恩橋 (ENB) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Enbridge Inc. third quarter 2005 financial results conference call. My name is Samuel, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS.]

I would now like to turn the call over to Mr. Bob Rahn, Director of Investor Relations. Please proceed, sir.

Thank you, Samuel. And good morning to all. Welcome to our third earnings call.

With me this morning are Pat Daniel, President and CEO; Richard Bird, Group Vice President, Liquids Pipelines; Lee Cruse, Vice President Financial Services, who is acting in the capacity of CFO while Steve Wuori is on a short sabbatical; also joining us in Colin Grundy, Vice President and Controller.

During this conference call we may refer to or speak to certain forward information which is subject to assumptions, risks, and uncertainties that may cause actual results to differ from those referred to in our comments. Differences may arise due to assumptions related to weather, commodity prices, throughput volumes, interest and exchange rates, and regulatory decisions. The risks are discussed more fully in our filings which are publicly available on both the [CDAR] and [EDGAR] systems.

This call is being webcast recorded, and I encourage those listening on the phone lines to review the supporting slides which are available on our web site at www.enbridge.com. A replay and transcript will also be available later today.

Our Board meeting will be reconvening in about one hour, and we will try to keep our opening comments brief in order to address any questions you have. To that end, we would ask that when we move to the q and a session could you please limit your questions to one follow-up and jump back into the queue. I would also remind that we will be available after the call for follow-up.

At this point, I would like to turn the call over to Pat Daniel.

Great, thanks, Bob. Good morning, everyone. And thank you for joining us.

Earlier today, as I’m sure you’re all aware, Enbridge reported another quarter of very strong results. Our reported earnings for the quarter and nine months YTD were 67.8 million and 382 million, respectively. Now, as you know, for comparative purposes it’s been our practice to also report earnings on an adjusted basis. So, fully adjusted operating earnings of 73.9 million for the quarter and 374.5 million YTD represents increases of 17% and 11%, respectively, over adjusted operating earnings for the comparable time periods in 2004. So, a very good quarter and nine months for Enbridge. These results extend a track record of very strong and consistent operating financial performance delivered now over the past decade in this Company.

And as you’ve all noted from the press release, we remain very confident that the strength afforded us by the diversity of our asset base and our excellent geographic positioning will carry us forward. This will result in 2005 adjusted operating earnings within the previously announced guidance range of about $1.60 to $1.65 per year, and we’re confident of that at this point.

So, now, let me move on to even more exciting news. I’m very pleased to announce that the Board of Directors has approved a substantial 15% increase in the quarterly dividend, from $0.25 to $0.2875 per share effective immediately.

And, as you know, we’ve delivered very strong growth in both earnings and dividends over the past decade. However, more importantly, this dividend increase is really a reflection of the confidence that the Board of Directors and Management have in the future of the Company. The dividend increase is being delivered now because of the significant progress we’ve made over the past year in moving forward our slate of organic projects, principally those in our liquids transporation or crude oil pipelining segment.

Enbridge is in our view the premiere growth story in the North American energy delivery sector. In our recently completed Enbridge Days in Toronto and New York we provided a comprehensive review of the strategic initiatives that we have underway across all of the Company’s business segments. Now, normally, I wouldn’t go over this ground again at this meeting today; however, I think in the context of the dividend increase it bears repeating to a certain extent and also some updating, so I would like to briefly go back through some of the points we made at Enbridge Days.

At that time, we presented a platform of unprecedented organic growth, and that was largely underpinned, as I mentioned, by the crude oil pipeline side of the business. In total we’re talking about $8 billion of crude oil projects over the 2005 to 2009 timeframe. Now, these are being driven by forecasted increased production out of the oil sands. And if you go one layer deeper these projects, themselves, are underpinned by very strong supply, demand fundamentals, including concerns around security of supplies that are associated with crude oil. So, we’ve been big believers in the oil sands for some time now at Enbridge, as evidenced by our building, of course, of the Athabasca pipeline and the many expansions that we’ve done on the main line system over the years.

The very latest piece of the puzzle to be put into place is yesterday’s announcement that we’ve come to terms with the [Surmon] shippers to provide lateral facilities and the pipeline transportation services on our Athabasca pipeline, so another win for us there. This announcement in combination with the previously announced [Long Lake] and Waupisoo agreements means now that we’re well on our way to cementing our dominant position in regional oil sands delivery infrastructure in that corridor between Fort McMurray and Edmonton and Hardesty. When all of these projects are completed Enbridge will have over 1 million barrels per day capacity coming out of the oil sands region providing our customers with the option of moving those barrels at either Edmonton or Hardesty.

Now, before I leave the discussion on oil sands, I would like to reiterate that based upon the success of the open season with respect to our gateway condensate line we’re now moving forward to finalized shipping and equity participation agreements based on those results. And, as you’re aware, a separate open season for the crude oil export pipeline is currently underway, and we expect completion of that in the fourth quarter of 2005.

On top of all of that, our regulatory filings relating to southern access, the southern access expansion project which, by the way, is designed to provide an additional 400,000 barrels a day of heavy oil capacity into Chicago are nearing completion, and so those regulatory filings are moving right along.

Open season results confirm strong support for undertaking all three phases of that project at once, which would result in an estimated total cost in the range of $900 million U.S. dollars. At the same time, discussions regarding commitments relating to the southern access extension are also ongoing with the intent of having an in-service date in 2009.

And, finally, the Spearhead pipeline will be ready to move Canadian crude into the [cushion] hub in the first quarter of 2006, and as we mentioned at Enbridge Days we’re already talking about expanding that project.

So, we believe that our strong customer relations provide us with a very unique strategic advantage with regard to these projects, and we will continue to work very hard to provide value creating solutions to improve their net backs, to improve the customers’ net backs. And we think in the long run that will win the day for us and for our shareholders by being that attentive to our customers’ needs.

Now, just as we’re believers in the oil sands, we’re also believers in the deepwater Gulf of Mexico, and that’s what really attracted to the Enbridge offshore assets in the first place. The fundamentals here are also very compelling. Independent sources have confirmed our view that we’re going to see a near doubling of gas production from the deepwater Gulf from pre-Katrina flows of approximately 3.5 to 4 decotherms per day to about 8 decotherms per day by 2010, so very good growth from that producing region.

From a strategic standpoint we feel that our independent status there as an operator will allow us to more easily consolidate further JV interests across the Gulf and across those systems. Early success has been evidenced in that regard with the June 2005 consolidation in the Garden Banks corridor, and then the recently announced acquisition of Maritime Gas Transmission.

So, this effectively increases our interest in the [Nautilus] Gas transmission pipeline and in the [Manterrey] gathering system to about 74%, and we would expect to be able to conclude more of that consolidation. In addition, as you know, the previously announced agreements to connect the Neptune oil and gas field volumes will provide some very visible organic growth as we go along. So, we’ve not changed our view on this business, and Enbridge offshore will be a significant contributor to future earnings in the Company.

Moving on to Enbridge gas distribution, it continues to provide very strong organic growth and is the second fastest growing franchise in North America. We add customers at a rate of over 50,000 new customers per year, and have done that consistently year in and year out now for close to a decade.

And natural gas pipelines, we’re well positioned to participate in moving the nearly four Bcf a day of gas that will ultimately flow from Alaska to market, and we’re also pursuing L&G reclassification projects. The most advanced being our [Robasca] project, which we talked about Enbridge Days, and as well we’re developing major new platforms for future growth, for example, power generation.

So, those are my initial comments. And now what I’d like to do is turn it over to Lee Cruse, who as Bob mentioned, is acting Chief Financial Officer for Enbridge Inc. during Steve Wuori's absence. I don’t know that I would call it a sabbatical, but he’s at the Harvard Charm School right now; and working pretty hard, and will be back in a few weeks.

But, over to you, Lee.

Thanks, Pat. I know we’re all looking forward to having Steve back and see whether he talks like a Harvard man.

Obviously, the quarter’s biggest news is the dividend increase. As Pat said, the increase at this time reflects our confidence in the strength of our future growth profile. Over the near to medium term we expect that it will result in dividend payouts in the range of 60 to 70% of adjusted earnings, which is more in line with those of a number of our peers. As you know, we’ve been creeping into this range over the last year or so, so in part this is a recognition that this is a more permanent move into that range.

The increase in dividend will not materially affect Enbridge’s liquidity or its ability to fund its capital programs. The incremental cash required to fund the dividend is about $50 million which is modest in the context of annual operating cash flows well in excess of $1 billion.

We expect to continue to enjoy very strong access to capital markets, given our strong credit rating and low risk proposition. Rewarding our investors with a higher cash dividend will not impair our ability to deliver on the strong slate of projects that Pat just reviewed with you.

Turning to the quarterly results, Enbridge once again delivered strong and consistent earnings despite having to absorb the adverse earnings impact at Enbridge offshore associated with Hurricanes Katrina and Rita and the initial lower earnings associated with the rebasing implicit in the renegotiated incentive tolling settlement. Earnings from Enbridge offshore will continue to be adversely impacted in the fourth quarter as a result of the affects associated with the hurricanes, although likely to a lesser extent.

On a fully adjusted basis the quarter is essentially free from any significant adjustments due to nonrecurring items. The exception relates to the recoding of our share of mark-to-market losses on commodity hedges in place at Enbridge Energy Partners. This issue requires some further explanation, and I propose to come back to it when I address the results for our sponsored investment segment.

Turning to liquids pipelines, liquids pipeline earnings for the quarter and YTD are flat on a comparative basis; however, from an operating perspective lower Enbridge system earnings resulting from the effective rebasing implicit in the incentive tolling settlement were offset by increased earnings from the Athabasca system pursuant to the commercial terms of the long-term paper pay contract which is in place with its major shippers and also to lower operating costs.

The YTD decrease in Enbridge systems earnings is likewise driven by the renegotiated ITS, as well as increased oil losses, the majority of which were recorded in the first quarter. This decrease was effectively offset by better financial performance from both the Athabasca and [Peter] pipelines and other, principally the [Frontier pipeline]. Operating performance at Frontier has been consistent YOY; however, third quarter repaid reparations and other operating costs adversely impacted the 2004 financial performance.

In terms of gas pipelines, the increase in YTD earnings over the comparable 2004 time period is primarily attributable to the inclusion of the results from the Enbridge offshore pipeline system acquired on December 31st, 2004.

Third quarter earnings in 2005 reflect the negative impacts of Hurricanes Katrina and Rita, as I said. The quarterly results include the application of property insurance deductibles, as well as the impact associated with lost revenue on various systems prior to the commencement of contingent business interruption insurance coverage.

Previously, the Company indicated that it expected that the combined 2005 impact on earnings attributable to Hurricanes Katrina and Rita would be approximately $15 million to $20 million. The Company has estimated a $10 million earnings impact in the third quarter. This is comprised of expenses booked in the quarter, combined with revenue not earned compared with what was forecast due to production disruptions in our customers’ production facilities. And I would emphasize, our pipelines maintained pressure and were not materially damaged in the course of those hurricanes.

We estimate an additional $5 million to $10 million impact in the fourth quarter. As of October 24th, 2005 we were transporting approximately 1.5 million decotherms per day, compared with pre-Katrina flows of approximately 2.7 million decotherms per day. It continues to be our position that we will be flowing volumes close to the pre-Katrina levels by the end of the year. The difference when compared with the pre-hurricane volumes will relate primarily to production from the [Morris] platform, owned by Shell, that was previously flowing on the Mississippi Canyon system. Shell recently announced that Morris is due to resume production in the second half of 2006.

Turning to sponsored investments, Enbridge income fund earnings on both a quarterly and YTD basis reflect higher preferred unit distributions and higher incentive income. The operating performance of the underlying assets has also been stronger relative to the previous year’s results. On a fully adjusted basis and exclusive of dilution gains Enbridge energy partner earnings are flat on a YTD comparison basis.

Quarterly adjusted operating income increased quarter over quarter as the contribution from natural gas and marketing offset the impact of lower [lake head] system volumes. The contribution at the Enbridge level was lower than would have otherwise been the case given Enbridge’s lower ownership interest.

Reported earnings also reflect the Enbridge share of the previously mentioned mark-to-market losses on hedging transactions and place at Enbridge Energy Partners. Commodity derivatives have been used at Enbridge Energy Partners to manage risk and lock-in cash margins on a forward basis. However, despite the fact that these instruments serve to economically hedge commodity price risks, we’re unable to get hedge accounting treatment for certain transactions under the FAS 133 accounting standard and its similar accounting provision in Canada.

Therefore, changes in their mark-to-market value are captured in the earnings of the partnership. These are non-cash impacts that will ultimately reverse over the life of the contract. With the run-up in commodity prices and, in particular, the differences in prices at different delivery points on our system, mark-to-market values have been largely negative; however, as periodic payments are made and the maturity date of the contract approaches, the mark-to-market value of the contract will revert towards 0 resulting in the recognition of mark-to-market gains on the partnership’s income statement.

Enbridge believes that Enbridge Energy Partners’ hedging strategies are prudent and serve to economically mitigate underlying commodity price risks. We expect that the partnership will continue to use these strategies to lock-in margins and mitigate cash flow volatility. Unfortunately, this is going to result in a situation or certain hedges that don’t qualify for hedge accounting, but will continue to mark-to-market, creating noise in both the partnerships and Enbridge’s GAAP earnings.

During the gas distribution and services, as has been the case throughout the year, 2005 and 2004 financial results are not directly comparable due to the yearend change in [EGD], the cessation of the quarter lag reporting, and the impact of the move away from seasonal rate design which is reflected in the 2005 rates.

To assist in drawing quarterly comparisons we have, once again, provided information which sets out the results of EGD on a quarterly basis for the calendar year 2004. The full 2004 information for both reported and fully adjusted results is presented on this webcast and can also be viewed on our web site under the folder ‘additional resources.’

On a fully adjusted basis the utility’s YTD financial performance is in line with 2004 results. The quarterly variance reflects the timing of various expenses, as compared to the forecast cost of service including revenues, which represents a reversal of the variant identified in the prior quarter.

With regard to the 2006 rate case the evidentiary portion of the hearing process concluded on October 27th and reply argument is scheduled for early December. We expect a final decision from the OEB during the first quarter of 2006.

In international, YOY and quarterly performance at CLH is higher due primarily to the impact of higher average tariffs due to toll indexation and longer hauls.

And on corporate costs, setting aside increased business development activity in 2004 corporate costs are in line with expectations, quarter over quarter.

And with that, I’ll turn it back to you, Pat.

Great. Thanks, Lee.

And just to briefly sum-up, all in all, a pretty eventful and positive quarter, capped off by this 15% increase in the dividend. And as I’ve already stated, this increase really reflects our confidence in the future prospects of the Company. Our track record is well established, we’ve got a strong and diversified base of energy assets, and a very sound and strategic direction for the Company.

We have become the premiere growth story in North American energy delivery underpinned by an unprecedented $8 billion portfolio of organic projects in our crude oil pipelining business, and very good strategic positioning in new Frontier basins of growing importance, like the deepwater Gulf of Mexico and Alaska, and continuing strong organic growth in [Bridgecast] distribution.

So, that concludes our formal remarks, and, Bob, back to you for the question period.

Well, thank you, Pat. And we will proceed to q and a. I would just remind you, again, we have about 35 minutes before our Board meeting reconvenes. So, again, if you could please limit your questions to one follow-up. And, again, we will be available after the call to take any overflow. So, we’re ready now for our first question.

[OPERATOR INSTRUCTIONS.]

And your first question comes from Linda Ezergales from TD Newcrest. Please proceed, ma’am.

Thanks. Just have a question with respect to your growth. If I recall correctly, I believe last month, Investors Day, there was a discussion of 8 to 10% EPS growth being achievable from pure organic means. The press release today stated a 6% + growth rate was still achievable. And in the past organic growth guidance was really more in the range of 5 to 6%. If I add up all those statements is it fair to say that your expectations of organic growth now are 6 to 8%?

Linda, the – we have indicated for the last number of years now that we expect over a 5-year period that we would average 8 to 10% EPS growth. That has been composed of about 5 to 6% organic, and 3 to 4% via the acquisition route.

We now feel that the organic growth rate is going to be even stronger. And as we mentioned at Enbridge Days, probably in the 6.2 to 6.3% range, again, averaged over a 5-year period. So, we would expect that with some success on the acquisition front that we would maintain that 8 to 10% EPS growth rate.

Recognizing as we cautioned at Enbridge Day, though, that it is very difficult to find accretive acquisitions in the market today based on the high multiples that these assets have been selling for. But we’re, so to sum-up, we’re more confident on the organic growth front and may play a little bit of wait and see with regard to acquisitions until we get prices in the range that we’re comfortable with.

Okay, thank you. Now, just as a follow-up, Noverco realized a onetime income tax recovery. Is that about 5.5 million positive, I calculate?

I’m going to have Colin speak to that, Linda.

That’s right, Linda, 5.5 is the discreet third quarter tax recovery, future income tax liability reduction, if you like. Recall, in the second quarter we had a similarly sized opposite expense. So, for the full year we expect the net impact to be just over $1 million.

Okay. So, why didn’t you normalize for that this quarter? Help me understand why a onetime item wasn’t normalized?

Well, we didn’t normalize in either quarter, recognizing that for the full year it’s essentially a wash.

Okay. All right. I guess I’ll jump back into queue.

Thank you.

And your next question comes from Karen Taylor with BMO Nesbitt Burney. Please proceed, ma’am.

Thanks. I just have a quick, two quick questions. On the liquid pipeline system, the $45.4 million contribution, that seems high versus where you were in Q1 and Q2. Can you just explain to me was there any amount in the third quarter that somehow related to the first two quarters, given the timing of the deal?

Karen, I’ll ask Richard Bird to speak to that.

Was there any amount in the third quarter that related to the first two quarters?

Or anything else? It just, it seems that out of touch with where the results have been for the first two quarters?

Yes, I’m not sure that I see that. I think the year is unfolding pretty much as we expected it to, Karen. So, no, there’s not an amount in the third quarter relating to the first two quarters, recognizing that the * deal is measured on an annual basis, so what we book quarter by quarter reflects an estimate of what we’re going to pick-up once we get to the end of the full year.

Okay, so how much is the estimate that would be booked in the third quarter then? And is it a levelized estimate between the three quarters?

No, do you want to answer that?

Yes, and Karen this may be a good opportunity to kind of discuss this a little more fulsomely. The performance metrics are essentially a contingent revenue, and remember they are symmetric. So, accounting rules preclude you from essentially pre-booking too much of that, so if you’re modeling, which it sounds like where you’re going with this, I would backend weight your assumptions into the, to the fourth quarter perhaps, typically. Of course, it’s symmetric with our accounting rules if you know you’ve got a penalty if you book them immediately, but you’ve got bonuses, you would wait till you had certainty.

Okay, and just one quick follow-up please, on the dividend. Is there some risk that you’re putting the cart before the horse with this increase? And does this then obviate the normal step-up in dividend that we will see in fiscal 2006?

Yes, Karen, for sure we don’t feel like we’re putting the cart before the horse. And as you undoubtedly noted from the press release we feel we’re moving the dividend payout range more in line with the industry norm in the 60 to 70% range.

Not only that, as we mentioned, the visibility of this organic growth is very strong, and you undoubtedly will recall a year ago at our Enbridge Day conference we indicated that of this huge slate of crude oil projects that we had that we didn’t expect that we would get every one, but we thought we’d get our fair share. Well, guess what? At this point, we think we may get every one of them. Our level of confidence has gone up very dramatically. So, far more visible, and not only that, moving more into range with the industry standard.

And I have now forgotten the second part of your question?

There’s – you know we were looking for a further dividend increase in early 2006. Would this obviate that one?

No, this doesn’t obviate that. We would expect that going forward dividend increases would be pretty much in line with EPS growth.

Terrific. Thank you.

Sorry, Colin, did you…

I think she’s asking, you know, does this take the place of the cycle that would normally occur in January?

Oh, no, this – we, as you know, dividend policy is Board policy, but we have historically been on an increasing dividend at the beginning of the year and would expect to continue on that course.

But likely the next one wouldn’t be till January of ’07.

Of ’07.

Yes.

Does that answer your question, Karen?

On to the next?

And your next question comes from [Maureen Howell] with RBC Capital Markets. Please proceed, ma’am.

Thanks very much. In your presentation and at Enbridge Investor Day you talked about the organic growth within Enbridge gas distribution and the customer growth, which is pretty substantial at 50,000 customers a year. But if we go back to 2001, 2002 where that business was booking 113, 114 million in each of those years on a normalized basis, you know, it doesn’t appear to be translating into earnings growth from the system. Do you see that changing going forward?

Well, and I think the main reason why that trend that you indicate has occurred is because there’s been slight decreases in ROE as interest rates have come down and based on the formula that…

But pretty small, you know, for 2005, Pat. You know, yes, there’s been some, but it hasn’t really been all that material.

No, it hasn’t. But generally speaking, you know, realize we’re talking about a very large 1.5 million customer base, as well, so 50,000 new customers at 3 to 4% growth, and that has been somewhat offset by the declines in ROE. I think going forward that our next big opportunity there will be with regard to PBR in the 2008 timeframe to recover some of what we have seen eroded with the decline in interest rates on ROE.

Okay. So, not really a whole lot perhaps until you get PBR in place?

I think that’s fair, yes.

Now, my follow-up question is with respect to the liquid pipeline, and specifically the southern access portion. In the document, in the interim, it states that finalization of [cap] support is one of the outstanding issues, if you will, to be resolved before you start construction. And I’m wondering if you can elaborate on that, and just talk about what are you looking for from cap? And are their issues with some of the cap members? And then, you know, just what’s going on there?

Maybe I can just briefly start that, and then I’m going to ask Richard to add to it, Maureen. The, as you know, we have taken the approach in this Company of ensuring that we review with cap any initiatives before we take them forward to the regulator, so even though we went out and ran an open season that indicated very strong support for southern access, we do intend to review this with cap to ensure that the Association is supportive before we get in front of the regulator and to help consolidate the regulatory process. So, we’re going through that formal process right now, and Richard can elaborate on it.

And will we get unanimous support? No, we never do, because cap is comprised of many, many companies, not all of whom see this industry developing exactly in the same way. But we look for a consensus association support that we can go forward with.

Richard.

Well, I think that’s a pretty accurate description. We basically have gone down two paths with southern access. One is the open season path where we’re dealing directly with individual shippers rather than through the Association, and that was driven by the fact that we were in a competitive situation.

Having got the level of support that we have we’ve now cycled back with cap and said we would like to go forward with the regulator and not just with the support of, direct support from individual shippers, but also with an overall endorsement from the Association. And given the level of direct support cap has determined that it will consider taking a formal position in support of the project, and they’re just finalizing their deliberations on that at this point in time.

So, your understanding then at this point it looks like it’s a positive decision on the part of cap and that should be forthcoming any time?

I believe so, and just as with the open season, the proposition before cap is whether to undertake all three phases simultaneously or some variation of that, and it’s also a forum for discussion of kind of final scope and capacity of the expansion. And whether the 30-inch, 400,000 barrel a day line is going to be adequate over the longer term or whether it should be upsized.

Okay, that’s great. Thank you for that information.

Your next question comes from [Dominique Barker] with CSFB. Please proceed.

Good morning. I was wondering could you please explain the rationale with your payout ratio increasing, just as your growth opportunities are increasing?

Yes, thanks, Dominique. I think there’s several factors that have caused us to feel we should move that payout ratio up. Number one, as I mentioned earlier in response to another question, we tend to lag the industry average. We looked very close to our North American peer group and have found that the 60, 70% range is more typical. So, that’s one reason, just to get a little more in synch with that.

As you also know, the market is very much valuing yield and dividend, and we want to be responsive to investors’ desires for that yield. We have such a strong balance sheet right now, as you know, we’re somewhat under levered, and have such a strong organic growth profile that we feel that we can more than adequately address that dividend, continue to grow dividends in the future commensurate with EPS growth.

So, we feel it’s very market responsive and very much in keeping with the industry norms at this point.

Okay. And just to follow-up, because you also mentioned that you feel that you’re the highest growth company in North America versus your peers. So, is it appropriate to compare your payout ratio to lower growth companies?

When we, when I say that we looked at the industry average, we factored in the growth rates of the other companies, so you’ll find that there’s some with dramatically higher payout ratios for us, which are reflected in their very low growth rates. But we still feel that we’re going to be on the low end of the industry average in terms of payout ratio reflecting, again, the fact that we do have the best growth rate. So, as you know, some payout ratios are well up there in the 80, 90, or even in excess of 100% range.

Okay, thank you very much.

Thank you, Dominique.

And your next question comes from [Winfried Fruehoff] with National Bank Financial. Please proceed.

Would the [son of terrorism], headed by [Rich Kinder] differ materially from terrorism on the [John Reed]? And how is Enbridge positioning itself to get more of the income into pipeline capacity than KMI?

Well, that’s a question that I could probably spend some time responding to, Winfried. The main thing that we will continue to do is to work very, very closely with our customers to add value for them. And we feel that that approach is going to ultimately add value for our shareholders.

We’re focused very much on improving net backs for our customers, whether it is working through that corridor between Fort McMurray and Edmonton, working on extending the system south of Chicago, working on the gateway proposal, bringing [condensate] in – all of these initiatives are initiatives that have started, many of them as much as five years back at Enbridge as we’ve looked at the supply, demand fundamentals and kept in mind our customers’ needs.

And we feel that we’ve got a distinct strategic advantage over our competition, whether it be terrorists in the past, or Kinder Morgan today in terms of that relationship. We’re very well positioned with our customers here, and we’re going to be very, very aggressive. As I’ve mentioned before, this might be a conservative and disciplined company but it’s a very aggressive company, and we’re going to go out and win every little bit of that business that we can.

Okay. Well, a follow-up question on hurricane damage. And it’s a two-part question. Am I right that the estimates of the hurricane damage that we heard today, this does not include any insurance recoveries?

That’s correct.

That’s right.

Waiting periods, Win, before CBR, contingent business interruption coverage commences, so we’ll have some more of that essentially the first month of the fourth quarter.

Okay. And the other question relates still to hurricane damage as far as [EEP] is concerned, did EEP not also suffer hurricane damage? And are your estimates of hurricane damage like 10 to 15 million, or 15 to 20 million, and 10 million, and so on – do they include EEP’s hurricane damages, as well? And, if not, what are they?

EEP had very minimal hurricane damage. And I’ll ask Lee Cruse to quantify that for you.

EEP’s hurricane damage at the EEP level was in the order of a couple of million dollars, and so rolling up into Enbridge it’s a truly insignificant number.

Thank you. That’s all I have.

Thank you.

And your next question comes from [Matthew Atman] with CIBC World Markets. Please proceed, sir.

Thanks. My question is probably directed at Lee on financing the southern access project, now that it’s getting closer to final approval it looks like. And most of that money is going to have to be spent by the partnership. On the last conference call I was asking whether Enbridge might contribute some of that financing one way or the other? And I think at that time the thought was no; but on the Enbridge partnership conference call recently, I think it was said that innovative financing methods would be considered. So, maybe I’m just asking the same question again which is does that include possibly relying on Enbridge for some period for that financing?

I’ll let Lee take the first part of that, and then I want to comment on it, as well, Matthew. But go ahead, Lee.

Yes, there’s a number of growth initiatives underway at EEP, and so their capital needs are quite substantial. And that, I think led to the comment that was made about looking at innovative capital structures. They don’t necessarily include Enbridge directly participating in the financing, although we’ve indicated I think for some time that if the situation warranted it and the returns were attractive to Enbridge Inc. and it facilitated something for EEP there are some pretty rare instances where that would be something that we would be prepared to consider.

Okay.

And just to add to that, Matthew. As you know, Enbridge considers the MLP in the U.S. and the Income Trust in Canada to be very important parts of our strategy in terms of acquiring third-party assets; and Enbridge is prepared to stand behind and assist both of those structures as required.

Well, maybe just as a follow-up, would that possibly give you an increased partnership interest so you could earn some net income on that in the interim while you wait for the earnings from the southern access project to kick in? Or am I getting too far down the road here?

Well, it certainly could. You know, the potential for increasing Enbridge’s ownership potential is there. We believe very much in the growth story within the partnership, largely driven by crude oil growth going forward.

Okay.

Just to add to that, you know, we’ve allowed ourselves to be diluted down from about a 20% ownership interest to the current level of about 11%, so we were comfortable at the 20% before and that’s the level we’ve also indicated for the income fund. So, you know, that might kind of set some boundaries.

Okay, great. Thanks. Those were my questions.

Thank you.

And your next question comes from [Andrew Kustie] with UBS. Please proceed, sir.

Thank you. Good morning. If we were to look at your capital program really over the next five years, you’ve mentioned $8 billion of potential projects on the liquid side, in the neighborhood of about $2 billion EGD, and that didn’t really include any sort of power related investments.

When you look at your financing plan how do you plan on tapping into the financial markets? Whether the debt markets, the equity markets? And then really an ancillary question is to what extent are you looking for partners? And I know you specifically mentioned this in terms of gateway, but to what extent are you relying on partner money or pension plan money for your capital plan?

Okay, let me address that in general, and I’m going to ask Lee to step in, as well.

As you know, Andrew, we generate significant free cash flow in this Company. And based on the 5-year plan that we have put together and reviewed with our Board, at this point we don’t see a specific need for additional equity over that 5-year period, even with the aggressive growth plans that we’ve got. Again, largely because of the significant free cash flow that we generate. So, we’re quite comfortable going forward with the aggressive plans that we have, and of course will go to the debt markets as required, as debt matures and as required.

And, Lee, I don’t know whether there’s any more specific to that that you’d like to add?

I think I would just add to that that there are specific projects where we’ve indicated that we’re prepared to work with partners, but that’s because it helps facilitate achieving our objective on the project, not because we’re relying on them to provide financing for us.

Well, that’s a very good point, Lee. And, you know, to use the specific example of this condensate line from Kitimat into Edmonton, we have been requested by potential shippers to take an equity interest. And as we indicated at Enbridge Day we would love to maintain 100% of that line but we’re prepared to give-up as much as 49% of it to other investors. So, we will bring partners in where they bring some volume with them and help anchor some of the projects that we’ve got.

So, in that light is it fair to conclude that you essentially in terms of gateway in particular, you’re using partners or potentially using partners to mitigate your risks from a counterparty standpoint, and then over a period of time you actually would like to buy those interests in and make them whole?

Yes, you could put it that way. I guess the way that we view it is that we’re perfectly prepared to do it 100%, and we really are accommodating their interest in being involved and taking a position in the pipeline, and they really earn the right to do that by making significant commitments. And from their point of view when they make those commitments there’s a liability associated with that, and they’re looking for some kind of an asset to offset it, which is their interest in the pipeline. So, we’re doing it as much to accommodate them, not because we require their capital involved in the project.

Okay, that’s great. Thank you.

Thanks, Andrew.

And your next question comes from [Brian Purdy] with First Energy Capital. Please proceed, sir.

Hi, guys. I was wondering if I could ask about a comment you made in the introduction about your power generation business, and I’m wondering if you’re planning some expansions in that area? And if you could comment a little bit on your strategy in terms of development versus acquisition or your other geographic areas of interest?

Sure, I’ll do that, Brian. We have indicated for some time now that we are interested in getting into the gas fired power business in our franchise area in Ontario, where we already have existing gas delivery infrastructure, we’ve got gas storage facilities, we’ve got a gas services function. And, therefore, we’re in a very good position to effectively be the fuel manager around a gas fired power project. Also have synergies as a result of having people in the franchise area.

So, we have looked at and have bid on projects in the past, and more recently it would appear as though we’re going to have an opportunity at this [Warway] facility that we bid to the Ontario RFP back several months ago, to come back in now at the request of the Ontario Power Authority to develop that project in conjunction with [site]. And we’re currently working with them to firm up an Enbridge position in that; and we feel that this facility is particularly well located in metropolitan Toronto to fill a gap that they’ve got in terms of power supply there.

So, we definitely are interested in gas fired power generation and in our franchise area. You won’t see us jumping off and doing a project somewhere else in the world or in North America, though; we’ll tend to stick to our franchise area in Ontario.

Okay. And just another area I wanted to ask about is the Alaskan Gas. Obviously, there’s been a bit of news out of the Alaskan Government about making deals with producers up there. I wonder if you still feel a role for Enbridge in that type of project?

We sure do, Brian. We’re, we are very keen on being involved in Alaska, and feel that we’re very well positioned not only because of our alliance pipeline interests which we think is a logical takeaway pipeline from Alberta for Alaska gas but also because of our presence in the north with our [Norman Wells] pipeline.

We work very closely with the Producer Group, as you know, it’s been announced that Conoco Philips has reached agreement with the State. I’m not sure what the state of negotiations is between BP and Exxon Mobile, but we’ve got very good communication and working relationship with all three of those producers and would certainly hope to be involved.

And have you received any indication that they want you to be involved?

Well, we’ve got very good working relationship with them, but to tell you the truth they’ve been so focused on getting their deals done with the State that they haven’t really turned their attention to pipeline partners. And we continue to work with them, provide them with information, and expect to be able to provide a very valuable service to them. But we’ve got to convince them, we need to show them what value we can add to their project.

Great, thanks very much.

Thank you.

And your next question comes from Bob Hastings with [Tanacorp]. Please proceed, sir.

Thank you. One of the, just a little clarification, you mentioned in your report that there was oil losses out of the Enbridge system and predominantly in the first quarter. Was there any in the third quarter?

Very, very small, Bob. I think that quarter over quarter an increase in our losses – these result from the physical losses to some extent, degradation from batching and revaluation on the way that is spread. And I think the increment is about half a million dollars quarter over quarter.

Okay. Quarter, last year’s quarter?

Correct.

Okay, thank you for the clarification. And one of the things in your strategy is when you’re looking at your growth opportunities and potential acquisitions is that you had some trust vehicles that you could use to help finance if required. Given some of the changes in or certainly not changes, but given some of the talk that there may be changes and we don’t know what the heck they are, do you see that strategy as changed? What do you see as your backstops? And given that you just increased your dividend significantly does that mean that you don’t think there’s probably going to be that many changes, or significant changes for you?

Well, first of all, we consider both the MLP in the U.S. and the Income Trust here to be very significant parts of the strategy, Bob. And it is a little confusing as to what changes may occur. We’re participating with others and making representations to Ottawa on the significant value that we think the Income Trust market has brought. We would expect to see – we don’t expect to see any change in our Income Trust environment, to tell you the truth; and expect it to be a very good vehicle for third-party acquisitions.

As we’ve indicated in the past, we don’t feel at this point that we’ve got other assets to drop in there. We’ve pretty much seeded the Income Trust and MLP with those mature assets, and would now tend to use it more as a third-party acquisition vehicle.

And really there’s no connection between our dividend increase and what’s going on in the Income Trust market. As I said before, this is more of a reaction to general market preference for yield and also the fact that we needed to get our payout ratio in line with industry norms.

Well, after September 19th we certainly did see some of the comparable, power trust, pipeline trust decline and money coming out of that. And definitely going into the utilities and pipeline companies.

Yes.

So, there’s been an impact, and your higher yields probably will help you out there. But you don’t believe that there’s going to be any significant changes to your capabilities of what you can do in the trust area?

No, we don’t.

Okay, thank you.

Thank you.

[OPERATOR INSTRUCTIONS.]

And your next question comes from [Sam Kanes] with Scotia Capital. Please proceed, sir.

Just some small mechanical questions in international. Is this strong result of CLH, is that a sustainable run rate going forward now, or can you can give a little more detail on the step up YOY?

Lee, could you address that, please?

Yes. It is sustainable. CLH is really driven by the fundamentals which relate to increases in the consumption of refined products in a pretty rapidly growing European country. And so it’s a function of both throughputs and tariffs and the fact that the hauls are becoming longer, all of which is really sustainable.

Okay, thank you. In other, I speculate and I probably speculate wrong, that you’re down 50% YOY in the quarter in other expenses. I presume that’s development cost related or is it something else?

Colin?

Is that the corporate segment, Sam?

No, sorry, within international.

Oh, within international. Yes, the difference there would be primarily business development costs which were higher in 2004.

Okay, thank you.

And our final question comes from Linda Ezergales with TD Newcrest. Please proceed, ma’am.

Thank you. I have a question with respect to your gateway comments line. Just wondering what timing you’re expecting for binding and final agreements with shippers? I recognize that there was a successful open season, but that wasn’t finalized. And just wondering if your original timeline with respect to that has been delayed at all given the recent what I would consider to be competing proposal that was recently released?

Well, I’ll ask Richard to speak to the specifics on the negotiations on the binding part of the phase; but let me answer emphatically with regard to the latter part of it – no, the recent announcement has not slowed us at all. And we are going flat out on this. As you know, Linda, there’s been an overwhelming response. We want to get this line in service as quickly as we can because producers here in Western Canada are really hurting from high condensate price. So, we’re going flat out on it.

Richard, can you give the specifics?

Yes, with respect to timing, Linda, our objective would be to bring both the precedent agreements for both the condensate line and the crude oil line to a finished line simultaneously in the first quarter of next year. That timing would put us in a position to make a regulatory application in the second quarter of next year, and have the line in service early in 2010. So, that’s the extent on that kind of timing. And it does make sense to try and have them both concluded at the same time so that there’s full certainty for both groups of shippers.

And what happens if there’s any sort of delays in the – I mean, I guess I’m trying to think of what could cause a delay or a falling through of any sort of finalization of precedent agreements in the first quarter?

Well, at the moment I’m not aware of anything that is likely to result in a delay to that. And, certainly, with respect to the recently announced competition, we’ve sounded out the shippers that we’re in discussions with on the condensate line, and they have indicated that they don’t view that as changing their course of direction or their timing.

So, then you don’t see a lot of risk to that timeline or outcome then?

No.

Okay, thank you.

Thank you.

We have no further questions at this time. Mr. Rahn, I’ll turn the call back over to you for any concluding remarks.

No, no concluding remarks, other than to say thank you for being mindful of our timelines and for your continuing interest in Enbridge. Thank you.

Thank you, ladies and gentlemen, for your participation in today’s conference. This concludes the presentation. You may all now disconnect. Good day.