN market.

- Successfully completed an equity offering of 3,825,000 Trust units at a price of $26.20 per Trust unit. The underwriters exercised their over allotment option in full, acquiring an additional 573,750 Trust units at a price of $26.20 per Trust unit. The total offering of 4,397,750 Trust units represented gross proceeds of $115 million. The net proceeds of $110.1 million from this issue were used to repay bank indebtedness.

- Appointed Hugh A. Fergusson, B.A., LLB, ICD.D to the Board of Directors. Mr. Fergusson is a board member for Provident Energy Trust, Canexus Income Trust and the Alberta Electric System Operator. Mr. Fergusson was also a board member of Taylor NGL Limited Partnership from 2005 to 2008.

SUBSEQUENT TO THE SECOND QUARTER:

- AltaGas entered into an agreement to acquire NovaGreenPower Inc. (NovaGreen), a wholly-owned subsidiary of NovaGold Resources Inc. (NovaGold), for $35 million on closing. AltaGas will pay an additional $5 million to NovaGold on completion of certain conditions subsequent. NovaGreen is developing the Forrest Kerr run-of-river hydroelectric project, which is expected to have a capacity of 195 MW, in Northwest B.C. NovaGreen is also pursuing three other development projects, all within the same region as Forrest Kerr, with a total potential run-of-river hydroelectric capacity of approximately 130 MW.

- AltaGas agreed with GreenWing Energy Management Ltd. (GreenWing) to acquire GreenWing's 45 percent interest in GreenWing Energy Development Limited Partnership (GEDLP) for $12.3 million. As a result, the Trust will own 100 percent of GEDLP, which includes 640 MW of mature wind development projects and approximately 800 MW of early development wind projects in Western Canada and the Western U.S. This acquisition is expected to close on August 15, 2008.

- Standard & Poor's Ratings Services (S&P) revised its outlook on AltaGas to positive from stable and affirmed the BBB- long-term corporate credit and senior unsecured debt ratings. The outlook revision reflected the efficient integration of Taylor NGL Limited Partnership, which AltaGas acquired on January 10, 2008, and the Trust's earnings and funds from operations, which have outperformed S&P's expectations.

AltaGas will hold a teleconference today at 2:00 p.m. Mountain time (4:00 p.m. Eastern) to discuss the second quarter 2008 financial and operating results and other general issues and developments concerning the Trust. Members of the media, investment community and other interested parties may dial (416) 406-6419 or call toll free at 1-888-575-8232. No passcode is required. Please note that the conference call will also be webcast. To listen, please connect here: http://events.onlinebroadcasting.com/altagas/080608/index.php?page.

Shortly after the conclusion of the call, a replay will be available by dialing (416) 695-5800 or 1-800-408-3053. The passcode is 3265966. The replay expires at midnight (Eastern) on August 13, 2008. The webcast will be archived for one year.

Management's Discussion and Analysis

The Management's Discussion and Analysis (MD&A) of operations and unaudited interim Consolidated Financial Statements presented herein are provided to enable readers to assess the results of operations, liquidity and capital resources of the Trust as at and for the three and six months ended June 30, 2008 compared to the three and six months ended June 30, 2007. This MD&A dated August 6, 2008 should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and notes thereto of the Trust as at and for the three and six months ended June 30, 2008 and with the audited Consolidated Financial Statements and MD&A contained in the Trust's annual report for the year ended December 31, 2007.

This MD&A contains forward-looking statements. When used in this MD&A the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect", and similar expressions, as they relate to the Trust or an affiliate of the Trust, are intended to identify forward-looking statements. In particular, this MD&A contains forward-looking statements with respect to, among others things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results. Specifically, such forward-looking statements are set forth in respect of the Trust's overall capital outlook as it relates to the various projects under development by the Trust under the heading "Capital Outlook". In addition, such forward-looking statements are set forth in respect of each of the Trust's principal business segments under the headings "Extraction and Transmission - E&T Outlook", "Field Gathering and Processing - FG&P Outlook", "Energy Services - Energy Services Outlook", "Power Generation - Power Generation Outlook" and "Corporate - Corporate Outlook".

These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Such statements reflect the Trust's current views with respect to future events based on certain material factors and assumptions and are subject to certain risks and uncertainties including without limitation, changes in market competition, governmental or regulatory developments, changes in tax legislation, general economic conditions and other factors set out in the Trust's public disclosure documents.

Many factors could cause the Trust's or any particular segment's actual results, performance or achievements to vary from those described in this MD&A, including without limitation those listed above and the assumptions upon which they are based proving incorrect. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this MD&A as intended, planned, anticipated, believed, sought, proposed, estimated or expected, and such forward-looking statements included in this MD&A herein should not be unduly relied upon. These statements speak only as of the date of this MD&A. The Trust does not intend, and does not assume any obligation, to update these forward-looking statements except as required by law. The forward-looking statements contained in this MD&A are expressly qualified as cautionary statements.

Additional information relating to AltaGas can be found on its website at www.altagas.ca. The continuous disclosure materials of the Trust, including its annual MD&A and audited financial statements, Annual Information Form, Information Circular, Business Acquisition Report and Proxy Statement, material change reports and press releases issued by the Trust, are also available through the Trust's website or directly through the SEDAR system at www.sedar.com.

ALTAGAS INCOME TRUST

The material businesses of the Trust are operated by AltaGas Ltd., AltaGas Operating Partnership, AltaGas Limited Partnership and AltaGas Pipeline Partnership, Taylor NGL Limited Partnership (Taylor), as well as AltaGas Energy Limited Partnership (formerly known as PremStar Energy Canada Limited Partnership) and ECNG Energy L.P. (collectively the operating subsidiaries). The cash flow of the Trust is solely dependent on the results of the operating subsidiaries and is derived from operating income earned from partnership interests held by AltaGas Holding Limited Partnership No. 1 (AltaGas LP #1), from interest earned on loans to the operating subsidiaries and from dividends or returns of capital from equity interests held within the Trust structure.

AltaGas General Partner Inc., through its Board of Directors, the members of which are elected by the Trust at the direction of the holders of the units, has been delegated by the trustee of the Trust to manage or supervise the business and affairs of the Trust. AltaGas Ltd. provides all management, administrative and operating services to the Trust and its subsidiaries.

CONSOLIDATED FINANCIAL RESULTS Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Revenue 487.1 341.8 931.5 769.8 Unrealized gains (losses) on risk management (2.9) 0.4 (2.3) 0.5 Net revenue(1) 117.3 80.1 228.0 159.4 EBITDA(1) 53.8 43.1 117.4 84.3 EBITDA before unrealized gains (losses) on risk management(1) 56.7 42.7 119.7 83.8 Operating income(1) 37.0 31.2 84.6 60.3 Net income 32.9 21.1 70.5 45.6 Net income before tax-adjusted unrealized gains (losses) on risk management(1) 34.5 21.1 71.8 46.1 Net income before tax(1) 30.7 28.2 71.3 54.1 Total assets 2,069.2 1,179.6 2,069.2 1,179.6 Total long-term liabilities 784.6 375.0 784.6 375.0 Net additions to capital assets 17.2 (19.2) 671.2 (14.0) Distributions declared(2) 35.7 29.2 70.3 58.2 Cash flows Cash from operations 79.1 46.6 117.3 92.7 Funds from operations(1) 50.6 39.2 107.0 77.4 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30 June 30 ($ per unit) 2008 2007 2008 2007 ---------------------------------------------------------------------------- EBITDA(1) 0.80 0.75 1.77 1.48 EBITDA before unrealized gains (losses) on risk management(1) 0.84 0.75 1.81 1.47 Net income - basic 0.49 0.37 1.06 0.80 Net income - diluted 0.49 0.37 1.06 0.80 Net income before tax-adjusted unrealized gains (losses) on risk management(1) 0.51 0.37 1.08 0.81 Net income before tax(1) 0.46 0.49 1.08 0.95 Distributions declared(2) 0.525 0.51 1.05 1.02 Cash flows Cash from operations 1.17 0.81 1.77 1.63 Funds from operations(1) 0.75 0.69 1.62 1.36 Units outstanding - basic (millions) During the period(3) 67.4 57.2 66.2 56.9 End of period 70.9 57.5 70.9 57.5 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Non-GAAP financial measure. See discussion in Non-GAAP Financial Measures section of this MD&A. (2) Distributions declared of $0.175 per unit per month commencing in August 2007. From January 2007 to July 2007 distributions of $0.17 per unit per month were declared. (3) Weighted average.

CONSOLIDATED FINANCIAL REVIEW

Three Months Ended June 30

Net income for the three months ended June 30, 2008 was $32.9 million ($0.49 per unit - basic) compared to $21.1 million ($0.37 per unit - basic) for the same period in 2007. Excluding the after-tax loss of $1.6 million related to risk management contracts and the after-tax charge of $1.9 million related to costs incurred on development projects, net income for the three months ended June 30, 2008 was $36.4 million ($0.54 per unit - basic). Excluding the specified investment flow-through (SIFT) tax of $6.5 million reported in second quarter 2007, net income for the three months ended June 30, 2007 was $27.6 million ($0.48 per unit - basic).

Operating income from the gas business was $23.7 million in second quarter 2007 compared to $16.9 million in same quarter 2007. Operating income increased primarily due to the larger energy infrastructure asset base as a result of the Taylor acquisition in January 2008 and higher frac spreads and rates, which were partially offset by lower throughput in some of the Field Gathering and Processing (FG&P) operating areas. During the second quarter results were impacted by the turnarounds at the Harmattan and Rainbow Lake facilities. The Harmattan Complex is on a three-year turnaround cycle while the Rainbow Lake facility is on a four-year cycle. Results were also impacted by the unscheduled plant shutdowns at the Princess and Clear Hills facilities.

In the power business, operating income was $29.4 million in second quarter 2008 compared to $20.6 million in second quarter 2007. Operating income increased due to a higher average price received on the sale of power, higher contribution from the peaking plants and a deferral account settlement from the Alberta Electric System Operator (AESO), partially offset by higher costs related to the power purchase arrangements (PPAs), higher environmental compliance costs and higher transmission costs.

Operating loss in the corporate segment increased primarily due to the unrealized loss in the fair value of risk management contracts, higher operating and administrative costs and charges related to project development costs where commodity price exposures could not be aligned with the Trust's low-risk business model and commodity risk strategy.

On a consolidated basis, net revenue for the quarter ended June 30, 2008 was $117.3 million compared to $80.1 million in the same quarter of 2007. In the gas business, net revenue increased due to additional extraction, processing and transmission facilities, higher frac spreads and higher rates and other revenues in FG&P. These increases were partially offset by lower throughput at some of the FG&P facilities, the sale of assets in mid-2007 and lower fixed-price gas and transport sales and lower volumes in the Energy Services segment. In the power business, net revenue increased due to a higher average price received on the sale of power, higher contribution from the peaking plants and a deferral account settlement from the AESO, partially offset by higher costs related to the PPAs, environmental compliance costs and transmission costs. In addition, an unrealized loss on the fair value of risk management contracts decreased net revenue.

Operating and administrative expense for second quarter 2008 was $63.4 million up from $37.0 million in the same quarter of 2007. The increase was primarily due to new and expanded facilities and turnaround costs in the gas business, increased costs to support the growth of the Trust and project development costs expensed in the quarter. Project costs were expensed as a project's commodity exposures could not be aligned with the Trust's low-risk business model and commodity risk strategy.

Amortization expense for second quarter 2008 was $16.8 million compared to $11.9 million in the same quarter last year. The increase was due to the Taylor acquisition, partially offset by the sale of assets in mid-2007.

Interest expense for second quarter 2008 was $6.3 million compared to $3.0 million in the same quarter of 2007. The increase was due to higher average debt balances of $615.9 million compared to $240.0 million for the same period in 2007 partially offset by a lower interest rate. The average borrowing rate was 4.6 percent in second quarter 2008 compared to 5.3 percent for second quarter 2007.

In second quarter 2008 the Trust reported an income tax recovery of $2.2 million compared to an income tax expense of $7.1 million in the same quarter last year. The decrease was primarily due to the $6.5 million non-cash charge in 2007 for the SIFT tax that resulted from tax legislation substantively enacted on June 12, 2007, $1.8 million from the tax impact on unrealized losses related to risk management contracts and a decrease of $1.1 million due to lower income subject to tax.

Six Months Ended June 30

Net income for the six months ended June 30, 2008 was $70.5 million ($1.06 per unit - basic) compared to $45.6 million ($0.80 per unit - basic) in the same period last year. Excluding the impact of $1.3 million after-tax loss on risk management contracts and the after-tax charge of $1.9 million recorded in the second quarter related to costs incurred on project development projects, net income was $73.7 million ($1.11 per unit - basic). Excluding the SIFT tax of $6.5 million reported in second quarter 2007, net income for the six months ended June 30, 2007 was $52.1 million ($0.92 per unit - basic).

Operating income from the gas business was $52.6 million in the first half of 2008 compared to $30.1 million in the same period 2007. In the power business, operating income was $55.3 million in the first half of 2008 compared to $42.7 million in the same period 2007. In the first half of 2008 operating income from the gas and power businesses were 48 percent and 52 percent respectively of total operating income compared to 41 percent and 59 percent respectively for the first half of 2007. The improved balance between the gas and power businesses for the first half of 2008 reflects the impact of the Trust's strategy to have a more balanced portfolio of assets.

In the gas business, operating income increased mainly due to the larger energy infrastructure asset base as a result of the Taylor acquisition and higher frac spreads and rates, which were partially offset by lower throughput in some of the FG&P operating areas. During the first half of 2008 results were impacted by the turnarounds at the Harmattan and Rainbow Lake facilities. Results were also impacted by the unscheduled plant shutdowns at the Princess and Clear Hills facilities.

In the power business, operating income increased due to a higher average price received on the sale of power , higher contributions from the peaking plants and a deferral account settlement from the AESO, partially offset by higher costs related to the PPAs, higher environmental compliance costs and higher transmission costs.

Operating loss in the corporate segment increased primarily due to the unrealized loss in the fair value of risk management contracts, charges related to project development costs, lower investment income and higher operating and administrative costs.

Consolidated net revenue for the six months ended June 30, 2008 was $228.0 million compared to $159.4 million for the same period in 2007. In the gas business, net revenue increased due to additional extraction, processing and transmission facilities, higher frac spreads and higher rates and other revenues in FG&P. These increases were partially offset by lower throughput at some of the FG&P facilities, the sale of assets in mid-2007 and lower fixed-price gas and transport sales and lower volumes in the Energy Services segment. In the power business, net revenue increased due to a higher average price received on the sale of power, higher contributions from the peaking plants and a deferral account settlement from the AESO partially offset by higher costs related to the PPAs, environmental compliance costs and transmission costs. In addition, an unrealized loss on the fair value of risk management contracts decreased net revenue.

Operating and administrative expense for the six months ended June 30, 2008 was $110.6 million compared to $75.1 million in the same period last year. The increase was due to additional costs related to new facilities, turnaround costs, higher compensation and administrative costs and project development costs expensed in second quarter 2008.

Amortization expense for the six months ended June 30, 2008 was $32.8 million compared to $24.0 million in the same period last year. The increase was primarily due to new and expanded facilities in the gas business, partially offset due to the disposition of assets in second quarter 2007.

Interest expense for the six months ended June 30, 2008 was $13.3 million compared to $6.1 million in the same period last year. The increase was primarily due to a higher average debt balance of $596.6 million compared to $248.1 million in first half of 2007, partially offset by slightly lower borrowing rates. The average borrowing rate for the first half of 2008 was 4.9 percent compared to 5.2 percent in the same period in 2007.

Income tax expense for the first half of 2008 was $0.8 million compared to $8.5 million in the same period in 2007. The decrease was primarily due to the $6.5 million non-cash charge recorded in second quarter 2007 for the SIFT tax and $1.7 million tax impact on unrealized losses related to risk management contracts partially offset by $0.5 million increase due to higher income subject to tax.

CAPITAL OUTLOOK

In second quarter 2008 AltaGas increased its capital expenditures estimate to approximately $225 million from $150 million estimated in first quarter 2008. The estimate for 2009 remains unchanged at $250 million. The expenditures are expected to be split approximately 45 percent gas and 55 percent power in both years. These estimates are based on projects that are in various stages of development.

Forrest Kerr and Other Hydroelectric Projects

AltaGas acquired NovaGreenPower Inc. (NovaGreen) for $35 million with an additional $5 million on completion of certain conditions. NovaGreen was developing the Forrest Kerr run-of-river hydroelectric project, which is expected to have capacity of 195 MW in Northwest B.C. NovaGreen was also pursuing three other development projects all within the same region as Forrest Kerr with a total potential run-of-river hydroelectric capacity of approximately 130 MW.

GreenWing Energy Development Limited Partnership

The Trust has entered into an agreement with GreenWing Energy Management Ltd. (GreenWing) to acquire GreenWing's 45 percent interest in GreenWing Energy Development Limited Partnership (GEDLP) for $12.3 million. As a result, the Trust will own 100 percent of GEDLP. The acquisition is expected to close on August 15, 2008. The acquisition of the remainder of GEDLP results in AltaGas holding 640 MW of mature wind development projects and approximately 800 MW of early development wind projects in Western Canada and the Western United States.

Bear Mountain Wind Park

Construction of the 100 MW wind farm near Dawson Creek, British Columbia is on time and on budget. Foundations to support turbine construction are 15 percent complete.

Sarnia Airport Storage Pool Project

AltaGas owns a 50 percent interest in the Sarnia storage project, with the other 50 percent being owned by Market Hub Partners Canada L.P., a Spectra Energy Corp. partnership. The project is expected to provide more than 5 Bcf of working capacity and deliverability of approximately 52 Mmcf/d and will include three new wells, a compressor plant and approximately 18 kilometres of pipeline. The Ontario Energy Board has approved the gas storage area; authority to inject gas into, store gas in, and remove gas from the storage pool; and the building of 18 kilometres of natural gas pipeline and the associated surface facilities within the proposed Sarnia Airport Pool. Construction is expected to begin in August 2008. The project is expected to be in operation by mid-2009. AltaGas' share of the project is expected to cost approximately $25 million.

Run-of-River Hydroelectric Plants Under Development

Prior to the acquisition of NovaGreen, AltaGas has under development a number of run-of-river hydroelectric projects with approximate capacity of 70 MW of renewable energy. The projects are at various stages of development. The 14-MW Rainy River project located near Gibson, B.C. is in the advanced development stage and will be bid into B.C. Hydro's Clean Power Call in November 2008. Rainy River could be operational as early as 2010. The Log Creek and Kookipi Creek projects are each 10-MW run-of-river hydroelectric facilities in the final stages of permitting and licensing. Both facilities have 40-year electricity purchase agreements with B.C. Hydro with expected in service dates of 2010. The total estimated capital cost of these three projects is estimated to be $120 to $130 million and is not included in the capital expenditure estimates disclosed above. Three other projects are in earlier stages of development. The run-of-river projects under development are subject to various regulatory and environmental approvals.

Ethylene Delivery System Upgrade

AltaGas is investing approximately $12.5 million to upgrade its Ethylene Delivery System (EDS) pipeline. The upgrade involves replacing approximately 12 km of existing 12-inch diameter pipeline with greater wall thickness pipe to meet regulatory requirements associated with an increase in residential population density in the vicinity of the pipeline. AltaGas will receive a fixed, transport-or-pay fee and will have full recovery of actual costs incurred in operating the upgrade under cost-of-service arrangements similar to existing arrangements for the EDS. The upgrade will be constructed during the fall of 2008 and is expected to be tied-in to the existing system by the end of the year with minimal downtime required for the existing pipeline to tie-in the upgrade.

The above disclosed projects are second quarter updates. For information on all outstanding AltaGas projects, please see the 2007 Annual Report and the first quarter 2008 report. All projects in the 2007 Annual Report and first quarter 2008 report which are not discussed here are on track for timing of completion and on budget.

NON-GAAP FINANCIAL MEASURES

This MD&A contains references to certain financial measures that do not have a standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and may not be comparable to similar measures presented by other entities. The non-GAAP measures and their reconciliation to GAAP financial measures are shown below. All of the measures have been calculated consistently with previous disclosures.

References to net revenue, operating income, EBITDA, EBITDA before unrealized gains (losses) on risk management, net income before tax-adjusted unrealized gains (losses) on risk management, net income before tax and funds from operations throughout this document have the meanings as set out in this section.

Net Revenue Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Net revenue 117.3 80.1 228.0 159.4 Add: Cost of sales 369.8 261.7 703.5 610.4 ---------------------------------------------------------------------------- Revenue (GAAP financial measure) 487.1 341.8 931.5 769.8 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Net revenue, which is revenue less the cost of commodities purchased for sale and shrinkage, is a better reflection of performance than revenue, as changes in the market price of natural gas and power affect both revenue and cost of sales.

Operating Income Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Operating income 37.0 31.2 84.6 60.3 Add (deduct): Interest expense (6.3) (3.0) (13.3) (6.2) Income tax recovery (expense) 2.2 (7.1) (0.8) (8.5) ---------------------------------------------------------------------------- Net income (GAAP financial measure) 32.9 21.1 70.5 45.6 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Operating income is a measure of the Trust's profitability from its principal business activities prior to how these activities are financed or how the results are taxed. The measure is used by management to assess the operating performance of the business segments as it is a better indicator of operating performance than net income. Operating income is calculated from the Consolidated Statements of Income and Accumulated Earnings and is defined as net revenue less operating and administrative expenses and amortization.

EBITDA Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- EBITDA 53.8 43.1 117.4 84.3 Add (deduct): Amortization (16.8) (11.9) (32.8) (24.0) Interest expense (6.3) (3.0) (13.3) (6.2) Income tax recovery (expense) 2.2 (7.1) (0.8) (8.5) ---------------------------------------------------------------------------- Net income (GAAP financial measure) 32.9 21.1 70.5 45.6 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

EBITDA is a measure of the Trust's operating profitability. EBITDA provides an indication of the results generated by the Trust's principal business activities prior to accounting for how these activities are financed, assets are amortized or how the results are taxed. EBITDA is calculated from the Consolidated Statements of Income and Accumulated Earnings and is defined as net revenue less operating and administrative expenses.

EBITDA Before Unrealized Gains Three Months Ended Six Months Ended (Losses) on Risk Management June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- EBITDA before unrealized gains (losses) on risk management 56.7 42.7 119.7 83.8 Add (deduct): Unrealized gains (losses) on risk management (2.9) 0.4 (2.3) 0.5 Amortization (16.8) (11.9) (32.8) (24.0) Interest expense (6.3) (3.0) (13.3) (6.2) Income tax recovery (expense) 2.2 (7.1) (0.8) (8.5) ---------------------------------------------------------------------------- Net income (GAAP financial measure) 32.9 21.1 70.5 45.6 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

EBITDA before unrealized gains (losses) on risk management is a measure of the Trust's operating profitability without the impact of the change in fair value of risk management contracts. EBITDA before unrealized gains or losses on risk management reports the results of the Trust's principal business activities on a realized basis and prior to how business activities are financed, assets are amortized or how the results are taxed. AltaGas does not speculate on commodity prices, but rather enters into financial instruments to manage risk, and therefore evaluates company performance prior to the accounting of the unrealized gains or losses from risk management activities. EBITDA before gains or losses on risk management is calculated from the Consolidated Statements of Income and Accumulated Earnings and is defined as net revenue adjusted for unrealized gains or losses on risk management less operating and administrative expenses.

Net Income Before Tax-Adjusted Unrealized Gains (Losses) Three Months Ended Six Months Ended on Risk Management June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Net income before tax-adjusted unrealized gains (losses) on risk management 34.5 21.1 71.8 46.1 Add (deduct): Unrealized gains (losses) on risk management (2.9) 0.4 (2.3) 0.5 Income tax recovery (expense) on risk management 1.3 (0.4) 1.0 (1.0) ---------------------------------------------------------------------------- Net income (GAAP financial measure) 32.9 21.1 70.5 45.6 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Net income before tax-adjusted unrealized gains (losses) on risk management is a better reflection of actual performance than net income, as changes related to risk management are based on unrealized estimates relating to commodity prices and foreign exchange rates over time. AltaGas enters into financial instruments to manage risk, not as a principal business activity and therefore evaluates company performance prior to accounting for the unrealized gains (losses) from risk management activities. Net income before tax-adjusted unrealized gains (losses) on risk management is calculated from the Consolidated Statements of Income and Accumulated Earnings and is defined as net income adjusted for unrealized gains (losses) on risk management and its related income tax expense.

Net Income Before Tax Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Net income before tax 30.7 28.2 71.3 54.1 Add (deduct): Income tax recovery (expense) 2.2 (7.1) (0.8) (8.5) ---------------------------------------------------------------------------- Net income (GAAP financial measure) 32.9 21.1 70.5 45.6 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Net income before tax is a better reflection of performance because it is not dependent on how those results are taxed, which can change from year to year. Net income before tax is calculated from the Consolidated Statements of Income and Accumulated Earnings and is defined as net income adjusted for income tax expenses or recoveries.

Funds from Operations Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Funds from operations 50.6 39.2 107.0 77.4 Add (deduct): Net change in non-cash working capital 28.6 7.4 10.5 15.4 Asset retirement obligations settled (0.1) - (0.2) (0.1) ---------------------------------------------------------------------------- Cash from operations (GAAP financial measure) 79.1 46.6 117.3 92.7 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Funds from operations is used to assist management and investors in analyzing financial performance without regard to changes in the Trust's non-cash working capital in the period. Funds from operations as presented should not be viewed as an alternative to cash from operations, or other cash flow measures calculated in accordance with GAAP. Funds from operations is calculated from the Consolidated Statements of Cash Flows and is defined as cash provided by operating activities before changes in non-cash working capital and expenditures incurred to settle asset retirement obligations.

RESULTS OF OPERATIONS BY SEGMENT Operating Income Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Extraction and Transmission 18.8 8.8 43.6 17.3 Field Gathering and Processing 5.8 6.4 10.1 10.6 Energy Services (0.9) 1.7 (1.1) 2.2 Power Generation 29.4 20.6 55.3 42.7 Corporate (16.1) (6.3) (23.3) (12.5) ---------------------------------------------------------------------------- 37.0 31.2 84.6 60.3 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

EXTRACTION AND TRANSMISSION

The Extraction and Transmission (E&T) segment consists of interests in six ethane and NGL extraction plants, five natural gas and three NGL transmission systems. As a result of the Taylor acquisition in January 2008, AltaGas added interests in the Younger Extraction Plant in British Columbia, acquired the Harmattan Complex, the Ethane Delivery System (EDS) and Joffre Feedstock Pipeline (JFP) in Alberta and increased its ownership in the Joffre extraction plant to 100 percent from 50 percent.

Financial Results Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Revenue 111.2 33.6 220.2 71.0 Net revenue 44.1 15.3 89.7 31.1 Operating and administrative expense 18.4 4.5 33.0 9.8 Amortization expense 6.9 2.0 13.1 4.0 Operating income 18.8 8.8 43.6 17.3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Operating Statistics Three Months Ended Six Months Ended June 30 June 30 2008 2007 2008 2007 ---------------------------------------------------------------------------- Extraction inlet gas processed (Mmcf/d)(1) 759 417 814 443 Extraction ethane volumes (Bbls/d)(1) 23,796 12,982 26,085 14,305 Extraction NGL volumes (Bbls/d)(1) 11,539 6,840 12,481 6,909 Total extraction volumes (Bbls/d)(1) 35,335 19,822 38,566 21,214 Frac spread - realized ($/Bbl)(1)(3) $ 27.61 $ 17.77 $ 26.88 $ 14.56 Transmission volumes (Mmcf/d)(1)(2) 390 407 388 408 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Average for the period. (2) Excludes natural gas liquids pipeline volumes. (3) AltaGas reports an indicative frac spread or NGL margin, expressed in dollars per barrel of NGL, which is derived from Edmonton postings for propane, butane and condensate and the daily AECO natural gas price.

Three Months Ended June 30

In second quarter 2008 operating income in the E&T segment accounted for approximately 35 percent of operating income from the operating segments compared to 23 percent in second quarter 2007. Operating income in second quarter 2008 was $18.8 million, more than double the $8.8 million reported for the same period in 2007. The primary contributor to the increase in operating income was the addition of new extraction and transmission facilities with the Taylor acquisition. Operating income also increased due to higher frac spreads in second quarter 2008 compared to the same period in 2007. A major scheduled turnaround occurred in the second quarter at the Harmattan Complex which cost approximately $4.0 million in operating expense and lost revenue. Turnarounds of this nature are scheduled every three years.

Average ethane and NGL volumes in the extraction business increased 78 percent in second quarter 2008 compared to same quarter 2007, mainly due to the addition of the Harmattan Complex, Younger Extraction Plant and the remaining 50 percent ownership in the Joffre plant. Natural gas volumes transported in the transmission business during the second quarter 2008 decreased from the same quarter in 2007 due to lower volumes moved on the Suffield system. However, in the transmission business, pipeline throughput has minimal impact on the financial results due to cost-of-service and take-or-pay contractual arrangements in place.

Net revenue in second quarter 2008 almost tripled to $44.1 million, up from $15.3 million in the same period in 2007. Net revenue increased by approximately $28.0 million primarily as a result of the extraction and transmission assets acquired with Taylor or approximately 97 percent of this increase. Net revenue also increased by approximately $1.0 million due to higher frac spreads in second quarter 2008 compared to the same period in 2007.

Operating and administrative expense in second quarter 2008 was $18.4 million compared to $4.5 million for the same period in 2007. The increase was mainly due to the costs incurred to operate the new facilities acquired in January 2008. Costs in second quarter included approximately $2.5 million related to the turnaround at Harmattan.

Amortization expense in second quarter 2008 was $6.9 million compared to $2.0 million for the same period in 2007. The increase was due to the Taylor acquisition.

Six Months Ended June 30

Operating income in the E&T segment for the first half of 2008 was $43.6 million compared to $17.3 million for the same period in 2007. The primary contributor to the increase in operating income was the addition of new extraction and transmission facilities with the Taylor acquisition. Operating income also increased due to higher frac spreads and was partially offset by lower volumes processed through the Edmonton extraction plant.

In the first half of 2008, average ethane and NGL volumes increased primarily as a result of the addition of the Harmattan Complex, Younger Extraction Plant and the remaining 50 percent ownership in the Joffre plant. Transmission volumes decreased slightly in the first half of 2008 due to lower volumes on the Suffield system.

Net revenue was $89.7 million in the first half of 2008, compared to $31.1 million for the same period in 2007. Net revenue increased by $53.7 million primarily as a result of the extraction and transmission assets acquired with Taylor. Net revenue also increased by approximately $4.0 million due to higher frac spreads and $0.8 million due to higher volumes of NGLs exposed to frac spread in the first half of 2008 compared to the same period in 2007.

Operating and administrative expense in the E&T segment for the first half of 2008 was $33.0 million compared to $9.8 million for the same period in 2007. The increase was mainly due to the costs incurred to operate the new facilities acquired in first quarter 2008. Operating and administrative costs in the first half of 2008 included approximately $2.5 million related to the Harmattan turnaround.

Amortization expense for the first half of 2008 was $13.1 million compared to $4.0 million for the same period in 2007. The increase was due to the Taylor acquisition in January 2008.

E&T Outlook

Results in the E&T segment are expected to increase materially in 2008. The addition of new extraction and transmission facilities with the acquisition of Taylor has added approximately 1 Bcf/d of inlet processing capacity, 23,500 Bbls/d of NGL production and 140,000 Bbls/d of NGL transportation capacity. Operating income in the E&T segment as a percentage of total operating income from all operating segments is expected to increase from 25 percent in 2007 to approximately 40 percent in 2008.

The current 2008 capital program is expected to further enhance this segment's performance. Beginning in fourth quarter 2008, volumes processed are expected to increase as a result of the $55 million capital program underway to consolidate processing facilities and optimize and upgrade the Harmattan Complex, resulting in increased utilization and lower operating costs.

Approximately 12 percent (5,000 Bbls/d) of total extraction volumes produced are sold at market price and approximately 60 percent of those volumes have been hedged at over $23/Bbl for the remainder of 2008. Approximately 60 percent of exposed volumes has been hedged at over $27/Bbl for 2009, and approximately 15 percent of 2010 exposed volumes have been hedged at over $27/Bbl. Based on management's analysis of historical NGL prices along with industry published commodity prices, the current forward curve indicates that frac spreads remain strong for the remainder of 2008 between $25 and $30/Bbl.

On July 24, 2008 a fire occurred at the Harmattan Complex. The fire occurred in a natural gas-fired heater and was contained to the heater. Operations were resumed on July 28, 2008 with some extraction functions temporarily limited. The Trust expects the Complex to be fully operational by mid-to-late August and is currently processing approximately 140 Mmcf/d in shallow-cut mode, similar to levels prior to the incident. The financial impact of the incident is expected to be approximately $0.75 million due to the insurance deductible as well as lost revenue, which is currently not expected to be material given the expected timing of the return to service of the facility.

Also in third quarter 2008 planned turnarounds for a total of 48 days at three facilities are expected to cost approximately $1.8 million in direct costs and lost operating income.

In the transmission business, the addition of the EDS and JFP pipelines in January 2008 and full year results from the Cold Lake expansion are also expected to contribute to increased earnings compared to 2007. AltaGas expects to pursue other projects similar to the Cold Lake expansion, which may further enhance returns in the segment. An arrangement to utilize capacity on a previously unused lateral of the EDS began contributing to earnings beginning second quarter 2008.

FIELD GATHERING AND PROCESSING

The Field Gathering and Processing segment includes natural gas gathering pipelines and processing facilities. In January 2008 AltaGas added three interconnected processing facilities, Retlaw, Enchant and Turin and related gathering systems (RET) as a result of the Taylor acquisition with processing capacity of 150 Mmcf/d.

Financial Results Three Months Ended Six Months Ended June 30 June 30 ($ millions) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Revenue 43.6 36.8 78.0 70.0 Net revenue 40.6 34.9 72.2 66.5 Operating and administrative expense 27.8 22.0 48.2 42.9 Amortization expense 7.0 6.5 13.9 13.0 Operating income 5.8 6.4 10.1 10.6 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Operating Statistics Three Months Ended Six Months Ended June 30 June 30 2008 2007 2008 2007 ---------------------------------------------------------------------------- Capacity (Mmcf/d)(1) 1,178 1,021 1,178 1,021 Throughput (gross Mmcf/d)(2) 554 534 549 543 Capacity utilization (%)(2) 47 52 47 53 Average working interest (%)(1) 90 92 90 92 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) As at the end of the reporting period. (2) Average for the period.

Three Months Ended June 30

Operating income in the FG&P segment for second quarter 2008 was $5.8 million compared to $6.4 million for the same quarter of 2007. Operating income decreased due to natural declines and lower producer activity, a scheduled turnaround at Rainbow Lake and unplanned downtime at Clear Hills and Princess. The decreases were partially offset by new facilities and higher rates and other facility services revenues.

Processing capacity increased by 157 Mmcf/d as a result of the addition of the RET facility, Acme and Corbett Creek facilities; both the Acme and Corbett Creek facilities are dedicated to coal bed methane (CBM) gas processing. The increase was partially offset by 13 Mmcf/d reduction as a result of the sale of the Ikhil Joint Venture and the redeployment of the Del Bonita assets in 2007. Utilization reported in second quarter 2008 was 47 percent compared to 52 percent reported in second quarter 2007 primarily due to lower throughput as a result of natural declines as well as planned and unplanned downtime.

Throughput in second quarter 2008 averaged 554 Mmcf/d compared to 534 Mmcf/d in first half of 2007. The 4 percent increase was primarily due to the acquisition of new plants, partially offset by natural declines, lower producer activity, unscheduled plant shutdowns at the Princess and Clear Hills (10 Mmcf/d) facilities and the scheduled turnaround at the Rainbow Lake facility (6 Mmcf/d).

Net revenue for the FG&P segment was $40.6 million in second quarter 2008 compared to $34.9 million for the same period in 2007. Net revenue increased due to $5.0 million from new facilities and $3.8 million from rate increases, the recovery of turnaround costs at Rainbow Lake and higher other facility service revenues. These increases were partially offset by $2.2 million as a result of lower volumes due to operational downtime, natural declines and lower producer activity and $0.9 million due to the sale of the Ikhil Joint Venture in July 2007.

Operating and administrative expense in second quarter 2008 was $27.8 million compared to $22.0 million for the same quarter in 2007. The increase was primarily due to $3.5 million from the facility turnaround at the Rainbow Lake facility and $2.1 million due to the addition of new facilities. Approximately three quarters of turnaround costs were recoverable.

Amortization expense for the FG&P segment in second quarter 2008 was $7.0 million compared to $6.5 million for the same period in 2007. The increase was due to additional facilities partially offset by lower amortization due to the sale of the one-third interest in the Ikhil Joint Venture.

Six Months Ended June 30

The operating income was $10.1 million for the first half of 2008 compared to $10.6 million for the same period in 2007. The decrease was due to lower throughput, as well as the sale of the Ikhil Joint Venture. The decreases were partially offset by the contribution from new facilities, higher rates and other facility service revenues.

Throughput in the first half of 2008 averaged 549 Mmcf/d compared to 543 Mmcf/d in second quarter 2007. The increase was primarily due to the acquisition of new plants partially offset by natural declines, lower producer activity, unscheduled plant shutdowns at the Princess and Clear Hills (10 Mmcf/d) facilities and the scheduled turnaround at the Rainbow Lake facility (3 Mmcf/d).

Net revenue in the FG&P segment for the first half of 2008 was $72.2 million compared to $66.5 million for the same period in 2007. The increase was due to $8.7 million in new facilities, $4.0 million related to increased rates and higher other facility service revenues. These increases were partially offset by $4.8 million in natural declines, lower producer activity and operational downtime, as well as $2.2 million from the sale of the Ikhil Joint Venture.

Operating and administrative expense in the FG&P segment in the first half of 2008 was $48.2 million compared to $42.9 million for the same period in 2007. The increase was mainly attributable to $3.5 million in facility turnarounds and $4.3 million for new facilities. These increases were partially offset by $1.6 million due to continuing efforts on cost controls and $1.0 million related to the sale of the Ikhil Joint Venture. Approximately three quarters or $2.6 million of the turnaround costs were recoverable.

Amortization expense in the FG&P segment in the first half of 2008 was $13.9 million compared to $13.0 million in the same period in 2007. The increase was due to new facilities and capital expenditures, partially offset by the sale of the Ikhil Joint Venture.

FG&P Outlook

FG&P expects to report higher results in 2008 than in 2007. The increase is due to the addition of the RET facilities, a full year of operations at Acme and Corbett Creek, recontracting at higher rates, optimization of facilities and a continued focus on increasing throughput and operating and administrative expense cost control.

AltaGas is working with customers to optimize underutilized assets. The underutilized Sedgewick facility has been connected to the fully utilized Killam and Iron Creek facilities to allow gas to be diverted to Sedgewick and allow increased combined processing for the three facilities. This project is completed with results expected to be realized in the last half of 2008.

AltaGas continues to expect to increase its gas gathering and processing infrastructure in 2008 through acquisition and development of new facilities as producers reallocate capital from processing to their core activity of exploration and production. Well licences have increased slightly in second quarter 2008 versus second quarter 2007. The increases occurred generally over all of AltaGas' operating areas. Increased drillin

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