Spectra Energy Corp., 2012 Guidance/Update Call, Jan 17, 2012

| About: Spectra Energy (SE)

Spectra Energy Corp (NYSE:SE)

January 17, 2012 8:30 am ET


Mark A. Borer - Chief Executive Officer of DCP Midstream GP LLC, President of DCP Midstream GP LLC and Director of DCP Midstream GP LLC

Thomas C. O’Connor - Chief Executive Officer and President

William T. Yardley - Group Vice President of Northeast Transmission

John Patrick Reddy - Chief Financial Officer

John R. Arensdorf - Chief Communications Officer

Douglas P. Bloom - President of Western Canadian Operations

Gregory L. Ebel - Chief Executive Officer, President and Director

Unknown Executive -

Mark Fiedorek -


Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Unknown Analyst

Craig Shere - Tuohy Brothers Investment Research, Inc.

Steven Heim - Boston Common Asset Management, LLC

Cathleen King - BofA Merrill Lynch, Research Division

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

Theodore Durbin - Goldman Sachs Group Inc., Research Division

John R. Arensdorf

Okay. I think we're going to go ahead and get started. Good morning, everyone. I'm John Arensdorf, Chief Communications Officer with Spectra Energy, and I'd like to thank you for joining us today as we share our 2012 financial plan and business strategy overview.

Today's discussion is being webcast so we'd also like to welcome those of you joining us on the web and on the phone.

And I'll just -- in the unlikely event that any of you brought any electronic devices in the room with you, now would be a good time to switch them off or silence them.

This slide details the topics we plan to cover today. Our President and CEO, Greg Ebel, will begin by providing an overview of Spectra Energy's business strategy, our 2011 accomplishments and the highlights of our 2012 plan. We'll then focus on 4 areas of significant growth for Spectra Energy: our Western Canadian operations, the Northeast and Southeast U.S. and the regions served by DCP Midstream. So you'll hear from Doug Bloom, President of Spectra Energy Transmission West; Bill Yardley, Group Vice President of our Northeast Transmission business; Mark Fiedorek, Group Vice President of our Southeast Transmission business; and Tom O'Connor, Chairman, President and CEO of DCP Midstream. They will provide details about their respective businesses and the significant growth opportunities they're pursuing. Next, our Chief Financial Officer, Pat Reddy, will share the financial details of our 2012 plan. And finally, Greg will return to wrap things up and provide his thoughts on what makes Spectra Energy such an attractive investment opportunity.

Before I go on, let me take a moment to introduce the other Spectra Energy folks that are in the room with us here today: We have Julie Dill, President and CEO of our MLP, Spectra Energy Partners, of course; we have Rose Robeson, Group Vice President and Chief Financial Officer DCP Midstream; Frances Jeter, Group Vice President of Internal and External Affairs; and our investor relations team, Roni Cappadonna, Derick Smith and Drew Creel. And as always, assisting us with the AV, we have John McCarthy.

We'll allow plenty of time for your questions at the end of our prepared remarks. And in addition to the slides we're going to cover with you today, you'll find in the book in front of you an appendix of other information that we think you will find helpful. And all of the materials that we are referencing today are also available on our website.

We will announce our 2011 fourth quarter and year-end earnings on February 2 and host a conference call on that day at which time we will reconcile our actual 2011 results with our 2012 -- today's 2012 guidance.

As you know, some of what we'll discuss today concerning future company performance will be forward-looking information within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statement, and you should refer to the additional information contained in Spectra Energy's Form 10-K and other filings made with the SEC concerning factors that could cause those results to differ from those contemplated in today's discussion. In addition, today's discussion will include certain non-GAAP financial measures as defined under SEC Regulation G. A reconciliation of those measures to the most directly comparable GAAP measures is available at the end of the packet of information you have before you and again on our website at spectraenergy.com.

So with that, let me turn things over to our President and CEO, Greg Ebel.

Gregory L. Ebel

Thanks, John, and thanks to everybody for being here today. It's good to be back and roll out our 2012 financial plan and the business plan. We've got a great group of folks to chat with you today about the prospects that we have. The plans that you're going to see hear about today really do give us confidence that we'll continue to be able to deliver a compelling shareholder value story for you for the next several years. And by the end of this meeting, I think you'll share the confidence that we have in that plan. Importantly, as we look forward, we see growth opportunities through the next several years that enable us to, at least, match the foundation that we've set out there and already built on in the first 5 years of Spectra being its own public company, the power of the portfolio. And I think the track record of success that we've been able to show really enables us to extract value for investors while fueling future growth.

The real competitive advantage of this company is the first mile access to North America's preeminent supply basins and the last mile advantage to the rapidly growing natural gas demand centers. Those are really the keys to why we are the company investment opportunity of choice in this industry. The team is very much committed to this business strategy and ultimately its success, and I think we're uniquely positioned to go out there and capture the opportunities that are before us.

But before we get into 2012, let me make a couple of comments about 2011. As John said, we're not quite ready to put our 2011 results yet. We'll do that in a couple of weeks. But I will say that we feel very good about the overall performance in 2011. And in '11, we continued the track record of meeting the commitments that, in fact, we've made to you. A year ago, we set out the goal of earning $1.65 in terms of ongoing earnings per share, and we will surpass that target. We told investors that we'd continue to grow our dividends along with our earnings a year ago, and in October we declared a quarterly cash dividend of $0.28 or about an 8% increase in the annual dividend and we reaffirmed our belief and the ability to continue delivering dividend growth in at least the $0.08 a share range for the foreseeable future. We told you a year ago that we'd invest about $1 billion in capital expansion during the year, and we've done just that. During 2011, we placed 6 new projects into service and successful execution of these projects allows us to continue to achieve -- realizing the aggregate return on capital employed of -- in the targeted 10% to 12% range, in fact, a little bit better. In addition to the organic growth projects, we actually executed on 2 strategic acquisitions during the year that you might recall. First of all, we acquired the Big Sandy Pipeline in Eastern Kentucky through our MLP, Spectra Energy Partners. And then a little bit later in the year, DCP Midstream acquired the Southern Hills Pipeline from Conoco, which targeted -- targets new gas -- natural gas liquids transportation from the Mid-Continent. Our DCP cash contributions or distributions to us are obviously critical. And in 2011, about $400 million in those came directly to Spectra Energy, and we expect to grow those distribution as DCP continues to grow its earnings.

And we committed to look forward, as well, in terms of positioning ourselves strategically, leveraging on the enviable asset position and seeking additional accretive investment opportunities. Spectra Energy's diverse portfolio really does afford us a healthy inventory of projects, which you're going hear about today.

So there's a lot of opportunity on the horizon, but 2011 is turning out or has turned out to be a good year as well. And I think we've got the financial track record to be able to deliver on the opportunities that are before us.

So let's look a little bit at that strategy. Key to our value proposition is our expansive asset portfolio. As you can see here, our footprint is enviable not only in its scope and reach, but also in its ability to provide immediate earnings today while at the same time providing future earnings tomorrow. The power of the portfolio really gives us a great foundation. And the financial flexibility, as I mentioned, enables us to fund growth with internally generated cash actually.

Our premier footprint continues to grow as we expand our market reach resulting in earnings and cash generation and our market reach. Our assets connect to the major producing basins, both in the United States and in Canada with the major consumption areas, and they interconnect with virtually every North American pipeline. Also, our pipeline storage, gathering and processing assets position us to take full advantage of the new shale plays in North America, whether it's the Horn River and the Montney in Western Canada, the Eagle Ford Shale in Texas, the DJ, the Marcellus, just to name a few. These dynamics and the ability to serve the customers' supply and demand needs affirm the value of our assets over that long term. In our view, there's not another natural gas infrastructure company in North America that can currently lay claim to the strategic profile that we currently enjoy.

Additionally, our Union Gas business in Canada is one of the largest natural gas storage transmission and distribution companies. It serves 1.3 million homes and businesses in Ontario and it operates the Dawn Hub, which is the largest storage facility of its kind in Canada and one of the largest underground storage facilities in North America. Union Gas continues to be a solid contributor to our earnings and cash flow, providing stability and consistency year in and year out.

While our assets footprint is impressive on its own, it's even more striking when you consider the context of the markets where the natural gas is needed. This slide shows you the high-demand markets around North America -- where the lights are, if you will, as we like to say. As you can see, Spectra Energy is ideally positioned to serve those demand centers and to strategically expand the assets that we have as needed to serve future growth in those vital regions. We're expanding the pipeline footprint through capital expenditures for facilities to serve our customers' changing supply and demand needs, underpinned by long-term fee-based contracts that provide very attractive shareholder returns.

Spectra Energy offers investors and customers the advantage of connection to supply basins as well as to demand areas and the future opportunities. In other words, one of the greatest strength is having, again, that first mile and last mile advantage in the value creation chain. And this is a competitive advantage for us and a value-creation opportunity for our investors.

Also, integral, too, is our proven ability to execute. We've aimed high in terms of growing the business and creating value and rewarding investors with attractive returns. We're following through on all those fronts. This slide demonstrates the fulfillment of our promise to deliver strong sustainable value over time. In early 2007, when we came out, we indicated to you that we would grow earnings by investing $1 billion a year in fee-based business at attractive 10% to 12% return on capital employed numbers. As you can see, we've not only met that commitment, but in fact we're exceeding it. We continue and we would expect to continue that growth focus. And going forward, we see opportunities to profitably invest about $15 billion by the end of the decade. That investment will allow us to realize significant incremental earnings and cash growth with robust returns in that 10% to 12% range. And you can expect an additional $6 billion capital investment kicker from DCP where returns will average in the mid- to high teens. That's an impressive record of execution and I think a menu of opportunity.

We're confident in the ability to outperform our peers, and we haven't been shy about stating that goal to be leading in North America in terms of natural gas company in 3 key areas: First, profitability. We look at every decision and opportunity through the lens of long-term value creation for investors, and that's why we're continuing to invest, as I said, at least $1 billion a year in growing the business and building enduring value with growth in earnings and dividends for our owners while at the same time maintaining the financial flexibility that comes from a strong balance sheet. We're outperforming in a number of these measures as well. To date, Spectra Energy's total return on capital employed exceeds our targeted returns. We're among the top 3 in the sector in terms of dividend and distribution growth. And going forward, I fully expect that future dividend growth will exceed the Alerian Index as well as the S&P 500.

Second, we expect to be leading in customer responsiveness. Spectra enjoys a strong record of serving customers with excellence through long-term fixed price contracts resulting in an average 2011 contract renewal rate of 99% for our Texas Eastern Pipeline and the Algonquin systems. We set record peak day and throughput deliveries across the entire system and these metrics reflect the value the customers see and our ability to serve them and in fact to serve them very well.

And third, safety and reliability. As many of you know, earlier this month, the President signed into law the pipeline safety reauthorization act. It's got a fancier name, but that's basically what it is. And we worked hard both at Spectra Energy but also as part of our industry group, INGAA, to get that legislation enacted, one of the few pieces of legislation that actually made it through Congress last year. That really provides an important regulatory certainty for us. It appears to be consistent with the ongoing safety plans and the maintenance programs that we have in place at Spectra. We're investing in the future, but we're also focused on those day-to-day operational and project execution results. We commit about $700 million over and above our expansion capital each year to ensure that the assets operate at the highest standards of safety, efficiency, reliability and customer service. And we're proud to be recognized by the American Gas Association as a top decile performer when it comes to employee safety. Safety and reliability may not have always been a top-of-mind for investors, but they should be, and they're critically important for us. In fact, we consider safety and reliability to really be part of our license to operate day-to-day.

Our top-tier performance in all of these key areas underscores our ability to deliver solid operational performance and generate strong cash flows and operating earnings to support consistent ongoing growth in our dividend. And we're intently focused on continuing this success. So let's look at our plan -- the growth plan and the prospects of the projects we actually have in execution right now.

As you can see here, we've got a healthy inventory of secured projects slated for 2012 and for 2013. When you consider the combined earnings impact from projects like TEAM 2012, the Philadelphia Lateral, Bobcat Storage, North Montney, New Jersey-New York, Southern Hills, Sand Hills and incremental gathering and processing at DCP Midstream, I think you'll understand why we feel so secure in our ability to continue delivering stable earnings and dividends through our planned period as well as into the future and beyond.

While we've seen some cost pressures on our New Jersey-New York project, the project's economic and strategic benefits continue to be considerable and long term to Spectra Energy, our shareholders and the residents of New Jersey and New York. Following the expected FERC approval of this project this spring, we'll be able to complete this pipeline as scheduled for the end of 2013, and Bill will speak to this project further in a few minutes.

I hope this slide gives you clear sense of the power of the portfolio, our ability to deliver aggregate total project returns on capital employed at the 10% to 12% range.

But like us, I know, you're also interested in the longer-term outlook. So let's turn to the period of 2013 and beyond.

We've got a lot of great confidence in our ability to unlock additional longer-term value with the strong asset base that we have, and we're actively pursuing a number of very attractive opportunities. Our U.S. Transmission business is well positioned to seize opportunities driven by the increasing use of natural gas to generate electricity, a trend that really shows no sign of abating. And this segment is also ideally located in terms of proximity and attachment to growing markets and growing shale plays like Marcellus and Utica. An example of this is the recent agreement we announced with Chesapeake and AEP to develop the OPEN project, an expansion of our Texas Eastern system that will connect Ohio's Utica and the Marcellus Shale, those fast-growing gas supplies to really gas-fired power generation markets in the area.

In addition, you've got in front of you today a press release that announces the we've reached binding agreements with 2 major anchor shippers for our TEAM 2014 project, an expansion of our existing Texas Eastern system that'll deliver additional emerging Appalachian shale gas supplies to markets in the Northeast, in the Midwest and the Southern United States. Bill Yardley, again, will tell you more about this project. But it's yet another key component in our ability to connect growing supply basins to premium demand markets.

In our Western Canadian business, there is a second round of development coming, in the Montney and the Horn River, and we see additional expansion opportunities in British Columbia for years to come as a result. We also have tremendous growth opportunities around LNG exports and the infrastructure that's required to ship LNG to international markets. Spectra Energy has an existing integrated pipeline and a gathering and processing network that's ideally suited and expandable to connect growing supplies to virtually any LNG project developed on the West Coast. In fact, we're the only interprovincial pipeline in British Columbia that can make that claim.

And the distribution segment as well is poised to provide needed service to power generation conversions in Ontario, which is continuing its march toward phasing out existing coal-fired generation in that province. This segment also has the investment opportunities to facilitate supply diversity to the Eastern LDC customers that we serve related to the emerging Marcellus and Utica suppliers.

And at DCP, we foresee opportunities above $2 billion related to incremental gathering and processing with additional growth on the horizon in that segment.

So the power of the portfolio really has a number of integrated elements: First, the expansive asset footprint featuring our first and last mile competitive advantage; second, our considerable financial strength and flexibility, which you see in the balance sheet; multiple financing vehicles through one C Corporation, our major partnership with ConocoPhillips, soon-to-be Phillips 66, 2 MLPs, Spectra Energy Partners and DPM; the proven track record of delivering attractive returns on capital; and finally, reliable earnings and steady dividend growth.

As I mentioned before, in the near term, we really see the real growth opportunities in Western Canada, the Northeast and the Southeast U.S. as well as that DCP Midstream. So because of that, we have a good group here today, Doug Bloom, who runs our Western Canadian business, Bill Yardley and Mark Fiedorek, who tag team on the U.S. side; and Tom O'Connor is here to share the DCP story.

So with that, I will turn things over to Doug and he'll give you a briefing on the opportunities we see in Western Canada.

Douglas P. Bloom

Well, thanks very much, Greg, and good morning everybody. It's been a very busy year in our Western Canada business. And before I take you through our plans, let's review a few of the 2011 highlights: First, we're keenly aware that our customers rely and our processing and transportation systems to market or receive their product. Reliability is a critical priority for us. And in 2011, we delivered over 99% reliability across our assets. We also executed well on $700 million of growth capital, which I'll discuss in a moment. And we continue to grow our fee-based earnings, which when all the dust settles, should be up about 20% from 2010 to 2011. As you know, growing the fee-based part of our earnings has been an important goal of ours. And over the past 4 years, our fee-based earnings have almost doubled. We also executed new long-term gas processing and pipeline transportation contracts to serve growing demands in the Northeast B.C. gas plays, which will lead to additional expansions of our business. And we positioned all parts of our Western Canada business for future growth. And we expect to play a significant role in LNG exports as producers seek access to attractive markets in Asia. I'll elaborate more on these as we look ahead to 2012.

Let's take a quick look at our 3 businesses in Western Canada: First, our Gathering and Processing business, which is the largest of its kind in Canada. In this business, we provide gathering and processing strictly on a fee-for-service basis. Over 90% of our revenues come from take-or-pay contracts. We currently have 16 plants in operation concentrated in Northeast B.C. and Northwest Alberta with 2 more under construction and the third pending reactivation. This business has driven most of our growth the past several years and will generate about 60% of our 2012 target earnings.

Next is our pipeline business, which has been the backbone of the B.C. natural gas industry since 1957. Our pipeline serves most of British Columbia, half of the U.S. Pacific Northwest, has connections into Alberta and beyond and is well positioned as a takeoff point to serve LNG export terminals in Canada and the Pacific Northwest. This, too, is a fee-for-service business, produces solid equity returns at relatively low risk. It'll account for a little over 20% of our 2012 target earnings.

Last is our NGL business centered at Empress. This is a margin business that extracts and sells NGLs using a proprietary liquids pipeline system, a 4 million-barrel underground storage complex and a fleet of approximately 500 tank cars. Our expertise in the NGL business will be a real advantage as we seek to unlock liquids value in the Montney. We expect this business to generate nearly 20% of our 2012 earnings.

Now step-out growth in unconventional gas supply continues to be the main driver of the business. The Horn River Basin with an estimated 500 Tcf and the Montney with an estimated 450 Tcf, both with original gas in plays are as large or larger than any U.S. shale play other than the Marcellus, and our assets are located right on top of them.

The chart on this page, which is from the National Energy Board's 2011 energy assessment study, shows gas production in B.C. more than doubling in the next decade and in fact exceeding Alberta's production later this decade. The growth is forecast to come from the Montney and the Horn River gas plays for the most part. In the near term, weak gas prices and strong liquids prices have seen producers move more of their growth activity into the liquids-prone plays like the Montney. Conventional gas development is very slow across Western Canada as it is elsewhere. The combination of a huge supply here in Northeast B.C., weak North American gas prices and growing interest from Asia have led to rising prospects for LNG exports from B.C.'s West Coast. There are now several proponents advancing expert projects and others investigating them. And we're seeing a rapid increase in the number of joint ventures, acquisitions and partnerships between Asian companies and Canadian producers. Five deals were announced in 2011 and more than $17 billion has been committed in the past 2 years by Asian companies in Canada's oil and gas industry. So both opportunities and challenges, but our business is very well-positioned for the future, which I'm going to turn to next.

And I'll start with our Gathering and Processing business. Spectra Energy enjoys an unparalleled asset footprint in the unconventional plays in Northeast B.C. Starting a few years ago, we began a significant expansion program to respond to increasing G&P demand in the region. Our 4-year Fort Nelson expansion program is well advanced. And this year, we'll successfully complete that expansion with construction of our Fort Nelson north plant. We have continued producer interest in the second phase of expansion, supported by backstop agreements with 5 Horn River Basin producers. We expect the project will emerge here with timing likely a function of gas price and market access.

In the Montney Play, we have a very large asset position and we're adding to it with last year's completion of the Bissette Pipeline and construction of the Dawson gas plant. We expect to complete the first 100 million-a-day phase of the plant in the next several months. The second 100 million a day of the plant is scheduled to be in service first quarter of 2013. This large plant and gathering system positions us well for future growth in this very prolific part of the Montney play.

The North Montney region is also very active. And in 2011, we entered into 370 million a day of long-term contracts with Progress Energy to support their gas development in this region. These contracts will drive debottlenecking projects at our Jedney and Highway plants and in our gathering system in 2012 as well as planned reactivation of our Aitken Creek Plant in 2013. We believe our integrated network of gas gathering and processing assets and our high reliability give producers an attractive value proposition that will result in more growth in our G&P business.

In addition, we're advancing several opportunities to unlock liquids value for producers in the Montney. We're currently progressing to NGL deep cut projects, backstopped in part by key area producers, which may lead to additional investment opportunities in the future.

Now turning to our Pipeline business. To support this growth, in 2011, we introduced new services that enhance our Station 2 location as a key trading and marketing hub. And we're now executing on over $400 million of expansion projects to serve Horn River and Montney producers. Our first project will expand our T-North system by 170 million a day and will also build a new 500 million-a-day connection into the Alberta market and will be in service in the second quarter of this year. Our second project, also in the T-North system, will build another 360 million a day of capacity to serve Montney producers and we'll have that in service at the end of this year. As we look to the end of the decade, we see another $0.5 billion to $1 billion of further investment opportunity.

As I mentioned earlier, we took a number of key steps in 2011 to position our company to serve the LNG export market. We have a dedicated team of technical and commercial folks that are in place working with project proponents and key stakeholders to support LNG export development from B.C.'s West Coast. We traveled to 4 countries in Asia in November and met with E&P companies, trading houses, and then use buyers to support this initiative. But the value we really bring to LNG export proponents is a proven track record of building projects in B.C., deep relationships with all stakeholders in government and the trust that comes from over 50 years of operations in communities throughout B.C.

We see LNG exports presenting larger opportunities for further investment. First, a pipeline or pipelines will need to be constructed from supply areas to export terminal locations. These could range up to several billion dollars depending on their size. Second, these developments would open up additional upstream investments in gathering, processing and pipelines that could also be very large. And while LNG exports offer attractive potential, they're not the only growth market for B.C. natural gas. The megaprojects in Alberta's oil industry are expected to increase their gas needs from 1 Bcf a day to as much as 3.5 Bcf a day during the next decade. And gas-fired power generation and transportation offer further growth potential. So all in all, we're pretty excited about the opportunities we have to grow our business further.

And with that, I'll turn it over to Bill Yardley.

William T. Yardley

Well, thank you, Doug, and it's my pleasure to be with all of you in New York City this morning.

Here in the Northeast U.S. business, we wake up every morning with one simple goal and that's to retain our position as the #1 gas infrastructure business in the Northeast United States. For instance, on the demand side, how do we build upon our industry-leading position adding to the unparalleled markets we serve like here in New York City and Boston and Philadelphia, electric generators in Indiana, Kentucky, Ohio all the way east and north up to Nova Scotia? Or how can we attach even more production adding to our position as the only pipeline system that offers our end users supply from the Gulf Coast, the Mid-Continent shales, Utica, Marcellus, Rockies, LNG and Maritimes Canada.

Customers of Spectra, whether producer or distribution company, power generator or energy marketer all win as we expand our transportation options. If put simply, these are great assets to work with and this is a great time to be in the gas business in the Northeast U.S.

Looking back to 2011, our overall U.S. business, both Northeast and Southeast, enjoyed strong growth and strong market positioning, setting us up real well for 2012 and beyond. But first, we've had a successful year executing projects, expanding both our transmission and our storage assets. We placed the second and final phase of TEMAX / TIME III into service this past fall, delivering Rockies and Marcellus gas to our northeast markets. And while so doing, we completed a lateral to the Transco pipeline, opening Mid-Atlantic and Southeast markets to the vast Marcellus and growing Utica production. We're happy to note this project is completed ahead of schedule and under budget. We're attracting power generators to this system. And in 2011, we attached another 1,500 megawatts through new connections such as NET and the Hot Spring Lateral. We continue to stay on track with our critical New Jersey-New York expansion project. And we completed the acquisition of the Big Sandy Pipeline in July of 2011 from EQT, a $390 million transaction that's the most recent acquisition by Spectra Energy Partners and will provide stable cash flows to the MLP. We continue to build on our strategic storage position in the access area with the ongoing expansion of Bobcat Storage acquired in August of 2010 and the completion of a 6.5 Bcf expansion of our Moss Bluff storage facility in Texas.

And finally, in addition to the dramatic growth of our system through expansions and through acquisitions, we're seeing solid operational and safety results that Mark's going to elaborate on in a minute in addition to filling in you folks on the accomplishments of the Southeast team. So it's been a productive year. And turning to the future, I can tell you we're going to see continued success.

So let's consider a couple of points about the macro environment that's making that true. First, supply. Natural gas is in great position to meet future energy in North America due in no small part to the abundance of production from the growing shale plays. Many of these shale production regions are located in very close proximity to all of our pipeline assets from south to north. Our footprint has made us one of the premier pipeline companies today and it positions us very well to take advantage of the changing supply patterns. We've been able to build incremental infrastructure to accommodate these changes and it all complements our highly valued long-haul business. So in addition to placing major incremental projects into service such as TEMAX, we renewed 99% of our long-haul contracts that came up for renewal last year. The reliable service to our customers, gas supply diversity and strong customer responsiveness are all keys to keeping our pipelines fully subscribed.

Second, demand. We've seen both immediate demand growth and fundamental changes taking place that will further increase the use of natural gas. Over the past 2 years, the existing attached power generation is bringing more than ever before. Deliveries to power plants on our system hit new peaks year-over-year due to natural gas' favorable economics. And gas will continue to be the fuel of choice for both new and replacement generation needs. Now, you may recall, what a huge opportunity that is for us as in the Northeast alone, there are approximately 46 coal-fired units representing 51,000 megawatts of electric-generating capability, all within 30 miles of our pipelines. That's a 10 Bcf-a-day gas opportunity. And for perspective, Texas Eastern's east end capability today is about half of that. So if we capture just 10% of that load, it would mean a 20% increase in demand in our market area.

In addition to power generation, oil-to-gas conversion is driving demand, especially here in the Northeast. IHS CERA estimates that 50,000 homes a year could convert to natural gas. In the Northeast, that means an additional 0.5 Bcf a day by 2030, and that alone will be a 10% increase to our Northeast peak day.

So how does all this translate into real opportunities in the Northeast? Our 4 execution projects have been driven by both the growing shale production and our market position, and we continue to execute very well on these high-value development opportunities. Our TEAM 2012 project is a $200 million investment focused on moving Marcellus supplies from Southwestern Pennsylvania to the east. We accepted our FERC certificate in November and are currently on time and on budget as we construct towards an in-service date in Q4 of this year. This offers one customer, Range Resources, the ability to get their gas to the high-value Northeast and Mid-Atlantic markets, and it gives another customer a new market for us, Chesapeake Utilities, the ability to take deliveries from the Marcellus supply area.

The Philadelphia Lateral project is a last-mile expansion, designed to reach growing industrial load on a currently constrained Texas Eastern lateral serving the Philadelphia area. And again, the position of our pipeline in a major metropolitan area gives us an expansion win. In this case, for both a cogeneration facility and a refinery.

And of course, our New Jersey-New York expansion continues to be the highest profile project that we have in execution at this time. This is the most important piece of new natural gas infrastructure in execution in North America today. Northern New Jersey and Manhattan are downstream of the bottleneck that causes prices here to periodically reach 4 to 5x that of the rest of the country. In addition to relieving this constraint, this strategic expansion considerably augments our already enviable market position by giving us a deeper penetration into New Jersey, and of course, a new interconnection here in Manhattan.

Two years ago, we were in this business for 3 reasons: First, the access of Spectra's system to the most diverse sources of supply of any Northeast pipeline organization; second, the creativity and service offerings to the 3 customers of the project; and third, our ability to execute. And we're delivering on our commitment to Con Edison, Chesapeake Energy and Statoil to get this project in service by the end of 2013.

We may see higher capital expenditures associated with the project, but we'll realize attractive returns and clear strategic benefits.

Now, New Jersey-New York anchors about $1.5 billion in top-notch Northeast project, but what's coming next should top that.

Over the past several years, we focused on a message to our end-use customers that Spectra brought you supply from all compass points, providing access to the vast new and traditional supplies attached to our system whether it was Gulf Coast or Rockies, LNG or Mid-Continent and Appalachian shale gas. Again, that's what helped us win projects like New Jersey-New York and Philadelphia. Now certainly now, most of the expansion opportunity we're seeing is focused on producers, providing them access to our unequaled markets. So we've added the focus that the Spectra family of pipelines will get your production to all compass points. Gas producers need access to a variety of markets, not just one. And we want producers that seek capacity on our pipes to have the ability to serve the growing Midwest power market, the premium Northeast and New England markets and potentially connections to the Eastern Canadian and Southeast distribution and power markets. So against this backdrop, we can talk about perhaps our finest suite of potential project yet, representing $2 billion to $4 billion of investment opportunities.

And folks, we're off to a great start. We're announcing this morning that we've signed precedent agreements with 2 significant producers as shippers that will anchor our TEAM 2014 project. This is another major expansion of our Texas Eastern mainlines designed to give Marcellus producers access to the Northeast, the Mid-Atlantic, Midwest and Southeast markets. And we'll seek additional shippers through the project open season, which will start today and will end on February 17. And regardless of whether or not we get more subscribers, this project will move forward and will be placed into service in Q4 of 2014 with a capital investment of at least $0.5 billion.

Now this all is up on our TEAM 2012 project that I spoke to earlier. The TEAM projects are a right-sized, well-timed program of expansions that should continue to grow through the decade as production in this region grows.

Another groundbreaking development took place in late December as we announced agreements of intent with AEP and Chesapeake Energy to develop the Ohio Pipeline Energy Network or OPEN Project. This new infrastructure will be driven by Utica Shale play, which is rapidly developing, connecting this production all Texas Eastern markets and importantly, providing Ohio Gas for Ohio power generation and energy markets.

We're also pleased to announce this morning a new opportunity in the Ontario and the Québec markets, which we have named our N-E-X-T or NEXT project. It's focused on connecting Utica and Marcellus producers directly to the Dawn Hub in Ontario and the growing Eastern Canadian local distribution and power markets.

The next project has an agreement in place with Union Gas, and we are in discussions with other markets in Eastern Canada that will work together to frame up this opportunity. Canada offers a growing power and energy market, and the project would allow the market participants to restructure their supply portfolio due to Alberta's supply and transportation dynamics. Again, our proximity to this market gives us a real opportunity with Texas Eastern and the vast supply access so nearby to our Dawn storage and transmission hub. And we're expecting this project to be completed in 2016 or 2017.

And now finally, our AIM Project. It's both a supply push and a demand pull project. About half the homes in New England are heated by fuel oil and the economics are very favorable to converting to gas. This growth, along with increasing gas-fired power generation, fuels the demand for this project. And the Pennsylvania producers are interested because it gives them access to Algonquin city gates in addition to markets in Connecticut and on Long Island. We continue discussions with folks on this project and are targeting a November 2015 in-service date. And stay tuned for more.

We've earned the reputation of backing up our talk with action and this in turn has earned us the ability to compete for and win the business of the entities that I've mentioned. These are some of the largest players in the industry, and we're very proud to do business with them. We will not let them down.

Unprecedented opportunities with high-quality partners and customers make this a great time to be in the gas infrastructure business in the Northeast U.S. and I couldn't be more proud of, or more confident, in the team that gets this work done.

So now, I'll turn it over to my counterpart, Mark Fiedorek, to fill you as on the Southeast U.S. activities.

Mark Fiedorek

Well, thanks Bill. Good morning, everyone. I would like to echo Bill's enthusiasm about Spectra Energy's U.S. assets and the future opportunities that exist for our natural gas transportation and storage business in the Southeast region. We are seeing a significant level of activity from our demand-side markets that are driven by the attractiveness of natural gas. We are in active discussions with electric utilities, merchant generators, industrials and export terminals about the advantages of natural gas and the value of Spectra Energy's existing footprint to access the growing supply regions of United States.

Before I speak to our portfolio of opportunities, I thought it would be important to reflect on our U.S. operations in 2011 and our significant operational performances. As you can see, our U.S. assets tied to market saw double-digit growth in actual demand in 2011 versus the prior 3 years. This strong performance was influenced by above-average winter and summer temperatures. But more importantly, the value of natural gas and the value of our pipeline capacity to markets drove these throughputs.

Over the past 3 years, we have significantly expanded our market access to the Northeast, the Tennessee Valley and the Florida markets. When the markets needed us, we were ready for them and we delivered.

Now let me describe the Southeast future portfolio of opportunities. As Bill mentioned earlier, gas-fired electric generation is a market player that will drive our U.S. business and it will be the Southeast #1 driver of growth. Electric utilities are actively rationalizing their electric fleets in light of their aging facilities, EPA emission regulations and the economics of their portfolio of fuel options. Every utility we speak with is focused on the advantages of the natural gas as a solution to their needs. Spectra Energy has identified over 20,000 megawatts of coal and oil-fired generation along our Southeast Pipeline footprint that are prime candidates for conversion. These new facilities could acquire infrastructure to access approximately 4 Bcf a day of natural gas. Spectra Energy's existing footprint with its access to ample supply, storage and current connectivity to where the markets are will be our advantage.

In Florida, the utilities will be converting multiple oil and coal-fired utilities natural gas. We see our Gulfstream system as a great vehicle to deliver solutions for both the East Coast and West Coast markets of Florida. In addition to Florida, electric utilities along our East Tennessee system and into Alabama and Georgia are looking for natural gas infrastructure to handle their portfolio needs. This region is driven to the supply access that can be provided by Texas Eastern. Texas Eastern provides access to the traditional Gulf Coast area, the Mid-Continent, the Marcellus-Utica region and the balance and the reliability of capabilities of natural gas storage. We anticipate that these electric utilities will drive opportunities in excess of $3 billion for pipeline facilities during the period of 2015 and beyond within Spectra's Southeast region. Market attachments, access to supply and storage will drive our investment opportunities to serve gas-fired generation.

As the U.S. market demand for natural gas grows and the natural gas grid matures to serve these expanding markets, a necessary operational complement is required and that is natural gas storage. Spectra Energy, as a long-established operator of a diverse and extensive asset base, has always made reliability of service for our customers a high priority. The most important tool for an operator is natural gas storage, which is required to balance the variability of supply and demand. Spectra Energy currently has 305 Bcf of storage capacity. Our storage facilities range from Ontario, Pennsylvania, Maryland, Virginia to Texas and Louisiana. We operate both reservoir and high-turn salt cavern storages.

Having a diversity of storage facilities allows us to provide the natural gas grid services to balance the needs of our customers. Our storages have historically served the traditional seasonal summer-winter patterns of our LDC customers. And over the past 10 years, the value of storage has significantly increased as a product to manage the volatility of supply, weather, and now more importantly, the needs of electric generators. Salt cavern storages are the perfect asset to manage large swings in the marketplace due to the physical capability to inject and withdraw large quantities of natural gas. The ability of our customers to turn their storage at multiple times within a year is the trademark of salt cavern storage.

Spectra has invested and successfully developed our MHP assets at Moss Bluff and Egan in Texas and Louisiana. We have doubled the capacity of these facilities to over 50 Bcf since the year 2000. Strategically, Spectra views high-turn salt cavern storage as the best asset to meet the increased requirements of our growth market, gas-fired generation. With the dramatic demand growth expected in the second half of this decade, more storage will be required to handle the needs of this electric market.

This strategic view drove us to acquire the Bobcat Storage assets in Southeast Louisiana in 2010. This added 16 Bcf of new storage to our asset base. More importantly, it created a new investment growth opportunity. Spectra will deploy close to $450 million to fully expand this facility to 46 Bcf. We recognize the storage as currently facing lower-margin opportunities, but we are committed to build and position our storage portfolio for the better future.

By 2017, when we expect to see the actual in-service of much of the new gas-fired generation facilities in the United States, Spectra's Gulf Coast storage position will be close to 100 Bcf of capacity. Our storage fields are connected to 21 pipelines that serve the Gulf Coast, Midwest, Northeast and Southeast markets.

In addition to electric generation, natural gas is spurring the rapid development of many new market opportunities for Spectra. The current price disparity between natural gas and oil has created a robust market along the Gulf Coast for potential natural gas exports. Recently, the Cheniere's Sabine Pass facility received authorization from the Department of Energy to export 2.2 Bcf per day. And 3 additional sites have requested further authorization for an excess of 5 Bcf per day of capacity. These new terminals are tracted to our Texas Eastern systems due to its accessibility to multiple supply basins and the new shale plays. We anticipate the Texas Eastern will be a service provider for these new customers in a region that has not traditionally been served by Texas Eastern.

The industrial markets along our pipelines are also in the midst of a renaissance due to the economics of natural gas. Many will convert away from coal and oil fields and will be expanding their facilities to natural gas. We anticipate that up to 1 Bcf a day of demand could be created by the end of the decade along our existing footprint in the United States. These industrials exist along our entire system and will require infrastructure to tie them into the grid.

In closing, Spectra Energy is working hard to leverage our extensive footprint to serve the growing markets of the Southeast region of the United States. These markets are attracted to the accessibility we provide to the growing natural gas supply regions. We are well positioned and ready for the next wave of growth that we anticipate will drive $3 billion to $4 billion in expansion opportunities between 2015 and 2017.

And now, with that, I'll turn it to Tom.

Thomas C. O’Connor

Thank you, Mark. Good morning, everybody. It's great to be with you here today as we roll out our 2012 plan. We're coming into the year with a lot of momentum and very, very excited about the opportunities that are before us in 2012.

In the last couple of years, our focus has been on the tremendous growth, which has emerged from the redirection of the drill bit to liquids-rich formations. In 2011, we saw our strategic initiatives come to fruition and a real acceleration of our project development activities.

There are 2 facts about the company that you really need to know that are foundational to our value. We have an incredible asset position in liquids-rich developments. Because of the strong liquids prices, this is where the drill bit is focused, and we are the largest producer of natural gas liquids in the Lower 48. Therefore, we can influence which infrastructure gets built and take ownership positions where we think it makes sense. Strategically, we're leveraging these strengths to reposition the company from gathering and processing-centric to a full-value midstream service provider. This repositioning has enhanced our competitive position and is creating a set of investment opportunities beyond what the company has ever experienced. I'll spend most of my time today talking about those opportunities. But first of all, I want to take a quick snapshot look at 2011.

We feel very good about 2011 from both the operating front and how we strategically have positioned this company. During 2011, we continued our exceptional safety performance and we're recognized as a peer group leader by our industry association. Good safety equals good operations, and we're very proud of this result.

Our financial results were strong. Year-over-year, earnings will be up approximately 30%. We paid cash distributions of about $800 million with about $400 million to Spectra. And we brought into service growth projects in the DJ Basin, the Eagle Ford and the Permian and in our liquids logistics business. These projects contribute immediately to earnings growth beyond commodity prices.

And we funded this growth with about $1 billion in attractive financings at both Midstream and Partners, our MLP. We executed on our strategy of co-investment with partners through drop-downs at Southeast Texas, East Texas and ownership by partners of the Eagle Plant. To date, these co-investment financings have totaled about $450 million. And importantly, we positioned the company for continued growth with over $4 billion of gathering and processing and NGL pipelines in flight and another $2 billion that are in development. Pat will cover the numbers, but at the DCP level, we are forecasting earnings of about $1.1 billion, which is more than a 20% increase versus 2011. Our distributions are also forecasted to grow by more than 15% to $925 million. Including the 2012 forecast, our earnings will have grown at a 50% compounded annual rate since 2009 while distributions are forecasted to grow at a compounded annual rate of better than 60% over the same period. And as you know, Spectra reinvests this cash in very nice return projects, which grow its earnings and dividends.

The key theme you'll hear today is that DCP has numerous growth opportunities. These opportunities are derived from the strength and scale of our asset portfolio, and you can see the stats here on our very substantial footprint. We're a top-tier processor and consistently the largest producer of natural gas liquids in the Lower 48. In fact, we exited 2011 with an NGL production rate of over 400,000 barrels per day. Why is that important? First of all, it reflects our concentration in basins where NGLs and crude are the target and liquids prices support very active drilling programs. It's important because our contracts are primarily percent of proceeds. As a result, we share in the significant value uplift from the liquids. And finally, it's important because with our liquids position, we're able to dedicate significant barrels to help underwrite new NGL infrastructure. Our assets, our contracts and our growth projects have all contributed to an industry-leading return on capital, which over the last 5 years, has averaged about 20%.

Before we turn to our projects, I want to touch on our view of natural gas liquids, particularly ethane. It's clear that shale technology has altered the fundamental outlook for natural gas liquids production. With producers focused on attractive returns of wet gas, the volume of natural gas liquids is expected to grow fairly rapidly. If we look primarily at ethane, though, we believe the fundamentals are very positive. U.S. ethane crackers are competitively positioned in the world feedstock supply stack and they're capturing market share from naphtha crackers in both Europe and Asia. Ethane is still the most profitable feedstock for U.S. crackers, and the margin yield is a very strong incentive to crack ethane where possible.

The petchem industry has also responded to these 5 fundamentals by quickly increasing ethane cracking to about 1 million barrels per day, and there's more light feedstock conversions underway. In the near term, this should keep the market pretty well balanced. And during 2011, as I'm sure you've heard, several companies announced plans to build new crackers. And if only half of these announcements are converted to operating crackers, ethane consumption will exceed supply forecast by a significant margin. You know there's always the potential for timing mismatch between growing supply and incremental demand, but the petchems have a very favorable incentive to maximize ethane cracking, and they've generally surprised us on the upside.

This slide also shows that about 80% of the economic value of the NGL barrel is tightly correlated to crude. And with crude prices in the $90 to $100 barrel range, we should continue to see very good natural gas liquids prices. So all things considered, we believe the market will absorb these new supplies, and we believe prices will reflect a fairly balanced market.

What I'd like to do now is provide some detail on our $4 billion slate of projects and execution and the more than $2 billion of opportunities, which we hope to lock down in 2012. If we start with the DJ Basin, we're in the process of a very significant build-out. The DJ, for several years, has been an attractive liquids-rich resource. Now with the introduction of horizontal drilling, the volumes and the infrastructure needs are continuing to grow and they're accelerating. During 2011, we brought the Mewbourn facility online, we expected to fill it in 4 years. It's full today. A modest expansion will be in service by the second quarter of this year. That expansion will carry us to the in-service date of the LaSalle Plant, which is under construction for mid-2013 in-service date. Beyond LaSalle, another large-scale processing facility is on the drawing board for 2014. And if the drilling success continues, I expect we'll move forward on this plant by midyear.

As the volumes in the DJ have grown, we've remained focused on the liquids transportation needs of the basin as well. During 2011, we expanded the Wattenberg pipeline and we immediately filled it. Now we're taking a hard look at the options for the next increment of capacity, which could include the construction of a new pipeline to the DJ. More to come on that in the next few months. Including Mewbourn, our potential investment in the DJ Basin could grow to $750 million through 2014.

Moving over to the Permian. In the Permian, we're seeing producers apply horizontal technologies to oil-focused drilling in the Wolfberry, the Avalon and the Wolffork. With 17 plants, 18,000 miles of gathering, we're in a great position to capture business in the Permian Basin. In the near term, we've been restarting idle plants, debottlenecking others and taking advantage of low-cost quick hits to bring on over 150 million a day of incremental capacity.

Looking forward, we have 300 to 500 a day of new processing capacity under development. We expect to sanction one plant this quarter with commitments on the others to follow should the volume growth continue. And with the Sand Hills Pipeline, we'll facilitate the Permian growth by providing unconstrained NGL flow to Gulf Coast markets.

Looking at our committed and the high potential projects, our investment opportunities in the Permian Basin could range from $300 million to $800 million through 2014.

In the south, we continue to be amazed at the pace of the Eagle Ford development. There are currently about 200 rigs working in the play, and the processing volumes have climbed rapidly in the last few months. As you may recall, DCP has 800 a day of processing capacity in the region. With over a 200 a day now flowing from the Eagle Ford, we are very nearly full. The new Eagle Plant is under construction, scheduled to be online in Q4 of this year, providing 200 a day of much-needed incremental capacity. But with commitments from over 500,000 acres and more expected, capacity beyond Eagle is going to be needed in 2014. Therefore, we're completing final designs and expect to move forward on an additional 200-a-day plant early this year. The Eagle Ford remains an opportunity-rich development. To date, we've committed about $500 million to the development, and we expect that to grow to $900 million by 2014. As with the Permian, Sandhills will be our primarily conduit for moving Eagle Ford liquids to Gulf Coast markets.

Now let's jump over to the Mid-Continent. Our growth opportunities in the Mid-Continent have been modest in the last few years. That all changed in 2011 with our plans to build the Sandhills Pipeline. -- I'm sorry, the Southern Hills Pipeline. Southern Hills has changed the conversation with our customers and significantly improved our competitive posture in what's become a very exciting growth area for the company. During 2011, we launched over $715 million of gathering and processing expansions in the Mid-Continent. These projects include a major expansion of our 600-a-day national helium facility to provide deep-cut ethane recoveries and also, gathering buildouts in both the Granite Wash in the Mississippi line. If drilling success is what we expect, 400 to 600 a day of new processing capacity would be needed beginning in 2014, and that could grow our investments in this region to north of $1 billion.

Let's turn now to NGL Logistics. This is an exciting new growth platform for the company, and I want you to understand both our strategy and the details of our plans. As I mentioned earlier, we are the largest NGL producer in the Lower 48. And since we share in the value of the products, we have a keen interest in ensuring that the natural gas liquids from our facilities move reliably to the highest-value markets every day. Beginning in 2010 with the Wattenberg acquisition of following on with Sandhills and Southern Hills projects, we've embarked on a strategy of owning critical NGL infrastructure between our primary processing regions and the NGL market centers.

Our ability to dedicate barrels to support this new infrastructure is a key competitive advantage. Through 2013, we've committed over $2 billion to NGL infrastructure projects that have very attractive fee-based returns. But beyond that, these projects alleviate bottlenecks, improve reliability and therefore, increase the value of our gathering and processing positions. And by extending Downstream in the NGL value chain, we now can compete heads up for new business with a one-stop gathering, processing and NGL service offer. And we've created a platform for additional growth while going forward as the NGL logistic needs of the industry continue to grow. Owning an extensive NGL infrastructure platform is transformational for DCP as the largest NGL producer in the country.

So let's take a quick look at where we are on both Sandhills and Southern Hills. On Sandhills, you know it's our solution to provide NGL transportation service from the Permian and the Eagle Ford to Gulf Coast markets. We sanctioned the project in August, and have moved quickly into the execution phase. We have our pipe permitting and right away are advancing, and construction bids are in. We expect the first phase to be complete later this year for Eagle Ford service and the Permian volumes to flow mid-2013. Southern Hills, also moving very rapidly. This 150,000 barrel a day project to the Mid-Continent to Mont Belvieu will relieve the pipeline constraints, which are depressing natural gas liquids prices at Conway. We closed on the acquisition of Seaway in November. The pipes' been ordered. Permits and right away are moving forward, and the conversion of NGL service is underway. We are very confident that Southern Hills will be in service by mid-2013.

Recently, we decided to extend the primarily route of Southern Hills to the Northwest. This allows us to directly connect several DCP and third-party processing facilities. With this change, both DCP and our customers achieve better value. The project cost will increase to approximately $1 billion. We feel very good about where we are in the development of both of these pipelines with solid shipper commitments to underpin the projects and we are delivering on time and on budget.

Now with this portfolio of projects, our annual growth capital is going be multiples higher than it has been. Yet our corporate structure gives us tremendous flexibility to fund our growth while continuing to pay attractive distributions to our owners. Right now, our current thinking is that Midstream on average will fund $600 million to $800 million a year of total CapEx. This means that DCP Partners will fund a significant portion of our projects through dropdowns and coinvestment. With $4 billion of committed projects, this plant creates significant value.

This slide is illustrative of how we view the financing and the value creation, which can flow from our coinvestment strategy. Our MLP will see attractive investments, which grow its earnings and support increasing distributions to its unit holders. DCP Midstream, we realize earnings growth increasing cash distributions from growth on the Partners LP units it owns and growth in the GPs incentive distributions. Since we are in the high splits, the MLP structure is quite favorable to the GP and therefore, quite favorable to Spectra as an owner. So what you see in this example is the LLC will invest about a third of the growth capital yet realize over 50% of the cash flow from the incremental investments plus earnings growth. And of course, very nice returns.

Partners GP and LP distributions to Midstream are also fee like, it could become significant based on our current plan for partners funding the projects. As these predictable cash flows grow, our belief is that they will receive higher valuations for Spectra.

So in wrapping up, I hope you have a better understanding of where DCP is headed, how the strategy can create value for the Spectra shareholders.

We believe the company is in an excellent position. We're in an industry that will require a significant investment for several years to support drilling activity. Our asset base is centered on liquids-rich developments, which you see in the most drilling and it's driving attractive growth in gathering and processing assets. We're the largest liquids producer in the country, and we've levered that position to several billion dollars of NGL infrastructure development. We've got a strong balance sheet and multiple ways to finance this growth including our MLP. And going forward, we expect to continue to provide earnings growth and attractive distributions to both of our owners.

So with that, I'll turn it over to Pat, and I look forward to your questions.

John Patrick Reddy

Okay. Well, thank you, Tom, and thanks to Doug, Bill, and Mark as well. As you've just heard, we're in the midst of a focus growth phase that presents a number of attractive opportunities to leverage our existing assets to serve growing demand markets and emerging supply basins. 2011 was a very good year for us, a year in which we bolstered an already-solid foundation, expanded our asset portfolio, executed above and beyond our financial targets and delivered high levels of customer service and investor value.

We laid out our key 2012 objectives for you in early December, but I'll just take a minute now to do a quick review of that. We set our 2012 ongoing diluted EPS target at $1.90 a share, which is approximately 15% above our 2011 target of $1.65, which as Greg said earlier, we expect to exceed. Included in our $1.90 target is about $0.13 of earnings from our expansion projects so we're continuing to see real and sustainable growth from our capital investments. This growth, in turn, contributes to our expected 7% to 9% annual increase in earnings per share through 2014.

We said previously that we'd increase the dividend as we grew earnings and satisfied our payout criteria. As you're aware, we increased our quarterly dividend by nearly 8% to $0.28 per share in the fourth quarter of last year. This takes our 2012 annual dividend to $1.12 a share. And as we look at our 3-year financial plan, we expect our results to support annual dividend increases of at least $0.08 a share through 2014. In 2012, we'll continue executing on our ambitious growth plan, including expansion CapEx of $1.3 billion, generating returns on capital employed, at or above our 10% or 12% targeted range.

I know you're interested in seeing the details supporting our 2012 EPS target of $1.90. So let's take a look at the underlying EBIT projections. This chart provides 2012 EBIT and EBITDA detail for each of our business segments and the information that you'll need to arrive at our EPS number for the year. We expect solid performance in each of our businesses, both this year and beyond.

This next slide is about the power of our portfolio. Each of our 4 lines of business has an important contribution to make toward achieving our financial goals. For example, our regulated distribution business at Union Gas is a source of stable earnings and cash flows with a lower risk profile. U.S. Transmission provides steady growth through attractive pipeline and storage opportunities, also at regulated rates of return. Western Canada has enjoyed a high rate of growth, primarily through expansions of our fee-based processing business. And our field services operation at DCP continues to benefit from capacity expansions in its traditional gathering and processing business and strong commodity prices, and as you just heard from Tom, is poised for even more rapid growth on the future.

This next slide lists the key assumptions which underlie our 2012 projections. Our $1.90 EPS target for 2012 reflects solid growth in our fee-based businesses and continuation of our very successful capital expansion strategy. At the same time, our plan is also based on certain key assumptions. So for example, we've assumed parity between the Canadian and U.S. dollars, net interest expense of about $630 million this year, an expected tax rate of a little in excess of 29%, holding our ownership in Spectra Energy Partners confident at 64%, expansion CapEx of $1.3 billion this year and maintenance CapEx of about $700 million. Our commodity assumptions related to DCP Midstream include NGL prices averaging $1.25 per gallon through the year, natural gas at $4 a decatherm and crude oil averaging $100 a barrel. Of course, these are just assumptions and they reflected our view of 2012 commodity prices and other key relationships that prevailed when we developed our financial plan towards the end of last year.

Now let's take a look at the various sensitivities that relate to these assumptions. Our sensitivities are for the full year and they're based on our 2012 EBIT forecast and the volumes that underlie that forecast. Our largest commodity exposure, as you know, is at DCP Midstream. The primary exposure in that business relates to realized prices for natural gas liquids and natural gas volumes. We have a sensitivity of approximately $6.5 million in EBIT for every $0.01 change in natural gas liquids prices for the full year. And we'd expect about a $3 million EBIT variance for every $0.10 change in natural gas prices, again, on an annual basis. And while less material than the sensitivities to NGL and natural gas prices, we are also affected by fluctuating oil prices and this primarily relates to our condensate sales, where we'd expect about $2.5 million variance per dollar change in the oil price, again, on a full-year basis.

Our Canadian earnings are partially exposed to the exchange rate with the U.S. dollar. Since we finance our Canadian operations with Canadian dollar denominated debt, we're partially hedged for those earnings. So we'd expect every $0.01 change in the dollar rate we've assumed to translate into a $5 million change in net income. We've given you this sensitivity at the net income level to give effect to changes in EBIT, interest and Canadian taxes.

Because our stable fee-based earnings more than adequately cover our dividend requirements in 2012 and beyond, we're able to realize the earnings upside from exposure to commodity cycles without sacrificing consistent dividend growth for our investors.

Now let me walk you through how we expect to finance our expansion capital. This schedule shows our expected primary sources and uses of funds. We expect to generate approximately $2.2 billion in cash from net income adjusted for depreciation and amortization and a benefit from reduced cash taxes, which primarily comes from our ability to use bonus depreciation.

Our primary uses of cash will be for maintenance CapEx and to pay our common stock dividend with a significant contribution left over to expansion capital expenditures. In fact, about 60% of our growth capital budget will be funded with internally generated cash. We'll use a combination of short- and long-term debt to fill the gap, so let's take a look at our financial flexibility, which allows us to do just that.

Even with the growth investments reflected in our 3-year financial plan. Internally generated cash flow is sufficient to fund our operating needs and nearly 3/4 of our combined maintenance and capital requirements. We don't anticipate issuing any parent company equity to support our growth. Our 2012 plan has us in the debt market for about $1.3 billion with a mix of long-term debt and commercial paper issuances. About $500 million of that amount will be used to fund 2012 retirements.

Our 4 separate credit lines total $2.9 billion. And at the end of last year, we had available liquidity of about $1.9 billion. This committed credit capacity is more than sufficient to meet our financing needs regardless of future market capital conditions. We anticipate increasing cash distributions from DCP Midstream, as Tom discussed. They totaled almost $400 million in 2011, and we're expecting them to grow to more than $460 million this year. We'll continue to evaluate strategic acquisition opportunities, including through our MLPs, and we'll take advantage of drop-down potentials if and where they make sense. And DCP Midstream's rapid growth with $4 billion of committed projects and potential opportunities of another $2 billion will be self funded.

Now let me give you an overview of our financial management philosophies and practice.

Greg spoke earlier about our strong foundation and how it enables our expansion plans. We're looking for growth opportunities, but we'll only pursue investments generating returns that balance risk and reward and that meet or exceed our cost of capital. We'll continue to strengthen our balance sheet and safeguard our investment-grade credit ratings. We'll maintain ample liquidity to finance our growth, and we'll utilize an opportunistic approach to long-term financing, including the use of our MLP currencies to achieve the lowest possible cost of capital. And of course, we'll be well prepared to decisively act on future value-creating opportunities. As our earnings grow, we'll use our financial flexibility to fund future portfolio growth with internally-generated cash flows.

And so with that, let me turn things back over to Greg to wrap up so we can move on to take your questions.

Gregory L. Ebel

Well, thanks Pat. I know that's a lot of information that we have thrown at you in the last 1.5 hours. But we hope that's valuable and look forward to your questions. Really pleased with the team that have surrounded me at Spectra. Beyond the group here, which is a really seasoned group that have run big entities, delivered on a lot of projects. Julie, who's now moved over to run the MLP and Steve Baker, who isn't with us today, but doing a great job at running our large LDC in Canada. It's a really great theme. And that and support of the board, we feel very confident about where we're wrong.

So what I hope you've heard today is the way in which we can deliver value for you today and tomorrow. I hope that you have heard that the premier asset footprint that we have will continue to deliver fee-based earnings that are combined with a significant NGL infrastructure upside as well. You've heard how the resulting robust cash generation allows us to reinvest in the business for future growth and drive that growth. All of which, I think, continues to allow us to deliver what you as investors are ultimately looking for, reliable earnings and dividend growth.

Our confidence in our ability to continue this investment pattern is really grounded in the fact that we've returned 125% from a total of shareholder return basis in the last 3 years. We've proven that we can deliver value, that we can create value and we fully intend to continue delivering on that commitment and being what we think is the investment opportunity of choice in the industry.

So with that, John, why don't we open up for questions.

John R. Arensdorf

Okay, great, so you've heard from our team. Now, we're anxious to hear from you, see what's on your mind. So I'll remind those of you in the room here that we are webcasting, and so we need you to wait for a microphone before you ask your question. And if you'll state your name and who you're with, that would be very much appreciated.

And for those of you on the phone, I'm going to take just a minute to ask the operator to provide instructions on how those who are joining us on the phone can get in a question. Operator?

Question-and-Answer Session


[Operator Instructions]

John R. Arensdorf

Okay, we'll start taking questions here in the room, we've got one right here, just – Eve [ph], just a moment.

Unknown Analyst

I have 2 questions if I could for Tom. Number one, how do you envision the restructuring of ConocoPhillips impacting your business? And then the second question is, moving to the integrated model, was that more because you want to have control over the NGLs and to assure that you have a market for it? Or are you also contemplating being able to extract incremental value by having an integrated model?

Thomas C. O’Connor

On the first question, in terms of the potential impact of the change at ConocoPhillips on the business, really don't see any. First of all, we know Greg Garland very well. Greg will be the CEO of the new Phillips 66. Supportive of our strategy, aware of what we're doing and how we're going about doing it. I look forward and say, "Geez, we're going to be a bigger part of a smaller company." What DCP does is going to matter to Phillips 66, and I think that's a good thing. I think they'll be supportive of the investments that we're trying to make and how we're trying to grow the company. Greg has also been the CEO of a joint venture, CPChem, so he brings the knowledge of CPChem to our board, which I think is great, but also brings the understanding of what it takes to run a joint venture which I think will be will be wonderful as well. So all good as far as we can see, and we would not expect any change going forward. Now, as far as the NGL infrastructure, I've mentioned probably more than you care to hear, we are the largest NGL producer in the country. That matters. The value that we get from those barrels everyday matter. We need to make sure that those barrels get to the best markets every day. It gives us an opportunity to maximize value, but also gives us an opportunity to compete for new business. Because ultimately, the producers are looking for what's the best value that they can get. So by owning NGL infrastructure, we come up with a great fee-based investment opportunity that we can support with our own barrels, but we also enhance the reliability and our competitive posture. So all up and down the line, we see it is a pretty good strategy and just thrilled to be able to execute on it here in 2011 and going forward.

John R. Arensdorf

Got another one right here.

Cathleen King - BofA Merrill Lynch, Research Division

Cathleen King with Bank of America Merrill Lynch. Question regarding third-party acquisitions for Spectra and just your thoughts there and also any perspective you might have on the recent Provident transaction if that sort of transaction might be something Spectra could be interested in, in the future?

Douglas P. Bloom

Well, as I indicated, we did do a couple of transaction last year. We'll continue to look at those. The industry is pretty consolidated, so if it's a major transactions, I think those are a little tough for a variety of competitive reasons. We have the MLP in the United States to be able to use for acquisitions as well. I think that's a really valuable tool. We can use the debt capacity at the C corp, which is the cheapest form of debt and the equity value at the MLP to go and buy stuff. So we'll continue to look for those. There may be some assets that come in the market here as a result of some other M&A activities. Not interested obviously in the E&P, but anything that comes up that might be infrastructure related whether its product side, liquid side or whether it's actually gas. The Provident deal, which for those of you who aren't aware, is a deal in Canada where a similar type businesses to our Empress business was bought yesterday. That's not something we were terribly interested in. We've got a nice exposure there at our Empress facility, but weren't looking to double down or triple down on that front. I think what it does indicate though, because I believe they bought it at a 25% or 30% premium at a pretty nice trading multiple they were already at, it really underlines the value of those assets. And all the BP assets were also bought up there for a pretty nice value. So if anything, it underscores just what we like in that business, but we're not looking to get into that business in a bigger way on the Canadian front, any event.

John R. Arensdorf

Got another one right here.

Steven Heim - Boston Common Asset Management, LLC

My name is Steven Heim, I'm with Boston Common Asset Management. AGL reported in their third quarter ending September reporting October, that they suffered from pipeline curtailment out of Marcellus, they were secondary, not primarily rights holders on pipeline capacity, but subsequently new capacity come online using the pipeline transportation bottleneck. We'd be interested to hear Spectra's comments on how pipeline utilizations are trending, particularly around key chokepoints and how they see supply-demand balance for transmission shaping up in the resulting impact on future pricing trends.

Gregory L. Ebel

Well, maybe, I'll start there, and Mark and Bill, chime in as well. There was a great chart that I think Mark showed in terms of the increase in throughput in 2011, I think it was 11% overall across the whole system. But you saw in areas in the Southeast, I think Gulfstream was about 15%, et cetera. So the key to that is not that we're making any more money at the current time because of those throughputs. But I think it underlines the chokepoints are occurring. They're occurring out of the Marcellus and Utica, not just going east, but also folks wanting to go south, and that creates a real opportunity for us. And so I think when you see things like the Ohio project that we announced. So when we look at projects like NEXT, and then the opportunity that Mark outlined in the Southeast, all those chokepoints are really giving us a huge opportunities, and perhaps in the markets that we didn't expect to go on before. I know we said it for a long time, but you know the traditional flow is from the Gulf Coast to the Northeast, and people have wondered about how that's going to continue. But now, it's actually an all-compass flow, we've got, and if you took, if you want to take Marcellus as the center point now, you've got flows south. You've got flows east, you've got flows east to west that have gone on. And now you may see flows north, and Spectra really is in that center point. So those chokepoints are really creating some opportunities for us with people like AGL and others.

Unknown Executive

Just want to add anything...

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Two questions. One on the gas pipeline slide. We've heard for years that you guys are located near where the coal-fired plants are that have a conversion opportunities. That sounds like with the EPA rule that's finally going to happen, can you talk a little bit about the sense of urgency that you hear from the utilities, just to get things online for the 2015-2017 timeframe, we're going to need to see announcements probably this year. So a little more information on where you guys stand.

Douglas P. Bloom

Yes. And again, Bill and Mark, probably closer day-to-day. But when I speak to the utility heads, we're no longer talking about it, we're now talking about the timing, which I think is a huge change. Well, I think the AEP project is a perfect example. Many of you, in fact, I think some of your notes, Becca, I'm showing that FPLs are probably going be out there with RFPs this year. So a Southern Company off and talking about this. So I think we're now at the point where utilities are realizing not if, it's now when. I think you'll see a variety of RFPs this year that'll give us opportunities. We've always said these aren't really before 2015, we'll have a few. The net project was one we brought into service, the Tennessee Valley Authority in 2011. But really, the opportunities are still going to be in the latter half of this decade.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

And then for Doug, you've had a great presence in Canada, and it's been kind of a monopoly in many ways, but now there's lots of folks who are stepping into your playground. So how does it impact how you're doing business in your margins with customers?

Unknown Executive

He doesn't play nice with others.

Douglas P. Bloom

Thanks, Becca. We have agreed to position in Northeast BC, and I presume you're talking particularly about our gathering and processing business. We do have -- we try and concentrate in areas that have a really prolific supply base, and the Montney play is definitely that, and the Horn River is definitely that as well. And there are a couple of other unconventional plays that I didn't speak to that they are also very proximal to our assets, and that's the Cordova Embayment, further north in the east of Horn River and the Liard basin that's further north and a little bit west of Horn River. We, over the past few years, we've had a lot of success in capturing new business, thanks to the value proposition that we've put in front of producers, and that's an extensive gathering network, flexibility that comes from all of the plants that we have and all of the assets that we're able to debottleneck or add on to -- do add-ons as opposed to your greenfield projects. We find that really helps our competitive position. That said, there are still others that come in and do build plants from time to time. That happens, we don't get all of the business, and we don't expect we'll get it all in the future either. But we will continue to stay very focused on the areas that we have a strong position in, and we'll continue stay focused on the things that really drive our value proposition for our producer customers, and that's high reliability and well-priced services. We think that if we continue to do that, we're going to certainly get all of our share of the future business and hopefully, win some.

Thomas C. O’Connor

Becca, I think the other great thing is we often talk about the overall portfolio of Spectra, you got different regions and when one's growing, the other may not be. But overall, you can keep the ship moving forward. I think Doug's area is its own little portfolio like that. So others may have small bit pieces in there, they have the integrated pipeline and processing piece has a huge advantage. And there's no doubt that in, say, the Grizzly Valley that Doug's seen some pullback of revenues there. But because we have the other assets, you're able to go out there and resell and build and keep the growth going. So even with some areas not producing the way they were in the past, I think is growth over the last few years on a fee basis, and through 2012 is about 14% compound annual growth rate. So I think it's having that whole piece that is the more important element as opposed to just having maybe a piece of pipe or maybe a plant. It takes a long time to build that up.

John R. Arensdorf

We got one back there.

Craig Shere - Tuohy Brothers Investment Research, Inc.

Craig Shere with Tuohy brothers. Spectra's MLP leverage has always been an important valuation question with Spectra's wholly-owned pipes at the C corp, that very low tax basis and the DCP LLC, basically a private JV, that's also at a very low tax basis. But do you see the many higher tax basis ongoing Texas Eastern growth projects eventually tipping the scale in terms of accretion after-tax leakage from SEP dropdowns? And can you comment on your perspective of longer-term prospects for monetizing part of the DPM GP interest to provide some of the parts clarity after some of these significant growth opportunities come to fruition over the next 2, 3 years?

Mark A. Borer

Craig, thanks. I think it's probably a little bit early, but there's no doubt they have nice characteristics to be able to utilize that. I think both the DPM and SEP, we've been pretty clear, that first and foremost, can we use these as acquisition vehicles? If you can't use them as acquisition vehicles, what about the organic growth opportunities to help finance those? And then, following that, can you do dropdowns? So I think we are still trying to grow the entire pie and being able to use a balanced financing approach to be able to do that, keep this equity, keep this capital. If at some point down the road and we don't see the type of growth opportunities that we see today, and we're happy just to get a 100% of our capital from the equity markets, then I guess it's something we could look at. But I think as Tom outlined right now with all the growth opportunities they have, I think you're seeing a partial monetization of that where you could see 2/3 of the financing for their growth coming out of DPM and 1/3 out of DCP. But on the Spectra side, I fully expect Julie to go out there and hunt down some things and drag it back to the house. So we'll continue to grow the asset that way.

Craig Shere - Tuohy Brothers Investment Research, Inc.

Do you see the market -- Greg, you and Pat have been great describing this as just another arrow that you have to work with in terms of low-cost financing for your great accretive growth opportunities. I guess my question as a follow-up is, do you see the market getting ahead of itself in terms of the sheer volume of yield-oriented paper inevitably that's going to come to market equity paper with all these acquisitions, the needs for dropdowns, and then are crowding out the market for future opportunities as you were just describing?

Gregory L. Ebel

Yes. I mean, I can't speak to everybody else who's challenged for going out there to capital markets, we don't have those. And that's why I like the approach that we've gone. We internally generate all the equity we need for expansion and then some. In fact, the balance sheet gets stronger. And if we can do that, internally generating it with projects that we may be building in 5 or 6x EBITDA, generating a ton of cash, still being able to increase our dividend at least as good as the Alerian Index and the S&P, why would you go out there and buy stuff at 12, 13x EBITDA or some of the numbers that you've seen? At some point in time, to keep growing and if there are fewer opportunities, maybe we'll have to go down that route. But I just don't see it right now, Craig. I like the balanced approach. I like not being 100% reliant on capital markets, particularly these capital markets without a fair bit of conviction, shall we say, in the market. And as -- even I we're discussing earlier, it only takes one crazy group of folks in Washington, of which there are a variety of groups to, with the stroke of a pen, change some of the laws on tax side. I mean, it's only 10 days ago that the Wall Street Journal had a front-pieced article quoting a Republican, a member of the Ways and Means, talking about we're going to have to look at the MLP structure. And that's the kind of thing that I don't think will happen, but I like being able to have a balanced approach in ensuring to our investors that you can play Spectra right away. You can play it the MLP way, you can play it the dividend way, through the C corp. And you can play it with the other MLP we have, which is obviously at DPM. And you can play it on the other side of the border from a debt paper perspective. Either way, I think we can give investors a very balanced approach with a lot of confidence and continue to outperform the market on average.

John R. Arensdorf

We have one right here. Drew, feel free.

Unknown Analyst

Two short questions. Regarding the availability of shale, how one -- do you have any idea how much shale is available in upstate New York State? Will it be enough to make the pipeline worthwhile? And a related environmental question, what is the environmental situation on building the pipelines in the New York, New Jersey area?

Gregory L. Ebel

Okay. Well on the first side the -- remember, it's not just shale gas that's going into that pipeline into New Jersey. It's an open access pipeline. A lot of that pipe's coming from different parts or a lot of that gas is coming from different parts of the Marcellus, Chesapeake, Con Ed and Statoil will source either from a production side, Statoil and Chesapeake from where they see best. Con Ed could be buying that gas from a variety of places. Secondly, with respect to the environmental issues associated with that pipeline, the EPA has -- or not the EPA, the FERC has put out its environmental assessment and said, it has very minimal impact. They've looked at multiple other sources and anywhere, where there is any impact, they believe it can be mitigated. And we've largely done that. I think the project, the environmental benefits to the region of New Jersey and New York from getting off coal and oil far exceed any minor issues that might occur from building a 15- to 16- mile pipeline.

John R. Arensdorf

In the back? Is that Andrew?

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

A couple of follow-up questions for Tom, if I can follow up an earlier question. With respect to the new ownership of DCP, do you expect hedging or lack of hedging to continue especially as the earnings grow and become a larger part of, not only Spectra but obviously Phillips 66 and that decision, which was more of a strategic decision and a marketing decision, was obviously a very, very good one. You've ridden a good wave, but now you've NGL prices and spreads that are quite high relative to history. I'm just curious if the hedging is going to change?

Thomas C. O’Connor

Okay. Obviously, that's something right now that would have to be talked about going forward. But the owners at this point have taken the position that they don't want DCP Midstream to hedge. They have felt that it's expensive. It leaves value on the table. And over the last several years, that's proven to be true as liquids prices and crude have continued to rise. I don't suspect, we haven't had the discussion, but I don't suspect that, that position would change going forward with Phillips 66, when you think about their position in the refining business as well as the chemical business. But that is something that we would, obviously, if they wanted and had an opinion about that, that we'd discuss it going forward, but I wouldn't expect our position to change right now.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

Okay. And the other thing strategically, I think you have lots of gathering and processing and you've got the pipelines. But if there's one segment that you're short, although you can obviously run the capacity from others is fractionation and ultimately storage and export ability, right? And as you think about what's happening down in Mont Belvieu and then all of your, especially propane terminals on the East Coast and what's going to happen to the Marcellus propane especially when they reverse TEPCO, how do you see yourself positioned on the further down the chain, so to speak, all the way to the port?

Thomas C. O’Connor

It's a great question. Part of the message that we're trying to send today is that we are moving down the value chain. We have had a fairly modest position in NGL pipelines. We've now expanded that tremendously. By the time we're through the middle of 2013, a great platform, and we don't expect to stop there. We are handling over 400,000 barrels a day. We have a portfolio of fractionation and storage agreements. We own a little bit, but we contract quite a bit. And that business has moved towards one of underpinned by long-term contracts, fee-based arrangements, and that's a business that looks pretty attractive to us right now. Similar to the NGL pipelines, we think we have enough liquids, that if we decided to move into that space, we could underpin and help something get built.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

I see. And then just 2 other questions. The value proposition for DPM, 2/3 of the financing for 50% of the proceeds, so to speak, of the returns. That's a great proposition for them based on where they're starting today. But financing 50% -- or financing 2/3 to get 50% of the economics cannot continue forever unless the projects are really, really good or unless you drop things down at favorable rates. I'm curious as you look over a longer period of time, be it 3 or 5 years, how long that structure can continue before you have to start thinking about a more permanent structure?

Gregory L. Ebel

I think we've looked at -- today, what we're trying to show you is illustrative how we think this could be financed over the next few years. As we look at the $4 billion of opportunities that we have on the slate, and we think it's a reasonable prospect that they can handle the 2/3, we can do about 1/3. We haven't looked much beyond that, but we wouldn't see the value proposition being altered that significantly. Part of the beauty of what we're doing here is that we have a fairly modest GP take right now. But with those investments that we're proposing here, that GP take can significantly increase over the next few years. And of course, what that does is it provides very nice cash flow back to the GP, and ultimately, the owners and also enhances returns on capital at the company. So looking at what we have on the slate, we think it's a pretty good way to go forward whether we have to alter that or not going forward. I don't think so, but we haven't looked quite that far in advance.

Andrew Stephen Gundlach - First Eagle Investment Management, LLC

The last question, maybe it's for Greg, maybe it's for someone else. Earlier question talked about natural gas in the Marcellus being stuck at the wholesale bottlenecks and you're seeing sub-dollar pricing versus NYMEX at 3 minus change. How come storage or when do you think that might show up in storage rates, which have been depressed for a while now? Such that some of these Bobcat acquisitions will prove to be good multiples, not expensive multiples?

Gregory L. Ebel

Mark, you want to maybe address that?

Mark A. Borer

Yes, no it -- clearly, the supply-demand balance and the quantities of supply that have been available in the marketplace over the last year or 2 have had some impact on storage, particularly in the South. We're actually seeing, to your point, that flowback is actually starting to occur here the last 3 or 4 weeks as the volatility has come back to bid in the marketplace, as it's managing the fact that it's been a fairly significant warm winter so far, and the opportunities for our customers and to manage the supply excess that exist currently here in mid-January, it translated into real-time values into our storage business. It just speaks to the dynamics of what storage does, and the value proposition it brings to our customers. Because you have to manage peak demands, you got to manage low demand. And you clearly, this is an environment where storage is critical. We've in 2011, we saw record throughputs on all our storage fields, both on the injection and withdrawal side. So that, again, just goes a long way to justify the integral operational value and reliability that storage brings to the grid. Further, the electric utilities that we discussed are used to understanding reliability as managers of a coal fleet, they like to look at their backyard and see the pile of coal. Having storage, and having storage that is full and available and at the right liquid point is a real value proposition to them as well. So I think this is what you're going to see continuously in the marketplace.

Gregory L. Ebel

I think the last comment, Andrew, and then we'll move on. But you made a comment about Bobcat. I think we've always, I think, I know we bought Bobcat for '15 and beyond and that's when we think the power market kicks in. That's where we think the real value is going to be seen around high deliverability storage, which is what we're building there. And in the meantime, not all players have contracted the same way we have, where we've got 2-, 3-, 5- or sometimes 10-year contracts that allow us to smooth some of that volatility. No doubt the step that's coming up now takes a little bit of a haircut from the past. But by having a more rounded portfolio, we're able to live through the ups and downs and look for volatility when we have the opportunity to pick it off.

Mark A. Borer

And just to size the financial significance of storage for Spectra Energy saw that our expected EBIT this year consolidated is $2.4 billion. Our storage EBIT is less than 10% of that. So it's really more important as a strategic enabler the bundle of services we can sell to power producers, it's a very important tool, but not as significant as it is to many companies from an EBIT standpoint.

John R. Arensdorf

Pete [ph], did you have a follow-up? Let's get the microphone.

Unknown Analyst

I was just wondering on the pipeline side, as you see, the surge in production coming out of the Marcellus, are you concerned at all about the flows coming up from the Gulf Coast. And will there be some timing issues and could be to the point where there might actually be some stranded assets that we need to think about at all?

Douglas P. Bloom

I wouldn't suggest that they'd be stranded assets. I think...

Unknown Analyst

Maybe not. But for you guys, maybe elsewhere.

Mark A. Borer

Yes. I think when you look at our pipeline end to end, number one, it's got sort of one of the lowest reservation charges of any of the pipelines that head to the Northeast. And second, it's got markets all up and down the system. So fine, if the Marcellus does grow, Utica comes on top of that. You may see a supplier that starts to push out and want to go in multiple directions. So it's why we're looking at the projects we're looking out to go north, south, east and west. And I think developing markets in that last mile, as Mark can speak to, whether its power generator or utility, no matter where you go on the system, you'll find value for that capacity.

John R. Arensdorf

Ted, do you have a -- yes.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

First question is on the New York, New Jersey project, the $250 million increase there on the CapEx. I'm just wondering, should we worry that a year from now, we come back and there is additional cost pressure? What was the driver of the cost increase here? I think you have some cost sharing with some of your customers, maybe walk us through that. And what kind of returns you're expecting to get now with a higher CapEx?

Mark A. Borer

Maybe, I'll start and then Bill -- I almost said Jim. Bill can chime in. A couple of things on that front, whilst I don't expect we'll come back and tell you that we're going to have some significant increases beyond that. We've taken a look at a variety of things since this contract was signed. We signed the contract in December of 2009. So since then, we've had Macondo. We've had several Enbridge spills, we've had San Bruno and the Keystone fiasco. All of which led to -- maybe we should've predicted all that stuff, but we didn't. All led to us spending more time and effort getting to where we are now. But what has not changed is the economic viability of the project and economic benefits. On the positive side, you always get things going against you and for you. On the positive side, we haven't accelerated depreciation in place that we hadn't thought about in late 2009. Obviously, that improves the cash returns and allows us to keep the IRR very much above our cost of capital. So this is one of those projects where when you take 4 years to build that some things happen, but still very economic to us, Ted. And now we've, in those numbers, we've shown that we built contingency in there. We had about maybe 10%, I'm not sure how much. We got a 10% or so coverage with respect with our partners. But obviously, in the dollar figure, we're talking about any increase it got us beyond where we are now are going to be borne by the shareholder.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

And then my other question was for Tom. I think I'd remember you saying historically that you receive on the NGL realization is kind of half Conway, half Belvieu. I'm wondering if that's still true. I realized you're trying to close the Conway-Belvieu gap, but it's pretty wide right now. I'm just trying to think of your 2012 and maybe even then the '13 before your infrastructure comes on. What kind of realization we should expect there? And then, the other question is how are you doing on getting third-party volumes onto the infrastructure pipeline from Sandhills and the Southern Hills Pipelines?

Thomas C. O’Connor

On the first question, we're probably about 55% Belvieu, a little bit less at Conway, obviously. Now we'll have to watch that over the next few years as we bring on new projects, but it's just so happened that we've been bringing on quite a bit of Eagle Ford gas, quite a bit of Eagle Ford liquids to Belvieu. And of course, we've been bringing on some DJ liquids, which end up at Conway. Ultimately, we want to put that question to bed and get these liquids to the highest value market, which right now is at Belvieu. I think your second question was about third-party volumes. How are we getting those?

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Do you have any...

Thomas C. O’Connor

Do we have any? Yes. Let me start, give you an overview where we are on the contracting for both Southern Hills and Sand Hills. On Southern Hills, we got 150,000 barrel a day pipeline. We're effectively sold out. And those include the DCP volumes as well as third-party volumes. Now some of those third-party volumes will actually buy up a plant and ship them. So it takes a couple of different forms. We'll ramp that pipeline up over 3 years but effectively full. I've got our engineers looking at a way to squeeze some more barrels out of that, and they may come up with something here that could give us another 10% or so. But on time with that, pretty well contracted out. But if you shift over to Southern Hills, if you'll recall, initial capacity there was about 200,000 barrels a day, some out of the Eagle Ford, some out of the Permian. Between DCP commitments and third-party barrels, we've met our initial volumes that we need for moving forward on that. And then we will ramp up to 200,000 barrels, probably over about 3 years. We've got a little bit more work to do to get to 200,000. Some of those plants that I've showed you that we may build on the Permian, we may build in the Eagle Ford could help backfill some of those. And we've got quite a few discussions going on with third parties. So we feel really good about the contracting on both of these pipelines. They're both underway. We're putting steel on the ground on both right now and we're moving as fast as we can to relieve -- get these pipes and then relieve those bottlenecks.

John R. Arensdorf

Okay, we have one over here.

Unknown Analyst

Yes, I wanted to know what kind of price increases are you getting on the contract renewals for your pipelines?

Mark A. Borer

Actually, those renewals were all at the tariff rates, so the maximum tariff rate that we're allowed to charge.

John R. Arensdorf

Are there any other questions? Okay. Well as always, great questions, we appreciate it very much. Thanks again for joining us today and participating and for your interest in Spectra Energy. And as always, if you have additional questions, please feel free to call either Roni Cappadonna or Derick Smith or me. And finally, I'm going to tell you, if you haven't already located it on the back of your book, you'll see a QR code that will take you to our latest natural gas advocacy video. So take a look at it, enjoy, and help us spread the word. Thanks again.

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