First reaction from analystWe see the addition of three U.S. gas distribution utilities as primarily a defensive move. Despite the size of the transaction, Enbridge is leaving its 5% annual EBITDA growth expectation over the medium term, which suggests to us that the earnings contribution is replacing weaker results on the liquids side of the business.
It also indicates Enbridge management sees more challenges and risks in the liquids portion of the business and prefers fairly strongly to allocate incremental capital elsewhere. Enbridge was viewed by investors as utility-like beforehand, and this tends to reinforce that view by materially increasing the earnings contribution from actual utilities. The deal will take the gas distribution business to a bit less than a fourth of Enbridge’s overall business mix.
The new utilities add about CAD 1.7 billion in annual capital spending opportunities that are typically low-risk, with rider mechanisms enabling a quick recovery of the investment. Longer-term, there are hydrogen blending opportunities and potential storage opportunities as the Public Service Company of North Carolina is already piloting a hydrogen blending program. Enbridge is targeting a 2024 close.