Enbridge Inc.

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Enbridge Inc.

3000 Fifth Ave. Place
425 1st St. Southwest
Calgary, Alberta T2P 3L8
Canada
Telephone: (403) 231-3900
Toll Free: (800) 481-2804
Fax: (403) 231-3920
Web site:http://www.enbridge.com

Public Company
Incorporated: 1949 as Interprovincial Pipe Line Co.
Employees: 5,500
Sales: $1.96 billion (2000)Stock Exchanges: NASDAQ Toronto
Ticker Symbols: ENBR; ENB
NAIC: 48611 Pipeline Transportation of Crude Oil; 48621 Pipeline Transportation of Natural Gas; 48699 All Other Pipeline Transportation; 22121 Natural Gas Distribution; 221122 Electric Power Distribution; 221111 Hydroelectric Power Generation; 221112 Fossil Fuel Electric Power Generation; 221113 Nuclear Electric Power Generation; 221119 Other Electric Power Generation; 221121 Electric Bulk Power Transmission and Control

Calgary-based Enbridge Inc. is a North American leader in energy transportation, distribution, and related services. As a transporter of energy, Enbridge operates the world’s longest crude oil and liquids pipeline system in Canada and the United States. As a distributor of energy, Enbridge owns and operates Canada’s largest natural gas distribution company (through its 1994 acquisition of Consumers’ Gas), and plays a role in generating and distributing electricity. In addition, Enbridge provides retail energy products and services to a growing number of Canadian and U.S. markets.

Development of Interprovincial Pipe Line: Late 1940s

Enbridge’s energy transportation business originated with the Imperial Oil Company Limited’s development of the Leduc oil fields in Alberta in the late 1940s. After the Leduc discovery in 1947 and the even larger Redwater discovery in 1948, Alberta’s oil producers suddenly developed the capacity to produce far more crude oil than the refinery in Edmonton could handle. The need for pipelines as the only economical means of moving crude oil quickly arose.

Pipelines were largely nonexistent in Canada in the 1940s, with only 418 miles of oil pipeline in operation throughout the entire country in 1947. Unlike the U.S. oil industry, the Canadian counterpart had grown chaotically, often subject to outside competition and control. Imperial Oil itself provided an example of this. It had been formed from the merger of 16 producing and refining companies in 1880 to fend off U.S. competitors and to gain economies of scale. In 1899, it had become an affiliate of Standard Oil and was almost totally dependent upon imported crude oil by 1947.

After the 1947 Leduc discovery, Imperial Oil envisioned a 450-mile oil line from Edmonton southeast to Regina. In order to construct and operate this pipeline, which would traverse more than one province, Imperial Oil applied to the federal government to incorporate Interprovincial Pipe Line Co. in 1949 as the first permanent link between Canada’s rich western reserves and the energy markets of North America. Then Minister of Transport Lionel Chevrier introduced a bill, closely patterned after the Railway Act, for the creation of The Pipe Lines Act of Canada. The bill received wide support from all parties, and was passed into law in late April 1949. It incorporated five pipeline companies—Interprovincial Pipe Line, Westcoast Transmission Company, Trans-Northern Pipe Line Company, Western Pipes Company, and British American Pipe Line Company. In June, the federal Board of Transport Commissioners authorized Interprovincial to build its 450-mile pipeline, and the first crude oil and liquids pipeline from Edmonton to Regina was completed later that year.

All of the original officers of the new pipeline company were past officers of Imperial. Many had had pipelining experience in South America as part of the parent company’s International Petroleum operations in Peru and its Tropical Oil operations in Colombia. As a result, they brought with them years of pipeline laying knowledge and had a vision for Interprovincial. Even while proceeding with the approved line, the company had its engineering group at work on design and feasibility studies for a much longer system from Edmonton to the head of Lake Superior, from which point the crude could be moved by tanker during the summer shipping season to refineries in the southeastern Ontario port of Sarnia. By the summer of 1949, Imperial had decided to extend the pipeline to Superior, Wisconsin. In August, Lakehead Pipe Line Company Inc. was incorporated as a wholly owned subsidiary of Interprovincial, in charge of constructing and operating the U.S. portion of the pipeline system. In September, the Canadian Board of Transport Commissioners approved the 340-mile extension of Interprovincial’s planned system from Regina to Gretna on the Manitoba-U.S. border. Lakehead Pipe Line would handle the section of the pipeline from Gretna to Superior, 360 miles away, and, possibly, later to Chicago.

The decision to terminate the IPL line at Superior rather than keeping it within Canada raised a storm of political protest among those with strong nationalist sympathies who questioned the financial reasons behind the move. However, Commerce Minister C.D. Howe, at the October opening ceremony for the pipeline, countered that the IPL line would stop a drag on the economy of at least $150 million a year that was being spent on foreign crude.

In fact, the route IPL’s line traversed was 120 miles shorter and considerably less expensive than an all-Canadian alternative, and was thus more quickly built. The “fastest pipe in the West” was completed between the spring and fall of 1950, about 1,130 miles of line laid in 150 days with the capacity to store about 800,000 barrels in Edmonton and another 150,000 at Superior. The first Canadian oil reached Superior two months later, in early December.

Pipe Line Expansion: 1950s-60s

The years from 1951 to 1957 were a time of rapid growth at IPL. The number of employees doubled, system capacity quadrupled, and movement of oil through the pipeline—throughput—quintupled. For the first full year of operation, profits were a healthy $3.4 million on operating revenues of $14.5 million. Before the line was even in operation, in fact, additional capacity was required. The system of winter storage of crude at Superior alternating with summer shipments to Sarnia proved inadequate to handle the growing volume of oil.

Throughout the next two decades, there was continuous expansion and growth of the IPL system. Beginning in 1951 and 1952, workers undertook the initial looping of the IPL system, laying 100 miles of line beside the original in sections between Regina and the U.S. border crossing at Gretna. In 1953, IPL’s stock was listed on the Toronto and Montreal stock exchanges, and additional looping was done along the line between Edmonton and Superior. The terminal planned for Superior was scrapped in favor of extending the system across Wisconsin and Michigan to Sarnia by laying two lines made of steel underwater across the Straits of Mackinac between Lakes Huron and Michigan, a technological first. The year 1953 also marked the entry of a second oil pipeline venture, the Trans Mountain Oil Pipe Line Company, to ship Alberta crude to distant markets west.

Looping between Edmonton and Superior continued yearly to provide increased capacity. By 1955, the first year in which IPL did not undertake major construction, the system’s capacity had grown to 217,000 barrels per day on the Edmonton-Regina section, 193,000 between Regina and Gretna, 163,000 between Gretna and Superior, and 147,000 between Superior and Sarnia. In 1956, another 156-mile extension from Sarnia to the outskirts of Toronto increased the main line of the IPL system to 1,930 miles, with an additional 92-mile spur to Buffalo, New York. IPL now owned and operated the longest crude oil pipeline in the world. Five types of crude moved through the system, shipped in “batches” to suit customers’ needs for different types of crude. Throughput passed the 1,000-billion barrel mark, and the company still continued to grow despite a second half of the year slowdown in the wake of the Suez crisis.

The years from 1958 to 1965 saw a major reshaping of the North American oil business and IPL’s role within it. Governments became a more dominant force in the industry. Growing fleets of “supertankers” now carried cheap, abundant Middle Eastern oil to consumers following the Suez crisis. The real cost of oil declined after allowing for inflation. Although the pace of expansion slowed, the company’s operations continued to grow more complex. This growth and complexity accelerated the trend toward automation, which involved a combination of remote control, computerization, and electrification of diesel-powered pumping stations. At the same time, the Royal Commission on Energy recommended the creation of a comprehensive energy policy, and, in 1958, created the National Energy Board (NEB). As envisioned in the royal commission report and the government’s 1959 legislation, the principal role of this body was to advise the government on energy policies and oversee their implementation. The NEB ended forever the laissez-faire regulatory attitude that had prevailed in Canada under the Board of Transport Commissioners.

Company Perspectives:

Enbridge will go beyond all others to deliver energy and related services to North American and international customers. This common vision bonds the many different but related businesses of the corporation together in a unified purpose. A number of themes are embedded in the vision statement to reflect the values and qualities that distinguish us from all others.

We are a service business. We deliver energy through long distance transportation and local distribution and provide complementary energy services such as marketing of energy and related products and services. We have a sense of competitive excellence. We will distinguish ourselves from peers and competitors with the quality, reliability and responsiveness of our service. We demonstrate a sense of agility and innovation. We will extend ourselves beyond traditional boundaries and approaches to develop services that best meet our customers’ needs. We are customer-focused. Our success will be measured by our customers and how they see us surpassing others in meeting their needs. We have a global reach. We will serve customers in Canada, the United States and internationally.

Between 1966 and 1973, IPL roughly doubled its capacity, throughput, revenues, and earnings. Oil consumption had been growing at a rate of 7 percent annually since the end of World War II. By 1967, IPL was moving crude to refineries in Ontario, Buffalo, Detroit, Toledo, and other points in the United States and required yet more delivery capacity for markets east of Superior. U.S. demand for Canadian crude was higher than expected and, for the first time, IPL could not meet refiners’ requirements despite the fact that it increased capacity by 100,000 barrels per day.

Management sought the solution to capacity shortfall in a new line east from Superior to Chicago and from Chicago to Sarnia. The expansion made Canadian oil accessible for the first time to the big Chicago refinery center, which consumed oil at the rate of nearly 700,000 barrels a day. The system as envisioned would be one of the world’s largest to transmit crude oil: from Edmonton to Superior, it would include three separate lines; from Superior east, there would be two lines, one through the Straits of Mackinac and a second through Chicago.

American independent oil producers protested the growing volume of Canadian oil, which undersold U.S. crude at refineries in the Great Lakes region. Nevertheless, an informal agreement between the Canadian and U.S. governments resulted in the January 1968 presidential permit allowing construction of the Chicago loop, which was completed in 1969. This agreement, however, limited Canadian oil deliveries to U.S. refineries east of the Rocky Mountains to an annual increase of 27,000 barrels a day during a three-year term, and prohibited deliveries into the Chicago area until 1970. Following the opening of the Chicago market, deliveries increased in 1970 by 16 percent, bringing total throughput to about 900,000 barrels per day.

The Energy Crisis of the 1970s

When OPEC raised prices in 1971 and began to ship refined products for the first time, about 85 percent of the oil and gas production and 99 percent of the oil refining in Canada was in the hands of foreign corporations, according to T.C. Douglas, head of the New Democratic Party. In early 1972, OPEC again raised its prices upward for Arab crude, and that year, IPL’s average deliveries exceeded one million barrels a day. In 1973, when OPEC prices jumped again from about $2.50 to $12 per barrel, U.S. demand for Canadian crude grew so much that IPL and Lakehead began operating at full capacity. As a result, in March the NEB instituted industry regulation, imposing an export tax on Canadian crude to equal the prevailing price of crude in Chicago. This change marked the beginning of increased governmental involvement in the oil industry. Prime Minister Trudeau’s government, in favor of energy “self-reliance,” sought to guarantee a market in Canada for Canadian oil “at a level sufficient to ensure the development of ... Canadian sources of supply.” Specifically, this meant the government supported “security of supply,” which translated into the extension of a pipeline from Sarnia to Montreal. IPL began to prepare its application to the NEB for the new pipeline in late 1973.

The mid-1970s seemed to mark the end of an era of expansion at IPL and Lakehead. In response to higher oil prices, consumers’ rate of increase in consumption of oil products, which had been growing 7 percent annually for decades, dropped by one half. Cars, industrial plants, and furnaces became more energy-efficient. New natural gas distribution networks and hydroelectric, coal-fired, and nuclear power stations came into being. In addition, forces of environmentalism, nationalism, and socialism converged to inform the government’s intervention in the affairs of the oil industry following the Arab oil embargo of 1973. Prime Minister Trudeau asked the oil industry to temporarily freeze prices. Subsequent uncertainties about environmental regulations slowed project growth and led to the 1977 shelving of some projects. In 1975, after a full year of hearings, IPL was issued a certificate of public convenience and necessity for the Montreal pipeline, and a deficiency agreement, which said that the government would make up earnings shortfalls whenever the operating revenue in a given year failed to meet the costs of the extension. The new pipeline first delivered oil in June 1976 and reached its planned delivery level of 250,000 barrels per day in December.

In 1977, there was an upsurge in heavy oil production in Canada as OPEC prices again rose by almost a dollar. The late 1978 overthrow of the Shah of Iran reduced world oil supplies and led to a staggering rise in the price of light crude from about $13 to $32 in 1979. Eastern Canadian refineries exceeded pipeline capacity by 100,000 barrels per day, turning around the throughput decline of the mid-1970s. Higher prices spurred new exploration efforts industry-wide and encouraged development of new technologies for enhancing recovery from old wells.

Meanwhile, in 1978, after two years of public hearings on tariffs, IPL was placed under direct rate regulation by the NEB. Tariffs were designed to reduce revenues by approximately 5 percent for the Canadian system, excluding the Montreal extension. The government also limited oil exports to the midwestern United States. On the American side, in 1977, the newly created Federal Energy Regulatory Commission took over regulation of Lakehead operations.

Key Dates:

1848:: Consumers’ Gas Company begins to distribute gas to Toronto’s street lamps.
1880:: Imperial Oil Company is formed.
1949:: Imperial Oil applies to the Canadian government to incorporate the Interprovincial Pipe Line Co. (IPL).
1950:: Company completes its first pipeline and delivers oil to Superior, Wisconsin.
1953:: Company’s stock is listed on the Toronto and Montreal stock exchanges.
1956:: IPL owns and operates the longest crude oil pipeline in the world.
1969:: IPL completes its Chicago Loop, beginning deliveries to Chicago a year later.
1976:: Company’s Montreal pipeline begins delivery of oil.
1986:: Company acquires Home Oil.
1994:: Company, now named IPL Energy, acquires Consumers’ Gas, which is later organized as the subsidiary Enbridge Consumers Gas.
1998:: Company changes name to Enbridge Inc.

Diversification and Deregulation in the 1980s

IPL entered the 1980s feeling considerably uncertain about the future of its east-west pipeline operations. After several years of record earnings, profits in 1980 decreased 12 percent due to lower throughput and increased operating costs, the first such decline since 1974. Demand for refined oil products was flat throughout the first half of the 1980s. To compensate, the company sought two ways to continue its growth and increase share values: by expanding its pipeline operations and by diversifying non-pipeline investments. Refineries underwent modifications so they could accept increased volumes of heavy crude. Greater quantities of natural gas liquids and refined products were shipped through the IPL-LPL system to meet greater demand.

Industry fluctuations notwithstanding, the company’s growth continued unabated. In 1983, IPL undertook construction of the Norman Wells pipeline, the first crude oil line to be built in the far north since World War II, followed by a massive expansion of its mainline system. IPL established Interprovincial Pipe Line (NW) Limited, a new, wholly owned subsidiary to build and operate the new pipeline. It also took over part ownership of the IPL Tower, an Edmonton landmark. In 1982, the government instituted policies to subsidize tanker transportation from Montreal and incentives to export surplus heavy oil to the states. As a result, there was an upsurge in deliveries in the second half of 1982. A decline in U.S. oil production also created market opportunities for Canadian crude.

By 1981, IPL was looking seriously for diversification options. After several aborted attempts, it joined with Amoco, Anschutz, and Union Pacific and invested in Frontier Pipeline Company, laying pipeline from northeastern Utah to Casper, Wyoming, in 1983. Then in 1986, Imperial Oil, which still owned 33 percent of IPL, approached the company with a plan to exchange shares with Hiram Walker, the Canadian liquor, gas, and oil conglomerate that owned Home Oil. IPL became Hiram Walker’s largest shareholder and vice versa. Later in 1986, IPL exchanged its shares in Hiram Walker for ownership of all the shares of Home Oil and created a new corporate identity, Interhome Energy Inc. Two more name changes followed; the company became Interprovincial Pipe Line Inc. in 1991 and IPL Energy Inc. in 1994. In 1993, IPL relocated the company’s corporate office from Toronto to Calgary to better serve its two operating units, its pipeline business in Edmonton and its oil business in Calgary.

Energy Integration in the 1990s

Meanwhile, inside IPL, another shift was occurring. The first generation of IPL employees, those who had built the company since the 1950s, were leaving or nearing retirement. At the same time, the national election of a Progressive Conservative government in the early 1980s led to the removal of export restrictions on Canadian oil and set the stage for price deregulation of the Canadian oil business beginning in 1985. Special incentives by provincial governments in 1983 and 1984 began to revive light oil productivity on the prairies. The company initiated a three-phase expansion plan to build capacity and handle the increase in heavy oil shipments, and enjoyed record earnings for the fifth consecutive year in 1985. Then, in 1986, before the Canadian petroleum industry had fully integrated the effects of deregulation, world oil prices plummeted to less than half their 1985 levels. Notwithstanding this slump, the company went on to complete the second phase of capacity expansion in 1987.

Another shift was going on throughout the broader energy industry as well, that of convergence, or the integration of the crude oil, natural gas, and electrical power segments in North America. As late as 1993, IPL represented a single line of business, a crude oil pipeline system. Then, in 1994, IPL acquired most of the shares of Consumers’ Gas, the largest natural gas utility in Canada and the premier natural gas distributor to metropolitan Toronto, parts of eastern Ontario, Quebec, and New York state. IPL acquired the remaining shares of Consumers’ in 1996, and Consumers’ Gas became a wholly owned subsidiary of the company. In 1997, IPL launched a new subsidiary, Consumersfirst, opening the first of five retail stores that sold natural gas and electric products and services to customers. Throughout the late 1990s, IPL engaged in a number of projects to develop and/or operate gas pipelines to serve Quebec, New Brunswick, Ontario, and New York. The Alliance Pipeline project, begun in partnership with 16 other Alberta companies in 1999, would deliver natural gas from British Columbia to the Chicago hub when complete, while the proposed Vector pipeline would link Chicago with the more eastern markets of Ontario and New York. The Transmaritime Project, undertaken in association with TransCanada PipeLines, consisted of the plan to ship Sable Island, Nova Scotia gas to Canadian and northeastern U.S. markets. IPL also acquired an interest in AltaGas Services, a Calgary-based natural gas company in 1999. During the same period it purchased the electric utility of the city of Cornwall, Ontario.

The company continued to build its core infrastructure in crude oil throughout the second half of the 1990s as well. In 1995, it completed phase one of its System Expansion Program (SEP I) plan, embarked on SEP II, and acquired several strategic feeder pipelines. In 1998, it began its Terrace Phase I Expansion Program to increase heavy crude oil capacity in the Midwest. It also purchased an interest in the Chicap Pipeline, which ran oil from the Gulf Coast to Chicago and brought its capacity to 2.2 million barrels per day. In 1999, it completed construction of its Athabasca Pipeline from the oilsands deposits of northeastern Alberta to its main crude oil pipeline system. Several other of IPL’s ventures in the 1990s expanded its scope geographically. In 1995, in its first international venture, it embarked on developing OCENSA, a new Colombian pipeline, along with TransCanada PipeLines. Four years later, it announced an agreement to acquire an interest in the Jose crude oil terminal and shipping facility located in Venezuela.

The company’s profits reflected its steady growth throughout the 1990s—from $81 million in 1993 to $180 million in 1996, and then gradually upward to $288 million in 1999. IPL, which now had two business units, Energy Transportation and Energy Distribution, changed its name again in 1998 to Enbridge Inc. The name, which was an elision of “energy” and “bridge,” was meant to signify “the connection the company will make with energy customers around the world” and to transform a family of companies into “one company with one vision.”

Enbridge looked to the future with a vision of moving into the additional utilities of electricity and water. The owner of the world’s longest crude oil and petroleum liquids pipeline system in the Western Hemisphere hoped one day soon to become a one-stop shop for a variety of energy consumer needs.

Principal Subsidiaries

Enbridge Pipelines Inc.; Enbridge Technology Inc.; Enbridge Consumers Gas; Lakehead Pipe Line Partners, L.P. (U.S.A.; 14.5%); Enbridge Midcoast Energy, Inc. (U.S.A.); Noverco Inc. (32%); Enbridge Gas New Brunswick; Enbridge International Inc.