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The change in the allowed rate of return for ECG is based on the forecast change in yield on Canadian government long-term bonds. For the 2000 fiscal year, the allowed rate of return for Enbridge Consumers Gas was 9.73%, compared with 9.51% in 1999 and 10.3% in 1998 on a deemed equity component of 35%. OEB-approved rate base for fiscal 2000 was $2.8 billion (1999 — $3.3 billion, 1998 — $3.1 billion). The decrease in rate base in 2000 is attributable to the transfer of the retail products and services business to Energy Services, partially offset by increases in rate base due to growth in the number of active customers. 

Over the last three years, Enbridge Consumers Gas added 158,000 customers, including approximately 54,000 customers in 2000. This growth was attributable to the continued popularity of natural gas among homeowners and builders due to its price advantage and environmental benefits over other forms of energy. 

## Noverco 

Equity earnings from Noverco are comparable in each of the years 1998 through 2000. Variations from normal weather do not effect Noverco’s earnings as the Quebec regulator holds utilities weather neutral. A significant portion of the Company’s earnings 

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from Noverco is in the form of dividends on its preference share investment, which is based on the yield of 10-year Government of Canada bonds plus 4.45%. The weighted average yield on the preference shares, which is reset annually, was 10.2%, 10.0% and 10.6% for 2000, 1999 and 1998, respectively. 

## Enbridge Gas New Brunswick 

Construction of new natural gas distribution facilities in the province of New Brunswick commenced in the third quarter of 2000. Earnings primarily represent AEDC during the construction period. 

## Outlook 

The financial results of the Energy Distribution business are dependent on weather conditions because the rate-making methodology leaves Enbridge Consumers Gas exposed to annual variances in forecasted distribution volumes if the weather is other than normal. 

## Performance-Based Regulation 

Recent changes in regulation reflect the trend in North America towards incentive or performance-based regulation. The OEB expects the Company to develop, in consultation with stakeholders, a comprehensive PBR plan (CPBR) by the end of the three-year term of the current PBR plan. A CPBR plan would replace the current PBR formula covering operating and maintenance costs with a broader formula including capital costs, broaden the incentive envelope and provide additional opportunity to increase earnings from efficiency gains, permit Enbridge Consumers Gas to set rates within certain limits, and provide flexibility to adjust prices within these limits. The CPBR plan is in the early stages of development. 

## Direct Purchase 

Before the advent of deregulation of the commodity price in October 1985, Enbridge Consumers Gas supplied natural gas to 100% of its customers. In 2000, supplied gas amounted to 37% of the gas distributed to customers (1999 — 37%, 1998 — 34%). The remaining gas supply was purchased directly by customers or supplied by independent brokers or marketers. Net earnings are not affected by the customer’s choice of gas commodity supplier, provided changes are incorporated in the volume underlying the rate application. Enbridge Consumers Gas currently intends to continue to provide all customers the option of purchasing their natural gas directly from the utility. 

