Enbridge Inc

Ladies and gentlemen, welcome to the Enbridge Incorporated Second Quarter 2023 Financial Results Conference Call. My name is Abby 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. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Please note that this conference is being recorded and I will now turn the call over to Rebecca Morley, Director of Investor Relations. Rebecca, you may begin.

Good morning and welcome to the Enbridge second 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, Pat Murray, Executive Vice President and Chief Financial Officer, and the heads of each of our business units, Colin Grunding, Liquid 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 questions to one plus 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'll remind you that we'll be referring to forward-looking information during today's presentation and question and answer period. 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. And 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 strong second quarter results and provide a business update. I'll start off by doing a mid-year check-in on some of our key priorities that we laid out for you at our Investor Day. I'll then take you through some updates from our four businesses and provide highlights from our 22nd Annual Sustainability Report. I'll also highlight how our industry-leading diversified cash flow profile underpins our strong balance sheet and will continue to support Enbridge as a first choice investment opportunity. Pat will then walk you through the financial performance, our capital allocation priorities, and growth outlook. Lastly, I'll close with a few key takeaways, and as always, the Enbridge team is here to address any questions you may have. Q2 was a really good quarter for Enbridge. We saw high utilization across our assets and had strong financial results, consistent with our expectations. This performance puts us on track to meet our full year EBITDA and DCF per share guidance. Our balance sheet is in great shape. We have a high investment grade credit rating, and we exited the quarter at 4.5 times debt to EBITDA, the very low end of our targeted range of 4.5 to 5 times. We are pleased to have reached a settlement in principle with shippers on the mainline tolling early in the quarter, which was great news for us, our customers, and the industry overall. We will provide an update on next steps when we discuss our business units. On growth, we made good progress on our U.S. Gulf Coast crude oil strategy by extending and upsizing Flanagan South's open season, where we saw very strong interest for customers for that pipeline service. We also sanctioned new storage capacity with Enbridge Houston Oil Terminal, or EHOT, enhancing the competitive profile of our mainline system to deliver Canadian oil to the US Gulf Coast. We have filed a partial settlement on our utility rebasing application, which includes important matters and has been verbally approved by the OEB panel. We expect a final outcome on 2024 rates by Q4. This will provide benefits to our investors and customers and will support Ontario's population growth, energy affordability, and economic growth in the province. We continue to see growth opportunities in our renewable business and anticipate reaching FID on certain U.S. onshore development projects by year end. And we're pleased that NextDecade reached FID on phase one of their Rio Grande LNG facility. We are in the process of obtaining necessary permits and regulatory approval for our Rio Bravo pipeline project and plan to start construction in 2025. We've executed over a billion dollars of accretive tuck-in M&A year-to-date. In liquids, we increased our ownership and acquired operatorship of Gray Oak Pipeline, which delivers crude to our world-class export facility at Ingleside. In gas transmission, we enhanced our North American LNG export strategy by closing the Trace Palacios Natural Gas Storage Acquisition and acquiring Aiken Creek Natural Gas Storage Facility which we expect to close in Q4. Lastly, we continue to sustainably return capital to our shareholders. All in all, a great start to the year, and as mentioned, we are on track to achieving our financial guidance, and we are making good progress on our growth commitments, which include all forms of energy across our premier franchises. We continue to believe that all forms of energy will be required for years to come, Natural gas and oil will remain critical components of our energy supply in all energy transition scenarios that balance the energy trilemma of reliability, sustainability, and affordability. Our asset network is large, diverse, and unmatched, providing opportunities to grow each of our base businesses, while our customer relationships, diversified asset footprint, and capabilities open up new opportunities for lower carbon investment. Now let's take a closer look at some of the recent highlights in our business units, which support our low-risk pipeline utility model. Let's start with liquids. In liquids pipelines, the mainline system remains highly competitive. We saw record volumes in the first half of the year and extended and upsized a binding open season for the Flanagan South pipeline. FSP will approach being 90% long-term contracted reinforcing strong utilization of mainline infrastructure, delivering barrels into Chicago and downstream infrastructure serving the U.S. Gulf Coast, including the Seaway Pipeline and Enbridge-Houston Oil Terminal. The liquids system really is one of a kind. It provides attractive transportation access to approximately 75% of North America's refining capacity. As mentioned, we reached a win-win-win mainline toning agreement in principle with our customers in May. This was the result of committed engagement and negotiation by both our team and the SHPR representatives. The settlement will provide utility-like returns and aligns with customers' desire for safe, reliable service at a competitive toll. A key feature of the agreement is a performance color that will allow Enbridge to earn a return on equity between 11% and 14.5% on a capital structure of 50% equity and 50% debt. This caller mechanism incentivizes us to control costs and maximize throughput to earn in the upper part of the ROE range, while also providing some downside protection in the event of extreme volume disruptions. Cash flows generated by the asset will be protected from inflation with O&A and power expense escalators set to begin in mid 2024 with annual increases thereafter. In terms of next steps, we expect to jointly finalize the settlement with industry and submit an application for its approval to the Canadian Energy Regulator by October, with the expectation that the new tolling settlement could be approved and implemented later this year. Now, line five has made a few headlines over the past few months, so I thought I'd spend a few moments addressing our position on what's happening in Wisconsin. We were pleased that the Federal District Court agreed that Line 5 continues to operate safely and is critical infrastructure delivering life-saving energy to millions of consumers downstream. Three years ago, we filed for a 41-mile reroute in Wisconsin to relocate the pipeline off the Bad River Band land. We believe the pipeline can be relocated in the three years provided regulatory approvals are obtained in a reasonable timeframe. And as a reminder, The new mainline tolling agreement also provides support for investment in both the Line 5 reroute planned in Wisconsin and the tunnel project proposed in Michigan. Line 5 continues to operate safely and reliably, and we look forward to working with the Bad River Band, regulators, and other stakeholders to relocate Line 5 with no service disruption expected. Looking at our Permian strategy, the Enbridge Ingleside Energy Center is turning out to be an all-purpose Swiss Army knife. It is indeed a one-of-a-kind terminal with the largest crude export capacity in North America, on-site storage, and a suite of lower-carbon development opportunities, including renewable power. We've seen record quarterly volumes at the facility and our Grey Oak pipeline, confirming our belief that a full-pass service for our customers from the Permian to Tidewater is a highly attractive competitive offering. In March, we signed an LOI with Yara to jointly construct a blue ammonia production facility at Ingleside that is backed by a long-term offtake agreement. We're also planning to construct a carbon capture and sequestration hub in the region, as part of our previously announced partnership with Oxy Low Carbon Ventures. A key competitive advantage of the terminal is ownership of two pipelines, Cactus 2 and Gray Oak. that deliver Permian crude to the facility. We are looking to expand Gray Oak Pipeline by up to 200,000 barrels per day with an open season plan for later this year. Additional capacity will provide customers with access to low-cost, integrated value chain that provides operational synergies and the lowest cost of tidewater from the Permian. Now, let's move on to some of the exciting developments in our gas transmission business. In the U.S., we are excited about next decade announcing a final investment decision on the first three trains to export LNG from their Rio Grande LNG facility at the port of Brownsville. Now, this allows us to advance our Rio Bravo pipeline project, which will supply 100% of the feedstock gas to the terminal as a key part of our U.S. Gulf Coast strategy. We are in the process of obtaining necessary construction permits, and notice to proceed from FERC for the project with commercial operations expected in 2026. We recently closed our acquisition of the 35 BCF Trey Palacios gas storage facility, further supporting LNG customers along the Gulf Coast. We've seen recontracting rates move significantly higher, and permitting is underway to expand the facility by up to 6.5 BCF And we will work with our customers to deliver more capacity in the next 12 to 24 months. Currently, we provide service for 15% of the export capacity on the Gulf Coast through four LNG facilities operating in the region. And we expect to grow that position to about 30% of the market share by 2030. In the U.S. Northeast, we've identified significant and scalable expansion capability on Texas Eastern, which cuts through the heart of the Appalachian Shale. Our Appalachia to market projects are a perfect example of this, and we look forward to helping Appalachia Gas reach the growing markets for all gas in all directions. In Canada, the engineering work on wood fiber LNG is progressing on schedule, and we expect to set our preferred return early next year. On our West Coast pipeline system, we're progressing $5 billion of investment on the T-North and T-South systems to feed West Coast LNG terminals and other industrials in the pacific northwest on t north we'll be looking to relaunch a binding open season for a second expansion of that bc pipeline system by year end you recall that we were acquiring aiken creek gas storage closing is on track to occur later in 2023 this asset is well positioned and will enhance our service offering to our customers and support our LNG export strategy in British Columbia. So now let's take a look at our gas distribution business. We are expecting another strong year of customer growth. We're on track to achieve more than 42,000 new customers, with 21,000 added year to date. Ontario's population is expected to grow by over 2 million people over the next 10 years, making natural gas critical to meeting customer energy demand. On the industrial side, there are few economic alternatives to natural gas to meet demand, and we're seeing tremendous growth opportunities across all sectors. On the rebasing application, we have held the settlement hearing for our new incentive rate application for the period of 2024 to 2028. We negotiated a partial settlement on important matters such as operating rate base and operating costs with recommended approval by the OEB staff. There are still some important items that need to be settled, including equity thickness and depreciation. But we expect a regulatory decision by year end and plan to enact new rates on January 1, 2024. Our focus on cost optimization and reliable service has allowed us to consistently achieve above the base ROE, as you can see in the chart on the right. We have a long track record of working under incentive rate mechanisms, providing quality safe service, and predictable rates for our customers, while also allowing us to achieve premium returns within the parameters set by the regulators. The Ontario government recently announced, and I quote, natural gas will continue to play a critical role in providing Ontarians with a reliable and cost-effective fuel supply for space heating, industrial growth, and economic prosperity. With developments in energy efficiency and low-carbon fuels such as RNG and low-carbon hydrogen, the natural gas distribution system will help contribute to the province's transition from higher carbon fuels in a cost-effective way, end quote. We agree with the Ontario government and believe renewables will also grow rapidly and be critical to meeting global emissions targets. But renewable growth cannot be sustained without being closely intertwined with the natural gas's intermittency and peak fail-safes for consumers. Speaking of renewables, Let's take a look at some of the developments in our renewable business. We're making good progress on our French offshore wind projects under construction. Over one gigawatt of new generation is expected to be online by 2025. At FACOMP, the first turbines have been installed and at Provence Grand Large, all floaters have been secured. We are tracking on time and budget with both projects expected to be fully in service by the first quarter of 24. Calvados continues to make good progress and is tracking on time and budget. In North America, we have more than 4.5 gigawatts of onshore projects in development. A portion of these projects will come online by 2025, with some expected to reach FIDs later this year. All projects have to pass our strict risk-return parameters, so don't expect us to make undisciplined investments just for the sake of growth. Our behind-the-meter strategy is continuing to gain traction. Our first solar self-power project came online in 2021, and we now have six in service, three of which came online in 2023 with more than 30 megawatts capacity. With technology improvements, rising renewable energy credits, prices, and tax incentives, more of these developments are producing strong returns and help reduce our emissions footprint. On that note, we published our 22nd annual sustainability report. So let's move on to that next. The report highlights our long-standing focus on sustainable practices and our industry-leading performance across environmental, social, and governance issues. We expanded our methane reporting, included more detail on scopes through emissions, enhanced our climate lobbying reporting, and outlined progress made on our indigenous reconciliation plan. We're making good progress on the targets we laid out to date we have reduced our GHG emissions intensity by 27% compared to our 2030 target of 35% and have achieved 18% of our net zero emissions goal for 2050. In our workforce, diversity and inclusion remain a focus with 31% identifying as women and 25% as racial and ethnic groups. We're making good progress on these priorities and remain committed to such improvements. On governance, our board is more diverse than ever. Our chair is Pamela Carter, an accomplished black woman who brings extensive experience and sound business judgment. Across the company, we have integrated emission reductions considerations into our day-to-day operations, capital allocation processes, and aligned executive compensation to performance against our ESG strategies. Our low-risk business model continues to deliver predictable results in all market cycles. So let's walk through our first choice value propositions. Enbridge has an industry-leading cash flow profile which supports our resilient business model. Our cash flow is diversified across four large businesses and approximately 98% of our expected 2023 EBITDA is underpinned by regulated assets or long-term take-or-pay contracts. About 51% of that is what we call take-or-pay plus, meaning the assets are underpinned by long-term agreements with inflation protection and cost-sharing provisions, including the new mainline tolling settlement, which will now have a colored floor ROE. About 47% of our EBITDA is low-risk and utility-like with limited variability. Earnings from these regulated assets have a prescribed rate of return on deemed equity sickness. So our high-quality cash flow profile has little to no commodity exposure and volumes. while having a high degree of assets earning regulated returns with cost pass-throughs. This underpins our low-risk business model, which is very similar to a utility, allowing us to carry somewhat higher leverage than our pure midstream peers. 95% of our customer base is investment grade, and 80% of our EBITDA comes from assets with built-in inflation protection against rising costs. This cash flow predictability supports our strong access to capital, and allows us to maintain our strong investment-grade credit rating. Financial conservatism remains a key priority and is a hallmark of how we've delivered consistent returns for shareholders. We've actually delivered attractive total shareholder returns of approximately 12% per year for more than 20 years, driven by capital appreciation and consistent dividend growth. And as we just highlighted, our diversified low-risk pipeline utility model produces reliable cash flows to support these returns, maintain a strong balance sheet, and extend our dividend growth track record. Over the medium term, we expect to grow EBITDA by about 5% per year by incorporating conventional infrastructure investments, as well as finding lower carbon opportunities throughout the business. Sustainably returning capital to shareholders is also a key part of our value proposition, and we expect that to continue in the future. So now let me turn things over to Pat to walk you through our quarterly financial results, our capital allocation priorities, and our growth outlook.