ENBRIDGE 2000 ANNU AL REPORT 23 Accuracy of Forecasts ENERGY SERVICES 2000 Financial Results Business Risks Regulation Cost of Gas Capital Expenditures Volume Risk Reshaping the Utility After unbundling the retail and shared services businesses  to affiliated companies, Enbridge Consumers Gas operations consist of the core utility distribution and related operations. Enbridge Consumers Gas is currently engaged in focussing on and redefining core distribution processes, with a mandate to create an operationally excellent organization, positioned to deliver value to its customers, employees, business partners and shareholders. Implementation of this initiative is taking place over the next one to two years. Since customers are billed based on volumes distributed, the ability of Enbridge Consumers Gas to collect its total revenue requirement depends upon achieving the forecast distribution volume. The probability of realizing such volume is contingent upon three key variables: weather; economic conditions and the number of customers. Sales and transportation of gas for customers in the weather- sensitive residential and commercial sectors account for approximately 73% of total distribution volume. Weather during the year, measured in degree days, can have a significant impact on distribution volume since a major portion of the gas distributed to these two markets is used for space heating. Sales and transportation service to large volume commercial and industrial customers is more susceptible to prevailing economic conditions. These customers also may have the capability to switch to an alternate fuel, so volumes may be affected by the prices of competitive sources of energy. Capital expenditures for Energy Distribution are planned to be about $255 million in 2001, primarily for systems expansions and core maintenance. Consistent with prior years, Enbridge Consumers Gas expects to add about 50,000 new customers in 2001. Enbridge Gas New Brunswick plans to spend approximately $16 million on expansion, primarily in the municipalities of Moncton, Fredericton and St. John. Gas supply contracts have indexed pricing structures responsive to supply and demand conditions in the North American natural gas markets. The acquisition of gas through short-term or spot purchases is subject to market-driven price fluctuations. The Company mitigates a portion of the price exposure in the cost of gas in accordance with an OEB-approved natural gas price risk management program. ECG is obliged to demonstrate the prudence of its supply management program. Historically, ECG has been able to do so and the OEB has approved the recovery of the actual cost of gas from customers. Enbridge Consumers Gas is subject to the regulatory authority of the OEB, which regulates storage, transmission and distribution of natural gas in Ontario. Rates charged by Enbridge Consumers Gas for such services and the allowed rate of return on debt and equity capital are also subject to OEB approval. Timely and adequate rate relief allows Enbridge Consumers Gas to recover the costs of providing and maintaining the quality of its service. The current PBR regime provides an opportunity to earn more than the allowed rate of return on rate base if operating efficiencies greater than the PBR plan formula are achieved. The recovery of natural gas and transportation costs incurred to supply commodity customers is subject to Enbridge Consumers Gas’ ability to demonstrate prudence with respect to its natural gas purchase activities to the OEB. The forward test year method of rate-making anticipates the volumes distributed by class of customer, the expected cost  of capital, and total operation and maintenance expenses. Consequently, accuracy in the forecasting process should ensure that any changes in the cost of service will be recovered in rates  for the next year. The Energy Services business includes operations directed at achieving the Company’s initiative to provide integrated energy products and services to retail and commercial customers in Ontario and Philadelphia, Pennsylvania. These operations (millions of dollars) 2000 1999 1998 Enbridge Services & Other 31.8 (4.3) (6.8) Tax rate reductions 32.1 — — 63.9 (4.3) (6.8)