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Enbridge Energy Partners
Enbridge Energy Partners – Liquids Pipelines
EEP owns and operates crude oil and liquid petroleum transmission pipeline systems, natural gas gathering and related facilities and marketing assets in the United States. Significant assets include the Lakehead System, which is the extension of the Enbridge System in the U.S., natural gas gathering and processing assets in Texas, the mid-continent crude oil system, various interstate and intrastate natural gas pipelines and a crude oil feeder pipeline in North Dakota.
Results of Operations
Earnings from EEP were $44.0 million for the year ended December 31, 2007, consistent with $43.0 million for the year ended December 31, 2006 despite the stronger Canadian dollar. Earnings for fiscal 2007, after adjusting for unrealized derivative fair value gains and losses (losses in 2007 of $6.3 million; gains in 2006 of $6.5 million) and Enbridge's $3.0 million share of the gain on the sale of Kansas Pipeline Company, increased $10.8 million compared to fiscal 2006. The increase reflects Enbridge's larger average ownership interest in 2007 as well as higher incentive income, increased processing margins and higher volumes on principal natural gas and liquids systems that were partially offset by higher operating expenses.
In 2005 EEP issued Class A partnership units which Enbridge did not fully participate in resulting in dilution gains. While new Class C units were issued by EEP in the third quarter of 2006 no dilution gains resulted as Enbridge participated in the offering, increasing Enbridge's ownership interest in EEP from 10.9% to 16.6%. Enbridge's average ownership interest in 2006 was 13.0%. In the second quarter of 2007, EEP issued partnership units. Because Enbridge did not fully participate in these offerings, dilution gains of $11.8 million resulted and Enbridge's ownership interest in the Partnership decreased from 16.6% to 15.1%. Enbridge's average ownership interest in 2007 was 15.5%.
Enbridge Energy Partners – Gas Pipelines
Earnings from EEP were $43.0 million for the year ended December 31, 2006 compared with $21.7 million for the year ended December 31, 2005. The results improved significantly, despite the stronger Canadian dollar, and reflected considerably higher liquids throughput on the Lakehead System, higher margins and increased volumes in the natural gas gathering and processing businesses in addition to a higher Enbridge ownership interest. The 2006 results also included $6.5 million (net to Enbridge) of unrealized mark-to-market gains (2005 - $5.0 million of losses) on derivative financial instruments that did not qualify for hedge accounting treatment. While Enbridge believes the hedging strategies are sound economic hedging techniques, they do not qualify for hedge accounting and have been accounted for on a mark-to-market basis through earnings.
Distributions
EEP makes quarterly distributions of its available cash to its common unitholders, including Enbridge. Under the Partnership Agreement, Enbridge, as general partner (GP), receives incremental incentive cash distributions, which represent incentive income, on the portion of cash distributions, on a per unit basis, that exceed certain target thresholds as follows:
Quarterly Cash Distributions per Unit: |
Unitholders including Enbridge |
Enbridge GP Interest |
up to $0.59 per unit |
98% |
2% |
first target - $0.59 per unit up to $0.70 per unit |
85% |
15% |
second target - $0.70 per unit up to $0.99 per unit |
75% |
25% |
over second target - cash distributions greater than $0.99 per unit |
50% |
50% |
During the first three quarters of 2007, EEP paid quarterly distributions of $0.925 per unit (2006 - $0.925 per unit; 2005 - $0.925 per unit). Effective November 2007, EEP increased quarterly distributions to $0.95 per unit. Of the $44.0 million Enbridge recognized as earnings from EEP during 2007, 43% (2006 - 37%; 2005 - 65%) were incentive earnings while 57% (2006 - 63%; 2005 - 35%) were Enbridge's share of EEP's earnings.
Line 3 Incident
In November 2007, an unexpected release and fire on Line 3 of the Lakehead System occurred during planned maintenance near Enbridge's Clearbrook, Minnesota terminal, which resulted in fatalities of two Enbridge employees working on the Line. All pipelines in the vicinity were immediately shut down and emergency response crews were dispatched to oversee containment, cleanup and repair of the pipeline at an estimated economic cost of US$2.6 million to EEP. Lines 1, 2 and 4 were restarted the following day after inspections revealed these lines had not been damaged. The volume of oil released was approximately 325 barrels, which was largely contained in the trench that had been excavated to facilitate the planned maintenance. Excavation and repairs were completed and the line was returned to service within 5 days. EEP is now working with federal and state environmental and pipeline safety regulators to investigate the cause of the incident.