Letter from the President & CEO

To our valued investors and stakeholders:

The year 2009 would have been a tough one to fully and accurately predict given the level of economic upheaval we saw play out. Ten percent unemployment… negative economic growth… and volatile financing costs affected virtually every business in every sector – and the customers and communities we serve across North America.

The good news for Spectra Energy investors is that we embarked on 2009 fully aware of the economic challenges we faced as a company. With a realistic view of the path ahead, we committed to you, our investors, that not only would we overcome those economic challenges, but we would also position your company to seize the inevitable opportunities that would arise. One year later, I’m pleased to report that we have fulfilled that commitment – and then some.

We took a number of steps to ensure we remained the “company of choice” for investors, customers, communities, government, regulators and our employees. Those steps are detailed throughout this report. While they demonstrate Spectra Energy’s ability to address current realities head-on and tackle what’s now, they also underscore our capacity to prepare for and focus on what’s next.

Not only did we outperform the stock market during 2009, but we also secured firm contracts with new and existing customers for expansions in all our business segments and markets for 2011, 2012 and 2013. This will help ensure that investors are positioned to benefit from earnings growth and a healthy, secure dividend.

Let’s take a look now at how we’re delivering.

The right resource
As the theme of our annual report – Right Here, Right Now – suggests, natural gas is positioned to be the 21st-century fuel of choice. It’s clean, abundant, domestic, reliable and efficient. Our industry produces jobs – good jobs – in cities, towns and communities across the continent at a time when more jobs are sorely needed. Equally, there’s no sustainable solution to our combined economic, energy and environmental challenges that can be credibly put forth that would not require a significant and growing role for natural gas. To suggest otherwise risks turning two of the largest issues we face in coming decades – sustainable economic growth and energy security – into a political football, which will do a disservice to this generation and those to follow.

So while we’re working diligently every day to deliver on our 2010 financial and growth commitments, we’re also looking to secure the rightful and necessary position of natural gas in our future economy. Governments and regulators in both the U.S. and Canada will hear about the fuel of choice from the “advisor of choice” – Spectra Energy. This report includes a separate feature devoted to the benefits of natural gas, which I encourage you to read and share.

The right growth strategy
In 2009, Spectra Energy delivered 10 new expansion projects on time and on budget – projects that will deliver excellent returns, earnings and cash flow for many years.

Moreover, since our 2007 launch, we have placed into service 42 fee-based expansion projects totaling more than $3 billion. These projects will contribute annual earnings before interest and taxes of $380 million, for a combined return from these investments of greater than 12 percent.

The projects we’re delivering are hitting the mark in many respects: They’re situated in the heart of high-growth markets and adjacent to the most productive supply basins in North America. They’re real projects, contracted with creditworthy customers who look to Spectra Energy as their “supplier of choice.” They’re cost-effective, low-risk, bolt-on expansions to our existing assets that we can size and time to meet our customers’ evolving needs.

This year, we’ll place $900 million of projects into service – again, projects that will deliver returns on capital employed in excess of 12 percent. We’re also securing and executing opportunities that go beyond 2012 and well into the future. Opportunities like TEAM 2013… our New Jersey-New York expansion… additional expansions in Western Canada’s Horn River and Montney regions… power conversions in the Southeast U.S. and Ontario… and a slate of excellent projects at DCP Midstream, our field services business jointly owned with ConocoPhillips. Combined, we expect these new projects and our existing profile to provide annual EPS growth of 8 to 10 percent on average through 2012. We’ll use our master limited partnership, Spectra Energy Partners, to take advantage of attractive, value-adding acquisition opportunities as they present themselves.

The right place
Location is mission-critical to the natural gas infrastructure business, and Spectra Energy occupies prime real estate across North America. The enviable positioning of our infrastructure assets would be nearly impossible to replicate today – and our investors benefit from that premier footprint.

We’re ideally connected to both conventional supply basins and prolific new unconventional reserves like the Marcellus, Barnett, Haynesville, Horn River, Montney, Eagle Ford and Cordova Embayment plays – reserves that are redefining our continental energy outlook. And our respected businesses in both the U.S. and Canada serve four of the five fastest-growing demand markets in North America.

The right foundation
Spectra Energy is well positioned financially, with an investment-grade balance sheet, strong cash flow, ample liquidity and excellent access to capital. Those essential strengths comprise a firm foundation that we relied upon during last year’s unrelenting series of economic twists and turns.

Early in the year, we took proactive steps to bolster our financial flexibility, and we’ve been diligent in maintaining more than adequate liquidity to fund our operations, capital expansion program and dividend.

We know how important a healthy, reliable dividend is to investors, particularly during times of economic uncertainty. The fact that 80 percent of our earnings come from solid, fee-based businesses independent of either commodity prices or throughput further supports our ability to deliver on our dividend commitment. We are fortunate to have within our portfolio DCP Midstream, whose dependable cash flow continues to assist in the financing of our expansion efforts, as evident in the $100 million of distributions we received from the business in 2009.

The right people
More than 5,000 Spectra Energy employees work on your behalf every day – delivering excellence and results in every facet of the business, from day-to-day operations to new business development to community involvement and strategic planning for the long term. This high-performing team is motivated to excel, innovate and lead, and its members flourish within a culture of inclusion, accountability and opportunity – the culture of a company committed to being the “employer of choice.” You’ll hear directly from members of our team in the pages that follow, and I expect you’ll be as impressed as I am by their contributions to our shared success.

The right values
Our values, which you see listed in our Charter, guide our actions and shape our decisions. While we view our values as an internal compass, we also realize that living those values becomes apparent to those we serve – and helps us in our quest to be the “partner of choice” to our communities.

On the sustainability front, Spectra Energy was once again named to the Dow Jones Sustainability Index, and we were recognized as the top energy company on the Carbon Disclosure Project's 2009 competitive listing.

We received the U.S. Environmental Protection Agency’s Natural Gas STAR Program Partner of the Year Award, recognizing improved operational efficiency and reduced emissions.

Our focus on respect, diversity and inclusion was recognized by both the Human Rights Campaign’s Corporate Equality Index and the Anti-Defamation League, which for the second year in a row honored Spectra Energy as a Community of Respect^™.

We also were proud to be ranked the most admired pipeline company on FORTUNE magazine’s annual list of the world’s most admired companies.

We did a lot of things right in 2009, but we did not deliver well on the safety front and our aim of achieving a zero injury and incident culture. Sadly, Spectra Energy and DCP Midstream each suffered the loss of an employee at work during the year. We honor them by learning from these events, continually sharpening our safety focus and implementing new policies and procedures to improve in this most vital area.

The right focus – becoming the "company of choice"
In the fall of 2008, we set a path for 2009 through 2012 that would put us on a trajectory to be the “company of choice” and to be leading our sector by 2012 in terms of three key focus areas – safety and reliability, customer responsiveness, and profitability. It is an ambitious goal and one that we are confident in meeting and being measured against.

As always, I would like to thank our directors for their counsel and guidance throughout the year, and for the able chairmanship of Bill Esrey. My thanks to you for your investment and interest in this great company and its bright future.

I am proudly reminded each day of the commitment to excellence that our employees demand of each other, the management team and themselves. It is a commitment that you can invest in with confidence. Right here, right now – Spectra Energy. .

Gregory L. Ebel, president and chief executive officer