Edgar Filing: Spectra Energy Corp.

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-33007

SPECTRA ENERGY CORP

(Exact Name of Registrant as Specified in its Charter)



Delaware		20-5413139
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

5400 Westheimer Court

Houston, Texas 77056

(Address of principal executive offices, including zip code)

713-627-5400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Number of shares of Common Stock, $0.001 par value, outstanding as of March 31, 2016: 684,209,559

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SPECTRA ENERGY CORP

FORM 10-Q FOR THE QUARTER ENDED

March 31, 2016

INDEX



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015	4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	5
	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	6
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	8
	Condensed Consolidated Statements of Equity for the three months ended March 31, 2016 and 2015	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 6.	Exhibits	39
	Signatures	40

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This document includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements represent management’s intentions, plans, expectations, assumptions and beliefs about future events. These forward-looking statements are identified by terms and phrases such as: anticipate, believe, intend, estimate, expect, continue, should, could, may, plan, project, predict, will, potential, forecast, and similar expressions. Forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Factors used to develop these forward-looking statements and that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:


•	state, provincial, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate structure, and affect the speed at and degree to which competition enters the natural gas and oil industries;


•	outcomes of litigation and regulatory investigations, proceedings or inquiries;


•	weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms;


•	the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates;


•	general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the long-term demand for natural gas and oil and related services;


•	potential effects arising from terrorist attacks and any consequential or other hostilities;


•	changes in environmental, safety and other laws and regulations;


•	the development of alternative energy resources;


•	results and costs of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general market and economic conditions;


•	increases in the cost of goods and services required to complete capital projects;


•	declines in the market prices of equity and debt securities and resulting funding requirements for defined benefit pension plans;


•	growth in opportunities, including the timing and success of efforts to develop United States and Canadian pipeline, storage, gathering, processing and other related infrastructure projects and the effects of competition;


•	the performance of natural gas and oil transmission and storage, distribution, and gathering and processing facilities;


•	the extent of success in connecting natural gas and oil supplies to gathering, processing and transmission systems and in connecting to expanding gas and oil markets;


•	the effects of accounting pronouncements issued periodically by accounting standard-setting bodies;


•	conditions of the capital markets during the periods covered by forward-looking statements; and


•	the ability to successfully complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Spectra Energy Corp has described. Spectra Energy Corp undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements.

SPECTRA ENERGY CORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per-share amounts)



	Three Months Ended March 31,
	2016		2015
Operating Revenues
Transportation, storage and processing of natural gas	$	824	$	842
Distribution of natural gas	411		607
Sales of natural gas liquids	41		66
Transportation of crude oil	85		84
Other	23		24
Total operating revenues	1,384		1,623
Operating Expenses
Natural gas and petroleum products purchased	250		432
Operating, maintenance and other	341		354
Depreciation and amortization	193		193
Property and other taxes	106		103
Total operating expenses	890		1,082
Operating Income	494		541
Other Income and Expenses
Earnings from equity investments	33		24
Other income and expenses, net	32		20
Total other income and expenses	65		44
Interest Expense	151		159
Earnings Before Income Taxes	408		426
Income Tax Expense	98		101
Net Income	310		325
Net Income—Noncontrolling Interests	76		58
Net Income—Controlling Interests	$	234	$	267
Common Stock Data
Weighted-average shares outstanding
Basic	674		671
Diluted	675		673
Earnings per share
Basic and diluted	$	0.35	$	0.40
Dividends per share	$	0.405	$	0.37

See Notes to Condensed Consolidated Financial Statements.

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SPECTRA ENERGY CORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)



	Three Months Ended March 31,
	2016			2015
Net Income	$	310		$	325
Other comprehensive income (loss):
Foreign currency translation adjustments	301			(492		)
Pension and benefits impact (net of taxes of $2 and $3, respectively)	5			6
Other	(1		)	1
Total other comprehensive income (loss)	305			(485		)
Total Comprehensive Income (Loss), net of tax	615			(160		)
Less: Comprehensive Income—Noncontrolling Interests	80			50
Comprehensive Income (Loss)—Controlling Interests	$	535		$	(210	)

See Notes to Condensed Consolidated Financial Statements.

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SPECTRA ENERGY CORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)



	March 31, 2016		December 31, 2015
ASSETS

Current Assets
Cash and cash equivalents	$	279	$	213
Receivables, net	723		806
Inventory	199		307
Fuel tracker	44		41
Other	230		281
Total current assets	1,475		1,648

Investments and Other Assets
Investments in and loans to unconsolidated affiliates	2,588		2,592
Goodwill	4,211		4,154
Other	383		310
Total investments and other assets	7,182		7,056

Property, Plant and Equipment
Cost	31,290		29,843
Less accumulated depreciation and amortization	7,271		6,925
Net property, plant and equipment	24,019		22,918

Regulatory Assets and Deferred Debits	1,415		1,301

Total Assets	$	34,091	$	32,923

See Notes to Condensed Consolidated Financial Statements.

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SPECTRA ENERGY CORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except per-share amounts)



	March 31, 2016		December 31, 2015
LIABILITIES AND EQUITY

Current Liabilities
Accounts payable	$	493	$	511
Commercial paper	1,320		1,112
Taxes accrued	88		78
Interest accrued	141		179
Current maturities of long-term debt	483		652
Other	638		860
Total current liabilities	3,163		3,392

Long-term Debt	13,190		12,892

Deferred Credits and Other Liabilities
Deferred income taxes	5,644		5,445
Regulatory and other	1,395		1,323
Total deferred credits and other liabilities	7,039		6,768

Commitments and Contingencies

Preferred Stock of Subsidiaries	339		339

Equity
Preferred stock, $0.001 par, 22 million shares authorized, no shares outstanding	—		—
Common stock, $0.001 par, 1 billion shares authorized, 684 million and 671 million shares outstanding at March 31, 2016 and December 31, 2015, respectively	1		1
Additional paid-in capital	5,431		5,053
Retained earnings	1,699		1,741
Accumulated other comprehensive income (loss)	32		(269		)
Total controlling interests	7,163		6,526
Noncontrolling interests	3,197		3,006
Total equity	10,360		9,532

Total Liabilities and Equity	$	34,091	$	32,923

See Notes to Condensed Consolidated Financial Statements.

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SPECTRA ENERGY CORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)



	Three Months Ended March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	310		$	325
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	196			196
Deferred income tax expense	86			61
Earnings from equity investments	(33		)	(24		)
Distributions from equity investments	26			38
Other	(28		)	170
Net cash provided by operating activities	557			766
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(664		)	(388		)
Investments in and loans to unconsolidated affiliates	(27		)	(15		)
Purchase of intangible	(48		)	—
Purchases of held-to-maturity securities	(162		)	(145		)
Proceeds from sales and maturities of held-to-maturity securities	142			123
Purchases of available-for-sale securities	(161		)	—
Proceeds from sales and maturities of available-for-sale securities	163			1
Distributions from equity investments	39			18
Other changes in restricted funds	2			2
Net cash used in investing activities	(716		)	(404		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	—			994
Payments for the redemption of long-term debt	(176		)	—
Net increase (decrease) in commercial paper	185			(952		)
Distributions to noncontrolling interests	(54		)	(44		)
Contributions from noncontrolling interests	95			58
Proceeds from the issuances of Spectra Energy common stock	368			—
Proceeds from the issuances of Spectra Energy Partners, LP common units	80			39
Dividends paid on common stock	(276		)	(250		)
Other	—			(9		)
Net cash provided by (used in) financing activities	222			(164		)
Effect of exchange rate changes on cash	3			(4		)
Net increase in cash and cash equivalents	66			194
Cash and cash equivalents at beginning of period	213			215
Cash and cash equivalents at end of period	$	279		$	409
Supplemental Disclosures
Property, plant and equipment non-cash accruals	$	213		$	115

See Notes to Condensed Consolidated Financial Statements.

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SPECTRA ENERGY CORP

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In millions)



	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)
	Common Stock		Additional Paid-in Capital		Retained Earnings			Foreign Currency Translation Adjustments			Other			Noncontrolling Interests			Total
December 31, 2015	$	1	$	5,053	$	1,741		$	79		$	(348	)	$	3,006		$	9,532
Net income	—		—		234			—			—			76			310
Other comprehensive income	—		—		—			297			4			4			305
Dividends on common stock	—		—		(276		)	—			—			—			(276		)
Stock-based compensation	—		2		—			—			—			—			2
Distributions to noncontrolling interests	—		—		—			—			—			(56		)	(56		)
Contributions from noncontrolling interests	—		—		—			—			—			95			95
Spectra Energy common stock issued	—		368		—			—			—			—			368
Spectra Energy Partners, LP common units issued	—		8		—			—			—			68			76
Other, net	—		—		—			—			—			4			4
March 31, 2016	$	1	$	5,431	$	1,699		$	376		$	(344	)	$	3,197		$	10,360

December 31, 2014	$	1	$	4,956	$	2,541		$	1,016		$	(354	)	$	2,238		$	10,398
Net income	—		—		267			—			—			58			325
Other comprehensive income (loss)	—		—		—			(484		)	7			(8		)	(485		)
Dividends on common stock	—		—		(250		)	—			—			—			(250		)
Distributions to noncontrolling interests	—		—		—			—			—			(44		)	(44		)
Contributions from noncontrolling interests	—		—		—			—			—			58			58
Spectra Energy common stock issued	—		1		—			—			—			—			1
Spectra Energy Partners, LP common units issued	—		6		—			—			—			29			35
Other, net	—		—		—			—			—			(7		)	(7		)
March 31, 2015	$	1	$	4,963	$	2,558		$	532		$	(347	)	$	2,324		$	10,031

See Notes to Condensed Consolidated Financial Statements.

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SPECTRA ENERGY CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

The terms “we,” “our,” “us” and “Spectra Energy” as used in this report refer collectively to Spectra Energy Corp and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity within Spectra Energy. The term “Spectra Energy Partners” refers to our Spectra Energy Partners operating segment. The term “SEP” refers to Spectra Energy Partners, LP, our master limited partnership.

Nature of Operations. Spectra Energy Corp, through its subsidiaries and equity affiliates, owns and operates a large and diversified portfolio of complementary natural gas-related energy assets, and owns and operates a crude oil pipeline system that connects Canadian and United States (U.S.) producers to refineries in the U.S. Rocky Mountain and Midwest regions. We currently operate in three key areas of the natural gas industry: gathering and processing, transmission and storage, and distribution. We provide transmission and storage of natural gas to customers in various regions of the northeastern and southeastern U.S., the Maritime Provinces in Canada, the Pacific Northwest in the U.S. and Canada, and in the province of Ontario, Canada. We also provide natural gas sales and distribution services to retail customers in Ontario, and natural gas gathering and processing services to customers in western Canada. We also own a 50% interest in DCP Midstream, LLC (DCP Midstream), based in Denver, Colorado, one of the leading natural gas gatherers in the U.S. and one of the largest U.S. producers and marketers of natural gas liquids (NGLs).

Basis of Presentation. The accompanying Condensed Consolidated Financial Statements include our accounts and the accounts of our majority-owned subsidiaries, after eliminating intercompany transactions and balances. These interim financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015, and reflect all normal recurring adjustments that are, in our opinion, necessary to fairly present our results of operations and financial position. Amounts reported in the Condensed Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption, primarily in our gas distribution operations, as well as changing commodity prices on certain of our processing operations and other factors.

Use of Estimates. To conform with generally accepted accounting principles (GAAP) in the U.S., we make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements. Although these estimates are based on our best available knowledge at the time, actual results could differ.

2. Business Segments

We manage our business in four reportable segments: Spectra Energy Partners, Distribution, Western Canada Transmission & Processing and Field Services. The remainder of our business operations is presented as “Other,” and consists of unallocated corporate costs and employee benefit plan assets and liabilities, 100%-owned captive insurance subsidiaries and other miscellaneous activities.

Our chief operating decision maker (CODM) regularly reviews financial information about each of these segments in deciding how to allocate resources and evaluate performance. There is no aggregation within our reportable business segments.

Spectra Energy’s presentation of its Spectra Energy Partners segment is reflective of the parent-level focus by our CODM, considering the resource allocation and governance provisions associated with SEP’s master limited partnership structure. SEP maintains a capital and cash management structure that is separate from Spectra Energy’s, is self-funding and maintains its own lines of bank credit and cash management accounts. From a Spectra Energy perspective, our CODM evaluates the Spectra Energy Partners segment as a whole, without regard to any of SEP’s individual businesses.

Spectra Energy Partners provides transmission, storage and gathering of natural gas, as well as the transportation of crude oil through interstate pipeline systems for customers in various regions of the midwestern, northeastern and southern U.S. and Canada. The natural gas transmission and storage operations are primarily subject to the rules and regulations of the Federal Energy Regulatory Commission (FERC). The crude oil transportation operations are primarily subject to regulation by the FERC in the U.S. and the National Energy Board (NEB) in Canada. Our Spectra Energy Partners segment is composed of the operations of SEP, less governance costs, which are included in “Other.”

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Distribution provides retail natural gas distribution service in Ontario, Canada, as well as natural gas transmission and storage services to other utilities and energy market participants. These services are provided by Union Gas Limited (Union Gas), and are primarily subject to the rules and regulations of the Ontario Energy Board (OEB).

Western Canada Transmission & Processing provides transmission of natural gas, natural gas gathering and processing services, and NGL extraction, fractionation, transportation, storage and marketing to customers in western Canada, the northern tier of the U.S. and the Maritime Provinces in Canada. This segment conducts business mostly through BC Pipeline, BC Field Services, Empress NGL operations (Empress), Canadian Midstream, and Maritimes & Northeast Pipeline Limited Partnership (M&N Canada). BC Pipeline, BC Field Services and M&N Canada operations are primarily subject to the rules and regulations of the NEB.

Field Services gathers, compresses, treats, processes, transports, stores and sells natural gas, produces, fractionates, transports, stores and sells NGLs, recovers and sells condensate, and trades and markets natural gas and NGLs. It conducts operations through DCP Midstream, which is owned 50% by us and 50% by Phillips 66. DCP Midstream gathers raw natural gas through gathering systems connecting to several interstate and intrastate natural gas and NGL pipeline systems, one natural gas storage facility and one NGL storage facility. DCP Midstream operates in a diverse number of regions, including the Permian Basin, Eagle Ford, Niobrara/DJ Basin and the Midcontinent. DCP Midstream Partners, LP (DCP Partners) is a publicly traded master limited partnership, of which DCP Midstream acts as general partner. As of March 31, 2016, DCP Midstream had an approximate 21% ownership interest in DCP Partners, including DCP Midstream’s limited partner and general partner interests.

Our reportable segments offer different products and services and are managed separately as business units. Management evaluates segment performance based on earnings before interest, taxes, and depreciation and amortization (EBITDA). Cash, cash equivalents and short-term investments are managed at the parent-company levels, so the associated gains and losses from foreign currency transactions and interest and dividend income are excluded from the segments’ EBITDA. Our segment EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate EBITDA in the same manner. Transactions between reportable segments are accounted for on the same basis as transactions with unaffiliated third parties.

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Business Segment Data



Condensed Consolidated Statements of Operations
	Unaffiliated Revenues		Intersegment Revenues			Total Operating Revenues			Depreciation and Amortization		Segment EBITDA/ Consolidated Earnings before Income Taxes
	(in millions)
Three Months Ended March 31, 2016
Spectra Energy Partners	$	624	$	—		$	624		$	77	$	473
Distribution	465		—			465			44		170
Western Canada Transmission & Processing	294		11			305			58		123
Field Services	—		—			—			—		3
Total reportable segments	1,383		11			1,394			179		769
Other	1		16			17			14		(19		)
Eliminations	—		(27		)	(27		)	—		—
Depreciation and amortization	—		—			—			—		193
Interest expense	—		—			—			—		151
Interest income and other (a)	—		—			—			—		2
Total consolidated	$	1,384	$	—		$	1,384		$	193	$	408

Three Months Ended March 31, 2015
Spectra Energy Partners	$	606	$	—		$	606		$	74	$	455
Distribution	662		—			662			45		192
Western Canada Transmission & Processing	353		17			370			62		161
Field Services	—		—			—			—		(17		)
Total reportable segments	1,621		17			1,638			181		791
Other	2		16			18			12		(15		)
Eliminations	—		(33		)	(33		)	—		—
Depreciation and amortization	—		—			—			—		193
Interest expense	—		—			—			—		159
Interest income and other (a)	—		—			—			—		2
Total consolidated	$	1,623	$	—		$	1,623		$	193	$	426

___________________________________


(a)	Includes foreign currency transaction gains and losses related to segment EBITDA.

3. Regulatory Matters

Union Gas. In April 2016, Union Gas filed an application with the OEB for the annual disposition of the 2015 deferral account balances. As a result, Union Gas has a net receivable from customers of approximately $18 million, which is primarily reflected as Current Assets—Other on the Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015. A hearing and decision are expected later this year. Union Gas is proposing to implement the disposition of the balances on October 1, 2016.

4. Income Taxes

Income tax expense was $98 million for the three months ended March 31, 2016, compared to $101 million for the same period in 2015. The lower tax expense for the three months ended March 31, 2016 was primarily attributable to lower earnings. The effective income tax rate was 24% for both the three months ended March 31, 2016 and 2015.

There was no material net change in unrecognized tax benefits recorded during the three months ended March 31, 2016. Although uncertain, we believe it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $30 million to $40 million prior to March 31, 2017 due to audit settlements and statute of limitations expirations.

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5. Earnings per Common Share

Basic earnings per common share (EPS) is computed by dividing net income from controlling interests by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income from controlling interests by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, stock-based performance unit awards and phantom stock awards, were exercised, settled or converted into common stock.

The following table presents our basic and diluted EPS calculations:



	Three Months Ended March 31,
	2016		2015
	(in millions, except per-share amounts)
Net income—controlling interests	$	234	$	267
Weighted-average common shares outstanding
Basic	674		671
Diluted	675		673
Basic and diluted earnings per common share	$	0.35	$	0.40

6. Accumulated Other Comprehensive Income (Loss)

The following table presents the net of tax changes in Accumulated Other Comprehensive Income (AOCI) by component and amounts reclassified out of AOCI to Net Income, excluding amounts attributable to noncontrolling interests:



	Foreign Currency Translation Adjustments			Pension and Post-retirement Benefit Plan Obligations				Gas Purchase Contract Hedges			Other			Total Accumulated Other Comprehensive Income (Loss)
							(in millions)
December 31, 2015	$	79		$	(346	)		$	(3	)	$	1		$	(269	)
Other AOCI activity	297			5				3			(4		)	301
March 31, 2016	$	376		$	(341	)		$	—		$	(3	)	$	32

December 31, 2014	$	1,016		$	(351	)		$	(3	)	$	—		$	662
Other AOCI activity	(484		)	6				3			(2		)	(477		)
March 31, 2015	$	532		$	(345	)		$	—		$	(2	)	$	185

7. Inventory

Inventory consists of natural gas and NGLs held in storage for transmission and processing, and also includes materials and supplies. Natural gas inventories primarily relate to the Distribution segment in Canada and are valued at costs approved by the OEB. The difference between the approved price and the actual cost of gas purchased is recorded as either a receivable or a current liability, as appropriate, for future disposition with customers, subject to approval by the OEB. The remaining inventory is recorded at the lower of cost or market, primarily using average cost. The components of inventory are as follows:



	March 31, 2016		December 31, 2015
	(in millions)
Natural gas	$	110	$	217
NGLs	18		23
Materials and supplies	71		67
Total inventory	$	199	$	307

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8. Investments in and Loans to Unconsolidated Affiliates

Our most significant investment in unconsolidated affiliates is our 50% investment in DCP Midstream, which is accounted for under the equity method of accounting. The following represents summary financial information for DCP Midstream, presented at 100%:



	Three Months Ended March 31,
	2016		2015
	(in millions)
Operating revenues	$	1,427	$	2,043
Operating expenses	1,365		1,991
Operating income	62		52
Net income (loss)	48		(6		)
Net income (loss) attributable to members’ interests	11		(37		)

DCP Partners issues, from time to time, limited partner units to the public, which are recorded by DCP Midstream directly to its equity. Our proportionate share of gains from those issuances, totaled $2 million in the first quarter of 2015 and is reflected in Earnings From Equity Investments in the Condensed Consolidated Statement of Operations.

9. Variable Interest Entities

Sabal Trail. We have an effective 45.9% ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) through our ownership of SEP. Sabal Trail is a joint venture that is constructing a natural gas pipeline to transport natural gas to Florida. Sabal Trail is a variable interest entity (VIE) due to insufficient equity at risk to finance its activities. We determined that we are the primary beneficiary because we direct the activities of Sabal Trail that most significantly impact its economic performance and we consolidate Sabal Trail in our financial statements. The current estimate of the total remaining construction cost is approximately $1.9 billion.

The following summarizes assets and liabilities for Sabal Trail as of March 31, 2016 and December 31, 2015:



Condensed Consolidated Balance Sheets Caption	March 31, 2016		December 31, 2015
	(in millions)
Assets
Current assets	$	156	$	118
Net property, plant and equipment	960		773
Regulatory assets and deferred debits	40		25
Total Assets	$	1,156	$	916
Liabilities and Equity
Current liabilities	$	80	$	84
Equity	1,076		832
Total Liabilities and Equity	$	1,156	$	916

Nexus. We have an effective 38.6% ownership interest in Nexus Gas Transmission, LLC (Nexus) through our ownership of SEP. Nexus is a joint venture that is constructing a natural gas pipeline from Ohio to Michigan and continuing on to Ontario, Canada. Nexus is a VIE due to insufficient equity at risk to finance its activities. We determined that we are not the primary beneficiary because the power to direct the activities of Nexus that most significantly impact its economic performance is shared. Nexus is accounted for under the equity method. Our maximum exposure to loss is $1.0 billion. We have an investment in Nexus of $117 million and $90 million as of March 31, 2016 and December 31, 2015, respectively, classified as Investments in and Loans to Unconsolidated Affiliates on our Condensed Consolidated Balance Sheets.

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10. Intangible Assets

During the first quarter of 2016 SEP entered into a project coordination agreement (PCA) with NextEra Energy, Inc. (NextEra), Duke Energy Corporation (Duke Energy) and Williams Partners L.P. In accordance with the agreement, payments will be made, based on SEP’s proportional ownership interest in the Sabal Trail project, as certain milestones of the project are met. As of March 31, 2016 the first milestone was achieved and paid, consisting of $48 million. This PCA is an intangible asset and is classified as Investments and Other Assets—Other on our Condensed Consolidated Balance Sheet. The intangible asset will be amortized over a period of 25 years beginning at the time of in-service of Sabal Trail, which is expected to occur during the first half of 2017.

11. Marketable Securities and Restricted Funds

We routinely invest excess cash and various restricted balances in securities such as commercial paper, bankers acceptances, corporate debt securities, treasury bills and money market funds in the U.S. and Canada. We do not purchase marketable securities for speculative purposes; therefore we do not have any securities classified as trading securities. While we do not routinely sell marketable securities prior to their scheduled maturity dates, some of our investments may be held and restricted for insurance purposes and capital expenditures, so these investments are classified as available-for-sale (AFS) marketable securities as they may occasionally be sold prior to their scheduled maturity dates due to the unexpected timing of cash needs. Initial investments in securities are classified as purchases of the respective type of securities (AFS marketable securities or held-to-maturity (HTM) marketable securities). Maturities of securities are classified within proceeds from sales and maturities of securities in the Condensed Consolidated Statements of Cash Flows.

AFS Securities.

Our AFS securities consist of corporate debt securities and are classified on the Condensed Consolidated Balance Sheets as follows:



	Estimated Fair Value
	March 31, 2016		December 31, 2015
	(in millions)
Restricted funds
Investments and other assets—other	$	9	$	11
Non-restricted funds
Current assets—other	20		20
Total available-for-sale securities	$	29	$	31

At March 31, 2016, the weighted-average contractual maturity of outstanding AFS securities was less than one year.

There were no material gross unrealized holding gains or losses associated with investments in AFS securities at March 31, 2016 or December 31, 2015.

HTM Securities. HTM securities are as follows:



		Estimated Fair Value
Description	Condensed Consolidated Balance Sheets Caption	March 31, 2016		December 31, 2015
		(in millions)
Bankers acceptances	Current assets—other	$	45	$	30
Canadian government securities	Current assets—other	25		24
Money market funds	Current assets—other	11		3
Canadian government securities	Investments and other assets—other	54		50
Bankers acceptances	Investments and other assets—other	13		12
Total held-to-maturity securities		$	148	$	119

All of our HTM securities are restricted funds pursuant to certain M&N Canada and Express-Platte (our crude oil pipeline system) debt agreements. The funds restricted for M&N Canada, plus future cash from operations that would otherwise be available for distribution to the partners of M&N Canada, are required to be placed in escrow until the balance in escrow is sufficient to fund all future debt service on the M&N Canada 6.90% senior secured notes. There are sufficient funds held in escrow to fund all future debt service on these M&N Canada notes as of March 31, 2016.

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At March 31, 2016, the weighted-average contractual maturity of outstanding HTM securities was less than one year.

There were no material gross unrecognized holding gains or losses associated with investments in HTM securities at March 31, 2016 or December 31, 2015.

Other Restricted Funds. In addition to the portions of the AFS and HTM securities that were restricted as described above, we had other restricted funds totaling $12 million at March 31, 2016 and $11 million at December 31, 2015 classified as Current Assets—Other. These restricted funds are related to additional amounts for insurance. We also had other restricted funds totaling $37 million at March 31, 2016 and $38 million at December 31, 2015 classified as Investments and Other Assets—Other. Included in these restricted funds are $28 million and $24 million at March 31, 2016 and December 31, 2015, respectively, related to funds held and collected from customers of Western Canada Transmission & Processing and Express-Platte for Canadian pipeline abandonment in accordance with the NEB’s regulatory requirements and $9 million and $14 million, respectively, related to certain construction projects.

Changes in restricted balances are presented within Cash Flows from Investing Activities on our Condensed Consolidated Statements of Cash Flows.

12. Debt and Credit Facilities

Available Credit Facilities and Restrictive Debt Covenants



	Expiration Date	Total Credit Facilities Capacity		Commercial Paper Outstanding at March 31, 2016		Available Credit Facilities Capacity
		(in millions)
Spectra Energy Capital, LLC (a)	2019	$	1,000	$	268	$	732
SEP (b)	2019	2,000		806		1,194
Westcoast Energy Inc. (c)	2019	308		83		225
Union Gas (d)	2019	384		163		221
Total		$	3,692	$	1,320	$	2,372

_________


(a)	Revolving credit facility contains a covenant requiring the Spectra Energy consolidated debt-to-total capitalization ratio, as defined in the agreement, to not exceed 65%. Per the terms of the agreement, collateralized debt is excluded from the calculation of the ratio. This ratio was 58.2% at March 31, 2016.


(b)	Revolving credit facility contains a covenant that requires SEP to maintain a ratio of total Consolidated Indebtedness-to-Consolidated EBITDA, as defined in the agreement, of 5.0 to 1 or less. As of March 31, 2016, this ratio was 3.7 to 1.


(c)	U.S. dollar equivalent at March 31, 2016. The revolving credit facility is 400 million Canadian dollars and contains a covenant that requires the Westcoast Energy Inc. non-consolidated debt-to-total capitalization ratio to not exceed 75%. The ratio was 33.8% at March 31, 2016.


(d)	U.S. dollar equivalent at March 31, 2016. The revolving credit facility is 500 million Canadian dollars and contains a covenant that requires the Union Gas debt-to-total capitalization ratio to not exceed 75% and a provision which requires Union Gas to repay all borrowings under the facility for a period of two days during the second quarter of each year. The ratio was 65.8% at March 31, 2016.

The issuances of commercial paper, letters of credit and revolving borrowings reduce the amount available under the credit facilities. As of March 31, 2016, there were no letters of credit issued or revolving borrowings outstanding under the credit facilities.

Our credit agreements contain various covenants, including the maintenance of certain financial ratios. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of March 31, 2016, we were in compliance with those covenants. In addition, our credit agreements allow for acceleration of payments or termination of the agreements due to nonpayment, or in some cases, due to the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. Our debt and credit agreements do not contain provisions that trigger an acceleration of indebtedness based solely on the occurrence of a material adverse change in our financial condition or results of operations.

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13. Fair Value Measurements

The following presents, for each of the fair value hierarchy levels, assets and liabilities that are measured and recorded at fair value on a recurring basis:



Description	Condensed Consolidated Balance Sheet Caption	March 31, 2016
Description	Condensed Consolidated Balance Sheet Caption	Total		Level 1		Level 2		Level 3
		(in millions)
Corporate debt securities	Cash and cash equivalents	$	177	$	—	$	177	$	—
Corporate debt securities	Current assets—other	20		—		20		—
Commodity derivatives	Current assets—other	10		—		—		10
Corporate debt securities	Investments and other assets—other	9		—		9		—
Interest rate swaps	Investments and other assets—other	64		—		64		—
Total Assets		$	280	$	—	$	270	$	10



Description	Condensed Consolidated Balance Sheet Caption	December 31, 2015
Description	Condensed Consolidated Balance Sheet Caption	Total		Level 1		Level 2		Level 3
		(in millions)
Corporate debt securities	Cash and cash equivalents	$	137	$	—	$	137	$	—
Corporate debt securities	Current assets—other	20		—		20		—
Commodity derivatives	Current assets—other	36		—		—		36
Commodity derivatives	Investments and other assets—other	5		—		—		5
Corporate debt securities	Investments and other assets—other	11		—		11		—
Interest rate swaps	Investments and other assets—other	37		—		37		—
Total Assets		$	246	$	—	$	205	$	41

The following presents changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs:



	Three Months Ended March 31,
	2016			2015
	(in millions)
Derivative assets
Fair value, beginning of period	$	41		$	78
Total gains (losses):
Included in earnings	(4		)	6
Included in other comprehensive income	1			(6		)
Purchases	(1		)	1
Settlements	(27		)	(30		)
Fair value, end of period	$	10		$	49
Unrealized losses relating to instruments held at the end of the period	$	(23	)	$	(16	)

Level 1

Level 1 valuations represent quoted unadjusted prices for identical instruments in active markets.

Level 2 Valuation Techniques

Fair values of our financial instruments that are actively traded in the secondary market, including our long-term debt, are determined based on market-based prices. These valuations may include inputs such as quoted market prices of the exact or similar instruments, broker or dealer quotations, or alternative pricing sources that may include models or matrix pricing tools, with reasonable levels of price transparency.

For interest rate swaps, we utilize data obtained from a third-party source for the determination of fair value. Both the future cash flows for the fixed-leg and floating-leg of our swaps are discounted to present value. In addition, credit default swap rates are used to develop the adjustment for credit risk embedded in our positions. We believe that since some of the inputs and assumptions for the calculations of fair value are derived from observable market data, a Level 2 classification is appropriate.

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Level 3 Valuation Techniques

Level 3 valuation techniques include the use of pricing models, discounted cash flow methodologies or similar techniques where at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

The derivative financial instruments reported in Level 3 at March 31, 2016 consist of NGL revenue swap contracts related to the Empress assets in Western Canada Transmission & Processing. As of March 31, 2016, we reported certain of our NGL basis swaps at fair value using Level 3 inputs due to such derivatives not having observable market prices for substantially the full term of the derivative asset or liability. For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract length extends into unobservable periods.

The fair value of these NGL basis swaps is determined using a discounted cash flow valuation technique based on a forward commodity basis curve. For these derivatives, the primary input to the valuation model is the forward commodity basis curve, which is based on observable or public data sources and extrapolated when observable prices are not available.

The significant unobservable inputs used in the fair value measurements of our Level 3 derivatives are the forward NGL basis curves, for which a significant portion of the derivative’s term is beyond available forward pricing. At March 31, 2016, a 10¢ per gallon movement in underlying forward NGL prices, primarily propane prices, would affect the estimated fair value of our NGL derivatives by $12 million. This calculated amount does not take into account any other changes to the fair value measurement calculation.

Financial Instruments

The fair values of financial instruments that are recorded and carried at book value are summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. These estimates are not necessarily indicative of the amounts we could have realized in current markets.



	March 31, 2016				December 31, 2015
	Book Value		Approximate Fair Value		Book Value		Approximate Fair Value
	(in millions)
Note receivable, noncurrent (a)	$	71	$	71	$	71	$	71
Long-term debt, including current maturities (b)	13,665		14,417		13,567		13,891

__________


(a)	Included within Investments in and Loans to Unconsolidated Affiliates.


(b)	Excludes commercial paper, capital leases, unamortized items and fair value hedge carrying value adjustments.

The fair value of our long-term debt is determined based on market-based prices as described in the Level 2 valuation technique described above and is classified as Level 2.

The fair values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, notes receivable—noncurrent, accounts payable and commercial paper are not materially different from their carrying amounts because of the short-term nature of these instruments or because the stated rates approximate market rates.

During the three months ended March 31, 2016 and 2015, there were no material adjustments to assets and liabilities measured at fair value on a nonrecurring basis.

14. Risk Management and Hedging Activities

We are exposed to the impact of market fluctuations in the prices of NGLs and natural gas purchased as a result of our investment in DCP Midstream, the ownership of the NGL marketing operations in western Canada and processing operations associated with our U.S. pipeline assets. Exposure to interest rate risk exists as a result of the issuance of variable and fixed-rate debt and commercial paper. We are exposed to foreign currency risk from our Canadian operations. We employ established policies and procedures to manage our risks associated with these market fluctuations, which may include the use of derivatives, mostly around interest rate and commodity exposures.

DCP Midstream manages their direct exposure to market prices separate from Spectra Energy, and utilizes various risk management strategies, including the use of commodity derivatives.

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Other than the interest rate swaps and commodity derivatives as described below, we did not have significant derivatives outstanding during the three months ended March 31, 2016.

Interest Rate Swaps

At March 31, 2016, we had “pay floating—receive fixed” interest rate swaps outstanding with a total notional amount of $2 billion to hedge against changes in the fair value of our fixed-rate debt that arise as a result of changes in market interest rates. These swaps also allow us to transform a portion of the underlying interest payments related to our long-term fixed-rate debt securities into variable-rate interest payments in order to achieve our desired mix of fixed and variable-rate debt.

Information about our interest rate swaps that had netting or rights of offset arrangements are as follows:



	March 31, 2016						December 31, 2015
	Gross Amounts Presented in the Condensed Consolidated Balance Sheet		Amounts Not Offset in the Condensed Consolidated Balance Sheet		Net Amount		Gross Amounts Presented in the Condensed Consolidated Balance Sheet		Amounts Not Offset in the Condensed Consolidated Balance Sheet		Net Amount
Description	(in millions)
Assets	$	64	$	—	$	64	$	37	$	—	$	37

Commodity Derivatives

At March 31, 2016, we had commodity mark-to-market derivatives outstanding with a total notional amount of 120 million gallons. The longest dated commodity derivative contract we currently have expires in 2018.

Information about our commodity derivatives that had netting or rights of offset arrangements are as follows:



	March 31, 2016						December 31, 2015
	Gross Amounts		Gross Amounts Offset		Net Amount Presented in the Condensed Consolidated Balance Sheet		Gross Amounts		Gross Amounts Offset		Net Amount Presented in the Condensed Consolidated Balance Sheet
Description	(in millions)
Assets	$	67	$	57	$	10	$	104	$	63	$	41
Liabilities	57		57		—		63		63		—

Substantially all of our commodity derivative agreements outstanding at March 31, 2016 and December 31, 2015 have provisions that require collateral to be posted in the amount of the net liability position if one of our credit ratings falls below investment grade.

Information regarding the impacts of commodity derivatives on our Condensed Consolidated Statements of Operations are as follows:



		Three Months Ended March 31,
Derivatives	Condensed Consolidated Statements of Operations Caption	2016			2015
		(in millions)
Commodity derivatives	Sales of natural gas liquids	$	(5	)	$	7

15. Commitments and Contingencies

Environmental

We are subject to various U.S. federal, state and local laws and regulations, as well as Canadian federal and provincial laws, regarding air and water quality, climate change, hazardous and solid waste disposal and other environmental matters. These laws and regulations can change from time to time, imposing new obligations on us.

Like others in the energy industry, we and our affiliates are responsible for environmental remediation at various contaminated sites. These include some properties that are part of our ongoing operations, sites formerly owned or used by us, and sites owned by third parties. Remediation typically involves management of contaminated soils and may involve groundwater remediation. Managed in conjunction with relevant federal, state/provincial and local agencies, activities vary with site conditions and locations, remedial requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, we or our

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affiliates could potentially be held responsible for contamination caused by other parties. In some instances, we may share liability associated with contamination with other potentially responsible parties, and may also benefit from contractual indemnities that cover some or all cleanup costs. All of these sites generally are managed in the normal course of business or affiliated operations.

Litigation

Litigation and Legal Proceedings. We are involved in legal, tax and regulatory proceedings in various forums arising in the ordinary course of business, including matters regarding contract and payment claims, some of which involve substantial monetary amounts. We have insurance coverage for certain of these losses should they be incurred. We believe that the final disposition of these proceedings will not have a material effect on our consolidated results of operations, financial position or cash flows.

Legal costs related to the defense of loss contingencies are expensed as incurred. We had no material reserves for legal matters recorded as of March 31, 2016 or December 31, 2015 related to litigation.

Other Commitments and Contingencies

See Note 16 for a discussion of guarantees and indemnifications.

16. Guarantees and Indemnifications

We have various financial guarantees and indemnifications which are issued in the normal course of business. As discussed below, these contracts include financial guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. We enter into these arrangements to facilitate a commercial transaction with a third party by enhancing the value of the transaction to the third party. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on our Condensed Consolidated Balance Sheets. The possibility of having to perform under these guarantees and indemnifications is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events.

We have issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain non-100%-owned entities. In connection with our spin-off from Duke Energy in 2007, certain guarantees that were previously issued by us were assigned to, or replaced by, Duke Energy as guarantor in 2006. For any remaining guarantees of other Duke Energy obligations, Duke Energy has indemnified us against any losses incurred under these guarantee arrangements. The maximum potential amount of future payments we could have been required to make under these performance guarantees as of March 31, 2016 was approximately $406 million, which has been indemnified by Duke Energy as discussed above. One of these outstanding performance guarantees, which has a maximum potential amount of future payment of $201 million, expires in 2028. The remaining guarantees have no contractual expirations.

We have also issued joint and several guarantees to some of the Duke/Fluor Daniel (D/FD) project owners, guaranteeing the performance of D/FD under its engineering, procurement and construction contracts and other contractual commitments in place at the time of our spin-off from Duke Energy. D/FD is one of the entities transferred to Duke Energy in connection with our spin-off. Substantially all of these guarantees have no contractual expiration and no stated maximum amount of future payments that we could be required to make. Fluor Enterprises Inc., as 50% owner in D/FD, issued similar joint and several guarantees to the same D/FD project owners.

Westcoast Energy Inc. (Westcoast), a 100%-owned subsidiary, has issued performance guarantees to third parties guaranteeing the performance of unconsolidated entities, such as equity method investments, and of entities previously sold by Westcoast to third parties. Those guarantees require Westcoast to make payment to the guaranteed third party upon the failure of such unconsolidated or sold entity to make payment under some of its contractual obligations, such as debt agreements, purchase contracts and leases. Certain guarantees that were previously issued by Westcoast for obligations of entities that remained a part of Duke Energy are considered guarantees of third party performance; however, Duke Energy has indemnified us against any losses incurred under these guarantee arrangements.

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We have entered into various indemnification agreements related to purchase and sale agreements and other types of contractual agreements with vendors and other third parties. These agreements typically cover environmental, litigation and other matters, as well as breaches of representations, warranties and covenants. Typically, claims may be made by third parties for various periods of time, depending on the nature of the claim. Our potential exposure under these indemnification agreements can range from a specified amount, such as the purchase price, to an unlimited dollar amount, depending on the nature of the claim and the particular transaction. We are unable to estimate the total potential amount of future payments under these indemnification agreements due to several factors, such as the unlimited exposure under certain guarantees.

As of March 31, 2016, the amounts recorded for the guarantees and indemnifications described above are not material, both individually and in the aggregate.

17. Issuances of Common Stock

On March 1, 2016, we entered into an equity distribution agreement under which we may sell and issue common stock up to an aggregate offering price of $500 million. The equity distribution agreement allows us to offer and sell common stock at prices deemed appropriate through sales agents. Sales of common stock under the equity distribution agreement will be made by means of ordinary brokers’ transactions through the facilities of the New York Stock Exchange (NYSE), in block transactions, or as otherwise agreed upon by one or more of the sales agents and us. We intend to use the net proceeds from sales under this at-the-market program for general corporate purposes, including investments in subsidiaries to fund capital expenditures. We issued approximately 12.3 million of common shares to the public under this program, for total net proceeds of $367 million through March 31, 2016.

18. Issuances of SEP Units

During the three months ended March 31, 2016, SEP issued 1.7 million common units to the public under its at-the-market program and approximately 35,000 general partner units to Spectra Energy. Total net proceeds to SEP were $82 million (net proceeds to Spectra Energy were $80 million). In connection with the issuances of the units, a $12 million gain ($8 million net of tax) to Additional Paid-in Capital and a $68 million increase in Equity—Noncontrolling Interests were recorded during the three months ended March 31, 2016. The issuances decreased Spectra Energy’s ownership in SEP from 78% to 77% at March 31, 2016.

The following table presents the effects of the issuances of SEP units:



	Three Months Ended March 31,
	2016		2015
	(in millions)
Net income—controlling interests	$	234	$	267
Increase in additional paid-in capital resulting from issuances of SEP units	8		6
Total net income—controlling interests and changes in equity—controlling interests	$	242	$	273

19. Employee Benefit Plans

Retirement Plans. We have a qualified non-contributory defined benefit (DB) retirement plan for U.S. employees and non-qualified, non-contributory, unfunded defined benefit plans which cover certain current and former U.S. executives. Our Westcoast subsidiary maintains qualified and non-qualified, contributory and non-contributory, DB and defined contribution (DC) retirement plans covering substantially all employees of our Canadian operations.

Our policy is to fund our retirement plans, where applicable, on an actuarial basis to provide assets sufficient to meet benefits to be paid to plan participants or as required by legislation or plan terms. We made contributions of $5 million to our U.S. retirement plans in both of the three month periods ended March 31, 2016 and 2015. We made total contributions to the Canadian DC and DB plans of $7 million in the three months ended March 31, 2016 and $9 million in the same period in 2015. We anticipate that we will make total contributions of approximately $22 million to the U.S. plans and approximately $26 million to the Canadian plans in 2016.

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Qualified and Non-Qualified Pension Plans—Components of Net Periodic Pension Cost



	Three Months Ended March 31,
	2016			2015
	(in millions)
U.S.
Service cost benefit earned	$	5		$	5
Interest cost on projected benefit obligation	6			6
Expected return on plan assets	(10		)	(10		)
Amortization of loss	2			2
Net periodic pension cost	$	3		$	3

Canada
Service cost benefit earned	$	8		$	8
Interest cost on projected benefit obligation	10			11
Expected return on plan assets	(16		)	(17		)
Amortization of loss	5			7
Net periodic pension cost	$	7		$	9

Other Post-Retirement Benefit Plans. We provide certain health care and life insurance benefits for retired employees on a contributory and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans.

Other Post-Retirement Benefit Plans—Components of Net Periodic Benefit Cost



	Three Months Ended March 31,
	2016			2015
	(in millions)
U.S.
Interest cost on accumulated post-retirement benefit obligation	$	2		$	2
Expected return on plan assets	(1		)	(1		)
Net periodic other post-retirement benefit cost	$	1		$	1

Canada
Service cost benefit earned	$	1		$	1
Interest cost on accumulated post-retirement benefit obligation	1			1
Net periodic other post-retirement benefit cost	$	2		$	2

Retirement/Savings Plan. In addition to the retirement plans described above, we also have defined contribution employee savings plans available to both U.S. and Canadian employees. Employees may participate in a matching contribution where we match a certain percentage of before-tax employee contributions of up to 6% of eligible pay per pay period for U.S. employees and up to 5% of eligible pay per pay period for Canadian employees. We expensed pre-tax employer matching contributions of $3 million in both of the three month periods ended March 31, 2016 and 2015 for both U.S. and Canadian employees.

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20. Condensed Consolidating Financial Information

Spectra Energy Corp has agreed to fully and unconditionally guarantee the payment of principal and interest under all series of notes outstanding under the Senior Indenture of Spectra Energy Capital, LLC (Spectra Capital), a 100%-owned, consolidated subsidiary. In accordance with Securities and Exchange Commission (SEC) rules, the following condensed consolidating financial information is presented. The information shown for Spectra Energy Corp and Spectra Capital is presented utilizing the equity method of accounting for investments in subsidiaries, as required. The non-guarantor subsidiaries column represents all consolidated subsidiaries of Spectra Capital. This information should be read in conjunction with our accompanying Condensed Consolidated Financial Statements and notes thereto.

Spectra Energy Corp

Condensed Consolidating Statements of Operations

(Unaudited)

(In millions)



	Spectra Energy Corp			Spectra Capital			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Three Months Ended March 31, 2016
Total operating revenues	$	—		$	—		$	1,385	$	(1	)	$	1,384
Total operating expenses	3			1			887		(1		)	890
Operating income (loss)	(3		)	(1		)	498		—			494
Earnings from equity investments	—			—			33		—			33
Equity in earnings of consolidated subsidiaries	227			392			—		(619		)	—
Other income and expenses, net	—			—			32		—			32
Interest expense	—			62			89		—			151
Earnings before income taxes	224			329			474		(619		)	408
Income tax expense (benefit)	(10		)	102			6		—			98
Net income	234			227			468		(619		)	310
Net income—noncontrolling interests	—			—			76		—			76
Net income—controlling interests	$	234		$	227		$	392	$	(619	)	$	234

Three Months Ended March 31, 2015
Total operating revenues	$	—		$	—		$	1,624	$	(1	)	$	1,623
Total operating expenses	2			—			1,081		(1		)	1,082
Operating income (loss)	(2		)	—			543		—			541
Earnings from equity investments	—			—			24		—			24
Equity in earnings of consolidated subsidiaries	263			421			—		(684		)	—
Other income and expenses, net	(2		)	—			22		—			20
Interest expense	—			61			98		—			159
Earnings before income taxes	259			360			491		(684		)	426
Income tax expense (benefit)	(8		)	97			12		—			101
Net income	267			263			479		(684		)	325
Net income—noncontrolling interests	—			—			58		—			58
Net income—controlling interests	$	267		$	263		$	421	$	(684	)	$	267

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Spectra Energy Corp

Condensed Consolidating Statements of Comprehensive Income

(Unaudited)

(In millions)



	Spectra Energy Corp		Spectra Capital		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Three Months Ended March 31, 2016
Net income	$	234	$	227	$	468		$	(619	)	$	310
Other comprehensive income	1		—		304			—			305
Total comprehensive income, net of tax	235		227		772			(619		)	615
Less: comprehensive income—noncontrolling interests	—		—		80			—			80
Comprehensive income—controlling interests	$	235	$	227	$	692		$	(619	)	$	535

Three Months Ended March 31, 2015
Net income	$	267	$	263	$	479		$	(684	)	$	325
Other comprehensive income (loss)	1		—		(486		)	—			(485		)
Total comprehensive income (loss), net of tax	268		263		(7		)	(684		)	(160		)
Less: comprehensive income—noncontrolling interests	—		—		50			—			50
Comprehensive income (loss)—controlling interests	$	268	$	263	$	(57	)	$	(684	)	$	(210	)

Table of Contents

Spectra Energy Corp

Condensed Consolidating Balance Sheet

March 31, 2016

(Unaudited)

(In millions)



	Spectra Energy Corp		Spectra Capital		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Cash and cash equivalents	$	—	$	2	$	277	$	—		$	279
Receivables—consolidated subsidiaries	10		—		5		(15		)	—
Notes receivable—current—consolidated subsidiaries	—		—		387		(387		)	—
Receivables—other	—		2		721		—			723
Other current assets	13		—		460		—			473
Total current assets	23		4		1,850		(402		)	1,475
Investments in and loans to unconsolidated affiliates	—		—		2,588		—			2,588
Investments in consolidated subsidiaries	14,515		19,906		—		(34,421		)	—
Advances receivable—consolidated subsidiaries	—		5,004		1,590		(6,594		)	—
Notes receivable—consolidated subsidiaries	—		—		2,800		(2,800		)	—
Goodwill	—		—		4,211		—			4,211
Other assets	36		37		310		—			383
Net property, plant and equipment	—		—		24,019		—			24,019
Regulatory assets and deferred debits	3		3		1,409		—			1,415
Total Assets	$	14,577	$	24,954	$	38,777	$	(44,217	)	$	34,091

Accounts payable	$	2	$	1	$	490	$	—		$	493
Accounts payable—consolidated subsidiaries	—		15		—		(15		)	—
Commercial paper	—		268		1,052		—			1,320
Short-term borrowings—consolidated subsidiaries	—		387		—		(387		)	—
Taxes accrued	2		—		86		—			88
Current maturities of long-term debt	—		—		483		—			483
Other current liabilities	56		45		678		—			779