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Spectra sticks to 'ground game' as other companies' Northeast pipe projects sink

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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Spectra sticks to 'ground game' as other companies' Northeast pipe projects sink

has a planto navigate the hostile state agencies and commercial troubles that havedelayed or brought down other natural gas pipeline developers, executivesassured analysts and investors.

At acouple of points during the company's May 4 earnings call, Gregory Ebel, wholeads Spectra Energy and SpectraEnergy Partners LP, said getting projects done differentiates hispipeline companies from others in the space.

"Wemake realistic promises and have a record of delivering on those promises,"Ebel said.

Ebeldid not mention names, but the comment might sting , which announcedApril 20 that it suspendeddevelopment of the Northeast Energy Direct pipeline project because it couldnot attract enough customers, or Constitution Pipeline Co. LLC, which wasdenied a key permitby a New York agency April 22, putting the project in .

SpectraEnergy has had its own run-inwith New York. Gov. Andrew Cuomo drove state agencies to ask FERC to haltconstruction of the company's Algonquin Incremental Market pipeline expansion,a project that is more than half done. FERC rejected the request. Ebel saidrunning into conflict with state regulators can happen to anyone.

"There'sno doubt that is a risk," he told an analyst. "I mean, that's arisk right across theindustry and with all infrastructure. … It further underlines the importance ofhaving a good ground game."

SpectraEnergy tries to control the risk by having long-term relationships with localcommunities and partnerships in states where it anticipates trouble, and bychoosing wherever possible to expand infrastructure on existing rights of wayrather than new construction, Ebel said.

Ebelemphasized Spectra Energy's 1.5-Bcf/d NEXUSproject in the Midwest and its Access Northeast project, a jointventure with Eversource Energyand National Grid plcin New England, among about $8 billion worth of gas and liquids projects inexecution for service in 2016 and beyond. Spectra Energy will place $2 billionworth of projects in service in 2016, he said.

should receive its FERCcertificate later in the year or early in 2017, which should let the projecthit a late 2017 in-service date, Ebel said. NEXUS has executed customeragreements totaling 60% of its capacity with LDCs, as well as Marcellus andUtica producers.

"Impressively,interconnect agreements with industrial and power generation facilities onNEXUS have grown from 1.4 Bcf a day to 1.75 Bcf a day, further demonstratingthe long-term market support and the attractiveness of our route to demand-pullmarkets and customers," Ebel said.

As aside note, Ebel said that while NEXUS is the right size, he wishes that the550,000-Dth/d OPEN pipeline,another Spectra Energy project with solid connections with producers andmarkets, had been bigger. OPEN was approved by FERC in December 2014. "Thatpipe could be twice the size and full today," he said.

Similarto remarks in an April interviewby Spectra Energy President of U.S. Transmission and Storage Bill Yardley, Ebelstressed the unique structure of Access Northeast, which he said makes itsuited to electric distribution companies and distinguishes it from NortheastEnergy Direct.

Becauseof the targeted electric utility customers, Access Northeast also has a uniqueregulatory process. Yardley was on the call to provide an update on the relatedproceedings in eachof the New England states. Things are moving well in Massachusetts, NewHampshire, Rhode Island and Connecticut, he said.

"Andthen that leaves Vermont," Yardley said. "Vermont, although they havebeen verbally supportive, we have yet to see any type of process there."

Still,Yardley said he hopes to have contracts for the full project capacity, withpeak-day deliveries of up to 925,000 Dth, approved by the states later in 2016.

"Ithink if you do that math," Yardley said, "you basically get to your900-a-day project, serving 5,000 megawatts, by the fourth quarter."

Ebelbegan his presentation with a sober observation on the ruptureand fire inPennsylvania. He said the Spectra Energy companies regret the incident and arefocused on helping those affected. A decision on returning that portion of thesystem to service will be made in the next few days. Ebel told an analyst hedid not expect any financial impact from the incident due to insurance on operationsand property.

Thecall covered first-quarter earnings and operations. Spectra Energy Corpreported ongoing netincome from controlling interests of $238 million, compared to $274 million inthe year-ago quarter. Spectra Energy Partners reported first-quarter EBITDA of$447 million, compared to $436 million in the same period in 2015.