| | | | | | | | | | |
| AFUDC | | Allowance for funds used during construction |
| Aii | | Athabasca Indigenous Investments Limited Partnership |
| AOCI | | Accumulated other comprehensive income/(loss) |
| ARO | | Asset retirement obligations |
| ASC | | Accounting Standards Codification |
| ASU | | Accounting Standards Update |
| Aux Sable | | US Midstream ownership interest in Aux Sable Liquid Products LP, Aux Sable Midstream LLC, Aux Sable Canada LP |
| BC | | British Columbia |
| bcf/d | | Billion cubic feet per day |
| the Board | | Board of Directors |
| | |
| Cactus II | | | | | | | Reason for non-independence
| Cactus II Pipeline, LLC |
| | | |
| | | | | | | | | | |
| | | |
| CER | | | | | | | | | | Canada Energy Regulator, created by the Canadian Energy Regulator Act which also repealed the National Energy Board Act, on August 28, 2019 |
| | |
| | |
| CTS | | Competitive Toll Settlement |
| DAPL | | Dakota Access Pipeline |
| Dawn | | An extensive network of underground storage pools at the Tecumseh Gas Storage facility and Dawn Hub |
| DCP | | | | DCP Midstream, LP |
| | |
| | |
| EBITDA | | | | | | | | | | Earnings before interest, income taxes and depreciation and amortization |
| | | |
| EEP | | | | | | | | | | Enbridge Energy Partners, L.P. |
| | |
| EIEC | | Enbridge Ingleside Energy Center |
| EIS | | | | | | | | | | Environmental Impact Statement |
| | |
| | |
V. Maureen Kempston Darkes
| | | | | | | | | | Enbridge Gas Inc. |
| | |
| EPS | | Emission Performance Standards |
| ESG | | Environment, Social and Governance |
| Exchange Act | | | | | | | | United States Securities Exchange Act of 1934 |
| | | |
Al Monaco (President & CEO)
| | | | | | | | | President & CEO of the company | Federal Energy Regulatory Commission |
| | |
| GHG | | Greenhouse gas |
| Gray Oak | | Gray Oak Pipeline, LLC |
| H2 | | | | | | | | Hydrogen gas |
| | |
| IJT | | International Joint Tariff |
| IR | | Incentive Regulation |
| | |
| kbpd | | Thousand barrels per day |
| L3R | | Line 3 Replacement |
| | |
| LMCI | | Land Matters Consultation Initiative |
| LNG | | Liquefied natural gas |
| Magic Valley | | Magic Valley Wind Farm |
| M&N | | Maritimes & Northeast Pipeline |
| | |
| | |
| | |
Current Board committee participation4
| | | | | | | | |
| M&N Canada | | Canadian portion of our Maritimes & Northeast Pipeline |
| the Court | | United States District Court for the Western District of Wisconsin |
| MD&A | | Management’s Discussion and Analysis |
| MW | | Megawatts |
| NCIB | | Normal course issuer bid |
| NEXUS | | NEXUS Gas Transmission Pipeline |
| NGL | | Natural gas liquids |
| Noverco | | Noverco Inc. |
| NYSE | | New York Stock Exchange |
| OBPS | | Output-based pricing system |
| OCI | | Other comprehensive income/(loss) |
| OEB | | Ontario Energy Board |
| OPEB | | Other postretirement benefit obligations |
| P66 | | Phillips 66 |
| the Partnerships | | Spectra Energy Partners, LP and Energy Energy Partners, L.P |
| PennEast | | PennEast Pipeline Company, L.L.C. |
| PHMSA | | Pipeline and Hazardous Materials Safety Administration |
| PPA | | Power purchase agreement |
| PSU | | Performance Stock Units |
| the Reservation | | Bad River Reservation |
| RNG | | Renewable natural gas |
| ROE | | Return on equity |
| ROU | | Right-of-use |
| RSU | | Restricted Stock Units |
| | |
| | |
| SEC | | US Securities and Exchange Commission |
| SEP | | Spectra Energy Partners, LP |
| SESH | | Southeast Supply Header, L.L.C. |
| Spectra Energy | | Spectra Energy Corp |
| | |
| | |
| | |
| Texas Eastern | | Texas Eastern Transmission, L.P. |
| TGE | | Tri Global Energy, LLC |
| TSX | | Toronto Stock Exchange |
| UK | | The United Kingdom |
| | |
| US | | United States of America |
| US GAAP | | Generally accepted accounting principles in the United States of America |
| | |
| Vector | | Vector Pipeline L.P. |
| VIEs | | Variable interest entities |
| | |
| Westcoast | | Westcoast Energy Inc. |
| Woodfibre | | Woodfibre LNG Limited Partnership |
CONVENTIONS
The terms "we", "our", "us" and "Enbridge" as used in this report refer collectively to Enbridge Inc. and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity within Enbridge.
Unless otherwise specified, all dollar amounts are expressed in Canadian dollars, all references to "dollars" or "$" are to Canadian dollars and all references to "US$" are to US dollars. All amounts are provided on a before-tax basis, unless otherwise stated.
FORWARD-LOOKING INFORMATION
Forward-looking information, or forward-looking statements, have been included in this Annual Report on Form 10-K to provide information about us and our subsidiaries and affiliates, including management’s assessment of our and our 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”, “believe”, “estimate”, “expect”, “forecast”, “intend”, “likely”, “plan”, “project”, “target” and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included or incorporated by reference in this document include, but are not limited to, statements with respect to the following: our corporate vision and strategy, including strategic priorities and enablers; expected supply of, demand for, exports of and prices of crude oil, natural gas, natural gas liquids (NGL), liquified natural gas (LNG) and renewable energy; energy transition and lower-carbon energy, and our approach thereto; environmental, social and governance (ESG) goals, practices and performance; industry and market conditions; anticipated utilization of our assets; dividend growth and payout policy; financial strength and flexibility; expectations on sources of liquidity and sufficiency of financial resources; expected strategic priorities and performance of the Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation and Energy Services businesses; expected costs, benefits and in-service dates related to announced projects and projects under construction; expected capital expenditures; investable capacity and capital allocation priorities; share repurchases under our normal course issuer bid; expected equity funding requirements for our commercially secured growth program; expected future growth, development and expansion opportunities; expected optimization and efficiency opportunities; expectations about our joint venture partners’ ability to complete and finance projects under construction; expected closing of acquisitions and dispositions and the timing thereof; expected benefits of transactions; expected future actions of regulators and courts, and the timing and impact thereof; toll and rate cases discussions and proceedings and anticipated timeline and impact therefrom, including Mainline Contracting and those relating to the Gas Transmission and Midstream and Gas Distribution and Storage businesses; operational, industry, regulatory, climate change and other risks associated with our businesses; and our assessment of the potential impact of the various risk factors identified herein.
Although we believe 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: the expected supply of, demand for, export of and prices of crude oil, natural gas, NGL, LNG and renewable energy; anticipated utilization of assets; exchange rates; inflation; interest rates; the COVID-19 pandemic and the duration and impact thereof; availability and price of labor and construction materials; the stability of our supply chain; operational reliability; maintenance of support and regulatory approvals for our projects; anticipated in-service dates; weather; the timing and closing of acquisitions and dispositions; the realization of anticipated benefits of transactions; governmental legislation; litigation; estimated future dividends and impact of our dividend policy on our future cash flows; our credit ratings; capital project funding; hedging program; expected earnings before interest, income taxes, and depreciation and amortization (EBITDA); expected earnings/(loss); expected future cash flows; and expected distributable cash flow. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL, LNG 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 our services. Similarly, exchange rates, inflation and interest rates and the COVID-19 pandemic impact the economies and business environments in which we operate and may impact levels of demand for our services and cost of inputs, and are therefore inherent in all forward-looking statements. The most relevant assumptions associated with forward-looking statements regarding announced projects and projects
under construction, including estimated completion dates and expected capital expenditures, include the following: the availability and price of labor and construction materials; the stability of our supply chain; the effects of inflation and foreign exchange rates on labor and material costs; the effects of interest rates on borrowing costs; the impact of weather and customer, government, court and regulatory approvals on construction and in-service schedules and cost recovery regimes; and the COVID-19 pandemic and the duration and impact thereof.
Our forward-looking statements are subject to risks and uncertainties pertaining to the successful execution of our strategic priorities, operating performance; legislative and regulatory parameters; litigation; acquisitions, dispositions and other transactions and the realization of anticipated benefits therefrom; operational dependence on third parties; dividend policy; project approval and support; renewals of rights-of-way; weather; economic and competitive conditions; public opinion; changes in tax laws and tax rates; exchange rates; inflation; interest rates; commodity prices; access to and cost of capital; political decisions; global geopolitical conditions; the supply of, demand for and prices of commodities and other alternative energy; and the COVID-19 pandemic, including but not limited to, those risks and uncertainties discussed in this Annual Report on Form 10-K and in our other filings with Canadian and US securities regulators. The impact of any one assumption, risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and our 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 statement made in this Annual Report on Form 10-K or otherwise, whether as a result of new information, future events or otherwise. All forward-looking statements, whether written or oral, attributable to us or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
NON-GAAP AND OTHER FINANCIAL MEASURES
Part II.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in this Annual Report on Form 10-K makes reference to non-GAAP and other financial measures, including EBITDA. EBITDA is defined as earnings before interest, income taxes and depreciation and amortization. Management uses EBITDA to assess performance of Enbridge and to set targets. Management believes the presentation of EBITDA gives useful information to investors as it provides increased transparency and insight into the performance of Enbridge.
The non-GAAP and other financial measures are not measures that have a standardized meaning prescribed by the accounting principles generally accepted in the United States of America (US GAAP) and are not US GAAP measures. Therefore, these measures may not be comparable with similar measures presented by other issuers. A reconciliation of historical non-GAAP and other financial measures to the most directly comparable GAAP measures is set out in this MD&A and is available on our website. Additional information on non-GAAP and other financial measures may be found on our website, www.sedar.com or www.sec.gov.
PART I
ITEM 1. BUSINESS
Enbridge is a leading North American energy infrastructure company. Our core businesses include Liquids Pipelines, which consists of pipelines and terminals in Canada and the US that transport and export various grades of crude oil and other liquid hydrocarbons; Gas Transmission and Midstream, which consists of investments in natural gas pipelines and gathering and processing facilities in Canada and the US; Gas Distribution and Storage, which consists of natural gas utility operations that serve residential, commercial and industrial customers in Ontario and Québec; and Renewable Power Generation, which consists primarily of investments in wind and solar assets, as well as geothermal, waste heat recovery and transmission assets, in North America and Europe.
Enbridge is a public company, with common shares that trade on the Toronto Stock Exchange (TSX) and New York Stock Exchange (NYSE) under the symbol ENB. We were incorporated on April 13, 1970 under the Companies Ordinance of the Northwest Territories and were continued under the Canada Business Corporations Act on December 15, 1987.
A more detailed description of each of our businesses and underlying assets is provided below under Business Segments.
CORPORATE VISION AND STRATEGY
VISION
Our primary purpose as a company is to fuel people’s quality of life in a safe, clean, and socially responsible manner. Our vision to be the leading energy infrastructure company in North America and beyond supports this purpose. In pursuing this vision, we seek to play a critical role in enabling the economic and social well-being of people across the world by providing access to affordable, reliable, and secure energy. Our infrastructure franchises transport, distribute, and generate energy, including liquids, natural gas, renewable power, and lower-carbon fuels. We recognize that the energy system is changing, and we aim to bridge to a cleaner energy future by investing in lower-carbon platforms while ensuring the continuity and stability that the world requires through the transition.
Our investor value proposition is founded on our ability to deliver predictable cash flows and a growing stream of dividends year-over-year through investment in, and efficient operation of, energy infrastructure assets that are strategically positioned between key supply basins and strong demand-pull markets. Our assets are underpinned by long-term contracts, regulated cost-of-service tolling frameworks, power purchase agreements (PPAs), and other low-risk commercial arrangements.
In addition, we strive to be a leader in worker and public safety, ESG, stakeholder relations, customer service, community investment, and employee engagement and satisfaction.
STRATEGY
Our strategy is underpinned by a deep understanding of energy supply and demand fundamentals. Through disciplined capital allocation that is aligned with our outlook on energy markets, we have become an industry leader with a diversified portfolio across both conventional and lower-carbon energies. Our assets have reliably generated low-risk, resilient cash flows through many commodity and economic cycles.
In order to continue to be an industry leader and value creator going forward, we maintain a robust strategic planning approach. We regularly conduct scenario and resiliency analysis on both our assets and business strategy. We test various value enhancement and maximization options, and we regularly engage with our Board of Directors (the Board) to ensure alignment and maintain active oversight, including updates and discussions throughout the year and a dedicated annual Strategic Planning session. Going forward, we plan to use this comprehensive approach to guide our investment and portfolio decisions.
Predictable growth is a hallmark of our investor value proposition. Our robust portfolio of project development opportunities and ongoing efficiency improvements should help drive mid-single digit growth in our distributable cash flow per share for years to come. We remain confident in our two-pronged growth strategy and expect to selectively invest in our diversified footprint of both conventional businesses and complementary lower-carbon platforms, such as renewables, Carbon Capture and Storage (CCS), Hydrogen (H2), and Renewable Natural Gas (RNG). Additionally, ESG continues to be integral to our strategy; we are committed to reducing our emissions, building lasting relationships with our stakeholders, and promoting diversity, equity, and inclusion.
In alignment with our strategy, we progressed several of our priorities in 2022. For example:
•Our Liquids Pipelines business delivered record Mainline volumes, increased ownership in and operatorship of the Gray Oak pipeline, and permitted a 2 million barrels (mmbl) storage expansion at Enbridge Ingleside Energy Center (EIEC), further bolstering our presence in the US Gulf Coast and global export markets.
•Our Gas Transmission and Midstream business successfully expanded our secured capital program notably with the T-South Expansion Program and T-North Expansion Program and acquired an equity stake in Woodfibre LNG Limited Partnership to capitalize on increasing global gas demand and supporting coal-to-gas conversions that are expected to help lower global energy emissions.
•Our Gas Distribution and Storage business added over 45,000 new customers, filed the rate rebasing application for 2024-2028 which proposes continuation of Incentive Rate-setting mechanisms, completed the Pathways to Net-Zero Emissions Study for Ontario, and progressed construction of three RNG projects and development of a green hydrogen blending project at Gazifère Inc. (Gazifère), a wholly-owned natural gas distribution company in Québec.
•Our Renewable Power Generation business accelerated its growth strategy with the acquisition of the renewable developer Tri Global Energy, LLC (TGE), securing 3.9 gigawatts (GW) of conditionally sold renewable generation projects and an additional 3 GW in development projects. In addition, the 480 megawatts (MW) Saint-Nazaire project, France’s first commercial-scale offshore wind in which Enbridge holds a stake, became fully operational in 2022. We are continuing to advance construction of three additional offshore wind projects in Europe.
•Our New Energy Technologies team, in collaboration with all of our business units, advanced our lower-carbon strategy, including building strategic partnerships to progress the Wabamun Carbon Hub in Alberta and lower-carbon hydrogen and ammonia production and export facilities in the US Gulf Coast.
•We have made meaningful progress towards our ESG goals, advancing construction of ten solar self-power projects, signing a landmark sale of a non-operating interest in pipelines in our Regional Oil Sands System to23 Indigenous communities, and publishing our Indigenous Reconciliation Action Plan to further our engagement.
•We continue to recycle capital at attractive valuations, further optimizing and diversifying our portfolio. In addition, we are focused on improving efficiencies to increase our profitability and competitiveness.
These achievements are discussed in further detail in Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Looking ahead, our near-term strategic priorities remain similar to years past. As always, proactively advancing the safety of our assets, protecting the environment, and maintaining reliability of our system remain our top priorities. We are focused on enhancing the value of our existing assets, capitalizing on our extensive infrastructure, prioritizing in-franchise organic growth and export-driven opportunities, and developing lower-carbon platforms across all our businesses. We will continue to invest where we can advance our strategy, build sustainable competitive advantage, and achieve attractive risk-adjusted returns.
Our key strategic priorities include:
Safety and Operational Reliability
Safety and operational reliability are the foundation of our strategy. We strive to achieve and maintain industry leadership in all facets of safety - process, public, and personal - and ensure the highest standards of reliability and integrity across our system to protect our communities and the environment.
Extend Growth
The cornerstone of our growth lies in the successful execution of our slate of secured projects (currently $18 billion through 2028) on schedule and at the lowest practical cost, while maintaining the highest standards for safety, quality, customer satisfaction, and environmental and regulatory compliance. For a discussion of our current portfolio of capital projects refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Growth Projects - Commercially Secured Projects.
Beyond that, we seek to continually identify additional high-quality growth opportunities across all our platforms. We expect to have sufficient equity self-funding capacity of about $5 to $6 billion per year to invest in growth without issuing any additional common equity and maintaining key credit metrics. We will remain disciplined and will strive to deploy capital towards the best uses, prioritizing balance sheet strength, investment in low capital intensity growth, and regulated utility or utility-like projects. We will carefully assess our remaining investable capacity, deploying capital to what we believe are the most value-enhancing opportunities available to us, including further organic growth, complementary accretive "tuck-in" acquisitions that improve our competitive positioning, share repurchases, or further deleveraging of our balance sheet.
Looking ahead, we see strong utilization of our existing network and opportunities for future growth within each of our businesses. For example, we expect that:
•Our liquids pipelines infrastructure will remain a vital connection between key supply basins and demand-pull markets such as the refinery hubs in the US Midwest, eastern Canada, and the US Gulf Coast. The emergence of CCS offers the potential to provide new growth opportunities over the long term.
•Our natural gas transmission business will seek extension and expansion opportunities driven by new load demand from gas-fired power generation, industrial growth, and coastal LNG plants. Looking forward, blending RNG and H2 production into our system should enhance asset longevity and enable us to offer a differentiated lower-carbon solution to customers.
•Our gas distribution and storage business will continue to grow through productivity enhancements, modernization investments, and facilities that blend H2 and RNG into the gas supply. We expect to continue to add customers over the next regulatory framework period to 2028. Additionally, we expect to expand our offerings to customers, including additional demand-side management, as well as resiliency and hybrid heating programs.
•Our enhanced renewable power capabilities position us well to capitalize on strong renewables growth in Europe and North America and execute on our large development program. We also plan to continue to progress our multi-year self-power program across our liquids and gas systems.
In addition, we aim to drive growth through an ongoing focus on optimization, modernization, productivity, and efficiency across all our businesses. Examples include: the application of drag-reducing agents and pump station modifications to optimize throughput on our liquids system, the execution of toll settlements and rate case filings to optimize revenue within our gas transmission franchises, the expansion of lower-carbon offerings to utility customers and investments in lower-carbon supply connections to the gas grid, and more generally, the creation of sustainable cost savings across the organization through innovation, process improvement and/or system enhancements.
Maintain a Strong Balance Sheet
The maintenance of our balance sheet strength is critical to our strategy. Our financing strategies are designed to retain strong, investment-grade credit ratings to ensure we have the financial capacity to meet our capital funding needs and the flexibility to manage capital market disruptions. Our current secured capital program can be readily financed through internally generated cash flow and available balance sheet capacity without issuance of additional common equity. We will seek to secure new growth within our "self-funded" equity model. In addition, we continue to look at opportunities to monetize non-core assets at attractive valuations. For further discussion on our financing strategies refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
Disciplined Capital Allocation
We assess the latest fundamental trends, monitor the business landscape, and proactively conduct business development activities with the goal of identifying an industry-leading capital deployment opportunity set. We screen, analyze, and assess opportunities using a disciplined investment framework with the objective of effectively deploying capital to grow while achieving attractive risk-adjusted returns, within our low-risk "utility-like" business model.
All investment opportunities are evaluated based on their potential to advance our strategy, mitigate risks, support our ESG goals, and create additional financial flexibility. Our primary emphasis in the near term is on low capital intensity opportunities to enhance returns in existing businesses (organic expansions and optimizations), modernization of our systems, and utility rate-based investments. We also remain focused on larger projects where commercial constructs fit our investor value proposition and where we can effectively manage risks during the execution phase. In addition, we continue to assess other value-enhancing opportunities, such as accretive acquisitions that can complement our portfolio.
In evaluating typical investment opportunities, we also consider other potential capital allocation alternatives. Other alternatives for capital deployment depend on our current outlook and include further dividend increases, further debt reduction, and/or share repurchases.
Lead in Energy Transition Over Time
As the global population grows and standards of living continue to improve around the world, we expect energy demand to rise. At the same time, we, and our society, increasingly recognize the need for secure and reliable energy while reducing global greenhouse gas (GHG) emissions. Accordingly, energy systems around the world are being reshaped as industry participants, regulators, and consumers seek to lower emissions. As a diversified energy infrastructure company, we believe we are well positioned to play a key role in the energy transition by leading the development of the future energy systems with regulators and policy makers and partnering with customers on their lower-carbon strategies, while reducing our own carbon footprint.
We believe that diversification and innovation will play a significant role in the transition to a lower-carbon future. To date, we have made large investments in natural gas infrastructure and renewable energy assets, helping to decrease our emissions and further expand our platforms to enable energy transition across the globe. Our focus areas in renewable energy remain in offshore wind, utility-scale onshore projects, and integrated clean-energy offerings and solutions for customers. We are also taking a leadership role in other lower-carbon platforms like CCS, H2 and RNG where we can leverage our infrastructure, capabilities, and stakeholder relationships to accelerate growth and extend the value of our existing assets. Additionally, our new investments are expected to have a clear path to achieve net-zero emissions, in alignment with our ESG goals.
We work closely with our customers to maintain a pulse on the pace of the energy transition and are actively leveraging our ESG leadership and world-class execution capabilities to advance our positioning as a differentiated energy provider. We regularly test our assets under various transition scenarios to assess resiliency of our business.
STRATEGIC ENABLERS
Our commitment and progress on ESG, the capabilities and skills of our people, and how we utilize technology are core to executing our strategy and maintaining our competitive advantages.
Environmental, Social and Governance
Sustainability is integral to our ability to deliver energy in a safe and reliable manner. How well we perform as a steward of our environment; as a safe operator of essential energy infrastructure; as a diverse and inclusive employer; and as a responsible corporate citizen is inextricably linked to our ability to achieve our strategic priorities and create long-term value for all our stakeholders.
In 2022, we published our 21st annual Sustainability Report outlining our progress against our ESG goals1. In particular, we:
•Made meaningful progress towards our interim emissions intensity and net-zero GHG emissions goals through modernization and innovation of our system, efficiency improvements, and continued investment in solar self-power;
•Enhanced our efforts to ensure that our workforce and Board better reflect the diversity of our communities, empowering our workforce through employee resource groups and advancing on our diversity, equity, and inclusion commitments; and
•Continued to drive improvements towards our goal of zero safety incidents and injuries and progressed implementation of robust cyber defense programs.
Since setting our ESG targets in 2020, we have made considerable progress integrating sustainability into our strategy, governance, operations, and decision-making. We have linked ESG performance to incentive compensation and are making meaningful progress towards these targets by executing on our action plans.
1All percentages or specific goals regarding inclusion, diversity, equity and accessibility are aspirational goals which we intend to achieve in a manner compliant with state, local, provincial and federal law, including, but not limited to, US federal regulations, Equal Employment Opportunity Commission, Department of Labor and Office of Federal Contract Compliance Programs.
At Enbridge, we aim to continuously strengthen our ESG approach and are undertaking the following additional actions:
•Proactively working with organizations advancing science-based guidelines for the midstream sector;
•Collaborating with key suppliers on emissions reduction plans; and
•Further developing lower-carbon energy partnerships to drive innovation across our businesses, with a focus on renewable power, RNG, H2 and CCS.
People
Our employees are essential to our success and our focus remains on enhancing the capabilities and skills of our people. We are evolving our people strategy to ensure we attract and retain the talent and leadership needed for today and tomorrow. This includes growing our focus on learning and development, and additional focus on overall well-being. We value diversity, and diverse thought, and have embedded inclusive practices in our programs, processes, and approach to people management. Furthermore, we strive to maintain industry competitive compensation, flexibility, and retention programs that provide both short- and long-term performance incentives.
Technology
We recognize the vital role technology plays in helping us achieve our strategic objectives. We are committed to pursuing innovation and technology solutions that further our safety and reliability, maximize revenues, improve efficiencies, and enable transition to new, cleaner energy solutions. We continue to strive to be on the leading edge of cyber security, by enhancing our capabilities and educating our workforce to protect our critical infrastructure system from increasing threats.
Our two Technology and Innovation labs, located in Calgary and Houston, embody our commitment to technology enabled business solutions and how we strive to entrench technology in our everyday operations.
We provide annual progress updates in our annual Sustainability Report which can be found at https://www.enbridge.com/sustainability-reports. Unless otherwise specifically stated, none of the information contained on, or connected to, the Enbridge website, including our annual Sustainability Report, is incorporated by reference in, or otherwise part of, this Annual Report on Form 10-K.
BUSINESS SEGMENTS
Our activities are carried out through five business segments: Liquids Pipelines; Gas Transmission and Midstream; Gas Distribution and Storage; Renewable Power Generation; and Energy Services, as discussed below.
LIQUIDS PIPELINES
Liquids Pipelines consists of pipelines and terminals in Canada and the US that transport and export various grades of crude oil and other liquid hydrocarbons.
MAINLINE SYSTEM
The Mainline System is comprised of the Canadian Mainline and the Lakehead System. The Canadian Mainline is a common carrier pipeline system which transports various grades of crude oil and other liquid hydrocarbons within western Canada and from western Canada to the Canada/US border near Gretna, Manitoba and Neche, North Dakota and from the US/Canada border near Port Huron, Michigan and Sarnia, Ontario to eastern Canada and the northeastern US. The Canadian Mainline includes six adjacent pipelines with a combined operating capacity of approximately 3.1 million barrels per day (mmbpd) that connect with the Lakehead System at the Canada/US border, as well as five pipelines that deliver crude oil and refined products into eastern Canada and the northeastern US. Through our predecessors, we have operated, and frequently expanded, the Canadian Mainline since 1949. The Lakehead System is the portion of the Mainline System in the US. It is an interstate common carrier pipeline system regulated by the Federal Energy Regulatory Commission (FERC) and is the primary transporter of crude oil and liquid petroleum from western Canada to the US.
Tolling Framework
The Competitive Toll Settlement (CTS) which governed tolls paid for products shipped on the Canadian Mainline, with the exception of Lines 8 and 9 which are tolled on a separate basis, expired on June 30, 2021. The CTS was a 10-year negotiated agreement and provided for a Canadian Local Toll (CLT) for deliveries within western Canada, as well as an International Joint Tariff (IJT) for crude oil shipments originating in western Canada, on the Canadian Mainline, and delivered into the US, via the Lakehead System, and into eastern Canada. The IJT tolls were denominated in US dollars.
On December 19, 2019, we submitted an application to the Canada Energy Regulator (CER) to implement contracting on our Canadian Mainline System. On November 26, 2021, the CER denied the application on the basis that, among other things, contracting as proposed would result in a significant change to access on the Canadian Mainline and potentially inequitable outcomes to some shippers and non-shippers without a compelling justification.
Effective July 1, 2021, the Mainline System is on Interim Tolls which will remain in effect until new tolls are approved by the CER. In accordance with the terms of the CTS, Interim Tolls are equal to the CTS exit tolls on June 30, 2021 and are subject to finalization and adjustment applicable to the interim period, if any. We are currently exploring, with customers and other stakeholders, alternatives that may include: a modified and extended CTS, a new incentive rate-making agreement, or a cost-of-service rate-making structure. Any negotiated settlement would require CER approval before implementation. New tolling framework clarity is expected in 2023.
Shippers continue to nominate volumes on a monthly basis and we continue to allocate capacity to maximize the efficiency of the Mainline System.
Local tolls for service on the Lakehead System are not affected by Interim Tolls and continue to be established pursuant to the Lakehead System’s existing toll agreements. Under Interim Tolls, the Canadian Mainline’s share of the toll relating to pipeline transportation of a batch from any western Canada receipt point to the US border is equal to the toll applicable to that batch’s US delivery point, which is comprised of the IJT Benchmark Toll, the CTS Surcharges and the Line 3 Replacement IJT Surcharge, less the Lakehead System’s local toll to that delivery point. While on Interim Tolls, we will continue to refer to this amount as the Canadian Mainline IJT Residual Toll which is denominated in US dollars.
Lakehead System Local Tolls
Transportation rates are governed by the FERC for deliveries from the Canada/US border near Neche, North Dakota, Clearbrook, Minnesota and other points to principal delivery points on the Lakehead System. The Lakehead System periodically adjusts these transportation rates as allowed under the FERC’s index methodology and tariff agreements, the main components of which are index rates and the Facilities Surcharge Mechanism. Index rates, the base portion of the transportation rates for the Lakehead System, are subject to an annual inflationary adjustment which cannot exceed established ceiling rates as approved by the FERC. The Facilities Surcharge Mechanism allows the Lakehead System to recover costs associated with certain shipper-requested projects through an incremental surcharge in addition to the existing base rates and is subject to annual adjustment on April 1 of each year. To the extent that the Lakehead System transportation rates materially under-recover the Lakehead System cost of service, an application can be made with the FERC to seek approval to increase the rates in order to bring recoveries in-line with costs.
On May 21, 2021, we filed a cost-of-service application to raise our base rates effective July 1, 2021. On June 30, 2021, the FERC issued an order to accept the rates subject to refund. This matter is currently in the FERC settlement process.
REGIONAL OIL SANDS SYSTEM
The Regional Oil Sands System includes five intra-Alberta long-haul pipelines: the Athabasca Pipeline, Waupisoo Pipeline, Woodland Pipeline, Wood Buffalo Extension/Athabasca Twin pipeline system and the Norlite Pipeline System (Norlite), as well as two large terminals: the Athabasca Terminal located north of Fort McMurray, Alberta and the Cheecham Terminal, located south of Fort McMurray, Alberta. The Regional Oil Sands System also includes numerous laterals and related facilities which currently provide access for oil sands production from twelve producing oil sands projects.
The combined capacity of the intra-Alberta long-haul pipelines is approximately 1,090 thousand barrels per day (kbpd) to Edmonton and 1,370 kbpd into Hardisty, with Norlite providing approximately 218 kbpd of diluent capacity into the Fort McMurray region. We have a 50% interest in the Woodland Pipeline and a 70% interest in Norlite. The Regional Oil Sands System is anchored by long-term agreements with multiple oil sands producers that provide cash flow stability and also include provisions for the recovery of some of the operating costs of this system.
On October 5, 2022, we completed a transaction with Athabasca Indigenous Investments Limited Partnership (Aii), a newly created entity representing 23 First Nation and Metis communities, pursuant to which Aii acquired an 11.6% non-operating interest in seven Regional Oil Sands pipelines in the Regional Oil Sands System. Pipelines included in the transaction are the Athabasca Pipeline, Wood Buffalo Extension/Athabasca Twin pipeline system and associated tanks, Norlite, Waupisoo Pipeline, Wood Buffalo Pipeline, Woodland Pipeline, and Woodland Extension.
GULF COAST AND MID-CONTINENT
Gulf Coast includes Seaway Crude Pipeline System (Seaway Pipeline), Flanagan South Pipeline (Flanagan South), Spearhead Pipeline, Gray Oak Pipeline and the EIEC, as well as the Mid-Continent System (Cushing Terminal).
We have a 50% interest in the 1,078 kilometer (670 mile) Seaway Pipeline, including the 805 kilometer (500 mile), 30-inch diameter long-haul system between Cushing, Oklahoma and Freeport, Texas, as well as the Texas City Terminal and Distribution System which serve refineries in the Houston and Texas City areas. Total aggregate capacity on the Seaway Pipeline system is approximately 950 kbpd. Seaway Pipeline also includes 8.8 million barrels of crude oil storage tank capacity on the Texas Gulf Coast.
Flanagan South is a 950 kilometer (590 mile), 36-inch diameter interstate crude oil pipeline that originates at our terminal at Flanagan, Illinois, a delivery point on the Lakehead System, and terminates in Cushing, Oklahoma. Flanagan South has a capacity of approximately 660 kbpd.
Spearhead Pipeline is a long-haul pipeline that delivers crude oil from Flanagan, Illinois, a delivery point on the Lakehead System, to Cushing, Oklahoma. The Spearhead pipeline has a capacity of approximately 193 kbpd.
The Gray Oak pipeline is a 1,368 kilometer (850 mile) crude oil system, which runs from the Permian Basin in West Texas to the US Gulf Coast. The Gray Oak pipeline has an expected average annual capacity of 900 kbpd and transports light crude oil. As of August 17, 2022, our effective economic interest in Gray Oak increased to 58.5% from 22.8% as a result of a joint venture merger transaction with Phillips 66 (P66) and we will be assuming operatorship of Gray Oak in the second quarter of 2023.
The Mid-Continent System is comprised of storage terminals at Cushing, Oklahoma (Cushing Terminal), consisting of over 110 individual storage tanks ranging in size from 78 to 570 thousand barrels. Total storage shell capacity of Cushing Terminal is approximately 26 million barrels. A portion of the storage facilities are used for operational purposes, while the remainder are contracted to various crude oil market participants for their term storage requirements.Contract fees include fixed monthly storage fees, throughput fees for receiving and delivering crude to and from connecting pipelines and terminals, and blending fees.
In October 2021, we acquired Moda Midstream Operating, LLC, which included the Ingleside Energy Center (renamed the Enbridge Ingleside Energy Center or EIEC), located near Corpus Christi, Texas. This terminal is comprised of 15.6 million barrels of storage and 1.5 million barrels per day of export capacity. We also acquired a 20% interest in the 670-kbpd Cactus II Pipeline, a 100% interest in the 300-kbpd Viola pipeline, and a 100% interest in the 350-thousand-barrel Taft Terminal. In November 2022, we acquired an additional 10% ownership interest in Cactus II Pipeline, bringing our total non-operating ownership to 30%.
OTHER
Other includes Southern Lights Pipeline, Express-Platte System, Bakken System and Feeder Pipelines and Other.
Southern Lights Pipeline is a single stream 180 kbpd 16/18/20-inch diameter pipeline that ships diluent from the Manhattan Terminal near Chicago, Illinois to three western Canadian delivery facilities, located at the Edmonton and Hardisty terminals in Alberta and the Kerrobert terminal in Saskatchewan. Both the Canadian portion of Southern Lights Pipeline and the US portion of Southern Lights Pipeline receive tariff revenues under long-term contracts with committed shippers. Southern Lights Pipeline capacity is 90% contracted with the remaining 10% of the capacity assigned for shippers to ship uncommitted volumes.
The Express-Platte System consists of the Express pipeline and the Platte pipeline, and crude oil storage of approximately 5.6 million barrels. It is an approximate 2,736 kilometer (1,700 mile) long crude oil transportation system, which begins at Hardisty, Alberta, and terminates at Wood River, Illinois. The 310 kbpd Express pipeline carries crude oil to US refining markets in the Rocky Mountains area, including Montana, Wyoming, Colorado and Utah. The 145 to 164 kbpd Platte pipeline, which interconnects with the Express pipeline at Casper, Wyoming, transports crude oil predominantly from the Bakken shale and western Canada to refineries in the Midwest. Express pipeline capacity is typically committed under long-term take-or-pay contracts with shippers. A small portion of Express pipeline capacity and all of the Platte pipeline capacity is used by uncommitted shippers who pay only for the pipeline capacity they actually use in a given month.
The Bakken System consists of the North Dakota System and the Bakken Pipeline System. The North Dakota System services the Bakken in North Dakota and is comprised of a crude oil gathering and interstate pipeline transportation system. The gathering system provides delivery to Clearbrook, Minnesota for service on the Lakehead system or a variety of interconnecting pipeline and rail export facilities. The interstate portion of the system has both US and Canadian components that extend from Berthold, North Dakota into Cromer, Manitoba.
Tariffs on the US portion of the North Dakota System are governed by the FERC. The Canadian portion is categorized as a Group 2 pipeline, and as such, its tolls are regulated by the CER on a complaint basis. Tolls on the interstate pipeline system are based on long-term take-or-pay agreements with anchor shippers.
We have an effective 27.6% interest in the Bakken Pipeline System, which connects the Bakken formation in North Dakota to markets in eastern PADD II and the US Gulf Coast. The Bakken Pipeline System consists of the Dakota Access Pipeline (DAPL) from the Bakken area in North Dakota to Patoka, Illinois, and the Energy Transfer Crude Oil Pipeline (ETCO) from Patoka, Illinois to Nederland, Texas. Current capacity is 750 kbpd of crude oil with the potential to be expanded through additional pumping horsepower. The Bakken Pipeline System is anchored by long-term throughput commitments from a number of producers.
Feeder Pipelines and Other includes a number of liquids storage assets and pipeline systems in Canada and the US.
Key assets included in Feeder Pipelines and Other are the Hardisty Contract Terminal and Hardisty Storage Caverns located near Hardisty, Alberta, a key crude oil pipeline hub in western Canada and the Southern Access Extension (SAX) pipeline which originates in Flanagan, Illinois and delivers to Patoka, Illinois. We have an effective 65% interest in the 300 kbpd SAX pipeline. The majority of the SAX pipeline's capacity is commercially secured under long-term take-or-pay contracts with shippers.
Feeder Pipelines and Other also includes Patoka Storage, the Toledo pipelinesystem and the Norman Wells (NW) System. Patoka Storage is comprised of four storage tanks with 480 thousand barrels of shell capacity located in Patoka, Illinois. The 101 kbpd Toledo pipeline system connects with the Lakehead System and delivers to Ohio and Michigan. The 45 kbpd NW System transports crude oil from Norman Wells in the Northwest Territories to Zama, Alberta and has a cost-of-service rate structure based on established terms with shippers.
COMPETITION
Competition for our liquids pipelines network comes primarily from infrastructure or logistics alternatives that transport liquid hydrocarbons from production basins in which we operate to markets in Canada, the US and internationally. Competition from existing and proposed pipelines is based primarily on access to supply, end use markets, the cost of transportation, contract structure and the quality and reliability of service. Additionally, volatile crude price differentials and insufficient pipeline capacity on either our or competitors' pipelines can make transportation of crude oil by rail competitive, particularly to markets not currently served by pipelines.
We believe that our liquids pipelines systems will continue to provide competitive and attractive options to producers in the Western Canadian Sedimentary Basin (WCSB), North Dakota, and the Permian Basin, due to our market access, competitive tolls and flexibility through our multiple delivery and storage points. We also employ long-term agreements with shippers, which mitigates competition risk by ensuring consistent supply to our liquids pipelines network. We have a proven track record of successfully executing projects to meet the needs of our customers.
SUPPLY AND DEMAND
We have an established and successful history of being the largest transporter of crude oil to the US, the world’s largest market for crude oil. While we expect US demand for Canadian crude oil production will support the use of our infrastructure for the foreseeable future, North American and global crude oil supply and demand fundamentals are shifting, and we have a role to play in this transition by developing long-term transportation options that enable the efficient flow of crude oil from supply regions to end-user markets, both domestic and global.
The COVID-19 pandemic had a significant negative impact on the crude oil market in 2020 with decreased demand from the economic slowdown and government imposed mobility restrictions. However, since 2021, global crude oil demand has been recovering to levels close to pre-pandemic highs. International prices have strengthened to multi-year highs as global demand has outpaced the return of supply as publicly traded producers have adopted a more disciplined approach to capital allocation for new drilling.
Our Mainline System throughput, as measured at the Canada/US border at Gretna, Manitoba ended the year delivering 3.1 mmbpd. Refinery demand in the upper Midwest PADD II market has been strong given the economic recovery and enhanced mobility demand. On the US Gulf Coast, lower supply of heavy crude from Latin America and the Middle East is driving increased demand for Canadian heavy crude.
Global crude oil demand in most base case forecasts is expected to grow into the next decade, primarily driven by emerging economies in regions outside the Organization for Economic Cooperation and Development (OECD), such as India and China. In North America, demand growth for transportation fuels is expected to moderate over time due to vehicle fuel efficiency improvement and increasing sales of electric vehicles.
New supply to meet this growing demand is expected to primarily come from Organization of the Petroleum Exporting Countries (OPEC) countries and North America. Growth in supply from OPEC is anticipated to be led by Saudi Arabia and the United Arab Emirates with their significant low cost reserves and could be supplemented by the return of sanctioned Iranian production. Growth in North America is expected to be driven by the Permian Basin which is a large and cost competitive light crude oil resource base. In addition, heavy crude oil growth is expected from the WCSB as additional egress availability will support expansion of existing projects and some potential new greenfield facilities.
The anticipated combination of long-term demand growth in non-OECD nations, domestic demand contraction over time, and continued production growth in the Permian Basin and WCSB highlights the importance of our strategic asset footprint and reinforces the need for additional export oriented infrastructure. We believe that we are well positioned to meet these evolving supply and demand fundamentals through expansion of system capacity for incremental access to the US Gulf Coast, and through further development of our new EIEC in Corpus Christi, the largest crude oil export facility in North America.
Opposition to fossil fuel development in conjunction with evolving consumer preferences and new technology could underpin accelerated energy transition scenarios impacting long-term supply and demand of crude oil. We continue to closely monitor the evolution of all of these factors to be able to pro-actively adapt our business to help meet our customers’ and society’s energy needs.
GAS TRANSMISSION AND MIDSTREAM
Gas Transmission and Midstream consists of our investments in natural gas pipelines and gathering and processing facilities in Canada and the US, including US Gas Transmission, Canadian Gas Transmission, US Midstream and other assets.
US GAS TRANSMISSION
US Gas Transmission includes ownership interests in Texas Eastern Transmission, L.P. (Texas Eastern), Algonquin Gas Transmission, LLC (Algonquin), Maritimes & Northeast (M&N) (US and Canada), East Tennessee Natural Gas, LLC (East Tennessee), Gulfstream Natural Gas System, L.L.C. (Gulfstream), Sabal Trail Transmission, LLC (Sabal Trail), NEXUS Gas Transmission Pipeline, LLC (NEXUS), Valley Crossing Pipeline, LLC. (Valley Crossing), Southeast Supply Header, LLC (SESH), Vector Pipeline L.P. (Vector) and certain other gas pipeline and storage assets. The US Gas Transmission business primarily provides transmission and storage of natural gas through interstate pipeline systems for customers in various regions of the northeastern, southern and midwestern US.
The Texas Eastern interstate natural gas transmission system extends from supply and demand centers in the Gulf Coast region of Texas and Louisiana to supply and demand centers in Ohio, Pennsylvania, New Jersey and New York. Texas Eastern's onshore system has a peak day capacity of 12.04 billion cubic feet per day (bcf/d) of natural gas on approximately 13,765 kilometers (8,553 miles) of pipeline and associated compressor stations. Texas Eastern is also connected to four affiliated storage facilities that are partially or wholly-owned by other entities within the US Gas Transmission business.
The Algonquin interstate natural gas transmission system connects with Texas Eastern’s facilities in New Jersey and extends through New Jersey, New York, Connecticut, Rhode Island and Massachusetts where it connects to M&N US. The system has a peak day capacity of 3.09 bcf/d of natural gas on approximately 1,820 kilometers (1,131 miles) of pipeline with associated compressor stations.
M&N US has a peak day capacity of 0.83 bcf/d of natural gas on approximately 552 kilometers (343 miles) of mainline interstate natural gas transmission system, including associated compressor stations, which extends from northeastern Massachusetts to the border of Canada near Baileyville, Maine. M&N Canada has a peak day capacity of 0.55 bcf/d on approximately 885 kilometers (550 miles) of interprovincial natural gas transmission mainline system that extends from Goldboro, Nova Scotia to the US border near Baileyville, Maine. We have a 78% interest in M&N US and M&N Canada.
East Tennessee’s interstate natural gas transmission system has a peak day capacity of 1.86 bcf/d of natural gas, crosses Texas Eastern’s system at two locations in Tennessee and consists of two mainline systems totaling approximately 2,449 kilometers (1,522 miles) of pipeline in Tennessee, Georgia, North Carolina and Virginia, with associated compressor stations. East Tennessee has a LNG storage facility in Tennessee and also connects to the Saltville storage facilities in Virginia.
Gulfstream is an approximately 1,199 kilometer (745 mile) interstate natural gas transmission system with associated compressor stations. Gulfstream has a peak day capacity of 1.39 bcf/d of natural gas from Mississippi, Alabama, Louisiana and Texas, crossing the Gulf of Mexico to markets in central and southern Florida. We have a 50% interest in Gulfstream.
Sabal Trail is an approximately 832 kilometer (517 mile) interstate pipeline that provides firm natural gas transportation. Facilities include a pipeline, laterals and various compressor stations. The pipeline infrastructure is located in Alabama, Georgia and Florida, and adds approximately 1.0 bcf/d of capacity enabling the access of onshore gas supplies. We have a 50% interest in Sabal Trail.
NEXUS is an approximately 414 kilometer (257 mile) interstate natural gas transmission system with associated compressor stations. NEXUS transports natural gas from our Texas Eastern system in Ohio to our Vector interstate pipeline in Michigan, with peak day capacity of 1.4 bcf/d. Through its interconnect with Vector, NEXUS provides a connection to Dawn Hub, the largest integrated underground storage facility in Canada and one of the largest in North America, located in southwestern Ontario adjacent to the Greater Toronto Area. We have a 50% interest in NEXUS.
Valley Crossing is an approximately 285 kilometer (177 mile) intrastate natural gas transmission system, with associated compressor stations. The pipeline infrastructure is located in Texas and provides market access of up to 2.6 bcf/d of design capacity to the Comisión Federal de Electricidad, Mexico’s state-owned utility.
SESH is an approximately 462 kilometer (287 mile) interstate natural gas transmission system with associated compressor stations. SESH extends from the Perryville Hub in northeastern Louisiana where the shale gas production of eastern Texas, northern Louisiana and Arkansas, along with conventional production, is reached from six major interconnections. SESH extends to Alabama, interconnecting with 14 major north-south pipelines and three high-deliverability storage facilities and has a peak day capacity of 1.1 bcf/d of natural gas. We have a 50% interest in SESH.
Vector is an approximately 560 kilometer (348 mile) pipeline travelling between Joliet, Illinois in the Chicago area and Ontario. Vector can deliver 1.745 bcf/d of natural gas, of which 455 million cubic feet per day (mmcf/d) is leased to NEXUS. We have a 60% interest in Vector.
Transmission and storage services are generally provided under firm agreements where customers reserve capacity in pipelines and storage facilities. The vast majority of these agreements provide for fixed reservation charges that are paid monthly regardless of the actual volumes transported on the pipelines, plus a small variable component that is based on volumes transported, injected or withdrawn, which is intended to recover variable costs.
Interruptible transmission and storage services are also available where customers can use capacity if it exists at the time of the request and are generally at a higher toll than long-term contracted rates. Interruptible revenues depend on the amount of volumes transported or stored and the associated rates for this service. Storage operations also provide a variety of other value-added services including natural gas parking, loaning and balancing services to meet customers’ needs.
CANADIAN GAS TRANSMISSION
Canadian Gas Transmission is comprised of Westcoast Energy Inc.’s (Westcoast) British Columbia (BC) Pipeline, Alliance Pipeline and other minor midstream gas gathering pipelines.
BC Pipeline provides natural gas transmission services, transporting processed natural gas from facilities located primarily in northeastern BC to markets in BC and the US Pacific Northwest. It has a peak day capacity of 3.6 bcf/d of natural gas on approximately 2,950 kilometers (1,833 miles) of transmission pipeline in BC and Alberta, as well as associated mainline compressor stations. BC Pipeline is regulated by the CER under cost-of-service regulation.
Alliance Pipeline is an approximately 3,000 kilometer (1,864 mile) integrated, high-pressure natural gas transmission pipeline with approximately 860 kilometers (534 miles) of lateral pipelines and related infrastructure. It transports liquids-rich natural gas from northeast BC, northwest Alberta and the Bakken area in North Dakota to the Alliance Chicago gas exchange hub downstream of the Aux Sable Liquid Products LP natural gas liquids (NGL) extraction and fractionation plant at Channahon, Illinois. The system has a peak day capacity of 1.8 bcf/d of natural gas. We have a 50% interest in Alliance Pipeline.
The majority of transportation services provided by Canadian Gas Transmission are under firm agreements, which provide for fixed reservation charges that are paid monthly regardless of actual volumes transported on the pipeline, plus a small variable component that is based on volumes transported to recover variable costs. Canadian Gas Transmission also provides interruptible transmission services where customers can use capacity if it is available at the time of request. Payments under these services are based on volumes transported.
US MIDSTREAM
US Midstream includes a 42.7% interest in each of Aux Sable Liquid Products LP and Aux Sable Midstream LLC, and a 50% interest in Aux Sable Canada LP (collectively, Aux Sable). Aux Sable Liquid Products LP owns and operates a NGL extraction and fractionation plant at Channahon, Illinois, outside Chicago, near the terminus of Alliance Pipeline. Aux Sable also owns facilities connected to Alliance Pipeline that facilitatedelivery of liquids-rich natural gas for processing at the Aux Sable plant. These facilities include the Palermo Conditioning Plant and the Prairie Rose Pipeline in the Bakken area of North Dakota, owned and operated by Aux Sable Midstream US, and Aux Sable Canada’s interests in the Montney area of BC, comprising the Septimus Pipeline. Aux Sable Canada also owns a facility which processes refinery/upgrader offgas in Fort Saskatchewan, Alberta.
As of August 17, 2022, US Midstream also includes a 13.2% effective economic interest in DCP Midstream, LP (DCP). Prior to August 17, 2022, we had a 28.3% effective economic interest in DCP. DCP is a master limited partnership, with a diversified portfolio of assets, engaged in the business of gathering, compressing, treating, processing, transporting, storing and selling natural gas; producing, fractionating, transporting, storing and selling NGL; and recovering and selling condensate. DCP owns and operates more than 36 plants and approximately 86,905 kilometers (54,000 miles) of natural gas and natural gas liquids pipelines, with operations in nine states across major producing regions.
OTHER
Other consists primarily of our offshore assets. Enbridge Offshore Pipelines is comprised of 11 natural gas gathering and FERC regulated transmission pipelines and four oil pipelines. These pipelines are located in four major corridors in the Gulf of Mexico, extending to deepwater developments, and include almost 2,100 kilometers (1,300 miles) of underwater pipe and onshore facilities with total capacity of approximately 6.5 bcf/d.
COMPETITION
Our natural gas transmission and storage businesses compete with similar facilities that serve our supply and market areas in the transmission and storage of natural gas. The principal elements of competition are location, rates, terms of service, flexibility and reliability of service.
The natural gas transported in our business competes with other forms of energy available to our customers and end-users, including electricity, coal, propane, fuel oils, nuclear and renewable energy. Factors that influence the demand for natural gas include price changes, the availability of natural gas and other forms of energy, levels of business activity, long-term economic conditions, conservation, legislation, governmental regulations, the ability to convert to alternative fuels, weather and other factors.
Competition exists in all markets that our businesses serve. Competitors include interstate/interprovincial and intrastate/intraprovincial pipelines or their affiliates and other midstream businesses that transport, gather, treat, process and market natural gas or NGL. Because pipelines are generally the most efficient mode of transportation for natural gas over land, the most significant competitors of our natural gas pipelines are other pipeline companies.
SUPPLY AND DEMAND
Our gas transmission assets make up one of the largest natural gas transportation networks in North America, driving connectivity between prolific supply basins and major demand centers within the continent. Our systems have been integral to the transition in supply and demand markets over the last decade, and we expect to continue to play a part as the energy landscape evolves.
Natural gas production in the Appalachian and Permian basins has grown dramatically in the past decade. Today, these regions produce more than 47 bcf/d of natural gas on a combined basis. Improved technology and increased shale gas drilling have increased the supply of low-cost natural gas. As well, there has been, and continues to be, a corresponding increase in demand for our natural gas infrastructure in North America. Through a series of expansions and reversals on our core systems, combined with the execution of greenfield projects and strategic acquisitions, we have been able to meet the needs of both producers and consumers. Our US Gas Transmission systems were initially designed to transport natural gas from the Gulf Coast to the supply-constrained northeast markets. Our asset base now has the capability to transport diverse bi-directional supply to the northeast, southeast, Midwest, Gulf Coast and LNG markets on a fully subscribed and highly utilized basis.
The northeast market continues its role as a predominantly supply constrained region with steady demand. The bi-directional capabilities offered by our US Gas Transmission system allow us to deliver in an efficient manner to our regional customers. The region has seen an increase in natural gas supply due to the development of the Marcellus and Utica shales in the Appalachia region.
The southeast market is linked to multiple, highly liquid supply pools that include the Marcellus and Utica shale developments, offering consistent supply and stable pricing to a growing population of end-use customers across our multiple systems under long-term, utility-like arrangements.
With connectivity to Appalachian and western Canadian supply through our systems, the Midwest market has access to two of the lowest cost gas producing regions on the continent. As demand in the region is expected to continue to grow by over 2.0 bcf/d over the next decade, maintaining this link will remain important. Flexibility in supply for this market is especially critical to maintaining liquidity and price stability as natural gas continues to replace coal-fired generation.
Gulf Coast demand growth is being driven by an increase in the volume of LNG exports, an ongoing wave of gas-intensive petrochemical facilities, along with power generation and additional pipeline exports to Mexico. Demand in these markets in the region is anticipated to grow by more than 20.0 bcf/d through 2040. The Gulf Coast market has been the beneficiary of low-cost capacity on our assets as the relationship between supply and market centers has shifted. Such cost-effective capacity is difficult to access or replicate, offering existing shippers and transporters stability of capacity and utilization. Tide-water market access and proximity to Mexico continue to make this region a platform of global trade as pipeline and LNG exports continue their growth trajectory. In 2022, the US exported over 10.6 bcf/d of natural gas to LNG markets, primarily from the Gulf Coast region.
Western Canada, not unlike other supply hubs, is a source of low-cost supply seeking access to premium markets in North America and globally. One of the few vital links to demand centers in the Pacific Northwest are our own systems in the region, which are highly utilized. The continental supply profile has shifted to natural gas shale plays such as the Montney and Duvernay within western Canada. These supply shifts have shaped our growth strategies and affect the nature of the projects anticipated in the capital expenditures discussed below in Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Growth Projects - Commercially Secured Projects.
Global energy demand is expected to increase approximately 24% by 2050, according to the recently released International Energy Agency’s Stated Policy Scenario, driven primarily by economic growth in non-OECD countries. According to the Stated Policy Scenario, natural gas will play an important role in meeting this energy demand, and gas consumption is anticipated to grow by approximately 13% during this period as one of the world’s most significant energy sources. North American exports are expected to play a significant part in meeting global demand, underscoring the ability of our assets to remain highly utilized by shippers, and highlighting the need for incremental transportation solutions across North America, as well as further build-out of export facilities to meet international demand.
The long-term impacts of the Ukraine conflict on global gas markets are still unclear. Europe has experienced a rapid increase in natural gas prices, largely as a result of reduced natural gas supply from Russia. Global LNG markets have responded, and natural gas storage volumes entering the winter season in Europe were strong. However, these LNG cargos have largely been diverted from Asian markets, and over time the LNG market is expected to normalize.
Europe continues to seek lower-carbon gas supplies and has accelerated plans to develop hydrogen as an alternative to natural gas. The global hydrogen market is still relatively immature, but with incentives being put in place such as those in the US Inflation Reduction Act, hydrogen production at large scale is becoming increasingly commercialized, which has led to a growing export market. Given its proximity to low-cost natural gas supplies and suitable geologic storage for carbon dioxide (CO2), the US Gulf Coast is well positioned to be a leading export hub to supply blue hydrogen to international markets. Given these rapidly changing global fundamentals, and coupled with growing appetite for lower-carbon hydrogen, we believe we are well positioned to provide value-added solutions to shippers and meet both regional and international demand.
Opposition to natural gas development, including new pipeline projects, has been increasing in recent years. This may challenge continued growth of the North American gas market and the ability to efficiently connect supply and demand. We are responding to the need for regional infrastructure with additional investments in Canadian and US gas transportation facilities. Progress on the development and construction of our commercially secured growth projects is discussed in Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Growth Projects - Commercially Secured Projects.
GAS DISTRIBUTION AND STORAGE
Gas Distribution and Storage consists of our natural gas utility operations, the core of which is Enbridge Gas Inc. (Enbridge Gas), which serves residential, commercial and industrial customers throughout Ontario. This business segment also includes natural gas distribution activities in Québec.
ENBRIDGE GAS
Enbridge Gas is a rate-regulated natural gas distribution utility with storage and transmission services. Enbridge Gas' distribution system, supported by storage and compression assets, carries natural gas from the point of local supply to customers and serves residential, commercial and industrial customers across Ontario.
There are three principal interrelated aspects of the natural gas distribution business in which Enbridge Gas is directly involved: Distribution, Transportation and Storage.
Distribution
Enbridge Gas’ principal source of revenue arises from distribution of natural gas to customers. The services provided to residential, small commercial and industrial heating customers are primarily on a general service basis, without a specific fixed term or fixed price contract. The services provided to larger commercial and industrial customers are usually on an annual contract basis under firm or interruptible service contracts. Under a firm contract, Enbridge Gas is obligated to deliver natural gas to the customer up to a maximum daily volume. The service provided under an interruptible contract is similar to that of a firm contract, except that it allows for service interruption at Enbridge Gas’ option primarily to meet seasonal or peak demands. The Ontario Energy Board (OEB) approves rates for both contract and general services. The distribution system consists of approximately 149,000 kilometers (92,584 miles) of pipelines that carry natural gas from the point of local supply to customers.
Customers have a choice with respect to natural gas supply. Customers may purchase and deliver their own natural gas to points upstream of the distribution system or directly into Enbridge Gas’ distribution system, or, alternatively, they may choose a system supply option, whereby customers purchase natural gas from Enbridge Gas’ supply portfolio. To acquire the necessary volume of natural gas to serve its customers, Enbridge Gas maintains a diversified natural gas supply portfolio, acquiring supplies on a delivered basis in Ontario, as well as acquiring supply from multiple supply basins across North America.
Transportation
Enbridge Gas contracts for firm transportation service, primarily with TransCanada Pipelines Limited (TransCanada), Vector and NEXUS, to meet its annual natural gas supply requirements. The transportation service contracts are not directly linked with any particular source of natural gas supply. Separating transportation contracts from natural gas supply allows Enbridge Gas flexibility in obtaining its own natural gas supply and accommodating the requests of its direct purchase customers for assignment of TransCanada capacity. Enbridge Gas forecasts the natural gas supply needs of its customers, including the associated transportation and storage requirements.
In addition to contracting for transportation service, Enbridge Gas offers firm and interruptible transportation services on its own Dawn-Parkway pipeline system. Enbridge Gas’ transmission system consists of approximately 5,500 kilometers (3,418 miles) of high pressure pipeline and five mainline compressor stations and has an effective peak daily demand capacity of 7.6 bcf/d. Enbridge Gas’ transmission system also links an extensive network of underground storage pools at the Tecumseh Gas Storage facility and Dawn Hub (collectively, Dawn) to major Canadian and US markets, and forms an important link in moving natural gas from western Canada and US supply basins to central Canadian and northeastern US markets.
As the supply of natural gas in areas close to Ontario has continued to grow, there has been increased demand to access these diverse supplies at Dawn and transport them along the Dawn-Parkway pipeline system to markets in Ontario, eastern Canada and the northeastern US. Enbridge Gas delivered 2,162 bcf of gas through its distribution and transmission system in 2022. A substantial amount of Enbridge Gas’ transportation revenue is generated by fixed annual demand charges, with the average length of a long-term contract being approximately 15 years and the longest remaining contract term being 18 years.
Storage
Enbridge Gas’ business is highly seasonal as daily market demand for natural gas fluctuates with changes in weather, with peak consumption occurring in the winter months. Utilization of storage facilities permits Enbridge Gas to take delivery of natural gas on favorable terms during off-peak summer periods for subsequent use during the winter heating season. This practice permits Enbridge Gas to minimize the annual cost of transportation of natural gas from its supply basins, assists in reducing its overall cost of natural gas supply and adds a measure of security in the event of any short-term interruption of transportation of natural gas to Enbridge Gas’ franchise areas.
Enbridge Gas’ storage facility at Dawn is located in southwestern Ontario, and has a total working capacity of approximately 284 bcf in 34 underground facilities located in depleted gas fields. Dawn is the largest integrated underground storage facility in Canada and one of the largest in North America. Approximately 180 bcf of the total working capacity is available to Enbridge Gas for utility operations. Enbridge Gas also has storage contracts with third parties for 21 bcf of storage capacity.
Dawn offers customers an important link in the movement of natural gas from western Canadian and US supply basins to markets in central Canada and the northeast US. Dawn's configuration provides flexibility for injections, withdrawals and cycling. Customers can purchase both firm and interruptible storage services at Dawn. Dawn offers customers a wide range of market choices and options with easy access to upstream and downstream markets. During 2022, Dawn provided services such as storage, balancing, gas loans, transport, exchange and peaking services to over 200 counterparties.
A substantial amount of Enbridge Gas’ storage revenue is generated by fixed annual demand charges, with the average length of a long-term contract being approximately four years and the longest remaining contract term being 14 years.
GAZIFÈRE
We wholly own Gazifère, a natural gas distribution company that serves approximately 44,000 customers in western Québec. Gazifère is regulated by the Québec Régie de l’énergie.
COMPETITION
Enbridge Gas’ distribution system is regulated by the OEB and is subject to regulation in a number of areas, including rates. Enbridge Gas is not generally subject to third-party distribution competition within its franchise areas.
Enbridge Gas competes with other forms of energy available to its customers and end-users, including electricity, coal, propane and fuel oils. Factors that influence the demand for natural gas include weather, price changes, the availability of natural gas and other forms of energy, the level of business activity, conservation, legislation including the federal carbon pricing law, governmental regulations, the ability to convert to alternative fuels and other factors.
SUPPLY AND DEMAND
We anticipate that demand for natural gas in North America will stabilize over the long term with continued growth in peak day demands, however, there are risks to the natural gas market that may challenge its growth prospects. Net-zero carbon policies, evolving customer preferences for lower-carbon fuels and more efficient technologies, combined with increasing opposition to natural gas development in North America, may reduce the markets’ ability to efficiently deploy capital to connect supply and demand. We monitor these factors closely to be able to develop our business strategy to align with shifts in customer preferences and public policy requirements.
We expect demand for natural gas connections in Ontario to maintain its recent growth profile due to continued population growth and with competitively priced natural gas expected to continue to provide a strong price advantage relative to alternate energy options, even with increasing carbon charges. Specific interest in natural gas connections is expected to come from communities that are not currently serviced by natural gas in Ontario.
Enbridge Gas continues to focus on promoting conservation and energy efficiency by undertaking activities focused on reducing natural gas consumption through various demand side management programs offered across all markets and sourcing supply with a smaller carbon footprint. In addition to our existing and proposed RNG programs, we are also expanding our efforts to source other lower-carbon supplies, such as responsibly sourced natural gas, and H2.
The storage and transportation marketplace continues to respond to changing natural gas supply dynamics, including a recovered supply environment which was negatively impacted by the global pandemic.
Over the past decade, growth in the North American gas supply landscape, driven mainly by the development of unconventional gas resources in the Montney, Permian, Marcellus and Utica supply basins, has resulted in lower annual commodity prices and narrower seasonal price spreads. However, over the past year, geopolitical unrest has increased and lead to elevated concerns with energy security in regions such as Europe and Asia. In response, one of the key supply sources supporting global energy security has been US LNG, which has introduced additional competition for North American supply. These market dynamics have resulted in higher and more volatile natural gas prices across many US and Canadian natural gas trading points. Unregulated storage values are primarily determined by the difference in value between winter and summer natural gas prices. Despite the recent volatility exhibited in natural gas prices, storage values have been relatively stable.
RENEWABLE POWER GENERATION
Renewable Power Generation consists primarily of investments in wind and solar assets, as well as geothermal, waste heat recovery, and transmission assets. In North America, assets are primarily located in the provinces of Alberta, Saskatchewan, Ontario and Québec, and in the states of Colorado, Texas, Indiana and West Virginia. We are also developing several solar self-power projects along our oil and gas rights-of-way in North America. In Europe, we hold equity interests in operating offshore wind facilities in the coastal waters of the United Kingdom, France, and Germany, as well as interests in several offshore wind projects under construction and active development in France and the United Kingdom.
Combined Renewable Power Generation investments represent approximately 2,175 MW of net generation capacity, which primarily consists of approximately:
•1,389 MW generated by North American wind facilities;
•377 MW generated by European offshore wind facilities;
•187 MW to be generated by the Fécamp and Calvados Offshore Wind projects in France, both of which are currently under construction;
•6 MW to be generated by the Provence Grand Large Floating Offshore Wind project in France, which is under construction; and
•93 MW generated by North American solar facilities in operation, with an additional 97 MW in projects in pre-construction and under construction.
The vast majority of the power produced from these facilities is sold under long-term PPAs.
In September 2022, we acquired renewable energy project developer TGE with a development portfolio of wind, solar, and energy storage projects in Texas, Nebraska, Illinois, Indiana, Virginia, Pennsylvania, and Wyoming. TGE’s development portfolio includes 3.9 GW of conditionally sold renewable generation projects and an additional 3 GW of wholly-owned projects in development. Following its acquisition of TGE, Enbridge became one of the top 15 renewable energy project developers in the US.
Renewable Power Generation also includes our 25% interest in the East-West Tie, a 450-MW transmission line in northwestern Ontario, which entered operations in March 2022.
JOINT VENTURES / EQUITY INVESTMENTS
The investments in the Canadian wind and solar assets (excluding self-power) and two of the US renewable assets are held within a joint venture in which we maintain a 51% interest and which we manage and operate.
We also own interests in European offshore wind facilities through the following joint ventures:
•a 24.9% interest in Rampion Offshore Wind, located in the United Kingdom;
•a 25.4% interest in Hohe See and Albatros Offshore Wind, located in Germany;
•a 25.5% interest in the Saint-Nazaire Offshore Wind project, located in France;
•a 25% interest in the Provence Grande Large Floating Offshore Wind project, under construction in France;
•a 17.9% interest in the Fécamp Offshore Wind project, under construction in France; and
•a 21.7% interest in the Calvados Offshore Wind project, under construction in France.
COMPETITION
Renewable Power Generation operates in the North American and European power markets, which are subject to competition and supply and demand fundamentals for power in the jurisdictions in which they operate. The majority of revenue is generated pursuant to long-term PPAs (or has been substantially hedged). As such, the financial performance is not significantly impacted by fluctuating power prices arising from supply/demand imbalances or the actions of competing facilities during the term of the applicable contracts. However, the renewable energy sector includes large utilities, small independent power producers and private equity investors, which are expected to aggressively compete for new project development opportunities and for the right to supply customers when contracts expire.
To grow in an environment of heightened competition, we strategically seek opportunities to collaborate with well-established renewable power developers and financial partners and to target regions with commercial constructs consistent with our low risk business model. In addition, we have expertise in completing and delivering large scale infrastructure projects.
SUPPLY AND DEMAND
Renewable power generation in North America and Europe is expected to grow significantly over the next 20 years due to the replacement of older fossil fuel-based sources of electricity generation in support of announced governmental carbon emissions reduction targets. Any additional governmental actions toward reducing emissions and/or increasing electrification will further accelerate renewable electricity demand growth and electrification across all sectors.
On the demand side, North American economic growth over the longer term and the continued electrification and transition to lower-carbon strategies within the residential, transportation and industrial sectors are expected to drive growing electricity demand. Furthermore, voluntary GHG emissions reduction targets are becoming increasingly expected by stakeholders, which is driving significant demand from corporate electricity end-users for clean electricity and environmental attributes. However, continued efficiency gains are expected to make the economy less energy-intensive and temper overall demand growth.
On the supply side in North America, legislation is accelerating the retirement of aging coal-fired generation, while generation from conventional nuclear power is also forecast to decline. As a result, North America requires significant new generation capacity from preferred technologies. Gas-fired and renewable energy facilities, including solar and wind (which make up the bulk of our renewable power assets), are generally the preferred sources to replace coal-fired generation due to their lower-carbon intensities. Governments are also proposing tax incentives to support low-emission and renewable energy generation resource development.
The falling capital and operating costs of wind and solar, combined with their improving capacity factors, are expected to continue the ongoing trend of making renewable energy more competitive and support investment over the long-term, regardless of available government incentives. Generation from renewable sources is expected to double over the next two decades in North America. Aside from the construction of new wind and solar facilities, other growth opportunities include repowering projects to increase output from, and extending the project-life of, our existing facilities.
In Europe, the renewable energy outlook is robust. Demand for electricity is expected to gradually increase over the next two decades, driven by electrification of transportation and buildings, and the desire to reduce reliance on gas sourced from Russia. Energy efficiency gains are expected to temper, but not eliminate, demand growth. Renewable power is expected to play a significant role in Europe’s ability to meet its aggressive lower-carbon and renewable energy targets.
On the supply side, the International Energy Agency expects coal to fall by more than 90% from 2020 levels, while nuclear is expected to fall by one-third, by 2040. Over the same period, it anticipates power generation from renewable sources will more than double, including installed (onshore and offshore) wind more than doubling and photovoltaics solar power nearly tripling. We, through our European joint ventures, continue to invest in offshore wind projects in the United Kingdom, France and Germany, and to explore opportunities, to meet the growing demand.
ENERGY SERVICES
The Energy Services businesses in Canada and the US provide physical commodity marketing and logistical services to North American refiners, producers, and other customers.
Energy Services is primarily focused on servicing customers across the value chain and capturing value from quality, time, and location price differentials when opportunities arise. To execute these strategies, Energy Services transports and stores on both Enbridge-owned and third party assets using a combination of contracted long-term and short-term pipeline, storage, railcar, and truck capacity agreements.
COMPETITION
Energy Services’ earnings are primarily generated from arbitrage opportunities which, by their nature, can be replicated by competitors. An increase in market participants entering into similar arbitrage strategies could have an impact on our earnings. Efforts to mitigate competition risk include diversification of the marketing business by transacting at the majority of major hubs in North America and establishing long-term relationships with clients and pipelines.
ELIMINATIONS AND OTHER
Eliminations and Other includes operating and administrative costs that are not allocated to business segments, the impact of foreign exchange hedge settlements and the activities of our wholly-owned captive insurance subsidiaries. The principal activity of our captive insurance subsidiaries is providing insurance and reinsurance coverage for certain insurable property and casualty risk exposures of our operating subsidiaries and certain equity investments. Eliminations and Other also includes new business development activities and corporate investments.
REGULATION
GOVERNMENT REGULATION
Pipeline Regulation
Our Liquids Pipelines and Gas Transmission and Midstream assets are subject to numerous operational rules and regulations mandated by governments or applicable regulatory authorities, breaches of which could result in fines, penalties, operating restrictions and an overall increase in operating and compliance costs.
In the US, our interstate pipeline operations are subject to pipeline safety laws and regulations administered by the Pipeline and Hazardous Materials Safety Administration (PHMSA), an agency within the United States Department of Transportation (DOT). These laws and regulations require us to comply with a significant set of requirements for the design, construction, maintenance and operation of our interstate pipelines. These laws and regulations, among other things, include requirements to monitor and maintain the integrity of our pipelines and to operate them within permissible pressures.
PHMSA continues to review existing regulations and establish new regulations to support safety standards that are designed to improve operations integrity management processes. There remains uncertainty as to how these standards will be implemented, but it is expected that the changes will result in additional costs on new pipeline projects as well as on existing operations. In this climate of increasingly stringent regulation, pipeline failure or failures to comply with applicable regulations could result in reduction of allowable operating pressures as authorized by PHMSA, which would reduce available capacity on our pipelines. Should any of these risks materialize, it may have an adverse effect on our operations, capital expenditures, earnings, cash flows, financial condition and competitive advantage.
Our ability to establish transportation and storage rates on our US interstate natural gas facilities is subject to regulation by the FERC, whose rulings and policies could have an adverse impact on the ability to recover the full cost of operating these pipeline and storage assets, including a reasonable rate of return. Regulatory or administrative actions by FERC such as rate proceedings, applications to certify construction of new facilities, and depreciation and amortization policies can affect our business, including decreasing tariff rates and revenues and increasing our costs of doing business.
In Canada, our pipelines are subject to safety regulations administered by the CER or provincial regulators. Applicable legislation and regulations require us to comply with a significant set of requirements for the design, construction, maintenance and operation of our pipelines. Among other obligations, this regulatory framework imposes requirements to monitor and maintain the integrity of our pipelines.
As in the US, laws and regulations addressing pipeline safety in Canada were enacted over the past few years. The changes demonstrate an increased focus on the implementation of management systems to address key areas, such as emergency management, integrity management, safety, security and environmental protection. The CER also has authority to impose administrative monetary penalties for non-compliance with the regulatory regime it administers, as well as to impose financial requirements for future abandonment and major pipeline releases.
A key component of pipeline safety and reliability is the approach to integrity management that uses reliability targets and safety case assessments. A long history of extensive inline inspection has provided detailed knowledge of the assets in our pipeline systems. Our pipelines are assessed and maintained in a proactive manner ensuring reliability targets are met. Furthermore, the integrity management program has an independent step to check the results of integrity assessments to validate the effectiveness of the program and to ensure that the operational risk remains as low as reasonably practicable throughout the integrity inspection and assessment cycle. As inspection technology, pipeline materials and construction practices improve with time, and new data on threats and pipeline condition are gathered, our methods of maintaining fitness for service evolves, with a strong focus on continual improvement in every aspect of integrity management.
Our pipelines also face economic regulatory risk. Broadly defined, economic regulatory risk is the risk that governments or regulatory agencies reject proposed commercial arrangements, applications or policies, upon which future and current operations are dependent. Our pipelines are subject to the actions of various regulators, including the CER and the FERC, with respect to the tariffs and tolls. The rejection of applications for approval of new tariff structures or proposed commercial arrangements and changes in interpretation of existing regulations by courts or regulators could have an adverse effect on our revenues and earnings.
Gas Distribution and Storage
Our gas distribution and storage utility operations are regulated by the OEB and the Québec Régie de l’énergie, among others. To the extent that the regulators’ future actions are different from current expectations, the timing and amount of recovery or refund of amounts recorded in the Consolidated Statements of Financial Position, or amounts that would have been recorded in the Consolidated Statements of Financial Position in the absence of the effects of regulation, could be different from the amounts that are eventually recovered or refunded.
Enbridge Gas' distribution rates, commencing in 2019, are set under a five-year incentive regulation (IR) framework using a price cap mechanism. The price cap mechanism establishes new rates each year through an annual base rate escalation at inflation less a 0.3% productivity factor, annual updates for certain costs to be passed through to customers, and where applicable, the recovery of material discrete incremental capital investments beyond those that can be funded through base rates. The IR framework includes the continuation and establishment of certain deferral and variance accounts, as well as an earnings sharing mechanism that requires Enbridge Gas to share equally with customers any earnings in excess of 150 basis points over the annual OEB approved return on equity (ROE).
In October 2022, Enbridge Gas filed its application with the OEB to establish a 2024 through 2028 rate setting framework. The application and framework seek approval to establish 2024 base rates on a cost-of-service basis and to establish a price cap IR rate setting mechanism to be used for the remainder of the term (2025 - 2028). The OEB has determined it will hear the application in two phases, with Phase 1 addressing items that affect rates effective January 1, 2024, and Phase 2 addressing items that will affect rates subsequent to January 1, 2024. An OEB decision is expected on Phase 1 of the application in the second half of 2023.
Enbridge Gas continues to develop opportunities to support a lower-carbon future in Ontario. In 2021, we received OEB approval of an Integrated Resource Planning (IRP) framework and integrated the framework into our planning practices. The framework requires Enbridge Gas to consider facility and non-pipe demand and/or supply side alternatives (IRP alternatives) to address the systems needs of its regulated operations, where certain parameters have been met. The framework also allows Enbridge Gas to pursue an IRP alternative (or combination of IRP alternatives and facility alternative) where it is found to be in the best interests of Enbridge Gas and its customers, taking into account reliability and safety, cost-effectiveness, public policy, optimized scoping, and risk management. Enbridge Gas has reviewed its system needs as part of its 2023-2032 Asset Management Plan and is now evaluating the technical and economic feasibility of IRP alternatives for the projects. A summary of the IRP evaluation statuses has been filed as part of Enbridge Gas’ 2024 Rebasing Application.
Renewable Power Generation
Renewable Power Generation is subject to numerous operational rules and regulations mandated by governments or applicable regulatory authorities, breaches of which could result in fines, penalties, operating restrictions and an overall increase in operating and compliance costs.
The North American Electric Reliability Council (NERC) is an international regulatory authority responsible for establishing and enforcing reliability standards to reduce risks to the reliability and security of the grid in Canada, the US, and Mexico. It is subject to oversight from the FERC in the US and provincial governments in Canada. The FERC has authority over many markets in the US and is tasked with ensuring safe, reliable, and secure interstate transmission of electricity, natural gas, and oil. This includes establishing reliability standards and determining certain pricing aspects of transmission development and access, among others. NERC and FERC standards and pricing decisions are also updated from time to time and could impact our operations, capital expenditures, earnings, and cash flows, though some of these impacts could be positive for our business.
At the US federal level, our Renewable Power Generation assets are subject to legislation overseen by the US Fish and Wildlife Service, which is aimed at reducing the impact of development and human activity on wildlife, along with other federal environmental permitting legislation. These federal environmental laws are subject to change from time to time which could require Enbridge to obtain new permits, update practices, or amend operations and operating expenditures.
In Canada, the Federal Government does not generally regulate the electricity sector though it has imposed a federal carbon price on other sectors via its output-based pricing system (OBPS) and has proposed a Clean Electricity Regulation (CE Regulation) that would require Canada’s electricity grid reach net-zero by 2035. The CE Regulation is expected to come into effect in 2023.
Policy changes may also provide new opportunities for existing assets and new developments. The United States passed the Inflation Reduction Act in late 2022, which established long-term production and investment tax credits for renewable power generation, battery storage projects and for related manufacturing supply chains. Similarly, Canada proposed in its Fall Economic Statement competitive tax credits for renewable power generation and battery storage projects, which it anticipates passing in 2023. Changes to these tax programs could impact development plans.
Renewable Power Generation is also subject to Provincial and State regulations governing the energy resource mix on the grid, emissions levels of the electricity grid, and market regulations related to emergency operations, extreme weather preparedness, and market participation, among others. These regulations may change from time to time, which could impact Enbridge’s operations and increase the costs of participating in regional electricity markets.
Our Renewable Power Generation assets in France and Germany each have federal policies in place and are subject to directives and regulations established and enforced by the European Union (EU). These include the Renewable Energy Directive (most recently, RED II passed set targets through 2030), the European Green Deal, and ongoing work on financing mechanisms and transmission directives and programs. The EU is also responsible for establishing environmental protection rules and permitting standards. During 2022, member states of the EU introduced extraordinary and temporary measures to address high energy prices including caps and demand reduction goals. As the minimum PPA prices in Germany and France will still be honored, there will not be any negative implications to our PPA prices. The federal policies and regulations in place are subject to change from time to time, which could impact our operations and related expenditures; however, the EU’s general direction is to facilitate increased renewable power integration to its grid.
The United Kingdom (UK) government is responsible for establishing renewable energy and carbon pricing policies for the entire UK, as well as long-term electricity sector planning and procurement mechanisms and structure for auctions that are administered at the national level, e.g., England, Scotland, within the UK. Each country within the UK is also responsible for establishing its own environmental and permitting regulations. This process is still ongoing following Brexit and in some cases continues to result in more volatile merchant power prices; however, expanded interconnectors to Europe and policies aimed at increasing domestic renewable capacity are in progress. Government-imposed temporary price controls, effective January 1, 2023, were introduced during 2022 to address the significant increase in energy prices. The impact of merchant exposure on our Renewable Power Generation asset in the UK is limited by fixed revenue payments backed by the UK government.
Energy Services
Energy Services is regulated by government authorities in the areas of commodity trading, import and export compliance and the transportation of commodities. Non-compliance with governing rules and regulations could result in fines, penalties and operating restrictions. These consequences would have an adverse effect on operations, earnings, cash flows, financial condition and competitive advantage. Energy Services retains dedicated professional staff and has a robust regulatory compliance program (including targeted training) to mitigate these potential risks associated with the business.
In the US, commodity marketing is regulated by the Commodity Futures Trading Commission, the SEC, the Federal Trade Commission, the various commodity exchanges, the US Department of Justice and state regulators. The provincial and territorial securities regulators similarly regulate commodity marketing within Canada and are members of the Canadian Securities Administrators. These various regulators enforce, among other things, the prohibition of market manipulation, fraud and disruptive trading.
The export of natural gas out of Alberta is regulated by the Alberta Energy Regulator (AER). The import and export of commodities between Canada and the US is subject to regulation by the CER and the US Department of Energy, as well as customs authorities. In particular, import and export permits are required, with associated regular reporting requirements. Breaches of import and export rules and permits could result in an inability to perform day to day operations, and therein negatively impact the earnings of the business.
The transportation of crude oil and natural gas liquids by railcar or truck is regulated by the US DOT, Transport Canada and provincial regulation. Each jurisdiction requires compliance with security, safety, emergency management, and environmental laws and regulations related to ground transportation of commodities. Risks associated with transportation of crude or natural gas liquids include unplanned releases. In the event of a release, remediation of the affected area would be required. Energy Services engages third parties, such as Emergency Response Assistance Canada, the Chemical Transportation Emergency Center and the Canadian Transport Emergency Center to assist in such remediation.
ENVIRONMENTAL REGULATION
Pipeline Regulation
Our Liquids Pipelines and Gas Transmission and Midstream assets are subject to numerous federal, state and provincial environmental laws and regulations affecting many aspects of our present and future operations, including air emissions, water quality, water discharge and waste. These laws and regulations generally require us to obtain and comply with a wide variety of environmental licenses, permits and other approvals.
In particular, in the US, compliance with major Clean Air Act regulatory programs may cause us to incur significant capital expenditures to obtain permits, evaluate off-site impacts of our operations, install pollution control equipment, and otherwise assure compliance. Some states in which we operate are establishing new state implementation plans which have new emissions limits to comply with ozone standards regulated under the National Ambient Air Quality Standards. In 2015, the ozone standards were lowered once again from 75 parts per billion (ppb) to 70 ppb, which may require states to implement additional emissions regulations. The precise nature of these compliance obligations at each of our facilities has not been finally determined and may depend in part on future regulatory changes. In addition, compliance with new and emerging environmental regulatory programs may significantly increase our operating costs compared to historical levels.
In the US, climate change action is evolving at federal, state and regional levels. The Supreme Court decision in Massachusetts v. Environmental Protection Agency in 2007 established that GHG emissions were pollutants subject to regulation under the Clean Air Act. Pursuant to federal regulations, we are currently subject to an obligation to report our GHG emissions at our largest emitting facilities but are not generally subject to limits on emissions of GHGs. The current US presidential administration has also announced that policies designed to combat climate change and reduce GHG emissions will be a key legislative and regulatory priority, and thus stricter emissions limits and air quality enforcement actions are likely. In addition, a number of states have joined regional GHG initiatives, and a number are developing their own programs that would mandate reductions in GHG emissions. Public interest groups and regulatory agencies are increasingly focusing on the emission of methane associated with natural gas development and transmission as a source of GHG emissions. However, as the key details of future GHG restrictions and compliance mechanisms remain undefined, the likely future effects on our business are uncertain.
Canada has adopted a pan-Canadian approach to pricing carbon emissions to incent GHG emission reductions across all sectors of the economy. This approach was adopted in 2016 and entails both a consumer price on carbon, and an intensity-based system for industry which addresses competitiveness and carbon leakage. Provinces and territories may implement their own system of carbon pricing provided it meets the federal benchmark (and if they fail to do so the federal system will be imposed on them).In March 2022, Canada published its 2030 Emissions Reduction Plan (ERP) which builds on the Pan-Canadian Framework, and Net-Zero Emissions Accountability Act, and details the roadmap for Canada to meet its domestic climate target of a 40-45% reduction in GHG emissions by 2030 and attaining net-zero emissions by 2050. The ERP details the complementary policies and programs that Canada will enact to enable it to meet its domestic climate goal. Effective January 1, 2023, the federal carbon price was increased from $50 to $65 per tonne of carbon dioxide equivalent (tCO2e). This will increase by $15 per tonne and rise to $170 per tCO2e in 2030.
Gas Distribution and Storage
Our Gas Distribution and Storage operations, facilities and workers are subject to municipal, provincial and federal legislation which regulates the protection of the environment and the health and safety of workers. Environmental legislation primarily includes regulation of spills and emissions to air, land and water; hazardous waste management; the assessment and management of excess soil and contaminated sites; protection of environmentally sensitive areas, and species at risk and their habitats; and the reporting and reduction of GHG emissions.
Gas distribution system operation, as with any industrial operation, has the potential risk of abnormal or emergency conditions, or other unplanned events that could result in releases or emissions exceeding permitted levels. These events could result in injuries to workers or the public, adverse impacts to the environment, property damage and/or regulatory infractions including orders and fines. We could also incur future liability for soil and groundwater contamination associated with past and present site activities.
In addition to gas distribution, we also operate gas storage facilities and a small volume of oil and brine production in southwestern Ontario. Environmental risk associated with these facilities has the potential for unplanned releases. In the event of a release, remediation of the affected area would be required. There would also be potential for fines and orders under environmental legislation, and potential third-party liability claims by any affected landowners.
The gas distribution system and our other operations must maintain environmental approvals and permits from regulators to operate. As a result, these assets and facilities are subject to periodic inspections and/or audits. Reports are submitted to our regulators as required to demonstrate we are in good standing with our environmental requirements. Failure to maintain regulatory compliance could result in operational interruptions, fines, and/or orders for additional pollution control technology or environmental mitigation.
As environmental regulations continue to evolve and become more stringent, the cost to maintain compliance and the time required to obtain approvals continues to increase. A recent example includes the implementation of the new excess soil management requirements (Ontario Regulation 406/19) which has resulted in an increase in soil management costs and effort.
As in previous years, in 2022, we reported operational GHG emissions, including emissions from stationary combustion, flaring, venting and fugitive sources to Environment and Climate Change Canada (ECCC), the Ontario Ministry of Environment, Conservation and Parks, and a number of voluntary reporting programs. In accordance with the provincial GHG regulations, stationary combustion and flaring emissions related to storage and transmission operations were verified in detail by a third-party accredited verifier with no material discrepancies found.
Enbridge Gas utilizes emissions data management processes and systems to help with the data capture and mandatory and voluntary reporting needs. Quantification methodologies and emission factors are updated in our systems as required. Enbridge Gas continues to work with industry associations to refine quantification methodologies and emissions factors, as well as best management practices to minimize emissions.
In October 2018, the federal government confirmed that Ontario is subject to the federal government’s carbon pricing program, otherwise known as the Federal Carbon Pricing Backstop Program. This program consists of two components: a carbon charge levied on fossil fuels, including natural gas, and an OBPS.
The federal carbon charge took effect on April 1, 2019 at a rate of 3.91 cents/cubic meter (m3) of natural gas and is applicable to the majority of customers. Enbridge Gas is registered as a natural gas distributor with the Canada Revenue Agency and remits the federal carbon charge on a monthly basis. The charge increases annually on April 1 of each year by 1.96 cents/m3, rising to 9.79 cents/m3 in 2022. In December 2020, the federal government announced plans to increase the federal carbon price by $15 per tonne each year beginning in 2023, rising to $170 per tCO2e in 2030. Enbridge Gas estimates that this will equate to a federal carbon charge on natural gas of approximately 33.31 cents/m3 in 2030.
The OBPS component came into effect in Ontario on January 1, 2019 and ended on December 31, 2021. Under OBPS, a registered facility has a compliance obligation for the portion of their emissions that exceeds their annual facility emissions limit, which is calculated based on the sector specific output-based standard and annual production. From 2019 to 2021, Enbridge Gas was registered with ECCC as an emitter in the OBPS program and has an annual compliance obligation associated with the combustion and flaring emissions from its natural gas pipeline transmission system. As a registered facility under OBPS, Enbridge Gas submitted an annual report along with the required verification report from an accredited third-party verifier who found no material misstatements. Enbridge Gas was required to remit payment for facility emissions that exceed its annual facility emissions limit by December of the year following a compliance period. In accordance with the regulations, Enbridge Gas made payment for the 2021 compliance obligation in December 2022.
In September 2020, Ontario and the federal government announced that the federal government has accepted that Ontario’s Emission Performance Standards (EPS) will replace the federal OBPS for industrial facilities. In March 2021, the federal government announced that the federal OBPS would stand down in Ontario at the end of 2021 and Ontario would transition to the EPS effective January 1, 2022. In September 2021, the Greenhouse Gas Pollution Pricing Act was amended to remove Ontario as a covered province, enabling the EPS to take effect on January 1, 2022. Effective January 1, 2022, Enbridge Gas transitioned out of the federal OBPS to the provincial EPS. Enbridge Gas is registered with the Ministry of the Environment, Conservation and Parks as a covered facility under the EPS and has an annual compliance obligation for its facility-related stationary combustion and flaring emissions associated with its transmission and storage operations. Enbridge Gas must remit payment annually on the portion of emissions that exceed its total annual emissions limit. Payment is due the year following a compliance period and as such, Enbridge Gas will remit payment for its 2022 EPS compliance obligation in 2023.
Enbridge Gas applies to the OEB annually through a Federal Carbon Pricing Program application for approval of just and reasonable rates effective April 1 each year for the Enbridge Gas Distribution Inc. and Union rate zones, to recover the costs associated with the Federal Carbon Charge and EPS Regulation as a pass-through to customers.
Renewable Power Generation
In March 2022, the Federal Government of Canada released a white paper setting out its plans for caps on emissions on Canada’s electricity grid with the intention of reaching a net-zero grid by 2035. The government subsequently proposed a CE Regulation framework and provided technical details for the program, which would cap emissions from electricity generation sources at, or near zero tCO2e per megawatt hour. Details of related compliance payments and potential credit generation opportunities are under review and the CE Regulation is expected to come into effect in 2023. Enbridge’s Renewable Power Generation resources are substantially non-emitting.
HUMAN CAPITAL RESOURCES
WORKFORCE SIZE AND COMPOSITION
As at December 31, 2022, we had approximately 11,100 regular employees, including approximately 1,600 unionized employees across our North American operations. This total rises to just over 13,000 if temporary employees and contractors are included. We have a strong preference for direct employment relationships but where we have collectively bargained-for employees, we have mature working relationships with our labor unions and the parties have traditionally committed themselves to the achievement of renewal agreements without a work stoppage.
SAFETY
We believe all injuries, incidents and occupational illnesses are preventable. Our overall focus on employee and contractor safety, including through the COVID-19 pandemic, continues to result in strong performance compared against industry benchmarks and we are actively engaged in continuous improvement exercises as we pursue our goal of zero incidents.
DIVERSITY, EQUITY AND INCLUSION
In 2020, we announced Enbridge’s ESG goals – including goals to increase representation of women, underrepresented ethnic and racial groups (including Indigenous peoples), people with disabilities and veterans – to ensure our workforce is reflective of the communities where we operate. In executing on our ESG strategy, we continue to track progress towards these representation goals in 2022. Consistent with our culture, we remain committed to open, two-way dialogue related to our goals, enhancing transparency and accountability for all stakeholders.
Diversity Representation Goals
PRODUCTIVITY AND DEVELOPMENT
We continually invest in our people’s personal and professional development because we recognize their success is our success. Every year, employees are provided access to a range of development and re-skilling opportunities through a variety of channels, including: extensive catalog of self-directed learning (10,000+ external courses plus proprietary Enbridge University courses); on-the-job learning opportunities and rotational assignments; curated leadership development programs; educational reimbursement; and developmental relationships with mentors through our formal mentor-protégé matching program.
EXECUTIVE OFFICERS
The following table sets forth information regarding our executive officers as at February 10, 2023:
| | | | | | | | |
| Name | Age | Position |
| Gregory L. Ebel | 58 | President & Chief Executive Officer |
| Vern D. Yu | 56 | Executive Vice President, Corporate Development, Chief Financial Officer & President, New Energy Technologies |
| Colin K. Gruending | 53 | Executive Vice President & President, Liquids Pipelines |
| Cynthia L. Hansen | 58 | Executive Vice President & President, Gas Transmission and Midstream |
| Byron C. Neiles | 57 | Executive Vice President & Chief Administrative Officer |
| Robert R. Rooney | 66 | Executive Vice President & Chief Legal Officer |
| Matthew A. Akman | 55 | Senior Vice President, Corporate Strategy & President, Power |
| Michele E. Harradence | 54 | Senior Vice President & President, Gas Distribution |
| Laura J. Sayavedra | 55 | Senior Vice President, Safety & Reliability, Projects and Unify |
Gregory L. Ebel was appointed President and Chief Executive Officer on January 1, 2023. Mr. Ebel is also a member of the Enbridge Board of Directors. Mr. Ebel served as Chair of the Enbridge Board of Directors following the merger of Enbridge and Spectra Energy Corp (Spectra Energy) in 2017 until January 1, 2023. Prior to that time, he served as Chairman, President and CEO of Spectra Energy from 2009 until February 27, 2017. Previously, Mr. Ebel also served as Spectra Energy’s Group Executive and Chief Financial Officer beginning in 2007, President of Union Gas Limited from 2005 until 2007, and Vice President, Investor & Shareholder Relations of Duke Energy Corporation from 2002 until 2005.
Vern D. Yu was appointed Executive Vice President, Corporate Development, Chief Financial Officer & President, New Energy Technologies on January 1, 2023. Prior thereto, he served as Executive Vice President, Corporate Development and Chief Financial Officer from March 2022 to December 2022, and Executive Vice President and Chief Financial Officer from October 2021 to March 2022. Mr. Yu has oversight for all of Enbridge’s financial affairs including investor relations, financial reporting, financial planning, treasury, tax, insurance, risk and audit management functions. He is also responsible for overseeing Enbridge’s new energy technology ventures. Previously, Mr. Yu served as Executive Vice President and President, Liquids Pipelines from January 2020to October 2021; President and Chief Operating Officer for Liquids Pipelines from June 2019 to December 2019; and Executive Vice President and Chief Development Officer from May 2016 to June 2019.
Colin K. Gruending was appointed Executive Vice President and President, Liquids Pipelines on October 1, 2021. Mr. Gruending is responsible for the overall leadership and operations of Enbridge’s Liquids Pipelines business. Previously, he served as our Executive Vice President and Chief Financial Officer from June 2019 to October 2021; Senior Vice President, Corporate Development and Investment Review from May 2018 to June 2019; and Vice President, Corporate Development and Investment Review from February 2017 to May 2018.
Cynthia L. Hansen was appointed Executive Vice President and President, Gas Transmission and Midstream on March 1, 2022. Ms. Hansen is responsible for the overall leadership and operations of Enbridge’s natural gas pipeline and midstream business across North America. Previously, she served as our Executive Vice President, Gas Distribution and Storage from June 2019 to March 2022 and as Executive Vice President, Utilities and Power Operations from February 2017 to June 2019. Ms. Hansen is also the Executive Sponsor for Asset and Work Management Transformation across Enbridge, working with other business unit leaders.
Byron C. Neiles was appointed Executive Vice President & Chief Administrative Officer on January 1, 2023. Prior thereto, he served as Executive Vice President, Corporate Services from May 2016 to December 2022. Mr. Neiles has oversight of our information technology, human resources, real estate, supply chain management, and public affairs, communications and sustainability functions.
Robert R. Rooney was appointed Executive Vice President and Chief Legal Officer on February 1, 2017. Mr. Rooney leads our legal, ethics and compliance, security and aviation teams across the organization.
Matthew A. Akman was appointed Senior Vice President, Corporate Strategy & President, Power on January 1, 2023.Prior thereto, he was Senior Vice President, Strategy, Power & New Energy Technologies from October 2021 to December 2022, and Senior Vice President, Strategy & Power from June 2019 to October 2021. Mr. Akman is responsible for the overall leadership and operations of Enbridge’s power business and also leads our corporate strategy efforts. Mr. Akman joined Enbridge in early 2016 as our head of Corporate Strategy and also previously held responsibilities for Corporate Development and Investor Relations.
Michele E. Harradence was appointed Senior Vice President & President, Gas Distribution and Storage on March 1, 2022. She is responsible for the overall leadership and operations of Ontario-based Enbridge Gas Inc., as well as Gazifère, which serves the Gatineau region of Québec. Prior to assuming her current role, Ms. Harradence was Senior Vice President and Chief Operations Officer of Enbridge’s Gas Transmission and Midstream business unit from June 2019 to March 2022. Prior thereto, she was Senior Vice President Operations, Gas Transmission and Midstream from February 2017 to June 2019.
Laura J. Sayavedra was appointed Senior Vice President, Safety & Reliability, Projects and Unify on March 1, 2022. This includes oversight of our safety, capital project execution, environment, land, and right of way functions, and business leadership of our multi-year Unify transformation project. Prior to that, she led Finance Transformation at Enbridge, and was also Vice President & Treasurer for Spectra Energy, and CFO of Spectra Energy Partners. She has held various finance, strategy, and business development executive leadership roles.
ADDITIONAL INFORMATION
Additional information about us is available on our website at www.enbridge.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The aforementioned information is made available in accordance with legal requirements and is not, unless otherwise specifically stated, incorporated by reference into this Annual Report on Form 10-K. We make available free of charge, through our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Reports, proxy statements and other information filed with the SEC may also be obtained through the SEC’s website (www.sec.gov).
ENBRIDGE GAS INC.
Additional information about Enbridge Gas can be found in its annual information form, financial statements and MD&A for the year ended December 31, 2022, which have been filed with the securities commissions or similar authorities in each of the provinces of Canada. These documents contain detailed disclosure with respect to Enbridge Gas and are publicly available on SEDAR at www.sedar.com. These documents are not, unless otherwise specifically stated, incorporated by reference into this Annual Report on Form 10-K.
ENBRIDGE PIPELINES INC.
Additional information about Enbridge Pipelines Inc. (EPI) can be found in its annual information form, financial statements and MD&A for the year ended December 31, 2022, which have been filed with the securities commissions or similar authorities in each of the provinces of Canada. These documents contain detailed disclosure with respect to EPI and are publicly available on SEDAR at www.sedar.com. These documents are not, unless otherwise specifically stated, incorporated by reference into this Annual Report on Form 10-K.
WESTCOAST ENERGY INC.
Additional information about Westcoast can be found in its financial statements and MD&A for the year ended December 31, 2022, which have been filed with the securities commissions or similar authorities in each of the provinces of Canada. These documents contain detailed disclosure with respect to Westcoast and are publicly available on SEDAR at www.sedar.com. These documents are not, unless otherwise specifically stated, incorporated by reference into this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
The following risk factors could materially and adversely affect our business, operations, financial results, market price or value of our securities. This list is not exhaustive, and we place no priority or likelihood based on order of presentation or grouping under sub-captions.
RISKS RELATED TO CLIMATE CHANGE
Climate change risks could adversely affect our business, operations and financial results, and these effects could be material.
Climate change is a systemic risk that presents both physical and transition risks to our organization. A summary of these risks is discussed below. Given the interconnected nature of climate impacts, we also discuss these risks within the context of other risks impacting Enbridge throughout Item 1A. Risk Factors.
Climate change and its associated impacts may increase our exposure to, and magnitude of, other risks identified in Item 1A. Risk Factors. Our business, financial condition, results of operations, cash flows, reputation, access to and cost of capital or insurance, business plans or strategy may all be materially adversely impacted as a result of climate change and its associated impacts.
PHYSICAL RISKS
Climate-related physical risks as a result of changing and more extreme weather, can damage our assets and affect the safety and reliability of our operations and has had such impacts in the past. Climate-related physical risks may be acute or chronic. Acute physical risks are those that are event-driven, including increased frequency and severity of extreme weather events, such as heavy snowfall, heavy rainfall, floods, landslides, fires, hurricanes, cyclones, tornados, tropical storms, ice storms, and extreme temperatures. Chronic physical risks are longer-term shifts in climate patterns, such as long-term changes in precipitation patterns, or sustained higher temperatures, which may cause sea level rises or chronic heat waves.
Our assets are exposed to potential damage or other negative impacts from these kinds of events, which could result in reduced revenue from business disruption or reduced capacity and may also lead to increased costs due to repairs and required adaptation measures. Such events may also result in loss of life or injury or damage to property and the environment. We have experienced operational interruptions and damage to our assets from such weather events in the past, and we expect to experience climate-related physical risks in the future, potentially with increasing frequency or severity.
TRANSITION RISKS
Transition risks relate to the transition to a lower-emissions economy, which may increase our cost of operations, impact our business plans, and influence stakeholder decisions about our company, each of which could adversely impact our reputation, strategic plan, business, operations or financial results. These transition risks include:
•Policy and legal risks
Foreign and domestic governments continue to evaluate and implement policy, legislation, and regulations regarding reduction of GHG emissions, adaptation to climate change, transition to a lower-carbon economy, and disclosure of climate-related matters. Such policies, laws and regulations vary at the federal, state, provincial and municipal levels in which Enbridge operates and are continually evolving. International multilateral agreements, the obligations adopted thereunder, increasing physical impacts of climate change, changing political and public opinion and legal challenges concerning the adequacy of climate-related policy brought against governments and corporations, among other factors, are expected to accelerate the implementation of these measures. Efforts to regulate or restrict GHG emissions could negatively impact demand for the products we transport. Significant expenditures and resources could be required in order to meet new regulatory requirements. In addition, there has been an increase in climate and disclosure-related litigation against governments as well as energy companies. There is no assurance that our company will not be impacted by such litigation.
In addition, Enbridge is required to adhere to a number of implicit and explicit carbon-pricing mechanisms. Many jurisdictions in which we operate are either increasing the stringency of existing, or introducing new, legislation or public policy to address climate change and reduce GHG emissions. These mechanisms may present climate-related transition risk to our business strategy, impacting both commodity demand and the overall energy mix we deliver. Carbon pricing mechanisms may expose us to increased costs as well as increasing energy costs to our customers. Our operations are subject to both explicit carbon prices (i.e., in BC) and implicit carbon prices (i.e., Canadian federal OBPS). These requirements are evolving; in Canada, the federal government is considering options to cap and cut oil and gas sector GHG emissions, which may impact our business, including a new cap-and-trade system under the Canadian Environmental Protection Act, 1999 or modification of the current carbon pricing approach under the Greenhouse Gas Pollution Pricing Act.
•Technology risks
Our success in executing our strategic plan, including adapting to the energy transition over time and attaining our GHG emissions reduction goals and targets, depends, in part, on technology (including technology still under development), innovation and continued diversification with renewable power and other lower-carbon energy infrastructure as well as modernization of our infrastructure to reduce GHG emissions. Achieving our GHG emissions reduction goals and targets could require significant capital expenditures and resources, with the potential that the costs required to achieve our goals and targets materially differ from our original estimates and expectations. Similarly, there is a risk that emissions reduction technology does not materialize as expected, making it more difficult to reduce emissions.
•Market risks
Climate change concerns, increase in demand for lower-carbon and zero-emissions energy, alternative and new energy sources and technologies, changing customer behavior and reduced energy consumption could impact the demand for our services or securities. The pace and scale of the transition to a lower-carbon economy may pose a risk if Enbridge diversifies either too quickly or too slowly. Similarly, uncertainty in market signals, such as abrupt and unexpected shifts in energy costs and demands, including due to climate change concerns, can impact revenue through reduced throughput volumes on our pipeline transportation systems.
•Reputationalrisks
We have long been committed to strong ESG practices and performance, and in November 2020, we introduced a set of ESG goals to strengthen transparency and accountability. We have set GHG emissions reduction goals and one of our strategic priorities is to adapt to the energy transition over time. If we are not able to achieve our GHG emissions reduction goals, are not able to meet future climate, emissions or other reporting requirements of regulators, or are not able to meet or manage current and future expectations and issues important to investors or other stakeholders, including those related to climate change, it could negatively impact our reputation and our business, operations or financial results.
•Disclosurerisks
Finally, we currently provide certain climate-related disclosures, and from time to time, we establish and publicly announce goals and commitments to reduce our GHG emissions. These disclosures and goals, and our progress towards these commitments, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. There can be no assurance that our current or future disclosures and goals, the pathways by which we plan to reach our goals, or the methodologies that we currently use to support our disclosures and progress towards our goals, will satisfy any new and evolving regulations and legal requirements or expectations of our stakeholders, and the costs of aligning our current disclosures and goals to any new legal requirements may be significant. Additionally, if we fail to achieve or improperly report on our progress toward achieving our emissions reduction goals and commitments, we may be subject to reputational harm, regulatory action, or other legal action.
Companies across all sectors and industries are facing changing expectations or increasing scrutiny from stakeholders related to their approach to ESG matters, including climate change and GHG emissions. Companies in the energy industry are experiencing stakeholder opposition to new infrastructure, as well as organized opposition to oil and natural gas extraction and shipment of oil and natural gas products.
Our business is undergoing significant changes driven by technological advancements and the energy transition, which could impact our strategic plan, business, operations or financial results.
Our success in executing our strategic plan, including adapting to the energy transition over time and attaining our GHG emissions reduction goals and targets depends, in part, on technology (including technology still under development), innovation and continued diversification with renewable power and other lower-carbon energy infrastructure, as well as modernization of our infrastructure to reduce GHG emissions, all of which could require significant capital expenditures and resources. Public policy relating to climate change can drive investment in lower-emissions technologies which could impact both the supply of and demand for crude oil and other liquid hydrocarbons transported on our pipelines.
RISKS RELATED TO OPERATIONAL DISRUPTION OR CATASTROPHIC EVENTS
Operation of complex energy infrastructure involves many hazards and risks that may adversely affect our business, financial results and the environment.
These operational risks include adverse weather conditions, natural disasters, accidents, the breakdown or failure of equipment or processes, and lower than expected levels of operating capacity and efficiency. These operational risks could be catastrophic in nature.
Operational risk is also intensified by climate change. Climate change presents physical risks that may affect the safety and reliability of our operations. These include acute physical risks, such as heavy snowfall, heavy rainfall, floods, landslides, fires, hurricanes, cyclones, tornados, tropical storms, ice storms, and extreme temperatures, and chronic physical risks, such as long-term changes in precipitation patterns, or sustained higher temperatures.
Our assets and operations are exposed to potential damage or other negative impacts from these operational risks, which could result in reduced revenue from business disruption or reduced capacity and may also lead to increased costs due to repairs and required adaptation measures. Such events have led to, could in the future lead to, rupture or release of product from our pipeline systems and facilities, or loss of life or injury to people, which could result in substantial losses for which insurance may not be sufficient or available and for which we may bear part or all of the cost.
An environmental incident is an event that may cause environmental harm and could lead to increased operating and insurance costs, thereby negatively impacting earnings. An environmental incident could have lasting reputational impacts and could impact our ability to work with various stakeholders. For pipeline and storage assets located near populated areas, including residential communities, commercial business centers, industrial sites and other public gathering locations, the level of damage resulting from these events could be greater.
We have experienced such events in the past, including in 2010 on Lines 6A and 6B of the Lakehead System; in October 2018 at the BC Pipeline T-South system; in January 2019, August 2019 and May 2020 at the Texas Eastern Pipeline; impacts from the winter storm in February 2021 in Texas; and from wildfires in July 2021 and flooding in November 2021 in BC. We have incurred and expect to continue to incur significant costs in preparing for or responding to operational risks and events. We expect to continue to experience climate-related physical risks, potentially with increasing frequency and severity, and we cannot guarantee that we will not experience catastrophic or other events in the future. In addition, we could be subject to litigation and significant fines and penalties from regulators in connection with any such events.
A service interruption could have a significant impact on our operations, and negatively impact financial results, relationships with stakeholders and our reputation.
A service interruption due to a major power disruption, curtailment of commodity supply, operational incident, security incident (cyber or physical), availability of gas supply or distribution or other reasons could have a significant impact on our operations and negatively impact financial results, relationships with stakeholders, our reputation or the safety of our end customers. Service interruptions that impact our crude oil and natural gas transportation services can negatively impact shippers’ operations and earnings as they are dependent on our services to move their product to market or fulfill their own contractual arrangements, and this has in the past and may again lead to claims against us. We have experienced, and may again experience, service interruptions, restrictions or other operational constraints, including in connection with the kinds of operational incidents referred to in the previous risk factor.
Our operations involve safety risks to the public and to our workers and contractors.
Several of our pipelines and distribution systems are operated in close proximity to populated areas and a major incident could result in injury or loss of life to members of the public. In addition, given the natural hazards inherent in our operations, our workers and contractors are subject to personal safety risks. A public safety incident or an injury or loss of life to our workers or contractors, which we have experienced in the past and, despite the precautions we take, may experience in the future, could result in reputational damage to us, material repair costs or increased operating and insurance costs.
Cyber attacks pose threats to our technology systems and could materially adversely affect our business, operations, reputation or financial results.
Our business is dependent upon information systems and other digital technologies for controlling our plants, pipelines and other assets, processing transactions and summarizing and reporting results of operations. The secure processing, maintenance and transmission of information is critical to our operations. A security breach of our network or systems, or the network or systems of our third-party vendors, could result in improper operation of our assets, potentially including delays in the delivery or availability of our customers’ products, contamination or degradation of the products we transport, store and distribute, damage to our facilities or those of our customers, or releases of hydrocarbon products for which we could be held liable, all of which could materially adversely affect our reputation, business, operations or financial results. Furthermore, we and some of our vendors collect and store sensitive data in the ordinary course of our business, including personal information of our employees and residential gas distribution customers as well as our proprietary business information and that of our customers, suppliers, investors and other stakeholders.
Cybersecurity risks have increased in recent years as a result of the proliferation of new technologies and the increased sophistication of cyber attacks and data security breaches, as well as due to international and domestic political factors including geopolitical tensions, armed hostilities, war, civil unrest, sabotage and terrorism. Human error can also contribute to a cyber incident, and cyber attacks can be internal as well as external and occur at any point in our supply chain. Because of the critical nature of our infrastructure and our use of information systems and other digital technologies to control our assets, we face a heightened risk of cyber attacks. Cyber threat actors have attacked and threatened to attack energy infrastructure, and various government agencies have increasingly stressed that these attacks are targeting critical infrastructure, and are increasing in sophistication, magnitude, and frequency. New cybersecurity legislation, regulations and orders have been recently implemented or proposed resulting in additional actual and anticipated regulatory oversight and compliance requirements, which will require significant internal and external resources. We cannot predict the potential impact to our business of potential future legislation, regulations or orders relating to cybersecurity.
We have been, and expect to continue to be, the target of cyber-attacks against which we have deployed, and continue to deploy, security measures. Our information systems or those of our vendors or other service providers are expected to become the target of further cyber attacks or security breaches which could compromise our data and systems, affect our ability to correctly record, process and report transactions, result in the loss of information, or cause operational disruption or incidents. As a result of a cyber attack or security breach, we could also be liable under laws that protect the privacy of personal information, be subject to regulatory action, fines or penalties, incur additional costs for remediation, litigation, breach of contract or indemnity claims, or other costs, all of which could materially adversely affect our reputation, business, operations or financial results.
In addition, a cyber attack could occur and persist for an extended period without detection. Any investigation of a cyber attack or other security incident may be inherently unpredictable, and it would take time before the completion of any investigation and availability of full and reliable information. During such time, we may not know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all or any of which could further increase the costs and consequences of a cyber attack or other security incident, and our remediation efforts may not be successful. The inability to implement, maintain and upgrade adequate safeguards could materially and adversely affect our results of operations, cash flows, and financial condition. As cyber attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
Furthermore, media reports about a cyber attack or other significant security incident affecting the Company, whether accurate or not, or, under certain circumstances, our failure to make adequate or timely disclosures to the public, law enforcement, other regulatory agencies or affected individuals following any such event, whether due to delayed discovery or otherwise, could negatively impact our operating results and result in other negative consequences, including damage to our reputation or competitiveness, harm to our relationships with customers, partners, suppliers and other third parties, interruption to our management, remediation or increased protection costs, significant litigation or regulatory action, fines or penalties, all of which could materially adversely affect our business, operations, reputation or financial results.
Pandemics, epidemics or infectious disease outbreaks, such as the COVID-19 pandemic, may adversely affect local and global economies and our business, operations or financial results.
Disruptions caused by pandemics, epidemics or infectious disease outbreaks could materially adversely affect our business, operations, financial results and forward-looking expectations. Governments' emergency measures to combat the spread could include restrictions on business activity and travel, as well as requirements to isolate or quarantine. The duration and magnitude of such impacts will depend on many factors that we may not be able to accurately predict. COVID-19 and government responses interrupted business activities and supply chains, disrupted travel, and contributed to significant volatility in the financial and commodity markets.
Disruptions related to pandemics, epidemics or infectious disease outbreaks could have the effect of heightening many of the other risks described in this Item 1A. Risk Factors.
Terrorist attacks and threats, escalation of military activity in response to these attacks or acts of war, and other civil unrest or activism could adversely affect our business, operations or financial results.
Terrorist attacks and threats (which may take the form of cyber attacks), escalation of military activity, armed hostilities, war, sabotage, or civil unrest or activism may have significant effects on general economic conditions and may cause fluctuations in consumer confidence and spending and market liquidity, each of which could adversely affect our business. Future terrorist attacks, rumors or threats of war, actual conflicts involving the US or Canada, or military or trade disruptions may significantly affect our operations and those of our customers. Strategic critical infrastructure targets, such as energy-related assets, are at greater risk of cyber attack and may be at greater risk of other future attacks than other targets in the US and Canada. The Company’s infrastructure and projects under construction could be direct targets or indirect casualties of a cyber or physical attack.In addition, increased environmental activism against pipeline construction and operation could potentially result in work delays, reduced demand for our products and services, new legislation or public policy or increased stringency thereof, or denial or delay of permits and rights-of-way.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
There are utilization risks with respect to our assets.
With respect to our Liquids Pipelines assets, we may be exposed to throughput risk on the Canadian Mainline depending upon the tolling framework we adopt for that system, and we are exposed to throughput risk under certain tolling agreements applicable to other Liquids Pipelines assets, such as the Lakehead System. A decrease in volumes transported can directly and adversely affect our revenues and earnings. Factors such as changing market fundamentals, capacity bottlenecks, regulatory restrictions, maintenance and operational incidents on our system and upstream or downstream facilities, and increased competition can all impact the utilization of our assets. Market fundamentals, such as commodity prices and price differentials, weather, gasoline price and consumption, alternative and new energy sources and technologies, and global supply disruptions outside of our control can impact both the supply of and demand for crude oil and other liquid hydrocarbons transported on our pipelines.
With respect to our Gas Transmission and Midstream assets, gas supply and demand dynamics continue to change due to shifts in regional and global production and consumption. These shifts can lead to fluctuations in commodity prices and price differentials, resulting in oversupply of pipeline takeaway capacity in some areas and an adverse effect to the utilization of our systems. Other factors affecting system utilization include operational incidents, regulatory restrictions, system maintenance, and increased competition.
With respect to our Gas Distribution and Storage assets, customers are billed on both a fixed charge and volumetric basis and our ability to collect the total revenue requirement (the cost of providing service, including a reasonable return to the utility) depends on achieving the forecast distribution volume established in the rate-making process. The probability of realizing such volume is contingent upon four key forecast variables: weather, economic conditions, pricing of competitive energy sources and growth in the number of customers. Weather is a significant driver of delivery volumes, given that a significant portion of our Gas Distribution customer base uses natural gas for space heating. Distribution volume may also be impacted by the increased adoption of energy efficient technologies, along with more efficient building construction, that continue to place downward pressure on consumption. In addition, conservation efforts by customers may further contribute to a decline in annual average consumption. Sales and transportation service to large volume commercial and industrial customers is more susceptible to prevailing economic conditions. As well, the pricing of competitive energy sources affects volume distributed to these sectors as some customers have the ability to switch to an alternate fuel. Even in those circumstances where we attain our respective total forecast distribution volume, our Gas Distribution business may not earn its expected ROE due to other forecast variables, such as the mix between the higher margin residential and commercial sectors and the lower margin industrial sector. Our Gas Distribution business remains at risk for the actual versus forecast large volume contract commercial and industrial volumes.
With respect to our Renewable Power Generation assets, earnings from these assets are highly dependent on weather and atmospheric conditions as well as continued operational availability of these energy producing assets. While the expected energy yields for Renewable Power Generation projects are predicted using long-term historical data, wind and solar resources are subject to natural variation from year-to-year and from season-to-season. Any prolonged reduction in wind or solar resources at any of the Renewable Power Generation facilities could lead to decreased earnings and cash flows. Additionally, inefficiencies or interruptions of Renewable Power Generation facilities due to operational disturbances or outages resulting from weather conditions or other factors, could also impact earnings.
Our assets vary in age and were constructed over many decades which causes our inspection, maintenance or repair costs to increase.
Our pipelines vary in age and were constructed over many decades. Pipelines are generally long-lived assets, and pipeline construction and coating techniques have changed over time. Depending on the era of construction and construction techniques, some assets require more frequent inspections, which has resulted in and is expected to continue to result in increased maintenance or repair expenditures in the future. Any significant increase in these expenditures could adversely affect our business, operations or financial results.
Competition may result in a reduction in demand for our services, fewer project opportunities or assumption of risk that results in weaker or more volatile financial performance than expected.
Our Liquids Pipelines business faces competition from competing carriers available to ship liquid hydrocarbons to markets in Canada, the US and internationally and from proposed pipelines that seek to access basins and markets currently served by our Liquids Pipelines. Competition among existing pipelines is based primarily on the cost of transportation, access to supply, the quality and reliability of service, contract carrier alternatives and proximity to markets. The liquids transported in our pipelines currently, or are expected to increasingly, compete with other emerging alternatives for end-users, including, but not limited to, electric batteries, biofuels, and hydrogen. Additionally, we face competition from alternative storage facilities. Our natural gas transmission and storage businesses compete with similar facilities that serve our supply and market areas in the transmission and storage of natural gas. The natural gas transported in our business also competes with other forms of energy available to our customers and end-users, including electricity, coal, propane, fuel oils, and renewable energy. Our Renewable Power Generation business faces competition in the procurement of long-term power purchase agreements and from other fuel sources in the markets in which we operate. Competition in all of our businesses, including competition for new project development opportunities, could have a negative impact on our business, financial condition or results of operations.
Completion of our secured projects and maintenance programs are subject to various regulatory, operational and market risks, which may affect our ability to drive long-term growth.
Our project execution continues to face challenges with intense scrutiny on regulatory and environmental permit applications, politicized permitting, public opposition including protests, action to repeal permits, and resistance to land access.
Continued challenges with global supply chains have created unpredictability in materials cost and availability. Labor shortages and union strikes have increased costs of engineering and construction services.
Other events that can and have delayed project completion and increased anticipated costs include contractor or supplier non-performance, extreme weather events or geological factors beyond our control.
Changing expectations of stakeholders regarding ESG practices and climate change could erode stakeholder trust and confidence, damage our reputation and influence actions or decisions about our company and industry and have negative impacts on our business, operations or financial results.
Companies across all sectors and industries are facing changing expectations or increasing scrutiny from stakeholders related to their approach to ESG matters of greatest relevance to their business and to their stakeholders. For energy companies, climate change, GHG emissions, safety and stakeholder and Indigenous relations remain primary focus areas, while other environmental elements such as biodiversity and supply chain are ascendant. Companies in the energy industry are experiencing stakeholder opposition to new and existing infrastructure, as well as organized opposition to oil and natural gas extraction and shipment of oil and natural gas products. Changing expectations of our practices and performance across these ESG areas may impose additional costs or create exposure to new or additional risks. We are also exposed to the risk of higher costs, delays, project cancellations, loss of ability to secure new growth opportunities, new restrictions or the cessation of operations of existing pipelines due to increasing pressure on governments and regulators, and legal action, such as the legal challenges to the operation of Line 5 in Michigan and Wisconsin.
Our operations, projects and growth opportunities require us to have strong relationships with key stakeholders, including local communities, Indigenous groups and others directly impacted by our activities, as well as governments, regulatory agencies, investors and investor advocacy groups, investment funds, financial institutions, insurers and others, which are increasingly focused on ESG practices and performance.
Enhanced public awareness of climate change has driven an increase in demand for lower-carbon and zero-emissions energy. Over the past year, the invasion of Ukraine and inflationary pressure following the COVID-19 pandemic have underscored the critical need for access to secure affordable energy. Enbridge has a long history of diversifying its portfolio of businesses to align with the mix of energy that people need and want. The pace and scale of the transition to a lower-emission economy may pose a risk if Enbridge diversifies either too quickly or too slowly. Similarly, unexpected shifts in energy demands, including due to climate change concerns, can impact revenue through reduced throughput volumes on our pipeline transportation systems.
We have long been committed to strong ESG practices, performance and reporting, and in 2020 introduced a set of ESG goals to strengthen transparency and accountability. The goals include increasing diversity and inclusion within our organization and reducing GHG emissions from our operations to net-zero by 2050, with corporate and business unit action plans aligned to our strategic priority to adapt to the energy transition over time. The costs associated with meeting our ESG goals, including our GHG emissions reduction goals, could be significant. There is also a risk that some or all of the expected benefits and opportunities of achieving our ESG goals may fail to materialize, may cost more than anticipated to achieve, may not occur within the anticipated time periods or may no longer meet changing stakeholder expectations. Similarly, there is a risk that emissions reduction technologies do not materialize as expected making it more difficult to reduce emissions. If we are not able to achieve our ESG goals, are not able to meet current and future climate, emissions or related reporting requirements of regulators, or are unable to meet or manage current and future expectations regarding issues important to investors or other stakeholders (including those related to climate change), it could erode stakeholder trust and confidence, which could negatively impact our reputation, business, operations or financial results.Potential impacts could also include changing investor sentiment regarding investment in Enbridge or impair our access to and increase our cost of capital, including penalties associated with our sustainability-linked financing.
Our forecasted assumptions may not materialize as expected, including on our expansion projects, acquisitions and divestitures.
We evaluate expansion projects, acquisitions and divestitures on an ongoing basis. Planning and investment analysis is highly dependent on accurate forecasting assumptions and to the extent that these assumptions do not materialize, financial performance may be lower or more volatile than expected. Volatility and unpredictability in the economy, both locally and globally, and changes in cost estimates, project scoping and risk assessment could result in a loss of profits. Similarly, uncertainty in market signals, such as abrupt and unexpected shifts in energy costs and demands, as we saw in 2020 resulting from the COVID-19 pandemic, have impacted, and may in the future impact, revenue through reduced throughput volumes on our pipeline transportation systems.
Our insurance coverage may not fully cover our losses in the event of an accident, natural disaster or other hazardous event, and we may encounter increased cost arising from the maintenance of, or lack of availability of, insurance.
Our operations are subject to many hazards inherent in our industry. Our assets may experience physical damage as a result of an accident or natural disaster. These hazards can also cause, and in some cases have caused, personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage, and suspension of operations.
We maintain an insurance program for us, our subsidiaries and certain of our affiliates to mitigate a certain portion of our risks. However, not all potential risks arising from our operations are insurable, or are insured by us as a result of availability, high premiums and for various other reasons. The Company self-insures a significant portion of certain risks through our wholly-owned captive insurance subsidiaries, and the Company’s insurance coverage is subject to terms and conditions, exclusions and large deductibles or self-insured retentions which may reduce or eliminate coverage in certain circumstances.
The Company’s insurance policies are generally renewed on an annual basis and, depending on factors such as market conditions, the premiums, terms, policy limits and/or deductibles can vary substantially. We can give no assurance that we will be able to maintain adequate insurance in the future at rates or on other terms we consider commercially reasonable. In such case, we may decide to self-insure additional risks.
A significant self-insured loss, uninsured loss, a loss significantly exceeding the limits of our insurance policies, a significant delay in the payment of a major insurance claim, or the failure to renew insurance policies on similar or favorable terms could materially and adversely affect our business, financial condition and results of operations.
We are exposed to the credit risk of our customers, counterparties, and vendors.
We are exposed to the credit risk of multiple parties in the ordinary course of our business. Generally, our customers are rated investment-grade, are otherwise considered creditworthy or provide us security to satisfy credit concerns. However, we cannot predict to what extent our business would be impacted by deteriorating conditions in the economy, including possible declines in the creditworthiness of our customers, vendors, or counterparties. It is possible that payment or performance defaults from these entities, if significant, could adversely affect our earnings and cash flows.
Our business is exposed to changes in market prices including interest rates and foreign exchange rates. Our risk management policies cannot eliminate all risks and may result in material financial losses. In addition, any non-compliance with our risk management policies could adversely affect our business, operations or financial results.
Our use of debt financing exposes us to changes in interest rates on both future fixed rate debt issuances and floating rate debt. While our financial results are denominated in Canadian dollars, many of our businesses have foreign currency revenues or expenses, particularly the US dollar. Changes in interest rates and foreign exchange rates could materially impact our financial results.
We use financial derivatives to manage risks associated with changes in foreign exchange rates, interest rates, commodity prices, power prices and our share price to reduce volatility of our cash flows. Based on our risk management policies, substantially all of our financial derivatives are associated with an underlying asset, liability and/or forecasted transaction and not intended for speculative purposes.
These policies cannot, however, eliminate all risk, including unauthorized trading. Although this activity is monitored independently by our Risk Management function, we can provide no assurance that we will detect and prevent all unauthorized trading and other violations, particularly if deception, collusion or other intentional misconduct is involved, and any such violations could adversely affect our business, operations or financial results.
In addition, to the extent that we hedge our foreign exchange rates, interest rates or commodity prices, we will forego the benefits we would otherwise experience if these were to change in our favor. In addition, hedging activities can result in losses that might be material to our financial condition, results of operations and cash flows. Such losses have occurred in the past and could occur in the future. See Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Item 8. Financial Statements and Supplementary Data for a discussion of our derivative instruments and related hedging activities.
Our business requires the retention and recruitment of a skilled and diverse workforce, and difficulties in recruiting and retaining our workforce could result in a failure to implement our business plans.
Our operations and management require the retention and recruitment of a skilled and diverse workforce, including engineers, technical personnel, other professionals and executive officers and senior management. We and our affiliates compete with other companies in the energy industry, and for some jobs the broader labor market, for this skilled workforce. If we are unable to retain current employees and/or recruit new employees of comparable knowledge and experience, our business could be negatively impacted. In addition, we could experience increased costs to retain and recruit these professionals.
Our Liquids Pipelines growth rate and results may be directly and indirectly affected by commodity prices and government policy.
Effective December 31, 2021, the Government of Alberta lifted the oil production curtailment that was imposed in December 2018. Wide commodity price basis between Western Canada and global tidewater markets have negatively impacted producer netbacks and margins in the past years that largely resulted from pipeline infrastructure takeaway capacity from producing regions in Western Canada and North Dakota which are operating at capacity. A protracted long-term outlook for low crude oil prices could result in delay or cancellation of future projects.
The tight conventional oil plays of Western Canada, the Permian basin, and the Bakken region of North Dakota have short cycle break-even time horizons, typically less than 24 months, and high decline rates that can be well managed through active hedging programs and are positioned to react quickly to market signals. Accordingly, during periods of comparatively low prices, drilling programs, unsupported by hedging programs, will be reduced and as such, supply growth from tight oil basins may be lower, which may impact volumes on our pipeline systems.
Our Energy Services and Gas Transmission and Midstream results may be adversely affected by commodity price volatility.
Within our US Midstream assets, through our investments in DCP and Aux Sable, we are engaged in the businesses of gathering, treating and processing natural gas and natural gas liquids. The financial results of these businesses are directly impacted by changes in commodity prices. To a lesser degree, the financial results of our US Transmission business are subject to fluctuation in power prices which impact electric power costs associated with operating compressor stations.
Energy Services generates margin by capitalizing on quality, time and location differentials when opportunities arise. Changing market conditions that impact the prices at which we buy and sell commodities have in the past limited margin opportunities and impeded Energy Services' ability to cover capacity commitments and could do so again in the future. Other market conditions, such as backwardation, have likewise limited margin opportunities.
We rely on access to short-term and long-term capital markets to finance capital requirements and support liquidity needs. Cost effective access to those markets can be affected, particularly if we or our rated subsidiaries are unable to maintain an investment-grade credit rating.
A significant portion of our consolidated asset base is financed with debt. The maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from assets. Accordingly, we rely on access to both short-term and long-term capital markets as a source of liquidity for capital requirements not satisfied by cash flows from operations and to refinance investments originally financed with debt. Our senior unsecured long-term debt is currently rated investment-grade by various rating agencies. If the rating agencies were to rate us or our rated subsidiaries below investment-grade, our borrowing costs would increase, perhaps significantly. Consequently, we would likely be required to pay a higher interest rate in future financings and our potential pool of investors and funding sources could decrease.
We maintain revolving credit facilities at various entities to backstop commercial paper programs, for borrowings and for providing letters of credit. These facilities typically include financial covenants and failure to maintain these covenants at a particular entity could preclude that entity from accessing the credit facility, which could impact liquidity. Furthermore, if our short-term debt rating were to be downgraded, access to the commercial paper market could be significantly limited. Although this would not affect our ability to draw under our credit facilities, borrowing costs could be significantly higher.
Recently, interest rates have increased significantly. If we are not able to access capital at competitive rates or at all, our ability to finance operations and implement our strategy may be affected. An inability to access capital on favorable terms or at all may limit our ability to pursue enhancements or acquisitions that we may otherwise rely on for future growth or to refinance our existing indebtedness. Any downgrade or other event negatively affecting the credit ratings of our subsidiaries could make their costs of borrowing higher or access to funding sources more limited, which in turn could increase our need to provide liquidity in the form of capital contributions or loans to such subsidiaries, thus reducing the liquidity and borrowing availability of the consolidated group.
RISKS RELATED TO GOVERNMENT REGULATION AND LEGAL RISKS
Many of our operations are regulated and failure to secure timely regulatory approval for our proposed projects, or loss of required approvals for our existing operations, could have a negative impact on our business, operations or financial results.
The nature and degree of regulation and legislation affecting permitting and environmental review for energy infrastructure companies in Canada and the US continues to evolve.
Within the US and in Canada, pipeline companies continue to face opposition from anti-energy/anti-pipeline activists, Indigenous and tribal groups and communities, citizens, environmental groups, and politicians concerned with either the safety of pipelines or their potential environmental effects. In the US, the Environmental Protection Agency redefined the Waters of the United States under Section 401 of the Clean Water Act, and the FERC released draft policy statements on the Certification of New Interstate Natural Gas Facilities and the Consideration of Greenhouse Gas Emissions in Natural Gas Infrastructure Project Review that could introduce changes to the regulatory approval process for natural gas infrastructure. The Council for Environmental Quality published immediately applicable guidance for conducting analyses under the National Environmental Policy Act that may significantly change environmental scope and cost assessments. Many other regulations adopted during the previous US presidential administration are being challenged in multiple courts and some have been overturned by reviewing courts. The current US administration may take further action to modify or reverse regulations that were promulgated by the previous US administration.
In March of 2023, the Supreme Court of Canada will hear the Attorney General of Canada’s appeal of the Alberta Court of Appeal’s non-binding decision that the federal Impact Assessment Act (“IAA”) is unconstitutional. The IAA includes impact assessment requirements that could apply to either federally or provincially regulated pipeline projects that fall within prescribed criteria or that the federal Minister of Environment otherwise designates for review. The potential for any pipeline project to be subject to IAA requirements adds significant uncertainty as to regulatory timelines and outcomes. The Alberta Court of Appeal found that the IAA is an impermissible federal overreach into provincial jurisdiction that would amount to a de facto expropriation of provincial natural resources and proprietary interests by the federal government. The Supreme Court of Canada will determine whether the IAA and the related Physical Activities Regulations are within the constitutional legislative authority of the Parliament of Canada, the outcome of which could impact the applicability of the legislation to provincially regulated pipeline projects.
These actions could adversely impact permitting of a wide range of energy projects. We may not be able to obtain or maintain all required regulatory approvals for our operating assets or development projects. If there is a significant delay in obtaining any required regulatory approvals, if we fail to obtain or comply with them, or if laws or regulations change or are administered in a more stringent manner, the operations of facilities or the development of new facilities could be prevented, delayed or become subject to additional costs.
Our operations are subject to numerous environmental and climate laws and regulations, including those relating to climate change and GHG emissions and climate-related disclosure, compliance with which may require significant capital expenditures, increase our cost of operations, and affect or limit our business plans, or expose us to environmental liabilities.
We are subject to numerous environmental laws and regulations affecting many aspects of our past, current, and future operations, including air emissions, water quality, wastewater discharges, solid waste and hazardous waste.
If we are unable to obtain or maintain all required environmental regulatory approvals and permits for our operating assets and projects or if there is a delay in obtaining any required environmental regulatory approvals or permits, the operation of existing facilities or the development of new facilities could be prevented, delayed, or become subject to additional costs. Failure to comply with environmental laws and regulations may result in the imposition of civil or criminal fines, penalties and injunctive measures affecting our operating assets. We expect that changes in environmental laws and regulations, including those related to climate change and GHG emissions, could result in a material increase in our cost of compliance with such laws and regulations, such as costs to monitor and report our emissions and install new emission controls to reduce emissions. We may not be able to include some or all of such increased costs in the rates charged for utilization of our pipelines or other facilities.
Our operations are subject to operational regulation and other requirements, including compliance with easements and other land tenure documents, and failure to comply with applicable regulations and other requirements could have a negative impact on our reputation, business, operations or financial results.
Operational risks relate to compliance with applicable operational rules and regulations mandated by governments, applicable regulatory authorities, or other requirements that may be found in easements, permits, or other agreements that provide a legal basis for our operations, breaches of which could result in fines, penalties, awards of damages, operating restrictions (including shutdown of lines) and an overall increase in operating and compliance costs.
We do not own all of the land on which our pipelines, facilities and other assets are located and we obtain the rights to construct and operate our pipelines and other assets from third parties or government entities. In addition, some of our pipelines, facilities and other assets cross Indigenous lands pursuant to rights-of-way or other land tenure interests. Our loss of these rights could have an adverse effect on our reputation, operations and financial results. We have experienced litigation in relation to certain Line 5 easements; refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Legal and Other Updates.
Regulatory scrutiny over our assets and operations has the potential to increase operating costs or limit future projects. Regulatory enforcement actions issued by regulators for non-compliant findings can increase operating costs and negatively impact reputation. Potential regulatory changes and legal challenges could have an impact on our future earnings from existing operations and the cost related to the construction of new projects. Regulators' future actions may differ from current expectations, or future legislative changes may impact the regulatory environments in which we operate. While we seek to mitigate operational regulation risk by actively monitoring and consulting on potential regulatory requirement changes with the respective regulators directly, or through industry associations, and by developing response plans to regulatory changes or enforcement actions, such mitigation efforts may be ineffective or insufficient. While we believe the safe and reliable operation of our assets and adherence to existing regulations is the best approach to managing operational regulatory risk, the potential remains for regulators or other government officials to make unilateral decisions that could disrupt our operations or have an adverse financial impact on us.
Our operations are subject to economic regulation and failure to secure regulatory approval for our proposed or existing commercial arrangements could have a negative impact on our business, operations or financial results.
Our Liquids Pipelines, Gas Transmission and Gas Distribution assets face economic regulation risk. Broadly defined, economic regulation risk is the risk that governments or regulatory agencies change or reject proposed or existing commercial arrangements or policies, including permits and regulatory approvals for both new and existing projects or agreements, upon which future and current operations are dependent. Our Mainline System, other liquids pipelines, gas transmission and distribution assets are subject to the actions of various regulators, including the CER, the FERC, and the OEB with respect to the rates, tariffs, and tolls for these assets. The changing or rejecting of commercial arrangements, including decisions by regulators on the applicable permits and tariff structure or changes in interpretations of existing regulations by courts or regulators such as with respect to the Mainline Commercial Framework, could have an adverse effect on our revenues and earnings.
Our Renewable Power Generation assets in Europe (France, Germany and the UK) are also subject to the directives, regulations and policies established and enforced by the EU and the UK government. These measures are variable and can include price controls, caps and demand reduction goals, all of which can have a negative impact on our revenues and earnings.
We are subject to changes in our tax rates, the adoption of new US, Canadian or international tax legislation or exposure to additional tax liabilities.
We are subject to taxes in the US, Canada and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. In particular, Canada has introduced interest deductibility rules, the US enacted the Inflation Reduction Act and we are anticipating a minimum tax rate to be introduced on a global basis for OECD countries. All of these measures could cause our effective tax rate to increase.
We are also subject to the examination of our tax returns and other tax matters by the US Internal Revenue Service, the Canada Revenue Agency and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase, particularly in the US or Canada, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operating results could be materially adversely affected.
We are involved in numerous legal proceedings, the outcomes of which are uncertain, and resolutions adverse to us could adversely affect our financial results.
We are subject to numerous legal proceedings. In recent years, there has been an increase in climate and disclosure-related litigation against governments as well as companies involved in the energy industry. There is no assurance that we will not be impacted by such litigation, or by other legal proceedings. Litigation is subject to many uncertainties, and we cannot predict the outcome of individual matters with assurance. It is reasonably possible that the final resolution of some of the matters in which we are involved or new matters could require additional expenditures, in excess of established reserves, over an extended period of time and in a range of amounts that could adversely affect our financial results or affect our reputation. Refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Legal and Other Updates for a discussion of certain legal proceedings with recent developments.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Descriptions of our properties and maps depicting the locations of our liquids and natural gas systems are included in Part I. Item 1. Business.
In general, our systems are located on land owned by others and are operated under easements and rights-of-way, licenses, leases or permits that have been granted by private land-owners, First Nations, Native American Tribes, public authorities, railways or public utilities. Our liquids pipeline systems have pumping stations, tanks, terminals and certain other facilities that are located on land that is owned by us and/or used by us under easements, licenses, leases or permits. Additionally, our natural gas pipeline systems have natural gas compressor stations, of which the vast majority are located on land that is owned by us, with the remainder used by us under easements, leases or permits.
Titles to Enbridge owned properties or affiliate entities may be subject to encumbrances in some cases. We believe that none of these burdens should materially detract from the value of these properties or materially interfere with their use in the operation of our business.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal and regulatory actions and proceedings which arise in the ordinary course of business. While the final outcome of such actions and proceedings cannot be predicted with certainty, management believes that the resolution of such actions and proceedings will not have a material impact on our consolidated financial position or results of operations. Refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Legal and Other Updates for discussion of certain legal proceedings with recent developments.
SEC regulations require the disclosure of any proceeding under environmental laws to which a governmental authority is a party unless the registrant reasonably believes it will not result in monetary sanctions over a certain threshold. Given the size of our operations, we have elected to use a threshold of US$1 million for the purposes of determining proceedings requiring disclosure.
On October 17, 2022, four separate comprehensive enforcement resolutions were announced with the Minnesota Pollution Control Agency, Minnesota Department of Natural Resources (DNR), Fond du Lac Band of Lake Superior Chippewa, and Minnesota Attorney General’s Office related to alleged violations that occurred during construction of Line 3 Replacement. As part of these agreements, together with the DNR’s previous Administrative Penalty Order, Enbridge will provide the various entities a total of approximately US$11 million, approximately US$7.5 million of which is to provide financial assurances and fund multiple environmental and resource enhancement projects. The Minnesota Attorney General has filed a misdemeanor criminal charge for the taking of water without a permit at the Clearbrook aquifer, with this charge against us to be dismissed following one year of compliance with the state water appropriation rules.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Enbridge common stock is traded on the TSX and NYSE under the symbol ENB. As at February 3, 2023, there were 76,001 registered shareholders of record of Enbridge common stock. A substantially greater number of holders of Enbridge common stock are "street name" or beneficial holders, whose shares are held by banks, brokers and other financial institutions.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item will be contained in our Form 10-K/A, which will be filed no later than 120 days after December 31, 2022.
Recent Sales of Unregistered Equity Securities
None.
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | |
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs1 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
October 2022 (October 1 - October 31) | | Audit,
Finance &
Risk
Committee
| | | Corporate
Social
Responsibility
Committee
| | | | | | Human
Resources &
Compensation
Committee
| | | Safety &
Reliability
Committee
| |
| — | | N/A | — | | 28,324,366 | |
November 2022 (November 1 - November 30) | | | | | | | | | | | | | | | | | | | | |
| — | | N/A | — | | 28,324,366 | |
December 2022 Al Monaco(December 1 (President & CEO) | | | | | | | | | | | | | | | | | | | | |
| — | | N/A | — | | 28,324,366 | |
|
1On December 31, 2021, we announced that the TSX approved our prior normal course issuer bid (NCIB) to purchase, for cancellation, up to 31,062,331 of the outstanding common shares of Enbridge to an aggregate amount of up to $1.5 billion. Our prior NCIB commenced on January 5, 2022 and expired on January 4, 2023. On January 4, 2023, we announced that the TSX had approved our new NCIB, which commenced on January 6, 2023 and continues until January 5, 2024. Under the new NCIB, Enbridge may purchase, for cancellation, up to 27,938,163 of its outstanding common shares to an aggregate amount of up to $1.5 billion. Purchases may be made through the facilities of the TSX, the NYSE and other designated exchanges and alternative trading systems.
Total Shareholder Return
The following graph reflects the comparative changes in the value from January 1, 2018 through December 31, 2022 of $100 invested in (1) Enbridge Inc.’s common shares traded on the TSX, (2) the S&P/TSX Composite index, (3) the S&P 500 index, (4) our US peer group (comprising, by stock symbols, CNP, D, DTE, DUK, EPD, ET, KMI, MMP, NEE, NI, OKE, PAA, PCG, SO, SRE and WMB) and (5) our Canadian peer group (comprising, by stock symbols, CU, FTS, PPL and TRP). The amounts included in the table were calculated assuming the reinvestment of dividends.
| | | | | | | | | | | | | | | | | | | | |
| | January 1,
2018 | December 31, |
| | 2018 | 2019 | 2020 | 2021 | 2022 |
| Enbridge Inc. | 100.00 | | 91.90 | | 118.86 | | 100.80 | | 131.30 | | 149.54 | |
| S&P/TSX Composite | 100.00 | | 91.11 | | 111.96 | | 118.23 | | 147.89 | | 139.25 | |
| S&P 500 Index | 100.00 | | 95.62 | | 125.72 | | 148.85 | | 191.58 | | 156.88 | |
US Peers1 | 100.00 | | 94.80 | | 114.97 | | 98.40 | | 121.17 | | 134.17 | |
| Canadian Peers | 100.00 | | 92.00 | | 120.56 | | 99.72 | | 124.49 | | 129.22 | |
1For the purpose of the graph, it was assumed that CAD:US dollar conversion ratio remained at 1:1 for the years presented.
