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Executives

Vern Yu - IR

Patrick D. Daniel - President and CEO

J. Richard Bird - EVP, CFO and Corporate Development

Steve Wuori - EVP, Liquids Pipelines

Analysts

Sam Kanes - Scotia Capital

Carl Kirst - BMO Capital Market

Linda Ezergailis - TD Newcrest

Ross Payne - Wachovia Securities

Andrew Fairbanks - Merrill Lynch

Robert Kwan - RBC Capital Markets

Andrew Kuske - Credit Suisse

Robert Hastings - Canaccord Adams

Enbridge, Inc. (ENB) Q2 FY08 Earnings Call July 31, 2008 9:00 AM ET

Operator

Good morning, ladies and gentlemen. And welcome to the Enbridge Incorporated 2008 Second Quarter Financial Result Conference Call, I would now like to turn the call over to your host, Mr. Vern Yu. Please proceed, sir.

Vern Yu - Investor Relations

Thank you. Good morning and welcome to the Enbridge Inc. second quarter 2008 earnings call. With me this morning are Pat Daniel, President and Chief Executive Officer, Richard Bird Executive Vice President and Chief Financial Officer and Corporate Development, Steve Wuori Executive Vice President, Liquids Pipelines and Colin Gruending, Vice President and Controller.

Before I begin, I should advice you that during this conference call, we may refer to certain information that constitutes forward-looking information. Please take notice legally required forward-looking information disclaimer in our slide which generally states that you should not place undue reliance on the statement throughout the future.

Since we necessarily apply certain assumption to reach conclusions about the future outcome. And the future outcome are always subject to risks and uncertainties affecting our business. Including regulatory parameters, weather, economic conditions, exchange rate, interest rates and commodity prices.

Full disclosure of these risks and uncertainties are provided in our securities filings which are publicly available on both Sedar and Edgar. The call is webcast and encouraged those listing on phone line to view the supporting slides available on our website at www.enbridge.com/investor. A replay of the call will be available later today. And transcript will be posted to our website shortly thereafter.

The Q&A format will be the same as past. Earnings call, the initial question session is restricted to the analyst community. When the analyst community is finished, we'll open it up to the media.

For those Q&A session... for the Q&A session I would ask you to limit me your question to one and a follow-up and rejoin the queue. I would also remind you that Colin, Henry and I are available after the call for any detailed questions that you may have.

And at this point I would like to turn the call over to Pat.

Patrick D. Daniel - President and Chief Executive Officer

Very good, Thanks Vern. Good morning, everyone, and thank you for joining us today. We've got lot of very good news to talk about this morning. So I am going try to move through this as rapidly as I can.

As we reported earlier today, our adjusted operating earnings for the second quarter were approximately $150 million or $0.42 per common share. And year-to-date results were 388 million or $1.08 per common share.

This represents a year-over-year adjusted earnings increase of 8%. So very good year-over-year result. These results are in our projections for the balance of '08 have enabled us to increase our full year guidance by a nickel, where we now expect 2008 full year earnings to be in the range of $1.85 to $1.95 per common share.

Richard, of course, will take you through the quarter in more detail. As well as speaking to this guidance range in a little more detail, later on.

All of our business segments had very solid results for the quarter. We're extremely pleased to report that both of our sponsored investment vehicles Enbridge Energy Partners and Enbridge Income Fund reported record adjusted earnings for the quarter. And as a result of this, they were both able to increase their common distributions.

With the latest distribution increase at EEP, we now have hit the high splits under the partnership agreement, where Enbridge as the general partner will now receive 50% of any incremental cash flow distributed by EEP. This is significant as we expect the partnership's cash flow to grow significantly over the next few years as we complete phase II of Southern access and Albert Clipper of course.

I should note that both of our sponsored investments vehicles are expanding to take advantage of the Bakken play and Saskatchewan Montana and North Dakota where once again this company is very well positioned.

Enbridge Income Fund has been expanding its Saskatchewan system by adding 65,000 barrels a day on the Westspur system. And EEP has spent to about $225 million over the last year to expand the North Dakota system by 80,000 barrels a day to take in incremental fuel [ph] deliveries that from the Bakken.

Before we get to Richard, let me update you on the progress we have during the quarter on our slate of expansion projects. And once again I'll try to move through this very quickly, but there is a lot to update you on.

First of all on our liquids business, we're pleased to report we're able to complete construction of two of our expansions projects. Both of these projects were completed on time and started to contribute to earnings in the second quarter. The Waupisoo pipeline was actually completed one month ahead of schedule on July... around June 1. Given the construction delays that we've seen in our industry, we're very proud of this achievement in bringing a major project like this on-stream a month early. Waupisoo has got initial capacity of 350,000 barrels a day and we will move through from our Cheecham terminal, south of Fort McMurray all the way down to Edmonton.

Waupisoo can be expanded to an ultimate capacity of 600,000 barrels a day at a very low incremental cost, now that the mainline is in place. The completion of Waupisoo makes Enbridge the largest operator of regional crude oil pipelines serving in oil sands.

Together Athabasca and Waupisoo enable us now to provide shippers with the flexibility to move their crude oil to either of the two major Alberta hubs, either in Edmonton or Hardisty. But even more importantly we have the ability to provide interim service on these systems to oil sands starts up as we construct dedicated systems for them and that provides us with a very significant competitive advantage as we develop further regional pipeline opportunities.

Moving on, the first phase of our Southern Access expansion also came into service at the beginning of the second quarter. Phase 1 provides additional capacity of 190,000 barrels a day to our mainline system, at a capital cost of roughly $1.3 billion. You'll recall that we started construction on the Phase 2 of the Southern Access expansion in June, and upon completion this will add another 210,000 barrels a day of capacity to the Enbridge mainline system. This phase will be complete in the second quarter of 2009 and it consists of additional mainline pumping capacity and also 133 miles of new 42 inch pipe from Delavan, Wisconsin down to Finnegan, Illinois, just south of Chicago.

Construction of Southern Lights diluent return pipeline continues to proceed as planned. Construction activities are complete on the pipeline between Superior and Delavan and construction on the remaining U.S. line segments began in June. This project is still expected to be in service in late 2010.

Construction on Alberta Clipper and Line 4 has begun in quarter three as we've received National Energy Board approval for both of those projects in the first quarter of this year. Also regulatory applications were filed with the ERCB for the Fort Hills pipeline system during the second quarter. The project includes a 42 inch diameter crude oil pipeline and a 24 inch diluent return line.

Scope and cost estimates will be further refined with the Fort Hills partners and the mid 2011 in service date remains on target on the Fort Hills.

Moving on to our natural gas systems. They also continued to perform really well. Volumes at Enbridge Energy Partners have grown by more than 10% since this time last year as it continues to be one of our largest gathering and processing service providers in the Barnett Shale, in the Bossier and in the Anadarko regions in Texas.

We continue to process over a third of the total volumes in each of these highly prolific natural gas reservoirs. Once again positioning has been outstanding for us. Despite a weakening economic environment in Ontario, Enbridge gas distribution also continues to exceed our expectations. We've already added over 18,000 new customers in 2008 and we're on target at 40,000 new customers again this year.

And we're also starting now to see the financial benefits of incentive regulation where we have indicated that we hope to be able to boost our returns by 50 to 100 basis points on those assets. During the quarter we also made some strong progress on a number of development projects within the gas and renewable side of the business. For example, Alliance in conjunction with our partner Questar continues to work on the Rockies Alliance pipeline that would link fast growing gas production in the Rockies area in the U.S. to the Chicago pipeline hub.

Earlier this year, an open season helped show that there is considerable interest for the pipeline and we continue now to work with shippers to finalize the necessary shipping commitments and also the best routing for that line.

During quarter two, the Rabasca partners signed a letter of intent with Gazprom U.S. regarding supply for proposed Rabasca L&G terminal. Gazprom of course will become an equity partner in the project and we'll contract for 100% of the terminal's capacity. Partnership agreements are expected to be completed by the end of the year and Rabasca already has in place all of the authorizations required for the project from both the federal and provincial governments.

I should caution on this project that while the LOI with Gazprom is very promising, Gazprom's ultimate participation will be dependent on the development of its Shtokman field which is expected to be completed in 2014.

Moving on to the wind business, construction of our 190 Megawatt Ontario wind project in Kincardine is progressing well. Over two thirds of the towers have now been installed and we expect to start producing electricity by the end of August to be fully operational in the fourth quarter of this year.

The Alberta Staining Access Hill [ph] project and dubbed ASAP and that Enbridge is spearheading added four more participants in the quarter and we now have a total of 33 industry participants. The ASAP CO2 sequestration powder project remains on schedule to have construction start in 2009. This is on the pilot and we begun site evaluation and engineering work on that powder project during the quarter.

We are also very encouraged by the Alberta government's commitments to $2 billion to support the development of carbon sequestration projects within the powder plants.

Lastly, what I would like to do is spend a few minutes on our current slate of development projects because so far I have been speaking only of those projects underway and under construction and this is primarily our wave two of projects.

These development projects are designed to provide our customers with access to multiple markets and provide western Canadian producers with better optionality for their barrels. These projects will allow western Canadian crude access to the Eastern part of PADD II and thus primarily refineries in Llama and Toledo, Ohio, also to the refineries in Montreal, to the U.S. east coast refiners, refineries primarily Philadelphia and to the U.S. Gulf Coast and ultimately the west coast and the Far East.

Our recently announced Trailbreaker project will provide Western Canadian producers with access to multiple new markets. Shippers will be able to send their production to refineries in Montreal and will have access to the U.S. Gulf Coast and U.S. east cost via the Portland pipe line. The project involves expanding off course with our main line system within the partnership, reversing our line-9 that currently provides service from Montreal to Sarnia. I should say re-reversing, because you may may recall was originally built to operate in the western from Sarnia to Montreal. And then reversal of one of the two pipe lines some Portland pipeline system.

Trailbreaker has a modest capital cost of roughly $250 million and there is a mid 2010 target and service date. Once completed it will move about 220,000 barrels a day from Sarnia to Montreal where 80,000 can be delivered to refineries in Montreal and the remaining 140,000 barrels a day then shipped to the U.S. Gulf Coast and east coast. We expect that the total cost of the U.S. Gulf Coast... to the U.S. Gulf Coast using Trailbreaker will be around $8 to $9 increase above their shipping cost.

Trailbreaker of course is part of our phased approach in getting fuel to the U.S. gulf coast at a low cost way. And in the near term Trailbreaker and an expansion of the Exxon-Mobil Pegasus pipeline will provide ample short-term access for Canadian producers to the U.S. gulf coast market.

And then if western Canadian heavy crude production ramps up, our Texas Access pipeline will provide the most economic alternative to ship larger volumes to the U.S. Gulf Coast and that would be post 2011. We believe that at a capital cost of $2.6 billion Texas Access continues to provide the strongest fundamentally competitive alternative, as our existing pipe line network is already two-thirds of the way there. However, we will manage the pace of development on this project to achieve the level of throughput commitment which ensures an adequate return on investor's capital.

My final update is on Gateway; support for the project has never been higher. Canadian producers have recognized the value of having access to offshore export markets primarily in the Far East. Once complete, Canadian produces will have an on going feed for their crude which will improve net backs [ph] for our customers. Belief in the project is so strong that we have obtained the $100 million of funding from a group of western Canadian producers and East Asian refiners to get the projects through regulatory approval.

In exchange for the funding these Tranches [ph] will have an option to have founder shipper's status and to make an equity investment in Gateway. The support from Asia for Gateway is broad based, and now includes refinery support from Singapore to Japan. And we still expect to file the regulatory application in early 2009 on this project.

So now for a little more detailed review on the Q2 results, let me turn the call over to Richard Bird.

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

Okay, thanks Pat and good morning every one. I am going to begin with the review of the second quarter results, provide a little more detail on our updated guidance for 2008. And then also update you on our financing plan.

So as Pat mentioned we released our second quarter results earlier this morning and reported net income was $658 million or $1.83 per common share, up $147 million from the amount reported in 2007 and the significant quarter-over-quarter increase of reported earnings is obviously due to the gain on the sale of our investment in the Spanish refined products pipelines CLH brought in over $1.38 billion in cash and generated a $556 million gain on the sale.

Other significant items in the quarter that we adjusted out of the reported earnings include additional cost related to repairs from the 2005 hurricanes within our offshore assets and we are seeking insurance recovery of these expenses and expect to receive this in the later half of 2008. Also adjusted for non-cash mark to market losses associated with the financial instruments that we used to hedge our earnings within the energy services and the Aux Sable business segments. And lastly, the warmer than normal weather in EGD's franchise area which decreased EGD's earning by about $4 million in the second quarter.

When we exclude all of this non-operating factors, adjusted earning for the second quarter as Pat mentioned were $150 million or $0.42 per common share. So just in terms of where some of this strength is coming from in the second quarter we experienced strong performance from our liquids pipelines business unit. Earning rose by $10 million when compared to the prior year. Our expansion projects were the primary driver for the increase and we recorded AEDC on a number of these new pipelines Southern Lights, Southern Access and Alberta Clipper. We also on the Athabasca system picked up earnings for one month from Waupisoo pipeline which was placed in the service on June 1st.

Gas pipelines, earnings are slightly lower than the prior year as a result of the weaker U.S. dollar as well as the depreciated rate base within the Alliance pipeline. The significant depreciation of the Canadian dollar since the latter half of 2007 has caused the earnings generated by these U.S. operations to be lower than what they were in 2007. That's across the board for all of our U.S. operations and of course our gas pipeline earnings are all the U.S. dollars denominated.

Just to give you a sense of the magnitude, overall Enbridge earnings on a year-to-date basis were lower due to the stronger Canadian dollar by approximately $12 million year-over-year or $0.03 a share, that compared to the first half of 2007. And as we have noted on previous calls, we do hedge our economic exposure to foreign currencies and we have in fact in 2008 received after-tax hedge payments of $9 million. Unfortunately the settlements on these hedges although they are cash in the bank are not included in earnings reported under GAAP. The sponsored investment segment of our business, as Pat mentioned had record quarter, EEP reported adjusted results in record adjusted results in the second quarter and continues to be a very good story.

EEPs earnings contribution was $3 million higher than the second quarter of 2007 and on a year-to-date basis almost $7 million higher. That increase reflects higher incentive income and outstanding performance within EEP which was under pinned by strong throughput put volumes on the liquids pipe line systems as well as higher throughput on the gas gathering and processing assets and stronger fractionation margins.

The Enbridge Income fund was also positive in the quarter due to favorable fundamentals within the Saskatchewan system and of course flowing through to Enbridge with a 7.5% distribution increase which was announced at the end of the first quarter.

And gas distribution and services also had an excellent quarter with adjusted earnings up almost 10 million over the prior year quarter. That increase was largely due to the impact of very strong fractionation margins at Aux Sable which allowed us to recognize a larger portion of the contingent upside sharing mechanism that we have in our agreement with BP, relative to what we were able to recognize in the second quarter last year. We anticipate that the full year earnings contribution from Aux Sable will be around $25 million.

The GAAP loss that was reported in the quarter and the gain that was reported on the year-to-date basis are associated with the financial derivatives used to eliminate commodity price risk associated with this asset. We have entered into financial derivative transactions to lock in our 2008 Aux Sable earnings, but these hedges don't qualify for hedge accounting and as such the quarterly changes in the fair market value when the hedges are booked to earnings.

EGD's earnings in the quarter were also higher than the prior year by $3 million and that increase can be attributed to stronger customer growth, lower operating cost and lower taxes. As Pat mentioned we are already starting to see the initial benefits of the new incentive regulation framework and those sources of earnings improvement that I just mentioned actually made significantly stronger contribution than $3 million in the aggregate but that contribution was offset in part by a change in EGDs toll structure where a larger portion of the annual distribution cost will come in the form of a fixed, rather than a variable charge.

So this change in the rate structure will increase earnings in the summer months and lower earnings in the winter months. And the unfavorable year-to-date impact of this change will reverse out over the balance of the year leaving us with just that strong fundamental performance evident in the second quarter.

Energy Services full year results are well above the prior year due to improved market fundamentals which enabled higher margins to be captured on the storage and transportation contracts.

During the second quarter there was a significant non-cash mark to market loss related to this business. This mark to market loss reflects fair value charges on derivative transactions used to lock in the profitability of transportation and storage transactions at Tidal Energy. Under GAAP these financial derivatives are revalued each quarter and any change is recorded in earnings.

However the offsetting change in the underlining physical crude inventory is not revalued. So you see one side in the transaction but not the other. And as such you will see non-cash mark to market losses in the segment in periods of rising oil prices, the overall profitability of that transaction will not appear until the underlying crude oil is sold from inventory.

So that second quarter mark-to-market loss will reverse out in the reported earnings over the balance of the year. Of course in international you see the large gain on the CLH investment, after removing that gain the earnings are lower as a result of the sale of CLH which we didn't have earnings during the later part of June and our corporate costs are slightly lower than last year in the quarter due to the use of the proceeds from CLH to retire some commercial paper balances.

Moving on now to our revised guidance for 2008. As Pat mentioned, we have revised upwards by a nickel to an adjusted operating earnings per share range of $1.85 to $1.95 and strong performance from all of our business units has caused us to re-visit our earnings guidance.

Additionally, we are seeing the impact of double taxation on our Terrace earnings which we talked about earlier this year coming in so far and anticipated to continue to come in less than what we have expected at the beginning of the year.

We're seeing growth in volumes from the oil sands projects a little slower than what we had originally anticipated. So, our revised guidance reflects in part an expected $10 million improvement in Terrace earnings in 2008 due to lower taxes than were reflected in our original guidance. Just so you can keep track of that particular aspect.

In the medium term, we continue to expect to achieve a compound annual average growth rate in earnings per share of 10% from 2007 base to 2011 based on our commercially secured projects with plenty of opportunity under development to extend our double digit growth beyond 2011.

And lastly just a few minutes on our updated financing plan. A couple of recent actions have made our funding of the balance the Wave 1 commercially secured projects very manageable. First, was the sale of CLH which provided roughly $1.2 billion in after tax proceeds. About $300 million of that proceeds will displace a portion of our debt funding and the remaining $900 million satisfies a very large portion of our equity requirement.

The second item is our dividend re-investment program at the beginning of the year. We added a 2% discount to the plan and we have seen participation in that plan increase from about 4% to roughly 30%. As a result the dividend reinvestment plan is now expected to provide about $800 million of incremental equity over the next 4 years.

So just to quickly revisit the impact of these two items on the overall funding requirement. You will recall that Wave 1 requires about $12 billion of capital expenditures at Enbridge Inc. and if we deduct our free cash flow, we're left with a net funding requirement of $6.6 billion. This translates into the requirement for $1.9 billion of equity and $4.7 billion of debt.

On the debt side, we have recently secured underwriting commitments for $1.5 billion to project finance the Southern Lights pipeline and we're in the process of syndication and closing that transaction expected to be complete in the current quarter. But the $1.5 billion is under written.

On the equity side the sale of CLH in our enhanced Grip program will provide $1.7 billion of equity capital which leaves us with only 200 million of equity to be funded from now until the end of 2011 to meet the requirements of that first wave of commercially secured growth projects.

This equity can be met from a variety of sources that includes further asset sales, asset monetizations, the issuance of hybrid securities and in concept common equity. However with respect to common equity, our internal valuation work continues to show a significant gap between our common share fundamental value based on the extended double-digit growth we foresee and our current market valuation and that's the case despite the fact that our PE on current is at a significant premium to the period [ph].

In other words the PE still does not reflect fully our unique combination of low risk and unparalleled growth. Now we expect over the next year or so as the growth is realized that our market valuation will converge on our fundamental value but in the meanwhile issuing common equity will be dilutive to our existing shareholders and would be our least preferred source.

Given the modest remaining equity requirements and the variety of preferable alternatives we have an equity issue really isn't been the picture in the foreseeable future. On the other hand, our work on the mandatory convertible hybrid instrument indicates that it is an attractive potential source of equity because it provides a significant amount of equity credit from the rating agencies but the conversion price is at a large enough premium to avoid any shareholder value dilution to our existing investors.

So a near term hybrid security issuance or a further asset sale or monetization would provide a valuable degree of flexibility and cushion to the financing plan at a favorable economic cost in preparation for a continued success in expanding and extending our secured growth opportunities. Those are things we will continue to work on.

On that note I will turn it back to Pat for his concluding comments.

Patrick D. Daniel - President and Chief Executive Officer

Great. Thanks Richard. These are very good times for Enbridge. Our six month results have exceeded our expectations and that has allowed us to increase our 2008 guidance by a nickel which I am sure you all agree is good news. We continue to make good progress with our expansion projects and have now completed Waupisoo. And the first phase of Southern Access on or ahead of schedule.

We've almost entirely eliminated the equity funding requirements for Wave 1 with the sale of CLH as Richard has just outlined. And of course we continue to develop our $15 billion slate of Wave 2 expansion projects, that really are designed to maximize market optionality for our customers while ensuring that Enbridge System remains the lowest cost shipping solution for our customers. So on that note I think we can move the Q&A session.

Question And Answer

Operator

[Operator Instructions]. Your first comes from the line of Sam Kanes of Scotia Capital. Please proceed.

Sam Kanes - Scotia Capital

Good morning, and extraordinary results. I'm curious Pat that now that CLH has financed you next number of years and Richard just referred of course to your preferred hybrid potential debt financing or some combination of financing. What is non-core, semi non-core to you at this stage. I'm looking at your Columbia pipeline, your offshore gas pipelines, your EIS interest, which of course you will have to decide what you want to do in 2011 or even your new windfarm which seems to be went one off at this stage, how do you view those assets in going forward with your core?

Patrick D. Daniel - President and Chief Executive Officer

Well, first of all Sam I think its fair to say that all of those assets are definitely a part of core business somewhere a little bit closer to dead center core than others. But they are all a large part of our business. And you mentioned Columbia I guess you could say it appears to be stranded because it's now our only international investment.

But to tell you the truth we never really considered international to be an area of investment, we just considered good investments to be a good idea for our shareholders and two of them happen to be international. Looking at Columbia we have mentioned before that there is a good heavy oil play underway right now that's resulting in expansion opportunity within our sense.

And we obviously want to be able to take advantage of that. We don't have any intention at this point to axe it and see further upside on that asset. We've indicated that we will look at restructuring opportunities, both at the partnership level and at the interim fund level to better utilize what we were intended to be low cost to capital vehicles in the partnership and the income funds, so we will continue to do that to optimize in those structures.

The wind business actually we're building our fourth wind farm, we've got three already. We can and have used the income fund as a way of monetizing those assets and could look at something similar with regard to the new Kincardine facility there is strong interest from other partners in participating in wind. So a number of opportunities there, but none of them are outside the core business of Enbridge or any needs to restructure or exit in any way.

Sam Kanes - Scotia Capital

Thanks Pat. Quick follow-up Rich I guess for you. Unrealized oil derivatives, with oil up so much in Q2 you gave us a number I think last quarter of what is unrealized, that should be realized, the ones I missed in your press release here?

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

Sorry, Sam I didn't understand that, could you?

Sam Kanes - Scotia Capital

The in your oil derivatives, you are recording the hedge loss but of course you have a physical value enhancement because you have locked in the economics of the one side of the trade if you may. So just fine what your running book is of what you have accrued that you can't recognize yet with in the context of those derivative features contracts. I believe it's $200 million last quarter or so of what I should expect [ph] to come back at you if you like as immature.

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

I would do the cumulative amount of those all those mark to markets losses to date.

Sam Kanes - Scotia Capital

So you disagree with the addition of the Q2 to whatever the status was at Q1?

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

Take Q1 and Q2 together, that's all of that will comeback, plus of course the profit margin on that transaction as well.

Sam Kanes - Scotia Capital

That's right that's why I am going with it, just want to get a rough idea what is on the comments you have made, coming in to your financials and your bank for that matter.

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

Okay, so the cumulative on the oil services side is above $36 million to date, mark-to-market loss, so that will all come back along with a profit margin associated with it.

Sam Kanes - Scotia Capital

So summing is it $50 million, a year or so?

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

Pardon me.

Sam Kanes - Scotia Capital

Something in $50 million a year or so.

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

Well, I don't think we want to get down into disclosure of this specific margin and that piece of business.

Sam Kanes - Scotia Capital

Ok Richard. Thank you.

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

But it is certainly is... it is a margin, it is a profit.

Sam Kanes - Scotia Capital

Yes, thanks.

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

Thanks, Sam.

Operator

Your next question is from the line of Carl Kirst of BMO Capital Market. Please proceed.

Carl Kirst - BMO Capital Market

Good morning, everybody and congratulations on nice quarter here. Just a couple of questions, first perhaps on Trailbreaker and here just may be want one or two clarifying question. Just to make sure that in your 2008 to 2011 spending that the Trailbreaker at this point, even though its small is not part of that 11.6 billion, is that correct?

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

The11.6 billion was a plan number that had built into it a small amount of capital over and above projects that we're committed at that to the time that we have put that number together, so I think you could say the Trailbreaker will still fit within that allowance.

Carl Kirst - BMO Capital Market

Okay, great and then just sort of a follow-up there was a... earlier I think given some of the numbers that were tossed around on Trailbreaker it looked like it was the current number is 350 million, sort of reflective of kind of the new cost environment we're in Pat, now that it looks like we might be sensing some at least some forward momentum on Gateway, I didn't know if you had a sense of perhaps where the initially thought $2.5 billion, where that project might be if indeed that did move forward in 2009.

Patrick D. Daniel - President and Chief Executive Officer

May be, let me answer the latter part of that first and just come back and address the first part with regard to Trailbreaker. If I understand you correctly Carl first of all we have not done a new update with regard to Gateway on capital costs. And we won't be doing that until we get into the year in 2009. We work closely with the other supporters of the project in order to put that in place. So I'm not able to give that to you before. I believe the most recent number we had out was about $4.2 billion but that was about 2006 number. So obviously it's going to be revised upward on the basis of where capital cost have going over that period of time.

Coming back to Trailbreaker, I think what you were asking was that I know I was originally quoted as indicating it was about $100 million reversal project and then we're now talking about 350 million. The difference is that I was talking about simply the reversal portion of that project, which is still accurate at around a $100 million. We're now talking about all the units, salary [ph] expansions in our U.S. system and a tankage and sewerage facilities that takes that up to 350. So it was an apple and oranges comparison between the 100 million and the current 350.

Carl Kirst - BMO Capital Market

Great appreciate the clarification and just on the Gateway when you are putting up that number of four billion that included the conduits in that.

Patrick D. Daniel - President and Chief Executive Officer

When we are talking about the Gateway we're looking at both sides.

Carl Kirst - BMO Capital Market

Okay, thanks you.

Patrick D. Daniel - President and Chief Executive Officer

4.2 and it included both.

Carl Kirst - BMO Capital Market

Great thank you.

Patrick D. Daniel - President and Chief Executive Officer

And then just to clarify a little further on the Gateway's spending profile. We are filing for regulatory application in 2009 but construction wouldn't start for a couple of years after that. So the regulatory approval process will run a couple of years. And we are fully funded by our partners on the project through that period of times. So it doesn't really have a significant impact on again on a near term capital requirements.

Carl Kirst - BMO Capital Market

Great thank you.

Patrick D. Daniel - President and Chief Executive Officer

Thanks, Carl

Operator

Your next question is from the line of Linda Ezergailis of TD Newcrest. Please proceed.

Linda Ezergailis - TD Newcrest

Thank you. Looking at your offshore business, other than the continuing impact of the 2005 hurricanes, are there any other contributors that you would attribute to the lower than expected earnings. Are you seeing higher competition and maybe you can comment on the outlook for the next year and the next five years?

Patrick D. Daniel - President and Chief Executive Officer

Yes the... by the way the... first of all, with regard to the first part of that, Linda. The ongoing cost was associated and you may recall way back we started, we indicated that we had a shift sitting on top of one of our lines and removal of that is what has caused the continued cost that finally has been completed and you shouldn't see any significant going forward costs associated with the hurricanes. The... it had been primarily delayed in new facilities coming on stream, producer delays in volumes that has caused this after quarter and also insurance premiums, in combination with the fact that of course the Canada-U.S. dollar exchange rate has been moving the wrong way for us on that income stream as well.

We do anticipate in the medium to longer term, a good prospectivity in the Gulf and a significant recovery there. As you probably know, we are very well positioned particularly in the deepwater Gulf over the time gas gatherer and that's where the majority of the activity is. And producers post the hurricanes, of course has spent a fair bit of time on remediation, getting facilities that were due to come onstream, back in service and now they are able to turn their attention to again to exploration and development work. So we do anticipate those assets will improve over time.

Linda Ezergailis - TD Newcrest

And what sort of ramp up in earnings rate over the next five years would you expect?

Patrick D. Daniel - President and Chief Executive Officer

Richard?

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

Maybe, we can get back to you on that, Linda to the extent that we're going to provide that kind of detail. I don't think any of us has it at our finger tips here though.

Linda Ezergailis - TD Newcrest

Okay, and just as a quick follow-up question, can you break out the amount of AEDC for each of Southern Access Phase II expansion, Alberta Clipper and Southern Lights?

Patrick D. Daniel - President and Chief Executive Officer

Could maybe Berne [ph] get back to you on that after the call, Linda?

Linda Ezergailis - TD Newcrest

Sure.

Patrick D. Daniel - President and Chief Executive Officer

Okay thank you. We will do that.

Operator

Your next question comes from the line of Ross Payne of Wachovia. Please proceed.

Ross Payne - Wachovia Securities

Thank you. Yes, can you guys speak to what your target debt-to-cap is going to be?

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

Ross, we have normally targeted in the range of 62% debt and a 60% to 64% debt just kind of where the rating agencies have been and so targeting in that low 60s range.

Ross Payne - Wachovia Securities

Okay. Two other questions. Can you speak to the spearhead volumes. Looks like they are down, a little bit year-over-year and also, if you can comment on how much of your CapEx is that you've already spent is not yet producing any cash flow so we can kind of move towards a pro forma number. Thanks.

Patrick D. Daniel - President and Chief Executive Officer

Okay maybe I will try and split that into two and then Steve Wuori, if I could ask you to speak to Spearhead volumes and then Richard to the CapEx.

Steve Wuori - Executive Vice President, Liquids Pipelines

I think Ross that Spearhead volumes are affected by the volumes moving through the system generally and are affected by the... some of the delays that we have seen in oil sands with production ramp up, the differences aren't very large and so there is really nothing to point to there in terms of the trend. So, Spearhead is basically doing fine and it has the expansion program that we have soon to go underway to increase it to 195,000 barrels a day. Bu there is really nothing there except that some of the delays from the oil sands would have been reflected down into Spearhead.

Ross Payne - Wachovia Securities

Okay, thank you.

Patrick D. Daniel - President and Chief Executive Officer

And Richard, on the CapEx, you are able to --

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

Yes. So on the CapEx side, the biggest chunk of that at the moment would be the Southern Lights project, it isn't cash flowing yet. We had about $800 million that's been spent to-date on Southern Lights. A variety of the other projects like the remainder of the Southern Access expansion and the line before extension at Alberta Clipper would be building up capital. But none of those would be a huge amount at this point in time. So... with $800 million on Southern Lights, I guess we would probably at this point sitting would maybe $1 billion of capital that is in cash flowing.

Ross Payne - Wachovia Securities

Okay that's very helpful. Thank you. And one other question if I may; about what kind of capacity utilization are you guys getting on the volumes, right now?

Patrick D. Daniel - President and Chief Executive Officer

Mainline capacity utilizations, Steve...

Steve Wuori - Executive Vice President, Liquids Pipelines

It depends on the line. Some of the lines are full but probably as a rough proxy for utilization of the full aggregate capacity probably about 85% or so.

Ross Payne - Wachovia Securities

Okay. All right, very good. Alright thank you guys.

Patrick D. Daniel - President and Chief Executive Officer

Thanks Ross.

Operator

Your next question is from the line of Mathew Ackman of McGuire [ph]. Please proceed.

Unidentified Analyst

Thanks, Macquarie. I just wanted to I guess get your comments on Gateway. It sounds like you are in more comments on, its sounds like you are making progress there. I wonder if you can maybe be more specific on what kind of progress you've made in the last few months and how you see it potentially rolling out in timeline if you firm up support?

Patrick D. Daniel - President and Chief Executive Officer

Okay. The main progress of course has been the continued work on preparations of the regulatory application which we will file in the first quarter of 2009. So that has involved engineering work railway work, first nations and land owner consultations and just the beginning of the preparation of the regulatory application, Matthew [ph]. And the optimism comes from the fact that we have pulled together this $100 million funding support from a variety of supporters, both producers and refiners have now held a number of joint project meetings with them to get their guidance in direction and input on the project and they have got very strong support to move this along as quickly and promptly as we can.

I personally have attended and participated in some of the meetings relating to environmental and first nations challenges which I knowledge, we've been asked a lot about, and my confidence and our ability to work effectively with the land owners. And first nations people is gone up significantly, as we have walked through with them, our intentions with regard to the project and have outlined the way in which Enbridge historically is operating and intend to operate this facility. So we've got very strong support provincially and federally for the project that's considered very much in Canada's national best interest and see momentum building. We would like to be able to tell you who the other participants are. At this point, we're not able to do that because of the confidentiality agreements we've put in place. But we do think at some point they're going to be prepared to allow that to be announced. And I think you'll be impressed with a broad based nature of that support.

Unidentified Analyst

Okay and potential timing again, if you file in '09?

Patrick D. Daniel - President and Chief Executive Officer

Yes. Filing in '09 and we would be expecting to be up and operating 2014, most likely. We initially indicated 2012 to 14, so we still expect to be in that range, probably in the 2014 time frame. And that's really based on need, it's going to be driven by the customers needs as to win the field. It's important to have that optionality with regard to markets in place.

Unidentified Analyst

Okay and I guess just a follow up on Gulf Coast. I know you could go on for a long time about it. But just in a nutshell, can you please tell us whether you've sort of given up on winning that project outside of the short-term solution and term solution you're proposing or do you still see Enbridge as being seriously in the running for a larger and longer-term solution to the Gulf Coast?

Patrick D. Daniel - President and Chief Executive Officer

If you are asking whether to... you said that we have given up and if you want me to summarize within a nutshell, absolutely not. We think that what we have is the most responsible and cost-effective solution for our customers and due to the slowdown, up stream we feel the shorter-term smaller volume solutions are the most appropriate, but with the need at some point to have a large volume overlapped to the Gulf and we feel we're in by far the best position to provide that as a result of being two-thirds of the way there. So, again in a nutshell; if we have given up? Absolutely not.

Unidentified Analyst

Okay. Thanks, those are my questions.

Operator

Your next question line of Andrew Fairbanks of Merrill Lynch. Please proceed.

Andrew Fairbanks - Merrill Lynch

Good morning back gentlemen. I had a question for you as you look at aligning up the shippers support again for the Wave 2 project. The essence there's has been any diminishment on the part of the interest of refiners in going ahead and doing the larger coking projects necessary to run more of the big investment [ph] projects, given the recent downturn in the industry, or has it not really changed given that the declines were seeing in volume production.

Patrick D. Daniel - President and Chief Executive Officer

I would definitely say it's the latter Andrew, we have seen no diminished interest in putting the cokers in place in order to able to accommodate Canadian heavy. We stay in touch with that very issue on a day-to-day basis and I think it's fair to say that although we have seen a few delays upstream and production coming on stream that everyone is highly confident, the oil sands will be developed and they are absolutely critical to security and supply concerns in the U.S., hence the U.S. refiners will be making those investments. So we are confident of that. As you probably know there have been a few permitting delays in some of the projects, but I am sure that the companies will work around those and the projects will proceed. Steve Wuori, you may have a comment on that as well, because you are in more in touch with that.

Steve Wuori - Executive Vice President, Liquids Pipelines

Yeah, Andrew: I think one other thought there is that we really aren't seeing any new refineries being built. So one of the angles with to meet increasing demand and also as you said decreasing supply from elsewhere as to increase the complexity of those refineries that are existing which cokers do and so they have really increases the flexibility they have to run the lower cost heavy barrel, and so that interest definitely continues that matches the upstream development in the oil sands.

Andrew Fairbanks - Merrill Lynch

And just a second question, if I could on the part of the upstream producers against that is longer-term Wave 2 projects. Do you sense there is a growing interest in shipping heavier crude preferentially to upgrade synthetic crude oil? We've heard a couple of the upstream company's talk about post 2013 or so perhaps not needing to build the additional upgrading in Alberta and just allowing all of it to be done at the refining sites?

Patrick D. Daniel - President and Chief Executive Officer

Yes what I think you have hit a good point, that there is probably a practical limit to how much upgrading can be done in the oil sands and can be done economically. And because there has to be a market for all of that upgraded products and we are looking at projects that will put that into markets that, it doesn't traditionally find right now.

But I think trend wise that's probably so. They will continue to be upgrading for a time but there is that practical limit after which... and during the same time you're going to see heavy bitumen movements, move to the higher complexity of refineries in the U.S. So I think there is something of that trend and of course, upgraders live and die on the differential and one of the imponderables looking forward is exactly what will, the light-heavy differential be? If it's wide, upgraders and new investments upgraders make sense, and if it's narrow and is expected to remain narrow... and by that I mean something in the $8 a barrel of range, it becomes more difficult to justify an upgrading project.

So those are the factors that are playing in. What are; well there is several, one is, what is the availability of bitumen to move the heavy oil? and that's what the Southern Lights pipeline is really designed to address to move the heavy barrel to the high complexity refinery. And then where is the differential going to go in terms of light and heavy. And if that is expected to stay wide then it makes sense, and if not it doesn't as far as upgrading goes.

Andrew Fairbanks - Merrill Lynch

That was great. Thank you.

Operator

Your next question is from the line of Robert Kwan of RBC Capital Markets, please proceed.

Robert Kwan - RBC Capital Markets

Good morning. My first question I think is for Richard. You mentioned on the guidance and related to terrace that you expected a $10 million increase. Was that an increase versus '07 or an increase versus the initial guidance that tariff taxes would take earnings down by up to $30 million for the year.

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

It was relative to the initial guidance and my recollection, I could be wrong on this, but my recollection is we're expecting about $20 million double taxation hit in 2008 and we're now expecting more like a $10 million double taxation hit.

Robert Kwan - RBC Capital Markets

Okay. So that accounts for, let's call it half of the $0.05 shift in the guidance?

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

That's about right.

Robert Kwan - RBC Capital Markets

Okay. and then just the other question I have, I don't know whether this is for Pat or for Steve, but you have some comments in terms of some of the issues you're having around the Southern Access extension situation. Do you think that shippers might now shift support to Keystone in terms of some of the issues and if they're going to have to pay the full freight out of Chicago or you just can not give an overview, what situation is and what's the status of the project is?

Patrick D. Daniel - President and Chief Executive Officer

Yes, we... no, we don't expect that kind of a shift in interest. The Southern Access extension provides very strong, I guess capability or opportunity to those that are shippers on the Enbridge main line system and it's very much in their interest moving their crew further south and then to a variety of points from Patoka. It also is a very effective, pre-build for Pegasus expansion and for possible movements via barge down the Mississippi. So we see a number of alternatives there. We're working now with customers to come up with the new towing methodology based on standalone support and Steve, I don't know whether you'd like to update on that or

Steve Wuori - Executive Vice President, Liquids Pipelines

Yes, I think that's right and it wasn't intended as rolled in project anyway. It was a standalone toll and the latest application to FERC involved a backstop if the revenue requirement wasn't met. And that now with the FERC decision is what we need to address in terms of still going with the standalone toll, but designing commercial arrangements that are acceptable to shippers... to ship on that line without that broader backstop to the main system and we think that'll work. That's a... it's a fairly small project. It's 170 miles in length. We've just gone through the Illinois Commerce Commission proceedings are on the imminent domain land issue and so we're well along the way in terms of the arrangements necessary to construct that project and as Pat said, we're discussing with shippers now, the commercial arrangement that we'll make it work.

Robert Kwan - RBC Capital Markets

Right I guess there's a lot of good point, but it's a pretty small project and Rick, the semi-depreciated or advantageous toll into Chicago. What kind of a tie up from the shipper side of things that really shouldn't be that bigger an issue for people who want to get out of Chicago into Patoka?

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

Yes, it's a... I think you said it well. It is not a really large project. It's an important link as Pat mentioned and so it is certainly do able and I think we just have to come to the commercial structure that works for the shippers that want to use it the most and also provide the acceptable economics to Enbridge.

Robert Kwan - RBC Capital Markets

Okay.

Patrick D. Daniel - President and Chief Executive Officer

I think any properties know we had strong support from cap [ph] and we see that support continuing. Disappointed that the tolling methodologies as presented were not acceptable to Firk but we will come up with one that does work.

Robert Kwan - RBC Capital Markets

Okay great. Thanks Pat, thanks Steve.

Steve Wuori - Executive Vice President, Liquids Pipelines

Thanks

Patrick D. Daniel - President and Chief Executive Officer

Thank you Robert.

Operator

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

Andrew Kuske - Credit Suisse

Thank you good morning, just one question as it relates to your Midwest pipelines construction program. Given the weather that we saw throughout Q2 or is very wet and a lot of severe flooding in portions of Midwest, what does that do to labor productivity on some of your pipeline builds in that area?

Patrick D. Daniel - President and Chief Executive Officer

Actually Andrew, the most severe flooding in... when you look at the map, where our projects are really occurred in Central Wisconsin which had already been finished by that time. We had completed stage one of Southern Access all the way down to the Illinois border. And so we really weren't affected by the flooding that hit the Madison area of Wisconsin, most severely. And of course we aren't in Iowa or places like that. So actually there was not a big effect on the construction because of the June deluge that hit some of the parts of the Mid-West.

Andrew Kuske - Credit Suisse

Okay and than just a bigger broader question from a strategic perspective, how so you see your positioning for a lot of the natural gas shale plays that are really emerging and they seem to be emerging almost daily in the new pockets. And than your Middle East got some pretty good exposure with EEP. But again you are not in a lot of the areas other than say what we can see in North East British Columbia as an emerging place, they are with Alliance. So what are your expectations longer term for the natural gas side of the business.

Patrick D. Daniel - President and Chief Executive Officer

Well, Andrew actually you have made me break out into a smile when you asked that question because we feel we were very well positioned and let me kind of march from North to South and cover as many of those prices I can. Obviously we feel that Alliance is well positioned for both the Montney and the Horn River plays and I think that's pretty obvious as we extend up into 4 St. John area, particularly the Montney, we are central to that. So we are well positioned on that shale play.

Moving south to Bakken, I already mentioned particularly on the oil side in both the Saskatchewan and then North Dakota, we couldn't be better positioned then we are at what the south Saskatchewan system and with old portal system which is now Enbridge North Dakota, so very well positioned for that.

And we are looking at a potential gas pipe out of that area as a result of our oil pipe involvement there and the proximity to the Alliance system. As we move further south we have off course got a proposal coming out of the Rockies in the form of Rockies Alliance, a project and then we move into the Texas shale plays. As mentioned we collect about a third of the gas in the Barnett, the Bossier, the Anadarko.

As you move east in the Bossier and to east Bossier and over end to hintel [ph] and up into Woodford, we are on the fringes of those plays and as well positioned as any gas gather to participate in those share place. West Texas we don't have a significant infrastructure in that shale play at this point. And nor do we in the Appalachian play or the Quebec play. But I think of that total that I have through that we are as well positioned as any company overall to participate in those.

And of course we have got the expertise in the gathering and processing business and also the inter state pipeline opportunities through Reliance in Beckville [ph] to be a big player in the shale play. So we are very pleased with our positioning there. We don't get a chance to talk about our gas business very often. And this probably the biggest opportunity in all of those is in the form Rockies alliance pipeline which I'll give you a brief update on that later on.

Andrew Kuske - Credit Suisse

When you look at some of the emerging shale plays, like Haynesville would you envision that being done solely at EEP or would that be done in some kind of combination depending on the size of the project between EEP and also Albertan [ph]?

Patrick D. Daniel - President and Chief Executive Officer

I think most likely at EEP, but possibly heap in partnership with other gas processors and gathers in the area. We touch on the western side of the Haynesville play and are working very aggressively to move that our infrastructure for the east to accommodate Haynesville. But unlikely that Enbridge Inc. could be a partner there because of the huge focus that we brought on the crude oil development projects but we would like to drive it out of the EEP office in the Houston.

Andrew Kuske - Credit Suisse

Andthat's great thank you

Patrick D. Daniel - President and Chief Executive Officer

Bye Andrew.

Operator

Your next question comes from the line of Bob Hastings of Canaccord. Please proceed.

Robert Hastings - Canaccord Adams

Hi thanks, just a couple of clarifications. On EDB you had a retroactive rate increase that back to January would that have had any sort of meaningful impact in the second quarter?

Unidentified Company Representative

Bob, no its Carl [indiscernible]. We accrued those Q1 and Q2 already.

Robert Hastings - Canaccord Adams

Okay and then Aux Sable good performance there and you have pulled in some of which you expect to get for the year. Your proportion that you captured is that sort of similar to what you had done in the second quarter of last year or is that changed in any way?

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

A slightly higher proportion in the quarter, but given our full year estimate for '08 we are probably about half way there, recorded already.

Robert Hastings - Canaccord Adams

Okay and to be clear on the hedge to deliver the block you absolutely expect based on your sales and outlook today to fully capture that by the end of this year and rising oil prices or any other change wouldn't push that into the next year anything like that.

Unidentified Company Representative

Bob, it is [indiscernible]. Based on what we have on our books right now, we will fully recapture that. Should we do more business down to hear that there crosses that you end then you might see some mark to market with down rivers

Robert Hastings - Canaccord Adams

Looking out for the... I guess I was wondering whether that would be sort of natural position when would be to extend that out beyond?

Patrick D. Daniel - President and Chief Executive Officer

Yes, the opportunity is there

Robert Hastings - Canaccord Adams

Okay one last question. Is the corporate expense outlook you had a sale, you would be spending a lot more money, just do you have any guidance sort of which you are looking for the year now.

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

On the corporate line, Bob, I think it's more of the same. Maybe a snick higher than second quarter, but in that ball park.

Robert Hastings - Canaccord Adams

So this is similar to second quarter levels, each quarter going forward?

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

A little bit higher but not as high as it was there last year, the year before so it's trailing a little bit lower now.

Robert Hastings - Canaccord Adams

Okay thank you very much.

Patrick D. Daniel - President and Chief Executive Officer

Thanks Bob.

Operator

And your next question comes from the line of Daniel Spines with Autradants [ph] please proceed.

Unidentified Analyst

Yes, good morning everyone. First I had a question on the potential timeline front, but I believe this was some what discussed before but I think that would the timeline was revised after the initial announcement of the project to somewhere in 2012, 2014, now given the latest, your latest announcement today that you would be looking to file for regulatory approval in 2009, regulatory approvals could take a couple of years and then go in to construction. This would probably put you towards the latter part of that 2012, 2014 time range. Would that be correct?

Patrick D. Daniel - President and Chief Executive Officer

Yes. I think as I indicated, Daniel we're kind of suggesting probably in the 2014 time frame. And that will be largely dependant on when producers yield... they most need this line for the optionality, they are looking to establish around their crude markets and pricing issues. As production increases that would be Oil Sands and the need to broaden out the markets. But yes, I think it's fair to say that we are still looking at 2014 timing at this point.

Unidentified Analyst

That's right. I guess my concern there is that one of the reasons that you've stated that your Gulf Coast pipeline may not proceed as planned. Was that initially shipper support was not quite there due to delays in Oil Sands into the startup of Oil Sands operations. Do you believe that those issues will be resolved and there will be sufficient volumes to fill Gateway, given the fact that there is now another pipeline project by Trans Canada that will take a significant amount of crude out of the WCSD.

Patrick D. Daniel - President and Chief Executive Officer

Yes. It's a very good question but let me ask that you think about gateway as the pricing play and the fact that really what producers need to do is as I indicated in my introductory remarks, create a bed around their crude and have some alternative ex-North America in order to create pricing tension around their crude and therefore even though they might not be able to fill the Gateway project on day one. In other words it may not be so much upstream production driven as pricing optionality driven, Daniel that, that is their expected timing around it and we've got some flexibility to move one way or the other around that 2014 timing, but it is primarily a pricing play for them and hence that's the timing that we are using.

Unidentified Analyst

Sure I can ... I certainly appreciate the need for competitive tension but in that case you wouldn't go to... you would still need to go to an open season and get at least some level of shipper commitments prior to proceeding to something like that. So is there a possibility that you would have an open season where a bunch of shippers would sign up for Take or Pay agreements and simply I guess which we're seeing is they will sign up those firm agreements, but may not actually ship?

Patrick D. Daniel - President and Chief Executive Officer

That's the possibility yes. But obviously producers are not wanting to have those ongoing commitments. And if on the other hand they feel that the pricing advantage that they get by making the commitment more than compensate for any Take or Pay commitment then they will proceed and do that, but that will be a business decision they made at a time but you're right we will proceed with an open season and yet the shipping commitments required... we won't be going ahead with the project until we've got those firm shipping commitments because of the significant capital risk.

Unidentified Analyst

And that would... the time line for an open season would be sometime in the 2009, 2010 range or...

Patrick D. Daniel - President and Chief Executive Officer

I think it would be later than that to tell you the truth, Daniel.

Unidentified Analyst

Okay.

Patrick D. Daniel - President and Chief Executive Officer

It wouldn't likely occur until we've got regulatory approval and just to clarify we obviously would have an open season to satisfied regulatory requirements, but the primary discussion would be with the partners that are currently funding the regulatory approval process. They are the ones who'd have first call on all of the capacity.

Unidentified Analyst

Okay and the kind of related to that, what would be the earliest time that Enbridge would have to start spending or investing a significant CapEx to fund its second wave of expansion project because right now first wave of it's really kind of the timeframe is 2008, 2011. When would be the first significant year of commitment in terms of capital expenditures for the second wave.

Patrick D. Daniel - President and Chief Executive Officer

Richard could you address that?

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

Sure, well this is the first wave and second wave is a bit conceptual because for the most part the way we have defined first wave is that which is commercially secured with a little bit of a margin for a few things coming in that aren't yet commercially secured. So most of the second wave would be in service post 2011, starting in 2012, but as... as those projects get secured and firmed up, a project to be in service in 2012 we would start to see spending of course before that point in time. So we could start to see second wave of capital expenditures coming in not likely 2009 but quite possible as soon as 2010.

Unidentified Analyst

Okay. And I guess the... the big question is how lumpy do you think that could be is 2010 CapEx likely to be on the order of what you're experiencing right now, assuming that for the sake of argument that the bulk of the second wave proceeds?

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

Well, assuming the bulk of the second wave proceeds that spending would be spread out over a fairly extended period of time. So I don't think I see 2010 as being particularly untypical year but we would likely see expenditure levels continuing at the rate that we are currently spending in 2008 and that becoming more or less of steady state as we move into Phase II.

Patrick D. Daniel - President and Chief Executive Officer

One of the things that we are intending to do at our Investor Day conference in October is to try to lay out for you as best we can the timeline around Wave 2 and the reason why we have chosen that timing is that we have got a number of discussions underway right now where we think we will have a lot better clarity on the likelihood and the timing by the time we get to the early October Investor Day Conference. So we should be able to be a little more specific with you at that time.

Unidentified Analyst

Okay, well that's very good. But I guess what I am taking away from this is that 2008, the kind of CapEx levels are almost the new normal in terms of cash flow?

Patrick D. Daniel - President and Chief Executive Officer

I think there are probably the new normal in terms of new opportunity in growth going into the future. Yes.

Unidentified Analyst

All right, that's fine, thanks very much.

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

And by the way if that leads you to a question as to how we finance that, remember that at the same time CapEx is going up, the cash flow... free cash flow associated with Wave 1 projects really starts to contribute. So we don't have any significant concerns around the financing of Wave 2.

Unidentified Analyst

Sure, I understood that, thanks.

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

Okay.

Operator

Your next question is from the line of Greg Hoffard [ph] of UBS, please proceed.

Unidentified Analyst

Thanks guys. And Pat, this maybe a bit of a premature question in light of your recent comments, but with the Texas Access pipeline being pushed back, Gateway likely to be jointly produced or owned or shipper owned at least. Is that $14 billion to $15 billion of Wave 2 spending still a reasonable number?

Patrick D. Daniel - President and Chief Executive Officer

Well when we put forward the $14 billion to $15 billion, we said that we... that that was a gross number and that it could include participants. It's hard to define at this point the extent to which we may have other companies participating. So that is a gross number and it was never intended to be a 100% Enbridge brand.

Unidentified Analyst

So potentially with where things get scaled back to at least the way things look today. I mean you guys are still talking about being able to generate double digit earnings growth beyond 2012 after Wave 1 has completed and still remain comfortable with that longer term outlook?

Patrick D. Daniel - President and Chief Executive Officer

Absolutely and we will be more definitive on that come the Investor day conference as well. I have realized that when we talk about wave two, those are the only the things that we are aware of today as well and there would be other things that will emerge along the way. So that's why we think there continues to be a reasonable proxy for the capital program.

Unidentified Analyst

Okay. Thanks guys.

Patrick D. Daniel - President and Chief Executive Officer

Thanks Greg [ph].

Operator

And your final question is from the line of Carl Kirst of BMO Capital Markets. Please proceed.

Carl Kirst - BMO Capital Market

Hey, I appreciate the time everybody. I just wanted to quickly follow-up on Rocky Alliance pipeline and talks with Questar. Do they sort of seem to indicate that producers were perhaps looking for something that went directly into Joliette [ph] and I guess the two prong question here is One, as we look to firm up support for that, is that something where we're also looking at possibly changing rights of way. Two, and perhaps even a bigger question because if whatever happens if we do get more gas in the kind of Chicago area; is there possibilities for further expansions of vector beyond the... I guess, $100 million a day that's going in right now?

Patrick D. Daniel - President and Chief Executive Officer

Yeah. Good points Carl and first of all answer to your question one is yes we will locate regarding options as I mentioned earlier because we are getting that kind of feedback from producers, they're heading directly into Joliette this may be a little more in tune with their desires than being further up stream as Ventura as we have originally planned. So we will look at gauging support to hit exactly the right market and obviously yes if we put additional volume into Chicago that bodes well for downstream and for the vector system. So yes, yes to both your questions.

Unidentified Analyst

Great thank you.

Patrick D. Daniel - President and Chief Executive Officer

Thank you.

Operator

And there are no more questions at this time. I would now like to turn the presentation back over to Mr. Vern Yu for closing remarks.

Vern Yu - Investor Relations

Operator where there any media questions.

Operator

No there were not.

Vern Yu - Investor Relations

Okay, well thank you everyone Colin and I will be available to take any detail follow up questions in my office. So I look forward to your calls and thanks for your attention.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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Source: Enbridge, Inc. Q2 2008 Earnings Call
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