CALGARY, ALBERTA–(EMWNews – Aug. 8, 2008) – The Board of Directors of AltaGas Utility Group Inc. (Utility Group) (TSX: AUI) today announced net income of $4.1 million ($0.51 per share) for the six months ended June 30, 2008, compared to net income of $3.2 million ($0.39 per share) for the six months ended June 30, 2007. A dividend of $0.045 per common share payable on October 15, 2008 to shareholders of record at the close of business on September 30, 2008 was also declared.

Net income for the six months ended June 30, 2008 increased by $0.9 million to $4.1 million (2007 – $3.2 million) from the same period last year. Growth in Utility Group’s income is largely due to rate base growth which contributed $0.5 million to net income. Utility Group’s interest in Ikhil, acquired in July 2007, contributed $0.4 million, while an increase of the allowed return on equity in Alberta to 8.75% contributed $0.1 million and the colder Alberta winter in the first quarter of 2008 contributed a further $0.2 million to net income for the six month period ended June 30, 2008. These increases were partially offset by an increase in administrative costs of $0.3 million.

For the second quarter of 2008, Utility Group realized a net loss of $0.3 million ($0.04 per share) compared to a net loss of $0.5 million ($0.07 per share) for the second quarter of 2007. Although the second quarter loss is representative of the normal seasonal nature of the gas distribution business, resulting in declines in delivered volumes in the spring, rate base growth contributed an additional $0.3 million, the increase in the allowed return on equity in Alberta to 8.75% contributed $0.1 million, and Ikhil contributed $0.1 million in the second quarter of 2008. These positive impacts to income were partially offset by higher administrative costs of $0.3 million.

“We are pleased with the continued growth in our franchise areas and the contribution our 2007 investment in Ikhil has made to our earnings,” said Patricia Newson, President and Chief Executive Officer. “Utility Group looks forward to the continued growth and expansion opportunities in all our operating areas.”

AltaGas Utility Group Inc. is a publicly traded company holding interests in AltaGas Utilities Inc., Heritage Gas Limited and Inuvik Gas Ltd. Combined, these regulated natural gas distribution businesses serve more than 69,000 customers in three areas of Canada through an infrastructure of nearly 22,000 kilometres of pipelines. Utility Group holds an interest in the Ikhil Joint Venture which produces and supplies natural gas in Inuvik, Northwest Territories. Utility Group pursues opportunities to invest in infrastructure-based utility and related businesses with long-term, stable returns.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management’s Discussion and Analysis (MD&A) of financial condition and results of operations dated August 8, 2008 is a review of the results of operations and the liquidity and capital resources of AltaGas Utility Group Inc. (Utility Group) for the three and six months ended June 30, 2008 compared to the three and six months ended June 30, 2007. The MD&A should be read in conjunction with the accompanying unaudited interim consolidated financial statements and notes thereto for the three and six months ended June 30, 2008 and the audited consolidated financial statements and MD&A contained in Utility Group’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 Utility Group or an affiliate of Utility Group, are intended to identify forward-looking statements. In particular, this MD&A contains forward-looking statements with respect to, among other things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results. 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 Utility Group’s current views with respect to future events based on certain material factors and assumptions and are subject to certain risks and uncertainties. Many factors could cause Utility Group’s actual results, performance or achievements to vary from those described in this MD&A including, without limitation, changes in market, competition, governmental or regulatory developments, general economic conditions and other factors set out in Utility Group’s public disclosure documents. 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 accordingly such forward-looking statements included in, or incorporated by reference in this MD&A should not be unduly relied upon. Such statements speak only as of the date of this MD&A. Utility Group 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 regarding Utility Group can be found on its website at www.altagasutilitygroup.com. The continuous disclosure materials of Utility Group, including its prospectus, MD&A and audited financial statements, Annual Information Form, Information Circular and Proxy Statement, material change reports and press releases issued by Utility Group are available through Utility Group’s website or directly through the SEDAR system at www.sedar.com.

I. ALTAGAS UTILITY GROUP INC.

Utility Group was incorporated under the Canada Business Corporations Act as 6414958 Canada Limited on July 6, 2005 and changed its name to AltaGas Utility Group Inc. on July 28, 2005.

Through a series of transactions which closed on November 17, 2005, Utility Group listed on the Toronto Stock Exchange and acquired all of the outstanding shares of AltaGas Utility Holdings Inc. (AUHI). AUHI owns 100 percent of AltaGas Utilities Inc. (AUI), an indirect 24.9 percent share in Heritage Gas Limited (Heritage Gas) and a one-third share in Inuvik Gas Ltd. (Inuvik Gas).

On July 31, 2007 Utility Group acquired, through its wholly owned subsidiary Utility Group Facilities Inc., a 33.3335 percent interest in the Ikhil Joint Venture (Ikhil). The investment in Ikhil is jointly controlled, along with the other joint venture partners.

II. OVERVIEW OF THE BUSINESS AND STRATEGY

The business of Utility Group is the ownership and operation of businesses that deliver and sell natural gas to end-users, including regulated natural gas transmission and distribution facilities in Alberta, Nova Scotia and the Northwest Territories, Canada and natural gas production and processing facilities in the Northwest Territories that deliver and sell natural gas to end- users. Utility Group’s earnings are highly seasonal, as revenues are primarily based on the demand for space heating in the winter months, mainly from November to March. Costs, on the other hand, are generally incurred more uniformly over the year. This typically results in profitable first and fourth quarters and net losses in the second and third quarters. Earnings can be impacted by variations from normal weather resulting in delivered volumes being different than anticipated. Increases in the number of customers or changes in customer usage are examples of other factors that might typically affect volumes.

AUI and Heritage Gas operate in regulated marketplaces where, as franchise holders, they are allowed the opportunity to earn regulated rates of return that provide for recovery of costs and a return on capital from the franchise capital investment base. Return on rate base comprises regulatory allowed financing costs and a return on common equity. Inuvik Gas operates a natural gas distribution franchise in a “light-handed” regulatory environment where delivery service and natural gas pricing are market-based. Ikhil produces natural gas for sale under long-term contracts based on the price of diesel fuel. These contracts are with the Northwest Territories Power Corporation (NWTPC) and Inuvik Gas.

Utility Group’s strategy is to grow its existing business through infill and expansion of services within current franchise areas or, in the case of Heritage Gas, to develop new systems in new market areas. In addition, Utility Group actively pursues the prudent acquisition of other utility-type infrastructure and related businesses in Canada. Utility Group’s management team and Board of Directors have significant utility and infrastructure asset management, acquisition and capital markets experience. Management of Utility Group believes this experience will ensure prudent management and financing of existing capital commitments to support the expansion of AUI’s systems, the build-out of the Heritage Gas system and new growth opportunities as they are identified.

III. FINANCIAL AND OPERATING RESULTS

Utility Group’s financial information and the related discussion of financial results in the MD&A are for the three and six months ended June 30, 2008 and June 30, 2007.

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Consolidated Financial Results                  Three Months     Six Months
                                                       Ended          Ended
                                                     June 30        June 30
($ millions, except per share amounts or
 as otherwise noted)                           2008     2007    2008   2007
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Revenue                                        28.4     22.0    86.6   77.7
Net revenue(1)                                  9.6      8.1    25.3   21.8
EBITDA(1)                                       2.8      2.2    12.1   10.1
Operating income(1)                             0.6      0.3     7.7    6.3
Net income (loss)                              (0.3)    (0.5)    4.1    3.2
Funds generated from operations(1)              1.8      1.4     8.2    7.1
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Shares outstanding (thousands)
 Basic                                        8,190    8,190   8,190  8,190
 Diluted                                      8,190    8,190   8,191  8,195
Net income (loss) per share - basic         $( 0.04) $ (0.07) $ 0.51 $ 0.39
Net income (loss) per share - diluted       $( 0.04) $ (0.07) $ 0.51 $ 0.39
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(1) Non-GAAP financial measure: see discussion in "Non-GAAP
    Financial Measures" section of this MD&A.


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Consolidated Financial Position
($ millions)                                         June 30,   December 31,
                                                        2008           2007
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Total assets                                           208.1          212.1
Long-term liabilities                                  113.7          105.2
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1. Discussion of Consolidated Financial Results for the three months ended June 30, 2008

Net loss for the three months ended June 30, 2008 was $0.3 million (2007 – net loss of $0.5 million) or $0.04 per share (2007 – net loss of $0.07 per share). The $0.2 million reduction in the net loss in the current quarter compared to the same quarter in 2007 was a result of Utility Group’s acquisition of Ikhil on July 31, 2007, which contributed $0.1 million net income to Utility Group’s second quarter 2008, rate base growth at AUI and Heritage Gas that contributed $0.3 million, and an increase in the allowed return on equity in Alberta to 8.75% that contributed $0.1 million, offset by higher operating and administrative costs of $0.3 million. Weather was 1.2 percent warmer compared to last year, but had negligible impact for the current quarter comparisons.

Utility Group’s revenue for the three months ended June 30, 2008 grew by $6.4 million or 29 percent to $28.4 million (2007 – $22.0 million). AUI’s revenue of $25.9 million represents 91 percent of consolidated revenue. Heritage Gas contributed $1.7 million, Inuvik Gas contributed $0.4 million and Ikhil contributed revenue of $0.4 million.

For the three months ended June 30, 2008 Utility Group’s net revenue grew by $1.5 million or 19 percent to $9.6 million (2007 – $8.1 million), after natural gas costs of $18.8 million (2007 – $13.9 million). AUI contributed $1.0 million of the increase from second quarter last year, $0.2 million was contributed by Heritage Gas, and $0.3 million was contributed by Ikhil and Inuvik Gas. AUI’s higher net revenue was driven by a 10 percent growth in its 2008 mid-year rate base compared to 2007. Heritage Gas’ net revenue grew as a result of a 60 percent increase in its rate base, mainly due to the Halifax Harbour crossing completed in late 2007.

Operating and administrative expenses increased 15 percent to $6.8 million for the second quarter of 2008 (2007 – $5.9 million), largely due to increased staffing to support business growth and general cost increases.

Depreciation, depletion and amortization expense increased 16 percent to $2.2 million in the three months ended June 30, 2008 (2007 – $1.9 million) as a result of higher investment in property, plant and equipment throughout 2007, including the Ikhil acquisition.

Interest expense for the three months ended June 30, 2008 was $1.1 million (2007 – $1.0 million). The 10 percent increase in interest expense is attributed to higher average outstanding debt, partially offset by lower average interest rates in the period. Average outstanding debt during the second quarter of 2008 was $108.6 million (2007 – $80.4 million). The increase during this period represents draws which funded the Ikhil acquisition and capital expansion projects throughout the period. The average interest rate for the second quarter of 2008 was 4.1 percent compared to 4.9 percent for the same period last year.

Utility Group’s income tax recovery was $0.2 million for both the three months ended June 30, 2008 and 2007. Current income tax expense was incurred primarily by AUI, which, under utility board regulation, accounts for income tax expense using the taxes payable method and therefore reports only income tax due on current taxable earnings. During the second quarter of 2008, Utility Group’s income tax was favourably impacted due to higher capital cost allowances and pension funding expenses for tax purposes compared to accounting basis. This increase was partially offset by higher regulatory costs and capitalized administration costs for accounting purposes compared to tax basis.

2. Discussion of Consolidated Financial Results for six months ended June 30, 2008

Net income for the six months ended June 30, 2008 was $4.1 million (2007 – $3.2 million) or $0.51 per share (2007 – $0.39 per share). The $0.9 million increase for net income in the six months ended June 30, 2008 compared to the same period in 2007 was a result of Utility Group’s ownership of Ikhil, acquired on July 31, 2007, which contributed $0.4 million to Utility Group’s 2008 net income, rate base growth at AUI and Heritage that contributed $0.5 million, increase of allowed return on equity in Alberta to 8.75% that contributed $0.1 million, and 3.7 percent colder weather than last year in Alberta that contributed $0.2 million. These increases were partially offset by $0.3 million higher operating and administrative costs.

Utility Group’s revenue for the six months ended June 30, 2008 grew by $8.9 million or 11 percent to $86.6 million (2007 – $77.7 million). AUI’s revenue of $80.6 million represents 93 percent of consolidated revenue. Heritage Gas contributed $4.0 million, Inuvik Gas contributed $1.2 million and Ikhil contributed revenue of $0.8 million.

For the six months ended June 30, 2008 Utility Group’s net revenue grew by $3.5 million or 16 percent to $25.3 million (2007 – $21.8 million), after natural gas costs of $61.3 million (2007 – $55.9 million). AUI contributed $1.8 million of the increase from last year, $0.4 million was contributed by Heritage Gas, and $1.3 million was contributed by Ikhil. As noted above, AUI’s higher net revenue was driven by a 10 percent growth in its 2008 mid-year rate base, and 3.7 percent colder weather, compared to last year. Heritage Gas’ net revenue grew as a result of a 60 percent increase in its rate base, mainly due to the Halifax Harbour crossing completed in late 2007.

Operating and administrative expenses increased 13 percent to $13.2 million for the six months ended June 30, 2008 (2007 – $11.7 million), largely due to increased staffing to support business growth and general cost increases.

Depreciation, depletion and amortization expense increased 17 percent to $4.4 million in the six months ended June 30, 2008 (2007 – $3.8 million) as a result of higher investment in property, plant and equipment throughout 2007, including the Ikhil acquisition.

Interest expense for the six months ended June 30, 2008 was $2.5 million (2007 – $2.0 million). This 25 percent increase in interest expense is attributed to higher average outstanding debt, partially offset by lower average interest rates in the period. Average outstanding debt during the first six months of 2008 was $107.5 million (2007 – $79.8 million). The increase during this period represents draws which funded the Ikhil acquisition and capital expansion projects throughout the period. The average interest rate for the first six months of 2008 was 4.4 percent compared to an average interest rate of 4.9 percent for the same period last year.

Utility Group’s income tax expense was $1.1 million for both the six months ended June 30, 2008 and 2007. Current income tax expense was incurred primarily by AUI, which, under utility board regulation, accounts for income tax expense using the taxes payable method and therefore reports only income tax due on current taxable earnings. During the first six months of 2008, Utility Group’s income tax was favourably impacted by higher expenses for tax purposes compared to book purposes.

3. Business Operations

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Operating Information                           Three Months     Six Months
                                                       Ended          Ended
                                                     June 30        June 30
                                                 2008   2007    2008   2007
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Deliveries (PJ) (1)(2)
 End-use                                         2.64   2.57   10.15   9.05
 Transportation                                  1.87   1.84    3.70   3.94
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                                                 4.51   4.41   13.85  12.99
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Degree day variance (percent)(3)                 10.8   12.0     4.6    0.9
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(1) A petajoule (PJ) is 1 million Gigajoules (GJ). In Canada, the GJ, a
    metric measurement of heat energy, is considered the industry standard
    measurement for natural gas distribution deliveries.
(2) Deliveries reflect Utility Group's 100 percent share in AUI and its
    proportionate share of Heritage Gas (24.9 percent) and Inuvik Gas (one
    third).
(3) Degree days relate to AUI's service area. A degree day is the
    cumulative extent to which the daily mean temperature falls below 15
    degrees Celsius. Normal degree days are based on a 20-year rolling
    average. Positive variances from normal lead to increased delivery
    volumes from normal expectations.


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Natural Gas Distribution
                                      June 30, 2008         June 30, 2007
                                   Service        PJs    Service        PJs
                                   Sites(1)     (2)(3)   Sites(1)     (2)(3)
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Operating Business
 AUI End-use                        66,738       9.27     64,185       8.84
 AUI
 Transportation                          7       3.70          7       3.94
 Heritage Gas                        1,410       0.81        912       0.14
 Inuvik Gas                            824       0.07        806       0.07
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                                    68,979      13.85     65,910      12.99
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(1) Service sites reflect all of the service sites of AUI, Heritage Gas and
    Inuvik Gas.
(2) A petajoule (PJ) is 1 million gigajoules.
(3) Deliveries reflect Utility Group's 100 percent share in AUI and its
    proportionate share of Heritage Gas (24.9 percent) and Inuvik Gas 
    (one-third).


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Natural Gas Production               Three Months Ended  Three Months Ended
                                          June 30, 2008    June 30, 2007 (3)
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                                       GJs        Mcf(1)      GJs     Mcf(1)
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 Ikhil production(2)                44,843       42,425    43,245    40,913
 Sold to Inuvik Gas                (18,614)     (17,610)  (18,674)  (17,667)
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 Sold to NWTPC                      26,229       24,815    24,571    23,246
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Natural Gas Production                 Six Months Ended    Six Months Ended
                                          June 30, 2008    June 30, 2007 (3)
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                                       GJs        Mcf(1)      GJs     Mcf(1)
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 Ikhil production(2)               121,831      115,261   119,216   112,788
 Sold to Inuvik Gas                (65,865)     (62,313)  (65,385)  (61,859)
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 Sold to NWTPC                      55,966       52,948    53,831    50,929
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(1) The imperial measure of natural gas volumes is the cubic foot
   (Mcf=1,000 cubic feet), the measure most commonly used in the natural
    gas production industry to report volumes of reserves and production.
(2) Natural gas production reflects Utility Group's proportionate share
    (33.3335 percent) of Ikhil.
(3) Utility Group acquired Ikhil on July 31, 2007. June 30, 2007 figures
    are provided for comparative purposes only.

AUI

AUI’s operating income for the first six months of 2008 was $6.2 million (2007 – $5.7 million). As discussed in the consolidated financial results, the increase in operating income was mainly a result of the growth in rate base, increased allowed return on equity in Alberta and colder weather than the first six months of last year.

AUI’s market consists primarily of residential and small commercial consumers located in smaller population centres or rural areas of Alberta. AUI completed the period with 66,738 active service sites (2007 – 64,185). In 2008, the growth of AUI’s service sites and business was driven by economic growth in established franchises creating infill and expansion opportunities. Infill growth demand for space and water heating fuel within AUI’s franchise service areas continues to be concentrated in town distribution systems and relates to servicing new homes and commercial developments with natural gas. AUI serves almost all of the potential market in its existing service areas.

The majority of AUI’s service site additions occur in the last half of the year, when new customers become ready to take natural gas service prior to the winter season. Although AUI service site additions declined to 684 in the first six months of 2008 compared to 859 for the same period of 2007, the number of applications for new service in that period exceeded the number for the same period in any of the five previous years. The number of service site additions in the first six months of 2008 is surpassed only by the number added in 2007, which was an extraordinary year of building growth in AUI’s service areas. Management expects service site additions for 2008 to remain above the long-term historical average level of growth in service sites.

Heritage Gas

For the six months ended June 30, 2008 Heritage Gas’ operating income was $1.2 million (2007 – $0.8 million). The growth in operating income is a function of the increased rate base over the same period in 2007. Utility Group’s proportion of rate base over the six months ended June 30, 2008 was $21.2 million (2007 – $13.3 million). At June 30, 2008, Heritage Gas had 1,410 (2007 – 912) activated customers.

In late 2007, Heritage Gas completed the Halifax Harbour crossing to provide natural gas service to the Halifax peninsula. During 2008, Heritage Gas is activating large commercial and government customers on the peninsula. A number of high rise office and apartment buildings and one of the two sites at the QEII hospital complex are scheduled to be activated by year end. The Government of Nova Scotia has announced that St. Mary’s University is expected to be burning natural gas by the fall of 2008. The effect of these activations will result in increased customer billings.

Inuvik Gas and Ikhil

On July 31, 2007 Utility Group purchased Ikhil. Ikhil supplies Inuvik Gas and NWTPC with natural gas from two producing wells which had remaining recoverable gas of approximately 9 Bcf (3 Bcf net to Utility Group) at acquisition. The wells produce an average of approximately 2.5 Mmcf/d (0.83 Mmcf/d net to Utility Group) of sweet dry gas. Operating results for Ikhil are proportionately consolidated from August 1, 2007. Ikhil’s operating income contributed $0.1 million to Utility Group’s second quarter 2008 results, and $0.6 million to Utility Group’s first six months of 2008, which met management’s expectations for the investment. Inuvik Gas’ operating income for the six months ended June 30, 2008 remained consistent at $0.3 million with the prior year, representative of the mature market it serves.

Inuvik gas is constructing a $0.3 million (Utility Group portion $0.1 million) extension of the system which is anticipated to add approximately 13 new industrial customers during the latter half of 2008. Although the project will not impact consolidated net income significantly, this represents an increase of 2% in customers in this mature market.

4. Regulatory Update

AltaGas Utilities Inc.

In December 2006 AUI filed Phase 2 of its 2005/2006 General Tariff Application. The Alberta Energy and Utilities Board (EUB) issued decision 2007-079 on October 16, 2007, approving the rates and terms and conditions of service as requested effective November 1, 2007.

On December 29, 2006 AUI filed Phase 1 of its 2007 GTA. AUI sought approval for a forecast rate base of $104.6 million, an increase of $7.4 million from its 2006 approved rate base of $97.2 million, and of a revenue requirement, net of gas costs, of $37.5 million, which would have been an increase of $4.4 million or 13.3 percent from the 2006 allowed net revenue requirement of $33.1 million. A public hearing was held in Edmonton, Alberta in August 2007 and the Alberta Utilities Commission (AUC) issued Decision 2007-094 on December 11, 2007. The decision approved AUI’s 2007 rate base at $104.4 million, $0.2 million less than applied for, and a revenue requirement of $35.7 million, or $1.8 million less than applied for, primarily the result of the disallowance of certain operating expenses. AUI filed a Review and Variance application in March 2008 with respect to Decision 2007-094. AUI believes that a number of issues with respect to the exclusion of certain operating expenses provide sufficient justification for the AUC to reconsider the decision. The 2007 revenue reported reflects the results of Decision 2007-094.

On July 14, 2008 AUI filed Phase 1 of its 2008/2009 GTA. AUI sought approval for a forecast rate base for 2008 of $115.2 million, an increase of $10.8 million from its 2007 approved rate base of $104.4 million. AUI sought a revenue requirement, net of gas, for 2008 of $40.9 million, an increase of $5.2 million or 14.5 percent from the 2007 allowed net revenue requirement of $35.7 million.

Since December 31, 2007, generic proceedings initiated by AUC are:

– On February 21, 2008, the AUC asked for responses to the questions of whether or not the current cost of capital adjustment formula continues to yield a fair return on equity and if the capital structures of all utilities in Alberta should be addressed on a generic basis. On April 4, 2008 AUI provided a written submission followed by a reply submission on April 18, 2008. The AUC issued Decision 2008-051 that established the AUC would hold a generic proceeding to review ROE and capital structure. The AUC has issued for comment a preliminary scoping document and preliminary minimum filing requirement for the proceedings to address the generic cost of capital.

– The AUC has determined that there should be a generic hearing into returns on equity and capital structure for all regulated Alberta utilities. On July 25, 2008, the AUC issued a Notice of Application and invited comments on a scoping document for the proceeding before inviting expressions of interest in participation. The overall schedule of the proceeding is unknown at the present time. Changes that result would apply to 2009.

– On April 11, 2008 the AUC initiated a process to review the Annual Report of Operations to increase the thresholds of variances reported. AUI filed a submission on April 17, 2008 supporting the AUC’s initiative. On April 29, 2008, the AUC issued Bulletin 2008-03 approving amendments to Rule 005 – Annual Reporting Requirements of Operational and Financial Results.

– On April 12, 2008 the AUC initiated a process to examine the implications of the Supreme Court of Canada’s decision regarding Atco Gas’ sale of its Calgary Stores Block, and whether the proceeds from the sale should be attributed to a company’s shareholders or its customers. On April 24, 2008, AUI registered as an observer of the proceedings.

5. Non-GAAP Financial Measures

Utility Group provides financial measures in this MD&A that do not have a standardized meaning prescribed by Canadian Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures may not be comparable to similar measures presented by other corporations. The purpose of these financial measures and their reconciliation to GAAP financial measures is discussed below.

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Net revenue                          Three Months Ended    Six Months Ended
                                                June 30             June 30
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($ millions)                          2008         2007      2008      2007
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Net revenue                            9.6          8.1      25.3      21.8
Add: Cost of natural gas              18.8         13.9      61.3      55.9
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Revenue (GAAP financial measure)      28.4         22.0      86.6      77.7
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Management believes that net revenue better reflects operating performance than does revenue as changes in the market price of natural gas purchased for resale affect both revenue and the cost of natural gas.

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Operating income                     Three Months Ended    Six Months Ended
                                                June 30             June 30
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($ millions)                          2008         2007      2008      2007
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Operating income                       0.6          0.3       7.7       6.3
Deduct: Interest expense               1.1          1.0       2.5       2.0
        Income taxes (recovery)(1)    (0.2)        (0.2)      1.1       1.1
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Net income (GAAP financial measure)   (0.3)        (0.5)      4.1       3.2
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(1) Income taxes consist of current and future income taxes.

Operating income is used by management to measure operating performance without reference to financing decisions and income tax impacts, which are not controlled by the operating businesses.

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EBITDA                               Three Months Ended    Six Months Ended
                                                June 30             June 30
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($ millions)                         2008          2007      2008      2007
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EBITDA                                2.8           2.2      12.1      10.1
Deduct: Depreciation and
         amortization                 2.2           1.9       4.4       3.8
        Interest expense              1.1           1.0       2.5       2.0
        Income taxes (recovery)(1)   (0.2)         (0.2)      1.1       1.1
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Net income (GAAP financial measure)  (0.3)         (0.5)      4.1       3.2
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(1) Income taxes consist of current and future income taxes.

Earnings before interest, taxes, depreciation and amortization (EBITDA) are used by management to understand the ability of the business to generate cash and to cover interest payments, fund capital expenditures and pay cash income taxes.

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Funds generated from operations      Three Months Ended    Six Months Ended
                                                June 30             June 30
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($ millions)                          2008         2007      2008      2007
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Funds generated from operations        1.8          1.4       8.2       7.1
Net change in non-cash
 working capital                       4.5          2.0      (4.9)      1.1
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Cash from operations
 (GAAP financial measure)              6.3          3.4       3.3       8.2
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Funds generated from operations are provided to assist in determining Utility Group’s ability to generate cash from operations, after interest and taxes, without regard to changes in non-cash working capital in the period.

6. Summary of Eight Recently Completed Quarters

The table below sets forth selected data from Utility Group’s consolidated financial statements for the eight recently completed quarters ended June 30, 2008. This information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2007 and related notes thereto as well as the MD&A for the year ended December 31, 2007.

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                              2008               2007                2006
($ millions)                Q2     Q1    Q4    Q3     Q2     Q1    Q4    Q3
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Net revenue(1)             9.6   15.7  12.4   7.4    8.1   13.7  11.4   6.0
Operating income
 (loss)(1)                 0.6    7.1   4.5  (0.5)   0.3    6.0   4.2  (0.5)
Net income (loss)         (0.3)   4.4   2.6  (1.2)  (0.5)   3.8   2.6  (0.9)
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                              2008               2007                2006
($ per share)               Q2     Q1    Q4    Q3     Q2     Q1    Q4    Q3
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Net income (loss)
 Basic                   (0.04)  0.54  0.31 (0.14) (0.07)  0.46  0.32 (0.11)
 Diluted                 (0.04)  0.54  0.31 (0.14) (0.07)  0.46  0.32 (0.11)
Dividends declared       0.045  0.040 0.040 0.035  0.035  0.035 0.030 0.030
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(1) Non-GAAP financial measure. See "Non-GAAP Financial Measures" section of
    this MD&A.

Utility Group’s earnings are highly seasonal, as distribution revenues are primarily based on the demand for space heating in the winter months, mainly from November to March. Costs, on the other hand, are generally incurred more uniformly over the year. This typically results in profitable first and fourth quarters and net losses in the second and third quarters. Earnings can be impacted by variations from normal weather resulting in delivered volumes being different than anticipated. Increases in the number of customers or changes in customer usage are examples of other factors that might typically affect volumes.

IV. UTILITY GROUP’S FINANCIAL POSITION

The following table outlines the significant changes in the consolidated balance sheet of Utility Group at June 30, 2008 compared to December 31, 2007.

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Balance Sheet Item     Increase
($ millions)          (decrease) Explanation
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Accounts receivable       (11.3) Decreased due to lower sales revenue from
                                 the seasonally lower volumes at the end of
                                 Q2 2008. The lower volumes were partially
                                 offset by higher gas prices and higher
                                 revenue deficiency accrual, pending
                                 approval of AUI's 2008/2009 GTA.

Property, plant and         3.3  Organic growth at both Heritage Gas and
 equipment (net of               AUI, partially offset by contributions
 accumulated depreciation)       in aid of construction and depreciation.

Inventory, prepaid          1.7  Increase due to natural gas that has been
 expenses and deferred           purchased in advance of receipt.
 charges

Accounts payable and      (15.7) Reduction reflects seasonally lower gas
 accrued liabilities             volumes purchased in June 2008 compared to
                                 December 2007 and the timing of capital
                                 expenditure and general trade payables. The
                                 lower purchased volumes were partially
                                 offset by higher prices.

Investments and other       1.4  Increase mainly due to Utility Group's
 assets                          investment in an equity investment.
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V. INVESTED CAPITAL

During the second quarter of 2008 Utility Group invested $4.2 million in property, plant and equipment (2007 – $5.1 million) and received contributions in aid of construction of $0.7 million (2007 – $2.2 million) for net capital invested of $3.5 million (2007-$2.9 million). This investment included $2.8 million (2007 – $2.4 million) at AUI which funded expansion primarily in the Leduc franchise area, and $0.7 million (2007 – $0.5 million) at Heritage Gas which funded expansion primarily in the Halifax area. Of the amount invested, $1.9 million or 54 percent (2007 – 1.2 million or 41 percent) was incurred to expand Utility Group’s systems to service new sites, and $1.6 million or 46 percent (2007 – $1.7 million or 59 percent) was incurred for betterment of existing service areas and general plant expenditures.

For the six months ended June, 30, 2008, Utility Group invested $10.8 million in property, plant and equipment (2007 – $9.4 million) and received contributions in aid of construction of $2.3 million (2007 – $2.5 million) for net capital invested of $8.5 million (2007 – $6.9 million). The first six months investment included $7.5 million (2007 – $6.1 million) at AUI which funded expansion primarily in the Leduc franchise area, and $1.0 million (2007 – $0.8 million) at Heritage Gas which funded expansion primarily in the Halifax area. Of the amount invested, $4.8 million or 57 percent (2007 – $4.7 million or 68 percent) was incurred to expand Utility Group’s systems to service new sites, and $3.7 million or 43 percent (2007 – $2.2 million or 32 percent) was incurred for betterment of existing service areas and general plant. Regulatory and investments and other assets increased to $2.1 million (2007 – $0.9 million) mainly due to an investment in an equity investment.

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                                   Three Months                  Six Months
Net Capital Invested              Ended June 30               Ended June 30
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($ millions)                  2008         2007         2008           2007
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Invested capital:
  New business -
   organic growth              1.9          1.2          4.8            4.7
  System betterment and
   gas supply                  0.8          1.0          1.8            1.3
  General plant                0.8          0.7          1.9            0.9
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                               3.5          2.9          8.5            6.9
 Regulatory and other assets   0.5          0.8          2.1            0.9
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                               4.0          3.7         10.6            7.8
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VI. LIQUIDITY AND CAPITAL RESOURCES

Utility Group expects that 2008 funds from operations will be sufficient to meet the majority of its budgeted maintenance and growth capital. The balance of its budgeted growth capital and a certain value of acquisitions will be financed through existing bank lines. Should larger acquisitions require financing beyond existing lines, management believes equity and debt capital markets could be accessed to provide additional financing. At this time, Utility Group does not reasonably expect any presently known trend or uncertainty to affect Utility Group’s ability to access its anticipated sources of cash.

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                                   Three Months                  Six Months
Cash Position                     Ended June 30               Ended June 30
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($ millions)                  2008         2007         2008           2007
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Cash, beginning of period      0.8          0.7          0.8            0.3
Operating activities           6.3          3.4          3.3            8.2
Investing activities          (4.0)        (3.7)       (10.6)          (7.8)
Financing activities          (2.5)         0.1          7.1           (0.2)
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Cash, end of period            0.6          0.5          0.6            0.5
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Cash from Operations

Cash from operations increased from that generated in second quarter 2007 by $2.9 million to $6.3 million (2007 – $3.4 million). For the six months ended June 30, 2008, cash from operations is $4.9 million less than the comparative period in 2007, or $3.3 million (2007 – $8.2 million). The natural gas business is seasonal in nature, and as such, the Utility Group’s operating cash flows may fluctuate significantly during the year due to working capital changes driven by weather, gas prices, and collections from customers. Significant working capital changes comprising the overall changes noted in the table above include the following:

Accounts Receivable

– June accounts receivable are lower than March accounts receivable due to normal, seasonally lower delivered volumes. In 2008, the reduction is partially offset by approximately 10 percent higher gas prices at the end of the second quarter compared to the beginning of the quarter. The net collection of accounts receivable over the second quarter of 2008 contributed $13.9 million (2007 – $15.1 million) to cash from operations.

– June accounts receivable are lower than December accounts receivable due to the normal seasonally lower delivered volumes. In 2008 this reduction is significantly offset by approximately 55 percent higher gas prices reflected in June 2008 accounts receivable than in those at December 2007, and by a higher increase in the revenue deficiency accrual over the six month period in 2008 compared to 2007. The net collection of accounts receivable over the first half of 2008 contributed $11.3 million (2007 – $16.3 million) to cash from operations.

Inventory, Prepaid Expenses and Deferred Charges

– Inventory, prepaid expenses and deferred charges increased by $1.7 million for six months ended June 30, 2008, compared to $0.5 million in the same period in 2007. The majority of this increase is due to natural gas that has been purchased in advance of receipt.

Accounts Payable

– June accounts payable are lower than March accounts payable due to normal seasonally lower purchased volumes. In 2008, this reduction is partially offset by approximately 10 percent higher natural gas prices at the end of the second quarter compared to the beginning of the quarter. The net payment of accounts payable over the second quarter of 2008 reduced cash from operations by $8.3 million (2007 – $11.3 million).

– June accounts payable are lower than December accounts payable due to normal seasonally lower purchased volumes. In 2008 this reduction is significantly offset by approximately 55 percent higher natural gas prices reflected in June 2008 accounts payable balances than in those at December 2007. The net payment of accounts payable over the first half of 2008 reduced cash from operations by $16.9 million (2007 – $14.4 million).

Investing Activities

During the second quarter of 2008, cash used in investing activities was $4.0 million (2007 – $3.7 million). Of the total invested, $3.5 million (2007 – $2.9 million) related to additions of property, plant and equipment to support growth at AUI and Heritage Gas and system betterment balances at AUI, while the remaining $0.5 million (2007 – $0.8 million) was invested in regulatory and other assets.

For the six months ended June 30, 2008, cash used in investing activities was $10.6 million (2007 – $7.8 million). Of the total invested, $8.5 million (2007 – $6.9 million) related to additions of property, plant and equipment to support growth at AUI and Heritage Gas and system betterment balances at AUI, while the remaining $2.1 million (2007 – $0.9 million) was invested in regulatory and other assets.

Financing Activities

During the second quarter of 2008, Utility Group repaid $2.3 million of bank lines compared to a draw of $0.4 million in the second quarter of 2007.

During the first six months of 2008, Utility Group drew $7.5 million (2007 – $0.3 million) on bank lines to fund business growth. This increase in the draw from 2007 was a result of less cash generated from operations and an increase in cash used for investing activities in 2008. The dividend declared on April 16, 2008 and paid July 15, 2008 was $0.045 per share.

Capital Resources

Utility Group believes that its access to debt and equity markets, undrawn bank credit facilities and its funds generated from operations will provide it with sufficient capital resources and liquidity to fund existing operations and certain acquisition and expansion opportunities in 2008.

The use of debt or equity funding is based on Utility Group’s capital structure, which is determined by considering the norms and risks associated with each of its businesses and capital structures deemed by the AUC and the NSUARB. Utility Group targets a debt-to-total capitalization ratio of approximately 60 percent. Utility Group’s debt-to-total capitalization ratio as at June 30, 2008 was 60.3 percent (December 31, 2007 – 59.6 percent). In light of its continuing growth, Utility Group will be reviewing its target capital structure.

Utility Group funds its long and short-term borrowing requirements with credit facilities from a syndicate of Canadian chartered banks and from the Province of Nova Scotia.

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                                                    Drawn at       Drawn at
Credit Facilities                                    June 30,   December 31,
($ millions)                                            2008           2007
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Demand operating credit facility                         1.0            1.7
Revolving, term credit facility                        109.1          101.0
Loan from Province of Nova Scotia                        1.0            0.9
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                                                       111.1          103.6
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As at June 30, 2008 Utility Group had banking arrangements as follows:

– An extendible revolving credit facility with a syndicate of Canadian chartered banks for $130.0 million under which prime rate loans, U.S. bank rate loans, letters of credit, bankers’ acceptances or LIBOR loans may be drawn, repayable on November 17, 2010. The maturity date is extendible upon consent of each lender for further successive one-year periods. At June 30, 2008 bankers’ acceptances with short-term maturities of $109.1 million (December 31, 2007 – $101.0 million) were outstanding.

– A demand operating credit facility with a Canadian chartered bank for $10.0 million under which prime rate loans, U.S. bank rate loans, letters of credit, bankers’ acceptances and LIBOR loans may be drawn, repayable in full upon demand. Draws against this facility as of June 30, 2008 were $1.0 million (December 31, 2007 – $1.7 million), with letters of credit of $1.4 million (December 31, 2007 – $0.4 million) issued under the facility.

Utility Group has not been rated by any credit agencies, nor does Utility Group expect to be rated.

All of the borrowing facilities have financial tests and other covenants customary for these types of facilities, which must be met at each quarter-end. At June 30, 2008, as at each quarter end since the facilities were established, Utility Group was in compliance with these covenants.

VII. SHARE CAPITAL

Capital Stock and Stock Options

Utility Group had 8,189,905 common shares outstanding at June 30, 2008 (December 31, 2007 – 8,189,905 common shares). Utility Group has an employee stock option plan under which both employees and directors are eligible to receive grants. At June 30, 2008, 818,990 shares (December 31, 2007 – 818,990 shares) were reserved for issuance under the plan. To June 30, 2008 options granted under the plan had a term of 10 years to expiry and vested no longer than over a four-year period.

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Stock Options
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                                               August 8,  June 30, December
                                                   2008      2008  31, 2007
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Common shares                                 8,189,905 8,189,905 8,189,905
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Stock options outstanding                       446,500   432,750   473,500
Stock options exercisable                       155,250   160,125   157,625
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VIII. OFF-BALANCE-SHEET ARRANGEMENTS

Utility Group is not party to any contractual arrangement under which an unconsolidated entity may have any obligation under certain guarantee contracts, a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets. Utility Group has no obligation under derivative instruments, or a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Utility Group, or engages in leasing, hedging or research and development services with Utility Group.

IX. DISCLOSURE CONTROLS AND PROCEDURES

Utility Group maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Act (Ontario) is accumulated and communicated to management, including the President and Chief Executive Officer and the Chief Financial Officer or Controller, as appropriate, to allow timely decisions regarding required disclosure.

X. INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management of Utility Group is responsible for establishing and maintaining adequate internal controls over financial reporting. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be designed effectively can provide only reasonable assurance with respect to financial statement preparation and presentation.

Utility Group has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the design of internal controls over financial reporting.

As at June 30, 2008 management assessed the design of Utility Group’s internal control over financial reporting and concluded that internal control over financial reporting is suitably designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and that there were no material weaknesses in the design of Utility Group’s internal control over financial reporting that have been identified by management.

There have been no changes in the design of internal control over financial reporting during the quarter ended June 30, 2008 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

XI. TRANSACTIONS WITH RELATED PARTIES

For the quarter ended June 30, 2008 Utility Group purchased natural gas from AltaGas Income Trust (the Trust) for $16.0 million (2007 – $13.2 million). Utility Group also incurred $0.1 million (2007 – $0.1 million) for operating services and office space provided by the Trust. The Trust purchased transportation for $0.1 million (2007 – $0.1 million) and administrative, management and other services of $1 thousand from Utility Group (2007 – $44 thousand).

For the six months ended June 30, 2008 Utility Group purchased natural gas from the Trust for $58.2 million (2007 – $51.5 million). Utility Group also incurred $0.3 million (2007 – $0.2 million) for operating services and office space provided by the Trust. The Trust purchased transportation for $0.2 million (2007 – $0.2 million) and administrative, management and other services of $2 thousand from Utility Group (2007 – $88 thousand).

The Trust provided certain administrative and support services to Utility Group under an Administrative Service Agreement that expired December 31, 2007. The Trust was paid $30 thousand for the full year of 2007 for the services provided. Utility Group and the Trust intend to negotiate a new Administrative Services Agreement under which Utility Group will receive limited administrative and support services and office space at a cost of $0.2 million on an annualized basis until June 30, 2009.

XII. CRITICAL ACCOUNTING ESTIMATES

Since a determination of the value of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of Utility Group’s consolidated financial statements requires the use of estimates and assumptions which have been made using careful judgment by management. Management has discussed the development and selection of these critical accounting estimates with the Audit and Governance Committee of the Board of Directors, who have reviewed and approved Utility Group’s disclosure relating to critical accounting estimates in this MD&A.

Utility Group’s significant accounting policies are described in the Notes to the audited consolidated financial statements of Utility Group for the year ended December 31, 2007. With respect to estimates, the most critical of these policies are those related to rate regulation, determination of pension and other employee benefits, amortization and depreciation expense, goodwill impairment assessment and asset retirement obligations. Actual results may differ from these estimates.

XIII. FUTURE ACCOUNTING CHANGES Goodwill and Other Intangible Assets

Effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2008, the new CICA Handbook Section 3064 will replace Section 3062 – Goodwill and Other Intangible Assets and Section 3450 – Research and Development Costs. This section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets including internally generated intangible assets. This new section is effective for Utility Group beginning January 1, 2009.

Rate-Regulated Entities

The CICA issued a decision to remove the temporary exemption in Section 1100, GAAP, pertaining to the application of that Section to the recognition and measurement of assets and li

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