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Executives

John Arensdorf - VP of IR

Fred Fowler - President and CEO

Greg Ebel - CFO

Sabra Harrington - VP and Controller

Analysts

Paul Fremont - Jefferies & Co.

Josh Golden - JPMorgan

Ross Payne - Wachovia

Mark Russo

John Kiani - Deutsche Bank Securities

Hasuan Pang

Spectra Energy Corp. (SE) Q3 2008 Earnings Call November 6, 2008 10:00 AM ET

Operator

Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectra Energy third quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn today's call over to Mr. John Arensdorf, Vice President of Investor Relations. Sir, you may begin.

John Arensdorf

Thanks, Felicia. Good morning, everyone, and welcome to Spectra Energy's third quarter 2008 earnings review. We are very pleased that you have joined us today.

Leading our discussion today will be Fred Fowler, our President and Chief Executive Officer and Greg Ebel, our Chief Financial Officer. Sabra Harrington, our Vice President and Controller, is also with us today and available to take your questions at the end of the call.

Fred is going to get us started by providing an overview of our third quarter results and will provide some perspective on the current commodity markets. Greg will then delve in to the results by business segment, provide insight in to our liquidity and credit positions, and update you on the status of our 2008 expansion project. We will then open the lines for your questions.

Before we begin, let me take a moment to remind you that some of the things we will discuss today concern future company performance and include forward-looking statements within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements. You should refer to the additional information contained in Spectra Energy's Form 10-K and in our other SEC filings, concerning factors that could cause these results to be different from those contemplated in today's discussion.

In addition, today's discussion includes certain non-GAAP financial measures as defined by SEC Reg G. A reconciliation of those measures to the most directly comparable GAAP measures is available on our Investor Relations website at spectraenergy.com.

With that, I will turn the call over to Fred.

Fred Fowler

Thank you, John, and good morning, everyone. As you've seen from our earnings release this morning, we do have another excellent quarter to talk about today.

Spectra Energy reported ongoing earnings per share of $0.49, that's a 29% increase over the third quarter of 2007. Our third quarter results reflect solid performance in growth from all of our business segments. Thanks in large part to a strong commodity prices at our Field Services and our Western Canada businesses.

Our year-to-date performance has already delivered ongoing earnings per share of $1.50, which gives us confidence that we will comfortably exceed our $1.56 per share 2008 employee incentive target. That said, commodity prices, they have fallen off significantly over the last several weeks.

The 12-month strip for oil is currently about $70 per barrel and the 12-month natural gas strip is a little over 750. As you know, the relationship between the natural gas split, which, you know well, is close to historic lows. However, we do expect that relationship to return to more normal levels over time.

In the meantime, commodity prices and whether they will be the most important drivers for our fourth quarter numbers. Fortunately, I think that we are very well positioned to manage through the current market volatility.

We continue to execute on our capital expansion program. In fact, we have substantially completed all of our 2008 expansion projects and not only did we deliver these projects as scheduled, but the projects themselves will deliver solid returns at the top end of our 10% to 12% return on capital target.

As for the remainder of our project portfolio, we remain on track and on schedule for the most part, we do expect to see some shifting as our customers do recalibrate. Again, I believe that that we are very well served by having a portfolio of smaller and medium-sized expansion projects rather than one or two very large projects. It just gives you a lot more flexibility in dealing with your capital expenditures plans.

Greg will also discuss our strong liquidity position, another very important advantage for us. Our financial strength and flexibility, they really served us during the recent economic turmoil. The credit facilities that we negotiated in 2007, they have been invaluable. Really I am proud of the team and employees who developed and delivered the financial safeguards that have helped us weather this current cycle.

Our strong business results, solid balance sheet, good consistent cash flows and our forward momentum, they reaffirm our confidence in our business plan and our ability to deliver value to our shareholders. This is my last earnings conference call with you as CEO of Spectra Energy. It really has been my pleasure to get to know so many of you, you have asked thoughtful questions, some times a little tough, but always fair and we have done our best to be candid and responsive.

Next year I will be on the other side of the phone line, listening as a deeply, interested shareholder and I do, I have every confidence in Greg's proven leadership and ability to navigate this company into the future. In early October, Greg announced his senior leadership team. It is an extremely talented group. He will continue to deliver the results that you currently expect from us.

With that, let me turn things over to Greg, who will review the results of each of our segments.

Greg Ebel

Thanks very much, Fred. Good morning, everybody. There is no doubt Fred that you are going to deeply miss both on an operational front but also by investors and thanks to your leadership, we have got a very solid foundation that both and I and the entire team here at Spectra could be very proud to build upon.

Looking at how we did for the quarter, Spectra Energy reported third quarter 2008 earnings of $296 million, or $0.48 per share, compared with $234 million, or $0.37 per share, in the third quarter of '07. After you eluded the effect of special items and discontinued operations, ongoing earnings for the quarter were $302 million, or $0.49 per share, compared with a $240 million, or $0.38 per share, last year. As Fred mentioned, that is 29% increase in our ongoing EPS. We are pleased with our performance for the quarter, and again we fully expect to exceed our employee incentive target of $1.56 per share.

Let's take a look at the performance by business unit now beginning with US Transmission. US Transmission reported third quarter 2008 ongoing EBIT of $217 million, compared with $230 million in the third quarter of 2007. The $30 million decrease in ongoing EBIT is primarily the result of a $26 million variance in project development expenses.

You recall that when we start projects we expense the costs until we are confident that the project will move forward to completion. At that time, we then reversed the expenses and capitalized those development costs. So third quarter of 2008 reflects project costs expensed of $12 million while third quarter 2007 reflects $14 million in net project costs that were capitalized, or $26 million negative effect on earnings quarter-over-quarter.

Excluding these project development costs variances, US Transmission delivered strong earnings growth from expansion project and higher earnings from capitalized interest on construction projects during the quarter, partially offset by higher transmission storage and G&A costs.

Now let's take a look at our Distribution business. Distribution reported ongoing EBIT of $44 million, compared with $40 million in the third quarter of 2007. The segment benefited during the period from higher transportation and storage revenues, reflecting the value customers see and services offered on the Dawn system.

We just completed two open seasons at Distribution. One for another expansion on our Dawn-Trafalgar pipeline that would complete the fourth looping on that system in 2010 and the other for an expansion out of Michigan in partnership with DTE. Both of those open seasons were well received by the market as we obtained strong interest from high quality customers, many looking not only for transmission services but storage services as well. We expect that the phase-in of deregulation on roughly one-third of our storage capacity will continue to provide expansion opportunities for our Dawn facility.

With that, let's move to Western Canada. Western Canada Transmission & Processing had another positive quarter, with ongoing EBIT of $113 million, compared with $101 million last year. The $12 million increase resulted primarily from higher interest earnings due to higher volumes and frac spread, partially offset by higher operating expenses.

Through the third quarter of this year, Empress delivered EBIT of approximately $150 million. As you are probably aware, frac spreads have come off recently, but we have continued to see good throughput at the Empress plant, which is currently running at capacity. We do anticipate, however, having only about two thirds of the Empress capacity available for about a month during the fourth quarter due to some maintenance. In addition to the strong Empress results we have seen this year, the base Western Canadian gathering and processing business continues to perform very well.

Now, let me speak to Field Services, our Filed Services segment which represents Spectra Energy's 50% interest in DCP Midstream, saw another strong quarter with ongoing EBIT of $239 million compared with $143 million in the third quarter of '07. The 67% increase resulted from several factors.

About $80 million in favorable commodity pricing, $25 million in derivative timing gains associated with the gas marketing positions, a $23 million favorable mark-to-market effect on the hedges that the MLP, DCP Midstream Partners has in place to protect cash distribution and that is almost totally reverses the second quarter $25 million mark-to-market loss that we saw.

Finally, offsetting these were about $25 million of loss business as a result of Hurricane Ike and higher O&M cost. Crude oil averaged $118 a barrels in the third quarter of 2008, compared with $76 a barrel in 2007. The NGL-to-crude relationship was about 51%, down from 62% in 2007. We also benefited from higher natural gas prices this quarter. Natural gas averaged about $10 in the Q3 2008 compared with a little over $6 in Q3 2007.

For the quarter, Field Services paid distributions of $269 million to Spectra Energy. It is worth taking a closer look at the potential effect of crude oil prices on our '08 earnings. So let's review the current settled and future oil prices for '08.

You all aware that DCP Midstream 2008 forecasted earnings were based on oil averaging $83 a barrel for 2008 and an NGL-to-crude relationship of 60%. This slide indicates that based on current settled and forward prices, it looks like oil will average a little over $100 per barrel for all of 2008. It looks like the NGL-to-oil relationship may settle at about 52% for the full year.

During our second quarter earnings call, we reviewed a hypothetical example of the effect of commodity prices and correlation changes on DCP Midstream, their earnings. That example is in appendix to this presentation on our website, along with the summary of our 2008 commodity sensitivities.

Now, let me turn to Other which is primarily comprised of our corporate costs and captive insurance activities. For the third quarter, Other reported ongoing net costs of $9 million compared with net cost of $10 million in the third quarter 2007. Lat year's third quarter included special items of $5 million in costs associated with the launch of Spectra Energy. We continue to expect 2008 corporate costs to be in the $80 million to $90 million range.

Let's now take a look at our ongoing EBITDA. For the third quarter 2008, ongoing EBITDA was $829 million compared with $709 million in the third quarter of 2007. On a year-to-date basis, our EBITDA is nearly $2.5 million, compared with $2 million last year. We know that EBITDA is an important element for valuation and a good indicator of cash generation by the business. As you can see for the quarter, the total EBITDA increased by almost 17% from last year's third quarter. Year-to-date, EBITDA is up a very healthy 24%.

Interest expense for the third quarter of 2008 was $163 million, compared with $156 million for the third quarter of 2007, which reflects the successful completion of our planned long-term debt issuances for all of 2008. Our effective tax rate this quarter was 33% in line with our annual expectation of 32% to 33%.

And as of September 30, our total debt to total capitalization stood at just under 60%. The Canadian currency change had a slightly positive after-tax effect on earnings for the third quarter of 2008 of about $1 million, compared with the third quarter 2007. However, we've seen the Canadian dollar weakened significantly since September 30th.

I expect that you are keenly in Spectra Energy's liquidity position. So let me turn our attention to where we stand on that front. This slide details our four credit facilities, that's Spectra Capital, Westcoast, Union Gas, and Spectra Energy Partners. And as of September 30, we had total capacity under our credit facilities of $2.7 billion and available liquidity of $1.7 billion.

You recall that during 2007, we entered into revised, revolving credit arrangements which put facilities in place for five years to provide the liquidity we expect to need between now and 2012. We took that step to prepare for market situations, exactly like the one we are going through and it's proven to be an invaluable tool that has assisted us in times when the commercial paper became absurd. We also negotiated these facilities with some 20 different banks so we wouldn't be dependent on any single institutions financial situation.

In early September, we quickly moved into the debt markets and got the remainder of our 2008 debt issuance out of the way, about a week before the credit crisis really took a dramatic turn. And while the last couple of months have been challenging, we are pleased that we now have access to the commercial paper market of reasonable rates with solid balance sheet, more than adequate liquidity and steady cash flows. In fact, the fourth quarter and first quarters typically tend to be our strongest cash flow months. So I feel good about our financial position in these unsteady markets. We fully expect to be able to continue funding our expansion plans and we have got no need to borrow in the long-term debt market until midyear 2009 and no plans to issue equity in the foreseeable future.

Let's take a quick look at our long-term debt maturities. This slide shows you our long-term debt maturities for the remainder of 2008 and as well for 2009 and '10. As you can see, we have no requirements for the remainder of 2008. We have about $150 million coming due at Spectra Energy Capital in the first quarter of 2009, but nothing significant until our $500 million maturity in the fourth quarter of 2009.

So on balance, we are in a very solid position to write off these financial markets given our strong liquidity. We have the ability to watch the capital markets over the next several months and access them when it is opportunistic to do so. We regularly update you on status of our expansion projects. As Fred mentioned, we have essentially completed our slate of 2008 projects as scheduled. You will recall that 2008 represented our largest year of capital spending on expansion growth. So, we are extremely pleased with these projects to work for our customers and investors, and most notably these projects are realizing returns at the top of our 10% to 12% return on capital expectation, which means long-term value and growth.

So, let me give you a quick update on these projects. By year-end, US Transmission will have successfully placed in service a number of key projects this year, including Gulfstream Phase III, Egan Storage Caverns 4, Southeast Supply Header, Maritimes & Northeast Phase IV, Glade Spring Expansion, Time II and Ramapo.

In addition, we placed the initial portion of Gulfstream Phase III into service and expected to be fully in service by January 1. Union Gas growth projects are likewise on track. The Tribute Storage project is complete. Phase III of the Dodger Fogger expansion should come into service next month. The Dawn Storage Deliverability project is scheduled to come online in mid-January.

In Western Canada, we have completed the Pine River Phase 3 expansion that placed into service earlier this week. We are confident that we will complete West Doe Phase II by the end of this month.

As you can see, this is a healthy portfolio of projects totally $1.7 billion. We estimate 2008 EBIT from these projects in the $90 million range and then incremental $110 million in EBIT 2009. On an annual basis, the EBIT from these projects will total some $200 million.

As originally outlined, we expect to spend about $1.7 billion in expansion CapEx by the end of this year. Next year, our level of expansion capital will be more modest in the $800 million to $900 million range. Again, this is in line with our expectations and well timed in terms of market and economic shifts we are seeing. We are very pleased to have got so much of the heavy lifting done this year.

In summary, our growth plan remains on course to meet the expanding energy infrastructure needs of North America. We will work closely with out customers to ensure we remain responsive to their evolving needs, and we will continue to rely upon the financial and management flexibility that helps to successfully navigate through changing market cycles.

We look forward to sharing our future views and projections with you and we bring our 2009 plan to you early in the New Year. Our assets continue to be strategically situated and we are well positioned to take advantage of emerging shale plays, and our portfolio allows to us serve some of the best customers and the fasted growing markets on the continent.

With that, we can open the lines for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Paul Fremont.

Fred Fowler

Good morning, Paul.

Paul Fremont - Jefferies & Co.

Thank you. You talk about 51% correlation in the third quarter and that still represents some lower oil prices in the third quarter than where they had been in the second quarter. Can you give us a sense of where those correlations are now in the fourth quarter? Are you seeing any evidence in a declining oil price environment that that correlation is improving?

Fred Fowler

Yes, it's up slightly Paul, but still in the low 50s. What we're really kind of struggling with right now in the gas liquids market is the impacts from the hurricane of shutting down the petrochemical industry here along the Gulf Coast. We still have several of the crackers down, and as a result we saw a pretty good inventory increase, particularly on the ethane, so we are going to have to work through that. But overall, yes as the big down move and clearly this happened, we have seen a slight improvement in the correlation.

Paul Fremont - Jefferies & Co.

So would you expect to see significant improvement next year, if the current level of oil strip hold?

Fred Fowler

Yes, I think if history is any indicator, we would expect that. We have gone back and looked at data for the entire decade and we've really never seen a period of time that lasted very long at correlation in the low 50%. This is really kind of the first time in this decade we have seen that. But, this decade, it's been an extremely volatile decade with energy pricing, but yes directionally we would expect to see the correlation improve.

Greg Ebel

I think Paul, what the market is trying to figure out is how much of the decline in correlations is related to hurricane issues and as such build up in inventories and how much is related to economic downturn. So I think that will become more clear over the next couple of months.

Paul Fremont - Jefferies & Co.

Then one other question with respect to sort of a higher current borrowing cost environment, what does that do to the potential economics of new project?

Fred Fowler

Well, obviously, the big bulk of our projects we put in to place this year is at 1.7 billion and that borrowings already done, so that doesn't have an impact on those projects. Next year, we will have to see what the impact is, but I think the real challenge that we will face and we will have to address will be in 2010 and beyond, Paul, because those are the projects that we are looking at now and whether we have got long-term increase in cost of capital and borrowing costs.

Greg Ebel

Clearly, Paul, if the long-term capital costs go up we have to see an improvement on returns on projects, because simply we don't make a big enough spread to absorb it.

Paul Fremont - Jefferies & Co.

Thank you.

Fred Fowler

Big question then, this will not increase, hurt the economics and see a slowdown in projects.

Operator

Your next question comes from the line of Josh Golden.

Josh Golden - JPMorgan

Hi, good morning. This is Josh Golden, JPMorgan. Just quick question, you touched on your 2008 projects, but more importantly, can I get a feel for what your budgeting right now for CapEx for 2009? I am looking at your liquidity situation. So I sort of want to know what you are going to be in terms of free cash flow positive or negative next year matched up with your maturities and what's available on your revolver, but you've heard 2009 CapEx, can I get a feel for what that's going to be?

Greg Ebel

Yes. We're finishing those plans. So, some of that I will say, until we come out in January, but right now, it looks like we're going to be more in the range of $800 million to $900 million. So, substantially lower we're this year.

Josh Golden - JPMorgan

So, that's maintenance and growth CapEx.

Greg Ebel

No, we thought that's expansion CapEx, maintenance capital typically run from 500, 550 range. Again, that's the stuff that we are just looking at now. Again late this year and early in January we will come out final numbers on that. But obviously, the expansion piece the big change that we're going to see '08 over '09.

Josh Golden - JPMorgan

So, in total roughly you say about $1.4 billion, $1.5 million of CapEx in total between growth and maintenance?

Greg Ebel

Yes. $1.3 billion to $1.5 billion.

Josh Golden - JPMorgan

Okay. Somewhere between 500 and 600 dividend, so you are looking between the two and roughly at 2 billion.

Greg Ebel

That would be a fair comment.

Josh Golden - JPMorgan

Okay. Given the decline in food prices, with the growth projects that are coming on this year and will be in service next year, do you think that you will be breakeven on cash flow? To me it looks like from my calculations, it looks like that you might need to come to the market next year.

Fred Fowler

Well, we had expected that we would come to the market near next year, but again we'll finalize those plans but don't see any need to do that before about the midyear, next year Josh.

Josh Golden - JPMorgan

Okay. Just one last question on [Sesh] sitting on scene for that. Is that all put in place?

Fred Fowler

The Partners have financed that on their own balance sheet today, so I put that separately. Where do we do project financing for that or something that we are looking at. The same with the Maritime, so those are two things that I would look at separately, but again those have already been financed, so this is not like there is a cash drag there, whatever we do there obviously would be beneficial coming back to Partners.

Josh Golden - JPMorgan

Okay, and then one just last small question. Lehman was a participant in several of your facilities. Have you started to engage in any of other banks about trying to make up for their shortfall?

Fred Fowler

Yes, we made up about third of Lehman's already at Spectra Energy and we are in discussions with other banks on the remainder of that.

Greg Ebel

No single financial institution has more than 10% of our facility. So again we thought that was important when we set that up last year.

Josh Golden - JPMorgan

Okay. Just one more question. Can you talk to me a little bit about Spectra Energy Partners? How you view the MLP, given what's happened in the MLP unit market? How do you view the cost of capital that vehicle relative to a C Corp at this point'

Fred Fowler

Yes, obviously, it's increase pretty dramatically. We have said all along that we want to have that as another financing node but only when it make sense and our opinion right now is it doesn't make sense to be issuing any kind of equity at those either one of our MLPs. However, they do have some, they do have enough debt facilities that it takes care of their organic growth needs which SEP has some nice one. So again when the market makes sense, we will go back to it. When it doesn't, we are not dependent on it.

Josh Golden - JPMorgan

Okay. Thank you.

Operator

Your next question comes from the line of Ross Payne.

Fred Fowler

Hi, Ross.

Ross Payne - Wachovia

How are you doing, guys? Most of my questions have been asked. But, can you give us any kind of indications on what you think distributions will be like from DCP mid up to you guys in '09?

Fred Fowler

You know what Ross, I can't at this point until we kind of finalize those budgets, that is something that I am going to have to hold off until later in the year early January, Ross. But obviously it is going to be partially driven by where commodities end up. Let's say if they are significantly lower, I think you get lower distributions. If they are significantly higher, you are going to get higher distribution. So it give us until the end of the year to clarify those and we will come out next year. You are well aware of that ramp start of the year.

Ross Payne - Wachovia

Sounds good. Thanks.

Fred Fowler

Okay, thanks.

Operator

Your next question comes from the line of Mark Russo.

Mark Russo

Good morning guys. I just had two quick questions. One was as far sensitivities go, is there any reason why the sensitivities would change as we look out to next year. I know you are still kind of go into the plan, but I was just trying to think for those by looking ahead for next year as we try to work things around the lower commodity prices with the sensitivities change much at this point?

Fred Fowler

Yes. It is a little early to answer your question, I think on the crude oil and gas sensitivities. I think that we can speak to is on the correlations. Obviously, the lower the price of oil, the lower the impact of a downward change in correlation.

Mark Russo

Okay.

Fred Fowler

In the past, I think we put out chart that we may not show the range there.

Greg Ebel

Yes, and if oil is in that $80 range, if it's about $12 million for each change of dollar, change in price of oil and semi correlation, it's about that. It may be slightly higher, obviously when you are $100 oil, 1% change on $100 oil obviously, obviously a lot bigger than 1% change on $80 oil.

Mark Russo

Got you, then as far as attain rejection, I know Fred you talked earlier about the hurricanes, I have seen some news about [Lindale Company] at the time shutting down some unit because of poor economic. I was just wondering, are you seeing any more of that, and just what you are seeing at ethane rejection, in general?

Fred Fowler

You are starting to see ethane rejection and I think you know in the winners as gas prices go up, you will probably see more. The one phenomenon that we have seen is as we've seen the industry convert lower from people processing 2% of proceeds contracts, you don't see the switch happened as quickly as you did under key pole, but it is starting to happen. Again, as we've seen gas prices increase, it makes it you know more obvious thing to do.

Mark Russo

Have you guys been trying to renegotiate some contracts as some more fee based, or is that even possible in this environment?

Fred Fowler

On the old stuff we really haven't, on new stuff it has. We have been gearing on new business more towards fee base as when we can. But really, we don't feel is the right market condition to try to convert from the old, from a percent of proceeds over to the fee basis.

Mark Russo

Got you. Great. Thanks so much.

Operator

Your next question comes from the line of John Kiani.

John Kiani - Deutsche Bank Securities

Good morning.

Fred Fowler

Hi, John.

John Kiani - Deutsche Bank Securities

In the past you have provided a useful kind of strategic metric where you talked about building or development of assets was more economical generated better returns on capital because you could do it at a lower multiple of EBITDA than you could buy for. Now I am wondering with the market having shifted so dramatically, has that changed significantly? Is it more economical or cheaper to perhaps buy or acquire especially considering the distress in the MLP sector as well, and obviously your own equity cost to capital has gone up meaningfully with you stock down here. But I am wondering what your recent and latest thoughts are on that concept that you have talked about in the past.

Greg Ebel

Definitely that gap has closed because you are right we have talked about it. You can build that right time EBITDA and some time less than that and you couldn't buy other than 10 or 12 times EBITDA. So if you could buy or some stock trading and some guys are trading at 3, 4 , 5 times EBITDA, I would suggest you take at execution risk at least long-term execution risk, but as you pointed out you've got some capital market challenges. So I would say the gap that existed previously is much smaller and as such it makes it at least equally attracted to look at acquisition opportunities if you think you can transact.

Fred Fowler

People are very reluctant to come off asset values, it typically takes stress to make that happens. So I think we are in kind of that process of people holding with, they are going to get about use and make them probably get in today's market.

John Kiani - Deutsche Bank Securities

So then maybe to your point, Fred, if the current market persists for a little while longer, you think that could eventually change where there is a realization that these might be some more normalized asset values for a reasonable time frame and then taking that a step further. That could be sort of a triggering event that creates some opportunities for your all?

Fred Fowler

Yes.

John Kiani - Deutsche Bank Securities

Okay. Great. Thanks. That's very helpful.

Operator

(Operator Instructions) Your next question comes from the line (inaudible).

Unidentified Analyst

Good morning. I wanted to follow up on some questions regarding DCP Midstream. You shared with us quite a bit of detail about impacts of the new commodity price environment and correlations. I wonder if you could share with us also any color you have about any overall change in production and drilling activity if you are seeing any impacts of that in the current economic environment to the end of this year and into '09?

Fred Fowler

No, we haven't seen huge impact in our areas. Obviously I think some of the newer areas, the Haynesville, you've seen announcements where people are pulling back. I think you are probably going to see some announcements maybe in the Marcellus that people are going to be pulling back. But in our existing areas, quite frankly we haven't seen huge impact yet.

Unidentified Analyst

Okay. Thank you very much. I also have one follow-up question. Do you have any updates in terms of specific quantifiable impact from the hurricanes for both this quarter and next.

Fred Fowler

One of the biggest impact was that DCP and we saw about a $12 million impact DCP for our account in the third quarter. You may see $5 million or $6 million of impact next year or next quarter that nothing particularly significant. On the transmission business, I expect energy transmission, pretty minor. There may be some capital costs, but nothing significant and wouldn't expect it to be material to the company from an earnings perspective or capital perspective.

Unidentified Analyst

Great, thank you very much.

Fred Fowler

Thanks.

Operator

Your next question comes from the line [Hasuan Pang].

Hasuan Pang

Hi, I know you had mentioned that your foreign Canadian dollar exchange rate impact previously was $3 million for your net income per penny change for 2008. I was wondering if that's a good proxy to use for 2009? Also second question is that you have also mentioned CPS growth of 8% long-term and how have commodity prices been impacted?

Fred Fowler

On the exchange rate, we will look at that again at the end of the year. I don't think that's going to change materially. So, I think the numbers that were used are pretty even, that's a net income change that $0.01 equals $3 million of net income. But again, we will see where the exchange rate ends up, closer to the end of the year and talk to you about that in January.

There is no doubt obviously, commodity prices are substantially different, that's going to change, how we look EPS growth, but overall we've been looking at EPS growth over a number of years. It's not really a straight line type of number. You've seen stronger than EPS growth than 8% in the last year and in '07 as well. So, commodity prices are one impact, but again, we will talk to folks about that early in the New Year.

Greg Ebel

One of ways that I think you need to look at it is, what we have said is to us what kind of power of this company is the mix of our business and where that you have new field and good moderate growth. Again in those years we don't have necessarily the growth particularly looking at '09, without trying to tell you where it's headed. But just based on stock values our yield is pretty nice. So if you still look at combination of growth and yield, the total shareholder returns should be in that high single to low double digit range that we continue to talk about.

Hasuan Pang

Great, thank you.

Operator

(Operator Instructions)

John Arensdorf

Felicia sounds like there are no more questions today. So we will go ahead and end the call. Thank you so much for joining us today everyone. Before we leave the call, I do want to let you know that we are not going to go forward with the breakfast in New York, a lunch in Boston that we had previously scheduled for next Wednesday the 12th. When we set up those meetings, we didn't really realize that we were conflicting with the last day of EEI. So our RSVPs for those meetings have been quite sparse.

Fred and Greg and I will however be at the BOA conference and keep staying on Thursday the 13th, so we hope to see a number of you there. Of course we'll bring you our 2009 outlook. We are going to be bringing that to you in New York shortly after the first to the year. So we hope to see all of you there as well.

Again, thanks for joining us today, and as always if you have any additional questions, please feel free call to Patti Fitzpatrick or me. Thank you.

Operator

Ladies and gentlemen, this does conclude today's Spectra Energy third quarter earnings conference call. At this time, you may disconnect.

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Source: Spectra Energy Corp. Q3 2008 Earnings Call Transcript
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