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Executives

John R. Arensdorf - Chief Communications Officer

William T. Esrey - Chairman, Member of Audit Committee and Member of Corporate Governance Committee

Patricia M. Rice - Vice President and Secretary

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

Spectra Energy Corp (SE) 2012 Annual Meeting of Shareholders May 1, 2012 11:00 AM ET

John R. Arensdorf

Good morning. So good morning, ladies and gentlemen. My name is John Arensdorf. I'm the Chief Communications Officer for Spectra Energy. And I'd like to welcome all of you to our 2012 Annual Meeting of Shareholders. We're webcasting this meeting, so I'd also like to welcome those of you who are joining us online.

And first, as safety is an integral part of everything that we do here at Spectra Energy, I'd like to tell you what you should do in the unlikely event of an emergency. The primary exits from this auditorium are the doors on your right and left, and please exit through these doors, proceed to the left, exit either the front or back entrances and gather across from the front entrance or in the surface parking lot to the right of the rear entrance. And if anyone needs assistance in evacuating, security and safety personnel will be on hand to assist you.

If it's necessary for us to leave, please do not reenter the building unless and until security notifies you that it is safe to do so. And in the interest of all, I'd like to ask that you please silence any electronic devices that you may have brought into the auditorium with you this morning. On your chair, you should find a program that includes a copy of the meeting agenda and meeting procedure.

So let me quickly review this morning's agenda. Our Chairman, Bill Esrey, will call the meeting to order. After taking care of various procedural matters, he will introduce the members of Spectra Energy's Board of Directors, senior management, our independent accountants and our transfer agent. Mr. Esrey will then give his opening remarks. We will then move on to the matters subject to shareholder vote, each of which is described in your proxy statement, followed by a vote on each of those proposals.

And after the polls are closed, our CEO, Greg Ebel, will update you on our recent progress as a company and our plans for the future.

Finally, we'll announce the voting results and adjourn the meeting. We will then proceed to take your questions.

But before we begin, I'd like to remind you that some of the matters we'll discuss today concern future company performance that will be forward looking within the meanings of the Securities Laws. Actual results may materially differ from those discussed in this forward-looking statements, and you should refer to the additional information contained in Spectra Energy's 2011 Form 10-K and other SEC filings concerning factors that could cause these results to be different than those contemplated in today's discussion.

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

With that, it's my pleasure to introduce Bill Esrey.

William T. Esrey

Thank you, John, and good morning, ladies and gentlemen. It's my pleasure to call to order our Sixth Annual Meeting of Shareholders and welcome you to the 2012 Annual Meeting.

The Board of Directors has appointed Jennifer Flynn, Account Executive of Broadridge Financial Solutions, our proxy tabulator; and Mae Dell Carpenter, Spectra Energy's Manager of Shareholders Services to act as inspectors of election to this meeting. Jennifer and Mae Dell, would you please stand so we can recognize you?

Thank you. Our Vice President and Corporate Secretary, Patricia Rice, also acting as Secretary of this meeting, will now report the number of shares of stock entitled to vote and the number of shares and those represented by proxy at this meeting.

Patricia M. Rice

As to the close of business on March 5, 2012, Spectra Energy had outstanding and entitled to vote 652,557,779 shares of common stock, each of which is entitled to one vote. There are here presented by proxy, 550,871,995 shares of the company's common stock or 84% of the total votes entitled to vote at the meeting. The final reports of the inspectors of election will include the votes of the shareholders present and voting in person.

William T. Esrey

Thanks, Trish. Legal notice of this meeting has now been duly given, a quorum is present. And the meeting is now lawfully convened for purposes of transacting such business as may come before the meeting.

I now have the pleasure of introducing the members of Spectra Energy's Board of Directors. As I introduce each, I ask them to stand and be recognized. Austin Adams, retired Executive Vice President and Chief Information Officer of JPMorgan Chase; Joe Alvarado, President and CEO of Commercial Metals, Incorporated; Pamela Carter, President of Cummins Distribution business; Tony Comper, retired President and CEO of BMO Financial Group; Greg Ebel, our President and CEO of Spectra Energy Corporation; Peter Hamilton, Senior Vice President and CFO of Brunswick Corporation; Dennis Hendrix, retired Chairman of the Board of PanEnergy Corporation; Mike McShane, former Chairman, President and CEO of Grant Prideco, Incorporated; Joe Netherland, retired Chairman of FMC Technologies; and Michael Phelps, Chairman of Dornoch Capital, Incorporated and former Chairman and CEO of Westcoast Energy. Unable to be with us today is Paul Anderson, who's former Chairman of the Board, Spectra Energy Corporation.

Also seated in the audience are the members of Spectra Energy's Senior Management Team: Dorothy Ables; John Arensdorf; Reggie Hedgebeth; Alan Harris; Pat Reddy; Doug Bloom; Steve Baker; Mark Fiedorek; and Julie Dill. Bill Yardley is unable to be with us today.

I would like to introduce Tim Foley, Director of Security, who is serving as Sergeant-at-Arms. And also, I would like to introduce Peter Breen, General Manager of Broadridge Corporate Issuers Solution, who is our transfer agent. Finally, I'd like you to meet Paul Herrick [ph] and Steven Smith at Deloitte & Touche LLP, the company's independent registered public accounting firm.

Greg and I would like to provide you some perspective on Spectra Energy's recent performance and our prospects for the future.

We begin, as always, by thanking you for your confidence and your investment in Spectra Energy. We have a substantial number of shareholder accounts. So you, as our valued shareholders, represent a substantial and a growing group, and it is our job to effectively represent each one of you.

In just 5 years, your company has distinguished itself as a respected and successful leader in the natural gas sector. Spectra Energy has grown tremendously since its launch in 2007 and that growth is reflected in superior value creation for investors.

Financial performance is one of the yardsticks by which we measure success, and 2011 was another standout year for your company. Spectra Energy achieved record net income from controlling interests, allowing earnings per share to surpass 2010 earnings per share by more than 14%. Each of the businesses generated healthy gains for the year, and the company continued to execute on the expansion of critically needed natural gas infrastructure across North America. But there are other important metrics as well. In looking after your long-term interest, Spectra Energy’s Board looks to the company's near- and long-term strategy.

We had the utmost confidence in the direction set by management and the decisive action they are taking to drive success. Spectra Energy's diversed portfolio of assets situated in the midst of prolific supply basins and adjacent to growing demand market is a unique competitive advantage.

It allows your company to serve customers and stakeholders with excellence and it enables reliable and attractive earnings growth. Spectra Energy's diversity of assets and businesses is matched by a diversity of human talent. More than 8,500 men and women work daily on your behalf. They operate pipelines and related facilities safely and efficiently. They pursue promising new growth opportunities. They serve customers with excellence and they act as a constructive resource in the communities where they live and work. Your company is widely viewed as a good and respectful corporate neighbor, contributing substantially to the social fabric of our communities. Finally, companies are judged by sound corporate governance and the spirit of openness and integrity. Spectra Energy adheres to governance principles that ensure our board remains informed, independent and engaged. Except, of course, for the CEO, we have a fully independent board. We maintain a declassified board and that structure allows all companies to be elected annually for one-year term. We have great confidence in the moral compass and the values that guide Spectra Energy's leadership. That sense of integrity and accountability extends throughout the organization. And each year, employees are asked to certify that they adhere to the Spectra Energy Code of Business Ethics.

Moreover, they demonstrate their commitment through high ethics and to one another and to our customers, our community and our investors through their actions daily.

Spectra Energy was especially honored to be named one of the World's Most Ethical Companies for 2012 by the Ethisphere Institute, which recognizes outstanding commitment to ethical leadership, compliance practice and corporate social responsibility.

We know that an attractive dividend is important to investors. And in late 2011, your board authorized an $0.08 per share increase in the company's annual dividend, and we fully expect to sustain at least that level of growth for the next several years. Consistent with that, yesterday, the board declared a quarterly cash dividend in common stock of $0.28 per share, payable June 11 to shareholders of record at the close of business, May 11, 2012. We introduced our directors earlier in the evening and you saw one new face.

Last year, we welcomed Joseph Alvarado to our board. Joe brings a wealth of business knowledge and industry experience to his role, and we have benefited greatly from his thoughtful contributions and counsel. All of our directors are deeply committed to overseeing Spectra Energy's strategic direction and executive decision making, and I am very proud to work alongside such an accomplished and dedicated group. I want to close by expressing my gratitude to Paul Anderson, who steps down from his Director role this year. Paul has served Spectra Energy with distinction in a number of capacities as Chairman of the Board and as Chairman, President and Chief Executive Officer of its predecessor companies. Paul will be missed, but we trust that he will remain an interested and an ongoing shareholder. I have great confidence in Spectra Energy and great allegiance to this company and to each of you, our valued investors. We will now proceed with the business of the meeting.

The first item of business is to elect the Board of Directors. Each of the individuals that I have just introduced has been duly nominated for election to the board with their term of office expiring at our 2013 Annual Meeting.

The proxy statement describes these nominees and each is hereby considered presented for the purpose of voting for their election as Director.

The second item of business is to ratify the appointment of Deloitte & Touche LLP, the company's independent registered public accounting firm for fiscal year 2012. The appointment of Deloitte is discussed in the proxy statement. The Spectra Energy Board has recently approved an amendment to our amended and restated Certificate of Corporation subject to approval by our shareholders that would require a majority vote standard in an uncontested Director Elections.

Accordingly, the third item of business is to approve an amendment to our amended and restated Certificate of Incorporation to provide for a majority vote standard in uncontested Director Elections. The amendment, as set forth in the proxy statement, is hereby presented for your consideration.

If this proposal is approved today by the holders of the majority of the issued in outstanding shares, the company will promptly file an amendment to its Certificate of Incorporation with the Delaware Secretary of State. In addition, we would then amend our bylaws and principles of Corporate Governance as necessary to conform with the amended Certificate of Corporation and the majority vote standard will be in place thereafter.

The fourth item of business is approval on an advisory resolution to improve compensation for our named executive officers. This proposal is also discussed in the proxy statement and reflects our shareholders' preference that the advisory vote on executive compensation be held annually.

Patricia M. Rice

Mr. Chairman, shareholders, the polls are now open. If you'd like a ballot and have not already voted, please raise your hand and we will pass out a ballot. Once you have completed your ballot, please raise your hand again and we will collect those ballots.

William T. Esrey

Thank you. While going on it, it would be my pleasure to welcome Greg Ebel, Spectra Energy's President and CEO, to the podium.

Gregory L. Ebel

Good morning, everybody, and welcome as always. This is the fourth annual meeting I have had an opportunity to speak to you about what we've done in the last year. And as Bill said, it was a very good year in 2011. Thank you, Bill, for your comments and your continuing chairmanship of the board, and to all the directors for their support of management and its actions on your behalf as shareholders.

Thank you for the shareholders that are here today and those that are listening online. We do appreciate your investment in Spectra Energy and most importantly, your continuing interest in the performance of the company.

Just a few more details on some of the comments that Bill said. As he noted, we did have an extraordinarily strong year last year. Our success was grounded, as always, by focusing on what's important to you and all our shareholders. And our ongoing dialogue with stakeholders, not just shareholders but in the communities, et cetera, really motivates us on a day-to-day basis and making sure that we're reaching to the right heights that you expect us to do.

Last year, we post a simple question to you, what's important to you? And we heard you loud and clear. Investors want the financial security that comes with reliable, profitable investments. And in 2011, Spectra Energy delivered attractive earnings and dividend growth. Spectra Energy investors realized a total shareholder return of 28%, well above the 2.1% return for the S&P 500 and the 8.4% return above that was realized by the Dow Jones industrial average.

And over the last 3 years, 2009 through 2011, we've been able to deliver, on your behalf, 125% total shareholder return. We did that by employing the power of our diverse business portfolio and asset portfolio. You saw the map up here a few moments ago and by investing in more than $1 billion in growing expansions of our business and, of course importantly, by investing approximately $700 million last year, just in maintaining the assets that we already have in place and their integrity and safety. In addition to the organic growth, we made 2 strategic acquisitions last year. We purchased the Big Sandy Pipeline in Eastern Kentucky through Spectra Energy Partners and DCP Midstream, our joint venture with now Phillips 66, acquired the Southern Hills Pipeline, targeting new natural gas liquids, transportation from the Midcontinent to the premium Gulf Coast markets, known as Mont Belvieu.

As we've grown in earnings, we have also grown the dividend. And Bill mentioned, last year, we increased the annual dividend to $1.12, representing nearly an 8% increase and something that we believe we can at least do in the years ahead.

Our stakeholders also want to see signs of a strengthening economy and job creation, and the product we deliver has an important role to play in that regard, not only increased employment at Spectra Energy but natural gas, increasing the fuels North America's economy, creating jobs, good jobs, revenue and industrial growth needed to move the country and the continent forward.

According to a recent study by the Interstate Natural Gas Association Foundation, capital investment for midstream natural gas infrastructure, like the kinds Spectra Energy puts to work, in North America over the next 25 years will amount to more than $205 billion. And those large investments will result in significant near- and long-term benefits to the U.S. economy, including the creation of more than 125,000 jobs each year between 2012 and 2035, a value-added contribution to the economy of some $260 billion, and importantly these days about $50 billion to $60 billion in new tax revenues at the local state and federal level. So job activity and economic fertility are important to us and natural gas on that front is definitely delivering.

Our customers told us that they wanted service excellence from a trusted business party, one committed to a long-term relationship. And we committed to leading our sector in customer responsiveness. Important to that, in 2011, our metrics around compression reliability, the way in which we move gas through the pipelines, exceeded 99%. We retrieved a average contract renewal rate of 98% on our Texas Eastern and Algonquin Systems, and we set record peak volume and throughput records across our entire system. So our customers seem to be responding the way we would expect them to with good service and good projects.

We also responded to customers by ensuring that our asset footprint grows to keep pace with the evolving needs that they have.

In 2011 in that regard, we brought into service 6 new projects for the year, including TEMAX/TIME III, which delivers supplies from the Rocky Mountains into key northeast markets; the Northeast Tennessee project, which brings gas to a new gas-fired generation plant; and the Bissette Pipeline, which expands transportation capacity from British Columbia's Montney shale basin. Spectra Energy's service ethic extends to our communities, however, as well. And we've got a long record of volunteerism and philanthropy and stewardship, and that community engagement and stewardship showed itself in 2011 Union Gas. It was their 100th anniversary, and we were able to celebrate with various communities by making over 100 grants of $1,000 each to support charitable projects focused on the environment, community safety and education in Ontario. Our stakeholders and project neighbors want safe energy that the infrastructure that's built and operated to the highest standards. So appropriately, Spectra Energy has set the bar high with a goal of achieving 0 injury and work-related illnesses. Our culture demands that. And while we did make progress in 2011, with our average injury frequency rate dropping by some 14%, we also had 3 contractor fatalities which was clearly unacceptable. So we we're redoubling our efforts on that front to ensure that we foster a culture in which all of our employees come to work each day with a sense of purpose and return home each day safely and soundly to their families. Additionally though, we're tramping pipeline safety at the national level. In the U.S., we're an active and have been a key supporter of the Pipeline Safety, Regulatory Certainty & Job Creation Act, which passed the House and was signed by the President earlier this year. And in Canada, we've been a key proponent of the important natural one-call system that helps to avoid and reduce the risk of third-party excavation risks to pipelines.

We all want to reduce the inherent geopolitical risks that a company had dependence on energy sources outside of North America, and fortunately, domestic abundant natural gas here in America can really help us towards that goal of energy security.

The U.S. and Canada actually hold the wealth of the world's natural gas, enough to serve our energy needs for more than 100 years to come. Bountiful shale reserves in both countries point to long-term and secure supply for natural gas, and Spectra Energy, thankfully, is positioned to benefit from that and you as shareholders given to our connection to such shale plays as the Marcellus and the Utica, the Fayetteville, the Montney and the Horn River in British Columbia, Denver-Julesburg, the Permian and the Eagle Ford in South Texas.

Our communities obviously want the cleanest energy possible, produced and delivered responsibly, economically and with minimal environmental impact.

And once again, natural gas serves that purpose by being the cleanest foundational fuel that we have with 30% of less carbon and oil and 50% less than coal. Natural gas is the natural choice for electric generation. And we have seen that change over recent years and expect to see that in the years ahead to help fuel our investments as well. In 2011, we actually attached 1,500 new additional megawatts of gas generation to our grid, including projects like the Hot Springs Lateral Project in Arkansas.

So looking ahead now, the 2012; '11 was a year of good progress and productivity across our system and we hope to see the same in 2012. And though we've had some challenges to start the year with the warmest winter in about 100 years and lower commodity prices, we have set some good targets for 2012. We've set on growing EPS target of $1.90 per share, which is approximately 15% above our 2011 target of $1.65. And in 2012, we will continue with our ambitious growth program where we've committed to spend $1.3 billion on growth CapEx and more than $700 million on maintenance CapEx of those assets. In addition, our DCP Midstream joint venture with Phillips 66, we'll invest more than $1 billion on its own, on our behalf, building natural gas, liquid infrastructure to serve its customers and provide growing earnings to Spectra Energy.

Our well of opportunity continues to grow steadily as well. We see tremendous opportunities ahead, and your company is uniquely positioned to seize on those opportunities and create lasting value and unparalleled connection to expanding North America supply markets.

The investments we're making today will continue to grow earnings, which in turn will help grow the dividend which is important to all of us. I want to call your attention to one issue on a national level. The deals with the dividend. Current U.S. Federal tax rates on dividend income now stand at 15%, and they're set to expire and go up on December 31 unless Congress acts. If the 15% cap is actually allowed to expire this year, the maximum tax rate on your dividends will skyrocket to 40%. The implications of a dividend tax hike are significant and far reaching, particularly as the U.S. begins tentative but precarious steps towards economic recovery. Reverting to high dividend taxes will adversely affect millions of Americans trying to save for their futures and millions more who rely on their after-tax dividend income to fund their retirement years. Corporations working to raise capital, invest in growth, create jobs and stimulate our economic growth will equally be negatively hurt. So Spectra Energy has joined forces with a number of others of like-minded folks, business groups, individuals to voice our concerns on this front, and we would invite you to join us with that. There are a number of good resources on the dividend tax issue. And I believe we left you all one of these cards, and this is particularly with the one defendmydividend.com. And the alliance for savings and investment and you'll find contact numbers here and a website for both of these groups on your chair. So if you wish to learn more and let your -- importantly, let your elected officials know about this, please feel free to do so.

In considering what is important to you and our diverse stakeholders across North America, we're mindful of continuing to operate in accordance with the culture and values of our company: stewardship, integrity, respect for the individual, safety, high performance, win-win relationships and ultimately, initiative. And we continue to make meaningful strides on the sustainability front as well, serving the connected goals of environmental integrity, economic value and social responsibility.

In 2011, we were once again included in the Dow Jones Sustainability Index for North America and for the World Index as well. We ranked first in the energy sector on the U.S. S&P 500 Carbon Disclosure Project and we were ranked #1 -- #7 on the Corporate Responsibility Magazine, prestigious 100 Best Corporate Citizens List. And as Bill mentioned, we were also included as one of the most ethical companies for 2012 by the Ethisphere Institute. And for the fourth consecutive year, the Anti-Defamation League honored Spectra Energy as a community of respect. So all those accolades squarely frankly rely on, and as a result of a really dedicated team of employees that each and every day to a tee are either [ph] working on your behalf, committed to not only serving our investors but also the customers and the communities in which we operate in.

Finally, on behalf of our employees, I would very much like to thank Paul Anderson for his many years of dedicated service, counsel and leadership to this company and the predecessor companies. And they join me in thanking Paul for his involvement and ongoing interest in the company.

They also join me though in thanking you as our interested investors and obviously in your continuing confidence in the management team as we move forward.

What's important to us is actually -- what's important to you is actually important to us as well. And we will continue to make investments on your behalf, continuing to ensure that natural gas does meet those needs of economic growth, environmental integrity, energy security and, of course, sound investing. So I thank you again for your support. And with that, we will have the results of the voting.

Patricia M. Rice

Based on the proxies received prior to this meeting and the number of shares voted at the meeting today, each nominee for Election of Director has approved the required affirmative vote of shareholders for his or her election and each will serve a one-year term. Ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for fiscal year 2012 has received the required affirmative vote of shareholders.

Approval of an amendment to our amended and restated Certificate of Incorporation to provide for a majority vote standard in uncontested Director Elections has received the required majority vote of shareholders sufficient for approval.

Finally, the compensation for named executive officers as described in the proxy statement has been approved by the shareholders by more than a majority of the votes cast.

William T. Esrey

Thank you, Trish. Based on those results, all nominees have been elected by shareholders to serve as Directors of Spectra Energy Corporation. The selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for fiscal year 2012 has been duly ratified, and the advisory resolution say on pay has been approved by our shareholders. Additionally, the proposal for director election majority vote standard has received the required majority vote of shareholders sufficient for approval and as such, will become effective upon the filing of an amendment to the company's amended and restated Certificate of Corporation with the Delaware Secretary of State. In addition, as I mentioned, we will amend our bylaws and principles of Corporate Governance as necessary to conform with the shareholder vote.

I hereby request that the final report of the inspectors of election be filed with the minutes of this meeting. And I thank you for attending today's meeting. The formal part of this meeting is now adjourned. And we'll have a brief question-and-answer period, and I'll ask Greg to please come up to the podium.

Question-and-Answer Session

Gregory L. Ebel

And if there are any questions, well, we hope there are some questions, we have microphones on the side that we would ask you to utilize so everybody can hear your questions. Do we have any questions? Yes, ma'am?

Unknown Shareholder

Good morning. My name is Sandra Diamond [ph] and my husband and I own stock and have owned Spectra for a long time and really are very pleased with the company. The only question that I have or statement is with the Public Relations department. I had called many, many times on the phone and on the computer because we deal with -- I deal with stock -- Scottrade, and I could never get when the meeting was going to take place, which caused us to not be able to get a hotel room because of the convention that they were having here. So maybe the Public Relations can make it easier for stockholders to be able to find out when the meeting will take place. I think I spoke to Broadridge and they didn't know, and then I kept calling different numbers. So I'd like that to make it a little easier for the stockholders. Thank you.

Gregory L. Ebel

Well, thank you very much. I appreciate your investment. Let us take that away and see what we can do. I know that we do put out a press release, but maybe we can do a better job of making sure that we're informed of the meeting. There's no doubt that this week is an extraordinarily busy week in Houston, something we can look at as well. Big conference week, and I know it's difficult to get hotels at that point in time. So I apologize for that. Are there other questions?

Okay. Well, thank you again very much for your investment and your involvement, and we look forward to seeing you again next year. Thank you.

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