CALGARY, ALBERTA--(CCNMatthews - June 24, 2005) - Enbridge Pipelines Inc. (TSX:ENB) (NYSE:ENB) and the Canadian Association of Petroleum Producers (CAPP) have reached agreement on the key terms of a new incentive tolling settlement (2005 ITS) to be effective January 1, 2005, to December 31, 2009. The 2005 ITS will define the methodology for calculating base tolls on the Enbridge mainline system for that five-year period. The key terms have been reflected in a comprehensive Memorandum of Understanding (MOU), which has been approved by both parties.
The 2005 ITS affects the earnings of the core component of Enbridge's mainline system in Canada, exclusive of Line 8, Line 9, and the SEP I, SEP II and Terrace expansions, to which separate tolling methodologies apply. The 2004 earnings contribution from this portion of the mainline system was approximately $73 million.
Enbridge and CAPP both realized significant benefits under the two previous incentive tolling agreements, which covered the periods 1995 to 1999 and 2000 to 2004, and both recognized the benefits of continuing to use a negotiated incentive toll model rather than a traditional cost-of-service model. The 2005 ITS has as its foundation the National Energy Board (NEB) 2005 multi-pipeline rate of return of 9.46% and provides Enbridge with the opportunity to earn a higher rate of return by providing customers with additional value. The additional value to be provided by Enbridge includes achieving performance targets under new Service Metrics and Reliability Metric provisions, as well as continued achievement of cost savings.
The Service Metrics establish financial bonuses/penalties associated with prescribed performance targets related to crude oil quality management and predictability of scheduled deliveries. The Reliability Metric also provides for bonuses/penalties associated with optimization of system capacity.
Cost savings incentives are designed to encourage efficiencies through a continuation of the 50/50 sharing arrangement and an annual $5 million power savings guarantee for Enbridge customers, with the opportunity for Enbridge to retain 25% of realized power savings above the guarantee.
Enbridge will manage costs associated with mainline integrity programs necessary for the safety and reliability of the pipeline in exchange for a prescribed annual allowance.
The structure and provisions of the 2005 ITS have been reflected in Enbridge's earnings per share guidance for 2005.
"Incentive tolling is a classic win-win situation, and this new incentive tolling settlement reaffirms the benefits of working cooperatively and in partnership with our customers," said Patrick D. Daniel, President & Chief Executive Officer of Enbridge Inc. "The new metrics components are particularly noteworthy because they provide further alignment between Enbridge and our customers in working towards improvements in areas that create value for our customers: if Enbridge does well in these areas, we all benefit. Enbridge and CAPP pioneered the first incentive tolling agreement in 1995, and the 2005 ITS demonstrates continuing innovation in the customer/service provider relationship."
The 2005 ITS is subject to approval by the National Energy Board. It is anticipated that tolls reflecting the terms of the MOU will be filed with the NEB in July. Enbridge plans to communicate details of the 2005 ITS in a public consultation to be held in early July.
Since 1995, through the cost performance sharing mechanism of the incentive tolling settlement, after-tax benefits of $107.0 million have been shared by Enbridge and its customers, approximately 53% and 47%, respectively. Customers also realized an additional after-tax benefit of $10.7 million through the power guarantee mechanism of the incentive tolling settlement.
Information about Enbridge and the 2005 ITS is available on the Company's web site at www.enbridge.com. For more information about CAPP, see CAPP's web site at www.capp.ca.
Enbridge will hold a conference call on June 24, 2005, at 9:30 a.m. Eastern time (7:30 a.m. Mountain time) to discuss the Incentive Tolling Settlement. Within North America, the toll-free call-in number is 1-800-638-5439. Interested parties outside North America may call (617) 614-3945. The pass code is 95307022. The conference call will be audio webcast live at www.enbridge.com/investor. An audio replay will be available shortly thereafter toll-free at 1-888-286-8010 or (617) 801-6888 using the access code 41991341; in addition, the webcast replay and transcript will be available on the website, later in the day.
Enbridge Inc. is a leader in energy transportation and distribution in North America and internationally. As a transporter of energy, Enbridge operates, in Canada and the United States, the world's longest crude oil and liquids pipeline system. The Company also has international operations and a growing involvement in the natural gas transmission and midstream businesses. As a distributor of energy, Enbridge owns and operates Canada's largest natural gas distribution company, which provides distribution services in the provinces of Ontario and Quebec, and in New York State; and is developing a gas distribution system for the Province of New Brunswick. The Company employs approximately 4,000 people, primarily in Canada, the United States and South America. Enbridge's common shares trade on the Toronto Stock Exchange in Canada and on the New York Stock Exchange in the United States under the symbol ENB.
The Canadian Association of Petroleum Producers (CAPP) represents 150 companies that explore for, develop and produce natural gas, natural gas liquids, crude oil, oil sands, and elemental sulphur throughout Canada. CAPP member companies produce more than 98 per cent of Canada's natural gas and crude oil. CAPP also has 125 associate members that provide a wide range of services that support the upstream crude oil and natural gas industry. Together, these members and associate members are an important part of a $75-billion-a-year national industry that affects the livelihoods of more than half a million Canadians.
Certain information provided in this news release constitutes forward-looking statements. The words "anticipate", "expect", "project", "estimate", "forecast" and similar expressions are intended to identify such forward-looking statements. Although Enbridge believes that these statements are based on information and assumptions which are current, reasonable and complete, these statements are necessarily subject to a variety of risks and uncertainties pertaining to operating performance, regulatory parameters, weather, economic conditions and commodity prices. You can find a discussion of those risks and uncertainties in our Canadian securities filings and American SEC filings. While Enbridge makes these forward-looking statements in good faith, should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. Enbridge assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.