Content
Letter to Unitholders
Gordon G. Tallman
Chair, Board of Trustees
James A. Schultz
President, Enbridge
Management Services Inc.
Enbridge Income Fund’s portfolio of low risk energy infrastructure assets remains a solid foundation on which to build value for investors.
In 2007, Enbridge Income Fund continued to build on its strong track record of delivering consistent cash flow for distributions. The Fund’s asset base remains well-positioned in 2008 to continue delivering value for income-oriented investors through generating reliable, low-risk cash flow and moderate growth. The ongoing growth in our alternative energy assets also offers an increasingly compelling environmentally friendly investment profile.
The Fund generated earnings of $21.1 million in 2007. Cash available for distribution in 2007 of $73.5 million was in line with last year. Cash distributions declared of $69.6 million represented 94.7% of cash available for distribution and were modestly higher than 2006.
The Fund’s ability to generate stable, reliable income for its unitholders comes from its solid base of high quality energy infrastructure assets. The Fund’s investment in the Alliance Canada natural gas pipeline and the Saskatchewan System crude oil gathering and feeder pipeline system are both underpinned by regulatory and contractual arrangements that support its stable, low-risk business model. The Fund’s Green Power segment includes interests in several wind and waste heat power generation businesses that produce electricity via alternative energy sources, and sell that power under long-term contracts with low-risk counterparties.
Our existing assets offer attractive organic growth potential and we are excited about the opportunities we were able to act on in 2007 and the results that we can look forward to in 2008.
Alliance Canada
In 2007, Alliance Canada delivered a record average of 1.598 billion cubic feet per day of natural gas for its shippers. This accomplishment was achieved through effective maintenance and line pack management.
Alliance Canada uses environmentally friendly, state-of-the-art technology to provide a high pressure, liquid-rich, bullet line service from western Canada to the Chicago market hub. Alliance Canada has successfully implemented a number of optimization projects and is well-positioned to continue leveraging the competitive advantages of its assets into further optimization and growth opportunities.
In September 2007, Alliance Canada received approval from the National Energy Board for its $30.3 million BCX Expansion Project, which will enhance its capacity for natural gas receipts originating in northeastern British Columbia and enable existing shippers to increase gas nominations at receipt points in B.C. Construction is expected to commence in early 2008 with an expected in-service date in late 2008.
In the longer term, Alliance also has some very cost-effective and competitive expansion capability which provides potential upside related to Northern gas development.
Saskatchewan System
The Saskatchewan System continues to be focused on meeting increased crude oil production and growing demand for pipeline capacity in its service area. The Westspur expansion project, which will increase the system’s capacity by approximately 20% at an expected cost of $30.5 million, is central to the Saskatchewan System’s current growth plans. Construction on this project began in November 2007 and the expanded pipeline is expected to be in service by the second quarter of 2008.
We believe the Saskatchewan System also has promising future growth opportunities as we look toward completing our current phase of expansions. The Saskatchewan System is uniquely positioned to take advantage of the increased production in southeastern Saskatchewan from the Bakken play. This reservoir is relatively new and reports of development completed to date indicate significant demand for additional crude oil transportation capacity in the area.
Green Power
In 2007, NRGreen completed the commissioning of its Loreburn and Estlin, Saskatchewan waste heat electricity generation facilities. These facilities, along with a third facility at Alameda, Saskatchewan are set to commence operations in mid 2008. Electricity is generated by harnessing the waste heat produced by Alliance Canada’s gas turbines at its compressor stations and converting it to electrical energy. Combined with the existing waste heat recovery facility at Kerrobert, Saskatchewan, NRGreen will have approximately 20 megawatts of environmentally friendly power generation that will be sold under long-term contracts to SaskPower.
The Fund’s Wind Power assets are also supported by long-term contracts to sell electricity into the provincial grids in Alberta and Saskatchewan. In 2007, the performance of the wind power assets was driven by higher than anticipated wind resource.
On June 22, 2007, the “Tax Fairness Plan” income trust taxation legislation, Bill C-52, received Royal Assent. Under the enacted legislation, a distribution tax will be imposed on Enbridge Income Fund starting in 2011. While the Tax Fairness Plan also imposes certain limits on growth for income trusts aiming to avoid early imposition of the new distribution tax, we are confident that the growth plans outlined above can be executed even within these limitations.
With our portfolio of high-quality, long-lived assets that deliver sustainable and predictable cash flows, and the organic growth projects we have underway, Enbridge Income Fund remains positioned to deliver investor value into the future. Complementing the strength of our assets is our sponsorship and strategic alignment with Enbridge Inc., a company with one of the strongest track records for developing and managing energy infrastructure using a low-risk business model.
Looking ahead to 2008, we are confidently focused on executing our slate of real, demand-driven organic growth projects to support continued predictable and moderately growing cash flow for distributions.
Gordon G. Tallman
Chair, Board of Trustees
James A. Schultz
President, Enbridge Management Services Inc.