Enbridge Inc. (ENB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Enbridge Inc. First Quarter 2023 Financial Results Conference Call. My name is Brent, and I will be your operator today. [Operator Instructions] Please note that this call is being recorded. I will now turn the call over to Rebecca Morley Director, Investor Relations. Rebecca, you may begin.

Thank you. Good morning, and welcome to the Enbridge First Quarter 2023 Earnings Call. My name is Rebecca Morley, and I'm the Director of the Investor Relations team. Joining me this morning are Greg Ebel, President and CEO; Vern Yu, Chief Financial Officer and President of New Energy Technologies, and the heads of each of our business units: Colin Gruending, Liquids Pipelines, Cynthia Hansen, Gas Transmission and Midstream; Michele Harradence, Gas Distribution and Storage and Matthew Akman, Renewable Power. As per usual, this call is being webcast, and I encourage those listening on the phone to follow along with the supporting slides. We'll try to keep the call to roughly 1 hour and in order to answer as many questions as possible, we will be limiting the questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community. So if you're a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our Investor Relations team will be available following the call for any follow-up questions. On to Slide 2, where I will remind you that we'll be referring to forward-looking information on today's presentation and Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below. With that, I'll turn it over to Greg Ebel.

Thank you, Rebecca, and good morning, everyone, and thanks for joining us. I'm excited to be here today to review our first quarter results and provide an update on our business. It was another great quarter. So I'll start off by recapping some key highlights that underpinned our strong performance. I'll then take you through some strategic advancements we made in our core franchises. Vern will walk you through the financial performance and outlook. And lastly, I'll close with a few key takeaways. And as always, the management team is here to address any questions you may have. First quarter saw strong financial performance, a little ahead of our expectations and we are on track to meet our full year guidance. And our balance sheet continues to be in great shape, too. We exited the quarter at 4.6x debt-to-EBITDA, near the bottom of our range all of which supports our BBB+ credit ratings. In addition, we were extremely pleased to announce yesterday that we have reached a settlement in principle with our customers on the mainline toll framework. This is great news for us and our customers, and we will comment more on that in a moment. On the asset acquisition front, we signed an agreement to acquire Aitken Creek Gas Storage in British Columbia, which enhances our LNG export strategy in Canada. And we completed the acquisition of Tres Palacios, further improving our competitive position in natural gas storage along the Gulf Coast. We also signed an LOI with Yara to construct a blue ammonia production facility at our Ingleside Energy Center, which is a great example of how our existing conventional asset base is leading to exciting low-carbon opportunities. In Renewables, we were awarded the 1-gigawatt Normandy offshore wind farm, along with our partners, EDF and CPPIB, which adds to our visible growth profile. We saw strong utilization across all of our systems and delivered our second consecutive quarter of record mainline volumes. And of course, we remain committed to delivering excellent safety performance. Across the corporation, we continually target lowering our total recordable incident frequency every year and have a great track record of doing so. Vern will touch on our progress towards our ESG goals and highlight a few new areas we're focusing on. But I would note that you can expect to see our sustainability report out later this month. All in all, another strong quarter. The new mainline tolling settlement and growth initiatives all support our near-term guidance and our strong multiyear outlook. So let's touch quickly on the financial highlights. First quarter EBITDA is up 8% and DCF is up 3%. These results speak to our strong operational performance and the resilient low-risk nature of our business model in all economic circumstances. Our strong balance sheet leaves us plenty of room to execute the tuck-in M&A deals you've seen us announce recently and still leaves ample space to continue to grow further. Now let's take a closer look at the mainline tolling settlement. I'm very pleased with yesterday's announcement that we have reached a settlement in principle with our customers on the mainline. This really is a win-win-win. Our customers will receive First Choice service standards at a competitive toll. Enbridge will earn attractive risk-adjusted returns and society will have access to safe, secure and affordable energy for years to come. From a scheduling standpoint, it's status quo. The mainline will continue as a common carrier system, available to all customers on a monthly nomination basis. Year-to-date, mainline volume performance has been strong and Q2 is shaping up to be another solid quarter. Going forward, our incentive to maximize barrels on the system, combined with our new more competitive toll and our unparalleled market access increases the attractiveness of our pipeline compared to others and ensures the mainline will be well utilized by our customers for decades to come. The new mainline toll will be stable and components of the toll will be indexed to inflation and will earn an attractive return similar to the one earned during the CTS agreement. Overall, this is a good deal for everyone and as a result of thoughtful inclusive and constructive negotiations. So I'd like to thank our customers and the Enbridge team for working so diligently and constructively on this positive deal framework. On the right-hand side of the page, you can see some of the specifics of the new settlement. We can appreciate that there's a lot to digest with this deal, and we're here to answer all your questions. But the bottom line that I want everyone to take away from today is that this is a good outcome for all parties involved. The new toll is in line with our expectations and the provision we've been recording in our financial results. And looking ahead, our financial guidance and outlook are maintained under the new deal. And finally, we're filing a settlement application with the CER and FERC and hope to have final approval before the end of the year. So now let's take a closer look at the other parts of our liquids business. In Liquids Pipelines, we continue to advance our U.S. Gulf Coast export strategy. FID the initial phase of EHOT and expect to see operations begin in late 2025. We're about to launch a binding open season for Flanagan South to leverage available capacity of up to 95,000 barrels per day and provide additional market access to our customers. In addition to securing throughput on Flanagan South, the volumes would also secure long-haul demand on the entire Enbridge network. Subsequent to the end of the quarter, we took operatorship of the Gray Oak pipeline, and we will look for opportunities to optimize that system. Equally exciting is our low carbon opportunity set, which continues to grow. In March, we signed an LOI with Yara to jointly construct a blue ammonia production facility at the Ingleside Energy Center. This facility is expected to produce up to 1.4 million tons per year of blue ammonia, backed by a long-term 100% offtake agreement. We're also planning to construct a carbon capture and sequestration hub near Ingleside as part of our previously announced partnership with Oxy Low Carbon Ventures. So Ingleside is shaping up to be a one-of-a-kind Swiss Army Knife terminal with its world-class oil loading capacity, on-site storage and a suite of lower carbon development and renewable power. We're also continuing to advance our low-carbon plans north of the border, where we are partnering with Capital Power and Heidelberg materials to construct a carbon capture hub near Edmonton with phased in-service dates starting as early as 2026. And last but definitely not least, we also have 7 solar self-power projects operating or under construction along the mainline that reduces emissions and power cost exposure along our liquids lines. So let's move on to some of the exciting developments in our gas transmission business. Last week, we announced that we're acquiring Aitken Creek Gas Storage from Fortis. This asset is well positioned and will enhance our service offering to our customers and support our LNG export strategy. Also in Canada, we're looking to relaunch a binding open season for a second expansion of BC Pipelines T-North in the second half of this year. The engineering work on wood fiber LNG is progressing on schedule. And of note, by using renewable hydroelectric power, wood fiber will be the lowest emission LNG export facility in the world. In the U.S., we've just closed a successful open season on Texas Eastern in the Appalachia region and are pleased with customer interest. So we'll look to sanction this expansion by the end of the year. And as mentioned earlier, we've recently closed our previously announced acquisition of Tres Palacios gas storage, adding 35 Bcf of gas storage, which will support LNG along the Gulf Coast. Lastly, we're ready to proceed with the construction of the Rio Bravo Pipeline once next decade, reaches FID on its Rio Grande LNG, which should be by the end of June. So now let's take a closer look at Aitken Creek Gas Storage. Aitken Creek is the only storage facility in BC that has connections to all the key egress pipelines, including Enbridge's West Coast and Alliance pipelines. The facility is uniquely positioned to support BC gas production in a volatile price environment. And with Western Canadian gas production, expected to outpace demand and egress bottlenecks for the foreseeable future, Aitken Creek is well positioned to create long-term value for Enbridge. We are acquiring the facility from Fortis for $400 million plus customary closing adjustments. And we expect to earn a typical Enbridge return on the asset. Said another way, this is another strategic transaction with a single-digit acquisition multiple that should produce double-digit returns. Now let's move on to our latest announcement in our French offshore wind portfolio. In March, we were selected to develop France's largest offshore wind farm to date with installed capacity of 1 gigawatt. Similar to our other French offshore wind farms, we've been awarded a long-term fixed-price CFD index to inflation. We continue to demonstrate how we can grow the business with the same capital discipline and low-risk model that applies to our three other core businesses. This project will mark the sixth offshore wind project with our partners EDF Renewables and CPP investments and plan to continue pursuing future awards in the region. Once complete, Centre Manche 1 will be located 32 kilometers off the coast of Normandy and is expected to supply electricity equivalent to the annual energy need of 1.5 million people. Next steps for this project are planning, engineering and permitting. Ahead of FID, and we expect the project to be in operation around the end of the decade. Now that we've reviewed the updates across our business, I would like to share our First Choice business model and how it's positioned in the current macro environment. During the first quarter, there was extreme volatility in interest rates and foreign exchange markets, but our results demonstrate how our low-risk model delivers in all cycles. As you can see from the chart on the right, we have hit guidance through challenging times in the past, and we expect that to continue. Our earnings are protected with 98% of the cash flows being generated from either cost of service or contracted throughput. 95% of our customer base is investment grade, and 80% of our EBITDA comes from assets with built-in inflation protection against rising costs. As discussed earlier, our balance sheet is in great shape, and all of the agencies have reaffirmed our BBB high credit ratings. We actively manage our interest rate exposure and less than 5% of our debt portfolio is exposed to floating rates. Lastly, we borrow from more than 25 different lenders and have no exposure to any U.S. regional banks. When you add all that up, we are able to deliver predictable returns through all market cycles and deliver a first choice value proposition to our investors. So now let me turn it over to Vern to walk you through our quarterly financial results, our outlook and update you on our ESG efforts.

Thanks, Greg, and good morning, everyone. 2023 is off to a great start. Strong operational performance resulted in an 8% increase in EBITDA and a 3% increase in DCF per share year-over-year. For the second quarter in a row, mainline volumes averaged over 3 million barrels per day and with the new tolling settlement, we are confident our system will remain highly utilized well into the future. Gas transmission utilization remained high, and Q1 included higher Texas Season revenues from our recent FERC approved rate case settlement. Our utility business was also up in the quarter, but the outperformance was mostly due to a change in the timing of storage and transportation margin, which will reverse over the balance of the year. We'll talk in a little bit more about the seasonality in our business. Our renewals business benefited from extremely high European power prices last year. These prices have returned to more normal levels this year. At Energy Services, our transportation commitments expired during Q1 and market backwardation has softened compared to the same period in 2022. The quarter also benefited from a stronger U.S. dollar, which contributed to higher EBITDA. Below the line, higher interest rates on flooding rate debt, the timing of maintenance capital and higher NCI distributions from our Athabasca indigenous investment partnership, partially offset the strong operational performance coming from our businesses. Enbridge continues to be well positioned to navigate market volatility as we saw in the first quarter. Our results demonstrate the low-risk nature of our business model and also demonstrate the predictability of our financial and operational performance. So let's take a moment and talk about the seasonality of our business. Q1 and Q4 are typically our strongest financial quarters into winter, more gas flows on our gas transmission system, and there are more peaking days. Similarly, at the utility, the majority of heating degree days are weighted towards the colder months. In our liquids business, refinery turnarounds typically take place in the spring and the fall, which means their deliveries are lower during this period. All of this is built into our annual guidance, and we're on track to meet that guidance this year. So let's talk about that now. As Greg mentioned, we're reaffirming our 2023 guidance that we provided last November. The mainline settlement is in line with our expectations and the toll provision that was baked into our plan. We're expecting continued strong operating performance across all of our businesses and the stronger U.S. dollar provides a slight tailwind for our results. However, warmer weather, rising interest rates, modest inflationary pressure on operating costs, and commodity price backwardation in our Energy Services business unit, our hurdles were looking to offset. On the risk management front, substantially all of our U.S. dollar DCF exposure has been hedged for the year at approximately $1.37. And since our last update, we've reduced our floating rate debt exposure for the remainder of the year, it's now below 5%. So all in all, we're in good shape here. Let's move to our medium-term financial outlook, which we're also reaffirming today. There's no change to what we shared with you at our Investor Day in March. In the first bucket, we've made good progress on rate cases and the new mainline settlement allows us to continue to optimize our Liquids Pipelines business. In the second bucket, we're advancing opportunities to build out our secured organic growth projects with the Normandy offshore wind project and the Yara blue ammonia JV. We're also advancing a number of open seasons on our systems. We will be launching our Flanagan South open season soon, and we've closed our Appalachian region, Texas Eastern open season, and we're still planning a T-North open season for later this year. Last but not least, we're judiciously deploying our investment capacity. During the quarter, we announced the acquisition of Tres Palacios, our joint venture with Divert and this week, we announced the acquisition of Aitken Creek Gas Storage. We continue to execute our strategy and effectively allocate capital to deliver the growth that we're committed to. We view prudent capital allocation as being a big part of our investment thesis, and we continue to strive to maximize shareholder returns. Let's move on to that now. Our capital allocation priorities are unchanged. Our #1 priority is maintaining a strong, flexible balance sheet. Q1 debt-to-EBITDA was 4.6x, leaving us plenty of room to execute our secured capital program. We'll continue to return capital to shareholders through a sustainable and growing dividend, while maintaining the dividend within our 60% to 70% payout range. In addition, we'll look for opportunities to selectively repurchase shares at regional coal prices and you'll have seen we did a little bit of that earlier in April. Our free cash flow and financial flexibility provides us with roughly $6 billion a year of investment capacity, and we will allocate capital only to the best of the many opportunities that we have in front of us. Let's now turn to our secured growth program. Today, our secured growth program sits at about $17 billion. It's diversified across our businesses and will be deployed over a number of years, which mitigates today's cost pressures, which are coming from tight supply chain and tight labor pools. Since Enbridge Day, we've added the Enbridge Houston oil terminal to the secured growth program as that project has now reached FID. As I said earlier, our equity self-financing model provides us with approximately $6 billion of annual investment capacity, where we have plenty of room for more organic growth, asset acquisitions, debt repayments and share buybacks. Let's finish up with ESG. I want to echo what Greg said earlier about ESG. We remain committed to being an industry leader, not only because it's the right thing to do, but it's a fundamental enabler of our business. As an example, every investment opportunity that we evaluate must have its own net zero emissions plan built into its project economics. As you've already heard, we've announced our JV with Yara to build a blue ammonia production facility and we plan to sequester approximately 95% of the facility's CO2 emissions using carbon capture and storage. This quarter, we issued the largest sustainably-linked bond in U.S. history at about $2.3 billion. This brings our total sustainably linked financings to over $7 billion. On diversity and inclusion, we've set ambitious workplace representation goals for ourselves, and we're tracking well against these goals. At Enbridge, we are dedicated to creating an inclusive work environment for all of our employees. Our strong Board refreshment practices bring in new perspectives and expertise, including directors with experience and indigenous engagement, new energy technologies and energy transition. Since 2021, we've added five new directors and effective January 1 of this year, Pamela L. Carter, was appointed Chair of our Board and she is a first female and our first black chair. With that, I'll pass it back to Greg.

Well, thanks very much, Vern. And as we wrap up here for questions, let me leave you with a few key takeaways. With the mainline tolling settlement moving toward approval, our guidance and outlook remain unchanged, and we are now even better positioned to serve our customers' growth plans. Enbridge's low-risk commercial model positions us to withstand market volatility and deliver predictable results and consistent growth on your behalf. We're still laser-focused on balance sheet strength and executing on our growth program within our equity self-funding model. And at Enbridge ESG leadership in the industry is not only good practice but also a key component of our license to operate and continue growing. Thank you. And now let's open up the lines for your questions.

[Operator Instructions] Your first question comes from the line of Jeremy Tonet with JPMorgan.

Just wanted to see if you could go to yesterday's big announcement with regards to the mainline agreement. And if I look at the waterfall chart, just a few points I want to clarify there, if it's scale proportional to actual number? If this is the net toll impact of 2023? Or is it just a half year impact? And if it's a full year impact, is it still $5 billion EBITDA next year? Just trying to gauge those items.

Yes. Good question. I think maybe we'll start with Vern and maybe Colin will have something add too. We're shocked that the first question is on the mainline.

Jeremy, I think I think you're referring to the supplementary material that we provided yesterday as part of our announcement. I think the key thing to think about is the provision that we've been booking is based on a whole host of factors, and we went to a lot more granularity than we normally would to give -- the street a better sense of what's actually happening. So there are -- there's obviously a downward revision of the toll, offset by another bunch of other factors. All that being said, the provision is in line, 100% what we've been booking through the interim period and what we expect to see in 2023. Obviously, our auditors have signed off on that. And as we look forward to 2024 and beyond, obviously, the EBITDA from the mainline is going to go up and down a little bit with volumes, the level of toll foreign exchange rates on the Lakehead portion of the tool. And now we have this inflation escalator at CPI and the power price escalator at the basket of power prices that we're going to see across all the regions that we pump crude in. So I think the long and the short of it is 2023 guidance is intact, and our medium-term outlook remains unchanged.

Got it. That's very helpful there. And then the follow-up is just the knock-on effects. Downstream there is -- it seems like there could be some very nice leverage to what this does for your systems. So wondering if you could just walk us through a bit on that plan again South expansion, what have you. Just how do you think about new opportunities unlocked with this agreement?

Jeremy, it's Colin. Yes. it's all part of the singular path, right? So we think about it holistically and from a competitiveness and attractiveness perspective. So we'll be -- well, we're sounding market right now on planting itself, and we're confident we'll move to an open season here this summer shortly. There is interest in further egress south. And I think the order of operation here helps with having a mainline settlement in principle underpin a good chunk of the distance-based toll. So that's now coming into focus on Flanagan South and EHOT is exciting, too. We're going to have a big heavy oil terminal down in Houston for customers to work with either for local Houston distribution, right, displacing what was former imported crude, which is declining. But then also optionality for future export of heavy out of the Houston market. So that whole path is coming into better focus. It's already well used, right? We're already moving on a monthly basis here, 500,000 to 600,000 a day down that path. So -- and there's 40-plus refineries connected directly or indirectly on that path. So lots of optionality, which should, I think, be very competitive.

Your next question is from the line of Linda Ezergailis with TD Securities.

Looking beyond this year, and thank you for reiterating the guidance. Just want to get an updated philosophy on your earnings at risk approach and where you are at for next year and beyond? Historically, you've limited to your earnings at risk to below 5% from market-based exposures, whether it was FX, interest rates, residual commodity exposure. And I'm just wondering if you could give us a sense of how much of your 2024 plus EBITDA and earnings are hedged from an [indiscernible] perspective, how much interest rate floating exposure you might have? And any other commentary you can provide on that front would be appreciated.

Linda, it's Vern. So we look at earnings at risk on a 12-month rolling basis, so 12 months forward. On that metric, we're something around 2% to 2.5% today. So we're well managed out through this year in the first half of next year. I think for our floating rate book, we've started hedging 2024. We have about 20% hedged now, and we'll continue to hedge through the year, just to decrease volatility both in our cash flows and earnings. So our philosophy hasn't changed where we want to be highly predictable, and we'll take out that unpredictability as we go through the year.

And just as a quick follow-up. Just big picture in British Columbia. Might you be augmenting the service offerings you provide to shippers in the region? Or might you be maybe doing a little bit more yourself with the open capacity on Aitken Creek and some of your other physical transportation assets in the region. And can you comment as well how Aitken Creek kind of enhances what you might be doing on T-North and T-South, long term?

Thanks for the question, Linda. Yes, Aitken Creek is obviously a great fit for us because of our existing infrastructure in that area. And there's going to be synergistic opportunities in how we operate those assets. Part of that we'll be looking at, as you say, what those opportunities are to work with our customers, to look at contracting in that space. Obviously, we're bullish on the fundamentals and we see that as a great opportunity to look at providing additional contracting opportunities to our customers in that space. So more to come on that. But just with our assets, it does provide more flexibility for how we operate our other existing storage with [indiscernible] and other synergistic opportunities for us like that.

Linda, the only thing I'd add is that consistent with Vern's comments, as you know, Aitken Creek had a little bit less contracted storage than what we usually look at. So don't be surprised to see us look to contract that up over 50%. And and may even be closer to 2/3. That's just -- I think that makes sense for us in our model. But as Cynthia says, that's the kind of asset that should give us a lot of flexibility to serve our customers on the LNG side and of course, focus on the lower mainline and beyond. So pretty excited about that asset.

Your next question comes from the line of Theresa Chen with Barclays.

Turning to the U.S. Gulf Coast on the liquids front. Can you talk about the status of the potential [Gray Oak] expansion now that you've taken over operatorship of the system just given the backdrop of Permian to Corpus lines continuing to be full? And are you interested in owning potentially more of that corridor given the incremental interest that you've acquired so far?

Theresa, it's Colin. Yes, generally, the answer more specifically -- yes, we just took over operation at Gray Oak in April, so last month. We've already with our partners unlocked 25,000 a day of extra capacity, which is indicative of demand, to your point, so a strong foreign bid for that crude. And of course, our Ingleside facility is a natural pull as well, which is very competitive. So again, we're in market sounding for shipper interest and preference, and that will inform our open season that will run this summer. We're looking ballpark up to another 200,000 barrels per day expansion there. Many or maybe even most customers are interested in dual service, including Ingleside capacity, that integrated path. So that's looking really good. And there's also the potential that we could extend Gray Oak over to EHOT over in Houston there, which would bring heavy down from Canada and light over from the Permian. And it's pretty exciting. So listen, we're really bullish on what's happening there. We're excited about our strategy and how it's been unfolding through acquisition selectively through some asset swaps to get into Gray Oak, picking up some of the minority interests and registered in other assets in the region. If you step back from the global supply-demand lens on this, the world cannot function without Western Canadian or Permian crude full stop. So we're following the fundamentals.

Got it. And as a follow-up, just when we think about the broader Gulf Coast crude infrastructure assets, something that we've heard discussed repeatedly in the industry, is that importance of being able to deliver a neat barrel and quality segregation, especially if you are going to extend Gray Oak to EHOT and have a more comprehensive integrated system. So can you talk about your ability to do that and how that may lend itself to a competitive advantage when seeking commitments or dedications over time?

Yes. That's been a hallmark of Enbridge on all our systems, whether in Canada or in the Permian is that badge quality, that FedEx service, if you like, segregating quality. It's a valuable commodity. It needs to be protected and I think we have a track record of doing that relative to other business models. So that's a part of our competitive offering in addition to just outright cost-effective tools and some of the advantages at Ingleside that we've talked about many times to be competitive, $0.30, $0.40, $0.50 integrated export tools are material in the global scheme. So it's all part of the mix. I'm glad you mentioned that one.

Yes. And when you think about it, even with the toll deal, right? I mean everything we're trying to do is designed to be that first choice supplier. And so sure, on the total deal, there's always a little give and take, but a good fair income that really incents us to give better service to our customers to use the main line. And obviously, that ultimately can get people down to the Gulf and PADD 3. And then just what we're doing out of the Permian, I think we really are trying to build that super system and really make sure that the shippers and the customers that we have actually have an opportunity to maximize their returns in the best markets. And that's what it's all about. And I think we're just getting more competitive every day.

Your next question is from the line of Robert Catellier with CIBC Capital Markets.

Congratulations on the mainline deal. I know that's a monumental task for everyone involved. I wondered if you could spend a minute on the risk sharing front. It looks to me like the setup here is for a lower dispersion of outcomes of less risk, it would seem. So I wonder if you could talk about what you see as the biggest wins on risk sharing. And in addition to that, what are the key leverage points to achieving the upper end of the ROE collar other than obviously just volumes?

Sure, Robert. I can take it. So -- this is our seventh vintage of an incentive arrangement with customers. And I mean I should tell you something right away that customers want us to be aligned and house for them and win when they win. So we've got another version of it. Each time we renew or we negotiate it, we tweak a couple of things. I'd say thematically in this version of the incentive framework. We've added a risk package, I think, as you put it. There's a few different individual mini risk mitigants and then there's the overall performance collar, which acts as kind of a big risk package in itself, which is all-inclusive. So we've got a couple of layers of defense here. Will we need them? Maybe not, but it's the Enbridge preference to have them, right? You've seen our commercial model. So if you think about the risks, we've been managing these risks for a long time. The one we can't control is volume, right? That's a shipper controlled risk. We have strong views on fundamentals and high conviction in the competitiveness of our system, and it's going to remain circa 95% to 100% full here through the piece. There's an improved foreign exchange outlook for us and that the Canadian portion of the toll will be toll in Canadian dollars, not U.S. dollars like it was. We've got the Line 3 toll ratchet, which isn't new, by the way, but I think it's relatively new. So I'd remind people of that $0.035 toll ratchet which is meant to temper volume volatility, right, for every 50,000 barrels, toll moves $0.035. We've also -- I think it was implicit before, but now we have agreement in principle to recover on and of capital for Line 5 investments. So there's a few different, I would say, smaller risk mitigants and then there's the bigger collar risk mitigant. So you're right, all with the intention of kind of narrowing the dispersion of outcomes for all, right? Shipper and Enbridge so that it's a fair competitive solution. And as Greg was saying earlier that [indiscernible] to win as well. Does that help? Is that where you're going with the question, Robert?

It was. And then the second piece of it is just what do you think other than volume is the biggest leverage point to hit the upper end of the ROE CAR?

Yes. I think on that count, I think it's well understood that the first few years here, we're going to be in the upper half of that range, just given '21, '22 and '23 have strong volume throughputs already. And then over time, you've got pretty strong volumes, we think, through the term here and on a slightly declining rate base. So think about that as well. I think the other smaller drivers would be our ability to manage within the inflators and control our costs and power cost. That's what shippers want us to do, and we'll try to do that. FX as well, I think, will play a part in there, but Vern's team is on that and trying to manage that and lock it down as well.

Your next question is from the line of Rob Hope with Scotiabank.

A question on the mainline. It would seem since the -- or let's say, over the last 6 months, the commentary on the volume outlook for the Mainline has strengthened and Colin just noted that you're expecting 95% utilization there. Can you maybe talk to kind of what is driving this increased confidence on the mainline volume outlook? Is it potentially where the toll shook out for the Mainline? Is it where Trans Mountain tools potentially could move up? Or is it just kind of sharpening the pencil on the competitiveness of the system.