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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
OR
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☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10934
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ENBRIDGE INC. |
(Exact Name of Registrant as Specified in Its Charter) |
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Canada | | 98-0377957
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(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
200, 425 - 1st Street S.W.
Calgary, Alberta, Canada T2P 3L8
(Address of Principal Executive Offices) (Zip Code)
(403) 231-3900
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Shares | | ENB | | New York Stock Exchange |
6.375% Fixed-to-Floating Rate Subordinated Notes Series 2018-B due 2078 | | ENBA | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The registrant had 2,025,219,0632,025,962,505 common shares outstanding as at October 30, 2020.29, 2021.
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| | Page |
| PART I | |
Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| PART II | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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GLOSSARY
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AOCI | Accumulated other comprehensive income/(loss)loss |
Army Corps | United States Army Corps of Engineers |
ASC | Accounting Standards Codification |
ASU | Accounting Standards Update |
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Average Exchange Rate | Canadian to United States dollar average exchange rate |
CER | Canada Energy Regulator |
CPP Investments | Canada Pension Plan Investment Board |
DAPL | Dakota Access Pipeline |
DCP Midstream | DCP Midstream, LLC |
EBITDA | Earnings before interest, income taxes and depreciation and amortization |
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EEP | Enbridge Energy Partners, L.P. |
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EIS | Environmental Impact Statement |
EMF | Éolien Maritime France SAS |
Enbridge | Enbridge Inc. |
Enbridge Gas | Enbridge Gas Inc. |
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Exchange Act | United States Securities Exchange Act of 1934, as amended |
FERC | Federal Energy Regulatory Commission |
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IJT | International Joint Tariff |
kbpd | thousands of barrels per day |
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MATL | Montana-Alberta Tie Line |
NGL | Natural gas liquids |
SEP | Spectra Energy Partners, LP |
OCI | Other comprehensive income/(loss) |
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FERC | Federal Energy Regulatory Commission |
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MTN | Medium-term notes |
MW | Megawatts |
NGL | Natural gas liquids |
Noverco | Noverco Inc. |
OCI | Other comprehensive income/(loss) |
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OEB | Ontario Energy Board |
OPEB | Other postretirement benefits |
PADD II | Petroleum Administration for Defense District - Midwest District |
PennEast | PennEast Pipeline Company, L.L.C. |
SEP | Spectra Energy Partners, LP |
SESH | Southeast Supply Header, L.L.C. |
Steckman | Steckman Ridge, LP |
Texas Eastern | Texas Eastern Transmission, LP |
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the Partnerships | Spectra Energy Partners, LP (SEP) and Enbridge Energy Partners, L.P. (EEP)
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the State | State of Michigan |
the Straits | Straits of Mackinac |
US | United States of America |
US$ | Unites States dollars |
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CONVENTIONS
The terms "we", "our", "us" and "Enbridge" as used in this report refer collectively to Enbridge Inc. 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”, “$” or “C$” are to Canadian dollars and all references to “US$” are to United States (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 quarterly report on Form 10-Q 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; the COVID-19 pandemic and the duration and impact thereof; theenergy intensity and emissions reduction targets and related environmental, social and governance matters; diversity and inclusion goals; expected supply of, demand for and prices of crude oil, natural gas, natural gas liquids (NGL), liquified natural gas (LNG) and renewable energy; energy transition; anticipated utilization of our existing assets; expected earnings before interest, income taxes and depreciation and amortization (EBITDA); expected earnings/(loss); expected future cash flows; expectedflows and distributable cash flow; expected debt-to-EBITDA ratio;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 related to announced projects and projects under construction; expected in-service dates for announced projects and projects under construction;construction and for maintenance; expected capital expenditures;expenditures, investment capacity and capital allocation priorities; expected equity funding requirements for our commercially secured growth program; expected future growth and expansion 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, including the realization of efficiencies, synergies and synergies;cost savings; expected future actions of regulators and courts; toll and rate cases discussions and filings, including Mainline System contracting; anticipated competition; and Line 5 dual pipelines and related court proceedingslitigation and other litigation; anticipated competition; United States Line 3 Replacement Program (U.S. L3R Program); Line 5 related matters; the status of the Dakota Access Pipeline; estimated future dividends; our dividend payout policy; dividend growth and dividend payout expectation; and expectations on impact of our hedging program.matters.
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 and risks include assumptions about the following: the COVID-19 pandemic and the duration and impact thereof; the expected supply of and demand for crude oil, natural gas, natural gas liquids (NGL)NGL and renewable energy; prices of crude oil, natural gas, NGL and renewable energy, including the current weakness and volatility of such prices;energy; anticipated utilization of our existing assets; exchange rates; inflation; interest rates; availability and price of labor and construction materials; operational reliability; customer and regulatory approvals; 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 and synergies 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 EBITDA; expected earnings/(loss); expected future cash flows; and expected distributable cash flow; and estimated future dividends.flow. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements, as they may impact current and future levels of demand for 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. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty, particularly with respect to expected EBITDA, expected
earnings/(loss), expected future cash flows, expected distributable cash flow or estimated future dividends.
The most relevant assumptions associated with forward-looking statements onregarding 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 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, changes in regulations applicableparameters; litigation, including with respect to our business,the Dakota Access Pipeline (DAPL) and Line 5 dual pipelines; acquisitions, dispositions and other transactions and the realization of anticipated benefits therefrom; our dividend policy,policy; project approval and support,support; renewals of rights-of-way, weather,rights-of-way; weather; economic and competitive conditions,conditions; public opinion,opinion; changes in tax laws and tax rates, changes in trade agreements,rates; exchange rates,rates; interest rates,rates; commodity prices,prices; political decisions,decisions; the supply of, and demand for commodities,and prices of commodities; and the COVID-19 pandemic, and the duration and impact thereof, including but not limited to those risks and uncertainties discussed in this quarterly report on Form 10-Q and in our other filings with Canadian and United States (US) securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and 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 Inc. assumes no obligation to publicly update or revise any forward-looking statement made in this quarterly report on Form 10-Q 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.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | 2019 | | 2020 | 2019 |
(unaudited; millions of Canadian dollars, except per share amounts) | | | | | |
Operating revenues | | | | | |
Commodity sales | 4,595 | | 7,396 | | | 14,920 | | 22,444 | |
Transportation and other services | 4,075 | | 3,748 | | | 11,609 | | 12,188 | |
Gas distribution sales | 440 | | 454 | | | 2,550 | | 3,085 | |
Total operating revenues (Note 3) | 9,110 | | 11,598 | | | 29,079 | | 37,717 | |
Operating expenses | | | | | |
Commodity costs | 4,443 | | 7,216 | | | 14,464 | | 21,910 | |
Gas distribution costs | 83 | | 104 | | | 1,188 | | 1,623 | |
Operating and administrative | 1,554 | | 1,741 | | | 4,955 | | 5,061 | |
Depreciation and amortization | 935 | | 844 | | | 2,766 | | 2,526 | |
Impairment of long-lived assets | 0 | | 105 | | | 0 | | 105 | |
Total operating expenses | 7,015 | | 10,010 | | | 23,373 | | 31,225 | |
Operating income | 2,095 | | 1,588 | | | 5,706 | | 6,492 | |
Income from equity investments | 315 | | 333 | | | 805 | | 1,159 | |
Impairment of equity investments (Note 9) | (615) | | 0 | | | (2,351) | | 0 | |
Other income/(expense) | | | | | |
Net foreign currency gain/(loss) | 173 | | (43) | | | (257) | | 311 | |
Other | 85 | | 81 | | | (8) | | 192 | |
Interest expense | (718) | | (644) | | | (2,105) | | (1,966) | |
Earnings before income taxes | 1,335 | | 1,315 | | | 1,790 | | 6,188 | |
Income tax expense (Note 11) | (231) | | (255) | | | (273) | | (1,275) | |
Earnings | 1,104 | | 1,060 | | | 1,517 | | 4,913 | |
Earnings attributable to noncontrolling interests | (20) | | (15) | | | (25) | | (50) | |
Earnings attributable to controlling interests | 1,084 | | 1,045 | | | 1,492 | | 4,863 | |
Preference share dividends | (94) | | (96) | | | (284) | | (287) | |
Earnings attributable to common shareholders | 990 | | 949 | | | 1,208 | | 4,576 | |
Earnings per common share attributable to common shareholders (Note 5) | 0.49 | | 0.47 | | | 0.60 | | 2.27 | |
Diluted earnings per common share attributable to common shareholders (Note 5) | 0.49 | | 0.47 | | | 0.60 | | 2.27 | |
See | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | 2020 | | 2021 | 2020 |
(unaudited; millions of Canadian dollars, except per share amounts) | | | | | |
Operating revenues | | | | | |
Commodity sales | 7,279 | | 4,595 | | | 20,042 | | 14,920 | |
Transportation and other services | 3,695 | | 4,075 | | | 11,740 | | 11,609 | |
Gas distribution sales | 492 | | 440 | | | 2,769 | | 2,550 | |
Total operating revenues (Note 3) | 11,466 | | 9,110 | | | 34,551 | | 29,079 | |
Operating expenses | | | | | |
Commodity costs | 7,347 | | 4,443 | | | 19,975 | | 14,464 | |
Gas distribution costs | 120 | | 83 | | | 1,359 | | 1,188 | |
Operating and administrative | 1,667 | | 1,554 | | | 4,710 | | 4,955 | |
Depreciation and amortization | 944 | | 935 | | | 2,805 | | 2,766 | |
| | | | | |
Total operating expenses | 10,078 | | 7,015 | | | 28,849 | | 23,373 | |
Operating income | 1,388 | | 2,095 | | | 5,702 | | 5,706 | |
Income from equity investments | 440 | | 315 | | | 1,187 | | 805 | |
Impairment of equity investments (Note 8) | (111) | | (615) | | | (111) | | (2,351) | |
Other income/(expense) | | | | | |
Net foreign currency gain/(loss) | (165) | | 173 | | | 146 | | (257) | |
Other | 109 | | 85 | | | 300 | | (8) | |
Interest expense | (648) | | (718) | | | (1,923) | | (2,105) | |
Earnings before income taxes | 1,013 | | 1,335 | | | 5,301 | | 1,790 | |
Income tax expense (Note 10) | (199) | | (231) | | | (952) | | (273) | |
Earnings | 814 | | 1,104 | | | 4,349 | | 1,517 | |
Earnings attributable to noncontrolling interests | (34) | | (20) | | | (93) | | (25) | |
Earnings attributable to controlling interests | 780 | | 1,084 | | | 4,256 | | 1,492 | |
Preference share dividends | (98) | | (94) | | | (280) | | (284) | |
Earnings attributable to common shareholders | 682 | | 990 | | | 3,976 | | 1,208 | |
Earnings per common share attributable to common shareholders (Note 5) | 0.34 | | 0.49 | | | 1.97 | | 0.60 | |
Diluted earnings per common share attributable to common shareholders (Note 5) | 0.34 | | 0.49 | | | 1.96 | | 0.60 | |
The accompanying notes to theare an integral part of these interim consolidated financial statements.
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(unaudited; millions of Canadian dollars) | (unaudited; millions of Canadian dollars) | | | | | | (unaudited; millions of Canadian dollars) | | | | | |
Earnings | Earnings | 1,104 | | 1,060 | | | 1,517 | | 4,913 | | Earnings | 814 | | 1,104 | | | 4,349 | | 1,517 | |
Other comprehensive income/(loss), net of tax | Other comprehensive income/(loss), net of tax | | | | | Other comprehensive income/(loss), net of tax | | | | |
Change in unrealized gain/(loss) on cash flow hedges | Change in unrealized gain/(loss) on cash flow hedges | 29 | | (170) | | | (532) | | (597) | | Change in unrealized gain/(loss) on cash flow hedges | (16) | | 29 | | | 197 | | (532) | |
Change in unrealized gain/(loss) on net investment hedges | Change in unrealized gain/(loss) on net investment hedges | 154 | | (74) | | | (221) | | 147 | | Change in unrealized gain/(loss) on net investment hedges | (206) | | 154 | | | 16 | | (221) | |
Other comprehensive income/(loss) from equity investees | Other comprehensive income/(loss) from equity investees | (14) | | 2 | | | 6 | | 19 | | Other comprehensive income/(loss) from equity investees | (30) | | (14) | | | (28) | | 6 | |
Excluded components of fair value hedges | Excluded components of fair value hedges | (1) | | 0 | | | 7 | | 0 | | Excluded components of fair value hedges | (1) | | (1) | | | (3) | | 7 | |
Reclassification to earnings of loss on cash flow hedges | Reclassification to earnings of loss on cash flow hedges | 58 | | 28 | | | 138 | | 74 | | Reclassification to earnings of loss on cash flow hedges | 55 | | 58 | | | 168 | | 138 | |
Reclassification to earnings of pension and other postretirement benefits amounts | 3 | | 1 | | | 10 | | 44 | | |
Reclassification to earnings of pension and other postretirement benefits (OPEB) amounts | | Reclassification to earnings of pension and other postretirement benefits (OPEB) amounts | 5 | | 3 | | | 16 | | 10 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (1,119) | | 704 | | | 1,817 | | (1,898) | | Foreign currency translation adjustments | 1,281 | | (1,119) | | | (350) | | 1,817 | |
Other comprehensive income/(loss), net of tax | Other comprehensive income/(loss), net of tax | (890) | | 491 | | | 1,225 | | (2,211) | | Other comprehensive income/(loss), net of tax | 1,088 | | (890) | | | 16 | | 1,225 | |
Comprehensive income | Comprehensive income | 214 | | 1,551 | | | 2,742 | | 2,702 | | Comprehensive income | 1,902 | | 214 | | | 4,365 | | 2,742 | |
Comprehensive (income)/loss attributable to noncontrolling interests | Comprehensive (income)/loss attributable to noncontrolling interests | 16 | | (41) | | | (79) | | 23 | | Comprehensive (income)/loss attributable to noncontrolling interests | (62) | | 16 | | | (68) | | (79) | |
Comprehensive income attributable to controlling interests | Comprehensive income attributable to controlling interests | 230 | | 1,510 | | | 2,663 | | 2,725 | | Comprehensive income attributable to controlling interests | 1,840 | | 230 | | | 4,297 | | 2,663 | |
Preference share dividends | Preference share dividends | (94) | | (96) | | | (284) | | (287) | | Preference share dividends | (98) | | (94) | | | (280) | | (284) | |
Comprehensive income attributable to common shareholders | Comprehensive income attributable to common shareholders | 136 | | 1,414 | | | 2,379 | | 2,438 | | Comprehensive income attributable to common shareholders | 1,742 | | 136 | | | 4,017 | | 2,379 | |
SeeThe accompanying notes to theare an integral part of these interim consolidated financial statements.
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | Three months ended September 30, | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(unaudited; millions of Canadian dollars, except per share amounts) | (unaudited; millions of Canadian dollars, except per share amounts) | | | | | (unaudited; millions of Canadian dollars, except per share amounts) | | | | |
Preference shares (Note 5) | | | | | |
Preference shares | | Preference shares | | | | |
Balance at beginning and end of period | Balance at beginning and end of period | 7,747 | | 7,747 | | 7,747 | | 7,747 | | Balance at beginning and end of period | 7,747 | | 7,747 | | | 7,747 | | 7,747 | |
Common shares (Note 5) | | | | | |
Common shares | | Common shares | | | | |
Balance at beginning of period | Balance at beginning of period | 64,763 | | 64,732 | | 64,746 | | 64,677 | | Balance at beginning of period | 64,780 | | 64,763 | | | 64,768 | | 64,746 | |
Shares issued on exercise of stock options | Shares issued on exercise of stock options | 1 | | 3 | | 18 | | 58 | | Shares issued on exercise of stock options | 10 | | 1 | | | 22 | | 18 | |
Balance at end of period | Balance at end of period | 64,764 | | 64,735 | | 64,764 | | 64,735 | | Balance at end of period | 64,790 | | 64,764 | | | 64,790 | | 64,764 | |
Additional paid-in capital | Additional paid-in capital | | | | | Additional paid-in capital | | | | |
Balance at beginning of period | Balance at beginning of period | 207 | | 194 | | 187 | | 0 | | Balance at beginning of period | 324 | | 207 | | | 277 | | 187 | |
Stock-based compensation | Stock-based compensation | 6 | | 7 | | 25 | | 28 | | Stock-based compensation | 7 | | 6 | | | 23 | | 25 | |
Options exercised | Options exercised | (1) | | (2) | | (19) | | (51) | | Options exercised | (7) | | (1) | | | (15) | | (19) | |
Change in reciprocal interest | Change in reciprocal interest | 54 | | 0 | | 66 | | 109 | | Change in reciprocal interest | — | | 54 | | | 39 | | 66 | |
Repurchase of noncontrolling interest | 0 | | 0 | | 0 | | 65 | | |
| Other | Other | (1) | | 7 | | 6 | | 55 | | Other | — | | (1) | | | — | | 6 | |
Balance at end of period | Balance at end of period | 265 | | 206 | | 265 | | 206 | | Balance at end of period | 324 | | 265 | | | 324 | | 265 | |
Deficit | Deficit | | | | | Deficit | | | | |
Balance at beginning of period | Balance at beginning of period | (7,797) | | (3,392) | | (6,314) | | (5,538) | | Balance at beginning of period | (8,388) | | (7,797) | | | (9,995) | | (6,314) | |
Earnings attributable to controlling interests | Earnings attributable to controlling interests | 1,084 | | 1,045 | | 1,492 | | 4,863 | | Earnings attributable to controlling interests | 780 | | 1,084 | | | 4,256 | | 1,492 | |
Preference share dividends | Preference share dividends | (94) | | (96) | | (284) | | (287) | | Preference share dividends | (98) | | (94) | | | (280) | | (284) | |
Dividends paid to reciprocal shareholder | Dividends paid to reciprocal shareholder | 4 | | 5 | | 14 | | 14 | | Dividends paid to reciprocal shareholder | 1 | | 4 | | | 6 | | 14 | |
Common share dividends declared | Common share dividends declared | (1,640) | | (1,493) | | (3,281) | | (2,993) | | Common share dividends declared | (1,692) | | (1,640) | | | (3,384) | | (3,281) | |
Modified retrospective adoption of ASU 2016-13 Financial Instruments - Credit Losses (Note 2) | 0 | | — | | (66) | | — | | |
Adoption of ASU 2016-13 Financial Instruments - Credit Losses | | Adoption of ASU 2016-13 Financial Instruments - Credit Losses | — | | — | | | — | | (66) | |
Other | Other | 1 | | (1) | | (3) | | 9 | | Other | — | | 1 | | | — | | (3) | |
Balance at end of period | Balance at end of period | (8,442) | | (3,932) | | (8,442) | | (3,932) | | Balance at end of period | (9,397) | | (8,442) | | | (9,397) | | (8,442) | |
Accumulated other comprehensive income/(loss) (Note 8) | | | | | |
Accumulated other comprehensive income/(loss) (Note 7) | | Accumulated other comprehensive income/(loss) (Note 7) | | | | |
Balance at beginning of period | Balance at beginning of period | 1,753 | | 124 | | (272) | | 2,672 | | Balance at beginning of period | (2,420) | | 1,753 | | | (1,401) | | (272) | |
Other comprehensive income/(loss) attributable to common shareholders, net of tax | Other comprehensive income/(loss) attributable to common shareholders, net of tax | (854) | | 465 | | 1,171 | | (2,138) | | Other comprehensive income/(loss) attributable to common shareholders, net of tax | 1,060 | | (854) | | | 41 | | 1,171 | |
Other | 0 | | (7) | | 0 | | 48 | | |
| Balance at end of period | Balance at end of period | 899 | | 582 | | 899 | | 582 | | Balance at end of period | (1,360) | | 899 | | | (1,360) | | 899 | |
Reciprocal shareholding | Reciprocal shareholding | | | | | Reciprocal shareholding | | | | |
Balance at beginning of period | Balance at beginning of period | (47) | | (51) | | (51) | | (88) | | Balance at beginning of period | (17) | | (47) | | | (29) | | (51) | |
Change in reciprocal interest | Change in reciprocal interest | 18 | | 0 | | 22 | | 37 | | Change in reciprocal interest | — | | 18 | | | 12 | | 22 | |
Balance at end of period | Balance at end of period | (29) | | (51) | | (29) | | (51) | | Balance at end of period | (17) | | (29) | | | (17) | | (29) | |
Total Enbridge Inc. shareholders’ equity | Total Enbridge Inc. shareholders’ equity | 65,204 | | 69,287 | | 65,204 | | 69,287 | | Total Enbridge Inc. shareholders’ equity | 62,087 | | 65,204 | | | 62,087 | | 65,204 | |
Noncontrolling interests | Noncontrolling interests | | | | | Noncontrolling interests | | | | |
Balance at beginning of period | Balance at beginning of period | 3,315 | | 3,451 | | 3,364 | | 3,965 | | Balance at beginning of period | 2,870 | | 3,315 | | | 2,996 | | 3,364 | |
Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | 20 | | 15 | | 25 | | 50 | | Earnings attributable to noncontrolling interests | 34 | | 20 | | | 93 | | 25 | |
Other comprehensive income/(loss) attributable to noncontrolling interests, net of tax | Other comprehensive income/(loss) attributable to noncontrolling interests, net of tax | | | | | Other comprehensive income/(loss) attributable to noncontrolling interests, net of tax | | | | |
Change in unrealized loss on cash flow hedges | Change in unrealized loss on cash flow hedges | 0 | | (1) | | (3) | | (6) | | Change in unrealized loss on cash flow hedges | (9) | | — | | | (15) | | (3) | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (36) | | 27 | | 57 | | (67) | | Foreign currency translation adjustments | 37 | | (36) | | | (10) | | 57 | |
| | | (36) | | 26 | | 54 | | (73) | | |
Comprehensive income/(loss) attributable to noncontrolling interests | (16) | | 41 | | 79 | | (23) | | |
| Contributions | Contributions | 1 | | 1 | | 21 | | 10 | | Contributions | 4 | | 1 | | | 13 | | 21 | |
Distributions | Distributions | (68) | | (94) | | (232) | | (194) | | Distributions | (67) | | (68) | | | (210) | | (232) | |
Repurchase of noncontrolling interest | 0 | | 0 | | 0 | | (65) | | |
| Redemption of preferred shares held by subsidiary | Redemption of preferred shares held by subsidiary | 0 | | 0 | | 0 | | (300) | | Redemption of preferred shares held by subsidiary | (293) | | — | | | (293) | | — | |
Other | Other | (1) | | (10) | | (1) | | (4) | | Other | (1) | | (1) | | | 1 | | (1) | |
Balance at end of period | Balance at end of period | 3,231 | | 3,389 | | 3,231 | | 3,389 | | Balance at end of period | 2,575 | | 3,231 | | | 2,575 | | 3,231 | |
Total equity | Total equity | 68,435 | | 72,676 | | 68,435 | | 72,676 | | Total equity | 64,662 | | 68,435 | | | 64,662 | | 68,435 | |
Dividends paid per common share | Dividends paid per common share | 0.810 | | 0.738 | | 2.430 | | 2.214 | | Dividends paid per common share | 0.835 | | 0.810 | | | 2.505 | | 2.430 | |
Earnings per common share attributable to common shareholders (Note 5) | 0.49 | | 0.47 | | 0.60 | | 2.27 | | |
Diluted earnings per common share attributable to common shareholders (Note 5) | 0.49 | | 0.47 | | 0.60 | | 2.27 | | |
|
SeeThe accompanying notes to theare an integral part of these interim consolidated financial statements.
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Nine months ended September 30, | | Nine months ended September 30, |
| | | 2020 | 2019 | | 2021 | 2020 |
(unaudited; millions of Canadian dollars) | (unaudited; millions of Canadian dollars) | | | | (unaudited; millions of Canadian dollars) | | |
Operating activities | Operating activities | | | | Operating activities | | |
Earnings | Earnings | | 1,517 | | 4,913 | | Earnings | 4,349 | | 1,517 | |
Adjustments to reconcile earnings to net cash provided by operating activities: | Adjustments to reconcile earnings to net cash provided by operating activities: | | | | Adjustments to reconcile earnings to net cash provided by operating activities: | | |
Depreciation and amortization | Depreciation and amortization | | 2,766 | | 2,526 | | Depreciation and amortization | 2,805 | | 2,766 | |
Deferred income tax (recovery)/expense | | (82) | | 983 | | |
Changes in unrealized (gain)/loss on derivative instruments, net (Note 10) | | 200 | | (1,005) | | |
Earnings from equity investments | | (805) | | (1,159) | | |
Deferred income tax expense/(recovery) | | Deferred income tax expense/(recovery) | 789 | | (82) | |
Unrealized derivative fair value loss, net (Note 9) | | Unrealized derivative fair value loss, net (Note 9) | 86 | | 200 | |
Income from equity investments | | Income from equity investments | (1,187) | | (805) | |
Distributions from equity investments | Distributions from equity investments | | 1,145 | | 1,442 | | Distributions from equity investments | 1,197 | | 1,145 | |
Impairment of equity investments (Note 9) | | 2,351 | | 0 | | |
Impairment of long-lived assets | | 0 | | 105 | | |
Impairment of equity investments (Note 8) | | Impairment of equity investments (Note 8) | 111 | | 2,351 | |
| Gain on disposition | | Gain on disposition | (41) | | — | |
Other | Other | | 222 | | 51 | | Other | (87) | | 222 | |
Changes in operating assets and liabilities | Changes in operating assets and liabilities | | 213 | | (451) | | Changes in operating assets and liabilities | (1,068) | | 213 | |
Net cash provided by operating activities | Net cash provided by operating activities | | 7,527 | | 7,405 | | Net cash provided by operating activities | 6,954 | | 7,527 | |
Investing activities | Investing activities | | | | Investing activities | | |
Capital expenditures | Capital expenditures | | (3,790) | | (3,928) | | Capital expenditures | (5,475) | | (3,790) | |
Long-term investments and restricted long-term investments | Long-term investments and restricted long-term investments | | (413) | | (1,018) | | Long-term investments and restricted long-term investments | (241) | | (413) | |
Distributions from equity investments in excess of cumulative earnings | Distributions from equity investments in excess of cumulative earnings | | 438 | | 285 | | Distributions from equity investments in excess of cumulative earnings | 295 | | 438 | |
Additions to intangible assets | Additions to intangible assets | | (154) | | (136) | | Additions to intangible assets | (185) | | (154) | |
Proceeds from dispositions | | 265 | | 0 | | |
Loans to affiliates, net | | 10 | | (232) | | |
Proceeds from disposition | | Proceeds from disposition | 122 | | 265 | |
Affiliate loans, net | | Affiliate loans, net | 19 | | 10 | |
Other | | Other | (30) | | — | |
Net cash used in investing activities | Net cash used in investing activities | | (3,644) | | (5,029) | | Net cash used in investing activities | (5,495) | | (3,644) | |
Financing activities | Financing activities | | | | Financing activities | | |
Net change in short-term borrowings | Net change in short-term borrowings | | 71 | | 245 | | Net change in short-term borrowings | 84 | | 71 | |
Net change in commercial paper and credit facility draws | Net change in commercial paper and credit facility draws | | 231 | | 3,365 | | Net change in commercial paper and credit facility draws | (32) | | 231 | |
Debenture and term note issues, net of issue costs | Debenture and term note issues, net of issue costs | | 4,834 | | 2,553 | | Debenture and term note issues, net of issue costs | 6,135 | | 4,834 | |
Debenture and term note repayments | Debenture and term note repayments | | (3,517) | | (2,994) | | Debenture and term note repayments | (1,888) | | (3,517) | |
Contributions from noncontrolling interests | Contributions from noncontrolling interests | | 21 | | 10 | | Contributions from noncontrolling interests | 13 | | 21 | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | (232) | | (194) | | Distributions to noncontrolling interests | (210) | | (232) | |
Common shares issued | Common shares issued | | 3 | | 18 | | Common shares issued | 3 | | 3 | |
Preference share dividends | Preference share dividends | | (284) | | (287) | | Preference share dividends | (274) | | (284) | |
Common share dividends | Common share dividends | | (4,920) | | (4,480) | | Common share dividends | (5,074) | | (4,920) | |
Redemption of preferred shares held by subsidiary | Redemption of preferred shares held by subsidiary | | 0 | | (300) | | Redemption of preferred shares held by subsidiary | (115) | | — | |
Other | Other | | (52) | | (60) | | Other | (64) | | (52) | |
Net cash used in financing activities | Net cash used in financing activities | | (3,845) | | (2,124) | | Net cash used in financing activities | (1,422) | | (3,845) | |
Effect of translation of foreign denominated cash and cash equivalents and restricted cash | Effect of translation of foreign denominated cash and cash equivalents and restricted cash | | (22) | | (17) | | Effect of translation of foreign denominated cash and cash equivalents and restricted cash | (12) | | (22) | |
Net increase in cash and cash equivalents and restricted cash | Net increase in cash and cash equivalents and restricted cash | | 16 | | 235 | | Net increase in cash and cash equivalents and restricted cash | 25 | | 16 | |
Cash and cash equivalents and restricted cash at beginning of period | Cash and cash equivalents and restricted cash at beginning of period | | 676 | | 637 | | Cash and cash equivalents and restricted cash at beginning of period | 490 | | 676 | |
Cash and cash equivalents and restricted cash at end of period | Cash and cash equivalents and restricted cash at end of period | | 692 | | 872 | | Cash and cash equivalents and restricted cash at end of period | 515 | | 692 | |
SeeThe accompanying notes to theare an integral part of these interim consolidated financial statements.
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| | | September 30, 2020 | December 31, 2019 | | September 30, 2021 | December 31, 2020 |
(unaudited; millions of Canadian dollars; number of shares in millions) | (unaudited; millions of Canadian dollars; number of shares in millions) | | | (unaudited; millions of Canadian dollars; number of shares in millions) | | |
Assets | Assets | | | Assets | | |
Current assets | Current assets | | | Current assets | | |
Cash and cash equivalents | Cash and cash equivalents | 657 | | 648 | | Cash and cash equivalents | 451 | | 452 | |
Restricted cash | Restricted cash | 35 | | 28 | | Restricted cash | 64 | | 38 | |
Accounts receivable and other | Accounts receivable and other | 4,333 | | 6,781 | | Accounts receivable and other | 6,378 | | 5,258 | |
Accounts receivable from affiliates | Accounts receivable from affiliates | 31 | | 69 | | Accounts receivable from affiliates | 170 | | 66 | |
Inventory | Inventory | 1,368 | | 1,299 | | Inventory | 1,495 | | 1,536 | |
| | 6,424 | | 8,825 | | | 8,558 | | 7,350 | |
Property, plant and equipment, net | Property, plant and equipment, net | 95,990 | | 93,723 | | Property, plant and equipment, net | 98,097 | | 94,571 | |
Long-term investments | Long-term investments | 14,513 | | 16,528 | | Long-term investments | 13,489 | | 13,818 | |
Restricted long-term investments | Restricted long-term investments | 527 | | 434 | | Restricted long-term investments | 575 | | 553 | |
Deferred amounts and other assets | Deferred amounts and other assets | 8,089 | | 7,433 | | Deferred amounts and other assets | 8,413 | | 8,446 | |
Intangible assets, net | Intangible assets, net | 2,122 | | 2,173 | | Intangible assets, net | 2,212 | | 2,080 | |
Goodwill | Goodwill | 33,832 | | 33,153 | | Goodwill | 32,573 | | 32,688 | |
Deferred income taxes | Deferred income taxes | 991 | | 1,000 | | Deferred income taxes | 615 | | 770 | |
Total assets | Total assets | 162,488 | | 163,269 | | Total assets | 164,532 | | 160,276 | |
| Liabilities and equity | Liabilities and equity | | | Liabilities and equity | | |
Current liabilities | Current liabilities | | | Current liabilities | | |
Short-term borrowings | Short-term borrowings | 969 | | 898 | | Short-term borrowings | 1,205 | | 1,121 | |
Accounts payable and other | Accounts payable and other | 6,381 | | 10,063 | | Accounts payable and other | 8,754 | | 9,228 | |
Accounts payable to affiliates | Accounts payable to affiliates | 4 | | 21 | | Accounts payable to affiliates | 170 | | 22 | |
Interest payable | Interest payable | 628 | | 624 | | Interest payable | 619 | | 651 | |
Current portion of long-term debt | Current portion of long-term debt | 3,616 | | 4,404 | | Current portion of long-term debt | 4,693 | | 2,957 | |
| | 11,598 | | 16,010 | | | 15,441 | | 13,979 | |
Long-term debt | Long-term debt | 62,967 | | 59,661 | | Long-term debt | 65,036 | | 62,819 | |
Other long-term liabilities | Other long-term liabilities | 9,253 | | 8,324 | | Other long-term liabilities | 8,116 | | 8,783 | |
Deferred income taxes | Deferred income taxes | 10,235 | | 9,867 | | Deferred income taxes | 11,277 | | 10,332 | |
| | 94,053 | | 93,862 | | | 99,870 | | 95,913 | |
Contingencies (Note 13) | | | |
Contingencies (Note 12) | | Contingencies (Note 12) | 0 | 0 |
Equity | Equity | | | Equity | | |
Share capital | Share capital | | | Share capital | | |
Preference shares | Preference shares | 7,747 | | 7,747 | | Preference shares | 7,747 | | 7,747 | |
Common shares (2,025 outstanding at September 30, 2020 and December 31, 2019) | 64,764 | | 64,746 | | |
Common shares (2,026 outstanding at September 30, 2021 and December 31, 2020) | | Common shares (2,026 outstanding at September 30, 2021 and December 31, 2020) | 64,790 | | 64,768 | |
Additional paid-in capital | Additional paid-in capital | 265 | | 187 | | Additional paid-in capital | 324 | | 277 | |
Deficit | Deficit | (8,442) | | (6,314) | | Deficit | (9,397) | | (9,995) | |
Accumulated other comprehensive income/(loss) (Note 8) | 899 | | (272) | | |
Accumulated other comprehensive loss (Note 7) | | Accumulated other comprehensive loss (Note 7) | (1,360) | | (1,401) | |
Reciprocal shareholding | Reciprocal shareholding | (29) | | (51) | | Reciprocal shareholding | (17) | | (29) | |
Total Enbridge Inc. shareholders’ equity | Total Enbridge Inc. shareholders’ equity | 65,204 | | 66,043 | | Total Enbridge Inc. shareholders’ equity | 62,087 | | 61,367 | |
Noncontrolling interests | Noncontrolling interests | 3,231 | | 3,364 | | Noncontrolling interests | 2,575 | | 2,996 | |
| | 68,435 | | 69,407 | | | 64,662 | | 64,363 | |
Total liabilities and equity | Total liabilities and equity | 162,488 | | 163,269 | | Total liabilities and equity | 164,532 | | 160,276 | |
SeeThe accompanying notes to theare an integral part of these interim consolidated financial statements.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of Enbridge Inc. ("we", "our", "us" and "Enbridge") have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S.(US GAAP) and Regulation S-X for interim consolidated financial information. They do not include all of the information and notes required by U.S.US GAAP for annual consolidated financial statements and should therefore be read in conjunction with our audited consolidated financial statements and notes for the year ended December 31, 2019.2020. In the opinion of management, the interim consolidated financial statements contain all normal recurring adjustments necessary to present fairly our financial position, results of operations and cash flows for the interim periods reported. These interim consolidated financial statements follow the same significant accounting policies as those included in our audited consolidated financial statements for the year ended December 31, 2019,2020, except for the adoption of new standards (Note 2). Amounts are stated in Canadian dollars unless otherwise noted.
Our operations and earnings for interim periods can be affected by seasonal fluctuations within the gas distribution utility businesses, as well as other factors such as the supply of and demand for crude oil and natural gas, and may not be indicative of annual results.
2. CHANGES IN ACCOUNTING POLICIES
ADOPTION OF NEW ACCOUNTING STANDARDS
Reference Rate Reform
Effective JulyFor eligible hedging relationships existing as at January 1, 2020,2021 and prospectively, we adoptedhave applied the optional expedient in Accounting Standards Update (ASU) 2020-04 on a prospective basis. The new standard was issuedwhereby the modification of the hedging instrument does not result in March 2020 to provide temporary optional guidance in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles when accounting for contract modifications,an automatic hedging relationships and other transactions impacted by rate reform, subject to meeting certain criteria. ASU 2020-04 is effective until December 31, 2022.relationship de-designation. The adoption of this ASU did not have a material impact on our consolidated financial statements.
Clarifying Interaction between Collaborative ArrangementsBetween Equity Securities, Equity Method Investments and Revenue from Contracts with CustomersDerivatives
Effective January 1, 2020,2021, we adopted ASU 2018-182020-01 on a retrospectiveprospective basis. The new standard was issued in November 2018 to provide clarityJanuary 2020 and clarifies that observable transactions should be considered for the purpose of applying the measurement alternative in accordance with Accounting Standards Codification (ASC) 321 Investments - Equity Securities immediately before the application or upon discontinuance of the equity method of accounting. Furthermore, the ASU clarifies that forward contracts or purchased options on when transactions between entities in a collaborative arrangement shouldequity securities are not out of scope of ASC 815 Derivatives and Hedging guidance only because, upon the contracts’ exercise, the equity securities could be accounted for under the new revenue standard, Accounting Standards Codification (ASC) 606. In determining whether transactions in collaborative arrangements should be accounted for under the revenue standard, the update specifies that entities shall apply unitequity method of account guidance to identify distinct goodsaccounting or services and whether such goods and services are separately identifiable from other promises in the contract. ASU 2018-18 also precludes entities from presenting transactions with a collaborative partner which are not in scope of the new revenue standard together with revenue from contracts with customers.fair value option. The adoption of this ASU did not have a material impact on our consolidated financial statements.
11Accounting for Income Taxes
Disclosure Effectiveness
Effective January 1, 2020,2021, we adopted ASU 2018-132019-12 on both a retrospective and prospective basis depending on the change.basis. The new standard was issued in December 2019 with the intent of simplifying the accounting for income taxes. The accounting update removes certain exceptions to improve the disclosure requirements for fair value measurementsgeneral principles in ASC 740 Income Taxes as well as provides simplification by eliminatingclarifying and modifying some disclosures, while also adding new disclosures.amending existing guidance. The adoption of this ASU did not have a material impact on our consolidated financial statements.
FUTURE ACCOUNTING POLICY CHANGES
Accounting for Certain Lessor Leases with Variable Lease Payments
ASU 2021-05 was issued in July 2021 to amend lessor accounting for certain leases with variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of a loss at lease commencement if classified as a sales-type or a direct financing lease. The ASU amends the classification requirements of such leases for lessors to result in an operating lease classification. ASU 2021-05 is effective January 1, 2022 and can be applied either retrospectively or prospectively with early adoption permitted. We are currently assessing the impact of the new standard on our consolidated financial statements.
Accounting for Credit LossesModifications or Exchanges of Certain Equity-Classified Contracts
Effective January 1, 2020, we adopted ASU 2016-13 on a modified retrospective basis.
The new standard2021-04 was issued in June 2016 withMay 2021 to clarify issuer accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The ASU requires an issuer to determine the intent of providing financial statement users with more useful information aboutaccounting for the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The previous accounting treatment used the incurred loss methodology for recognizing credit losses that delayed the recognition until it was probable a loss had been incurred. The accounting update adds a new impairment model, known as the current expected credit loss model, which ismodification or exchange based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimateeconomic substance of expected credit losses, which the Financial Accounting Standards Board believes results in more timely recognition of such losses.
Further,modification or exchange. ASU 2018-19 was issued in November 2018 to clarify that operating lease receivables2021-04 is effective January 1, 2022 and should be accounted for underapplied prospectively. We are currently assessing the new leases standard, ASC 842, and are not within the scope of ASC 326, Financial Instruments - Credit Losses.
For accounts receivable, a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations. Other loan receivables and off-balance sheet commitments in scopeimpact of the new standard utilize a discounted cash flow methodology which calculates the current expected credit losses based on historical default probability rates associated with the credit rating of the counterparty and the related term of the loan or commitment, adjusted for forward-looking information and management expectations.our consolidated financial statements.
On January 1, 2020, we recorded $66 million of additional Deficit on our Statements of Financial Position in connection with the adoption of ASU 2016-13. The adoption of this ASU did not have a material impact on the Consolidated Statements of Earnings, Comprehensive Income or Cash Flows during the period.
FUTURE ACCOUNTING POLICY CHANGES
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
ASU 2020-06 was issued in August 2020 to simplify accounting for certain financial instruments. The ASU eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The ASU also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. The ASU amends the diluted earnings per share guidance, including the requirement to use if-converted method for all convertible instruments and an update for instruments that can be settled in either cash or shares. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis,basis. We are currently assessing the impact of the new standard on our consolidated financial statements.
Accounting for Contract Assets and Liabilities from Contracts with Customers in a Business Combination
ASU 2021-08 was issued in October 2021 to amend business combination accounting specific to contract assets and contract liabilities resulting from contracts with customers, requiring measurement in accordance with ASC 606. The ASU is also applicable to contract assets and contract liabilities from other contracts to which ASC 606 applies, such as contract liabilities from the sale of nonfinancial assets within the scope of ASC 610-20. ASU 2021-08 is effective January 1, 2023 and should be applied prospectively with early adoption permitted on January 1, 2021.permitted. Early adoption requires retrospective application for business combinations with an acquisition date in the year of early application. We are currently assessing the impact of the new standard on our consolidated financial statements.
Clarifying Interaction between Equity Securities, Equity Method Investments and Derivatives
ASU 2020-01 was issued in January 2020 and clarifies that observable transactions should be considered for the purpose of applying the measurement alternative in accordance with ASC 321 immediately before the application or upon discontinuance of the equity method of accounting. Furthermore, the ASU clarifies that forward contracts or purchased options on equity securities are not out of scope of ASC 815 guidance only because, upon the contracts’ exercise, the equity securities could be accounted for under the equity method of accounting or fair value option. ASU 2020-01 is effective January 1, 2021, with early adoption permitted, and is applied prospectively. The adoption of ASU 2020-01 is not expected to have a material impact on our consolidated financial statements.
Accounting for Income Taxes
ASU 2019-12 was issued in December 2019 with the intent of simplifying the accounting for income taxes. The accounting update removes certain exceptions to the general principles in ASC 740 as well as provides simplification by clarifying and amending existing guidance. ASU 2019-12 is effective January 1, 2021, and entities are permitted to adopt the standard early. We are currently assessing the impact of the new standard on our consolidated financial statements.
Disclosure Effectiveness
ASU 2018-14 was issued in August 2018 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendment modifies the current guidance by adding and removing several disclosure requirements while also clarifying the guidance on current disclosure requirements. ASU 2018-14 is effective January 1, 2021, and entities are permitted to adopt the standard early. The adoption of ASU 2018-14 is not expected to have a material impact on our consolidated financial statements.
3. REVENUES
REVENUE FROM CONTRACTS WITH CUSTOMERS
Major Products and Services
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenues | 2,234 | | 1,077 | | 128 | | 0 | | 0 | | 0 | | 3,439 | |
Storage and other revenues | 22 | | 64 | | 51 | | 0 | | 0 | | 0 | | 137 | |
Gas gathering and processing revenues | 0 | | 7 | | 0 | | 0 | | 0 | | 0 | | 7 | |
Gas distribution revenue | 0 | | 0 | | 448 | | 0 | | 0 | | 0 | | 448 | |
Electricity and transmission revenues | 0 | | 0 | | 0 | | 46 | | 0 | | 0 | | 46 | |
| | | | | | | |
Total revenue from contracts with customers | 2,256 | | 1,148 | | 627 | | 46 | | 0 | | 0 | | 4,077 | |
Commodity sales | 0 | | 0 | | 0 | | 0 | | 4,595 | | 0 | | 4,595 | |
Other revenues1,2 | 360 | | 14 | | (8) | | 80 | | (3) | | (5) | | 438 | |
Intersegment revenues | 157 | | 0 | | 2 | | 0 | | 4 | | (163) | | — | |
Total revenues | 2,773 | | 1,162 | | 621 | | 126 | | 4,596 | | (168) | | 9,110 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2021 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenue | 2,340 | | 1,081 | | 128 | | — | | — | | — | | 3,549 | |
Storage and other revenue | 33 | | 58 | | 50 | | — | | — | | — | | 141 | |
Gas gathering and processing revenue | — | | 15 | | — | | — | | — | | — | | 15 | |
Gas distribution revenue | — | | — | | 496 | | — | | — | | — | | 496 | |
Electricity and transmission revenue | — | | — | | — | | 44 | | — | | — | | 44 | |
| | | | | | | |
Total revenue from contracts with customers | 2,373 | | 1,154 | | 674 | | 44 | | — | | — | | 4,245 | |
Commodity sales | — | | — | | — | | — | | 7,279 | | — | | 7,279 | |
Other revenue1,2 | (143) | | 4 | | 24 | | 78 | | (1) | | (20) | | (58) | |
Intersegment revenue | 140 | | 1 | | (11) | | — | | 12 | | (142) | | — | |
Total revenue | 2,370 | | 1,159 | | 687 | | 122 | | 7,290 | | (162) | | 11,466 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenue | 2,234 | | 1,077 | | 128 | | — | | — | | — | | 3,439 | |
Storage and other revenue | 22 | | 64 | | 51 | | — | | — | | — | | 137 | |
Gas gathering and processing revenue | — | | 7 | | — | | — | | — | | — | | 7 | |
Gas distribution revenue | — | | — | | 448 | | — | | — | | — | | 448 | |
Electricity and transmission revenue | — | | — | | — | | 46 | | — | | — | | 46 | |
| | | | | | | |
Total revenue from contracts with customers | 2,256 | | 1,148 | | 627 | | 46 | | — | | — | | 4,077 | |
Commodity sales | — | | — | | — | | — | | 4,595 | | — | | 4,595 | |
Other revenue1,2 | 360 | | 14 | | (8) | | 80 | | (3) | | (5) | | 438 | |
Intersegment revenue | 157 | | — | | 2 | | — | | 4 | | (163) | | — | |
Total revenue | 2,773 | | 1,162 | | 621 | | 126 | | 4,596 | | (168) | | 9,110 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2019 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenues | 2,305 | | 1,073 | | 135 | | 0 | | 0 | | 0 | | 3,513 | |
Storage and other revenues | 31 | | 69 | | 48 | | 0 | | 0 | | 0 | | 148 | |
Gas gathering and processing revenues | 0 | | 98 | | 0 | | 0 | | 0 | | 0 | | 98 | |
Gas distribution revenues | 0 | | 0 | | 470 | | 0 | | 0 | | 0 | | 470 | |
Electricity and transmission revenues | 0 | | 0 | | 0 | | 46 | | 0 | | 0 | | 46 | |
| | | | | | | |
Total revenue from contracts with customers | 2,336 | | 1,240 | | 653 | | 46 | | 0 | | 0 | | 4,275 | |
Commodity sales | 0 | | 0 | | 0 | | 0 | | 7,396 | | 0 | | 7,396 | |
Other revenues1,2 | (156) | | 23 | | (21) | | 82 | | (1) | | 0 | | (73) | |
Intersegment revenues | 88 | | 1 | | 3 | | 0 | | 8 | | (100) | | — | |
Total revenues | 2,268 | | 1,264 | | 635 | | 128 | | 7,403 | | (100) | | 11,598 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2021 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenue | 6,826 | | 3,248 | | 494 | | — | | — | | — | | 10,568 | |
Storage and other revenue | 96 | | 195 | | 159 | | — | | — | | — | | 450 | |
Gas gathering and processing revenue | — | | 32 | | — | | — | | — | | — | | 32 | |
Gas distribution revenue | — | | — | | 2,755 | | — | | — | | — | | 2,755 | |
Electricity and transmission revenue | — | | — | | — | | 125 | | — | | — | | 125 | |
| | | | | | | |
Total revenue from contracts with customers | 6,922 | | 3,475 | | 3,408 | | 125 | | — | | — | | 13,930 | |
Commodity sales | — | | — | | — | | — | | 20,042 | | — | | 20,042 | |
Other revenue1,2 | 284 | | 25 | | 42 | | 246 | | — | | (18) | | 579 | |
Intersegment revenue | 410 | | 1 | | 13 | | — | | 26 | | (450) | | — | |
Total revenue | 7,616 | | 3,501 | | 3,463 | | 371 | | 20,068 | | (468) | | 34,551 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenues | 6,815 | | 3,458 | | 494 | | 0 | | 0 | | 0 | | 10,767 | |
Storage and other revenues | 72 | | 209 | | 154 | | 0 | | 0 | | 0 | | 435 | |
Gas gathering and processing revenues | 0 | | 19 | | 0 | | 0 | | 0 | | 0 | | 19 | |
Gas distribution revenue | 0 | | 0 | | 2,551 | | 0 | | 0 | | 0 | | 2,551 | |
Electricity and transmission revenues | 0 | | 0 | | 0 | | 150 | | 0 | | 0 | | 150 | |
| | | | | | | |
Total revenue from contracts with customers | 6,887 | | 3,686 | | 3,199 | | 150 | | 0 | | 0 | | 13,922 | |
Commodity sales | 0 | | 0 | | 0 | | 0 | | 14,920 | | 0 | | 14,920 | |
Other revenues1,2 | (59) | | 35 | | (1) | | 279 | | 1 | | (18) | | 237 | |
Intersegment revenues | 424 | | 1 | | 8 | | 0 | | 22 | | (455) | | — | |
Total revenues | 7,252 | | 3,722 | | 3,206 | | 429 | | 14,943 | | (473) | | 29,079 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2019 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenues | 6,749 | | 3,323 | | 555 | | 0 | | 0 | | 0 | | 10,627 | |
Storage and other revenues | 83 | | 168 | | 154 | | 0 | | 0 | | 0 | | 405 | |
Gas gathering and processing revenues | 0 | | 329 | | 0 | | 0 | | 0 | | 0 | | 329 | |
Gas distribution revenues | 0 | | 0 | | 3,080 | | 0 | | 0 | | 0 | | 3,080 | |
Electricity and transmission revenues | 0 | | 0 | | 0 | | 139 | | 0 | | 0 | | 139 | |
Commodity sales | 0 | | 3 | | 0 | | 0 | | 0 | | 0 | | 3 | |
Total revenue from contracts with customers | 6,832 | | 3,823 | | 3,789 | | 139 | | 0 | | 0 | | 14,583 | |
Commodity sales | 0 | | 0 | | 0 | | 0 | | 22,441 | | 0 | | 22,441 | |
Other revenues1,2 | 383 | | 43 | | 5 | | 278 | | (2) | | (14) | | 693 | |
Intersegment revenues | 280 | | 4 | | 9 | | 0 | | 55 | | (348) | | — | |
Total revenues | 7,495 | | 3,870 | | 3,803 | | 417 | | 22,494 | | (362) | | 37,717 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | | |
Transportation revenue | 6,815 | | 3,458 | | 494 | | — | | — | | — | | 10,767 | |
Storage and other revenue | 72 | | 209 | | 154 | | — | | — | | — | | 435 | |
Gas gathering and processing revenue | — | | 19 | | — | | — | | — | | — | | 19 | |
Gas distribution revenue | — | | — | | 2,551 | | — | | — | | — | | 2,551 | |
Electricity and transmission revenue | — | | — | | — | | 150 | | — | | — | | 150 | |
| | | | | | | |
Total revenue from contracts with customers | 6,887 | | 3,686 | | 3,199 | | 150 | | — | | — | | 13,922 | |
Commodity sales | — | | — | | — | | — | | 14,920 | | — | | 14,920 | |
Other revenue1,2 | (59) | | 35 | | (1) | | 279 | | 1 | | (18) | | 237 | |
Intersegment revenue | 424 | | 1 | | 8 | | — | | 22 | | (455) | | — | |
Total revenue | 7,252 | | 3,722 | | 3,206 | | 429 | | 14,943 | | (473) | | 29,079 | |
1 Includes mark-to-market gains/(losses) from our hedging program for the three months ended September 30, 2021 and 2020 of $225 million mark-to-market loss and 2019 of $276 million mark-to-market gain, and $236 million loss, respectively, and forrespectively. For the nine months ended September 30, 2021 and 2020, Other revenue includes a $36 million mark-to-market gain and 2019 of $298 million mark-to-market loss, and $148 million gain, respectively.
2 Includes revenues from lease contracts for the three months ended September 30, 2021 and 2020 and 2019 of $144$140 million and $143$144 million, respectively and for the nine months ended September 30, 2021 and 2020 and 2019 of $459$442 million and $458$459 million, respectively.
We disaggregate revenues into categories which represent our principal performance obligations within each business segment because thesesegment. These revenue categories represent the most significant revenue streams in each segment and consequently are considered to be the most relevant revenue information for management to consider in evaluating performance.
Contract Balances
| | | | | | | | | | | |
| Receivables | Contract Assets | Contract Liabilities |
(millions of Canadian dollars) | | | |
Balance as at December 31, 2019 | 2,099 | | 216 | | 1,424 | |
Balance as at September 30, 2020 | 1,499 | | 236 | | 1,691 | |
| | | | | | | | | | | |
| Contract Receivables | Contract Assets | Contract Liabilities |
(millions of Canadian dollars) | | | |
Balance as at September 30, 2021 | 1,673 | | 212 | | 1,842 | |
Balance as at December 31, 2020 | 2,042 | | 226 | | 1,815 | |
Contract receivables represent the amount of receivables derived from contracts with customers.
Contract assets represent the amount of revenues which hashave been recognized in advance of payments received for performance obligations we have fulfilled (or partially fulfilled) and prior to the point in time at which our right to payment is unconditional. Amounts included in contract assets are transferred to accounts receivable when our right to receive the consideration becomes unconditional.
Contract liabilities represent payments received for performance obligations which have not been fulfilled. Contract liabilities primarily relate to make-up rights and deferred revenues. Revenue recognized during the three and nine months ended September 30, 20202021 included in contract liabilities at the beginning of the period was $22$44 million and $129$269 million, respectively. Increases in contract liabilities from cash received, net of amounts recognized as revenues, during the three and nine months ended September 30, 20202021 were $189$154 million and $369$299 million, respectively.
Performance Obligations
There were no material revenues recognized in the three and nine months ended September 30, 20202021 from performance obligations satisfied in previous periods.
Revenues to be Recognized from Unfulfilled Performance Obligations
Total revenues from performance obligations expected to be fulfilled in future periods is $63.0are $55.6 billion, of which $1.8$1.7 billion and $6.6$5.6 billion isare expected to be recognized during the remaining three months ending December 31, 20202021 and the year ending December 31, 2021,2022, respectively.
The revenues excluded from the amounts above based on optional exemptions available under ASC 606, as explained below, represent a significant portion of our overall revenues and revenue from contracts with customers. Certain revenues such as flow-through operating costs charged to shippers are recognized at the amount for which we have the right to invoice our customers and are excluded from the amounts for revenues to be recognized in the future from unfulfilled performance obligations above. Variable consideration is excluded from the amounts above due to the uncertainty of the associated consideration, which is generally resolved when actual volumes and prices are determined. For example, we consider interruptible transportation service revenues to be variable revenues since volumes cannot be estimated. Additionally, the effect of escalation on certain tolls which are contractually escalated for inflation has not been reflected in the amounts above as it is not possible to reliably estimate future inflation rates. Revenues for periods extending beyond the current rate settlement term for regulated contracts where the tolls are periodically reset by the regulator are excluded from the amounts above since future tolls remain unknown. Finally, revenue from contracts with customers which have an original expected duration of one year or less are excluded from the amounts above.
Recognition and Measurement of Revenues
| | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Consolidated |
Three months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | 0 | | 0 | | 15 | | 0 | | 0 | | 15 | |
Revenues from products and services transferred over time1 | 2,256 | | 1,148 | | 612 | | 46 | | 0 | | 4,062 | |
Total revenue from contracts with customers | 2,256 | | 1,148 | | 627 | | 46 | | 0 | | 4,077 | |
| | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Consolidated |
Three months ended September 30, 2019 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | 0 | | 0 | | 17 | | 0 | | 0 | | 17 | |
Revenues from products and services transferred over time1 | 2,336 | | 1,240 | | 636 | | 46 | | 0 | | 4,258 | |
Total revenue from contracts with customers | 2,336 | | 1,240 | | 653 | | 46 | | 0 | | 4,275 | |
| | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Consolidated |
Nine months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | 0 | | 0 | | 45 | | 0 | | 0 | | 45 | |
Revenues from products and services transferred over time1 | 6,887 | | 3,686 | | 3,154 | | 150 | | 0 | | 13,877 | |
Total revenue from contracts with customers | 6,887 | | 3,686 | | 3,199 | | 150 | | 0 | | 13,922 | |
| | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Consolidated |
Nine months ended September 30, 2019 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | 0 | | 3 | | 51 | | 0 | | 0 | | 54 | |
Revenues from products and services transferred over time1 | 6,832 | | 3,820 | | 3,738 | | 139 | | 0 | | 14,529 | |
Total revenue from contracts with customers | 6,832 | | 3,823 | | 3,789 | | 139 | | 0 | | 14,583 | |
Variable ConsiderationDuring the three months ended September 30, 2021, revenue for the Canadian Mainline has been recognized in accordance with the terms of the Competitive Tolling Settlement, which expired on June 30, 2021. The tolls in place on June 30, 2021 continue on an interim basis until a new Canadian Mainline commercial arrangement is implemented and are subject to finalization and adjustment applicable to the interim period, if any. Due to the uncertainty of adjustment to tolling pursuant to a Canada Energy Regulator decision and potential customer negotiations, the interim toll revenue recognized during the three months ended September 30, 2021 is considered variable consideration. We do not expect a significant adjustment to revenue when the uncertainty is resolved.
Recognition and Measurement of Revenues
| | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | | Consolidated |
Three months ended September 30, 2021 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | — | | — | | 13 | | — | | | 13 | |
Revenues from products and services transferred over time1 | 2,373 | | 1,154 | | 661 | | 44 | | | 4,232 | |
Total revenue from contracts with customers | 2,373 | | 1,154 | | 674 | | 44 | | | 4,245 | |
| | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | | Consolidated |
Three months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | — | | — | | 15 | | — | | | 15 | |
Revenues from products and services transferred over time1 | 2,256 | | 1,148 | | 612 | | 46 | | | 4,062 | |
Total revenue from contracts with customers | 2,256 | | 1,148 | | 627 | | 46 | | | 4,077 | |
| | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | | Consolidated |
Nine months ended September 30, 2021 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | — | | — | | 47 | | — | | | 47 | |
Revenues from products and services transferred over time1 | 6,922 | | 3,475 | | 3,361 | | 125 | | | 13,883 | |
Total revenue from contracts with customers | 6,922 | | 3,475 | | 3,408 | | 125 | | | 13,930 | |
| | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | | Consolidated |
Nine months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | |
Revenues from products transferred at a point in time | — | | — | | 45 | | — | | | 45 | |
Revenues from products and services transferred over time1 | 6,887 | | 3,686 | | 3,154 | | 150 | | | 13,877 | |
Total revenue from contracts with customers | 6,887 | | 3,686 | | 3,199 | | 150 | | | 13,922 | |
1 RevenuesIncludes revenues from crude oil and natural gas pipeline transportation, storage, natural gas gathering, compression and treating, natural gas distribution, natural gas storage services and electricity sales.
4. SEGMENTED INFORMATION
| | | Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated | | Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2020 | |
Three months ended September 30, 2021 | | Three months ended September 30, 2021 | Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | (millions of Canadian dollars) |
Revenues | Revenues | 2,773 | | 1,162 | | 621 | | 126 | | 4,596 | | (168) | | 9,110 | | Revenues | 2,370 | | 1,159 | | 687 | | 122 | | 7,290 | | (162) | | 11,466 | |
Commodity and gas distribution costs | Commodity and gas distribution costs | (5) | | 0 | | (87) | | 0 | | (4,613) | | 179 | | (4,526) | | Commodity and gas distribution costs | (6) | | — | | (135) | | — | | (7,485) | | 159 | | (7,467) | |
Operating and administrative | Operating and administrative | (811) | | (432) | | (243) | | (57) | | (15) | | 4 | | (1,554) | | Operating and administrative | (919) | | (445) | | (280) | | (51) | | (13) | | 41 | | (1,667) | |
| Income/(loss) from equity investments | Income/(loss) from equity investments | 118 | | 191 | | (13) | | 22 | | (3) | | 0 | | 315 | | Income/(loss) from equity investments | 226 | | 211 | | (12) | | 15 | | — | | — | | 440 | |
Impairment of equity investments | Impairment of equity investments | 0 | | (615) | | 0 | | 0 | | 0 | | 0 | | (615) | | Impairment of equity investments | — | | (111) | | — | | — | | — | | — | | (111) | |
Other income | 15 | | 28 | | 20 | | 2 | | 1 | | 192 | | 258 | | |
Other income/(expense) | | Other income/(expense) | 2 | | 70 | | 22 | | 5 | | 4 | | (159) | | (56) | |
Earnings/(loss) before interest, income taxes, and depreciation and amortization | Earnings/(loss) before interest, income taxes, and depreciation and amortization | 2,090 | | 334 | | 298 | | 93 | | (34) | | 207 | | 2,988 | | Earnings/(loss) before interest, income taxes, and depreciation and amortization | 1,673 | | 884 | | 282 | | 91 | | (204) | | (121) | | 2,605 | |
Depreciation and amortization | Depreciation and amortization | | (935) | | Depreciation and amortization | | (944) | |
Interest expense | Interest expense | | (718) | | Interest expense | | (648) | |
Income tax expense | Income tax expense | | (231) | | Income tax expense | | (199) | |
Earnings | Earnings | | | 1,104 | | Earnings | | | 814 | |
Capital expenditures1 | Capital expenditures1 | 442 | | 642 | | 339 | | 11 | | 1 | | 22 | | 1,457 | | Capital expenditures1 | 1,053 | | 602 | | 359 | | — | | 1 | | 18 | | 2,033 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2019 |
(millions of Canadian dollars) | | | | | | | |
Revenues | 2,268 | | 1,264 | | 635 | | 128 | | 7,403 | | (100) | | 11,598 | |
Commodity and gas distribution costs | (12) | | 0 | | (132) | | 0 | | (7,287) | | 111 | | (7,320) | |
Operating and administrative | (815) | | (550) | | (267) | | (55) | | (19) | | (35) | | (1,741) | |
Impairment of long-lived assets | 0 | | (105) | | 0 | | 0 | | 0 | | 0 | | (105) | |
| | | | | | | |
Income/(loss) from equity investments | 205 | | 135 | | (11) | | 5 | | 0 | | (1) | | 333 | |
Other income/(expense) | 0 | | 28 | | 27 | | 4 | | (6) | | (15) | | 38 | |
Earnings/(loss) before interest, income taxes, and depreciation and amortization | 1,646 | | 772 | | 252 | | 82 | | 91 | | (40) | | 2,803 | |
Depreciation and amortization | | | | | | | (844) | |
Interest expense | | | | | | | (644) | |
Income tax expense | | | | | | | (255) | |
Earnings | | | | | | | 1,060 | |
Capital expenditures1 | 442 | | 436 | | 247 | | 2 | | 0 | | 32 | | 1,159 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Three months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | | |
Revenues | 2,773 | | 1,162 | | 621 | | 126 | | 4,596 | | (168) | | 9,110 | |
Commodity and gas distribution costs | (5) | | — | | (87) | | — | | (4,613) | | 179 | | (4,526) | |
Operating and administrative | (811) | | (432) | | (243) | | (57) | | (15) | | 4 | | (1,554) | |
| | | | | | | |
| | | | | | | |
Income/(loss) from equity investments | 118 | | 191 | | (13) | | 22 | | (3) | | — | | 315 | |
Impairment of equity investments | — | | (615) | | — | | — | | — | | — | | (615) | |
Other income | 15 | | 28 | | 20 | | 2 | | 1 | | 192 | | 258 | |
Earnings/(loss) before interest, income taxes, and depreciation and amortization | 2,090 | | 334 | | 298 | | 93 | | (34) | | 207 | | 2,988 | |
Depreciation and amortization | | | | | | | (935) | |
Interest expense | | | | | | | (718) | |
Income tax expense | | | | | | | (231) | |
Earnings | | | | | | | 1,104 | |
Capital expenditures1 | 442 | | 642 | | 339 | | 11 | | 1 | | 22 | | 1,457 | |
| | | Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated | | Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2020 | |
Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | (millions of Canadian dollars) |
Revenues | Revenues | 7,252 | | 3,722 | | 3,206 | | 429 | | 14,943 | | (473) | | 29,079 | | Revenues | 7,616 | | 3,501 | | 3,463 | | 371 | | 20,068 | | (468) | | 34,551 | |
Commodity and gas distribution costs | Commodity and gas distribution costs | (13) | | 0 | | (1,213) | | 0 | | (14,877) | | 451 | | (15,652) | | Commodity and gas distribution costs | (16) | | — | | (1,392) | | — | | (20,405) | | 479 | | (21,334) | |
Operating and administrative | Operating and administrative | (2,458) | | (1,377) | | (761) | | (144) | | (72) | | (143) | | (4,955) | | Operating and administrative | (2,411) | | (1,303) | | (794) | | (131) | | (36) | | (35) | | (4,710) | |
Income/(loss) from equity investments | 463 | | 284 | | 2 | | 59 | | (3) | | 0 | | 805 | | |
Income from equity investments | | Income from equity investments | 560 | | 525 | | 37 | | 65 | | — | | — | | 1,187 | |
Impairment of equity investments | Impairment of equity investments | 0 | | (2,351) | | 0 | | 0 | | 0 | | 0 | | (2,351) | | Impairment of equity investments | — | | (111) | | — | | — | | — | | — | | (111) | |
Other income/(expense) | Other income/(expense) | 36 | | (48) | | 51 | | 32 | | (3) | | (333) | | (265) | | Other income/(expense) | 7 | | 113 | | 60 | | 57 | | (6) | | 215 | | 446 | |
Earnings/(loss) before interest, income taxes, and depreciation and amortization | Earnings/(loss) before interest, income taxes, and depreciation and amortization | 5,280 | | 230 | | 1,285 | | 376 | | (12) | | (498) | | 6,661 | | Earnings/(loss) before interest, income taxes, and depreciation and amortization | 5,756 | | 2,725 | | 1,374 | | 362 | | (379) | | 191 | | 10,029 | |
Depreciation and amortization | Depreciation and amortization | | (2,766) | | Depreciation and amortization | | (2,805) | |
Interest expense | Interest expense | | (2,105) | | Interest expense | | (1,923) | |
Income tax expense | Income tax expense | | (273) | | Income tax expense | | (952) | |
Earnings | Earnings | | | 1,517 | | Earnings | | | 4,349 | |
Capital expenditures1 | Capital expenditures1 | 1,503 | | 1,462 | | 765 | | 41 | | 2 | | 63 | | 3,836 | | Capital expenditures1 | 2,976 | | 1,631 | | 878 | | 7 | | 1 | | 39 | | 5,532 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2019 |
(millions of Canadian dollars) | | | | | | | |
Revenues | 7,495 | | 3,870 | | 3,803 | | 417 | | 22,494 | | (362) | | 37,717 | |
Commodity and gas distribution costs | (25) | | 0 | | (1,740) | | (2) | | (22,125) | | 359 | | (23,533) | |
Operating and administrative | (2,392) | | (1,626) | | (829) | | (137) | | (53) | | (24) | | (5,061) | |
Impairment of long-lived assets | 0 | | (105) | | 0 | | 0 | | 0 | | 0 | | (105) | |
| | | | | | | |
Income from equity investments | 606 | | 525 | | 2 | | 23 | | 3 | | 0 | | 1,159 | |
Other income/(expense) | 26 | | 69 | | 68 | | (1) | | (1) | | 342 | | 503 | |
Earnings before interest, income taxes, and depreciation and amortization | 5,710 | | 2,733 | | 1,304 | | 300 | | 318 | | 315 | | 10,680 | |
Depreciation and amortization | | | | | | | (2,526) | |
Interest expense | | | | | | | (1,966) | |
Income tax expense | | | | | | | (1,275) | |
Earnings | | | | | | | 4,913 | |
Capital expenditures1 | 1,984 | | 1,254 | | 643 | | 18 | | 2 | | 71 | | 3,972 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liquids Pipelines | Gas Transmission and Midstream | Gas Distribution and Storage | Renewable Power Generation | Energy Services | Eliminations and Other | Consolidated |
Nine months ended September 30, 2020 |
(millions of Canadian dollars) | | | | | | | |
Revenues | 7,252 | | 3,722 | | 3,206 | | 429 | | 14,943 | | (473) | | 29,079 | |
Commodity and gas distribution costs | (13) | | — | | (1,213) | | — | | (14,877) | | 451 | | (15,652) | |
Operating and administrative | (2,458) | | (1,377) | | (761) | | (144) | | (72) | | (143) | | (4,955) | |
Income from equity investments | 463 | | 284 | | 2 | | 59 | | (3) | | — | | 805 | |
Impairment of equity investments | — | | (2,351) | | — | | — | | — | | — | | (2,351) | |
| | | | | | | |
| | | | | | | |
Other income/(expense) | 36 | | (48) | | 51 | | 32 | | (3) | | (333) | | (265) | |
Earnings/(loss) before interest, income taxes, and depreciation and amortization | 5,280 | | 230 | | 1,285 | | 376 | | (12) | | (498) | | 6,661 | |
Depreciation and amortization | | | | | | | (2,766) | |
Interest expense | | | | | | | (2,105) | |
Income tax expense | | | | | | | (273) | |
Earnings | | | | | | | 1,517 | |
Capital expenditures1 | 1,503 | | 1,462 | | 765 | | 41 | | 2 | | 63 | | 3,836 | |
1 Includes allowance for equity funds used during construction.
5. EARNINGS PER COMMON SHARE AND DIVIDENDS PER SHARE
BASIC
Earnings per common share is calculated by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding has been reduced by our pro-rata weighted average interest in our own common shares of approximately 2 million for the three and nine months ended September 30, 2021, compared to 5 million for the three and nine months ended September 30, 2020, and 6 million for the three and nine months ended September 30, 2019, resulting from our reciprocal investment in Noverco Inc. (Noverco).
DILUTED
The treasury stock method is used to determine the dilutive impact of stock options. This method assumes any proceeds from the exercise of stock options would be used to purchase common shares at the average market price during the period.
Weighted average shares outstanding used to calculate basic and diluted earnings per share are as follows:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(number of common shares in millions) | | | | | | |
(number of shares in millions) | | (number of shares in millions) | | | | | |
Weighted average shares outstanding | Weighted average shares outstanding | 2,021 | | 2,018 | | | 2,020 | | 2,017 | | Weighted average shares outstanding | 2,024 | | 2,021 | | | 2,023 | | 2,020 | |
Effect of dilutive options | Effect of dilutive options | 0 | | 2 | | | 1 | | 3 | | Effect of dilutive options | 2 | | — | | | 2 | | 1 | |
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 2,021 | | 2,020 | | | 2,021 | | 2,020 | | Diluted weighted average shares outstanding | 2,026 | | 2,021 | | | 2,025 | | 2,021 | |
For the three months ended September 30, 2021 and 2020, 13.3 million and 2019, 34.1 million, and 21.9 million, respectively, of anti-dilutive stock options with a weighted average exercise price of $50.55$56.16 and $52.75,$50.55, respectively, were excluded from the diluted earnings per common share calculation.
For the nine months ended September 30, 2021 and 2020, 20.5 million and 2019, 28.5 million, and 17.9 million, respectively, of anti-dilutive stock options with a weighted average exercise price of $51.85$52.19 and $53.48,$51.85, respectively, were excluded from the diluted earnings per common share calculation.
DIVIDENDS PER SHARE
On November 3, 2020,2021, our Board of Directors declared the following quarterly dividends. All dividends are payable on December 1, 20202021 to shareholders of record on November 13, 2020.15, 2021.
| | | | | |
| Dividend per share |
Common Shares1 | $0.810000.83500 | |
Preference Shares, Series A | $0.34375 | |
Preference Shares, Series B | $0.21340 | |
Preference Shares, Series C2 | $0.159750.16081 | |
Preference Shares, Series D | $0.27875 | |
Preference Shares, Series F | $0.29306 | |
Preference Shares, Series H | $0.27350 | |
Preference Shares, Series J | US$0.30540 | |
Preference Shares, Series L | US$0.30993 | |
Preference Shares, Series N | $0.31788 | |
Preference Shares, Series P | $0.27369 | |
Preference Shares, Series R | $0.25456 | |
Preference Shares, Series 1 | US$0.37182 | |
Preference Shares, Series 3 | $0.23356 | |
Preference Shares, Series 5 | US$0.33596 | |
Preference Shares, Series 7 | $0.27806 | |
Preference Shares, Series 9 | $0.25606 | |
Preference Shares, Series 113 | $0.24613 | |
Preference Shares, Series 134 | $0.19019 | |
Preference Shares, Series 155 | $0.18644 | |
Preference Shares, Series 17 | $0.32188 | |
Preference Shares, Series 19 | $0.30625 | |
1 The quarterly dividend per common share was increased 9.8%3% to $0.81$0.835 from $0.738,$0.81, effective March 1, 2020.2021.
2 The quarterly dividend per share paid on Series C was increased to $0.25458$0.15501 from $0.25305$0.15349 on March 1, 2020, was decreased2021, increased to $0.16779$0.15753 from $0.25458$0.15501 on June 1, 20202021, and was decreasedincreased to $0.15975$0.16081 from $0.16779$0.15753 on September 1, 2020,2021, due to reset on a quarterly basis following the date of issuance of the Series C Preference Shares.
3 The quarterly dividend per share paid on Series 11 was decreased to $0.24613 from $0.275 on March 1, 2020, due to the reset of the annual dividend on March 1, 2020, and every five years thereafter.
4 The quarterly dividend per share paid on Series 13 was decreased to $0.19019 from $0.275 on June 1, 2020, due to the reset of the annual dividend on June 1, 2020, and every five years thereafter.
5 The quarterly dividend per share paid on Series 15 was decreased to $0.18644 from $0.275 on September 1, 2020, due to the reset of the annual dividend on September 1, 2020, and every five years thereafter.
6. ACQUISITIONS AND DISPOSITIONS
Line 10 Crude Oil Pipeline
In the first quarter of 2018, we satisfied the condition as set out in our agreements for the sale of our Line 10 crude oil pipeline (Line 10), which originates near Hamilton, Ontario and terminates at West Seneca, New York. Our subsidiaries, Enbridge Pipelines Inc. and Enbridge Energy Partners, L.P. (EEP), owned the Canadian and United States portions of Line 10, respectively, and the related assets were included in our Liquids Pipelines segment. The transaction closed on June 1, 2020. NaN gain or loss on disposition was recorded.
Montana-Alberta Tie Line
In the fourth quarter of 2019, we committed to a plan to sell the Montana-Alberta Tie Line (MATL) transmission assets, a 345 kilometer transmission line from Great Falls, Montana to Lethbridge, Alberta. Its related assets were included in our Renewable Power Generation segment. The purchase and sale agreement was signed in January 2020. On May 1, 2020 we closed the sale of MATL for cash proceeds of approximately $189 million. After closing adjustments, a gain on disposal of $4 million was included in Other income/(expense) in the Consolidated Statements of Earnings for the nine months ended September 30, 2020.
Ozark Gas Transmission
In the first quarter of 2020, we agreed to sell our Ozark Gas Transmission and Ozark Gas Gathering assets (Ozark assets). The Ozark assets are composed of a 590 kilometer transmission system that extends from southeastern Oklahoma through Arkansas to southeastern Missouri, and a fee-based 330 mile gathering system that accesses Fayetteville Shale and Arkoma production. These assets were included in our Gas Transmission and Midstream segment.
On April 1, 2020 we closed the sale of the Ozark assets for cash proceeds of approximately $63 million (US$45 million). After closing adjustments, a gain on disposal of $1 million (US$1 million) was included in Other income/(expense) in the Consolidated Statements of Earnings for the nine months ended September 30, 2020.
7.6. DEBT
CREDIT FACILITIES
The following table provides details of our committed credit facilities as at September 30, 2020:2021:
| | | Maturity | Total Facilities | Draws1 | Available | | Maturity1 | Total Facilities | Draws2 | Available |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | (millions of Canadian dollars) | | |
Enbridge Inc. | Enbridge Inc. | 2021-2024 | 11,980 | | 6,420 | | 5,560 | | Enbridge Inc. | 2022-2026 | 9,169 | | 7,378 | | 1,791 | |
Enbridge (U.S.) Inc. | Enbridge (U.S.) Inc. | 2022-2024 | 7,347 | | 995 | | 6,352 | | Enbridge (U.S.) Inc. | 2023-2026 | 6,968 | | 2,515 | | 4,453 | |
Enbridge Pipelines Inc. | Enbridge Pipelines Inc. | 20222 | 3,000 | | 1,938 | | 1,062 | | Enbridge Pipelines Inc. | 2023 | 3,000 | | 469 | | 2,531 | |
Enbridge Gas Inc. | Enbridge Gas Inc. | 20222 | 2,000 | | 969 | | 1,031 | | Enbridge Gas Inc. | 2023 | 2,000 | | 1,205 | | 795 | |
Total committed credit facilities | Total committed credit facilities | | 24,327 | | 10,322 | | 14,005 | | Total committed credit facilities | | 21,137 | | 11,567 | | 9,570 | |
1Maturity date is inclusive of the one-year term out option for certain credit facilities.
2Includes facility draws and commercial paper issuances that are back-stopped by credit facility.
2Maturity date is inclusive of the one-year term out option.facilities.
On February 24, 2020,10, 2021, Enbridge Inc. entered into a twothree year, non-revolvingrevolving, extendible, sustainability-linked credit facility for US$1.0$1.0 billion with a syndicate of lenders.
On February 25, 2020, Enbridge Inc. entered into 2, one year, non-revolving, bilateral credit facilities for a total of US$500 million.
On March 31, 2020, Enbridge Inc. entered into alenders and concurrently terminated our one year, revolving, syndicated credit facility for $1.7 billion. On April 9, 2020, Enbridge Inc. exercised an accordion provision and increased the facility to $3.0 billion.
On February 25, 2021, two term loans with an aggregate total of US$500 million were repaid with proceeds from a floating rate notes issuance.
On July 22 and 23, and 24, 2020,2021, we renewed approximately $8.0 billion of our five-year credit facilities, extending the maturity date out to July 2026. We also extended approximately $10.0 billion of our 364 day364-day extendible credit facilities to July 2022, inclusive ofwhich includes a one-year term out provision.provision to July 2023.
In addition to the committed credit facilities noted above, we maintain $861 million$1.3 billion of uncommitted demand letter of credit facilities, of which $524$868 million werewas unutilized as at September 30, 2020.2021. As at December 31, 2019,2020, we had $916$849 million of uncommitted demand letter of credit facilities, of which $476$533 million werewas unutilized.
Our credit facilities carry a weighted average standby fee of 0.3%0.1% per annum on the unused portion and draws bear interest at market rates. Certain credit facilities serve as a back-stop to the commercial paper programs and we have the option to extend such facilities, which are currently scheduled to mature from 20212022 to 2024.2026.
As at September 30, 20202021 and December 31, 2019,2020, commercial paper and credit facility draws, net of short-term borrowings and non-revolving credit facilities that mature within one year, of $8.7$8.3 billion and $9.0$9.9 billion, respectively, were supported by the availability of long-term committed credit facilities and, therefore, have been classified as long-term debt.
LONG-TERM DEBT ISSUANCES
During the nine months ended September 30, 2020,2021, we completed the following long-term debt issuances totaling $2.5US$2.4 billion and US$1.8$3.2 billion:
| | | | | | | | | | | | | | |
Company | Issue Date | | Principal Amount |
(millions of Canadian dollars unless otherwise stated) | |
Enbridge Inc. | | |
| February 2021 | Floating rate notes due February 20231 | US$500 |
| June 2021 | 2.50% Sustainability-Linked senior notes due August 2033 | US$1,000 |
| June 2021 | 3.40% senior notes due August 2051 | US$500 |
| September 2021 | 3.10% Sustainability-Linked medium-term notes due September 2033 | $1,100 |
| September 2021 | 4.10% medium-term notes due September 2051 | $400 |
Enbridge Gas Inc. | | |
| September 2021 | 2.35% medium-term notes due September 2031 | $475 |
| September 2021 | 3.20% medium-term notes due September 2051 | $425 |
Enbridge Pipelines Inc. | | |
| May 2021 | 2.82% medium-term notes due May 2031 | $400 |
| May 2021 | 4.20% medium-term notes due May 2051 | $400 |
Spectra Energy Partners, LP | |
| September 2021 | 2.50% senior notes due September 20312 | US$400 |
1Notes mature in two years and carry an interest rate set to equal Secured Overnight Financing Rate plus a margin of 40 basis points.
2Issued through Texas Eastern Transmission, LP, a wholly-owned operating subsidiary of Spectra Energy Partners, LP.
On October 4, 2021, we closed a three tranche offering of aggregate US$1.5 billion senior notes consisting of US$500 million 0.55% 2-year notes, US$500 million 1.60% 5-year notes, and a US$500 million re-opening of the 3.40% 2051 notes issued in June 2021. Each tranche is payable semi-annually in arrears and matures on October 4, 2023, October 4, 2026, and August 1, 2051, respectively.
LONG-TERM DEBT REPAYMENTS
During the nine months ended September 30, 2021, we completed the following long-term debt repayments totaling $808 million and US$880 million:
| | | | | | | | | | | | |
Company | Repayment Date | | Principal Amount | |
(millions of Canadian dollars unless otherwise stated) | | |
Enbridge Inc. | | | |
| February 2020 | Floating rate notes | | US$750 |
| May 2020February 2021 | 3.20%4.26% medium-term notes | $200 | $750 |
| May 2020March 2021 | 2.44%3.16% medium-term notes | $400 | |
$550Enbridge Energy Partners, L.P. | | |
| July 2020June 2021 | Fixed-to-fixed subordinated term4.20% senior notes | US$600 | US$1,000 |
Enbridge Gas Inc. | | | |
| April 2020May 2021 | 2.90%2.76% medium-term notes | | $600 |
| April 2020 | 3.65% medium-term notes | | $600 |
On October 1, 2020, Texas Eastern Transmission, LP (Texas Eastern), a wholly-owned operating subsidiary of Spectra Energy Partners, LP (SEP) issued US$300 million of 3.10% 20-year senior notes payable semi-annually in arrears and redeemed US$300 million of 4.13% senior notes due December 1, 2020. The newly issued notes mature on October 1, 2040.
LONG-TERM DEBT REPAYMENTS
During the nine months ended September 30, 2020, we completed the following long-term debt repayments totaling $1.2 billion and US$1.7 billion:
| | | | | | | | | | | | | | | |
Company | Repayment Date | | | Principal Amount | |
(millions of Canadian dollars, unless otherwise stated) | | | |
Enbridge Inc. | | | |
| | | |
| January 2020 | Floating rate notes | | US$700 | |
| March 2020 | 4.53% medium-term notes | | $500 | |
| June 2020 | Floating rate notes | | US$500200 | |
Enbridge Pipelines (Southern Lights) L.L.C. | | | |
| June 20202021 | 3.98% senior notes | | US$26 | |
Enbridge Pipelines Inc. | | | | |
| April 2020 | 4.45% medium-term notes | $35030 | |
Enbridge Southern Lights LP | | | | |
| June 20202021 | 4.01% senior notes | | $78 | |
Spectra Energy Partners, LP | | | |
| | | | |
| January 2020March 2021 | 6.09%4.60% senior secured notes | | US$111 | |
| June 2020 | Floating rate notes | | US$400 | |
Westcoast Energy Inc. | | | | |
| | | | |
| January 2020 | 9.90% debentures | | $100 | |
| July 2020 | 4.57% medium-term notes | $US$250 | |
SUBORDINATED TERM NOTES
As at September 30, 20202021 and December 31, 2019,2020, our fixed-to-floating rate and fixed-to-fixed rate subordinated term notes had a principal value of $8.0$7.7 billion and $6.6$7.8 billion, respectively.
FAIR VALUE ADJUSTMENT
As at September 30, 2021 and December 31, 2020, the net fair value adjustment foradjustments to total debt assumed in thea historical acquisition of Spectra Energy was $783 million.were $687 million and $750 million, respectively. During the three and nine months ended September 30, 2021 and 2020, the amortization of the fair value adjustment recorded as a reduction to Interest expense in the Consolidated Statements of Earnings was $11 million and $13 million, respectively. During the nine months ended September 30, 2021 and 2020, amortization of the fair value adjustment recorded as a reduction to Interest expense in the Consolidated Statements of Earnings was $36 million and $42 million, respectively.
DEBT COVENANTS
Our credit facility agreements and term debt indentures include standard events of default and covenant provisions whereby accelerated repayment and/or termination of the agreements may result if we were to default on payment or violate certain covenants. As at September 30, 2020,2021, we were in compliance with all debt covenants.covenant provisions.
8.7. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOMELOSS
Changes in Accumulated Other Comprehensive Incomeother comprehensive loss (AOCI) attributable to our common shareholders for the nine months ended September 30, 20202021 and 20192020 are as follows:
| | | Cash Flow Hedges | Excluded Components of Fair Value Hedges | Net Investment Hedges | Cumulative Translation Adjustment | Equity Investees | Pension and OPEB Adjustment | Total | | Cash Flow Hedges | Excluded Components of Fair Value Hedges | Net Investment Hedges | Cumulative Translation Adjustment | Equity Investees | Pension and OPEB Adjustment | Total |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | (millions of Canadian dollars) | | | |
Balance as at January 1, 2020 | (1,073) | | 0 | | (317) | | 1,396 | | 67 | | (345) | | (272) | | |
Balance as at January 1, 2021 | | Balance as at January 1, 2021 | (1,326) | | 5 | | (215) | | 568 | | 66 | | (499) | | (1,401) | |
Other comprehensive income/(loss) retained in AOCI | Other comprehensive income/(loss) retained in AOCI | (696) | | 7 | | (228) | | 1,760 | | 8 | | — | | 851 | | Other comprehensive income/(loss) retained in AOCI | 284 | | (3) | | 18 | | (340) | | (33) | | — | | (74) | |
Other comprehensive (income)/loss reclassified to earnings | | |
Other comprehensive loss/(income) reclassified to earnings | | Other comprehensive loss/(income) reclassified to earnings | |
Interest rate contracts1 | Interest rate contracts1 | 179 | | — | | — | | — | | — | | — | | 179 | | Interest rate contracts1 | 218 | | — | | — | | — | | — | | — | | 218 | |
Commodity contracts2 | Commodity contracts2 | (1) | | — | | — | | — | | — | | — | | (1) | | Commodity contracts2 | (4) | | — | | — | | — | | — | | — | | (4) | |
Foreign exchange contracts3 | Foreign exchange contracts3 | 3 | | — | | — | | — | | — | | — | | 3 | | Foreign exchange contracts3 | 4 | | — | | — | | — | | — | | — | | 4 | |
Other contracts4 | Other contracts4 | (1) | | — | | — | | — | | — | | — | | (1) | | Other contracts4 | 1 | | — | | — | | — | | — | | — | | 1 | |
Amortization of pension and other postretirement benefits (OPEB) actuarial loss and prior service costs5
| — | | — | | — | | — | | — | | 13 | | 13 | | |
Amortization of pension and OPEB actuarial loss and prior service costs5 | | Amortization of pension and OPEB actuarial loss and prior service costs5 | — | | — | | — | | — | | — | | 21 | | 21 | |
Other | | Other | 17 | | — | | — | | (20) | | 3 | | — | | — | |
| | (516) | | 7 | | (228) | | 1,760 | | 8 | | 13 | | 1,044 | | | 520 | | (3) | | 18 | | (360) | | (30) | | 21 | | 166 | |
Tax impact | Tax impact | | | | | Tax impact | | | | |
Income tax on amounts retained in AOCI | Income tax on amounts retained in AOCI | 167 | | 0 | | 7 | | 0 | | (2) | | 0 | | 172 | | Income tax on amounts retained in AOCI | (72) | | — | | (2) | | — | | 5 | | — | | (69) | |
Income tax on amounts reclassified to earnings | Income tax on amounts reclassified to earnings | (42) | | 0 | | 0 | | 0 | | 0 | | (3) | | (45) | | Income tax on amounts reclassified to earnings | (51) | | — | | — | | — | | — | | (5) | | (56) | |
| | 125 | | 0 | | 7 | | 0 | | (2) | | (3) | | 127 | | | (123) | | — | | (2) | | — | | 5 | | (5) | | (125) | |
| Balance as at September 30, 2020 | (1,464) | | 7 | | (538) | | 3,156 | | 73 | | (335) | | 899 | | |
Balance as at September 30, 2021 | | Balance as at September 30, 2021 | (929) | | 2 | | (199) | | 208 | | 41 | | (483) | | (1,360) | |
| | | Cash Flow Hedges | Net Investment Hedges | Cumulative Translation Adjustment | Equity Investees | Pension and OPEB Adjustment | Total | | Cash Flow Hedges | Excluded Components of Fair Value Hedges | Net Investment Hedges | Cumulative Translation Adjustment | Equity Investees | Pension and OPEB Adjustment | Total |
(millions of Canadian dollars) | (millions of Canadian dollars) | | (millions of Canadian dollars) | |
Balance as at January 1, 2019 | (770) | | (598) | | 4,323 | | 34 | | (317) | | 2,672 | | |
Balance as at January 1, 2020 | | Balance as at January 1, 2020 | (1,073) | | — | | (317) | | 1,396 | | 67 | | (345) | | (272) | |
Other comprehensive income/(loss) retained in AOCI | Other comprehensive income/(loss) retained in AOCI | (845) | | 167 | | (1,831) | | 26 | | — | | (2,483) | | Other comprehensive income/(loss) retained in AOCI | (696) | | 7 | | (228) | | 1,760 | | 8 | | — | | 851 | |
Other comprehensive (income)/loss reclassified to earnings | | |
Other comprehensive loss/(income) reclassified to earnings | | Other comprehensive loss/(income) reclassified to earnings | |
Interest rate contracts1 | Interest rate contracts1 | 108 | | — | | — | | — | | — | | 108 | | Interest rate contracts1 | 179 | | — | | — | | — | | — | | — | | 179 | |
| Commodity contracts2 | | Commodity contracts2 | (1) | | — | | — | | — | | — | | — | | (1) | |
Foreign exchange contracts3 | Foreign exchange contracts3 | 4 | | — | | — | | — | | — | | 4 | | Foreign exchange contracts3 | 3 | | — | | — | | — | | — | | — | | 3 | |
Other contracts4 | Other contracts4 | (4) | | — | | — | | — | | — | | (4) | | Other contracts4 | (1) | | — | | — | | — | | — | | — | | (1) | |
Amortization of pension and OPEB actuarial loss and prior service costs5
| Amortization of pension and OPEB actuarial loss and prior service costs5
| — | | — | | — | | — | | 59 | | 59 | | Amortization of pension and OPEB actuarial loss and prior service costs5 | — | | — | | — | | — | | — | | 13 | | 13 | |
| | (737) | | 167 | | (1,831) | | 26 | | 59 | | (2,316) | | | (516) | | 7 | | (228) | | 1,760 | | 8 | | 13 | | 1,044 | |
Tax impact | Tax impact | | Tax impact | |
Income tax on amounts retained in AOCI | Income tax on amounts retained in AOCI | 254 | | (20) | | 0 | | (7) | | 0 | | 227 | | Income tax on amounts retained in AOCI | 167 | | — | | 7 | | — | | (2) | | — | | 172 | |
Income tax on amounts reclassified to earnings | Income tax on amounts reclassified to earnings | (34) | | 0 | | 0 | | 0 | | (15) | | (49) | | Income tax on amounts reclassified to earnings | (42) | | — | | — | | — | | — | | (3) | | (45) | |
| | 220 | | (20) | | 0 | | (7) | | (15) | | 178 | | | 125 | | — | | 7 | | — | | (2) | | (3) | | 127 | |
Other | 0 | | 0 | | 0 | | (7) | | 55 | | 48 | | |
Balance as at September 30, 2019 | (1,287) | | (451) | | 2,492 | | 46 | | (218) | | 582 | | |
| Balance as at September 30, 2020 | | Balance as at September 30, 2020 | (1,464) | | 7 | | (538) | | 3,156 | | 73 | | (335) | | 899 | |
1 Reported within Interest expense in the Consolidated Statements of Earnings.
2 Reported within Transportation and other services revenue,revenues, Commodity sales revenues,revenue, Commodity costs and Operating and
administrative expense in the Consolidated Statements of Earnings.
3 Reported within Transportation and other services revenues and Net foreign currency gain/(loss) in the Consolidated Statements of Earnings.
4 Reported within Operating and administrative expense in the Consolidated Statements of Earnings.
5 These components are included in the computation of net periodic benefit costs and are reported within Other income/(expense) in the Consolidated Statements of Earnings.
9.8. IMPAIRMENT OF EQUITY INVESTMENTS
PennEast Pipeline Company, L.L.C.
PennEast Pipeline Company, L.L.C. (PennEast) is a joint venture formed to develop a natural gas transmission pipeline to serve local distribution companies and power generators in Southeastern Pennsylvania and New Jersey, is owned 20% by Enbridge, and is recorded as an equity method investment. During the three months ended September 30, 2021, PennEast determined further development of the project was no longer viable and further development of the project has ceased. As a result, we recorded an other than temporary impairment loss of $111 million on our investment for the three and nine months ended September 30, 2021 based on the estimated fair value of our share of the net assets. The carrying value of this investment as at September 30, 2021 and December 31, 2020 was $11 million and $116 million, respectively.
Steckman Ridge, LP
Steckman Ridge, LP (Steckman) is engaged in the storage of natural gas, is owned 50% by Enbridge, and is recorded as an equity method investment. DuringIn the third quarter of 2020, Steckman’s forecasted performance was adjusted for the expectation that future available capacity will be re-contracted at lower than expected rates and an other than temporary impairment loss on our investment of $221 million for the three and nine months ended September 30, 2020 was recorded based on a discounted cash flow analysis. The carrying value of this investment as at September 30, 20202021 and December 31, 20192020 was $96$88 million and $222$90 million, respectively.
Southeast Supply Header, L.L.C.
Southeast Supply Header, L.L.C. (SESH) provides natural gas transmission services from east Texas and northern Louisiana to the southeast markets of the Gulf Coast. SESH is owned 50% by Enbridge and is recorded as an equity method investment. TheIn the third quarter of 2020, SESH's forecasted performance of SESH was revised this quarter to reflect downward revisions to future negotiated rates as well as higher than expected available capacity levels, caused primarily by a significant contract expiry. An other than temporary impairment loss on our investment of $394 million for the three and nine months ended September 30, 2020 was recorded based on a discounted cash flow analysis. The carrying value of this investment as at September 30, 20202021 and December 31, 20192020 was $87$83 million and $484$84 million, respectively.
DCP Midstream, LLC
DCP Midstream, LLC (DCP Midstream), a 50% owned equity method investment of Enbridge, holds an equity interest in DCP Midstream, LP. A decline in the market price of DCP Midstream, LP’s publicly traded units during the first quarter of 2020 resulted in an other than temporary impairment loss on our investment in DCP Midstream of NaN and $1.7 billion for the three and nine months ended September 30, 2020, respectively.2020. In addition, we incurred losses of $324 million through our equity earnings pick up in relation to asset and goodwill impairment losses recorded by DCP Midstream, LP.LP during the nine months ended September 30, 2020. The carrying value of our investment in DCP Midstream as at September 30, 20202021 and December 31, 20192020 was $340$298 million and $2.2 billion,$331 million, respectively.
Our investments in PennEast, Steckman, SESH, and DCP Midstream form part of our Gas Transmission and Midstream segment. The impairment losses were recorded within Impairment of Equity Investmentsequity investments in the Consolidated Statements of Earnings.
10.9. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
MARKET RISK
Our earnings, cash flows and Other Comprehensive Incomeother comprehensive income/(loss) (OCI) are subject to movements in foreign exchange rates, interest rates, commodity prices and our share price (collectively, market risks). Formal risk management policies, processes and systems have been designed to mitigate these risks.
The following summarizes the types of market risks to which we are exposed and the risk management instruments used to mitigate them. We use a combination of qualifying and non-qualifying derivative instruments to manage the risks noted below.
Foreign Exchange Risk
We generate certain revenues, incur expenses, and hold a number of investments and subsidiaries that are denominated in currencies other than Canadian dollars. As a result, our earnings, cash flows and OCI are exposed to fluctuations resulting from foreign exchange rate variability.
We employ financial derivative instruments to hedge foreign currency denominated earnings exposure. A combination of qualifying cash flow, fair value and non-qualifying derivative instruments is used to hedge anticipated foreign currency denominated revenues and expenses, and to manage variability in cash flows. We hedge certain net investments in United States (US) dollar denominated investments and subsidiaries using foreign currency derivatives and United StatesUS dollar denominated debt.
Interest Rate Risk
Our earnings and cash flows are exposed to short-term interest rate variability due to the regular repricing of our variable rate debt, primarily commercial paper. We monitor our debt portfolio mix of fixed and variable rate debt instruments to manage a consolidated portfolio of floating rate debt within the Board of Directors approved policy limit of a maximum of 30% of floating rate debt as a percentage of total debt outstanding. We primarily use qualifying derivative instruments to manage interest rate risk. Pay fixed-receive floating interest rate swaps may be used to hedge against the effect of future interest rate movements. We have implemented a program to significantly mitigate the impact of short-term interest rate volatility on interest expense via execution of floating to fixed interest rate swaps with an average swap rate of 3.0%3.2%.
We are exposed to changes in the fair value of fixed rate debt that arise as a result of the changes in market interest rates. Pay floating-receive fixed interest rate swaps are used, when applicable, to hedge against future changes to the fair value of fixed rate debt which mitigates the impact of fluctuations in the fair value of fixed rate debt via execution of fixed to floating interest rate swaps. As at September 30, 2020,2021, we do not have any pay floating-receive fixed interest rate swaps outstanding.
Our earnings and cash flows are also exposed to variability in longer term interest rates ahead of anticipated fixed rate term debt issuances. Forward starting interest rate swaps are used to hedge against the effect of future interest rate movements. We have established a program within some of our subsidiaries to mitigate our exposure to long-term interest rate variability on select forecast term debt issuances via execution of floating to fixed interest rate swaps with an average swap rate of 2.3%1.9%.
Commodity Price Risk
Our earnings and cash flows are exposed to changes in commodity prices as a result of our ownership interests in certain assets and investments, as well as through the activities of our energy services subsidiaries. These commodities include natural gas, crude oil, power and NGL. We employ financial and physical derivative instruments to fix a portion of the variable price exposures that arise from physical transactions involving these commodities. We use primarily non-qualifying derivative instruments to manage commodity price risk.
Equity Price Risk
Equity price risk is the risk of earnings fluctuations due to changes in our share price. We have exposure to our own common share price through the issuance of various forms of stock-based compensation, which affect earnings through revaluation of the outstanding units every period. We use equity derivatives to manage the earnings volatility derived from 1 form of stock-based compensation, restricted share units. We use a combination of qualifying and non-qualifying derivative instruments to manage equity price risk.
COVID-19 PANDEMIC RISK
The spread of the COVID-19 pandemic has caused significant volatility in Canada, the United StatesUS and international markets. While we have taken proactive measures to deliver energy safely and reliably during this pandemic, given the ongoing dynamic nature of the circumstances surrounding COVID-19, including ongoing uncertainty as to the duration of the pandemic and corresponding public health measures, the impact of this pandemic and the ongoing recovery on our business remains uncertain.
TOTAL DERIVATIVE INSTRUMENTS
We generally have a policy of entering into individual International Swaps and Derivatives Association, Inc. agreements, or other similar derivative agreements, with the majority of our financial derivative counterparties. These agreements provide for the net settlement of derivative instruments outstanding with specific counterparties in the event of bankruptcy or other significant credit events, and reduce our credit risk exposure on financial derivative asset positions outstanding with the counterparties in those circumstances.
The following table summarizes the maximum potential settlement amounts in the event of these specific
circumstances. All amounts are presented gross in the Consolidated Statements of Financial Position.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2020 | Derivative Instruments Used as Cash Flow Hedges | Derivative Instruments Used as Net Investment Hedges | Derivative Instruments Used as Fair Value Hedges | Non- Qualifying Derivative Instruments | Total Gross Derivative Instruments as Presented | | Amounts Available for Offset | Total Net Derivative Instruments |
(millions of Canadian dollars) | | | | | | | | |
Accounts receivable and other | | | | | | | | |
Foreign exchange contracts | 0 | | 0 | | 4 | | 52 | | 56 | | | (23) | | 33 | |
| | | | | | | | |
Commodity contracts | 1 | | 0 | | 0 | | 158 | | 159 | | | (82) | | 77 | |
| 1 | | 0 | | 4 | | 210 | | 215 | | 1 | (105) | | 110 | |
Deferred amounts and other assets | | | | | | | | |
Foreign exchange contracts | 19 | | 0 | | 23 | | 184 | | 226 | | | (111) | | 115 | |
Interest rate contracts | 8 | | 0 | | 0 | | 0 | | 8 | | | (3) | | 5 | |
Commodity contracts | 2 | | 0 | | 0 | | 64 | | 66 | | | (29) | | 37 | |
| | | | | | | | |
| 29 | | 0 | | 23 | | 248 | | 300 | | | (143) | | 157 | |
Accounts payable and other | | | | | | | | |
Foreign exchange contracts | (5) | | 0 | | (2) | | (376) | | (383) | | | 23 | | (360) | |
Interest rate contracts | (167) | | 0 | | 0 | | (5) | | (172) | | | 0 | | (172) | |
Commodity contracts | 0 | | 0 | | 0 | | (160) | | (160) | | | 82 | | (78) | |
Other contracts | 0 | | 0 | | 0 | | (2) | | (2) | | | 0 | | (2) | |
| (172) | | 0 | | (2) | | (543) | | (717) | | 2 | 105 | | (612) | |
Other long-term liabilities | | | | | | | | |
Foreign exchange contracts | 0 | | 0 | | 0 | | (1,140) | | (1,140) | | | 111 | | (1,029) | |
Interest rate contracts | (566) | | 0 | | 0 | | (23) | | (589) | | | 3 | | (586) | |
Commodity contracts | 0 | | 0 | | 0 | | (80) | | (80) | | | 29 | | (51) | |
Other contracts | (4) | | 0 | | 0 | | (5) | | (9) | | | 0 | | (9) | |
| (570) | | 0 | | 0 | | (1,248) | | (1,818) | | | 143 | | (1,675) | |
Total net derivative assets/(liabilities) | | | | | | | | |
Foreign exchange contracts | 14 | | 0 | | 25 | | (1,280) | | (1,241) | | | — | | (1,241) | |
Interest rate contracts | (725) | | 0 | | 0 | | (28) | | (753) | | | — | | (753) | |
Commodity contracts | 3 | | 0 | | 0 | | (18) | | (15) | | | — | | (15) | |
Other contracts | (4) | | 0 | | 0 | | (7) | | (11) | | | — | | (11) | |
| (712) | | 0 | | 25 | | (1,333) | | (2,020) | | | — | | (2,020) | |
1As at September 30, 2020, $215 million was reported within Accounts receivable and other and NaN within Accounts receivable from affiliates on the Consolidated Statements of Financial Position.
2As at September 30, 2020, $716 million was reported within Accounts payable and other and $1 million within Accounts payable to affiliates on the Consolidated Statements of Financial Position. | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2021 | Derivative Instruments Used as Cash Flow Hedges | Derivative Instruments Used as Net Investment Hedges | Derivative Instruments Used as Fair Value Hedges | Non- Qualifying Derivative Instruments | Total Gross Derivative Instruments as Presented | | Amounts Available for Offset | Total Net Derivative Instruments |
(millions of Canadian dollars) | | | | | | | | |
Accounts receivable and other | | | | | | | | |
Foreign exchange contracts | — | | — | | — | | 225 | | 225 | | | (31) | | 194 | |
| | | | | | | | |
Commodity contracts | — | | — | | — | | 320 | | 320 | | | (278) | | 42 | |
Other contracts | 1 | | — | | — | | 7 | | 8 | | | — | | 8 | |
| 1 | | — | | — | | 552 | | 553 | |
| (309) | | 244 | |
Deferred amounts and other assets | | | | | | | | |
Foreign exchange contracts | — | | — | | — | | 248 | | 248 | | | (86) | | 162 | |
Interest rate contracts | 168 | | — | | — | | — | | 168 | | | (25) | | 143 | |
Commodity contracts | — | | — | | — | | 83 | | 83 | | | (61) | | 22 | |
Other contracts | 1 | | — | | — | | 2 | | 3 | | | — | | 3 | |
| 169 | | — | | — | | 333 | | 502 | | | (172) | | 330 | |
Accounts payable and other | | | | | | | | |
Foreign exchange contracts | (8) | | — | | (105) | | (148) | | (261) | | | 31 | | (230) | |
Interest rate contracts | (37) | | — | | — | | 2 | | (35) | | | — | | (35) | |
Commodity contracts | (14) | | — | | — | | (535) | | (549) | | | 278 | | (271) | |
| | | | | | | | |
| (59) | | — | | (105) | | (681) | | (845) | |
| 309 | | (536) | |
Other long-term liabilities | | | | | | | | |
Foreign exchange contracts | — | | — | | — | | (499) | | (499) | | | 86 | | (413) | |
Interest rate contracts | (115) | | — | | — | | (23) | | (138) | | | 25 | | (113) | |
Commodity contracts | (18) | | — | | — | | (131) | | (149) | | | 61 | | (88) | |
| | | | | | | | |
| (133) | | — | | — | | (653) | | (786) | | | 172 | | (614) | |
Total net derivative assets/(liabilities) | | | | | | | | |
Foreign exchange contracts | (8) | | — | | (105) | | (174) | | (287) | | | — | | (287) | |
Interest rate contracts | 16 | | — | | — | | (21) | | (5) | | | — | | (5) | |
Commodity contracts | (32) | | — | | — | | (263) | | (295) | | | — | | (295) | |
Other contracts | 2 | | — | | — | | 9 | | 11 | | | — | | 11 | |
| (22) | | — | | (105) | | (449) | | (576) | | | — | | (576) | |
| December 31, 2019 | Derivative Instruments Used as Cash Flow Hedges | Derivative Instruments Used as Net Investment Hedges | Non- Qualifying Derivative Instruments | Total Gross Derivative Instruments as Presented | | Amounts Available for Offset | Total Net Derivative Instruments | |
December 31, 2020 | | December 31, 2020 | Derivative Instruments Used as Cash Flow Hedges | Derivative Instruments Used as Net Investment Hedges | Derivative Instruments Used as Fair Value Hedges | Non- Qualifying Derivative Instruments | Total Gross Derivative Instruments as Presented | | Amounts Available for Offset | Total Net Derivative Instruments |
(millions of Canadian dollars) | (millions of Canadian dollars) | | (millions of Canadian dollars) | |
Accounts receivable and other | Accounts receivable and other | | Accounts receivable and other | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 161 | | 161 | | | (78) | | 83 | | Foreign exchange contracts | — | | — | | — | | 180 | | 180 | | | (28) | | 152 | |
| Commodity contracts | Commodity contracts | 0 | | 0 | | 163 | | 163 | | | (47) | | 116 | | Commodity contracts | — | | — | | — | | 143 | | 143 | | | (81) | | 62 | |
Other contracts | 1 | | 0 | | 3 | | 4 | | | 0 | | 4 | | |
| | | 1 | | 0 | | 327 | | 328 | | 1 | (125) | | 203 | | | — | | — | | — | | 323 | | 323 | |
| (109) | | 214 | |
Deferred amounts and other assets | Deferred amounts and other assets | | Deferred amounts and other assets | |
Foreign exchange contracts | Foreign exchange contracts | 10 | | 0 | | 71 | | 81 | | | (42) | | 39 | | Foreign exchange contracts | 14 | | — | | — | | 452 | | 466 | | | (218) | | 248 | |
Interest rate contracts | | Interest rate contracts | 56 | | — | | — | | — | | 56 | | | (25) | | 31 | |
Commodity contracts | Commodity contracts | 0 | | 0 | | 17 | | 17 | | | (2) | | 15 | | Commodity contracts | — | | — | | — | | 39 | | 39 | | | (9) | | 30 | |
Other contracts | 2 | | 0 | | 1 | | 3 | | | 0 | | 3 | | |
| | | 12 | | 0 | | 89 | | 101 | | | (44) | | 57 | | | 70 | | — | | — | | 491 | | 561 | | | (252) | | 309 | |
Accounts payable and other | Accounts payable and other | | Accounts payable and other | |
Foreign exchange contracts | Foreign exchange contracts | (5) | | (13) | | (392) | | (410) | | | 78 | | (332) | | Foreign exchange contracts | (5) | | — | | (29) | | (151) | | (185) | | | 28 | | (157) | |
Interest rate contracts | Interest rate contracts | (353) | | 0 | | 0 | | (353) | | | 0 | | (353) | | Interest rate contracts | (423) | | — | | — | | (2) | | (425) | | | — | | (425) | |
Commodity contracts | Commodity contracts | 0 | | 0 | | (173) | | (173) | | | 47 | | (126) | | Commodity contracts | (2) | | — | | — | | (278) | | (280) | | | 81 | | (199) | |
Other contracts | | Other contracts | (1) | | — | | — | | (3) | | (4) | | | — | | (4) | |
| | (358) | | (13) | | (565) | | (936) | | 2 | 125 | | (811) | | | (431) | | — | | (29) | | (434) | | (894) | |
| 109 | | (785) | |
Other long-term liabilities | Other long-term liabilities | | Other long-term liabilities | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | (934) | | (934) | | | 42 | | (892) | | Foreign exchange contracts | — | | — | | (87) | | (673) | | (760) | | | 218 | | (542) | |
Interest rate contracts | Interest rate contracts | (181) | | 0 | | 0 | | (181) | | | 0 | | (181) | | Interest rate contracts | (218) | | — | | — | | (23) | | (241) | | | 25 | | (216) | |
Commodity contracts | Commodity contracts | (5) | | 0 | | (60) | | (65) | | | 2 | | (63) | | Commodity contracts | (1) | | — | | — | | (57) | | (58) | | | 9 | | (49) | |
| | | (186) | | 0 | | (994) | | (1,180) | | | 44 | | (1,136) | | | (219) | | — | | (87) | | (753) | | (1,059) | | | 252 | | (807) | |
Total net derivative assets/(liabilities) | Total net derivative assets/(liabilities) | | Total net derivative assets/(liabilities) | |
Foreign exchange contracts | Foreign exchange contracts | 5 | | (13) | | (1,094) | | (1,102) | | | — | | (1,102) | | Foreign exchange contracts | 9 | | — | | (116) | | (192) | | (299) | | | — | | (299) | |
Interest rate contracts | Interest rate contracts | (534) | | 0 | | 0 | | (534) | | | — | | (534) | | Interest rate contracts | (585) | | — | | — | | (25) | | (610) | | | — | | (610) | |
Commodity contracts | Commodity contracts | (5) | | 0 | | (53) | | (58) | | | — | | (58) | | Commodity contracts | (3) | | — | | — | | (153) | | (156) | | | — | | (156) | |
Other contracts | Other contracts | 3 | | 0 | | 4 | | 7 | | | — | | 7 | | Other contracts | (1) | | — | | — | | (3) | | (4) | | | — | | (4) | |
| | (531) | | (13) | | (1,143) | | (1,687) | | | — | | (1,687) | | | (580) | | — | | (116) | | (373) | | (1,069) | | | — | | (1,069) | |
1As at December 31, 2019, $327 million was reported within Accounts receivable and other and $1 million within Accounts receivable from affiliates on the Consolidated Statements of Financial Position.
2As at December 31, 2019, $920 million was reported within Accounts payable and other and $16 million within Accounts payable to affiliates on the Consolidated Statements of Financial Position.
The following table summarizes the maturity and notional principal or quantity outstanding related to our derivative instruments.
| | September 30, 2020 | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | | Total | | | |
Foreign exchange contracts - United States dollar forwards - purchase (millions of United States dollars) | 1,117 | | 500 | | 1,750 | | 0 | | 0 | | 0 | | | 3,367 | | | | |
Foreign exchange contracts - United States dollar forwards - sell (millions of United States dollars) | 1,593 | | 5,631 | | 5,703 | | 3,784 | | 1,856 | | 0 | | | 18,567 | | | | |
September 30, 2021 | | September 30, 2021 | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | | |
Foreign exchange contracts - US dollar forwards - purchase (millions of US dollars) | | Foreign exchange contracts - US dollar forwards - purchase (millions of US dollars) | 1,357 | | 1,750 | | — | | — | | — | | — | | 3,107 | | | |
Foreign exchange contracts - US dollar forwards - sell (millions of US dollars) | | Foreign exchange contracts - US dollar forwards - sell (millions of US dollars) | 2,210 | | 6,354 | | 3,784 | | 2,480 | | 1,290 | | 672 | | 16,790 | | | |
Foreign exchange contracts - British pound (GBP) forwards - sell (millions of GBP) | Foreign exchange contracts - British pound (GBP) forwards - sell (millions of GBP) | 70 | | 27 | | 28 | | 29 | | 30 | | 90 | | | 274 | | | | Foreign exchange contracts - British pound (GBP) forwards - sell (millions of GBP) | 62 | | 28 | | 29 | | 30 | | 30 | | 60 | | 239 | | | |
| Foreign exchange contracts - Euro forwards - sell (millions of Euro) | Foreign exchange contracts - Euro forwards - sell (millions of Euro) | 23 | | 94 | | 94 | | 92 | | 91 | | 514 | | | 908 | | | | Foreign exchange contracts - Euro forwards - sell (millions of Euro) | 38 | | 94 | | 92 | | 91 | | 86 | | 428 | | 829 | | | |
Foreign exchange contracts - Japanese yen forwards - purchase (millions of yen) | Foreign exchange contracts - Japanese yen forwards - purchase (millions of yen) | 0 | | 0 | | 72,500 | | 0 | | 0 | | 0 | | | 72,500 | | | | Foreign exchange contracts - Japanese yen forwards - purchase (millions of yen) | — | | 72,500 | | — | | — | | — | | — | | 72,500 | | | |
Interest rate contracts - short-term pay fixed rate (millions of Canadian dollars) | 1,265 | | 4,129 | | 407 | | 48 | | 35 | | 121 | | | 6,005 | | | | |
Interest rate contracts - short-term debt pay fixed rate (millions of Canadian dollars) | | Interest rate contracts - short-term debt pay fixed rate (millions of Canadian dollars) | 992 | | 395 | | 47 | | 35 | | 30 | | 90 | | 1,589 | | | |
Interest rate contracts - long-term debt pay fixed rate (millions of Canadian dollars) | Interest rate contracts - long-term debt pay fixed rate (millions of Canadian dollars) | 508 | | 1,584 | | 2,035 | | 1,368 | | 0 | | 0 | | | 5,495 | | | | Interest rate contracts - long-term debt pay fixed rate (millions of Canadian dollars) | — | | 1,987 | | 1,333 | | — | | — | | — | | 3,320 | | | |
Equity contracts (millions of Canadian dollars) | Equity contracts (millions of Canadian dollars) | 19 | | 44 | | 7 | | 11 | | 0 | | 0 | | | 81 | | | | Equity contracts (millions of Canadian dollars) | 40 | | 19 | | 26 | | 20 | | — | | — | | 105 | | | |
Commodity contracts - natural gas (billions of cubic feet)3 | 25 | | 60 | | 31 | | 18 | | 10 | | 10 | | | 154 | | | | |
Commodity contracts - crude oil (millions of barrels)3 | 4 | | 12 | | 1 | | 0 | | 0 | | 0 | | | 17 | | | | |
Commodity contracts - natural gas (billions of cubic feet)2 | | Commodity contracts - natural gas (billions of cubic feet)2 | 19 | | 55 | | 15 | | 4 | | 10 | | (16) | | 87 | | | |
Commodity contracts - crude oil (millions of barrels)2 | | Commodity contracts - crude oil (millions of barrels)2 | 12 | | 2 | | — | | — | | — | | — | | 14 | | | |
| Commodity contracts - power (megawatt per hour) (MW/H) | Commodity contracts - power (megawatt per hour) (MW/H) | 65 | | (3) | | (43) | | (43) | | (43) | | (43) | | 1 | (30) | | 2 | | Commodity contracts - power (megawatt per hour) (MW/H) | (18) | | (43) | | (43) | | (43) | | (43) | | — | | (42) | | 1 | |
1 Thereafter includes an average net purchase/(sale) of power of (43) MW/H for 2025.
2 Total is an average net purchase/(sale) of power.
32 Total is a net purchase/(sale) of underlying commodity.
Fair Value Derivatives
For foreign exchange derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is included in Net foreign currency gain/(loss) in the Consolidated Statements of Earnings. Any excluded components are included in the Consolidated Statements of Comprehensive Income.
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | | (millions of Canadian dollars) | | | | |
Unrealized gain/(loss) on derivative | Unrealized gain/(loss) on derivative | (60) | | 0 | | | 25 | | 0 | | Unrealized gain/(loss) on derivative | 50 | | (60) | | | 15 | | 25 | |
Unrealized gain/(loss) on hedged item | Unrealized gain/(loss) on hedged item | 59 | | 0 | | | (6) | | 0 | | Unrealized gain/(loss) on hedged item | (50) | | 59 | | | (22) | | (6) | |
Realized loss on derivative | Realized loss on derivative | 0 | | 0 | | | (12) | | 0 | | Realized loss on derivative | (1) | | — | | | (40) | | (12) | |
Realized gain on hedged item | | Realized gain on hedged item | — | | — | | | 45 | | — | |
The Effect of Derivative Instruments on the Statements of Earnings and Comprehensive Income
The following table presents the effect of cash flow hedges, fair value hedges and net investment hedges on our consolidated earnings and consolidated comprehensive income, before the effect of income taxes:
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | 2019 | | 2020 | 2019 |
(millions of Canadian dollars) | | | | | |
Amount of unrealized gain/(loss) recognized in OCI | | | | | |
Cash flow hedges | | | | | |
Foreign exchange contracts | 0 | | 2 | | | 6 | | (11) | |
Interest rate contracts | 41 | | (231) | | | (709) | | (812) | |
Commodity contracts | (1) | | (1) | | | 8 | | (22) | |
Other contracts | 0 | | 1 | | | (6) | | 6 | |
Fair value hedges | | | | | |
Foreign exchange contracts | (1) | | — | | | 7 | | 0 | |
Net investment hedges | | | | | |
Foreign exchange contracts | 17 | | (1) | | | 13 | | 1 | |
| 56 | | (230) | | | (681) | | (838) | |
Amount of (gain)/loss reclassified from AOCI to earnings | | | | | |
Foreign exchange contracts1 | 1 | | 2 | | | 3 | | 4 | |
Interest rate contracts2 | 76 | | 36 | | | 179 | | 108 | |
Commodity contracts | (1) | | — | | | (1) | | — | |
Other contracts3 | (1) | | (1) | | | (1) | | (4) | |
| 75 | | 37 | | | 180 | | 108 | |
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | | | | | |
Amount of unrealized gain/(loss) recognized in OCI | | | | | |
Cash flow hedges | | | | | |
Foreign exchange contracts | 4 | | — | | | (21) | | 6 | |
Interest rate contracts | (1) | | 41 | | | 293 | | (709) | |
Commodity contracts | (21) | | (1) | | | (25) | | 8 | |
Other contracts | (2) | | — | | | 2 | | (6) | |
Fair value hedges | | | | | |
Foreign exchange contracts | (1) | | (1) | | | (3) | | 7 | |
Net investment hedges | | | | | |
Foreign exchange contracts | — | | 17 | | | — | | 13 | |
| (21) | | 56 | | | 246 | | (681) | |
Amount of (gain)/loss reclassified from AOCI to earnings | | | | | |
Foreign exchange contracts1 | 1 | | 1 | | | 4 | | 3 | |
Interest rate contracts2 | 76 | | 76 | | | 218 | | 179 | |
Commodity contracts | (4) | | (1) | | | (4) | | (1) | |
Other contracts3 | — | | (1) | | | 1 | | (1) | |
| 73 | | 75 | | | 219 | | 180 | |
1 Reported within Transportation and other services revenues and Net foreign currency gain/(loss) in the Consolidated Statements of Earnings.
2 Reported within Interest expense in the Consolidated Statements of Earnings.
3 Reported within Operating and administrative expense in the Consolidated Statements of Earnings.
We estimate that a loss of $99$59 million of AOCI related to unrealized cash flow hedges will be reclassified to earnings in the next 12 months. Actual amounts reclassified to earnings depend on the foreign exchange rates, interest rates and commodity prices in effect when derivative contracts that are currently outstanding mature. For all forecasted transactions, the maximum term over which we are hedging exposures to the variability of cash flows is 3927 months as at September 30, 2020.2021.
Non-Qualifying Derivatives
The following table presents the unrealized gains and losses associated with changes in the fair value of our non-qualifying derivatives:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | | (millions of Canadian dollars) | | | | |
Foreign exchange contracts1 | Foreign exchange contracts1 | 571 | | (179) | | | (186) | | 849 | | Foreign exchange contracts1 | (436) | | 571 | | | 18 | | (186) | |
Interest rate contracts2 | Interest rate contracts2 | (13) | | 0 | | | (28) | | 178 | | Interest rate contracts2 | 2 | | (13) | | | 4 | | (28) | |
Commodity contracts3 | Commodity contracts3 | 69 | | 73 | | | 25 | | (26) | | Commodity contracts3 | (102) | | 69 | | | (120) | | 25 | |
Other contracts4 | Other contracts4 | (3) | | (1) | | | (11) | | 4 | | Other contracts4 | 2 | | (3) | | | 12 | | (11) | |
Total unrealized derivative fair value gain/(loss), net | Total unrealized derivative fair value gain/(loss), net | 624 | | (107) | | | (200) | | 1,005 | | Total unrealized derivative fair value gain/(loss), net | (534) | | 624 | | | (86) | | (200) | |
1 For the respective nine months ended periods, reported within Transportation and other services revenues (2020(2021 - $71 million gain; 2020 - $87 million loss; 2019 - $366 million gain)loss) and Net foreign currency gain/(loss) (2020(2021 - $53 million loss; 2020 - $99 million loss; 2019 - $483 million gain)loss) in the Consolidated Statements of Earnings.
2 Reported as an (increase)/decrease within Interest expense in the Consolidated Statements of Earnings.
3 For the respective nine months ended periods, reported within Transportation and other services revenues (2020(2021 - NaN; 2020 - $8 million gain; 2019 - $15 million loss)gain), Commodity sales (2020(2021 - $176$5 million loss; 20192020 - $418$176 million loss), Commodity costs (2020(2021 - $195$124 million gain; 2019loss; 2020 - $382$195 million gain) and Operating and administrative expense (2020(2021 - $8 million gain; 2020 - $2 million loss; 2019 - $25 million gain)loss) in the Consolidated Statements of Earnings.
4 Reported within Operating and administrative expense in the Consolidated Statements of Earnings.
LIQUIDITY RISK
Liquidity risk is the risk that we will not be able to meet our financial obligations, including commitments and guarantees, as they become due. In order to mitigate this risk, we forecast cash requirements over a 12-month rolling time period to determine whether sufficient funds will be available and maintain substantial capacity under our committed bank lines of credit to address any contingencies. Our primary sources of liquidity and capital resources are funds generated from operations, the issuance of commercial paper and draws under committed credit facilities and long-term debt, which includes debentures and medium-term notes. We also maintain current shelf prospectuses with securities regulators which enables ready access to either the Canadian or United StatesUS public capital markets, subject to market conditions. In addition, we maintain sufficient liquidity through committed credit facilities with a diversified group of banks and institutions which, if necessary, enables us to fund all anticipated requirements for approximately one year without accessing the capital markets. We are in compliance with all the terms and conditions of our committed credit facility agreements and term debt indentures as at September 30, 2020.2021. As a result, all credit facilities are available to us and the banks are obligated to fund and have been funding us under the terms of the facilities.
CREDIT RISK
Entering into derivative instruments may result in exposure to credit risk from the possibility that a counterparty will default on its contractual obligations. In order to mitigate this risk, we enter into risk management transactions primarily with institutions that possess strong investment grade credit ratings. Credit risk relating to derivative counterparties is mitigated through maintenance and monitoring of credit exposure limits and contractual requirements, netting arrangements and ongoing monitoring of counterparty credit exposure using external credit rating services and other analytical tools.
We have credit concentrations and credit exposure, with respect to derivative instruments, in the following counterparty segments:
| | | September 30, 2020 | December 31, 2019 | | September 30, 2021 | December 31, 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | (millions of Canadian dollars) | | |
Canadian financial institutions | Canadian financial institutions | 190 | | 146 | | Canadian financial institutions | 471 | | 481 | |
United States financial institutions | 79 | | 40 | | |
US financial institutions | | US financial institutions | 240 | | 99 | |
European financial institutions | European financial institutions | 25 | | 3 | | European financial institutions | 176 | | 28 | |
Asian financial institutions | Asian financial institutions | 91 | | 92 | | Asian financial institutions | 24 | | 167 | |
Other1 | Other1 | 114 | | 113 | | Other1 | 124 | | 97 | |
| | 499 | | 394 | | | 1,035 | | 872 | |
1 Other is comprised of commodity clearing house and physical natural gas and crude oil counterparties.
As at September 30, 2020,2021, we provided letters of credit totaling NaNnil in lieu of providing cash collateral to our counterparties pursuant to the terms of the relevant International Swaps and Derivatives Association agreements. We held 0 cash collateral on derivative asset exposures as at September 30, 20202021 and December 31, 2019.2020.
Gross derivative balances have been presented without the effects of collateral posted. Derivative assets are adjusted for non-performance risk of our counterparties using their credit default swap spread rates, and are reflected at fair value. For derivative liabilities, our non-performance risk is considered in the valuation.
Credit risk also arises from trade and other long-term receivables, and is mitigated through credit exposure limits and contractual requirements, assessment of credit ratings and netting arrangements. Within Enbridge Gas Inc. (Enbridge Gas), credit risk is mitigated by the utilities'utility's large and diversified customer base and the ability to recover an estimate for doubtful accountsexpected credit losses through the ratemaking process. We actively monitor the financial strength of large industrial customers, and in select cases, have obtained additional security to minimize the risk of default on receivables. Generally, we classifyutilize a loss allowance matrix which contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and provide for receivables older than 30 days as past due.management expectations to measure lifetime expected credit losses of receivables. The maximum exposure to credit risk related to non-derivative financial assets is their carrying value.
FAIR VALUE MEASUREMENTS
Our financial assets and liabilities measured at fair value on a recurring basis include derivative instruments. We also disclose the fair value of other financial instruments not measured at fair value. The fair value of financial instruments reflects our best estimates of market value based on generally accepted valuation techniques or models and is supported by observable market prices and rates. When such values are not available, we use discounted cash flow analysis from applicable yield curves based on observable market inputs to estimate fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We categorize our derivative instruments measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.
Level 1
Level 1 includes derivatives measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for a derivative is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 instruments consist primarily of exchange-traded derivatives used to mitigate the risk of crude oil price fluctuations.
Level 2
Level 2 includes derivative valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Derivatives in this category are valued using models or other industry standard valuation techniques derived from observable market data. Such valuation techniques include inputs such as quoted forward prices, time value, volatility factors and broker quotes that can be observed or corroborated in the market for the entire duration of the derivative. Derivatives valued using Level 2 inputs include non-exchange traded derivatives such as over-the-counter foreign exchange forward and cross currency swap contracts, interest rate swaps, physical forward commodity contracts, as well as commodity swaps and options for which observable inputs can be obtained.
We have also categorized the fair value of our held to maturityavailable-for-sale preferred share investment and long-term debt as Level 2. The fair value of our held to maturityavailable-for-sale preferred share investment is primarily based on the yield of certain Government of Canada bonds.redemption value, which equals the face value plus accrued and unpaid interest periodically reset based on market interest rates. The fair value of our long-term debt is based on quoted market prices for instruments of similar yield, credit risk and tenor.
Level 3
Level 3 includes derivative valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the derivatives’ fair value. Generally, Level 3 derivatives are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available or have no binding broker quote to support Level 2 classification. We have developed methodologies, benchmarked against industry standards, to determine fair value for these derivatives based on extrapolation of observable future prices and rates. Derivatives valued using Level 3 inputs primarily include long-dated derivative power, crude, NGL and natural gas contracts, basis swaps, commodity swaps, and power and energy swaps. We do not have any other financial instruments categorized in Level 3.
We use the most observable inputs available to estimate the fair value of our derivatives. When possible, we estimate the fair value of our derivatives based on quoted market prices. If quoted market prices are not available, we use estimates from third party brokers. For non-exchange traded derivatives classified in Levels 2 and 3, we use standard valuation techniques to calculate the estimated fair value, includingvalue. These methods include discounted cash flows for forwards and swaps.swaps and Black-Scholes-Merton pricing models for options. Depending on the type of derivative and nature of the underlying risk, we use observable market prices (interest, foreign exchange, commodity and share price) as primary inputs to these valuation techniques. Finally, we consider our own credit default swap spread as well as the credit default swap spreads associated with our counterparties in our estimation of fair value.
We have categorized our derivative assets and liabilities measured at fair value as follows:
| September 30, 2020 | Level 1 | Level 2 | Level 3 | Total Gross Derivative Instruments | |
September 30, 2021 | | September 30, 2021 | Level 1 | Level 2 | Level 3 | Total Gross Derivative Instruments |
(millions of Canadian dollars) | (millions of Canadian dollars) | | (millions of Canadian dollars) | |
Financial assets | Financial assets | | Financial assets | |
Current derivative assets | Current derivative assets | | Current derivative assets | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 56 | | 0 | | 56 | | Foreign exchange contracts | — | | 225 | | — | | 225 | |
| Commodity contracts | Commodity contracts | 16 | | 47 | | 96 | | 159 | | Commodity contracts | 129 | | 150 | | 41 | | 320 | |
Other contracts | | Other contracts | — | | 8 | | — | | 8 | |
| | 16 | | 103 | | 96 | | 215 | | | 129 | | 383 | | 41 | | 553 | |
Long-term derivative assets | Long-term derivative assets | | Long-term derivative assets | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 226 | | 0 | | 226 | | Foreign exchange contracts | — | | 248 | | — | | 248 | |
Interest rate contracts | Interest rate contracts | 0 | | 8 | | 0 | | 8 | | Interest rate contracts | — | | 168 | | — | | 168 | |
Commodity contracts | Commodity contracts | 13 | | 47 | | 6 | | 66 | | Commodity contracts | 32 | | 46 | | 5 | | 83 | |
| Other contracts | | Other contracts | — | | 3 | | — | | 3 | |
| | 13 | | 281 | | 6 | | 300 | | | 32 | | 465 | | 5 | | 502 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Current derivative liabilities | Current derivative liabilities | | Current derivative liabilities | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | (383) | | 0 | | (383) | | Foreign exchange contracts | — | | (261) | | — | | (261) | |
Interest rate contracts | Interest rate contracts | 0 | | (172) | | 0 | | (172) | | Interest rate contracts | — | | (35) | | — | | (35) | |
Commodity contracts | Commodity contracts | (16) | | (28) | | (116) | | (160) | | Commodity contracts | (149) | | (200) | | (200) | | (549) | |
Other contracts | 0 | | (2) | | 0 | | (2) | | |
| | | (16) | | (585) | | (116) | | (717) | | | (149) | | (496) | | (200) | | (845) | |
Long-term derivative liabilities | Long-term derivative liabilities | | Long-term derivative liabilities | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | (1,140) | | 0 | | (1,140) | | Foreign exchange contracts | — | | (499) | | — | | (499) | |
Interest rate contracts | Interest rate contracts | 0 | | (589) | | 0 | | (589) | | Interest rate contracts | — | | (138) | | — | | (138) | |
Commodity contracts | Commodity contracts | (11) | | (19) | | (50) | | (80) | | Commodity contracts | (35) | | (34) | | (80) | | (149) | |
Other contracts | 0 | | (9) | | 0 | | (9) | | |
| | | (11) | | (1,757) | | (50) | | (1,818) | | | (35) | | (671) | | (80) | | (786) | |
Total net financial assets/(liabilities) | Total net financial assets/(liabilities) | | Total net financial assets/(liabilities) | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | (1,241) | | 0 | | (1,241) | | Foreign exchange contracts | — | | (287) | | — | | (287) | |
Interest rate contracts | Interest rate contracts | 0 | | (753) | | 0 | | (753) | | Interest rate contracts | — | | (5) | | — | | (5) | |
Commodity contracts | Commodity contracts | 2 | | 47 | | (64) | | (15) | | Commodity contracts | (23) | | (38) | | (234) | | (295) | |
Other contracts | Other contracts | 0 | | (11) | | 0 | | (11) | | Other contracts | — | | 11 | | — | | 11 | |
| | 2 | | (1,958) | | (64) | | (2,020) | | | (23) | | (319) | | (234) | | (576) | |
| December 31, 2019 | Level 1 | Level 2 | Level 3 | Total Gross Derivative Instruments | |
December 31, 2020 | | December 31, 2020 | Level 1 | Level 2 | Level 3 | Total Gross Derivative Instruments |
(millions of Canadian dollars) | (millions of Canadian dollars) | | (millions of Canadian dollars) | |
Financial assets | Financial assets | | Financial assets | |
Current derivative assets | Current derivative assets | | Current derivative assets | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 161 | | 0 | | 161 | | Foreign exchange contracts | — | | 180 | | — | | 180 | |
Interest rate contracts | 0 | | 33 | | 130 | | 163 | | |
| Commodity contracts | Commodity contracts | 0 | | 4 | | 0 | | 4 | | Commodity contracts | 43 | | 33 | | 67 | | 143 | |
| | 0 | | 198 | | 130 | | 328 | | | 43 | | 213 | | 67 | | 323 | |
Long-term derivative assets | Long-term derivative assets | | Long-term derivative assets | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 81 | | 0 | | 81 | | Foreign exchange contracts | — | | 466 | | — | | 466 | |
Interest rate contracts | | Interest rate contracts | — | | 56 | | — | | 56 | |
Commodity contracts | Commodity contracts | 0 | | 12 | | 5 | | 17 | | Commodity contracts | 1 | | 24 | | 14 | | 39 | |
Other contracts | 0 | | 3 | | 0 | | 3 | | |
| | 0 | | 96 | | 5 | | 101 | | | 1 | | 546 | | 14 | | 561 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Current derivative liabilities | Current derivative liabilities | | Current derivative liabilities | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | (410) | | 0 | | (410) | | Foreign exchange contracts | — | | (185) | | — | | (185) | |
Interest rate contracts | Interest rate contracts | 0 | | (353) | | 0 | | (353) | | Interest rate contracts | — | | (425) | | — | | (425) | |
Commodity contracts | Commodity contracts | (5) | | (23) | | (145) | | (173) | | Commodity contracts | (39) | | (18) | | (223) | | (280) | |
Other contracts | | Other contracts | — | | (4) | | — | | (4) | |
| | (5) | | (786) | | (145) | | (936) | | | (39) | | (632) | | (223) | | (894) | |
Long-term derivative liabilities | Long-term derivative liabilities | | Long-term derivative liabilities | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | (934) | | 0 | | (934) | | Foreign exchange contracts | — | | (760) | | — | | (760) | |
Interest rate contracts | Interest rate contracts | 0 | | (181) | | 0 | | (181) | | Interest rate contracts | — | | (241) | | — | | (241) | |
Commodity contracts | Commodity contracts | 0 | | (6) | | (59) | | (65) | | Commodity contracts | (1) | | (8) | | (49) | | (58) | |
| | 0 | | (1,121) | | (59) | | (1,180) | | | (1) | | (1,009) | | (49) | | (1,059) | |
Total net financial assets/(liabilities) | Total net financial assets/(liabilities) | | Total net financial assets/(liabilities) | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | (1,102) | | 0 | | (1,102) | | Foreign exchange contracts | — | | (299) | | — | | (299) | |
Interest rate contracts | Interest rate contracts | 0 | | (534) | | 0 | | (534) | | Interest rate contracts | — | | (610) | | — | | (610) | |
Commodity contracts | Commodity contracts | (5) | | 16 | | (69) | | (58) | | Commodity contracts | 4 | | 31 | | (191) | | (156) | |
Other contracts | Other contracts | 0 | | 7 | | 0 | | 7 | | Other contracts | — | | (4) | | — | | (4) | |
| | (5) | | (1,613) | | (69) | | (1,687) | | | 4 | | (882) | | (191) | | (1,069) | |
|
The significant unobservable inputs used in the fair value measurement of Level 3 derivative instruments were as follows:
| September 30, 2020 | Fair Value | Unobservable Input | Minimum Price | Maximum Price | Weighted Average Price | Unit of Measurement | |
September 30, 2021 | | September 30, 2021 | Fair Value | Unobservable Input | Minimum Price | Maximum Price | Weighted Average Price | Unit of Measurement |
(fair value in millions of Canadian dollars) | (fair value in millions of Canadian dollars) | | (fair value in millions of Canadian dollars) | |
Commodity contracts - financial1 | Commodity contracts - financial1 | | Commodity contracts - financial1 | |
Natural gas | Natural gas | (5) | | Forward gas price | 2.00 | | 5.51 | | 3.53 | | $/mmbtu2 | Natural gas | (20) | | Forward gas price | 3.34 | | 9.66 | | 4.95 | | $/mmbtu2 |
Crude | Crude | 13 | | Forward crude price | 24.11 | | 54.70 | | 39.72 | | $/barrel | Crude | (2) | | Forward crude price | 68.14 | | 94.91 | | 81.51 | | $/barrel |
| NGL | | NGL | — | | Forward NGL price | 0 | $/gallon |
Power | Power | (49) | | Forward power price | 21.76 | | 65.93 | | 53.79 | | $/MW/H | Power | (65) | | Forward power price | 37.91 | | 128.70 | | 76.20 | | $/MW/H |
Commodity contracts - physical1 | Commodity contracts - physical1 | | Commodity contracts - physical1 | |
Natural gas | Natural gas | 4 | | Forward gas price | 1.04 | | 6.77 | | 3.52 | | $/mmbtu2 | Natural gas | (94) | | Forward gas price | 2.86 | | 9.85 | | 6.30 | | $/mmbtu2 |
Crude | Crude | (29) | | Forward crude price | 35.01 | | 57.60 | | 42.50 | | $/barrel | Crude | (53) | | Forward crude price | 75.66 | | 96.75 | | 90.70 | | $/barrel |
NGL | NGL | 2 | | Forward NGL price | 0.26 | | 1.32 | | 0.61 | | $/gallon | NGL | — | | Forward NGL price | — | | — | | — | | $/gallon |
| | (64) | | | | (234) | | |
1 Financial and physical forward commodity contracts are valued using a market approach valuation technique.
2 One million British thermal units (mmbtu).
If adjusted, the significant unobservable inputs disclosed in the table above would have a direct impact on the fair value of our Level 3 derivative instruments. The significant unobservable inputs used in the fair value measurement of Level 3 derivative instruments include forward commodity prices. Changes in forward commodity prices could result in significantly different fair values for our Level 3 derivatives.
Changes in net fair value of derivative assets and liabilities classified as Level 3 in the fair value hierarchy were as follows:
| | | Nine months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | (millions of Canadian dollars) | | |
Level 3 net derivative liability at beginning of period | Level 3 net derivative liability at beginning of period | (69) | | (11) | | Level 3 net derivative liability at beginning of period | (191) | | (69) | |
Total gain/(loss) unrealized | | | |
Total gain/(loss) | | Total gain/(loss) | | |
Included in earnings1 | Included in earnings1 | (40) | | 67 | | Included in earnings1 | (181) | | (40) | |
Included in OCI | Included in OCI | 7 | | (22) | | Included in OCI | (29) | | 7 | |
Settlements | Settlements | 38 | | (98) | | Settlements | 167 | | 38 | |
Level 3 net derivative liability at end of period | Level 3 net derivative liability at end of period | (64) | | (64) | | Level 3 net derivative liability at end of period | (234) | | (64) | |
1 Reported within Transportation and other services revenues, Commodity costs and Operating and administrative expense in the Consolidated Statements of Earnings.
There were no transfers into or out of Level 3 as at September 30, 20202021 or December 31, 2019.2020.
NET INVESTMENT HEDGES
We currently have designated a portion of our US dollar denominated debt, as well as a portfolio of foreign exchange forward contracts in prior periods, as a hedge of our net investment in US dollar denominated investments and subsidiaries.
During the nine months ended September 30, 2021 and 2020, we recognized an unrealized foreign exchange gain of $18 million and a loss of $226 million, respectively, on the translation of US dollar denominated debt and unrealized gain of nil and $13 million, respectively, on the change in fair value of our outstanding foreign exchange forward contracts in OCI. During the nine months ended September 30, 2021 and 2020, we recognized realized losses of NaN and $15 million, respectively, in OCI associated with the settlement of foreign exchange forward contracts or with the settlement of US dollar denominated debt that had matured during the period.
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
Certain long-term investments in other entities with no actively quoted prices are classified as Fair Value Measurement Alternative (FVMA) investments and are recorded at cost less impairment. The carrying value of FVMA investments totaled $56 million and $99$52 million as at September 30, 20202021 and December 31, 2019, respectively.
Two equity method investments, SESH and Steckman, are carried at their estimated fair values of $87 million and $96 million, respectively, at September 30, 2020 as a result of other than temporary impairment losses recorded during the current period (Note 9). The fair values are determined based on a discounted cash flow model using inputs not observable in the market, and thus represent Level 3 measurements. We applied an 8% weighted average cost of capital and a long-term revenue growth rate of 0.5% to estimate the fair value of SESH, and a 9% weighted average cost of capital and a long-term revenue growth rate of 1% to estimate the fair value of Steckman.2020.
We have Restricted long-term investments held in trust totaling $527$575 million and $434$553 million as at September 30, 20202021 and December 31, 2019,2020, respectively, which are recognized at fair value.
WeDuring the nine months ended September 30, 2021, we entered into a definitive agreement to sell our 38.9% noncontrolling interest in Noverco, which is comprised of both common shares and preferred shares. Historically, the preferred shares have abeen classified as held-to-maturity preferred share investmentand carried at its amortized costcost. As a result of $566our intent to sell our interest in Noverco, the preferred shares were reclassified from held-to-maturity to available-for-sale at fair value during the second quarter of 2021. The fair value of the preferred shares was $580 million and $580$567 million as at September 30, 20202021 and December 31, 2019,2020, respectively. These preferred shares are entitled to a cumulative preferred dividend basedThere were no gains or losses recognized in OCI on the yield of 10-year Government of Canada bonds plus a margin of 4.38%. The fair value of this preferred share investment is $566 million and $580 million as at September 30, 2020 and December 31, 2019, respectively.reclassification.
As at September 30, 20202021 and December 31, 2019,2020, our long-term debt had a carrying value of $66.9$70.0 billion and $64.4$66.1 billion, respectively, before debt issuance costs and a fair value of $74.1$76.5 billion and $70.5$75.1 billion, respectively.
We also have non-current notes receivable carried at book value and recorded in Deferred amounts and other assets in the Consolidated Statements of Financial Position. As at September 30, 20202021 and December 31, 2019,2020, the non-current notes receivable had a carrying value of $1.1$1.0 billion and $1.0$1.1 billion, respectively, which also approximates their fair value.
The fair value of financial assets and liabilities other than derivative instruments, long-term investments, restricted long-term investments, long-term debt and non-current notes receivable described above approximate their carrying value due to the short period to maturity.
NET INVESTMENT HEDGES
We currently have designated a portion of our United States dollar denominated debt, as well as a portfolio of foreign exchange forward contracts in prior periods, as a hedge of our net investment in United States dollar denominated investments and subsidiaries.
During the nine months ended September 30, 2020 and 2019, we recognized an unrealized foreign exchange loss of $226 million and a gain of $166 million, respectively, on the translation of United States dollar denominated debt and unrealized gain of $13 million and a gain of $1 million, respectively, on the change in fair value of our outstanding foreign exchange forward contracts in OCI. During the nine months ended September 30, 2020 and 2019, we recognized realized losses of $15 million and NaN, respectively, in OCI associated with the settlement of foreign exchange forward contracts and recognized realized losses of NaN, in OCI associated with the settlement of United States dollar denominated debt that had matured during the period.
11.10. INCOME TAXES
The effective income tax rates for the three months ended September 30, 2021 and 2020 were 19.6% and 2019 were 17.3% and 19.4%, respectively, and for the nine months ended September 30, 2021 and 2020 were 18.0% and 2019 were 15.3% and 20.6%, respectively.
The period-over-period changeincreases in the effective income tax rates isare due to the effect of rate-regulated accounting for income taxes, and the benefit of foreign tax rate differentials beingand an adjustment related to regulatory balances from prior year. The increase is partially offset by higher United Statesa reduction in US minimum tax relative toand the change in earnings period-over-period.release of previously recognized uncertain tax positions.
12.11. PENSION AND OTHER POSTRETIREMENT BENEFITS
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | | (millions of Canadian dollars) | | | | |
Service cost | Service cost | 50 | | 50 | | | 150 | | 152 | | Service cost | 48 | | 50 | | | 144 | | 150 | |
Interest cost | Interest cost | 44 | | 51 | | | 131 | | 152 | | Interest cost | 32 | | 44 | | | 96 | | 131 | |
Expected return on plan assets | Expected return on plan assets | (90) | | (84) | | | (270) | | (252) | | Expected return on plan assets | (84) | | (90) | | | (252) | | (270) | |
Amortization of actuarial loss and prior service costs | Amortization of actuarial loss and prior service costs | 9 | | 7 | | | 28 | | 22 | | Amortization of actuarial loss and prior service costs | 14 | | 9 | | | 42 | | 28 | |
Net periodic benefit costs | Net periodic benefit costs | 13 | | 24 | | | 39 | | 74 | | Net periodic benefit costs | 10 | | 13 | | | 30 | | 39 | |
DuringFor the three and nine months ended September 30, 2020, we incurred NaN and $236 million in severance costs related to our voluntary workforce reduction program. For the three and nine months ended September 30, 2021, there were no such costs incurred. Severance costs are included in Operating and administrative expense in the Consolidated Statements of Earnings.
13.12. CONTINGENCIES
We and our subsidiaries are involved in various legal and regulatory actions and proceedings which arise in the normal course of business, including interventions in regulatory proceedings and challenges to regulatory approvals and permits. 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 interim consolidated financial position or results of operations.
TAX MATTERS
We and our subsidiaries maintain tax liabilities related to uncertain tax positions. While fully supportable in our view, these tax positions, if challenged by tax authorities, may not be fully sustained on review.
13. SUBSEQUENT EVENT
On October 12, 2021, through a wholly-owned US subsidiary, we acquired all of the outstanding membership interests in Moda Midstream Operating, LLC (Moda) for US$3 billion of cash plus contingent consideration dependent on performance of the assets (the Acquisition). The Acquisition is also subject to customary closing and working capital adjustments. Moda owns and operates a light crude export platform with very large crude carrier capability. The Acquisition aligns with and advances our US Gulf Coast export strategy and enables connectivity to low-cost and long-lived reserves in the Permian and Eagle Ford basins.
We will account for the Acquisition using the acquisition method as prescribed by ASC 805 Business Combinations. The acquired assets and assumed liabilities will be recorded at their estimated fair values as at the date of acquisition, with any remaining amount allocated to goodwill. Due to the proximity of the acquisition date to the release date of our interim consolidated financial statements, we have not performed our initial accounting for the Acquisition. The preliminary purchase price allocation will be disclosed in the fourth quarter of 2021 after asset and liability valuations become available.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our interim consolidated financial statements and the accompanying notes included in Part 1. I. Item 1. Financial Statements of this quarterly report on Form 10-Q and our consolidated financial statements and the accompanying notes included in Part II. Item 8. Financial Statements and Supplementary Data of our annual report on Form 10-K for the year ended December 31, 2019.2020.
As of the end of the second quarter of 2019, we have qualifiedWe continue to qualify as a foreign private issuer for purposes of the United States Securities Exchange Act of 1934, as amended (Exchange Act)., as determined annually as of the end of our second fiscal quarter. We intend to continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the U.S.US Securities and Exchange Commission (SEC) instead of filing the reporting forms available to foreign private issuers. We also intend to maintain our Form S-3 registration statements.
RECENT DEVELOPMENTS
COVID-19 PANDEMIC, REDUCED CRUDE OIL DEMAND AND COMMODITY PRICESACQUISITION OF MODA MIDSTREAM OPERATING, LLC
On October 12, 2021, we closed the purchase of Moda Midstream Operating, LLC (Moda) for US$3.0 billion of cash plus contingent consideration dependent on performance of the assets (the Acquisition). Moda owns and operates a vertically integrated crude export system of pipeline and storage assets on the US Gulf Coast, including the Ingleside Energy Center (IEC) located near Corpus Christi, Texas. IEC, North America's largest crude export terminal, controls 15.6 million barrels of storage and 1.6 million bpd of export capacity and volumes are underpinned by 925 thousand barrels per day (kbpd) of long term take-or-pay vessel loading contracts and 15.3 million barrels of long-term storage contracts. The Acquisition significantly advances our US Gulf Coast export strategy and connectivity to low-cost and long-lived reserves in the Permian and Eagle Ford basins.
RENEWABLE ENERGY PARTNERSHIP
On September 28, 2021, we announced a partnership with Vanguard Renewables (Vanguard) to design and build up to eight anaerobic digesters, used to convert food and farm waste into renewable natural gas (RNG), across the US. Vanguard will build and operate the digesters and we will invest approximately $100 million in RNG upgrading equipment to convert the RNG into pipeline quality gas. We will also provide transportation and marketing services to market that gas to US customers.
COVID-19 PANDEMIC
In 2020, the COVID-19 pandemic and the emergency response measures enacted by governments in Canada, the United States and around the world, have caused material disruption to many businesses resulting inhad a severe slow down in Canadian, United States and global economies, leading to increased volatility in financial markets worldwide and demand reduction for certain commodities. While various global producers, including the Organization of Petroleum Exporting Countries and other oil producing nations (OPEC+), reached agreements to cutsignificant negative impact on crude oil productionmarket fundamentals which resulted in the secondelevated risks to our business and third quartersto that of 2020, downward pressure on commodity prices continues and could continue for the foreseeable future, particularly given concerns overour customers. Global crude oil inventories. Asdemand experienced an unprecedented drop in mid-2020, as the economy slowed and personal mobility decreased due to government imposed restrictions. This, in turn, led to a result,decrease in crude oil throughput on our liquids pipelines systems as refinery runs decreased across North America.
During 2021, there has since been a substantial recovery in crude oil demand as vaccination rates rise and economies continue to reopen following successive COVID-19 waves. Crude oil prices have risen significantly since the 2020 collapse as the recovery in global demand has outpaced the return of crude oil natural gas, natural gas liquidssupply. As at the third quarter of 2021, our Mainline System has remained substantially full, however, we continue to monitor the fundamental landscape for emerging supply and other commodities whose prices are highly correlated to crude oil have decreased and remain volatile.demand risks.
We have taken proactive measurescontinue to deliver energy safelyproactively monitor and reliably during thefollow COVID-19 pandemic. We activated our crisis management team to focus on a number of priorities, including: (i) the healthguidance and safety of our employeesorders from governments and the public; (ii) operational reliability for our customers and markets; (iii) identification of essential personnel and procedures; and (iv) extensive stakeholder communication and outreach including updates to our Board of Directors. We are following recommendations from public health authorities, which vary by jurisdiction, and medical experts and have taken steps to help prevent our employees’ exposure to the spread of COVID-19, including, where practical, work-at-home plans enacted in March 2020 and the implementation of business continuity plans to enable the integrity of our operations and protect the health of our employees in pipeline control functions and service centers, our field representatives and other essential functions.
With respect to the safe operation of our facilities, we continue to employ allworkplace safety processes and procedures including a COVID-19 vaccine and testing policy. We continue to implement a phased return to workplace plan in certain of our office locations where public health restrictions allow.
Despite ongoing uncertainty as to the normal course. Ourduration and impact of the pandemic and corresponding public health measures, our business continuity plans are designed to enable us to manage operational developments related to COVID-19 as they unfold.unfold, including those related to construction and integrity projects. We provide an essential service across North America. Our customers, and the communities where we operate, depend on us to safely and reliably provide the energy they need to heat their homes and fuel their lives.
The COVID-19 pandemic has had a deep impact in the communities in which we operate. We are continuing to provide support in our communities by advancing funds to respond and provide relief to those who are most vulnerable. Our teams in our operating regions are working closely with our nonprofit community partners, our closest Indigenous and Tribal neighbors and local governments to identify where resources are needed most.
The COVID-19 pandemic, reduced crude oil demand and reduced commodity prices present potential new or elevated risks to our business. In late March, we began to see impacts both on the supply of, and demand for, crude oil and other liquid hydrocarbons transported on our pipelines. Several shippers on our crude oil pipelines responded to significantly lower demand caused by the COVID-19 pandemic, declining storage availability and refinery utilization, and commodity price declines by reducing volumes beginning in the second quarter of 2020. In the third quarter of 2020, Mainline System volumes began to modestly recover with an increase of approximately 115 thousand barrels per day (kbpd) when compared with the previous quarter. Over the balance of 2020, we anticipate a continued but gradual recovery in demand as economic activity resumes in North America. This view is supported by our expectation that the refineries operating in our core Mainline System markets (i.e. the United States Midwest, Eastern Canada and the United States Gulf Coast) will continue to experience higher utilization rates given their scale, complexity and cost competitiveness. We continue to expect that Mainline System volumes will be under utilized by 100-300 kbpd in the fourth quarter of 2020 and will return to full utilization in 2021. For every 100 kbpd increase or decrease in volumes on our Mainline System, our revenues, net of power savings, are expected to increase or decline by approximately $35 million per quarter.
In our US Midstream business, our equity affiliate DCP Midstream, LP, responded to the drastic decline in commodity prices by decreasing their distributions to us by 50 percent (beginning with the first quarter distribution paid in May 2020), thereby modestly reducing our cash flows. As a further outcome of the drastic commodity price decline, we recorded a $1.7 billion impairment on our equity method investment in DCP Midstream in the first quarter of 2020, based on the decline in the market price of DCP Midstream, LP publicly-traded units as at March 31, 2020.
In addition, these circumstances have led to the deterioration of the credit profiles of some of our customers and suppliers. There have been no material defaults by customers or suppliers to date, however, we will continue to monitor this risk and take credit risk mitigating actions as appropriate.
The situation around the COVID-19 pandemic, reduced crude oil demand and reduced commodity prices is evolving and our assessment of risks is included in Part II. Item 1A. Risk Factors.
While the length and depth of the current energy demand reduction and its impact is challenging to estimate at this time, we have completed several actions to further strengthen our resiliency and position for the future, while assuring that the safety and reliability of our operations remains our first priority. We have taken actions to reduce operating costs by approximately $300 million in 2020, including reductions to employee and Board of Director compensation, a voluntary workforce reduction program, as well as supply chain savings. We have also executed $0.4 billion of asset sales and increased our available liquidity to over $14 billion. We are experiencing a natural slowing of 2020 capital spending in light of COVID-19 and the health and safety measures put into place by federal and regional governments. In addition, we believe that the following factors further demonstrate the resiliency of our low-risk business model:
•Our assets are highly contracted and commercially underpinned by long-term take-or-pay and cost-of-service agreements;
•Approximately 95 percent of our revenues in the first nine months of 2020 were from investment grade customers or non-investment grade customers who have provided credit enhancements;
•The acquisition of Spectra Energy in 2017 provided us with greater diversification into natural gas with embedded low risk commercial structures. We currently have approximately 40 different sources of cash flows by geography and by different customer groups;
•A strong financial position with over $14 billion of net available liquidity which gives us the capacity to fund all of our capital projects and any debt maturities through 2021 without accessing the capital markets; and
•We limit the maximum cash flow loss that could arise from direct market price risks through a comprehensive long-term economic hedging program.
We will continue to actively monitor our business environment and may take further actions that we determine are in the best interests of Enbridge, our employees, customers, partners and stakeholders, or as required by federal, state or provincial authorities. At this time, given the many outstanding questions as to the length and depth of the COVID-19 pandemic and the current low commodity price environment, the impact on us is uncertain; however, it is possible that they continue to have an adverse impact on our business and results of operations.need.
UNITED STATES LINE 3 REPLACEMENT PROGRAM
Construction of the US portion of the Line 3 Replacement Program in Minnesota is now complete and was placed into service on October 1, 2021. This step marks the completion of the Line 3 Replacement (L3R) Program. The L3R Program was a replacement of 1,660 kilometers of pipeline from Hardisty, AB to Superior, WI and restores Line 3 to its historic capacity of 760 kbpd from western Canada into Superior, WI. With new state-of-the-art, thicker-walled pipe, its completion provides a safe, reliable supply of North American crude oil to US and Canadian refineries.
CANADIAN MAINLINE SYSTEM CONTRACTING
On December 19, 2019, we submitted an application to the Canada Energy Regulator (CER) to implement contracting on our Canadian Mainline System. The application for contracted and uncommitted service included the associated terms, conditions and tolls of each service, which would be offered in an open season following approval by the CER.
On February 24, 2020,Procedural steps with all participants before the CER issued a Notice of Public Hearing which outlined the process for participation in the hearing and identified a list of issues for discussion in the proceeding. In March 2020, letters were filed withare now complete. A decision by the CER by a group of potential intervenors that requested the CER delay setting hearing dates associated with our Mainline System contract filing. Subsequently, the CER issued a letter requesting comments on the potential delay of proceedings.is expected in late November 2021.
We filed our responseIn accordance with the CER on May 1, 2020, and on May 19, 2020, the CER announced that the regulatory process for our proposal to offer contracted transportation service on our Mainline System will proceed in a single phase hearing process that balances the need to address COVID-19 pandemic related challenges and the CER's mandate to adjudicate in an appropriately expeditious manner.
We are currently in the midstterms of the regulatory process and expect an oral hearing to occur sometime after April 2021, but a hearing date has not yet been set. If a replacement agreement is not in place byCompetitive Tolling Settlement (CTS), which expired on June 30, 2021, the Competitive Tolling Settlement provides for tolls toin place on June 30, 2021 will continue on an interim basis.basis, subject to finalization and adjustment applicable to the interim period, if any.
GAS TRANSMISSION AND MIDSTREAM RATE PROCEEDINGS
Texas Eastern Transmission
On February 25, 2020, Texas Eastern received approval fromTransmission, LP (Texas Eastern) filed a rate case on July 30, 2021. On August 31, 2021 the Federal Energy Regulatory Commission (FERC) ofissued an order rejecting the July 30, 2021 filing in its uncontestedentirety noting the proposed US federal income tax rate in the filing was not known and measurable. Additionally, the August 31, 2021 order directed Texas Eastern to show cause that its reservation charge crediting process is in accordance with FERC policy. On September 30, 2021 Texas Eastern responded to the show cause directive and filed a new rate case using the current US federal income tax rate. On October 29, 2021, the FERC issued an order accepting and suspending tariff records, subject to refund, conditions, and establishing hearing procedures for the rate case filed on September 30, 2021. Texas Eastern expects settlement discussions with customers. Inshippers will commence in the first quarter of 2020, Texas Eastern recognized revenues from the settled rates retroactive to June 1, 2019, and put the settled rates into effect on April 1, 2020.
Algonquin
On July 2, 2020, Algonquin Gas Transmission, LLC (Algonquin) received approval from the FERC of its uncontested rate case settlement with customers. In the third quarter of 2020, Algonquin recognized revenues from the settled rates retroactive to June 1, 2020, and put the settled rates into effect on September 1, 2020.2022.
BC Pipeline
In July 2020, the 2020-2021 rate settlement agreement with Westcoast Energy Inc.’s (Westcoast) BC Pipeline shippers was approved by the CER. Following approval of the settlement, Westcoast applied and received approval from the CER on August 12, 2020 for the interim tolls to be made final, including the interim tolls from January 1, 2020 to March 31, 2020 as well as the revised interim tolls in effect as of April 1, 2020.
East Tennessee Maritimes & Northeast and Alliance Pipeline
East Tennessee Natural Gas, LLC and the United States portions of both the Alliance Pipeline and the Maritimes & Northeast Pipeline(ETNG) filed a rate casescase in the second quarter of 2020 and customer settlement discussions commencedan agreement in principle was reached with shippers in April 2021. A Stipulation and Agreement was filed on May 21, 2021, approved by the FERC on September 10, 2021, and was effective on November 1, 2021.
Maritimes & Northeast Pipeline
The US portion of Maritimes & Northeast Pipeline filed a rate case in the fourthsecond quarter of 2020 and an agreement in principle was reached with shippers in December 2020. A Stipulation and Agreement was filed on February 21, 2021, approved by the FERC on April 30, 2021, and was effective on June 1, 2021.
Alliance Pipeline
The US portion of Alliance Pipeline filed a rate case in the second quarter of 2020 and an agreement in principle was reached with shippers in January 2021. A Stipulation and Agreement was filed on March 31, 2021, approved by the FERC on July 15, 2021, and was effective on September 1, 2021.
GAS DISTRIBUTION AND STORAGE RATE APPLICATIONS
20202021 Rate Application
Enbridge Gas'sGas Inc. (Enbridge Gas) rate applications are filed in two phases. As part of an Ontario Energy Board (OEB) Decision and Order issued in December 2019,November 2020, Phase 1 of the application for 20202021 rates (the 2021 Application), exclusive of funding for 2020 discrete incremental2021 capital investmentsinvestment funding requested through the incremental capital module (ICM) mechanism, was approved on an interim basis effective January 1, 2020.2021. Through a subsequent OEB Rate Order issued on June 11, 2020,3, 2021, Phase 2 of the application for 2020 rates,2021 Application, inclusive of funding for $124 million of Enbridge Gas requested 20202021 ICM amounts, was approved effective OctoberJuly 1, 2020,2021, and interim rates in effect from January 1, 2020 through September 30, 2020for 2021 were made final. The 2020 rate application,2021 Application, which represented the secondthird year of a five-year term, was filed in accordance with the parameters of the Enbridge Gas'sGas OEB approved Price Cap Incentive Regulation (IR) rate setting mechanism.
20212022 Rate Application
On June 30, 2020,2021, Enbridge Gas filed Phase 1 of anthe application with the OEB for the setting of rates for 2021.2022 (the 2022 Application). The 2021 rate application2022 Application was filed in accordance with the parameters of the Enbridge Gas'sGas OEB approved Price Cap IR rate setting mechanism and represents the thirdfourth year of a five-year term. On October 6, 2020, Enbridge Gas filed28, 2021, the OEB approved a Phase 1 Settlement Proposal and draft Interim Rate Orders with the OEB. A decision on PhaseOrder effective January 1, of Enbridge Gas's application is anticipated in the fourth quarter of 2020.2022. Phase 2 of the application2022 Application addressing 2021 ICM funding requirements was filed on October 15, 2020.2021.
SOLAR SELF-POWER PROJECTS
Alberta Solar One
In March 2021, we commenced commercial operations on our first self-powering solar generation facility in Alberta. The 10.5-megawatts (MW) solar project, located near Burdett, Alberta, will supply a portion of our Canadian Mainline power requirements with solar energy.
Heidlersburg Solar Project
On May 15, 2021, a 2.5 MW self-power facility, located at the Heidlersburg compressor station on the Texas Eastern system, was placed into service.
An additional four projects along our US Mainline and Flanagan South liquids systems, with a combined 35 MW of generation, are in pre-construction and expected to enter service in late 2022, further lowering our emissions.
FINANCING UPDATE
On February 20, 2020,10, 2021, we raisedentered into a three year, revolving, extendible, sustainability-linked credit facility for $1.0 billion with a syndicate of lenders. We concurrently cancelled a one-year, revolving, syndicated credit facility for $3.0 billion, ahead of its scheduled March 2021 maturity.
On February 19, 2021, we closed our inaugural US$750500 million two-year Secured Overnight Financing Rate (SOFR) based Floating Rate Note offering. Proceeds of two-year floating rate notes in thethis offering were used for repayment of two United States debt capital markets anddollars (USD) term loans for the equivalent aggregate amount which matured on April 1, 2020,February 25, 2021.
On May 12, 2021, Enbridge Gas completed a $1.2 billion dual tranchePipelines Inc. closed an $800 million dual-tranche medium-term notes (MTN) offering of 10-year and 30-year notes in the Canadian public debt market, split evenly between 10 and 30-year tranches. Proceeds of this offering were used to repay short-term debt, for capital markets. On May 12, 2020, we raised $1.3 billion with a dual tranche offering of 5-yearexpenditures and 7-year notes in the Canadian debt capital markets. On July 8, 2020, we raised an additional US$1.0 billion of 60-year hybrid subordinated notes in the United States debt capital markets. Through these capital market activities, we completed our 2020 debt funding plan and strengthened our financial position.for general corporate purposes.
In February 2020,On June 28, 2021, we closed three new non-revolving credit facilities totalinga dual-tranche debt offering consisting of an inaugural US$1.51.0 billion 12-year Sustainability-Linked senior note issuance and on March 31, 2020, we established a new syndicated one-year revolving credit facility inUS$500 million 30-year senior note issuance. The Sustainability-Linked senior notes follow the amount of $1.7 billion. On April 9, 2020, we increased the amountguidance of our new revolving facilitySustainability-Linked Bond Framework published on June 17, 2021, by an additional $1.3 billion, bringingincorporating greenhouse gas emissions intensity reduction and workforce diversity sustainability performance targets (SPTs) into the total amountfinancing terms. If the SPTs are not met, the interest rate on the Sustainability-Linked senior notes will increase, helping to $3.0 billion, significantly enhancingalign our available liquidity.funding strategies with our environmental, social and governance ambitions. The proceeds from the issuance were used to repay existing indebtedness, partially fund capital projects and for other general corporate purposes.
InOn July 2020,22 and 23, 2021, we renewed approximately $8.0 billion of our five-year credit facilities, extending the maturity date out to July 2026. We also extended approximately $10.0 billion of our 364 day364-day extendible credit facilities to July 2022, inclusive ofwhich includes a one-year term out provision.provision to July 2023.
On September 2, 2021, Texas Eastern completed a private placement of US$400 million 10-year senior notes, payable semi-annually maturing on September 2, 2031.
On September 15, 2021, Enbridge Gas closed a $900 million dual-tranche MTN offering in the Canadian debt capital markets, consisting of a $475 million 10-year tranche and a $425 million 30-year tranche, payable semi-annually, due September 15, 2031 and 2051, respectively.
On September 21, 2021, we closed a dual-tranche debt offering consisting of an inaugural $1.1 billion Canadian 12-year Sustainability-Linked MTN issuance and a $400 million 30-year MTN issuance. The Sustainability-Linked MTN issuance follows the Sustainability-Linked Bond Framework by incorporating greenhouse gas emissions intensity reduction, workforce diversity and representation of women on the Board of Directors SPTs into the financing terms. If the SPTs are not met, the interest rate on the Sustainability-Linked senior notes will increase, helping to further align our funding strategies with our environmental, social and governance ambitions. Proceeds of this offering have been used for repayment of short-term debt, capital expenditures and for general corporate purposes.
On October 1, 2020,4, 2021, we completedclosed a private placementthree tranche offering of aggregate US$1.5 billion senior notes consisting of US$300500 million 20-year senior2-year notes, for Texas EasternUS$500 million 5-year notes, and early redeemeda US$300500 million seniorre-opening of the 2051 notes originally due December 2020.issued in June 2021. Each tranche is payable semi-annually in arrears and matures on October 4, 2023, October 4, 2026, and August 1, 2051, respectively.
TheseThrough these financing activities, inwe have now completed our 2021 financing plan requirements. In combination with the asset monetizationfinancing activities noted below,executed in 2020, the 2021 financing activity is expected to provide significant liquidity and willto enable us to fund our current portfolio of capital projects without requiring access to the capital markets through 2021for the next 12 months if market access is restricted or pricing is unattractive. Refer to Liquidity and Capital Resources.
Credit Rating Action
ASSET MONETIZATIONOn June 1, 2021, Moody's Investors Service (Moody's) upgraded the credit ratings of Enbridge Inc. including our senior unsecured and issuer ratings to Baa1 from Baa2. Moody's also upgraded the credit ratings of our subsidiaries: Enbridge Energy Partners, L.P. (EEP), Enbridge Energy Limited Partnership (EELP), Spectra Energy Partners, LP (SEP) and Texas Eastern. The outlooks of all five entities are stable.
Ozark Gas Transmission and Ozark Gas Gathering
On April 1, 2020, we closed the sale of our Ozark assets for cash proceeds of approximately $63 million.
Montana-Alberta Tie Line
On May 1, 2020, we closed the sale of our MATL transmission assets for cash proceeds of approximately $189 million.ASSET MONETIZATION
Éolien Maritime France SAS
On May 1, 2020,March 18, 2021, we executed agreements to sellsold 49% of an entity that holds our 50% interest in Éolien Maritime France SAS (EMF) to the Canada Pension Plan Investment Board (CPP Investments) for initial proceeds in excess of $100 million.. CPP Investments will fund their 49% share of all ongoing future development capital. Through our investment in EMF, we own equity interests in three French offshore wind projects, including Saint-Nazaire (25.5%), Fécamp (17.9%) and Calvados (21.7%). The Calvados Offshore Wind Project reached a positive final investment decision in February 2021 and all three projects are now considered commercially secured and are under construction.
Noverco Inc.
On June 7, 2021, we entered into a definitive agreement to sell our 38.9% non-operating minority ownership interest in Noverco Inc. (Noverco) to Trencap L.P. for $1.1 billion in cash, subject to purchase price adjustments. Closing of the transaction is expected to occur by late 2021 or early 2022 and is subject to customary regulatory approvals and is expected to occur in the fourth quarter of 2020. Refer to Growth Projects - Commercially Secured Projects - Renewable Power Generation and Other Announced Projects Under Development.
FÉCAMP OFFSHORE WIND PROJECT CONSTRUCTION
On June 2, 2020, we announced the start of construction of the Fécamp Offshore Wind Project as well as the finalization of project financing agreements. Our second offshore wind project in France, this project will be comprised of 71 wind turbines that are expected to generate approximately 500-MW. Refer to Growth Projects - Commercially Secured Projects - Renewable Power Generation.
SOLAR SELF-POWER PROJECTS
Lambertville Compressor Station
In October 2020, we announced the completion of project development and construction of the first solar power plant in the United States designed to directly help power an interstate natural gas pipeline compressor station. The 2.25-MW solar project, located in West Amwell Township, New Jersey, will provide solar energy to the Texas Eastern Lambertville compressor station.
Alberta Solar One
In October 2020, we announced the start of construction on our first solar generation facility in Alberta. The 10.5-MW solar project, located near Burdett, Alberta, will supply a portion of our Canadian Mainline power requirements with solar energy. The project is expected to achieve commercial operations in the first quarter of 2021.
TEXAS EASTERN PIPELINE RETURN-TO-SERVICE
On May 4, 2020, a rupture occurred on Line 10, a 30-inch natural gas pipeline that makes up part of the Texas Eastern natural gas pipeline system in Fleming County, Kentucky. There were no reported injuries or damaged structures as a result of the rupture. We have lifted pressure restrictions on the Texas Eastern system related to eastbound service in time for the winter heating season after executing planned integrity work. We continue to prioritize the execution of our Gas Transmission integrity program and plan to have southbound service returned to operation within the next month. The Texas Eastern natural gas pipeline system extends approximately 1,700 miles from the Gulf Coast region of Texas and Louisiana to Ohio, Pennsylvania, New Jersey and New York.closing conditions.
RESULTS OF OPERATIONS
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars, except per share amounts) | (millions of Canadian dollars, except per share amounts) | | | | | | (millions of Canadian dollars, except per share amounts) | | | | | |
Segment earnings/(loss) before interest, income taxes and depreciation and amortization | Segment earnings/(loss) before interest, income taxes and depreciation and amortization | | | | | Segment earnings/(loss) before interest, income taxes and depreciation and amortization | | | | |
Liquids Pipelines | Liquids Pipelines | 2,090 | | 1,646 | | | 5,280 | | 5,710 | | Liquids Pipelines | 1,673 | | 2,090 | | | 5,756 | | 5,280 | |
Gas Transmission and Midstream | Gas Transmission and Midstream | 334 | | 772 | | | 230 | | 2,733 | | Gas Transmission and Midstream | 884 | | 334 | | | 2,725 | | 230 | |
Gas Distribution and Storage | Gas Distribution and Storage | 298 | | 252 | | | 1,285 | | 1,304 | | Gas Distribution and Storage | 282 | | 298 | | | 1,374 | | 1,285 | |
Renewable Power Generation | Renewable Power Generation | 93 | | 82 | | | 376 | | 300 | | Renewable Power Generation | 91 | | 93 | | | 362 | | 376 | |
Energy Services | Energy Services | (34) | | 91 | | | (12) | | 318 | | Energy Services | (204) | | (34) | | | (379) | | (12) | |
Eliminations and Other | Eliminations and Other | 207 | | (40) | | | (498) | | 315 | | Eliminations and Other | (121) | | 207 | | | 191 | | (498) | |
Earnings before interest, income taxes and depreciation and amortization | Earnings before interest, income taxes and depreciation and amortization | 2,988 | | 2,803 | | | 6,661 | | 10,680 | | Earnings before interest, income taxes and depreciation and amortization | 2,605 | | 2,988 | | | 10,029 | | 6,661 | |
Depreciation and amortization | Depreciation and amortization | (935) | | (844) | | | (2,766) | | (2,526) | | Depreciation and amortization | (944) | | (935) | | | (2,805) | | (2,766) | |
Interest expense | Interest expense | (718) | | (644) | | | (2,105) | | (1,966) | | Interest expense | (648) | | (718) | | | (1,923) | | (2,105) | |
Income tax expense | Income tax expense | (231) | | (255) | | | (273) | | (1,275) | | Income tax expense | (199) | | (231) | | | (952) | | (273) | |
Earnings attributable to noncontrolling interests | Earnings attributable to noncontrolling interests | (20) | | (15) | | | (25) | | (50) | | Earnings attributable to noncontrolling interests | (34) | | (20) | | | (93) | | (25) | |
Preference share dividends | Preference share dividends | (94) | | (96) | | | (284) | | (287) | | Preference share dividends | (98) | | (94) | | | (280) | | (284) | |
Earnings attributable to common shareholders | Earnings attributable to common shareholders | 990 | | 949 | | | 1,208 | | 4,576 | | Earnings attributable to common shareholders | 682 | | 990 | | | 3,976 | | 1,208 | |
Earnings per common share attributable to common shareholders | Earnings per common share attributable to common shareholders | 0.49 | | 0.47 | | | 0.60 | | 2.27 | | Earnings per common share attributable to common shareholders | 0.34 | | 0.49 | | | 1.97 | | 0.60 | |
Diluted earnings per common share attributable to common shareholders | Diluted earnings per common share attributable to common shareholders | 0.49 | | 0.47 | | | 0.60 | | 2.27 | | Diluted earnings per common share attributable to common shareholders | 0.34 | | 0.49 | | | 1.96 | | 0.60 | |
EARNINGS ATTRIBUTABLE TO COMMON SHAREHOLDERS
Three months ended September 30, 2020,2021, compared with the three months ended September 30, 20192020
Earnings attributable to common shareholders were positivelynegatively impacted by $204$531 million due to certain unusual, infrequent or other non-operating factors, primarily explained by the following:
•a non-cash, unrealized derivative fair value loss of $436 million ($332 million after-tax) in 2021, compared with a gain of $569 million ($427 million after-tax) in 2020, compared with a loss of $170 million ($130 million after-tax) in 2019, reflecting changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange risks;
•the absence in 2020 of a non-cash, unrealized loss of $62$88 million ($4767 million after-tax) in 2019 related2021, compared with an unrealized gain of $73 million ($55 million after-tax) in 2020, reflecting the revaluation of derivatives used to asset write-downmanage the profitability of transportation and goodwill impairment losses within our equity investee, DCP Midstream;storage transactions, as well as manage the exposure to movements in commodity prices; and
•the absence in 2020 of aan impairment loss of $105$111 million ($7983 million after-tax) in 2019 resulting from2021 to our investment in the write-off ofPennEast pipeline project costs relatedafter a decision by project partners to the Access Northeast Pipeline project.
The factors above were partially offset bycease development, compared to a combined impairment loss of $615 million ($452 million after-tax) in 2020 resulting from impairments to the carrying value of our equity method investments in SESHSoutheast Supply Header, L.L.C. (SESH) and Steckman refer to Part 1. Item 1. Financial Statements - Note 9. Impairment of Equity Investments.Ridge, LP (Steckman), which partially offset the factors above.
The non-cash, unrealized derivative fair value gains and losses discussed above generally arise as a result of aour comprehensive long-term economic hedging program to mitigate foreign exchange and commodity price risks. This program creates volatility in reported short-term earnings through the recognition of unrealized non-cash gains and losses on financial derivative instruments used to hedge these risks. Over the long-term, we believe our hedging program supports the reliable cash flows and dividend growth upon which our investor value proposition is based.
After taking into consideration the factors above, the remaining $163$223 million decreaseincrease in earnings attributable to common shareholders is primarily explained by the following significant business factors:
•stronger contributions from our Liquids Pipeline segment this year as COVID-19 restrictions lift and demand continues to recover;
•increased earnings from the Atlantic Bridge Phase III project in our Gas Transmission and Midstream segment which commenced service in January 2021; and
•lower interest expense primarily due to lower rates.
The positive factors above were partially offset by the net unfavorable effect of translating US dollar EBITDA to Canadian dollars at a lower average exchange rate in 2021 compared to the same period in 2020.
Nine months ended September 30, 2021, compared with the nine months ended September 30, 2020
Earnings attributable to common shareholders were positively impacted by $2.4 billion due to certain unusual, infrequent or other non-operating factors, primarily explained by the following factors:
•a non-cash, unrealized derivative fair value gain of $85 million ($65 million after-tax) in 2021, compared with a loss of $201 million ($151 million after-tax) in 2020, reflecting changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange risks, partially offset by a non-cash, unrealized loss of $102 million ($78 million after-tax) in 2021, compared with an unrealized gain of $24 million ($18 million after-tax) in 2020 reflecting the revaluation of derivatives used to manage the profitability of transportation and storage transactions and the exposure to movements in commodity prices;
•employee severance, transition and transformation costs of $106 million ($82 million after-tax) in 2021, compared to $303 million ($229 million after-tax) in 2020 primarily related to our voluntary workforce reduction program offered in the second quarter of 2020;
•an impairment loss of $111 million ($83 million after-tax) in 2021 to our investment in the PennEast pipeline project after a decision by project partners to cease development, compared to a combined impairment loss of $615 million ($452 million after-tax) in 2020 to our investments in SESH and Steckman;
•the absence in 2021 of a non-cash impairment to the carrying value of our investment in DCP Midstream, LLC (DCP Midstream) of $1.7 billion ($1.3 billion after-tax) recognized in 2020;
•the absence in 2021 of a loss of $324 million ($244 million after-tax) resulting from asset and goodwill impairment losses within DCP Midstream recognized in 2020; and
•the absence in 2021 of a loss of $159 million ($119 million after-tax) in 2020 resulting from the Texas Eastern rate case settlement that re-established the Excess Accumulated Deferred Income Tax (EDIT) regulated liability that was previously eliminated in December 2018.
After taking into consideration the factors above, the remaining $413 million increase in earnings attributable to common shareholders is primarily explained by the following significant business factors:
•stronger contributions from our Liquids Pipelines segment due to increased volumes and a higher International Joint Tariff (IJT) Benchmark Toll;
•increased earnings from our Gas Distribution and Storage segment due to increased rates and customer base;
•increased earnings from the Atlantic Bridge Phase III project in our Gas Transmission and Midstream segment which commenced service in January 2021; and
•lower interest expense primarily due to lower rates.
The positive business factors above were partially offset by the following:
•decreased earnings from our Energy Services segment due to the significant compression of location and quality differentials in certain markets, fewer storage opportunities due to market backwardation, adverse impacts from the major winter storm experienced across the US Midwest during February 2021 and fewer opportunities to achieve profitable transportation margins on facilities in which Energy Services holds capacity obligations;
•decreased earnings from our Liquids Pipelines segment duethe net unfavorable effect of translating US dollar EBITDA to Canadian dollars at a lower volume demand resulting fromaverage exchange rate in 2021 compared to the COVID-19 pandemic impact on supplysame period in 2020; and demand for crude oil and related products;
•the absence in 2021 of earningsthe recognition of revenue in 2020 from the federally-regulated portion of our Canadian natural gas gathering and processing businesses which were solda rate settlement on December 31, 2019; and
•higher depreciation and amortization expense as a result of new assets placed into service throughout 2019 and the first half of 2020, primarily the Canadian Line 3 Replacement (L3R) Program.
The business factors above wereTexas Eastern, partially offset by the following positive factors:
•stronger contributions from our Liquids Pipelines segmentincreased revenue due to a higher International Joint Tariff (IJT) Benchmark Toll;
•increased earnings from our Gas Distribution and Storage segment due to higher distribution charges resulting from increases in rates and customer base;
•increased earnings from our Gas Transmission and Midstream segment due to increased rates on Texas Eastern and Algonquin resulting from 2020 rate settlements;
•increased earnings from new Liquids Pipelines, Gas Transmission and Midstream, and Renewable Power Generation assets that were placed into service throughout 2019 and the first half of 2020; and
•lower operating and administrative costs in 2020 as a result of cost containment actions.
Nine months ended September 30, 2020, compared with the nine months ended September 30, 2019
Earnings attributable to common shareholders were negatively impacted by $3.0 billion due to certain unusual, infrequent or other non-operating factors, primarily explained by the following:
•a combined loss of $2.1 billion ($1.6 billion after-tax) related to our equity method investment in DCP Midstream due to a loss of $1.7 billion ($1.3 billion after-tax) resulting from an impairment to the carrying value of our investment and a loss of $324 million ($244 million after-tax) in 2020, compared with $62 million ($47 million after-tax) in 2019 resulting from further asset and goodwill impairment losses, refer to Part I. Item 1. Financial Statements - Note 9. Impairment of Equity Investments;
•a combined loss of $615 million ($452 million after-tax) in 2020 resulting from impairments to the carrying value of our equity method investments in SESH and Steckman, refer to Part I. Item 1. Financial Statements - Note 9. Impairment of Equity Investments;
•a non-cash, unrealized derivative fair value loss of $201 million ($151 million after-tax) in 2020, compared with a gain of $854 million ($626 million after-tax) in 2019, reflecting changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange risks;
•a loss of $159 million ($119 million after-tax) in 2020 resulting from the February 2020 Texas Eastern rate settlement that re-established the Excess Accumulated Deferred Income Tax (EDIT) regulated liability that was previously eliminated in December 2018; and
•employee severance, transition and transformation costs of $318 million ($240 million after-tax) in 2020 compared with $88 million ($78 million after-tax) in 2019 primarily related to our voluntary workforce reduction program offered in the second quarter of 2020.
The factors above were partially offset in 2020 by the absence of the loss of $105 million ($79 million after-tax)pressure restrictions that was incurred in 2019 resulting fromexisted on the write-off of project costs related to the Access Northeast Pipeline project.
After taking into consideration the factors above, the remaining $351 million decrease in earnings attributable to common shareholders is primarily explained by the following significant business factors:
•decreased earnings from our Energy Services segment due to the significant compression of location and quality differentials in certain markets and fewer opportunities to achieve profitable transportation margins on facilities where we hold capacity obligations;
•decreased earnings from our Gas Distribution and Storage segment due to warmer weather experienced in our franchise areas;
•the absence of earnings in 2020 from the federally-regulated portion of our Canadian natural gas gathering and processing businesses which were sold on December 31, 2019; and
•higher depreciation and amortization expense as a result of new assets placed into service throughout 2019 and the first half of 2020, primarily the Canadian L3R Program.
The business factors above were partially offset by the following positive factors:
•stronger contributions from our Liquids Pipelines segment due to a higher IJT Benchmark Toll;
•increased earnings from our Gas Transmission and Midstream segment due to increased rates on Texas Eastern and Algonquin resulting from 2020 rate settlements;
•increased earnings from new Liquids Pipelines, Gas Transmission and Midstream, and Renewable Power Generation assets that were placed into service throughout 2019 and the first half of 2020;
•lower operating and administrative costssystem in 2020 as a result of cost containment actions; and2020.
•the net favorable effect of translating United States dollar EBITDA at a higher Canadian to United
States dollar average exchange rate (Average Exchange Rate) of $1.35 in 2020 compared with $1.33 in 2019.
BUSINESS SEGMENTS
LIQUIDS PIPELINES
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | | | (millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | Earnings before interest, income taxes and depreciation and amortization | 2,090 | | 1,646 | | | 5,280 | | 5,710 | | Earnings before interest, income taxes and depreciation and amortization | 1,673 | | 2,090 | | | 5,756 | | 5,280 | |
Three months ended September 30, 2020,2021, compared with the three months ended September 30, 20192020
EBITDA was positivelynegatively impacted by $538$583 million due to certain unusual, infrequent or other non-operating factors, primarily explained by a non-cash, unrealized gainloss of $222 million in 2021, compared with unrealized gains of $360 million in 2020, compared with a loss of $180 million in 2019, reflecting net fair value gains and losses arising from changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange risks.
After taking into consideration the factorfactors above, the remaining $94$166 million decreaseincrease is primarily explained by the following significant business factors:
•lowerhigher Mainline System ex-Gretna throughput of 2,555 kbpd2.7 million barrels per day (mmbpd) in 2021 compared with 2.6 mmbpd in 2020 compared with 2,714 kbpd in 2019 due to lower volume demand resulting fromdriven by the COVID-19 pandemic impact on supply andrebounding demand for crude oil and related products; andproducts as economies continue to recover from the impacts of the COVID-19 pandemic;
•lower throughput onhigher equity income from our Bakken Pipeline System andinvestment in the Seaway Crude Pipeline System driven by increased volumes;
•higher throughput on our Wood Buffalo Extension and Waupisoo Pipeline as production in the significant impact of lower crude oil pricesAthabasca Basin continues to recover; and the COVID-19 pandemic on supply and demand for crude oil and related products.
•a higher foreign exchange hedge rate used to lock-in US dollar denominated Canadian Mainline revenue.
The positive business factors above were partially offset by the following positive factors:following:
•a higher IJT Benchmark Tolllower throughput on our Mainline System of US$4.27Flanagan South Pipeline (Flanagan South) driven by robust PADD II refinery demand resulting in 2020 compared with US$4.21 in 2019;
•contributions fromless volumes available to move towards the Canadian L3R Program that was placed into service on December 1, 2019 with an interim surcharge on Mainline System volumes of US$0.20 per barrel for the IJT Benchmark Toll;US Gulf Coast; and
•higher Flanagan South Pipeline throughput and the collectionnet unfavorable effect of revenue on volumes nominated but not shipped.translating US dollar EBITDA to Canadian dollars at a lower average exchange rate in 2021 compared with 2020.
Nine months ended September 30, 2020,2021, compared with the nine months ended September 30, 20192020
EBITDA was negativelypositively impacted by $504$248 million due to certain unusual, infrequent or other non-operating factors, primarily explained by a the following:
•non-cash, unrealized lossgains of $84 million in 2021, compared with unrealized losses of $90 million in 2020, compared with a gain of $390 million in 2019, reflecting net fair value gains and losses arising from changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange risks.
risks; and
After taking into consideration the factor above, the remaining $74 million increase is primarily explained by the following significant business factors:
•a higher IJT Benchmark Toll on our Mainline System of US$4.23 in 2020 compared with US$4.17 in 2019;
•contributions from the Canadian L3R Program that was placed into service on December 1, 2019 with an interim surcharge on Mainline System volumes of US$0.20 per barrel for the IJT Benchmark Toll;
•higher Flanagan South Pipeline throughput and the collection of revenue on volumes nominated but not shipped; and
•the net favorable effect of translating United States dollar EBITDA at a higher Average Exchange Rate of $1.35 in 2020 compared with $1.33 in 2019.
The positive business factors above were partially offset by:
•lower Mainline System ex-Gretna throughput of 2,612 kbpd in 2020 compared with 2,698 kbpd in 2019 due to lower volume demand resulting from the COVID-19 pandemic impact on supply and demand for crude oil and related products;
•lower throughput on our Bakken Pipeline System and Seaway Crude Pipeline System driven by the significant impact of lower crude oil prices and the COVID-19 pandemic on supply and demand for crude oil and related products; and
•lower Regional Oil Sands throughput for contracts with make-up rights resulting in lower revenue recognized until the rights expire or are utilized.
GAS TRANSMISSION AND MIDSTREAM
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | 2019 | | 2020 | 2019 |
(millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | 334 | | 772 | | | 230 | | 2,733 | |
Three months ended September 30, 2020, compared with the three months ended September 30, 2019
EBITDA was negatively impacted by $439 million due to certain unusual, infrequent or other non-operating factors, primarily explained by a combined loss of $615 million in 2020 resulting from impairments to the carrying value of our equity method investments in SESH and Steckman.
The factor above was partially offset by the following positive factors:
•the absence in 2020receipt of a lossproperty tax settlement of $62$57 million in 2019 related to asset write-down and goodwill impairment losses within our equity investee, DCP Midstream; and
•the absence in 2020 of a loss of $105 million in 2019 resulting from the write-off of project costs related to the Access Northeast Pipeline project.resolution of Minnesota property tax appeals for 2012-2018.
After taking into consideration the factors above, the remaining $1$228 million increase is primarily explained by the following significant business factors:
•higher revenuesMainline system ex-Gretna average throughput of 2.7 mmbpd in 2021 as compared to 2.6 mmbpd in 2020 driven by the rebounding demand for crude oil and related products as economies continue to recover from the impacts of the COVID-19 pandemic;
•a higher average IJT Benchmark Toll on our Mainline System of US$4.27 in 2021, compared with US$4.23 in 2020;
•a higher foreign exchange hedge rate used to lock-in US dollar denominated Canadian Mainline revenue;
•an increased rates on Texas Eastern and Algonquin resultingCTS surcharge of US$0.11 per barrel in 2021, compared to US$0.07 per barrel in 2020;
•higher equity income from 2020 rate settlements;our investment in the Seaway Crude Pipeline System driven by increased volumes; and
•contributions from the second phase of the Atlantic Bridge project that was placed into servicehigher throughput on our Wood Buffalo Expansion and Waupisoo Pipeline as production in the fourth quarter of 2019.Athabasca Basin continues to recover.
The positive business factors above were partially offset by the following:following factors:
•lower throughput on Flanagan South as a result of robust refinery demand in PADD II resulting in less volumes available to move towards the US Gulf Coast; and
•the absencenet unfavorable effect of earningstranslating US dollar EBITDA to Canadian dollars at a lower average exchange rate in 2020 from2021, compared with the federally-regulated portion of our Canadian natural gas gathering and processing businesses which were sold on December 31, 2019;same period in 2020.
GAS TRANSMISSION AND MIDSTREAM
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | 884 | | 334 | | | 2,725 | | 230 | |
Three months ended September 30, 2021, compared with the three months ended September 30, 2020
EBITDA was positively impacted by $509 million due to certain unusual, infrequent or other non-operating factors, primarily explained by the following factors:
•lower revenues onan impairment loss of $111 million in 2021 to our US Gas Transmission assets dueinvestment in the PennEast pipeline project after a decision by project partners to pressure restrictions on Texas Eastern;cease development, compared to a combined impairment loss of $615 million in 2020 to our investments in SESH and Steckman; and
•lowera non-cash, equity earnings decline of $38 million in 2021, compared with a decline of $5 million in 2020 relating to changes in the mark-to-market value of derivative financial instruments of our equity method investee, DCP Midstream, which partially offset the positive factors above.
After taking into consideration the factors above, the remaining $41 million increase is primarily explained by the following significant business factors:
•higher commodity prices impactingbenefiting our Aux Sable and DCP joint venture.ventures;
•increased revenue due to the absence of pressure restrictions that existed on the Texas Eastern system in 2020;
•contributions from the Atlantic Bridge Phase III project after service commenced in January 2021; and
•the net unfavorable effect of translating US dollar EBITDA to Canadian dollars at a lower average exchange rate in 2021, compared to the same period in 2020, which partially offset the positive factors above.
Nine months ended September 30, 2020,2021, compared with the nine months ended September 30, 20192020
EBITDA was negativelypositively impacted by $2.6 billion due to certain unusual, infrequent or other non-operating factors, primarily explained by the following:
•aan impairment loss of $1.7 billion$111 million in 2021 to our investment in the PennEast pipeline project after a decision by project partners to cease development, compared to a combined impairment loss of $615 million in 2020 resulting from anto our investments in SESH and Steckman;
•the absence in 2021 of a non-cash impairment to the carrying value of our equity method investment in DCP Midstream related to a declineof $1.7 billion recognized in the market price of DCP Midstream, LP's publicly-traded units;2020;
•the absence in 2021 of a loss of $324 million in 2020 compared with $62 million in 2019 resulting from further asset and goodwill impairment losses within our equity method investee, DCP Midstream;Midstream recognized in 2020;
•a combined lossthe absence in 2021 of $615 million in 2020 resulting from impairments to the carrying value of our equity method investments in SESH and Steckman; and
•a loss of $159 million in 2020 resulting from the February 2020 Texas Eastern rate case settlement that re-established the EDIT regulated liability that was previously eliminated in December 2018.2018; and
•
The factors above werea decline in equity earnings of $104 million in 2021, compared with a positive impact of $26 million in 2020 relating to changes in the mark-to-market value of derivative financial instruments of our equity method investee, DCP Midstream, which partially offset by the absence in 2020 of a loss of $105 million in 2019 resulting from the write-off of project costs related to the Access Northeast Pipeline project.positive factors above.
After taking into consideration the factors above, the remaining $97 million increase is primarily explained by the following significant business factors:
•higher revenues from increased rates on Texas Eastern and Algonquin resulting from 2020 rate settlements;
•contributions from the Stratton Ridge project and the second phase of the Atlantic Bridge project that were placed into service in the second and fourth quarters of 2019, respectively; and
•the net favorable effect of translating United States dollar EBITDA at a higher Average Exchange Rate of $1.35 in 2020 compared with $1.33 in 2019.
The positive business factors above were partially offset by the following:
•the absence of earnings in 2020 from the federally-regulated portion of our Canadian natural gas gathering and processing businesses which were sold on December 31, 2019;
•lower revenues on our US Gas Transmission assets due to pressure restrictions on Texas Eastern;
•narrowed AECO-Chicago basis at our Alliance Pipeline joint venture; and
•lower commodity prices impacting our Aux Sable joint venture.
GAS DISTRIBUTION AND STORAGE
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | 2019 | | 2020 | 2019 |
(millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | 298 | | 252 | | | 1,285 | | 1,304 | |
Three months ended September 30, 2020, compared with the three months ended September 30, 2019
EBITDA was negatively impacted by $14 million due to certain unusual, infrequent and other non-operating factors, explained by transition and transformation costs of $28 million in 2020 compared with $4 million in 2019 primarily related to the amalgamation of Enbridge Gas Distribution Inc. (EGD) and Union Gas Limited (Union Gas). This factor was partially offset by a non-cash, unrealized gain of $11 million in 2020 compared with an unrealized gain of $1 million in 2019 arising from the change in the mark-to-market value of Noverco's derivative financial instruments.
After taking into consideration the factors above, the remaining $60 million increase is primarily explained by the following significant business factors:
•higher distribution charges resulting from increases in rates and customer base; and
•synergy capture realized from the amalgamation of EGD and Union Gas.
The positive business factors above were partially offset by the absence of earnings in 2020 from Enbridge Gas New Brunswick (EGNB) and St. Lawrence Gas Company, Inc. (St. Lawrence Gas) which were sold on October 1, 2019 and November 1, 2019, respectively.
Nine months ended September 30, 2020, compared with the nine months ended September 30, 2019
EBITDA was negatively impacted by $11 million due to certain unusual, infrequent and other non-operating factors, primarily explained by a non-cash, unrealized gain of $2 million in 2020 compared with an unrealized gain of $9 million in 2019 arising from the change in the mark-to-market value of Noverco's derivative financial instruments.
After taking into consideration the factor above, the remaining $8$89 million decrease is primarily explained by the following significant business factors:
•warmer weather experiencedthe net unfavorable effect of translating US dollar EBITDA at a lower Canadian to US dollar average exchange rate in our franchise service areas2021, compared to the same period in 2020 when compared with the colder than normal weather experienced in 2019. When compared with the normal weather forecast embedded in rates, the warmer weather in 2020 negatively impacted 2020 EBITDA by approximately $18 million while the colder weather in 2019 positively impacted 2019 EBITDA by approximately $51 million;2020; and
•the absence in 2021 of earningsthe recognition of revenue in 2020 that related to the settlement of interim rates collected from EGNB and St. Lawrence Gas which were soldshippers on OctoberTexas Eastern, retroactive to June 1, 2019 and November 1, 2019, respectively.2019.
The business factors above were partially offset by the following positive factors:
•higher commodity prices benefiting our Aux Sable and DCP Midstream joint ventures;
•increased revenue due to the absence of pressure restrictions that existed on the Texas Eastern system in 2020; and
•contributions from the Atlantic Bridge Phase III project after service commenced in January 2021.
GAS DISTRIBUTION AND STORAGE
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | 282 | | 298 | | | 1,374 | | 1,285 | |
Three months ended September 30, 2021, compared with the three months ended September 30, 2020
EBITDA was negatively impacted by $16 million primarily explained by higher operating and administrative expense largely driven by the timing in spend, partially offset by higher distribution charges resulting from increases in rates and customer base; and
•synergy capture realized from the amalgamation of EGD and Union Gas.base.
RENEWABLE POWER GENERATION
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | 2019 | | 2020 | 2019 |
(millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | 93 | | 82 | | | 376 | | 300 | |
ThreeNine months ended September 30, 2020,2021, compared with the threenine months ended September 30, 20192020
EBITDA was positively impacted by $11 million primarily explained by contributions from the Hohe See Offshore Wind Project, which reached full operating capacity in October 2019 and the Albatros expansion, which was placed into service in January 2020. This positive business factor was partially offset by higher mechanical repair costs at certain United States wind facilities.
Nine months ended September 30, 2020, compared with the nine months ended September 30, 2019
EBITDA was positively impacted by $20$16 million due to certain unusual, infrequent and other non-operating factors, primarily explained by a non-cash, unrealized gain of $4$12 million on disposal and a $9in 2021, compared with an unrealized gain of $2 million further revision toin 2020 arising from the fairchange in the mark-to-market value of our MATL transmission assets.Noverco's derivative financial instruments and COVID-19 costs of $3 million in 2021 compared with $8 million in 2020.
After taking into consideration the factorfactors above, the remaining $56$73 million increase is primarily explained by the following significant business factors:
•contributionshigher distribution charges resulting from the Hohe See Offshore Wind Project, which reached full operating capacityincreases in October 2019rates and the Albatros expansion, which was placed into service in January 2020;
•stronger wind resources at United States wind facilities;customer base growth; and
•reimbursements received at certain Canadian wind facilities resulting from a change in operator.higher storage revenue, mainly relating to storage optimization activities.
The positive business factors above were partially offset by the following factors:
•higher mechanical repairoperating and administrative costs at certain United States wind facilities.largely related to operational, pipeline integrity and safety costs; and
•when compared with the normal weather forecast embedded in rates, weather was warmer in both 2021 and 2020, negatively impacting EBITDA in both years. Warmer than normal weather in 2021 negatively impacted 2021 EBITDA by approximately $24 million while the warmer than normal weather in 2020 negatively impacted 2020 EBITDA by approximately $18 million.
RENEWABLE POWER GENERATION
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | | | | | |
Earnings before interest, income taxes and depreciation and amortization | 91 | | 93 | | | 362 | | 376 | |
Three months ended September 30, 2021, compared with the three months ended September 30, 2020
EBITDA was lower by $2 million primarily due to lower wind resources at Canadian wind facilities, which was partially offset by lower mechanical repair costs at certain US wind facilities.
Nine months ended September 30, 2021, compared with the nine months ended September 30, 2020
EBITDA was negatively impacted by $9 million due to certain unusual, infrequent and other non-operating factors, primarily explained by an absence in 2021 of a gain of $13 million related to the sale of the Montana Alberta Tie Line transmission net assets in 2020.
After taking into consideration the factor above, the remaining $5 million decrease is primarily explained by the following business factors:
• weaker wind resources at Canadian wind facilities and the effects from the winter storm in Texas during February 2021; and
• the absence in 2021 of reimbursements received in 2020 at certain Canadian wind facilities resulting from a change in operator.
The business factors above were partially offset by the sale of a 49% interest of an entity that holds our 50% interest in EMF.
ENERGY SERVICES
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | | | (millions of Canadian dollars) | | | | | |
Earnings/(loss) before interest, income taxes and depreciation and amortization | (34) | | 91 | | | (12) | | 318 | | |
Loss before interest, income taxes and depreciation and amortization | | Loss before interest, income taxes and depreciation and amortization | (204) | | (34) | | | (379) | | (12) | |
EBITDA from Energy Services is dependent on market conditions and results achieved in one period may not be indicative of results to be achieved in future periods.
Three months ended September 30, 2020,2021, compared with the three months ended September 30, 2019
EBITDA was positively impacted by $12 million due to certain unusual, infrequent or other non-operating factors, explained by the following:
•a non-cash, unrealized gain of $73 million in 2020 compared with a gain of $66 million in 2019, reflecting the revaluation of derivatives used to manage the profitability of transportation and storage transactions, as well as manage the exposure to movements in commodity prices; and
•a non-cash, net positive adjustment to crude oil and natural gas inventories of $3 million in 2020 compared with a net negative adjustment of $2 million in 2019.
After taking into consideration the factors above, the remaining $137 million decrease reflects the significant compression of location and quality differentials in certain markets and fewer opportunities to achieve profitable transportation margins on facilities in which Energy Services holds capacity obligations.
Nine months ended September 30, 2020, compared with the nine months ended September 30, 2019
EBITDA was negatively impacted by $2$164 million due to certain unusual, infrequent or other non-operating factors, primarily explained by a non-cash, net positive adjustment to crude oil and natural gas inventoriesunrealized loss of $1$88 million in 20202021, compared with a net positive adjustment of $83 million in 2019. This negative factor was partially offset by a non-cash,an unrealized gain of $24$73 million in 2020, compared with a loss of $56 million in 2019, reflecting the revaluation of derivatives used to manage the profitability of transportation and storage transactions, as well as manage the exposure to movements in commodity prices.
After taking into consideration the factors above, the remaining $328$6 million decrease reflectsis primarily explained by the significant compression of location and quality differentials in certain markets and limited storage opportunities in 2021 due to market backwardation compared to favorable storage opportunities in 2020.
Nine months ended September 30, 2021, compared with the nine months ended September 30, 2020
EBITDA was negatively impacted by $127 million due to certain non-operating factors, explained primarily by a non-cash, unrealized loss of $102 million in 2021, compared with an unrealized gain of $24 million in 2020, reflecting the revaluation of derivatives used to manage the profitability of transportation and storage transactions, as well as manage the exposure to movements in commodity prices.
After taking into consideration the factors above, the remaining $240 million decrease is primarily explained by the following significant factors:
•significant compression of location and quality differentials in certain markets;
•limited storage opportunities in 2021 due to market backwardation compared to favorable storage opportunities in 2020;
•adverse impacts from the major winter storm experienced across the US Midwest during February 2021; and
•fewer opportunities to achieve profitable transportation margins on facilities in which Energy Services holds capacity obligations, partially offset by favorable storage opportunities. The first quarter of 2019 was exceptionally strong, benefiting from favorable location and quality differentials, which increased opportunities to realize profitable margins.obligations.
ELIMINATIONS AND OTHER
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | 2019 | | 2020 | 2019 | | 2021 | 2020 | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | | (millions of Canadian dollars) | | | | |
Earnings/(loss) before interest, income taxes and depreciation and amortization | Earnings/(loss) before interest, income taxes and depreciation and amortization | 207 | | (40) | | | (498) | | 315 | | Earnings/(loss) before interest, income taxes and depreciation and amortization | (121) | | 207 | | | 191 | | (498) | |
Eliminations and Other includes operating and administrative costs and the impact of foreign exchange hedge settlements, which are not allocated to business segments. Eliminations and Other also includes the impact of new business development activities and corporate investments.
Three months ended September 30, 2020,2021, compared with the three months ended September 30, 20192020
EBITDA was positivelynegatively impacted by $199$422 million due to certain unusual, infrequent and other non-operating factors, primarily explained by a non-cash,an unrealized loss of $214 million in 2021, compared with an unrealized gain of $198 million in 2020, compared with a gain of $9 million in 2019, reflecting the change in the mark-to-market value of derivative financial instruments used to manage foreign exchange risk.
After taking into consideration the factornon-operating factors above, the remaining $48$94 million increase is primarily explained by lower operating and administrative costs in 2020 as a result of cost containment actions andrealized gains related to settlements under our enterprise-wide foreign exchange risk management program which substantially offset the timing of the recovery of certain operating administrative costs allocated to theforeign currency exposures realized within our business segments.segments' results.
Nine months ended September 30, 2020,2021, compared with the nine months ended September 30, 20192020
EBITDA was negativelypositively impacted by $909$414 million due to certain unusual, infrequent and other non-operating factors, primarily explained by the following:
•a non-cash, unrealized loss of $17 million in 2021, compared with an unrealized loss of $115 million in 2020, compared with a gain of $453 million in 2019, reflecting the change in the mark-to-market value of derivative financial instruments used to manage foreign exchange risk;
•employee severance, transition and transformation costs of $262$60 million in 20202021, compared with $45to $259 million in 2019 primarily related to our voluntary workforce reduction program offered in the second quarter of 2020;
•the absence in 2021 of a loss of $74 million in 2020 from non-cash changes inrelating to the recognition of a corporate guarantee obligation; and
•the absence in 2021 of a loss of $43 million in 2020 fromrelating to the write-down of certain investments in emerging energy and other technologies.
After taking into consideration the non-operating factors above, the remaining $96$275 million increase is primarily explained by lower operating and administrative costs in 2020 as a result of cost containment actions andrealized gains related to settlements under our enterprise-wide foreign exchange risk management program which substantially offset the timing of the recovery of certain operating administrative costs allocated to theforeign currency exposures realized within our business segments.segments' results.
GROWTH PROJECTS – COMMERCIALLY SECURED PROJECTS
The following table summarizes the status of our significant commercially secured projects, organized by business segment:
| | | | Enbridge's Ownership Interest | Estimated Capital Cost1 | Expenditures to Date2 | Status | Expected In-Service Date | | | Enbridge's Ownership Interest | Estimated Capital Cost1 | Expenditures to Date2 | Status2 | Expected In-Service Date |
(Canadian dollars, unless stated otherwise) | (Canadian dollars, unless stated otherwise) | | (Canadian dollars, unless stated otherwise) | |
LIQUIDS PIPELINES | LIQUIDS PIPELINES | | LIQUIDS PIPELINES | |
1. | 1. | United States Line 3 Replacement Program | 100 | % | US$2.9 billion | US$1.7 billion | Various Stages | Under review3 | 1. | US Line 3 Replacement Program | 100 | % | US$4.0 billion | Complete | In-service |
2. | 2. | Southern Access Expansion | 100 | % | US$0.5 billion | Under construction | Under review4 | 2. | Southern Access Expansion | 100 | % | US$0.5 billion | Complete | In-service |
3. | 3. | Other - United States | 100 | % | US$0.1 billion | Under construction | 1H - 2021 | 3. | Other - US | 100 | % | US$0.1 billion | Complete | In-service |
GAS TRANSMISSION AND MIDSTREAM | GAS TRANSMISSION AND MIDSTREAM | | GAS TRANSMISSION AND MIDSTREAM | |
4. | 4. | T-South Reliability & Expansion Program | 100 | % | $1.0 billion | $0.7 billion | Under construction | 2H - 2021 | 4. | T-South Reliability & Expansion Program3 | 100 | % | $1.0 billion | $0.9 billion | Under construction | Q4 - 2021 |
5. | 5. | Spruce Ridge Project5 | 100 | % | $0.5 billion | $0.2 billion | Under construction | 2H - 2021 | 5. | Spruce Ridge Project3 | 100 | % | $0.5 billion | $0.4 billion | Under construction | Q4 - 2021 |
| 6. | 6. | Other - United States6 | Various | US$1.0 billion | US$0.4 billion | Various stages | 2020 - 2023 | 6. | Other - US4 | Various | US$0.6 billion | US$0.4 billion | Various stages | 2021 - 2023 |
GAS DISTRIBUTION AND STORAGE | GAS DISTRIBUTION AND STORAGE | | GAS DISTRIBUTION AND STORAGE | |
7. | 7. | System Modernization - Windsor & Owen Sound | 100 | % | $0.2 billion | $0.1 billion | Under construction | Q4 - 2020 | 7. | System Enhancement Projects | 100 | % | $0.4 billion | $0.1 billion | Various stages | 2021 - 2023 |
8. | 8. | London Line Replacement Project | 100 | % | $0.2 billion | No significant expenditures to date | Pre-construction | 2H - 2021 | 8. | Storage Enhancements | 100 | % | $0.1 billion | No significant expenditures to date | Under construction | 2021 - 2022 |
9. | 9. | Utility Growth Capital & Storage Enhancements | 100 | % | $0.3 billion | No significant expenditures to date | Pre-construction | 2021 - 2023 | 9. | Natural Gas Expansion Program5 | 100 | % | $0.1 billion | No significant expenditures to date | Pre-construction | 2022 - 2027 |
RENEWABLE POWER GENERATION | RENEWABLE POWER GENERATION | | RENEWABLE POWER GENERATION | |
10. | 10. | East-West Tie Line | 25.0 | % | $0.2 billion | $0.1 billion | Under construction | 1H - 2022 | 10. | East-West Tie Line | 25.0 | % | $0.2 billion | Under construction | 1H - 2022 |
11. | 11. | Saint-Nazaire France Offshore Wind Project7 | 25.5 | % | $0.9 billion | $0.1 billion | Under construction | 2H - 2022 | 11. | Solar Self-Power Projects6 | 100 | % | US$0.1 billion | No significant expenditures to date | Pre-construction | 2H - 2022 |
(€0.6 billion) | (€0.1 billion) | |
12. | 12. | Fécamp Offshore Wind Project8 | 17.9 | % | $0.7 billion | No significant expenditures to date | Under construction | 2023 | 12. | Saint-Nazaire France Offshore Wind Project7 | 25.5 | % | $0.9 billion | $0.4 billion | Under construction | 2H - 2022 |
(€0.5 billion) | (€0.6 billion) | (€0.3 billion) |
13. | | 13. | Fécamp Offshore Wind Project8 | 17.9 | % | $0.7 billion | $0.2 billion | Under construction | 2023 |
| (€0.5 billion) | (€0.1 billion) |
14. | | 14. | Calvados Offshore Wind Project9 | 21.7 | % | $0.9 billion | $0.1 billion | Under construction | 2024 |
| (€0.6 billion) | (€0.1 billion) |
1 These amounts are estimates and are subject to upward or downward adjustment based on various factors. Where appropriate, the amounts reflect our share of joint venture projects.
2 Expenditures to date reflect total cumulative expenditures incurred from inceptionand status of the project up toare determined as at September 30, 2020.2021.
3 Update to in-service date pending receipt of all permits required to complete construction.The T-South Reliability & Expansion Program and the Spruce Ridge Project commenced service on November 1, 2021.
4 Estimated in-service date will be adjusted to coincide with the in-service date of the U.S. L3R Program.
5 Expenditures were revised in the second quarter of 2020 due to scope modifications.
6 Includes the US$0.1 billion Sabal Trail Phase II projectTexas Eastern Middlesex Extension placed into service on May 1, 2020.in the third quarter of 2021.
5 Represents Phase 2 of the Natural Gas Expansion Program (the Program) and the estimated capital cost is presented net of the maximum funding assistance we expect to receive from the Government of Ontario. The expected in-service dates represent the expected completion dates of the leave to construct requirements.
6 Self-Power Projects consists of four solar projects along our US Mainline and Flanagan South liquids systems. All four will be located at existing pump stations—Adams (6.9 MW), Vesper (8.8 MW) and Portage (8 MW) in central Wisconsin, and Flanagan (10 MW) in north-central Illinois.
7 Reflects the sale of 49% of an entity that holds our 50% interest in EMF to CPP Investments expected to closethat closed in the fourthfirst quarter of 2020. After closing, our2021. Our equity contribution will beis $0.15 billion, with the remainder of the project financed through non-recourse project level debt.
8 Reflects the sale of 49% of an entity that holds our 50% interest in EMF to CPP Investments expected to closethat closed in the fourthfirst quarter of 2020. After closing, our2021. Our equity contribution will be $0.10is $0.1 billion, with the remainder of the project financed through non-recourse project level debt.
9 Reflects the sale of 49% of an entity that holds our 50% interest in EMF to CPP Investments that closed in the first quarter of 2021. Our equity contribution is $0.1 billion, with the remainder of the project financed through non-recourse project level debt.
A full description of each of our projects is provided in our annual report on Form 10-K.10-K for the year ended December 31, 2020. Significant updates that have occurred since the date of filing of our Form 10-K are discussed below.
GAS TRANSMISSION AND MIDSTREAM
•Sabal Trail Phase IIPennEast Pipeline Project -an expansionapproximately 190-kilometer pipeline that would run from Pennsylvania to New Jersey. It was designed to deliver approximately 1.1 billion cubic feet per day (bcf/day) of additional natural gas pipeline capacity to serve local distribution companies and power generators in Southeastern Pennsylvania and New Jersey. On September 27, 2021, PennEast Pipeline Company, L.L.C. (PennEast) announced that further development of the project was no longer viable. Accordingly, PennEast has ceased further development of the project and our existing Sabal Trail pipeline throughinvestment in the additionproject has been impaired. For additional disclosure on the PennEast impairment, refer to Part I. Item 1 - Financial Statements - Note 8. Impairment of two new greenfield compressor stations in Albany, Georgia and Dunnellon, Florida. The expansion received FERC approval in April 2020 and was placed into service on May 1, 2020.Equity Investments.
GAS DISTRIBUTION AND STORAGE
•Dawn-Parkway Expansion - System Enhancement Projectsan expansion –Consists of the existing Dawn to Parkway gas transmission system, which provides transportation service from Dawn, Ontario to the Greater Toronto Area.In October 2020, due to changes in demand and uncertainties resulting from the COVID-19 pandemic, Enbridge Gas withdrew the leave to construct application with the OEB. Enbridge Gas will continue to assess demand requirements for the expansion and refile as needed in the future.
•London Line Replacement Project, - a project thatthe Lake Shore KOL Replacement Project and St. Laurent Ottawa North Replacement Project. The London Line Replacement Project will replace the two current pipelines known collectively as the London Line and includes the construction of approximately 90.5-kilometers of natural gas pipeline and ancillary facilities in southern Ontario. The project is expected to be placed into service in the fourth quarter of 2021. The Lake Shore Kipling Oshawa Loop (KOL) Replacement Project is a replacement of approximately 4.5-kilometers of natural gas pipeline and ancillary facilities of the Cherry to Bathurst segment of the KOL along Lake Shore Boulevard in the City of Toronto. The project is expected to be placed into service in the second half of 2022. The St. Laurent Ottawa North Replacement Project is a replacement of approximately 16-kilometers of natural gas pipeline in the City of Ottawa. The project will be completed in multiple phases over multiple years with the first two phases already complete. Phases 3 and 4 represent approximately 11.4-kilometers of pipeline and are expected to be in service in late 2022 and late 2023, respectively.
•Utility Growth Capital & Storage Enhancements -Natural Gas Expansion Program – utility growth capital expenditures including regulated rate base system reinforcements and an enhancementThe Program was created under Ontario's Access to Natural Gas Act, 2018 to help expand access to natural gas to areas of our unregulated storage facilities at Dawn,Ontario that currently do not have access to the natural gas distribution system. Funding assistance was approved for Enbridge Gas under Phase 1 of the Program. To date, Enbridge Gas has initiated five of the projects approved for funding under the Program, with continued progress through 2021. On June 8, 2021, the Government of Ontario approved additional funding for projects under Phase 2 of the Program, under which Enbridge Gas will be provided up to $214 million in funding assistance to deliver 27 expansion projects throughout Ontario.
RENEWABLE POWER GENERATION
•East-West Tie Line -Solar Self-Power Projects a transmission project that will parallel an– four solar projects co-located at existing double-circuit, 230 kilovolt transmission line that connectspump stations with behind-the-meter interconnections. The projects are expected to support our emissions reduction goals and are expected to be placed into service in the Wawa Transformer Station to the Lakehead Transformer Station near Thunder Bay, Ontario, including a connection midway in Marathon, Ontario. Due to a construction stoppage caused by the COVID-19 pandemic, the revised expected in-service date is the firstsecond half of 2022.
•FécampCalvados Offshore Wind Project -– an offshore wind project that will be comprised of 71 wind turbines located off the northwest coast of France andthat is expected to generate approximately 500-MW.448 MW. Project revenues are underpinned by a 20-year fixed price power purchase agreement.
On May 1, 2020,During the first quarter of 2021, we executed agreements to sellsold 49% of an entity that holds our 50% interest in EMF to CPP Investments, inclusive ofInvestments. EMF holds equity interests in the Fécamp Offshore Wind Project, and the Saint-Nazaire France Offshore Wind Project and the Calvados Offshore Wind Project. CPP Investments will fund their 49% share of all ongoing future development capital. Closing of the transaction is subject to customary regulatory approvals and is expected to occur in the fourth quarter of 2020.
GROWTH PROJECTS - REGULATORY MATTERS
United States Line 3 Replacement Program
On February 3, 2020, and through its subsequent order on May 1, 2020, the Minnesota Public Utilities Commission (MNPUC) deemed the second revised final Environmental Impact Statement (EIS) adequate and reinstated the Certificate of Need and Route Permit, allowing for construction of the pipeline to commence following the issuance of required permits. On May 21, 2020, various parties filed petitions for reconsideration with the MNPUC contesting the adequacy of the EIS and the MNPUC’s restored grant of the Certificate of Need and Route Permit. On June 1, 2020, Enbridge and various supporting parties filed responses to those filed petitions for reconsideration. On June 25, 2020 the MNPUC denied all petitions for reconsideration reaffirming its prior decisions in all three dockets.
As for environmental permits, the Minnesota Pollution Control Agency (MPCA) released a draft of the revised 401 Water Quality Certificate in February 2020. Following a public comment period, the MPCA announced on June 3, 2020 that it would conduct a contested case hearing regarding the 401 Water Quality Certificate. After an Administrative Law Judge (ALJ) was assigned to the case, the contested case hearing schedule was established on June 23, 2020. The MPCA's contested case hearing is now complete and on October 16, 2020, the MPCA received a favorable recommendation from the ALJ on all five of the issues considered. This recommendation will inform the MPCA Commissioner's decision on the 401 Water Quality Certificate which we anticipate by the statutory deadline of November 14, 2020.
During the third quarter, the necessary construction stormwater permit was issued by the MPCA and subsequent to the third quarter, we received two of our required permits from the Minnesota Department of Natural Resources (DNR). The remaining United States Army Corps of Engineers (Army Corps) and DNR permitting processes are ongoing and continue to progress in parallel.
At this time, we cannot determine when all necessary permits to commence construction will be issued. Once we receive all necessary permits and the Authorization to Construct from the MNPUC, we expect Minnesota construction to take 6 to 9 months. At this time, the total cost estimate for the Minnesota portion of the United States Line 3 Replacement Program is under review.
OTHER ANNOUNCED PROJECTS UNDER DEVELOPMENT
TheWe have announced the following projects, have been announced by us, but they have not yet met our criteria to be classified as commercially secured:
RENEWABLE POWER GENERATIONGAS TRANSMISSION AND MIDSTREAM
•Éolien Maritime France SAS -Rio Bravo Pipeline –The Rio Bravo Pipeline is designed to transport up to 4.5 bcf/day of natural gas from the Agua Dulce supply area to NextDecade's Rio Grande LNG export facility in the Port of Brownsville, Texas. We have acquired the Rio Bravo Pipeline development project from NextDecade. In addition, we have executed a precedent agreement with NextDecade under which we will provide firm transportation capacity on May 1, 2020, we executed agreementsthe Rio Bravo Pipeline to sell 49%NextDecade's Rio Grande LNG export facility for a term of an entity that holds our 50% interest in EMF to CPP Investments. Closingat least 20 years. Construction of the transaction ispipeline will be subject to customary regulatory approvals and is expected to occur in the fourth quarter of 2020. CPP Investments will fund their 49% share of all ongoing future development capital. After the transaction closes, through our investment in EMF, we will own equity interests in three French offshore wind projects, including Saint-Nazaire (25.5%), Fécamp (17.9%) and Courseulles (21.7%). The Saint-Nazaire France Offshore Wind Project reached a positive final investment decision in 2019 and the Fécamp Offshore Wind Project reached a positive final investment decision in June 2020 and both projects are now considered to be commercially secured. The remaining project, Courseulles, is expected to reachRio Grande LNG export facility reaching a final investment decisiondecision.
•Ridgeline Expansion Project Opportunity –We are working on a potential expansion of the ETNG system which would provide additional natural gas for the Tennessee Valley Authority (TVA) to support the replacement of an existing coal-fired power plant as it continues to transition its generation mix towards lower-carbon fuels. The TVA environmental review scoping process has begun for this proposed plant; TVA published a Notice of Intent on the Federal Register on June 15, 2021 to initiate their review process. Several options to replace the retiring coal-fired generation would be assessed in 2021.TVA’s Environmental Impact Statement (EIS). Should the onsite natural gas option of building a combined cycle plant be selected through TVA’s review, we would deliver on the required expansion of the East Tennessee system. ETNG’s proposed project would consist of the installation of additional pipeline primarily along the ETNG system, the installation of one electric-powered compressor station and solar facilities behind the meter, as well as other design features all contributing to minimizing greenhouse gas emissions. Should TVA’s environmental assessment determine that the natural gas solution of building an onsite combined cycle plant is the optimal supply source, and pending the approval and receipt of all necessary permits, construction of the pipeline would begin in 2025 with a target in-service date of fall 2026.
•Valley Crossing Expansion Project - We are pursuing an expansion of the existing Valley Crossing Pipeline to supply Texas LNG Brownsville, LLC with feed gas for their proposed liquefaction and export facility in Port of Brownsville, Texas.
We also have a portfolio of additional projects under development that have not yet progressed to the point of securement.
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of financial strength and flexibility is fundamental to our growth strategy, particularly in light of the significant number and size of capital projects currently secured or under development. Access to timely funding from capital markets could be limited by factors outside our control, including but not limited to financial market volatility resulting from economic and political events both inside and outside North America. To mitigate such risks, we actively manage financial plans and strategies to help ensure we maintain sufficient liquidity to meet routine operating and future capital requirements. In the near term, we generally expect to utilize cash from operations together with commercial paper issuance and/or credit facility draws and the proceeds of capital market offerings to fund liabilities as they become due, finance capital expenditures, fund debt retirements and pay common and preference share dividends. We target to maintain sufficient liquidity through securement of committed credit facilities with a diversified group of banks and financial institutions to enable us to fund all anticipated requirements for approximately one year without accessing the capital markets.
Our financing plan is regularly updated to reflect evolving capital requirements and financial market conditions and identifies a variety of potential sources of debt and equity funding alternatives. Our current financing plan does not include any issuances of additional common equity and was the primary consideration for the suspension of our Dividend Reinvestment and Share Purchase Plan in November 2018.equity.
As discussed within Recent Developments - Financing Update, as a result of the COVID-19 pandemic and the corresponding impact on the capital markets, we have elected to increase our liquidity through additional credit facilities to ensure we will not have to access the capital markets through 2021 to fund our current portfolio of capital projects if market access is restricted or pricing is unattractive.
CAPITAL MARKET ACCESS
We ensure ready access to capital markets, subject to market conditions, through maintenance of shelf prospectuses that allow for issuance of long-term debt, equity and other forms of long-term capital when market conditions are attractive.
Credit Facilities and Liquidity
To ensure ongoing liquidity and to mitigate the risk of capital market disruption, we maintain ready access to funds through committed bank credit facilities and actively manage our bank funding sources to optimize pricing and other terms. The following table provides details of our committed credit facilities as at September 30, 2020:2021:
| | | Maturity Dates | Total Facilities | Draws1 | Available | | Maturity1 | Total Facilities | Draws2 | Available |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | (millions of Canadian dollars) | | |
Enbridge Inc. | Enbridge Inc. | 2021-2024 | 11,980 | | 6,420 | | 5,560 | | Enbridge Inc. | 2022-2026 | 9,169 | | 7,378 | | 1,791 | |
Enbridge (U.S.) Inc. | Enbridge (U.S.) Inc. | 2022-2024 | 7,347 | | 995 | | 6,352 | | Enbridge (U.S.) Inc. | 2023-2026 | 6,968 | | 2,515 | | 4,453 | |
Enbridge Pipelines Inc. | Enbridge Pipelines Inc. | 20222 | 3,000 | | 1,938 | | 1,062 | | Enbridge Pipelines Inc. | 2023 | 3,000 | | 469 | | 2,531 | |
Enbridge Gas Inc. | Enbridge Gas Inc. | 20222 | 2,000 | | 969 | | 1,031 | | Enbridge Gas Inc. | 2023 | 2,000 | | 1,205 | | 795 | |
Total committed credit facilities | Total committed credit facilities | | 24,327 | | 10,322 | | 14,005 | | Total committed credit facilities | | 21,137 | | 11,567 | | 9,570 | |
1Maturity date is inclusive of the one-year term out option for certain credit facilities.
2Includes facility draws and commercial paper issuances that are back-stopped by credit facility.
2Maturity date is inclusive of the one-year term out option.facilities.
On February 24, 2020,10, 2021, Enbridge Inc. entered into a twothree year, non-revolvingrevolving, extendible, sustainability-linked credit facility for US$1.0$1.0 billion with a syndicate of lenders.lenders and concurrently terminated our one year, revolving, syndicated credit facility for $3.0 billion.
On February 25, 2020, Enbridge Inc. entered into2021, two one year, non-revolving, bilateral credit facilities for aterm loans with an aggregate total of US$500 million.million were repaid with proceeds from a floating rate notes issuance.
On March 31, 2020, Enbridge Inc. entered into a one year, revolving, syndicatedJuly 22 and 23, 2021, we renewed approximately $8.0 billion of our five-year credit facility for $1.7 billion. On April 9, 2020, Enbridge Inc. exercised an accordion provision and increasedfacilities, extending the facilitymaturity date out to $3.0 billion.
On July 23 and 24, 2020, we2026. We also extended approximately $10.0 billion of our 364 day364-day extendible credit facilities to July 2022, inclusive ofwhich includes a one-year term out provision.provision to July 2023.
In addition to the committed credit facilities noted above, we maintain $861 million$1.3 billion of uncommitted demand letter of credit facilities, of which $524$868 million werewas unutilized as at September 30, 2020.2021. As at December 31, 2019,2020, we had $916$849 million of uncommitted demand letter of credit facilities, of which $476$533 million werewas unutilized.
Our net available liquidity of $14.7$10.0 billion as at September 30, 2020,2021, was inclusive of $657$451 million of unrestricted cash and cash equivalents as reported in the Consolidated Statements of Financial Position.
Our credit facility agreements and term debt indentures include standard events of default and covenant provisions whereby accelerated repayment and/or termination of the agreements may result if we were to default on payment or violate certain covenants. As at September 30, 2020,2021, we were in compliance with all debt covenants and we expect to continue to comply with such covenants.covenant provisions.
LONG-TERM DEBT ISSUANCES
During the nine months ended September 30, 2020,2021, we completed the following long-term debt issuances totaling $2.5US$2.4 billion and US$1.8$3.2 billion:
| | | | | | | | | | | | | | |
Company | Issue Date | | | Principal Amount |
(millions of Canadian dollars unless otherwise stated) | | |
Enbridge Inc. | | |
| February 20202021 | Floating rate notes due February 2023 | 1 | US$750500 |
| May 2020June 2021 | 3.20% medium-term2.50% Sustainability-Linked senior notes due August 2033 | | $750US$1,000 |
| May 2020June 2021 | 2.44% medium-term3.40% senior notes due August 2051 | | $550US$500 |
| July 2020September 2021 | Fixed-to-fixed subordinated term3.10% Sustainability-Linked medium-term notes due September 2033 | $1,100 |
| US$1,000September 2021 | 4.10% medium-term notes due September 2051 | $400 |
Enbridge Gas Inc. | | |
| September 2021 | 2.35% medium-term notes due September 2031 | $475 |
| September 2021 | 3.20% medium-term notes due September 2051 | $425 |
Enbridge Pipelines Inc. | | |
| April 2020May 2021 | 2.90%2.82% medium-term notes due May 2031 | | $600400 |
| April 2020May 2021 | 3.65%4.20% medium-term notes due May 2051 | $400 |
Spectra Energy Partners, LP | | |
| $600September 2021 | 2.50% senior notes due September 20312 | US$400 |
1Notes mature in two years and carry an interest rate set to equal SOFR plus a margin of 40 basis points.
On October 1, 2020,2Issued through Texas Eastern, a wholly-owned operating subsidiary of SEPSEP.
On October 4, 2021, we closed a three tranche offering of aggregate US$1.5 billion senior notes consisting of US$500 million 0.55% 2-year notes, US$500 million 1.60% 5-year notes, and a US$500 million re-opening of the 3.40% 2051 notes issued US$300 million of 3.10% 20-year senior notesin June 2021. Each tranche is payable semi-annually in arrears and redeemed US$300 million of 4.13% senior notes due December 1, 2020. The newly issued notes maturematures on October 4, 2023, October 4, 2026, and August 1, 2040.2051, respectively.
LONG-TERM DEBT REPAYMENTS
During the nine months ended September 30, 2020,2021, we completed the following long-term debt repayments totaling $1.2 billion$808 million and US$1.7 billion:
| | | | | | | | | | | | | | | |
Company | Repayment Date | | | Principal Amount | |
(millions of Canadian dollars unless otherwise stated) | | | |
Enbridge Inc. | | | |
| | | |
| January 2020February 2021 | Floating rate4.26% medium-term notes | US$700$200 | |
| March 20202021 | 4.53%3.16% medium-term notes | $500400 | |
Enbridge Energy Partners, L.P. | | | |
| June 20202021 | Floating rate4.20% senior notes | US$600 | |
Enbridge Gas Inc. | | | |
| US$500May 2021 | 2.76% medium-term notes | $200 | |
Enbridge Pipelines (Southern Lights) L.L.C. | | | |
| June 20202021 | 3.98% senior notes | | US$26 | |
Enbridge Pipelines Inc. | | | | |
| April 2020 | 4.45% medium-term notes | | $35030 | |
Enbridge Southern Lights LP | | | | |
| June 20202021 | 4.01% senior notes | | $78 | |
Spectra Energy Partners, LP | | | |
| | | | |
| January 2020March 2021 | 6.09%4.60% senior secured notes | | US$111 | |
| June 2020 | Floating rate notes | | US$400 | |
Westcoast Energy Inc. | | | | |
| | | | |
| January 2020 | 9.90% debentures | | $100 | |
| July 2020 | 4.57% medium-term notes | $US$250 | |
Strong internal cash flow, proceeds from non-core asset dispositions, ready access to liquidity from diversified sources and a stable business model have enabled us to manage our credit profile. We actively monitor and manage key financial metrics with the objective of sustaining investment grade credit ratings from the major credit rating agencies and ongoing access to bank funding and term debt capital on attractive terms. Key measures of financial strength that are closely managed include the ability to service debt obligations from operating cash flow and the ratio of debt to EBITDA.
On June 1, 2021, Moody’s upgraded the credit ratings of Enbridge Inc. including our senior unsecured and issuer ratings to Baa1 from Baa2. Moody's also upgraded the credit ratings of our subsidiaries: EEP, EELP, SEP and Texas Eastern. The outlooks of all five entities are stable.
There are no material restrictions on our cash. Total restricted cash of $35$64 million, as reported on the Consolidated Statements of Financial Position, primarily includes cash collateral, future pipeline abandonment costs collected and held in trust, amounts received in respect of specific shipper commitments.commitments and capital projects. Cash and cash equivalents held by certain subsidiaries may not be readily accessible for alternative uses by us.
Excluding current maturities of long-term debt, we had a negative working capital position as at September 30, 2020.2021. The major contributing factor to the negative working capital position was the ongoing funding of our growth capital program.
To address this negative working capital position, we maintain significant liquidity in the form of committed credit facilities and other sources as previously discussed, which enable the funding of liabilities as they become due.
SOURCES AND USES OF CASH
| | | | Nine months ended September 30, | | | Nine months ended September 30, |
| | | 2020 | 2019 | | | 2021 | 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | | | (millions of Canadian dollars) | | | |
Operating activities | Operating activities | | 7,527 | | 7,405 | | Operating activities | | 6,954 | | 7,527 | |
Investing activities | Investing activities | | (3,644) | | (5,029) | | Investing activities | | (5,495) | | (3,644) | |
Financing activities | Financing activities | | (3,845) | | (2,124) | | Financing activities | | (1,422) | | (3,845) | |
Effect of translation of foreign denominated cash and cash equivalents and restricted cash | Effect of translation of foreign denominated cash and cash equivalents and restricted cash | | (22) | | (17) | | Effect of translation of foreign denominated cash and cash equivalents and restricted cash | | (12) | | (22) | |
Net increase in cash and cash equivalents and restricted cash | Net increase in cash and cash equivalents and restricted cash | | 16 | | 235 | | Net increase in cash and cash equivalents and restricted cash | | 25 | | 16 | |
Significant sources and uses of cash for the nine months ended September 30, 20202021 and September 30, 20192020 are summarized below:
Operating Activities
•The increasedecrease in cash provided by operating activities was primarily attributable to changes in operating assets and liabilities.liabilities, which were partially offset by an increase in earnings. Our operating assets and liabilities fluctuate in the normal course due to various factors, including the impact of fluctuations in commodity prices and activity levels on working capital within our business segments, the timing of tax payments, as well as timing of cash receipts and payments generally.
•The factor above was partially offset by the impact of certain unusual, infrequent or other non-operating factors as discussed under Results of Operations.
Investing Activities
•The decreaseincrease in cash used in investing activities was primarily attributable to proceeds received from dispositions inhigher capital expenditures during the second quarter of 2020 and lower contributionsnine months ended September 30, 2021 compared to the Gray Oak Holdings LLC equity investment.
•same period in 2020. We are continuing with the execution of our growth capital program which is further described in Growth Projects - Commercially Secured Projects. The timing of project approval, construction and in-service dates impacts the timing of cash requirements.requirements. In addition, there were higher proceeds received from dispositions in 2020, as compared to proceeds received from the disposition of 49% of our interest in EMF to CPP Investments in 2021.
•The above factors were partially offset by the absence of contributions to our Gray Oak Holdings LLC equity investment during the nine months ended September 30, 2021 compared to the same period in 2020, due to Gray Oak Pipeline being placed into service in March 2020.
Financing Activities
•The increasedecrease in cash used in financing activities was primarily attributable to an increasea decrease in repayments and higher issuances of long-term debt andin 2021 compared with 2020.
•The factor above was partially offset by a decrease in commercial paper and credit facility draws.
•The factors above were partially offset by an increase in issuances of long-term debt anddraws, as well as the absenceredemption of Westcoast Energy Inc.'s redemption of all of its outstanding Series 7 and Series 8 preferencepreferred shares in 2020 when compared with the corresponding period in 2019.first quarter of 2021.
•Our common share dividend payments increased period-over-period primarily due to the 9.8% increase in our common share dividend rate.
SUMMARIZED FINANCIAL INFORMATION
On January 22, 2019, Enbridge entered into supplemental indentures with its wholly-owned subsidiaries, SEP and EEP (the Partnerships), pursuant to which Enbridge fully and unconditionally guaranteed, on a senior unsecured basis, the payment obligations of the Partnerships with respect to the outstanding series of notes issued under the respective indentures of the Partnerships. Concurrently, the Partnerships entered into a subsidiary guarantee agreement pursuant to which they fully and unconditionally guaranteed, on a senior unsecured basis, the outstanding series of senior notes of Enbridge. The Partnerships have also entered into supplemental indentures with Enbridge pursuant to which the Partnerships have issued full and unconditional guarantees, on a senior unsecured basis, of senior notes issued by Enbridge subsequent to January 22, 2019. As a result of the guarantees, holders of any of the outstanding guaranteed notes of the Partnerships (the Guaranteed Partnership Notes) are in the same position with respect to the net assets, income and cash flows of Enbridge as holders of Enbridge's outstanding guaranteed notes (the Guaranteed Enbridge Notes), and vice versa. Other than the Partnerships, Enbridge subsidiaries (including the subsidiaries of the Partnerships, collectively, the Subsidiary Non-Guarantors), are not parties to the subsidiary guarantee agreement and have not otherwise guaranteed any of Enbridge's outstanding series of senior notes.
Consenting SEP notes and EEP notes under Guarantee
| | | | | |
SEP Notes1 | EEP Notes2 |
4.600% Senior Notes due 2021 | 4.200% Notes due 2021 |
4.750% Senior Notes due 2024 | 5.875% Notes due 2025 |
3.500% Senior Notes due 2025 | 5.950% Notes due 2033 |
3.375% Senior Notes due 2026 | 6.300% Notes due 2034 |
5.950% Senior Notes due 2043 | 7.500% Notes due 2038 |
4.500% Senior Notes due 2045 | 5.500% Notes due 2040 |
| |
| 7.375% Notes due 2045 |
1As at September 30, 2020,2021, the aggregate outstanding principal amount of SEP notes was approximately US$3.53.2 billion.
2As at September 30, 2020,2021, the aggregate outstanding principal amount of EEP notes was approximately US$3.02.4 billion.
Enbridge Notes under Guarantees
| | | | | |
USD Denominated1 | CAD Denominated2 |
Floating Rate NoteSenior Notes due 2022 | 4.850% Senior Notes due 20202022 |
Floating Rate Senior Notes due 2023 | 3.190% Senior Notes due 2022 |
2.900% Senior Notes due 2022 | 4.260%3.940% Senior Notes due 20212023 |
4.000% Senior Notes due 2023 | 3.160%3.940% Senior Notes due 20212023 |
3.500% Senior Notes due 2024 | 4.850%3.950% Senior Notes due 20222024 |
2.500% Senior Notes due 2025 | 3.190%2.440% Senior Notes due 20222025 |
4.250% Senior Notes due 2026 | 3.190%3.200% Senior Notes due 20222027 |
3.700% Senior Notes due 2027 | 3.940%6.100% Senior Notes due 20232028 |
3.125% Senior Notes due 2029 | 3.940%2.990% Senior Notes due 20232029 |
2.500% Sustainability-Linked Senior Notes due 2033 | 7.220% Senior Notes due 2030 |
4.500% Senior Notes due 2044 | 3.950%7.200% Senior Notes due 20242032 |
5.500% Senior Notes due 2046 | 2.440%3.100% Sustainability-Linked Senior Notes due 20252033 |
4.000% Senior Notes due 2049 | 3.200% Senior Notes due 2027 |
| 3.200% Senior Notes due 2027 |
| 6.100% Senior Notes due 2028 |
| 2.990% Senior Notes due 2029 |
| 7.220% Senior Notes due 2030 |
| 7.200% Senior Notes due 2032 |
| 5.570% Senior Notes due 2035 |
3.400% Senior Notes due 2051 | 5.750% Senior Notes due 2039 |
| 5.120% Senior Notes due 2040 |
| 4.240% Senior Notes due 2042 |
| 4.240% Senior Notes due 2042 |
| 4.570% Senior Notes due 2044 |
| 4.570% Senior Notes due 2044 |
| 4.870% Senior Notes due 2044 |
| 4.100% Senior Notes due 2051 |
| |
| |
| 4.560% Senior Notes due 2064 |
1As at September 30, 2020,2021, the aggregate outstanding principal amount of the Enbridge United StatesUS dollar denominated notes was approximately US$7.59.5 billion.
2As at September 30, 2020,2021, the aggregate outstanding principal amount of the Enbridge Canadian dollar denominated notes was approximately $8.4$9.2 billion.
Rule 3-10 of the U.S. Securities and Exchange Commission's (SEC) Regulation S-X provides an exemption from the reporting requirements of the Exchange Act for fully consolidated subsidiary issuers of guaranteed securities and subsidiary guarantors and allows for summarized financial information in lieu of filing separate financial statements for each of the Partnerships.
On March 2, 2020, the SEC issued final rules that amend the disclosure requirements of Rule 3-10. The purpose of the final rules was to simplify disclosures and reduce compliance costs and burdens to registrants. The final rules are effective January 1, 2021, however, voluntary compliance with the final rules in advance of January 1, 2021 is permitted.
We elected early adoption of the final rules and have prepared summarized financial information in line with the requirements of new Rule 13-01, which specifies that the reporting of the parent or guarantor should not include the investment in the non-guarantor's subsidiaries, reduces the periods for which summarized financial information is required to the most recent annual period and the year-to-date interim period, and allows presentation on a combined basis.
The following Summarized Combined Statement of Earnings and the Summarized Combined Statements of Financial Position combines the balances of EEP, SEP and Enbridge Inc.
Summarized Combined Statement of Earnings
| | | | | | | | |
| Nine months ended September 30, 20202021 |
(millions of Canadian dollars) | |
| |
Operating loss | (70)(13) | |
Earnings | 9562,329 | |
Earnings attributable to common shareholders | 6722,056 | |
Summarized Combined Statements of Financial Position
| | | September 30, 2020 | December 31, 2019 | | | September 30, 2021 | | December 31, 2020 |
(millions of Canadian dollars) | (millions of Canadian dollars) | | (millions of Canadian dollars) | | | | |
Accounts receivable from affiliates | Accounts receivable from affiliates | 811 | | 741 | | Accounts receivable from affiliates | | 3,708 | | | 2,108 | |
Short-term loans receivable from affiliates | Short-term loans receivable from affiliates | 5,107 | | 5,652 | | Short-term loans receivable from affiliates | | 3,970 | | | 4,926 | |
Other current assets | Other current assets | 278 | | 487 | | Other current assets | | 466 | | | 375 | |
Long-term loans receivable from affiliates | Long-term loans receivable from affiliates | 50,790 | | 49,745 | | Long-term loans receivable from affiliates | | 50,596 | | | 43,217 | |
Other long-term assets | Other long-term assets | 4,631 | | 4,615 | | Other long-term assets | | 3,836 | | | 4,237 | |
Accounts payable to affiliates | Accounts payable to affiliates | 1,574 | | 1,171 | | Accounts payable to affiliates | | 3,726 | | | 1,267 | |
Short-term loans payable to affiliates | Short-term loans payable to affiliates | 4,710 | | 4,416 | | Short-term loans payable to affiliates | | 2,125 | | | 4,117 | |
Other current liabilities | Other current liabilities | 3,861 | | 5,854 | | Other current liabilities | | 5,336 | | | 5,628 | |
Long-term loans payable to affiliates | Long-term loans payable to affiliates | 37,233 | | 36,798 | | Long-term loans payable to affiliates | | 40,661 | | | 32,035 | |
Other long-term liabilities | Other long-term liabilities | 40,718 | | 37,094 | | Other long-term liabilities | | 40,085 | | | 41,353 | |
The Guaranteed Enbridge Notes and the Guaranteed Partnership Notes are structurally subordinated to the indebtedness of the Subsidiary Non-Guarantors in respect of the assets of those Subsidiary Non-Guarantors.
Under United StatesUS bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee can be voided, or claims may be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time the indebtedness evidenced by its guarantee or, in some states, when payments become due under the guarantee:
•received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and was insolvent or rendered insolvent by reason of such incurrence;
•was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or
•intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.
The guarantees of the Guaranteed Enbridge Notes contain provisions to limit the maximum amount of liability that the Partnerships could incur without causing the incurrence of obligations under the guarantee to be a fraudulent conveyance or fraudulent transfer under United StatesUS federal or state law.
Each of the Partnerships is entitled to a right of contribution from the other Partnership for 50% of all payments, damages and expenses incurred by that Partnership in discharging its obligations under the guarantees for the Guaranteed Enbridge Notes.
Under the terms of the guarantee agreement and applicable supplemental indentures, the guarantees of either of the Partnerships of any Guaranteed Enbridge Notes will be unconditionally released and discharged automatically upon the occurrence of any of the following events:
•any direct or indirect sale, exchange or transfer, whether by way of merger, sale or transfer of equity interests or otherwise, to any person that is not an affiliate of Enbridge, of any of Enbridge’s direct or indirect limited partnership of other equity interests in that Partnership as a result of which the Partnership ceases to be a consolidated subsidiary of Enbridge;
•the merger of that Partnership into Enbridge or the other Partnership or the liquidation and dissolution of that Partnership;
•the repayment in full or discharge or defeasance of those Guaranteed Enbridge Notes, as contemplated by the applicable indenture or guarantee agreement;
•with respect to EEP, the repayment in full or discharge or defeasance of each of the consenting EEP notes listed above;
•with respect to SEP, the repayment in full or discharge or defeasance of each of the consenting SEP notes listed above; or
•with respect to any series of Guaranteed Enbridge Notes, with the consent of holders of at least a majority of the outstanding principal amount of that series of Guaranteed Enbridge Notes.
The guarantee obligations of Enbridge of the Guaranteed Partnership Notes will terminate with respect to any series of Guaranteed Partnership Notes if that series is discharged or defeased.
The Partnerships also guarantee certain other obligations of Enbridge. On September 6, 2020, the Partnerships entered into a guarantee agreement with respect to Enbridge’s obligations under certain of its credit facilities.
LEGAL AND OTHER UPDATES
LIQUIDS PIPELINES
Michigan Line 5 Dual Pipelines - Straits of Mackinac Easement
In 2019, the Michigan Attorney General filed a complaint in the Michigan Ingham County Circuit Court (the Court) that requests the Court to declare the easement granted in 1953 that we have for the operation of Line 5 in the Straits of Mackinac (the Straits) to be invalid and to prohibit continued operation of Line 5 in the Straits “as soon as possible after a reasonable notice period to allow orderly adjustments by affected parties”. Ruling on the motions is currently being held in abeyance by the Court pending further developments in the Federal Court cases described below.
On November 13, 2020, the Governor of Michigan and the Director of the Michigan Department of Natural Resources notified us that the State of Michigan (the State) was revoking and terminating the easement granted in 1953 that allows Line 5 to operate across the Straits. The notice demanded that the portion of Line 5 that crosses the Straits must be shut down by May 2021. On November 24, 2020, we filed in the US District Court for the Western District of Michigan a Notice of Removal, which removed the State’s November Complaint to Federal Court, and a Complaint for Declaratory and Injunctive Relief that requests the US District Court to enjoin the Governor from taking any action to prevent or impede the operation of Line 5. US District Court Judge Janet T. Neff was assigned to the cases and on February 18, 2021, Judge Neff ruled that the motion to remand back to State Court will be briefed and decided first. Parties were also ordered to collaborate and identify a facilitative mediator. Accordingly, retired US District Court Judge Gerald Rosen was chosen to act as mediator. The parties had multiple mediation sessions with the mediator, which did not result in a settlement. The State has expressed no interest in further mediation discussions. On October 21, 2021, we filed our motion and supplemental brief to advise the Court that the Government of Canada had invoked the dispute resolution process under the 1977 Transit Pipelines Treaty with the US Government. The State’s remand motion remains with Judge Neff for decision.
On January 12, 2021, we responded to the Governor’s Notice of Revocation and Termination of Easement. On February 11, 2021, we sent a further letter to the Department of Natural Resources regarding our rights under the easement and renewing the request to meet and have technical discussions to better understand the State’s concerns. On May 11, 2021, the Governor sent a letter to us stating that if we continued to operate in the Straits past May 12, 2021, the State would consider us as intentionally trespassing and therefore we will be unjustly enriched entitling the State to all profits derived from wrongful use of the State's property. On May 21, 2021, we responded to the letter refuting the State's claims that the pipelines are in trespass. We will vigorously defend our ability to operate Line 5 under the 1953 easement in pending Court actions.
In March 2021, we completed the engineering and design phase of the Great Lakes Tunnel Project and we have begun the process of hiring a contractor to construct the tunnel. We are actively pursuing state and federal regulatory permits from the US Army Corps of Engineers (Army Corps), the Michigan Department of Environment, Great Lakes & Energy (EGLE) and the Michigan Public Service Commission (MPSC). The EGLE permits were granted in the first quarter of 2021; one of the EGLE permits was challenged by the Bay Mills Indian Community. An Administrative Law Judge was appointed and a schedule set for the contested case proceeding. According to the current schedule, dispositive motions will be fully briefed by December 22, 2021.
On June 23, 2021, the Army Corps announced they would proceed with an EIS for the Great Lakes Tunnel Project to replace Line 5 at the Straits.On June 23, 2021, we issued a statement stating that construction on this project would be delayed due to the EIS. Direct testimony has been filed in the MPSC contested case proceeding and the current schedule has the matter fully briefed by March 11, 2022.
Dakota Access Pipeline
In February 2017,We own an effective interest of 27.6% in the Bakken Pipeline System, which is inclusive of the DAPL. The Standing Rock Sioux Tribe and the Cheyenne River Sioux Tribe filed motionslawsuits in 2016 with the United StatesUS Court for the District of Columbia (the District Court) contesting the lawfulness of the Army Corps easement for the Dakota Access Pipeline (DAPL),DAPL, including the adequacy of the Army Corps’ environmental review and tribal consultation process. The Oglala Sioux and Yankton Sioux Tribes also filed lawsuits alleging similar claims.claims in 2018.
On June 14, 2017, the District Court found the Army Corps’ environmental review to be deficient and ordered the Army Corps to conduct further study concerning spill risks from DAPL. In August 2018, the Army Corps completed on remand the further environmental review ordered by the District Court and reaffirmed the issuance of the easement for DAPL. All four plaintiff Tribes subsequently amended their complaints to include claims challenging the adequacy of the Army Corps’ August 2018 remand decision.
On March 25, 2020, in response to amended complaints from the Tribes’ arguments,Tribes, the District Court found the Army Corps’ environmental review on remand was deficient and ordered the Army Corps to prepare an EIS to address unresolved controversy pertaining to potential spill impacts resulting from DAPL. On July 6, 2020, the District Court issued an order vacating the Army Corps’ easement for DAPL and ordering that the pipeline be shut down by August 5, 2020. Dakota Access, LLC and the Army Corps appealed the decision and filed a motion for a stay pending appeal with the U.S.US Court of Appeals for the D.C.District of Columbia Circuit. On August 5, 2020, the U.S.US Court of Appeals stayed the District Court’s July 6 order to shut down and empty the pipeline, by August 5, but did not stay the District Court’s March 25 order requiring the Army Corps to prepare an EIS or the District Court’s July 6 order vacating the DAPL easement.
On January 26, 2021, the US Court of Appeals affirmed the District Court’s decision, holding that the Army Corps is required to prepare an EIS and that the Army Corps’ easement for DAPL is vacated. Dakota Access, LLC has since filed a petition asking the US Supreme Court to review the decision that an EIS is required. The case is currently moving forward on two separate fronts. InUS Court of Appeals also determined that, absent considering the closure of DAPL in the context of an injunction proceeding, the District Court could not order DAPL’s operations to cease. While not an issue before the plaintiff Tribes have requestedUS Court of Appeals, the US Court of Appeals also recognized that the Army Corps could consider whether to allow DAPL to continue to operate in the absence of an easement.
On May 21, 2021, the District Court enjoindismissed the plaintiff Tribes’ request for an injunction enjoining DAPL from operating until the Army Corps has completed its EIS and reissuedEIS. The right of the DAPL easement. Both Dakota Access, LLC andplaintiff Tribes to appeal the denial of the injunction request expired on July 20, 2021. The Army Corps opposeearlier indicated that it did not intend, at that time, to exercise its authority to bar DAPL’s continued operation, notwithstanding the Tribes’ request forabsence of an injunction. Briefing before the District Court on whether DAPL operations should be enjoined will be complete on December 18, 2020. In the U.S. Court of Appeals, all briefing is now complete on whether the Army Corps is required to prepare aneasement and that it anticipates completing its EIS and whether in the interim, the DAPL easement should be vacated. Oral argument before the U.S. Court of Appeals was heard on November 4, 2020.by March 2022.
Line 5 Dual Pipelines - Tunnel Project
On June 6, 2019, we filed a complaint with the Michigan Court of Claims to establish the constitutional validity of Michigan law PA 359 and enforceability of various agreements entered into between us and the State of Michigan (the State) related to the construction of the Line 5 Dual Pipelines Tunnel Project (Tunnel Project). On October 31, 2019, the Court determined that Michigan law PA 359 is valid and is not unconstitutional. On November 5, 2019, the Michigan Attorney General filed an appeal with the Michigan Court of Appeals. On June 11, 2020, the Michigan Court of Appeals upheld the Court's determination that Michigan law PA 359 is valid and is not unconstitutional. The State did not file for leave to appeal to the Supreme Court of Michigan within the requisite time period, so this lawsuit has concluded.
On June 27, 2019, the Michigan Attorney General filed a complaint in the Michigan Ingham County Circuit Court that requests the Court to declare the easement that we have for the operation of the dual pipelines in the Straits of Mackinac (the Straits) to be invalid and to prohibit continued operation of the dual pipelines in the Straits “as soon as possible after a reasonable notice period to allow orderly adjustments by affected parties”. On September 16, 2019, we filed our motion for summary disposition and requested dismissal of the State’s Complaint in its entirety. On that same date, the State filed a motion for partial summary disposition and judgment in its favor on its claim that the easement was void from inception.
The case was argued on MayOn July 22, 2020 and supplemental briefing on2021, the issue of federal preemption was completed on July 6, 2020. The motions areArmy Corps filed a notice with the District Court for decision.
During the first quarter of 2020, we filed all major environmental permits, including the joint permit application with the Michigan Department of Environment, Great Lakes and Energy and the Army Corps. In addition, we filed an independent application to the Michigan Public Service Commission. The agencies are processing our permit applications and have conducted hearings to obtain public comment over the last several months.
Upon receipt of all required permits we expect to begin construction of the Tunnel Project.
Line 5 Dual Pipelines - Temporary Shutdown
On June 18, 2020, during seasonal maintenance work on Line 5, we discoveredadvising that a screw anchor support had shifted from its original position. We immediately shut down the pipeline and notified the State and our federal regulator, the Pipeline and Hazardous Materials Safety Administration (PHMSA). The issue with the screw anchor was isolated to the east segment issued a notice asserting violations of Line 5 and an inspection of the west segment of Line 5 confirmed there were no issues or damage to the anchor structures or pipeline on that segment. Normal operations of the west segment of Line 5 resumed on June 20, 2020, and an investigation of the east segment of Line 5 commenced.
On June 22, 2020, the Michigan Attorney General, on behalf of the State, filed a motion for a Temporary Restraining Order in the Michigan Ingham County Circuit Court to cease the continued operation of the west segment of Line 5 and to ensure operation of the east segment of Line 5 was not resumed. Further, the Temporary Restraining Order was to compel "legally required information" to be shared with the State for determination thatfederal safety regulations resulting from the operation of Line 5 throughDAPL. The Army Corps stated that it would consider PHMSA’s notice as part of its ongoing consideration of whether and how the Straits is safe. On June 25, 2020, an Order was issued prohibiting the operation of Line 5 pending a hearingArmy Corps will enforce its rights on the State’s motion for Preliminary Injunction on June 30, 2020. On July 1, 2020, following the hearing, the Temporary Restraining Order was amended allowing the west segment of Line 5 to restart for the purposes of conducting an in-line inspection (ILI), which reconfirmed that the line is safe to operate as there was no damage toproperty crossed by the pipeline and in the west segment resumed service. After additional information, including ILI inspection results submittedcontext of the ongoing EIS. The Army Corps also granted the request from the Tribes to PHMSA confirmedextend the east segment was safeEIS completion date to operate, the Court on September 9, 2020 signed an order agreed to between Enbridge and the State to allow the east segment to resume service. The east segment resumed service on September 10, 2020. On September 24, 2020, the Court signed a stipulated order fully resolving the Temporary Restraining Order and Preliminary Injunction.2022.
OTHER LITIGATION
We and our subsidiaries are involved in various other legal and regulatory actions and proceedings which arise in the normal course of business, including interventions in regulatory proceedings and challenges to regulatory approvals and permits. 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.
CAPITAL EXPENDITURE COMMITMENTS
We have signed contracts for the purchase of services, pipe and other materials totaling approximately $2.9$1.8 billion which are expected to be paid over the next five years.
TAX MATTERS
We and our subsidiaries maintain tax liabilities related to uncertain tax positions. While fully supportable in our view, these tax positions, if challenged by tax authorities, may not be fully sustained on review.
CHANGES IN ACCOUNTING POLICIES
Refer to Part I. Item 1. Financial Statements - Note 2. Changes in Accounting Policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is described in Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Reportannual report on Form 10-K for the year ended December 31, 2019. Other than as set out below, there have been no material modifications2020. We believe our exposure to those quantitative and qualitative disclosures about market risk.risk has not changed materially since then.
COVID-19 PANDEMIC RISK
The spread of the COVID-19 pandemic has caused significant volatility in Canada, the United States and international markets. While we have taken proactive measures to deliver energy safely and reliably during this pandemic, given the ongoing dynamic nature of the circumstances surrounding COVID-19, the impact of this pandemic on our business remains uncertain.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission'sSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as at September 30, 2020,2021, and based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in ensuring that information required to be disclosed by us in reports that we file with or submit to the U.S. Securities and Exchange CommissionSEC and the Canadian Securities Administrators is recorded, processed, summarized and reported within the time periods required.
Changes in Internal Control over Financial Reporting
Under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 20202021 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. 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 I. Item 2.2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Legal and Other Updates and Growth Projects - Regulatory Matters for discussion of other legal proceedings.
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.
Due to an uncontrolled groundwater flow at Clearbrook, the Minnesota Department of Natural Resources (DNR) issued an Administrative Penalty Order on September 16, 2021. We are diligently implementing the steps required under the remedial action plan to address the issues at the Clearbrook site. We have also provided all required information to date.
We are not seeking a contested case in this matter; instead, we’ve paid the penalty and mitigation amounts as directed, for the Clearbrook site. A separate US$2.75 million escrow account is being established for any potential future monitoring and mitigation. In total, Enbridge has directed US$3.3 million to address this matter.
The DNR and Enbridge are working towards an agreement for ongoing restoration, monitoring, and mitigation for the Clearbrook site and two other locations that remain under evaluation. In the meantime, we are moving forward with DNR-approved restoration plans at Clearbrook and coordinating closely with the DNR at the other sites.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I. Item 1A.1A. Risk Factors of our Annual Reportannual report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, which could materially affect our financial condition or future results. Other than as set out below, thereThere have been no material modifications to those risk factors.
The COVID-19 pandemic has adversely affected, and may continue to adversely affect, local and global economies and our business, financial position, results of operations and cash flows.
The World Health Organization declared COVID-19 to be a pandemic on March 11, 2020. In response to the rapid global spread of COVID-19, governments have enacted emergency measures to combat the spread of the virus. These measures include restrictions on business activity and travel, as well as requirements to isolate or quarantine, which could continue or expand. Certain of our operations and projects have been deemed essential services in critical infrastructure sectors and are currently exempt from certain business activity restrictions; however, there is no guarantee that this exemption will continue. These actions have interrupted business activities and supply chains; disrupted travel; contributed to significant volatility in the financial and commodity markets, resulting in a general decline in equity prices and lower interest rates; impacted social conditions; and adversely impacted national and international economic conditions, including commodity prices and demand for energy, as well as the labor market.
Given the ongoing and dynamic nature of the circumstances surrounding the COVID-19 pandemic, it is difficult to predict how significant the impact of this pandemic, including any responses to it, will be on North American or global economies or our business, or for how long disruptions are likely to continue. The extent of such impact will depend on future developments and factors outside of our control, which are highly uncertain, rapidly evolving and cannot be predicted, including new information which may emerge concerning the severity or duration of this pandemic and actions taken by governments and others to contain the COVID-19 pandemic or its impact. Such developments, which have had or may have an adverse effect on our customers, suppliers, regulators, business, financial position, results of operations and cash flows, include disruptions that, among other things:
•adversely impacted market fundamentals, such as commodity prices and supply and demand for energy, decreasing volumes transported on our systems, increasing our exposure to asset utilization risks and adversely affecting our results;
•adversely impacted our Liquids Pipelines growth rate and results; however, the full extent of such adverse impact is still uncertain;
•could prevent one or more of our secured capital projects from proceeding, delay its completion or increase its anticipated cost;
•adversely impacted the operations or financial position of our third-party suppliers, service providers or customers and increase our exposure to contract-related risks or customer credit risk;
•adversely impacted the global capital markets, which could adversely impact our ability to access capital markets at effective rates, the ratings assigned to our securities or our credit facilities;
•increased our risks associated with emergency measures taken (including remote working, distancing and additional personal protective equipment), including increased cyber security risks, increased costs and the potential for reduced availability or productivity of our employees or third-party contractors or service providers;
•adversely impacted our ability to accurately forecast assumptions used to evaluate expansion projects, acquisitions and divestitures on an ongoing basis or for our financial guidance;
•adversely impacted the carrying value of our equity method investment in DCP Midstream and could adversely impact the outcome of future asset impairment tests, indicating that the carrying value of such assets might be impaired;
•could adversely impact the execution of current and future trade policies between Canada and the United States; and
•could result in future business interruption losses that our insurance coverage may not be sufficient to cover.
There can be no assurance that our strategies to address potential disruptions will mitigate these risks or the adverse impacts to our business, financial position, results of operations and cash flows. Future adverse impacts to our business, financial position, results of operations and cash flows may materialize that are not yet known. In addition, disruptions related to the COVID-19 pandemic may also have the effect of heightening many of the other risks described in Part I. Item 1A. Risk Factors included in our Annual Report on Form 10-K. The risk that is most significantly heightened by the COVID-19 pandemic is the impact of commodity price weakness and volatility on our Liquids Pipelines, Gas Transmission and Midstream and Energy Services businesses, as detailed in the risk factor below. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its global impact, including any related recession, as well as lingering impacts on supply of, demand for and prices of crude oil, natural gas, natural gas liquids, liquefied natural gas and renewable energy.
Weakness and volatility in commodity prices increase utilization risks in respect to our assets and has had and may have an adverse effect on our results of operations.
The COVID-19 pandemic and concerns about global economic growth have caused considerable uncertainty in the market for crude oil, natural gas and other commodities, lowering demand forecasts. This, and the changing relationship dynamic among OPEC+ members, has put severe downward pressure on prices. The economic climate in Canada, the United States and abroad has deteriorated and worldwide demand for petroleum products has diminished. 2020 has seen a dramatic decline in the price of crude oil, natural gas and NGL and other commodities whose prices are highly correlated to crude oil. The West Texas Intermediate benchmark prices for crude oil had been trading around US$60 per barrel in December 2019 and fell to as low as US$14 per barrel in March 2020 and into negative values in April 2020. Crude oil prices have started to recover in the second and third quarters of 2020, with West Texas Intermediate benchmark prices reaching US$40 primarily due to the announcement of crude oil productions cuts in April 2020 and June 2020. Crude oil prices may again decline or may be halted in their recovery.
In respect to our Liquids Pipeline assets, we are exposed to throughput risk under the Competitive Tolling Settlement on the Canadian Mainline and 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. The current commodity price environment has impacted both the supply of and demand for crude oil and other liquid hydrocarbons transported on our pipelines. This has led to a reduction in Mainline System throughputs of approximately 400 kbpd for the second quarter and 300 kbpd for the third quarter of 2020 compared to first quarter 2020 average Mainline System throughputs of 2,842 kbpd, which were aligned with or stronger than our expectations. At this time, it is difficult to predict the quantum of the impact on Mainline System throughput for the remainder of 2020 due to the unpredictability of the market currently as well as the projected duration of demand impacts caused by COVID-19. We continue to expect that Mainline System volumes will be under utilized by 100-300 kbpd in the fourth quarter of 2020, and return to full utilization in 2021. For every 100 kbpd increase or decrease in volumes on our Mainline System, our revenues, net of power savings, are expected to increase or decline by approximately $35 million per quarter.
While reduced demand has impacted throughput and revenue on the Mainline System, the financial impact of reduced throughput on our upstream regional pipelines and our downstream market extension pipelines is largely mitigated by the presence of take-or-pay contracts. The financial impact is also mitigated through cost-of-service arrangements with credit-worthy counterparties or parties that are not investment grade but have instead provided credit support in the form of letters of credit or other instruments. The existing market circumstances will stress the creditworthiness of many of these counterparties and we continue to evaluate the situation on an ongoing basis. To date, we have not had any counterparty default on its obligations to maintain credit support or pay its tolls under these contracts and at this time, we do not foresee a material impact to our financial results.
Shippers have also reduced investment in exploration and development programs for 2020. The decline in oil prices is also causing some sponsors of oil sands development programs to reconsider the timing of previously announced upstream development projects. Cancellation or deferral of these projects would affect longer-term supply growth from the Western Canadian Sedimentary Basin.
With respect to our Gas Transmission and Midstream assets, the low commodity prices have had limited impact on demand for natural gas shipped within our long-haul Gas Transmission assets in the United States and Canada. These assets are comprised of primarily cost-of-service and take-or-pay contract arrangements which are not directly impacted by fluctuations in commodity prices.
Within our US Midstream assets, our investment in DCP Midstream and to a lesser extent the Aux Sable liquids product plant are engaged in the businesses of gathering, treating and processing natural gas and natural gas liquids. Given the drastic decline in commodity prices, DCP Midstream made the decision to decrease its distribution to us by 50 percent (beginning with the first quarter distribution paid in May 2020), thereby reducing our cash flows. Aux Sable results will also be negatively impacted by these lower commodity prices.
With respect to our Energy Services business, we generate margins by capitalizing on quality, time and location differentials when opportunities arise. The recent volatility in commodity prices could limit margin opportunities and impede our ability to cover capacity commitments.
At this point, given the many outstanding questions as to the length and depth of the current low commodity price environment, the impact on us is uncertain; however, it is possible that it may have an adverse impact on our business and our results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On November 1, 2021, Marcel R. Coutu and V. Maureen Kempston Darkes each notified us of their intention to resign from the Board of Directors of Enbridge Inc., effective November 1, 2021, to avoid future potential or perceived conflicts of interest. Mr. Coutu served on the Board of Directors since 2014 and Ms. Kempston Darkes served on the Board of Directors since 2010. Neither Mr. Coutu’s nor Ms. Kempston Darkes’ decision to resign from the Board of Directors was the result of any disagreement relating to our operations, policies or practices.
ITEM 6. EXHIBITS
Each exhibit identified below is included as a part of this quarterly report. Exhibits included in this filing are designated by an asterisk (“*”); all exhibits not so designated are incorporated by reference to a prior filing as indicated.
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Exhibit No. | | Description |
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101.INS* | | XBRL Instance Document. |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | ENBRIDGE INC. |
| | (Registrant) |
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Date: | November 6, 20205, 2021 | By: | /s/ Al Monaco |
| | Al Monaco President and Chief Executive Officer (Principal Executive Officer) |
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Date: | November 6, 20205, 2021 | By: | /s/ Colin K. GruendingVern D. Yu |
| | | Colin K. Gruending
Vern D. Yu Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
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