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Enbridge Inc. (NYSE:ENB)

Q1 2009 Earnings Call

May 6, 2009 9:00 am ET

Executives

Vern Yu - Vice President of Investor Relations

Pat Daniel - President & Chief Executive Officer

Richard Bird - Chief Financial Officer

Colin Gruending - Vice President and Controller

Analysts

Andrew Fairbanks – Bank of America

Andrew Kuske - Credit Suisse

Linda Ezergailis - TD Newcrest

Bob Hastings - Canaccord Adams

Robert Kwan - RBC Capital Markets

Winfred [Bruhoff] – [Bruhoff] Consulting

Carl Kirst - BMO Capital Markets

Steven Paget - FirstEnergy

Sam Kanes - Scotia Capital

Andrew Kuske – Credit Suisse

Petro Panarites - CIBC World Markets

Scott Haggett – Reuters

Operator

Good morning ladies and gentlemen and welcome to the Enbridge Incorporated 2009 first quarter financial results conference call. I would now like to turn the meeting over to Mr. Vern Yu.

Vern Yu

Thank you very much. Good morning and welcome everyone to Enbridge Inc.’s Q1 2009 earnings call. With me this morning are Pat Daniel, President and Chief Executive Officer; Richard Bird, Executive Vice President, Chief Financial Officer and Corporate Development and Colin Gruending, Vice President and Controller.

Before we begin, I would like to point out that we may refer to forward-looking information during the call. By its nature, this information implies certain assumptions and expectations about the future so we remind you it is subject to risks and uncertainties affecting every business including ours. Our slides include a summary of more significant risks and factors that may affect future outcomes for Enbridge which are also discussed more fulsomely in our public disclosure documents available both on SEDAR and EDGAR.

I would like to remind everyone this call is a web cast and the support slides are available on our website at www.enbridge.com/investor. A replay of the call will be available later today and a transcript will be posted to the website shortly thereafter.

The Q&A format will be the same as the past few earnings calls. The initial Q&A will be restricted to the investment analyst community followed by questions from the media. I would also like to remind everyone Pat Murray and I will be available after this call for any detailed Q&A after the call.

At this point I’d like to turn the call over to Pat.

Pat Daniel

Thanks Vern and good morning everyone. Thank you for joining us for our 2009 first quarter review. As we reported earlier today our adjusted earnings for the first quarter of 2009 were $269 million. That is $0.74 per common share and a 13% increase over 2008. We are also pleased to report strong performance year-over-year in all of our business units. Of course liquids pipelines continue to lead the way as a result of the very robust role secured through our $12 billion of expansion projects.

Sponsored investments also improved over the distribution increases that were announced in both vehicles in 2008 and also as a result of the increased ownership in Enbridge Energy Partners due to the fourth quarter 2008 equity injection that we made.

These first quarter results are slightly ahead of our expectations which put us in great shape to meet our 2009 guidance of $2.18 to $2.32 per share and also in terms of our longer term guidance of 10+% average earnings per share growth through 2012. So we are right on target. Richard Bird is going to review the quarterly financial results in more detail in just a moment.

This morning I am going to keep my remarks on the strategic update relatively brief because as you know I will be speaking again later today at the annual general meeting but instead this morning what I would like to do is use my time to speak to a number of very significant accomplishments we have had so far this year.

The first quarter was a very busy one and it was very gratifying as we began to place a number of expansion projects into service. These are projects, as you know, we have been working on for some time now. On April 1, for example, we placed the final phase of Southern Access expansion into service. This new pipeline between Delavan, Wisconsin and the Flannigan, Illinois hub is the second phase of the Southern Access project and together Phase I which was placed into service last April and Phase II add 400,000 barrels a day incremental capacity to our mainline crude oil system. The new pipeline now also provides substantial low-cost expansion capabilities simply with the addition of future pumping capacity.

During Q1 we also placed into service our Spearhead Pipeline expansion which increases the capacity of this line from 125,000 barrels a day to 193,000 barrels a day and demand from Western Canadian shippers for access to the Cushing market has been significant and has continued to grow since we first started Spearhead a number of years ago.

The Line 4 extension from Edmonton to Hardisty Alberta was also completed in the first quarter which eliminated a bottleneck in our mainline system through that area. I think it is of note that we are very pleased to report that all of these assets were placed into service on time and within budget.

We continue to make good progress on both the Southern Lights project, which will ship 180,000 barrels a day of diluents from Chicago back to Western Canada as well as the largest of our mainline expansion projects which is Alberta Clipper to increase mainline capacity by another 450,000 barrels a day. Both of these projects are on schedule and they are expected to go into service in mid to late 2010.

Recently we have also talked about opportunities for further expansion of our natural gas assets. We recently announced a non-binding open season on the proposed Lacrosse Pipeline which would carry at least a BCF a day of gas from the Carthage, Texas hub to a variety of pipeline interconnections that get that gas into the Florida and Southeast markets in the U.S. This pipeline is really necessitated by a growing supply of the Haynesville shale which is one of the most active gas plays and most prolific in the United States. Our proposed Lacrosse pipeline provides what we think is a very creative and flexible solution to relieve market constraints that are going to be affecting producers in that booming region.

Turning to the renewable side of the business, earlier this quarter we formally opened our 190 megawatt Ontario wind facility which is located on the eastern shores of Lake Huron. Construction on this project was substantially complete at year-end 2008 but it is now in full operation with all 115 wind turbines supplying power to the grid. So with the completion of this wind farm Enbridge’s share of power produced from our four wind farms is equivalent to about 35% of the power that we consume on our Canadian crude oil mainline system. So wind power production is becoming a significant part of our story.

In addition, the Enbridge-led 38 member Alberta Saline Aquifer Project (OTC:ASAP) announced the completion of the first Phase of its work and the start of Phase II which includes a construction of a pilot project to actually begin injecting CO2 into a saline aquifer. We believe while still in the early stages that carbon capture and storage has the potential to transform the environment footprint of the energy economy and also to significantly help reduce greenhouse gas emissions not only in Canada but throughout North America.

Finally, we were happy to announce the successful sale of our investment in the OCENSA pipeline. With this sale we really now have divested ourselves of our two international ventures. I would like to stress this is not a change in the company’s strategic direction. In fact those were very strong performing assets. However, the attractiveness of the offers were just too good to pass up given the high quality organic growth projects we were financing here in North America right now.

We still believe though that there will be select opportunities where Enbridge can replicate the performance that we have had in both Spain and Columbia in the international market place and we will continue to search these out over time.

So let me now just pass it on to Richard Bird to review the quarterly financials and the company’s liquidity position and I will come back and conclude in a couple of minutes. Richard?

Richard Bird

Thanks Pat. Good morning everyone. As Pat mentioned we released our first quarter results earlier this morning and reported net income was $558 million or $1.54 per share. That is up from $251 million last year or $0.70 per share in 2008. The significant increase in reported earnings of course is attributable to the $329 million gain on the sale of our investment in OCENSA which Pat just mentioned. That was partially offset by a $15 million mark-to-market loss on derivative financial instruments used to lock in maturings within our Aux Sable and Energy Services businesses.

Excluding one-time and non-operating factors, our adjusted earnings for the first quarter of 2009 were $269 million or $0.74 per common share. That is an increase of 13% in adjusted earnings over the first quarter of 2008 but the rate of growth will accelerate as we move through the remaining quarters of the year. Adjusted earnings increased in each of our segments excluding, of course, international. As Pat mentioned, this increase actually exceeded our expectations and sets us up very well to meet our 2009 earnings per share guidance range, the mid point of which represents a 20% increase in earnings per share from 2008.

Diving into the details starting with liquids pipelines, first quarter adjusted earnings rose $21 million to $97 million in 2009. Most of the increase was due to the recognition of allowance for equity during construction on Southern Lights as well as within the Enbridge system on the Alberta Clipper project. Both increased as a result of the capital base growing during their construction periods. Earnings also increased within the Athabasca segment due to the Waupiso Pipeline being placed into service in the second quarter of 2008. These positive impacts were offset partially by higher operating costs within the Enbridge system including pipeline integrity spending.

Gas pipeline results are just slightly higher than 2008 and that is as a result of the stronger U.S. dollar and as well the impact of increased demand for the Vector Transportation corridor. These were offset by depreciating asset base within Alliance as well as continuing lost revenue early in the quarter related to Hurricane Gustav and Ike within the off-shore assets.

Sponsored investments made an increased contribution. Adjusted earnings increased $8 million due primarily to the increased ownership within Enbridge Energy Partners as well as the stronger U.S. dollar. As a result of the $500 million equity injection made in late 2008 our effective ownership increased from 15% to 27% of Enbridge Energy Partners. EEP’s adjusted results were lower than the prior year looking at EEP’s performance by itself mainly due to weaker performance within the natural gas segment as a result of the lower commodity price environment.

Enbridge Income Funds contribution went up as a result of the two distribution increases announced last year.

Moving to gas distribution and services, adjusted earnings increased $9 million due mainly to strong performance from our Energy Services business which was able to realize higher margins and volumes from a [contained] oil market and low risk transportation arbitrage opportunities. This increase was partially offset by decreased earnings within Enbridge Gas Distribution. That is a result of a change in our customer billing practice where a larger portion of the customer’s bill will be a fixed component and a lesser amount will be variable. As a result, earnings at Enbridge Gas Distribution will be lower in the first quarter and the fourth quarter but higher in the second and third quarters and with increased capture of intent of regulation benefits which is going well they will be higher for the full year versus 2008.

As already noted, international’s contribution decreased as a result of the sale of CLH in the second quarter of 2008 as well as the sale of OCENSA on March 17 of this year. Finally in corporate costs are $5 million lower than in 2008 as a result of a number of small factors including a higher corporate income tax recovery and some foreign exchange gains as a result of the stronger U.S. dollar.

So that is your review of the earnings drivers and I would now like to spend a moment just updating our financing outlook.

As a quick reminder, working off of page ten now on the slide deck, our investment in OCENSA generated net, after-tax cash proceeds in Canadian dollars of $512 million and the final gain in Canadian dollars was $329 million reflecting both the favorable exchange rate hedges that we had in place and the effective tax planning. This sale substantially reduced our equity needs for our commercially secured projects as indicated in the funding requirement chart on page ten and in fact it completely eliminated them in 2009.

We do continue to explore alternatives to proactively deepen our equity base in order to accommodate additional investment opportunities and those alternatives include both asset sales and asset monetizations. From a liquidity perspective, moving to slide 11, our remaining funding requirement for 2009 is now $2.4 billion. That includes the remaining capital expenditures, debt maturities and dividends for 2009 less the remaining funds from operations we will generate this year. And we continue to carry a significant amount of unutilized credit facilities.

At the end of March committed credit facilities for Enbridge and its subsidiaries totaled $6.7 billion of which $3.2 billion is either drawn or is allocated to backstop commercial paper programs. The remaining $3.5 billion of unutilized capacity is available to provide bridge funding for our capital programs prior to putting in place permanent financing or to accommodate additional investment opportunities. As you can see, we have a very substantial liquidity surplus for attractive opportunities even without accessing the capital markets.

However, we are starting to see improvement in long-term debt market pricing in both Canada and the U.S. On that note I will turn it back to Pat for his concluding comments.

Pat Daniel

Thanks Richard. So the first quarter of 2009 started the year off better than expected with increased contributions from all operating segments and placing us now well on our way to achieving our 2009 guidance. Probably even more importantly, we are now placing into service on time and on budget assets that will enable the company to have an average earnings per share growth rate through 2012 of 10+% bringing with that of course a comparable increase in dividends. On that note I think we can move to the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Andrew Fairbanks – Bank of America.

Andrew Fairbanks – Bank of America

I had a question on the financing slide on page ten. If you look at the total capital expenditures over the period of $12.5 billion how much of the Ford Hills project is included in that number at this point if anything?

Richard Bird

There is about $2 billion in there for Ford Hills and that is right at the back end of the five-year period. So we are still carrying an assumption of in-service in 2012 pending further guidance from the sponsors.

Andrew Fairbanks – Bank of America

As you think about that funding requirement should Ford Hills slip back to the second part of the decade would you think there is a high probability of other projects coming in to absorb that magnitude of capital need or would that just be a funding benefit where there would be just less debt and equity funding requirements in 2010 through 2012?

Pat Daniel

We are working on a number of other alternatives right now and I think it is fair to say we would expect in combination of other oil opportunities or some of the gas proposals we are working on that we would throw that in. It is hard to be very specific with you right now but we do have a number of things on the go.

Operator

The next question comes from Andrew Kuske - Credit Suisse.

Andrew Kuske - Credit Suisse

To what extent are you seeing productivity improvement for labor within Alberta and then to what extent is that giving you the ability to come in under budget on some of your projects and therefore open up some headroom on your financing?

Pat Daniel

Actually, to a very significant extent we are seeing improvements in productivity. I will speak primarily to pipeline construction productivity and I think it is fair to say the general principles I will refer to are applying to up stream construction as well in the oil sands. To give you a measure of that we have seen over a 3-4 times improvement in the well reject rate associated with pipeline construction which is one of the key measures that we use on productivity in pipeline construction. That has been very significant so we are seeing very significant improvements in productivity from a year ago when we didn’t have the kind of tightness that had started to develop in the labor market.

So that is the case. Also we are seeing far more competitive bidding from contractors for new projects and are now able to move away from the time and materials contracts we were getting to fixed contracts so that should result in a significant decrease in cost over time as well. So we are very pleased to see those improvements in productivity.

Andrew Kuske - Credit Suisse

Is there any specific quantification of that benefit and how that translates into your capital program?

Pat Daniel

I can’t quantify it other than to say that the construction cost has most recently been about half of the cost so what portion of that would be impacted by the reject rates on wells, for example, it is hard to say. But we are dealing with by far the biggest part of the total cost of laying the pipeline and that is the 50% associated with contractors so I think you can expect to see some notable decreases in costs. It is a hard part to quantify because it is kind of early stage at this point.

Andrew Kuske - Credit Suisse

On the intra-Alberta market what are your expectations for the bidding process on the [Curl] pipeline?

Pat Daniel

We have put information in front of the sponsor of the [Curl Light] project and would expect at some point over the next six months to find out whether we are in that race or not. But it will depend a lot on I’m sure the sponsors timing with regard to sanctioning the project and their decision making as to who their pipeline provider will be. We certainly hope to be in the race.

Operator

The next question comes from Linda Ezergailis - TD Newcrest.

Linda Ezergailis - TD Newcrest

My question is more on the operational side. I’m wondering as I look forward to the balance of 2009 and 2010 how I might think of both energy services out performance and what I view to be slightly light contribution from the Enbridge System excluding EEDC versus my expectations going forward. What sort of run rate might we expect? You have given some color on Energy Services Q1 but maybe on the Enbridge System earnings if you can give us some color on whether you incurred any penalties under your ITS or is there a timing consideration or anything else we might want to model into our full-year numbers?

Richard Bird

I’ll take a stab at that. The Enbridge System in the first quarter you are seeing some drag from higher costs. That is partly employee related costs. That is probably an ongoing effect. There also were some fairly significant integrity spend in the first quarter. That is in part, I think, something that isn’t indicative of the run rate. I think we will see better performance on the cost front as we move ahead there. Energy Services, as I think you already observed, had a strong quarter. There continues to be some good opportunities but I wouldn’t like to suggest that the first quarter is indicative in that business. It will probably be the best quarter in the year. Perhaps the best quarter for some time. All of that, as we indicated earlier, is rolled up in our assessment of where we stand with respect to guidance and we are certainly well on track if not a bit ahead.

Linda Ezergailis - TD Newcrest

In terms of the Enbridge Systems, can you clarify what is going on with the ITS? Is that integrity spend kind of normal within the full-year context or would that be a higher amount than we would have seen in previous years? Perhaps you can help us quantify what the break down was with the ongoing employee costs versus sort of the one-time integrity spend?

Richard Bird

I don’t think we are going to parse it down into too much more detail than that. The integrity spend with respect to the ITS is as provided for in the ITS and we do have an understanding with cap with respect to how much we will spend. So I think generally on an annual basis we will be in line with that but a little more heavily weighted towards the first quarter this year.

Operator

The next question comes from Bob Hastings - Canaccord Adams.

Bob Hastings - Canaccord Adams

Just to clarify on that last point on Enbridge Systems I noticed that the equity earnings from AEDC were up very significantly and so I’m sure Linda did as well when you do the calculation it was up $13 million but Enbridge Systems is only up $7 million. Is the full difference of that just the two items that you mentioned?

Richard Bird

They would be the largest part of that difference, yes.

Bob Hastings - Canaccord Adams

Just to clear up the difference between slide 10 and 11, I notice that the debt remaining to be funded in slide ten was $2 billion over the period but then on slide 11 you talk about $2.4 billion. Is that because you are in slide 11 including some of the other subsidiaries? What is the difference?

Vern Yu

On slide 10 that is the debt to be funded between 2008 and 2012. Slide 11 is just the total funding needs of cap after we take into account funds from operations this year, CapEx and debt to be refinanced this year. So there is a difference that slide 11 includes refinancing and slide 10 does not.

Operator

The next question comes from Robert Kwan - RBC Capital Markets.

Robert Kwan - RBC Capital Markets

Coming back to ITS, is there any progress on the discussions with the upcoming expiration of the current agreement?

Pat Daniel

No, we are still in the very early stages there. We haven’t really gotten deeply involved in re-negotiation. As you know it is a pretty active time in the industry both for our customers and for us. So, no we really don’t have anything further in terms of progress from our last report.

Robert Kwan - RBC Capital Markets

With the early discussions you are having is it still the case there is nothing you are seeing in terms of issues that would materially change the outlook for the next ITS versus what you are operating under right now?

Pat Daniel

I think that is fair to say. I think the spirit under which the original percent of tolling agreement was put in place and then renewals done over the years is very much the same down to sharing benefits through cost reduction and productivity improvements and the metrics we have used for crude quality and scheduling. Certainly the overall spirit of cooperation is very much the same going into those negotiations so we haven’t had any major issues that have come up.

Robert Kwan - RBC Capital Markets

If I can just turn to the financing on Enbridge Energy Partners, can you give some extra color there? We have seen decent pick up in the Enbridge Energy Partners price and I guess just from the Enbridge Inc. perspective what are the considerations you are looking at and at what point do the economics make sense to you to prefer EEP to look externally for financing?

Pat Daniel

Let me kind of start back at the start, as I imply by the final part of your question that our preference always has been for EEP to be a self-financing vehicle. However, with the MLP market being as hard hit as it has been we have not wanted to be out raising equity in that environment. As you know through Enbridge we have provided support to EEP as recently as last fall, obviously much to our benefit as you can see from our results as well to their benefit and ours. So we will continue to monitor the market. We will continue to look at the potential for EEP issuing units if the market strengthens to the point where we think it should. We have also indicated that we could potentially take a further interest in EEP or we could take an interest in a particular project that EEP is working on as ways of providing that kind of financing most effectively to the partnership.

Even though the units have strengthened, they are still well off their all-time high and we still have a little ways to go in that market before we would feel comfortable in going to the market.

Robert Kwan - RBC Capital Markets

You mentioned kind of the all time high, is that roughly in the range? I know you won’t get into specific numbers but is that kind of in the range of where you would feel comfortable in the economics for external unit financing?

Pat Daniel

I’d rather not suggest that because there are a lot of other factors that can come into play rather than just one specific number. I would rather not. There are a whole lot of things we would have to take into consideration.

Operator

The next question comes from Winfred [Bruhoff] – [Bruhoff] Consulting.

Winfred [Bruhoff] – [Bruhoff] Consulting

Regarding Enbridge Offshore System what were the earnings contribution in the last quarter versus a year ago? Then I have a follow-up question.

Richard Bird

On an adjusted basis Q1 was $7.4 million versus $5.4 million in Q1 2008.

Winfred [Bruhoff] – [Bruhoff] Consulting

The follow-up question is ever since the first investment in this pipeline system annual earnings have never really reached the target level which I think at the time was about $28 million to $30 million. I appreciate there are many factors beyond Enbridge’s field of influence but in as far as Enbridge can affect these results, what is Enbridge proposing to do this year or next year to bring these results up?

Pat Daniel

You are right. As we have indicated before we are probably for the first time in Enbridge’s history the timing of an acquisition wasn’t great and that we were hit with Hurricane Katrina the summer after we acquired those assets and then had another bad hurricane year last year in the form of Ike primarily. First of all there are a number of very encouraging factors in the Gulf of Mexico now. Thunder Horse, for example, is now producing at 200,000 mm BTU’s so it is up and actually in excess of where I believe they had expected it to be. So it was still coming on post Hurricane Katrina but is now exceeding expectation. I think that is one of many indicators that as a lot of this production comes on we will move back up into the target range that we had initially.

Not only that, as we look at new investments in the Gulf and there are a number of opportunities for expansions and extensions in the Gulf, we are further refining our model to reduce the risk associated with these investments such that we have some kind of demand charge, ship per pay commitment and minimum return tied in and that will gradually bring these assets back on side in terms of performance levels. So we are still very encouraged by the overall geological prospectivity in the Gulf and opportunities continue to expand. It will be on a more conservative business model than the original assets.

Operator

The next question comes from Carl Kirst - BMO Capital Markets.

Carl Kirst - BMO Capital Markets

Maybe just a follow-up on Lacrosse. If this were a pipeline if returns were met, if you will, and it was going to be in service for late 2011 and early 2012, when would we actually have sanctioning of the project? Is this something that could be done in sort of one construction season or how long might that take?

Pat Daniel

We are in the early stages of it as you know. We have got an open season running through until the 15th of May and would expect to get pretty positive response because we think that is a great market to head to and I will come back to that in a minute. We would be looking at construction in 2010 and 2011 as you suggested on-stream in 2011.

Carl Kirst - BMO Capital Markets

With respect to how you just alluded to the markets you are trying to hit and certainly I understand the wanting to avoid a Perryville at this point but as your values sort of go down to the SGT are you primarily looking to just bypass Perryville and basically interconnect with the northeast pipes or is it fundamentally trying to get that gas down into the southeast markets or the Florida markets? Part of this I am trying to figure out how much of this is producer pushed, Haynesville driven, versus perhaps tapping into some long-term float on demand?

Pat Daniel

It is very much the latter of the two alternatives that you suggest. It is not to pick necessarily other interconnect points to get into the U.S. northeast, and I will come back to that in a minute, but to hit what we think will be a very strong growth market in the southeast by tying into Florida gas transmission and other points to the southeast. As we sit looking at this overall shale map in North America and the large Marcellus Shale sitting up in the northeast we think that longer term probably the Haynesville gas is going to find the best home in the best market and the best net back to the producer by getting into the southeast markets. There are a number of proposals to Carthage over to Perryville. We think that hitting the FGT connect is probably the best way to go for producer net back.

[audio break]

Steven Paget - FirstEnergy

Can you still hear? Sorry. I can’t hear if I was called.

Pat Daniel

Go ahead Steven. We can hear you.

Steven Paget - FirstEnergy

I’m sorry for the confusion. My question is on Spectra joining the Alliance and Questar on the Rockies Alliance Pipeline. Can you comment on the process that led to bringing on a third party onto the line?

Pat Daniel

Just to kind of step back on Rockies Alliance for a second the key thing is to get as much volume commitment as we can for the pipeline. That is one of the things that made Questar such an attractive partner from the outset because they do bring volume along with them. We are certainly welcoming Spectra into the mix and again a ways to go as a result of some of the slow down in drilling in the Rockies but we hope to build producer support for that line.

Operator

The next question comes from Sam Kanes - Scotia Capital.

Sam Kanes - Scotia Capital

Just to explore a little further, the program now you are heading into Phase II and eventually into Phase III in the large CO2 sequestration project. Obviously you are showing leadership on the issue and I’m just wondering if you have any specific first rights of refusal to the ultimate pipeline build or what pro-ration of costs now that I know you are in a more expensive phase. I know there is federal provincial money but that probably won’t cover off all of it. I’m just wondering how that is shaking out. Will all 38 partners stay with Phase II and Phase III? That kind of thing.

Pat Daniel

To answer the first part of it we do have the exclusive pipeline rights and the sequestering rights on the project and other partners will look after the upstream capture of the CO2. With regard to the capital associated with Phase II, Richard can you help me out on that? Do you know what Phase II cap is?

Richard Bird

I don’t think it is established.

Pat Daniel

It is relatively small in that it is a pilot project. You are right, we have tapped into some funding but let’s get back to you on a ballpark range on that. Vern has indicated he thinks it is in the range of $150-200 million on Phase II.

Sam Kanes - Scotia Capital

That would be split 38 ways or is this proportionate to you? That kind of thing.

Pat Daniel

So in terms, 1/3 federal, 1/3 provincial, 1/3 partners and that 1/3 of the partners is split 38 ways.

Sam Kanes - Scotia Capital

Equally. Very good. A follow-up, you mention now you are 33% I guess hedged if you may with renewable energy against your energy consumption. Is it a general target or do you have a general target to hedge towards 100% hedged with respect to your portfolio or you haven’t really defined that yet?

Richard Bird

First of all, I don’t know that hedged is the right word. What we indicated is that our share of the wind power we produce amounts to 35% of the power we use on the crude oil mainline system which is one of the biggest areas of power consumption in the company. So we have a general guideline that at some point over the next 4-5 years we would like to be generating enough renewable to cover our power requirements in the company. That doesn’t mean to say that power is going to go to powering our pump stations, but just as a general offset from a corporate social responsibility point of view we would like to be in that range. I wouldn’t look at it as a hedge. There is no financial connection at all between the power we generate from the wind power business and our power usage but just generally the ability to offset our power consumption with a green energy alternative.

Operator

(Operator Instructions) The next question comes from Bob Hastings - Canaccord Adams.

Bob Hastings - Canaccord Adams

A little clarification on your corporate costs, they were down you said the attach rate recovery went up and I wonder if you could maybe expand on that a little bit and if you have any guidance for where you expect that to be for the year?

Richard Bird

I think that is probably seeing our corporate segment tax costs in the first quarter. We are probably going to continue to see that kind of performance for the balance of the year. So a little higher than it has been in the past but consistent on a go-forward basis.

Bob Hastings - Canaccord Adams

And the CIF tax? How did that have an impact?

Richard Bird

That is a bit of an anomaly which is why we have backed it out in terms of what our run rate earnings are. There was some legislative changes clarifying the applicability of the CIF tax and previous to that we had thought that some of our internal partnership structures were actually going to be subject to the CIF tax even though they are not publicly traded entities. So we have been providing for a CIF tax against those entities which was at a slightly higher rate than would be applicable in the absence of the CIF tax. The legislation clarified that those entities wouldn’t be caught and sold. We have reflected that change as a one-time adjustment.

Bob Hastings - Canaccord Adams

And the guidance for corporate expenses overall for the year? Is the first quarter an appropriate run rate?

Richard Bird

I think we are generally expecting to be in the 10-15 area, so roughly in line.

Operator

The next question comes from Andrew Kuske – Credit Suisse.

Andrew Kuske – Credit Suisse

I just wanted to get a better sense for what your outlook for crude pipeline additions will be post 2012 in part because you have a tremendous amount of capacity coming on line as does one of your competitors. So when you look out post 2012 with the current volumetric production or projected production what do you think will happen beyond 2012 as far as crude oil pipelines?

Pat Daniel

I think there are probably 2-3 areas of opportunity. First of all, it was mentioned earlier that the [Curl] project with Imperial Oil seems to be going ahead and I think the potential is clear for one or two other projects to proceed and hence that corridor from Fort McMurray down to Edmonton is going to be an area of opportunity for us whether it is [Curl], whether it is BP Husky on sunrise, opportunities through that corridor.

The second probably or an area of bottleneck and maybe the second biggest opportunity is going to be from Cushing south where we are finding that crude has started to bottleneck in Cushing and there needs to be additional capacity south. Hence, our joint venture with BP to look at use of their BP1 line to get to Cushing and then a new build from Cushing south. I think that will probably be the second area of influence.

I would then in addition to that add the eastern part of that to satisfy the Toledo/Detroit area, the expansions that Marathon has underway and Husky. Again, we have to win all of this business but that will be a further area of opportunity.

Then, and I will put this a little bit on the outer end of that, ultimately Gateway. We still have strong support from both the producers and refiners to proceed with filing an application on Gateway. Even though from a capacity point of view there will not be a need for X Alberta capacity for some time, Gateway is becoming more and more a pricing play and an optionality play for producers that could cause it to go before there is actually a shortage in capacity X the province. So probably in that order I think those would be the areas of focus for us.

Andrew Kuske – Credit Suisse

Somewhat related, just in the context of when you are talking to shippers and prospective shippers about the new pipeline projects on a return basis, have your thoughts or your discussions with shippers really been revised around returns with the NEB’s recent decision on TQM and their shift to an [atwac] type approach which should bias up returns over a period of time?

Pat Daniel

The discussions with shippers, that hasn’t really become an issue with regard to a lot of the new build opportunities but certainly it does apply to some existing assets that we have and the potential for an upward movement in the overall return and realize that we also have some indexing within existing deals that could move upward as a result of that move.

Richard Bird

It might be worth adding to that just as an example Alberta Clipper, which between Canada and the U.S. is over $3 billion worth of capital, does drive its returns off of the multi-pipeline rate of return. It is multi-pipeline plus 225 basis points. So to the extent that the TQM decision were ultimately extended to a revision of the generic multi-pipeline rate of return formula that would have quite a significant impact on Alberta Clipper and there is probably upwards of another $1 billion of capital in various other projects that are similarly geared off of that number.

Andrew Kuske – Credit Suisse

So it is safe to say you are going to be filing documents with the NEB on the 25th or there about of May with regard to the potential application of the TQM decision to other assets?

Pat Daniel

Yes. I think we will work with the Board and with the industry to try and work out what is the logical implication of not just the TQM decision but the general shift in the capital markets that we have seen in the last little while in terms of risk premiums. Of course it is not just on the pipeline side of the business either that is relevant here although we have an incentive deal in place on the Ontario distribution business it ultimately has upside potential associated with that as well.

Operator

The next question comes from

Operator

The next question comes from Petro Panarites - CIBC World Markets.

Petro Panarites - CIBC World Markets

In some of your recent presentation material you have begun to include a more specific chart on gas projects and development and you have included an “other” category that amounts to, just eyeballing the chart, about $7 billion. How do we look at that in terms of what your fair share of that is and over what timeframe does it come into service?

Pat Daniel

I know exactly the chart you are referring to. Basically it is to put beside our original wave two of liquids projects a series of opportunities on the gas side that we think could well build in behind or in place of that wave two. We specifically haven’t specified projects in there because it is a little too early in the development cycle to say. However, we are encouraged by the general trends, direction and opportunities that are coming our way whether it is a combination of Rockies Alliance and the prospect line in the Haynesville. There are some absolutely good and strong opportunities coming out of these shale plays with possible extensions and expansions of alliance in the northeast BC area and also the work we are doing off-shore in order to tie in some of the new deep water discoveries in the off-shore Gulf of Mexico. So we have not been able to be really specific in that but are just very encouraged by the general level of development in the gas business today.

Operator

The next question comes from Steven Paget – FirstEnergy.

Steven Paget - FirstEnergy

On the Gateway line question the producers are fully funding the cost to get to the permit as you spend them, is that correct?

Pat Daniel

Yes. Producers and refiners.

Steven Paget - FirstEnergy

And that arrangement ends when you complete the application some time this year?

Pat Daniel

It ends when we have an approved application.

Richard Bird

With a caveat that all that is committed at this point is $100 million so if it took more than that to get to the finish line and that is the budget so if it took more than that we would have to go back to the producers for further funding.

Operator

The next question comes from Scott Haggett – Reuters.

Scott Haggett – Reuters

First, what is your outlook for volumes on Spearhead? Do you see that filling as the season progresses and do you intend to replace the retired capacity at Cushing?

Colin Gruending

I know the capacity on Spearhead goes from 125 up to 190 or to 195. I’m not sure exactly what the production outlook is.

Richard Bird

I can take a stab at that. Spearhead has been quite significantly apportioned for some time but the expansion isn’t just driven by hoping the volumes will come. We conducted an open season and have binding contracts for sufficient of the additional capacity being added to provide the expected level of returns on the project. So I would expect we will see through put mount up over a period of time, probably pretty close to the full capacity of the line which is up to now I think 195,000 barrels a day. One caveat on that is as Pat mentioned earlier Cushing is going to start to get bottlenecked and so there will need to be a solution in the not too far distant future to allow that crude to flow from Cushing south.

Scott Haggett – Reuters

And the capacity that you retired? Or the retiring of that 500,000 barrels of Asian tankage? Do you see that being replaced?

Richard Bird

We have added an awful lot of tankage at Cushing over the last little while. There is a certain amount that is retired in the normal course so that is older, smaller tanks. So I think we already have more than replaced it.

Pat Daniel

In fact I think we had a net add there.

Operator

This concludes the question-and-answer portion of your conference. I would now like to turn the call over to Mr. Pat Daniel for closing remarks. You may proceed, Sir.

Pat Daniel

I would like to thank everybody for tying in today. I don’t think we have any further remarks. Vern, in terms of follow-up?

Vern Yu

Everyone I think if there are further detailed questions you need answered Pat and I are available and I think Pat sent out an email yesterday with the contact numbers we can be reached at. We look forward to talking to you later.

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