The Company's earnings will fluctuate with changes in certain market prices, volumetric throughput on certain assets, with weather and other factors.
Earnings at Risk (EaR) is the principal risk management metric used to quantify market price risk sensitivity at Enbridge. EaR is an objective, statistically derived risk metric that measures, with a 97.5% level of confidence, the maximum adverse change in projected 12-month earnings that could result from market price risk over a one-month period. The Company's policy is to target a maximum EaR of 5% of 1 year forecasted earnings. On December 31, 2008, the Company's EaR was 2.5% (2007 2.8%) of 1 year forecasted adjusted earnings.
The following table shows the EaR from changes to different types of market price risk. These EaR numbers are based on business conditions and hedging programs as of December 31, 2008 and may not be applicable to other periods.
|Foreign Exchange||$3.6 million|
|Interest Rate||$3.2 million|
Transportation volumetric risks are managed through tariff agreements. Most of the Company's tariff agreements provide for take-or-pay or throughput insensitivity.
Weather is a significant driver of delivery volumes at EGD, given that a significant portion of EGD's customers use natural gas for space heating. Weather, measured in terms of degree day deficiency, normally directly impacts EGD's earnings as noted below. Degree-day is a measure of coldness, calculated as the total number of degrees each day by which the daily mean temperature falls below 18 degrees Celsius.
|Factor||Incremental change||Approximate incremental impact|
|Weather||17 degree days||1 billion cubic feet|
|Volume||1 billion cubic feet||$1.4 million (after-tax||)|
In recent years weather has impacted earnings by a larger magnitude than the above sensitivities would suggest. This results from the unusual pattern of distribution of degree days during the year and their relative effectiveness. Degree days are fully effective, typically in the peak winter months, when their occurrence directly impacts the consumption pattern by a similar magnitude.
Weather risk is also present in Enbridge Offshore Pipelines; hurricanes have impacted earnings by $11 million in 2008.