Welcome to the Enbridge Inc. Second Quarter 2019 Financial Results Conference Call. My name is Gigi, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session for the investment community.

[Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Jonathan Morgan, Vice President Investor Relations. Jonathan, you may begin..

Thank you, Gigi. Good morning, and welcome to the Enbridge Inc. second quarter 2019 earnings call. Joining me this morning are Al Monaco, President and CEO; Colin Gruending, Chief Financial Officer; Guy Jarvis, President, Liquids Pipelines; John Whelen, Chief Development Officer.

As per usual, this call is webcast and I encourage those listening on the phone to follow online with supporting slides. A replay of the podcast – sorry, a replay and the podcast of the call will be available later today and a transcript will be posted to the website shortly thereafter.

In terms of Q&A, we will prioritize calls from the investment community. If you’re a member of the media, please direct your inquiries to our communications team who will be happy to respond immediately. We are again going to target keeping the call to roughly one hour, and may not be able to get to everybody.

So please try to limit your questions to one and a follow-up as necessary. And as always, our Investor Relations team is available for more detailed follow-up questions afterwards. So, on Slide 2, I’ll remind you that we will be referring to forward-looking information on today’s call.

By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We’ll also be referring to non-GAAP measures summarized below. With that, I will turn the call over to Al Monaco..

Thank you, Jonathan. And before we begin, I will comment on the incident and fatality yesterday on our Texas Eastern gas pipeline in Kentucky. Our hearts go out to the family and the community. Our first concern of course is for those impacted. So we’ve mobilized resources to assist and support them.

Secondly, we are working with the federal agencies to investigate what happened and how the learnings can improve our approach and that of the industry in the future. Bill Yardley is on site, so we’ll cover off for him on today’s call. Turning to the quarter, I’ll begin by highlighting the results and full year picture followed by a business update.

And as part of the liquids update, I’ll speak to the recent headlines related to Line 5. Colin will take you through the financial performance and I’ll come back at the end with a mid-year progress review. Second quarter numbers were strong driven by high utilization across the businesses.

What stood out was continued high liquids throughput especially in the Mid-Continent region and energy service margins. Q2 DCF per share increased 4% which is a very good result given the share issuance related to our four sponsored vehicle rollups in Q4 last year.

Importantly, strong first half results should allow us to come in above the middle of our $4.30 to $4.60 per share DCF guidance range another good outcome in that we expect to fully mitigate the 2019 impact of the Line 3 delay, which was about $0.08 a share. Over to Slide 5, beginning with liquids.

One of the things as you know we are focused on is low-cost organic expansions that boost returns by enhancing revenue and minimizing our investment. Since 2015, we’ve added 450,000 barrels per day of capacity, which has been good for customers and illustrates the flexibility and scale of the mainline system.

This quarter we finalized plans to add another 85,000 barrels per day, which will be ready later this year. We’ve also landed on an ultra low-cost expansion of 50,000 barrels per day on Express and we are in open season now on that one and it should be ready in Q1.

In the Bakken, our partner is in open season that could see the Bakken system increase capacity to over 1 million barrels per day. So, very good progress on low-cost in-franchise expansions. Continuing with liquids on Slide 6 now. This morning, as you saw, we launched our mainline open season.

That will run for 60 days followed by the NEB filing, which leaves a good amount of time ahead of the July 21 expiry of the current CTS agreement. We’ve outlined in the past the key aspects of the offering and repeated them here on the slide, but here is how we got to this point.

Our new contract offering responds directly to what customers are asking for. They’ve told us they want guaranteed access to our system which serves the best markets in the Midwest and the U.S. Gulf Coast. They want and need the lowest transportation cost system to those markets and they want long-term toll certainty.

Those are the factors that drove our offering and we’ve spent the last nine months listening very carefully to customers and refining the offering.

That long period of consultation led to improvements that we’ve incorporated in the open season, namely balanced access for all types of customers, whether they are producers, integrators, refiners, marketers, they want to have toll discounts for long-term contracts and importantly ensuring smaller producers have access to the system.

We’ve got a diverse shipper group with sometimes conflicting objectives, but we believe this offering addresses differing perspectives. And the nice thing is that, all potential shippers will have access to the system. So we are on our way here and we will await the results of the open season. And now onto Slide 7 and the status of Line 3.

Given the recent EIS court ruling, we wanted to make sure everyone have the steps and sequencing that will go into completing the permitting process. Those are the items in the bars here on the slide. For context, the EIS was prepared by the state over a 16 month period. So it was comprehensive and thorough to say the least.

The state agencies, the administrative law judge and then the PUC, through an extensive hearing process reviewed the EIS and agreed it was complete. But despite all that, as you know, the court upheld one appeal that now requires some added analysis at one site.

The court unanimously dismissed the eight other appeals, but three of those were then appealed to the Minnesota Supreme Court. The Supreme Court will rule whether they will hear those by September 3. The PUC believes there is a strong case to deny that review, the appeals and they have already filed against this.

The next critical step is for the PUC to set the timing to recertify the EIS. Because of that, we won’t be in a position to provide an expected in-service date until we’ve evaluated the PUC’s timetable. What’s noteworthy is that the PUC has publicly indicated the word expeditiously to complete the work.

The permitting agencies have also committed to work in parallel with the PUC process so that is good news. Finally, we’d all agree we’ve got to get on with it and replace the line after all this is a safety and reliability project and in the meantime we will continue to prepare for construction.

Before we move to gas transmission, I’ll briefly comment on Line 5 and we are now on Slide 8. Line 5 provides, as a reminder, 540,000 barrels per day of supply, that’s absolutely essential to the entire region and 40% of refined products in Michigan alone.

The line has operated safely and our regulators and others have validated that time and time again. Despite this, we’ve listened to Michiganders and made a commitment to replace the strait’s crossing with a tunnel which virtually eliminates risk to near zero.

Various experts in Michigan itself agree with the tunnel, the only misalignment with the state is timing. We can’t complete the tunnel in two years, simply not physically possible as the tunnel needs to be engineered, permitted and constructed and that takes time to do right.

Line 5 needs to operate during that period to avoid supply disruptions through the region and increased consumer energy prices from that. To maintain schedule though, we’ve proceeded with a geotechnical program this year.

Hopefully, we can put all the legal wrangling aside and focus on collaboration with the state to get the project done as quick as possible. In Wisconsin, there has been a recent challenge to the easement on one of the tribal lands as you know, but first let me give you some context here on the bigger picture.

Almost 100% of the easements across our systems are perpetual or very long-term. So, very few need renewal that often if at all. Where they do, we work closely with landowners well in advance of expiry and we incorporate new commitments to address any concerns. We take all of our landowner relationships very seriously. It’s what we do.

And in all cases, tribal easements have been renewed successfully. For example, we just extended easements with Fond du Lac and the Lac Courte Oreilles bands in Minnesota and Wisconsin. In the case of Bad River, we've been engaged with the Band for a number of years.

In fact, we've had good discussions, progress maintenance and we've shared a lot of information about our operations with the Band. We were being attentive in our view to their concerns and discussing various aspects of the easement. So, we are not sure what led to the legal action.

The approach we take is to work collaboratively with all right-of-way communities and we will continue to work with the Band to address any concerns as they've said they are open to discussions as well. This could include options like rerouting the 12-mile section, but we don't want to presume that until we get their full input.

Bottom-line is that we expect to reach positive outcomes on the Line 5 business issues in the near-term. Turning now to gas transmission. A key focus of ours is to capitalize on LNG growth as you've heard us say before. We are in great position as our gas systems follow the U.S. Gulf Coast from South Texas to Louisiana.

We currently supply Cheniere's Sabine Pass and Cameron plants. We are making good progress on further buildout. This quarter, Stratton Ridge went into service which flows gas to Freeport LNG and today, we've announced that we've been selected by Venture Global to serve their Plaquemines facility in Louisiana.

This follows closely on the heels of Global [indiscernible] last year to serve their Calcasieu LNG facility in Louisiana. We are happy with the momentum here to expand and extend our gas pipeline network by capitalizing on our competitive position. Finally, on gas, it's been a busy year.

In terms of rate filings we're progressing well and expect to reach settlements on Texas Eastern and Algonquin later this year. On East Tennessee, we filed a settlement agreement this quarter and we should get a FERC order shortly. Moving on to the Gas Utility on Slide 10. This business is performing very well and growth continues on a few fronts.

We are moving forward with two modernization projects which brings year-to-date secured growth to about $400 million including the Dawn to Parkway expansion we talked about last quarter. The Owen Sound reinforcement and the Windsor Line replacement will each earn solid returns under our new regulatory [compact] [ph].

That will be in service in late 2020, so full year contribution in 2021. We are also on track to add another 50,000 customers this year and Ontario's support for community expansion means we have more runway to grow the utility and those are the white circles that you see on the map.

Finally, we are making progress on the amalgamation of the two utilities, which drives synergies for us and will generate good margin over the allowed ROE. I'll now cover the positive FID we announced today on one of our offshore wind projects in France, Saint-Nazaire.

But before that, let me provide some context for everyone on how we see the offshore wind business. This is now on Slide 11. First of all, it's very clear that energy demand will continue to grow for decades to come. But the fact is, we are going to need all sources of energy, both conventional and renewables to meet that demand.

We've got ample runway to invest in our pipeline utility businesses, but approach has been to invest renewables where it makes sense. We've gradually and slowly developed the business over the last 15 years. Today, we've got 21 renewable projects and a growing offshore presence in Europe.

Last year, we monetized about half of most of our onshore projects to capitalize on the external valuations we saw and recycled cash for other uses in the business.

The fundamentals of offshore wind are positive, namely an increasing share of electricity demand that will be met by electricity, shifting consumer preferences, as we know and mandated renewables targets, and significant improvements in technology and greater scale that's driven down costs.

In terms of capital allocation though, offshore renewables meet the same investment criteria as for the rest of our business. They line up very well on return, predictability of cash flow, execution and our ability to manage CapEx risk and they have room to grow.

Moving on to Slide 12, European offshore wind is our focus now driven by the strong fundamentals that you see here itemized on the chart. Importantly, we've seen a major improvement in the depth and sophistication of the supply chain in Europe and that's part of the cost improvements that we've seen.

We've built a strong business by aligning with great partners developing our own capability and bringing our execution skills around offshore and the wind generally. We've got a nice portfolio of operating and development projects. Our UK Rampion project is in service and Hohe See in Germany is progressing well for late this year.

Combined, those two projects are actually 1 gigawatt of capacity. We have three late-stage development projects in France. All three have just cleared permitting and we are recently awarded another PPA. This week, we've FID'd the first one of these in the queue, Saint-Nazaire, with our partner EDF.

This is the one on the North West Coast that you see in the slide. Our $1.8 billion investment comes with a mid-teen return, but what we really like about it is that PPA comes with a better protection for wind production variances. So you've got excellent transparency to cash flow and this is actually a very unique PPA structure.

Importantly, this is a project finance, which results in minimal equity requirement by us of about $300 million equivalent, so it's easily falling within our self-funding plan and we’d expect to be generating cash flow by late 2022.

Moving forward, Saint-Nazaire makes two other permitted French projects more likely to be FID ready over the next 12 to 18 months. But, that of course will be subject to the same investment criteria that I mentioned earlier. I'll wrap up on Slide 13 with a summary of the secured project inventory.

The slide here is basically the running balance of secured capital, which now sits at about $19 billion, so, an increase of 2.5 B this year so far. All this growth fits squarely within our low-risk pipeline utility model and demonstrates the solid expansion and extension potential of the core assets.

Importantly, this newly secured capital is provided for within our equity self-funding model, which Colin will speak to. And post-2020, we will have a lot of free cash flow to fund new growth capital and fill in our annual $5 billion to $6 billion growth bucket. So with that, let me hand it over to Colin to provide the financial update..

Thanks, Al, and good morning everyone. This is my first quarter end in a CFO role and I'm pleased to report that the financial results for the first half of the year are strong. In fact, it's more of the same diversified earnings and cash flows as you've become accustomed to from Enbridge.

Slide 14 summarizes our financial performance for the quarter by segment, focusing first on adjusted EBITDA. Even after factoring in our simplification and recent asset sales, we've had a strong year so far.

This is driven by strong operating performance from our core assets, incremental contributions from the $7 billion of the new capital growth projects we brought into service later last year, as well as continued strong margins in our Energy Services segment. So overall this translate into adjusted EBITDA for the quarter at just over $3.2 billion.

I will now briefly walk through each of the businesses. Quarter-over-quarter EBITDA from Liquids Pipelines was up $137 million, primarily due to continued strong throughput right across the Liquids system. Simply put, our systems are full.

Relative to last year, the mainline benefited from both an increase to the international joint tariff and higher average quarterly throughput. Average deliveries ex-Gretna for the quarter were up 25,000 barrels per day over Q2 of last year, largely due to continued optimization of the system.

Downstream, we also saw a strong utilization on our Mid-Continent and market access pipelines, Flanagan South, Spearhead and Seaway. This strong fundamental heavy crude pull from the Gulf should continue and our utilizations should continue to benefit.

Also the Bakken system continue to perform very well benefiting from strong production growth in North Dakota. Moving down along the slide, second quarter adjusted EBITDA from our Gas Transmission and Midstream business was down $96 million from last year. Two factors drove the decrease.

The first was the absence o f earnings from the US and Canadian gathering and processing assets that we sold in the back half of last year. Secondly, we are working through a comprehensive integrity program and we expect this to result in higher integrity expense through the course of 2019. I'll come back to this later.

Partially offsetting this was the strong and steady performance from our core GTM assets and contributions from Valley Crossing, which you remember was brought into service late last year. Gas distribution adjusted EBITDA increased by $21 million for the second quarter.

This increase was largely due to the higher distribution rates and growth in customer base compounded by a colder spring in Ontario. Renewable power generation was down from last year. Operating performance was strong in Canada and the new Rampion UK facility has ramped up in line with expectations.

But these were offset by weaker wind resources in the United States. Energy Services was up $26 million when compared to the second quarter of last year.

As you’ll recall, wide crude oil differentials in the later part of last year and early this year created opportunities to lock in profitable forward arbitrage margins and drove our exceptionally strong Q1 results. Some of those opportunities continued into Q2 although not to the same degree.

Nonetheless, it drove a year-over-year growth in the second quarter segment. Looking ahead, we've seen differentials tighten. So while still positive, we are not expecting Energy Services result in the second half of the year to be comparable with the first half.

Finally, turning to Eliminations and other, EBITDA was down 20 million year-over-year primarily due to hedge settlements on our enterprise, foreign exchange hedging program related to the stronger dollar during the quarter. So, overall, another strong quarter and a really strong first half across most of our businesses.

I am now moving on to Slide 15 which reconciles to DCF. Absolute DCF came in at $2.3 billion, up 24% relative to the second quarter of last year. The significant increase is largely driven by the buy-in of our sponsored vehicles, which means that we now retain all of the cash from those assets.

The per share metrics conversely reflect the equity issued to buy these vehicles in. In addition to that, as you can see on the right-hand portion of the slide, most of the factors were positive to DCF year-over-year, starting with strong operating performance, which I just walked through.

We had lower maintenance capital expenditures, compared to last year, mostly due again to the asset divestitures.

But we do expect our maintenance capital expenditures to ramp up in the second half of the year, similar to the prior year seasonal profile and still in line with our full year annual maintenance CapEx guidance of approximately $1.2 billion. Financing costs were lower due to the application of proceeds from last year’s asset sales to debt reduction.

We had lower current tax, reflecting newly enacted tax legislation during the quarter, which lowered recorded current taxes. Year-to-date, our current tax is in line with our own expectations and our full year outlook for current tax remains approximately $400 million in line with our prior guidance.

Lastly, distributions in excess of equity earnings were higher in the second quarter due to strong operating performances on assets like Seaway and our Bakken investments as new assets placed into service by our joint ventures, for example Nexus, all of which supported year-over-year higher cash distributions.

Turning now to Slide 16 in our financial outlook for 2019. We had a very strong first half of the year, ahead of our own expectations. However, as I had mentioned earlier, some of this outperformance is unlikely to be repeatable in the second half of the year. We've identified some guidance variances materializing in the back half as follows.

First, in our original guidance, we had contemplated a November 2019 in-service date for Line 3. As discussed, we've estimated that for every month Line 3 is delayed, DCF per share is impacted by approximately $0.04. So that's $0.08 of expected variance drag later this year.

Second, we have also started seeing the impact of higher than guided integrity expense in GTM during Q2 and we expect this to ramp up throughout the remainder of the year as we execute the integrity program. We estimate that drag is approximately $100 million for the back half of the year or $0.05 per share.

Third, we expect to see higher operating and administrative spending in the second half of the year, which is just timing-related. And finally, as mentioned, we don't foresee the same market conditions that have led to the outsized energy services arbitrage opportunities in the second half.

So overall, a really strong first half, but we expect to revert back to the middle of the range by year-end. As it relates to our 2020 outlook, we are not going to be in a position to update our previous guidance until we've evaluated the Minnesota PUC's timetable for the Line 3 process in Minnesota.

I'll wrap up my section here on slide 17 with a few comments on funding and the balance sheet. We've made significant progress on strengthening the balance sheet. Our operating and financial performance has been strong and we also sold $8 billion of non-core assets last year, which in combination has greatly enhanced our financial flexibility.

These actions also allowed us to eliminate our DRIP program last year. So we are now in self-funded growth mode. And our credit metrics are right in line with our longer-term targets and rating agency expectations with improved consolidated debt-to-EBITDA at June 30th of 4.6 times and that's down from 4.7 on a trailing 12-month basis.

We forecast being comfortably within our target range for the rest of this year and next. And that's after accounting for the delay in Line 3 cash flows and factoring in our secured spend, as well as new projects backfilling the inventory in coming years.

Specifically on the Saint-Nazaire investment we announced today, I confirm it will be non-recourse project debt financed and therefore our equity contribution to the project will only be $300 million, some of which has been spent already through DevEx and the rest will still be a few years out at COD in late-2022.

And when Line 3 does come into service, absent other actions, we could dip below our 4.5 to 5 times debt-to-EBITDA target which will provide even more dry powder to self-fund additional future growth. And with that, I'll turn it back to Al to wrap up..

Okay. Thanks, Colin. And so, just to conclude here, I'll summarize the progress on the priorities that we said at the beginning of the year. Based on first half and the outlook for the second half that Colin was talking about, we can safely say we are on track to deliver on promised results even after the Line 3 delay impact for 2019.

On Line 3 though, we are obviously very disappointed with the court's EIS decision given the extensive review that I referred to earlier and the overwhelming support for the project. That said, we are moving forward to get this work done because the line does need to be replaced.

We've launched an open season for long-term contracts in the Mainline and expect to have this in front of the regulator by year-end. And we've secured 2.5 B of new capital year-to-date, which will help extend the growth post-2020 and again, these projects are down in the middle of the fairway and we expect more to come along as well.

Balance sheet-wise, we're in good shape that the EBITDA stands at 4.6 as Colin said and we expect to remain at this low-end of our target through year-end. So, with that, let's turn it over to the operator to start the Q&A session..

[Operator Instructions].

Operator, are there any questions in the queue?.

Yes. Our first question is going to be from Jeremy Tonet from JP Morgan. Your line is now open..

Good morning..

Morning..

Just wanted to start off with the offshore business, and it seems like there is a bit more of a focus here as far as what capital could be deployed.

Just wondering how big do you see this opportunity set? How does this opportunity compete versus other projects you have for capital? And just wondering how big could this segment get versus some of the other ones out there, obviously Enbridge being a large company and it takes a while to make a difference.

But just kind of curious strategically looking forward how offshore fits now..

Great. It's a good question, Jeremy. So, bigger picture here, obviously, in terms of the rest of the other businesses, the current contribution from renewables is relatively small under 5%.

The way we are looking at it strategically, Jeremy, as I said, it's almost like the asset base is reflecting the overall energy mix and as you know, renewables are still very small in the broader energy context.

So we feel that having a little bit of capital in that area makes some sense provided that the projects can hit the same returns as the rest of the business and certainly the ones that we are seeing out there in the European offshore wind fits as well if not better in some cases than the projects that we are seeing in the conventional business let's call it.

In terms of the growth capital the way we see it here, we'd like to see it strung out in terms of the deployment over the next two, three, four, five years. As Colin mentioned here, our actual capital out on this first project is quite small.

And then, if we can lay in the next two projects if they meet the FID requirements over the next three to four years, then that’s ideal and of course, you are bringing on EBITDA as you go. So, I would say, it’s a steady gradual pursuit of offshore, but certainly not rivaling the other core businesses at least within the next little while. .

That’s helpful. Thanks. And then, just turning to the U.S. side, I was wondering if you could comment a bit more about how Gulf Coast presences is coming together with crude oil and how you see the kind of your export project moving forward with some other kind of developments with competitors out there.

And just wondering if you could update us in that platform and if I could speak with TETCO do you know what the amount of downtime or ability to [indiscernible] on the gas?.

Okay. Let me start with TETCO then. I think it’s probably too early to tell where we are at here. I am not – I don’t think we can provide an estimate of when the time will be for restart. The NTSB is currently on site of course and we are coordinating with them. I think we’d probably get to know more Jeremy in the next few days.

So, we’ll have to wait on that when given the incident just occurred. So we’ve got some work to do to figure that out. In terms of your Gulf Coast strategy comment, I think that, what we’ve been able to do here is demonstrated and there are likely be more opportunities to follow on the gas side.

We are just so well positioned there in terms of our existing infrastructure that in some ways we become the natural go to for bringing a supply to these LNG plants in what we call the next wave of LNG projects that are hopefully going to sanction here by the LNG developers.

On the liquid side of the business, I’d say that, we have a very good position there. I call it a bit of a starter kit if you will. We’ve got great assets with Seaway. We are going to have Gray Oak in. So we are starting to build out and we are looking for opportunities and hopefully we will see ways to build that out in the next little while here.

So that’s where we are generally on the export strategy..

That’s very helpful. Thank you..

Okay..

Thank you. And our next question comes from Matt Taylor from Tudor Pickering Holt. Your line is now open. .

Hey, thanks for taking my questions here. Just going to Line 5, trying to understand the timing of a potential re-routing option that you disclose and might be willing to do if you call out some environmental risk obviously still under review there.

But just the pace we’ve seen regulatory processes move forward suggest to me there might be some to do in the interim.

So I am just curious how you are thinking about that risk and potential options moving forward there?.

Okay, Matt, maybe we will have Guy talk to that one. .

Yes. So, obviously a reroute will require regulatory approvals and will take some time. I think as we think through that, first off, whether we pursue a reroute and how that shapes up will obviously be a function of our conversations with Bad River.

So, having that as the background, we would expect that if we are in a reroute scenario that it would be with support from the band for the reroute which we think would help us in securing the regulatory authorizations. But you are right, it would take some time.

So, part of the conversation then that we have been having is making sure that the operation of Line 5 across the reservation in that interim period continues to be safe as it is today..

Great. That’s helpful. And then, maybe just one more from me. Another nice win there on the potential LNG interconnect. Can you just help me understand now it’s a couple in the queue there the value proposition that allowed you to win that project and what’s obviously a very competitive market there.

So just kind of learnings from that project and how you are seeing the growth build out there?.

Just to clarify, Matt, you are talking about the Calcasieu plant and our project to feed it?.

Yes, precisely, yes. .

Oh sorry, Plaquemines, okay, sorry. Yes, so, this is a very good example of how existing infrastructure can help and we’ve got a [lag] [ph] in the facilities we have that aren’t very highly utilized.

So, ability to reverse that lag and expand the existing segment that we have into that region gives us a big advantage in terms of feeding the plant with very low cost transportation.

And don’t forget, part of it is, the header system that we have all along the Gulf, so that, from an LNG plant perspective which [indiscernible] diversity of supply and for sure we are connected to all the right areas of supply.

So, all in, this is a kind of thing that can drive more and more opportunity given the position we are in with our existing assets and ability to source diversified supply into the plant..

Yes, great. That’s helpful color. Thank you very much. .

Okay. .

Thank you. Our next question is from Linda Ezergailis from TD Securities. Your line is now open. .

Thank you. I am wondering if you could kind of round out your understanding a little bit about the open season you just launched on the mainline. Specifically, I am wondering if you could provide some color around the attributes for risk sharing with your shippers.

I know in past agreements they were volume off ramps, there were clauses allowing sort of unexpected costs related to legislation to flow through. And I am assuming that, the shippers will not be absorbing any sort of incremental capital expenditures on any fronts related to tunnels, et cetera.

But can you walk us through some of those attributes? Or might we have to wait until your filing with the regulator later this year?.

Yes. Linda, it’s Guy. I think we are probably not going too far into that. I think maybe just to address a couple things you raised. Going to a contract approach would negate the need assuming success of the open season for volume off ramp. So, we don’t foresee that being a part of the puzzle.

I think, as you alluded to there will be a continuation of a lot of the risks that we have been managing throughout the CTS agreement in part because we think we become very good at it. And it goes to the certainty of the [toll] [ph] that Al referenced earlier.

So, I think, final point I would say, as with most agreements should something dramatically unusual come out of left field either through a regulatory requirement or some other means, we would have some degree of protection. But I think that’s about as far as I want to go. .

I think, Guy, there was a reference in Linda’s question I think the Line 5 around it being contemplated and the answer to that one is yes, in the way we’ve looked at the new offering, we would count for the cost of the tunnel I guess..

Correct, correct. .

That’s helpful. Maybe moving on to your near-term operations. Appreciate the update on cash taxes for 2019. But maybe beyond 2019, with some of the Canadian tax changes, can you give us an update on the runrate of cash taxes next year and beyond and maybe also your effective tax rate given what’s going on in Alberta..

Sure, Linda. So, yes, we guided about $400 million of cash tax in 2019. For 2020, it upticks a little bit about 500-ish. And I think our effective tax rate for the year is approximately 20%. .

In 2020 or 2019?.

2019. .

Okay.

And does that kind of trend down a little bit over the next couple of years or would that be flat?.

Pretty similar. .

That’s helpful. Thanks. I’ll jump back in the queue. .

Thank you. .

Thanks, Linda. .

Thank you. Our next question is from Shneur Gershuni from UBS. Your line is now open. .

Hi, good morning everyone. Really appreciate the color today.

Hello, can you hear me?.

Yes, we can hear you. Go ahead. .

Sorry about that. Okay, so, I guess my first question is with respect to 2020. I completely understand your reluctance to give any guidance, given that MPUC hasn’t given an update on the process, but has anything else changed with respect to your outlook for 2020? I mean, we can make our own assumptions about Line 3 or just take it out and so forth.

But are there any other moving parts that would have taken your 2020 guidance up or down based on other announcements that you’ve made?.

Yes, thanks. I think, generally, we’ll defer to – until Enbridge Day for 2020 guidance overall. But if you look through some of the trends, I think you could look at our base business and strength that we reported so far this year. There are some areas that we will continue around the liquids business certainly.

And I mean, other than that, continued cost management of taxes, interest rates, we’ve talked about. So I think, in large part, Line 3 will be the biggest delta from the guidance we provided so far and we will update our guidance in December. .

Okay. That makes sense. And then, just quickly over to Line 5. I really appreciate all the color that you gave and so forth and you sort of stand – you had a bunch of different solutions and so forth.

But is the solution in your hands right now? Or is it in the courts as the final say? And in the Draconian scenario, what do you expect or what would you estimate the lost EBITDA would be if the worst case scenario plays itself out?.

Yes, so, it’s Guy. Obviously, there is a court proceeding going on. We certainly don’t take the view that the issue is in the court’s hands that’s going to – that will play out as it’s going to play out. But, we are interested in continuing to resolve this issue through the continuing collaboration that we’ve had with Bad River to this point.

They’ve signaled their willingness to continue talking and we fully expect that to happen. Going down the legal process if that prevails as the process, we expect it would be a multi-year process that really isn’t going to be to the benefit of either party in this scenario.

To go to your question about the Draconian side of things, we look at Line 5 and the importance – first off, Line 5 is safe and it’s operating safe today and it will be operating safe for a long time to come.

The energy that it supplies is so important to that region that we are not looking at a scenario while it being shutdown as being feasible at this point in time. We’ve never gone down in our financial reporting to the level of reporting on a specific line within the mainline and we are not going to do that at this stage.

The only message we have is that, you can – people know what the capacity is. They can determine what our tools are. They are public. And simply, multiplying those two numbers together is going to get you an answer that is not correct. .

So, I mean, without people understanding what the downside is, it’s hard to – hard for investors to actually capitalize correctly understand what the risk bounds is to – does that – by not giving that information does that potentially increase your equity risk premium just because of the uncertainty and the risk that people make bigger assumptions on the downside?.

I think, Shneur, it’s Al. We understand the question and desire for more information here. But basically what we are saying is, there is lots of risks we manage in the business. In this case, we see it is a very low probably outcome.

So, when you add that to what Guy was talking about around what’s publicly out there already and I think his point around simply multiplying tools with volume is a good one because in the low probability event that you are referring to, certainly we’d have to do some other things to move volumes to other parts of the system.

So, as you said, I think that’s our position today and other than that, I think that’s where we are. .

All right. Great. Really appreciate the color guys. Thank you and have a great weekend. .

Okay. Thanks, Shneur..

Thank you. Our next question is from Rob Hope from Scotiabank. Your line is now open. .

Good morning. First question is on the gas transmission integrity pick up in the back half of the year. Just want to confirm that this would be incremental to your 2019 guidance. And just want to get a sense – just given some of the issues in BC, as well as this week.

Could we see higher integrity spend on gas transmission trending up over the next couple of years?.

Hey Rob. It’s Colin. Yes, thanks. So, the amount I referred to earlier was on the expense side and that is incremental to the 2019 guidance we provided at Enbridge Day. And it relates to programs we’ve commenced earlier this year to reevaluate this system. So, - and we provided associated capital for that in our maintenance capital guidance for 2019. .

Yes, just a quick add-on to what Colin said for context here, Rob. So, back in – I guess, it was December, we undertook a review of the gas system and with that we advanced some inline inspections. We initiated some new ones. We did some engineering assessments and obviously, lots of maintenance work, as well.

So, that’s what prompted the increase that you are referring to. But just to be clear, the amount that we are talking about is already been considered within our comments around the guidance for this year. .

And is that the expectation that we are going to see continued higher levels of integrity in 2020 and beyond?.

It’s probably in the same order of magnitude as we have this year, or maybe a touch higher. That’s our view at this point..

Okay. And then, just touching back on a prior Line 5 question.

In a low probability event where a Line 5 is shutdown for one reason or another, how much flexibility do you have in your system? Or how much flexibility can you gain in your system to shift volumes kind of serve the Lake Michigan enough?.

Yes, so, it’s Guy. Obviously, one of the benefits of our mainline system is the flexibility that it does have.

So, we do see an opportunity to manage some of that situation in the event that it manifest obviously in addition to our – the flexibility that we do have, that will be a function of what our shippers want to do in that scenario in terms of what crudes they have and where they would want to try and take them..

Maybe, Rob, I could just provide one bit of context here, because I think Guy’s previous point was right about the demand in the market side of this equation. And it goes to the previous question around probabilities and for this kind of thing happening.

Michigan needs about 450,000 barrels per day of crude to meet their needs and they only get a very small amount of it from the Detroit refinery. That leaves a good chunk of crude that needs to be sourced from other states, Ohio, Indiana, Illinois and then in Ontario.

So, if you do that scenario from the demand point of view, and you take out that volume out of the system into that region, you are looking at roughly 40% to 50% shortages in Michigan itself.

And let’s not forget Line 5 supplies all the volume including Detroit and so not having that is just hard to see how you compensate for that level of a disruption.

And so, that’s really the point I think you are going to see massive increases in energy, consumer cost if that low probability event were to happen and that’s partially the reason why we are saying it’s low probability. .

Thanks for the color. .

Okay. Thanks, Rob. .

Thank you. Our next question is from Robert Catellier from CIBC Capital Markets. Your line is now open. .

Hi, good morning. Sorry to hear about your news with Texas Eastern and good luck with given what the community issues on that..

Thank you. .

My question was related to Line 5 as well.

I am just curious as to, when you think you will be in a position to file applications for the tunnel if in fact that you do that and whether or not that’s contingent on getting some agreement state first on the legal issues?.

Yes, so, it’s Guy. We have our geotechnical program underway this summer. That we will start dialing some more detailed engineering around the project towards the end of the year, assuming things progress as planned, we would like to be in a position sometime in the first quarter of next year to make the necessary applications.

But to your point, I think, before doing that, we are going to need to evaluate where we are at both in the legal perspective of discussions or where we might be at in terms of discussions with the state. .

That makes sense. This morning in the press release, there were some improvements to your system capacity through some optimizations.

I am just wondering if you could give us an update with respect to potential Southern Lights reversal over that stands in terms of your operational priorities?.

Yes, so, we’ve had those potential mainline expansion options out there for some time now. At this stage of the game, I think the best way to characterize what’s happened is, is our focus with our shippers has been on the open season.

And the mainline contracting, because until we see the result of that, that’s going to be the greatest indicator of whether there is demand for further expansion of our system. So, those options are out there. We’ve continued to have discussions.

I think we said historically Southern Lights is the one that would probably come last just given the nature of what needs to be done and the commercial considerations around its current servicing condensate. So, it’s a possibility that’s out there. But it’s not actively being pursued given our focus on open season. .

I think Guy’s point is right on, because in fact, it’s a bit circular, Rob, because the open season itself and the recontracting – or contracting of the mainline, one of the big benefits there is that it provides a commercial underpinning for what will happen in the future and having that locked in, certainly it will allow us and the shipping community have greater transparency on what we can do to expand this, whether it’s the one you mentioned or downstream expansions of the system further into the Gulf for example.

.

Okay. Fantastic. Thank you. .

Okay. Thanks. .

Thank you. And our next question is from Praneeth Satish from Wells Fargo. Your line is now open. .

Hi, good morning. So, you sold some wind assets last year.

So I am just curious what’s different about the wind farm t hat you are developing in France that, I guess, makes you confident to keep investing capital there over the next few years?.

Yes, it’s Al speaking Praneeth.

I think the biggest thing here in terms of the difference, as I referred to earlier in my remarks is that, on the offshore wind business in North America, our view was that the growth opportunities there under the commercial model that we covered where we have long-term PPAs with good returns and capital risk that we can manage well sort of veining in terms of those opportunities in North America.

So, at the same time, we had this, obviously, you know about the inflow of private equity and capital chasing on certain kinds of assets. So, we basically took the opportunity to monetize half that is very good valuation given that we thought the growth prospects were little lower. Europe is different. There is lots of opportunities.

There is good long-term PPAs. The support for those kinds of projects is very high there and a good chunk of future generation is going to come from renewable in Europe. So, it’s really a trade if you will between focusing on a growth here part of this particular asset category. So, that’s the reason. .

Okay, great. And then, just willing to touch on the potential alliance expansion.

So, the last open season that you guys tried to do there, I don’t think got the commitments that you want and so, I guess, what’s changed this go around that gives you the confidence to proceed with it?.

Yes, good question. So, on alliance, we’ve essentially, for the reasons you noted sort of shifted the focus here. We think longer term there is excellent opportunity for expansion on alliance all through the system just given the egress challenges that are there in Western Canada. So we’ve essentially shifted the timing here to focus on the U.S.

segment first and as you know, the Bakken growth potential is very large and there is lots of liquids there as well. So, we’ve essentially shifted the timing to focus on the U.S. side first and we are seeing good opportunity there. We are in discussions now with the potential shippers and hopefully, we’ll have something here at the end of the year. .

And by the way that would include potential expansion of the Aux Sable frac facility in Chicago. .

Great. Thank you. .

Okay. .

Thank you. And our next question is from Ben Pham from BMO. Your line is now open. .

Okay. Thanks. Good morning. I got a couple of follow-up questions on the mainline, open season and it looks like you are adding the Altura volumes in that and I guess, I am curious, I mean, it makes a lot of sense and you want to maximize the contracts on that in mid-2021.

But how do you guys kind of think about managing maximizing contracting with timing, uncertainty of Algonquin and just going through the regulatory process where you do need a certain amount thus far?.

Yes, so, it’s Guy. I’ll take a crack at that from a number of different angles. So, first and foremost, at this stage of the game, we still believe there is a good opportunity that Line 3 is going to be replaced and in service ahead of July 2021, which the foundational reason for moving ahead with contracting the full capacity.

The start of those contracts will be upon the startup of Line 3. If so Line 3 is delayed by a couple months, we will delay the start of the contracts for a few months. So, that’s already built in there. I think your question, I am assuming your question around spot capacity is, our plan to allocate 10%. That is a very consistent measure.

If you look at open seasons around contracted pipelines throughout both Canada and the U.S., 10% level of spot capacity is very common and that’s why we have chosen to use that one. .

Okay. All right. Thanks. And then, on the – and your success with contracting and I know it’s very good support to that. How do you think the opportunity is for you with the credit rating agencies? I mean, it still looks like you are keeping moving to this pure play utility like model.

Is this potentially credit accredited to you guys long-term?.

Yes, hey, Ben. It’s Colin. I think that we will be credit positive. I think the agencies view the mainline already pretty favorably given its competitive position. But the contracts and hopefully the tenor of the contract should enhance the credit profile further. .

All right. It’s okay. Thanks everybody. .

Thank you, Ben. .

Thank you. And our next question is from Joe Gemino from Morningstar. Your line is now open. .

Thank you. Just a couple of questions, short questions. First, regarding the potential mainline expansion related to the share. Is there a regulatory process that you need to go through to get those approvals? And turning to next year with the potential extended Line 3 delay, do you see any impact on the 10% dividend growth guidance? Thank you. .

Yes, so, it’s Guy. I’ll take the first one. If you are referencing the – kind of the mainline optimizations and what not that we’ve talked about that 85,000 barrels per day, there are no regulatory requirements associated with that. .

Okay. .

On the second part, Joe, so, in terms of the dividend policy approach that we take, it’s really based on a multi-year look at what the cash flows are going to be and how much we are going to generate out of the business. So, as you know, we’ve said the 10% growth basically from 2018 through to 2020.

That’s what it continues to be given our view of the underlying cash flows and the strength. And so, that’s – there hasn’t been a change in that view obviously. We confirm those dividend decisions near the end of the year. In this case, probably end of November. .

Great. Thank you very much. .

Okay. Thank you. .

Thank you. And our next question is from Michael Lapides from Goldman Sachs. Your line is now open. .

Hey guys. Just a Line 3 question. I know you are talking – you’ve talked a lot today about the EIS process. But what happens now with the appeals for both the Certificate of Need and the Route Permit.

Do those appeals actually get hard or do those just go back to the PUC for literally rewriting of the CN and the RP?.

So, it’s Guy. I’ll take a crack at that. So, right now, the appeals of the Certificate of Need have been stayed by the courts. And the Route Permit appeals have always kind of been positioned that until the appeals of the Certificate of Need are dealt with, they are not planning to deal with the Route Permit.

So, it’s – the Route Permit is kind of out there and not really be enacted upon any way.

I think, it’s going to be a function of what the PUC determines they do in the process that they follow in terms of completing the EIS and recertifying the Certificate of Need and Route Permits that will then determine what might or might not happen on the appeal side of things. So, it’s a bit of an update on where we are today.

The process and how it will unfold that will be largely dictated by the process that the PUC determines they will follow. .

Meaning PUC could make adjustments to the RP and the CN and that would either have to get reviewed and approved by and voted on by the PUC again.

And that would sideline or make the appeal a relevant or would that just get folded into the current appellate case?.

Our expectation is that, given the narrow nature of the one issue that has been raised on appeal around the EIS that there will not be a need to kind of reopen all of the proceedings around the Certificate of Need and the Route Permit. .

Got it.

So then those appellate cases would just pick back up again, once the EIS issue is done?.

Correct. That’s our assumption. .

If that’s what happens, we are pursuing that, but, yes. .

Okay. And then, just a question on the U.S. gas transmission business.

How material do you think the rate changes at the three pipes that are in kind of rate reviews right now, so for Algonquin, Texas Eastern, East Tennessee? How material of a change when we think about 2020 and beyond?.

Well, that’s a good question, Mike.

So, I mean, that’s obviously part of what we are doing here in the settlement discussions is making sure that while we want to catch up, for example on Texas Eastern for the number of years that we haven’t been updating our rates, I think we’ve got to balance that with the fact that, it’s still a competitive world out there.

And we are taking that into account, let’s put it that way while we go through settlement discussions. So, I don’t want to comment on what rates could be. And remember, half of the rates here are – it’s only half of the rates that are subject to this process.

The other half are negotiated and of course, they wouldn’t be affected because they are in place for longer terms. So, I guess, we don’t expect that it’s going to change our competitive position. .

Okay.

Like, for one of the pipes you’ve got a settlement already filed with the FERC, can you just give us, since it’s a public document just a little bit of kind of direction of – does it imply an increase or decrease to the revenue requirement at that pipe?.

Yes, I think you are talking about East Tennessee which is, I believe it was 3%. So, it’s de minimus in terms of the impact on revenue to us. And also on that one, we’ll likely be moving to filing a full rate case in the coming years. .

Got it. Thank you guys. Much appreciated. .

Okay, Mike. Thanks. .

Thank you. And our next question is from Patrick Kenny from National Bank. Your line is now open. .

Yes, good morning. Just maybe back to the mainline open season here. I am wondering if you can comment on how some of these other recent egress developments maybe impacting shipper demand.

A few smaller open seasons out there including your own offering additional capacity on the Western Canada, there is a cap line reversal debottlenecking in the Midwest.

Again, just wanted to get your thoughts as to whether or not net-net these other open seasons are having a positive or negative effect on demand for long-term commitments on the mainline?.

Yes, so, it’s Guy. I’ll take a crack at that. I think, as we think through that, it really boils down to what do producers want to do with their barrels? These other actions on other pipelines really aren’t having an impact on kind of our traditional downstream refining market in terms of their desire to continue to utilize our system.

We went through the exercise of negotiating where we’ve landed on the open season in an approach and the producers made it very clear to us that they wanted to have a level playing field in terms of their ability to participate in the open season versus refiners and we’ve given them that.

So, they, there is a signal from them that they want to ship on our system. But I think until we get into the results of the open season, we can’t speculate on their views of going on Enbridge versus other alternatives. Express is a bit of a different animal, in that, we’ve begun to see some refinery creep in that Rocky Mountain region.

So, it’s about egress obviously, but it’s also about some growing demands in that area. So we think that one’s got a good chance of being successful. .

Just bigger picture here though, if you think about some of these smaller open seasons, certainly, they are not going to move the dial to what has become the broader issue as the Western Canadian, let’s call it pure upstream producer in that the whole game for the future is going to be certainty of egress.

And that’s why the open season for us and their ability to contract and get surety not only provides surety for volume that they have, but in a bigger picture, their growth and the optimization and capitalization of their total upstream resource potential is really driven by that surety to access.

And so, that’s why we think the offering that we are putting out provides, not just near-term benefits for access, but I think it really helps the overall picture in the basin long-term. .

And given that appetite for U.S.

certainty, is it safe to say that the contracted polls coming out of the open season might land, at least equal to the current CTS total? Or should we expect I think, a little bit of a downtick here just given the discounts being offered for term and volume?.

Well, we are not going to get into that, because that’s not public information at this point. I think what we said though in the past is that, basically, what you said, is potentially that you can assume the exit toll is about the same rate. There will be escalator in the toll in the agreement just like there is today under the existing CTS.

But I don’t think your assumption is too far off. .

Okay, that’s great. Thanks a lot, Al. .

Okay. .

Thank you. This concludes the question-and-answer session. I will now turn the call over to Jonathan Morgan for final remarks..

Great. Thank you, Gigi. Thank you to everyone for your time and interest in Enbridge today. As always, our IR team is available to take additional follow-ups. And have a great day. Thank you. .

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..