Enbridge Inc

Ladies and gentlemen, welcome to the Enbridge Incorporated first quarter 2023 financial results conference call. My name is Brent and I will be your operator today. 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. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. Please note that this call is being recorded. I will now turn the call over to Rebecca Morley, Director, Investor Relations.

Rebecca, you may begin.

Thank you. Good morning and welcome to the Enbridge first quarter 2023 earnings call. My name is Rebecca Morley and I'm the Director of the Investor Relations team. Joining me this morning are Greg Ebel, President and CEO, Vern Yu, Chief Financial Officer and President of New Energy Technologies, and the heads of each of our business units, Colin Grunding, Liquids Pipelines, Cynthia Hansen, Gas Transmission and Midstream, Michelle Herrodins, Gas Distribution and Storage, and Matthew Ackman, Renewable Power. As per usual, this call is being webcast, and I encourage those listening on the phone to follow along with the supporting slides. We'll try to keep the call to roughly one hour, And in order to answer as many questions as possible, we will be limiting the questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community, so if you're a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our investor relations team will be available following the call for any follow-up questions. On to slide two, where I will remind you that we'll be referring to forward-looking information on today's presentation and Q&A. 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-GET measures summarized below. With that, I'll turn it over to Greg Ebel.

Thank you, Rebecca, and good morning, everyone, and thanks for joining us. I'm excited to be here today to review our first quarter results and provide an update on our business. It was another great quarter, so I'll start off by recapping some key highlights that underpinned our strong performance. I'll then take you through some strategic advancements we made in our core franchises. Vern will walk you through the financial performance and outlook. And lastly, I'll close with a few key takeaways And as always, the management team is here to address any questions you may have. First quarter saw strong financial performance, a little ahead of our expectations, and we are on track to meet our full year guidance. And our balance sheet continues to be in great shape too. We exited the quarter at 4.6 times debt to EBITDA, near the bottom of our range, all of which supports our BBB Plus credit ratings. In addition, we were extremely pleased to announce yesterday that we have reached a settlement in principle with our customers on the mainline toll framework. This is great news for us and our customers, and we will comment more on that in a moment. On the asset acquisition front, we signed an agreement to acquire Aitken Creek Gas Storage in British Columbia, which enhances our LNG export strategy in Canada. And we completed the acquisition of Trey Palacios, further improving our competitive position in natural gas storage along the Gulf Coast. We also signed an LOI with Yara to construct a blue ammonia production facility at our Ingleside Energy Center, which is a great example of how our existing conventional asset base is leading to exciting low carbon opportunities. In renewables, we were awarded the one gigawatt Normandy offshore wind farm, along with our partners EDF and CPPIB. which adds to our visible growth profile. We saw strong utilization across all of our systems and delivered our second consecutive quarter of record mainline volumes. And, of course, we remain committed to delivering excellent safety performance. Across the corporation, we continually target lowering our total recordable incident frequency every year and have a great track record of doing so. Vern will touch on our progress towards our ESG goals and highlight a few new areas we're focusing on. But I would note that you can expect to see our sustainability report out later this month. All in all, another strong quarter. The new mainline tolling settlement and growth initiatives all support our near-term guidance and our strong multi-year outlook. So let's touch quickly on the financial highlights. First quarter, EBITDA is up 8%. and DCF is up 3%. These results speak to our strong operational performance and the resilient, low-risk nature of our business model in all economic circumstances. Our strong balance sheet leaves us plenty of room to execute the tuck-in M&A deals you've seen us announce recently and still leaves ample space to continue to grow further. Now let's take a closer look at the mainline toiling settlement. I'm very pleased with yesterday's announcement that we have reached a settlement in principle with our customers on the main line. This really is a win-win-win. Our customers will receive first-choice service standards at a competitive toll. Enbridge will earn attractive, risk-adjusted returns, and society will have access to safe, secure, and affordable energy for years to come. From a scheduling standpoint, it's status quo. the mainline will continue as a common carrier system available to all customers on a monthly nomination basis. Year to date, mainline volume performance has been strong and Q2 is shaping up to be another solid quarter. Going forward, our incentive to maximize barrels on the system combined with our new, more competitive toll and our unparalleled market access increases the attractiveness of our pipeline compared to others. and ensures the mainline will be well utilized by our customers for decades to come. The new mainline toll will be stable and components of the toll will be indexed to inflation and will earn an attractive return similar to the one earned during the CTS agreement. Overall, this is a good deal for everyone and is a result of thoughtful, inclusive, and constructive negotiation. So I'd like to thank our customers and the Enbridge team for working so diligently and constructively on this positive deal framework. On the right-hand side of the page, you can see some of the specifics of the new settlement. We can appreciate that there's a lot to digest with this deal, and we're here to answer all your questions, but the bottom line that I want everyone to take away from today is that this is a good outcome for all parties involved. The new toll is in line with our expectations and the provision we've been recording in our financial results. And looking ahead, our financial guidance and outlook are maintained under the new deal. And finally, we're filing a settlement application with the CER and FERC and hope to have final approval before the end of the year. So now let's take a closer look at the other parts of our liquids business. In liquids pipelines, we continue to advance our U.S. Gulf Coast export strategy. We FID the initial phase of EHOT and expect to see operations begin in late 2025. We're about to launch a binding open season for Flanagan South to leverage available capacity of up to 95,000 barrels per day and provide additional market access to our customers. In addition to securing throughput on Flanagan South, the volumes would also secure long-haul demand on the entire Enbridge network. Subsequent to the end of the quarter, we took operatorship of the Grey Oak pipeline, and we will look for opportunities to optimize that system. Equally exciting is our low carbon opportunity set, which continues to grow. In March, we signed an LOI with YARA to jointly construct a blue ammonia production facility at the Ingleside Energy Center. This facility is expected to produce up to 1.4 million tons per year of blue ammonia, backed by a long-term 100% offtake agreement. We're also planning to construct a carbon capture and sequestration hub near Ingleside. as part of our previously announced partnership with Oxy Low Carbon Ventures. So Ingleside is shaping up to be a one-of-a-kind Swiss Army knife terminal with its world-class oil loading capacity, on-site storage, and a suite of lower carbon developments and renewable power. We're also continuing to advance our low carbon plans north of the border, where we are partnering with Capital Power and Heidelberg Materials to construct a carbon capture hub near Edmonton. with phased-in service dates starting as early as 2026. And last but definitely not least, we also have seven solar self-power projects operating or under construction along the main line that reduces emissions and power cost exposure along our liquids lines. So let's move on to some of the exciting developments in our gas transmission business. Last week, we announced that we're acquiring Aitken Creek gas storage from Fortis. This asset is well-positioned, and will enhance our service offering to our customers and support our LNG export strategy. Also in Canada, we're looking to relaunch a binding open season for a second expansion of BC Pipeline's TNorth in the second half of this year. The engineering work on wood fibre LNG is progressing on schedule. And of note, by using renewable hydroelectric power, wood fibre will be the lowest emission LNG export facility in the world. In the US, we've just closed a successful open season on Texas Eastern in the Appalachia region and are pleased with customer interest. So we'll look to sanction this expansion by the end of the year. And as mentioned earlier, we've recently closed our previously announced acquisition of Trey Palacios Gas Storage, adding 35 BCF of gas storage, which will support LNG along the Gulf Coast. Lastly, we're ready to proceed with the construction. of the Rio Bravo pipeline once next decade reaches FID on its Rio Grande LNG, which should be by the end of June. So now let's take a closer look at Aitkin Creek gas storage. Aitkin Creek is the only storage facility in BC that has connections to all the key egress pipelines, including Enbridge's West Coast and Alliance pipelines. The facility is uniquely positioned to support BC gas production in a volatile price environment. And with Western Canadian gas production expected to outpace demand and egress bottlenecks for the foreseeable future, Aiken Creek is well-positioned to great long-term value for Enbridge. We are acquiring the facility from Fortis for $400 million plus customary closing adjustments, and we expect to earn a typical Enbridge return on the asset. Said another way, this is another strategic transaction with a single-digit acquisition multiple that should produce double-digit returns. Now let's move on to our latest announcement in our French offshore wind portfolio. In March, we were selected to develop France's largest offshore wind farm to date, with installed capacity of one gigawatt. Similar to our other French offshore wind farms, we've been awarded a long-term fixed price CFD index to inflation. We continue to demonstrate how we can grow the business with the same capital discipline and low-risk model that applies to our three other core businesses. This project will mark the sixth offshore wind project, with our partners EDF Renewables and CPP Investments, and plan to continue pursuing future awards in the region. Once complete, Centre Mange 1 will be located 32 kilometers off the coast of Normandy and is expected to supply electricity equivalent to the annual energy needs of 1.5 million people. Next steps for this project are planning, engineering, and permitting ahead of FID, and we expect the project to be in operation around the end of the decade. Now that we've reviewed the updates across our business, I would like to share our first choice business model and how it's positioned in the current macro environment. During the first quarter, there was extreme volatility in interest rates and foreign exchange markets. but our results demonstrate how our low risk model delivers in all cycles. As you can see from the chart on the right, we have hit guidance through challenging times in the past and we expect that to continue. Our earnings are protected with 98% of the cash flows being generated from either cost of service or contracted throughput. 95% of our customer base is investment grade and 80% of our EBITDA comes from assets with built-in inflation protection against rising costs. As discussed earlier, our balance sheet is in great shape, and all of the agencies have reaffirmed our BBB high credit ratings. We actively manage our interest rate exposure, and less than 5% of our debt portfolio is exposed to floating rates. Lastly, we borrow from more than 25 different lenders and have no exposure to any U.S. regional banks. When you add all that up, we are able to deliver predictable returns through all market cycles and deliver a first choice value proposition to our investors. So now let me turn it over to Vern to walk you through our quarterly financial results, our outlook, and update you on our ESG efforts.

Thanks, Greg, and good morning, everyone. 2023 is off to a great start. Strong operational performance resulted in an 8% increase in EBITDA and a 3% increase in DCF per share year over year. For the second quarter in a row, mainline volumes averaged over 3 million barrels per day, and with the new tolling settlement, we are confident our system will remain highly utilized well into the future. Gas transmission utilization remained high, and Q1 included higher Texas Eastern revenues from our recent FERC-approved rate case settlement. Our utility business was also up in the quarter, but the outperformance was mostly due to a change in the timing of storage and transportation margin, which will reverse over the balance of the year. We'll talk in a little bit more about the seasonality in our business. Our renewals business benefited from extremely high European power prices last year. These prices have returned to more normal levels this year. At energy services, our transportation commitments expired during Q1 and market backwardation has softened compared to the same period in 2022. The quarter also benefited from a stronger U.S. dollar, which contributed to higher EBITDA. Below the line, higher interest rates on flooding rate debt, the timing of maintenance capital, and higher NCI distributions from our Athabasca Indigenous Investment Partnership partially offset the strong operational performance coming from our businesses. Enbridge continues to be well positioned to navigate market volatility, as we saw in the first quarter. Our results demonstrate the low risk nature of our business model and also demonstrate the predictability of our financial and operational performance. So let's take a moment and talk about the seasonality of our business. Q1 and Q4 are typically our strongest financial quarters. Into winter, more gas flows on our gas transmission system and there are more peaking days. Similarly, at the utility, the majority of heating degree days are weighted towards the colder months. In our liquids business, refinery turnarounds typically take place in the spring and the fall which means our deliveries are lower during these periods. All of this has built into our annual guidance and we're on track to meet that guidance this year. So let's talk about that now. As Greg mentioned, we're reaffirming our 2023 guidance that we provided last November. The mainline settlement is in line with our expectations and the toll provision that was baked into our plan. We're expecting continued strong operating performance across all of our businesses, and the stronger U.S. dollar provides a slight tailwind for our results. However, warmer weather, rising interest rates, modest inflationary pressure on operating costs, and commodity price backwardation in our energy services business unit are hurdles we're looking to offset. On the risk management front, Substantially, all of our U.S. dollar DCF exposure has been hedged for the year at approximately 1.37. And since our last update, we've reduced our floating rate debt exposure for the remainder of the year. It's now below 5%. So all in all, we're in good shape here. Let's move to our medium-term financial outlook, which we're also reaffirming today. There's no change to what we shared with you at our investor day in March. In the first bucket, we've made good progress on rate cases and the new mainline settlement allows us to continue to optimize our liquids pipeline business. In the second bucket, we're advancing opportunities to build out our secured organic growth projects with the Normandy Offshore Wind Project and the Yarra Blue Ammonia JV. We're also advancing a number of open seasons on our systems. We will be launching our Flanagan South open season soon, and we've closed our Appalachian Region Texas Eastern open season. And we're still planning a TNorth open season for later this year. Last but not least, we're judiciously deploying our investment capacity. During the quarter, we announced the acquisition of Trey Palacios, our joint venture with Divert, and this week we announced the acquisition of Aconcrete Gas Storage. We continue to execute our strategy and effectively allocate capital to deliver the growth we're committed to. We view prudent capital allocation as being a big part of our investment thesis, and we continue to strive to maximize shareholder returns. Let's move on to that now. Our capital allocation priorities are unchanged. Our number one priority is maintaining a strong, flexible balance sheet. Q1 debt to EBITDA was 4.6 times, leaving us plenty of room to execute our secure capital program. We'll continue to return capital to shareholders through a sustainable and growing dividend, while maintaining the dividend within our 60 to 70% payout range. In addition, we'll look for opportunities to selectively repurchase shares at regional full prices, and you'll have seen we did a little bit of that earlier in April. Our free cash flow and financial flexibility provides us with roughly $6 billion a year of investment capacity, and we will allocate capital only to the best of the many opportunities that we have in front of us. Let's now turn to our secured growth program. Today, our secure growth program sits at about $17 billion. It's diversified across our businesses and will be deployed over a number of years, which mitigates today's cost pressures, which are coming from tight supply chains and tight labor pools. Since Enbridge Day, we've added the Enbridge-Houston oil terminal to the secure growth program, as that project has now reached FID. As I said earlier, equity self-financing model provides us with approximately $6 billion of annual investment capacity, where we have plenty of room for more organic growth, asset acquisitions, debt repayments, and share buybacks. Let's finish up with ESG. I want to echo what Greg said earlier about ESG. We remain committed to being an industry leader, not only because it's the right thing to do, but it's a fundamental enabler of our business. As an example, every investment opportunity we evaluate must have its own net zero emissions plan built into its project economics. As you've already heard, we've announced our JV with Yara to build a new blue ammonia production facility. And we plan to sequester approximately 95% of the facility's CO2 emissions using carbon capture and storage. This quarter, we issued the largest sustainably linked bond in U.S. history at about $2.3 billion. This brings our total sustainably linked financings to over $7 billion. On diversity and inclusion, we've set ambitious workplace representation goals for ourselves, and we're tracking well against these goals. At Enbridge, we are dedicated to creating an inclusive work environment for all of our employees. Our strong board refreshment practices bring in new perspectives and expertise, including directors with experience in Indigenous engagement, new energy technologies, and energy transition. Since 2021, we've added five new directors, and effective January 1 of this year, Pamela L. Carter was appointed chair of our board, and she's our first female and our first black chair. With that, I'll pass it back to Greg.

Well, thanks very much, Vern. And as we wrap up here for questions, let me leave you with a few key takeaways. With the mainline tolling settlement moving toward approval, our guidance and outlook remain unchanged, and we are now even better positioned to serve our customers' growth plans. Enbridge's low-risk commercial model positions us to withstand market volatility and deliver predictable results and consistent growth on your behalf. We're still laser focused on balance sheet strength and executing on our growth program within our equity self-funding model. And at Enbridge, ESG leadership in the industry is not only good practice, but also a key component of our license to operate and continue growing. Thank you, and now let's open up the lines for your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Your first question comes from the line of Jeremy Tonnet with JP Morgan. Your line is open.

Hi, good morning. Morning, Jeremy. Thanks for all the information today. I just wanted to see if we could go to yesterday's big announcement with regards to the mainline agreement And if I look at the waterfall chart, just a few points I wanted to clarify there. If it's scale proportional to actual number, if this is the net toll impact at 2023, or is it just a half-year impact? And if it's a full-year impact, is it still $5 billion EBITDA next year? Just trying to gauge those items.

Yeah, good question. I think maybe we'll start with Vernon and maybe Colin will have something to add, too. We're shocked that the first question is on the main line.

Hi, Jeremy. Thank you. I think you're referring to the supplementary material that we provided yesterday as part of our announcement. I think the key thing to think about is the provision that we've been booking is based on a whole host of factors, and we went to a lot more granularity than we normally would to give the street a better sense of what's actually happening. So there's obviously a downward revision of the toll. offset by a bunch of other factors. All that being said, the provision is in line 100% what we've been booking through the interim period and what we expect to see in 2023. Obviously, our auditors have signed off on that. And as we look forward to 2024 and beyond, obviously, the EBITDA from the main line is going to go up and down a little bit with volumes, the level of tolls, foreign exchange rates on the LACAD portion of the toll, and now we have this inflation escalator at CPI and the power price escalator at the basket of power prices that we're going to see across all the regions that we pump crude in. So I think the long and the short of it is 2023 guidance is intact, and our medium-term outlook remains unchanged.

got it that's uh very helpful there thanks then the follow-up is just uh the knock-on effects downstream uh you know there is uh it seems like there could be some very nice leverage to what this does for your system so wondering if you could just uh walk us through a bit on that plan against south expansion what have you just how do you think about new opportunities unlocked with this agreement hey jeremy it's calling yeah it's all part of the singular path right so we think about it holistically

and from a competitiveness and attractiveness perspective. So we'll be, well, we're sounding market right now on Flanagan South, and we're confident we'll move to an open season here this summer shortly. There is interest in further egress south, and I think the order of operation here helps with having a mainline settlement in principle underpin a good chunk of the distance-based toll. So that's now coming into focus on Flanagan South, and Ehad is exciting too. We're going to have a big heavy oil terminal down in Houston for customers to work with, either for local Houston distribution, displacing what was former imported crude, which is declining, But then also optionality for future export of heavy out of the Houston market. So that whole path is coming into better focus. It's already well used, right? We're already moving on a monthly basis here, you know, $500,000 to $600,000 a day down that path. And there's 40-plus refineries connected directly or indirectly on that path. So lots of optionality, which should, I think, be very competitive.

Got it. That's helpful. I'll leave it there. Thanks.

Thank you. Thank you. Your next question is from the line of Linda Ezergalis with TD Securities. Your line is open.

Thank you. Looking beyond this year, and thank you for reiterating the guidance, Just want to get an updated philosophy on your earnings at risk approach and where you are at for next year and beyond. Historically, you've limited your earnings at risk to below 5% from market-based exposures, whether it was FX, interest rates, residual commodity exposure. And I'm just wondering if you could give us a sense of how much of your 2024 plus EBITDA and earnings are hedged from an FX perspective, how much interest rate floating exposure you might have, and any other commentary you can provide on that front would be appreciated.

Hi, Linda. It's Vern. So we look at earnings at risk on a 12-month rolling basis, so 12 months forward. On that metric, we're something around 2% to 2.5% today. So we're well managed out through this year and the first half of next year. I think for our floating rate book, we've started hedging 2024. We have about 20% hedge now and we'll continue to hedge through the year just to decrease volatility both in our cash flows and earnings. So our philosophy hasn't changed where we want to be highly predictable and we'll take out that unpredictability as we go through the year.

Thank you. And just as a quick follow-up, just Big picture in British Columbia. Might you be augmenting the service offerings you provide to shippers in the region? Or might you be maybe doing a little bit more yourself with the open capacity on Aitkin Creek and some of the other physical transportation assets in the region? And can you comment as well how Aitkin Creek kind of enhances what you might be doing on T-North and T-South long term?

Thanks for the question, Linda. Yeah, Aitkin Creek is obviously a great fit for us because of our existing infrastructure in that area, and there's going to be synergistic opportunities in how we operate those assets. Part of that we'll be looking at, as you say, what those opportunities are to work with our customers, to look at contracting in that space. Obviously, we're bullish on the fundamentals, and we've see that as a great opportunity to look at providing additional contracting opportunities to our customers in that space. So more to come on that, but just with our assets, it does provide more flexibility for how we operate our other existing storage with wheeling and other synergistic opportunities for us like that. Thank you.

Linda, you know the only thing I'd add is that Consistent with Vern's comments, as you know, Aiken Creek had a little bit less contracted storage than what we usually look at. So don't be surprised to see us look to contract that up over 50% and maybe even be closer to two-thirds. I think that makes sense for us in our model. But as Cynthia says, that's the kind of asset that should give us a lot of flexibility to serve our customers on the LNG side and, of course, folks in the lower mainline and beyond.

So pretty excited about that asset.

Thank you.

Your next question comes from the line of Theresa Chen with Barclays. Your line is open.

Good morning. Turning to the U.S. Gulf Coast on the liquids front, can you talk about the status of the potential bray expansion now that you've taken over operatorship of the system, just given the backdrop of Permian to Corpus lines continuing to be full? And are you interested in owning potentially more of that corridor, given the incremental interest that you've acquired so far?

Yeah, hey, good morning, Teresa. It's Colin. Yes, generally, to the answer. More specifically, yeah, we just took over operation of Grey Oak in April, so last month. We've already, with our partners, unlocked $25,000 a day of extra capacity which is indicative of demand to your point. It's a strong foreign bid for that crude and of course our Ingleside facility is a natural pull as well which is very competitive. So again we're in market sounding for shipper interest and preference and that will inform our open season that we'll run this summer. We're looking ballpark up to another 200,000 barrels per day expansion there. Many or maybe even most customers are interested in dual service, including Ingleside capacity, that integrated path. So that's looking really good. And there's also the potential that we could extend Grey Oak over to Ehart over in Houston there, which would would bring heavy down from Canada and light over from the Permian. It's pretty exciting. So listen, we're really bullish on what's happening there. We're excited about our strategy and how it's been unfolding through acquisition selectively, through some asset swaps to get into Grey Oak, picking up some of the minority interests, and we're interested in other assets in the region. If you step back from the global supply-to-man lens on this, the world cannot function without Western Canadian or Permian crude, full stop. So we're following the fundamentals.

Got it. And as a follow-up, just when we think about the broader Gulf Coast crude infrastructure assets, something that we've heard discussed repeatedly in the industry is that importance of being able to deliver neat barrels and quality segregation, especially if you are going to extend Gray Oak to EHOT and have a more comprehensive integrated system. So can you talk about your ability to do that and how that may lend itself to a competitive advantage when seeking commitments or dedications over time?

Yeah, that's been a hallmark of Enbridge on all our systems, whether in Canada or in the Permian, is that batch quality, that FedEx service, if you like. segregating quality it's a valuable commodity it needs to be protected and uh i think i think we are have a track record of doing that um you know relative to other business models so uh yeah that that's a part of our competitive offering uh in addition to just outright you know cost effective tolls and some of the advantages at ingleside that we've talked about many times to uh to be competitive, you know, 30, 40, 50 cents, uh, integrated export, uh, tools are, are material in the global, in the global scheme. So it's all part of the mix. I'm glad you mentioned that one. Thanks.

Yeah. And it's, you know, when you think about it, even with the tool deal, right. I mean, everything we're trying to do is designed to be that first choice supplier. And, you know, so sure. On the, uh, tool deal, there's always, uh, A little give and take, but a good fair income that really incents us to give better service to our customers to use the main line. And obviously that ultimately can get people down to the Gulf, pad three. And then just what we're doing out of the Permian, I think we really are trying to build that super system and really make sure that the shippers and the customers that we have actually have an opportunity to maximize their returns in the best markets. And that's what it's all about.

And I think we're just getting more competitive every day.

Thank you.

Your next question is from the line of Robert Cotelier with CIBC Capital Markets. Your line is open.

Hi, good morning. Congratulations on the mainline deal. I know that's a monumental task for everyone involved. I wondered if you could spend a minute on the risk sharing front. It looks to me like the setup here is for a lower dispersion of outcomes, less risk it would seem. So I wonder if you could talk about what you see as the biggest wins on risk sharing. And in addition to that, what are the key leverage points to achieving the upper end of the ROE collar other than obviously just volumes?

Sure, Robert, I can take it. So this is our seventh vintage of an incentive arrangement with customers. And I mean, that should tell you something right away that customers want us to be aligned and hustle for them and win when they win. So we've got another version of it. Each time we renew or renegotiate it, we tweak a couple of things. I'd say thematically in this version of the incentive framework, we've added a risk package, I think, as you put it. is a few different individual mini risk mitigants, and then there's the overall performance caller, which acts as kind of a big risk package in itself, which is all-inclusive. So we've got a couple layers of defense here. Will we need them? Maybe not, but it's the Enbridge preference to to have them, right? You've seen our commercial model. So if you think about the risks, we've been managing these risks for a long time. The one we can't control is volume, right? That's a shipper-controlled risk. We have strong views on fundamentals and high conviction in the competitiveness of our system, and it's going to remain circa 95% to 100% full here through the piece. There's an improved foreign exchange outlook for us in that the Canadian portion of the toll will be tolled in Canadian dollars, not U.S. dollars like it was. We've got the Line 3 toll ratchet, which isn't new, by the way, but I think it's relatively new. So I remind people of that three and a half cent toll ratchet, which is meant to temper Volume volatility, right, for every 50,000 barrels, total moves 3.5 cents. We've also, I think it was implicit before, but now we have agreement in principle to recover on and of capital for Line 5 investments. So there's a few different, I would say, smaller risk mitigants, and then there's the bigger caller risk mitigation. So you're right, all with the intention of kind of narrowing the dispersion of outcomes for all, right, Shipper and Enbridge, so that it's, you know, a fair competitive solution. And as Greg was saying earlier, that society continues to win as well. Does that help? Is that where you're going with the question, Robert?

It was, and then the second piece of it is just what do you think, other than volume, is the biggest leverage point to hit the upper end of the ROE car?

Yeah, I think on that count, you know, I think it's well understood that the first few years here were going to be in the upper half of that range, just given the 21, 22, and 23 have strong volume throughputs already. And then over time, you've got pretty strong volumes, we think, through the term here and on a slightly declining rate base. So think about that as well. I think the other smaller drivers would be our ability to manage within the inflators and control our costs and power costs. That's what shippers want us to do, and we'll try to do that. FX as well, I think, will play a part in there, but Vern's team is on that and trying to manage that and lock it down as well.

Yeah, that's helpful. Thanks, everyone.

Thanks, Robert. Your next question is from the line of Rob Hope with Scotiabank. Your line is open.

Good morning, everyone. A question on the mainline. It would seem, you know, since the, or let's say over the last six months, the commentary on the volume outlook for the mainline has strengthened. And Colin just noted that you're expecting 95% utilization there. Can you maybe talk to kind of what is driving this? increase confidence on the mainline volume outlook? Is it potentially where the tolls shook out for the mainline? Is it where Trans Mountain tolls potentially could move up, or is it just kind of a sharpening the pencil on the competitiveness of the system?

I think our conviction is – I think you're observing that correctly. Our conviction is strengthening in the strength of that substantially fully utilized outlook. I think even at Enbridge Day, I refined our point of view tighter on that. But even since then, let's just reflect on what's all happened here. TMX announced a delay, another delay. And as TMX is delayed, it allows more time for the basin to increase supply, which is good for all points of egress. We understand TMX is likely to have higher tolls with cost increases. We've seen keystone incident and subsequent pressure restrictions invoked by PHMSA. It's questionable if or when those will come off. We've advanced our FSP and EHOT solution. Refinery ads are occurring in the Gulf Coast and Mexico is now going to refine more of their own, creating a bigger bid out of the Gulf for Canadian crude. And to your point, we have a lower toll, and rail economics are getting worse. So I think all of that leads to a strengthening conviction in our outlook that the main line will be well utilized and very competitive.

Maybe I can just add a comment. I think if you just go back to 100,000 feet and look at the fundamentals of crude oil, Pad 2 and Pad 3 are the strongest heavy crude markets in the world. Those refineries are globally competitive and will make very strong crack spread margins. So there's going to be a strong bid from those refineries forever for Canadian heavy crude. And as Colin mentioned, there's going to be less Mexican crude available. And global heavy crude production is declining elsewhere. So it lines up for very strong fundamentals for us and our customers.

I appreciate that. And then maybe on another note, just in terms of capital allocation, you've been quite active on, we'll call it kind of small to mid-size M&A. Can you maybe update us on potentially what your pipeline looks on this and Given market conditions, are you seeing opportunities to invest in, we'll call it small to medium-sized assets, that given your existing operations, you should be able to yield synergies on the revenue and cost side?

Yeah, for sure. Look, it starts with having that strong balance sheet, of course, right? Remember, we've got about $3 billion of capital a year based on our financial position that we can put to work, discretionary. so beyond just our typical activities. And you've seen us do that in the first quarter. We look at everything. As you can imagine, the corporate development group here have a good list of assets that we're interested in, and I would say that covers everything from gas assets to liquid assets to even renewables as well. And as we look at those, or if they come to market, we've already got a view on those. And if we can do those accretively and get what we think is a fair multiple, We're going to look at those, and if we haven't got a better alternative, I think we can execute and execute quickly. I think that's a real advantage. Not a lot of folks are in that position. The other thing I would say, the dynamics have changed, just like it has on the liquid side to promote greater volumes on our system and what's going on on the Gulf Coast, et cetera. The same is true from an M&A tuck-in perspective. The players that can participate are fewer. Higher interest rates, I would say, are probably most impactful on PE's ability to play, and that creates opportunity for us. And so we're going to be ready on those fronts. If they make sense, we'll do them. And, of course, you know, it's a classic discussion of build versus buy multiple too, right? So we know how challenging it is to build anything these days. If we can buy good existing assets that have both strategic and financial benefits to us, it actually behooves us to kind of play that role sometimes. Then it does try to build the assets themselves. And, you know, if we can't find that stuff, let's – Remember, we've also got the ability, and we did a little bit of that in the first quarter, to buy back shares. So it really comes down to that full suite of what's the best financial outcome and strategic outcome for us, and we're just fortunate to be in a good position to pull the trigger on any of those.

Thank you.

Thank you. Your next question is from Praneeth Satish with Wells Fargo. Your line is open.

Thanks. Maybe if you could just give us a little insight into what the returns are looking like for the potential blue ammonia, the wind projects, I guess, especially in light of the higher interest rate environment. There's usually a lot of debt financing on these types of deals. Is it still competitive? Are the returns still competitive with the rest of your backlog?

Yeah, absolutely. We're, you know, early days still on the Blue Ammonia project, but I'd say we have, and the way we've structured that, remember, is 100% offtake, so fitting in the Enbridge model of utility-like returns. And fortunately, we've got a partner there that likes that. I mean, they're in the ammonia game day to day. So I would still expect to have nice double-digit returns there. We'll see how it all shakes out. And remember, that project has this column like stuff and say, you've got three or four ways to play. We obviously have the Ingleside of that, you know, where the ammonia would be exported from. We've got the carbon capture and sequestration, which is our joint venture on that front in that area with Oxy. And then Cynthia, we would expect, would build the gas line into that facility as well. So it's a real opportunity to augment the returns. But, yeah, we're still seeing the same thing. Matthew, you might want to speak to offshore and onshore because it definitely depends what market we're talking about there.

Yeah, sure. Thanks, Matthew. So we did announce the Normandy project. We really like that project. I mean, I think it's important to remember that these projects have long-term contracts with quasi-government counterparties. And, you know, if we proceed to FID, they'll include full-wrap EPCs, so they can be very low-risk. So You don't see blowout returns on these, but you'll see strong returns, especially in that risk profile. And of course, you know, there's lots of work to do between now and then to FID, and it'll have to earn an Enbridge-style return to achieve that milestone. The other thing we just like about that is it extends our horizon of visible growth in our commercial model. And Normandy also comes with a potential 1.5 gigawatt extension. kind of one of these projects that has potential organic type growth associated with it. That'll be competitive, but obviously we'd have an inside track for the extension too. So, you know, we really like these kinds of projects and we do count on them earning over our hurdle rate. They all have to in renewables as well as the other areas.

You're seeing good returns on the solar front too, right? I mean, those projects continue to proceed and TGE's acquisition is really starting to heat up.

Yeah, we're seeing great prospects, as I mentioned, at Enbridge Day. We do expect FIDs later this year on our organic onshore portfolio. You know, we're getting tailwinds just from the quality of those projects we're seeing out of the TG acquisition and also the tax benefits. That was pretty aptly timed for us, too. So we're pretty optimistic on that front as well.

Thanks. That's helpful. And... Switching gears, you've done two acquisitions now in recent months of gas storage assets, and I think it's clear there's growing value for storage. I guess how do you think about the economics of buying gas storage versus building it organically? Are the market rates high enough to support greenfield expansions of storage, or is it still cheaper to acquire storage? How wide is that gap?

Yeah, thanks for the question. I think we continue to monitor that. So we're excited about the opportunities, as you noted, with storage, with more LNG. As you look out in the next five to ten years, we see that that value is going to continue to increase. As we've noted, we have the capital discipline, and when opportunities come up in this space for acquisitions, if it meets our investment thresholds, we're going to participate, particularly when it ties into our existing assets like the two we've done so far. But we think in the long run that there will be opportunities to build up some storage as you look at the economics. But that obviously takes a little bit more time and we'll be very prudent with where it makes sense to build up that storage. And you have to remember that you have to have the right kind of geological formation area to allow you to do that. As Greg noted earlier, you have to look at that buy versus build scenario and make sure you're positioned well. But I think there'll be opportunities in both spaces.

What I like is we have a huge base in storage. So sometimes I think people forget, you know, we're pushing 300 Bs of storage in the Great Lakes region. That becomes increasingly important as well. And then, of course, the assets that Cynthia and the team just picked up, so critical on the LNG front. But, you know, for new storage, you still have to get permitting. And we know how challenging is permitting even in environments. So again, it goes back to if we can buy at single digit and earn at double digit returns, we're going to do that.

That's what we've done the first quarter.

Got it. Thank you.

Thanks, Pradeep.

Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question is from the line of Ben Pham with BMO. Your line is open.

Okay, thanks. Good morning. Maybe to start off with growth opportunities, look at your secured backlog and maybe some of the projects that you've highlighted over the last quarter. It seems like when you head towards the post-2025 timeframe that your capital, your cap actually is going to accelerate dramatically and maybe it looks like it's not going to be hard to fill up that $6 billion or $3 billion. How do you think about managing that change in CapEx? Are you placing a constraint on CapEx each year? What's the high-level thought process on that?

I'll let Vern chime in here, but I'll tell you from my perspective, it's great. Remember, we've got four really great businesses that are all big businesses on their own, and that creates competition. Each one of the business units is tasked with getting the best risk adjusted returns possible. So, you know, when we sit down as a, as a team and look at it, it's pretty, pretty easy. You know, where are the, where are the best returns with the lowest risks? Uh, and that's where it'll go. And so it means we won't do everything. And I think that keeps the business development folks and the execution folks with a very sharp pencil and a keen focus on the future. Um, you know, and of course, every time we, uh, continue to, uh, to build this stuff out. Obviously, it adds to earnings. And don't forget, so I guess if we ran up against some of the $6 billion in capacity here, we've done a great job of recycling over the years, so we could do that as well. So I think whether you look at the self-equity financing model just as it is, or you look at recycling, look, if the folks bring projects that are creative to our earnings and our growth, we're going to find a way to do that.

I think Greg covered most of the points, Ben. The key is our balance sheet. We're in great position right now. We're at 4.6 times. And as we grow our EBITDA, our balance sheet capacity continues to grow. So post 2025, if we continue to grow at the rate that we're growing at today, we'll actually have more balance sheet capacity than we do today. And Greg's absolutely right. We continue to recycle capital. Don't forget, since 2018, we've recycled on an attractive basis over $11 billion. And we will continue to push forward with more of those opportunities. And I'm hoping we can do more deals like we did with the Athabasca Indigenous Group, because I think that's a win-win-win scenario for us and our stakeholders.

Okay, thanks. Maybe to finish off on the main line, the way that you've structured it here, the collar, isn't it effectively a utility asset for seven plus years? And anything you can comment on credit rating agencies, their thoughts on this agreement?

Yeah, I think you got it, Ben. I think As I mentioned earlier, it's the most utility-like version of an incentive agreement. So we've got opportunities to outperform and we've got a return floor. So it's essentially the best of both worlds, but we're going to hustle hard to serve our customers and perform the best we can. Vern, on the credit rating issue, you want to cover that?

Yeah, we have currently the lowest business risk profile for major midstream pipeline companies in North America, and I think we've, with this deal, even lowered it further. So we're in active, regular dialogue with the rating agencies, and this will be definitely looked upon positively.

Okay, great. Thank you.

Your next question is from the line of Andrew Kuski with Credit Suisse. Your line is open.

Thanks. Good morning. If we could come back just to the natural gas storage business, given some of your acquisition activities and just with the rise of renewables, maybe a greater call intraday on gas across North America. If you break down your existing asset base, a number of the storage assets are really within rate-based construct, and then a number are really operational associated with pipelines. I guess how much of it is more merchants in orientation? And what kind of opportunities do you have on that?

Well, maybe just to, I'll start and then Cynthia can jump in. So you're exactly right. I mean, we're starting to see some of the needs for the storage. So I'm not sure merchant's the right word. So let's leave Aiken Creek on the side. But remember, our typical contracts run one or two years. So while we typically contract up our market-based storage, It is relatively short-term. There are some longer deals in there. But that's been really positive because you've seen, and I think this is going to continue for a while, storage rates that have gone up 50 to 200% over the last year or so. So that's been really great. And then you're right, a lot of it's in the utility as well. But there's about 80, 65 to 80 BCF of storage there in the Great Lakes region that is market-based. And we've been able to realize, including in this first quarter, good results there. Cynthia, do you want to add to that?

Yeah, I mean, I'd only add that we've obviously seen some pretty strong opportunities when it comes to pricing. So as we've seen over the last little while, we're seeing increases in our pricing of, you know, 50 to 200% and even some pushing the terms longer. So that is creating stronger economics. And I would note that we don't have any what you would call naked exposures in this space, right? We're always getting that match, so it does create that, you know, balanced exposure in that space as we contract this out.

Okay, that's very helpful, and then maybe just an extension. There are some that do have naked exposures in the space. Do you think just the sheer scale of your asset base, so the pipeline grid itself and then the balance sheet, it maybe gives you a bigger advantage in taking a and taking some opportunities from those who do have the naked exposures should assets come into the marketplace.

Yeah, what I would say, as Greg mentioned earlier, we want to be the first choice for our customers. So we're always looking at how we can optimize that ability to leverage our full infrastructure. So trace flashes in particular is great because along with the storage, we got some really great interconnectivity of pipelines. So that is how we tie this together in making sure that we're building out for that stable long-term return for us, but providing incremental value to our customers as well.

Okay. Thank you very much. Thank you.

Ladies and gentlemen, this concludes the question and answer session. I will now turn the call over to Rebecca Morley for final remarks.

Great. Thank you, and we appreciate your ongoing interest in Enbridge. As always, our investor relations team is available following the call for any additional questions that you may have. Once again, thank you and have a great day.

Thank you, ladies and gentlemen. We appreciate your participation. This concludes today's conference. You may now disconnect.