Enbridge Inc. (ENB) Earnings Call Transcript & Summary

Madam Chair, I move and second that the resolution to accept the corporation's approach to executive compensation the text of which is set forth on Page 36 of the Management Information Circular, be and is hereby approved.

Thank you. Can you please advise if any questions specific to this motion were submitted?

No questions specific to this motion have been submitted.

Thank you. We will now proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

The next item of business today are consideration of 2 shareholder proposals. The first shareholder proposal is submitted by Ms. Leanne Baer, represented by Environmental Defence Canada. The second shareholder proposal is submitted by DI Foundation represented by investors for Paris Compliance. The full text of both shareholder proposals together with the Board of Directors' responses are set out in Appendix A of the Management Information Circular. The Board of Directors and management recommend that shareholders vote against both proposals. We will first deal with shareholder proposal #1. I now advise Mr. Keith Brooks of Environmental Defence Canada to present the proposal on behalf of Ms. Leanne Baer. Mr. Brooks, May you please present the motion and make your statement?

Thank you, Madam Chair. My name is Keith Brooks Environmental Defence Canada. I'm a proxy holder representing Ms. Leanne Baer, and I move and second that the shareholder proposal #1 resolution as set out in Appendix A to the management information circular be and is hereby approved. Environmental Defence submitted this proposal because we are concerned that Enbridge is either being disingenuous or doesn't understand the energy transition, and we wanted to bring it to the attention of shareholders because it presents a risk to shareholders. What we're seeking in this resolution is for Enbridge to produce a report to better understand where the disconnect is happening. Our concerns are as follows: Enbridge used the faulty report of the Ontario Energy Board proceedings regarding the energy transition and the role of gas in that transition. Many of the assumptions underlying the report did not hold up to scrutiny from Environment Defence and others, so much so that the Board ordered Enbridge to correct the report, which resulted in a $140 billion difference from the previous analysis. I think shareholders would recognize that $140 billion is not an immaterial amount of money. And so it's important to understand how this mistake happened, if it was a mistake or to understand if somebody intentionally misrepresented things to make Enbridge's prospects look rosier than they actually are. Separately, but related to the Ontario Energy Board also took issue with Enbridge's overly rosier projections about the role of gas and home heating in the future. In short, the Board did not approve Enbridge Gas' capital plan and flagged the concern about stranded assets because of the energy transition. To quote the Board, "The OEB concludes that Enbridge Gas proposal is not responsive to the energy transition and increases our risk of stranded assets or underutilized assets, a risk that must be mitigated. In the face of the energy transition, Enbridge bears the onus to demonstrate that its proposed capital spending plan reflected in its asset management plan is prudent, having accounted appropriately for the risk arising from the energy transition, the record is clear that Enbridge Gas has failed to do so." from the OEB. This is all further compounded by the fact that Enbridge is misleading Ontarians and some of its marketing materials by claiming that gas is the least expensive way to heat a home, though this isn't, in fact, true. Enbridge's marketing materials compared gas heating to electric heating, assuming a home is being heated by a highly inefficient baseboard heater rather than a much more efficient and cost-effective cold climate air source heat pump. We have to believe this omission was intentional given Enbridge also ran the federally funded Greener Homes Grant program that offers rebates for heat pumps. We brought a complaint to the Competition Bureau concerning the misleading advertising and the bureau has confirmed that it is undertaking an investigation that is to say they are taking our complaint seriously. We note too that Enbridge has modified its advertising and now clarifies that the electricity number referenced the cost of heating using baseboard heaters or electric resistance heaters, which suggest that someone in Enbridge also believes there is some merit to our complaint. This misleading advertising is an issue given that gas is not the cheapest way to heat. And given that, that may mean that Enbridge gets fewer customers than it projects further Enbridge could face volumes and reputational hit should the bureau decide against it. Finally, we flagged the risk of the Line 5 pipeline in the Great Lakes. That pipeline is over 70 years old and there is a risk of this pipeline will rupture, a risk which we believe Enbridge is downplaying. The company is also spending a lot of money to reroute a portion of the pipeline and is pursuing a tunnel under the Great Lakes, which would also be a very expensive project, should it even get approved. Shareholders should question whether it is prudent given that the tunnel may not get approved and there is significant expense that might be hard to justify again, in light of the energy transition and the risks associated with the pipeline spill. We wanted to bring these concerns to the attention of shareholders and the resolution aims to have Enbridge look into these matters to sort out whether it is being responsible in light of the energy transition and to reduce a report summarizing the findings. Thank you for your time.

Thank you, Mr. Brooks. We appreciate your engagement on this matter. As set out in the management information circular, the Board of Directors opposes this proposal and has recommended that shareholders vote against shareholder proposal #1. The reasons for this recommendation are explained in full on Pages 121 to 122 of the Management Information Circular. Ms. Uehara, can you please advise if any questions specific to this motion were submitted?

No questions specific to this motion have been submitted.

Thank you. We will now proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

The final item of business today is the consideration of shareholder proposal, #2, the Board of Directors and management recommend that shareholders vote against the proposal. I now invite Mr. Duncan Kenyon of Investors for Paris Compliance to present the proposal on behalf of the DI Foundation. Mr. Kenyon, may you please present the motion and make your statement?

Thank you, Madam Chair, and good afternoon to all on the call. My name is Duncan Kenyon of Investors for Paris Compliance. I'm a proxy holder representing the DI Foundation. I move and second that the #2 shareholder proposal as set out in Appendix A in Enbridge's management information circular be and is hereby approved. As Enbridge has a net zero commitment, and as a midstream and utility company, in theory, it has a greater ability and opportunities to transition to net -- into 0 low-carbon business lines, much more so than traditional oil and gas companies. The question is, is it doing so? Where this shows up is in its Scope 3 emissions, including the end-use emissions of the products that Enbridge's midstream service enables. If the company's Scope 3 emissions are going down, it may be shifting its business in line with the energy transition. If the opposite, it's likely not aligned with energy transition. Unfortunately, Enbridge is failing to fully and properly report on the Scope 3 emissions, masking its business strategy of continuing to invest in new fossil fuel infrastructure at a much larger scale than its renewable investments. As such, we've again filed a Scope 3 reporting resolution with Enbridge this year. For us, the challenge really starts with Enbridge flaunting the Scope 3 guidance and rules for the very climate reporting mechanism that the company claims to follow. It flaunts the guidance that says midstream companies need to report on material Scope 3 emissions like the emissions from the end use of oil and gas. It flaunts guidance that makes ownership of goods irrelevant as it's clear that the guidance states, that you should be reporting on the sale of services in addition to the sale of goods. It flaunts the guidance on processes and approaches to calculate Scope 3 emissions that applies to all reporting companies and these reporting mechanisms regardless of the sector or if the company feels it needs special rules. Besides eroding confidence in Enbridge's overall sustainability reporting by flaunting the rules that apply to the company when it signs up to use these accepted climate reporting mechanism, it also begs the question as to why Enbridge is not following the rules and reporting on the Scope 3 emissions from the end use of oil and gas products. Our own conservative estimate is that Enbridge's Scope 3 emissions have risen by 76% in the past 10 years and as planned, proposed or approved future gas transmission products would increase at a further 27%. Enbridge's investments in new fossil fuel infrastructure absolutely dwarf its investments in renewables, and this shows up in these Scope 3 numbers. As investors, it would be better if Enbridge used metrics like Scope 3 emissions to quantify its progress on its self-proclaimed practical approach to the energy transition. Besides reputational risk, not following these reporting rules clearly has little legal risk, yet that is set to change with regulators working to require better climate metrics and reporting of material climate and financial risk. Consultations are now underway in Canada on applying the International Sustainability Standards Board emissions reporting guidelines, guidelines that include reporting on Scope 3 emissions. In addition, Enbridge's Canadian financial institutional partners are already starting to report on the finance emissions from its clients. In this case, that's a form of Scope 3 emissions for these financial institutions. That includes reporting the finance emissions of their clients like Enbridge in the oil and gas sector. Ultimately, though, we are moving away from the glossy pages of voluntarily reported climate ESG reports and turning to the need for better financial disclosure business risk from the energy transition. The energy transition is 1 of the major economic drivers of business success over the coming years. And current relevant metrics like Scope 3 emissions are required to demonstrate whether companies are adapting to the opportunity this presents or a risk of failing by remaining stuck in the past. Thank you for your time today.

Thank you, Mr. Kenyon. We appreciate your engagement on this matter. As set out in the Management Information Circular, the Board of Directors opposes this proposal and has recommended that shareholders vote against shareholder proposal #2. The reasons for this recommendation are explained in full on Pages 123 to 124 and of the Management Information Circular. Ms. Uehara, can you please advise if any questions specific to this motion were submitted.

No questions specific to this motion have been submitted.

Thank you. We will now proceed with the vote. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. Thank you again to all our shareholders who voted in advance of or during today's meeting. [Voting]

We will now pause for a moment of the scrutineer to tabulate the preliminary results of the voting and provide those results to us. Ms. Uehara, do you have the preliminary results of the voting?

Yes, Madam Chair. I received confirmation from the scrutineer that each of the 12 Directors have been elected by at least 92% of the votes cast for the election of directors. The motion to appoint PricewaterhouseCoopers LLP as the corporation's auditors and have the audit -- directors fix their remuneration has been approved by at least 91% of the votes cast on that resolution. The advisory vote on the corporation's approach to executive compensation has been approved by at least 89% of the votes cast on that resolution. Shareholder proposal #1 submitted by Ms. Leanne Baer and represented by Environmental Defence Canada has been defeated by at least 95% of the votes cast against that resolution. And shareholder proposal #2 submitted by DI Foundation and represented by Investors for Paris Compliance has been defeated by at least 71% of the votes cast against that resolution.

Thank you. I declare each of the resolutions considered at today's meeting in respect to those matters as carried, with the exception of the 2 shareholder proposals, both of which have been defeated. The exact number of votes cast in respect of each matter will be filed on EDGAR and SEDAR+ and made available on our website. As all matters of business have been addressed, I now declare the meeting closed. I now call upon Greg Ebel, the company's President and Chief Executive Officer, to deliver his remarks and conduct the general question-and-answer session. [Presentation]

Good afternoon. My name is Greg Ebel, and I'm honored to lead Enbridge as your President and CEO. As you saw in that video, the last 75 years have been remarkable, a story of opportunity realized, resiliency and 75 years of looking ahead. Our asset base from the first oil pipeline running from Edmonton down to Superior has grown significantly. We've expanded our liquids network to reach the best markets, including the U.S. Gulf Coast, and now with the continent's largest export terminal at Ingleside, we're playing a key role in connecting North American energy to the world. Our investments in gas transmission and midstream have us delivering about 20% of the natural gas consumed in the United States every day. We were an early mover into renewables more than 20 years ago, and now Enbridge provides enough clean energy to power over 1 million homes. And our natural gas utility business is positioned to be the largest by volume in North America once we complete our U.S. utility acquisitions later this year. Our history is one to be proud of. But our people and leadership are determined to make that next 75 even better. We're focused on providing energy in a planet-friendly way everywhere people need it. And we're in an excellent position to lead the energy evolution and to be the first choice energy provider for our customers, communities, investors, regulators and policymakers and of course, our employees. Let me share some of our key highlights from the last year and how Enbridge is in a strong position for the future. Throughout 2023, we faced issues that made the energy landscape challenging to navigate. The continuing war in Ukraine, conflict in the Middle East and inflationary pressures on every consumer. The need for safe, reliable and affordable energy was at the center of conversations around increasing energy demand and climate change. And as we look at how we sustainably meet the energy needs for today and in the future, we must take a balanced and practical approach. One that won't leave anyone behind, and will make the most of the energy systems we have in place while advancing renewables and other lower carbon options. As the First Choice energy delivery company in North America, Enbridge has been a leader in this discussion. In 2023, we had a strong year with solid operational performance as well as growth that helped ensure people had access to affordable, reliable energy while also making progress towards our target of net-zero emissions from our operations by 2050. And, of course, success begins with our commitment to safety, which is always our top priority. In 2023, we maintained our industry-leading position for integrity management and advanced our continuous improvement mindset. We saw a record performance for occupational and process safety as well as our environmental performance. Within the business, we advanced our LNG export strategy with the gas storage acquisitions of Aitken Creek in British Columbia and Tres Palacios in Texas. We made investments in food to waste, renewable natural gas company, Divert, that are helping to reduce emissions. We also acquired Morrow RNG, which brings an additional 7 land gas to RNG facilities into the company. In liquids, we reached a win-win-win mainline tolling settlement that means our customers will continue to receive First Choice service at competitive tools. And also last year, both the Mainline system and the Ingleside Energy Center delivered record volumes, and we increased our ownership position in the Gray Oak pipeline serving the Permian region. We maintained our commitment to safeguarding the land and waterways where Line 5 passes by advancing the Great Lakes tunnel project and working to relocate a segment of the pipeline of the Bad River reservation. On the renewable side, we increased our ownership in 2 German offshore wind projects, and we're selected to develop the Normandy project off the coast of France. Later this month, we'll bring another French offshore project into full commercial operation when Fecamp begins delivering 497 megawatts of power to that grid. In North America, we invested in the Fox Squirrel solar project in Ohio with our long-standing partner, EDF. Our North American onshore growth outlook for renewables is strong and we see about 6.2 gigawatts of opportunities for Enbridge through 2030. And finally, the biggest move in 2023 was achieving a more balanced portfolio. through the acquisition of 3 U.S. natural gas utilities. This is a generational opportunity that upon completion, positions Enbridge as the largest by volume integrated North American gas utility. It doubles the size of our current utility business and is expected to deliver solid returns long into the future. We closed on the acquisition of Ohio Gas in March and anticipate closing Utah, Wyoming, Idaho and North Carolina a little later this year. I joined the welcome event in Cleveland, and the team in Ohio is really excited to be part of Enbridge, and we're excited to have them on the team. A key consideration for these U.S. utilities and every asset we invest in is their impact on achieving our emission reduction goals. And to keep us on track, every business unit has a plan to achieve these goals. We also made good progress with our commitments in our indigenous reconciliation action plan, including establishing our indigenous advisory group, which provides important perspectives to our Board of Directors and our senior leaders. We'll update our indigenous reconciliation action plan a little later this year, and we're continuing our efforts to form economic partnerships with indigenous communities right across our network. On the financial side, we realized record results for both EBITDA and DCF per share. We invested over $3 billion via tuck-in acquisitions and secured another $10 billion in organic growth projects, bringing our secured portfolio to $24 billion, and we announced a 3% increase to our dividend for 2024, which is our 29th consecutive annual increase. That's a lot of positive momentum for the company, but the stock price did not perform in line with that momentum. So let me speak to that. Part of it is the impact of higher real interest rates on dividend paying stocks like Enbridge and the other part is related to the small but remaining funding we have left to do on our U.S. gas utility acquisitions. Of course, the reality is our company has a strong balance sheet, something we always view as a high priority. So the funding issue should be temporary with good flexibility for funding the remainder of the utility acquisitions this year, we are set to realize shareholder value from these acquisitions and our existing businesses for decades to come. The bigger picture is our unmatched scale, connectivity and diversification, which commands a premium valuation. We have achieved financial guidance for 18 consecutive years, which underscores the stability and predictability of our business. We plan to consistently grow the business by approximately 5% per year through low-risk investments, optimizations and further growth opportunities. That, combined with our attractive dividend sets us up to provide shareholders with a total return of 10% to 12% per year. That growth in both conventional energy and lower carbon opportunities has been key to our success for a number of years and will continue to set us apart in the future. We strongly believe that all forms of energy will be needed to meet growing energy demand and economic expansion. And as the population grows and we see economic growth, energy that is safe, reliable, sustainable and affordable will very much be needed. While forecasts vary, virtually everyone agrees that oil and gas will remain a part of the energy mix well into the future. Over 65% of global oil demand is used for moving people and things around in passenger vehicles, long-haul trucking and aviation. And 35% is needed for feedstock in the petrochemical industry or for the production of waxes, lubes and asphalt. Also playing a critical role is natural gas. It's abundant, affordable and ready as a reliable energy source. It heats our homes, keeps the lights on and is truly a foundational fuel for our energy future. And as the world moves to lower carbon forms of energy, it's also needed as an electricity source for factories, manufacturing clean tech like solar panels or electric car batteries and to power huge data centers which are flourishing around the United States and consuming vast amounts of electricity. When we use natural gas for power generation over coal, there's a 50% reduction in greenhouse gas emissions. In the United States, switching from coal to natural gas has accounted for nearly 2/3 of all greenhouse gas emissions reductions in the past 15 years. So it's hard to see a positive future for people or the planet without including conventional energy sources. And that brings me to another strength of our company, our unparalleled asset base. Our super system meets the energy needs of hundreds of millions of people across North America and increasingly beyond. We have assets in 41 states, 8 provinces and 5 countries. This position cannot be replicated. It is a key competitive advantage. From connecting to the best basins and markets to the ties we have with our customers, we strive every day to be the first choice energy provider in North America and increasingly beyond. Part of this super system strength is our ability to interconnect between our businesses. Let me highlight this in 3 regions: Texas, Ontario and Ohio. Each of these areas has an extensive asset footprint, pipelines and renewables in all 3 jurisdictions and utilities in Ontario and Ohio. This gives us unique local market expertise and the ability to cross-sell services to our customers. Looking at Ontario, gas, hydrogen blending and renewable natural gas means we have operational overlap across our business areas. In Ohio, gas utilities, solar, gas transmission and oil pipelines lead to a strong relationship with communities and customers. And in Texas, our LNG connections, oil experts and pipelines and renewables and -- give us commercial advantages. We also have a strong stakeholder relationship in each of these areas. From decades of experience working with governments and regulators to our thoughtful approach of connecting with communities, we value early engagement, which helps us better understand the communities and customers and, in turn, add value for you, our investors. As we continue to grow the business, we will maintain our focus on providing you, our shareholders, with value and a disciplined investment framework. That begins with maintaining our capital allocation priorities, protecting the balance sheet, offering a sustainable return on and of capital and continuing to grow the business. We also believe that our utility-like business model supports our structure with predictable cash flows that are protected from some of the volatility caused by inflation and commodity price swings. And investing in selective and strategic tuck-in acquisitions contributes to supporting a target of annual total shareholder return of 10% to 12%, driven by dividends and predictable growth. As you've heard, we're on a solid path and well prepared for the future. Our strategy is the right one, and we plan to continue to make smart investments in both our conventional business and in lower carbon growth opportunities. This approach supports our belief that the energy transition must be practical and balanced. Behind all our success is an incredible team of people. They are proud and passionate and their commitment to safety, customers, stakeholders and communities is admirable. I'd also like to thank our Board of Directors for their ongoing guidance and oversight. And this includes a special thank you to Dan Tutcher, who is retiring from the Board. We will miss his guidance and his insights. And a warm welcome to our 2 new Board members, Manjit Minhas and Theresa J. Finally, thank you to you, our shareholders, for your continued support. With more than 75 years of success behind us, we're focused on the future. At Enbridge, that future is clear. Tomorrow is on.

We'll now proceed with a general question-and-answer session. Ms. Morley, Enbridge's Vice President, Investor Relations, will read out any questions that have been submitted for Mr. Ebel to respond to.

No questions have been received. So we will pause for 30 seconds to allow time for questions to be submitted.

Well, listen, thanks very much, everybody, and seeing no questions at this point in time. We look forward to seeing you and speaking with you again throughout the year. And I will turn things over to the Chair who can conclude today's proceedings.

Thank you, Greg, and thank you to everyone again for attending today's meeting. We truly value your time and commitment to our company. You may now disconnect from the broadcast. Thank you for your support once again.