<PAGE>   1
                                                                  1996 FORM 10-K
                                                                   EXHIBIT 10.17



                            UNITED STATES OF AMERICA
                                   BEFORE THE
                     FEDERAL ENERGY REGULATORY COMMISSION



      Lakehead Pipe Line Company, )    Docket Nos. IS92-27-000, 
      Limited Partnership         )      IS93-4-000, IS93-33-000,
                                  )      IS94-20-000, IS94-24-000,
                                  )      IS95-5-000, IS95-26-000,
                                  )      IS95-27-000, and
                                  )      IS96-15-000



                              SETTLEMENT AGREEMENT

                This Settlement Agreement is executed as of this 28th day of
      August, 1996, between Lakehead Pipe Line Company, Limited Partnership
      ("Lakehead"), on the one hand, and the Canadian Association of Petroleum
      Producers ("CAPP") and the Alberta Department of Energy ("ADOE")
      (collectively "CAPP/ADOE"), on the other, each of which is a party to
      various rate proceedings before the Federal Energy Regulatory Commission
      ("FERC" or "Commission") regarding Lakehead's interstate tariff rates, as
      well as judicial review proceedings relating thereto (the "Lakehead
      Proceedings"). In consideration of the provisions set forth in this
      Settlement Agreement, Lakehead and CAPP/ADOE (collectively the "Settling
      Parties") agree as follows:
<PAGE>   2
          1.   Following the execution of this Settlement Agreement, the
Settling Parties will jointly submit it to the FERC for approval as an offer of
settlement under 18 C.F.R. Section 385.602 (1995).  The Settling Parties shall
cooperate fully, each at its own expense, in seeking and supporting such
approval, including the opposition, whether written or otherwise, of all
protests, interventions and comments that seek modification or rejection of the
Settlement Agreement.  Lakehead will prepare the offer of settlement
documentation, including the Explanatory Statement, for submission to the FERC,
subject to approval by CAPP/ADOE.  The Settling Parties agree to request and
support a stay of all aspects of the Lakehead Proceedings pending disposition
of this Settlement Agreement.
          2.   The Settling Parties intend this Settlement Agreement to be an
integrated package, no part of which is segregable from the whole.  Each side
has made compromises on various positions in order to reach a voluntary,
negotiated resolution of the Lakehead Proceedings.  Accordingly, as provided in
paragraph 15 below, this Settlement Agreement shall be deemed withdrawn, and
shall no longer be of any force or effect, in the event the Commission or a
reviewing court orders a modification of its terms.



                                    - 2 -
<PAGE>   3
            3.   This Settlement Agreement is intended to resolve all
  outstanding rate issues in all pending phases of the Lakehead Proceedings.
  The FERC Dockets that are resolved by this Settlement Agreement, and that
  will be terminated upon approval of this Settlement Agreement, are listed in
  Appendix A hereto. In addition, within 20 days after the date on which this
  Settlement Agreement has been approved by the FERC in an order that is no
  longer subject to judicial review, the Settling Parties shall withdraw their
  pending petitions for review at the United States Court of Appeals for the
  District of Columbia Circuit in Docket Nos. 96-1177 and 96-1218.
            4.   The purpose of this Settlement Agreement is to avoid further
  administrative and judicial proceedings with respect to Lakehead's interstate
  tariff rates.  This Settlement Agreement is not intended to be inconsistent
  with any orders of the Commission previously entered in this proceeding,
  including specifically Opinion No. 397, 71 FERC (CCH) 61,338 (1995) and 
  Opinion No. 397-A, 75 FERC (CCH)  61,181 (1996).  This Settlement
  Agreement also is not  intended to affect the resolution of any issues
  regarding facilities for  transportation of natural gas liquids on the
  Lakehead system. 

            5.   Except  with respect to paragraph 1 above and as otherwise
  specified herein, the  Effective Date of this Settlement




                                    - 3 -
<PAGE>   4
   Agreement shall be the date on which a FERC order is issued approving the
   Settlement Agreement without modification.

             6.   Notwithstanding the Effective Date as specified in paragraph
   5 above, no later than September 20, 1996, Lakehead shall file the rates set
   forth in the pro forma tariff attached as Appendix B hereto ("Appendix B
   rates") to take effect on October 1, 1996 pursuant to 18 C.F.R. Section
   341.14 (1995), in place of the rates set forth in Lakehead FERC tariff nos.
   18 and 19. The Appendix B rates constitute a rate decrease of approximately
   6 percent across-the-board, and are intended to bring Lakehead's
   forward-looking rates into compliance with Opinion Nos. 397 and 397-A on a
   reasonable, compromise basis.  If this Settlement Agreement has not received
   FERC approval prior to October 1, 1996, it is the intent of the Settling
   Parties that the Appendix B rates shall go into effect subject to
   investigation and refund until such time as the Settlement Agreement is
   acted upon by the FERC.  If and when the FERC approves the Settlement
   Agreement, the refund condition on the Appendix B rates will be removed and
   any proceeding instituted with respect to those rates will be terminated.
   If the Settlement Agreement is disapproved, disposition of the Appendix B
   rates will be subject to further order of the Commission.  The Appendix B
   rates shall be subject to indexing under 18 C.F.R. Section 342.3 (1995)
   commencing on July 1,



                                    - 4 -
<PAGE>   5
    1997.  If and when the Settlement Agreement is approved by the FERC,
    CAPP/ADOE agree that they will not thereafter challenge the Appendix B
    rates, including any increases or decreases to those rates permitted under
    the Commission's indexing regulations, 18 C.F.R. Section 342.3 (1995), in
    any judicial or administrative forum during the Term of this Agreement as
    defined in paragraph 12 below.  If the Settlement Agreement is not approved
    without modification, the Settling Parties shall retain all their rights
    with respect to the Lakehead Proceedings.

               7.   The Settling Parties agree that Lakehead shall fulfill its
    obligation to provide a remedy for the past rates found not to be just and
    reasonable in Opinion Nos. 397 and 397-A by providing total monetary relief
    of $120 million measured as of October 1, 1996.  This relief shall be
    provided in two components: (1) a Refund Component of $37,144,124 for Phase
    I of Docket Nos.  IS92-27-000, IS93-3-000 and IS93-33-000, which is
    addressed in paragraph 8 below, and (2) a Surcredit Component of
    $82,855,876 for Phase II and subsequent rate periods, which is addressed in
    paragraph 9 below.

               8.   No later than 30 days after the Effective Date defined in
    paragraph 5 above, Lakehead shall pay the sum of $37,144,l24 (measured as
    of October 1, 1996) to its shippers of record under FERC tariff no. 2,
    which shall fulfill Lakehead's





                                     - 5 -
<PAGE>   6
  refund obligation in Phase I of FERC Docket Nos.  IS92-27-000, IS93-4-000 and
  IS93-33-000.  Interest shall accrue on the Phase I refund amount of
  $37,144,124 from October 1, 1996 through the date of payment of the refunds
  provided for in this paragraph at the 90-day Treasury bill rate measured for
  each quarter at the close of business on the last day of the previous
  quarter.  The amount to be refunded for the period May 3, 1992 through
  December 31, 1992 is based upon an agreed-upon test period cost-of-service of
  $214,830,000, and the amount to be refunded for the period January 1, 1993
  through July 5, 1993 is based upon an agreed-upon test period cost-of-service
  of $219,090,000.  The amount to be refunded to each shipper shall be
  calculated by comparing the rate actually paid to the rate applicable to each
  service at the agreed-upon cost-of-service level using Lakehead's existing
  rate design and shall reflect the Commission's ruling in Opinion Nos. 397 and
  397-A regarding rate floors.  Within 30 days after the date of payment of the
  Refund Component, Lakehead shall file a refund report with the Commission
  showing the amounts refunded pursuant to this provision.  In the event the
  FERC's initial approval of the Settlement Agreement is overturned or modified
  through further administrative or judicial proceedings after the date of
  payment of the refunds as provided hereunder, such that the Lakehead
  Proceedings are reinstituted, Lakehead



                                     - 6 -
<PAGE>   7
  shall be entitled to credit any refunds paid under this Settlement Agreement
  against any refund obligation ultimately determined to apply in that
  litigation.

            9.   Within 20 days after the Effective Date as defined in
  paragraph 5 above, Lakehead shall file a tariff provision in the form set
  forth in Appendix C hereto establishing a Surcredit over a period of
  approximately three years.  The Surcredit shall consist of a 10 percent
  across-the-board reduction in Lakehead's interstate tariff rates that shall
  remain in effect until the purpose of the Surcredit is accomplished.  The
  purpose of the Surcredit shall be to reduce Lakehead's tariff revenues by the
  sum of $82,855,876 plus interest on the outstanding balance for the period
  from October 1, 1996 through the termination of the Surcredit (the total
  amount, including interest, being referred to as the Surcredit Amount). Once
  the Surcredit Amount has been exhausted, the Surcredit tariff provision may
  be cancelled by Lakehead pursuant to paragraph 10 below.  The interest
  component of the Surcredit Amount shall be calculated monthly on the
  outstanding balance of the Surcredit Amount using the 90-day Treasury bill
  rate measured for each quarter at the close of business on the last day of
  the previous quarter.




                                     - 7 -
<PAGE>   8
            10.  Lakehead shall keep account of the cumulative amount of tariff
   reductions pursuant to the Surcredit provided under paragraph 9 above.  When
   the total amount of tariff reductions received is expected to equal the
   Surcredit Amount (including interest) within 30 days, Lakehead shall file a
   cancellation of the Surcredit tariff provision, together with a report
   showing the total amount accumulated, or expected to be accumulated within
   30 days, under the Surcredit.  The cancellation of the Surcredit tariff
   provision shall be effective upon 30 days' notice.  Lakehead shall have no
   further obligation to make the Surcredit available after it has provided
   Surcredit tariff reductions equal to $82,855,876 as of October 1, 1996, plus
   interest calculated as set forth in paragraph 9. CAPP/ADOE agree that, if
   and when the Commission approves this Settlement Agreement, they will not
   challenge the Surcredit or the cancellation of the Surcredit, provided such
   cancellation conforms to the terms of this Settlement Agreement, in any
   administrative or judicial forum.

             11. In the case of the joint tariff between Lakehead and Portal
   Pipe Line Company ("Portal") filed to be effective September 1, 1996 (FERC
   Tariff No. 94), which sets forth joint rates for transportation via Portal
   and Lakehead from the Canada-U.S. Border to various Lakehead destinations,
   Lakehead




                                     - 8 -
<PAGE>   9
   will, within 20 days after the Effective Date as defined in paragraph 5
   above, file a tariff reduction applicable to FERC Tariff No. 94.  That
   reduction will lower each joint rate by an amount at least equal to the
   difference between (a) Lakehead's current local tariff rate for Lakehead's
   portion of the joint movement and (b) the Appendix B local rate as reduced
   by the Surcredit.  For the duration of the Surcredit, Lakehead's share of
   the Portal-Lakehead joint rates will be no greater than 90 percent of the
   Appendix B local rates for corresponding local movements, as adjusted
   pursuant to paragraphs 6 and 13.  The Settling Parties accordingly agree
   that Lakehead shall be entitled to credit 10 percent of the Appendix B local
   rate otherwise applicable to each such movement against its Surcredit
   obligation.

             In the event Lakehead enters into additional joint rates in the
   future, the Settling Parties agree to negotiate regarding the extent to
   which (if at all) any portion of the reduction in Lakehead's share of such
   joint rates below the corresponding Appendix B rates should be credited
   against Lakehead's Surcredit obligation.

             12. The Term of this Settlement Agreement shall be for five years
   commencing on the Effective Date.




                                     - 9 -
<PAGE>   10
              13. During the Term of this Settlement Agreement, Lakehead may,
    at its discretion, seek to file tariffs containing rates in excess of those
    set forth in Appendix B as adjusted pursuant to the Commission's index
    methodology.  CAPP and the ADOE are free to pursue challenges to any such
    rate filings in excess of the indexed Appendix B rates, except as follows:

              A.   CAPP and the ADOE agree not to challenge Lakehead's filing
    of an incremental surcharge over and above the indexed Appendix B rates to
    recover the costs of a significant enhancement to the Lakehead system
    agreed to by CAPP, including the System Expansion Program II ("SEP II")
    project anticipated in 1998, provided that the incremental surcharge
    conforms to the terms set forth in Appendix D hereto, which were previously
    agreed to between CAPP, Lakehead and the Canadian pipeline to which
    Lakehead connects, Interprovincial Pipe Line Inc. ("IPL"), and provided
    further that, in calculating the surcharge, Lakehead shall utilize a tax
    allowance that is equal to 30 percent of the tax allowance that would apply
    if Lakehead were a corporation; and

              B.  CAPP and the ADOE agree not to challenge Lakehead's filing
    of an incremental surcharge over and above the indexed Appendix B rates,
    solely to recover non-routine cost increases limited specifically to the
    events set forth in




                                     - 10 -
<PAGE>   11
 sections 7.1(d) and 7.1(e) of the Incentive Toll Settlement Agreement Between
 IPL and CAPP dated February 16, 1995, which are attached as Appendix E hereto,
 to the extent events of the type described involve Lakehead.

           14. Lakehead agrees that it will file with the FERC, as soon as
 possible but in no event later than October 1, 1996, a depreciation study
 incorporating a new truncation date of 2020 A.D. and corresponding revised
 depreciation rates for Lakehead's assets.  CAPP and the ADOE agree that they
 will support Commission approval of Lakehead's revised depreciation rates.
 CAPP and the ADOE further agree that the depreciation rates to be used in
 calculating the incremental surcharge for the SEP II expansion costs
 anticipated to be incurred in 1998 shall be determined using the same curves
 and economic useful lives as in the depreciation study to be filed under this
 paragraph.

           15. If the FERC rejects this Settlement Agreement in its entirety,
 or if FERC or a reviewing court makes approval of this Settlement Agreement
 contingent upon modification of any provision of this Agreement, this
 Settlement Agreement shall immediately terminate and shall be deemed withdrawn
 as an offer of settlement or for any other purpose, and the Settling Parties
 shall be free to pursue all appeals or other courses of action necessary to
 protect their rights.

                                     -11
<PAGE>   12
          16.  This Settlement Agreement is intended to supersede the
Settlement Agreement filed with the Commission by Lakehead and CAPP and the
ADOE on March 23, 1995 in Phase II of the Lakehead Proceedings ("March 23
Settlement").  If and when the present Settlement Agreement is approved by the
FERC without modification, the March 23 Settlement shall be deemed withdrawn
and shall no longer have any force or effect.

         17. Unless and until this Settlement Agreement is approved by the FERC
without modification in an order that is final and no longer subject to
judicial review, it shall be privileged and shall not be admissible in evidence
or in any way described or discussed in any proceeding, other than as necessary
to secure approval by the FERC or to permit judicial review of any order of
FERC approving, disapproving or modifying the Settlement Agreement.  Approval
of this Settlement Agreement by the FERC does not constitute approval of, or
precedent regarding, any principle or issue settled herein.

         18. The language of this Settlement Agreement shall, in all cases, be
construed according to its fair meaning and not strictly for or against any of
the Settling Parties.  This Settlement Agreement may be modified, amended or
supplemented only by a written instrument executed by the Settling Parties.


                                     - 12 -

<PAGE>   13
  No obligation under this Settlement Agreement shall be for the benefit of or
be enforceable by any third party.

             19. This Settlement Agreement shall be governed by, and construed
in accordance with, federal law to the extent applicable and otherwise by the
laws of the State of Minnesota.  It is the intent of the Settling Parties that
the terms of this Settlement Agreement, once approved by the FERC without
modification, shall be enforceable by the FERC.

             20. All notices under this Settlement Agreement shall be effective
when deposited in the mails, postage prepaid, certified mail, return receipt
requested, or when dispatched by Federal Express or by telefacsimile, addressed
to the respective Settling Parties at the addresses set forth below:

                           R. C. Sandahl
                           Vice President, Operations
                           Lakehead Pipe Line Company, Inc.
                           21 West Superior Street
                           Duluth, MN   55802-2067

                           Mark Pinney
                           Manager, Markets & Transportation
                           Canadian Association of Petroleum Producers
                           2100, 350 Seventh Avenue, S.W.
                           Calgary, Alberta    T2P 3N9
                           Canada



                                     - 13 -

<PAGE>   14
                          Paul Kahler
                          Senior Regulatory Analyst
                          Markets and Regulatory Policy
                          The Alberta Department of Energy
                          1900, 250 Sixth Avenue, S.W.
                          Calgary, Alberta   T2P 3H7
                          Canada

 A Settling Party may, at any time, substitute in writing a different person or
address for the one shown in this paragraph.

           21. This Settlement Agreement may be executed in separate and
identical counterparts.


           WHEREFORE, the foregoing Settlement Agreement is executed on behalf
of the Settling Parties by their duly authorized representatives on the date
indicated below.





  Lee A. Alexander                   Steven Reed 
  --------------------               ----------------
  Lee A. Alexander                   Steven Reed
  DICKSTEIN SHAPIRO MORIN            STEPTOE & JOHNSON LLP
    & OSHINSKY LLP                   1330 Connecticut Avenue, NW 
  2101 L Street, NW                  Washington, DC 20036-1795 
  Washington, D.C.  20036-1526
                                     Counsel for Lakehead Pipe Line 
 Counsel for Canadian Association     Company, Limited Partnership
   of Petroleum Producers and the
   Alberta Department of Energy





 Dated: August 28, 1996



                                     - 14 -

<PAGE>   15
                              APPENDIX A


Below is a list of the FERC Docket Numbers associated with Lakehead's
rate prodeedings.


IS92-27-000
IS93-4-000
IS93-33-000
IS-94-20-000
IS94-24-000
IS95-5-000
IS95-26-000
IS95-27-000
IS96-15-000


                                 
<PAGE>   16
                              APPENDIX B


Attached is a proforma FERC No. 20 tariff filing reflecting the rates
agreed to in the Settlement Agreement.


<PAGE>   17
                                                                    FERC No. 20
                                 DRAFT                 Cancels FERC No. 18 & 19


               LAKEHEAD PIPE LINE COMPANY, LIMITED PARTNERSHIP


      LOCAL TARIFF APPLYING ON CRUDE PETROLEUM AND NATURAL GAS LIQUIDS

                                     FROM

         THE INTERNATIONAL BOUNDARIES NEAR NECHE, NORTH DAKOTA, AND

              GRAND ISLAND, NEW YORK, AND POINTS IN THE STATES

                OF ILLINOIS, INDIANA, MICHIGAN, AND MINNESOTA

                                      TO

      POINTS IN THE STATES OF ILLINOIS, INDIANA, MICHIGAN, MINNESOTA,

                           NEW YORK, WISCONSIN AND

            THE INTERNATIONAL BOUNDARY NEAR MARYSVILLE, MICHIGAN


The rates listed in this tariff are for the transportation of Crude
Petroleum and Natural Gas Liquids by the Carrier. The transportation
rates listed in this tariff are subject to the Rules and Regulations
published in the Carrier's Tariffs FERC Nos. 16 and 17, supplements
thereto and reissues thereof.

The provisions published herein will, if effective, not result in an
effect on the quality of the human environment.

ISSUED                                                    EFFECTIVE


                                  ISSUED BY
                                  P.D. DANIEL
                    President and Chief Operating Officer
                       Lakehead Pipe Line Company, Inc.
                               General Partner


                           21 West Superior Street
                         Duluth, Minnesota 55802-2067
                             Tel. (218) 725-0100




<PAGE>   18
PAGE TWO                          DRAFT
FERC No.20

The rates listed in this tariff are payable in United States currency and are 
applicable on the United States movement of Crude Petroleum and Natural Gas 
Liquids tendered to the Carrier at established receiving points in the United 
States for delivery to established delivery points in the United States.



                              TRANSPORTATION RATES


Commodities shall be classified on the basis of the density and
viscosity of such  commodities at the earlier time of receipt by the Carrier or
Interprovincial Pipe Line Inc. and assessed a transportation rate as listed in
the transportation rate tables below. Density shall be based on 15 degrees
Celsius. Viscosity shall be based on the lower of the temperature of the
commodity at the time of receipt or the Carrier's reference line temperature at
the time of receipt.  Where  the density of a commodity falls within the
density range of one commodity classification and the viscosity of the
commodity falls within the viscosity range of another commodity classification,
then the commodity shall be deemed to be in the commodity classification with
the higher transportation rate.

NGL - A commodity having a maximum absolute vapor pressure of 1 100 kilopascals
at 37.8 degrees C and a density of up to but not including 600 kilograms
per cubic metre (kg/m(3)) and a viscosity of up to but not including 0.4 square
millimetres per second (mm(2)/s) will be classified as Natural Gas Liquids.

LIGHT CRUDE PETROLEUM - A commodity having a density from 600 kg/m3 up to but
not including 876 kg/m(3) and a viscosity from 0.4 mm(2)/s up to but not
including 20 mm(2)/s will be classified as Light Crude Petroleum.

MEDIUM CRUDE PETROLEUM - A commodity having a density from 876 kg/m(3) up to but
not including 904 kg/m(3) and a viscosity from 20 mm(2)/s up to but not 
including 100 mm(2)/s will be classified as MEDIUM CRUDE PETROLEUM.

HEAVY CRUDE PETROLEUM - A commodity having a density from 904 kg/m(3) to 927
kg/m(3) inclusive and a viscosity from 100 to 250 mm(2)/s will be classified as
HEAVY CRUDE PETROLEUM.


                             NATURAL GAS LIQUIDS

       TABLE OF TRANSPORTATION RATES FOR NGL IN DOLLARS PER CUBIC METRE

<TABLE>
<CAPTION>

                                                                                     FROM
             TO                                                International Boundary near Neche, North Dakota
<S>                                                                               <C>
Superior, Wisconsin                                  (c)                           1.491 [D]
Rapid River, Michigan                                (i)                           2.457 [U]
Marysville, Michigan                            (c), (g)                           3.576 [D]
International Boundary near Marysville, Michigan     (g)                           3.410 [D]

</TABLE>

<PAGE>   19
                    ALL RATES ON THIS PAGE ARE DECREASES.
                                                                     
                                                                      PAGE THREE
                                                                     FERC No. 20
                             LIGHT CRUDE PETROLEUM


<TABLE>
<CAPTION>
                        TABLE OF TRANSPORTATION RATES FOR LIGHT CRUDE PETROLEUM IN DOLLARS PER CUBIC METRE
------------------------------------------------------------------------------------------------------------------------------------
       TO                                                                 FROM
------------------------------------------------------------------------------------------------------------------------------------
                                                   International  
                                                      Boundary
                                                     near Neche,    Clearbrook,           Mokena,          Griffith,
                                                     North Dakota   Minnesota(a),(b)      Illinois(b)      Indiana(b),(h)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>            <C>                <C>              <C>
Clearbrook, Minnesota                             (c)   0.908              -                     -                -
Superior, Wisconsin                           (c),(d)   1.704          1.545                     -                -
Lockport & Mokena, Illinois                       (c)   3.348          3.188                     -                -
Griffith, Indiana                             (c),(e)   3.348          3.188                 0.757            0.656
Bay City, Michigan                                (c)   3.620          3.461                     -                -
Stockbridge, Michigan                             (c)   3.986          3.825                 1.346            1.346
Marysville, Michigan                              (c)   3.986          3.825                 1.707            1.707
International Boundary near Marysville, 
Michigan                                                3.820          3.660                 1.553            1.553
West Seneca, New York                             (c)   4.078          3.919                 1.811            1.811


<CAPTION>
                        TABLE OF TRANSPORTATION RATES FOR LIGHT CRUDE PETROLEUM IN DOLLARS PER CUBIC METRE
------------------------------------------------------------------------------------------------------------------------------------
       TO                                                                 FROM
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               International 
                                                                                               Boundary near
                                                       Stockbridge,     Lewiston,              Grand Island, 
                                                       Michigan(b)      Michigan(b),(f)          New York
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>            <C>                    <C>             
Clearbrook, Minnesota                             (c)         -                 -                    -
Superior, Wisconsin                           (c),(d)         -                 -                    -
Lockport & Mokena, Illinois                       (c)         -                 -                    -
Griffith, Indiana                             (c),(e)         -                 -                    -
Bay City, Michigan                                (c)         -              .967                    -
Stockbridge, Michigan                             (c)         -                 -                    -
Marysville, Michigan                              (c)     1.018             1.302                    -
International Boundary near Marysville, 
Michigan                                                  0.863             1.147                    -
West Seneca, New York                             (c)     1.122             1.400                0.498
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                            MEDIUM CRUDE PETROLEUM

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                       TABLE OF TRANSPORTATION RATES FOR MEDIUM CRUDE PETROLEUM IN DOLLARS PER CUBIC METRE
------------------------------------------------------------------------------------------------------------------------------------
       TO                                                                 FROM
------------------------------------------------------------------------------------------------------------------------------------
                                                   International  
                                                      Boundary
                                                     near Neche,    Clearbrook,           Mokena,          Griffith,
                                                     North Dakota   Minnesota(a),(b)      Illinois(b)      Indiana(b),(h)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>       <C>         <C>                   <C>              <C>
Clearbrook, Minnesota                             (c)      948              -                  -                -
Superior, Wisconsin                           (c),(d)    1.801          1.601                  -                -
Lockport & Mokena, Illinois                       (c)    3.583          3.383                  -                -
Griffith, Indiana                             (c),(e)    3.583          3.383              0.765            0.656
Bay City, Michigan                                (c)    3.878          3.678                  -                -
Stockbridge, Michigan                             (c)    4.272          4.071              1.401            1.401
Marysville, Michigan                              (c)    4.272          4.071              1.791            1.791
International Boundary near Marysville, 
Michigan                                                 4.107          3.906              1.637            1.637
West Seneca, New York                             (c)    4.372          4.172              1.904            1.904
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                        TABLE OF TRANSPORTATION RATES FOR MEDIUM CRUDE PETROLEUM IN DOLLARS PER CUBIC METRE
------------------------------------------------------------------------------------------------------------------------------------
       TO                                                                 FROM
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               International 
                                                                                               Boundary near
                                                       Stockbridge,     Lewiston,              Grand Island, 
                                                       Michigan(b)      Michigan(b),(f)          New York
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>             <C>                     <C>             
Clearbrook, Minnesota                             (c)          -               -                       -
Superior, Wisconsin                           (c),(d)          -               -                       -
Lockport & Mokena, Illinois                       (c)          -               -                       -
Griffith, Indiana                             (c),(e)          -               -                       -
Bay City, Michigan                                (c)          -            .993                       -
Stockbridge, Michigan                             (c)          -               -                       -
Marysville, Michigan                              (c)      1.047           1.354                       -
International Boundary near Marysville, 
Michigan                                                   0.894           1.199                       -
West Seneca, New York                             (c)      1.159           1.460                   0.505

</TABLE>


<PAGE>   20
                     ALL RATES ON THIS PAGE ARE DECREASES.
PAGE FOUR
FERC No. 20
                            HEAVY CRUDE PETROLEUM

TABLE OF TRANSPORTATION RATES FOR HEAVY CRUDE PETROLEUM IN DOLLARS PER CUBIC
METRE


<TABLE>
<CAPTION>

TO                                                         FROM                                                               
                                                           International         Clearbrook,    Mokena,    Griffith,         
                                                           Boundary near         Minnesota      Illinois    Indiana           
                                                           Neche, North Dakota   (a), (b)       (b)         (b),(h)           
<S>                                                        <C>                   <C>            <C>         <C>
Clearbrook, Minnesota (c)                                  1.009                    -           -            -        
Superior, Wisconsin   (c),(d)                              1.945                  1.686         -            -
Lockport & Mokena, Illinois (c)                            3.936                  3.677         -            -
Griffith, Indiana (c), (e)                                 3.936                  3.677         0.778       0.656
Bay City, Michigan (c)                                     4.263                  4.004         -            -
Stockbridge, Michigan (c)                                  4.702                  4.441         1.484       1.484
Marysville, Michigan (c)                                   4.702                  4.441         1.917       1.917
International Boundary near Marysville, Michigan           4.537                  4.275         1.765       1.765
West Seneca, New York (c)                                  4.813                  4.553         2.042       2.042


TO                                                            FROM
                                                                                            
                                                                                                International Boundary
                                                             Stockbridge,       Lewiston,               near                  
                                                             Michigan           Michigan        Grand Island, New York              
                                                             (b)                (b),(f)
<S>                                                          <C>                <C>              <C>
Clearbrook, Minnesota (c)                                     -                    -                    -
Superior, Wisconsin   (c),(d)                                 -                    -                    -
Lockport & Mokena, Illinois (c)                               -                    -                    -
Griffith, Indiana (c), (e)                                    -                    -                    -
Bay City, Michigan (c)                                        -                   1.030                 -
Stockbridge, Michigan (c)                                     -                    -                    -
Marysville, Michigan (c)                                      1.090               1.431                 -
International Boundary near Marysville, Michigan              0.938               1.278                 -
West Seneca, New York (c)                                     1.215               1.550               0.516


(a) RECEIPT TANKAGE-The transportation rates from this receiving point include a receipt tankage charge of $0.091 per cubic metre.

(b) RECEIPT TERMINALLING-The transportation rates from this receiving point include a receipt terminalling charge of $0.251 per
    cubic metre. 

(c) DELIVERY TERMINALLING-The transportation rates to this delivery point include a delivery terminalling charge of $0.165 per
    cubic metre.

(d) DELIVERY TANKAGE- The transportation rates to this delivery point include a delivery tankage charge of $0.091 per cubic metre.

(e) In addition to the transportation rate shown, a delivery tankage charge of $0.091 per cubic metre will be assessed if the
    Carrier's delivery tankage at Griffith, Indiana is used by the Shipper.

(f) BREAK-OUT TANKAGE CREDIT-The transportation rates from this receiving point include a break-out tankage credit of 1.992 cents
    per hundred cubic metre miles for light crude petroleum, 2.151 cents per hundred cubic metre miles for medium crude petroleum, 
    and 2.390 cents per hundred cubic metre miles for heavy crude petroleum.

(g) BREAK-OUT TANKAGE CREDIT-The transportation rate to this delivery point includes a break-out tankage credit of 0.541 cents per
    hundred cubic metre miles.

(h) In addition to the transportation rate shown, a receipt tankage charge of $0.091 per cubic metre will be assessed if the
    Carrier's receipt tankage at Griffith, Indiana is used by the Shipper.

(i) The toll includes a delivery terminalling charge of $0.182 per cubic metre and a break-out tankage credit of 0.594 cents per
    hundred cubic metre miles.

[D] - Denotes decrease in rate.

[U] - Denotes unchanged rate.

</TABLE>
<PAGE>   21
                                  APPENDIX C


Attached is a proforma supplement to FERC No. 20 reflecting the 10% surcredit.
<PAGE>   22
                                  SUPPLEMENT

                                    DRAFT                    Supplement No. 1
                                                             to FERC No. 20


               LAKEHEAD PIPE LINE COMPANY, LIMITED PARTNERSHIP


       LOCAL TARIFF APPLYING ON CRUDE PETROLEUM AND NATURAL GAS LIQUIDS


                                     From


          THE INTERNATIONAL BOUNDARIES NEAR NECHE, NORTH DAKOTA, AND

               GRAND ISLAND, NEW YORK, AND POINTS IN THE STATES

                OF ILLINOIS, INDIANA, MICHIGAN, AND MINNESOTA

                                      to

        POINTS IN THE STATES OF ILLINOIS, INDIANA, MICHIGAN, MINNESOTA,

                           NEW YORK, WISCONSIN AND

             THE INTERNATIONAL BOUNDARY NEAR MARYSVILLE, MICHIGAN


Issued under authority of 18 CFR 341.4(a).  This supplement is issued pursuant
to F.E.R.C.  Order No. approving the settlement agreement between Lakehead Pipe
Line Company, Limited Partnership, on the one hand, and the Canadian
Association of Petroleum Producers and the Alberta Department of Energy on the
other.  As provided in F.E.R.C. Order No.  , all rates in FERC No. 20,
supplements thereto and reissues thereof are subject to a 10% surcredit
reduction until such time as the total surcredit amount plus interest is
exhausted, at which time the surcredit will be subject to cancellation as
provided in the settlement agreement.

This supplement is issued on   days notice under authority of 18 CFR 341.14. 
This publication is conditionally accepted subject to refund pending a 30 day
review period.

The provisions published herein will, if effective, not result in an effect on
the quality of the human environment.

ISSUED                                                               EFFECTIVE

                                   ISSUED BY
                                 P. D. DANIEL
                    President and Chief Operating Officer
                       Lakehead Pipe Line Company, Inc.
                               General Partner
                           21 West Superior Street
                            Duluth, MN  55802-2067
                              Tel. (218) 725-0100

<PAGE>   23
            Schedule of calculating the remaining refund Surcredit
             to be Applied to Transportation Revenue Invoices in
             Accordance with the Negotiated Settlement with Capp

                                                           Assuming Interest
                                                              Compounded
                                                                Monthly       
                                                            ---------------
Negotiated Settlement Contingent                            
  Rate Refund and Interest
  Amount as of October 1, 1996                               $ 120,000,000

Less the Payment of Phase I of the Contingent               
  Rate Refund and Interest Amount on October 1, 1996          ($37,144,124)
                                                            --------------
Remaining Balance of the Contingent Rate Refund and         
  Interest to be Repaid by a Surcredit Over 
  the Next Three Years                                       $  82,855,876

Plus Estimated Interest Calculated on the Remaining           
  Balances of the Rate Refund over the 3 Year Pay Back
  Period (See Attached Schedule)                             $   7,702,581
                                                            -------------- 

Total Amount of Rate Refund Estimated Interest to
  be Paid Over the Next Three Years                          $  90,558,457

Divided by the Long Range Plan Planned Case Total            
  Transportation Revenue Over the Next Three Years
  From January 1, 1997 Through December 31, 1999
  (See Attached Schedule)                                    $ 899,780,028 
                                                             -------------
Surcredit as a Percentage of Invoiced Revenue to be
  Applied to Each Transportation Revenue Invoice                        10%
                                                             =============

N:\Fercdec\Repayment Summary of Refund over next three years monthly
compounding
<PAGE>   24
               Lakehead Pipe Line Company, Limited Partnership
                    Example of Calculation of Interest on
              Refund Balance Going Forward (Compounded Monthly)
                 Included as Part of the Settlement Agreement



<TABLE>
<CAPTION>
                                                          Interest Accrued
                                          90 Day            on Remaining
Description     Beginning Balance      T-Bill Rate            Balance
-----------     -----------------      -----------        ----------------
                    (a)                   (b)                    (c)
<S>                <C>                    <C>                 <C>
 10/1/96           120,000,000             
12/31/96            82,855,876              5%                1,035,698
 1/31/97            83,891,574              5%                  349,548
 2/28/97            81,741,722              5%                  340,591
 3/31/97            79,582,913              5%                  331,595
 4/30/97            77,415,108              5%                  322,563
 5/31/97            75,238,271              5%                  313,493
 6/30/97            73,052,364              5%                  304,385
 7/31/97            70,857,349              5%                  295,239
 8/31/97            68,653,188              5%                  286,055
 9/30/97            66,439,843              5%                  276,833
10/31/97            64,217,277              5%                  267,572
11/30/97            61,985,449              5%                  258,273
12/31/97            59,744,322              5%                  248,935
 1/31/98            57,493,857              5%                  239,558

<CAPTION>

                                                               Long Range Plan
                                                        -----------------------------  
                                                                          Estimate
Description    Refund Payment    Beginning Balance        Period           Revenue
-----------    --------------    -----------------      -----------    --------------
                  (d)                  (e)                 (f)               (g)
<S>            <C>                  <C>                  <C>                <C>
 10/1/96       (37,144,124)         82,855,876            Jan-97            24,994
12/31/96                            83,891,574            Feb-97            24,994
 1/31/97        (2,499,400)         81,741,722            Mar-97            24,994
 2/28/97        (2,499,400)         79,582,913            Apr-97            24,994
 3/31/97        (2,499,400)         77,415,108            May-97            24,994
 4/30/97        (2,499,400)         75,238,271            Jun-97            24,994
 5/31/97        (2,499,400)         73,052,364            Jul-97            24,994  
 6/30/97        (2,499,400)         70,857,349            Aug-97            24,994
 7/31/97        (2,499,400)         68,653,188            Sep-97            24,994          
 8/31/97        (2,499,400)         66,439,843            Oct-97            24,994
 9/30/97        (2,499,400)         64,217,277            Nov-97            24,994
10/31/97        (2,499,400)         61,985,449            Dec-97            24,994
11/30/97        (2,499,400)         59,744,322            Jan-98            24,994
12/31/97        (2,499,400)         57,493,857            Feb-98            24,994
 1/31/98        (2,499,400)         55,234,015            Mar-98            24,994

</TABLE>


<PAGE>   25
               Lakehead Pipe Line Company, Limited Partnership
                    Example of Calculation of Interest on
               Refund Balance Going Forward (Compounded Monthly)
                 Included as Part of the Settlement Agreement

                                                                                
<TABLE>
<CAPTION>
                                                        Interest Accrued 
                                         90 Day           on Remaining   
Description      Beginning Balance     T-Bill Rate           Balance     
-----------      -----------------     -----------        ------------   
                       (a)                 (b)                (c)              
<S>                 <C>                 <C>                <C>
   2/28/98          55,234,015              5%              230,142          
   3/31/98          52,964,757              5%              220,686      
   4/30/98          50,686,043              5%              211,192
   5/31/98          48,397,835              5%              201,658
   6/30/98          46,100,093              5%              192,084
   7/31/98          43,792,777              5%              182,470
   8/31/98          41,475,847              5%              172,816   
   9/30/98          39,149,263              5%              163,122
  10/31/98          36,812,985              5%              153,387   
  11/30/98          34,466,972              5%              143,612
  12/31/98          32,111,184              5%              133,797
   1/31/99          29,745,581              5%              123,940
   2/28/99          27,370,121              5%              114,042
   3/31/99          24,984,763              5%              104,103
   4/30/99          22,589,466              5%               94,123
           
<CAPTION>           
                                                  
           
                                                            Long Range Plan                                                  
                                                        ------------------------                                             
                                                                      Estimated                                             
Description     Refund Payment     Ending Balance       Period         Revenue                                              
-----------     --------------     ---------------      ------        ----------                                             
                      (d)                (e)             (f)              (g)                                                
<S>             <C>                <C>                <C>             <C>                                                   
                       
 2/28/98          (2,499,400)         52,964,757        Apr-98           24,994                                 
 3/31/98          (2,499,400)         50,686,043        May-98           24,994
 4/30/98          (2,499,400)         48,397,835        Jun-98           24,994
 5/31/98          (2,499,400)         46,100,093        Jul-98           24,994
 6/30/98          (2,499,400)         43,792,777        Aug-98           24,994
 7/31/98          (2,499,400)         41,475,847        Sep-98           24,994
 8/31/98          (2,499,400)         39,149,263        Oct-98           24,994
 9/30/98          (2,499,400)         36,812,985        Nov-98           24,994
10/31/98          (2,499,400)         34,466,972        Dec-98           24,994
11/30/98          (2,499,400)         32,111,184        Jan-99           24,994
12/31/98          (2,499,400)         29,745,581        Feb-99           24,994
 1/31/99          (2,499,400)         27,370,121        Mar-99           24,994
 2/28/99          (2,499,400)         24,984,763        Apr-99           24,994
 3/31/99          (2,499,400)         22,589,466        May-99           24,994
 4/30/99          (2,499,400)         20,184,189        Jun-99           24,994

</TABLE>
<PAGE>   26
               Lakehead Pipe Line Company, Limited Partnership
                    Example of Calculation of Interest on
              Refund Balance Going Forward (Compounded Monthly)
                 Included as Part of the Settlement Agreement


<TABLE>
<CAPTION>
                                                                     
                                                  Interest Accrued   
                                        90 Day      on Remaining     
Description     Beginning Balance     T-Bill Rate      Balance       
-----------     -----------------     ----------- ----------------   
                       (a)                (b)            (c)         
<S>                <C>                     <C>       <C>             
    5/31/99        20,184,189              5%           84,101       
    6/30/99        17,768,890              5%           74,037       
    7/31/99        15,343,528              5%           63,931       
    8/31/99        12,908,059              5%           53,784       
    9/30/99        10,462,443              5%           43,594       
   10/31/99         8,006,637              5%           33,361       
   11/30/99         5,540,598              5%           23,086       
   12/31/99         3,064,284              5%           12,768       
    1/31/00           577,652              5%            2,407       
                                                     ---------       
                                                     7,702,581       
                                                     =========       
<CAPTION>
                                                          Long Range Plan
                                                      -------------------------
                                                                     Estimated
Description        Refund Payment     Ending Balance     Period       Revenue
-----------        --------------     --------------  -----------  ------------
                        (d)                 (e)           (f)           (g)
<S>                 <C>                <C>              <C>           <C>
    5/31/99         (2,499,400)         17,768,890       Jul-99       24,994
    6/30/99         (2,499,400)         15,343,528       Aug-99       24,994
    7/31/99         (2,499,400)         12,908,059       Sep-99       24,994
    8/31/99         (2,499,400)         10,462,443       Oct-99       24,994
    9/30/99         (2,499,400)          8,006,637       Nov-99       24,994
   10/31/99         (2,499,400)          5,540,598       Dec-99       24,994
   11/30/99         (2,499,400)          3,064,284
   12/31/99         (2,499,400)            577,652
    1/31/00           (580,059)                (0)
                
</TABLE>

(a)  =  PREVIOUS ENDING BALANCE CARRIED FORWARD
(b)  =  90 DAY T-BILL RATE PER SETTLEMENT AGREEMENT
(c)  =  BEGINNING BALANCE x (B) x 1/12
(d)  =  MONTHLY ESTIMATED REVENUE x 10%
(e)  =  BEGINNING BALANCE + INTEREST ACCRUED - REFUND PAYMENTS
(g)  =  LONG RANGE PLAN ESTIMATED REVENUE

        N:\RATES\REFUND INTEREST CALCULATION GOING FORWARD 2  
<PAGE>   27
                                  APPENDIX D



Attached is a copy of the terms and conditions of the Risk Sharing Agreement,
which were previously agreed upon by CAPP, Lakehead and IPL.
<PAGE>   28

                               IPL/LPL and CAPP
                                    SEP II
                            Risk Sharing Agreement

- Agreement relates to both IPL and Lakehead in respect to the System Expansion
  Program Phase II facilities and is subject to National Energy Board and 
  Federal Energy Regulatory Commission approvals.

- At 75% utilization of facilities or 90,000 b/d, the return on deemed
  expansion equity will be the annual multi-pipeline rate as determined by the
  National Energy Board.

- Up to 50% facilities utilization or 60,000 b/d, the return on deemed
  expansion equity capital would be the multi-pipeline rate less 3.00%, subject
  to a minimum rate of return of 7.50% in years 1 through 10 and 8.50% in years
  11 through 15.

- Rate of return on deemed expansion equity increases with facilities
  utilization on a straight line basis, to multi-pipeline rate plus 3.00% at 
  100% utilization, subject to a maximum rate of return of 15% during the term 
  of the agreement.

- Drag reducing agent costs flow through as a surcharge if appropriate.

- All costs including operating, interest and depreciation costs flow through
  to tariffs.

- Volume "at risk" would have incremental capacity expansions "stacked" on top.

- Total tolls will be charged in a manner and amount consistent with existing
  toll design for Lakehead and IPL.  Point to point tolls will reflect a
  volume-distance allocation of costs.  Distribution of revenue and costs 
  between IPL and Lakehead will be at IPL/LPL's discretion, subject to 
  regulatory approval.

- The agreement is subject to approval of IPL and LPL Boards of Directors.

- The term of the agreement is for 15 years commencing on the date of
  completion.

- This agreement is without prejudice to any other discussions or negotiations,
  and does not necessarily reflect the views of any of the parties as to
  appropriate costs of capital in either Canada or the United States.
<PAGE>   29
                                   APPENDIX E

Attached is the applicable section of the Incentive Toll Settlement Agreement
dated February 16, 1995, between Interprovincial Pipe Line Company and the
Canadian Association of Petroleum Producers.
<PAGE>   30
                    INCENTIVE TOLL PRINCIPLES OF SETTLEMENT

                                    Between

                         Interprovincial Pipe Line Inc.

                                      and

                  Canadian Association of Petroleum Producers


7.0     NON-ROUTINE ADJUSTMENTS TO ANNUAL REVENUE REQUIREMENTS

        7.1     Circumstances may arise which necessitate adjustment to the
                annual Revenue Requirement and resulting tolls.  Events 
                resulting in Non-Routine Adjustments shall be:

                    (d) Changes in costs resulting from legislation,
                        regulations, orders or directions by any government
                        authority which result in changes to safety or
                        environmental requirements, practices, or procedures
                        for IPL.

                    (e) The cost of distinct and new programs necessary to
                        address new or unanticipated failure mechanisms and
                        significant increases in the rates of cracking and/or
                        corrosion in the pipeline or other existing failure
                        mechanisms experienced by IPL.