恩橋 (ENB) 2003 Q3 法說會逐字稿

All participants, thank you for your patience, your conference is ready to begin. Good afternoon, ladies and gentlemen. Welcome to the Enbridge, Inc. third quarter conference call. I would now like to turn the call over to Mr. Grun didn't.

We are here to discuss our nine months results are Pat Daniel CEO and COO. Also available for Q&A session are Scott Wilson Senior Vice-President and Controller and Lee for Financial Services. Our prepared remarks will take about 20 minutes, after which we will take questions. If I could make a quick request up front about Q&A protocol. We request that you perhaps begin with questions of a broader interest before we lose call participants. We will certainly take all of your questions as usual, and are readily available off line as well.

I also remind that you this conference may contain forward-looking statement which involves certain assumptions, risks and uncertainties that may cause actual results to differ from those implied by our many comments. Some of these risks include weather, commodity prices, true foot volumes, interest rates, regulatory parameters and other items. These risks are discussed more fully in our filings which are available publicly through cedar and Edgar. This call is live webcast and for those of you listening over the phone I encourage you to view the supporting slides which will accompany our remarks. With that I turn the call over to Patrick Daniel.

Thanks Colin and good afternoon everyone, thanks very much for joining us. Earlier today Enbridge reported another very strong quarter and this quarter really confirms our earning year guidance to you that this year was going to be back end loaded for us and it certainly has turned out to be that way.

As you know, we have got a high quality asset base and a very well-positioned asset base in Enbridge and it's increasingly diversified and as a as a result of that generates continuous long-term growth and we are pleased with the progress we have been and I to make. Our reported third quarter numbers were again very good totaling some $91 million in earnings, which support what should be another excellent year for the Company.

Earnings per share for the third quarter on the normalized basis, 52 cents, well ahead of the 38 cents that we posted last year. I am going to leave the financial analysis to Steve Wuori who is going to speak in a few moments but what I would like to now is address some of the notable events that happened during the quarter and provide a little bit of a strategic update to where we are going as an organization. Most of you I realize attended Enbridge day a few weeks ago so I am going to be brief in doing this so I don't think back over too much ground. As you know we focus on three businesses here, crude oil pipeline, gas distribution and gas transmission.

I'm going to go through each one of those starting with liquids transportation which is our largest business, the crude oil pipeline business and continues to look very good in both North America and abroad. It really looks good because we have strong energy supply demand fundamentals under pinning the capital investments we have made in crude oil pipelining.

We have attractive long life supply growth from the Alberta oil sands. Which is the only remaining growth oil basin on the continent and we are directly tied to that. We have steadily growing demand in U.S. primarily from transportation fuel requirements in the lower 48 and that is enhanced by security of supply issues and declining U.S. domestic production. So simply put, we see Enbridge as a customer service provider in locking and sharing in the value of bridging the supply and demand on the continent.

Following the completion of our oil sands market study, which really confirms the findings commission that independently by the Canadian association of petroleum producers, Enbridge has recently announced two new market access initiatives.

These initiatives are intended to protect producer net backs in that traditional high net back Chicago market. The first of those two announcements, the spear head pipeline, to Cushing and then to southern access pipeline to Wood River Illinois, both represent very cost effective transportation Paths.

And cost effectiveness is absolutely critical on these initiatives because the net backing is a mathematical gain for our customers. So, if we assume some sort of rolling and tolling agreement on this industry with these initiatives, we estimate the cost of these new market initiatives will be relatively small, be measured in nickels and dimes whereas the revenue preservation to industry will be measured in dollars per barrel. So very significant difference.

We have other new market initiatives underway as well which complement these two projects. Plus inventory of other previously identified liquids projects including filling the out basket feeder pipeline which continues to grow well, for us, developing cavern oil storage at Hardisty, building new oil feeders and pipelines altogether new markets like the Gateway initiative.

So we believe this business, crude oil pipeline business has lots of growth and we are going to prudently lever our strategic advantages to realize that goal over the coming months and years.

Our second platform, gas transmission is an emerging one for Enbridge. Again, addressing supply and demand fundamentals, we really spent a lot of time looking where the incremental gas infrastructure needs are or across the continent and there are a few projects that we are working on here that really rise to the surface in gas transmission. Probably the most obvious additional gas capacity is required out of the Rockies in the United States in Colorado and Wyoming areas and beacon pipeline project addresses this need head on, proposes a bullet Greenfield pipeline from the Cheyenne Wyoming hub straight through Chicago Illinois and this would have a capacity of BCF a day. This is in early stage and working with the industry and also with the State of Wyoming to garner support for the project in terms of volume commitments. We have an open be season now scheduled for January 2004.

Moving on, northern gas is another area of interest and we continue to believe that we have a longer term role in either the McKenzie liquids lines or Alaskan projects and we continue to make good progress on both of those. Enbridge is also looking at L and G projects as we discussed with you, which are all at preliminary stages. So of course I am going to leave it at that for now. But I will say that we are making progress.

We just completed an open season for a new one half BCF a day pipeline from east Texas, from east Texas gas fields to the Carthige hub and are now negotiating commercial contracts on this project which we labeled DD project and we are looking for late 2004 in-service date for that project.

We also believe the northeast U.S. states require additional gas supplies. And in that regard we think the Vector corridor is strategically valuable path to get into the U.S., northeast and that supports our recent purchase of additional 15% interest from Duke on the BedFord pipeline. The third business we are involved in of course is gas distribution and here weather and customer additions have been absolutely excellent in 2003 as we added another 60,000 utility customers which is, in fact, a new record for us in terms of customer adds.

So aside from these continuing strong fundamentals, we are working through a number of issues with the regulators and interveners there and quite simple I think our objective is to increase our return on this business and reduce the number of regulatory surprises that we have had over the years.

To those ends we are encouraged with recent interactions and discussions and what I would like to do is quickly review some of the outstanding initiatives that we have underway there. First as you know we are awaiting LAB's out-sourcing decision which should come in November. We remain optimistic that OEB will conclude the rate payers benefited meaningfully from out-source related cost savings and our operating and maintenance cost for this distribution totally already the lowest on the continent.

Secondly we now received the written 2004 rates decision which results in practical win/win's. We think we have the regulatory calendar back on fiscal schedule, which is be important to us. We both in need now for retroactive adjustment. Revenue requirement is increased by $13 million pretax which really limits 2004 rate payer increases to something less than inflation which is really what it averaged historically.

Also new sharing mechanism is introduced that requires any earnings in excess of allowed returns to be shared 50/50 with rate pairs. At this point that, anything above 9.69 and %. Now there is initial confusion around the precise nature of the sharing base. However the written decision as clarified that and preserved whether up side for Enbridge which is quite clearly equitable, again as we discussed with you before.

The third initiative is the beginning work on 2005 year rate case, which we intend to file another full cost to service application in December. And directionally we still intend to move toward a multi-year arrangement longer term. But in the interim we will be filing 2005 full cost of service.

Moving on and if I could just to speak briefly about acquisition opportunities, our core businesses and organic opportunities have already summed up for you. And I know you realize that we are less reliant on acquisition growth than others but we are still very interested in select asset acquisitions in the areas of our three core businesses and we are better positioned than ever before in what is a very capital intensive industry now that we have both Enbridge energy partners and Enbridge Income Fund with their financial readiness and are very competitive cost of capital.

So our so-called multi-tool strategy is to pursue mature assets with those vehicles in their respective countries, while Enbridge, Inc. will pursue organic growth and larger packages primarily in North America. That is a strategic update as to where we are. We are growing again in each of our core businesses with profitable measured steps and working closely with our customers on all fronts.

With that I turn it over to Steve Rory for comment on the other things.

Thanks Pat, by now some of you have already participated in the Enbridge energy call and the Enbridge income call, which together contribute to about 13% of Enbridge's earnings.

I will now cover the Enbridge quarter results including how these issuers role up and then I'll update you on 2003 full year. As Pat mentioned the quarter was again strong as predicted and also extremely clean from accounting perspective and we are pleased to report that. In looking at some of the highlights starting first with the liquids pipelines business. The Enbridge pipeline was in line with expectations for the quarter just above $40 million up over the prior year, mostly from the addition of the terrace three capacity which was placed into service April 1st. While the terrace capacity is not yet utilized Enbridge is essentially 2-foot guaranteed as the capacity is under written by industry.

In terms of update on actual volumes, deliveries on the main lane in Q3 averaged 1.6 million barrels per day and that includes the effect of the August power black out in the great lakes which caused pipelines downstream of Superior, Wisconsin to be down for about a day. Some regional refineries on our system were down for longer and that caused inventories to grow temporarily. These inventories are drawing down this quarter and expected Q4 deliveries will increase 1.8 barrels per day. That direction is consistent where the delivery guidance noted at the partnership, I believe 1.45 million barrels, noting the deliveries are lower at the partnership given upstream delivery points.

Enbridge U.S. is expected, Alliance U.S. contributed a $5 million increase over the prior quarter, due to the April 1st effective acquisition of the Duke interest. The year-over-year improvement is larger yet at $14 million, given the acquisitions in Williams and El Paso which closed late last year. We should get another small earnings boost in Q4 with the closing of the final 1.1% piece of Alliance U.S. relating to the Duke interest.

And of course the Canadian portion of Alliance was sold into the income fund on June 30th. Enbridge did retain 72% economic interest in the fund for which we have reported seven and a half million dollars of earnings in the quarter and I think that that is a good run rate. But as it's new, let's spend a minute son how we account for it. As briefly introduced at Enbridge day, we cost account for the 38 million preferred units of the fund which generates Enbridge earnings equal to the fund cash distribution. So that is fairly straight forward. In contrast, we account for the 14.5 million subordinated units using the equity method and our equity earnings are affected by depreciation at the fund level which reflects normal equity accounting.

What is unique I think is at Enbridge day at the Enbridge case is we carry subordinated units at null or a fully depreciated book value and therefore under GAAP rules we are deferring income above $2 million a quarter by setting up the receipt of cash in excess of equity earnings, as a notional liability but will be cleared through future gains as our interest in the fund is diluted through equity issuances. All of this is going to result in a lumpy recognition of the deferred income, although the receipt of cash will be consistent. You are be wondering why I am going on and on about this. The reason is we want to be sure that this income does not get normalized out with delusion gain which is what would trigger its recommendation and typically delusion gains are normalizing item for Enbridge. So enough said.

In terms of gas distribution, as Pat mentioned, the gas distribution segment was favorably impacted by colder weather, including small effect in spring quarter which we are reporting today. Removing the effects of weather, performance was $12 million better than last years quarter and improvement is real and results primarily from the timing of two items. The first is O and M expenditures which as you recall were higher in the first half of the year and we've made back some ground with the passing of cold weather and other litigation efforts in the utility. Other piece of improvement relates to timing of the annual rates settlements. Last year we recorded $6 million after tax settlement fully in the fourth quarter as we received it. But this year we settled rates earlier and had prospect actively recognized the $23 million after tax settlement on a volume's basis. So you recall that in Q2 we recognized $18 million, was about $4 million in Q3 and another $1 million to come in Q4 which should round out the $23 million settlement figure.

Our stable performance is still a challenge with a loss of $8.2 million to date. We see our sable performance improving next year. Gas prices have softened and remain fairly soft. In response to the recent build up of storage inventories and we note that we are now in North America over the 3TCF mark which is a very healthy storage level. But weather will be the wild card as always at acsable in respect to gas prices and to mitigate this risk we will continue to opportunistically hedge in forward gas costs and net sales now that we have joint control of the plant. In doing so we may forego up side but we feel it's prudent to protect the down side at up sable.

Moving to international the two investments in the portfolio continue to post steady results. Segments earnings are up a million and a half over last year. CLH is proving to be a good second investment driven by steady true put and storage fundamentals in a captive market. For example the clear volume or diesel deliveries now total 700,000 barrels per day and up 6.2% on the year-to-date. Enbridge equity pick up is further bettered from strength in the euro and we have now partially locked in the cash flows from CLH favorably. Terms of other note worthy points we have as we mentioned on the last call I think optical changes in the balance sheet and cash flow statement year-over-year due to a portion of consolidation reliance US as required by Canadian GAAP. We broken out the quarter separately in a financial statement note. Most notably this treatment adds two percentage be points of debt to our balance sheet but the rating agencies have historically taken this into account in their rating natural analysis and the debt is of course non-recourse. We will also begin to proportionally consolidate Vector in Q4 given the October 1st closing of the additional acquisition and we'll use the same joint control criteria as we did with alliance consistent with the closing of that interest and we now have a total of 60% of Vector.

So that's a look at the quarter. I should note that we have now completed 2002 annual supplementary segmented information and it is available on the website under financial analysis category.

In terms of full year outlook given earnings per date and expectations for the fourth quarter we are expecting full year EPS in the lower half of the previously provided 280 to 290 range and to be clear, this range exclude weather benefits and unusual gains. As I think we mentioned, at Enbridge day we will not be providing 2004 guidance today as we are not sufficiently through our 2004 budgeting process. I think we will provide guidance with our year end results release in January or possibly sooner if we have another reason to hold a conference call. So I think that's all I have and with that, Pat, it's back over to you.

Great. Thanks, Steve. In summary I just reiterate what I said at the outset and I think what Steve demonstrated in his walk through the quarterly financials. Our quality base really generated another very good earnings quarter at Enbridge and we feel of course it's going to generate many more. We are not complacent about that though and I think that should be pretty obvious to you by the inventory of projects that we have under development and we probably never have a better list of opportunities. Working very closely with our customers and we are well out ahead of our competitors or at least we feel we are. We are identifying continental constraints which are important in this business and proposing sensible delivery solutions which I think should further enhance our competitive position and support our growth we have had over the years in this organization. So that concludes our remarks and with that, we will now take questions, Lisa.

Thank you. We now take questions from the telephone line. If you have a question, please press star one on your telephone key pad and you will be placed in our priority sequence queue. If you are using a speaker phone please lift the hand set and press star 1if you wish to cancel your question please press the pound key. Please press star one at this time if you have a question. There will be a brief pause while the participants register their questions. First question from Maureen Howe from RBC capital markets. You may proceed

Thanks very much. Just have a few questions. And I am not sure Colin, did you want us to ask one question take time? Was that the essence of your earlier remarks?

Yeah keep the follow ups on me

My first question would be then, related to the operating costs at the gas distribution, there was a large drop this quarter and, Steve, I guess you didn't mention it in your comments but I am not sure I really understand it because we are sort of running I guess parallel with the 2003 operating costs for the first six months and then this quarter operating costs are -- let's see, operating and administrative costs dropped about $27 million. And in just in that segment. I am wondering if you can just help me understand what led to that material decline in this quarter.

I think as I mentioned, Maureen, in the first half of the year, and you recall in Q1 we are reported a fairly high dynamic expenses at the utility. And as we have now seen the passing of cold weather, which is linked to operating costs, there is no question that the colder the weather is, the more you can expect to see in op cost all over factors being equal. So, with the passing of the cold weather and Frankly a relentless focus on operating cost in the utility, we have seen that number come down substantially.

So, when you see a passing of the cold weather I don't know what you mean by that. Do you mean as we move into a warmer quarter because I am comparing this to 2002 I guess

Yeah

So year-over-year we have seen I'm sorry $27 million decline.?

Yeah I think Maureen, if I could maybe just add a couple of things to that. On the margin, quarter all is no longer in that number this year and we have had some rebundling of ECS back into utility. So I think you take those three in combination it's fairly straight forward

Okay. All right. I will get back in the queue, thanks.

Thank you following question from Sam Kanes from Scotia Capital you may proceed.

Just a mechanical question. I will get back to queue on Vector. If I read it right the adjustment made from depreciable life from 20 to 25 years I would have thought would be a gain not a loss within the three month ending 03 unless I am reading it upside-down

Sam, Colin here, I think that adjustment happened in 02.

Oa, excuse me. So that is a comp then. So what was the math within that. Was it $1 million

$1 million and a half as I recall

Effectively Apples to Apples, one, one for Q3.

I think so.

Thanks.I guess I'll play by the rules and get back in the queue.

Thank you. Following question from Karen Taylor from BMO Nestig Burns necessary burns you may proceed

Thank you. I was be wondering if you could reconcile for me the contribution from Enbridge energy partners. It seems a bit low versus what eep has already reported. Is there any other sort of (inaudible) deductions between what eep has announced here to date in terms of net income to the general partner, incentive distributions and cash distributions. . Can you just clarify for me how that all is working? It looks a little bit light year to date?

Can you clarify that Karen? What do you mean light year-to-date? What are you looking at specifically? And you are comparing the EEP results to what feeds up to Enbridge?

Uh-huh. Well, I am looking at, based on what Enbridge energy partners reported. Nine months year-to-date, net income to the general partner which I believe $1.6 million U.S. and incentive distributions which total $12.7 million I guess perhaps its whether and how you are accounting for the cash distributions on Class A shares and EEQ shares which you earn which appear to total another 15 and a quarter U.S. Maybe you can clarify for me what the effect of tax rate is on all of those as you bring them up and any special accounting on the cash distribution?

I think we need to get back to you off line with that Karen. Those are some things that we will just have to pull together for you.

Okay. Thank you.

Thank you. The following question is from Matthew Akman from CICB world markets. You may proceed

: Thanks. Following on that distribution, can you guys tell us yet what the weather normalized achieved are we at old consumers GAAP is going to be 2003 and I guess what the process for making any adjustments based on that going in rates for 04?

Matthew its Scott Wilson. I believe the weather unnormalized are EGD for the year is in the range of 13.5 but on a normalized basis we are right in the allowed range of OEB rate of 969 and maybe just a little bit higher that be than that

: Other part of my question, what is the process now for adjusting are for going inrates for 2004? Is there no, no adjustments for rates because normalized year after you are up to 969 any way?

Yeah that's correct

Okay. Thanks.

Thank you. The next question is from Andrew Kusky from UBS. You may proceed

Thank you. Good afternoon. Pat you mentioned about filing in December for your 2005 cost of service regime for gas distribution. If we took a little step back and think about the incentive tolling agreement and the renewal of that looking toward the end of next year how do you see the timeline unfolding for real negotiations on the incentive tolling agreement?

Okay. We have already started the renegotiation with , with the crude oil people at cap, Andrew, and very difficult to tell the time frame that that is going to follow because we have well over a dozen projects in front of cap including these new initiatives to move crude further south in U.S. We realizes we have their table fairly full in terms of timing on renegotiation but we would hope to have a an agreement with cap on any new terms on ITA by, you know, mid-year to third quarter next year so that, you know, we have got it in place well in advance at the end of the year.

If I may follow up. Any real highlights that you will be focussing on?

The main thing that we are focusing on right now, and I won't go into a lot of detail because it really is subject to negotiation. But we are looking at some way of establishing some metrics in addition to cost. So, you know, if the producers want us to hit certain batch quality metrics or delivery time metrics, we will figure out how we are going to establish those and then look at working them in to some kind of incentive mechanism. So, for example, we may -- our return may be rat cheted up or down depending on our ability to meet batch quality speculations or other specs. That's our intent. We are sure we won't go away from the cost incentives, neither we nor the producers wanted to that. But we would hope to put other metrics in there to make it a broader agreement.

So sulphur standard and then the like

That is exactly the kind of thing that we are talking about, yes

That's great thank you

Following question from Linda Ezergailis from TT Newcrest, you may proceed

Thank you, quick question with respect to your liquids pipeline and transportation seg. Wondering how any sort of recontracting is going on in fron tier pipeline and I guess the Toledo system costs are a bit higher. So I am wondering what a run rate for that line item might be. If earlier in the year you are a little more hopeful that you would be able to recontract the front tier pipelineful

We don't have anything new to report on the front tier. Volume are a little bit lower than the prior quarter. Toledo, likewise, and also the Toledo costs were increased a little bit by a small leak and also some rent lease payments. We do lease a portion of that pipeline with that pipe system. I think in terms of a run rate, maybe, if you don't minds lumping all of the feeders together

Yeah

About $5 million is the right figure to use

Okay. Thank you. And just with respect to M and A activity, obviously you are very inquisitive still. I am wondering what you are seeing in terms of volume and prices and relative attractivenessvarious regions.

I wouldn't say we are very inquisitive. We continue to look at opportunities wherever we can, particularly these volt TONS to existing assets. But from the year ago, we are not seeing as many assets available. Many of the major players in the U.S. have gone through significant dispositions. We never found the prices really to our liking and hence, we stayed away. We haven't seen a dramatic shift in that pricing.

We have made sure that we have got ourselves aligned with the right people and the right tools in our toolbox now with the income fund and eep to be able to look at and evaluate everything that comes available. But there aren't a lot of assets on the market and up enough to offer us some prospect for additional acquisition growth but not a whole lot of assets on the market.

Any update on the European front or abroad?

No. We continue to look at opportunities as we have discussed before. Nothing new on just -- I am racking my brain here. But we continue to have discussions in Europe and also other locations in the world, that adding a third international project but there is nothing perspective or imminent there

Great thank you

Thank you. Following question is from Zahere Kahn from Becker Associates. You may proceed

High good afternoon everybody. I may have missed some of the presentation earlier. But with respect to the progress in the credit protection environment, I think you have done a good job be given the circumstances, you still carry that negative rating from one of the agencies outlook. I should say. Have you foreseen or talked to them regarding that negative outlook and what are the prospects that if you go ahead with some of the projects which you have outlined, that that particular current rating would be retained?

I think I will let Steve Wuori respond to that because we have had discussion with the rating agencies.

Yeah just to remind everyone standard and Poors have Enbridge A low with a negative outlook and has since December of 2001. Moody's has us at a stable and Dominion bond rating service of Canada has us at A mid with a stable outlook We have had on going discussions and I think a constructive dialogue with S and P about the negative outlook. I certainly will not attempt to speak for them in respect to their own decision making process and committee structure and so on but I think that we continue to feel that we have done the things that are necessary to remove the negative outlook. We continue to have that discussion and dialogue with them and I would offer up any prognostication on when that would be removed because it's really not appropriate. It's really their process. So -- but the discussions go on and I think that they have been in a very constructive tone

Right. You have particularly communicated to them regarding your projects, whatever you are foreseeing, any commissions going forward? Because I think that is maybe one reason that they continue to have the so called negative outlook there, you know

We tend to be very transparent with the rating agencies when we meet with them and try to give them certainly all of the information that is available publicly and also, as per the way this is done, a look into the things that we are thinking about -- about doing. So that is included in -- in the visits that we have. Sometimes in record regard to specific projects and other times just in regard to things that we are -- that we are contemplating.

If I could just add to that is that, as you know from having followed the Company, we are a very, very disciplined Company when it comes to acquisitions. And even though we do indicate and continue to indicate that acquisitions will play a role in this Company, as they historically have, going back over the years for us, but we are so disciplined that we are looking at deals that will be accretive and obviously will be adding shareholder value, that will not throw that balance sheet out of whack and we have reassured S and P and Moody's of that. And we certainly hope that they are not feeling that we are going to out and do something untoward there because that certainly isn't the way in which we operate here

Thanks of so much. I appreciate that. And best of luck

Thank you. The following question is in Maureen Howe from IBC marketing capital. You may proceed

Thanks very much. Just in terms of your guidance that you are giving, when I look at your year-to-date number on a normalized basis and I put some sort of estimate in for the fourth quarter -- for instance if I say well, in Q4 you basically earned what you earned last Q4, I end up coming up with something closer to 290 for the year and I would expect Q4, in fact, to improve significantly year-over-year. So, is there something that I am missing here that issued I should be expecting in Q4 that is going to bring down your normalized number from continuing off?

I think when you look for Q4, 02 there as couple of factors that really affected it. One was that we booked all of the rate settlement for the year in Q4. So that did pump up Q4, 02, to some degree. Other than thing is Q4, 02, auction sable actually made money. Those two factors kind of propped up the 02 fourth quarter which I think was around 24 cents. So we see all of that on that basis -- and if you realize that Q4, 03, as I mentioned earlier, will only have $1 million in rate settlement recognized, we think that that's a -- it's a reasonable comparison between the two years. And I don't think I can get up close to 290 by adding Q4, 02, to the 261.

I guess a have a normalized number for last year of 28 cents which that must be the difference.

That yeah that would be the difference

So I made other normalizing adjustments to the quarter. So, then, just to clarify in terms of areas in Q4 that might be lower than last year, you would look to gas distribution and Ac sable

Ac sable, year-over-year, yes. Gas distribution, I think possibly but not strongly so.

But because of the rate settlement book booked in Q4

That's right having looked President the fact booked Q4 that's right

Following question from Sam Kanes of Scotia Capital..

I would like to follow up on oc sable for a minute. We heard them talking about margins for today or this month tripling for MCF as relates for add value on liquid extremes. Obviously in a different market in U.S. Gulf in Chicago. Basically what you just said, Steve, I presume then you must have locked in either ethylene or pro pain butane or a mixture of those three because at the moment sparkpreg the fraction wide notes substantially. How much sensitivity or play is there in ocsable with your current ownership position in terms of upside or downside, vis-à-vis what you have already hedged?

I think as I mentioned we are not exactly really looking for a lot of up side, more protection of a downside. I will say though that as far as that saying production, first of all you have to stay fairly short if you hedge forward ETHANE sales and we are watching very closely to see where the spreads are going to head, to preserve a certain amount of upside. And I think basically it is a relentless focus on the situation day by day and doing the appropriate hedges both for fuel gas for the plant, for make-up gas purchases, which we are out at least a number of months on, and with a most of the percentage of the plant's gas needs being hedged on the supply side and staying pretty short on the ETHANE output side. So I feel pretty good about where we are right now, especially as the picture seems to be improving to some degree, certainly on the gas cost side. So I think that is part of what we are now able to do that we never could before, and that is to very actively watch the ocsable performance and particularly in the markets and react to it. So we are very much actively managing them.

What is your current run rate in barrels per day and what amount of those barrels are hedged?

Well it's...

What exactly run rate, 65,000 or so...

It really depends, Sam, on how deep a cut you take in the stream

Are you taking a full cut right now or not? [inaudible]

Yeah, yeah, I don't think we have got the liquid volumes with us here, Sam. Can we get back to you on that one?

Sure. Hot topic in U.S. Gulf.

Sure.

Thank you. Please do not hesitate to press star one or any comments. The following question is from Karen Taylor from BMO Nestig Burnes, you may Proceed.

Thank you I have a quick follow up to Matthew's question on ROE. One of the prevent development in the press release it confused me a little bit which happens every few minutes. It says -- I understood that the 969 was not going to be subject for the formula for '04 and the wording under the recent development section suggested otherwise. Am I reading that incorrectly?

The one yearly settlement for 2004 was supposed to be a rate cap with -- as far as I understood, no rebasing of the 969. So, if they reset the formula in early December with a lower ROE for 04, will you or will you not be affected by that?

It's possible that we could be, Karen.

It's possible. So -- you don't know?

Yeah. Well we are-- I guess we are not really wanting to second guess what may happen in terms of the OEB's action and how the decisions characterized but there could be an ROE effect.

Well I don't mean to push you on this, but how can you not know? Is the decision so poorly worded that there is leeway? A question of interpretation? Have you not gone back to seek clarification from the boards. I mean it's a fairly material thing given the expectation that rates will come down.

I think Karen if I could just supplements that. I think basically that decision was written with uncertainty as to how this concurrent issue will be resolved and there is leeway to incorporate it, and is our read of the written decision.

So, if in a lower ROE is a reset, do I run out and take the estimate down?

If that's what decided with the hearing I guess that's --

Well you are saying that there is interpretation leeway. So I am just asking based -- when you sought clarification ever the board on asymmetrical treatment of weather gains and the sharing. Do you intending to back and find or obtain clarification on this particular point?

I don't I don't think at this point we do, Karen. I think if an ROE related decisions to come out, we will see how that reads. And I don't think we are going to try to guess at this point exactly how -- how that decision may -- may come out.

So, you don't necessarily expect the board then to the calculation for '04. Is that what you are implying?

What do you mean by do the calculation?

For instance, national energy board fairly mechanically at the beginning of each December does the calculation and that is the ROE that applies. We have seen with the OEB the timing of the calculation, the reference bond yield tends to move around a little bit, so, is it's possible that they don't even do the calculation for '04, or are you saying that they are going to it and it may or may not apply?

Well that again, I just don't know how we can guess as to how that can happen. A, we don't know that there will be any change in ROE. And secondly, I really don't know that we can know exactly how any change that might be contemplated would be applied.

Okay.

It's all in play. That's all part of the hearing. So we can't prejudge it at this point.

Just one follow up. What was the throughput versus the deliveries on the Canadian system?

The through put on the crude oil system?

Yes.

Well let us look that up for you.

Because the Enbridge energy sight, EEP talks about through put rather and it's certainly not anywhere close to 1.6 or 1.8 million barrels a day.

Yeah through put is of course smaller than deliveries

Right

We are showing 1.6 million barrels a day just over Q3, 03 03 Enbridge system.

It's probably in the 1.4 range. We will nail that down.

Yeah, it's very hard to compare because throughput is measured past certain delivery points that are different with each of the pipelines out in western Canada so that is a number that has only a very loose correlation to deliveries where, for example, crude could get on in the EEP system in Clearbrook Minnesota and go a hundred miles and get off in Superior, Wisconsin.

So and I don't know that we have right here the through put pass capacity points. We will get back to you on that, Karen

Okay

Thank you. The following question from Matthew Akman from CICB World Markets. You may proceed

Thanks. I want to just see if there is any updates on spearhead and approval there. We already talked about the main line in investor day, you guys talked about $14 million in contribution from Spearhead in 2005 but I guess that is subject to tolling negotiations, discussions with

shippers. Any updates there on progress there or potential timing?

Matthew, the only thing I can say there is that it is under review by CAP. I have been out with Richard Bird and have met now with our top 10 or 12 major shippers only the pipeline to review the project with them. We also held what we referred to as CEO breakfast here where we briefed the industry on both the Spearhead initiative and southern access and receive feedback and generally speaking we are encouraged. We haven't had any major negative view. In fact, very strong support in general terms from producers and realization that they are going to have a net back problem in the 05, 06, 07 time frame in Chicago if they don't open those markets up. And we have presented and have not heard any dissenting word from them.

The fact that they will suffer about a four-dollar a barrel impact on light suite crude and about as much as eight-dollar impact in heavy crude in '06, '07 time frame if they haven't expanded that market. And hence the added nickel on Spearhead on tolls seems like a relatively small number to them. So I don't want to prejudge because it is still in their hands but we are happy with the feedback we have received.

Just to follow up on that would you have something to say on Spearhead maybe before southern access or is it just both together or could you just talk about that?

Yeah we would expect to have something on Spearhead first because it is the smaller project and it is late 005 implementation or early 05 implementation. So we don't need quite as quick a decision

Thank you. Our next question is from Linda Ezergailis from TT Newcrest. You may proceed

Very quick question with respect to foreign exchange. You mentioned on Enbridge day some sensitivities and the fact that you hedged foreign exchange economically but not necessarily on an accounting basis. Does that mean that any sort of foreign exchange impact is -- is in the individual line items, IE, from transportation sales and international and nothing is going on in the corporate line?

Well I think over all, as we have looked at the weakening U.S. dollar versus the strengthening euro we have something like 2.5 cents impact on the bottom line from those two things combined. It's a very minor impact and that is an earnings impact and of course just -- as I am not accountant, just to get my gripes in about GAAP, that is another thing that has caused us to have to recognize that, that drag, up 2.5 cents in the earnings that you see, even though we have economically hedged in both cases largely. So but it is a pretty small number for us when compared to the over all size ever things.

That 2.5 cents is year do date. So we can assume that depending on what foreign exchange does in the fourth quarter there would be not similar impact

Yeah 2.5 cents would be impact. Right

Just to confirm you are right in your assessment that impact is seen in each line item and not in corporate

So in terms of a run rate for corporate, then I sense some seasonality but Q4, I guess I am seeing on a seasonality adjusted basis, just come up not much different than Q4 last year. I am still trying to drill down to one of Maureen's earlier comments with respect to full year guidance. My fourth quarter estimates don't necessarily suggest anything different than they would have before this quarter. So --

Yeah. It moves around to some degree. It's not linear for sure and I think you can look at Q1 and Q2 this year. I think third quarter is up a little bit but in line with Q3 of last year. So I think we have had quarters similar to 15 to 20 range and up.

Okay. I will keep looking, thank you.

Next question from Maureen Howe from IBC capital markets. You may proceed

Thanks very much. I wanted to get clarification on a couple of things. With respect to transportation minority you make the comment that there is some improvement in the quarter due to I timing ever operating and maintenance expenses and I am wondering if I can get a little clarification on that and if there is going to be any impact and sort of the magnitude of that impact being Q4.

I think it's going to be pretty small. The OEM expenses move around a little bit but we don't think there will be a very large impact

In moving around I mean is it millions or less?

Probably about one. Around $1 million.

Okay. Okay. With respect to international, we saw a good performance out of CLH and again attributed to hire volumes and also in improvement in the euro. Can you give us some sense and I think you did touch on this in your comments but just how much the improvement was due to each of those factors.

Yeah, I can Maureen. Scott Wilson. The improvement in the euro added about two and a half million dollars in the nine month to date

After tax?

That's correct

Okay.

And the balance is coming from about a 5% increase in volumes relative to what had been projected for the year

Okay. And that 5% increase in volumes translates into how much in dollars?

Just bear with me for a moment here. It would be about $5 million

Again, after tax?

Scott Wilson Right.

Okay. Again just one last question on CLH, you do talk about the reduction in marine fleet revenue due to retirement of some ships. Can you help me understand that? Does CLH own these ships? CLH, that's the owner and therefore the shipper?

yes, that's right Maureen.

Maureen they did service out of the New York eye lands. They are not import or export

They are not an over the seas vessel, if you you will. They are just sort of a shuttle service.

Okay. And the retirement, again is that a fairly small impact on the quarter?

Yeah it's very small.

Yeah

Great thank you

Thank you following question is from Karen Taylor from BMO Nestig Burns, you may proceed

Have I a quick question on the performance of the system during the power outage. We heard from the Enbridge energy partners at least for EEP there were higher oil losses and hire oil degradation because of the outage. I am assuming because you didn't talk about it if there were effects in the main line that they were the diminimus, is that correct

That's right, as we look at it on a consolidated basis

I am going to ask and I am not sure you answered this already but on AUX sable was it neutral on a cash basis in the summer

No, it was on a cash basis. On our earnings it's about negative one to $2 million.

On a cash basis

But I would expect it's pretty close, Yep

Terrific. Thank you

Thank you. There are no further questions registered at this time.

All right. Thanks for joining us everyone and we will be around to follow up if there are any. Thank you.

Thank you Mr. Grun ding. At this time we would like to thank all participants for joining us today. The conference has come to an end. Thank you for using bell conference solutions and have a nice day.--- 0