Exhibit 99.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**ENBRIDGEINC.**

 

##### ***CONSOLIDATED FINANCIAL STATEMENTS***

##### *** ***

**December 31,2009**

 

1

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**MANAGEMENT'SREPORT**

 

**TO THE SHAREHOLDERS OF ENBRIDGE INC.**

**Financial Reporting**

Managementis responsible for the accompanying consolidated financial statements and allother information in this Annual Report. The consolidated financial statementshave been prepared in accordance with Canadian generally accepted accountingprinciples and necessarily include amounts that reflect management's judgmentand best estimates. Financial information contained elsewhere in this AnnualReport is consistent with the consolidated financial statements.

 

TheBoard of Directors and its committees are responsible for all aspects relatedto governance of the Company. The Audit, Finance & Risk Committee of theBoard, composed of directors who are unrelated and independent, has a specificresponsibility to oversee management’s efforts to fulfil its responsibilitiesfor financial reporting and internal controls related thereto. The Committeemeets with management, internal auditors and independent auditors to review theconsolidated financial statements and the internal controls as they relate tofinancial reporting. The Audit, Finance & Risk Committee reports itsfindings to the Board for its consideration in approving the consolidatedfinancial statements for issuance to the shareholders.

 

**Internal Control over Financial Reporting**

Managementis also responsible for establishing and maintaining adequate internal controlover financial reporting. The Company’s internal control over financialreporting includes policies and procedures to facilitate the preparation ofrelevant, reliable and timely information, to prepare consolidated financialstatements for external reporting purposes in accordance with generallyaccepted accounting principles and provide reasonable assurance that assets aresafeguarded.

 

Managementassessed the effectiveness of the Company’s internal control over financialreporting as of December 31, 2009, based on the framework established inInternal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  Based on this assessment, managementconcluded that the Company maintained effective internal control over financialreporting as of December 31, 2009.

 

PricewaterhouseCoopersLLP, independent auditors appointed by the shareholders of the Company,conducts an examination of the consolidated financial statements in accordancewith Canadian generally accepted auditing standards.  

 

 
| “signed”                       |                            | “signed” |
|------------------------------------------|---------------------------------|--------------------|
|                                     |                            |               |   |
| **Patrick D. Daniel**                    | **J. Richard Bird**             |
| President &  Chief Executive Officer | Executive  Vice President & |
|                                     | Chief  Financial Officer        |

 

 

February18, 2010

 

2

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|  

 

 

 

**Independent Auditors’ Report**

  |   | **PricewaterhouseCoopers LLP**

**Chartered Accountants**

111 5 Avenue SW, Suite 3100

Calgary, Alberta

Canada T2P 5L3

Telephone +1 (403) 509 7500

Facsimile +1 (403) 781 1825 |

**To theShareholders of**

**Enbridge Inc.**

 

Wehave completed integrated audits of Enbridge Inc.’s 2009, 2008 and 2007consolidated financial statements and of its internal control over financialreporting as at December 31, 2009.  Ouropinions, based on our audits, are presented below. 

 

**Consolidated financial statements**

Wehave audited the accompanying consolidated statements of financial position ofEnbridge Inc. as at December 31, 2009 and December 31, 2008, and the relatedconsolidated statements of earnings, comprehensive income, shareholders’ equityand cash flows for each of the years in the three year period ended December31, 2009.  These financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

Weconducted our audits of the Company’s financial statements as at December 31,2009 and December 31, 2008, and for each of the years in the three year periodended December 31, 2009 in accordance with Canadian generally accepted auditingstandards and the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform an audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit of financial statements includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  A financialstatement audit also includes assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of the Company as atDecember 31, 2009 and December 31, 2008, and the results of its operations andits cash flows for each of the years in the three year period ended December 31,2009 in accordance with Canadian generally accepted accounting principles.

 

**Internal control over financial reporting**

Wehave also audited Enbridge Inc.’s internal control over financial reporting asat December 31, 2009, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO).  TheCompany’s management is responsible for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinionon the effectiveness of the Company’s internal control over financial reportingbased on our audit. 

 

Weconducted our audit of internal control over financial reporting in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  An audit of internalcontrol over financial reporting includes obtaining an understanding ofinternal control over financial reporting, assessing the risk that a materialweakness exits, testing and evaluating the design and operating effectivenessof internal control based on the assessed risk, and performing such otherprocedures as we consider necessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

 

3

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“PricewaterhouseCoopers”refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership,or, as the context requires, the PricewaterhouseCoopers global network or othermember firms of the network, each of which is a separate legal entity.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally

 accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures

that(i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assetsof the company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements. 

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Inour opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as at December 31, 2009 based oncriteria established in Internal Control — Integrated Framework issued by theCOSO.

 

 

 

CharteredAccountants

Calgary,Alberta, Canada

 

February18, 2010 

 

 

**Comments by Auditors for U.S. Readers on Canada – U.S. ReportingDifferences**

 

Inthe United States, reporting standards for auditors require the addition of anexplanatory paragraph (following the opinion paragraph) when there is a changein accounting principles that has a material effect on the comparability of theCompany’s financial statements, such as the changes described in notes 3 to theconsolidated financial statements. Our report to the shareholders datedFebruary 18, 2010 is expressed in accordance with Canadian reporting standards,which do not require a reference to such a change in accounting principles inthe Independent Auditors’ Report when the change is properly accounted for andadequately disclosed in the financial statements.

 

 

 

CharteredAccountants

Calgary,Alberta, Canada

 

February18, 2010

 

4

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**CONSOLIDATED STATEMENTS OF EARNINGS**

** **

*(millions of Canadian dollars,except per share amounts)*
| Year ended December 31,                  | ** ** | **2009**   |   |   | 2008   |   | 2007   |
|-----------------------------------------------|------------|------------|--------|--------|--------|--------|--------|
| Revenues                                      |       |       |   |   |   |   |   |
| Commodity  sales                              | ** ** | **9,720**  |   |   | 13,432 |   | 9,536  |
| Transportation  and other services            | ** ** | **2,746**  |   |   | 2,699  |   | 2,383  |
|                                          | ** ** | **12,466** |   |   | 16,131 |   | 11,919 |
| Expenses                                      |       |       |   |   |   |   |   |
| Commodity  costs                              | ** ** | **9,011**  |   |   | 12,792 |   | 9,009  |
| Operating  and administrative                 | ** ** | **1,430**  |   |   | 1,312  |   | 1,164  |
| Depreciation  and amortization                | ** ** | **764**    |   |   | 658    |   | 597    |
|                                          | ** ** | **11,205** |   |   | 14,762 |   | 10,770 |
|                                          | ** ** | **1,261**  |   |   | 1,369  |   | 1,149  |
| Income from Equity Investments                | ** ** | **198**    |   |   | 177    |   | 168    |
| Other Investment Income *(Note 28)*           | ** ** | **678**    |   |   | 198    |   | 195    |
| Interest Expense *(Note 16)*                  | ** ** | **(597)**  |   |   | (551   | )      | (550)  |
| Gain on Sale of Investments *(Note 6)*        | ** ** | **365**    |   |   | 700    |   | -      |
|                                          | ** ** | **1,905**  |   |   | 1,893  |   | 962    |
| Non-Controlling Interests                     | ** ** | **(37)**   |   |   | (56    | )      | (46)   |
|                                          | ** ** | **1,868**  |   |   | 1,837  |   | 916    |
| Income Taxes *(Note 26)*                      | ** ** | **(306)**  |   |   | (509   | )      | (209)  |
| Earnings                                      | ** ** | **1,562**  |   |   | 1,328  |   | 707    |
| Preferred Share Dividends                     | ** ** | **(7)**    |   |   | (7     | )      | (7)    |
| Earnings Applicable to Common  Shareholders   | ** ** | **1,555**  |   |   | 1,321  |   | 700    |
|                                          |       |       |   |   |   |   |   |
| Earnings per Common Share *(Note 20)*         | ** ** | **4.27**   |   |   | 3.67   |   | 1.97   |
|                                          |       |       |   |   |   |   |   |
| Diluted Earnings per Common Share *(Note 20)* | ** ** | **4.25**   |   |   | 3.64   |   | 1.95   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements.*

 

 

5

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**CONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME**

 

*(millions of Canadian dollars)*
| Year ended  December 31,                                                         | ** ** | **2009**  |   |   | 2008   |   | 2007   |
|---------------------------------------------------------------------------------------|------------|-----------|--------|--------|--------|--------|--------|
| Earnings                                                                              | ** ** | **1,562** |   |   | 1,328  |   | 707    |
| Other  Comprehensive Income/(Loss)                                                    |       |      |   |   |   |   |   |
| Change in  unrealized gain/(loss) on cash flow hedges, net of tax                     | ** ** | **(54)**  |   |   | (127   | )      | 97     |
| Change in  unrealized gain/(loss) on net investment hedges,net of tax                 | ** ** | **151**   |   |   | (160   | )      | 175    |
| Reclassification  to earnings of realized gain/(loss) on cash flow hedges, net of tax |       | **114**   |   |   | (1     | )      | (7)    |
| Reclassification  to earnings of unrealized cash flow hedges, net of tax *(Note 6)*** |       | **(20)**  |   |   | -      |   | -      |
| Other  comprehensive income/(loss) from equity investees,net of tax                   | ** ** | **(24)**  |   |   | 49     |   | (20)   |
| Non-controlling  interests in other comprehensive income                              | ** ** | **72**    |   |   | (101   | )      | 92     |
| Change in  foreign currency translation adjustment                                    | ** ** | **(815)** |   |   | 658    |   | (534)  |
| Other  Comprehensive Income/(Loss)                                                    | ** ** | **(576)** |   |   | 318    |   | (197)  |
| Comprehensive  Income                                                                 | ** ** | **986**   |   |   | 1,646  |   | 510    |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

 

 

6

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**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

 

*(millions of Canadian dollars,except per share amounts)*
| Year ended December 31,                                 | ** ** | **2009**  |   | 2008   |   | 2007   |
|--------------------------------------------------------------|------------|-----------|--------|--------|--------|--------|
| Preferred Shares *(Note 20)*                                 | ** ** | **125**   |   | 125    |   | 125    |
| Common Shares *(Note 20)*                                    |       |      |   |   |   |   |
| Balance at  beginning of year                                | ** ** | **3,194** |   | 3,027  |   | 2,416  |
| Common  shares issued                                        | ** ** | **4**     |   | -      |   | 567    |
| Dividend  reinvestment and share purchase plan               | ** ** | **143**   |   | 131    |   | 18     |
| Shares  issued on exercise of stock options                  | ** ** | **38**    |   | 36     |   | 26     |
| Balance at End of Year                                       | ** ** | **3,379** |   | 3,194  |   | 3,027  |
| Contributed Surplus                                          |       |      |   |   |   |   |
| Balance at  beginning of year                                | ** ** | **38**    |   | 26     |   | 18     |
| Stock-based  compensation                                    | ** ** | **19**    |   | 14     |   | 9      |
| Options  exercised                                           | ** ** | **(3)**   |   | (2     | )      | (1)    |
| Balance at End of Year                                       | ** ** | **54**    |   | 38     |   | 26     |
| Retained Earnings                                            |       |      |   |   |   |   |
| Balance at  beginning of year                                | ** ** | **3,383** |   | 2,537  |   | 2,323  |
| Earnings  applicable to common shareholders                  | ** ** | **1,555** |   | 1,321  |   | 700    |
| Common share  dividends declared                             | ** ** | **(555)** |   | (489   | )      | (453)  |
| Dividends  paid to reciprocal shareholder                    | ** ** | **17**    |   | 14     |   | 14     |
| Cumulative  impact of change in accounting policy *(Note 3)* | ** ** | **-**     |   | -      |   | (47)   |
| Balance at End of Year                                       | ** ** | **4,400** |   | 3,383  |   | 2,537  |
| Accumulated Other Comprehensive Income/(Loss)  *(Note 22)*   |       |      |   |   |   |   |
| Balance at  beginning of year                                | ** ** | **33**    |   | (285   | )      | (136)  |
| Other  comprehensive income/(loss)                           | ** ** | **(576)** |   | 318    |   | (197)  |
| Cumulative  impact of change in accounting policy *(Note 3)* | ** ** | **-**     |   | -      |   | 48     |
| Balance at End of Year                                       | ** ** | **(543)** |   | 33     |   | (285)  |
| Reciprocal Shareholding *(Note 11)*                          |       |      |   |   |   |   |
| Balance at  beginning of year                                | ** ** | **(154)** |   | (154   | )      | (136)  |
| Participation  in common shares issued                       | ** ** | **-**     |   | -      |   | (18)   |
| Balance at End of Year                                       | ** ** | **(154)** |   | (154   | )      | (154)  |
| Total Shareholders’ Equity                              | ** ** | **7,261** |   | 6,619  |   | 5,276  |
| Dividends Paid per Common Share                              | ** ** | **1.48**  |   | 1.32   |   | 1.23   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements.*

 

 

7

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**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

*(millions of Canadian dollars)*
| Year ended December 31,                                            | ** ** | **2009**    |   | 2008    |   | 2007    |
|-------------------------------------------------------------------------|------------|-------------|--------|---------|--------|---------|
| **Operating Activities**                                                |       |        |   |    |   |    |
| Earnings                                                                | ** ** | **1,562**   |   | 1,328   |   | 707     |
| Depreciation  and amortization                                          | ** ** | **764**     |   | 658     |   | 597     |
| Unrealized  (gain)/loss on derivative instruments                       | ** ** | **(204)**   |   | (120)   |   | 32      |
| Allowance  for equity funds used during construction                    | ** ** | **(135)**   |   | (59)    |   | (15)    |
| Equity  earnings in excess of cash distributions                        | ** ** | **(9)**     |   | (82)    |   | (35)    |
| Gain on  reduction of ownership interest                                | ** ** | **-**       |   | (12)    |   | (34)    |
| Gain on sale  of investments *(Note 6)*                                 | ** ** | **(365)**   |   | (700)   |   | -       |
| Future  income taxes                                                    | ** ** | **218**     |   | 258     |   | 41      |
| Goodwill and  asset impairment losses                                   | ** ** | **11**      |   | 23      |   | -       |
| Non-controlling  interests                                              | ** ** | **37**      |   | 56      |   | 46      |
| Other                                                                   | ** ** | **(105)**   |   | 48      |   | 19      |
| Changes in  operating assets and liabilities *(Note 29)*                | ** ** | **243**     |   | (26)    |   | 4       |
| ** **                                                              |       | **2,017**   |   | 1,372   |   | 1,362   |
| **Investing Activities**                                                |       |        |   |    |   |    |
| Long-term  investments                                                  | ** ** | **(359)**   |   | (659)   |   | (20)    |
| Affiliate  loans, net                                                   | ** ** | **(145)**   |   | -       |   | 15      |
| Proceeds on  sale of investments *(Note 6)*                             | ** ** | **535**     |   | 1,383   |   | -       |
| Sale of  property, plant and equipment                                  | ** ** | **87**      |   | -       |   | -       |
| Settlement  of hedges                                                   | ** ** | **6**       |   | (47)    |   | -       |
| Additions to  property, plant and equipment *(Note 4)*                  | ** ** | **(3,225)** |   | (3,545) |   | (2,231) |
| Additions to  intangible assets                                         | ** ** | **(95)**    |   | (91)    |   | (68)    |
| Change in  construction payable                                    | ** ** | **(110)**   |   | 106     |   | 75      |
| ** **                                                              |       | **(3,306)** |   | (2,853) |   | (2,229) |
| **Financing Activities**                                                |       |        |   |    |   |    |
| Net change  in short-term borrowings                                    | ** ** | **(366)**   |   | 329     |   | (262)   |
| Net change  in commercial paper and credit facility draws               | ** ** | **632**     |   | 751     |   | 337     |
| Debenture  and term note issues                                         | ** ** | **1,500**   |   | 498     |   | 1,342   |
| Debenture  and term note repayments                                     | ** ** | **(516)**   |   | (602)   |   | (635)   |
| Net change  in Southern Lights project financing                        | ** ** | **343**     |   | 1,238   |   | -       |
| Non-recourse  debt issues                                               | ** ** | **106**     |   | 38      |   | 57      |
| Non-recourse  debt repayments                                           | ** ** | **(172)**   |   | (65)    |   | (59)    |
| Distributions  to non-controlling interests                             | ** ** | **(33)**    |   | (10)    |   | (18)    |
| Common  shares issued                                                   | ** ** | **36**      |   | 29      |   | 584     |
| Preferred  share dividends                                              | ** ** | **(7)**     |   | (7)     |   | (7)     |
| Common share  dividends                                                 | ** ** | **(414)**   |   | (359)   |   | (435)   |
| ** **                                                              |       | **1,109**   |   | 1,840   |   | 904     |
| Effect of translation of foreign  denominated cash and cash equivalents | ** ** | **(35)**    |   | 16      |   | (10)    |
| **Increase/(Decrease) in Cash and Cash  Equivalents**                   | ** ** | **(215)**   |   | 375     |   | 27      |
| **Cash and Cash Equivalents at Beginning of  Year**                     | ** ** | **542**     |   | 167     |   | 140     |
| **Cash and Cash Equivalents at End of Year****1**                       | ** ** | **327**     |   | 542     |   | 167     |
| Supplementary Cash Flow Information                                     | ** ** | ** **  |   |    |   |    |
| Income taxes  paid *(Note 26)*                                          | ** ** | **205**     |   | 161     |   | 226     |
| Interest  paid *(Note 16)*                                              | ** ** | **656**     |   | 607     |   | 607     |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements.*

* *
| 1 | Cash  and cash equivalents consists of $184 million (2008 - $68 million; 2007 - $79  million) of cash and $143 million (2008 - $474 million; 2007 - $88 million)  of short-term investments and includes restricted cash of $59 million (2008 -  $81 million; 2007 - $64 million). |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

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**CONSOLIDATED STATEMENTS OF FINANCIAL POSITION**

 

*(millions of Canadian dollars)*
| December 31,                                              | ** ** | **2009**   |       | 2008       |
|----------------------------------------------------------------|------------|------------|------------|------------|
| **Assets**                                                     | ** ** | ** ** | ** ** | ** ** |
| Current Assets                                                 |       |       |       |       |
| Cash and  cash equivalents                                     | ** ** | **327**    |       | 542        |
| Accounts  receivable and other *(Note 7)*                      | ** ** | **2,484**  |       | 2,322      |
| Inventory *(Note 8**)*                                         | ** ** | **784**    |       | 845        |
| ** **                                                     |       | **3,595**  |       | 3,709      |
| Property, Plant and Equipment, net *(Note 9**)*                | ** ** | **18,850** |       | 16,157     |
| Long-Term Investments *(Note 11**)*                            | ** ** | **2,312**  |       | 2,492      |
| Deferred Amounts and Other Assets *(Note 12)*                  | ** ** | **2,425**  |       | 1,318      |
| Intangible Assets *(Note 13)*                                  | ** ** | **488**    |       | 458        |
| Goodwill *(Note 14)*                                           | ** ** | **372**    |       | 389        |
| Future Income Taxes *(Note 26)*                                | ** ** | **127**    |       | 178        |
|                                                           |       | **28,169** |       | 24,701     |
| **Liabilities and Shareholders’ Equity**                  | ** ** | ** ** | ** ** | ** ** |
| Current Liabilities                                            |       |       |       |       |
| Short-term  borrowings *(Note 16)*                             | ** ** | **508**    |       | 874        |
| Accounts  payable and other *(Note 15)*                        | ** ** | **2,463**  |       | 2,411      |
| Interest  payable                                              | ** ** | **104**    |       | 102        |
| Current  maturities of long-term debt *(Note 16)*              | ** ** | **601**    |       | 534        |
| Current  maturities of non-recourse long-term debt *(Note 17)* | ** ** | **113**    |       | 185        |
|                                                           |       | **3,789**  |       | 4,106      |
| Long-Term Debt *(Note 16)*                                     | ** ** | **11,581** |       | 10,155     |
| Non-Recourse Long-Term Debt *(Note 17)*                        | ** ** | **1,393**  |       | 1,474      |
| Other Long-Term Liabilities *(Note 18)*                        | ** ** | **1,207**  |       | 259        |
| Future Income Taxes *(Note 26)*                                | ** ** | **2,211**  |       | 1,291      |
|                                                           |       | **20,181** |       | 17,285     |
| Non-Controlling Interests *(Note 19)*                          | ** ** | **727**    |       | 797        |
| Shareholders’ Equity                                      |       |       |       |       |
| Share  capital                                                 |       |       |       |       |
| Preferred  shares *(Note 20)*                                  | ** ** | **125**    |       | 125        |
| Common  shares *(Note 20)*                                     | ** ** | **3,379**  |       | 3,194      |
| Contributed  surplus                                           | ** ** | **54**     |       | 38         |
| Retained  earnings                                             | ** ** | **4,400**  |       | 3,383      |
| Accumulated  other comprehensive income/(loss) *(Note 22)*     | ** ** | **(543)**  |       | 33         |
| Reciprocal  shareholding *(Note 11**)*                         | ** ** | **(154)**  |       | (154)      |
|                                                           | ** ** | **7,261**  |       | 6,619      |
| Commitments and Contingencies *(Note 31)*                      |       |       |       |       |
|                                                           | ** ** | **28,169** |       | 24,701     |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements.*

 
| Approved by  the Board of Directors: | ** **          |
|--------------------------------------|---------------------|
| ** **                           | ** **          |
| “signed"                   | “signed"  |
| ** **                           | ** **          |
| **David A. Arledge**                 | **David A. Leslie** |
| Chair                                | Director            |

 

 

9

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**NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.**          GENERAL BUSINESS DESCRIPTION

** **

Enbridge Inc.(Enbridge or the Company) is a publicly traded energy transportation anddistribution company. Enbridge conducts its business through four operatingsegments identified based on products and services offered: Liquids Pipelines,Natural Gas Delivery and Services, Sponsored Investments, and Corporate. These operating segments are strategic business unitsestablished by senior management to facilitate the achievement of the Company’slong-term objectives, to aid in resource allocation decisions and to assessoperational performance.

 

**LIQUIDS PIPELINES**

LiquidsPipelines includes the operation and construction of the Enbridge crude oilmainline system and feeder pipelines that transport crude oil and other liquidhydrocarbons. LiquidsPipelines consists of crude oil, natural gas liquids (NGLs) and refinedproducts pipelines and terminals in Canada and the United States.

 

**NATURAL GASDELIVERY AND SERVICES**

Natural Gas Delivery and Services consists of naturalgas utility operations, investments in natural gas pipelines, the Company’scommodity marketing businesses and international activities.

 

The core of the Company’s natural gas utilityoperations is Enbridge Gas Distribution Inc. (EGD) which serves residential,commercial, industrial and transportation customers, primarily in central andeastern Ontario as well as northern New York State. This business segment alsoincludes natural gas distribution activities in Quebec and New Brunswick.

 

Investments in natural gas pipelines include theCompany’s interests in the United States portion of Alliance Pipeline (AlliancePipeline US), Vector Pipeline and transmission and gathering pipelines in theGulf of Mexico.

 

This segment also includes the Company’s investment inAux Sable, a natural gas fractionation and extraction business.

 

The commodity marketing businesses manage the Company’svolume commitments on Alliance and Vector Pipelines as well as performcommodity storage, transport and supply management services, as principal andagent.

 

**SPONSOREDINVESTMENTS**

Sponsored Investments includes the Company’s 27.0% ownershipinterest in Enbridge Energy Partners, L.P. (EEP), Enbridge’s funding of 66.7%of the United States segment of the Alberta Clipper Project through EEP andEnbridge Energy, L.P. (EELP) and a 72% economic interest (41.9% votinginterest) in Enbridge Income Fund (EIF). Enbridge manages the day-to-dayoperations of, and develops and assesses opportunities for each of theseinvestments, including both organic growth and acquisition opportunities.

 

EEP transports crude oil and other liquid hydrocarbonsthrough common carrier and feeder pipelines and transports, gathers, processesand markets natural gas and NGLs. EIF is a publicly traded income fund whose primaryoperations include a crude oil and liquids pipeline and gathering system, a 50%interest in the Canadian portion of Alliance Pipeline and partial interests inseveral green energy investments.

 

**CORPORATE**

Corporateconsists of new business development activities and investing and financingactivities, including general corporate investments and financing costs notallocated to the business segments. Corporate also includes the Company’sinvestments in green energy projects.

 

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**2.**          SUMMARY OF SIGNIFICANTACCOUNTING POLICIES

** **

Theconsolidated financial statements of the Company are prepared in accordancewith Canadian generally accepted accounting principles (Canadian GAAP). Theseaccounting principles are different in some respects from United Statesgenerally accepted accounting principles (U.S. GAAP) and the significantdifferences that impact the Company’s consolidated financial statements aredescribed in Note 33. Amounts are stated in Canadian dollars unless otherwisenoted.

 

The preparationof financial statements in conformity with Canadian GAAP requires management tomake estimates and assumptions that affect the reported amounts of assets,liabilities, revenues and expenses as well as the disclosure of contingentassets and liabilities in the consolidated financial statements. Significantestimates and assumptions used in preparation of the consolidated financialstatements include, but are not limited to: carrying value of regulatory assetsand liabilities (Note 5); depreciation rates and carrying value of property,plant and equipment (Note 9); amortization rates of intangible assets (Note13); measurement of goodwill (Note 14); valuation of share based compensation(Note 21); fair values of financial instruments (Notes 23 and 24); income taxes(Note 26); post employment benefits (Note 27); and commitments andcontingencies (Note 31). Actual results could differ from these estimates.

 

Subsequentevents have been evaluated through to February 18, 2010, the date on which the consolidatedfinancial statements were approved by the Board of Directors and were availableto be issued.

 

**BASIS OF PRESENTATION**

Theconsolidated financial statements include the accounts of Enbridge Inc., itssubsidiaries and its proportionate share of the accounts of joint ventures. EIF is consolidated in the accounts of the Companybecause it is a variable interest entity. The Company is the primarybeneficiary of EIF through a combination of a 41.9% equity interest and apreferred unit investment. Investments in entities which are not subsidiariesor joint ventures, but over whichthe Company exercises significant influence, are accounted for using the equitymethod. Other investments are accounted for according to their classificationas held to maturity, loans and receivables or available for sale (see FinancialInstruments).

 

**REGULATION**

Certain of the Company’s Liquids Pipelines and Natural Gas Deliveryand Services businessesare subject to regulation by various authorities including, but not limited to,the National Energy Board (NEB), the Federal Energy Regulatory Commission(FERC), the Energy Resources Conservation Board in Alberta (ERCB), the NewBrunswick Energy and Utilities Board (EUB) and the Ontario Energy Board (OEB).Regulatory bodies exercise statutory authority over matters such asconstruction, rates and ratemaking and agreements with customers. To recognizethe economic effects of the actions of the regulator, the timing of recognitionof certain revenues and expenses in these operations may differ from thatotherwise expected under GAAP for non rate-regulated entities.

 

Regulatory assets represent amounts that are expected to berecovered from customers in future periods through rates. Regulatoryliabilities represent amounts that are expected to be refunded to customers infuture periods through rates. In the absence of rate regulation, the Companywould generally not recognize regulatory assets or liabilities and the earningsimpact would be recorded in the period the expenses are incurred or revenuesare earned. Long-term regulatory assets are recorded in Deferred Amounts andOther Assets and current regulatory assets are recorded in Accounts Receivableand Other. Long-term regulatory liabilities are included in Other Long-TermLiabilities and current regulatory liabilities are recorded in Accounts Payableand Other. Regulatory assets are assessed for impairment if the Companyidentifies an event indicative of possible impairment.

 

Allowance for funds used during construction (AFUDC) is included in the cost of property, plant andequipment and is depreciated over future periods as part of the total cost ofthe related asset. AFUDC includes both an interest component and, if approvedby the regulator, a cost of equity component. In the absence of rateregulation, the Company would capitalize only the interest component;therefore, the capitalized equity component, the corresponding earnings duringthe construction phase and the subsequent depreciation would not be recognized.

 

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Certain regulators prescribe the pool method of accountingfor property, plant and equipment where similar assets with comparable usefullives are grouped and depreciated as a pool. When those assets are retired orotherwise disposed of, gains and losses are not reflected in earnings but arebooked as an adjustment to accumulated depreciation. Entities not subject torate regulation write off the net book value of the retired asset and includeany resulting gain or loss in earnings.

 

Withthe approval of the regulator, EGD capitalizesa percentage of certain operating costs. EGD is authorized to chargedepreciation and earn a return on the net book value of such capitalized costsin future years. In the absence of rate regulation, a portion of such costs may be charged tocurrent earnings.

 

Prior to January 1, 2009, contributions made to thedefined benefit pension plan and the cost ofproviding post-employment benefits other than pensions (OPEB) for the regulated operations of EGD were expensedas paid, consistent with the recovery of such costs in rates. Canadian GAAPrequires costs and obligations for defined benefit pension plans and OPEB to bedetermined using the projected benefit method and charged to earnings asservices are rendered. Effective January 1, 2009, the Company beganrecording a net pension asset and a net OPEB liability with an offsettingregulatory liability and asset related to the contributions to the definedbenefit plan and the cost of OPEB for the regulated operations in Natural GasDelivery and Services (Note 3). There was no impact to earnings or cash flowsas a result of this change.

 

**REVENUE RECOGNITION**

For businesses which are not rate-regulated, revenues arerecorded when products have been delivered or services have been performed andthe amount of revenue can be reliably measured. Customer credit worthiness isassessed prior to agreement signing as well as throughout the contractduration.

 

Forthe rate-regulated portion of the Company’s main Canadian crude oil pipelinesystem, revenue is recognized in a manner that is consistent with theunderlying agreements as approved by the regulator. Certain Liquids Pipelinesrevenues are recognized under the terms of a committed 30-year deliverycontract rather than the cash tolls received.

 

Forrate-regulated operations in Sponsored Investments and in natural gas pipelinesincluded in Natural Gas Delivery and Services, transportation revenues includeamounts related to expenses recognized that are expected to be recovered fromshippers in future tolls. Revenue is recognized in a given period for tollsreceived to the extent that expenses are incurred. Differences between therecorded transportation revenue and actual toll receipts give rise to aregulatory asset or liability.

 

For natural gas utility rate-regulated operations in NaturalGas Delivery and Services, revenue is recognized in a manner consistent withthe underlying rate-setting mechanism as mandated by the regulator. Natural gasutilities revenues are recorded on the basis of regular meter readings andestimates of customer usage from the last meter reading to the end of thereporting period.

 

**FINANCIAL INSTRUMENTS**

TheCompany classifies financial assets and financial liabilities as held fortrading, available for sale, loans and receivables, held to maturity, otherfinancial liabilities or derivatives in qualifying hedging relationships. Allfinancial instruments are initially recorded at fair value on the consolidatedstatement of financial position. Subsequent measurement of the financialinstrument is based on its classification.

 

**Held forTrading**

Financialassets and liabilities that are classified as held for trading are measured atfair value with changes in fair value recognized in earnings in CommodityCosts, Other Investment Income and Interest Expense. The Company has classifiedCash and Cash Equivalents and its non-qualifying derivative instruments as heldfor trading.

 

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**Available forSale**

Financialassets that are available for sale are measured at fair value, with changes inthose fair values recorded in Other Comprehensive Income (OCI) unless activelyquoted prices are not available for fair value measurement, in which caseavailable for sale assets are measured at cost. Generally, the Companyclassifies equity investments in other entities that do not trade on anactively quoted market as available for sale. Dividends received from availablefor sale financial assets are recognized in earnings when the right to receivepayment is established.

 

**Loans andReceivables**

Loansand receivables, which include Accounts Receivable and Other and long-termnotes receivable, are measured at amortized cost using the effective interestrate method, net of any impairment losses recognized.

 

**Held toMaturity**

TheCompany has classified certain investments which are non-derivative financialassets as held to maturity. Held to maturity investments are measured atamortized cost using the effective interest rate method.

 

**Other FinancialLiabilities**

Otherfinancial liabilities are recorded at amortized cost using the effectiveinterest rate method and include Short-term Borrowings, Accounts Payable andOther, Interest Payable, Long-term Debt and Non-recourse Long-term Debt.

 

**Derivatives inQualifying Hedging Relationships**

TheCompany uses derivative financial instruments to manage changes in commodityprices, foreign exchange rates, interest rates and certain compensation tied toits share price. Hedge accounting is optional and requires the Company todocument the hedging relationship and test the hedging item’s effectiveness inoffsetting changes in fair values or cash flows of the underlying hedged itemon an ongoing basis. The Company presents the earnings and cash flow effects ofhedging items with the hedged transaction. Derivatives in qualifying hedgingrelationships are categorized as cash flow hedges, fair value hedges and netinvestment hedges.

 

**Cash FlowHedges**

TheCompany uses cash flow hedges to manage changes in commodity prices, foreignexchange rates, interest rates and certain compensation tied to its shareprice. The effective portion of the change in the fair value of a cash flowhedging instrument is recorded in OCI and is reclassified to earnings when thehedged item impacts earnings or to the carrying value of the relatednon-financial asset. Any hedge ineffectiveness is recorded in current periodearnings.

 

Ifa derivative instrument designated as a cash flow hedge ceases to be effectiveor is terminated, hedge accounting is discontinued and the gain or loss at thatdate is deferred in OCI and recognized concurrently with the relatedtransaction. If a hedged anticipated transaction is no longer probable, thegain or loss is recognized immediately in earnings. Subsequent gains and lossesfrom ineffective derivative instruments are recognized in earnings in theperiod in which they occur.

 

**Fair ValueHedges**

TheCompany may use fair value hedges to hedge the fair value of debt instrumentsor commodity positions. The change in the fair value of the hedging instrument isrecorded in earnings with changes in the fair value of the hedged asset orliability that is designated as part of the hedging relationship. If a fairvalue hedge is discontinued or ceases to be effective, the hedged asset orliability, otherwise required to be carried at cost or amortized cost, ceasesto be remeasured at fair value and the cumulative fair value adjustment to thecarrying value of the hedged item is recognized in earnings over the remaininglife of the hedged item.

 

**Net InvestmentHedges**

TheCompany uses net investment hedges to manage the carrying values of UnitedStates dollar denominated foreign operations. The effective portion of thechange in the fair value of the hedging

 

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instrumentis recorded in OCI. Any ineffectiveness is recorded in current period earnings.Amounts recorded in Accumulated Other Comprehensive Income/Loss (AOCI) arerecognized in earnings when there is a reduction of the hedged net investmentresulting from a disposal of the foreign operation.

 

**Impairment**

Withrespect to available for sale instruments, the Company assesses at each balancesheet date whether there is objective evidence that a financial asset isimpaired. If there is determined to be objective evidence of impairment, theCompany internally values the expected discounted cash flows using observablemarket inputs and determines whether the decline below carrying value is otherthan temporary. If the decline is determined to be other than temporary, animpairment charge is recorded in earnings with an offsetting reduction to thecarrying value of the asset.

 

With respect to loans and receivables, the Companyassesses the assets for impairment when it no longer has a reasonable assuranceof timely collection. If evidence of impairment is noted, the Company reducesthe value of the loan or receivable to its estimated realizable amount,determined using discounted expected future cash flows.

 

**TransactionCosts**

Transaction costs are incremental costs directlyrelated to the acquisition of a financial asset or the issuance of a financialliability. The Company incurs transaction costs primarilythrough the issuance of debt and classifies these costs with the related debt.These costs are amortized using the effective interest rate method overthe life of the related debt instrument.

 

**INCOME TAXES**

Theliability method of accounting for income taxes is followed. Future income taxassets and liabilities are recorded based on temporary differences between thetax bases of assets and liabilities and their carrying values for accountingpurposes. Future income tax assets and liabilities are measured using the taxrate that is expected to apply when the temporary differences reverse (Note 3).

 

**FOREIGN CURRENCY TRANSLATION**

TheCompany’s foreign operations are primarily self-sustaining. The financialstatements of self-sustaining foreign operations are translated into Canadiandollars using the current rate method. Under this method, assets andliabilities are translated using period-end exchange rates and revenues andexpenses are translated using monthly average rates. Gains and losses arisingon translation of these operations are included in the cumulative translationadjustment component of AOCI.

 

Transactionsdenominated in foreign currencies are translated into Canadian dollars usingthe exchange rate prevailing at the date of transaction. Monetary assets andliabilities denominated in foreign currencies are translated to Canadiandollars using the rate of exchange in effect at the balance sheet date whereasnon-monetary assets and liabilities are translated at the rate of exchange ineffect on the date of the transaction. Exchange gains and losses resulting fromtranslation are included in the Statement of Earnings in the period that theyarise.

 

## ***CASH AND CASH EQUIVALENTS***

Cash and cash equivalents include short-term investments witha term to maturity of three months or less when purchased.Cash and cash equivalents includeamounts in trust and proportionately consolidated cash from joint ventures.

 

**INVENTORY**

Inventoryis primarily comprised of natural gas in storage held in EGD. Natural gas instorage is recorded at the quarterly prices approved by the OEB in thedetermination of distribution rates. The actual price of gas purchased maydiffer from the OEB approved price. The difference between the approved priceand the actual cost of the gas purchased is deferred for future refund orcollection as approved by the OEB. Other inventory, consisting primarily ofcommodities held in storage, is recorded at fair value as measured at the spotprice less costs to sell (Note 3).

 

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**PROPERTY, PLANT AND EQUIPMENT**

Expenditures for construction, expansion,major renewals and betterments are capitalized. Maintenance and repair costsare expensed as incurred. Expenditures for project development are capitalizedif they are expected to have a future benefit. The Company capitalizes interestincurred during construction. For rate-regulated assets, if approved, anallowance for equity funds used during construction (AEDC) is capitalized atrates authorized by the regulatory authorities. Depreciation of property, plantand equipment is provided on a straight-line basis over the estimated servicelives of the assets commencing when the asset is placed in service.

 

**IMPAIRMENT OF LONG-LIVED ASSETS**

TheCompany reviews the carrying values of its long-lived assets as events orchanges in circumstances warrant. If it is determined that the carrying valueof an asset exceeds the undiscounted cash flows expected from the asset, theasset is written down to fair value.

 

***DEFERRED AMOUNTS AND OTHER ASSETS***

Deferred amounts and other assets include costs whichregulatory authorities have permitted, or are expected to permit, to berecovered through future rates, contractual receivables under the terms oflong-term delivery contracts, derivative financial instruments as well aspension assets. Certain deferred amounts are amortized on a straight-line basisover various periods depending on the nature of the charges.

 

#### **INTANGIBLE ASSETS**

Intangibleassets consist primarily of acquired long-term transportation contracts andsoftware costs, which are amortized on a straight-line basis over theirexpected lives (Note 3).

 

**GOODWILL**

Goodwill represents the excess of the purchase price overthe fair value of net identifiable assets on acquisition of a business.Goodwill is not subject to amortization but is tested for impairment at leastannually. For the purposes of impairment testing, reporting units areidentified as business operations within an operating segment. Potential impairmentis identified when the carrying value of a reporting unit, including allocatedgoodwill, exceeds its fair value. Goodwill impairment is measured as the excessof the carrying amount of the reporting unit’s allocated goodwill over theimplied fair value of the goodwill based on the fair value of the assets andliabilities of the reporting unit.

 

**ASSET RETIREMENTOBLIGATIONS**

Asset retirement obligations(AROs) associated with the retirement of long-lived assets are measured at fairvalue and recognized as Other Long-term Liabilities in the period when they canbe reasonably determined. The fair value approximates the cost a third partywould charge to perform the tasks necessary to retire such assets and isrecognized at the present value of expected future cash flows. AROs are addedto the carrying value of the associated asset and depreciated over the asset’suseful life. The corresponding liability is accreted over time through chargesto earnings and is reduced by actual costs of decommissioning and reclamation.The Company’s estimates of retirement costs could change as a result of changesin cost estimates and regulatory requirements.

 

For certain of the Company’s assets it is not possible tomake a reasonable estimate of AROs due to the indeterminate timing and scope ofthe asset retirements.

 

***POST-EMPLOYMENT BENEFITS***

The Company maintains pension plans whichprovide defined benefit and defined contribution pension benefits.

 

Defined benefit pension plan costs aredetermined using actuarial methods and are funded through contributionsdetermined using the projected benefit method, which incorporates management’sbest estimate of future salary levels, other cost escalations, retirement agesof employees and other actuarial factors. Pension cost is charged to earningsas services are rendered and includes:

 

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·                  Cost of pension plan benefitsprovided in exchange for employee services rendered during the year;

·                  Amortization of the initial nettransitional asset, prior service costs and amendments on a straight-line basisover the expected average remaining service period of the active employee groupcovered by the plans;

·                  Interest cost of pension planobligations;

·                  Expected return on pension fundassets; and

·                  Amortization of cumulativeunrecognized net actuarial gains and losses, in excess of 10% of the greater ofthe accrued benefit obligation or the fair value of plan assets, over theexpected average remaining service life of the active employee group covered bythe plans.

 

Actuarial gains and losses arise from thedifference between the actual and expected rate of return on plan assets forthat period or from changes in actuarial assumptions used to determine theaccrued benefit obligation, including discount rate or salary inflationexperience.

 

Pension plan assets are measured at fairvalue. The expected return on pension plan assets is determined using marketrelated values and assumptions on the specific asset mix within the pensionplan. The market related values reflect estimated return on investmentsconsistent with long-term historical averages for similar assets.

 

For defined contribution plans, contributionsmade by the Company are expensed in the period in which the contributionoccurs.

 

The Company also providespost-employment benefits other than pensions, including group health care andlife insurance benefits for eligible retirees, their spouses and qualifieddependants. The cost of such benefits is accrued during the years in which employeesrender service.

 

***STOCK BASED COMPENSATION***

Stock optionsgranted are recorded using the fair value method. Under this method,compensation expense is measured at fair value at the grant date and isrecognized on a straight-line basis over the shorter of the vesting period orthe period to early retirement eligibility, with a corresponding credit tocontributed surplus. Balances in contributed surplus are transferred to sharecapital when the options are exercised.

 

Performance Stock Units (PSUs) vest at the completion of athree-year term and Restricted Stock Units (RSUs) vest at the completion of a35-month term. Both PSUs and RSUs are settled in cash. During the vesting term,an expense is recorded based on the number of units outstanding and the currentmarket price of the Company’s shares with an offset to Other Long-TermLiabilities. The value of the PSUs is also dependent on the Company’sperformance relative to performance targets set out under the plan.

 

**COMPARATIVE AMOUNTS**

Certain comparative amounts have been reclassified toconform with the current year’s financial statement presentation.

 

**3.****         ****CHANGES IN ACCOUNTING POLICIES**

 

**ACCOUNTING FOR THE EFFECTS OF RATE REGULATION**

EffectiveJanuary 1, 2009, the Company adopted revisions to the Canadian Instituteof Chartered Accountants (CICA) Handbook Section 1100, *Generally Accepted Accounting Principles* and Section 3465,*Income Taxes*. In accordance with thetransitional provisions in these revised standards, the revisions to Section 1100were adopted prospectively and accordingly, prior periods were not restated,while the revisions to Section 3465 were applied retrospectively withoutrestatement of prior periods. The adoption of the revised standards did notimpact the Company’s earnings or cash flows.

 

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**GenerallyAccepted Accounting Principles**

Therevised standard no longer provides an exemption for rate-regulated entities tomeasure assets and liabilities on a basis other than in accordance with primarysources of Canadian GAAP. As a result, for the pension plans and OPEB includedin EGD, the Company recognized post-employment benefit assets and liabilitiesfor the amount of benefits expected to be included in future rates andrecovered from, or paid to, customers. In addition, the Company reclassifiedcertain EGD reserves for future removal and site restoration.

 

**Pension Plans and OPEB**

Onadoption of the revised standard at January 1, 2009, the Companyrecognized a net pension asset of $157 million and a net OPEB liability of $75million, with an offsetting long-term net pension regulatory liability andlong-term net OPEB regulatory asset, respectively. At December 31, 2009,the Company had a net pension asset of $140 million and a net OPEB liability of$80 million, with an offsetting long-term net pension regulatory liability anda long-term net OPEB regulatory asset, respectively.

 

**Future Removal and Site Restoration Reserves**

AtJanuary 1, 2009, on adoption of the revised standard, the Companyreclassified amounts collected for future removal and site restoration of $657million, which were previously netted against Property, Plant and Equipment, toa long-term regulatory liability. At December 31, 2009, this long-termregulatory liability was $710 million.

 

**Income Taxes**

Therevised standard removes the exemption for rate-regulated entities to recognizefuture income taxes to the extent they were expected to be included inregulator-approved future rates and recovered from or refunded to futurecustomers. As a result, on January 1, 2009, the Company recognized afuture income tax liability of $816 million on regulatory assets, primarilyproperty, plant and equipment, with an offsetting long-term regulatory asset. Aregulatory asset has been recognized as the associated future income taxliability is expected to be recoverable in future rates. At December 31,2009, the Company had a future income tax liability of $829 million related toregulatory assets with an offsetting long-term regulatory asset.

 

**INTANGIBLE ASSETS**

EffectiveJanuary 1, 2009, the Company adopted CICA Handbook Section 3064, *Goodwill and Intangible Assets*, which establishes standardsfor the recognition, measurement, presentation and disclosure of goodwill andintangible assets. As a result of adopting this standard, the Companyreclassified certain software costs from Property, Plant and Equipment toIntangible Assets. This standard has been applied retrospectively and affectspresentation only.

 

Asa result of adopting this standard, on January 1, 2009, the Companyreclassified $233 million of net software costs from Property, Plant andEquipment to Intangible Assets. At December 31, 2009, the Company had $289million of net software costs recorded in Intangible Assets.

 

**COMMODITY INVENTORY**

Effective January 1, 2009, the Company changed itsaccounting policy for inventory held by its energy marketing businesses andbegan measuring commodity inventory at fair value, as measured at the spotprice less costs to sell, rather than lower of cost or net realizable value.This measurement basis is a more relevant measurement for commodity inventoryused for marketing purposes and better matches the commodity inventory with thederivatives used to “lock in” the margin. This change in accounting policy hasbeen accounted for retrospectively and did not result in restatements of thecomparative Consolidated Statements of Earnings, Comprehensive Income,Shareholders’ Equity or Cash Flows for the years ended December 31, 2008and 2007 and the comparative Consolidated Statement of Financial Position as atDecember 31, 2008 as the amounts were considered immaterial.

 

**INVENTORIES**

The CICA issued Handbook Section 3031, *Inventories,*effective January 1, 2008 which aligns accounting for inventories underCanadian GAAP with International Financial Reporting Standards (IFRS) and replacesSection 3030. The adoption of the revised standard did not have asignificant effect on the

 

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Company.

 

**CAPITAL DISCLOSURES AND FINANCIAL INSTRUMENTS — DISCLOSURES ANDPRESENTATION**

Effective January 1, 2008, the Company adopted newstandards for *Capital Disclosures* (CICAHandbook Section 1535) and *Financial Instruments —Disclosures and Presentation* (CICA Handbook Sections 3862 and 3863).While the new standards did not change the Company’s accounting policies, theyresulted in additional disclosures.

 

**FINANCIAL INSTRUMENTS, COMPREHENSIVE INCOME AND HEDGING RELATIONSHIPS**

Effective January 1, 2007, the Company adopted CICAHandbook Section 1530, *Comprehensive Income*,Section 3251, *Equity*, Section 3855,*Financial Instruments — Recognition and Measurement*,Section 3861, *Financial Instruments —Disclosure and Presentation (*subsequently replaced by Sections 3862and 3863**adopted by the Company on January 1,2008) and Section 3865, *Hedges*. Inaccordance with the transitional provisions in these new standards, thesepolicies were adopted retrospectively without restatement. Prior periodunrealized gains and losses related to the Company’s foreign currencytranslation adjustments and net investment hedges are now included in AOCI. Thecumulative impact of adopting these changes in 2007 was an increase to AOCI of$48 million.

 

**FUTUREACCOUNTING POLICY CHANGES**

**Business Combinations**

The CICA issued Handbook Section 1582,*Business Combinations*, whichreplaces Section 1581. This new standard aligns accounting for businesscombinations under Canadian GAAP with IFRS. The standard requires assets andliabilities acquired in a business combination to be measured at fair value atthe acquisition date. The standard also requires acquisition-related costs,such as advisory or legal fees, incurred to effect a business combination to beexpensed in the period in which they are incurred. The adoption of this standardwill impact the accounting treatment of future business combinations. Therevised standard is effective for business combinations occurring on or after January 1,2011; however, earlier application is permitted.

 

**Consolidated Financial Statementsand Non-Controlling Interests**

The CICA issued Handbook Sections 1601,*Consolidated Financial Statements*and1602,*Non-controlling Interests,*whichtogether replace the former consolidated financial statements standard. Underthe revised standards, non-controlling interests will be classified as acomponent of equity, and earnings and comprehensive income will be attributedto both the parent and non-controlling interest. The adoption of thesestandards is not expected to have a material impact to the Company’s consolidatedfinancial statements. The revised standards are effective January 1, 2011.Should the Company early adopt Section 1582, it would also be required toadopt Sections 1601 and 1602 at the same time.

 

**4.****         ****SEGMENTEDINFORMATION**

 
|                                                        |       |      |       | Natural Gas  |       |        |       |      |       |         |
|-------------------------------------------------------------|------------|-----------|------------|--------------|------------|-------------|------------|-----------|------------|--------------|
| *(millions of Canadian dollars)*                            |       | Liquids   |       | Delivery and |       | Sponsored   |       |      |       |         |
| **Year ended December 31,  2009**                      |       | Pipelines |       | Services     |       | Investments |       | Corporate |       | Consolidated |
| Revenues                                                    | ** ** | **1,333** | ** ** | **10,776**   | ** ** | **313**     | ** ** | **44**    | ** ** | **12,466**   |
| Commodity  costs                                            | ** ** | **-**     | ** ** | **(9,011)**  | ** ** | **-**       | ** ** | **-**     | ** ** | **(9,011)**  |
| Operating and  administrative                               | ** ** | **(565)** | ** ** | **(709)**    | ** ** | **(113)**   | ** ** | **(43)**  | ** ** | **(1,430)**  |
| Depreciation  and amortization                              | ** ** | **(230)** | ** ** | **(419)**    | ** ** | **(88)**    | ** ** | **(27)**  | ** ** | **(764)**    |
|                                                        | ** ** | **538**   | ** ** | **637**      | ** ** | **112**     | ** ** | **(26)**  | ** ** | **1,261**    |
| Income from  equity investments                             | ** ** | **-**     | ** ** | **10**       | ** ** | **188**     | ** ** | **-**     | ** ** | **198**      |
| Other  investment income and gain on sale of****investments | ** ** | **161**   | ** ** | **370**      | ** ** | **13**      | ** ** | **499**   | ** ** | **1,043**    |
| Interest and  preferred share dividends                     | ** ** | **(144)** | ** ** | **(257)**    | ** ** | **(56)**    | ** ** | **(147)** | ** ** | **(604)**    |
| Non-controlling  interests                                  | ** ** | **(2)**   | ** ** | **(7)**      | ** ** | **(28)**    | ** ** | **-**     | ** ** | **(37)**     |
| Income taxes                                                | ** ** | **(108)** | ** ** | **(118)**    | ** ** | **(88)**    | ** ** | **8**     | ** ** | **(306)**    |
| Earnings  applicable to common shareholders                 | ** ** | **445**   | ** ** | **635**      | ** ** | **141**     | ** ** | **334**   | ** ** | **1,555**    |

 

 

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|                                                    |   |      | Natural Gas  |        |      |         |
|---------------------------------------------------------|--------|-----------|--------------|-------------|-----------|--------------|
| *(millions  of Canadian dollars)*                       |   | Liquids   | Delivery and | Sponsored   |      |         |
| Year ended December 31, 2008                       |   | Pipelines | Services     | Investments | Corporate | Consolidated |
| Revenues                                                |   | 1,170     |         | 14,650      |      | 298          |   | 13 |   | 16,131 |   |
| Commodity costs                                         |   | -         |         | (12,792     | )         | -            |   | - |   | (12,792 | ) |
| Operating and administrative                            |   | (492      | )            | (685        | )         | (102         | ) | (33 | ) | (1,312 | ) |
| Depreciation and amortization                           |   | (181      | )            | (392        | )         | (78          | ) | (7 | ) | (658 | ) |
|                                                    |   | 497       |         | 781         |      | 118          |   | (27 | ) | 1,369 |   |
| Income from equity investments                          |   | -         |         | 30          |      | 148          |   | (1 | ) | 177 |   |
| Other investment income and gain on sale of investments |   | 61        |         | 759         |      | 25           |   | 53 |   | 898 |   |
| Interest and preferred share dividends                  |   | (111      | )            | (270        | )         | (60          | ) | (117 | ) | (558 | ) |
| Non-controlling interests                               |   | (1        | )            | (7          | )         | (47          | ) | (1 | ) | (56 | ) |
| Income taxes                                            |   | (118      | )            | (335        | )         | (73          | ) | 17 |   | (509 | ) |
| Earnings applicable to common shareholders              |   | 328       |         | 958         |      | 111          |   | (76 | ) | 1,321 |   |

 
|                                                    |   |      | Natural Gas  |        |      |         |
|---------------------------------------------------------|--------|-----------|--------------|-------------|-----------|--------------|
| *(millions  of Canadian dollars)*                       |   | Liquids   | Delivery and | Sponsored   |      |         |
| Year ended December 31, 2007                       |   | Pipelines | Services     | Investments | Corporate | Consolidated |
| Revenues                                                |   | 1,091     |         | 10,549      |      | 270          |   | 9 |   | 11,919 |   |
| Commodity costs                                         |   | -         |         | (9,009      | )         | -            |   | - |   | (9,009 | ) |
| Operating and administrative                            |   | (427      | )            | (632        | )         | (79          | ) | (26 | ) | (1,164 | ) |
| Depreciation and amortization                           |   | (156      | )            | (360        | )         | (75          | ) | (6 | ) | (597 | ) |
|                                                    |   | 508       |         | 548         |      | 116          |   | (23 | ) | 1,149 |   |
| Income from equity investments                          |   | (1        | )            | 73          |      | 97           |   | (1 | ) | 168 |   |
| Other investment income and gain on sale of investments |   | 16        |         | 88          |      | 38           |   | 53 |   | 195 |   |
| Interest and preferred share dividends                  |   | (101      | )            | (271        | )         | (62          | ) | (123 | ) | (557 | ) |
| Non-controlling interests                               |   | (1        | )            | (6          | )         | (38          | ) | (1 | ) | (46 | ) |
| Income taxes                                            |   | (134      | )            | (88         | )         | (54          | ) | 67 |   | (209 | ) |
| Earnings applicable to common shareholders              |   | 287       |         | 344         |      | 97           |   | (28 | ) | 700 |   |

 

The measurement basis for preparation of segmentedinformation is consistent with the significant accounting policies described inNote 2.

 

**TOTAL ASSETS**

 
| *(millions  of Canadian dollars)* |       |       |   |   |   |   |
|-----------------------------------|------------|------------|--------|--------|--------|--------|
| December 31,                 |       | **2009**   |   |   | 2008   |   |
| Liquids Pipelines                 | ** ** | **10,763** |   |   | 7,467  |   |
| Natural Gas Delivery and Services | ** ** | **11,207** |   |   | 10,724 |   |
| Sponsored Investments             | ** ** | **3,860**  |   |   | 3,766  |   |
| Corporate                         | ** ** | **2,339**  |   |   | 2,744  |   |
|                              | ** ** | **28,169** |   |   | 24,701 |   |

 

**ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT****1**

 
| *(millions  of Canadian dollars)* |       |      |   |   |   |   |
|-----------------------------------|------------|-----------|--------|--------|--------|--------|
| December 31,                 |       | **2009**  |   |   | 2008   |   |
| Liquids Pipelines                 | ** ** | **2,662** |   |   | 2,898  |   |
| Natural Gas Delivery and Services | ** ** | **440**   |   |   | 544    |   |
| Sponsored Investments             | ** ** | **41**    |   |   | 53     |   |
| Corporate                         | ** ** | **217**   |   |   | 109    |   |
|                              | ** ** | **3,360** |   |   | 3,604  |   |

 

1  IncludesAEDC

 

 

19

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**GEOGRAPHIC INFORMATION**

**Revenues****1**

 
| *(millions  of Canadian dollars)* |       |       |   |   |   |   |   |
|-----------------------------------|------------|------------|--------|--------|--------|--------|--------|
| Year ended December 31,      |       | **2009**   |   | 2008   |   | 2007   |   |
| Canada                            | ** ** | **9,503**  |   | 12,459 |   | 8,346  |   |
| United States                     | ** ** | **2,963**  |   | 3,672  |   | 3,573  |   |
|                              | ** ** | **12,466** |   | 16,131 |   | 11,919 |   |

 

2                  Revenues are based on the country of origin of the product or servicessold.

 

**Property, Plant and Equipment**
| *(millions  of Canadian dollars)* |   |       |   |   |       |   |
|-----------------------------------|--------|------------|--------|--------|------------|--------|
| December 31,                 |   | **2009**   |   |   | 2008       |   |
| Canada                            |   | **15,101** |   |   | **12,107** |   |
| United States                     |   | **3,749**  |   |   | **4,050**  |   |
|                              |   | **18,850** |   |   | **16,157** |   |

 

**5.****         ****FINANCIAL STATEMENT EFFECTS OF RATE REGULATION**

 

**GENERAL INFORMATION ON RATE REGULATION AND ITSECONOMIC EFFECTS**

A number of businesses withinthe Company are subject to regulation where the rates approved by the regulatorare designed to recover the costs of providing products and services tocustomers, referred to as the cost of service toll methodology. The Company’ssignificant regulated businesses and related accounting impacts are describedbelow.

 

**EnbridgeSystem**

The primary business activitiesof the Enbridge System are subject to regulation by the NEB. Tolls are based ona cost of service methodology and are based on agreements with customers whichare filed with the NEB for approval.

 

The incentive tolling settlement(ITS) was effective from January 1, 2005 to December 31, 2009 anddefines the methodology for calculation of tolls and the revenue requirement onthe core component of the Enbridge System in Canada. Toll adjustments, forvariances from requirements defined in the ITS, are filed annually with theregulator for approval. Surcharges are also determined for a number of systemexpansion components and are added to the base toll determined for the coresystem. Discussions and negotiations continue with the Canadian Association ofPetroleum Producers (CAPP) and a representative shipper group for an extensionto the 2005 ITS which will support a competitive toll structure. The Companyanticipates it will reach a settlement by the end of the first quarter of 2010.In the event that a settlement cannot be reached, the Company could file a costof service application.

 

**AthabascaPipeline**

Athabasca Pipeline is regulatedby the ERCB. Tolls are established based on long-term transportation agreementswith individual shippers.

 

### ***VectorPipeline***

Vector Pipeline is an interstate natural gas pipeline in theUnited States with a FERC approved tariff that establishes rates, terms andconditions governing its service to customers. Rates are determined using acost of service methodology. Tariff changes may only be implemented uponapproval by the FERC. Tolls for the year ended December 31, 2009 includean after-tax return on equity (ROE) component of 11.07% (2008 - 11.04%; 2007 -10.75%).

 

### ***AlliancePipeline***

The United States portion of theAlliance Pipeline is regulated by the FERC and the Canadian portion of thepipeline is regulated by the NEB. Shippers on the Alliance Pipeline are subjectto 15-year transportation contracts that expire in December 2015, with acost of service toll methodology. Toll adjustments are filed 

 

 

20

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annually with the regulator. Thetolls for the year ended December 31, 2009 include an after-tax ROEcomponent of 10.88% (2008 - 10.88%; 2007 - 10.88%) for the United Statesportion and 11.26% (2008 - 11.26%; 2007 - 11.26%) for the Canadian portion.Alliance Pipeline tolls are based on a deemed 70% debt and 30% equitystructure.

 

**EnbridgeGas Distribution**

EGD’sgas distribution operations are regulated by the OEB. EGD’s rates are based ona revenue per customer cap incentive regulation (IR) methodology, expiring in December 2012,which adjusts revenues, and consequently rates, annually and relies on anannual process to forecast volume and customer additions.

 

EGD’safter-tax rate of return on common equity embedded in rates was 8.39% for theyear ended December 31, 2009 (2008 - 8.39%; 2007 - 8.39%) based on a 36%(2008 - 36%; 2007 - 36%) deemed common equity component of capital forregulatory purposes.

 

**EnbridgeGas New Brunswick**

Enbridge Gas New Brunswick(EGNB) is regulated by the EUB and follows a cost of service tollingmethodology. An application for rate adjustments is filed annually for EUBapproval. EGNB’s after-tax ROE was 13.00%(2008 - 13.00%; 2007 - 13.00%) based on equity which is capped at 50%.

 

 

21

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**FINANCIAL STATEMENT EFFECTS**

Accounting for rate-regulatedentities has resulted in the recognition of the following regulatory assets andliabilities:

 
|                                   |       |     |   |   |       | Estimated  |       |             |       |   |   |   |   |
|----------------------------------------|------------|----------|--------|--------|------------|------------|------------|------------------|------------|--------|--------|--------|--------|
|                                   |       |     |   |   |       | Settlement |       |             |       |   |   |   |   |
| *(millions of Canadian dollars)*       |       |     |   |   |       | Period     |       | Earnings Impact1 |
| December 31,                      |       | **2009** |   | 2008   |       | (years)    |       | **2009**         |       | 2008   |   | 2007   |   |
| **Regulatory Assets/(Liabilities)**    |       |     |   |   |       |       |       |             |       |   |   |   |   |
| Liquids Pipelines                      |       |     |   |   |       |       |       |             |       |   |   |   |   |
| Future  income taxes2                  | ** ** | **504**  |   | -      |       | -          | ** ** | **49**           | ** ** | **-**  |   | -      |   |
| Enbridge  System tolling deferrals3    | ** ** | **98**   |   | 114    |       | 1          | ** ** | **(16**          | **)**      | (30    | )      | (23    | )      |
| Power  purchase arrangements4          | ** ** | **(2**   | **)**  | (21    | )          | 1-3        | ** ** | **(19**          | **)**      | 3      |   | (24    | )      |
|                                   | ** ** | **600**  |   | 93     | ** ** |       |       | **14**           |       | (27    | )      | (47    | )      |
| Natural  Gas Delivery and Services     |       |     |   |   |       |       |       |             |       |   |   |   |   |
| Future  income taxes2                  | ** ** | **227**  |   | -      |       | -          | ** ** | **(11**          | **)**      | -      |   | -      |   |
| Deferred  transportation revenue5      | ** ** | **185**  |   | 267    |       | 14-16      | ** ** | **(6**           | **)**      | 1      |   | 6      |   |
| EGNB  regulatory deferral6             | ** ** | **155**  |   | 133    |       | 31         | ** ** | **15**           |       | 10     |   | 10     |   |
| Class action  lawsuit settlement7 | ** ** | **20**   |   | 20     |       | 3          | ** ** | **-**            |       | (1     | )      | -      |   |
| Shared  savings mechanism8             | ** ** | **14**   |   | 8      |       | 1          | ** ** | **-**            |       | -      |   | -      |   |
| Ontario  hearing costs9                | ** ** | **6**    |   | 5      |       | 2          | ** ** | **-**            |       | (2     | )      | (1     | )      |
| Transportation  revenue adjustment10   | ** ** | **3**    |   | 7      |       | 1          | ** ** | **(2**           | **)**      | 1      |   | (3     | )      |
| Unaccounted  for gas variance11        | ** ** | **10**   |   | 1      |       | 1          | ** ** | **6**            |       | (4     | )      | 11     |   |
| Future  removal and site restoration   |       |     |   |   |       |       |       |             |       |   |   |   |   |
| reserves12                             | ** ** | **(710** | **)**  | -      |       | -          | ** ** | **6**            |       | -      |   | -      |   |
| Purchased  gas variance13              | ** ** | **(227** | **)**  | (75    | )          | 1          | ** ** | **-**            |       | -      |   | -      |   |
| Pension  plans and OPEB, net14         | ** ** | **(60**  | **)**  | -      |       | -          | ** ** | **(2**           | **)**      | -      |   | -      |   |
| Earnings  sharing deferral15           | ** ** | **(25**  | **)**  | (6     | )          | 1          | ** ** | **-**            |       | -      |   | -      |   |
| Transactional  services deferral16     | ** ** | **(14**  | **)**  | (7     | )          | 1          | ** ** | **-**            |       | -      |   | -      |   |
|                                   | ** ** | **(416** | **)**  | 353    | ** ** |       |       | **6**** **  | 5          |   | 23     |   |
| Sponsored  Investments                 |       |     |   |   |       |       |       |             |       |   |   |   |   |
| Future  income taxes2                  | ** ** | **98**   |   | -      |       | -          | ** ** | **(11**          | **)**      | -      |   | -      |   |
| Deferred  transportation revenue5      | ** ** | **91**   |   | 80     |       | 16         | ** ** | **5**            |       | 6      |   | 8      |   |
|                                   | ** ** | **189**  |   | 80     | ** ** |       |       | **(6**           | **)**      | 6      |   | 8      |   |
|                                   | ** ** | **373**  |   | 526    | ** ** |       |       | **14**** ** | (16        | )      | (16    | )      |

 

1                  Theeffect of a number of the Company’s businesses being subject to rate regulationincreased/(decreased) after-tax reported earnings by the identified amounts.

 

2                  Thisregulatory asset is an offsetting balance to a future income tax liabilityrecognized on adoption of a revised accounting standard (Note 3). The futureincome tax liability primarily relates to future income taxes associated withproperty, plant and equipment. The balance has been recognized as a regulatoryasset since the flow-through treatment of taxes for rate-setting purposes wouldensure eventual recovery of these balances as the temporary differencesreverse. The recovery period will depend on the period in which the futureincome tax amounts reverse. In the absence of rate regulation, the liabilitymethod of accounting for income taxes would be utilized and future income taxexpense would be recorded.

 

3                  Tollson the Enbridge System are calculated in accordance with the ITS, SystemExpansion Program (SEP), Terrace, Southern Access, Line 4 and the AlbertaClipper agreements and are established each year based on capacity and theallowed revenue requirement. Where actual volumes shipped on the pipeline donot result in collection of the annual revenue requirement, a regulatory assetis recognized and incorporated into tolls in the subsequent year. Recovery inthe subsequent year, in whole or in part, is dependent upon realizing shippingvolumes consistent with tolling model forecasts. Under or over collections arerolled into subsequent years. In addition, other tolling deferrals are recordedin accordance with the various agreements.

 

4                  Thepower purchase arrangements liability represents the fair value of fixed pricecontracts and related financial instruments used to manage the mix of fixed andfloating power costs (Note 23). Under rate regulation any fair value changesare passed to shippers through tolls. In the absence of rate regulation, thesechanges would impact earnings in the year incurred.

 

 

22

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5                  Deferredtransportation revenue is related to the cumulative difference between CanadianGAAP depreciation expense for Alliance and Vector Pipelines and depreciation expenseincluded in the regulated transportation rates. The Company expects to recoverthis difference over a number of years when depreciation rates in thetransportation agreements are expected to exceed Canadian GAAP depreciationrates: for Alliance Pipeline US beginning in 2009, for Alliance Pipeline Canadabeginning in 2011 and ending in 2025 and for Vector Pipeline beginning in 2008and ending in 2023. This regulatory asset is not included in the rate base.

 

6                  Aregulatory deferral account captures the cumulative difference between EGNB’sdistribution revenues and its cost of service revenue requirement during thedevelopment period. The regulatory deferral account balance is expected to beamortized over a recovery period approved by the EUB expected to commence atthe end of the development period in 2010 and expected to end in 2040.

 

7                  Class actionlawsuit settlement deferral represents amounts paid towards the settlement of aclass action lawsuit related to late payment penalties. Pursuant to an OEB decisionin February 2008, these amounts will be recovered from customers over afive-year period commencing in 2008. In the absence of rate regulation thesecosts would be expensed as incurred.

 

8                  Sharedsavings mechanism (SSM) deferral represents the benefit derived by EGD as aresult of its energy efficiency programs. EGD has historically been granted OEBapproval to recover the SSM amount through rates after a detailed review by theOEB. The process of review and subsequent recovery may extend over a few years.In the absence of rate regulation, the amount would be included in earnings inthe year of approval.

 

9                  Ontariohearing costs are incurred by EGD for the rate hearing process. EGD hashistorically been granted OEB approval for recovery of such hearing costs,generally within two years. In the absence of rate regulation these costs wouldbe expensed as incurred.

 

10            Thedeferred transportation revenue adjustment is the cumulative difference betweenactual expenses of Alliance Pipeline US and estimated expenses included intransportation rates. The deferred transportation revenue adjustment isrecoverable, typically in the following year, under the long-termtransportation agreements and is not included in the rate base.

 

11            Unaccountedfor gas variance represents the difference between the total gas distributed byEGD and the amount of gas billed or billable to ratepayers, to the extent it isdifferent from the approved gas variance. EGD has deferred unaccounted for gasvariance and has historically been granted approval for recovery or requiredrefund of this amount in the subsequent year. In the absence of rate regulationthis variance would be included in Commodity Costs.

 

12            Futureremoval and site restoration reserves results from the adoption of a revisedaccounting standard in 2009 (Note 3). With the approval of the regulators,certain of the Company’s businesses collect amounts from customers to fundfuture costs for removal and site restoration relating to property, plant andequipment and are collected as part of depreciation charged on property, plantand equipment. The balance represents the net amount that EGD has collectedfrom customers, net of actual costs expended on removal and site restoration asat December 31, 2009. In the absence of rate regulation, this balancewould not be recorded as amounts would not have been collected from customers.

 

13            Purchasedgas variance is the difference between the actual cost and the approved cost ofgas reflected in rates. EGD has been granted approval to refund this balance tocustomers in the following year. In the absence of rate regulation the actualcost of gas would be included in commodity costs and commodity sales would beadjusted by the purchased gas variance.

 

14            Thispension plan and OPEB account results from the adoption of a revised accountingstandard in 2009 (Note 3). EGD continues to record and recover pension plancontributions and OPEB expenditures through rates on a cash basis. However, asa result of the revised accounting standard, a net asset was recordedrepresenting the amount of pension and OPEB benefits calculated on an accrualbasis, with an offsetting net regulatory liability. The settlement period isnot determinable. In the absence of rate regulation, there would be no regulatoryoffset to the net asset.

 

15            Earningssharing deferral represents amounts relating to the earnings sharing mechanism,which forms part of the IR Settlement. The earnings sharing is payable toratepayers and represents 50% of earnings excluding the effects of weather,represented by the ROE in excess of 100 basis points above the notional allowedutility ROE. The December 31, 2009 balance relates to the years ended December 31,2009 and 2008. There would be no change in the treatment of this item in theabsence of rate regulation.

 

16            Transactionalservices deferral represents the ratepayer portion of excess earnings generatedfrom optimization of storage and pipeline capacity. EGD has historically beenrequired to refund the amount to ratepayers in the following year. There wouldbe no change in the treatment of this item in the absence of rate regulation.

 

 

23

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# **OTHER ITEMSAFFECTED BY RATE REGULATION**

**Future Income Taxes**

On January 1, 2009, the Company adopted a change inaccounting standard that impacted the recognition of future income taxes as itrelates to rate regulated activities. Effective January 1, 2009, futureincome tax balances arising primarily from property, plant and equipment arerecognized, along with offsetting regulatory assets or liabilities to theextent such balances are expected to be included in future rates. Previously,neither the future income tax balance nor the associated regulatory asset orliability would have been recognized.

 

At December 31, 2008, in the absence of rateregulation, a future income tax liability of $533 million associated primarilywith property, plant and equipment would have been recognized.

 

At December 31, 2008 the Company had recorded netfuture income tax liabilities of $68 million related to certain regulatoryasset and liability deferral accounts identified above. Accumulated futureincome tax liabilities of $55 million related to the remaining regulatorydeferral accounts have not been recognized at December 31, 2008. In theabsence of rate regulation, regulatory deferrals would not be recorded norwould the associated future income tax liabilities. As a result of these taximpacts, earnings for the year ended December 31, 2008 would havedecreased by $15 million (2007 - increased by $62 million).

 

**Allowance for Funds Used DuringConstruction and Other Capitalized Costs**

Under the pool method prescribed by certain regulators, itis not possible to identify the carrying value of the equity component of AFUDCor its effect on depreciation. Similarly, gains or losses on the retirement ofcertain specific fixed assets in any given year cannot be identified orquantified.

 

**Operating CostCapitalization**

EGD entered into a consulting contract relating to assetmanagement initiatives. The majority of the costs are being capitalized to gasmains in accordance with regulatory approval. At December 31, 2009, costsrelating to this consulting contract of $112 million (2008 - $94 million) wereincluded in property, plant and equipment, and are being depreciated over theaverage service life of 25 years. In the absence of rate regulation, these costs would be charged to currentearnings.

 

***Pension Plans***

***Prior to January 1, 2009 had pension costs and obligations beenrecognized at EGD, the net pension asset would have increased by $157 million*** at December 31, 2008 and earnings would have increased by $3million for the year ended December 31, 2008 (2007 - decreased by$1 million) (Note 3).

*** ***

***Post-Employment Benefits Other than Pensions***

Prior to January 1, 2009 had thecost of OPEB been accrued at EGD, the net OPEB liability would have increasedby $75 million as at December 31, 2008 and earnings would have decreasedby $6 million for the year ended December 31, 2008 (2007 - $6 million) (Note 3).

 

**6.****         ****GAIN ONSALE OF INVESTMENTS**

 
| *(millions  of Canadian dollars)*                                  |       |     |   |   |   |   |   |   |
|--------------------------------------------------------------------|------------|----------|--------|--------|--------|--------|--------|--------|
| December 31,                                                  |       | **2009** |   |   | 2008   |   | 2007   |   |
| NetThruPut (NTP)                                                   | ** ** | **29**   |   |   | -      |   | -      |   |
| Oleoducto Central S.A. (OCENSA)                                    | ** ** | **336**  |   |   | -      |   | -      |   |
| Compañía Logística de Hidrocarburos CLH, S.A. (CLH) | ** ** | **-**    |   |   | 695    |   | -      |   |
| Other                                                              | ** ** | **-**    |   |   | 5      |   | -      |   |
|                                                               | ** ** | **365**  |   |   | 700    |   | -      |   |

 

**NTP**

OnMay 1, 2009, the Company sold its investment in NTP, an internet-basedexchange facility for physical crude oil products, for proceeds of $32 million.Earnings generated by the NTP investment for the year ended December 31,2009 were $1 million (2008 - $1 million) and are included in the Corporateoperating 

 

 

24

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segment.

 

**OCENSA**

OnMarch 17, 2009, the Company sold its investment in OCENSA, a crude oil pipelinein Colombia, for proceeds of $512 million (US$402 million). Earnings and cashflows from operating activities generated by this investment for the year endedDecember 31, 2009 were $7 million (2008 - $33 million). Earnings from theOCENSA investment are included in the Natural Gas Delivery and Servicesoperating segment. As a result of the sale of OCENSA, the Company reclassified$20 million of after-tax gains on unrealized cash flow hedges from OCI toearnings in the year ended December 31, 2009.

 

**CLH**

On June 17, 2008, the Companysold its 25% investment in CLH for total proceeds of $1,380 million (€876million), net of transaction costs. The sale of CLH resulted in a gain of $695million. Earnings generated by the CLH investment for the year ended December 31,2008 were $25 million (2007 - $66 million), and are included in the Natural GasDelivery and Services operating segment. Operating cash flows generated by theCLH investment for the year ended December 31, 2008 were $12 million (2007- $58 million).

 

**7.****         ****ACCOUNTS RECEIVABLE AND OTHER**

 
| *(millions  of Canadian dollars)*                   |       |      |   |   |   |   |
|-----------------------------------------------------|------------|-----------|--------|--------|--------|--------|
| December 31,                                   |       | **2009**  |   |   | 2008   |   |
| Unbilled revenues                                   | ** ** | **1,018** |   |   | 751    |   |
| Trade receivables                                   | ** ** | **607**   |   |   | 907    |   |
| Regulatory assets                                   | ** ** | **181**   |   |   | 138    |   |
| Taxes receivable                                    | ** ** | **94**    |   |   | 133    |   |
| Short-term portion of derivative assets *(Note 23)* | ** ** | **128**   |   |   | 72     |   |
| Due from affiliates *(Note 30)*                     | ** ** | **336**   |   |   | 19     |   |
| Prepaid expenses and deposits                       | ** ** | **27**    |   |   | 28     |   |
| Dividends receivable                                | ** ** | **14**    |   |   | 13     |   |
| GST receivable                                      | ** ** | **-**     |   |   | 75     |   |
| Other                                               | ** ** | **79**    |   |   | 186    |   |
|                                                | ** ** | **2,484** |   |   | 2,322  |   |

 

**8.****         ****INVENTORY**

** **
| *(millions  of Canadian dollars)* |       |     |   |   |   |   |
|-----------------------------------|------------|----------|--------|--------|--------|--------|
| December 31,                 |       | **2009** |   |   | 2008   |   |
| Natural gas                       | ** ** | **492**  |   |   | 674    |   |
| Other commodities                 | ** ** | **292**  |   |   | 171    |   |
|                              | ** ** | **784**  |   |   | 845    |   |

 

 

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**9.****         ****PROPERTY, PLANT AND EQUIPMENT**

 
| *(millions of Canadian dollars)*              |       | Weighted          |       |       |       |         |       |       |
|-----------------------------------------------|------------|-------------------|------------|------------|------------|--------------|------------|------------|
|                                          |       | Average           |       |       |       | Accumulated  |       |       |
| **December 31, 2009**                    |       | Depreciation Rate |       | Cost       |       | Depreciation |       | Net        |
| Liquids Pipelines                             |       |              |       |       |       |         |       |       |
| Pipeline                                      | ** ** | **2.4%**          | ** ** | **4,053**  | ** ** | **1,481**    | ** ** | **2,572**  |
| Pumping equipment, buildings, tanks and other | ** ** | **3.5%**          | ** ** | **4,029**  | ** ** | **1,065**    | ** ** | **2,964**  |
| Land and right-of-way                         | ** ** | **2.0%**          | ** ** | **118**    | ** ** | **23**       | ** ** | **95**     |
| Under construction                            | ** ** | **- **       | ** ** | **4,129**  | ** ** | **-**        | ** ** | **4,129**  |
|                                          | ** ** |              | ** ** | **12,329** | ** ** | **2,569**    | ** ** | **9,760**  |
| Natural Gas Delivery and Services             |       |              |       |       |       |         |       |       |
| Pipeline                                      | ** ** | **3.5%**          | ** ** | **1,971**  | ** ** | **570**      | ** ** | **1,401**  |
| Regulating, metering and other equipment      | ** ** | **4.0%**          | ** ** | **1,204**  | ** ** | **280**      | ** ** | **924**    |
| Gas mains and services                        | ** ** | **3.4%**          | ** ** | **5,133**  | ** ** | **854**      | ** ** | **4,279**  |
| Storage                                       | ** ** | **2.8%**          | ** ** | **241**    | ** ** | **43**       | ** ** | **198**    |
| Computer technology                           | ** ** | **20.6%**         | ** ** | **20**     | ** ** | **3**        | ** ** | **17**     |
| Land and right-of-way                         | ** ** | **4.1%**          | ** ** | **103**    | ** ** | **27**       | ** ** | **76**     |
| Under construction                            | ** ** | **- **       | ** ** | **341**    | ** ** | **-**        | ** ** | **341**    |
|                                          | ** ** |              | ** ** | **9,013**  | ** ** | **1,777**    | ** ** | **7,236**  |
| Sponsored Investments                         |       |              |       |       |       |         |       |       |
| Pipeline                                      | ** ** | **4.6%**          | ** ** | **1,406**  | ** ** | **368**      | ** ** | **1,038**  |
| Other                                         | ** ** | **6.9%**          | ** ** | **139**    | ** ** | **18**       | ** ** | **121**    |
|                                          | ** ** |              | ** ** | **1,545**  | ** ** | **386**      | ** ** | **1,159**  |
| Corporate                                     |       |              |       |       |       |         |       |       |
| Wind turbines and other                       | ** ** | **4.5%**          | ** ** | **631**    | ** ** | **35**       | ** ** | **596**    |
| Land and right-of-way                         | ** ** | **4.0%**          | ** ** | **2**      | ** ** | **-**        | ** ** | **2**      |
| Under construction                            | ** ** | **- **       | ** ** | **97**     | ** ** | **-**        | ** ** | **97**     |
|                                          | ** ** |              | ** ** | **730**    | ** ** | **35**       | ** ** | **695**    |
|                                          | ** ** |              | ** ** | **23,617** | ** ** | **4,767**    | ** ** | **18,850** |

 

 

26

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| *(millions  of Canadian dollars)*             |   | Weighted Average  |   |   |   | Accumulated  |   |   |
|-----------------------------------------------|--------|-------------------|--------|--------|--------|--------------|--------|--------|
| December 31, 2008                        |   | Depreciation Rate |   | Cost   |   | Depreciation |   | Net    |
| Liquids Pipelines                             |   |              |   |   |   |         |   |   |
| Pipeline                                      |   | 2.4%              |   | 3,162  |   | 1,360        |   | 1,802  |
| Pumping equipment, buildings, tanks and other |   | 3.7%              |   | 2,958  |   | 986          |   | 1,972  |
| Land and right-of-way                         |   | 2.5%              |   | 70     |   | 20           |   | 50     |
| Under construction                            |   | -                 |   | 3,857  |   | -            |   | 3,857  |
|                                          |   |              |   | 10,047 |   | 2,366        |   | 7,681  |
| Natural Gas Delivery and Services             |   |              |   |   |   |         |   |   |
| Pipeline                                      |   | 3.6%              |   | 2,169  |   | 589          |   | 1,580  |
| Regulating, metering and other equipment      |   | 4.4%              |   | 1,226  |   | 307          |   | 919    |
| Gas mains and services                        |   | 3.7%              |   | 5,074  |   | 1,401        |   | 3,673  |
| Storage                                       |   | 2.7%              |   | 239    |   | 61           |   | 178    |
| Computer technology                           |   | 19.0%             |   | 22     |   | 3            |   | 19     |
| Land and right-of-way                         |   | 2.8%              |   | 49     |   | 11           |   | 38     |
| Under construction                            |   | -                 |   | 360    |   | -            |   | 360    |
|                                          |   |              |   | 9,139  |   | 2,372        |   | 6,767  |
| Sponsored Investments                         |   |              |   |   |   |         |   |   |
| Pipeline                                      |   | 4.4%              |   | 1,363  |   | 277          |   | 1,086  |
| Other                                         |   | 8.1%              |   | 112    |   | 4            |   | 108    |
|                                          |   |              |   | 1,475  |   | 281          |   | 1,194  |
| Corporate                                     |   |              |   |   |   |         |   |   |
| Wind turbines and other                       |   | 4.9%              |   | 508    |   | 17           |   | 491    |
| Land and right-of-way                         |   | 4.0%              |   | 2      |   | -            |   | 2      |
| Under construction                            |   | -                 |   | 22     |   | -            |   | 22     |
|                                          |   |              |   | 532    |   | 17           |   | 515    |
|                                          |   |              |   | 21,193 |   | 5,036        |   | 16,157 |

 

**10.  JOINT VENTURES**

 

The impact of the Company’s joint venture interests onnet assets, earnings, cash flows and financial position is summarized below.

 
| *(millions  of Canadian dollars)*                    |       | Ownership |       | Net Assets |   |
|------------------------------------------------------|------------|-----------|------------|------------|--------|
| December 31,                                    |       | Interest  |       | **2009**   |   |   | 2008 |   |
| Liquids Pipelines                                    |       |      |       |       |   |   |   |   |
| Olympic Pipelines                                    |       | 65%       | ** ** | **111**    |   |   | 125 |   |
| Chicap Pipeline                                      |       | 43.8%     | ** ** | **9**      |   |   | 9 |   |
| Other                                                |       | 30%-50%   | ** ** | **55**     |   |   | 59 |   |
| Natural Gas Delivery and Services                    |       |      |       |       |   |   |   |   |
| Alliance Pipeline US                                 |       | 50%       | ** ** | **383**    |   |   | 453 |   |
| Vector Pipeline                                      |       | 60%       | ** ** | **420**    |   |   | 486 |   |
| Enbridge Offshore Pipelines - various joint ventures |       | 22%-75%   | ** ** | **385**    |   |   | 521 |   |
| Aux Sable                                            |       | 42.7%     | ** ** | **153**    |   |   | 174 |   |
| Other                                                |       | 42.7%-70% | ** ** | **32**     |   |   | 45 |   |
| Sponsored Investments                                |       |      |       |       |   |   |   |   |
| Alliance Pipeline Canada                             |       | 50%       | ** ** | **676**    |   |   | 688 |   |
| Other                                                |       | 33%-50%   | ** ** | **46**     |   |   | 48 |   |
|                                                 | ** ** |      |       | **2,270**  |   |   | 2,608 |   |

 

 

27

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The following table summarizes the impact ofproportionately consolidating the joint ventures to the consolidated financialstatements of the Company.

 
| *(millions of Canadian dollars)*                             |       |     |   |   |   |   |   |   |   |
|--------------------------------------------------------------|------------|----------|--------|--------|--------|--------|--------|--------|--------|
| Year ended December 31,                                 |       | **2009** |   |   | 2008   |   |   | 2007   |   |
| Earnings                                                     |       |     |   |   |   |   |   |   |   |
| Revenues                                                     | ** ** | **781**  |   |   | 891    |   |   | 844    |   |
| Commodity costs                                              | ** ** | **(74**  | **)**  |   | (174   | )      |   | (133   | )      |
| Operating and administrative                                 | ** ** | **(226** | **)**  |   | (235   | )      |   | (208   | )      |
| Depreciation and amortization                                | ** ** | **(171** | **)**  |   | (173   | )      |   | (153   | )      |
| Interest expense                                             | ** ** | **(99**  | **)**  |   | (97    | )      |   | (106   | )      |
| Other investment income                                      | ** ** | **10**   |   |   | 13     |   |   | 7      |   |
| Proportionate share of earnings                              | ** ** | **221**  |   |   | 225    |   |   | 251    |   |
| Cash Flows                                                   |       |     |   |   |   |   |   |   |   |
| Cash provided by operating activities                        | ** ** | **342**  |   |   | 408    |   |   | 312    |   |
| Cash used in investing activities                            | ** ** | **(49**  | **)**  |   | (61    | )      |   | (132   | )      |
| Cash used in financing activities                            | ** ** | **(296** | **)**  |   | (351   | )      |   | (184   | )      |
| Proportionate share of decrease in cash and cash equivalents | ** ** | **(3**   | **)**  |   | (4     | )      |   | (4     | )      |

 
| *(millions of Canadian dollars)*   |       |       |   |   |   |   |
|------------------------------------|------------|------------|--------|--------|--------|--------|
| December 31,                  |       | **2009**   |   |   | 2008   |   |
| Financial Position                 |       |       |   |   |   |   |
| Current assets                     | ** ** | **173**    |   |   | 179    |   |
| Property, plant and equipment, net | ** ** | **2,769**  |   |   | 3,221  |   |
| Deferred amounts and other assets  | ** ** | **696**    |   |   | 735    |   |
| Current liabilities                | ** ** | **(212**   | **)**  |   | (177   | )      |
| Non-recourse long-term debt        | ** ** | **(1,109** | **)**  |   | (1,309 | )      |
| Other long-term liabilities        | ** ** | **(47**    | **)**  |   | (41    | )      |
| Proportionate share of net assets  | ** ** | **2,270**  |   |   | 2,608  |   |

 

During the year ended December 31, 2009, theCompany purchased the additional 50% interest in Starfish Pipeline Company,LLC, increasing its ownership percentage to 100.0%. As the Company establishedcontrol over the entity effective December 31, 2009, it has consolidatedits interest in Starfish Pipeline Company, LLC from that date forward. Prior toDecember 31, 2009, the entity was classified as a joint venture.

 

During the year ended December 31, 2008, theCompany purchased an additional equity interest in Chicap Pipeline, increasingits ownership percentage to 43.8%. As the Company established joint controlover the entity effective October 31, 2008, it has proportionallyconsolidated its interest in Chicap Pipeline from that date forward. Prior to October 31,2008, the entity was classified as a long-term investment.

 

 

28

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**11.****        ****LONG-TERM INVESTMENTS**

 
| *(millions  of Canadian dollars)*      |       | Ownership |       |      |   |   |
|----------------------------------------|------------|-----------|------------|-----------|--------|--------|
| December 31,                      |       | Interest  | ** ** | **2009**  |   | 2008   |
| **Equity  Investments**                |       |      |       |      |   |   |
| Sponsored Investments                  |       |      |       |      |   |   |
| The Partnership                        |       | 27.0%     | ** ** | **1,697** |   | 2,014  |
| Enbridge Energy, L.P. - Series AC |       | 66.7%     | ** ** | **357**   |   | -      |
| Natural Gas Delivery and Services      |       |      |       |      |   |   |
| Noverco Inc. Common Shares             |       | 32.1%     | ** ** | **14**    |   | 11     |
| Corporate                              |       |      |       |      |   |   |
| Other                                  |       | 10%-33%   | ** ** | **9**     |   | 9      |
| **Other  Investments**                 |       |      |       |      |   |   |
| Natural Gas Delivery and Services      |       |      |       |      |   |   |
| Noverco Inc. Preferred Shares          | ** ** |      |       | **181**   |   | 181    |
| Fuel Cell Energy Ltd.                  | ** ** |      |       | **25**    |   | 25     |
| OCENSA                                 | ** ** |      |       | **-**     |   | 223    |
| Corporate                              |       |      |       |      |   |   |
| Value Creation Inc.                    | ** ** |      |       | **29**    |   | 29     |
|                                   | ** ** |      |       | **2,312** |   | 2,492  |

 

Equity investmentsinclude the unamortized excess of the purchase price over the underlying netbook value of the investee’s assets at the purchase date of $126 million at December 31,2009 (2008 - $130 million). The excess is attributable to the value ofproperty, plant and equipment within the investees based on estimated fairvalues at the purchase date and is amortized over the economic life of theassets. During 2009 dividends from equity investments exceeded equityinvestment earnings by $75 million; whereas during 2008, equity investmentearnings exceeded dividends in the year by $10 million.

 

**THEPARTNERSHIP**

ThePartnership includes the Company’s investments in EEP and Enbridge EnergyManagement, L.L.C. (EEM). The Company has a combined 27.0% ownership in EEP,through a 2.0% general partner interest, a 19.4% interest in Class Aunits, a 3.3% interest in Class B units and a 2.3% interest in EEP as aresult of a 17.2% investment in EEM, which owns 12.6% of EEP through its 100%interest in EEP’s i-units. The Company recorded investment income from EEP of$175 million for the year ended December 31, 2009 (2008 - $162 millionincluding dilution gains; 2007 - $130 million including dilution gains).

 

Although82.8% of EEM is widely held, the Company has voting control and thereforeconsolidates its investment in EEM, including its investment in EEP of $615million (2008 - $691 million). Net of non-controlling interests in EEM, thebook value of the Company’s investment in EEP is $1,544 million (2008 - $1,441million.)

 

In October 2009,the Company converted its investment in EEP Class C units into Class Acommon units. The Class C units converted on a one-for-one basis, resultingin the issuance and receipt of 21,333,273 Class A common units. Prior tothe unit conversion, distributions were paid in additional Class C unitswhere Class C units were valued at the market value of Class A units.

 

In March 2008,EEP issued Class A units and, because Enbridge did not fully participatein this issuance, a dilution gain of $5 million was recognized and Enbridge’sownership interest in EEP decreased from 15.1% to 14.6%. In November 2008,the Company subscribed for 16.3 million Class A common units of EEP forUS$510 million increasing its ownership interest from 14.6% to 27.0%.

 

 

29

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In the secondquarter of 2007, EEP issued Class A and Class C partnership units. AsEnbridge did not fully participate in these offerings, dilution gains net oftax and non-controlling interests of $12 million were recognized and Enbridge’sownership interest in the Partnership decreased from 16.6% to 15.1%.

 

**ENBRIDGEENERGY, L.P.**

TheCompany has a 66.7% interest in the series AC units of EELP, which isconstructing the United States segment of the Alberta Clipper project *(Note 30)*.

 

**NOVERCO**

TheCompany owns a preferred share investment in Noverco Inc. (Noverco) of $181million at December 31, 2009 (2008 - $181 million), which is entitled to acumulative preferred dividend based on the average yield of Government ofCanada bonds maturing in greater than 10 years plus 4.34%.

 

TheCompany also owns an equity investment in the common shares of Noverco of $14 millionat December 31, 2009 (2008 - $11 million). Noverco owns an approximate9.2% (2008 - 9.3%) reciprocal shareholding in the shares of the Company. As aresult, the Company has an indirect pro-rata interest of 2.9% (2008 - 3.0%) inits own shares. Both the equity investment in Noverco and shareholders’ equityhave been reduced by the reciprocal shareholding of $154 million at December 31,2009 (2008 - $154 million). Noverco records dividends paid by the Company asdividend income and the Company eliminates these dividends from the earnings ofNoverco. The Company records its pro-rata share of dividends paid by theCompany to Noverco as a reduction of dividends paid and an increase in theCompany’s investment in Noverco. In 2009, the Company recorded equityinvestment earnings of $10 million (2008 - $4 million; 2007 - $9 million)related to its interest in Noverco.

 

**OCENSA**

On March 17, 2009 the Companysold its investment in OCENSA (Note 6).

 

**CORPORATE**

The Companyreviews the carrying value of its long-term investments on a regular basis asevents or changes in circumstances warrant. During 2008, one of the Company’sequity investments, N-Solv, a developer of in-situ oil sands extractiontechnology, failed a key milestone when its planned demonstration pilot plantwas terminated. A writedown of $7 million was recognized in the year ended December 31,2008 to adjust the carrying value of this investment to its fair value of $7million.

 

**12.****        ****DEFERRED AMOUNTS AND OTHER ASSETS**

 
| *(millions of Canadian dollars)*                    |       |      |   |   |
|-----------------------------------------------------|------------|-----------|--------|--------|
| December 31,                                   | ** ** | **2009**  |   | 2008   |
| Regulatory  assets                                  | ** ** | **1,419** |   | 510    |
| Long-term  portion of derivative assets *(Note 23)* | ** ** | **485**   |   | 317    |
| Pension  asset *(Note 27)*                          | ** ** | **216**   |   | 70     |
| Affiliate  long-term note receivable *(Note 30)*    | ** ** | **-**     |   | 159    |
| Contractual  receivables                            | ** ** | **171**   |   | 159    |
| Other                                               | ** ** | **134**   |   | 103    |
|                                                | ** ** | **2,425** |   | 1,318  |

 

At December 31,2009, deferred amounts of $71million (2008 - $48 million) were subject to amortization and are presented netof accumulated amortization of $34million (2008 - $26 million). Amortization expense in 2009 was $7million (2008 - $5 million; 2007 - $4 million).

 

 

30

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**13.****        ****INTANGIBLE ASSETS**

 
| *(millions of Canadian  dollars)* |       | Weighted Average  |       | * * | * *   | Accumulated  | * *   | * * |
|-----------------------------------|------------|-------------------|------------|----------|------------|--------------|------------|----------|
| **December 31,  2009**       |       | Amortization Rate |       | Cost     |       | Amortization |       | Net      |
| Software                          | ** ** | **17.1%**         | ** ** | **448**  | ** ** | **159**      | ** ** | **289**  |
| Transportation  agreements        | ** ** | **4.2%**          | ** ** | **232**  | ** ** | **56**       | ** ** | **176**  |
| Power  Purchase Agreements        | ** ** | **4.0%**          | ** ** | **18**   | ** ** | **1**        | ** ** | **17**   |
| Customer  lists                   | ** ** | **7.1%**          | ** ** | **9**    | ** ** | **3**        | ** ** | **6**    |
|                              | ** ** |              | ** ** | **707**  | ** ** | **219**      | ** ** | **488**  |

 
| *(millions of Canadian  dollars)* |   | Weighted Average  |   | * * | * * | Accumulated  | * * | * * |
|-----------------------------------|--------|-------------------|--------|----------|----------|--------------|----------|----------|
| December 31,  2008           |   | Amortization Rate |   | Cost     |     | Amortization |     | Net      |
| Software                          |   | 17.6%             |   | 536      |     | 303          |     | 233      |
| Transportation  agreements        |   | 4.2%              |   | 252      |     | 50           |     | 202      |
| Power  Purchase Agreements        |   | 4.0%              |   | 16       |     | -            |     | 16       |
| Customer  lists                   |   | 7.1%              |   | 10       |     | 3            |     | 7        |
|                              |   |              |   | 814      |     | 356          |     | 458      |

 

Totalamortization expense for intangible assets was $44 million for the year ended December 31,2009 (2008 - $58 million; 2007 - $43 million). The Company expects aggregateamortization expense for the years ending December 31, 2010 through 2014of $58 million, $49 million, $42 million, $36 million and $30 million,respectively.

 

**14.****        ****GOODWILL**

 
| *(millions of Canadian  dollars)*  |       | Liquids   Pipelines |       | Natural Gas   Delivery and   Services |       | Sponsored   Investments |       | Corporate |       | Consolidated |
|------------------------------------|------------|---------------------|------------|---------------------------------------|------------|-------------------------|------------|-----------|------------|--------------|
| Balance  at December 31, 2007 | ** ** | 18                  |       | 49                                    |       | 308                     |       | 13        |       | 388          |
| Goodwill  impairment               |       | -                   |       | -                                     |       | -                       |       | (13)      |       | (13)         |
| Foreign  exchange and other        |       | 4                   |       | 10                                    |       | -                       |       | -         |       | 14           |
| Balance  at December 31, 2008 |       | 22                  |       | 59                                    |       | 308                     |       | -         |       | 389          |
| Goodwill  impairment               | ** ** | **-**               | ** ** | **(7)**                               | ** ** | **-**                   | ** ** | **-**     | ** ** | **(7)**      |
| Foreign  exchange and other        | ** ** | **(3)**             | ** ** | **(7)**                               | ** ** | **-**                   | ** ** | **-**     | ** ** | **(10)**     |
| Balance  at December 31, 2009 | ** ** | **19**              | ** ** | **45**                                | ** ** | **308**                 | ** ** | **-**     | ** ** | **372**      |

 

In thefourth quarter of 2009, the Company recognized an impairment of $7 million ongoodwill related to Enbridge Electric Connections Inc. within the Natural GasDelivery and Services segment.

 

In thefourth quarter of 2008, the Company concluded the goodwill related to OntarioWind Power, within the Corporate operating segment, was impaired. Accordinglyan impairment loss of $13 million was recorded.

 

 

31

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**15.****        ****ACCOUNTS PAYABLE AND OTHER**

 
| *(millions of Canadian dollars)*         |       |      |   |   |
|------------------------------------------|------------|-----------|--------|--------|
| December 31,                        | ** ** | **2009**  |   | 2008   |
| Operating accrued liabilities            | ** ** | **1,313** |   | 963    |
| Trade payables                           | ** ** | **415**   |   | 548    |
| Construction payables                    | ** ** | **163**   |   | 273    |
| Current derivative liabilities (Note 23) | ** ** | **123**   |   | 50     |
| Contractor holdbacks                     | ** ** | **108**   |   | 68     |
| Taxes payable                            | ** ** | **103**   |   | 273    |
| Security deposits                        | ** ** | **60**    |   | 123    |
| Other                                    | ** ** | **178**   |   | 113    |
|                                     | ** ** | **2,463** |   | 2,411  |

 

**16.****        ****DEBT**

 
| *(millions of Canadian  dollars)*                |       | Weighted   Average | * *   | * *  | * *   | * *   | * * | * * |
|--------------------------------------------------|------------|--------------------|------------|-----------|------------|------------|----------|----------|
| December 31,                                |       | Interest Rate      |       | Maturity  | ** ** | **2009**   |     | 2008     |
| Liquids  Pipelines                               |       |               |       |      |       |       |     |     |
| Debentures                                       |       | 8.20%              |       | 2024      | ** ** | **200**    |     | 200      |
| Medium-term notes                                |       | 5.48%              |       | 2012-2039 | ** ** | **1,525**  |     | 1,125    |
| Southern Lights project financing1               |       | 2.05%              |       | 2014      | ** ** | **1,531**  |     | 1,359    |
| Commercial paper and credit facility draws, net  | ** ** |               |       |      |       | **874**    |     | 525      |
| Other2                                           | ** ** |               |       |      |       | **15**     |     | 15       |
| Natural  Gas Delivery and Services               |       |               |       |      |       |       |     |     |
| Debentures                                       |       | 11.04%             |       | 2010-2024 | ** ** | **385**    |     | 485      |
| Medium-term notes                                |       | 5.77%              |       | 2014-2036 | ** ** | **1,795**  |     | 1,795    |
| Commercial paper and credit facility draws, net  | ** ** |               |       |      |       | **512**    |     | 883      |
| Corporate                                        |       |               |       |      |       |       |     |     |
| U.S. dollar term notes3                          |       | 5.48%              |       | 2014-2017 | ** ** | **1,151**  |     | 1,680    |
| Medium-term notes                                |       | 5.47%              |       | 2010-2039 | ** ** | **2,568**  |     | 1,568    |
| Commercial paper and credit facility draws, net4 | ** ** |               |       |      |       | **2,235**  |     | 2,034    |
| Deferred  debt issue costs and other             | ** ** |               |       |      |       | **(101)**  |     | (106)    |
| Total  Debt                                      | ** ** |               |       |      |       | **12,690** |     | 11,563   |
| Current  Maturities                              | ** ** |               |       |      |       | **(601)**  |     | (534)    |
| Short-Term  Borrowings                           |       | 0.26%              | ** ** |      |       | **(508)**  |     | (874)    |
| Long-Term  Debt                                  | ** ** |               |       |      |       | **11,581** |     | 10,155   |

 

1                  2009 - $385 million and US$1,095 million (2008 - $318million and US$850 million).

2                  Primarily capital lease obligations.

3                  2009 - US$1,100 million (2008 - US$1,372 million).

4                  2009 - $1,973 million and US$250 million (2008 - $1,189million and US$690 million).

 

Debentureand term note maturities for the years ending December 31, 2010 through2014 are $600 million, $150 million, $250 million, $200 million and $819million, respectively. The Company’s debentures and term notes bear interest atfixed rates and the interest obligations for the years ending December 31,2010 through 2014 are $445 million, $407 million, $399 million, $383 millionand $360 million, respectively.

 

 

32

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**INTERESTEXPENSE**

 

*(millions of Canadian dollars)*
| Year  ended December 31,               | ** ** | **2009** |   | 2008 |   | 2007 |
|---------------------------------------------|------------|----------|--------|------|--------|------|
| Debentures  and term notes                  | ** ** | **484**  |   | 404  |   | 418  |
| Non-recourse  long-term debt                | ** ** | **93**   |   | 100  |   | 102  |
| Commercial  paper and credit facility draws | ** ** | **71**   |   | 100  |   | 91   |
| Southern  Lights project financing          | ** ** | **45**   |   | 28   |   | -    |
| Capitalized                                 | ** ** | **(96)** |   | (81) |   | (61) |
|                                        |       | **597**  |   | 551  |   | 550  |

 

**CREDITFACILITIES**

 
| *(millions of Canadian  dollars)***December 31, 2009** |   | Expiry Dates |   | Total   Facilities |   | Credit   Facility   Draws2 |   | Available |
|-------------------------------------------------------------|--------|--------------|--------|--------------------|--------|----------------------------|--------|-----------|
| Liquids Pipelines                                           |   | 2011         |   | 1,300              |   | 876                        |   | 424       |
| Natural Gas Delivery and Services                           |   | 2010-2011    |   | 813                |   | 512                        |   | 301       |
| Corporate                                                   |   | 2011-2013    |   | 3,898              |   | 2,255                      |   | 1,643     |
|                                                        |   |         |   | 6,011              |   | 3,643                      |   | 2,368     |
| Southern Lights project financing1                          |   | 2014         |   | 1,796              |   | 1,531                      |   | 265       |
| Total Credit Facilities                                     |   |         |   | 7,807              |   | 5,174                      |   | 2,633     |

 

1                  Total facilities inclusive of $186 millionwhich is available if certain conditions related to the project are met.

2                  Includes facility draws and commercialpaper issuances, net of discount, that are back-stopped by the credit facility.

 

Credit facilities carry a weightedaverage standby fee of 0.39%per annum on the unused portion and draws bear interest at market rates.Certain credit facilities serve as a backstop to the commercial paper programsand the Company has the option to extend the facilities, which are currentlyset to mature from 2010 to 2014.

 

Commercial paper and credit facilitydraws, net of short-term borrowings, of $3,113million (2008 - $2,567 million) aresupported by the availability of long-term committed credit facilities andtherefore have been classified as long-term debt.

 

**17.****        ****NON-RECOURSE DEBT**

 
| *(millions of Canadian  dollars)***December 31, |       | Weighted Average   Interest Rate |       | Maturity  | ** ** | **2009**  |   | 2008   |
|------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|-----------|--------|--------|
| Natural  Gas Delivery and Services                   |       |                             |       |      |       |      |   |   |
| Long-term credit facilities1                         |       |                             | ** ** | 2012      | ** ** | **1**     |   | 1      |
| Senior notes2                                        |       | 6.77%                            |       | 2015-2025 | ** ** | **400**   |   | 507    |
| Term debt3                                           |       | 3.09%                            |       | 2010-2019 | ** ** | **24**    |   | 27     |
| Capital lease obligations                            |       | 10.45%                           |       | 2020      | ** ** | **37**    |   | 53     |
| Sponsored  Investments                               |       |                             |       |      |       |      |   |   |
| Credit facilities                                    |       |                             | ** ** | 2011-2012 | ** ** | **222**   |   | 174    |
| Medium-term notes                                    |       | 5.25%                            |       | 2014      | ** ** | **90**    |   | 190    |
| Senior notes                                         |       | 6.63%                            |       | 2015-2025 | ** ** | **708**   |   | 679    |
| Fair value increment on senior notes acquired        | ** ** |                             |       |      |       | **33**    |   | 38     |
| Deferred  debt issue costs and other                 | ** ** |                             |       |      |       | **(9)**   |   | (10)   |
| Total  Non-Recourse Debt                             | ** ** |                             |       |      |       | **1,506** |   | 1,659  |
| Current  Maturities                                  | ** ** |                             |       |      |       | **(113)** |   | (185)  |
| Non-Recourse  Long-Term Debt                         | ** ** |                             |       |      |       | **1,393** |   | 1,474  |

 

1                  2009 - US$1 million (2008 - US$1 million).

 

 

33

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2                  2009 - US$382 million (2008 - US$414million).

3                  2009 - US$23 million (2008 - US$22million).

 

Maturities onnon-recourse borrowings for the years ending December 31, 2010 through2014 are $113 million,$71 million, $77 million, $81 million and $81 million,respectively. The medium-term notes and senior notes bear interest at fixedrates. Interest obligations on non-recourse borrowings for the years ending December 31,2010 through 2014 are $82 million, $78 million, $72 million, $67 million and$61 million, respectively.

 

Certain assets of AlliancePipeline Canada, with a carrying value of $1,055million, are pledged as collateralto Alliance Pipeline Canada’s lenders and to the lenders to Alliance PipelineUS. As well, certain assets of Alliance Pipeline US, with a carrying value of$806 million, are pledged as collateral to Alliance PipelineUS’s lenders and to the lenders to Alliance Pipeline Canada.

 

**18.****        ****OTHER LONG-TERM LIABILITIES**

 
| *(millions of Canadian dollars)*                       |       |      |   |   |
|--------------------------------------------------------|------------|-----------|--------|--------|
| * *                                               |       |      |   |   |
| December 31,                                      | ** ** | **2009**  |   | 2008   |
| Future removal and site  restoration reserves (Note 5) | ** ** | **710**   |   | -      |
| Regulatory liabilities                                 | ** ** | **138**   |   | -      |
| Other post-employment benefit  liabilities (Note 27)   | ** ** | **110**   |   | 22     |
| Derivative liabilities (Note  23)                      | ** ** | **42**    |   | 47     |
| Other                                                  | ** ** | **207**   |   | 190    |
|                                                   | ** ** | **1,207** |   | 259    |

 

**19.****        ****NON-CONTROLLING INTERESTS**

 
| *(millions of Canadian dollars)* |       |     |   |   |
|----------------------------------|------------|----------|--------|--------|
| * *                         |       |     |   |   |
| December 31,                | ** ** | **2009** |   | 2008   |
| EEM                              | ** ** | **424**  |   | 481    |
| EIF                              | ** ** | **134**  |   | 147    |
| EGD Preferred Shares             | ** ** | **100**  |   | 100    |
| EGNB                             | ** ** | **54**   |   | 57     |
| Other                            | ** ** | **15**   |   | 12     |
|                             | ** ** | **727**  |   | 797    |

 

Non-controllinginterests in EEM represents the 82.8% of the listed shares of EEM not held bythe Company.

 

The Company owns 100% of the outstanding common sharesof EGD; however, the four million Cumulative Redeemable EGD Preferred Sharesheld by third parties are entitled to a claim on the assets of EGD prior to thecommon shareholder. The fixed yield rate on these preferred shares was 4.93%per annum until July 1, 2009, after which floating adjustable cumulativecash dividends are payable at 80% of the prime rate. The preferred shares haveno fixed maturity date.****EGD may, at its option, redeem all or aportion of the outstanding shares for $25 per share plus all accrued and unpaiddividends to the redemption date. As at December 31, 2009, no preferredshares have been redeemed.

 

Non-controllinginterests in EIF represents 58.1% of voting units that are held by publicunitholders. Non-controlling interests in EGNB represents 27.5% of the limitedpartnership units held by third parties.

 

 

34

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**20.  SHARE CAPITAL**

 

The authorized share capital of the Companyconsists of an unlimited number of common shares with no par value and anunlimited number of preferred shares.

 

**COMMON SHARES**

 

*(millions of Canadian dollars, number of common shares in millions)*

 
| December 31,                              |       | **2009**           |       | 2008      |   | 2007               |
|------------------------------------------------|------------|--------------------|------------|-----------|--------|--------------------|
|                                           |       | Number   of Shares |       | Amount    |   | Number   of Shares |   | Amount |   | Number   of Shares |   | Amount |
| Balance  at beginning of year                  | ** ** | **373**            | ** ** | **3,194** |   | 369                |   | 3,027 |   | 352 |   | 2,416 |
| Common  shares issued                          | ** ** | **-**              | ** ** | **4**     |   | -                  |   | - |   | 15 |   | 567 |
| Shares  issued on exercise of stock options    | ** ** | **1**              | ** ** | **38**    |   | 1                  |   | 36 |   | 1 |   | 26 |
| Dividend  Reinvestment and Share Purchase Plan | ** ** | **4**              | ** ** | **143**   |   | 3                  |   | 131 |   | 1 |   | 18 |
| Balance  at end of year                        | ** ** | **378**            | ** ** | **3,379** |   | 373                |   | 3,194 |   | 369 |   | 3,027 |

 

***PREFERRED SHARES***

The five million 5.5% Cumulative Redeemable PreferredShares, Series A are entitled to fixed, cumulative, quarterly preferentialdividends of $1.375 per share per year. The Company may, at its option, redeemall or a portion of the outstanding preferred shares for $25 per share plus allaccrued and unpaid dividends.

 

**EARNINGS PER COMMONSHARE**

Earningsper common share is calculated by dividing earnings applicable to commonshareholders by the weighted average number of common shares outstanding. Theweighted average number of shares outstanding has been reduced by the Company’spro-rata weighted average interest in its own common shares of 11 million(2008 - 11 million), resulting from the Company’s reciprocal investment inNoverco.

 

Thetreasury stock method is used to determine the dilutive impact of stockoptions. This method assumes any proceeds from the exercise of stock optionswould be used to purchase common shares at the average market price during theperiod.

 
| *(number of common shares in millions)*     | * *   | * * | * * | * * | * * | * * |
|---------------------------------------------|------------|----------|----------|----------|----------|----------|
| December 31,                           | ** ** | **2009** |     | 2008     |     | 2007     |
| Weighted average shares outstanding         | ** ** | **364**  |     | 360      |     | 355      |
| Effect of dilutive options                  | ** ** | **2**    |     | 3        |     | 3        |
| Diluted weighted average shares outstanding | ** ** | **366**  |     | 363      |     | 358      |

 

For the year ended December 31, 2009, 556,500 anti-dilutive stockoptions (2008 - 2,879,800; 2007 - 1,158,200) with a weighted average exerciseprice of $40.98 (2008 - $40.53; 2007 - $38.26) were excluded from the dilutedearnings per share calculation.

 

**DIVIDENDREINVESTMENT AND SHARE PURCHASE PLAN**

Under the Dividend Reinvestmentand Share Purchase Plan, registered shareholders may reinvestdividends in common shares of the Company and make additional optional cashpayments to purchase common shares, free of brokerage or other charges. Participants in the Company’s DividendReinvestment and Share Purchase Plan receive a 2% discount on thepurchase of common shares with reinvested dividends.

 

***SHAREHOLDERRIGHTS PLAN***

The Shareholder Rights Plan is designed to encouragethe fair treatment of shareholders in connection with any takeover offer for theCompany. Rights issued under the plan become exercisable when a 

 

35

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person and any related parties, acquires or announcesits intention to acquire 20% or more of the Company’s outstanding common shareswithout complying with certain provisions set out in the plan or withoutapproval of the Company’s Board of Directors. Should such an acquisition occureach rights holder, other than the acquiring person and related parties, willhave the right to purchase common shares of the Company at a 50% discount tothe market price at that time.

 

**21.****        ****STOCK OPTION AND STOCK UNITPLANS**

 

The Company maintainsfour long term incentive compensation plans: the Incentive Stock Option (ISO)Plan, the Performance Based Stock Option (PBSO) Plan, the Performance StockUnit (PSU) Plan and the Restricted Stock Unit (RSU) Plan. A maximum of 30million common shares were reserved for issuance under the 2002 ISO plan, ofwhich 17.5 million have been issued to date. In 2007, a new reserve of 16.5million shares was approved and established for the 2007 ISO and PBSO plans, ofwhich none have been issued to date. The PSU and RSU plans grant notional unitsas if a unit was one Enbridge common share and are payable in cash.

 

**INCENTIVE STOCK OPTIONS**

Key employees are granted ISOsto purchase common shares at the market price on the grant date. ISOs vest inequal annual installments over a four-year period and expire 10 years after theissue date. Compensationexpense recorded for the year ended December 31, 2009 for ISOs is $17million (2008 - $13 million; 2007 - $9 million).

 

**Outstanding Incentive Stock Options**

 

*(options in thousands; exercise price in Canadian dollars)*

** **
| December 31,             |   | **2009** |   | 2008                            |   | 2007    |
|-------------------------------|--------|----------|--------|---------------------------------|--------|---------|
| * *                      |   | Number   |   | Weighted Average Exercise Price |   | Number  |   | Weighted Average Exercise Price |   | Number |   | Weighted Average Exercise Price |
| Options at beginning of  year |   | 10,650   |   | 31.05                           |   | 9,237   |   | 27.24 |   | 9,186 |   | 24.97 |
| Options granted               |   | 3,028    |   | 39.62                           |   | 2,642   |   | 40.54 |   | 1,158 |   | 38.26 |
| Options exercised             |   | (1,187)  |   | 22.01                           |   | (1,178) |   | 21.85 |   | (1,046) |   | 19.21 |
| Options cancelled or  expired |   | (25)     |   | 40.65                           |   | (51)    |   | 36.83 |   | (61) |   | 32.97 |
| Options at end of year        |   | 12,466   |   | 34.01                           |   | 10,650  |   | 31.05 |   | 9,237 |   | 27.24 |
| Options vested                |   | 6,550    |   | 28.96                           |   | 6,087   |   | 25.32 |   | 5,865 |   | 22.87 |

 

The total intrinsic value of ISOs exercisedduring the year ended December 31, 2009 was $22 million (2008 - $23million; 2007 - $19 million) and cash received on exercise was $26 million(2008 - $26 million; 2007 - $20 million). Intrinsic value represents thedifference between the Company’s share price and the exercise price, multipliedby the number of options. The total intrinsic value of ISOs outstanding andvested at December 31, 2009 was $81 million (2008 - $109 million) and $76million (2008 - $97 million), respectively.

 

 

36

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**IncentiveStock Option Characteristics**

*(options in thousands; exercise price in Canadiandollars)*
| **December 31, 2009** |       | Options  Outstanding |       | Options  Vested                          |
|----------------------------|------------|----------------------|------------|------------------------------------------|
| Exercise Price Range       |       | Number               |       | Weighted Average Remaining Life  (years) |   | Weighted Average Exercise  Price |   | Number |   | Weighted Average Remaining Life  (years) |   | Weighted Average Exercise  Price |
| 10.00-14.99                | ** ** | **111 **        | ** ** | **0.3 **                            | ** ** | **13.09 ** | ** ** | **111 ** | ** ** | **0.3 ** | ** ** | **13.09 ** |
| 15.00-19.99                | ** ** | **486 **        | ** ** | **1.2 **                            | ** ** | **19.06 ** | ** ** | **486 ** | ** ** | **1.2 ** | ** ** | **19.06 ** |
| 20.00-24.99                | ** ** | **1,682 **      | ** ** | **2.6 **                            | ** ** | **21.29 ** | ** ** | **1,682 ** | ** ** | **2.6 ** | ** ** | **21.29 ** |
| 25.00-29.99                | ** ** | **1,025 **      | ** ** | **4.0 **                            | ** ** | **25.72 ** | ** ** | **1,025 ** | ** ** | **4.0 ** | ** ** | **25.72 ** |
| 30.00-34.99                | ** ** | **1,727 **      | ** ** | **6.6 **                            | ** ** | **32.33 ** | ** ** | **1,089 ** | ** ** | **5.1 ** | ** ** | **31.77 ** |
| 35.00-39.99                | ** ** | **4,836 **      | ** ** | **7.8 **                            | ** ** | **38.43 ** | ** ** | **1,523 ** | ** ** | **6.4 ** | ** ** | **37.10 ** |
| 40.00-44.99                | ** ** | **2,599 **      | ** ** | **8.1 **                            | ** ** | **40.86 ** | ** ** | **634 ** | ** ** | **8.1 ** | ** ** | **40.87 ** |
|                       | ** ** | **12,466 **     | ** ** | **6.4 **                            | ** ** | **34.01 ** | ** ** | **6,550 ** | ** ** | **4.5 ** | ** ** | **28.96 ** |

 

The total fair value of optionsvested under the ISO Plan during the year ended December 31, 2009 was $13million (2008 - $9 million).

 

Weighted average assumptionsused to determine the fair value of the ISOs using the Black-Scholes optionpricing model are as follows:

 
| Year ended December 31,                | ** ** | **2009 ** |   | 2008  |   | 2007  |
|---------------------------------------------|------------|----------------|--------|------------|--------|------------|
| Fair value per option *(Canadian dollars)*1 | ** ** | **7.12 ** |   | 6.14  |   | 6.16  |
| Valuation assumptions                       |       |           |   |       |   |       |
| Expected option term *(years)*2             | ** ** | **6 **    |   | 6     |   | 6     |
| Expected volatility3                        | ** ** | **28.08%**     |   | 18.48%     |   | 18.10%     |
| Expected dividend yield4                    | ** ** | **3.87%**      |   | 3.34%      |   | 3.22%      |
| Risk-free interest rate5                    | ** ** | **2.24%**      |   | 3.50%      |   | 4.11%      |

 

1                  Beginning in 2008, options granted to United States employees are basedon New York Stock Exchange (NYSE) prices. The option value and assumptionsshown for 2009 are based on a weighted average of the United States options andthe Canadian options. The fair values per option were $6.73 for Canadianemployees and US$6.86 for United States employees.

2                  The expected option term is based on historical exercise practice.

3                  Expected volatility is determined with reference to historic dailyshare price volatility.

4                  The expected dividend yield is the current annual dividend at the grantdate divided by the current stock price.

5                  The risk-free interest rate is based on the Government of Canada’sCanadian Bond Yields and the U.S. Treasury Bond Yields.

 

**As of December 31, 2009, unrecognizedcompensation cost related to non-vested share-based compensation arrangementsgranted under the ISO plan was $14 million. The cost is expected to be fullyrecognized by December 31, 2012.**

** **

**PERFORMANCEBASED STOCK OPTIONS**

PBSOs are granted to executive officers and becomeexercisable when both performance targets and time vesting requirements havebeen met. PBSOs were granted on September 16, 2002, August 15, 2007and February 19, 2008. The 2008 PBSO grant is included in the 2007 PBSOplan. All performance targets and time vesting requirements for the 2002 PBSOgrant have been met. The 2002 PBSO grant will expire on September 16,2010. The 2007 and 2008 PBSO grants’ performance targets are based on theCompany’s share price. Time vesting requirements for the 2007 PBSO grant arefulfilled evenly over a five-year term, ending August 15, 2012. Under the2007 PBSO plan, performance targets must be met by February 15, 2014otherwise the options expire. If targets are met by February 15, 2014, theoptions are exercisable until August 15, 2015. Compensation expense recorded for the yearended December 31, 2009 for PBSOs was $2 million (2008 - $2 million; 2007- $1 million).

 

 

37

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**OutstandingPerformance Based Stock Options**

*(options in thousands; exercise price in Canadiandollars)*
| December 31,            |       | **2009**        |       | 2008                                |   | 2007        |
|------------------------------|------------|-----------------|------------|-------------------------------------|--------|-------------|
| * *                     |       | Number          |       | Weighted Average   Exercise   Price |   | Number      |   | Weighted Average   Exercise   Price |   | Number |   | Weighted Average   Exercise   Price |
| Options at beginning of year | ** ** | **3,738 ** | ** ** | **32.72 **                     |   | 3,588  |   | 31.92  |   | 1,379  |   | 23.15  |
| Options granted              | ** ** | **- **     | ** ** | **- **                         |   | 250    |   | 40.42  |   | 2,345  |   | 36.57  |
| Options exercised            | ** ** | **(343)**       | ** ** | **23.15 **                     |   | (100)       |   | 23.15  |   | (136) |   | 23.15  |
| Options at end of year       | ** ** | **3,395 ** | ** ** | **33.69 **                     |   | 3,738  |   | 32.72  |   | 3,588  |   | 31.92  |
| Options vested               | ** ** | **800 **   | ** ** | **23.15 **                     |   | 1,143  |   | 23.15  |   | 1,243  |   | 23.15  |

 

The total intrinsic value ofPBSOs exercised during the year ended December 31, 2009 was $6 million(2008 - $2 million; 2007 - $2 million) and cash received on exercise was $8million (2008 - $2 million; 2007 - $3 million). The total intrinsic value ofPBSOs outstanding and vested at December 31, 2009 is $23 million (2008 -$32 million) and $14 million (2008 - $21 million), respectively.

 

**PerformanceBased Stock Option Characteristics**

*(options in thousands; exercise price in Canadiandollars)*
| **December 31, 2009** |   | Options  Outstanding |   | Options  Vested                              |
|----------------------------|--------|----------------------|--------|----------------------------------------------|
| ** **                 |   |                 |   |                                         |
| Exercise Price             |   | Number               |   | Weighted Average   Remaining   Life  (years) |   | Weighted Average   Exercise   Price |   | Number |   | Weighted Average   Remaining   Life  (years) |   | Weighted Average   Exercise   Price |
| 23.15                      |   | 800             |   | 0.7                                     |   | 23.15  |   | 800  |   | 0.7  |   | 23.15  |
| 36.57                      |   | 2,345           |   | 5.6                                     |   | 36.57  |   | -  |   | -  |   | -  |
| 40.42                      |   | 250             |   | 5.6                                     |   | 40.42  |   | -  |   | -  |   | -  |
|                       |   | 3,395           |   | 4.5                                     |   | 33.69  |   | 800  |   | 0.7  |   | 23.15  |

 

The total fair value of optionsvested under the PBSO Plan during the year ended December 31, 2009 was $2million (2008 - $2 million; 2007 - $2 million).

 

Assumptions used to determine thefair value of the PBSOs at the date of grant using the Bloomberg barrier optionvaluation model are as follows:

 
| Year ended December 31,             |   | 2008  |   | 2007  |
|------------------------------------------|--------|------------|--------|------------|
| Fair value per option (Canadian dollars) |   | 4.82  |   | 3.40  |
| Valuation assumptions                    |   |       |   |       |
| Expected option term (years)1            |   | 8     |   | 8     |
| Expected volatility2                     |   | 13.60%     |   | 13.60%     |
| Expected dividend yield3                 |   | 3.32%      |   | 3.57%      |
| Risk-free interest rate4                 |   | 3.75%      |   | 4.38%      |

 

1                  Expected option term is based on historical information.

2                  Expected volatility is determined with reference to 20-day rollingperiod historic share price information

3                  The expected dividend yield is the current annual dividend divided bythe current stock price.

4                  The risk-free interest rate is based on the Government of Canada’sCanadian Bond Yields and the United States Treasury Bond Yields.

 

As of December 31, 2009,unrecognized compensation cost related to non-vested share-based compensationarrangements granted under the PBSO plan was $5 million. The cost is expectedto be fully recognized by December 31, 2012.

 

 

38

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**PERFORMANCESTOCK UNITS**

The Company has a PSU Plan forsenior officers where cash awards are paid following a three-year performancecycle. Awards are calculated by multiplying the number of units outstanding atthe end of the performance period by the Company’s weighted average share priceand by a performance multiplier. The performance multiplier ranges from zero,if the Company’s performance fails to meet threshold performance levels, to amaximum of two, if the Company performs within the highest range of itsperformance targets. The 2007, 2008 and 2009 grants derive the performancemultiplier through a calculation of the Company’s price/earnings ratio relativeto a specified peer group of companies and the Company’s growth in earnings pershare, adjusted for non-operating or non-recurring items, relative to targetsestablished at the time of grant.

 

Compensation expense recorded for the year ended December 31,2009 for PSUs was $20 million (2008 - $13 million; 2007 - $3 million). Tocalculate the 2009 expense, multipliers of two, based upon multiplier estimatesat December 31, 2009, were used for each of the 2007, 2008 and 2009 PSUgrants.

 

**Outstanding Performance StockUnits**

 
| December 31,          | ** ** | **2009 **    |   | 2008             |   | 2007             |
|----------------------------|------------|-------------------|--------|-----------------------|--------|-----------------------|
| Units at beginning of year | ** ** | **295,428 ** |   | 267,616          |   | 328,716          |
| Units granted              | ** ** | **169,600 ** |   | 144,300          |   | 137,200          |
| Units cancelled            | ** ** | **- **       |   | -                |   | (2,384)               |
| Units matured              | ** ** | **(151,882)**     |   | (129,852)   |   | (209,827)   |
| Dividend reinvestment      | ** ** | **17,270 **  |   | 13,364           |   | 13,911           |
| Units at end of year       | ** ** | **330,416 ** |   | 295,428          |   | 267,616          |

 

Of the PSUs outstanding at December 31,2009, 154,518 units have a performance period ending December 31, 2010 and175,898 have a performance period ending December 31, 2011. The totalintrinsic value of PSUs outstanding at December 31, 2009 is $47 million(2008 - $21 million; 2007 - $11 million).

 

**RESTRICTED STOCK UNITS**

Enbridge has a RSU plan wherecash awards are paid to certain non-executive employees of the Companyfollowing a 35 month maturity period. RSU holders receive cash equal to theCompany’s weighted average share price multiplied by the units outstanding onthe maturity date. Compensation expense recorded for the year ended December 31, 2009for RSUs was $23 million (2008 - $15 million; 2007 - $7 million).

 

**Outstanding Restricted StockUnits**
| December 31,          | ** ** | **2009 **    |   | 2008     |   | 2007     |
|----------------------------|------------|-------------------|--------|---------------|--------|---------------|
| Units at beginning of year | ** ** | **700,034 ** |   | 456,621  |   | 183,253  |
| Units granted              | ** ** | **543,500 ** |   | 418,700  |   | 276,875  |
| Units cancelled            | ** ** | **(18,429)**      |   | (23,352)      |   | (18,627)      |
| Units matured              | ** ** | **(282,656)**     |   | (179,940)     |   | -        |
| Dividend reinvestment      | ** ** | **45,428 **  |   | 28,005   |   | 15,120   |
| Units at end of year       | ** ** | **987,877 ** |   | 700,034  |   | 456,621  |

 

The total intrinsic value ofRSUs outstanding at December 31, 2009 is $50 million (2008 - $29 million;2007 - $18 million).

 

As of December 31, 2009,unrecognized compensation expense related to non-vested units granted under thePSU and RSU plans was $44 million and is expected to be fully recognized by December 31,2011.

 

 

39

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**22.****        ****COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVEINCOME/(LOSS)**

 
| *(millions of Canadian  dollars)*    |       | Net  Investment Hedges |       | Cumulative Translation Adjustment |       | Equity  Investees |       | Non-Controlling  Interests |       | Cash  Flow Hedges |       | Total     |
|--------------------------------------|------------|------------------------|------------|-----------------------------------|------------|-------------------|------------|----------------------------|------------|-------------------|------------|-----------|
| Balance at January 1, 2007      |       | 263               |       | (399)                             |       | -            |       | -                     |       | -            |       | (136)     |
| Adjustment on adoption               |       | -                 |       | -                            |       | (57)              |       | 26                    |       | 79           |       | 48   |
| Tax impact of adjustment on adoption |       | -                 |       | -                            |       | 20           |       | -                     |       | (20)              |       | -    |
|                                 |       | -                 |       | -                            |       | (37)              |       | 26                    |       | 59                |       | 48   |
| Changes during the year              |       | 194               |       | (534)                             |       | (29)              |       | 92                    |       | 95           |       | (182)     |
| Tax impact                           |       | (19)                   |       | -                            |       | 9            |       | -                     |       | (5)               |       | (15)      |
|                                 |       | 175                    |       | (534)                             |       | (20)              |       | 92                    |       | 90                |       | (197)     |
| Balance at December 31, 2007    |       | 438               |       | (933)                             |       | (57)              |       | 118                   |       | 149          |       | (285)     |
| Changes during the year              |       | (180)                  |       | 658                               |       | 78           |       | (101)                 |       | (175)             |       | 280  |
| Tax impact                           |       | 20                |       | -                            |       | (29)              |       | -                     |       | 47           |       | 38   |
|                                 |       | (160)                  |       | 658                          |       | 49                |       | (101)                 |       | (128)             |       | 318  |
| Balance at December 31, 2008    |       | 278               |       | (275)                             |       | (8)               |       | 17                    |       | 21           |       | 33   |
| Changes during the year              | ** ** | **181 **          | ** ** | **(815)**                         | ** ** | **(38)**          | ** ** | **72 **               | ** ** | **71 **      | ** ** | **(529)** |
| Tax impact                           | ** ** | **(30)**               | ** ** | **- **                       | ** ** | **14 **      | ** ** | **- **                | ** ** | **(31)**          | ** ** | **(47)**  |
|                                 | ** ** | **151 **          | ** ** | **(815)**                         | ** ** | **(24)**          | ** ** | **72 **               | ** ** | **40**            | ** ** | **(576)** |
| Balance at December 31, 2009    | ** ** | **429 **          | ** ** | **(1,090)**                       | ** ** | **(32)**          | ** ** | **89 **               | ** ** | **61 **      | ** ** | **(543)** |

 

**23.****        ****RISK MANAGEMENT**

 

**MARKET PRICE RISK**

The Company’searnings, cash flows and OCI are subject to movements in foreign exchangerates, interest rates and commodity prices (collectively, market price risk).Formal risk management policies, processes and systems have been designed tomitigate these risks.

 

Earnings atRisk (EaR), a variant of Value at Risk, is the principal risk management metricused to quantify market price risk at Enbridge. EaR is an objective,statistically derived risk metric that measures the maximum adverse change inprojected 12-month earnings that could result from market price risk over aone-month period within a 97.5% confidence interval. The Company’s policy is totarget a maximum EaR of 5% of earnings. Earnings exposure from market pricerisk is managed within the overall consolidated EaR limits of the Company.Further, commodity price risk is managed within business unit EaR sub-limits.

 

The Companycalculates EaR using Monte Carlo simulation to produce projections of earningsusing a randomly generated series of forecasted market prices and Enbridge’scurrent market exposures. Historical statistical distributions of market pricesand the correlation among those market prices are used to generate an entireprobability distribution of possible deviations from forecast earnings.

 

There iscurrently no uniform industry methodology for estimating EaR. The use of thismetric has limitations because it is based on historical correlations andvolatilities in commodity prices and assumes future price movements will followa statistical distribution. Although losses are not expected to exceed thestatistically estimated EaR on 97.5% of occasions, losses on the other 2.5% ofoccasions could be substantially greater than the estimated EaR.

 

Thefollowing summarizes the types of market price risks to which the Company isexposed and the risk management instruments used to mitigate them.

 

 

40

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**Foreign Exchange Risk**

TheCompany’s earnings, cash flows, and OCI are subject to foreign exchange ratevariability, primarily arising from its United States dollar denominatedsubsidiaries. The Company has implemented a policy where it must hedge aminimum level of foreign currency denominated earnings exposures identifiedover the next five year period. The Company may also hedge anticipated foreigncurrency denominated purchases or sales, foreign currency denominated debt, aswell as certain equity investment balances and net investments in foreigndenominated subsidiaries.

 

Theimpact of a $0.05 strengthening of the Canadian dollar across the forward curverelative to the United States dollar at December 31, 2009, would haveresulted in a $92 million increase (2008 - $58 million) to earnings and a $27million (2008 - $19 million) increase to OCI. The foreign exchange sensitivityanalysis is limited to changes in the fair value of financial instruments,external debt and loans to foreign operations within the Company that are notdenominated in the Company’s functional currency and are not considered a netinvestment. Further, the sensitivity analysis excludes financial instrumentsthat are not monetary items and the impact of the Company’s United Statesdollar denominated self-sustaining subsidiaries on OCI.

 

**Interest Rate Risk**

TheCompany’s earnings and cash flows are exposed to short term interest ratevariability due to the regular repricing of its variable rate debt. Floating tofixed interest rate swaps and options are used to hedge against the effect offuture interest rate movements. The Company has implemented a program tosignificantly mitigate the volatility of short-term interest rates on interestexpense through 2013 at an average rate of 2.2%.

 

TheCompany’s earnings and cash flows are also exposed to variability in longerterm interest rates ahead of anticipated fixed rate debt issuances. Forwardstarting interest rate swaps are used to hedge against the effect of futureinterest rate movements. The Company has implemented a hedging program tosignificantly mitigate its exposure to long term interest rate variability onselect forecast term debt issuances through 2013. A total of $2,500 million offuture fixed rate term debt issuances have been hedged at an average governmentbond rate of 4.0%. Further, many of the Company’s existing commercialarrangements and certain construction projects provide for the full recovery offinancing costs through tolls.

 

TheCompany also monitors its debt portfolio mix of fixed and variable rate debtinstruments to ensure that the consolidated portfolio of debt stays within itsBoard of Directors approved policy limit band of a maximum of 25% floating ratedebt as a percentage of total debt outstanding.

 

A 1%increase across the interest rate yield curve would have caused a $2 millionincrease (2008 - nil) in earnings and a $197 million increase (2008 - $14million) in OCI at December 31, 2009 due to the revaluation of interestrate derivatives. If interest rates had been 1% higher during the 12 monthsended December 31, 2009, there would have been a $26 million decrease(2008 - $24 million) in earnings due to increased interest expense related tothe Company’s floating rate debt assuming that the variable rate debtoutstanding at December 31, 2009 had been outstanding for the entire year,partially offset by an increase in earnings due to increased realized fairvalue gains on settled interest rate hedges of $15 million (2008 - $4 million).

 

**Commodity Price Risk**

TheCompany’s earnings and cash flows are exposed to changes in commodity prices asa result of ownership interest in certain assets, as well as through theactivities of its energy services subsidiaries. The Company uses natural gas,power, crude oil and NGL derivative instruments to fix a portion of thevariable price exposures that may arise from commodity usage, storage,transportation and supply agreements.

 

TheCompany has implemented a hedging program to significantly mitigate thevolatility from fractionation spreads (natural gas / NGLs) that impact earningsfrom its ownership in the Aux Sable natural gas processing plant through 2011.

 

 

41

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The Companyhas defined EaR limits for different components of businesses exposed to commodityprice risk. The calculation of these limits include physical and financialderivatives as well as physical transportation and storage capacity contractsaccounted for as executory contracts in the consolidated financial statements.Positions giving rise to commodity price exposure are monitored against theseEaR limits daily. For the year ended December 31, 2009, the average EaRwas $29 million (2008 - $24 million) and as at December 31, 2009 theCompany’s EaR was $22 million (2008 - $16 million).

 

**TOTAL DERIVATIVE INSTRUMENTS**

The following tables summarize the balance sheet location and fairvalue of the Company’s derivative instruments. The Company did not have anyoutstanding fair value hedges as at December 31, 2009 or December 31,2008.

 
| *(millions of Canadian dollars)*

**December 31, 2009** |   | Derivative  Instruments  used as  Cash Flow  Hedges |   | Derivative  Instruments  used as Net  Investment  Hedges |   | Non-  Qualifying  Derivative  Instruments |   | Total  Derivative  Instruments |
|--------------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------------------------------|--------|-------------------------------------------|--------|--------------------------------|
| Accounts receivable and other***(Note 7)*                    |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                         |   | 4                                              |   | 14                                                  |   | 52                                   |   | 70                        |
| Interest rate contracts                                      |   | 34                                             |   | -                                                   |   | 2                                    |   | 36                        |
| Energy commodity                                             |   | -                                              |   | -                                                   |   | 19                                   |   | 19                        |
| Power commodity                                              |   | -                                              |   | -                                                   |   | 3                                    |   | 3                         |
|                                                         |   | 38                                             |   | 14                                                  |   | 76                                   |   | 128                       |
| Deferred amounts and other***(Note 12)*                      |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                         |   | 25                                             |   | 80                                                  |   | 285                                  |   | 390                       |
| Interest rate contracts                                      |   | 90                                             |   | -                                                   |   | -                                    |   | 90                        |
| Energy commodity                                             |   | -                                              |   | -                                                   |   | 1                                    |   | 1                         |
| Power commodity                                              |   | 1                                              |   | -                                                   |   | 1                                    |   | 2                         |
| Other                                                        |   | 1                                              |   | -                                                   |   | 1                                    |   | 2                         |
|                                                         |   | 117                                            |   | 80                                                  |   | 288                                  |   | 485                       |
| Accounts payable and other***(Note 15)*                      |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                         |   | (2)                                                 |   | -                                                   |   | (3)                                       |   | (5)                            |
| Interest rate contracts                                      |   | (68)                                                |   | -                                                   |   | -                                         |   | (68)                           |
| Energy commodity                                             |   | (17)                                                |   | -                                                   |   | (32)                                      |   | (49)                           |
| Power commodity                                              |   | -                                                   |   | -                                                   |   | (1)                                       |   | (1)                            |
|                                                         |   | (87)                                                |   | -                                                   |   | (36)                                      |   | (123)                          |
| Other long-term liabilities***(Note 18)*                     |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                         |   | (21)                                                |   | -                                                   |   | -                                    |   | (21)                           |
| Interest rate contracts                                      |   | (15)                                                |   | -                                                   |   | -                                         |   | (15)                           |
| Energy commodity                                             |   | (4)                                                 |   | -                                                   |   | -                                    |   | (4)                            |
| Power commodity                                              |   | -                                                   |   | -                                                   |   | (2)                                       |   | (2)                            |
|                                                         |   | (40)                                                |   | -                                                   |   | (2)                                       |   | (42)                           |
| Total net derivative asset/(liability)                       |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                         |   | 6                                                   |   | 94                                                  |   | 334                                  |   | 434                            |
| Interest rate contracts                                      |   | 41                                                  |   | -                                                   |   | 2                                    |   | 43                             |
| Energy commodity                                             |   | (21)                                                |   | -                                                   |   | (12)                                      |   | (33)                           |
| Power commodity                                              |   | 1                                                   |   | -                                                   |   | 1                                    |   | 2                              |
| Other                                                        |   | 1                                              |   | -                                                   |   | 1                                    |   | 2                         |
|                                                         |   | 28                                             |   | 94                                                  |   | 326                                  |   | 448                       |

 

 

42

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| *(millions of Canadian dollars)*

December 31, 2008 |   | Derivative  Instruments  used as  Cash Flow  Hedges |   | Derivative  Instruments  used as Net  Investment  Hedges |   | Non-  Qualifying  Derivative  Instruments |   | Total  Derivative  Instruments |
|----------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------------------------------|--------|-------------------------------------------|--------|--------------------------------|
| Accounts receivable and other***(Note 7)*                |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                     |   | 12                                             |   | 8                                                   |   | -                                    |   | 20                        |
| Interest rate contracts                                  |   | 1                                              |   | -                                                   |   | -                                    |   | 1                         |
| Energy commodity                                         |   | 9                                              |   | -                                                   |   | 32                                   |   | 41                        |
| Power commodity                                          |   | 1                                              |   | -                                                   |   | 9                                    |   | 10                        |
|                                                     |   | 23                                             |   | 8                                                   |   | 41                                   |   | 72                        |
| Deferred amounts and other***(Note 12)*                  |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar cross currency swaps                         |   | 26                                             |   | -                                                   |   | -                                    |   | 26                        |
| U.S. dollar forwards                                     |   | 153                                            |   | 63                                                  |   | 56                                   |   | 272                       |
| Power commodity                                          |   | 7                                              |   | -                                                   |   | 12                                   |   | 19                        |
|                                                     |   | 186                                            |   | 63                                                  |   | 68                                   |   | 317                       |
| Accounts payable and other***(Note 15)*                  |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                     |   | -                                                   |   | -                                                        |   | (14)                                      |   | (14)                           |
| Interest rate contracts                                  |   | (9)                                                 |   | -                                                   |   | -                                    |   | (9)                            |
| Energy commodity                                         |   | (22)                                                |   | -                                                        |   | (4)                                       |   | (26)                           |
| Power commodity                                          |   | (1)                                                 |   | -                                                   |   | -                                    |   | (1)                            |
|                                                     |   | (32)                                                |   | -                                                        |   | (18)                                      |   | (50)                           |
| Other long-term liabilities***(Note 18)*                 |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar forwards                                     |   | -                                                   |   | -                                                   |   | (8)                                       |   | (8)                            |
| Interest rate contracts                                  |   | (22)                                                |   | -                                                   |   | -                                         |   | (22)                           |
| Power commodity                                          |   | (11)                                                |   | -                                                   |   | (1)                                       |   | (12)                           |
| Other                                                    |   | (3)                                                 |   | -                                                        |   | (2)                                       |   | (5)                            |
|                                                     |   | (36)                                                |   | -                                                        |   | (11)                                      |   | (47)                           |
| Total net derivative asset/(liability)                   |   |                                                |   |                                                     |   |                                      |   |                           |
| U.S. dollar cross currency swaps                         |   | 26                                                  |   | -                                                   |   | -                                         |   | 26                             |
| U.S. dollar forwards                                     |   | 165                                                 |   | 71                                                  |   | 34                                        |   | 270                            |
| Interest rate contracts                                  |   | (30)                                                |   | -                                                   |   | -                                         |   | (30)                           |
| Energy commodity                                         |   | (13)                                                |   | -                                                   |   | 28                                        |   | 15                             |
| Power commodity                                          |   | (4)                                                 |   | -                                                   |   | 20                                        |   | 16                             |
| Other                                                    |   | (3)                                                 |   | -                                                   |   | (2)                                       |   | (5)                            |
|                                                     |   | 141                                                 |   | 71                                                  |   | 80                                        |   | 292                            |

 

 

43

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The following table summarizes the maturity and total notionalprincipal or quantity outstanding related to the Company’s derivativeinstruments.

 
|                                  | ** ** | **December 31, 2009** |       | December 31, 2008                        |
|---------------------------------------|------------|----------------------------|------------|-----------------------------------------------|
|                                  |       | Maturity                   |       | Notional  Principal or  Quantity  Outstanding |   | Maturity |   | Notional  Principal or  Quantity  Outstanding |
| U.S. dollar cross currency swaps      | ** ** | ** **                 |       | **- **                                   |   | 2013-2022 |   | 138  |
| *(millions of Canadian dollars)*      |       |                       |       |                                          |   |   |   |   |
| U.S. dollar forwards - purchase       | ** ** | **2010-2019**              | ** ** | **1,078**                                     |   | 2009-2017 |   | 1,118 |
| *(millions of United States dollars)* |       |                       |       |                                          |   |   |   |   |
| U.S. dollar forwards - sell           | ** ** | **2010-2020**              | ** ** | **3,102**                                     |   | 2009-2021 |   | 2,548 |
| *(millions of United States dollars)* |       |                       |       |                                          |   |   |   |   |
| Interest rate contracts               | ** ** | **2010-2029**              | ** ** | **6,022**                                     |   | 2009-2029 |   | 1,164  |
| *(millions of Canadian dollars)*      |       |                       |       |                                          |   |   |   |   |
| Energy commodity *(bcf)*              | ** ** | **2010-2011**              | ** ** | **464**                                       |   | 2009-2010 |   | 530  |
|                                  | ** ** | ** **                 | ** ** | ** **                                    |   |   |   |   |
| Power commodity *(MW/H)*              | ** ** | **2010-2024**              | ** ** | **38 **                                  |   | 2009-2024 |   | 57  |

 

The Company does not have any credit-risk related contingent featuresassociated with its derivative instruments.

 

**The Effect of Derivative Instruments on the Statements of Earnings andComprehensive Income**

The following table presents the effect of cash flow hedges and netinvestment hedges on the Company’s consolidated earnings and consolidatedcomprehensive income.

 
| *(millions of Canadian dollars)*                          |       |           |
|-----------------------------------------------------------|------------|----------------|
| Year ended December 31,                              | ** ** | **2009 ** |
| Amount of Unrealized Gain/(Loss) Recognized  in OCI       |       |           |
| Cash Flow Hedges                                          |       |           |
| U.S. dollar cross currency swaps                          | ** ** | **(13)**       |
| U.S. dollar forwards                                      | ** ** | **(103)**      |
| Interest rate contracts                                   | ** ** | **73 **   |
| Energy commodity                                          | ** ** | **(41)**       |
| Power commodity                                           | ** ** | **4 **    |
| Other                                                     | ** ** | **3 **    |
| Net Investment Hedges                                     |       |           |
| U.S. dollar forwards                                      | ** ** | **24 **   |
| Total unrealized loss recognized in OCI                   | ** ** | **(53)**       |
| Amount of Gain/(Loss) Reclassified from  AOCI to Earnings |       |           |
| U.S. dollar cross currency swaps1                         | ** ** | **19 **   |
| U.S. dollar forwards1                                     | ** ** | **(23)**       |
| Interest rate contracts2                                  | ** ** | **(31)**       |
| Energy commodity3                                         | ** ** | **(78)**       |
| Power commodity3                                          | ** ** | **(1)**        |
| Other                                                     | ** ** | **3**          |
| Total loss reclassified from AOCI to  earnings            | ** ** | **(111)**      |

 

1      Gain/(loss)reported within Other Investment Income in the Consolidated Statement ofEarnings.

2      Lossreported within Interest Expense in the Consolidated Statement of Earnings.

3      Lossreported within Commodity costs in the Consolidated Statement of Earnings.

 

 

44

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The Company estimates that $89 million of accumulated othercomprehensive loss related to cash flow hedges will be reclassified to earningsin the next 12 months. Actual amounts reclassified to earnings depend on theforeign exchange rates, interest rates and commodity prices when derivativecontracts that are currently outstanding mature. For all forecastedtransactions, the maximum term over which the Company is hedging exposures tothe variability of cash flows is 54 months at December 31, 2009.

 

During 2008, the Company terminated certain par forwardcurrency exchange instruments for proceeds of $48 million. These instrumentshedged US$162 million of the Company’s United States dollar self-sustainingoperations and were accounted for as net investment hedges with the fair valuerecorded as long-term assets on the Statement of Financial Position with anequal and offsetting amount recorded in AOCI. No gain or loss related to theterminations will be recorded in the Company’s earnings until there is a disposalof or a return of capital on a related investment.

 

**Non-Qualifying Derivatives**

The following table presents the unrealized gains and lossesassociated with changes in the fair value of the Company’s non-qualifyingderivatives.

 
| *(millions of Canadian dollars)*             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|------------|
| Year ended December 31,                 | ** ** | **2009**   |       | 2008       |       | 2007       |
| U.S. dollar forwards1                        | ** ** | **232**    |       | 35         |       | -          |
| Interest rate contracts2                     | ** ** | **2**      |       | -          |       | -          |
| Energy commodity3                            | ** ** | **(89)**   |       | 122        |       | (49)       |
| Power commodity3                             | ** ** | **1**      |       | -          |       | -          |
| Total unrealized derivative fair  value gain | ** ** | **146**    |       | 157        |       | (49)       |

 

1                  Gainreported within Other Investment Income in the Consolidated Statement ofEarnings.

2                  Gainreported within Interest Expense in the Consolidated Statement of Earnings.

3                  Gain/(loss)reported within Commodity costs in the Consolidated Statement of Earnings.

 

Additional information regarding the Company’s derivativeinstruments is included in Note 24, Fair Value of Financial Instruments.

 

**LIQUIDITY RISK**

Liquidity risk is the risk that the Company will not be ableto meet its financial obligations, including commitments and guarantees (Notes31 and 32), as they become due. In order to manage this risk, the Companyforecasts cash requirements over the near and long term to determine whethersufficient funds will be available. The Company’s primary sources of liquidityand capital resources are funds generated from operations, the issuance ofcommercial paper and draws under committed credit facilities and longer termdebt which includes debentures and medium-term notes. The Company maintainscurrent shelf prospectuses with the securities regulators, which enables,subject to market conditions, ready access to either the Canadian or UnitedStates public capital markets. In addition, the Company maintains sufficientliquidity through committed credit facilities (Note 16) with a diversifiedgroup of banks and institutions which, if necessary, enables the Company tofund all anticipated requirements for one year without accessing the capitalmarkets. The Company is in compliance with all the terms and conditions of itscommitted credit facilities and expects to be in compliance throughout 2010. Asa result, all credit facilities are available to the Company and the banks areobligated to fund and have been funding the Company under the terms of thefacilities. The Company expects to generate sufficient cash from operations andcommercial paper issuances and draws under its committed credit facilities tofund liabilities as they become due, finance planned investing activities andpay common share dividends throughout the year. Additional liquidity, ifnecessary, is expected to be available through access to the capital markets.

 

**Maturities of FinancialInstruments**

The Company generally has no financial instruments, otherthan derivative instruments, maturing beyond one year with the exception of itslong-term debt (Notes 16 and 17).

 

 

45

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For the years ending December 31, 2010 through 2014,and thereafter, the Company has estimated the following undiscounted cash flowswill arise from its derivative instruments based on valuation at the balancesheet date.

 
| *(millions of Canadian dollars)* |   | 2010  |   | 2011 |   | 2012 |   | 2013 |   | 2014 |   | Thereafter |
|----------------------------------|--------|-------|--------|------|--------|------|--------|------|--------|------|--------|------------|
| Cash inflows                     |   | 182   |   | 106  |   | 136  |   | 155  |   | 86   |   | 51         |
| Cash outflows                    |   | (167) |   | (29) |   | (5)  |   | (7)  |   | (3)  |   | (25)       |
| Net cash flows                   |   | 15    |   | 77   |   | 131  |   | 148  |   | 83   |   | 26         |

 

**CREDIT RISK**

Entering into derivative financial instruments can result inexposure to credit risk. Credit risk arises from the possibility that acounterparty will default on its contractual obligations and is limited tothose contracts where the Company would incur a loss in replacing theinstrument. The Company enters into risk management transactions only withinstitutions that possess investment grade credit ratings. Credit risk relatingto derivative counterparties is mitigated by credit exposure limits andcontractual requirements, frequent assessment of counterparty credit ratingsand netting arrangements. At December 31, 2009, the Company has a maximumexposure to credit risk of $517 million related to its derivativecounterparties.

 

Credit risk also arises from trade and other long-termreceivables, and is mitigated through credit exposure limits and contractualrequirements, assessment of credit ratings and netting arrangements. Creditrisk in the Natural Gas Delivery and Services segment is mitigated by the largeand diversified customer base and the ability to recover an estimate fordoubtful accounts through the ratemaking process. The Company actively monitorsthe financial strength of large industrial customers and, in select cases, hasobtained additional security to minimize the risk of default on receivables.Generally, the Company classifies and provides for receivables older than 30days as past due. The maximum exposure to credit risk related to non-derivativefinancial assets is their carrying value, as disclosed in Note 24, Fair Valueof Financial Instruments.

 

The change in allowance for doubtful accounts in respect ofaccounts receivable is detailed below.

 
| *(millions of Canadian dollars)* |       |     |   |   |
|----------------------------------|------------|----------|--------|--------|
| Year ended December 31,     | ** ** | **2009** |   | 2008   |
| Balance at beginning of year     | ** ** | **(69)** |   | (55)   |
| Additional allowance             | ** ** | **(29)** |   | (37)   |
| Amounts used                     | ** ** | **24**   |   | 23     |
| Balance at end of year           | ** ** | **(74)** |   | (69)   |

 

The allowance for doubtful accounts is determined based oncollection history. When the Company has determined that further collectionefforts are unlikely to be successful, amounts charged to the allowance fordoubtful accounts are applied against the impaired accounts receivable.

 

 

46

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**24.****        ****FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The following table summarizes the Company’s financialinstrument carrying and fair values and provides a reconciliation to theConsolidated Statements of Financial Position.

 
| * *                           |       | **December 31, 2009** |       |
|------------------------------------|------------|----------------------------|------------|
| * *                           |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| *(millions of Canadian dollars)*   |       | Held for  Trading          |       | Available  for Sale |   | Loans and  Receivables |   | Held to  Maturity |   | Other  Financial

Liabilities |   | Qualifying  Derivatives |   | Non-  Financial  Instruments |   | Total |   | Fair  Value1  |   |
| **Assets**                         | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash  and cash equivalents         | ** ** | **327**                    | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **327** | ** ** | **327** | ** ** |
| Accounts  receivable and other     | ** ** | **76**                     | ** ** | **-** | ** ** | **2,054** | ** ** | **-** | ** ** | **-** | ** ** | **52** | ** ** | **302** | ** ** | **2,484** | ** ** | **2,182** | ** ** |
| Long-term  investments             | ** ** | **-**                      | ** ** | **54** | ** ** | **6** | ** ** | **181** | ** ** | **-** | ** ** | **-** | ** ** | **2,071** | ** ** | **2,312** | ** ** | **187** | ** ** |
| Deferred  amounts and other assets | ** ** | **288**                    | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **197** | ** ** | **1,940** | ** ** | **2,425** | ** ** | **485** | ** ** |
| **Liabilities**                    | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Short-term  borrowings             | ** ** | **-**                      | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **508** | ** ** | **-** | ** ** | **-** | ** ** | **508** | ** ** | **508** | ** ** |
| Accounts  payable and other        | ** ** | **36**                     | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **2,177** | ** ** | **87** | ** ** | **163** | ** ** | **2,463** | ** ** | **2,300** | ** ** |
| Interest  payable                  | ** ** | **-**                      | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **104** | ** ** | **-** | ** ** | **-** | ** ** | **104** | ** ** | **104** | ** ** |
| Long-term  debt                    | ** ** | **-**                      | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **12,283** | ** ** | **-** | ** ** | **(101)** | ** ** | **12,182** | ** ** | **13,450** | ** ** |
| Non-recourse  long-term debt       | ** ** | **-**                      | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **1,515** | ** ** | **-** | ** ** | **(9)** | ** ** | **1,506** | ** ** | **1,573** | ** ** |
| Other  long-term liabilities       | ** ** | **2**                      | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **-** | ** ** | **40** | ** ** | **1,165** | ** ** | **1,207** | ** ** | **42** | ** ** |

 
| * *                           |   | December 31, 2008 | ** ** |
|------------------------------------|--------|------------------------|------------|
| * *                           |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| *(millions of Canadian dollars)*   |   | Held for  Trading      |       | Available  for Sale |   | Loans and  Receivables |   | Held to  Maturity |   | Other  Financial  Liabilities |   | Qualifying  Derivatives |   | Non-  Financial  Instruments |   | Total |   | Fair  Value1  | ** ** |
| **Assets**                         |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Cash  and cash equivalents         |   | 542                    |       | - |   | - |   | - |   | - |   | - |   | - |   | 542 |   | 542 | ** ** |
| Accounts  receivable and other     |   | 41                     |       | - |   | 1,869 |   | - |   | - |   | 31 |   | 381 |   | 2,322 |   | 1,948 | ** ** |
| Long-term  investments             |   | -                      |       | 54 |   | 167 |   | 405 |   | - |   | - |   | 1,866 |   | 2,492 |   | 492 | ** ** |
| Deferred  amounts and other assets |   | 68                     |       | - |   | - |   | - |   | - |   | 249 |   | 1,001 |   | 1,318 |   | 317 | ** ** |
| **Liabilities**                    |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Short-term  borrowings             |   | -                      |       | - |   | - |   | - |   | 874 |   | - |   | - |   | 874 |   | 874 | ** ** |
| Accounts  payable and other        |   | 18                     |       | - |   | - |   | - |   | 1,965 |   | 32 |   | 396 |   | 2,411 |   | 2,015 | ** ** |
| Interest  payable                  |   | -                      |       | - |   | - |   | - |   | 102 |   | - |   | - |   | 102 |   | 102 | ** ** |
| Long-term  debt                    |   | -                      |       | - |   | - |   | - |   | 10,795 |   | - |   | (106) |   | 10,689 |   | 11,173 | ** ** |
| Non-recourse  long-term debt       |   | -                      |       | - |   | - |   | - |   | 1,669 |   | - |   | (10) |   | 1,659 |   | 1,672 | ** ** |
| Other  long-term liabilities       |   | 11                     |       | - |   | - |   | - |   | - |   | 36 |   | 212 |   | 259 |   | 47 | ** ** |

 

1                  Fairvalue does not include non-financial instruments, which includes investmentsaccounted for under the equity method, and available for sale equityinstruments held at cost that do not trade on an actively quoted market.

 

Thefair value of financial instruments reflects the Company’s best estimates ofmarket value based on generally accepted valuation techniques or models andsupported by observable market prices and rates. When such values are notavailable, the Company uses discounted cash flow analysis from applicable yieldcurves based on observable market inputs to estimate fair value. The fair valueof financial instruments other than derivatives represents the amounts thatwould have been received from or paid to counterparties to settle theseinstruments at the reporting date.

 

Thefair value of cash and cash equivalents and short-term borrowings approximatestheir carrying value due to their short-term maturities. The fair value of theCompany’s long-term investments, other than those classified as available forsale, approximates their carrying value due to interest terms which approximatefloating market rates. The fair value of the Company’s long-term debt andnon-recourse long-term debt is based on quoted market prices for instruments ofsimilar yield, credit risk and tenure. The fair value of other financial assetsand liabilities other than derivative instruments approximate their cost due tothe short period to maturity. Changes in the fair value of financialliabilities other than derivative instruments are due primarily to fluctuationsin interest rates and time value.

 

 

47

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**FAIR VALUE OF DERIVATIVES**

TheCompany categorizes its derivative assets and liabilities measured at fairvalue into one of three different levels depending on the observability of theinputs employed in the measurement.

 

**Level 1**

Level1 includes assets and liabilities measured at fair value based on unadjustedquoted prices for identical assets and liabilities in active markets that areaccessible at the measurement date. An active market for an asset or liabilityis considered to be a market where transactions occur with sufficient frequencyand volume to provide pricing information on an ongoing basis. The Company’sLevel 1 instruments consist primarily of exchange-traded derivative instrumentsused to mitigate the risk of crude oil price fluctuations in its LiquidsPipelines segment and commodity marketing businesses.

 

**Level 2**

Level2 includes valuations determined using directly or indirectly observable inputsother than quoted prices included within Level 1. Derivative instruments inthis category are valued using models or other industry standard valuationtechniques derived from observable market data. Such valuation techniquesinclude inputs such as quoted forward prices, time value, volatility factorsand broker quotes that can be observed or corroborated in the market for theentire duration of the derivative instrument. Instruments valued using Level 2inputs include non-exchange traded derivatives such as over the counter foreignexchange forward and cross currency swap contracts, interest rate swaps, physicalforward commodity contracts as well as commodity swaps and options for whichobservable inputs can be obtained. These instruments are used primarily in theCompany’s commodity marketing businesses and the Corporate segment.

 

**Level 3**

Level3 includes valuations based on inputs which are less observable, unavailable orwhere the observable data does not support a significant portion of theinstruments’ fair value. Generally, Level 3 valuations are longer datedtransactions, occur in less active markets, occur at locations where pricinginformation is not available or have no binding broker quote to support Level 2classification. The Company has developed methodologies, benchmarked againstindustry standards, to determine fair value for these contracts based onextrapolation of observable future prices and rates. Instruments valued usingLevel 3 inputs include long dated derivative power, NGL and natural gascontracts in its Liquids Pipelines segment and commodity marketing businesses.

 

Whenpossible the estimated fair value is based on quoted market prices and, if notavailable, estimates from third party brokers. For non-exchange tradedderivatives classified in Levels 2 and 3, the Company uses standard valuationtechniques to calculate fair value. These methods include discounted cash flowsfor forwards and swaps and Black-Scholes pricing models for options. Dependingon the type of derivative and nature of the underlying risk, primary inputs tothese techniques include observable market prices (interest, foreign exchangeand commodity) and volatility. The Company uses inputs and data used by willingmarket participants when valuing derivatives and considers its own creditdefault swap spread as well as those of its counterparties in its determinationof fair value. Where possible the Company uses observable inputs.

 

 

48

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TheCompany has categorized its derivative assets and liabilities measured at fairvalue as follows:

 
|                                    |       | **December 31, 2009** |
|-----------------------------------------|------------|----------------------------|
| *(millions of Canadian  dollars)*       |       | Level 1                    |   | Level 2 |   | Level 3 |   | Total |
| Financial  assets:                      | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current derivative assets               | ** ** | **2**                      | ** ** | **84** | ** ** | **42** | ** ** | **128** |
| Long-term derivative assets             | ** ** | **-**                      | ** ** | **481** | ** ** | **4** | ** ** | **485** |
| Financial  liabilities:                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current derivative liabilities          | ** ** | **(2)**                    | ** ** | **(68)** | ** ** | **(53)** | ** ** | **(123)** |
| Long-term derivative liabilities        | ** ** | **-**                      | ** ** | **(39)** | ** ** | **(3)** | ** ** | **(42)** |
| Total  net derivative asset/(liability) | ** ** | **-**                      | ** ** | **458** | ** ** | **(10)** | ** ** | **448** |

 

1                  Excludes cash and cash equivalents.

 
|                              |   | December 31, 2008 |
|-----------------------------------|--------|------------------------|
| *(millions of Canadian  dollars)* |   | Level 1                |   | Level 2 |   | Level 3 |   | Total |
| Financial  assets:                |   |                   |   |   |   |   |   |   |
| Current derivative assets         |   | 10                     |   | 9 |   | 53 |   | 72 |
| Long-term derivative assets       |   | -                      |   | 301 |   | 16 |   | 317 |
| Financial  liabilities:           |   |                   |   |   |   |   |   |   |
| Current derivative liabilities    |   | -                      |   | (44) |   | (6) |   | (50) |
| Long-term derivative liabilities  |   | -                      |   | (37) |   | (10) |   | (47) |
| Total  net derivative asset       |   | 10                     |   | 229 |   | 53 |   | 292 |

 

1      Excludescash and cash equivalents.

 

Changes innet fair value of derivative assets and liabilities classified as Level 3 inthe fair value hierarchy were as follows:

 
| *(millions of Canadian  dollars)*                        | * *   | * * | * * | * * |
|----------------------------------------------------------|------------|----------|----------|----------|
| Year  ended December 31,                            | ** ** | **2009** |     | 2008     |
| Level 3  net derivative asset at beginning of year       | ** ** | **53**   |     | (37)     |
| Total  gains/(losses), realized and unrealized           |       |     |     |     |
| Included in earnings                                     | ** ** | **(9)**  |     | 34       |
| Included in OCI                                          | ** ** | **7**    |     | 2        |
| Purchases,  issuances and settlements                    | ** ** | **(61)** |     | 54       |
| Level 3  net derivative asset/(liability) at end of year | ** ** | **(10)** |     | 53       |

 

**25.****        ****CAPITAL DISCLOSURES**

 

The Company defines capitalas shareholders’ equity (excluding AOCI and reciprocal shareholdings),long-term debt (excluding non-recourse debt and transaction costs), short-termborrowings and non-controlling interests less cash and cash equivalents(excluding cash and cash equivalents from joint ventures and other interestsnot exclusively controlled by the Company). Non-recourse debt, including debtconsolidated proportionately from joint venture interests, is excluded from theCompany’s definition of capital as it is not controlled or managed exclusively bythe Company.

 

 

49

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The Company’s capital is calculatedas follows:

 
| *(millions  of Canadian dollars)*          |       |       |   |   |
|--------------------------------------------|------------|------------|--------|--------|
| December 31,                          | ** ** | **2009**   |   | 2008   |
| Short-term borrowings                      | ** ** | **508**    |   | 874    |
| Long-term debt (includes current  portion) | ** ** | **12,283** |   | 10,795 |
| Non-controlling interests                  | ** ** | **727**    |   | 797    |
| Shareholders’ equity1                 | ** ** | **7,958**  |   | 6,740  |
| Cash and cash equivalents                  | ** ** | **(258)**  |   | (469)  |
|                                       | ** ** | **21,218** |   | 18,737 |

 

1                  Excludes AOCI and reciprocal shareholdings.

 

The Company’s objectiveswhen managing capital are to maintain flexibility among: enabling itsbusinesses to operate at the highest efficiency; providing liquidity for growthopportunities; and providing acceptable returns to shareholders. Theseobjectives are primarily met through maintenance of an investment grade creditrating, which provides access to lower cost capital. Capital is availablegenerally through the issuance of both short and long-term debt and equity.

 

The Company manages itscapital by monitoring its debt to debt plus equity ratio (excludingnon-recourse debt), with a target range of 60% to 70%, to meet its capitalmanagement objectives. The debt to capitalization ratio at December 31,2009, including short-term borrowings but excluding non-recourse short andlong-term debt, was 63.6% compared with 63.6% at the end of 2008.

 

The Company must adhere tocovenants in its credit facilities that are used to backstop its commercialpaper program. These covenants include maintaining a minimum ConsolidatedShareholders’ Equity balance of $1,000 million or greater and an unconsolidateddebt to unconsolidated shareholders’ equity ratio of less than 1.5. As at December 31,2009, the Company was in compliance with these covenants.

 

Under terms of the Company’sTrust Indenture, in order to continue to issue long-term debt, the Company mustmaintain a ratio of consolidated funded obligations (essentially all debtexcept non-recourse debt) to total consolidated capitalization of less than75%. Total consolidated capitalization consists of shareholders’ equity,long-term debt, non-controlling interests and future income tax. As at December 31,2009, the Company was in compliance with this covenant.

 

**26.****        ****INCOME TAXES**

 

**INCOME TAX RATE RECONCILIATION**

* *

*(millions of Canadian dollars, except per share amounts)*
| Year ended December 31,                         | ** ** | **2009**  |   | 2008   |   | 2007   |
|------------------------------------------------------|------------|-----------|--------|--------|--------|--------|
| Earnings before income taxes                         | ** ** | **1,868** |   | 1,837  |   | 916    |
| Combined statutory income tax rate                   | ** ** | **30.5%** |   | 31.3%  |   | 33.9%  |
| Income taxes at statutory rate                       | ** ** | **570**   |   | 575    |   | 311    |
| Increase/(decrease) resulting  from:                 |       |      |   |   |   |   |
| Tax  rates and legislated tax changes                | ** ** | **(58)**  |   | (11)   |   | (63)   |
| Future  income taxes related to regulated operations | ** ** | **(68)**  |   | (15)   |   | (6)    |
| Non-taxable  items, net                              | ** ** | **11**    |   | 2      |   | (19)   |
| Higher/(lower)  foreign tax rates                    | ** ** | **(61)**  |   | 3      |   | (6)    |
| Sale  of investments                                 | ** ** | **(99)**  |   | (82)   |   | -      |
| Other                                                | ** ** | **11**    |   | 37     |   | (8)    |
| Income Taxes                                         | ** ** | **306**   |   | 509    |   | 209    |
| Effective income tax rate                            | ** ** | **16.4%** |   | 27.7%  |   | 22.8%  |

 

 

50

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**COMPONENTS OF FUTURE INCOME TAXES**

* *

*(millions of Canadian dollars)*
| December 31,                                                         | ** ** | **2009**  |   | 2008   |
|---------------------------------------------------------------------------|------------|-----------|--------|--------|
| Net Future Income Tax  Liabilities/(Assets)                               |       |      |   |   |
| Differences  in accounting and tax bases of property, plant and equipment | ** ** | **1,346** |   | 790    |
| Differences  in accounting and tax bases of investments                   | ** ** | **407**   |   | 452    |
| Regulatory  assets                                                        | ** ** | **319**   |   | -      |
| Financial  instruments                                                    | ** ** | **121**   |   | (1)    |
| Loss  carryforwards                                                       | ** ** | **(138)** |   | (150)  |
| Other                                                                     | ** ** | **29**    |   | 22     |
| Net Future Income Tax Liability                                           | ** ** | **2,084** |   | 1,113  |

 

Net future income tax liability of$2,084 million (2008 - $1,113 million) includes future income tax liabilitiesof $2,211 million (2008 - $1,291 million) net of future income tax assets of$127 million (2008 - $178 million).

 

At December 31, 2009, theCompany has recognized the benefit of unused tax loss carryforwards of $425million (2008 - $452 million) of which $421 start to expire in 2019 and beyond.

 

**GEOGRAPHICAL COMPONENTS OF PRETAXEARNINGS AND INCOME TAXES**

* *

*(millions of Canadian dollars)*
| Year ended December 31,    | ** ** | **2009**  |   | 2008   |   | 2007   |
|---------------------------------|------------|-----------|--------|--------|--------|--------|
| Earnings before income taxes    |       |      |   |   |   |   |
| Canada                          | ** ** | **954**   |   | 624    |   | 511    |
| United  States                  | ** ** | **334**   |   | 419    |   | 210    |
| Other                           | ** ** | **580**   |   | 794    |   | 195    |
|                            |       | **1,868** |   | 1,837  |   | 916    |
| Current income taxes            |       |      |   |   |   |   |
| Canada                          | ** ** | **49**    |   | 141    |   | 152    |
| United  States                  | ** ** | **35**    |   | 43     |   | 12     |
| Other                           | ** ** | **4**     |   | 67     |   | 4      |
|                            |       | **88**    |   | 251    |   | 168    |
| Future income taxes             |       |      |   |   |   |   |
| Canada                          | ** ** | **117**   |   | 92     |   | (36)   |
| United  States                  | ** ** | **101**   |   | 166    |   | 77     |
|                            |       | **218**   |   | 258    |   | 41     |
| Current and future income taxes | ** ** | **306**   |   | 509    |   | 209    |

 

**27.****        ****POST EMPLOYMENT BENEFITS**

 

**PENSION PLANS**

The Company has three basic pension plans whichprovide either defined benefit or defined contribution pension benefits, orboth, to employees of the Company. The Liquids Pipelines and Natural GasDelivery and Services pension plans (collectively, the Canadian Plans) provideCompany funded defined benefit pension and/or defined contribution benefits toCanadian employees of Enbridge. The Enbridge United States pension plan (theUnited States Plan) provides Company funded defined benefit pension benefitsfor United States based employees. The Company has four supplemental pensionplans which provide pension benefits in excess of the basic plans for certainemployees.

 

 

51

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The measurement date used to determine the plan assetsand the accrued benefit obligation was September 30, 2009 for the CanadianPlans and December 31, 2009 for the United States Plan.

 

***Defined Benefit Plans***

Benefits payable from thedefined benefit plans are based on members’ years of service and final averageremuneration. These benefits are partially inflation indexed after a member’sretirement. Contributions by the Company are made in accordance withindependent actuarial valuations and are invested primarily in publicly-tradedequity and fixed income securities. The effective dates of the most recentactuarial valuations and the next required actuarial valuations for the basicplans are as follows:

 
|                |   | Effective Date of Most Recently   Filed Actuarial Valuation |   | Effective Date of Next Required   Actuarial Valuation |
|---------------------|--------|-------------------------------------------------------------|--------|-------------------------------------------------------|
| Canadian  Plans     |   | December 31, 2006                                      |   | December 31, 20091                               |
| United  States Plan |   | December 31, 2008                                      |   | December 31, 2009                                |

 

1                  The December 31, 2009 valuation will be filed inmid-2010.

 

The definedbenefit pension plan costs have been determined based on management’s bestestimates and assumptions of the rate of return on pension plan assets, rate ofsalary increases and various other factors including mortality rates,terminations and retirement ages.

 

***Defined Contribution Plans***

Contributionsare generally based on the employee’s age, years of service and remuneration.For defined contribution plans, benefit costs equal amounts required to becontributed by the Company.

 

***Post-employment Benefits Otherthan Pensions***

OPEBprimarily include supplemental health, dental, health spending account and lifeinsurance coverage for qualifying retired employees.

 

**DEFINEDBENEFIT PLANS**

Thefollowing tables detail the changes in the benefit obligation, the fair valueof plan assets and the recorded asset or liability for the Company’s definedbenefit pension plans and OPEB plans using the accrual method.

 

 

52

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| * *                                                                                   | ** ** | Pension Benefits | ** ** | OPEB               |       |
|--------------------------------------------------------------------------------------------|------------|------------------|------------|--------------------|------------|
| *(millions of Canadian dollars)*                                                           | ** ** | **2009**         |       | 2008               | ** ** | **2009** |   | 2008 |   |
| **Change in Accrued Benefit  Obligation**                                                  |       |             |       |               |       |   |   |   |   |
| Benefit obligation at beginning of year                                                    | ** ** | **1,075**        | ** ** | **1,100**          | ** ** | **179** | ** ** | **183** | ** ** |
| Service cost                                                                               | ** ** | **53**           | ** ** | **53**             | ** ** | **4** | ** ** | **5** | ** ** |
| Interest cost                                                                              | ** ** | **71**           | ** ** | **65**             | ** ** | **11** | ** ** | **11** | ** ** |
| Amendments                                                                                 | ** ** | **- **      | ** ** | **(4)**            | ** ** | **- ** | ** ** | **- ** | ** ** |
| Employees’ contributions                                                              | ** ** | **- **      | ** ** | **- **        | ** ** | **1** | ** ** | **1** | ** ** |
| Actuarial gain                                                                             | ** ** | **(13)**         | ** ** | **(125)**          | ** ** | **(1)** | ** ** | **(27)** | ** ** |
| Benefits paid                                                                              | ** ** | **(51)**         | ** ** | **(46)**           | ** ** | **(8)** | ** ** | **(7)** | ** ** |
| Effect of foreign exchange rate changes                                                    | ** ** | **(16)**         | ** ** | **32**             | ** ** | **(16)** | ** ** | **13** | ** ** |
| Benefit obligation at end of year                                                          | ** ** | **1,119**        | ** ** | **1,075**          | ** ** | **170** | ** ** | **179** | ** ** |
| **Change in Plan Assets**                                                                  | ** ** | ** **       | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fair value of plan assets at beginning of year                                             | ** ** | **1,141**        | ** ** | **1,310**          | ** ** | **46** | ** ** | **48** | ** ** |
| Actual return on plan assets                                                               | ** ** | **51**           | ** ** | **(180)**          | ** ** | **6** | ** ** | **(12)** | ** ** |
| Employer’s contributions                                                              | ** ** | **44**           | ** ** | **33**             | ** ** | **9** | ** ** | **8** | ** ** |
| Employees’ contributions                                                              | ** ** | **- **      | ** ** | **- **        | ** ** | **1** | ** ** | **1** | ** ** |
| Benefits paid                                                                              | ** ** | **(51)**         | ** ** | **(46)**           | ** ** | **(8)** | ** ** | **(7)** | ** ** |
| Other                                                                                      | ** ** | **(1)**          | ** ** | **(1)**            | ** ** | **(8)** | ** ** | **-** | ** ** |
| Effect of foreign exchange rate changes                                                    | ** ** | **(17)**         | ** ** | **25**             | ** ** | **(8)** | ** ** | **8** | ** ** |
| Fair value of plan assets at end of year                                                   | ** ** | **1,167**        | ** ** | **1,141**          | ** ** | **38** | ** ** | **46** | ** ** |
| **Funded Status**                                                                          |       |             |       |               |       |   |   |   |   |
| Benefit obligation                                                                         | ** ** | **(1,119)**      | ** ** | **(1,075)**        | ** ** | **(170)** | ** ** | **(179)** | ** ** |
| Fair value of plan assets                                                                  | ** ** | **1,167**        | ** ** | **1,141**          | ** ** | **38 ** | ** ** | **46** | ** ** |
| Overfunded/(Underfunded) status at end of year                                             | ** ** | **48**           | ** ** | **66**             | ** ** | **(132)** | ** ** | **(133)** | ** ** |
| Contribution after measurement date                                                        | ** ** | **14**           | ** ** | **2**              | ** ** | **1** | ** ** | **1** | ** ** |
| Unamortized prior service cost                                                             | ** ** | **6**            | ** ** | **7**              | ** ** | **- ** | ** ** | **- ** | ** ** |
| Unamortized transitional obligation/(asset)                                                | ** ** | **(13)**         | ** ** | **(15)**           | ** ** | **9** | ** ** | **11** | ** ** |
| Unamortized net loss                                                                       | ** ** | **161**          | ** ** | **167**            | ** ** | **12** | ** ** | **24** | ** ** |
| Net amount recognized on an accrual basis at end of  year                                  |       | **216**          |       | **227**            |       | **(110)** |   | **(97)** |   |
| Adjustment to cash basis for amounts in EGD1                                               | ** ** | **- **      | ** ** | **(157)**          | ** ** | **- ** | ** ** | **75** | ** ** |
| Net amount recognized in the Consolidated Statement  of Financial Position at end of year1 | ** ** |  

**216**  | ** ** | ** **

**70** | ** ** | ** **

**(110)** | ** ** | ** **

**(22)** | ** ** |
| Presented as follows:                                                                      |       |             |       |               |       |   |   |   |   |
| Deferred Amounts and Other *(Note 12)*                                                     | ** ** | **216**          | ** ** | **70**             | ** ** | **-** | ** ** | **-** | ** ** |
| Other Long-Term Liabilities *(Note 18)*                                                    | ** ** | **-**            | ** ** | **- **        | ** ** | **(110)** | ** ** | **(22)** | ** ** |

 

1      Prior to January 1, 2009, the Company recognizedpension benefit costs related to its regulated EGD pension plan on the cashbasis. As a result, this amount was not recognized in the ConsolidatedStatements of Financial Position (Note 3).

 

 

53

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Theweighted average assumptions made in the measurement of the projected benefitobligations of the pension plans and OPEB are as follows:

 
|                             |       | Pension Benefits |   | OPEB       |   |
|----------------------------------|------------|------------------|--------|------------|--------|
| Year ended December 31,     | ** ** | **2009 **   |   | 2008  |   | 2007  | ** ** | **2009 ** |   | 2008  |   | 2007  |   |
| Discount rate                    | ** ** | **6.46%**        |   | 6.59**%**  |   | 5.65**%** | ** ** | **6.28%** |   | 6.42**%** |   | 5.71**%** |   |
| Average rate of salary increases | ** ** | **3.73%**        |   | 5.00**%**  |   | 5.00**%** |   |   |   |   |   |   |   |

 

**Net Benefit Costs Recognized**
| *(millions of Canadian dollars)*        |       | Pension Benefits |   | OPEB       |   |
|-----------------------------------------|------------|------------------|--------|------------|--------|
| Year ended December 31,            | ** ** | **2009 **   |   | 2008  |   | 2007  | ** ** | **2009 ** |   | 2008  |   | 2007  |   |
| Benefits earned during the year         | ** ** | **53 **     |   | 53    |   | 47  | ** ** | **4 ** |   | 5  |   | 5  |   |
| Interest cost on projected benefit      |       |             |   |       |   |   |   |   |   |   |   |   |   |
| obligations                             | ** ** | **71 **     |   | 65    |   | 58  | ** ** | **11 ** |   | 11  |   | 10  |   |
| Actual return on plan assets            | ** ** | **(51)**         |   | 180   |   | (105) | ** ** | **(6)** |   | 12  |   | (2) |   |
| Difference between actual and           |       |             |   |       |   |   |   |   |   |   |   |   |   |
| expected return on plan assets          | ** ** | **(27)**         |   | (273)      |   | 20  | ** ** | **3 ** |   | (15) |   | **- ** |   |
| Amortization of prior service costs     | ** ** | **2 **      |   | 2     |   | 2  | ** ** | **-** |   | **- ** |   | **- ** |   |
| Amortization of transitional obligation | ** ** | **(2)**          |   | (2)        |   | (2) | ** ** | **1 ** |   | 1  |   | 1  |   |
| Amortization of actuarial loss          | ** ** | **21 **     |   | 4     |   | 12  | ** ** | **1 ** |   | 1  |   | 2  |   |
| Amount charged to EEP1                  | ** ** | **(20)**         |   | (8)        |   | (7) | ** ** | **(5)** |   | (3) |   | (4) |   |
| Net defined benefit costs on an accrual |       |             |   |       |   |   |   |   |   |   |   |   |   |
| basis                                   | ** ** | **47 **     |   | 21    |   | 25  | ** ** | **9 ** |   | 12  |   | 12  |   |
| Adjustment to cash basis for amounts    |       |             |   |       |   |   |   |   |   |   |   |   |   |
| in EGD2                                 | ** ** | **- **      |   | (3)        |   | (1) | ** ** | **- ** |   | 6  |   | 6  |   |
| Defined contribution benefit costs      | ** ** | **4 **      |   | 4     |   | 4  | ** ** | **- ** |   | **- ** |   | **- ** |   |
| Net benefit cost recognized in the      |       |             |   |       |   |   |   |   |   |   |   |   |   |
| Consolidated Statements of Earnings     | ** ** | **51 **     |   | 22    |   | 28  | ** ** | **9 ** |   | 18  |   | 18  |   |

 

1      EEP doesnot have employees and uses the services of the Company for managing andoperating its businesses. EEP is charged an amount, measured at cost, forpension benefits and OPEB.

2      Prior to January 1,2009, the Company recognized pension benefit costs related to its regulated EGDpension plan on the cash basis (Note 3).

 

Theweighted average assumptions made in the measurement of the cost of the pensionplans and OPEB are as follows:

 
|                                   |       | Pension Benefits |   | OPEB       |   |
|----------------------------------------|------------|------------------|--------|------------|--------|
| Year ended December 31,           | ** ** | **2009 **   |   | 2008  |   | 2007  | ** ** | **2009 ** |   | 2008  |   | 2007  |   |
| Discount rate                          | ** ** | **6.59%**        |   | 5.65%      |   | 5.27% | ** ** | **6.42%** |   | 5.71% |   | 5.37% |   |
| Average rate of return on pension plan |       |             |   |       |   |   |   |   |   |   |   |   |   |
| assets                                 | ** ** | **7.30%**        |   | 7.30%      |   | 7.31% | ** ** | **6.09%** |   | 6.00% |   | 4.50% |   |
| Average rate of salary increases       | ** ** | **5.00%**        |   | 5.00%      |   | 5.00% |   |   |   |   |   |   |   |

 

**MEDICALCOST TRENDS**

Theassumed rates for the next year used to measure the expected cost of benefitsare as follows:

 

 

54

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|                     |   | Medical Cost Trend Rate  Assumption for Next  Fiscal Year |   | Ultimate Medical Cost  Trend Rate Assumption |   | Year in which Ultimate  Medical Cost Trend Rate  Assumption is Achieved |   |
|--------------------------|--------|-----------------------------------------------------------|--------|----------------------------------------------|--------|-------------------------------------------------------------------------|--------|
| Canadian Plans           |   |                                                      |   |                                         |   |                                                                    |   |
| Drugs                    |   | 9.4%                                                      |   | 4.5%                                         |   | 2029                                                                    |   |
| Other Medical and Dental |   | 4.5%                                                      |   | 4.5%                                         |   | 2009                                                                    |   |
| United States Plan       |   | 8.0%                                                      |   | 4.5%                                         |   | 2029                                                                    |   |

 

A 1%increase in the assumed medical and dental care trend rate would result in anincrease of $23 million in the accumulated post-employment benefit obligationsand an increase of $2 million in benefit and interest costs. A 1% decrease in the assumed medical anddental care trend rate would result in a decrease of $19 million in the accumulated post-employmentbenefit obligations and a decrease of $2 million in benefit and interest costs.

 

**PLAN ASSETS**

**Major Categories of Plan Assets**

Plan assets are invested in a diversified manner, primarily in readilymarketable investments including equity and fixed income securities.

 

As at December 31, 2009, the pension benefits assets were invested54.7% (2008 - 57.3%) in equity securities, 34.0% (2008 - 35.1%) in fixed incomesecurities and 11.3% (2008 - 7.6%) in other. The OPEB assets were invested60.5% (2008 - 58.0%) in equity securities and 39.5% (2008 - 42.0%) in fixedincome securities.

 
| * *                                              | ** ** | **December 31, 2009** |
|-------------------------------------------------------|------------|----------------------------|
| *(millions of Canadian dollars)*                      |       | Level 11                   |   | Level 22 |   | Level 33 |   | Total |
| **Pension Benefits:**                                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                             | ** ** | **65**                     | ** ** | **-** | ** ** | **-** | ** ** | **65** |
| Fixed income securities:                              | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Canadian government bonds                             | ** ** | **-**                      | ** ** | **82** | ** ** | **-** | ** ** | **82** |
| Corporate bonds and debentures                        | ** ** | **4**                      | ** ** | **-** | ** ** | **-** | ** ** | **4** |
| Canadian corporate bond index fund                    | ** ** | **131**                    | ** ** | **-** | ** ** | **-** | ** ** | **131** |
| Canadian government bond index fund                   | ** ** | **137**                    | ** ** | **-** | ** ** | **-** | ** ** | **137** |
| United States debt index fund                         | ** ** | **43**                     | ** ** | **-** | ** ** | **-** | ** ** | **43** |
| Equity:                                               | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Canadian equity securities                            | ** ** | **150**                    | ** ** | **-** | ** ** | **-** | ** ** | **150** |
| Canadian equity funds                                 | ** ** | **89**                     | ** ** | **-** | ** ** | **-** | ** ** | **89** |
| United States equity funds                            | ** ** | **117**                    | ** ** | **-** | ** ** | **-** | ** ** | **117** |
| Global equity funds                                   | ** ** | **127**                    | ** ** | **117** | ** ** | **-** | ** ** | **244** |
| Private equity investment4                            | ** ** | **-**                      | ** ** | **-** | ** ** | **37** | ** ** | **37** |
| Exchange-traded foreign currency derivatives          | ** ** | **1**                      | ** ** | **-** | ** ** | **-** | ** ** | **1** |
| Other:                                                | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Refundable taxes receivable5                          | ** ** | **-**                      | ** ** | **-** | ** ** | **62** | ** ** | **62** |
| Other net receivables/(payables)                      | ** ** | **-**                      | ** ** | **-** | ** ** | **-** | ** ** | **5** |
|                                                  | ** ** | **864**                    | ** ** | **199** | ** ** | **99** | ** ** | **1,167** |
| **OPEB:**                                             | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fixed income securities:                              | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| United States government and government agency  bonds | ** ** | **-**                      | ** ** | **15** | ** ** | **-** | ** ** | **15** |
| Equity:                                               | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Global equity funds                                   | ** ** | **23**                     | ** ** | **-** | ** ** | **-** | ** ** | **23** |
|                                                  | ** ** | **23**                     | ** ** | **15** | ** ** | **-** | ** ** | **38** |

 

1      Level 1assets include assets with quoted prices in active markets for identicalassets.

 

 

55

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2      Level 2assets include assets with significant observable inputs.

3      Level 3assets include assets with significant unobservable inputs.

4      The fairvalue of the investment in United States Limited Partnership – GlobalInfrastructure Fund is established through the use of valuation models.

5      The fairvalue of refundable taxes receivable approximates carrying value due to thenature of the receivable and the short period to maturity.

 

Changes inthe net fair value of plan assets classified as Level 3 in the fair valuehierarchy were as follows.

 
| ** **                        |       | Private Equity  Investment |       | Refundable Taxes  Receivable |
|-----------------------------------|------------|----------------------------|------------|------------------------------|
| Balance at beginning of year      | ** ** | **19**                     | ** ** | **55**                       |
| Total gains/(losses), unrealized  | ** ** | **(2)**                    | ** ** | **-**                        |
| Purchases, issuances, settlements | ** ** | **20**                     | ** ** | **7**                        |
| Balance at end of year            | ** ** | **37**                     | ** ** | **62**                       |

 

The Company manages the investmentrisk of its pension funds by setting a long-term asset mix policy for each planafter consideration of: (i) the nature of pension plan liabilities; (ii) theinvestment horizon of the plan; (iii) the going concern and solvencyfunded status and cash flow requirements of the plan; (iv) the operatingenvironment and financial situation of the Company and its ability to withstandfluctuations in pension contributions; and (v) the future economic andcapital markets outlook with respect to investment returns, volatility ofreturns and correlation between assets. The overall expected rate of return isbased on the asset allocation targets with estimates for returns on equity anddebt securities based on long-term expectations.

 

**TargetMix for Plan Assets**
| ** **              |   | Liquids Pipelines  Pension Plan |   | Natural Gas Delivery  and Services  Pension Plan |   | Enbridge United  States Pension Plan |
|-------------------------|--------|---------------------------------|--------|--------------------------------------------------|--------|--------------------------------------|
| Equity securities       |   | 62.5%                           |   | 52.5%                                            |   | 57.5%                                |
| Fixed income securities |   | 32.5%                           |   | 42.5%                                            |   | 37.5%                                |
| Other                   |   | 5.0%                            |   | 5.0%                                             |   | 5.0%                                 |

 

**ExpectedRate of Return on Plan Assets**
|                         |       | Pension Benefits |   | OPEB       |
|------------------------------|------------|------------------|--------|------------|
| Year ended December 31, | ** ** | **2009 **   |   | 2008  | ** ** | **2009 ** |   | 2008  |
| Canadian Plans               | ** ** | **7.25%**        |   | 7.25%      | ** ** | **6.00%** |   | 6.00% |
| United States Plan           | ** ** | **7.75%**        |   | 7.75%      | ** ** | **6.00%** |   | 6.00% |

 

**PLANCONTRIBUTIONS BY THE COMPANY**
| *(millions of Canadian dollars)*          |       | Pension Benefits |       | OPEB   |
|-------------------------------------------|------------|------------------|------------|--------|
| Year ended December 31,              | ** ** | **2009**         |       | 2008   | ** ** | **2009** |   | 2008  |
| Total contributions                       | ** ** | **44**           | ** ** | **33** | ** ** | **9** | ** ** | **8 ** |
| Contributions expected to be paid in 2010 | ** ** | **66**           | ** ** |   |   | **8** |   |   |

 

**BENEFITSEXPECTED TO BE PAID BY THE COMPANY**

 
| *(millions of Canadian dollars)* |   |   |   |   |   |   |   |   |   |   |   |      |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|
| Year ended December 31,     |   | 2010   |   | 2011   |   | 2012   |   | 2013   |   | 2014   |   | 2015-2019 |
| Expected future benefit payments |   | 61     |   | 63     |   | 66     |   | 70     |   | 73     |   | 428  |

 

 

56

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**28.****        ****OTHER INVESTMENT INCOME**

 
| *(millions of Canadian dollars)*                            | * *   | * *       | * * | * *       | * * | * *       |
|-------------------------------------------------------------|------------|----------------|----------|----------------|----------|----------------|
| Year ended December 31,                                | ** ** | **2009 ** |     | 2008** ** |     | 2007** ** |
| Net foreign currency gains                                  | ** ** | **444 **  |     | 43** **   |     | 26** **   |
| Allowance for equity funds used during  construction (AEDC) | ** ** | **135 **  |     | 59** **   |     | 15** **   |
| Interest income on affiliate loans                          | ** ** | **38 **   |     | 34** **   |     | 33** **   |
| Noverco preferred dividends income                          | ** ** | **15 **   |     | 16** **   |     | 16** **   |
| Hurricane insurance recoveries                              | ** ** | **13 **   |     | -** **    |     | 14** **   |
| OCENSA investment income                                    | ** ** | **6 **    |     | 23** **   |     | 25** **   |
| Gain on reduction of EEP ownership interest                 | ** ** | **- **    |     | 13** **   |     | 34** **   |
| Other                                                       | ** ** | **27 **   |     | 10** **   |     | 32** **   |
|                                                        | ** ** | **678 **  |     | 198** **  |     | 195** **  |

 

**29.****        ****CHANGES IN OPERATING ASSETS AND LIABILITIES**

 
| *(millions of Canadian dollars)*  | * *   | * *       | * * | * *      | * * | * *      |
|-----------------------------------|------------|----------------|----------|---------------|----------|---------------|
| Year ended December 31,      | ** ** | **2009 ** |     | 2008          |     | 2007          |
| Accounts receivable and other     | ** ** | **76 **   |     | 186** ** |     | (492)         |
| Inventory                         | ** ** | **99 **   |     | (135)         |     | 160** ** |
| Deferred amounts and other assets | ** ** | **(349)**      |     | 95** **  |     | (135)         |
| Accounts payable and other        | ** ** | **134 **  |     | (115)         |     | 415           |
| Interest payable                  | ** ** | **2 **    |     | 9** **   |     | (6)           |
| Other long-term liabilities       | ** ** | **281 **  |     | (66)          |     | 62            |
|                              | ** ** | **243 **  |     | (26)          |     | 4** **   |

 

**30.****        ****RELATED PARTY TRANSACTIONS**

 

All related party transactions are provided in the normal course ofbusiness and, unless otherwise noted, measured at the exchange amount, which isthe amount of consideration established and agreed to by the related parties.

 

EEP, an equity investee, does not have employees and uses the servicesof the Company for managing and operating its businesses. Vector Pipeline, ajoint venture, contracts the services of Enbridge to operate the pipeline.Amounts for these services, which are charged at cost in accordance withservice agreements, are as follows.

 
| *(millions of Canadian dollars)* | * *   | * *       | * * | * *       | * * | * *       |
|----------------------------------|------------|----------------|----------|----------------|----------|----------------|
| Year ended December 31,     | ** ** | **2009 ** |     | 2008** ** |     | 2007** ** |
| EEP                              | ** ** | **342 **  |     | 302** **  |     | 267** **  |
| Vector Pipeline                  | ** ** | **6 **    |     | 6** **    |     | 5** **    |
| ** **                       | ** ** | **348 **  |     | 308** **  |     | 272** **  |

 

At December 31, 2009, the Company has accounts receivable of $38million (2008 - $41 million) from EEP and $1 million (2008 - $1 million) fromVector Pipeline.

 

The Company has provided EEP with an unsecured revolving creditagreement for general liquidity support. The credit facility provides for amaximum principle amount of US$500 million for a three-year term maturing in December 2010.At December 31, 2009 and 2008, there were no amounts outstanding on thisfacility.

 

EGD, a subsidiary of the Company, has contracts for gas transportationservices from Alliance Pipeline Canada and US and Vector Pipeline. EGD is chargedmarket prices for these services as follows.

 

 

57

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| *(millions of Canadian dollars)* |       |           |   |           |   |           |
|----------------------------------|------------|----------------|--------|----------------|--------|----------------|
| Year ended December 31,     | ** ** | **2009 ** |   | 2008** ** |   | 2007** ** |
| Alliance Pipeline Canada         | ** ** | **24 **   |   | 24** **   |   | 21        |
| Alliance Pipeline US             | ** ** | **18 **   |   | 17** **   |   | 15        |
| Vector Pipeline                  | ** ** | **29 **   |   | 27** **   |   | 25        |
|                             | ** ** | **71 **   |   | 68** **   |   | 61        |

 

Enbridge Gas Services (US) Inc., a subsidiary of the Company, purchasesand sells gas at prevailing market prices with Enbridge Marketing (US) Inc., asubsidiary of EEP. Amounts charged/(recovered) are as follows.

 
| *(millions of Canadian dollars)* |       |           |   |           |   |           |
|----------------------------------|------------|----------------|--------|----------------|--------|----------------|
| Year ended December 31,     | ** ** | **2009 ** |   | 2008** ** |   | 2007** ** |
| Purchases                        | ** ** | **16 **   |   | 52** **   |   | 43** **   |
| Sales                            | ** ** | **(6)**        |   | (7)            |   | (4)            |
|                             | ** ** | **10 **   |   | 45** **   |   | 39** **   |

 

Enbridge Gas Services Inc. and Enbridge Gas Services (US) Inc.,subsidiaries of the Company, have transportation commitments, measured atmarket value, through 2015 on Alliance Pipeline Canada and Vector Pipeline.Amounts charged are as follows.

 
| *(millions of Canadian dollars)* |       |           |   |           |   |           |
|----------------------------------|------------|----------------|--------|----------------|--------|----------------|
| Year ended December 31,     | ** ** | **2009 ** |   | 2008** ** |   | 2007** ** |
| Alliance Pipeline Canada         | ** ** | **9 **    |   | 9** **    |   | 8** **    |
| Alliance Pipeline US             | ** ** | **7 **    |   | 7** **    |   | 7         |
| Vector Pipeline                  | ** ** | **16 **   |   | 16** **   |   | 16        |
|                             | ** ** | **32 **   |   | 32** **   |   | 31        |

 

Tidal Energy Marketing Inc., a subsidiary of the Company, purchases andsells commodities at prevailing market prices with EEP and a subsidiary of EEPas follows.

 
| *(millions of Canadian dollars)* |       |           |   |           |   |           |
|----------------------------------|------------|----------------|--------|----------------|--------|----------------|
| Year ended December 31,     | ** ** | **2009 ** |   | 2008** ** |   | 2007** ** |
| Purchases                        | ** ** | **80 **   |   | 24** **   |   | 5** **    |
| Sales                            | ** ** | **(7)**        |   | (9)            |   | (6)            |
|                             | ** ** | **73 **   |   | 15** **   |   | (1)            |

 

CustomerWorks Limited Partnership (CustomerWorks), a joint venture,provided customer care services to EGD under an agreement having a five-yearterm which expired in 2007 and was not renewed. EGD was charged market pricesfor these services. CustomerWorks also rented an automated billing system fromEnbridge Commercial Services Inc. (ECS), a subsidiary of the Company. Amountscharged by/(to) CustomerWorks are as follows.

 
| *(millions of Canadian dollars)* |       |           |   |           |   |           |
|----------------------------------|------------|----------------|--------|----------------|--------|----------------|
| Year ended December 31,     | ** ** | **2009 ** |   | 2008** ** |   | 2007** ** |
| EGD                              | ** ** | **- **    |   | -** **    |   | 26** **   |
| ECS                              | ** ** | **(2)**        |   | (2)            |   | (2)            |
|                             | ** ** | **(2)**        |   | (2)            |   | 24** **   |

 

***ALBERTA CLIPPERPROJECT***

InJuly 2009, the Company committed to fund 66.7% of the cost to constructthe United States segment of the Alberta Clipper Project. The total cost of theUnited States segment, which is expected to be ready for

 

 

58

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serviceon April 1, 2010, is estimated at US$1,300 million, with totalexpenditures to date of US$900 million.

 

TheCompany is funding 66.7% of the project’s equity requirements through EELP, anequity investee. The Company hasprovided a $282 million (US$270 million) loan to EEP for debt financing relatedto the construction. At December 31, 2009, this amount is included in Accounts Receivable and Other. Theloan, denominated in United States dollars, bears interest based on variableshort-term rates.

 

In August 2008, the Company transferred $23million, measured at market value, of 36 inch diameter line pipe to EEP for usein constructing the United States segment of the Alberta Clipper Project.

 

**SPEARHEAD NORTH PIPELINE**

InMay 2009, the Company sold a section of the Spearhead Pipeline to itsaffiliate EEP for proceeds of US$75 million. This related party transaction hasbeen recorded at the exchange amount which was equal to the carrying amount.

 

**SOUTHERN LIGHTS PROJECT**

InFebruary 2009, as part of its Southern Lights Pipeline Project, theCompany transferred the United States section of a newly constructed light sourpipeline to EEP in exchange for a pipeline referred to as Line 13. Thisnon-monetary transaction has been recorded at the carrying amount.

 

In connection with the exchange discussed above, EEPentered into an arrangement to lease Line 13 from the Company for monthlypayments of US$2 million to ensure adequate southbound pipeline capacity priorto the completion of the Alberta Clipper Project. The lease arrangement waseffective in February 2009 and can be terminated at any time with writtennotice.

 

***LONG-TERM RECEIVABLE FROM AFFILIATE***

*The affiliate long-term note receivable of $*159million (US$130 million) as at December 31, 2008, included in DeferredAmounts and Other Assets, was repaid by EEP in November 2009. Interest income for the year endedDecember 31, 2009 related to the note receivable was $11 million (2008 - $12 million; 2007 - $10million).

* *

**31.****        ****COMMITMENTS AND CONTINGENCIES**

 

**COMMITMENTS**

The Company has signedcontracts for the purchase of services, pipe and other materials totaling $697million which are expected to be paid within the next 5 years.

 

**ENBRIDGE GAS DISTRIBUTION INC.**

***Bloor Street Incident***

EGD was charged under boththe Ontario Technical Standards and Safety Act (TSSA) and the OntarioOccupational Health and Safety Act (OHSA) in connection with an explosion thatoccurred on Bloor Street West in Toronto in April 2003. In October 2007,all of the TSSA and OHSA charges laid against EGD were dismissed by the OntarioCourt of Justice. The decision has been appealed by the Crown to the OntarioSuperior Court of Justice and the appeal was heard by the Court during November andDecember 2009. The Court’s decision has been reserved and EGD expects itto be released in early 2010. EGD does not believe any fines that may be leviedwould have a material financial impact on EGD.

 

EGD has also beennamed as a defendant in a number of civil actions related to the explosion. Allsignificant civil actions have been settled without any material financialimpact on EGD. A Coroner’s Inquest in connection with the explosion is alsopossible.

 

**OTHER TAX MATTERS**

Enbridgeand its subsidiaries maintain tax liabilities related to uncertain tax positions.While fully supportable in the Company’s view, these tax positions, ifchallenged by tax authorities, may not be fully sustained on review.

 

**OTHER LITIGATION**

The Company and itssubsidiaries are subject to various other legal and regulatory actions andproceedings which arise in the normal course of business, includinginterventions in regulatory proceedings and challenges to regulatory approvalsand permits by special interest groups. While the

 

 

59

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final outcome of such actionsand proceedings cannot be predicted with certainty, Management believes thatthe resolution of such actions and proceedings will not have a material impacton the Company’s consolidated financial position or results of operations.

 

**32.****        ****GUARANTEES**

 

EnbridgeEnergy Company, Inc. (EEC), a subsidiary of the Company and the general partnerof EEP, has agreed toindemnify EEP from and against substantially all liabilities,including liabilities relating to environmentalmatters, arising from operations prior to the transfer of its pipelineoperations to EEP in 1991. This indemnification does not apply to amounts thatEEP would be able to recover in its tariff rates if not recovered throughinsurance or to any liabilities relating to a change in laws after December 27,1991.

 

In addition, in the event of default, EEC issubject to recourse with respect to US$62 million of EEP’s long-term debt at December 31,2009 (2008 - US$93 million).

 

TheCompany has also agreed to indemnify EEM for any tax liability related to EEM’sformation, management of EEP and ownership of i-units of EEP. The Company hasnot made any significant payment under these tax indemnifications. The Companydoes not believe there is a material exposure at this time.

 

Inthe normal course of conducting business, the Company enters into agreementswhich indemnify third parties. The Company cannot reasonably estimate themaximum potential amounts that could become payable to third parties underthese agreements; however, historically, the Company has not made anysignificant payments under these indemnification provisions. While many ofthese agreements may specify a maximum potential exposure, or a specifiedduration to the indemnification obligation, there are circumstances where theamount and duration are unlimited. Examples of such indemnification obligationsinclude the following.

 

SaleAgreements for Assets or Businesses:

·                  breaches of representations, warranties or covenants;

·                  loss or damages to property;

·                  environmental liabilities;

·                  changes in laws;

·                  valuation differences;

·                  litigation; and

·                  contingent liabilities.

 

Provisionof Services and Other Agreements:

·                  breaches of representations, warrantiesor covenants;

·                  changes in laws;

·                  intellectual property rights infringement;and

·                  litigation.

 

When disposing of assets orbusinesses, the Company may indemnify the purchaser for certain tax liabilitiesincurred while the Company owned the assets or for a misrepresentation relatedto taxes that result in a loss to the purchaser. Similarly, the Company mayindemnify the purchaser of assets for certain tax liabilities related to thoseassets.

 

 

60

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**33.****        ****UNITED STATES ACCOUNTING PRINCIPLES**

 

Theseconsolidated financial statements have been prepared in accordance withCanadian GAAP. The effects of significant differences between Canadian GAAP andU.S. GAAP for the Company are described below.

 

**EARNINGS**

* *

*(millions of Canadian dollars, except per share amounts)*
| Year  ended December 31,                                                             | ** ** | **2009**  |   | 2008   |   | 2007   |
|-------------------------------------------------------------------------------------------|------------|-----------|--------|--------|--------|--------|
| Earnings  under Canadian GAAP Applicable to Common Shareholders                           | ** ** | **1,555** |   | 1,321  |   | 700    |
| Earnings  under Canadian GAAP                                                             | ** ** | **1,562** |   | 1,328  |   | 707    |
| Inventory valuation adjustment, net of tax3                                               | ** ** | **(24)**  |   | -      |   | -      |
| Earnings attributable to non-controlling interests  under Canadian GAAP                   | ** ** | **37**    |   | 56     |   | 46     |
| Earnings as a result of consolidating EEP under U.S.  GAAP6                               | ** ** | **177**   |   | 278    |   | 168    |
| Earnings  under U.S. GAAP                                                                 | ** ** | **1,752** |   | 1,662  |   | 921    |
| Attributable  to                                                                          |       |      |   |   |   |   |
| Enbridge Inc.1                                                                            | ** ** | **1,538** |   | 1,328  |   | 707    |
| Non-controlling interests1                                                                | ** ** | **214**   |   | 334    |   | 214    |
| Earnings  under U.S. GAAP                                                                 | ** ** | **1,752** |   | 1,662  |   | 921    |
| Earnings  per Common Share attributable to Enbridge Inc.                                  | ** ** | **4.71**  |   | 3.67   |   | 1.97   |
| Diluted  Earnings per Common Share attributable to Enbridge Inc.                          | ** ** | **4.68**  |   | 3.64   |   | 1.95   |
|                                                                                      |       |      |   |   |   |   |
| **COMPREHENSIVE  INCOME**                                                                 |       |      |   |   |   |   |
| ** **                                                                                |       |      |   |   |   |   |
| *(millions of Canadian  dollars, except per share amounts)*                               |       |      |   |   |   |   |
| Year  ended December 31,                                                             | ** ** | **2009**  |   | 2008   |   | 2007   |
| Earnings  under U.S. GAAP                                                                 | ** ** | **1,752** |   | 1,662  |   | 921    |
| Other  comprehensive income/(loss) under Canadian GAAP                                    | ** ** | **(576)** |   | 318    |   | (197)  |
| Underfunded pension adjustment, net of tax5                                               | ** ** | **3**     |   | (57)   |   | 23     |
| Other comprehensive income attributable to  non-controlling interests under Canadian GAAP | ** ** | **(72)**  |   | 101    |   | (92)   |
| Other comprehensive income as a result of consolidating  EEP under U.S. GAAP6             | ** ** | **(62)**  |   | 241    |   | (81)   |
| Comprehensive  income under U.S. GAAP                                                     | ** ** | **1,045** |   | 2,265  |   | 574    |
| Attributable  to                                                                          |       |      |   |   |   |   |
| Enbridge Inc.1                                                                            | ** ** | **965**   |   | 1,589  |   | 533    |
| Non-controlling interests1                                                                | ** ** | **80**    |   | 676    |   | 41     |
| Comprehensive  income under U.S. GAAP                                                     | ** ** | **1,045** |   | 2,265  |   | 574    |

 

 

61

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**FINANCIALPOSITION**
| * *                                                       | ** ** | **2009**   |       | 2008       |
|----------------------------------------------------------------|------------|------------|------------|------------|
| *(millions of Canadian  dollars)*                              | ** ** | ** ** |       | **United** |   |   |   | United |
| December 31,                                              | ** ** | **Canada** | ** ** | **States** |   | Canada |   | States |
| **Assets**                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  Assets                                                |       |       |       |       |   |   |   |   |
| Cash and cash equivalents2,6                                   | ** ** | **327**    | ** ** | **478**    |   | 542 |   | 961 |
| Accounts receivable and other2,6                               | ** ** | **2,484**  | ** ** | **2,848**  |   | 2,322 |   | 3,175 |
| Inventory2,3,6                                                 | ** ** | **784**    | ** ** | **824**    |   | 845 |   | 911 |
| ** **                                                     | ** ** | **3,595**  | ** ** | **4,150**  |   | 3,709 |   | 5,047 |
| Property,  Plant and Equipment, net2,6                         | ** ** | **18,850** | ** ** | **26,837** |   | 16,157 |   | 24,738 |
| Long-Term  Investments2,6                                      | ** ** | **2,312**  | ** ** | **228**    |   | 2,492 |   | 412 |
| Deferred  Amounts and Other Assets2,4,5,6                      | ** ** | **2,425**  | ** ** | **2,478**  |   | 1,318 |   | 2,080 |
| Intangible  Assets6                                            | ** ** | **488**    | ** ** | **575**    |   | 458 |   | 334 |
| Goodwill6                                                      | ** ** | **372**    | ** ** | **719**    |   | 389 |   | 808 |
| Future  Income Taxes8                                          | ** ** | **127**    | ** ** | **148**    |   | 178 |   | 178 |
|                                                           | ** ** | **28,169** | ** ** | **35,135** |   | 24,701 |   | 33,597 |
| ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Liabilities  and Shareholders’ Equity**                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  Liabilities                                           |       |       |       |       |   |   |   |   |
| Short-term borrowings                                          | ** ** | **508**    | ** ** | **508**    |   | 874 |   | 874 |
| Accounts payable and other2,6                                  | ** ** | **2,463**  | ** ** | **3,178**  |   | 2,411 |   | 3,203 |
| Interest payable6                                              | ** ** | **104**    | ** ** | **151**    |   | 102 |   | 143 |
| Current maturities of long-term debt                           | ** ** | **601**    | ** ** | **633**    |   | 534 |   | 534 |
| Current maturities of non-recourse long-term debt2,6           | ** ** | **113**    | ** ** | **131**    |   | 185 |   | 706 |
| ** **                                                     | ** ** | **3,789**  | ** ** | **4,601**  |   | 4,106 |   | 5,460 |
| Long-Term  Debt4,6                                             | ** ** | **11,581** | ** ** | **15,647** |   | 10,155 |   | 10,257 |
| Non-Recourse  Long-Term Debt2,6                                | ** ** | **1,393**  | ** ** | **1,399**  |   | 1,474 |   | 5,448 |
| Other  Long-Term Liabilities2,5,6,9                            | ** ** | **1,207**  | ** ** | **1,311**  |   | 259 |   | 398 |
| Future  Income Taxes2,4,5,6,8                                  | ** ** | **2,211**  | ** ** | **2,147**  |   | 1,291 |   | 2,014 |
|                                                           | ** ** | **20,181** | ** ** | **25,105** |   | 17,285 |   | 23,577 |
| Non-Controlling  Interests1,6                                  | ** ** | **727**    | ** ** | **-**      |   | 797 |   | - |
| Shareholders’  Equity                                     |       |       |       |       |   |   |   |   |
| Share capital                                                  |       |       |       |       |   |   |   |   |
| Preferred shares                                               | ** ** | **125**    | ** ** | **125**    |   | 125 |   | 125 |
| Common shares                                                  | ** ** | **3,379**  | ** ** | **3,379**  |   | 3,194 |   | 3,194 |
| Contributed surplus                                            | ** ** | **54**     | ** ** | **-**      |   | 38 |   | - |
| Retained earnings3                                             | ** ** | **4,400**  | ** ** | **4,343**  |   | 3,383 |   | 3,351 |
| Additional paid in capital                                     | ** ** | **-**      | ** ** | **98**     |   | - |   | 82 |
| Accumulated other comprehensive income/(loss)4                 | ** ** | **(543)**  | ** ** | **(646)**  |   | 33 |   | (72) |
| Reciprocal shareholding                                        | ** ** | **(154)**  | ** ** | **(154)**  |   | (154) |   | (154) |
|                                                           | ** ** | **7,261**  | ** ** | **7,145**  |   | 6,619 |   | 6,526 |
| Total  Enbridge Inc. Liabilities and Shareholders’ Equity | ** ** | **28,169** | ** ** | **32,250** |   | 24,701 |   | 30,103 |
| Non-Controlling  Interests1,6                                  | ** ** | **-**      | ** ** | **2,885**  |   | - |   | 3,494 |
| ** **                                                     | ** ** | **28,169** | ** ** | **35,135** |   | 24,701 |   | 33,597 |

 

 

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1            Presentation of Non-Controlling Interests

UnderCanadian GAAP earnings attributable to non-controlling interests are presentedas part of earnings on the income statement and the non-controlling interestbalance is presented as a liability on the balance sheet. Under U.S. GAAP, theearnings and retained earnings attributable to non-controlling interests arepresented as a separate component of equity.

 

For the yearended December 31, 2009, $214 million (2008 - $334 million; 2007 - $214million) of earnings are attributable to non-controlling interests.

 

Included inOCI for the year ended December 31, 2009 is an unrealized loss on cashflow hedges of $62 million (2008 - $241 million unrealized gain; 2007 - $81million unrealized loss), a decrease in currency translation adjustment of $71million (2008 - $81 million increase; 2007 - $61 million decrease) and anafter-tax change in OCI of $1 million (2008 - $20 million; 2007 - $31 million)attributable to non-controlling interests.

 

2            Accounting for Joint Ventures

Canadian GAAPrequires that investments in joint ventures are proportionately consolidated.U.S. GAAP requires the Company’s investments in joint ventures to be accountedfor using the equity method. However, under an accommodation of the UnitedStates Securities and Exchange Commission, accounting for jointly controlledinvestments need not be reconciled from Canadian to U.S. GAAP if the jointventure is jointly controlled by all parties having an equity interest in theentity. Joint ventures in which all owners do not share joint control arereconciled to U.S. GAAP. The different accounting treatment affects onlypresentation and classification and not earnings or shareholders’ equity.Additional information related to the Company’s investments in joint venturesis included in Note 10, Joint Ventures.

 

3            Commodity Inventories Valuation

UnderCanadian GAAP commodity inventories are recorded at fair value. U.S. GAAPrequires that commodity inventories be recorded at the lower of cost or market.For the year ended December 31, 2009, lower of cost or market adjustmentsresulted in a $36million decrease to inventory, a $12 million decrease to the future income taxliability and a $24 million decrease to earnings. There were no lower of costor market adjustments related to commodity inventory valuation for the yearsended December 31, 2008 and 2007.

 

4            Transaction Costs

Under Canadian GAAP transactioncosts arising from the issuance of debt are recorded in Long-Term Debt. ForU.S. GAAP, these costs are reclassified to Deferred Amounts and Other Assets.As at December 31, 2009, $98 million (2008 - $102 million) of transactioncosts were reclassified.

 

5            Pension Funding Status

U.S. GAAP requires an employer to recognize the overfundedor underfunded status of a defined benefit post retirement plan or OPEB plan asan asset or liability and to recognize changes in the funded status in theperiod in which they occur through comprehensive income while Canadian GAAPdoes not require the recognition of the defined benefit post retirement plan orOPEB plan funding status.

 

Pension funding status adjustments resulted in an increasein the net liability of $155 million (2008 - $159 million) for the underfundedstatus of the plans, a decrease in future tax liability of $52 million (2008 -$54 million) and an increase in accumulated other comprehensive loss of $103million (2008 - $105 million) at December 31, 2009.

 

Amountsremoved from OCI and recognized as components of the net pension and OPEB costsin the year are as follows:

 
| *(millions of Canadian dollars)* | ** ** | **2009** |   | 2008 |   | 2007 |
|----------------------------------|------------|----------|--------|------|--------|------|
| Prior  service cost              | ** ** | **2**    |   | 1    |   | 1    |
| Net  transitional obligation     | ** ** | **(1)**  |   | (1)  |   | (1)  |
| Net  loss                        | ** ** | **22**   |   | 1    |   | 3    |
|                             | ** ** | **23**   |   | 1    |   | 3    |

 

Amountsincluded in AOCI that have not yet been recognized as a component of netperiodic benefit cost are as follows:

 
| *(millions of Canadian dollars)* | ** ** | **2009** |   | 2008 |   | 2007 |
|----------------------------------|------------|----------|--------|------|--------|------|
| Prior  service cost              | ** ** | **4**    |   | 1    |   | 4    |
| Net  transitional obligation     | ** ** | **(3)**  |   | (6)  |   | (7)  |
| Accumulated  net loss            | ** ** | **107**  |   | 110  |   | 52   |
|                             | ** ** | **108**  |   | 105  |   | 49   |

 

Netamounts reflected in OCI for the year are as follows:

 
| *(millions of Canadian dollars)*     | ** ** | **2009** |   | 2008 |   | 2007 |
|--------------------------------------|------------|----------|--------|------|--------|------|
| Unamortized  prior service cost      | ** ** | **3**    |   | (3)  |   | (1)  |
| Unamortized  transitional obligation | ** ** | **3**    |   | 1    |   | 1    |
| Net  loss/(gain)                     | ** ** | **(3)**  |   | 58   |   | (23) |
|                                 | ** ** | **3**    |   | 56   |   | (23) |

 

 

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TheCompany estimates that approximately $15 million related to pension and OPEBplans at December 31, 2009 will be reclassified into earnings in the nexttwelve months, as follows:

 
| *(millions of Canadian dollars)* |   | Pension   Benefits |   | OPEB | ** ** | **Total** |
|----------------------------------|--------|--------------------|--------|------|------------|-----------|
| Net  transitional obligation     |   | (2)                |   | 1    | ** ** | **(1)**   |
| Prior  service costs             |   | 1                  |   | -    | ** ** | **1**     |
| Loss                             |   | 14                 |   | 1    | ** ** | **15**    |
|                             |   | 13                 |   | 2    | ** ** | **15**    |

 

6            Consolidation of a Limited Partnership

Under U.S. GAAP the Company is deemedto have control of EEP and therefore consolidates its 27% interest in thepartnership, resulting in an increase to both assets and liabilities of $6,974million at December 31, 2009 (2008 - $8,248 million) and no recognition ormeasurement changes to equity or earnings as at and for the year ended December 31,2009.

 

7            Unrecognized Tax Benefits

 
| *(millions of Canadian dollars)*                   | ** ** | **2009** |   | 2008 |
|----------------------------------------------------|------------|----------|--------|------|
| Unrecognized  Tax Benefits at beginning of year    | ** ** | **13**   |   | 61   |
| Gross  increases for tax positions of current year | ** ** | **5**    |   | 33   |
| Gross  increases for tax positions of prior years  | ** ** | **6**    |   | -    |
| Gross  decreases for tax positions of prior years  | ** ** | **(1)**  |   | (82) |
| Changes  in translation of foreign currency        | ** ** | **(1)**  |   | 1    |
| Unrecognized  Tax Benefits at end of year          | ** ** | **22**   |   | 13   |

 

The unrecognized tax benefits at December 31, 2009, if recognized,would affect the Company’s effective income tax rate. Gross increases in 2008include a $32 million charge for the United States tax litigated matter, tounrecognize all of the tax benefits. As an unfavourable court decision wasrendered in 2008, the full tax benefit balance of $65 was reversed and theunrecognized benefits removed as reflected in 2008 gross decreases. The Companydoes not anticipate further adjustments to the unrecognized tax benefits duringthe next twelve months that would have a material impact on its consolidatedfinancial statements.

 

The Company recognizes accrued interest and penalties related tounrecognized tax benefits as a component of income tax expense. Income taxexpense for the year ended December 31, 2009 includes $1 million (2008 -$2 million) of interest. As at December 31, 2009, interest and penaltiesof $10 million (2008 - $9 million) have been accrued.

 

The Company and its subsidiaries are subject to either Canadian federaland provincial income tax, United States federal, state and local income tax,or the relevant income tax in other international jurisdictions. The Companyhas substantially concluded all Canadian federal and provincial income taxmatters for the years through 2002 and all returns are generally closed through2004. Generally, all United States federal income tax returns and state andlocal income tax returns are closed through 2005 for all tax matters with theexception of the previously litigated matter. Various Canadian federal andprovincial income tax returns for 2006 and 2007 are currently under examinationby the Canada Revenue Agency.

 

8            Future Income Taxes

Under U.S.GAAP, deferred income tax liabilities are recorded for rate-regulatedoperations, which follow the taxes payable method for ratemaking purposes. Asthese deferred income taxes are expected to be recoverable in future revenues,a corresponding regulatory asset is also recorded. These assets and liabilitiesare adjusted to reflect changes in enacted income tax rates. At December 31,2008, a deferred tax liability of $803 million was recorded for U.S. GAAPpurposes and reflects the difference between the carrying value and the taxbasis of property, plant and equipment. Effective January 1, 2009, theCanadian GAAP exemption which precluded rate regulated entities fromrecognizing future income taxes was removed.

 

9                  Indefinite ReversalRule

The Companyhas not provided future taxes on the unremitted earnings of foreign investmentsthat the Company does not intend to repatriate in the foreseeable future. Theseearnings relate to ongoing operations and as at December 31, 2009 wereapproximately $460 million (2008 - $428 million).

 

**NEW ACCOUNTING STANDARDS UNDER U.S. GAAP**

**Fair Value Measurements**

InSeptember 2006, the Financial Accounting Standards Board (FASB) issued astatement that defines fair value, establishes a framework for measuring fairvalue in the context of GAAP and expands the disclosure requirementssurrounding fair value measurement. In January 2008, the FASB deferred theimplementation of this standard for all non-financial assets and non-financialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, until January 1, 2009. TheCompany adopted this standard for those assets and liabilities recognized ordisclosed at fair value in the financial statements on a recurring basis as of January 1,2008 and the aspects of the standard for non-financial assets and liabilitiesas of January 1, 2009.

 

 

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**Business Combinations**

InDecember 2007, the FASB issued a revised statement related to businesscombinations. This statement retains the fundamental requirements in theoriginal statement, requiring that the acquisition method of accounting be usedfor all business combinations and for an acquirer to be identified for eachbusiness combination. The statement revises how the acquisition method isapplied when measuring and recognizing certain items acquired. The Companyadopted this standard on January 1, 2009.

 

**Accounting for Non-Controlling Interests**

InDecember 2007, the FASB issued a statement related to the classificationof non-controlling interests in consolidated financial statements. Thestatement requires non-controlling interests in subsidiaries to be reported asequity on the Statement of Financial Position and requires comprehensive incomeattributable to non-controlling interests to be disclosed. The standard onlyimpacts presentation and does not impact the recognition or measurement of amountsrelated to non-controlling interests. The Company adopted this standard on January 1,2009.

 

**Derivative Instrument and Hedging Activities Disclosures**

InMarch 2008, the FASB issued a statement revising disclosure requirementsfor derivative instruments and hedging activities. The standard impactspresentation only and does not impact the recognition or measurement of amountsrelated to derivative instruments and hedging activities. The Company adoptedthis standard on January 1, 2009.

 

**FUTURE ACCOUNTING STANDARDS UNDER U.S. GAAP**

Thefollowing standards will be effective for the Company beginning on January 1,2010. Management does not expect the adoption of any of these standards tosignificantly impact the consolidated financial statements.

 

**Consolidation of Variable Interest Entities**

InJune 2009, the FASB issued a statement revising the existing statement on *Consolidation of Variable Interest Entities*. The revisedStatement focuses on a qualitative approach and requires the re-assessment ofexisting arrangements on an on-going basis.

 

**Accounting for Transfers of Financial Assets**

InJune 2009, the FASB issued a statement amending the existing statement on *Transfers of Financial Assets and Extinguishments of Liabilities*.The amended standard eliminates the qualifying special purpose entity concept,imposes stricter sale criteria, revises the de-recognition criteria andprovides guidance on determining gains or losses when a transfer qualifies as asale.

 

 

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