Enbridge Responds to Canada Energy Regulator Decision to Deny Mainline Contracting
Enbridge Inc. responded to the Canada Energy Regulator's (CER) decision on Nov 26, 2021, denying its application for firm service contracting on the Canadian Mainline system. Despite recognizing the value of firm service, the CER found potential inequities in the proposal. Enbridge plans to engage stakeholders to negotiate a new commercial framework and may prepare a Cost of Service application if a new agreement is not achievable. The company expects strong throughput and positive financial outcomes in the coming years.
- Mainline throughput expected to be strong over the next several years.
- Company's outlook remains positive despite the CER's decision.
- CER denied application for firm service, limiting contracting options.
- Potential delays in establishing a new tolling structure and uncertainty over future agreements.
CALGARY, AB, Nov. 28, 2021 /PRNewswire/ - Enbridge Inc. (Enbridge or the Company) (TSX: ENB) (NYSE: ENB) today responded to the Canada Energy Regulator's (CER) November 26, 2021 decision to deny the implementation of contracting for firm service on the Enbridge Canadian Mainline system.
Enbridge has completed its review of the decision and identified next steps that include re-engaging all stakeholders, including shippers and non-shippers on the Mainline system.
The Enbridge Mainline is a critical conduit connecting western Canadian crude oil and product supply with Canadian and U.S. Midwest markets, and ultimately the U.S. Gulf Coast. For decades, the system has provided its customers with unparalleled market access, crude oil quality management, system reliability and long-term expansion potential at the most competitive toll. Since inception of the Enbridge system in 1950, the commercial underpinning of the Mainline has evolved, from a contested cost-of-service (COS) framework to incentive rate making. Enbridge pioneered the first incentive tolling agreement with our customers in 1995, which aligned industry and Enbridge interests, and supported significant investment and expansion of the Mainline.
The most recent incentive agreement, called the Competitive Tolling Settlement (CTS Agreement), expired in June 2021; therefore, the Mainline is currently under interim tolls (subject to refund) and which will stay in effect until new tolls are approved by the CER. In 2018, in preparation for the upcoming expiry of the CTS Agreement, Enbridge initiated consultations with industry participants to determine their goals for the next Mainline tolling arrangement. Among other feedback, the Company heard significant concerns from industry over continuing Mainline apportionment, due to growing western Canadian production and lack of sufficient egress. A large portion of existing shippers expressed desire for continued toll certainty, and to contract for firm service to ensure access to the system.
However, it was also evident from extensive industry input that there was no consensus on what a new commercial structure should look like – some favoured contracting, while others opposed it altogether, preferring to maintain the status-quo, a monthly nominations process and a fixed toll. After significant negotiation with industry on a comprehensive set of terms, Enbridge applied to the CER to contract the Canadian Mainline.
In reaching its decision, the CER determined that providing firm service on the Canadian Mainline is not contrary to the CER Act. The CER also found that elements of the application provided strong justification for some proportion of firm service on the Canadian Mainline. However, the CER denied the application on the basis that, among other things, contracting as proposed would result in a significant change to access the Canadian Mainline and potentially inequitable outcomes to some shippers and non-shippers without a compelling justification. The CER confirmed Enbridge's existing process for downstream verification and that interim tolls would stay in effect.
Based on its review of the CER decision, Enbridge will initiate, in consultation with its stakeholders, a process to negotiate toward a go-forward Mainline commercial framework. Elements of the process will include:
- Enbridge will re-engage with stakeholders, to receive input on key objectives and variables that are important in considering the future commercial framework, the current industry outlook and desire for future expansion of the Mainline; and
- Enbridge will explore, with stakeholders, alternatives that may include: a modified and extended CTS agreement, a new incentive rate-making agreement, or a COS rate-making structure. Any negotiated settlement would require CER approval before implementation.
In parallel with negotiations of a potential negotiated settlement, Enbridge will prepare a COS application for the Canadian Mainline, which will be filed with the CER if Enbridge, after consultation with stakeholders, concludes that an agreement to continue with incentive rate making is not achievable.
Enbridge expects the preceding steps to begin in the coming weeks, although the negotiating process may take through 2022. We expect the subsequent CER review and decision process to conclude in 2023.
From a financial perspective, Mainline throughput is expected to be strong over the next several years and the Company's outlook is positive. Based on our review of the CER decision and other factors, the Company anticipates that the range of financial outcomes associated with an alternative commercial model will be manageable and is not expected to materially impact Enbridge's financial results.
Enbridge will provide its 2022 guidance, longer term outlook and strategic priorities at Enbridge Day on December 7th, 2021, in Toronto.
FORWARD-LOOKING INFORMATION
Forward-looking information, or forward-looking statements, have been included in this news release to provide information about Enbridge and its subsidiaries and affiliates, including management's assessment of Enbridge and its subsidiaries' future plans and operations. This information may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as ''anticipate'', ''expect'', ''project'', ''estimate'', ''forecast'', ''plan'', ''intend'', ''target'', ''believe'', "likely" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included in this news release include, but are not limited to, statements with respect to the following: Mainline commercial framework, including potential alternatives and Enbridge's planned next steps, proposed filings with the Canada Energy Regulator and expected timelines; Mainline throughput; corporate outlook; and financial outcomes associated with an alternative commercial model.
Although Enbridge believes these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Material assumptions include assumptions about the following: customer and regulatory approvals; the expected supply of and demand for crude oil, natural gas, natural gas liquids (NGL) and renewable energy; prices of crude oil, natural gas, NGL and renewable energy; anticipated utilization of our existing assets; exchange rates; inflation; interest rates; availability and price of labour and construction materials; operational reliability; maintenance of support and regulatory approvals for the Company's projects; anticipated in-service dates; weather; the timing and closing of acquisitions and dispositions; the realization of anticipated benefits and synergies of transactions; governmental legislation; litigation; impact of the Company's dividend policy on its future cash flows; credit ratings; capital project funding; hedging program; expect earnings before interest, income taxes, depreciation and amortization (EBITDA) and expected adjusted EBITDA; expected earnings/(loss) and adjusted earnings/(loss); expected earnings/(loss) and adjusted earnings/(loss) per share; expected future cash flows and expected future distributable cash flow (DCF) and DCF per share; and estimated future dividends. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements, as they may impact current and future levels of demand for the Company's services. Similarly, energy transition, including the drivers and pace thereof, the COVID-19 pandemic, exchange rates, inflation and interest rates impact the economies and business environments in which the Company operates and may impact levels of demand for the Company's services and cost of inputs, and are therefore inherent in all forward-looking statements. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty.
Enbridge's forward-looking statements are subject to risks and uncertainties pertaining to the successful execution of our strategic priorities, operating performance, regulatory parameters and decisions, changes in regulations applicable to the Company's business, litigation, acquisitions and dispositions and other transactions, project approval and support, renewals of rights-of-way, weather, economic and competitive conditions, public opinion, changes in tax laws and tax rates, changes in trade agreements, political decisions, exchange rates, interest rates, commodity prices, supply of and demand for commodities, energy transition and the COVID-19 pandemic, including but not limited to those risks and uncertainties discussed in this news release and in the Company's other filings with Canadian and U.S. securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and Enbridge's future course of action depends on management's assessment of all information available at the relevant time. Except to the extent required by applicable law, Enbridge assumes no obligation to publicly update or revise any forward-looking statements made in this news release or otherwise, whether as a result of new information, future events or otherwise. All forward-looking statements, whether written or oral, attributable to Enbridge or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.
About Enbridge Inc.
Enbridge Inc. is a leading North American energy infrastructure company. We safely and reliably deliver the energy people need and want to fuel quality of life. Our core businesses include Liquids Pipelines, which transports approximately 25 percent of the crude oil produced in North America; Gas Transmission and Midstream, which transports approximately 20 percent of the natural gas consumed in the U.S.; Gas Distribution and Storage, which serves approximately 3.8 million retail customers in Ontario and Quebec; and Renewable Power Generation, which owns approximately 1,766 megawatts (net) in renewable power generation capacity in North America and Europe. The Company's common shares trade on the Toronto and New York stock exchanges under the symbol ENB. For more information, visit www.enbridge.com.
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SOURCE Enbridge Inc.
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