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Executives

Guy Jarvis – VP, IR and Enterprise Risk

Pat Daniel – President and CEO

Richard Bird – EVP, CFO and Corporate Development

Analysts

Carl Kirst – BMO Capital

Juan Plessis – Canaccord Genuity

Pierre Lacroix – Desjardins Securities

Andrew Kuske – Credit Suisse

Robert Kwan – RBC Capital Markets

Ted Durbin – Goldman Sachs

Linda Ezergailis – TD Securities

Jeff Jones [ph] – Reuters [ph]

Sam Kanes – Scotia Capital

Justin Amoa – Argus Media

Enbridge Inc. (ENB) Q4 2010 Earnings Call Transcript February 3, 2011 9:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Enbridge Inc. fourth quarter 2010 financial results conference call.

I would now like to turn the meeting over to Guy Jarvis. Please proceed.

Guy Jarvis

Thank you. Good morning and welcome to Enbridge Inc.’s 2010 fourth quarter 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’d like to point out that we may refer to forward-looking information during this call. By its nature, this information applies certain assumptions and expectations about future outcomes, so we remind you it is subject to the risks and uncertainties affecting every business including ours.

Our slides include a summary of the more significant factors and risks that might affect future outcomes for Enbridge, which are also discussed more fully in our public disclosures available on both SEDAR and Edgar Systems.

This call is web cast, and I encourage those listening on the phone lines to view the supporting slides, which are available on our website. A replay and pod cast of the call will be available later today, and a transcript will be posted to our website shortly thereafter.

The Q&A format will be similar to past calls. The initial Q&A session is restricted to the analyst community and once completed we will invite questions from the media.

I would also remind you that Pat Murray and I will be available after the call for any follow-up questions that you have.

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

Pat Daniel

Thank you, Guy, and good morning, everyone. Thank you for joining us. We are very pleased to announce this morning that Enbridge’s adjusted earnings for 2010 were $2.66 per share, representing a 13% increase over 2009. This increase is particularly notable when you recall the 25% year-over-year increase that we announced at this time last year. So coming off an exceptionally strong year in 2009, we are pleased to continue to deliver outstanding low-risk organic growth across all of the business lines of Enbridge.

Richard, of course, is going to walk through the results in more detail in a few moments, but first let me summarize our 2010 operating and development performance. For many listening to the call today 2010 will be remembered for the crude oil leak that we experienced in July at Marshall, Michigan. This was the most significant environmental incident in our company’s history, and I’m going to come back to speak to it later in my remarks this morning.

To begin 2010 was a year in which we brought into service two of the largest projects in our company’s history, and 6.5 billion of projects in total. I like to go through the year chronologically beginning in early 2010, Enbridge Energy Partners brought [ph] $140 million expansion of the North Dakota system into service, and that was ahead of schedule. Reflecting the continued growth and expansion of the Bakken Play that expansion has been running at capacity since day one.

Moving on in April of 2010, we brought into service the $3.7 billion Alberta Clipper project, which increased our mainline capacity by 450,000 barrels per day, and that of course, was followed in early July with the first delivery of diluents [ph] of our $2.3 billion Southern Lights project. Southern Lights, of course, is the first pipeline to provide transportation capacity from Chicago back to Edmonton, where the diluent is then mixed with bitumen to enable the crude to be piped back to Chicago.

In December, we began to deliver emissions free energy from the expanded Sarnia Solar facility. This, of course, is $300 million expansion increased the overall capacity of the solar farm from 20 MW to 80 MW, making it one of the largest operating facilities of its kind in the world. And then finally in late December, both the $285 million Talbot Wind farm and the $140 million Saskatchewan crude oil expansion project were substantially completed and began to add to our ever growing base of cash flow.

And while our major project groups continued to deliver very solid expertise in exhibition capabilities and bringing projects into service in 2010, our business development teams across all of our businesses continued to add to our portfolio of commercially secured projects, sustaining our anticipated growth trajectory through the middle of this decade as we have mentioned to you.

During 2010, we secured over 4 billion in new both projects and assets. In January of 2010 we announced that we would be the first of a number of Alberta regional oil sands projects that was the Cenovus expansion at Christina Lake, where we have been contacted to add $250 million of lateral and terminal facilities for Cenovus. In March we announced the $275 million Greenwich Wind Power Project which will add another 100 megawatts to our Green Power portfolio by the end of 2011.

June was also a busy month as we announced that we had consolidated our interest in the Hardisty Cavern Storage assets by acquiring the remaining 50% of that facility. We also announced the $400 million expansion of our Waupisoo pipeline, which connects the growing oil sands production area with the Edmonton Alberta Hub. This expansion program will provide approximately 65,000 barrels a day of additional capacity in the second half of 2012, and then a further 190,000 barrels a day when fully in-service in the second half of 2013.

Also in June, we made our first entrance into the US green energy space by securing the rights to the $500 million Cedar Point Wind Power Project located east of Denver, Colorado. This project will generate 250 MW of green energy by late 2011. In July of 2010 we announced the largest non rolled out acquisition in the history of Enbridge Energy Partners. This was the $680 million acquisition of the Elk City gathering and processing system within the Panhandle region of Texas and Southwest Oklahoma.

This of course is in the same region as our existing Anadarko system, and provides us with substantial operating and strategic synergies between the two asset bases. The Granite Wash of course, has become one of the most attractive gas plays in Texas given its liquid rich nature.

In August, EEP and Enbridge Income Fund announced sufficient long-term commitments to proceed with the Bakken Expansion Program. This program represents investment opportunity of $370 million for EEP and $190 million for Enbridge Income Fund. An open season was subsequently held to permit other shippers to secure capacity on the same terms as the anchor shippers, and we are still finalizing the results of that open season.

This project will increase the capacity out of the North Dakota Bakken by 145,000 barrels per day, and it is expandable to over 325,000 barrels per day. We also announced the $370 million Wood Buffalo Pipeline, which will parallel Enbridge’s existing Athabasca pipeline between Athabasca and the Cheecham terminals. This pipeline will accommodate Suncor’s growing capacity needs, and it is expected to go into service by mid-2013.

Continuing to move through the year, in September and December we announced expansions of our Athabasca pipeline. We will be expanding the Athabasca pipeline to its full capacity of 570,000 barrels per day to accommodate the increasing shipping commitment from the Christina Lake Oil Sands Project, as well as other commitments that we have received.

So in total this project will cost approximately $400 million with initial capacity coming on stream in early 2013 and in the balance by 2014. Also in September, we announced that we have won the right to develop the pipeline and terminaling infrastructure for the Husky BP Sunrise Oil Sands project, and this is a $475 million project, which will increase the number of production facilities connected to Enbridge’s Alberta regional transportation infrastructure to 9 by the end of 2013.

And finally near the end of September, we announced a $260 million expansion of our Edmonton terminal in order to accommodate the projected increase in volumes associated with the various projects that we have just been discussing. Note that these secured projects fit very well with Enbridge’s business model with reliable earnings and low to mid-teen equity returns.

I would also like to note that each of these regions, whether that be the Alberta Oil Sands infrastructure, the Bakken green energy, the gathering and processing gas assets, represents an area where we see continued growth in 2011 and beyond.

And speaking of 2011, we are off to a good start with the announcements over the past few days of growth in our green energy portfolio, with the acquisition of another 20 MW of solar generating capacity in Ontario, also the expansion of the capacity of our Venice, Louisiana condensate processing facility, and that is to accommodate growing production from the ultra-deepwater offshore. And then an increased interest in the natural gas distributor gas metropolitan through our increased ownership interest in Noverco. So it has been a busy start to 2011.

We of course have also continued to advance the Northern Gateway Pipeline Project. This is a project of national strategic importance and significance that has the potential to diversify and boost Canada’s economy, and have a very positive social and economic impact on the country. Last May, we filed our regulatory application, that is the largest ever filed with the NEB by the way, and in January the joint review panel tasked with the review of the project requested additional information from Enbridge on the design and the risk assessment of the pipelines due to the geotechnical aspects, and their geographic location, and that work is under way now.

As well, over the past few weeks, we have met with aboriginal communities along the proposed right of way to share the details of our 10% equity offering. So far, it has been well received and we are hopeful that more communities will understand and appreciate the long-term economic benefits of this project.

In conclusion, I would like to return to the subject of the oil leak that took place in Michigan just over six months ago. That incident tested our company’s ability to respond not only to the cleanup of the oil spilled, but also to the individuals in the communities that were impacted, the regulators, the agencies who were involved in the response effort, and of course to customers whose deliveries were disrupted.

We continue to have a very strong presence in Michigan, both in our community centre, where we continue to work with communities of Marshall and Battle Creek, and also along the Kalamazoo River on the cleanup. We are nearing the end of our winter work at this point, where we have been able to take advantage of frozen ground to reach some of the marshy areas that we weren’t able to get to in the summer and the fall, and we anticipate increasing our cleanup and remediation activities, of course, as the ground thaws and we are able to assess the work that remains.

As you know, Enbridge has always had a very robust pipeline integrity program, and is one of the largest users of in-line inspection technology in the world. Since the restart of line 60 [ph] post the Marshall incident, we have actively conducted in line additional inspections and we have employed a team of 65 dig crews to aggressively excavate and remediate approximately 400 locations along that line.

We are encouraged that the results of these investigations are confirming that the in-line tools are characterizing identified features conservatively, and we look forward to wrapping up the bulk of our accelerated program by the end of this quarter, the first quarter of 2011.

All of this work has of course impacted the availability of our mainline system, and we continue to very hard with our shippers to minimize the overall impact, and also to thank them for their understanding as we complete this very important work.

So with that recap of the year, I will turn it over to Richard, whose is now going to walk through in more detail the financial results for 2010. Richard.

Richard Bird

Thanks Pat, and good morning everyone. Picking up on slide seven for those of you that are following in the slide deck. As Pat mentioned earlier this morning, we released our year-end results, and year-to-date reported net income was $963 million, or $2.60 per share. That is a decrease from 2009, where we reported $1,555 million or $4.27 per share.

This year-over-year decrease in GAAP earnings was due primarily to 2009, including the one-time gain on the sale of our investment in the Columbia [ph] pipeline. That was 329 million as gain, as well as larger mark-to-market gains in the prior year on our US hedging program. This is further compounded in 2010, including the 125 million negative impact from costs associated with our cleanup efforts on line 6B and 6A.

Excluding the onetime and non-operating factors, our adjusted earnings per share for the fourth quarter was relatively flat to the prior year, but up 13% on a year-to-date for the full year. This places us in the upper half of our original 2010 guidance, and that is consistent with our revision to guidance that was communicated during the Q2 call. As noted in our December guidance call, our financial segmentation has been adjusted based on the management changes back at the beginning of the fourth quarter.

I will now take a few minutes to walk you through the main drivers within each segment, moving on to slide 8. Liquids Pipelines adjusted earnings for the quarter decreased 24 million from the fourth quarter of 2009 but improved 58 million on the full year. The full-year improvement was primarily a result of placing both the Alberta Clipper and the Southern Lights in service, which not only increased our year-over-year earnings but marked a sharp increase in cash generation.

The Spearhead Pipeline also had a strong year due to higher volumes as a result of the expansion placed into service in 2009, as well as make-up rights which expired during the year. These increases were somewhat offset and primarily in the fourth quarter by increased operating costs and taxes on the regional oil sands system, decreased earnings from our Toledo Pipeline due to the Line 6B outages, decreases on the other small assets within this segment, as well as increased business development costs in the quarter.

Another significant factor affecting the quarterly pattern of the Enbridge System earnings year-over-year was the interim Incentive Tolling Settlement in place during 2010, which resulted in a more even distribution of earnings over the year in 2010, compared with the back end loading of 2009.

Our newly separated Gas Distribution segment improved by 13 million year-to-date, but was slightly lower in the fourth quarter. Full year results benefited from strong returns at Enbridge Gas Distribution [ph] as a result of incentive regulation, as well as growth at Enbridge Gas New Brunswick. Declines in the fourth quarter were primarily due to timing of expenditures and taxes.

Within Gas Pipelines, Processing and Energy Services adjusted results were higher by 7 million for the year and 9 million for the quarter. Energy Services had a strong quarter when compared to 2009, as a result of margin opportunities in natural gas and liquids marketing, which rebounded from the lack of opportunities earlier in 2010.

Aux Sable had a strong quarter and year due to enhanced plant performance and stronger fractionation margins. The improved performance within the others sub segment was the result of decreased business development costs, but also reflects three months of contribution of the full 80 MW of the Sarnia Solar Project. These improvements were somewhat offset by decreased contribution from the offshore assets due to volume declines as a result of the temporary suspension of deepwater drilling.

In addition, the 2009 offshore results included approximately $8 million of insurance proceeds, 2 million of that in the fourth quarter. Those were related to business interruption, lost revenues, and operating expenditures associated with hurricane Ike in 2008. Sponsored investments continued its strong 2010 performance. Full year results increased by 58 million and the Q4 contribution increased by 9 million. This performance was primarily a result of increased incentive income earned by Enbridge as a result of the combined $0.075 distribution increase announced by EEP in the first and second quarters of 2010.

Enbridge is now entitled to 50% of this increase as a result of the partnership distribution level now being in the high split range. Year-to-date earnings at the partnership level are also stronger after adjusting for the costs associated with the two incidents. This is due to increased transportation rates as a result of the completion of Phase II of the Southern Access expansion in 2009, as well as three quarters of earnings from the Alberta Clipper project, and the impact of the Phase 6 expansion of the North Dakota feeder system, which was placed into service in January of 2010.

Alberta Clipper US also positively impacted earnings as the US portion of this project was also placed into service on April 1 of this year. Earnings within the quarter and the full year reflect Enbridge’s 67% of the after-tax earnings from Alberta Clipper US, as well as our share of the AEDC booked in the first quarter. And finally corporate costs increased for the year, as a result of higher financing costs and lower foreign exchange gains, partially offset by favorable income tax recoveries and higher business unit financing recoveries primarily in the fourth quarter.

Before I turn back to Pat, I want to make a few last remarks. First, I should remind those listening on the call that in December Enbridge announced the second straight 15% increase in our dividend, bringing our ten-year average dividend growth rate to 11%, which is unparalleled in our peer group.

Turning to slide nine, and in regards to our long term growth outlook, back at Enbridge [ph] based on our updated strategic plan, we confirm that we expect to see an average annual growth rate and earnings per share of about 10% through the middle of the decade, and that is even off of our very strong 2009 base of $2.35 per share. There has been no change to this expectation. The world has been unfolding pretty much as expected with new investment opportunities that will contribute incremental earnings per share in 2014 and beyond being secured according to plan. In fact the average growth rate from 2009 to the midpoint of our 2011 guidance is exactly 10%.

So we are on track, we are well positioned to achieve the expected 2010 EPS level. If anything, we are better positioned than we were at the time of Enbridge days. And with that I will pass the call back to Pat.

Pat Daniel

Thank you Richard. So to very quickly summarize, I think it is fair to characterize 2010 as the year of accomplishment and also as a year of humility for Enbridge. On the one hand we are proud of our continued strong performance across all of our businesses over the course of 2010. We were able to place into service a very large suite of growth projects, while at the same time we continued to line up a number of new projects to help extend our very enviable growth rate going forward.

So 2010 sets us up very well to meet our long-term growth objectives as Richard has just summarized. On the other hand, we are not proud of the pipeline leaked that we experienced, the most significant in our company’s history, but I do take great pride in Enbridge’s employees and the commitment they have demonstrated to responding to those incidents, the environmental remediation, the response to affected residents, and to applying the learnings to ensure that that incident never happens again or anything like it.

So with that let us move forward to the Q&A session. Guy.

Guy Jarvis

Okay. Operator, we’re ready for the Q&A, please.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from the line of Carl Kirst with BMO Capital. Please proceed.

Carl Kirst – BMO Capital

Hi, good morning. Thank you for the time everybody. Just a couple of quick questions if I could, maybe focusing on just the year-over-year dynamics on the liquid side, Richard you had mentioned the higher expense, particularly in the regional oil sands system, I just wanted to get a sense of was that cost creep expected and kind of embedded within the guidance, was that unexpected, should we continue to pay close attention to that going forward in 2011, I was just hoping for a little bit of color there. And also just to make sure I have got the magnitude, understanding the interim toll on the broader system seasonally shifted some of the earnings around, how much of an impact is it possible to say that had on the fourth quarter?

Richard Bird

Okay, well let me take those in the order that you raised them. So was the cost pattern consistent with our expectations and guidance, yes, it was. The year has worked out pretty much exactly as we expected that, it would – consistent with our revised guidance in the middle of the year, and pretty well all the components although there is always some ups and downs. We are in line with that as well, and we do have typically variations over the course of the year in the loading quarter by quarter of when certain expenses and expenditures are undertaken.

So we happen to be a little late during the first three quarters of the year and some of the segments on their costs, but we did expect that that would rectify itself by the full year with higher costs in the fourth quarter and so that's pretty much as expected. On the impact of the change in the quarterly patterns from the interim incentive tolling settlement that's applicable in 2010, and was applicable in 2010, the main difference there was the fact that the interim arrangement no longer had the performance incentives associated with batch quality that the prior agreement did.

Those incentives were always based on the full-year measure and so they couldn't be fully measured and taken up at earnings until the fourth quarter. So what we typically saw during each of the prior five years was a big bump in the fourth quarter. The interim agreement didn't have that feature, effectively it had our earnings and returns being earned evenly over the course of the year, so that when you do that quarter-to-quarter comparison for the fourth quarter you get that variation. That was a fairly significant impact by itself that would have run $10 million plus in terms of the quarter-over-quarter behavior.

Carl Kirst – BMO Capital

Great. Very much appreciate the color, and if I could just sneak one other in, with respect to Noverco [ph], with the exit of GDF SUEZ, was that principally just GDF looking to exit, and you guys and Trencap were the obvious fillers, or does this in any way signal perhaps more investment going over to that side of the ledger?

Pat Daniel

I think your first description of it is accurate. Hi, Carl, I think from a strategic point of view, GDF was looking to exit and have mused about it off and on over the years, and it was just logically with the existing participants both of whom are very happy with the investment, who are wanting to increase their interest.

Carl Kirst – BMO Capital

Great. Thanks so much guys.

Pat Daniel

Thank you.

Operator

Your next question comes from the line of Juan Plessis with Canaccord Genuity.

Juan Plessis - Canaccord Genuity

Thanks very much. My question is in regard to the Alberta Clipper, you have extended the suspension of the NEB hearing on the Canadian portion, I’m just wondering if you can perhaps update us on the progress of the talks with shippers, or provide a sense of timing as to when you might see those being completed?

Pat Daniel

Really at the time that we agreed with Suncor and Oil [ph] to suspend that. Juan, we concluded that we would discuss principles around it during the comprehensive toll settlement discussions, and at this point there is really nothing specific to the original claims before the NEB that we're working on. I think you'll find that the comprehensive toll sentiment addresses any and all issues that would have been involved in that.

Juan Plessis - Canaccord Genuity

Okay, thank you. And just a housekeeping question, with regard to the feeder pipeline, your release had mentioned the three factors that caused the swing in earnings, there was higher business development cost and then lower earnings from Olympic and Toledo pipelines, I’m wondering if you can break down the impact for each of those ones?

Pat Daniel

I don't know that we want to get into intimate detail on that. Those were the principal causes and in roughly equal magnitude, but a number of the other smaller pipelines also were down in the fourth quarter.

Juan Plessis - Canaccord Genuity

Okay, thank you very much.

Operator

Your next question comes from the line of Pierre Lacroix with Desjardins Securities. Please proceed.

Pierre Lacroix - Desjardins Securities

Yes, thanks very much. First question is maybe Richard, you could give me an update on your hedging program on the currency side, on the US dollar side, I know that you have a pretty attractive rate going into 2012, 2013, but beyond that time frame what does it look like?

Richard Bird

We haven’t significantly changed our hedge positions since Enbridge days. So I don't think there is anything new to add there. We've got most of our floating-rate debt hedged through 2013 and 2014 at relatively attractive rates and most of our forward projected term debt issuances rate locked as well. So no real change in that, they are pretty much completely locked in through 2014.

Pierre Lacroix - Desjardins Securities

2014, okay. That is anywhere between 115 and 120?

Richard Bird

You are referring to the currency; I was a referring to interest rates just now.

Pierre Lacroix - Desjardins Securities

No, currency.

Richard Bird

The currency likewise is hedged through 2013 and a bit into 2014 and I think generally our rates are a little better than what you described. We are generally close to about 120 on most of that hedge program.

Pierre Lacroix - Desjardins Securities

Okay, thank you, and on the cash flow side, I know that the fourth quarter will always see a huge kind of contribution from future income tax I guess from operations. This quarter was $117 million, can you describe may be a little bit what we find in there and what are the drivers of this amount?

Richard Bird

Well, I think what you are likely referring to here is the fact that on a cash tax basis we don't pay that much taxes. That will be due to accelerated deductions available on a variety of the different assets. Certainly some of the renewable assets have very attractive CCA rates, but a number of the other assets have rapid write-offs as well. So I don't have that detail by individual assets, but it would be that that's what's driving the phenomena.

Pierre Lacroix - Desjardins Securities

Okay, it is mostly related to that. Okay, perfect. And going into the corporate expense, you have been running at $10 million, $15 million a quarter in 2010, is it the same kind of run rate we will be looking for in 2011?

Richard Bird

I think we're doing a little better on corporate expense as we move forward. Certainly over time it will tend to move upwards as we expand and carry more debt at the corporate level although we do charge the business units for their fair share of that debt, but generally I think we are probably in a quarterly run rate is the best way to look at it. Generally I'd rather stick with annual guidance, but we are probably looking at more like $30 million to $40 million on an annual basis for the corporate, net corporate expense.

Pierre Lacroix - Desjardins Securities

Okay, one final question if I may, on the insurance cost, following the spill, and I know that it is related to heat more, but have you got any sense of any increase from the insurance companies to insure yourself going forward?

Pat Daniel

Guy.

Guy Jarvis

Well, we are actually – this is Guy Jarvis. We are just in the very early stages of kicking off the renewal of our insurance program, and talking to our brokers and on our strategy and add this stage while I think we’ve said before we do expect our premiums will go up. We don't have an indication as to exactly what that's going to look like yet.

Pierre Lacroix - Desjardins Securities

Okay, thank you very much.

Pat Daniel

Thank you.

Operator

Your next question comes from the line Andrew Kuske with Credit Suisse. Please proceed.

Andrew Kuske – Credit Suisse

Thank you. Good morning. I think this first question is a question for Richard, and it is just in the context of your cost expectations on pipeline integrity on the EEP results that came out last Friday, and then on the call on Monday, there is a considerable amount of discussion around the integrity costs and how they are really rising into ’11 from the past years. Do you have a breakdown of past integrity costs at the integrity costs at the Inc. level, and then what do you expect them to be in the future?

Richard Bird

I don't have that kind of detail ready at hand. So maybe that's something we could follow up with you on Andrew.

Andrew Kuske – Credit Suisse

Sure. Is it fair to say though that your costs are raising at the Inc. level, or are they holding pretty firm from where they were in the past?

Richard Bird

Andrew, I think probably the best way to describe it is more as a compression of cost, because using 6B as an example, as you may know we had planned a 2.5 year integrity dig and repair program, and as a result of the Marshall incident, the regulatory requirement was that we condense that into a six-month period. So we're really not doing anything now that we didn't intend to do over 2.5 years, but it's really just more condensed. So I don't think we will see a significant change in the overall integrity and inspection program maybe up slightly as new tools become available over time, but mainly a condensing of that into a six-month period from a 2.5 year period.

Andrew Kuske – Credit Suisse

Okay, so just a collapsing of the schedule more than anything else.

Richard Bird

Right.

Andrew Kuske – Credit Suisse

And then just a bigger, broader question in your renewable power business, you have managed to grow this business in a pretty big fashion over the last few years, and I’m just curious, how do you think about capital allocation in this business with your governments becoming a little bit more reluctant to give longer dated contracts, or at least that possibly decelerating, PUCs in the US are obviously interested in having contracts. But that is a little bit of a different capital risk, and the counterparty risk, and then how do you see it morphing beyond the PUCs, and just utilities in the US? Do you see yourselves taking on effectively merchant type renewable power exposure?

Pat Daniel

No. You got to the part of the question that is easiest for me to answering that, no, we don't really intend to get into the merchant power business on renewables, and maybe just coming back to the top of your question, we do like the business. We like it in large part because the business model as we have the deal structure, it is so very similar to the business model for our distribution business or Liquids Pipelines business, and it revolves around the 20-year power purchase agreements with very creditworthy parties, and very little capital or operating cost risk on the project.

So really the only significant variable is the amount of sun we get, or the amount of wind we get and those are fairly easily forecast. So we like the business model and we will continue to build out and expand the renewables business every opportunity we get at, as long as we are able to sustain that business model. We haven't really, Andrew set a target with regard to you know, any limit you know, I think right now it's a little less than 1% of earnings, probably will be around 3% by the middle of the decade that is still well within any limit that we might put on for strategic or other reasons.

So there is a lot of potential and room to grow the business and we continue to look for opportunities that meet the criteria that I have described. Also I think it's fair to say that although in some countries in Europe the level of renewables have reached almost a saturation point where they are starting to have a fairly significant impact on end-user power cost, we've not seen that in North America.

I just had some fresh data done for me over the last few days to show that we still you know, using Ontario as an example, the cost of power has gone up only I think $0.01 per kilowatt hour as a result of the renewables. So there is a lot of renewable that can come on-stream without really impacting that, and hence we expect the subsidization to continue for some period of time. So very long answer to your question, but we like the business as long as we're able to sustain that business model that we've got.

Andrew Kuske – Credit Suisse

Okay, that's very helpful. Thank you.

Operator

Your next question comes from the line of Robert Kwan with RBC Capital Markets. Please proceed.

Robert Kwan – RBC Capital Markets

Good morning. If I can just come back to ITS, just wondering if there is any update you can give as to the timing of that longer agreement, and if there is any other color as well to whether it is moving more towards the cost of service like you have for 2010, or whether it is going to be a little bit more incentive driven like the past agreements?

Pat Daniel

Richard.

Richard Bird

Sure. I can touch on that and I think we're still a little bit too really to be able to be definitive on any of that, but discussions are progressing. We are more or less on the rails in terms of reaching an agreement in the not too far distant future. It will have a different structure to it. One it’s designed to address shippers desire to see our system be an attractive system for them to continue to ship their crude on and at the same time achieve our financial objectives. So no specific news, but good progress being made.

Robert Kwan – RBC Capital Markets

So, Richard when you say different structure, you are talking about different structure from 2010, or just something different than what we have seen whether it is 2010, or the previous agreements?

Richard Bird

It'll be different in structure from both 2010 and the previous agreements.

Robert Kwan – RBC Capital Markets

Is there any kind of higher level kind of directional comments about what types of things would be different from the previous agreements?

Richard Bird

No, I don't think I can talk about that just yet, and when we reach that agreement as soon as we can, we’ll come out with full detail and explanation.

Robert Kwan – RBC Capital Markets

Okay. My last question, on the Alberta regional system, just wondering if there is some specific things you can talk about with respect to future growth, you have done obviously a lot of announcements, but anything you can talk about with respect to Fort Hills, I know that is not sanctioned yet, but certainly moving in the right direction based on what Suncor and Total have been talking about. And then, the other specific situation, anything new on the (inaudible) condensate pipeline going north?

Pat Daniel

So, to both of those very active areas of work and development within the company right now Robert, and it is still too early on Fort Hills. I think as a result of some of the announcements that Suncor has made, it's becoming a little clear as to where and what the timing will be around Fort Hills, but there are some parts of the way in which they are configuring particularly their new arrangement with Total that may result in a different configuration.

We'll work with them and come up with whatever pipeline solution where it’s best to get their product to market. So very early stage, and Guy you may want to comment as well, but nothing really at this point that we can say further than the fact that we’ll be working closely with them.

Guy Jarvis

Yes, I don't think there is anything more to add to that.

Pat Daniel

And the condensate opportunities, one, we continue to work on basically an opportunity to extend southern Lights north, and we are very encouraged by some of the early indications of potential shippers on a condensate line further north.

Robert Kwan – RBC Capital Markets

Okay, perfect. Thank you very much.

Pat Daniel

Thanks Robert.

Operator

(Operator instructions) Your next question comes from the line of Ted Durbin with Goldman Sachs. Please proceed.

Ted Durbin – Goldman Sachs

Thank you. If you look at WTI in the Cushing market you really have the differentials to say Brent blew out a lot [ph], if you look at your project to build a pipeline down to the Gulf Coast, or maybe potentially adding to storage in Cushing, how are you thinking about the opportunities around that?

Pat Daniel

Getting better every day, and for exactly the reason you've indicated Ted, you know, with a $8 to $10 WTI/Brent you know, a large part of that is as a result of the bottlenecking of light in that Cushing market, and our Monarch pipeline project going south from there is attracting more attention every day. We just need to get the level of producers support such that we are able to proceed with the project, and I'm sure if we – well, I know we had it there today and open the tap there to be a lot of crude oil flowing through it. So we're just trying to move forward as quickly as we can with industry participants to get the kind of level of support we need for the long term operation of that pipeline, but certainly that has become a real bottleneck that Cushing market for producers.

Ted Durbin – Goldman Sachs

Okay, great and then if I could just ask about, I know you talked a little bit about the feeder pipeline, but maybe just talk about operationally a lot of the backups that we even had over the last few months kind of when you see those cleaning up, and was that an impact on the feeder pipelines, or anything that is being done for the quarter, I am just trying to understand a little better.

Pat Daniel

So, yes, the backup, as you know came as the result of initially the downtime at Marshall, Michigan, and then the downtime that we had at Romeoville as a result of those two incidents, and then the fact that we ended up with this condensed pipeline integrity and dig program, coupled with the fact that we were able to gain access to two new in-line inspection tools that we’ve run through the system in the fall and then have gone in to do dig and remediation associated with any indications of potential problems that came from those two runs.

So it has been a very condensed period of time and has resulted in more down time than we’ve ever experienced on our system. We feel now that we are largely through that. We do have two more periods of downtime that we've indicated to industry, one next week as a result of some work downstream at Stockbridge. One I think that comes about two weeks after that and then we also have some potential tie in time when we complete the St. Clair River [ph] crossing replacement, but those with be relatively small compared to what we've had in the past.

Apportionment as a result has come down quite significantly for the month of February, and we feel we've largely resolved and got the bottleneck of crude oil moved to the system now, and shouldn't have a significant going forward impact. Obviously the amount of downtime we had in the fall did back up crude or the way up to the feeder systems. I’m not in a position to be able to quantify the impact that that's had on shippers Ted.

Ted Durbin – Goldman Sachs

Okay. Those are my questions. Thank you.

Pat Daniel

Thank you.

Operator

Your next question comes from the line of Linda Ezergailis with TD Securities. Please proceed.

Linda Ezergailis - TD Securities

Thank you. Just a follow-up question on your regional oil sand system and your feeder pipeline, what would you consider to be the magnitude of events that would be more one time in nature in the Q4 versus something systemic that we could expect to see going forward?

Pat Daniel

Richard.

Linda Ezergailis - TD Securities

Like for example, business development. I would assume that Toledo would be more one time in nature, et cetera, et cetera. But it will be helpful just to get a little bit more of an understanding if that is Enbridge’s view as well.

Richard Bird

Yes, well, I would say that if you took the annual figures for all of those systems those are probably indicative of a go forward annual rate. So the, you know, the distribution over the year was a little unusual and in some cases there were as Pat just mentioned impacts on some of the feeder systems, Toledo in particular that were specific to the operational issues on the main line, but for the most part the annual run rate should be indicative.

Linda Ezergailis - TD Securities

Excluding Toledo specifically.

Richard Bird

Yes, with Toledo there will be a bit of a depression for the full year because of it.

Linda Ezergailis - TD Securities

Okay, and then can you comment on Energy Services, what your expectations for that business might be going forward, will 2010 be kind of a reasonable assumption of what your contract margins might be like?

Richard Bird

Yes, there is a little more volatility on that business than other segments just because opportunities come and opportunities go, but – and we’re not going to get into guidance on individual segments, but I think probably 2010 is reasonably representative.

Linda Ezergailis - TD Securities

Okay.

Richard Bird

If you look at the year as a whole.

Linda Ezergailis - TD Securities

Okay, that's great. Thank you.

Pat Daniel

Thanks Linda.

Operator

Your next question comes from the line of Jeff Jones [ph] with Reuters [ph]. Please proceed.

Jeff Jones - Reuters

Thank you very much. I have two questions, the first relates to the Cushing situation as you mentioned earlier, I just was wondering about the timing of this Monarch project, and would there be any reason in absence of such a project for that Brent/WTI differential to narrow. And secondly, you mentioned a little bit about your discussions with the aboriginal people in British Columbia regarding Northern Gateway, and they seem to be a little bit, your comment seem to be a little bit different from what we read and what we hear from other sources. I’m just wondering if you can kind of characterize the difference there.

Pat Daniel

Yes, a very good point. What I will ask first of all is ask Guy Jarvis to speak to the Cushing, the timing with regard to Monarch, and any potential for Brent/WTI changes in the interim, and then I'll come back and address the question on the aboriginals Jeff. So, go ahead Guy.

Guy Jarvis

I think in terms of the Monarch pipeline, I think the timing that we are heading on right now would be focused on a desire to achieve the required level of commercial certainty hopefully by the end of the second quarter of this year that would allow us to kind of move forward into the execution phase of that project. I think the timeline had been for possibly late in 2012, but it’ll be a function ultimately at a point in time when we secure the support.

Jeff Jones - Reuters

I am sorry. Just so there would be presumably an open season sometime in the second quarter?

Guy Jarvis

I think there will likely only be an open season as part of a regulatory requirement to move the project forward. The plan we are on would be to have enough commercial support lined up to proceed with the projects prior to entering into any open season.

Pat Daniel

Okay. And Jeff to come back and speak to the issues around the equity offering on Gateway. As First Nations and aboriginal people realized that along the Gateway right of way we have dozens of First Nations that we’re dealing with from Edmonton through to Kitimat, and then also on the coast. And when I speak to the fact that the offering has been well received, I’m speaking to what I consider to be the response from the majority of those First Nations groups along the way. That does not mean that everyone is widely embracing the concept of a Gateway pipeline project even in light of the equity offering and the economic benefits and the jobs and opportunities associated with it.

We have committed to and I know you have heard me say this before, working very closely with those that are not yet convinced to try to turn their no to a yes with regard to Gateway, because we truly do want very broad, general and through support for the project because of its huge strategic value and interest to this country. So don’t expect that we will suddenly get everybody onside, those that are opposed of course, are very vocal and you will continue to hear that. But we have made progress and expect to continue to make progress in bringing more and more people onside with the concept and opportunities around Gateway.

Jeff Jones - Reuters

Just as a supplementary to that, do you have sort of a minimum level of support that you believe you need to move forward?

Pat Daniel

No, we don’t, and our commitment and obligation is to consult with, work with and to co-operate with all groups, and we haven’t set any particular target where we say we have to have X number of people onboard. That will be a determination as made by the National Energy Board if there is not universal and unanimous support for the project, they will have to determine what is in the national best interest in light of those that are for, those that would be against.

Jeff Jones - Reuters

Thank you.

Pat Daniel

Thank you.

Operator

Your next question comes from the line of Sam Kanes with Scotia Capital. Please proceed.

Sam Kanes – Scotia Capital

Pat, is there any regulatory reason you are aware of, and this is a hypothetical question, if you were to have the opportunity, if the case was to back away from its interest in Noverco, and ultimately leave you an opportunity to acquire, if you so chose to with your right framework, I guess metropolitan [ph], is there anything that would preclude you from doing so hypothetically?

Pat Daniel

No, really Sam, we really like the investment, but also we really like the partner. So the scenario that you presented we love the Noverco investment. We would have taken more of it had we had the opportunity right now more than our pro rata share. On the other hand, we very much like doing business with the Gaz [ph]. They are an excellent partner, and the Trencap partners, and we hope to be able to maintain them in the project.

Sam Kanes – Scotia Capital

Okay. The 10%, switching back to Gateway again, you stated you have now offered 10% equity position to the aboriginals in DC, I presume that is at no cost or is it some form of financial arrangement that you are offering?

Pat Daniel

It really is at no cost to the aboriginal group Sam.

Sam Kanes – Scotia Capital

Okay. Richard, to you last question, you have given us kind of a profile, it is interesting how financing has dropped off even as a topic, now that you have gone through the bulk of your big program for now, where would you be at at the moment roughly in terms of what you used to show us as excess equity or equity for opportunity acquisition, expansion such as the incremental piece that is lying in Noverco?

Richard Bird

Okay. Well, you are right, the profile that has dropped to the point where we don’t even look at it on a very regular basis ourselves, but we have always measured that over the five-year period of our plan, and I think it is running, and we have measured it relative to secured opportunities. So as we secure additional opportunities, we eat into that, but I think it is running close to $2 million over the full period of the five-year plan.

Sam Kanes – Scotia Capital

Thanks Richard. Thank you.

Operator

Your next question comes from the line of Justin Amoa with Argus Media. Please proceed.

Justin Amoa – Argus Media

Hi. Thank you for taking my call. I was wondering if you anticipate lower volumes on the mainline and (inaudible) system, as a result of the Keystone pipeline ramping up throughput and now providing service to Cushing.

Pat Daniel

Justin, I think it is fair to say that as the ConocoPhillips Wood River expansion and conversion is complete, which I believe is anticipated towards the end of the year that there is an expectation that volumes on the Keystone system will go up to me that increased need in Wood River. But beyond that, no we don’t – we still feel very strongly that our system is most competitive and into the best market in order to provide the maximum net back for shippers.

Justin Amoa – Argus Media

Okay. And the second question I had was I know there has been some dispute with uncommitted shippers as far as through the strike [ph] in NEB on the Southern Lights tolls. Can you just update us where you are with that process and how that is going?

Pat Daniel

Well, I believe that the discussions right now Justin, and Guy please update me on this, but I believe the discussions right now are between those opposed to the tolls and the founding shippers, and we are not directly involved in those. Guy?

Guy Jarvis

Certainly, a big – what you mentioned Pat is a critical part, as a pipeline owner we are involved. In terms of the process, and it is our tolls that are being challenged at FERC. I think the process is ongoing. FERC has a settlement process. If that doesn’t work, then you head to a hearing process, so we’re just working our way through that process.

Richard Bird

It is Richard Bird, I think the main point to understand on that is it is a shipper versus shipper issue, and you know, we want to meet the needs of all of our shippers, but there really is minimal financial impacts to Enbridge because the vast bulk of the revenue on that system is contractually determined and doesn’t have to do with the toll that is charged on uncommitted volumes. It is just a very small part of the toll on uncommitted volumes that is to our benefit that would be impacted by however this might end up.

Justin Amoa – Argus Media

Okay. And finally I wanted to ask, where do you stand with the Snake River replacement project, and when will that kick-off?

Richard Bird

Well, we’re right now preparing to the directional drill under the same prior river, and I believe we are still on target to have that complete by midyear this year.

Justin Amoa – Argus Media

So, will it involve some downtime of the 6B system?

Richard Bird

Justin, at this point we expect there will be very little downtime associated with it. It will be primarily just the time to tie in. In other words, we will drill the new line under, and then just the tie in time. So, there will be very little, you know, it is not that the line will be down. For example, during the direction of drill under the river, it will just be as we tie in the new pipe once it is complete. So there will be very minimal downtime.

Justin Amoa – Argus Media

Okay. Thanks for your time.

Richard Bird

Thank you.

Operator

At this time we have no further questions. I would now like to turn the call back over to Mr. Guy Jarvis for any closing remarks.

Guy Jarvis

I don’t think we have any closing remarks from this end. So thank you very much.

Operator

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a great day.

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