恩橋 (ENB) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Enbridge Inc. conference call. I would now like to turn the meeting over to Mr. Colin Gruending. You may now proceed, Mr. Gruending.

Thanks, operator. Good afternoon, everyone. Welcome to the call. With me today to discuss our fourth quarter and 2003 year end results are Pat Daniel, president and CEO; Steve Wuori, group VP and CFO; and also available for our Q&A session, following our remarks, is Scott Wilson, SVP and controller.

Our formal remarks take about 20 minutes, and we’ll take questions afterwards. I’d like to remind you that this conference may contain forward-looking information which involves certain assumptions, risks and uncertainties that may cause actual results to differ from those implied by our comments. Some of these risks include weather, commodity prices, throughput volumes, interest rates, regulatory parameters and other items. These risks are discussed more fully in our filings, which are available publicly through CDAR and Edgar, and our full financial year end statements and NDA will be filed in February, concurrently with our annual report mailing to shareholders.

This call is being live webcasted, and for those of you listening over the phone I would encourage you to review our supporting slides, which will accompany our remarks. The slides are available on the Enbridge investor page and the webcast page. I’ll now turn it over to Pat Daniel.

Thanks, Colin. Good afternoon, everyone, and thank you for joining us. Earlier today, as you know, Enbridge reported year end results for 2003, which as we expected, completed another year of very solid earnings growth, and in fact another record year totaling some $667m in reported earnings, or $4.03 per share.

For the year, excluding unusual items – which were mostly gains, by the way – we posted normalized earnings of $471m, or $2.84 per share, which is squarely in the middle of our guidance range, which we set last year at this time. The fourth quarter numbers were in line with expectations. The $2.84 per share in 2003 compares very favorably with 2002 normalized earnings of $2.67 per share, and that’s about a 6.4 percent increase over the year. Steve Wuori is going to elaborate more on the financial performance in a few moments, but what I would like to do first is review our 2003 progress against our strategic priorities, highlight some real key events for us during the year, and also for us in the last quarter, and then summarize some of our priorities for 2004.

Enbridge delivered on its promises in 2003, and not only in terms of EPS growth. One year ago on this call you may recall that we established five key strategic priorities for 2003 to position us for the next decade. We made very significant progress on each one of those priorities throughout the year, and I would like to just step through them.

First of all with respect to our largest business, liquids pipelining, we set out to strengthen our system further and to begin to extend it deeper into the U.S. in order to expand the market for growing Canadian crude oil supplies. And we’ve certainly begun to lay the groundwork to permanently change the North American crude oil delivery landscape, I think you’ll all agree. We placed our [Terris] Phase 3 expansion into service ahead of schedule and under budget. We completed the Hardisty Cavern Storage Facility, which is Canada’s first underground oil storage facility. We also experienced good throughput volume growth in the crude oil system, and in the fourth quarter, mainline throughput was 1.5mbpd or at about 80 percent to 85 percent of system capacity, ex-Western Canada. This is about 105,000 bpd more than the fourth quarter of 2002.

We also completed our oil sands market study, and launched a market access action plan, and you are familiar with some of the details of that plan. We began executing that plan by acquiring the Fishing to Chicago line, and we now await industry approval to reverse that and we will rename it the Spearhead Pipeline.

We also proposed the Gateway and Southern Access new build projects, and we await industry’s approval to proceed with those projects as well. And then late in the fourth quarter, we announced the acquisition of the Shell mid-continent assets, through Enbridge Energy Partners, including some key storage and delivery systems at Cushing which will complement the Spearhead pipeline.

So in short I think it’s fair to say that Enbridge is strengthening its already very strong position between supply fundamentals from Western Canada and steadily growing demand in the most attractive U.S. and Eastern Canadian refining markets. So that was priority number one for 2003.

Our second 2003 priority was to build on our emerging presence in gas transmission. This is a business that we really entered only five years ago. We acquired additional interests in Alliance and Vector in 2003, raising our interest to 50 percent and 60 percent respectively in those two pipelines. Concurrently, as you know, we are more actively risk managing the [Ox Sable] plant performance now, and expect it is going to lead to improved financial performance going forward.

We began some preliminary work on the Beacon proposal, and we believe that Beacon is a very promising proposal, but it may take longer than we initially thought to secure the upstream commitments that we’re going to need on that project. So as a result of that, we’ve postponed the January open season that we had planned, as additional time is going to be required now to develop the commercial aspects of that project.

We also began looking at LNG in a much more serious way in 2003, and we have a couple of good potential projects in the works with some upstream partners. So I am very pleased with the progress in this gas transmission business, and I am very comfortable that we are growing the segment very appropriately.

Our third priority was to forge a more constructive regulatory relationship to improve the regulatory outcomes at Enbridge gas distribution. We really have made progress in this regard. For example, we settled in our 2004 rates quickly, innovatively and practically with the OEB’s decision received prior to the start of Enbridge gas distribution’s fiscal year, and that timing was very important to us.

We settled the bulk of the affiliate outsourcing issues, and have now also received the ROE methodology decision from the OEB. We also addressed the deferred tax regulatory receivable with a partial settlement there, and we filed our 2005 year rate case in December, which is another full cost of service application.

Directionally, with regard to gas distribution, we still want to better our return on this business and are exploring a number of alternatives to set rates, including the possibility of a multi-year incentive arrangement. As I’ve noted before, this gas utility franchise is one of the finest in North America, with outstanding customer growth, potential cold weather upside, and I could probably remove the word potential with the kind of weather that you’re having in the East and that we’re having in the West today. And also, industry leading, low cost structures as well.

Our fourth priority on the year was to optimize the position of our sponsored trust vehicles in both the U.S. and Canada, and we’ve made excellent progress with the very successful launch of the Enbridge Income Fund, which is a premiere Canadian income fund already. We’ve also grown Enbridge Energy Partners into a seasoned, large cap MLP with geographic and commodity diversity now. Both are self-financing vehicles with proven low-cost market access. The initial asset seeding phase from Enbridge is now complete, and each entity will be active in enhancing their existing asset bases and acquiring mature, third party assets, as Enbridge Energy Partners demonstrated this last quarter with a couple of acquisitions. Enbridge will benefit from management incentives from both of these sponsored vehicles, and overall the capital efficiency of those sponsored vehicles will help us significantly.

Our fifth priority was to restore our financial flexibility. And, among other things, we were out to protect our A credit rating in 2003. We operate, as you know, in a very capital intensive industry, and require access to capital markets on very favorable terms. We feel that this is a hallmark Enbridge competitive advantage, this A rating that is worth preserving. And as you know, S&P finally removed their negative outlook in December, after having re-satisfied themselves with our differentiated business model, and also with the very measured growth plans that we have in the company. So we now hold stable A ratings from all three rating agencies, and we’ve actually outperformed our leverage reduction targets of about 60 percent adjusted and now have some capital structure flexibility as we sit at about 56 percent to 57 percent adjusted debt to book capitalization, so we are very pleased with the progress there.

So that’s a very quick 2003 report card review, and given our strategy at Enbridge, it won’t surprise you at all that we want to really extend those same five priorities for 2004. We’ve reviewed these in some detail at Enbridge day in the fall, and we will be talking further to you about that as we go along. So I’ll stop there for now, hand it over to Steve Wuori to talk about the numbers for the year.

Thanks, Pat. Good afternoon, everyone. I will first cover Enbridge’s quarterly results, and then discuss 2004 guidance and our financing plans. The fourth quarter came in as expected and it rounds out another strong year. As Pat mentioned, Enbridge earned $667m for the full year 2003, or $4.03 per share, and recurring earnings were firmly up 6.4 percent from 2002 at $2.84 per share. In coming to that $2.84 figure we have removed a number of one-time items that are set out in the earnings release that we put out earlier today.

But before we talk about the quarterly earnings and the drivers and the variances, I’d like to spend a minute on the re-segmentation that we introduced to you today. We fine-tuned and enhanced the segmentation of our earnings into five operating segments. Liquids pipelines, gas pipelines, sponsored investments, gas distribution, and international. This reflects recent minor executive responsibility changes, but really it better organizes our investments by line of business rather than by geography, which is really how we manage the company. We before had a mixture of liquids and gas in different segments, so we more cleanly defined those.

Sponsored investments is a new category that uniquely houses our two trust vehicles, the Enbridge Income Fund in Canada and Enbridge Energy Partners in the U.S. and it serves to highlight their strategic importance. To assist with your historic analysis, we have posted quarterly re-segmentations on the Enbridge investor website.

Let’s review some of the quarterly highlights now, starting with the new liquids pipeline segment, which is up about $16m over Q4 of 2002. Enbridge systems reported $48m for the quarter, up over prior quarters and last year. This strong performance comes mostly from the addition of [Terris 3] capacity, as Pat mentioned, which was placed into service on April 1st and also a few smaller items, including lower depreciation rates, which were anticipated in the incentive tolling agreement and approved by the NEP, and recognition of our annual power savings.

We previously estimated power conservatively, and then waited to confirm variables, including final consumption figures. Feeder pipelines and other are now more appropriately in the liquids pipeline segment, and continue to include Frontier, Mustang, [Shy Cap] Toledo, and also liquids business development expenses. Collectively, feeder pipelines had a soft financial quarter, despite solid operations, largely because of Frontier which incurred a one-time provision for costs associated with a historical toll challenge.

In the gas pipeline segment, Alliance Pipeline U.S., as expected, contributed a $7.5m increase over the prior year quarter. This was due to the increased financial contribution related to the April 1st effective acquisition of the Duke interest, and the October closing of the final 1.1 percent piece of Alliance U.S. related to that same Duke acquisition. Vector pipeline earnings contribution doubled to $4m, given the additional 15 percent interest that we acquired in Q4. Also, improved transportation margins and building volumes from strong demand in the Chicago to Don Corridor. I should note that Vector is now operating at or near capacity.

In the sponsored investment segment we had a good quarter as well. The income fund generated $10m in quarterly earnings, reflecting Alliance’s strong Q4 performance, while Enbridge Energy Partners earnings were up $1.4m on higher oil and gas volumes, and also incentive earnings. We also recorded an $11m dilution gain at an Enbridge Partners large common unit offering that occurred during the quarter.

The gas distribution segment had a good operating quarter, including more up tick from cold weather, but also experienced a number of adjustments. These adjustments, as previously announced, include a $26m write off of a regulatory tax receivable and also the 2003 outsourcing disallowance of $4.6m after tax.

[Noverco] had a dilution gain related to a gas metro common unit offering, while gas services had some true up adjustments of actuals to estimates that had been previously reported. And [Ox Able] was positive in Q4 also, partially assisted by a more active risk management program, and I would add that we’ve now hedged all of the, or nearly all of the winter month volatility at [Ox Able] and that’s been a very important move for us, given the way gas prices especially have moved around.

And of course, as Pat also mentioned, EGB is off to another good year with volumes running ahead of budget, as just about anybody living in Canada, and certainly anybody living in Toronto, would have noticed by now.

Finally, the two investments in our international portfolio continue to post steady results. The segment quarterly earnings are up $3m over last year, CLH in Spain is proving to be a sound investment, exceeding our budget for the second year, driven by steady throughput and storage growth and also underpinned by the dominant market position. As an example, clear volume deliveries, things like jet fuel, gasoline, and diesel fuel now total 715,000 bpd on the CLH system, and that’s up nearly 8 percent over 2002.

Enbridge’s equity pick up is further bolstered by the strength of the Euro, and we’ve now partially locked in the cash flows on favorable terms. The international segment currently represents about 15 percent of consolidated earnings, and should maintain this relative contribution as the rest of the company grows.

In terms of accounting related items, we’ve begun to proportionately consolidate Vector in the fourth quarter, since we now own the 60 percent interest. We began proportionate consolidation of Alliance U.S. and [Ox Able] earlier at 2003, however you won’t see any incremental Vector debt on the Enbridge balance sheet, because of this accounting change, as Vector’s debt was previously funded by Enbridge in any case.

Our financial statement notes are more detailed in compliance with applicable accounting standards, and also otherwise the financials are similar in format to last year. So that’s really a look at the quarter and also the year end financials.

Turning now to the subject of 2004 guidance, based on our current outlook we anticipate 2004 earnings in the range of $3 to $3.10 per share, which calculates to about 7.4 percent year-over-year growth to that range midpoint. To be clear, this range excludes weather impacts and unusual gains and losses. A number of investments will contribute to this improvement, things like gas pipeline acquisitions, full annualization, sponsored investments, growth in the income fund and Enbridge Energy Partners, gains in growth at CLH, and some measured acquisitions which we have historically pursued.

We’re managing the company for value over the long-term, and we’re pursuing a number of growth opportunities that extend beyond 2004 as well. Annual growth rates, I think, will vary somewhat from year to year as they have in the past. Our focus is on achieving sustainable long-term growth rates which are in alignment with the objectives of and the risk tolerance of our investors.

In terms of financing plans, we expect 2004 to be fairly straightforward now that we’ve restored financing flexibility. We had some debt refinancing to do, but we do not foresee the need for any new equity. Cash from operations and dividend payments should grow roughly in concert, leaving us with about $700m.

Maintenance capex should hold relatively flat at about $200m, which leaves about $500m of free cash flow before growth capex. Then we have about $300m in committed growth capex set aside for a few factors, including Spearhead pipeline reversal, a small CLH deferred payment, and gas mains for another 50,000 or so customer additions at Enbridge gas distribution.

That leaves about $200m and some balance sheet room to pursue additional discretionary growth capex, should the opportunities arrive. So I think with that, Pat, it’s back over to you.

Great, thanks, Steve. I’d simply like to reiterate just how well-positioned we feel that Enbridge is at this time within the industry. The fundamentals are really quite compelling, and accordingly we have one of the best ever slates of projects ahead of us that we’ve had in our corporate history, and we do have the resources and the structures in place in order to be able to execute on those projects. We are working closely with our customers to identify continental supply constraints and then the proposed sensible delivery solution which really should further enhance our competitive positions, which are strong.

Our board of directors obviously concurs with this outlook, and accordingly has the confidence to raise the Enbridge common dividend to $1.83 per share on an annualized basis. So taken together with our 2004 earnings outlook, our dividend payout ratio would increase slightly to about 60 percent on the year.

And lastly, just one anecdotal point to further develop what Steve said about sustainability, and I’m surprised that Steve didn’t mention this, because he tends to be our resident historian in the company, but 2003 marked the completion of Enbridge’s 50th year as a publicly traded company, going back to Interprovincial Pipeline days. Since 1953, Enbridge’s total shareholder return, including dividends, has averaged just over 13 percent per annum. So interestingly enough, that’s approximately what we would expect going forward. So that concludes our formal remarks. We will now take questions, please. Operator.

Thank you, Mr. Daniel. (Operator instructions) Our first question is from RBC Capital Markets, Maureen Howe, you may now proceed.

Thanks very much. I am just wondering, Steve, maybe if we can go into some of the sources of the growth, of the growth in earnings that you referenced. Just in terms of, I guess the sponsored investments, as well as let’s say the international, are you saying that we’re looking, or you’re looking, for year-over-year growth in those contributions?

Yes, Maureen, I think, well first of all from Enbridge Energy Partners there will be some growth, and yet at the same time in looking at the outlook for 2004 there it won’t be extreme, although there are still some unknowns to that picture. The income fund I think is really well-positioned now to look at further growth, and we will be pursuing that there. CLH just really continues to get stronger and stronger. So I guess the answer would be yes, we are going to see growth from those segments, both the sponsored investments and also the international.

Well I know, for instance, if we’re talking about let’s say the Enbridge Income Fund, you know, it certainly has been good, but are you then planning on holding onto your preferred shares and maintaining your current ownership position in that fund?

Well I think we’ve always stated from the outset that our long-term goal is not to hold the 72 percent economic interest that we have in the fund, more like a roughly 20 percent interest, 20 percent to 25 percent interest is probably more what our target is, so we see opportunity there, depending on the growth opportunities that there are for the income fund, we see opportunities to grind that ownership interest down to the level that we feel more comfortable with, so we’ll certainly be pursuing that, now that the income fund is fully on its feet.

So, okay, but even if you sell down that interest, you are still expecting an increased earnings contribution from that fund in 2004 relative to 2003?

Yes, I think so. And keep in mind that we do have the 25 percent incentive distribution in the income fund that provides us with leverage on the earnings stream, so I think the answer is yes, we do anticipate growth from the contribution of the income fund.

And then even in CLH, I mean, 2003 was a very good year, a lot of growth in 2003 over 2002 and you expect even more growth in 2004?

Yes, we do Maureen. It’s Pat. We do expect continued growth. It was a very strong year due to refined product consumption rate growth, and Spain continues, the economy in Spain continues to develop very rapidly. You’ve heard me mention before that it’s the fastest growth country in the EU. That continues to be the case. And not only that, during 03 aviation fuel consumption wasn’t as high as we had expected. We more than compensated for in refined products in other areas, so we expect to see some recovery in the aviation fuel consumption during the year as well. So we do expect further growth there.

Okay. Now in terms of the corporate category, it increased sharply. I am wondering, Steve, if you can give us any sort of guidance on what we should be looking for in terms of 2004 from corporate?

The corporate segment tends to move around, as you notice, although I think we would really look to a run rate of $15m to $20m a quarter. The last quarter of 2002, of course, or the full year of 2002 was when we had recorded the gain on the sale of the shares that we held, the marketable securities is the way we put it, and so that gain was $17.8m so that really went in favor of 2002 and tends to exaggerate the difference between 2002 and 2003.

But looking at 2003, certainly stock-based compensation, the expensing of stock option costs tended to drive that up. [SOCS 404] compliance costs as we start getting into the [SOCS 404] issues as we did starting about the middle of 2003. There’s some depreciation and –

And there were some final sort of settlements on prior years’ sales transactions, including ESI and mid-coast.

Hopefully some business development expenses, as you know, we’ve been quite active in looking at an awful lot of opportunities in all of our segments as well as in corporate, and we have taken some of those costs into expense.

Okay, but you’d think that your guidance would be $15m to $20m a quarter?

Yes, that’s what I would say, is $15m to $20m a quarter should be a pretty reliable rate. We will probably bounce above and below that, but that’s a pretty good run rate.

Okay. There was reference made to the capacity utilization of the mainline. Now I must be mistaken here, but I was under the impression that the capacity of the mainline following the [Terris 3] expansion was about 2mbpd.

We are currently operating at about 80 percent of capacity, something in the order of 1.55mbpd. So that’s what is current, and as we look forward, of course, there are a number of expansion projects that will be coming on late 2004 and in 2005 that should help coming out of the oil sands, but right now capacity utilization is right around 80 percent.

So what is the capacity of the mainline?

Well, 5 divided by 0.8 – it’s really close to 2 mbpd. And that, remember, is past the capacity points on each of the individual pipelines, that represents the throughput capacity, the pinch points on each individual line, so it’s a fairly detailed calculation to get to.

Right, okay.

Total capacity, about 2mbpd, that does not equate to deliveries though, which can be higher, because volumes may come on from North Dakota and get off at Wisconsin and things like that, but the actual system utilization is, we tend to look at it as throughput past the capacity points on each line in Western Canada.

Now EEP gave guidance in their conference call for a flat outlook in terms of volumes for 2004, so what does that tell us? That there’s going to be less oil coming on along the way from the Dakotas or wherever?

I guess that may be one factor, but I think really what EEP has done in the budgeting process has really tried to take a hard look at the record of the past. And as you know, EEP has regularly referred to the fact that the volumes haven’t come on as expected, and that the forecast has not been met, it’s been slow in coming. I think that EEP has also disclosed that they’ve taken quite a conservative approach as they’ve prepared the 2004 budget, a responsible approach, I’d think, so I guess that’s why the budget and the guidance coming from EEP is what it is.

I think that a lot of interesting things could happen. Crude flow patterns are always an issue, not only the total amount of crude available coming out of Western Canada, but exactly where it’s headed is it is going to head to the West Coast, is it going to head into the Rockies, or is it going to head to Chicago? So those things are also variables that are hard to pin down.

Okay, and then one final question, and it just has to do with Beacon. You’ve got some competition on Beacon past, you know, you talk about it’s taking longer than you thought, you have delayed the open season. What’s your feeling on it? How should we be looking at it? What kind of probability would you put on your participation in Beacon at this point?

There is competition, there is no doubt. We knew that right at the outset on Beacon. There is competition to follow a little more southerly route through some existing infrastructure. There also are proposals to go almost due west from the Rockies into the Kansas area, and we have not been able to get enough consensus among producers in our early visits with them to feel comfortable with opening up a formal open season. We still feel though very much, Maureen, that this project does make good fundamental sense, and we’ve been encouraged by a number of producers to continue on with the project, even if it does take us longer to get the volumes pulled together than we had originally anticipated.

It’s very hard to put a percentage, probability on it, but I still think it’s got a better chance of going than not, and it’s just going to take us a little longer to get enough of consensus among producers to get the volume pulled together that we need.

Okay, well that’s great. I will give someone else a chance.

Thank you.

Thank you.

Thank you. Our following question is from BMO Nesbitt Burns, Karen Taylor, you may now proceed.

Thanks. Just a couple quick ones. Can you, Steve, delineate for us what the one-time charge is? I don’t recall on the Frontier system, and how much did you provide for this historical rate challenge?

It’s about $4m is what we’ve provided, and this dealt with the challenge to Frontier’s – two things. Frontier’s tolls and also a pump over charge that Frontier was charging, and that challenge has gone forward, and based on the best reading that we have of the outcome, we have made a provision for that.

So is that all in the fourth quarter, or was that taken previously? I don’t recall this.

Yes, this is all in the fourth quarter.

Okay.

We hadn’t previous to that. Really, the events, really converged in the fourth quarter.

Is that $4m U.S. or Canada, because it wiped out the contribution and then some from that group.

That’s $4m Canadian.

So the rest of the feeder pipeline group then performed slightly weaker than expectations. Is that fair? Given that it did, you know, $8.8m the year before, and now we are looking at a loss in this year of $4.7m.

Yes, I think from an operating perspective it performed about even with the prior year, but there was some business development costs that we took into expense as well in the liquids pipeline segment that would have gone there.

And how much for those?

I’m not sure.

Probably $1m to $2m.

Did you get that, Karen?

Yes. All right, the gas services segment again seems a bit weak. Can you explain to me exactly what you are doing there by arranging – I’m not sure exactly what you’re doing there.

Well the gas services segment, you know, has actually had operationally, quite a strong year. Lots of fee for service contracts and other things that are exactly what the gas services segment was set up to do.

Now there is some true ups that I mentioned earlier, and maybe Scott can talk a little bit about the nature of those.

Okay.

Certainly. Karen, as Steve mentioned on the Alliance Canada marketing as well as our merchant capacity management that gets done in this segment, the basic fundamentals along those pipelines assisted slightly better than budget performance anticipated there. The true ups really relate to some inaccuracies in calculating the margins in the first three quarters of the year. It had to do with booking one side of the transaction at a spot rate and the other at a forward rate when they really shouldn’t have been booked that way, and we trued up to the physical books in the fourth quarter and that caused gas services to look poorly in the fourth quarter, but on the year the performance is just a little bit better than budget, as Steve said.

And how much was the true up? I mean, that seems to be, if you will excuse the expression, it’s a little bit of a rookie mistake. So how much was that and what type of controls, who identified this and when?

The problem has been corrected. We did have a shift of the obligations for the accounting for that group from one of our offices to another, and in the transition we frankly missed some of the control-related issues that were caught up in the fourth quarter. So the problem has been corrected going forward.

In the fourth quarter, the – I don’t have the amount right handy here as to what it was, but I think it was about $3m, Karen.

Okay. And that’s after tax, or pre tax?

That’s after tax.

Maybe this next question is for Pat – well. Enbridge’s name has been associated with a couple of asset opportunities, if you can call them that, in Australia, specifically the Duke International Portfolio in partnership with someone else, as well as the Epic gas pipeline which seems to have a long and tedious regulatory history. Can you explain or elaborate on whether you are considering asset opportunities in Australia, and whether that’s an area in terms of the gas side that you are interested in getting into?

Sure, I will comment, Karen, recognizing that we normally don’t comment on acquisition opportunities that we are looking at for obvious reasons. However, our name has been appearing in the business press in Australia quite frequently with regard to these assets, so obviously we are considering them. I can’t tell you much more at this point other than the fact that as usual, Enbridge will be using its normal, disciplined, low-risk way of looking at international ventures, and we’ve been extremely happy with the success of the two investments that we currently have, and therefore anything that we do do will be at the right price and the proper return if we were to do it. So one of many opportunities that we will look at through the year.

Those assets seem a bit large and would probably push you over the 15 percent of total earnings coming from international. Is the 15 percent the longer-term average, and are you prepared to exceed that hurdle in any particular year?

We mentioned, I believe at Enbridge day, that we were prepared to go as high as 20 percent on a short-term basis, and we expect that over time that number will settle in at around 15 percent of earnings from international. But it depends an awful lot on other opportunities along the way. So we would be prepared to go a little higher than the 15 percent, realizing that with normal growth in the company that it’s going to get pulled back into that area.

Okay, and just very lastly, what is ‘other’ in gas distribution, and can you just elaborate on the financial performance for that? If Steve covered it, I apologize.

That’s a collection of things, that would be title energy marketing, St. Lawrence gas, probably net through put and Niagara gas, and also [inaudible] gas.

Right.

So that’s, I think, the bulk of what is in ‘other’.

And our interest in Global Thermal Electric is in there too.

Fuel cell energy.

Right.

And you wouldn’t care to break the financial performance down in more detail?

Which one would you like to be focused on there, Karen?

Whatever your equity contribution is from Alta Gas.

We’re not really able to do that, they haven’t released their own results from 2003 so that would be one that we are unable to deal with.

Okay, thank you.

Thank you.

Thanks.

Thank you. Your following question is from CIBC, Matthew Eckman. You may now proceed.

Thanks. One of the subjects I just want to talk about is growth, what is in your guidance. Steve, if you weren’t going to do any acquisitions this year at all, would your guidance be the same or lower, and if lower, how much?

Well typically, you know, when you look at what we’ve delivered, somewhere around 5 percent of our earnings are typically from acquisitions. When you look at the additional interest in Alliance and Vector and other things that we did last year, it tends to run around 5 percent and so it would be fair to say that we do have a component of acquisition activity built into the guidance.

Okay. And I hate to ask questions on documents that weren’t presented with this announcement, but on your website, there’s a presentation that I guess you are giving maybe in Europe, and actually just the last couple weeks so it should be current, and there’s a slide in there that projects discretionary growth capex at a half a billion dollars this year. Is that sort of your target for acquisitions this year?

Yes, that’s pretty close, Matthew. We’ve generally had something on that order with a range around it in most years, so that’s probably a good number.

Okay. Thanks. And then, if I can just move to the partnership, and you talked about some growth coming from the partnership this year. Maybe I can ask a specific question and then a general one. The specific one is on power expense. I’m trying to understand kind of the difference between comments that they made and [Verging] made on power expense, because their power expense was actually up year-over-year, and actually guided to a big increase in power expense for 04, and I think what you are saying here is that the Enbridge mainline, which is really the same pipeline system, benefited from power savings in Q4. And I’m just trying to sort of make those reconcile.

I know that the mainline in Canada benefited from renegotiation of power rates in Saskatchewan during the year. Although you are right, it is the same system, Matthew, it depends an awful lot on where the bottlenecks are and the particular slates of crude in each section as to how the power curve works, and as you know, it takes a lot more power to pump a heavy barrel than a light barrel. So I think what you are seeing there is a variation in crude slates from one pipeline to another, and depending on where the constraints are in those pipelines, as they get fuller, again you move up the power curve and your power is quite a bit more expensive at a higher rate of utilization. But also, like I said, there was some renegotiation on the Canadian system.

Does it have anything to do with how the expenses are split between the partnership and the corporation?

No.

The toll on the [Terris] expansion is split, but that’s all on the revenue side.

Yes.

Okay, so your outlook for power expense for 2004, I mean, you’ve got it to a pretty significant increase in power expense in 2004. Would you make any comments about Enbridge system for 2004 on your power expense?

I think we’d have to get back to you on that one, Matthew. We’d have to check with our power folks a little more thoroughly.

Okay, and then maybe just a more general question on the EEP line item. Steve, you commented that should be an area of some growth in 2004 over 2003. I guess EEP was looking at slightly down in earnings per unit there for 2004, so how do we reconcile those comments?

Well I think as I mentioned to Maureen, we recognize the EEP picture for 2004 and they have budgeted I think with reasonable conservatism. We don’t look for a lot of growth, frankly, coming out of the EEP segment in 2004.

Okay, thanks. And I would just – last thing, compliment on the change in segmentation. It’s always a pain to change, but I think it makes a lot of sense, Steve. Thanks.

Well thank you, Matthew. Sometimes it can be a pain, but I think this really does make better sense. The only other thing I’ll mention, Matthew, before you go, is that certainly EEP has had good successes in the capital markets in the last year, has made a couple of good acquisitions, and as you know, Dan Tucher and his team are always looking very actively, so you never know what may happen there.

Thank you.

Thank you. Our following question is from the National Bank, Wayne [Freid-Fruoff], you may now proceed.

I’ve been called worse, I suppose. Regarding regulatory disallowances, the first one, long-term transportation contract, that’s probably vector at all – to what year and what quarter of that year does that relate?

That was actually related to the Alliance transportation contract, and as you know, that we still do not agree with and are pursuing through the court of appeals, but that was a decision, as I recall, arrived at in late 01, booked in Q102. I’m sorry, I was one year off. Q1o3.

Okay, but it relates to 2001?

No, 2002.

2002.

And prior years.

Okay, the second one, the disallowance for the affiliate outsourcing, to what year does that relate?

It relates to both, it relates to 2003, Wayne. The decision that the OEB rendered had two components to it, an 03 component and an 04 component, and what Enbridge Inc has taken in its Q403 relates to the 03 component.

Okay, okay. And the true up for a portion of business development expenses, to what year does that true up relate, and how much was it?

Well, when we had some BD, business development expenditures I think in the liquids and other feeders line in the liquid segment where we had some business development costs in the corporate segment as well, I think – is that what you were? You refer to a true up, Wayne, what?

I think you mentioned it or somebody mentioned that in the increase in business development expenses, it partly reflects a true up.

Not related to business development. The true up was more in the gas services segment.

Or was it in corporate, perhaps?

In the corporate segment we did have a finalization of some prior years sales transactions, Wayne, related to Enbridge Services Inc primarily, and also related to mid-coast.

And what is the aggregate amount please, after tax?

The aggregate there is approximately negative $3m.

Basically those were working capital adjustment, finalizations on both transactions. The sale of services and the roll down.

Okay. And we heard the other day that your friends from the other province that one of these days might slip into the Pacific Ocean is going to emasculate your gateway project and probably another expansion or new pipeline from the tar sands down south. Could you maybe comment on who has sort of the lead in this regard?

Sure. You know, it’s so early in this race, it’s difficult to comment who has the lead, when I can speak I guess best to our proposal which we think makes an awful lot of sense to get to a deep water port like Prince Rupert or Kitimat with the gateway project, and to not have the challenges of moving crude out of Vancouver Harbor. That gives us about a 30 cent a barrel advantage in being able to access VLCC’s versus smaller tankers.

So we think that we’ve got quite a distinct advantage, admittedly it requires a $2.5b commitment to build that pipeline, but the early indications from our customers, producers, have been very favorable towards the initiative and it almost, in fact more than almost, they have prompted us to move along even more quickly on the gateway project than we had originally intended. So we are now working with refiners in Southeast Asia in particular in trying to bring them together with Western Canadian producers to form the kind of alliances that are needed to make the commitments to that line.

So we feel very positive about gateway at this point and the fact that it does go north of the national park is an advantage as well. But the ultimate decision here will be made by the customer, by the producer, and all we can do is put our best foot forward, which we think we’ve got a very alternative here.

And what are the reasons for the eye-popping increase in your common share dividend? They are certainly out of line with your growth in EPS, 2004 over 2003. I am wondering if they are out of line with growth in EPS 2004 over 2003.

First of all, I guess I hadn’t really viewed it as eye-popping, but I will take that as positive. As you know, it’s been in the range of 8 percent to 9 percent over the last few years, this is just over 10 percent, as you know, Wayne. We feel very, very positive about the growth of this company, and 2003 was just an outstanding year in terms of not only financial results, some unusual and positive gains from the income trust, a strengthening of the balance sheet which put us in the position to be able to share some of that benefit with our shareholders, more of that benefit with our shareholders, but also we were extremely positive about the future growth prospects of the company as a result of the initiatives taken during 2003. So all of those factors combined, the board felt very comfortable in proceeding with the eye-popping increase.

Now, might this seem sort of half-raised, either to raising perhaps the expectations of investors of more of the same, because I don’t think it would be terribly desirable if you had like a 10.5 percent increase in one year, and maybe a 4 percent or 5 percent in the next year.

Yes, it’s a very good point, and as you know, we feel that we will have 8 percent to 10 percent EPS growth in the company over the next five years, on average. We would intend to match dividend increases approximately with that, again recognizing that decisions on dividends are always board decisions, and we can’t make any guarantees going forward, but we feel comfortable with an 8 percent to 10 percent EPS growth rate that we should pretty much be able to match that in terms of EPS growth.

Thank you so much.

Thank you.

I think the only other thing I would add, Wayne, is other than I am still trying to understand what the word emasculate means, but we still are targeting a 50 percent to 60 percent payout ratio, and that is something that we will stick to. This obviously moves to the upper end of that, but that still is the target payout ratio as the balance between income and growth.

Thank you. Our following question is from TD Newcrest, Linda Ezergailis. You may now proceed.

Thank you. I just have a few questions. On the EEP call there was some mention of the reallocation of the [Terris] surcharge, this might have been covered already in the call, but I apologize, I hopped on a bit late. Can I just infer from EEP’s comments that that differential flows directly to you in terms of revenue and then taxes at that, or is there some sort of offset in the [Terris] agreement that I should be aware of?

Linda, it’s Colin here, maybe I’ll take that one. Indeed it would represent after-tax benefit to Enbridge, that is probably in the $4m to $5m range after tax, but there is some offset within the other parts of the [Terris] agreement.

Okay, yes, I’d appreciate that.

But they are – well I think the [Terris] will have a higher tax rate, for one, in 2004, so that would probably be the biggest thing I could point you to.

Okay, thank you. The $4.6m, and I hate to split hairs, but a $4.6m of the outsourcing decision that was recorded in Q4, can you split that up between the quarters in 2003, or not?

I don’t think so, Linda. I think you’d have to just say it was pretty even over the quarters.

Okay.

I mean, the decision was rendered at one time and it came after Enbridge gas distribution and closed its Q4 books. They have a year end in September, but if you were trying to allocate it out, it would be –

In fact, I don’t think it’s appropriate to allocate it out, because it was a total lump decision that covered both years, full start, full stop. And totaling just over $9m after tax, and so that’s the one-time adjustment. We elected to take the 2003 component of it in Q4 of 03. Enbridge Gas Distribution will take the entire amount in its Q1 of 04, because it occurred after, the decision came after the year-end close for EGD. So I think not only is it difficult to, but it really isn’t appropriate to allocate that out over the other quarters.

Fair enough, thank you. Just another very quick question with respect to some of your guidance on growth capex. Can we still expect that the $350m from the Enbridge Income Fund IPO will be redeployed in the first half of this year?

Well that would be built in to the earlier number we were talking about when Matthew Eckman was asking a question, you may not have been on at that time. He was asking if the $500m is a fair number to think about in terms of uncommitted growth capex and I said that it probably represents a pretty fair number.

Now as you know, we did specific to the proceeds from the income fund, we did use those to pay down debt in the course of 2003 and actually overshot our debt reduction targets and so you can expect that you will see some of that coming back. It’s going to be hard to trace the DNA though, exactly from the income fund to a new investment.

Yes, no, I am just thinking notionally out loud. Thank you, those are my questions.

Thank you.

Thank you. The next question is from Andrew Kusky from UBS Securities. Please go ahead.

Thank you, good afternoon. If we were to look at your affiliated vehicles or what you’ve defined now as your sponsored investments, and just the returns off those investments over the next say few years, I know you’re only really giving guidance into 2004, but if we were to look at the leverage behind those vehicles, and in particular in light of EEP’s guidance and their outlook which was, one could say flat to negative, albeit a bit conservative, how do you see the leverage really lifting up for these vehicles, and how do you see that chunk of the pie really growing as a proportion of Enbridge total earnings?

Well I think that in the case of EEP, one of the reasons that was mentioned I think in EEP’s disclosures and guidance regarding 04 is the fact that a lot of [Terris] investment has been made by EEP without a corresponding use of that capacity, so there is immediate leverage to the upside by having expended the capital, having the capacity available immediately for all throughput increases that are needed coming out of Western Canada. So there’s that kind of base leverage that EEP has in and of itself. And then also, as I mentioned, Dan Tucher and his group are very active in looking at acquisitions and have closed on a couple of good ones, or one and one very quick to close here. Hopefully that are accretive and frankly, with the balance sheet that EEP now has in its access to the capital markets, I think we will see more of that activity. So just within EEP I think, looking over the longer term, medium to longer term, there are those kind of opportunities.

And then of course there are the high splits, the 50 percent splits level which is the leverage for Enbridge Inc and the incentive, as its designed, for us to grow that business. And all the while controlling more strategic assets. I think that’s the – not to get too excited, Andrew, but that’s the fascination here is that you control the asset strategically, even though it is held in another vehicle. So that’s I think some of the leverage and upside from EEP and I would say the same thing is mirrored on the Canadian side with the income fund.

Okay, if I could just add an extension onto that with your pipeline proposals, the numerous plans you have as far as potentially into Eastern Ohio, spearhead Southern access down into the Gulf potentially. If you look at those, potential plans and then potentially putting those things into EEP, the growth profile you have off that, that’s really one core portion of the question, how you see that unfolding and the timeline associated with that.

And then secondly, from the standpoint of using the facility vehicle or the sponsored investment, do you see the market getting a little bit tougher in light of just kinder success, even though they are at the 50 splits, their results, one could suggest they really blew out the lights, and the guidance is very strong going forward. And then also in the context of the proposed Enterprise/Gulf Terra merger, do you see the MLP market getting a lot more difficult?

There were a lot of questions in there, Andrew. Let me see whether I can address them. While recognizing, first of all, that you know, we will continue to make a distinction as we go along as to what assets properly belong in the [Match] limited partnership and what belongs in Enbridge Inc depending on the risk profile associated with the projects and kind of the growth capital.

So although we assume the majority of the assets in the U.S. will be in the partnership, they won’t all be in there. We still have a distinct advantage over Kinder Morgan with regard to our leverage due to the fact that we’re not at the 50/50 splits level, and so up until the point where we are, it’s easier for us to make acquisitions accretive to both the MLP unit holders and also to the parent company. Once we hit that 50/50 split level then we no longer have that competitive advantage, even at that point though, we will be distributing a far lower percentage of the cash income of the MLPs than Kinder’s does, because he’s been at that high splits for a longer period of time. So we do have that advantage.

Yes, the Gulf Terra deal does make them, I believe, the second-largest market cap MLP and they will be very competitive, but we also expect that we are going to be able to work with them on a number of things, and there are some discussions we’ve already had with some of their people that would suggest that that would be the case.

So yes, it is a very competitive deal in the U.S. for mature assets. The real key with us though is that we’ve got such a strong base with this crude oil system that assets that make a lot of sense to us don’t necessarily to them in terms of the initiatives that we’ve got to push that Canadian crude further south. It’s kind of a unique application, and one that we’ve got a very strong competitive positioning on.

And if I may just ask one very technical question, just in Ontario there is a change in corporate tax rates. How do you see that affecting just the earnings coming out of Enbridge, well the old Consumer’s Gas in 2004? The rates are actually going upwards here.

Andrew, it’s Scott. We expect that in Q1 of 2004, so what we won’t be reporting on for a while. There will be a one-time negative charge of somewhere in the range of $45m to $50m, reflecting the increased value of future income tax liabilities associated largely with our Enbridge gas distribution investment. So that would be recorded in this quarter.

Okay, and that’s based on substantially enacted doctrine?

That’s correct.

Okay, great. Thank you.

Thanks.

Thank you. The next question is from David Maccarone from Goldman Sachs. Please go ahead.

Thank you. Steve, I was hoping you could go in a little further detail on CLH and the strength of the Euro and give us some details on the hedging strategy, and maybe give us the numbers behind what the average currency rate was in 03, and how much you’ve got hedged for 04?

Okay, well we can get those. I think generally we’ve take a conservative position with regard to the cash flows coming out of CLH, until a more formal dividend policy is arrived at in CLH, and so we’re balancing between what we know the cash flows are likely to be versus what they could be under a different dividend scenario. So that’s one of the pieces of backdrop, if you will, to the whole story of the cash flows and how we hedge them at CLH. I think, Scott, you may have the exact exchange rates over the period.

David, the balance sheet investment is fully hedged and our anticipated receipts of dividends from that investment are hedged to the tune of 40 percent to 50 percent pending clarification, as Steve noted. And they are done at fairly favorable rates, something north of 1.6 Canadian Dollars to the Euro, so that is where we are at.

Okay, and then just on an earnings basis, how much did that help you in the fourth quarter?

In the fourth quarter it would have been something in the range of – it would have been less than a million dollars, I believe.

Okay, shifting the questions back to EEP, over the last six quarters, EEP’s capitalization per unit, basically debt plus equity divided by the units outstanding is up by a third, but the distributions per unit to the LPs are up less than 3 percent in that time period, but the cash paid to the GP is almost doubled. I was wondering if you could just make a comment, or tell us how you view that relationship, and also what your commitment is to the LP going forward?

I’m not sure I followed all of your math there. You said that, just to clarify, you said that capital employed effective went up by about double over what period?

Well the bottom line is your capital employed is up on a per unit basis by a third, but your distribution is up by less than 3 percent at the same time Enbridge Inc, the general partners take, has nearly doubled. Now, the MLP vehicle can be successful for the GP, while it’s not successful or less successful for the LP. And I’m just wondering, putting that into the context of the 25 versus 50 percent GP splits and getting there and what you see as the trend in 04 and into 05 at the LP?

I think we’ll probably have to just take your numbers under advisement here and have a look at that, David. Obviously we’re committed to growth both for the GP and for the LP, and as I mentioned earlier, we have a little bit of a competitive advantage over the main competitor here, Kinder Morgan, because of the fact that we are at the lower splits level.

Recognize as well that there have been a couple of late season acquisitions in 2003 where there weren’t any significant, there was no significant distributable cash from those acquisitions, and we will see the full year effect of that during 2004. So you will see those numbers start to come back more in line, but I think we’d have to work it through and be more quantitative on that response by way of follow up.

Okay, I will follow up with a call in.

I think the other thing, David, is that the MLP environment is very competitive for the investor dollar, and certainly the limited partners need to be treated well and need to be able to grow and feel that the investment is an appropriate one, and that’s a number one goal for Dan Tucher and the team in terms of growing the distributions to the limited partners.

Yes, David, maybe just, I think the meatiest part of the answer is probably coming from, we’ve invested a lot of capital, that the partnership has, I should say, in expanding [Terris] which as you know, has not been utilized yet, so I think that goes a long way to explaining that relationship. We can talk more and quantitative it for you later.

Okay. Thank you.

Thanks.

Thank you. The next question is from Ben Templest from Plus. Please go ahead.

Good afternoon, gentlemen. A couple questions if I may, but fundamentally they have to do with your plans for reaching the Gulf Coast, the marketplace down there. So I guess my first question is, what are your next steps from Kushing or Wood River, and for example, can you disclose any talks that you’ve had with Mobil? [inaudible]

We unfortunately can’t disclose any discussions like that, and you know, we’re looking at a number of alternatives. We do have multiple alternatives. If there is one thing I can tell you, not only for going south but also into the eastern part of [pad 2] so unfortunately we’re not in a position where we can talk about the specific discussions.

Okay, another try if you will, sir. You did an oil sands marketing study. Fundamentally I reckon it had to do with what the refinery modifications would be involved in opening up markets for oil sands. Can you fill us in? What were the results of the study?

Yes, the results of the study, first of all, the very obvious result was that we needed to push further south than Chicago because of the bottlenecking of Canadian crude in Chicago, but also that there were a number of refineries that were able to take both additional Canadian heavy but also synblend and that we needed to be able to push the access, first of all, to [Patoka Wood River] and also into Kushing, and then further south from there. The greatest refining capacity available to take the heavier crude is in the Gulf Coast, but of course that’s the furthest away, so we thought we needed to be able to get there incrementally by getting into the [Patoka] Wood River areas and the Kushing area first of all, and getting some volume flowing there to relieve the pressure on the Chicago market, and then ultimately reach that big refining capacity on the Gulf Coast.

We don’t expect there will be huge volumes moving through the Gulf Coast, but it doesn’t take much in order to relieve the bottleneck again and ensure that Canadian producers aren’t held hostage by the refineries in the U.S. Midwest.

Any idea when you can realize this potential?

Well, very hard to say, because as you know, we are very attentive to our customers timeframe and scheduling, and we are currently working with them on approval of the first of those projects, the spearhead project and the tolling around that, and we would expect to have some pretty good feel from them in about the April or May timeframe of this year.

April or May for what again, sir?

This is for the Spearhead line, which is the Kushing to Chicago reversal.

Yes.

And then we would expect that it is probably going to be in the second half of the year, before we’ve got a decision from them with regard to the southern access line down to the [Patoka] Wood River. Now the other initiatives that we are not able to disclose exactly how we intend to reach the broader Pad 2 and Gulf Coast markets, very difficult to say, because they are subject to discussions and negotiations that we don’t have full control over.

Yes. What about working with BC to reverse it’s line? Can you tell us anything about that, or if you will, contacts with Coneco Phillips on the Seaway Line?

Once again –

That’s prohibited to discuss at this juncture?

Unfortunately we are not able to discuss that.

Got you, got you. I guess that’s it then.

Thank you.

Thanks.

Thank you. The next question is from Donato Essi from Royalist Independent. Please go ahead.

Hi, thank you. Pat, most of my questions have been answered. Basically what you have dealt with the partnership, and I think you’ve answered that, but I want to congratulate you on your dividend decision, hopefully that will be appreciated. With respect to the partnership and in looking at the cash, you know, if they are not dividing up more units then the coverage is less than desirable, but I think you’ve said a couple times these recent acquisitions, you obviously are feeling a little better that they might, you know, increase that cash distribution coverage as time moves forward here. Is that your sentiment?

Absolutely, Donato. And we, you know, those two deals that were done at the end of the year are for sure not the end for this unit. As you know, one of the real appealing parts of doing this acquisition was in buying a management team that has a lot of experience in doing accretive acquisitions and so we are very pleased with the fact that we are able to bring those two projects in at the end of the year and we would expect to see more from them going forward.

We really had them very focused during the early part of 03 on making sure the existing assets perform, the existing gas assets, the old Midco Steel and had them somewhat confined in terms of their ability to go out and look at it for acquisitions opportunities. We now feel very comfortable with the day-to-day operations and they are back looking at expansion alternatives, so we’re pretty comfortable it will be a good growth potential there.

Great. And if I could follow up just a little bit on this $45m to $50m for the, I guess the tax change and predominantly affects the LDC, can you talk about any cash implications from that?

Donato, no, there aren’t cash implications of that. It’s a future income tax liability, so it is something well into the future. There’s nothing in the near term.

Thank you.

And thanks for the comment on the dividend.

You’re welcome.

Thank you. The next question is from Maureen Howe of RBC Capital Markets. Please go ahead.

Thanks very much. I just wanted to get clarification on a couple of items that came up in previous answers. Steve, you mentioned an answer to Matthew’s question that 5 percent of the earnings came from your acquisitions this year, and that you would be looking for something similar in 2004? Is that correct? Am I paraphrasing what you said correctly?

I think Matthew was looking for whether the guidance that we are giving includes some acquisition activity and the answer to that is yes, and I was putting context around it in the sense that notionally we tend to deliver somewhere around that from acquisitions every year.

So, all right. So in your 7.4 percent or whatever it is, 7 percent EPS growth that you’ve guided to, and I’m just taking the midpoint of the range for 2004, that I guess 5 percent you are saying is coming from acquisitions, and you know, something around 2, 2.5 percent is coming from organic growth?

Well I don’t know, I think, Maureen, that you’ve taken a general response and maybe turned it into a specific with regard to 04. I think the point that Steve was making is that over the last few years we’ve had about 5 percent of our earnings contribution has come from acquisitions, things like the increase in the Alliance and Vector interests and the deals that we’ve done in the U.S.

Generally speaking, as you know, we expect to average 8 percent to 10 percent growth per year, EPS growth going forward, 5 percent to 6 percent of which we expect to be organic, and 3 percent to 4 percent we expect to be acquisition. But that is never going to be perfectly in that model, it’s going to vary a little bit from year to year. So I would go around and do the specific arithmetic and say it’s 5 percent.

Actually, Maureen, I guess you and I were mixing metaphors. The 5 percent that I was referring to had nothing directly to do with the, if you take it to the midpoint as you say, 7.4 percent, the 5 percent is the percentage of our adjusted earnings that typically tends to come from acquisitive activity.

It’s kind of the same thing, isn’t it though, Steve? You know, if you are looking year over year?

It’s hard to cut it that finely though, so it’d be hard to say. You know, you’ve got 7.4 minus 5 means 2.4 must be coming from organic sources. But you know, certainly we do look at acquisitive activity in 04 and if anything, it is probably a year that we are better positioned than ever to do that, just given where the balance sheet is.

And I guess if we were to look at 2003 growth it would be sort of, it would be similar because the growth rate in 2003 was about 7.5 percent and so again, if 5 percent came from the acquisitions, again really the growth from organic is less.

I don’t know if your math is right there, I think the 5 percent is again on the absolute number, not the relative delta.

Well I guess if its on the absolute number, then year-over-year it’s even higher, right? If it’s 5 percent of 284 than if you took – you know what I’m saying? Then relative to 263 it’s even higher.

I don’t know. If you look at 03, fundamentally I think with [Terris] is a big earnings driver, that would be the lion’s share of the growth driver, so I would say that organic growth was more than acquisitive growth in 03.

Okay. Well I was just using the 5 percent that was thrown out.

Fair enough.

And then another clarification I guess, Steve, you mentioned that you didn’t think it would be appropriate to try and allocate the $4.6m regulatory disallowance related to affiliate outsourcing over the various quarters, but for those of us who do normalize, and I can understand some don’t, some do, but for those of us who do it was a regulatory disallowance related to affiliate outsourcing, presumably given that it was given at the end of the year it would be difficult to recover that, so it was a recovery that didn’t happen and if we are trying to get a comparable number year-over-year, quarter-over-quarter, I for one wouldn’t normalize for that disallowance. You didn’t collect it. The question is, you know, what is the proper normalizing adjustments on my part, and presumably Linda’s looking at the same thing. So I either take it all in Q4, which probably isn’t right, or I try to put it to the quarters that it would be most related to.

Well we, because it applied to the two years, we elected to take it –

But it’s 2003 and 2004, isn’t that correct?

Yes, that’s right.

So I would do the same thing in 2004. I mean, that 4.6 is the 2003 component, isn’t that right?

That’s right, and so about the same for 2004. And I think the issue there is that it should be normalized out, because it is a disallowance, they basically said EGD paid a total of $9.4m, $9.3m after tax too much for the services, and therefore that was going to be disallowed. That was a full stop decision, without any future disallowances implied or expected. So I think it’s clear that it applies to 03 and to 04, we will be accounting for it in Q4 and Q1 respectively, and that’s the end of that.

But if we were to normalize for it, Steve, presumably it’s like you earned it. But you didn’t earn it.

Well I think it’s like a tax rate change. It’s a give back that is mandated by the OEB related to those two years specifically, none before and none after, and therefore it’s a fully contained $9.4m after-tax number, and so that’s why I think it should be normalized out.

I guess what I’m saying is it is an expense, and if it wasn’t to an affiliated party it would be an in and an out, but given that it’s to an affiliated party, you earned it somewhere else, right? So why would we normalize for it?

I’ll have to maybe do some more mental gymnastics around that, Maureen.

Okay, I just was questioning that. But that’s fine.

Yes.

Thanks very much.

We’ll have to follow up later.

Okay.

Thanks.

Thank you. The next question is from Sam Anes from Scotia Capital.

Hi, maybe just for clarity for all of us then, in your guidance, does your guidance have a subtraction of this $4.6m for 04 and 03, or have you normalized it out? There’s a number of in and outs during the course of 03, it’s going to get lost quarter by quarter by quarter.

Well I think that, given what I just said, the guidance would incorporate normalizing that out.

Therefore it’s not in your guidance.

That’s correct.

But it will show up as Q1 and then reported.

That’s right. There will be a Q1 charge.

Right. That’s all I want to know on that. Bigger picture, LNG, now that you’re actively looking at projects, have you limited yourself in geography as being say, Eastern Canada only, or East and West Canada, East U.S., Gulf U.S., with partners, without partners, with [Gezmet], without [Gezmet]. You said something about oil producers, TransCan announced a joint venture with Coneco, where do you generally stand, what you can say in what your strategies are so far?

Okay, let me take that from the top, Sam, and if I missed one of your points, make sure you take me back to it. Geographically we are going to tend to look in some areas where we have competitive advantage, and therefore Eastern Canada makes an awful lot of sense because we’ve got gas flow in the distribution company in Ontario, also as you know, the interest in [Naverco] and Gas Metropolitan in Quebec. So an Eastern Canadian LNG facility would make great sense for us to be involved in, so geographically, that one makes sense.

Also in the Gulf Coast, we have got a lot of energy infrastructure in the Gulf Coast and have been looking at some opportunities there that we’ve talked about in the past. You would expect that those will be our main areas of focus. For example, you wouldn’t expect to find us around on the West Coast of Mexico. You might on the East Coast in the Gulf because of our infrastructure and our office and facilities there.

So geographically that will tend to be the areas where we focus. Partners we think are going to be absolutely critical, primarily from the perspective of LNG supply. And we’ve been working with a number of companies that we work well with and are associated with already, companies like GDF who of course we know very well, [Gas De France] we know very well through the [Nerverco] relationship, and Repsol, who we know very well from our involvement with them in Spain. Both are big LNG players.

So we are going to tend to focus on working with those suppliers, because our intent is to be involved in the regasification and the takeaway pipeline capacity. We don’t want to be involved in the marketing of the gas or the supply of the gas, so hence the tendency to get involved with those partners. Did that cover your –

Pretty much everything. Would [Nerverco/Gas Mets] be a logical partner? Are you saying you’d rather go right to source, you must have your LNG supply first, obviously.

Yes, but obviously Gas Mets would be a very good partner because Gas Mets has gas load in Quebec.

Okay, got it. Another broad-scaled one, now that George Bush has allowed Canada to bid on certain Middle East projects related to Iraq, is there anything remotely blue sky that might be of interest, guesstimate with $18b around to spend? Canadian companies can apply now, is there anything that even makes any remote sense to you?

I don’t think so, Sam. And you know, we have thought about it and discussed it, but I think that we need to see a little bit more stable environment politically before we’d be prepared to take the risk and get involved. And if we did, it would have to be with very strong back stopping from an upstream partner, because when you go in and make pipeline investments you are there for 10, 15, 20, 40 years, and you are not in and out the way it might work for a service company to go in and do a contract in somewhere like Iraq. With a pipe investment, you are there for a long time.

So we’d need to be comfortable that it was going to be a very stable environment politically and socially, and/or have very strong back stopping from an upstream partner, and we rather doubt that on either one of those fronts that there will be many opportunities for us in the short term there.

Thank you, Pat.

Thank you. (Operator instructions) The following question is from Karen Taylor of BMO Nesbitt Burns. Please go ahead.

Hi, yes, just a quick follow up question. I’m not sure I’m confused now by all this guidance talk or not. Can I just come back to this range? We’re talking 284 to a midpoint of 305. It’s growth of about 7.5 percent. And when you talk about acquisition growth, do you mean the contribution incremental in 04 from acquisitions in 03, or are you talking fresh new acquisitions as being part of that 7.4?

I think part of that would be fresh new acquisitions, I think the number we’ve been talking about, roughly 5 percent on the gross, or the total earnings number, comes from fresh acquisitions each year, so that doesn’t just represent the annualization of previous acquisitions.

So if I was to look at the growth rate that you are talking about today of about 7.4, taking the midpoint of the range, if I assume that you are sticking to your long-term average which is 5 percent to 6 percent organic, then apply somewhere between 1.4 and 2.4 of acquisition growth, is that correct?

Well yes, I think if you again apply a generality to the specific, that would be right, Karen. And what I mean by that is when we say 5 percent to 6 percent organic and 3 percent to 4 percent acquisition, that’s what we expect to average over a five-year period.

I understand that.

And it may not be 5 percent to 6 percent each year, or 3 percent to 4 percent acquisitions, but basically your math is right on that, yes.

So let me ask you then a question about the guidance range as provided. I mean, you certainly don’t like to price in unidentified acquisitions, I don’t do that for other companies, I try not to do that here, so the question I suppose Maureen is asking, and let me try my own cut at this, the range you are providing of $3 to $3.10 basic, is that predominantly from organic sources?

I would say that yes, it is more from organic sources than it is from acquisition sources.

Well, you know, and I’ll come back to the confusion, because if I stick with the long-term average of 5 percent to 6 percent versus a growth of 3 percent to 4 percent, that’s more. So are we talking, you know, 70 percent to 80 percent of the growth coming from organic, or is it 40 percent to 55 percent? Or 55 percent to 65 percent? This is, I think, what Maureen was asking, but you guys confused me so now I have to ask. I confuse easily, but that was truly a testament.

Well hopefully in answering you I won’t turn around and confuse Maureen and she’ll have to come back on and answer her, but you know, I think it’s fair to say that it could be in the range of say 60/40 organic to acquisitions, Karen.

Okay.

And that’s not, you know, that’s not far off our –

Long-term average.

Our long-term average, yeah.

EEP had about $135m if memory serves, of affiliated debt from Enbridge. Is that going to come back at all in 2004?

I think the plan is maybe in later 2004 it will. I know as we’ve talked about it before on previous calls, Karen, there really isn’t any urgency for EEP to pay that back up, there isn’t the cash need at Enbridge and it’s serving its purpose at EEP, so I would say that possibly later in 2004, depending on the activity levels at EEP, we may see that come back, but quite honestly, we’re quite comfortable to leave it for now.

And lastly, did I hear you right to say that – because we’ve been watching for it, we haven’t seen – that you have filed for the 2005 rates for Enbridge Gas Distribution?

Yes, that’s right.

So I guess this will come back to a conversation you had a couple of weeks ago, or last week with someone inside the company, will you be posting that at all to the web site, or otherwise making that available?

The rate application?

Yes. Everybody – your peer group does, so I’m wondering, you know, it’s a good way of balancing models and so forth. So is that going to be posted anywhere?

Karen, we’re in discussion with our regulatory people on that. I think some of the other jurisdictions are mandated to do it, and we’ve been working on the assumption that these are immaterial, decisions and reasons are disclosed on the regulator’s site.

Well they are not easily found, at least as far as I can tell on the OEB site, I will look again, but –

I can summarize the 05 case for you pretty briefly, and I think Pat mentioned, it’s the full cost of service.

No, I understand that. So that’s why I am asking, because the financial tables and so forth are useful.

We’re asking for a small deficiency, I think about $8m which is quite small, you’ll compare in prior years. So it’s fairly –

So I guess, are you telling me I need to go to the board to dig it out manually, or are you going to email it or make it otherwise available from your side?

We haven’t settled on that, but we can certainly get you a copy if you would like.

Yes, please. That was it.

And Karen, I think we’ll take the overall philosophical question you raised about posting things like that to the web site, and kind of decide on that. Thanks.

Well your peer group does, so.

Okay, I appreciate that input.

That was it, thanks.

Thank you.

The following question is from Bob Hastings of Raymond James Limited. Please go ahead.

Oh, I think I am going to let you guys go. Thank you. Great dividend increase, by the way.

Thanks.

Thanks, Bob.

Appreciate that, Bob.

There are no further questions. I would now like to turn the meeting back over to Mr. Gruending.

All right. Thanks for joining us on the call. We’ll be available as usual after. Bye.

Thank you, bye now.