Enbridge Inc. reported second quarter 2021 financial results, reaffirmed its 2021 financial outlook, and provided a mid-year business update.
- Second quarter GAAP earnings of $1.4 billion or $0.69 per common share, compared with GAAP earnings of $1.6 billion or $0.82 per common share in 2020
- Adjusted earnings of $1.4 billion or $0.67 per common share, compared with $1.1 billion or $0.56 per common share in 2020
- Adjusted earnings before interest, income taxes and depreciation and amortization (EBITDA) of $3.3 billion, compared with $3.3 billion in 2020
- Cash Provided by Operating Activities of $2.2 billion, compared with $2.4 billion in 2020
- Distributable Cash Flow (DCF) of $2.5 billion or $1.24 per common share, compared with $2.4 billion or $1.21 per common share in 2020
- Reaffirmed 2021 full year guidance range of EBITDA of $13.9 billion to $14.3 billion and DCF per share of $4.70 to $5.00
- Construction of the final leg of the U.S. Line 3 Replacement Project is progressing on schedule with an expected fourth quarter in-service date
- Placed initial phases of the $1.0 billion T-South Expansion and $0.5 billion Spruce Ridge projects into service; both projects expected to be fully in-service in the fourth quarter
- Announced collaboration with the Government of Ontario to expand natural gas access to rural, northern and Indigenous communities
- Announced development of Ridgeline Expansion Project in Tennessee to provide affordable and reliable natural gas power generation to displace higher carbon coal generation
- Advancing the US$2.1 billion multi-year Gas Transmission modernization program
- Announced plans to file a rate case on Texas Eastern with rates effective in early 2022, ensuring the system continues to earn an appropriate rate of return on invested capital
- Construction on three French offshore wind projects progressing well, which will collectively generate 1.4 GW (0.3 GW net) of renewable power once placed into service
- Continued development of solar self-power program in both Liquids Pipelines and Gas Transmission; 3 facilities in operation and 4 more under construction
- Announced the $1.14 billion sale of Enbridge's interest in Noverco Inc. (Noverco), which is expected to close by early 2022, providing increased financial flexibility
- Received Moody's upgrade to Baa1 for Enbridge Inc.; All four agencies' ratings are BBB+, or equivalent, reflecting Enbridge's sector leading financial strength and cash flow resiliency
- Published Enbridge's 20th annual Sustainability Report and announced the first midstream sector sustainability-linked bond issuance of US$1.0 billion
Commenting on Enbridge's second quarter operational performance and financial results, Al Monaco, President and CEO of Enbridge noted the following:
"Following a strong start to the year, our four franchises delivered solid financial performance in the second quarter, with good operating performance and high utilization across our systems. The global economic recovery is now well underway, and our assets have been essential in assuring access to reliable and affordable conventional and renewable energy throughout this critical period.
"Our performance in the first half of 2021 has set us up well for the full year. We're on track to bring $10 billion of projects into service this year and we're reaffirming our full year 2021 financial guidance. Our secured growth execution and embedded asset growth gives us confidence that we'll generate 5-7% distributable cash flow growth through 2023, and we're continuing to advance strategic priorities across each of our franchises.
"In Liquids Pipelines, nominations for July were robust, which highlights the strength of the markets we serve and the demand for our system capacity. As expected, lower mainline volumes in the second quarter reflected the planned maintenance of oil sands upgraders and downstream refineries, and are factored into our full year outlook of 2.8 mmbpd on average for 2021.
"Construction of the final leg of the Line 3 Replacement Project is progressing well and the project is on schedule. We are proud of the fact that Line 3 has provided significant business and employment to Indigenous companies and workers in both Canada and the U.S., and contributed over $750 million of spending with Indigenous and Tribal communities with over US$250 million of spending in Minnesota alone so far.
"With the Canadian, North Dakota and Wisconsin segments complete, and Minnesota construction progressing well, we expect Line 3 to be fully in service during the fourth quarter. Line 3 is, first and foremost, a critical integrity project that will improve safety and further reduce environmental risks, while driving significant incremental EBITDA growth once fully in service.
"During the quarter, we placed the 160 kbpd Woodland Pipeline Expansion Project into service to meet the needs of the Kearl oilsands project. This expansion is a great example of the ongoing executable, low-risk, solid return opportunities for growth in the Liquids business.
"In Gas Transmission, we are proud to be working with the Tennessee Valley Authority (TVA) on an opportunity that has the potential to provide affordable and cleaner energy for the utility's customers. The potential expansion of the East Tennessee Natural Gas system, if selected, would supply natural gas to serve one of the power generation options that TVA is currently scoping to replace a coal-fired power plant in Northeast Tennessee. This is an exciting opportunity reflecting the vital role that natural gas is expected to play in displacing higher-carbon sources of power generation, while providing reliable and affordable energy to the people of Tennessee.
"We are also advancing the $0.5 billion Spruce Ridge and $1.0 billion T-South BC Pipeline expansion projects. We've completed and placed into service initial segments of each project, which remain on schedule to be fully in-service by the end of the year. More broadly, the execution of our 3-year, US$2.1 billion modernization program is also progressing well. And, we plan to file a rate case shortly so that we earn an appropriate return on our invested capital, including the modernization program.
"Our natural gas distribution utility also continues to see strong growth. We recently announced plans to expand access to natural gas to remote and Indigenous communities across Ontario. This joint effort with the Government of Ontario will provide reliable, low-cost access to lower carbon energy for consumers. And, we continue to advance construction of three renewable natural gas projects in Ontario to go along with the three currently in operation. Similarly, construction on our hydrogen blending facility in Markham, Ontario is on schedule.
"Construction of three offshore wind facilities off the coast of France is progressing well. Combined, these three projects will generate enough renewable energy to power over 1 million homes. And, through our offshore wind joint venture development company Maple Power, we continue to develop further opportunities in Europe that capitalize on our growing development, construction and operating capability. Finally, we're continuing to progress our solar self-power strategy with three projects now in service and four more underway - another great example of how we're lowering emissions and costs to generate shareholder value.
"Through strong cash flow growth and disciplined capital allocation, we continue to build financial flexibility to position Enbridge for the future. Our balance sheet is strong and we're further enhancing it through the recently announced $1.14 billion divestment of our non-operating minority interest in Noverco. This was an excellent opportunity to monetize a non-strategic investment at a premium valuation.
"We're pleased with our progress through the first half of 2021, having advanced our strategic priorities, including adding opportunities to the backlog. Our solid execution positions us well to achieve our three-year plan and helps to solidify our growth trajectory beyond 2023.
"Last month we published our 20th annual Sustainability Report, which highlights our long-standing focus on sustainable practices and our industry-leading performance across environmental, social and governance issues, including a 32% reduction in Scope 1 and 14% reduction in Scope 2 emissions between 2018 and 2020. We reinforced our commitments with the issuance of our first Sustainability-Linked Bond which ties our financial performance to the achievement of the ESG goals we set out in 2020.
"We believe that in all practical scenarios, our assets will remain critical to supporting long term energy demand. Existing infrastructure is going to play a key role in the transportation and storage of future energy supplies, ensuring affordable and reliable access to conventional and low-carbon energy.
"We're leveraging our existing assets and working, along with our customers, to identify early stage investments in embedded low-carbon infrastructure opportunities across our businesses, while modernizing our assets to ensure we're serving society's energy needs for decades to come. Over the last two decades we've built a strong renewables platform and made early stage investments in renewable natural gas, hydrogen and compressed natural gas that will help us grow well into the future as a differentiated energy service provider."
FINANCIAL RESULTS SUMMARY
The period-over-period comparability of GAAP earnings attributable to common shareholders was impacted by certain unusual, infrequent factors or other non-operating factors, which are noted in the reconciliation schedule included in Appendix A of this news release.
Adjusted earnings in the second quarter of 2021 increased by $224 million, or $0.11 per share and was driven largely by the net impact of the operating factors discussed below along with lower interest rates on short-term borrowings, the positive impact of a weaker USD on the translation of USD denominated interest expense, and the recognition of lower taxes in 2021.
Adjusted EBITDA in the second quarter of 2021 decreased by $10 million compared with the same period in 2020. This is primarily driven by rebounding demand for energy as economies continue to recover from the impacts of the COVID-19 pandemic offset by weaker contributions from Energy Services and the impacts of a weaker USD, which negatively impacts the translation of the Company's USD denominated EBITDA. The average CAD to USD exchange rate in the second quarter fell approximately 12% in 2021 to $1.23, compared with $1.39 in the second quarter of 2020. Enbridge's enterprise-wide financial risk management program has partially mitigated the impact of this foreign exchange weakening through its USD earnings hedges.
DCF for the second quarter was $2.5 billion, an increase of $66 million over the second quarter of 2020, driven primarily by the impact of the operating factors discussed above, along with lower interest rates on short-term borrowings, the positive impact of a weaker USD on the translation of USD denominated interest expense, and the recognition of lower cash taxes in 2021.
These factors are discussed in detail under Distributable Cash Flow. Detailed segmented financial information and analysis can be found below under Adjusted EBITDA by Segments.
As the Company executes on its secured capital program in 2021, it expects to maintain its strong financial position, which is anticipated to strengthen further in 2022, as projects placed into service in 2021 contribute incremental annualized EBITDA.
On June 1, 2021, Moody's Investor Service upgraded the credit ratings of Enbridge Inc., including our senior unsecured and issuer ratings to Baa1 from Baa2 with a stable outlook, citing Enbridge's lower leverage and continued improvement in the Company's financial metrics going forward. The Company is now rated BBB+, or equivalent, by all four of its credit rating agencies.
During the quarter, the Company announced a definitive agreement to sell its 38.9% non-operating minority ownership interest in Noverco to Trencap L.P. for $1.14 billion in cash, net of Noverco non-recourse debt assumed by Trencap L.P. This represents a valuation of approximately 29x reported 2020 GAAP earnings of $39 million.
This transaction is expected to close by early 2022, subject to the receipt of regulatory approvals and customary closing conditions. Sale proceeds are expected to be used initially to repay short-term debt, and longer term, are expected to provide additional financial flexibility.
Since 2018, Enbridge has announced and closed over $8 billion of asset sales, and this transaction will bring that total to well over $9 billion. This reflects Enbridge's commitment to capital discipline and its ability to realize value from its existing asset base for deployment to higher return opportunities.
During the second quarter, Enbridge Pipelines Inc., a wholly owned subsidiary of the Company, issued $400 million of 10-year Senior Notes with a coupon of 2.82% and $400 million of 30-year Senior Notes with a coupon of 4.20% as a dual-tranche offering in the Canadian public debt market.
In addition, in June, Enbridge issued its first Sustainability-Linked Bond (SLB) in the U.S. debt capital markets with US$1.0 billion of 12-Year senior notes holding a coupon of 2.5%. The issuance is consistent with the SLB Framework announced earlier in the month, which incorporates emissions and inclusion goals in the financing terms. This issuance further demonstrates Enbridge's commitment to the ESG goals the Company set out in November 2020 and to industry leading performance. In combination with this offering, the Company also issued US$500 million of 30-Year senior notes with a coupon of 3.4%.
Proceeds from both dual-tranche offerings were primarily used to repay existing indebtedness, partially fund capital projects and for other general corporate purposes.
The Company expects full year 2021 EBITDA and DCF to remain within its previously provided guidance range of $13.9 to $14.3 billion and $4.70 to $5.00 per share, respectively.
Each of the Company's four franchises are expected to achieve solid utilization in the second half of the year in line with guidance. However, this strong operating performance is expected to be impacted by a weaker USD currency, net of foreign exchange hedges, and lower contributions from Energy Services, which remains challenged by narrow location and quality differentials, as well market price backwardation.
DCF will benefit from lower overall financing costs resulting from favorable short-term interest rates and USD denominated interest expense and lower cash taxes primarily due to increased utilization of existing tax pools to offset U.S. taxable income.
The Company's guidance issued at its investor day in December assumed an exchange rate of C$1.30/USD and Enbridge has disclosed that a one cent movement in the foreign exchange rate results in an approximately $2 million per month impact to DCF, or approximately a one cent impact to DCF per share annually.
The impact of a weaker USD currency on EBITDA, net of the Company's hedging program, is approximately a decrease of $70 million for the six months ended June, 2021, compared with assumptions included within 2021 guidance.
SECURED GROWTH PROJECT EXECUTION UPDATE
The Company's approximately $17 billion secured growth capital program is well-diversified across its four growth platforms and all projects are contractually underpinned by business models that are consistent with Enbridge's low-risk pipeline-utility model. Spending to date is approximately $8 billion, with approximately $9 billion to be spent over the remaining secured capital program.
Enbridge continues to advance the approximately $10 billion of capital expected to be placed into service in 2021, which is expected to generate significant EBITDA and free cash flow growth in 2022. These projects include:
- Liquids Pipelines U.S. Line 3 Replacement Project and Southern Access Expansion;
- Gas Transmission T-South and Spruce Ridge expansions of the B.C. Pipeline, and its 2021 Modernization Program;
- Customer connections, expansions and reinforcement projects in Gas Distribution; and
- Several other smaller projects within Liquids Pipelines and Gas Transmission and Midstream.
Line 3 Replacement Project
The Line 3 Replacement Project is a critical integrity project that will enhance the continued safe and reliable operations of Enbridge's Mainline System well into the future.
Construction of the U.S. portion of the Line 3 Replacement Project in Minnesota continues to advance on schedule utilizing industry-leading environmental protection measures and construction techniques. Construction resumed in early June after a planned temporary pause starting on April 1 due to seasonal restrictions.
In June, the Minnesota Court of Appeals acknowledged the thorough review completed over six years by the Minnesota Public Utilities Commission and confirmed that the Commission appropriately approved the project's environmental impact statement, certificate of need and route permit.
The project is on track to be in service in the fourth quarter and is expected to contribute approximately $200 million of incremental EBITDA in 2021, and support significant free cash flow growth in 2022 and beyond.
B.C. Pipeline System Expansions
The $1.0 billion T-South Reliability and Expansion Program and $0.5 billion Spruce Ridge Project continue to advance on schedule. Combined, these two projects will increase the capacity of the B.C. Pipeline System by approximately 590 MMcf/d to meet growing regional demand in B.C. and the U.S. Pacific Northwest through a combination of compressor station upgrades and the addition of two new pipeline segments.
During the second quarter two of the planned five compressor stations replacements on the T-South project were completed and placed into service. Similarly, on the Spruce Ridge project, one of two new sections of pipeline was completed and placed into service. The remaining sections of both projects are expected to be placed into service by the fourth quarter of 2021.
The capital cost of these expansion and reliability projects will be included in rate base, earning a rate of return consistent with the system's regulated cost of service commercial framework.
Gas Transmission Modernization Program
The Company continues to advance its current US$2.1 billion modernization program through 2023 with $0.4 billion spent to date. This program is designed primarily to replace aging compressor stations and upgrade other components of the system which will improve both the system's reliability and safety, as well as reduce greenhouse gas emissions associated with the transportation of natural gas.
European Offshore Wind Projects
Construction of the three previously announced French offshore wind projects, Saint-Nazaire, Fécamp, and Calvados, is advancing on schedule for the targeted in-service dates ranging between late 2022 and 2024. These projects are underpinned by long-term fixed price power purchase agreements granted by the French government.
Once in service, the Company will own interests in six operating offshore wind projects located in Europe with a total gross generation capacity of more than 2.4 GW (0.6 GW net), enough to power over 2 million homes with renewable energy.
OTHER BUSINESS UPDATES
Gas Transmission and Midstream
Ridgeline Expansion Project Opportunity
The Company is working on a proposed expansion of Enbridge's East Tennessee Natural Gas (ETNG) system. The potential expansion would provide additional natural gas for TVA to support the replacement of an existing coal-fired power plant as it continues to transition its generation mix towards lower-carbon fuels, while providing affordable energy to consumers. The TVA environmental review scoping process has begun for this proposed plant; TVA published a Notice of Intent on the Federal Register on June 15, 2021 to initiate their review process. Several options to replace the retiring coal-fired generation would be assessed in TVA's Environmental Impact Statement. Should the onsite natural gas option of building a combined cycle plant be selected through TVA's review, Enbridge would deliver on the required expansion of the East Tennessee system.
ETNG's proposed project would consist of the installation of additional pipeline, with the majority of the route located along existing rights-of-way, the installation of one electric-powered compressor station and solar facilities behind the meter, as well as other design features all contributing to minimizing greenhouse gas emissions.
Should TVA's environmental assessment determine that the natural gas solution of building an onsite combined cycle plant is the optimal supply source, and pending the approval and receipt of all necessary permits, construction of the pipeline would begin in 2025 with a target in-service date of fall 2026.
The Company continues to advance its regulatory strategy to ensure just and reasonable returns, and timely recovery of the capital invested into its critical energy delivery systems.
On April 30, 2021, the FERC approved a Stipulation and Agreement filed with regards to the Maritimes & Northeast U.S. rate case and on July 15, 2021, FERC approved a Stipulation and Agreement filed with regards to the Alliance U.S. rate case. Additionally, an agreement in principle has been reached on the East Tennessee rate case and a Stipulation and Agreement has been filed with the FERC and is pending approval.
Subsequent to the quarter, Enbridge announced plans to file a Section 4 rate case on the Texas Eastern system to reflect growth in the system's rate base and an increase in cost of service, primarily as a result of system modernization, and safety and reliability investments. Settlement discussions with shippers will begin in the second half of 2021 and carry into 2022, with filed rates expected to be effective February 1, 2022.
Gas Distribution and Storage
During the second quarter Enbridge announced a collaboration with the Government of Ontario to expand access to natural gas to rural, northern and Indigenous communities through 27 projects supported by Phase 2 of Ontario's Natural Gas Expansion Program. These projects will help grow Enbridge's North American leading utility franchise and ensure that more families and businesses will have access to low-cost and reliable natural gas.
The Company has concluded the Mainline Contracting hearing before the Canada Energy Regulator (CER). The contract offering, which reflects two years of negotiations with shippers, will support the best shipper netbacks and secure long-term demand for Western Canadian crude oil.
The CER will now review the record developed throughout the regulatory process prior to issuing its decision. The Company expects to receive a decision later this year. The current Competitive Toll Settlement (CTS) expired on June 30, 2021 and, consistent with the terms of the CTS agreement, the tolls in effect at that time remained in effect on July 1, 2021 on an interim basis, subject to finalization and refund, if any. These tolls will be updated later this year to reflect the in-service of the U.S. portion of the Line 3 Replacement project, and thereafter will remain in effect until the Mainline contracts are in place.
Line 5 - Great Lakes Tunnel Project
The Great Lakes Tunnel Project (Tunnel Project) will relocate the Line 5 pipeline into a state-of-the-art tunnel beneath the Straits of Mackinac (the Straits) and is the best way to replace and modernize the existing crossing at the Straits while maintaining an essential supply of energy on which Michigan and the surrounding region depend.
Enbridge continues to advance the necessary permits for the Tunnel Project. In the first quarter of 2021, the Company received its required permits from the Michigan Department of Environment Great Lakes and Energy. The U.S. Army Corp of Engineers is proceeding with an environmental impact statement to support its permitting process, which is expected to strengthen the regulatory record, and the Michigan Public Service Commission continues to progress its permitting process.
Sustainability and ESG Performance Update
2020 Sustainability Report
In June, Enbridge issued its 20th annual Sustainability Report highlighting industry leading performance and how the Company is advancing a long-standing approach to sustainability.
The 2020 Sustainability Report has introduced new metrics to track the Scope 3 emissions intensity of the energy transported by Enbridge and how investments in renewable natural gas, hydrogen and renewable electricity are advancing the energy transition. In addition, Enbridge has engaged a third-party verifier to conduct limited assurance on key environmental performance indicators demonstrating the Company's commitment to transparent disclosure of its performance against its targets.
Solar Self-Power Program
During the second quarter, the Company placed into service a 2.5 MW solar facility located at the Heidlersburg, Pennsylvania compressor station on the Texas Eastern system. Enbridge now has three operating facilities across its systems, with another four projects totaling 40 MW of renewable generation planned for late 2022 on the Liquids Mainline and Flanagan South pipelines.
Self-powering is part of the Company's approach to achieving its net zero emissions targets, by reducing its Scope 1 and Scope 2 emissions associated with the transportation of crude oil and natural gas while also generating a return on our investment comparable to our traditional organic growth projects. Enbridge continues to assess additional opportunities along its network to construct solar self-power facilities.
SECOND QUARTER 2021 FINANCIAL RESULTS
The following table summarizes the Company's GAAP reported results for segment EBITDA, earnings attributable to common shareholders and cash provided by operating activities for the second quarter of 2021.
For purposes of evaluating performance, the Company makes adjustments to GAAP reported earnings, segment EBITDA and cash flow provided by operating activities for unusual, infrequent or other non-operating factors, which allow Management and investors to more accurately compare the Company's performance across periods, normalizing for factors that are not indicative of underlying business performance. Tables incorporating these adjustments follow below. Schedules reconciling EBITDA, adjusted EBITDA, adjusted EBITDA by segment, adjusted earnings, adjusted earnings per share and DCF to their closest GAAP equivalent are provided in the Appendices to this news release.
Second quarter 2021 DCF increased $66 million compared with the same period of 2020 primarily due to operational factors discussed below in Adjusted EBITDA by Segments as well as:
- lower interest expense due to favorable interest rates on short-term borrowings as well as the impact of a weaker USD currency that positively impacts the translation of interest payments on USD denominated debt;
- lower current income tax primarily due to a reduction in US minimum tax; and increased utilization of existing tax pools to offset U.S. taxable income; and
- lower cash distributions in excess of equity earnings primarily due to timing of dividends received in 2020.
Adjusted earnings increased $224 million and adjusted earnings per share increased $0.11 compared with the second quarter in 2020. The increase in adjusted earnings was driven by the same factors impacting business performance and adjusted EBITDA as discussed under Adjusted EBITDA by Segments below, as well as the following factors:
- lower interest expense due to favorable interest rates on short-term borrowings as well as the impact of a weaker USD currency that positively impacts the translation of interest payments on USD denominated debt; and
- lower income tax expense primarily due to decreased earnings and a reduction in US minimum tax.
ADJUSTED EBITDA BY SEGMENTS
Adjusted EBITDA by segment is reported on a Canadian dollar basis. Adjusted EBITDA generated from U.S. dollar denominated businesses, primarily within Liquids Pipelines and Gas Transmission and Midstream, were translated at a lower average Canadian dollar exchange rate in the second quarter of 2021 (C$1.23/US$) when compared with the corresponding 2020 period (C$1.39/US$).
A portion of U.S. dollar earnings is hedged under the Company's enterprise-wide financial risk management program. The offsetting hedge settlements are reported within Eliminations and Other.
Liquids Pipelines adjusted EBITDA increased $100 million compared with the second quarter of 2020, primarily related to:
- higher Mainline System contributions due to higher throughput compared with the second quarter of 2020 driven by the rebounding demand for crude oil and related products as economies continue to recover from the impacts of the COVID-19 pandemic, a higher IJT Benchmark Toll and CTS surcharge, and a higher effective foreign exchange hedge rate (C$1.24 in 2021 vs. C$1.17 in 2020) on hedges used to manage foreign exchange risk of the U.S. dollar denominated Canadian Mainline revenue;
- higher throughput on the Athabasca and Waupisoo pipelines within the Regional Oil Sands System as production in the basin recovers from its lowest point in the second quarter of 2020; and
- higher contributions from the Gulf Coast and Mid-Continent System due primarily to higher throughput and stronger contributions from the Seaway Crude Pipeline System; partially offset by the negative effect of translating U.S. dollar denominated EBITDA at a lower Canadian to U.S. dollar average exchange rate, which is partially offset by realized gains in the Eliminations and Other segment as part of the Company's enterprise-wide financial risk management program.
GAS TRANSMISSION AND MIDSTREAM
- the negative effect of translating U.S. dollar denominated EBITDA at a weaker U.S dollar average exchange rate, which is partially offset by realized gains in the Eliminations and Other segment as part of the Company's enterprise-wide financial risk management program; and
- lower contributions in U.S. Gas Transmission due to the absence in 2021 of the recognition of revenues in 2020 that related to the settlement of interim rates collected from shippers on Texas Eastern retroactive to June 1, 2019; partially offset by
- increased revenue on the U.S. Gas Transmission assets due to the absence of pressure restrictions that existed on the Texas Eastern system in 2020; and
- contributions from the Atlantic Bridge Phase III project, with in-service notifications to FERC in January of 2021.
GAS DISTRIBUTION AND STORAGE
Gas Distribution and Storage adjusted EBITDA will typically follow a seasonal profile. It is generally highest in the first and fourth quarters of the year reflecting greater volumetric demand during the heating season. The magnitude of the seasonal EBITDA fluctuations will vary from year-to-year reflecting the impact of colder or warmer than normal weather on distribution volumes.
Gas Distribution and Storage adjusted EBITDA increased $55 million compared with the second quarter of 2020 primarily related to:
- lower operating and administrative costs resulting largely from achieved efficiencies; and
- higher distribution charges resulting from annual increases in rates and customer base growth.
When compared with the normal weather forecast embedded in rates, the second quarter of 2021 experienced a slight favorable impact of $1 million. The second quarter of 2020 experienced colder weather than forecasted which favorably impacted results by $22 million.
RENEWABLE POWER GENERATION
Renewable Power Generation adjusted EBITDA decreased $37 million compared with the second quarter of 2020 primarily related to:
- the absence in 2021 of reimbursements received in 2020 at certain Canadian wind facilities resulting from a change in operator; and
- weaker wind resources at Canadian onshore wind power generation facilities.
Energy Services adjusted EBITDA decreased $172 million compared with the second quarter of 2020 primarily related to:
- the significant compression of location and quality differentials in certain markets;
- limited storage opportunities in 2021 due to market price backwardation compared to favorable storage opportunities in 2020; and
- fewer opportunities to achieve profitable transportation margins on facilities in which Energy Services holds capacity obligations.
ELIMINATIONS AND OTHER
Operating and administrative recoveries captured in this segment reflect the cost of centrally delivered services (including depreciation of corporate assets) inclusive of amounts recovered from business units for the provision of those services. Also, as previously noted, U.S. dollar denominated earnings within the segment results are translated at average foreign exchange rates during the quarter. The offsetting impact of settlements made under the Company's enterprise foreign exchange hedging program are captured in this segment.
Eliminations and Other adjusted EBITDA increased $84 million compared with the second quarter of 2020 due to realized foreign exchange gains in 2021 compared with realized foreign exchange losses in 2020 as a result of a weakening U.S. dollar average exchange rate of $1.23 for the second quarter of 2021 (Q2 2020:$1.39) compared with a hedge rate of $1.30 for the second quarter of 2021 (Q2 2020:$1.29).