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Executives

Patrick Daniel - Chief Executive Officer, President, Director, Director of Enbridge Gas Distribution, Director of Enbridge Pipelines and Director of Enbridge Energy Company

D. Jarvis - Senior Vice President of Investor Relations & Enterprise Risk

Jonathan Gould -

J. Bird - Chief Financial Officer and Executive Vice President of Corporate Development

Analysts

Paul Lechem - CIBC World Markets Inc.

Andrew Kuske - Crédit Suisse AG

Theodore Durbin - Goldman Sachs Group Inc.

Matthew Akman - CIBC World Markets

Bradley Olson - Eagle Global Advisors

Robert Kwan - RBC Capital Markets, LLC

Carl Kirst - BMO Capital Markets U.S.

Steven Paget - FirstEnergy Capital Corp.

Linda Ezergailis - TD Newcrest Capital Inc.

Jeff Jones - Reuters

Juan Plessis - Canaccord Genuity

Enbridge (ENB) Q2 2011 Earnings Call August 5, 2011 9:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Enbridge Inc.'s Second Quarter 2011 Financial Results Conference Call. I would now like to turn the meeting over to Guy Jarvis.

D. Jarvis

Thank you, and good morning, and welcome to Enbridge Inc's. second quarter 2011 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 John Whelen, Senior Vice President and Controller.

Before we begin, I’d like to point out that we may refer to forward-looking information during the 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 disclosure filings available on both the SEDAR and EDGAR systems. This call is webcast, and I encourage those listening on the phone lines to view the supporting slides, which are available on our website. A replay and podcast 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 the same as always. 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 Jonathan Gould and I will be available after the call for any follow-up questions you may have.

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

Patrick Daniel

Thank you, Guy, and good morning, everyone. Thank you for joining us for this review for the second quarter results. As you know, earlier today, we were pleased to announce our adjusted earnings for the second quarter of 2011 of $260 million or $0.35 a share. And then on a 6-month basis that's $594 million or $0.79 per share to date, compared to $0.31 and $0.75, respectively, for 2010, so very good progress.

Based on a solid first 6 months, we're confident that 2011 is going to be another strong year for Enbridge, and we're now looking to be in the upper half of our 2011 guidance range, $1.38 to $1.48 post split.

Richard will walk you through the results in a few moments. But first, what I would like to do is to update you on what is an extremely busy and very exciting time at Enbridge.

So 2011 is shaping up very well, and the longer-term picture is even more remarkable for the company. Throughout the organization, we have approximately $6 billion of new projects, which have been commercially secured and all of which should be in service prior to the end of 2014.

And beyond that, we have more attractive opportunities under development across a broader panorama of asset types than ever in the history of our company. As you may recall, at our Enbridge Day's conference last fall, we identified several areas of promising opportunities that we intend to focus on including, of course, oil sands, regional pipelines, the Bakken area, extensions of the crude oil mainline, shale gas gathering and processing and green energy, along with some targeted new business platforms, including international assets and entry into the Canadian midstream business, gas-fired power generation and power transmission. And I'm very pleased with the progress being made in all of these areas, so stay tuned for further news as we go forward.

In addition to this level of activity, we're pleased to report continued progress and the regulatory review of the Northern Gateway Pipeline Project. The joint review panel issued its hearing order during the second quarter, and that really sets the beginning of the formal hearing process for January 2012. We're pleased with the scope of the public hearings, which clearly meets the widely expressed desire for a full and open review of the project. The JRP is going to test the merits of our proposal, and it will hold Enbridge to the highest standards.

We have confidence that it will render a decision that is and will be seen to be in the best interest of Canada. Northern Gateway will bring Canada's energy resources to the booming economies of the Pacific basin, while delivering sustainable local regional prosperity to northern Alberta and northern BC and national economic advantage for all Canadians because it truly is a Canadian project.

In conjunction with Northern Gateway proceeding to the next stage of its development cycle, and with the very active growth program that I've mentioned throughout the balance of the company, I've this morning announced a series of organizational changes designed to further strengthen the management team's ability to execute on our growth plan, while at the same time ensuring the highest standards of attention to the safety and integrity of all of our operations.

So effective September 1, Janet Holder will assume the new position of Executive Vice President in Western Access. And in this role, Janet will be responsible for the overall leadership of the Northern Gateway Pipeline Project. Originally a native of British Columbia, Janet will relocate to BC in the fall. And as you know, Janet is currently President of Enbridge Gas Distribution.

Guy Jarvis, who as you know is on the call with us this morning, is going to relocate to Toronto to succeed Janet as President of Gas Distribution. And Jody Balko, who's currently Vice President of Human Resources, will succeed Guy as Vice President of Investor Relations and Enterprise Risk.

Before I hand the call over to Richard, I'd like to take a moment to just update you on our ongoing cleanup and remediation activities in Michigan, stemming from the leak that we experienced one year ago, and I was in Michigan a little over a week ago to get an update on our progress. And many of you remember that our second quarter call last year took place from the incident site in Michigan, as we responded to the spill. That was the beginning of some very challenging days, not only for Enbridge but for the communities that was affected by that spill.

Since that time, there's been significant progress, and our work to restore the area continues. At the end of July, the reassessment of all potentially affected portions of Talmadge Creek, the Kalamazoo River and the over bank areas is complete. And these results, along with other data, will be used to guide any future cleanup and remediation efforts, as well as aid local health officials in determining when the river may reopen for recreational use.

As noted by the U.S. Environmental Protection Agency in a briefing in late June of this year, submerged oil exists and is concentrated in 3 primary locations along the river. Enbridge is required to have all identified submerged oil removed from the river and the Talmadge Creek by August 31 of this year, and we're working very hard to meet that deadline. Once we've met that requirement, we'll continue to monitor submerged oil and develop recovery plans going forward.

We've committed since the outset of this incident to restore the area as close as possible to its pre-existing condition, and we remain fully committed to that goal.

So with that brief update, let me now turn it over to Richard to review the second quarter financial results in a little more detail. Richard?

J. Bird

Good morning. Picking up on Slide 7, as Pat mentioned, our second quarter was a little ahead of our expectations on the whole. So with 2 strong quarters under our belt now, we are guiding to the upper half of our original guidance range, which on a split basis and rounded, was $1.38 to $1.48 per share, so now $1.43 to $1.48 for the full year. Although we're looking at another strong year overall, the picture does vary from business-to-business. So starting with liquids pipelines, the Canadian Mainline System performed well as we transitioned from the interim Incentive Tolling Settlement to the new CTS, with the higher tolls over prior year more than absorbing operating cost escalation, and this bodes well for the second half of the year in this subsegment.

The Oil Sands Regional System remains a source of strength, and we expect this to continue. Southern Lights is off from the prior year, that's because of temporary lease income it was earning until May 31 last year on the new light sour line, which was then transferred to the mainline. So this dip was something we were expecting, and earnings will be steady from this subsegment going forward.

Spearhead had a very weak quarter as low crude prices at Cushing depressed shipper interest in using the line to an even greater degree than we had expected. Part of this throughput shortfall is on committed volumes, for which shippers have still paid the toll but which we won't recognize as revenue until the future period when their makeup rights expire. So the picture is not actually as weak as it looks on the face of it.

So for Liquids Pipelines as a whole, though off for the quarter, we are running a little stronger than anticipated, and we now expect to hold this and improve on it for the balance of the year.

Gas Distribution is performing well on a year-over-year basis, and that's consistent with our expectations. Gas Pipelines Processing and Energy Services is quite a varied story. Offshore earnings are much weaker than expected and even in the red due to a continued lag in drilling, coming back up to speed following Macondo. We are going to continue to see weak results from this business until the Walker Ridge, Big Foot and Venice stabilizer projects, with their much more favorable commercial arrangements, come on stream.

Aux Sable results continue to reflect favorable frac spreads, most of which has been locked in for 2011 at this point with the remainder unlocked in position, benefiting from the very strong spot spreads that we're seeing. Results here are ahead of expectations. Energy Services also turned in a much stronger than expected performance for the quarter. The huge crude price differentials between the midcontinent and any market that's pricing off of the Atlantic basin are affording substantial locational arbitrage opportunities in this business.

So together, Aux Sable and Energy Services are more than offsetting the weakness in offshore. And on the whole, this segment looks like it will meet or slightly exceed our original expectations for the year.

Sponsored Investments in corporate are running on track with expectations. So relative to original guidance, the upward trend is coming primarily from Liquids Pipelines, which we now expect to be up year-over-year rather than down.

Moving to Slide 8. The only other matter on the financial front for the quarter that I'll call to your attention is our latest actions on the financial risk management front. As most of you know, we have been heavily hedging our U.S. dollar exposures and our interest rate exposures in recent years, preferring to de-risk the earnings and cash flows in our 5-year plan on these 2 factors. The new CTS agreement created a significant shift in our market price risk exposures on several fronts. These included power prices, allowance oil prices and mainline interest rates, all of which we have now fully hedged at attractive rates.

However, by far and away, the greatest financial risk exposure from the CTS is our increased exposure to the U.S. dollar because we now effectively collect toll revenue on the Canadian Mainline in U.S. dollars.

Fortunately, a brief window of attractive forward swap rates opened up late in the quarter. And we were able to lock in about $4 billion of CTS U.S. dollars, or a little over 80% of the exposure over the period through 2015 at rates that start at CAD $0.96 per U.S. dollar for the second half of this year, and increased to CAD $1.025 per U.S. dollar for 2015. So this takes the exposure largely out of play at rates consistent with the assumptions built into our CTS modeling. All of this reinforces our confidence in achieving our target growth rate in EPS of an average of 10% per annum through mid-decade.

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

Patrick Daniel

Great. Thanks, Richard. So to just very quickly summarize, the second quarter was a strong quarter financially, as Richard has just indicated. And we're shaping up for a strong year again in the upper half of our original guidance range.

Our longer-term prospects are also increasingly promising. And our business development progress, combined with initiatives like the Competitive Toll Settlement, really does reinforce our confidence in our ability to deliver an average annual EPS growth rate of 10% from now right through to 2015.

So I think with that very quick summary, we can go to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Linda Ezergailis from TD Securities.

Linda Ezergailis - TD Newcrest Capital Inc.

I have a question with respect to your Spearhead Pipeline system. I'm wondering what the -- I guess, deferred committed capacity earnings would have been in the quarter if you would have recognized them? And when do those makeup rights expire?

J. Bird

It's about $5 million, Linda, that's effectively unbooked earnings that we'll carry forward, a little more than that, and about $5 million of that, we'll pick up in the third quarter.

Linda Ezergailis - TD Newcrest Capital Inc.

I'm sorry, you said $5 million unbooked in the quarter, and you'll pick up all of that in Q3?

J. Bird

Yes. Slightly more than $5 million for the quarter, and we'll pick up $5 million in the third quarter.

Linda Ezergailis - TD Newcrest Capital Inc.

Okay. And what is the outlook for volumes on Spearhead? Should we expect continued weakness, maybe until the Brent-WTI spread narrows? And can we assume then that this dip is temporary? Because if you're maybe lagging one quarter in terms of picking up those committed earnings, then it should be a more stable run rate going forward.

J. Bird

I think those are all reasonable assumptions.

Linda Ezergailis - TD Newcrest Capital Inc.

Okay. And then, is it reasonable also to assume that the Toledo weakness was somewhat onetime, and that any integrity work going forward shouldn't affect that system?

J. Bird

That was driven by the integrity work on 6B. And although we're not all the way up to pre-Marshall capacity on 6B, I think that's largely mitigated at this point.

Operator

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

Juan Plessis - Canaccord Genuity

With regard to Enbridge Offshore Pipelines, I'm wondering if you could give us a bit of color as to what's going on there, and if or -- when you expect the drilling activity to resume to a level that brings that business back to profitability?

Patrick Daniel

Well, Juan, I think the general issue is one that most people or aware of, and that is the result of the incident a little over a year ago. And now in the Gulf, there was a significant slowdown in drilling. And we relied on that drilling in part to offset natural declines in the Gulf. So if you take away, not only new exploration drilling but also in-fill and development drilling, you start to realize the decline in throughput, and that's really what has impacted throughputs on the existing system. We are seeing now a return to drilling, as you know it's been rather slow. But we remain very confident in terms of the long-term prospectivity of the Gulf. And we also were very pleased with our relative positioning in the Gulf, so longer term, we're patient. We feel that the asset will be a very strong asset, but it will go through some challenging times while that drilling rate comes back up to normal.

Operator

Your next question comes from the line of Carl Kirst from BMO Capital.

Carl Kirst - BMO Capital Markets U.S.

Pat, you obviously had some good things to say as far as the initiatives underway, and understanding you can't say things before their time. As we look at the different new initiatives from international Canadian midstream and like you, you were indicating progress in all fronts and stay tuned. Is there any one particular area that is progressing faster than another that we should be aware of? And when you say stay tuned, is this something that seems to be on sort of a few months worth of baking, or is this still perhaps a year end or 2012 type of additional color?

Patrick Daniel

You ask good questions and challenging questions, Carl. But first of all, pretty much on every front that I mentioned, and that's why I itemized them the way I did. I'm very excited by the diversity and the variety of opportunities, and many of them are coming very close to the point of us being able to proceed and look highly prospective. So when I say stay tuned, don't turn your radio off till the end of the year. We hope to be out with some of these initiatives before that. But as you correctly pointed out, there's not much more we can say other than to convey a high degree of optimism that you're going to see a number of new things coming forward from this in the very near future.

Carl Kirst - BMO Capital Markets U.S.

Great. And maybe just one follow-up for Richard. Once the -- and assuming, I guess, the Enbridge Income Fund, their nobles drops [ph] closes, can you refresh our memory as to what the Enbridge equity cushion would be sort of at the end of the 5-year planning period?

J. Bird

Directionally, I can do that. It has become such a big number that we've stopped calculating it on a regular basis, so it's roughly in line with the last number that we would have given you, plus the additional surplus that comes from that drop-down transaction and that surplus, I think, is about another $300 million of equity we generated through that transaction. And it's running at roughly the same number as the last time we quoted, which my memory is vaguely recalling to be in the vicinity of $3 billion. Because as we add new projects, we're also rolling prior projects off and rolling the cash flow horizon ahead. So that equity cushion has become sufficiently ample, but it's not something we're really focusing on much anymore.

Operator

Your next question comes from the line of Steven Paget with FirstEnergy.

Steven Paget - FirstEnergy Capital Corp.

This morning, Newstar and EOG announced that they were joining up to build a 70,000 barrel a day rail offloading facility for Bakken, Eagle Ford and other crudes. Are there other things that Enbridge could do to capture some of these crude movements that the rails seem to be getting?

Patrick Daniel

Well, the answer is definitely yes to that, Steven. And as you know -- I wasn't aware of the specific announcement that you mentioned this morning. But as you know, we have and continue to expand our Bakken pipeline capacity and terminaling capacity very rapidly. It's been a challenge to keep ahead of the curve in the Bakken because of the rate of new exploration and development. And also, of course, rail provides a relatively low-cost, early entry into the transportation business. Long term, we can definitely beat rail in terms of toll and reliability. So we're very confident that even though these rail facilities might get put in place initially that all that is, is a precursor to even more pipeline opportunity down the road for us. So we're building out fast, very fast. Our BPAP program is underway now, and we'll add additional capacity out of both the Canadian and U.S. Bakken.

Operator

Your next question comes from the line of Matthew Akman from Scotia Capital.

Matthew Akman - CIBC World Markets

My questions are just on a few of the business areas. First on renewable, I'm just wondering, since we haven't, I guess, in the very near term, seen any new announcements on project development and given the transfer into the income fund, whether the kind of rapid expansion that took place in that business sort of '09, '10 is starting to taper off?

Patrick Daniel

And the answer to that is no, Matthew, and stay tuned.

Matthew Akman - CIBC World Markets

Okay. So it's still a significant part then, Pat, of the strategic organic growth plans of the company?

Patrick Daniel

Yes, it is. And I remember your questioning and comments at our Enbridge Day conference with regard to it, and, yes, it definitely is. As we indicated at the time, our intent is to diversify our geographic base there that really started with the move that we made at Cedar Point in Colorado, and we've got some very promising initiatives underway that'll further broaden out that geographic base renewables. It definitely is part of the excitement that I was referring to earlier as opportunities that are underway, and the coast is coming to fruition.

Matthew Akman - CIBC World Markets

My next question is on the offshore piece. I'm just wondering whether you could let us know whether Walker Ridge, when it comes online, would improve the base earnings of the existing pipelines? Or is it just expected tight earnings based on a return of that particular capital investment?

Patrick Daniel

Well, I believe it's the latter, that it will provide only on that invested capital. I'm just trying to remember the interconnect on Walker Ridge is to whether it connects into existing infrastructure -- so there is some contribution to it, there is.

Matthew Akman - CIBC World Markets

Okay. My last question is around Noverco and what the subsidiary companies are doing, and Gaz Met's venture into Vermont and so forth, and your increased stake in Noverco. I'm wondering whether Enbridge is really getting involved in the stuff from a strategic thrust standpoint in terms of acquisitions of distribution utility in the U.S.? Or are you kind of at arm's length from that? Is this sort of an intentional strategic direction for Enbridge, or are you more passive on that?

Patrick Daniel

I'll ask Richard to comment on that, Matthew, because he sits on the board and in a way that probably answers the question, because we are actively involved as a result of our board participation. Richard?

J. Bird

So that's correct, Enbridge is represented not just on the Noverco board but also on the Gaz Met board, and we certainly bring to the board discussion a view on the strategic direction of Gaz Met. We're not the only contributors to that discussion, but we are a significant contributor to that discussion.

Matthew Akman - CIBC World Markets

It just seems a little bit maybe out of step with the Enbridge general direction in terms of investment returns overall. I know it wasn't an inexpensive deal.

J. Bird

No, it wasn't an inexpensive deal. But in that particular case, Gaz Met, through its existing asset base in Vermont which is quite substantial both on the gas side and on the power side, is in a somewhat unique position as acquisitions go to capture synergies that you wouldn't see in most step-up acquisitions of that kind. So I believe it will still be a very attractive return for Gaz Met and for the partners in Gaz Met, which includes Enbridge indirectly through Noverco.

Operator

Your next question comes from the line of Ted Durbin from Goldman Sachs.

Theodore Durbin - Goldman Sachs Group Inc.

My first question is, the Enbridge LP mentioned that there were some interruptions on some upstream production facilities that impacted volumes. I'm wondering if you can talk to that on your side, how much that impacted your financial results?

Patrick Daniel

Yes, those were, I guess, weather-related interruptions due to the very hot weather in Texas, and the impact of that would have been, of course, through the incentive mechanism and the 27% interest. But because the impact is very small, the [indiscernible] levels, even smaller at our level. I don't know whether John or Guy -- or Richard, you can quantify that as relatively small.

J. Bird

Yes, I'm not sure. Was a question with respect to our GNP business or our Liquids Pipeline?

Theodore Durbin - Goldman Sachs Group Inc.

Yes. I was actually on the liquids side, that's what I was asking about.

J. Bird

Okay, so I think that's a CNRL plant that's been down and is either -- Suncor was on turnaround -- And I think CNRL is back up now, or if they're not, they're pretty close to it. So there would have been some impact of that on our results, but not hugely significant. Going forward, under CTS, that kind of thing will have a more significant impact.

Theodore Durbin - Goldman Sachs Group Inc.

Okay. And then it looks like on the insurance side, you renewed your programs there. Can you just talk about where the rates came in versus where they were before? I know you talked about potentially self-insuring. What went into the decision around maybe not self-insuring? And then if the rates are higher, can you somehow seek some sort of recovery from customers?

Patrick Daniel

Guy, can you?

D. Jarvis

Yes. So I guess the first part of your question is, in terms of that particular liability -- policy tower that we had in place previously and looking to renew it, we never really seriously considered self-insuring along that avenue. We were pretty confident that we were going to be able to replace the bulk of the tower, which we did. Clearly not only with our own leaks last year but with other energy events and issues impacting the insurance market in general, the costs were relative to what the premiums were prior to this renewal. The costs were up substantially but, yet, on an Enbridge-wide basis, not material to the financial results. In terms of passing that additional cost through, it would be very marginal, and it wouldn't have an impact on us.

Theodore Durbin - Goldman Sachs Group Inc.

Just a last question on the Prairie Rose deal here, I had thought of alliances being pretty full the way you described it, maybe that was just contractually. Is there actually a physical room to more volume on alliance here to get down to Aux Sable?

Jonathan Gould

It's Jon, William. Yes, there is the up the maximum allowable operating threshold several years ago, which created the capacity to move more gas downstream. And that's some of the capacity that they're utilizing to accommodate volumes coming off of Prairie Rose.

Operator

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

Robert Kwan - RBC Capital Markets, LLC

Just a first question on Monarch. I was wondering if there's an update and in the past, you said there's room for a couple of pipes, but the space is maybe coming a little bit more crowded with XL, EE, then the smaller Magellan proposal and indirectly Longhorn. So I'm just wondering where Monarch's at, and if you can provide some color on that.

Patrick Daniel

Yes, Robert, we're still pleased with the progress that's being made and definitely feel that there is room for -- well, I think it's pretty obvious that there's room for additional pipeline capacity from Cushing south. And we have broadened our focus a little bit with regard to Monarch to look at as a result of having the CTS agreement in place now and the stability of tolls that offers for our customers and offering a service that effectively represents expansion from Flanagan all the way through, including, the Monarch south section. So I guess you could say we have a Monarch north, which is [indiscernible] down to Cushing, and then a Monarch south initiative underway. We're currently out discussing that with potential shippers and have been very encouraged with the initial discussions that we're having on the prospects of being able to move crude all the way through. We're finding that shippers are wanting to concentrate on movements from Alberta or from the Bakken all the way through the Gulf rather then just the Cushing south part. So we're quite encouraged by this and are in the midst of the process right now reviewing it with potential shippers.

Robert Kwan - RBC Capital Markets, LLC

Okay. So is it fair to say that where some of the other projects are focusing on midcontinent producers, you're kind of trying to work a little bit more with cap and maybe Bakken producers for a full path solution?

Patrick Daniel

I think it's fair that we're looking at an offering to customers where they've got a huge variety of alternatives for delivery options, being able to deliver into Minnesota, into Chicago and region, into Cushing, if they so choose, or all the way to the Gulf. And it's that flexibility around those delivery options that really holds the appeal.

Robert Kwan - RBC Capital Markets, LLC

And when would you expect to go into a binding up in the season?

Patrick Daniel

We don't have a date set for that, but I think it's fair to say that this issue is going to come to a head in a matter of, certainly months and not years, because of the immediacy of the challenge from Cushing south.

Robert Kwan - RBC Capital Markets, LLC

Okay. And just the other question on Fort Hills disclosures. I'm just wondering if you can refresh the remaining on subscribed capacity for Athabasca and Waupisoo after the expansions. And ultimately, the question is, can you accommodate the Fort Hills volumes without a new system?

Patrick Daniel

I'm going to turn to Guy to see whether you're able to quantify. We may have to get back to you on that, Robert.

D. Jarvis

I think, rather than speaking specifically to Fort Hills, we can maybe talk a bit more oddly in the context of a view that suggests we think and are planning that we will probably be building some new pipeline out of that region by the 2015, 2016 time frame based on indications of what we're seeing, not only from Suncor but from others in the region.

Robert Kwan - RBC Capital Markets, LLC

So is it -- kind of what you're saying that you're pretty much wholly subscribed on Waupisoo and Athabasca with the expansions and the idea of sequencing, getting people off of those lines on to dedicated lines, maybe it's not really working out the way you might have originally anticipated?

J. Bird

It's Richard, Robert. I'd say part of what you said is correct that the recent expansions that have been announced on both those pipes are to accommodate commitments that we've got, and those commitments pretty well fill up that capacity. But the sequencing concept is, by no means, gone. We still expect, as Guy has mentioned, that we will be reaching a point with some of our existing customers, where their volumes reach a point where they need their own dedicated pipe systems at which point we will construct new facilities dedicated to them, and that will free up capacity on existing systems to continue to pick up incremental volumes from new projects.

Robert Kwan - RBC Capital Markets, LLC

Okay. That's great.

J. Bird

And I might just come back briefly on your Monarch question and past answer, and that's just to point out that looking at a Monarch north and a Monarch south solution, it does bring into play the CTS international joint tool feature that we talked about previously as an additional tool in our tool kit to make that kind of a solution attractive to shippers.

Operator

Your next question comes from the line of Andrew Kuske from Crédit Suisse.

Andrew Kuske - Crédit Suisse AG

I guess it was about almost 10 years ago when we saw the Enron debacle and then really, a deleveraging in the industry being mandated in large part by credit raters. Do you see similar conditions in place today with effectively banks having to delever and higher capital commitments, countries having problems? Obviously, interest rates are unbelievably low right now. Spreads are widening in general for some corporates, not all corporates, but for some. So do you have any thoughts and feelings about just the industry having to go through a deleveraging process?

Patrick Daniel

Well, Andrew, let me start out on that, and then I'll ask, Richard or John to comment as well. Having lived through that wonderful experience a decade ago of deleveraging as a result of the Enron situation, as you know, that was very -- well, quite industry-specific. And we found ourselves caught up in this situation where the rating agencies were all over us, almost disbelieving the Enbridge business model at the time and assuming that we had to have a lot of marketing and trading underlying our base business which, of course, never was the case with Enbridge, and we went through a delevering at that point with Solar Energy Services business to help bolster up the balance sheet. And it was very industry-specific with a huge amount of attention directed at us. Right now, as you're implying, it is much more a financial institution deleveraging, and improvement in capital ratios that we're seeing on a worldwide basis, and it hasn't been that industry-specific to our industry. But I'll maybe ask Richard or John as a result of conversations with the rating agencies whether there's been any indication that it might impact us more directly.

J. Bird

Sure, so I think it's pretty much, as Pat said, we're not seeing anything on the rating front that would suggest that they're looking to us to change our capital structure in any significant way. I think, however, the concern would be not so much on that front but just the availability of capital going forward, given the generally fragile nature that we see our world capital markets being in. So you will see us continue to follow our usual conservative strategy in that regard and making sure that if anything, we've got a little excess dry powder available to us. You will see actions like the drop-down that we've talked about adding $300 million of equity, assuming we get that through in the next little while. You'll note in our MD&A that we've upped our lines of credit by $0.5 billion, that's something that closed yesterday. And you can expect to see continued capital bolstering activities that we'll be undertaking over the next little while, as our plan unfolds just to make sure that we've got that robust financial capability in place.

Andrew Kuske - Crédit Suisse AG

That's very helpful. I asked the question in part because when we're looking at the future you've got a very large amount of cash flow that you'll be able to redeploy into, really, multiple opportunities sets . Just how should we think about that from a capital structure standpoint on future investments? Is it really more of the same in business as usual? Or are you becoming a bit more conservative on the capital structures you're going to use underpin few future investments?

Patrick Daniel

Well, generally as we're moving forward, you are correct, we are seeing more cash flow, and we're generally seeing our credit metrics strengthening as we're going forward as a result of that and that is consistent with our discussions with the rating agencies. They've given us a bit of a room to maneuver in the last few years, but they and we are both looking to that increase in cash flow to reinforce those ratios moving forward. So I don't think any change in overall structure or philosophy so much as just the natural evolution of putting those big cash -- we're generating projects in place and then beginning to reap the benefits of that.

Andrew Kuske - Crédit Suisse AG

And if I may just ask one follow-on question, and it relates to the Canadian dollar versus the U.S. dollar, and given the hedges that you've just put in place, do you see it now as being a great time to invest capital into the U.S. especially as a predominantly Canadian company and a Canadian dividend payer, that we if we see a normalization of the U.S. dollar over a period of time, that there's really a lift in depreciation value of any U.S. asset?

J. Bird

I think the U.S. is still a great place to invest selectively in the kinds of things that we would invest in. I don't think we would follow an approach, which is implicit in your question, Andrew, which is counting on the future appreciation of the U.S. dollar and devaluation of the Canadian dollar to make an investment like that work. Our approach is typically to substantially hedge that exposure. And so as we roll into new assets, and perhaps our Cedar Point Wind Power Project would be an example, basically, as we spend a U.S. dollar, we hedge out about 80% of the future cash flow stream associated with that U.S. dollar. So we're relatively impervious to a potential recovery in the U.S. dollar, or devaluation of the U.S. U.S. dollar, whichever way it might go. We have some views on that, but we don't really follow a view base strategy on that regard.

Patrick Daniel

I think, Andrew, just to kind of bring that back to our overall development strategy which, of course, has been very North American focused until recently where we start looking at international opportunities again. The great thing about the North American playing field is you can pretty much set aside the border and look at where the opportunities are, either in terms of supply, growth or demand growth and plan your strategy around that, and then leave to Richard and the financial guys, the hedging strategy to ensure that the currency is not a relevant issue there. So it's not the case of it saying, well, assets are cheap in the U.S., let's go after the U.S. right now. It's pretty much a supply, demand basis upon which we take a look at where the opportunities are going to be.

Operator

Your next question comes from the line of Paul Lechem from CIBC.

Paul Lechem - CIBC World Markets Inc.

You've circled a little about various market extension projects, I was wondering if you could give us any updates on the reversal of Line 9, and any related projects around that?

Patrick Daniel

Paul, as one of the projects that is front and center with us right now, looking at both a short-term and then longer-term Line 9 potential, shorter term to be able to move crude oil into Ontario and what we kind of call Line 9A is down towards Nanticoke. But then, longer term, the project that we had on the books 2 to 3 years ago to look at a full reversal of Line 9, and then working in conjunction with Portland to be able to move crude off the East Coast and into refineries on the East Coast is getting some very close work and examination right now as well. And as the market continues to push Canadian crude further east, those projects become even more likely, and that push to east, of course, comes from the fact that we've got a lot of new heavy crude frac-ing capacity going into the Midwest, which takes away some of the light processing capacity, and it means that it's very important for our Canadian producers to be able to broaden out the market. As you know, we've, in many times in the past, been focused on the huge light to heavy differential. We're concerned that there's going to be a significant, synthetic differential that develops as well if we don't broaden that market to the east, so both a short-term project and then a longer-term project on Line 9, look like they have a very good prospectivity at this point.

Operator

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

Linda Ezergailis - TD Newcrest Capital Inc.

I'm wondering if you could help us think a little bit more about the outlook for Energy Services, and give us an understanding of what market pricing we should be watching in terms of absolute level, of certain types of crude oil differentials and other maybe basis differentials that might move those margins for the balance of the year?

Patrick Daniel

Well, and by Energy Services, you're effectively referring to crude oil marketing, I'm assuming, Linda?

Linda Ezergailis - TD Newcrest Capital Inc.

Yes.

Patrick Daniel

Yes, well, I guess, you could say that our business in that regard is in 3 areas effectively the crude oil contango market. And when you take the strategy that we have of back-to-back marketing and access to storage as the biggest storage operator in North America, we're very well positioned in the contango market to continue to do well there. Second part of it is basis, and the obvious basis issue right now is the WTI to LLS or to Brent basis that continues to provide very good opportunity, and looks like it will through the end of the year and probably longer until there is significant pipeline capacity available south of Cushing. And then thirdly, the blending part of the business, which also is a result of access to a storage is a very low-risk and strong business for us. So we would anticipate at this point to continue to see very good numbers out of our Energy Services group through the remainder of the year.

Linda Ezergailis - TD Newcrest Capital Inc.

Okay, that's good to know. And maybe you can give us an update as well on the FX side, as to whether or not there has been any additional hedging with your FX exposure outside of the CTS?

J. Bird

No, we haven't added anything additional outside of CTS. So we still are pretty substantially hedged on the other cash flows, but nothing has changed recently.

Linda Ezergailis - TD Newcrest Capital Inc.

Okay. So I can still use a 80% hedged through 2014 on an average rate of CAD $1.20 to U.S. dollar?

J. Bird

I think that's correct. Yes.

Operator

[Operator Instructions] Your next question comes from the line of Carl Kirst from BMO Capital.

Carl Kirst - BMO Capital Markets U.S.

Sorry, just one quick follow-up. With respect to the CTS, if I remember correctly, the 2011 tolls were somewhat based on roughly 1.5 million barrels through Gretna, and I just wanted to reconfirm if that was the case, and just -- is that kind of currently where we're tracking?

Patrick Daniel

Carl, maybe we'll have to get back to you on that.

Operator

Your next question comes from the line of Jeff Jones with Reuters.

Jeff Jones - Reuters

My question is in regards to the Monarch plant. Now that you're discussing a Monarch north, just to clarify, does the northern portion of this plan include moving crude on the existing system? And by that, I mean, would it mean like a series of arrangements on the pipeline system that's in place now, and that would see crude move to the Gulf? Or would it mean any building of new facilities north of Cushing?

Patrick Daniel

Jeff, I think, it's fair to say -- and, Guy, please correct me if I'm wrong on this, that it will be a combination of the 2. It'll use some existing capacity and then potentially, depending on the volumes committed, it could require some additional construction.

D. Jarvis

Yes, that's my understanding.

Jeff Jones - Reuters

And just as a follow-up then, one would assume then when you're talking about months in terms of coming up with a finalized plan, this would mean kind of an expedited schedule, would it not?

Patrick Daniel

Well, that would be in terms of commercial arrangements. I'm not implying that would be able to have, for example, a new pipeline built south of Cushing in a matter of months, that would probably be a late 2013, I believe, was the timing of Monarch if we were able to get the level of commitment required, but in a matter of months in terms of having some commercial arrangements in place.

Operator

Your next question comes from the line of Brad Olson with Bloomberg.

Bradley Olson - Eagle Global Advisors

This is Brad Olson from Bloomberg. I just wanted to see if you could -- also to follow up on the Monarch plans, what amount of capacity might Monarch north involve?

Patrick Daniel

And Guy, do you have a number on that? I don't right off.

D. Jarvis

Yes, we're probably looking at somewhere between 200,000 to 300,000 barrels a day, depending on the level of shipper interest, and that will define the magnitude of the facilities required and how much new facilities, as Pat mentioned, might be required.

Bradley Olson - Eagle Global Advisors

And from where to where would that go?

D. Jarvis

That would go from Flanigan or basically Chicago to Cushing, and then from Cushing to the U.S. Gulf Coast.

Bradley Olson - Eagle Global Advisors

And when might Monarch north, same kind of time frame late 2013?

Patrick Daniel

Yes.

D. Jarvis

And there's no -- obviously, no presidential permit required for those types of facilities since they all originate within the U.S.

Operator

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back over to Mr. Guy Jarvis for closing remarks.

D. Jarvis

Thank you very much, everyone, for attending. Just a reminder again that our IR staff is available if you've got any follow-up calls. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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