Enbridge Inc. (ENB) Q3 2012 Earnings Report, Transcript and Summary

Good morning, my name is Wendy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Spectra Energy Quarterly Earnings Call. [Operator Instructions] Thank you. Mr. Arensdorf, you may begin your conference.

Thanks, Wendy. And good morning, everyone, and welcome to Spectra Energy's Third Quarter 2012 Earnings Review. I'd just like to start by saying our thoughts are with those of you on the East Coast who may have been affected by Hurricane Sandy. And we hope you're safe, warm and dry, and we appreciate your joining us today. So leading today's discussion will be Greg Ebel, our President and Chief Executive Officer; and Pat Reddy, our Chief Financial Officer. Both Greg and Pat will discuss our quarterly results and provide more color around our strategic plans to enhance the value Spectra Energy delivers to its shareholders. We'll then open the lines for your questions. But before we begin, I'll take a moment to remind you that some of the things we will discuss today concern future company performance and include forward looking statements within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements. You should refer to the additional information contained in Spectra Energy's Form 10-K and in our other SEC filings concerning factors that could cause these results to be different from those contemplated in today's discussion. And in addition, today's discussion includes certain non-GAAP financial measures as defined by SEC Reg G. A reconciliation of those measures to the most directly comparable GAAP measures is available on our Investor Relations website at spectraenergy.com. With that, I'll turn it over to Greg.

Well, thanks very much, John. And good morning, everybody. I want to echo John's comments and concern for those of you in the Northeast recovering from the great storm, particularly our customers and employees. As you've seen from our earnings release this morning, Spectra Energy delivered ongoing third quarter results of $179 million or $0.27 per share. Earnings for the quarter are down year-on-year basically because of weak commodity prices affecting earnings at both DCP Midstream and at Empress. However, our other businesses continued to perform well. In fact, on a commodity neutral basis, our year-to-date earnings are very much in line with our expectations. Even with the current weakness in commodity prices, we remain optimistic about longer-term NGL fundamentals. For example, we expect to see growth in propane exports starting later this year and significantly increase ethane demand by the petrochemical sector over the next several years along the Gulf Coast and elsewhere in North America. So our view tends to be strong fundamentals and expanding market opportunities longer term. In the near term, we expect some commodity choppiness. But that's nothing we haven't managed through in the past. And fortunately, thanks to the size and strength of the business, we're able to maintain our focus on the longer term and take advantage of the significant growth opportunities before both Spectra Energy and our joint venture DCP. As we mentioned last quarter, with the commodity price out environment that exists today, it's not possible to meet our $1.90 earnings per share target for the year. And at this point, we anticipate that commodity prices will have a negative $0.50 to $0.55 impact on our 2012 earnings per share. Of course, there are number of other factors that can affect our earnings either positively or negatively. Importantly, our fee-based businesses continued to perform in line with our expectations and our expansion opportunities remained strong and growing. Our fee-based businesses continue to generate strong earnings and cash flows, helping to offset the effects of lower commodity prices. And that's the beauty of Spectra Energy's business, predominantly stable, fee-based earnings that provide a great foundation from which to increase our dividend and deliver commodity neutral earnings growth. As you will recall, we expect to deliver dividend growth of at least $0.08 a year through 2014. Yesterday, we announced that our board has approved a $0.10 per share increase in our dividend, bringing our total annualized dividend to $1.22 per share. This is consistent with our overall strategy to provide total shareholder returns through a combination of earnings and dividend growth, a strategy that has allowed us to deliver total shareholder return of 60% since January 2010. We also have a solid roster of expansion projects in execution. They include about $4 billion in Spectra Energy finance projects and more than $4 billion of expansion projects at DCP Midstream. So $8 billion in 2012 to 2014 expansion projects are in execution. And we're starting to see the benefits of projects going into service. Highlight just a few of those for you: the Philadelphia Lateral will deliver incremental volumes; a firm natural gas supplier along our Texas Eastern system; our TEAM 2012 project is now in service, fully subscribed and generating revenues. The next phase of our ongoing team projects is TEAM 2014. That project is fully subscribed with a targeted in-service date of late 2014. And we're making excellent progress on the construction of the New Jersey-New York expansion project and we're on pace to achieve our projected in-service date of fourth quarter 2013. Hurricane Sandy has certainly cost us a few days of construction but nothing substantial for a project of this size. In British Columbia, the T-North 2012 project is slated for a fourth quarter in-service date. We'll also complete construction of the Fort Nelson North facility in the fourth quarter, followed by an in-service date early in the new year. And as many of you heard during the DCP Analyst Day in Denver a few weeks ago, DCP Midstream will place more than $3 billion of projects into service over the course of just the next 12 months. Given the magnitude of the opportunities ahead, DCP has raised its growth capital investment outlook to $5 billion to $7 billion between 2011 and 2015. DCP is building and expanding a number of gas processing plants. They have 4 plants under construction, all proceeding as planned. And when you consider additional opportunities on the drawing board, that could mean some 10 or more new plants built over the next few years. DCP is making great progress on 2 major NGL pipeline projects, Sand Hills and Southern Hills. Yesterday, we announced plans to acquire 1/3 in each of these, but I'll come back to that in a minute. With respect to the projects themselves, the Sand Hills Pipeline is being phased into service. Last week, DCP announced that the first phase of the project is now online and has begun providing service in the Eagle Ford with direct connection to Mont Belvieu by year end. The project's second phase, the Permian portion of the pipeline, has advanced and is now due to be in-service in the second quarter of 2013. Southern Hills, which you'll recall will provide NGL transportation from the mid-Continent to Mont Belvieu, has a targeted in-service date of mid-2013. We originally expected both Southern Hills and Sand Hills to be full within the first 3 years of operation. That is now accelerated and we expect volumes to come up quicker based on deals completed and pending. Beyond what's in execution, DCP Midstream has about $2 billion to $3 billion in additional development opportunities, primarily in gathering and processing and NGL infrastructure projects. Sand Hills and Southern Hills are outstanding projects. And yesterday, Spectra Energy and our joint venture partner Phillips 66 announced an agreement in which each company will acquire from DCP a 1/3 interest in both pipelines. The transaction is expected to close by the end of November, at which time the 3 companies will each own a 1/3 interest in Sand Hills and Southern Hills and equally fund the remaining capital expenditures. The total investment by Spectra Energy in the 2 pipelines is expected to be between $700 million and $800 million. This agreement is a win-win all the way around; the 2 systems are outstanding NGL pipeline projects that will complement Spectra Energy's existing network of natural gas pipelines. As they're placed into service, the pipelines will add attractive, stable earnings and cash flow to our results, and the agreement also signifies continued strong owner support for DCP, ensuring it can continue advancing its attractive growth plans and move quickly on the enormous slate of opportunities before them even when commodity prices are choppy. You can expect DCP Midstream to retain its standing as the largest NGL producer in the U.S. and to enhance its gathering and processing position. You may have seen that Hart Energy recently announced that DCP maintained its ranking as the #1 NGL producer in the country and rose to #2 in natural gas processing. Across the rest of Spectra Energy, we've got a robust pipeline of development projects providing additional opportunities to create ongoing value. All of these underlines our expectation to invest up to $20 billion through the end of the decade. And we've made some really good progress on many of these opportunities over the last few months, so I'll provide a couple updates. In the U.S. Transmission sector, we are pursuing $5 billion to $8 billion in development opportunities and are proceeding well with all. Since we spoke with you last quarter, we've embarked on our NEXUS Gas Transmission project with partners DTE Energy and Enbridge. NEXUS will move growing supplies of Utica and Marcellus gas to markets in the Midwest and in Ontario. Upon project completion, Spectra Energy will become a 20% owner in the vector pipeline, a joint venture between DTE Energy and Enbridge. We're in the midst of an open season for the AIM Project which expands the pipeline capacity of our existing Algonquin system. The open season, which concludes tomorrow, is yielding high levels of interest and positive momentum. We're also pursuing a number of projects that will serve the growing Florida market for natural gas fire power generation and projects like our Renaissance pipeline that can provide a conduit to other Southeastern markets. In Western Canada, we're continuing to pursue opportunities around LNG exports. And in September, we announced plans to jointly develop with BG Group, a new natural gas pipeline from the northeast B.C. to serve BG's proposed LNG export facility in Prince Rupert. The new pipeline represents our next wave of investment opportunity in B.C., and allows us to create value by leveraging surplus B.C. natural gas supplies and facilitating its exports to high demand international markets. We expect to make a final investment decision alongside BG by 2015. Underscoring our commitment and focus on LNG infrastructure, we announced that Doug Bloom, who many of you know is President of our Western Canadian business, will now become President of a new Spectra Energy business, Canadian LNG, and lead our efforts in securing LNG opportunities in Western Canada. So Spectra is clearly focused on the long term. We have what it takes to deliver attractive growing shareholder return. We have the stable and high-performing businesses and a balanced business model focused on long-term sustainable value creation, a fact borne out by our commitment to dividend and earnings growth. Our asset footprint is unrivaled in our sector. We enjoy that first-mile access to North America's prem and supply regions, and last-mile access to expanding natural gas markets. We operate an industry with strong fundamentals that supports the need for infrastructure. And our financial strength, flexibility, multiple financing vehicles also support earnings and dividend growth. With that, let me turn things over to Pat, who will walk you through our third quarter financial performance.

Thank you, Greg, and good morning, everyone. As we announced earlier today, Spectra Energy reported ongoing third quarter earnings of $179 million or $0.27 per share compared with $247 million or $0.38 per share in 2011. As you can see, in the first 9 months of this year, we've delivered almost 3 quarters of $1 billion in net income. And year-to-date, our EBIT totaled about $1.5 billion. Let's take a look now at EBITDA, which reflects the strong cash generation capacity of our businesses. Our EBITDA for the quarter was $655 million and year-to-date, it totaled more than $2.2 billion. Our current level of cash generation allows us to fund our CapEx program without issuing equity, maintain a solid balance sheet and as we demonstrated yesterday, continue to grow our dividend. Now we'll take a look at our performance by business segment beginning with U.S. Transmission. This segment reported third quarter EBIT of $238 million, compared with $235 million in the third quarter of 2011. Quarterly EBIT results reflect increased earnings from expansion projects in line with our expectations and lower operating costs. These benefits were partially offset by lower processing revenues and as anticipated, lower storage revenues. Now let's turn to our Distribution operations. Distribution reported third quarter EBIT of $55 million, compared with $50 million last year, mainly due to higher short-term transportation revenues. And as we've mentioned before, 2012 is the last year of our 5-year incentive regulation framework in Ontario, a rate-making approach that has been good for Union Gas and equally important, for our customers. As we near the end of that framework, we were required by our regulator, the Ontario Energy Board, to file for new cost of service rates, to be effective in 2013. Just last week, we received the OEB's decision. While the OEB did approve a small rate increase, it wasn't what we had been expecting. The OEB denied our request to increase equity thickness in our capital structure from the current 36% to our requested 40% and more importantly, they removed virtually all of the previous incentives that provided upside opportunities for both the company and our customers. We are disappointed in the OEB's ruling and will evaluate if and when it makes sense for us to pursue another incentive rate framework going forward. We will continue to assess the effects of the decision and share more details with you in January. Let's turn now to Western Canada Transmission & Processing, which reported third quarter EBIT of $83 million compared with $119 million last year. The segment experienced lower earnings at the Empress Natural Gas Liquids business and as anticipated, lower contracted volumes from the conventional production areas such as the Grizzly Valley in British Columbia. These reductions were partially offset by improved results in the Gathering & Processing business driven by higher contracted volumes from expansions in the Horn River and Montney areas of British Columbia. The majority of the $21 million loss at Empress this quarter is due to lower NGL sales prices, predominately for propane and higher input cost. Unless we see a dramatic upturn in propane prices, Empress earnings will remain challenged in the fourth quarter and we could see losses in the $10 million to $15 million range. I'll now turn to our Field Services segment which represents Spectra Energy's 50% interest in DCP Midstream. This segment reported third quarter EBIT of $62 million, compared with $134 million in 2011. This $72 million decrease in EBIT was driven by an approximately $90 million reduction due to lower commodity prices. Year to date, the reduction attributable to lower commodity prices was approximately $200 million. Higher plant repairs and maintenance costs related to asset growth also reduced EBIT. We had some partial offsets to these reductions including a gain associated with unit issuances by DCP Midstream's MLP DPM and a reduction in depreciation expense as previously reported. In third quarter 2012, NGL prices for DCP's composite barrel averaged $0.72, more than 40% lower than in the 2011 quarter. NYMEX natural gas averaged $2.81, more than 30% lower than last year and crude oil averaged $92, about the same as in 2011 but the relationship between NGLs and crude decreased from 58% last year to 33% this year. DCP Midstream paid distributions of $25 million to Spectra Energy in the third quarter and $175 million year-to-date. Now let me turn to additional items for the quarter. Our Other segment reported ongoing net cost of $29 million in the third quarter of 2012 compared with $23 million last year. Other is comprised primarily of corporate costs, including benefits and captive insurance cost. Interest expense during the quarter was $159 million, compared with $157 million in last year's third quarter. Third quarter income tax expense from continuing operations was $72 million, compared with $108 million last year. The lower tax expense was driven by lower earnings and a lower Canadian effective tax rate. The effective tax rate reflected controlling interest was 29% in the third quarter compared with 30% in 2011. At the end of the quarter, our debt to total capitalization ratio stood at about 56%, unchanged from last quarter. And last month, you may have seen that we issued $500 million in Texas Eastern tenure debt at a rate of 2.8%, the lowest coupon in our debt portfolio. At the quarter's close, we had total capacity under our credit facilities of $2.9 billion and available liquidity of about $1.7 billion. As you've heard this morning, we are continuing our growth focus and we see opportunities to profitably invest about $20 billion through the end of this decade. That investment will allow us to realize significant long-term incremental earnings and cash flow with attractive returns on capital. In turn, our investors benefit from our ability to generate ongoing and attractive dividend growth. At the same time, due to our financial strength and that of our partner, Phillips 66, we are able to help DCP capture attractive growth opportunities in advance of further recovery in NGL prices. As we've demonstrated today, we are committed to delivering consistent and predictable dividend increases across commodity and market cycles. That commitment is grounded in confidence that we have considerable financial strength and flexibility to support growth, enhanced by our ability to raise capital at the parent level, at our subsidiaries or through our MLP. We have an expansive asset footprint, featuring our first- and last-mile competitive advantage and we have a proven track record of delivering attractive returns on capital employed that are well above our cost of capital. So with that, let me turn things back over to John so we can open up the lines and entertain your questions.

Thanks, Pat. Wendy, we're ready for the Q&A session.

[Operator Instructions] Your first question comes from the line of Ted Durbin with Goldman Sachs.

You're going up $0.10 per share rather than -- I think you talked about doing closer to $0.08 per share. I guess just talk about how -- anything about the payout ratio going forward and then maybe if we do have any change to tax policy here going to the fiscal changes at the year end? How are you thinking about that as well?

Sure. Well look, we have indicated that we will be able to pay at least $0.08 a year through 2014. We've looked at this each year, we saw several key projects coming on late next year, in New Jersey, New York and obviously, with Southern Hills and Sand Hills, so we saw an opportunity where we can do a little bit more this year, trying to balance out the needs of investors to get total shareholder return and makeup of dividends and earnings. But I wouldn't suggest that changes the policy on that or that commitment to at least $0.08 a year. The payout ratio, look, that's going to move up and down. As you know, Ted, in the last several years, well, we've been targeting 65%. We never hit 60% given the strong earnings growth. So I think it's a more longer-term goal to be in that 65% range. In some years, you're going to be above that, some years you're going to be lower than that. With respect to tax policy, yes, we'll have to see how that shakes out. I think it's going to be pretty hectic and chaotic from a tax policy perspective. If they do something on the dividend side and increase the taxes, I guess from a relative perspective, we'll be treated the same as others. If they look at overall tax reform, which is something that's talked about in the next Congress as well. There's a lot of talk about lowering corporate tax rates overall and closing a lot of other loopholes, so that's going to take into some consideration for us. So we'll be watching that closely. If it dramatically changes, then obviously, you look at everything and say, "What's the best -- A, everything from structure to results going forward based on the current tax policy?"

That's really helpful, Greg. Next one for you is just, the sell down of Maritimes Northeast assets to SEP, I guess, I had previously thought you had said that you wanted SEP to really stand on its own. In other words, build its own projects, kind of go out and acquire some assets, but seems like with the sell down, is there a shift in strategy or is this -- should we think of this as more of a one-off when you talk through how you're thinking about the longer-term plan there?

Well, I hope, Ted, you'd looked at it as consistent from a strategy perspective. As you know, we've said the first thing we'd like to do is do acquisitions because you've got the SEP occurrence. The second thing we'd like to do is organic growth, and third, you'd do drop-downs. So you've seen us do a combination of all those things from Sand Hills, Big Sandy that we bought last year, from build-out of East Tennessee a couple of years ago, Ozark. So we've done a combination of all. We just -- we didn't see anything to buy at this point in time. There's not a bunch of organic growth but obviously we want to keep the units growing there and the Distribution growing and so we had a good asset, one of the good assets we have, the drop-down into the MLP and that's the move that we made. And as you know, we've sold half of our positions, so should there be a need again in the future that opportunity is there again. So I don't see it as a change, Ted, I just -- it's consistent with what we've been trying to do.

Got it. That's great. And then just to get up on Pat's comments there, on the Distribution business in Canada there, can you just remind us of maybe how to think about the ROE that you're earning right now in 2012? It sounds like if you don't get the incentives above that, what would you do, say, in 2013 or beyond, if you just turn to your authorized ROE?

Yes, we will come out with a plan. But you're right, you're not going to see it. If you just get the authorized ROE, you're kind of flat to grow a percentage. And the authorized ROE is 8.9% is what it looks -- looking like for next year. It's got a bit of a formula to it. Now, we've typically been able to earn 150 basis points above our regulated rate of return. So we'll look at that again. I will say, I'm quite disappointed, there's a lot of political chaos in Ontario. They don't have an energy policy. And the incentives that we had the last 4 or 5 years have really been beneficial to us as the shareholder, but also to consumers there. We've probably saved consumers $100 million. So yes, that's not something I'm real positive about. It probably goes back to a typical utility type growth, i.e. with the economy.

Your next question comes from the line of Curt Launer with Deutsche Bank.

I wanted to ask 2 related questions. One is about the performance of the pipelines in the quarter, some of the Northeast pipelines have had significant upside relative to volumes for electric generation, wanted to know what your experience was within that flat operating income report overall for the pipelines. And secondly, of course, because you're so big in New Jersey, that comes to mind, of course, with the horrible hurricane experience that's going on in this area.

Yes, well, from an earnings perspective, it hasn't changed a whole lot. As you know, we have -- 95%-plus of the revenue is from a demand charge whether you've seen an uptick in volume. We are starting to see obviously, more and more power producers use gas obviously and we get a little bit more interruptible but it's not a big bottom line change. Where we see the opportunity is things like the New Jersey-New York project, the TEAM 2012 and 2014 projects, and then the AIM project, all that is going to be very much, I would expect, to be driven by natural gas producers but -- sorry, natural gas generation providers. But I wouldn't see a big uptick just because of the demand charge. What you do see from our expansion projects, right across the whole company, though, Curt, is about $0.13 this year just in EPS pickup. So it's more of the longer-term as opposed to the short-term hiccups that create the opportunity for us in the near term.

And any early insight relative to hurricane-related damage in New Jersey? You've got a lot of compressor stations there and the like?

Yes, really nothing significant. A few vehicles like others, those of you out there know that vehicles were flooded out a bit. But we basically shut in or shut down operations early in the weekend. As you know, most of our compressor stations would be all gas-driven up there. It's really our electronics control systems that are electric and we obviously made sure they were up and running from a backup power or battery perspective. And we saw no interruptions to any of our service. New Jersey, New York obviously, that was concerning. But again, we demobbed there and where there was pipe that we are working, backfilled the trenches and didn't see any impact there. The key will be, as it sounds like you may be well aware, Curt, you sound like you might be on a cell phone, is that getting electricity back up. Because obviously you can't do a ton of construction till we get the electricity back and going, and I know a lot of people are working on that.

Your next question comes from the line of Stephen Huang with Carlson Capital.

Greg, can you just clarify what you said in the very beginning of the call, I just wanted to make sure I understood, you said the target's $1.90, everything is going as planned on the non-commodity businesses. But commodity is a $0.50 to $0.55 hit so without -- in unofficial guidance, but you're indicating that's like $1.35 to $1.40 for the year?

Yes, no, I'm not trying to change the guidance, Stephen. I'm just trying to tell you if you just looked at commodity, the bulk of that is at DCP, then you have about $0.50 to $0.55, but there are things that can be positive and negative in other areas. So no, I'm just trying to give you a little bit of transparency on what we see from the commodity price. I'm not trying to give you a specific...

Wait, did you say $1.50 to $1.55 or is it $0.50 to $0.55 hit from commodity?

No, $0.50 to $0.55 hit, sorry.

Okay. And then you talked about Empress, because it's private. It went to a loss or could go to a loss in Q4, can you give us some clarity for '13 on how you're thinking Empress turns around or not?

Yes, well, we don't have the same type of volumes contracted so I have to see how that goes forward. As we've mentioned before, you got the contracts that are currently underwater that run off through the middle of next year. So the objective there, and we'll get our '13 numbers out there, would be to break the breakeven at least, if not make a little bit of money. But that depends how the contracting season goes over the next -- that's been happening in the last month or so, and will happen the next couple of months. But obviously, at least breakeven is what we're looking for, Stephen.

Okay. And then the last question, I just wanted to follow up on Ted Durbin's question and related to the Distribution business, when you said that if you lose incentive earnings, it would be flat, utility earnings. When we look into '13, is there actually a drop off in earnings and then we go flat? Or because you're making 100 bps, 150 bps higher, or is it basically you're saying that if you lose at '13 will be kind of flat to '12?

Yes. Let's see. Again, part of it depends on see where the fourth quarter goes, Stephen, and see where we are, but you'd probably take it, call it a $15 million hit, just on all other things being equal in '13 to the Distribution business. But we'll see what happens. I mean we're not done the year finalizing our budgets for next year, but just straight up on the incentive regulation, that's probably what it cost you.

Did you say $15 million or $50 million?

Yes -- no, $15 million, 1-5.

Your next question comes from the line of Matthew Akman with Scotiabank.

But I had a couple of questions on the Canadian business and my first question is to follow up on Empress. I guess one thing not to be highly profitable there, but losing money is another thing. What are some of the options that you guys can look at with Empress to stem that flow?

Well, first of all, the biggest thing is not enter contracts and we didn't at the time but you had a huge extraction premium in the contracts that we signed up for last year. That extraction premium has come down substantially. And at the same time, you've seen some improvement in propane prices from what we saw earlier in the year. So you're not facing the kind of lower cost of market type breakdown that we saw in the past. So that's one, the contracts will be a different mix next year. Two, I think there is some need for some rationalization in the whole Empress area. As you well know, Matt, there are multiple players there. And obviously, we've got about 22% or so of the capacity. But they don't -- that's -- all that capacity isn't needed up there. So I think we've got to think about is there a way for us to rationalize that. Those are probably the 2 biggest things. Of course, you take out cost wherever you think you can do as well.

And my other question is in and around the Horn River area. I noticed during the quarter, that in Canada and Enbridge announced that they're delaying the in-service state of Cabin because there's just not enough gas flow, I guess, which means good news for Fort Nelson maybe that you guys remain the only processor up there. On the other hand, there's a lot of gas that's not going to get processed or drilled because of pricing. So how do you see that on a net basis perspective, is it positive because you have less competition or negative because there's less gas being produced?

Well, I'd say it's positive because we're the sole processor of natural gas in that region. Of course, we've got -- I don't know exactly what their situation was and how they came to that decision. We obviously have contracts and those are longer term in nature. In terms of growth for the Horn River, you could say that's a negative because there's not another plant that maybe we can build for a few years. But net-net, I'd say, at least in the near term to medium term, it's positive for us. As you've seen, Matt, eco prices have improved lately. They still got to go some ways but much better than what we saw, say, 4 or 5 months ago. So net-net in the near term, I'd say it's positive; longer term, that's obviously not bullish when somebody decides to not finish a plant.

Your next question comes from the line of Chris Sighinolfi with UBS.

Sorry to make you or ask you to repeat yourself but just following up on Stephen's question about what you had said in regards to expectations for the year. I'm operating on a cellphone too so it gets sort of cut in and out. Were you -- can you just clarify, were you saying relative to $1.90 down $0.50 to $0.55 or were you saying $1.50 to $1.55?

No, what I was saying that if you just look at commodity prices alone, so I wasn't trying to change that $1.90. We've said we're not going to hit that but if you just look at the commodity price impact for the full year, it would be $0.50 to $0.55, all other things being equal. So there are other positives and negatives that can happen in the rest of the business. So I'm just saying just commodity alone and that's at Empress and at DCP, largely a little bit at U.S. Transmission, the impact that we're looking at from commodity price would be negative $0.50, 5-0, to $0.55, 5-5, against that $1.90.

And Chris, for context, year-to-date through the third quarter, we're down about $0.33 a share versus last year just based on commodity prices. So just to kind of size it for you.

I was just taking a look quickly and just quick back on the envelope but if things that both DCP and Empress are sort of flat in 4Q versus 3Q? And knowing that there's obviously some growth coming on with on liquids on going into service and some of the extraction premium headwinds you were mentioning maybe alleviating with propane price recovery and some of these purchase gas contracts rolling off, even if we think about that gas transmission and distribution businesses being also flat year-on-year, but it's just a challenge to get down to like, I guess, what would amount to essentially a flat 4Q number to where we achieved the 3Q $0.27, that's just why I was asking for the clarity.

Yes, and I think that's fair and as you pointed out on DCP, the commodity hit at DCP in the quarter was probably pushing about $90 million. But we were down $72 million. So as you pointed out, there are other things against that, that play against the commodity side too.

Okay, great. And then, I guess, quickly following up on DCP, Greg, you had mentioned in your prepared remarks and obviously, we have read about from your releases but the upstep in growth capital at DCP and also earlier in the year, the change in depreciation, and so I guess with those 2 changes, so more of DCP's cost being cash cost? And then the fact that they're going to plan to spend a bit more capital, is there any discussion around altering or moderating the dividend policy out of DCP?

No. I mean, we'll -- we've typically looked at dividend out about 90% in net income. But I will say we look at it every quarter. So it just depends on the type of growth. Obviously, if you see really extraordinary growth opportunities there, and you don't have the similar type growth opportunities at Spectra, which currently we do, then you might do something a little different. And remember, that's also why DPM is there too. There's an opportunity to use DPM as a financing vehicle. So I would -- there's no discussion of changing the policy. What you do quarter-to-quarter will just depend on the opportunities that may be out there in both segments.

And, Chris, as you know, the payout really is kind of a percentage of their net income and so as their net income is down, our distributions are down, projected to be down about $100 million this year, so that it's a little bit self correcting in that sense.

Your next question comes from the line of Carl Kirst with BMO Capital Markets.

Actually I think most of my questions are hit but maybe just one follow-up on SEP perhaps and the conversation earlier was about the M&A, the organic didn't see anything to buy, just given the fee-based nature of Southern Hills, Sand Hills, did that represent an opportunity at all for SEP or do you not want to create noise, if you will, between Cross Holdings and MLPs?

That's not the issue. I think if you look at many of the projects that we're currently looking at building, NEXUS and Open and various pieces, obviously the stuff we're looking at in the Southeast, those would all be interesting opportunities and have good characteristics for the MLP. And I think it's fair to say the NGL pipelines would as well. But we got to get the thing built, get it into our own stable here but it's got a night [ph] characteristics. But that's not -- we haven't made any decision like that at this point in time, Carl. The drop-down piece was really with respect to Maritimes in Northeast. Really, just let's keep the distributions going there and if you've got assets that you can move into that without taking a big tax hit or don't have stable elements to it then you can move those into the MLP if you can't find ways to grow organically or go out and purchase stock.

Okay, no. That's helpful color. And then maybe one just one heavy -- one touch point on Empress and kind of following up on Matthew's question and just the potential for changing structure. And even without the rationalization that's needed there, that I think everyone believes, is there a possibility just for changing the structure of the supply contracts of the extraction premium and moving from sort of fixed fees, if you will to say for instance, a percent of the frac spread or something like that? I mean, is there any conversation afloat in the industry to do that or no?

Well, everything's on the table right now. I think there's no doubt about it and as you know, the ethane piece of that is already fee-based. So, Carl, I guess I would say that everything's on the table. But I wouldn't say that the discussions on that side are that advanced. What's a better discussion right now is just rationalizing plant capacity. And we're still getting good sales volumes out of there. Our sales volume were actually up Q3-on-Q3 versus down. And part of that is just a little better pricing -- sorry, we saw less pricing which is why the overall result is down. But there's still a need, obviously for those assets. It's just -- as you know, many of those pipes or many of those plants are owned, call it, 80%, 90% by one player and 10% by another. And then you go to the next trial plant and it's 90% owned by the guy who own 10% in the other plant. So it's just going to take a little bit of discussion between everybody to get to the right solution.

Your next question comes from the line of Nathan Judge with Atlantic Equities.

I have 2 questions, actually. You -- Greg, I think you mentioned that you've now created a new division called Western Canada LNG. Could you just go into further detail what actually that's comprised of? And is that the future assets for the BG plant and ultimately, given some recent developments with BG, would you be interested in investing with a liquefaction plant?

Well, 2 questions. So first of all, it really is a development business. So it's just that we felt that the opportunity is so big. As you know, the pipeline picked a number somewhere between $4 billion and $8 billion. So that's obviously a massive opportunity. And there's more than one pipeline opportunity potentially up there. So we felt it was important to put a key executive in charge of that. Now Doug will have a small team. But there's also a requirement under our agreement with BG that we put some dedicated individuals there. And the real focus over the next 2 or 3 years is around getting regulatory approvals, making sure all the commercial aspects are in place. And of course, working with various stakeholders there and one of the big groups there would obviously be First Nations -- aboriginal folks of which we've had a good experience of dealing with them for more than 55 years in the region, so that's really the focus. With respect to whether we'd invest in an LNG terminal, that has not been our choice today. I guess, I would never say never. But it would have to be a fee-based type structure as you see with pipelines for us to get into that. And typically, in our discussions with the various players there, they like to pretty well control all that themselves. And they're also on the sales side of the product being produced and we would not be on that side. So it's probably a better fit with what you've seen with the BGs and the super majors and the like, actually owning those facilities as opposed us. I would say never but it would have to be fee-based.

Just also, could you comment on storage. Clearly storage is quite full. Just in particular, as you're looking out for the future, what are you seeing on contracts and margins on that business and how does that feed into your product?

Yes, those -- we've -- as you know, we -- at U.S. Transmission this quarter, we had planned to have storage margins down a little bit and we did see that flow through. Pretty flat on the storage side these days, haven't seen uptick or downtick on that front. We still have contracts that would be out there in the 3 to 5-year period, but you obviously got contracts also that come up each year. So I don't see a big recovery in storage until the middle of the decade, call it, Nathan, when some of the power plants that are being built, the gas-fired power plants come on, as you start to see more and more possibility on the LNG front because there's big ambient swings on the LNG front and so they may be needing storage so it's really the middle of the decade before I'd see much change on the storage front.

Your question comes from the line of Faisel Khan with Citigroup.

Sorry, it's Amit Marwaha here; I'm subbing in for Faisel. We're kind of between settings here. Just a quick follow-up with respect to the question on LNG. Could you give us some type of update or commentary?

Sure. So in September, we've signed an agreement, project development agreement with BG and that commits to 2 players to move forward in terms of fully scoping out the project and engineering work, for example, et cetera. So to make a decision sometime by 2015, and to dedicate parties to be able to do that. So that's one aspect. There are other players, as you know, in British Columbia on the LNG front that we're also in discussions with and pursuing, and I won't speak to those -- who those are directly but I think if you'll read any of the trade press out there, you'll know who that is. So the idea was to set up a separate business unit, have Doug Bloom head that up, not only to corral and bring to fruition the BG opportunity, but also look at other opportunities in British Columbia. So over the next couple of years, you will see us pursue that and spend a good chunk of money developing that project, which with respect to BG, if the project doesn't come to fruition, would be refunded to us.

[Operator Instructions] And there are no further questions at this time.

Okay, Wendy. Thank you very much. With that, we'll end the call today. I want to thank you all -- thank you very much for joining us. And as always, if you have any additional questions, you can feel free to call Roni Cappadonna or me. Thanks for joining us.

This concludes today's conference call. You may now disconnect.