恩橋 (ENB) 2007 Q1 法說會逐字稿

Good day and good morning ladies and gentlemen and welcome to the Enbridge Incorporated 2007 first quarter financial results conference call. My name is Katina and I will be your coordinator for today. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's call, Mr. Bob Rahn, Director of Investor Relations. Please proceed, sir.

Thank you, Katina. Good morning and welcome to the Enbridge first, or Enbridge Inc. first quarter 2007 earnings call. With me this morning are Pat Daniel, President and Chief Executive Officer, Steve Wuori, Executive Vice President, Chief Financial Officer and Corporate Development, Richard Bird, Exective Vice President Liquids Pipelines, and Colin Gruending, Vice President and Controller. During this conference call, we may refer to or speak to certain forward -looking information.

Statements made with respect to forward-looking information are subject to a variety of risks and uncertainties pertaining to operating performance, regulatory parameters, weather, economic conditions and commodity prices.

A more full-some discussion of this risks is included in our securities filing which are publicly available on both on SEDAR and EDGAR.

This call is webcast and I encourage those listening on the phone lines to view the supporting slides which are available on our website at www.enbridge.com. This is particularly important for this call since we will be referring to a number of slides that address the equity returns associated with a number of our liquids projects.

A replay of the call will be available later today and a transcript will be posted to our website shortly thereafter. Katina has explained the change in the format for the Q and A. When we do move to those sessions I would like to ask you to please limit your questions to one follow-up and then rejoin the que.

I would also remind you that I will be available after the call for any detail follow-up questions you may have. At this point, I would like to turn the call over to Mr Pat Daniel.

Thank you very much, Bob. Good morning, everyone. Well, Enbridge is off to a good start again in 2007.

As you know, reported and adjusted EPS for the quarter are the same at $0.65 per share, which is slightly ahead of the consensus estimate. This puts us on solid footing, now, to achieve our previously-announced adjusted EPS guidance of $1.75 to $1.85 for the year.

But even more pleasing to me is the fact we had strong performance across all of our business segments in Enbridge. And the quarter was also very significant in that several large projects that we have talked to you about before have now moved from the planning phase to the construction phase.

And more on that later on. We have a number of growth projects underway across all of the business segments, of course and the MD&A really provides a detailed update on the status of most of those projects, in fact all of those projects. So rather than repeat what's in the MD&A, what I'd like to do is focus on some of the most common questions that are put to me by investors with respect to the near term and long-term growth, and I would like to emphasize, of course, the $8 billion of liquids projects that we currently have moving forward.

The areas of questioning tend to really distil down to three. The first is what are the expected equity returns on these projects? Secondly, which of these projects will deliver near term contributions to earnings?

And then, thirdly what are we doing to manage capital costs in this challenging environment in which we operate today. So, to facilitate the discussion of these three questions we have provided two tables in the supporting slides on the website that Bob referred to.

The first deals with project risk, return features. And the second, the project risk return portfolio of all of our projects. Which it looks at those general features on a project by project basis.

Our business model that you have heard us refer to in the past is to earn superior returns by creating value for our customers. In our liquids pipeline division, returns can range from 9% on smaller projects undertaken basically at the NEB multi-pipeline rate to an upper end in the mid teens for others. We also look at the return profile, of course, generally preferring a flat profile to a back end loaded one.

However, when required to accommodate shipper objectives, we will undertake projects with initial year returns in the mid single digits tilted upwards thereafter, such as our Athabasca pipeline laterals, or Athabasca pipeline I should say and then laterals to Surmont and Long Lake projects.

So we look very carefully at what risk, if any, we will bear, relative to our ability to manage and mitigate those risks. Volume risk is a critical one, as is capital cost risk.

Because we have no control over volume, we generally carry little or no risk associated with volume. Occasionally, as you know, we undertake a project where an acceptable minimum return is contractually assured at the outset, but then the upside is contingent on uncontracted volume. And a good example of that would be the Spearhead Pipeline Project.

On capital costs, we undertake many projects with little or no exposure, but we are also amenable to incentivise structures where we can share in the upside if we manage the costs on the projects. Occasionally we will accept full capital costs exposure if the returns are attractive enough and we are comfortable with our ability to manage the risk.

So turning to some specifics, the risk return details of many of our projects are on the public record, you know. For example, Southern Lights public open season documents fully disclosed the financial parameters of the project and Southern Access regulatory filings in Canada and the U.S. do the same.

So I'm not going to go through each project on the list that you should have in front of you. But I think you can readily see from the table the effectiveness of focusing on customer value creation.

Southern Lights, for example, which is a U.S. $1.3 billion project comes on-stream in late 2009 to mid 2010, carries a 12% return from day one. It also has a kicker where we keep 25% of spot volume revenues on the 10% of capacity that's reserved for spot shippers. So that provides some upside to that 12% return. This would contribute another 2.4% to the return if the spot capacity were fully utilized. There is no volume risk to us, but there is an incentivized capital cost risk sharing formula. The two Southern Access projects in the U.S. have got similar return characteristics with a full life return of about 12 or, sorry, 11%, depending on the inflation rate.

The U.S. expansion part of Southern Access also has a volume kicker similar to what I described before which will enhance the base return assuming that those volumes materialize. Bear in mind that the economics do flow through to Enbridge via the incentive distribution mechanism to Enbridge Energy Partners on projects like Southern Access.

I know there is also a great deal of interest in how the financial parameters for Alberta Clipper will look given that is double the size of Southern Lights or Southern Access. But this remains under discussion with CAPP but we are confident that we will be able to apply this value creation business model to Alberta Clipper. We expect a relatively uniform structure for both Canadian and U.S. segments with returns and risk which are typical of the three large projects that we discussed and are on the slides in front of you. We will disclose details when finalized this quarter. So you can see from this slide with regard to risk returns that we have been able to maintain appropriate returns in light of very significant competition, and increasing capital costs. Moving on to discuss question two, which really is the near term contributors to growth in Enbridge, from the risk return table you can see that projects such as Southern Access, Alberta Clipper, Southern Lights really begin contributing in the 2009 to 2010 time frame.

In the near term, though, we have projects such as the Long Lake and Surmont laterals and Athabasca terminals delivering earnings contributions in 2007 and then projects such as Southern Access Phase One, Waupisoo, and the Stonefell terminal making contributions in 2008.

As our guidance indicates, our near term growth expectations are modest, relative to our recent track record at Enbridge. But the real prize is what is coming starting in 2009 with Southern Access, Alberta Clipper and Southern Lights, projects that already have the necessary commercial support and are moving forward.

So these are extremely attractive low risk projects that will be very acretetive to the future earnings of the company. To address the third question with regard to how we will manage this large capital program, we have made significant changes and have taken several actions within Enbridge.

For example, procurement of critical materials like line pipe and services like pipe laying contractors, for example, is an area where we have been very proactive and we have referred to this in previous calls. For example, we have now secured all of the line pipe required for the, Waupisoo, Southern Access expansion and extension, Southern Lights, Alberta Clipper and Line 4 projects from the low-cost mill in North America at a price which is favorable relative to other North American and offshore sources.

So we're very pleased with that. We developed a similar relationship with a number of Canadian and U.S. pipe lay contractors ensuring availability of that very critical service. The key to all of these arrangements has been to begin lining up the resources well in advance of when required to avoid the last minute scramble with competitors. I think you'll agree we've got well out ahead of that market.

On the organizational front, with regard to project management, we've split the development function in Enbridge into three groups, each headed by a Senior Vice President. And I'm referring now specifically to the Liquids Pipeline Group.

One group has the overall cradle to grave project management responsibility. One does the business development work on commercial issues and one is responsible for construction and execution. So we basically have taken one function and broken it into three.

We've also established a major project steering committee which is chaired by myself, the CFO and the Executive Vice President of Liquid Pipelines. We have utilized outside consultants to ensure that we are using best practices for major project management and we have also consulted with others in the industry particularly those with an Oil Sands focus companies to pick up lessons learned from their experiences.

And on top of all of that, we are going to be adopting what we refer to as a cold eyes approach with oversight and assessment from outside, independent project critic. So a number of activities in order to ensure that we bring these projects in on time and on budget.

Before I turn things over to Stephen Wuori, just let me comment briefly on two other matters. Firstly, there has been a lot of recent media attention directed at plans to expand to the U.S. gulf coast. This is a very exciting opportunity for Enbridge and it is in the early stages of development.

As we reach commercial terms on this project we will be back to you. The second issue is the April 15th crude oil release on Line 3. As you know, we pride ourselves on being a world leader in pipeline integrity management.

But occasionally we do experience situations such as this leak at Glenavon. Our first priority was to restore the site and return the pipeline to operation as quickly as possible, respecting all environmental and safety considerations. Just as critical is to fully assess the cause of the release to determine if further steps must now be taken.

Until we have fully satisfied that requirement we will operate Line 3 at approximately 80% of normal, operating pressure. So that really concludes my remarks. Steve is now going to cover the financial and operating highlights for the quart and I've also asked Steve to comment very briefly on the financing strategy as we move forward with this large capital program. So, Steve, over to you.

Okay, thank you, Pat. And good morning to everyone that's on the phone this morning. Pat's run through a number of the growth projects and the associated economics. And so for the sake of continuity, I'll discuss the financing issue first and then discuss the quarter after that. The financing strategy that we have is multi-faceted.

It is designed to provide a maximum degree of flexibility combined with an adequate level of available liquidity and it is based on a number of principles which I'll run through briefly.

First and foremost we maintain at least a billion dollars of available liquidity at all times through our commercial paper program and undrawn credit facilities to tide us over in times of difficult market conditions or anything else that may not be foreseeable.

Secondly, some of the larger growth projects may require new, dedicated bridge credit facilities to support the construction phase. And we will do that if and when required. Although I will say that we have recently bolstered our bank lines and don't foresee the need for that immediately.

Thirdly, projects such as the Southern Lights, a contract pipeline, can provide us with some additional flexibility through the use of nonrecourse project financing. And I would say that generally, in terms of philosophy, we bridge-finance our growth projects during construction and access the public debt and equity markets for permanent financing closer to the in-service dates of the project.

We issued just under $600 million of equity in the quarter and we expect that we will look to issue additional equity some time in the 2008 time frame when a number of projects approach their in-service dates. We may also consider introducing additional hybrid equity as a means of strengthening the balance sheet as we go through our planning.

Moving then to the quarterly results and as Pat mentioned relative to the first quarter of 2006 reported earnings increased 18.9% to $227 million and adjusted earnings are up 9.5% to $229.4 million. In the liquids pipeline segment, we can really point to full quarter contributions from both the Olympic and Spearhead pipelines to account for the lion's share of the increase in the first quarter 2007 results.

Enbridge system earnings are off slightly due to higher labor costs as we gear up for the major programs, as well as slightly increased taxes in the Terrace segment. The incentive tolling settlement metrics performance in the quarter is in line with our expectations.

I would note, though, that the actual booking of the earnings impact is back end weighted in the year given that most of the targets are annual in nature. Some of the factors that can influence performance of the metrics under the ITS include pressure restrictions, operating conditions and refinery outages. Performance so far this year is consistent with our overall guidance assumptions.

In gas pipelines the most significant change within the gas pipeline segment relates to the Enbridge offshore operation in the Gulf of Mexico. And I would note that we received just over $11 million of insurance proceeds which are included in GAAP earnings for the quarter. Those are divided into two distinct buckets.

One relates to physical damage of the facilities and the other relates to business interruption. So you'll note on the adjusting table we've taken out that component that relates to physical damage, in that we are basically writing up our plant. and left the business interruption component of that in adjusted earnings. So after subtracting the portion related to physical damage, adjusted earnings are $9.1 million or $4.5 million up from the first quarter of 2006. The $9.1million includes 6 million of business interruption as I noted so operating performance of the assets is basically flat year over year as we wait to tie in new production facilities.

While the 2005 hurricanes had a pronounced and immediate upon earnings, they also delayed the startup dates of future deep water development projects. We would expect the balance of 2007 for the offshore segment to be relatively flat from an earnings perspective.

Significant increases over current earnings levels are not expected until the 2008, 2009 time frame when projects such as Atlantis and Thunderhorse come on-stream. Moving to the sponsored investment segments, Enbridge income fund and Enbridge energy partners contributions are each modestly ahead of last year.

We are particularly optimistic about EEP's future earnings contribution as gas and oil Greenfield projects come on line within the partnership also in the 2008/2009 time frame. Moving to the gas distribution and services segment customer works is down $2.6 million quarter-over-quarter reflecting results of the Enbridge gas distribution RFP for the provision of customer care services.

Effective in 2007, customer works will no longer provide customer care services to EGD, and customer works will retain its other clients and also look to add new customers. Adjusted quarter-over-quarter changes in energy services and Aux Sable are fairly immaterial.

What does stand out is the impact of movements in the mark to market value of risk management instruments or hedges designed to lock in margin and profit. This quarter we booked an unrealized loss of $7.1million related to risk management activity in these two segments. It's important to note that while these market to market movements can be volatile, they are noncash in nature and will not have an adverse impact on the long run profitability of the company.

Just to discuss the financial instruments a little bit further, effective January 1st of this year, we adopted the new CI CA standards for reporting financial instruments. The company will now recognize the fair value of all derivative instruments on the balance sheet each quarter and record the change in the fair value of these instruments on the balance sheet within the category called AOCI, which is a component of shareholder equity.

To the extent that these instruments do not meet the criteria for cash flow hedge accounting, the changes in the unrealized fair values will be recorded through the income statement. This is effectively the Canadian equivalent to FAS 133 under U.S. GAAP. The company does not engage in speculation with its' financial derivatives programs. Enbridge's financial derivatives are used to economically hedge price exposures arising from underlying positions and to lock in positive economics.

I would note that all of Enbridge's exposures, both physical and financial, are maintained within our established 5% earnings at-risk limit. Over 95% of the hedges qualify for hedge accounting treatment. Those that don't resulted in a $9.1million charge against income in this quarter, including the effect coming through from Enbridge Energy Partners. I would like to point out that these fair value losses will be offset by gains when the underlying positions are settled, which we expect to occur within the 2007 calendar year.

I think those are the high points of a very solid and clean quarter. So I'll turn it back to Pat for concluding comments.

Great. Thanks, Steve. So earnings growth is coming from a number of sources spread across all the business segments of Enbridge. This diversity, in addition to some of our growth initiatives, is very important to us to achieve our near term earnings target.

And the first quarter results now leave us on very solid footing to achieve that target for the year. The discussion that we provided around our $8 billion portfolio of liquids projects was intended to provide a sense for the future earnings accretion and the fact that we are able to maintain significant returns on those projects. And I hope that was useful.

I know it was a very detailed but I hope it was useful to you. In conclusion, I would like to remind people that we have a very persistent commitment in this company to operational excellence, to customer service and the well-being of the communities in which we operate. So I think on that note, Bob, we can turn it, open it up to the Q and A.

(OPERATOR INSTRUCTIONS) Your first question comes from Sam Canes representing [Scotia] Capital. Please

Good morning, Pat. I guess I have to ask the testy question on credit now that S & P came out with an unchanged stable outlook A minus and of course Moody's downgraded with your sub-50% debt equity capitalization structure. Have you had follow-up talks with Moody's? There has been a change of philosophy, I guess, in how they measure credit items? Can you just speak to that in generality and how that's affected you, if at all, and what you can do about it.

Yeah I'll speak in general and then I'm going to ask Steve to supplement, Sam. We speak very regularly and work very closely with both of the rating agencies. And I think you have summarized it quite well. There are two different approaches being taken. And we feel very comfortable with the credit profile of the company, as you know, we are going through a major expansion program. Which is going to result in a little bit higher leverage for a period of time than we normally have, but with very obvious contracted results in place at the end of that. And if, in fact, we maintained a balance sheet that in this case would make Moody's comfortable, we would end up in an over-capitalized position in very short order as we come through these projects. So I think it's fair to say that we've indicated to you, the analyst community before, that we had hoped to receive forbearance from the ratings agencies as we go through this build out and it is fair to say S & P is prepared to grant that. Steve? What would you like to add to that?

That describes it pretty well. I would really note, Sam, that it's, I think a matter of timing. We are in the middle of a large growth program, it's very hard to hold to straight cash cash based SFO credit metrics during a period like that. But I would note especially as Pat has walked through the various projects and noted the way that the risks have been contained that these really are strong from a credit perspective. And so we're going to see a real strengthening of the credit metrics over time as these projects come into service, so we are quite comfortable with where we are.

Okay, a follow-up, real simple - Hurricane proceeds is that all finished now?

No we expect a little bit more. Generally what's happened in the Gulf is there was a real crunch after 2005 for divers to examine underwater facilities. And all across the Gulf we have seen that. And as we finish the last of our inspections with divers that are becoming available we have found a little bit more. So not quite finished yet. You'll probably see a little bit more from us in 2007.

Okay. Thank you, Steve.

Your next question will come from the line of Karen Taylor, representing BMO Capital Markets. Please proceed.

Thank you. Just a quick numerical question. Can you breakdown the contribution or the higher cost items for labor and taxes? And then what was the contribution from Tidal? And then my follow-up question would relate to the ongoing role of Enbridge Income Fund in this structure.

Okay. So Colin, I think will respond to Part A of that, Karen. And then I'll refer to the income fund.

I could probably pick up Part A of that Colin, if you want. It's Richard Bird. Of the -- and I think you are referring, Karen, to the Enbridge system.

Uh-huh.

Quarter-over-quarter performance, which is about $3 million lower in 2007 and 2006. The labor piece would be the biggest portion of that, with the tariff taxes impact a little over a million dollars in the quarter.

And Tidal?

Tidal isn't in there.

No what was the contribution from Tidal?

It's Colin, normalized contribution from Tidal is about, about $3 million in the quarter.

And what was the non-normalized?

Well, I think you'd have to take into account the mark-to-market number that we have disclosed.

Okay.

So it would have been a negative number, right?

Well it says in the release that you -- it was a negative loss for the segment but that contribution from title more than offset the negative mark-to-market. I can follow-up with Bob after the call.

I think it is a normalized 3 reported is a minus number. Minus 1.4.

We can follow-up on that with you after, Karen, if you would like. You asked about the future of the income fund?

Yes, to offset the 2008 funding requirements.

Oh. Yes. As I -- if I'm understanding your question correctly, all right the first step of our funding for this major program had been an intention to sell down our interest in the income trust. But as a result of the October 31 tax ruling. We obviously chose a different route. It wouldn't have been a good time to monetize our interest in the income fund. At this point we don't have any plans to change the role of the income fund in any way. We will see how things develop in that area. Recognizing the income fund, of course, still has a tax advantage for a number of years. And has a relatively low cost of capital. We think that our income fund is well-positioned because of its sponsored nature. It does have access to capital without going to the public markets and we also need to see the government rules and the specifics around those rules before we would take any further action. But at this point we think relatively speaking our income fund is in a strong position.

Okay. I'll hop back in. Thank you.

Your next question comes from the line of Linda Ezergalis, representing TD Newcrest. Please proceed.

Thank you. So we've seen in your Enbridge system for Q-1 the effects of labor and the tariffs tax. I'm assuming we can use that as, that cost pressure as a run rate going forward. And Pat, you mentioned your, that one of your system lines is running at reduced pressure due to the spill in early Q-2. Can you give us a sense of your expectations for the impact of that spill on earnings? I'm assuming it's mostly on the incentive side. And what the expectations are in terms of the back end loaded incentive earnings.

With regard to the incentive metrics. Yeah, I'm's going to ask Richard to comment on that one.

Sure. Well maybe just a position that Linda, I think in 2005 the first year we recorded about $8 million in metrics, bonuses. That was higher than our expectation for that year. Last year I think we recorded close to 12, which again was above our expectation. And getting toward the top end of the range, I think of what's reasonable. So in 2007 and moving forward, I think that probably reasonably spans the range. And I wouldn't expect that the impact on the, on performance metrics from pressure restrictions would be sufficient to move us outside of that range. So still running consistent with expectations and consistent with guidance.

Okay. And then for the balance of the year, the cost pressures on the labor side and the tariffs taxes would be consistent with Q-1?

Well, tariffs taxes is a little bit difficult to predict. But I think that is as good an assumption as any, again. Neither of that is outside the envelope of what we would expect or what's consistent with guidance.

Okay. Then as my follow-up question, I guess this is a bigger picture question maybe for Pat. With the update and the refined detail that you have provided with respect to expectations of returns and -- and the risks associated with those returns, is it your expectation, still, that Enbridge will achieve 8 to 10% EPS growth? And, and maybe you can comment on whether any of that is expected to include acquisitions and your views on the environment for acquisitions.

Yes. First of all, as you know, we have indicated that we would expect over a 5-year period to average 8 to 10% compound annual growth in EPS and we've also indicated that at this point we've got very little expectation for acquisitions to contribute to that. The environment out there is still very tough. Very, very pricey acquisitions being done at very rich multiples, and we'll tend to stay away from that because we are blessed with this very strong organic growth program that we have within the company. You have realized of course from the profile that we have just given that 8 to 10% average over the five years tends to be more back end weighted as these big three projects contribute starting in the 2009 time frame and then it really goes up from there. So that -- but no, in response to the question about acquisitions, we don't expect a lot of contribution from new acquisitions.

Thank you.

Thanks, Linda.

Your next question will come from the line of Bob Hastings, representing Canaccord. Please proceed.

Hi, thank you. And yes, that was helpful going through all the outlook on the projects. Just on that, in talking about the growth to get a good relative sense, you said that growth would be modest relative to recent years in the last three or four years average growth has been about 7% so you are saying something a little less than that for the next year or two before we hit that better growth?

That's probably fair, Bob. You know when we are saying we are going to average 8 to 10 over five and it is a little bit back end loaded, yes, it will probably be modest relative to 7%.

Okay. And the Enbridge offshore, different question. Enbridge offshore. When we look at the first quarter here and sort of adjust for the items you adjusted for, plus the insurance, looks like operating earnings were $3.1million versus $4.6 million last year. So maybe from a pure operational basis, still under where you would have expected to be, particularly given last year would have been actually held back because of the hurricane aftermath. Is there something sort of wrong with the current operations or something disappointing that's about to be fixed without getting new projects? Or, what is going on there?

I'm going to ask Steve to give the specifics on those two numbers, Bob. But generally, no there is nothing wrong and nothing disappointing other than the fact that, of course, as a result of the hurricanes some of the larger projects like Thunderhorse are very delayed in coming on. And we had anticipated to have a lot of volume coming out of there. But Steve - specifically on the two numbers - ?

I think the systems as Pat said are running fine. And it is just that we are waiting for some of these tie-ins to occur. And I'd point to probably Q-4 of this year when our Neptune tie-in comes into service, followed by Atlantis in probably early 2008. I don't want to speak for the producers through there but that is our expectation. And then Thunderhorse perhaps in early 2009. So that is the profile we are waiting for and we really don't see a lot of change other than just stable operations through, through the remainder of this year. I don't think there is anything to point to specifically in the quarter. It's a volume driven business. And I don't think there's anything that points to -- that we could point to that would be a trend in any way. Soft but stable. And then coming up later in the year.

Okay. Thank you for that.

Thanks, Bob.

Your next question comes from the line of Matthew [Akman], representing CIBC World Markets. Please proceed.

Thank you. I have a couple of questions about activities in Ontario and those businesses. On Enbridge gas distribution, first of all was the equity ratio that you are booking so far equal to the lower equity ratio that was in place last year? Or the 38% that you have applied for?

Yes, it's the 35% existing rather than what we applied for.

Okay. Thanks. And I guess then the numbers there looked quite good. And some of that was attributed to transactional services around the storage assets, the storage spreads were quite wide. Could you quantify the amount of the earnings there that came from the transactional services?

Yes, Matthew, it's Colin. That number is probably one of the smaller contributors within the $5 million improvement year-over-year. As you know, we're still on -- on last year's rates at the utility, pending OEB's decision which we expect in probably late Q-2. So while we're on the same rates, customer growth has increased as usual. And so we are seeing this much greater send out, as well as small gains in average use per customer.

Okay. Thanks for that. And I guess the follow-up on Ontario is on the wind projects. I noticed you didn't have that, Pat, in your lists of near term growth which surprised me a little bit. It is, I guess, a $350 or $400 million spend. When do you now see that coming into service, and Ontario, potentially, if the OMB decision goes in your favor?

Just a very quick comment on the first part and then Steve's going to comment on the in service date. One of the I guess you could say bad habits that we have right now is due to the huge size of the crude oil pipeline projects, we often in our discussions, tend to focus only on those. And our intent here was to address that because some of the questions and concerns we have had around returns and capital costs. But the wind power project is moving right along and Steve, start-date is now scheduled for -

I would say some time in 2008. And, as you know, we had a positive development with the environmental screening report approval and there is now some zoning issues that need to be finalized. We would hope to see those finalized by July so we could start construction. And we are ready virtually immediately after receiving final approval. So allowing something like a year for construction of the wind farm, probably mid to third quarter '08 is what we would be targeting for in-service there, Matthew.

Okay, thank you very much, those are my questions.

Your next question comes from the line of Andrew Fairbanks, representing Merrill Lynch. Please proceed.

Hey, good morning, guys. Just actually had a question on longer term gas opportunities that you see out there. Do you sense that there is any more opportunity for you with the Alaska gas project and ownership structure there becoming somewhat more open? And as well as you look out to next decade, are there particular regions you think you would like be able to absorb a little more capital in the way of new gas pipeline structure that would be of interest?

Let's start out with Alaska. And longer term, and yes, we see excellent opportunity to be involved. I must admit that we find it frustrating the pace of development on Alaska gas, thinking of it primarily from the point of view of consumers. Because in our view, with the lack of major new discoveries in North America over the last number of years, we do need that gas on stream, and on stream sooner rather than later. As you know the state of Alaska is starting through a process right now that we have been providing comment on. We continue to point out to the state that we feel that it's very strong and early producer support is absolutely essential to making the project go in Alaska and that it's important for the State and the producers to reach agreement on fiscal terms around development of Alaska gas. We are prepared to work very closely with both the state and producers to get that project up and going. Because of our experience with the Norman Wells pipeline field we would have a lot to contribute that. But I must admit the process has gone very slowly and what we thought was a deal last year, of course was not ratified in the state of Alaska and is now back at being reconsidered. So we are very hopeful particularly with the significance of the alliance pipe line this take away from Alberta in terms of being a participant in the Alaska project. In terms of other gas infrastructure, we are very heavily involved in Texas, as you know. North and East Texas are two areas that have maintained very high drilling activity during what has been a slow down in much of the rest of North America. And through the MLP both the gas gathering processing and work on projects like project clarity indicates to us there will be a fair bit of gas infrastructure required there over the next number of years. And, as you may know, there are a number of proposals to move gas out of Texas and to connect to some of the interstates. At the same time we're working almost on the opposite side of the continent on this Rabaska LNG project and have been encouraged by the fact that the permitting process has moved along quite well and of course we are working on securing long-term supply once that's in place we think there will be good opportunity for development of that LNG facility and other infrastructure around it. So, those are probably our two main areas of focus right now. We, of course, follow closely developments like the Rockies where we currently don't have a position and would like to be involved at some point in time and I guess on a smaller scale, we are doing an expansion of the Vector pipeline up to 1.2 BCF a day which will be on stream in, I believe, the third quarter of this year.

Okay, that's great. Thanks, Pat.

Your next question comes from the line of Daniel Shteyn representing Desjardins Securities. Please proceed.

Yes. Good morning, Pat, everyone. I have two questions. The first question is regarding the general direction of Enbridge in terms of wind power. Now obviously have the Ontario wind farm that is under development. Now that perhaps there's been some issues around the value of (inaudible) after following the income tax decision by the federal ministry of finance. Is Enbridge still going to be developing wind farms with the intention of potentially vending them down into the income fund and or whether in fact Enbridge will still be continuing to develop wind power. For instance Quebec has 2,000 megawatt RSB coming September. Is it your intention to bid in there?

First of all, we are big believers, Daniel in wind power and as you know, this is the fourth wind power farm that we are under development right now in Ontario. It's very large and now is going well. We have been disappointed in the fact that it took longer to get the regulatory approvals than we expected. We haven't encountered that in wind projects before. I think I have bravely said to this audience on prior occasions that I loved these projects because they are the projects that no one ever opposes. We are finding now that that isn't always the case and that takes, I guess you could say, a little wind out of our sails with regard to the ease of approval and getting these projects on stream. The economics are good on wind projects independent to the drop down of the income fund and we started this business without the income fund in mind. It doesn't make sense under the new environment, of course, to do those drop downs and hence, that isn't something that we would anticipate continuing to do. With regard to Quebec, Manitoba, other big opportunities, we've pretty much got our hands full right now. We've got a very large capital program on the liquid side of the business and with this big project underway in Ontario we are not likely to be out aggressively seeking other wind projects until we get all of this bitten off, chewed and digested.

Okay. Thanks for that. And my follow-up question is with regard to the expansion potential of the Alberta Clipper initiative. Now that Keystone is more or less, perhaps I shouldn't say complete but it certainly has a pretty good potential of going forward, I think the competition between Clipper and Keystone is not a matter of whether or who goes first or whether both of them go first, but rather what the economics of the expansion phase of Clipper versus Keystone will be. And what are your thoughts or views on that.

I know that Richard is chomping at the bit to answer that one and I'm going to let him. But the expansion of clipper is very, very economic. And in fact, I think for about 25% of the cost of the Clipper construction, we get the same capacity on expansion. You know in the range same capacity on expansion. You know in the range of 400,000 barrels a day for about a half a billion dollars instead of the $2 billion for initial project. So it is very, very cost competitive. Richard?

Yeah, well I think that's pretty much it. Our own internal capacity planning models and this would be pretty much the same using CAPPs numbers as well indicate the need for the next traunch of capacity beyond Keystone and beyond the first phase of Alberta Clipper is in about the 2012 time frame with probably yet another traunch of capacity required a year or two after that. And we would certainly see Alberta Clipper as being the low cost next increment of capacity out of the basin so logically the one that would proceed at that point in time. Then for the 2013 and 2014 time frame, of course, we are back to a range of different alternatives including gateway, including potentially direct line from Hardesty to the U.S. Gulf Coast and other options.

Okay, thanks.

Next, next we'll have Andrew Kuske representing Credit Suisse. Please proceed.

Good morning. I'm not sure who really wants to answer this one, but just in general, what is your outlook for your non-Canadian operations given the potential changes in Canadian tax treatment of international financings?

Okay. I'm going to have Steve speak to this. This is with regard to the federal government's move on interest deducibility?

Exactly.

Well, we think it's the wrong move. We will represent that to the minister directly and through various other associations. We and a lot of other Canadian companies that do business in non-Canadian places feel pretty strongly about that and about its effect on competitiveness. I can't speak to the effects you know directly on Enbridge, other than to say that it's pretty directly on Enbridge, other than to say it's pretty modest. We have analyzed that in terms of its current effect. But we believe it is the wrong move and will be making that clear.

This, Andrew, really unlevels the playing field for companies like Enbridge competing internationally, and that is a point that we are making very strongly in Ottawa.

I think what it can do, Andrew it really will force financing outside of the country to be done more directly in the jurisdictions in question and I think that really denies the Canadian particularly the fixed income community an opportunity so there is that side of it, too.

So, just on that point, aside from your lobbying effort, what steps would you really take to really keep your current set of assets intact and really the financial contributions they make to Enbridge Inc. - as really if we look at it as a (inaudible)?

I think we would analyze the best way to structure in response to a rule change like that. And and do exactly as you suggest to seek to preserve what we have in the non-Canadian areas. So there is no snap answer to that but it certainly would involve taking a rule change and reacting with structures that minimize the impact of it. That's great.

Thank you.

Thanks, Andrew.

The next question will come from the line of Robert Kwan representing RBC. Please proceed.

Good morning. I was wondering if you could comment on the dividend policy with respect to your near terms earnings outlook? And I guess specifically, is the payout evaluated over the same multi-year period as the 8 to 10% average earnings growth outlook?

Sure, Robert. Our dividend pay-out ratio, as you know, about a year and a half ago now we moved to 60 to 70% from the 50 to 60% range that we had been in, in response to the current environment in which we operate. We feel comfortable that we will be able to increase dividends commensurate with EPS growth. That continues to be the approach we would take going forward.

And I think Robert and Steve, I would just add that all of our financing plans going forward assumes it will remain within the 60 to 70% policy range for the coming period.

So, as we move out to say 2008, depending obviously where you come this year, but if you come in the middle of the range and we have more modest growth over that, it's possible we could see the pay-out ratio tick over 70% if you decide to continue the, an 8% increase, or $0.08 increase. Are you saying if the growth does slow to the bottom end of the '07 range and for 2008 we could see the $0.08 come down a bit?

I think we would be prepared to rate in the -- operate in the upper end of the 60 to 70% range but we are not prepared to move that range at this time.

Okay, and just one last question. On Clipper, with the increased (inaudible) with shippers, is the discussion now moving away from rolling in under the main line toward some other type of (inaudible) structure?

No. It's a roll in fully integrated model.

Great. Thank you.

Thanks, Robert.

Your final question from the analyst community will come from Steven Defoe, representing Scotia Capital. Please proceed.

Good morning. Just a couple of questions on Enbridge gas again and the OEB. Seeing as you didn't get the 38% equity treatment did you choose to defer any CapEx from '07 into '08? And could you give us a range of expected CapEx? And also with regard to the OEB I was surprised by the recent decision on the sale of base pressure gas by Union Gas, that seemed to side step the Supreme Court's Atco decision. Union Gas is appealing that. Will EGD be involved in the appeal as an intervener or as an observer?

First of all we don't have a decision yet on the 35 versus 38, Steven. So, that we are still hoping will be decided in our favor. With regard to CapEx, Colin, can you comment on that?

Yes, Steven. It's Colin. I think something in the $300 million range is probably where we're going to end up.

Okay.

Then could you repeat your question with regard to Union Gas any --

Yeah. They sold base pressure gas oh a few years ago now. And the decision by the OEB was deferred until the Supreme Court made the Atco decision last year which said that shareholders get to keep all the proceeds of unneeded assets. The OEB has come back and said well we are going to reconsider that anyway. So Union gas is appealing that decision by the OEB. Is Enbridge concerned that that might affect Enbridge if you ever have assets that would be sold?

I -- I think we'll have to get back to you on that. I don't think we would expect there to be any impact on us. So, but we'll have a closer look at that, Steven, and maybe Bob can get back to you.

Okay. I would appreciate that. Thanks.

Thank you.

Gentlemen, we have a follow-up question from the line of Bob Hastings representing Canaccord. Please proceed.

I thank you. Just I noticed your hedging on AuxSable and I know it's small etc, but does that sort of portend that you have locked in what you expect for the year by doing that?

That's a good question, Bob. And the answer is yes. We've looked at the agreement that we have. And looked to the nature of the upside sharing. And we've looked for opportunities for locking in, locking in a positive (inaudible), effectively positive margins. So yes, we're doing that. And using pretty simple derivatives. Basically, floating to fixed swaps.

And Bob, as I'm sure you can appreciate, that is a good news story for us we did a deal with BP that we are very happy with that provided us with some upside and now we are locking in a level of upside that we're smiling about, so we're very happy with the way that operation has gone.

And would that be for just this year or have you been able to , I guess you can't lock in much more than

Yeah it would just be for 2007, the position is clear in 2007.

Thank you very much.

Colin, so you should expect reported earnings to kind of look somewhat volatile in the first three quarters of the year and then, likely a fourth quarter recognition of the year's earnings contribution.

So even with the hedging we're not going to see a levelization? Even though you have sort of locked in the full year? Still wait and get it in the fourth quarter?

Yes. Quarter to quarter it will be difficult because of movements in [frak] spread on the quarter end date. And so, It could be positive it could be negative but it all trues up as we come into the fourth quarter. And on a cash or economic basis we know, you know, where we've hedged in. But with the mark-to-market rules that will move up and down based on wherever the gas oil [frak] spread is at this time.

Right, but for the whole year we should look at a number not too dissimilar from last year?

Well that a little bit of a leading question, Bob. Last year was an outstanding year for [frak] margins that I don't think we can expect to be repeated. So I wouldn't quite go that far. But certainly we've looked to lock in a good positive. And you know if you think probably in your mind, for at least for now, terms of low double digits you are probably not too far off in terms of earnings contribution. But, we'll - more on that as the year goes by.

Okay, thank you very much.

Thanks, Bob.

We also have a follow-up question from the line of Sam Kanes representing Scotia Capital.

Given the probability rising as high as it has on a number of your multi-year projects, just curious, Steve on your best guess on capitalization what you may be capitalizing going forward. One of your competitors has been sharply increasing capitalization and how that may affect earnings. Is that included in your earnings or not?

Yeah, the guidance that we give assumes all financing activities. And are you talking about equity thickness?

No. No. Talking about just capitalizing expenses against projects.

Yes. Well certainly the projects that have a high degree of certainty are being capitalized and the costs have, and have been. There is still some that we feel are not positioned to do that. To do that yet. I point to Rebaska as one, where we are still expensing the costs associated with that. But everything that Pat talked about this morning certainly we would be capitalizing.

Could you give us a rough idea of those dollars this year or next year?

I think we'd have to get back to you on that. I don't have a ready number for that.

Okay. Switching then foreign currency exposure. U.S. dollar. Obviously we are through $0.90 now. Anything new to say there or sensitivity, Steve? Not really.

Certainly it was weak in the first quarter. And that -- and that gave us a little bit of a help. And now we'll probably see that reverse a little bit in the second quarter. We follow our policy for afex hedging which is 50 to 70% range of afex exposure hedged. Our usual complaint is contained in the -- in the notes in the press release about the amount of cash proceeds we receive that we can't recognize as earnings from the afex hedging program. But that's just my ongoing accounting complaint. So no, I don't see, I don't see a lot of change. Probably, you know guidance was -- was based on hovering around the $0.88 dollar mark more or less. So it may move up or down a penny or two as we have often, in the past, but that's kind of where guidance was based on.

Okay. Thanks, Steve. (OPERATOR INSTRUCTIONS)

Your first question comes from the line of Ian McKennon representing Bloomberg News Please proceed.

Hi, Steve, question number on is - on the equity financing in 2008, can you give me color on the size, the timing and what sort of options you are considering for the hybrid structure?

Yes. As I mentioned, I think in the in the remarks probably sometime in the 2008 time frame for new equity. We are examining hybrid, hybrid structures and we've seen other issuers use them and it all really hovers around the equity credit that you get for those so we'll be looking at the balance of the cost of those hybrid equity vehicles versus the equity credit that we credit that we receive for them as opposed to common equity in 2008. So, the hybrid equity idea I think is a good point of flexibility that we're going to examine pretty closely.

And possible amount?

Pretty hard to say, I think that those plans are evolving as Richard Bird and his group bring these projects you know from kind of proposed to planned and proceeding. So we'll be adjusting the plan going forward as we go. I think though, in 2008 just to lob something out there, I don't see a huge difference from 2007 and we'll see how that's evolves as time goes along.

Okay. My second question is for Pat, on terms of acquisitions for Gulf Coast you talked in some media interviews last month about maybe making some acquisitions to get oil to the Gulf Coast. Now today you're saying there is rich multiples and you're not likely to do anything in acquisitions, so can you sort of square that circle for me.

Yes. In the we are looking at all kinds of alternatives on this Gulf Coast initiative. Right from, you know, direct line from Alberta on a green fields basis to interconnects from our system at Patoka. And at the same time we are looking at existing infrastructure. But we are very reluctant to be any more specific than that. When you are considering possibly buying some assets, you don't want to talk a lot about that publicly. So there are a number of alternatives. You are right. The multiples are high but we would be tending to look for systems that are under-utilized and hence, there is a good value opportunity there.

Thank you.

Your next question comes from the line of Scott Hackett representing Reuters. Please proceed.

Hi, I wonder if you could offer me a few more details on the investigation into the Line 3 rupture and how long you expect that to take and how long you see it running at 80%.

Richard, can you comment? I know the pipe is in for metallurgical analysis. Can you comment on when we expect to have the results back?

Yes. Well, the investigation involves both the laboratory analysis of the pipe to determine why it failed and also some field work to excavate the pipe in certain areas to examine its condition. I think we are probably looking at into the summer before we have the final answers to that. So that pressure restriction could be on through the third quarter potentially, although at the moment we're not seeing it as having -- although it's having an impact on capacity, we are not fully utilized so it's not having an impact on actual through-put. And the impact on capacity is pretty modest.

Thanks.

I will turn the presentation back to Mr. Pat Daniels for closing remarks.

Thank you very much everyone. We appreciate your participation as usual. If you have any follow-ups please feel free to contact. Bob Rahn and we look forward to talking to you all soon.