17. NON-CONTROLLING INTERESTS

December 31,		2008		2007
(millions of Canadian dollars)
EEM		481.0		335.1
EGD Preferred Shares		100.0		100.0
EIF		146.9		155.9
EGNB		57.1		48.8
Other		12.4		10.7
		797.4		650.5

Non-controlling interest in EEM represents the 82.8% of the listed shares of EEM not held by the Company.

The Company owns 100% of the common shares of EGD; however, the 4,000,000 4.82% Cumulative Redeemable EGD Preferred Shares held by third parties are entitled to a claim on the assets of EGD prior to the common shareholder. Subsequent to July 1, 2009, EGD may, at its option, redeem all or a portion of the outstanding preferred shares for $25.00 plus all accrued and unpaid dividends to the redemption date. The preferred shares have no fixed maturity date.

Non-controlling interest in EIF represents 58.1% of voting units which are held by public unitholders. Non-controlling interest in EGNB represents 29.1% held by third parties.

18. SHARE CAPITAL

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

COMMON SHARES

		2008					2007					2006
December 31,		Number of Shares		Amount			Number of Shares		Amount			Number of Shares		Amount
(millions of Canadian dollars; number of common shares in millions)
Balance at beginning of year		368.5		3,026.5			351.8		2,416.1			348.9		2,343.8
Common shares issued		–		–			15.0		566.4			–		–
Exercise of stock options		1.3		36.2			1.2		26.3			2.4		53.9
Dividend Reinvestment and Share Purchase Plan		3.2		131.3			0.5		17.7			0.5		18.4
Balance at end of year		373.0		3,194.0			368.5		3,026.5			351.8		2,416.1

PREFERRED SHARES

The 5.0 million 5.5% Cumulative Redeemable Preferred Shares, Series A are entitled to fixed, cumulative, quarterly preferential dividends of $1.375 per share per year. The Company may, at its option, redeem all or a portion of the outstanding preferred shares for $25.00 per share plus all accrued and unpaid dividends.

EARNINGS PER COMMON SHARE

Earnings per common share is calculated by dividing earnings applicable to common shareholders by the weighted average number of common shares outstanding. The weighted average number of shares outstanding has been reduced by the Company's pro-rata weighted average interest in its own common shares of 11.1 million shares (2007 – 11.1 million shares), resulting from the Company's reciprocal investment in Noverco.

The treasury stock method is used to determine the dilutive impact of stock options. This method assumes that any proceeds from the exercise of stock options would be used to purchase common shares at the average market price during the period.

December 31,		2008		2007		2006
(number of common shares in millions)
Weighted average shares outstanding		359.8		355.3		340.0
Effect of dilutive options		3.3		3.0		3.3
Diluted weighted average shares outstanding		363.1		358.3		343.3

For the year ended December 31, 2008, 2,879,800 anti-dilutive stock options (2007 – 1,158,200; 2006 – 1,548,900) with a weighted average exercise price of $40.53 (2007 – $38.26; 2006 – $36.47) were excluded from the diluted earnings per share calculation.

DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN

Under the Dividend Reinvestment and Share Purchase Plan, registered shareholders may reinvest dividends in common shares of the Company and make additional optional cash payments to purchase common shares, free of brokerage or other charges. Participants in the Company's Dividend Reinvestment and Share Purchase Plan receive a 2% discount on the purchase of common shares with reinvested dividends.

SHAREHOLDER RIGHTS PLAN

The Shareholder Rights Plan is designed to encourage the fair treatment of shareholders in connection with any takeover offer for the Company. Rights issued under the plan become exercisable when a person and any related parties, acquires or announces its intention to acquire 20% or more of the Company's outstanding common shares without complying with certain provisions set out in the plan or without approval of the Company's Board of Directors. Should such an acquisition occur each rights holder, other than the acquiring person and related parties, will have the right to purchase common shares of the Company at a 50% discount to the market price at that time.

19. STOCK OPTION AND STOCK UNIT PLANS

The Company maintains four long-term incentive compensation plans: the Incentive Stock Option (ISO) Plan, the Performance Based Stock Option (PBSO) Plan, the Performance Stock Unit (PSU) Plan and the Restricted Stock Unit (RSU) Plan. A maximum of 30 million common shares were reserved for issuance under the 2002 ISO plan, of which 16 million have been issued to date. In 2007, a new reserve of 16.5 million shares was approved and established for the 2007 ISO and PBSO plans, of which none have been issued to date. The PSU and RSU plans grant notional units as if a unit was one Enbridge common share and are payable in cash.

INCENTIVE STOCK OPTIONS

Key employees are granted ISOs to purchase common shares at the market price on the grant date. ISOs vest in equal annual installments over a four-year period and expire 10 years after the issue date. Compensation expense recorded for the year ended December 31, 2008 for ISOs is $13.0 million (2007 – $9.0 million; 2006 – $10.5 million).

Outstanding Incentive Stock Options

		2008					2007					2006
December 31,		Number		Weighted Average Exercise Price			Number		Weighted Average Exercise Price			Number		Weighted Average Exercised Price
(options in thousands; exercise price in Canadian dollars)
Options at beginning of year		9,237		27.24			9,186		24.97			9,434		22.09
Options granted		2,642		40.54			1,158		38.26			1,595		36.41
Options exercised		(1,178	)	21.85			(1,046	)	19.21			(1,698	)	19.38
Options cancelled or expired		(51	)	36.83			(61	)	32.97			(145	)	28.81
Options at end of year		10,650		31.05			9,237		27.24			9,186		24.97
Options vested		6,087		25.32			5,865		22.87			5,323		20.54

The total intrinsic value of ISOs exercised during the year ended December 31, 2008 was $22.9 million (2007 – $19.1 million; 2006 – $27.8 million) and cash received on exercise was $25.7 million (2007 – $20.1 million; 2006 – $32.9 million). Intrinsic value represents the difference between the Company's share price and the exercise price, multiplied by the number of options. The total intrinsic value of ISOs outstanding and vested at December 31, 2008 was $109.0 million and $97.2 million, respectively.

Incentive Stock Option Characteristics

December 31, 2008	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
(options in thousands; exercise price in Canadian dollars)
10.00-14.99	401		1.2		13.30			401		1.2		13.30
15.00-19.99	731		1.7		18.55			731		1.7		18.55
20.00-24.99	1,914		3.6		21.30			1,914		3.6		21.30
25.00-29.99	1,189		5.0		25.74			1,189		5.0		25.74
30.00-34.99	1,252		6.1		31.79			892		6.0		31.75
35.00-39.99	2,533		7.5		37.26			960		7.4		36.98
40.00-44.99	2,072		9.1		40.42			–		–		–
45.00-49.99	558		9.1		49.61			–		–		–
	10,650		6.1		31.54			6,087		4.4		25.32

The total fair value of options vested for the ISO Plan was $9.1 million at December 31, 2008 (2007 – $7.5 million; 2006 – $5.8 million).

Weighted average assumptions used to determine the fair value of the ISOs using the Black-Scholes option pricing model are as follows:

Year ended December 31,			2008		2007		2006
Fair value per option (Canadian dollars) 1			6.14		6.16		6.30
Valuation assumptions
Expected option term (years) 2			6		6		8
Expected volatility 3			18.48%		18.10%		19.00%
Expected dividend yield 4			3.34%		3.22%		3.23%
Risk-free interest rate 5			3.50%		4.11%		4.16%

1. Beginning in 2008, options granted to U.S. employees are based on NYSE prices. The option value and assumptions shown for 2008 are based on a weighted average of the U.S. options and the Canadian options. The fair values per option were $6.20 for Canadian employees and US$5.82 for U.S. employees.
2. The expected option term is based on historical information.
3. Expected volatility is based on historical information from both the Toronto Stock Exchange and the New York Stock Exchange.
4. The expected dividend yield is the current annual dividend divided by the current stock price.
5. The risk-free interest rate is based on the Government of Canada's Canadian Bond Yields and the U.S. Treasury Bond Yields.

As of December 31, 2008, unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the ISO plan was $9.7 million. The cost is expected to be recognized over a period of 2.5 years.

PERFORMANCE BASED STOCK OPTIONS

PBSOs are granted to executive officers and become exercisable when both performance targets and time vesting requirements have been met. PBSOs were granted on September 16, 2002, August 15, 2007 and February 19, 2008. The 2008 PBSO grant is included in the 2007 PBSO plan. All performance targets and time vesting requirements for the 2002 PBSO grant have been met. The 2002 PBSO grant will expire on September 16, 2010. The 2007 and 2008 PBSO grants performance targets are based on the Company's share price. Time vesting requirements for the 2007 PBSO grant are fulfilled evenly over a five-year term, ending August 15, 2012. Time vesting requirements for the 2008 PBSO grant were modified to a four and a half year term and will be completed concurrently with the 2007 grant on August 15, 2012. Under the 2007 PBSO plan performance vesting targets must be met by February 15, 2014, otherwise the options expire. If targets are met by February 15, 2014, the options are exercisable until August 15, 2015. Compensation expense recorded for the year ended December 31, 2008 for PBSOs was $1.8 million (2007 – $0.7 million).

Outstanding Performance Based Stock Options

		2008					2007					2006
December 31,		Number		Weighted Average Exercise Price			Number		Weighted Average Exercise Price			Number		Weighted Average Exercise Price
(options in thousands; exercise price in Canadian dollars)
Options at beginning of year		3,588		31.92			1,379		23.15			2,105		21.57
Options granted		250		40.42			2,345		36.57			–		–
Options exercised		(100	)	23.15			(136	)	23.15			(645	)	18.00
Options cancelled		–		–			–		–			(81	)	23.15
Options at end of year		3,738		32.72			3,588		31.92			1,379		23.15
Options vested		1,143		23.15			1,243		23.15			1,119		23.15

The total intrinsic value of PBSOs exercised during the year ended December 31, 2008 was $1.8 million (2007 – $1.9 million; 2006 – $11.4 million) and cash received on exercise was $2.3 million (2007 – $3.1 million; 2006 – $11.6 million). The total intrinsic value of PBSOs outstanding and vested at December 31, 2008 is $32.0 million and $20.7 million, respectively.

Performance Based Stock Option Characteristics

December 31, 2008	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
(options in thousands; exercise price in Canadian dollars)
23.15	1,143		1.7		23.15			1,143		1.7		23.15
36.57	2,345		6.6		36.57			–		–		–
40.42	250		6.6		40.42			–		–		–
	3,738		5.1		32.72			1,143		1.7		23.15

The total fair value of options vested for the PBSO Plan was $1.8 million at December 31, 2008 (2007 – $1.7 million; 2006 – $1.2 million).

Assumptions used to determine the fair value of the PBSOs using the Bloomberg barrier option valuation 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 volatility 1			13.60%		13.60%
Expected dividend yield 2			3.32%		3.57%
Risk-free interest rate 3			3.75%		4.38%

1. The expected option term and the expected volatility are based on historical information.
2. The expected dividend yield is the current annual dividend divided by the current stock price.
3. The risk-free interest rate is based on the Government of Canada's Canadian Bond Yields and the U.S. Treasury Bond Yields.

As of December 31, 2008, unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the PBSO plan was $6.7 million. The cost is expected to be recognized over a period of 3.7 years.

PERFORMANCE STOCK UNITS

The Company has a PSU Plan for senior officers where cash awards are paid following a three-year performance cycle. Awards are calculated by multiplying the number of units outstanding at the end of the performance period by the Company's weighted average share price and by a performance multiplier. The performance multiplier ranges from 0, if the Company's performance fails to meet threshold performance levels, to a maximum of 2, if the Company performs within the highest range of its performance targets. The performance multiplier for the 2006 grant was based on the Company's total shareholder return over the three-year performance period relative to a specified peer group of companies. The 2007 and 2008 grants derive the performance multiplier through a calculation of the Company's Price/Earnings ratio relative to a specified peer group of companies and the Company's growth in earnings per share relative to targets established at the time of grant.

Compensation expense recorded for the year ended December 31, 2008 for PSUs was $12.6 million (2007 – $3.0 million; 2006 – $4.1 million). An estimated performance multiplier of 1.62, 1.45 and 1.93 was used to calculate the expense based upon historical performance for the 2006, 2007 and 2008 grants, respectively.

Outstanding Performance Stock Units

December 31,		2008		2007		2006
Units at beginning of year		267,616		328,716		200,652
Units granted		144,300		137,200		117,900
Units cancelled		–		(2,384	)	–
Units matured		(129,852	)	(209,827	)	–
Dividend reinvestment		13,364		13,911		10,164
Units at end of year		295,428		267,616		328,716

Of the PSUs outstanding at December 31, 2008, 146,444 units have a performance period ending December 31, 2009 and 148,984 units have a performance period ending December 31, 2010. The total intrinsic value of PSUs outstanding at December 31, 2008 is $21.0 million (2007 – $10.7 million; 2006 – $12.7 million).

RESTRICTED STOCK UNITS

Enbridge has a RSU plan where cash awards are paid to certain non-executive employees of the Company following a thirty-five month maturity period. RSU holders receive cash equal to the Company's weighted average share price multiplied by the units outstanding on the maturity date. Compensation expense recorded for the year ended December 31, 2008 for RSUs was $15.4 million (2007 – $7.1 million; 2006 – $0.8 million).

Outstanding Restricted Stock Units

December 31,		2008		2007		2006
Units at beginning of year		456,621		183,253		–
Units granted		418,700		276,875		181,882
Units cancelled		(23,352	)	(18,627	)	–
Units matured		(179,940	)	–		–
Dividend reinvestment		28,005		15,120		1,371
Units at end of year		700,034		456,621		183,253

The total intrinsic value of RSUs outstanding at December 31, 2008 is $29.4 million (2007 – $18.3 million; 2006 – $7.7 million).

As of December 31, 2008, unrecognized compensation expense related to non-vested units granted under the PSU and RSU plans was $27.8 million, expected to be recognized over a period of 1.7 years.

20. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

	Cash Flow Hedges		Equity Investees		Non- Controlling Interests		Cumulative Translation Adjustment		Net Investment Hedges		Total
(millions of Canadian dollars)
Balance at January 1, 2006	–		–		–		(486.7	)	428.1		(58.6	)
Tax impact	–		–		–		–		(113.2	)	(113.2	)
	–		–		–		(486.7	)	314.9		(171.8	)
Changes during the period	–		–		–		87.6		(49.0	)	38.6
Tax impact	–		–		–		–		(2.6	)	(2.6	)
	–		–		–		87.6		(51.6	)	36.0
Balance at December 31, 2006	–		–		–		(399.1	)	263.3		(135.8	)
Adjustment on adoption (Note 2)	79.4		(57.3	)	26.3		–		–		48.4
Tax impact	(20.3	)	20.1		–		–		–		(0.2	)
	59.1		(37.2	)	26.3		–		–		48.2
Changes during the period	94.8		(29.2	)	4.9		(447.1	)	193.9		(182.7	)
Tax impact	(5.1	)	9.4		–		–		(19.0	)	(14.7	)
	89.7		(19.8	)	4.9		(447.1	)	174.9		(197.4	)
Balance at December 31, 2007	148.8		(57.0	)	31.2		(846.2	)	438.2		(285.0	)
Changes during the period	(175.8	)	78.5		(19.6	)	576.8		(179.8	)	280.1
Tax impact	47.1		(29.3	)	–		–		19.9		37.7
	(128.7	)	49.2		(19.6	)	576.8		(159.9	)	317.8
Balance at December 31, 2008	20.1		(7.8	)	11.6		(269.4	)	278.3		32.8

21. RISK MANAGEMENT

MARKET PRICE RISK

The Company's earnings are subject to movements in interest rates, foreign exchange rates and commodity prices (collectively, market price risk). Formal risk management policies, processes and systems have been designed to mitigate these risks.

Earnings at Risk (EaR) is the principal risk management metric used to quantify market price risk at Enbridge. EaR is an objective, statistically derived risk metric that measures, with a 97.5% level of confidence, the maximum adverse change in projected 12-month earnings that could result from market price risk over a one-month period. The Company's policy is to target a maximum EaR of 5% of earnings.

The Company calculates EaR using Monte Carlo simulation to produce projections of earnings using a randomly generated series of forecasted market prices and Enbridge's current market exposures. Historical statistical distributions of market prices and the correlation among those market prices are used to generate an entire probability distribution of possible deviations from forecast earnings. The following summarizes the types of market price risks to which the Company is exposed and the risk management instruments used to mitigate them.

COMMODITY PRICE RISK

The Company is exposed to gains or losses due to changes in the market price of commodities. The Company may use natural gas, power, crude oil and natural gas liquids swaps, collars or options to manage the value of variable price exposures that arise from commodity usage, storage, transportation and supply agreements.

Earnings and OCI impacts from unrealized changes in the commodity risk management instruments mentioned above are driven by revaluation of these instruments at the balance sheet date. Sensitivities are based on the Company's estimate of a reasonably possible change in the price of the underlying commodity and each commodity sensitivity analysis has been calculated independently of each other. For example, increasing the price of crude oil assumes that the price of gas remains constant and that only instruments impacted directly by an increase in the price of crude oil are affected. The impact of various price increases to commodities at December 31, 2008 would have had the following impact on earnings:

Unit			Crude (BBL)		NGL (gallons)		Gas (MMBTU)		Power (MWh)		Fractionation Margins (gallon)
Increase per unit			$10.00		$0.25		$1.00		$5.00		US$0.10
(millions of Canadian dollars)
After-tax impact
Earnings			(21.4	)	(0.1	)	4.1		(0.3	)	(1.5	)
OCI			(3.0	)	(7.4	)	16.8		(0.5	)	(2.2	)

FOREIGN EXCHANGE RISK

The Company is exposed to both transaction and translation risk due to the volatility of foreign currency exchange rates. The Company has exposure to foreign currency exchange rates, primarily arising from its U.S. dollar denominated investments and, to a lesser extent, its monetary assets and liabilities denominated in this currency.

The carrying values of these assets and liabilities as well as the comprehensive income and earnings derived from them, are subject to foreign exchange rate fluctuation. The Company uses par forward contracts and cross currency swaps to manage a portion of the foreign exchange exposure related to changes in the carrying values, cashflows and earnings of its U.S. dollar denominated investments. The Company uses some of its U.S. dollar denominated debt to hedge the carrying values of certain equity investments. In addition, the Company uses short and long-term foreign exchange forward contracts to manage exposure related to foreign currency denominated receivables, payables and long-term debt.

The Canadian dollar carrying values of the Company's equity investments and monetary assets and liabilities denominated in U.S. dollars at December 31, 2008 are summarized below.

		Assets/ (Liabilities)
(millions of Canadian dollars)
Net Working Capital		(223.3	)
Equity Investments		1,939.7
Long-Term Debt		(2,112.3	)

The impact of a $0.05 strengthening of the Canadian dollar relative to the US dollar at December 31, 2008, would have resulted in a $58.4 million increase to earnings and a $19.4 million increase to OCI, due to the revaluation of currency derivatives. Under Section 3862 of the CICA Handbook, the calculation of sensitivity to foreign exchange risk is limited to financial instruments denominated in currencies other than the functional currency in which they are measured and transacted. The sensitivity to changes in foreign exchange rates at the balance sheet date is primarily driven by changes in the fair value of derivative instruments. The $0.05 increase in exchange rates is presumed to have caused a parallel shift in the forward exchange rates used to value financial derivatives maturing in future periods.

INTEREST RATE RISK

The Company is exposed to cashflow and revaluation risk due to the volatility of interest rates. Cash flows are impacted by changes in market interest rates on variable rate debt (primarily commercial paper). Floating to fixed interest rate swaps, collars and forward rate agreements are used to mitigate cash flow volatility due to future interest rate fluctuation. The Company is also exposed to cash flow interest rate risk on fluctuations in market interest rates ahead of anticipated fixed rate debt issuances. The Company may enter into interest rate derivatives such as bond forwards and treasury locks to fix a portion of the interest payments of these future debt issuances. The Company monitors its fixed and variable rate debt instruments, targeting a debt portfolio mix of up to 25% floating rate debt as a percentage of total debt outstanding. Fixed to floating swaps are also used from time to time to manage this position and optimize the Company's debt portfolio. The fair value of existing fixed rate long-term debt is also impacted by changes in market interest rates. The Company does not typically manage the fair value risk of its debt instruments.

A 1.0% increase in interest rates would have caused a $13.7 million increase in OCI at December 31, 2008 due to the revaluation of interest rate derivatives, all of which are designated hedging instruments in cash flow hedging relationships. The sensitivity has been calculated assuming a 1.0% shift in interest rates across the yield curve.

EQUITY PRICE RISK

Equity price risk is the risk of earnings fluctuations due to changes in the Company's share price. The Company has exposure to its own common share price through the issuance of various forms of stock based compensation, which affect earnings through revaluation of the outstanding units every period. The Company uses equity derivatives to manage the earnings volatility derived from one form of stock based compensation, RSUs (Note 19).

Due to revaluation of the equity derivative contracts at December 31, 2008, the impact of a $4 increase in the Company's share price would have been a $0.9 million increase in earnings and a $1.1 million increase in OCI.

SUMMARY OF DERIVATIVE INSTRUMENTS USED FOR RISK MANAGEMENT

The current portion of derivative assets or liabilities is included in Accounts Receivable and Other or Accounts Payable and Other, while the long-term portion is included in Deferred Amounts and Other Assets or Other Long-Term Liabilities.

Total Derivative Instruments

		2008							2007
December 31,		Notional Principal or Quantity		Derivative Asset/ (Liability)		Maturity			Notional Principal or Quantity		Derivative Asset/ (Liability)		Maturity
(millions of Canadian dollars unless otherwise noted)
Foreign exchange
U.S. cross currency swaps		138.0		26.1		2013-2022			138.0		46.7		2013-2022
U.S. Forwards (cumulative exchange amounts)		3,943.6		269.5		2009-2022			2,608.0		226.3		2008-2022
Interest rates
Interest rate swaps/collars		1,164.4		(33.0	)	2009-2029			1,117.0		(8.6	)	2008-2029
Equity price
Forwards (millions of shares)		0.7		(4.8	)	2009-2010			–		–		–
Energy commodities
Energy commodity (bcf)		529.9		18.6		2009-2010			452.9		(43.5	)	2008-2010
Power (MW/H)		57.0		15.8		2009-2024			57.0		20.6		2008-2024

The fair value of derivative instruments has been estimated using period end market information. This market information includes observable inputs such as published market prices for commodities, interest rate yield curves and foreign exchange rates. When possible, financial instruments are valued using quoted market prices.

Derivative Instruments used as Cash Flow Hedges

		2008							2007
December 31,		Notional Principal or Quantity		Derivative Asset/ (Liability)		Maturity			Notional Principal or Quantity		Derivative Asset/ (Liability)		Maturity
(millions of Canadian dollars unless otherwise noted)
Foreign exchange
U.S. cross currency swaps		138.0		26.1		2013-2022			138.0		46.7		2013-2022
Forwards (cumulative exchange amounts)		1,661.9		164.4		2009-2022			1,761.4		138.1		2008-2022
Interest rates
Interest rate swaps/collars		1,164.4		(33.0	)	2009-2029			1,117.0		(8.6	)	2008-2029
Equity price
Forwards (millions of shares)		0.7		(2.8	)	2009-2010			–		–		–
Energy commodities
Energy commodity (bcf)		26.4		(58.3	)	2009-2010			43.6		3.2		2008-2010
Power (MW/H)		2.0		(3.4	)	2009-2024			2.0		(2.1	)	2008-2017

The Company estimates that $48.4 million of accumulated other comprehensive loss related to cash flow hedges will be reclassified to earnings in the next 12 months.

Derivative and Other Financial Instruments used as Net Investment Hedges

		2008							2007
December 31,		Notional Principal or Quantity		Derivative Asset/ (Liability)		Maturity			Notional Principal or Quantity		Derivative Asset/ (Liability)		Maturity
(millions of Canadian dollars)
Foreign exchange
Forwards (cumulative exchange amounts)		441.9		71.0		2014-2020			749.9		187.0		2013-2020

The Company has also designated a US$300 million medium-term note and US$189.4 million of commercial paper as hedges of certain U.S. dollar investments.

During the year, the Company terminated certain par forward currency exchange instruments for proceeds of $48.2 million. These instruments hedged US$162.4 million of the Company's U.S. dollar long-term investments and were accounted for as net investment hedges with the fair value recorded as long-term assets on the balance sheet with an equal and offsetting amount recorded in AOCI. No gain or loss related to the terminations was recorded in the Company's earnings.

FAIR VALUE HEDGES

As at December 31, 2008, the Company did not have any outstanding fair value hedges.

UNREALIZED GAINS AND LOSSES ON NON-QUALIFYING DERIVATIVES

The Company does not use derivative instruments for speculative purposes; however, if a derivative instrument is not an effective hedge for accounting purposes or is not designated as a hedging item, changes in the fair value are recorded in current period earnings. For the year ended December 31, 2008, the Company had an after tax unrealized gain of $75.3 million (2007 – $32.3 million loss) related to non-qualifying derivatives. Realized losses on non-qualifying derivative instruments for the year ended December 31, 2008 were $35.6 million (2007 – $9.9 million), after tax.

The Company's regulated Liquids Pipelines segment uses a fixed price contract and related financial instrument to manage floating power costs. The Company recognizes the fair value of the fixed price contract, the fair value of the financial instrument and a regulatory liability that will be recognized over the life of the fixed price contract. At December 31, 2008, the Company recognized a liability of $3.4 million for unrealized financial instrument losses, an asset of $24.3 million related to the fixed price power contract and a regulatory liability of $20.9 million.

LIQUIDITY RISK

Liquidity risk is the risk that the Company will not be able to meet its financial obligations, including commitments and guarantees (see Notes 29 and 30), as they become due. In order to manage this risk, the Company forecasts the cash requirements over the near and long term to determine whether sufficient funds will be available. The Company's primary sources of liquidity and capital resources are funds generated from operations, the issuance of commercial paper and draws under committed credit facilities and longer term debt which includes debentures and medium-term notes. The Company maintains current shelf prospectuses with the securities regulators, which enables, subject to market conditions, ready access to either the Canadian or U.S. public capital markets. In addition, the Company maintains sufficient liquidity through committed credit facilities (see Note 15), with a diversified group of banks and institutions, which would enable the Company to fund all anticipated requirements for one year without accessing the capital markets. The Company is in compliance with all the terms and conditions of its committed credit facilities and expects to be in compliance throughout 2009. Therefore, the entire credit facility is available to the Company and the banks are obligated to fund and have been funding the Company under the terms of the facility. The Company expects to generate sufficient cash from operations and commercial paper issuances and draws under its committed credit facilities to fund liabilities as they become due, finance planned investing activity and pay common share dividends throughout the year. Additional liquidity, if necessary, is expected to be available through access to the capital markets.

Maturities of Financial Liabilities

The Company generally has no financial liabilities maturing beyond one year with the exception of its long-term debt (Notes 15 and 16).

CREDIT RISK

Entering into derivative financial instruments can result in exposure to credit risk. Credit risk arises from the possibility that a counterparty will default on its contractual obligations and is limited to those contracts where the Company would incur a loss in replacing the instrument. In light of economic conditions at the balance sheet date, the Company has placed increased scrutiny around its credit exposures with significant financial institutions. The Company enters into risk management transactions only with institutions that possess investment grade credit ratings. Credit risk relating to derivative counterparties is mitigated by credit exposure limits, contractual and collateral requirements, frequent assessment of counterparty credit ratings and netting arrangements. At December 31, 2008, the Company has a maximum exposure to credit risk of $388.5 million related to its derivative counterparties.

Credit risk also arises from trade and other long-term receivables, which is mitigated through credit exposure limits, contractual and collateral requirements, assessment of credit ratings and netting arrangements. Credit risk in the Gas Distribution and Services segment is mitigated by the large and diversified customer base and the ability to recover an estimate for doubtful accounts through the ratemaking process. The Company actively monitors the financial strength of large industrial customers, and in select cases has recently tightened credit terms including obtaining additional security, to minimize the risk of default on receivables. Generally, the Company classifies receivables older than 30 days as past due. The maximum exposure to credit risk related to non-derivative financial assets is their carrying value, as disclosed in the financial instruments summary table below.

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

Year ended December 31,		2008		2007
(millions of Canadian dollars)
Balance at beginning of year		(55.4	)	(50.6	)
Additional allowance		(37.1	)	(23.6	)
Amounts used		22.3		18.6
Amounts reversed		1.2		0.2
Balance at end of year		(69.0	)	(55.4	)

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

Estimated costs associated with uncollectible accounts receivables in EGD are recovered through regulated distribution rates, which largely limits the Company's exposure to credit risk related to accounts receivable, to the extent such estimates are accurate.

Net derivative asset maturities for the years ending December 31, 2009 though 2013 and thereafter are $6.8 million, $15.1 million, $28.7 million, $30.1 million, $36.8 million and $151.2 million.

22. FAIR VALUE OF FINANCIAL INSTRUMENTS

			December 31, 2008					December 31, 2007
			Carrying Value		Fair Value			Carrying Value		Fair Value
(millions of Canadian dollars)
Financial Assets
Cash and cash equivalents			541.7		541.7			166.7		166.7
Accounts receivable and other			2,074.0		2,074.0			2,095.4		2,095.4
Available for sale 1			81.1		n/a			75.0		n/a
Held to maturity 2			404.7		359.2			404.7		379.5
Current derivative assets 3			71.6		71.6			79.5		79.5
Long-term derivative assets 3			316.9		316.9			368.5		368.5
Long-term notes receivable			166.9		132.6			133.8		133.0
Financial Liabilities
Accounts payable and other deferred amounts			2,100.8		2,100.8			2,095.5		2,095.5
Short-term borrowings			874.6		874.6			545.6		545.6
Long-term debt 4			13,323.9		12,786.0			10,509.1		10,489.0
Current derivative liabilities 3			49.4		95.8			82.4		82.4
Long-term derivative liabilities 3			46.5		46.5			64.0		64.0

1. Available for sale investments do not trade on an actively quoted market and no fair value disclosure is available.
2. Held to maturity investments include instruments denominated in U.S. dollars that have a fair value less than carrying value due to exchange rate fluctuations. This decline in fair value is considered temporary.
3. Derivative assets and liabilities include those derivatives used in hedging relationships and non-qualifying derivatives.
4. Long-term debt includes non-recourse debt and excludes transaction costs.

The fair value of financial instruments reflects the Company's best estimates of market value based on generally accepted valuation techniques or models and supported by observable market prices and rates. When such prices are not available, the Company uses discounted cash flow analysis from applicable yield curves based on observable market inputs. The fair value of financial instruments, other than derivatives, represents the amounts that would have been received from or paid to counterparties to settle these instruments at the reporting date.

The fair value of cash and cash equivalents and short-term borrowings approximates their carrying value due to their short-term maturities.

The fair value of the Company's long-term debt is based on quoted market prices for instruments of similar yield, credit risk and tenure.

The fair value of other financial assets and liabilities other than derivatives approximate their cost due to the short period to maturity. Changes in the fair value of financial liabilities are due solely to fluctuations in interest rates and commodity prices as well as time value.

FAIR VALUE OF DERIVATIVES

The Company categorizes its derivative assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.

Level 1

This category includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for an asset or liability is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company's Level 1 instruments consist primarily of exchange-traded derivative instruments used to mitigate the risk of crude oil price fluctuations in its Liquids Pipelines and Energy Services businesses.

Level 2

This category includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Derivative instruments in this category are valued using models or other industry standard valuation techniques derived from observable market data. Such valuation techniques include inputs such as quoted forward prices, time value, volatility factors and broker quotes that can be observed or corroborated in the market for the entire duration of the derivative instrument. Instruments valued using Level 2 inputs include non-exchange traded derivatives such as over the counter foreign exchange forward and cross currency swap contracts, interest rate swaps, physical forward commodity contracts, as well as commodity swaps and options for which observable inputs can be obtained. These instruments are used primarily in the Company's Energy Services businesses and the Corporate segment.

Level 3

This category includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments' fair value. Generally, Level 3 valuations are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available, or have no binding broker quote to support Level 2 classification. The Company has developed methodologies, benchmarked to industry standards, to determine fair value for these contracts based on extrapolation of observable future prices and rates. Instruments valued using Level 3 inputs include long dated derivative power, NGL and natural gas contracts in its Liquids Pipelines and Energy Services businesses.

When possible the estimated fair value is based on quoted market prices, and, if not available, estimates from third party brokers. For non-exchange traded derivatives classified in Levels 2 and 3, the Company's uses standard valuation techniques to calculate fair value. These methods include discounted mark to market for forwards, futures and swaps and Black-Scholes for options. Primary inputs to these techniques include observable market prices (interest, foreign exchange and commodity) and volatility, depending on the type of derivative and nature of the underlying risk. The Company uses inputs and data used by willing market participants when valuing derivatives and considers its own credit default swap spread as well as those of its counterparties in its determination of fair value. Where possible the Company uses observable inputs.

The fair value hierarchy of financial assets and liabilities accounted for at fair value on a recurring basis at December 31, 2008 are as follows.

			Level 1		Level 2		Level 3		Total
(millions of Canadian dollars)
Financial assets:
Current derivative assets			422.2		266.4		802.3		1,490.4
Long-term derivative assets			161.8		2,105.1		256.4		2,523.3
Financial liabilities:
Current derivative liabilities			430.8		263.4		766.2		1,460.4
Long-term derivative liabilities			183.9		1,831.0		246.6		2,261.5

Changes in the fair value of $135.1 million classified as Level 3 in the fair value hierarchy during the year ended December 31, 2008, were as follows:

Fair value measurements using significant unobservable inputs (Level 3)

			2008
(millions of Canadian dollars)
Balance at beginning of year			(89.2	)
Total gains/(losses), realized and unrealized
Included in earnings			52.0
Included in other comprehensive income			2.4
Purchases, issuances and settlements			80.7
Balance at end of year			45.9

Unrealized gains and losses are reported within commodity costs and other investment income.

23. CAPITAL DISCLOSURES

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

The Company's capital is calculated as follows:

December 31,		2008		2007
(millions of Canadian dollars)
Short-term borrowings		874.6		545.6
Long-term debt (includes current portion)		10,794.4		8,393.9
Non-controlling interests		797.4		650.5
Shareholders' equity		6,740.3		5,714.5
Cash and cash equivalents		(469.3	)	(115.9	)
		18,737.4		15,188.6

The Company's objectives when managing capital are to maintain flexibility among:

• enabling its businesses to operate at the highest efficiency;
• providing liquidity for growth opportunities; and
• providing acceptable returns to shareholders.

These objectives are primarily met through maintenance of an investment grade credit rating, which provides access to lower cost capital. Capital is available generally through the issuance of both short and long-term debt, and equity.

The Company monitors and manages its debt to debt plus equity ratio (excluding non-recourse debt), with a target range of 60% to 70%, to meet its capital management objectives. The debt to capitalization ratio at December 31, 2008, including short-term borrowings but excluding non-recourse short and long-term debt, was 63.1%, compared with 62.7% at the end of 2007.

The Company must adhere to covenants in its credit facilities that are used to backstop its commercial paper program. These covenants include maintaining a minimum Consolidated Shareholders' Equity balance of $1 billion or greater and a debt to Unconsolidated Shareholders' Equity of less than 1.5. As at December 31, 2008, the Company was in compliance with these covenants.

Under terms of the Company's Trust Indenture, in order to continue to issue long-term debt, the Company must maintain a ratio of Consolidated Funded Obligations (essentially all debt except non-recourse debt) to Total Consolidated Capitalization of less than 75%. Total Consolidated Capitalization consists of shareholders' equity, long-term debt, non-controlling interests and future income tax. As at December 31, 2008, the Company was in compliance with this covenant.

24. INCOME TAXES

INCOME TAX RATE RECONCILIATION

Year ended December 31,			2008		2007		2006
(millions of Canadian dollars)
Earnings before income taxes			1,836.6		916.3		814.6
Combined statutory income tax rate			31.3	%	33.9	%	34.4	%
Income taxes at statutory rate			574.9		310.6		280.2
Increase/(decrease) resulting from:
Tax rates and legislated tax changes			(11.4	)	(62.8	)	(63.0	)
Future income taxes related to regulated operations			(15.3	)	(5.8	)	(10.5	)
Non-taxable items, net			2.6		(18.5	)	(21.4	)
Higher/(lower) foreign tax rates			3.6		(6.4	)	(6.7	)
CLH disposition			(82.2	)	–		–
Other			36.7		(7.9	)	13.7
Income Taxes			508.9		209.2		192.3
Effective income tax rate			27.7	%	22.8	%	23.6	%

In 2008, income taxes paid amounted to $161.2 million (2007 – $226.2 million; 2006 – $182.6 million).

COMPONENTS OF FUTURE INCOME TAXES

December 31,			2008		2007
(millions of Canadian dollars)
Net Future Income Tax Liabilities/(Assets)
Differences in accounting and tax bases of property, plant and equipment			790.3		608.6
Differences in accounting and tax bases of investments			452.3		337.0
Other comprehensive income			(28.2	)	42.4
Loss carryforwards			(150.6	)	(222.0	)
Other			48.8		22.9
Total Net Future Income Tax Liability			1,112.6		788.9

Net future income tax liability of $1,112.6 million (2007 – $788.9 million) includes future income tax liabilities of $1,290.8 million (2007 – $975.6 million) net of future tax assets of $178.2 million (2007 – $186.7 million).

At December 31, 2008, the Company has recognized the benefit of unused tax loss carryforwards of $451.6 million (2007 – $665.1 million). Unused tax loss carryforwards expire as follows: 2011 – $0.1 million; 2012 – $0.7 million; 2013 – $1.3 million; 2014 – $0.1 million; 2015 – $3.8 million and 2021 and beyond – $445.6 million.

GEOGRAPHIC COMPONENTS OF PRETAX EARNINGS AND INCOME TAXES

Year ended December 31,			2008		2007		2006
(millions of Canadian dollars)
Earnings before income taxes
Canada			624.1		511.1		430.7
United States			419.0		210.2		237.8
Other			793.5		195.0		146.1
			1,836.6		916.3		814.6
Current income taxes
Canada			140.5		152.7		204.3
United States			43.3		11.9		0.1
Other			67.0		3.8		8.9
			250.8		168.4		213.3
Future income taxes
Canada			92.4		(36.3	)	(112.0	)
United States			165.7		77.1		91.0
			258.1		40.8		(21.0	)
Current and future income taxes			508.9		209.2		192.3