PARTNERS’ CAPITAL | 16. PARTNERS' CAPITAL Our authorized share capital consists of an unlimited number of common shares with no par value. 2017 Series 1 preferred units Class D units Class E units Class F units Class A common units Class B common units i-units Incentive distribution units Balance at beginning of year 48,000,000 66,100,000 18,114,975 — 262,208,428 7,825,500 81,857,168 1,000 Waiver of units (48,000,000 ) (66,100,000 ) — — — — — (1,000 ) Issuances — — — 1,000 64,308,682 — — — Distributions — — — — — — 7,941,650 — Balance at end of year — — 18,114,975 1,000 326,517,110 7,825,500 89,798,818 — 2016 Balance at beginning of year 48,000,000 66,100,000 18,114,975 — 262,208,428 7,825,500 73,285,739 1,000 Distributions — — — — — — 8,571,429 — Balance at end of year 48,000,000 66,100,000 18,114,975 — 262,208,428 7,825,500 81,857,168 1,000 2015 Balance at beginning of year 48,000,000 66,100,000 — — 254,208,428 7,825,500 68,305,187 1,000 Issuances — — 18,114,975 — 8,000,000 — — — Distributions — — — — — — 4,980,552 — Balance at end of year 48,000,000 66,100,000 18,114,975 — 262,208,428 7,825,500 73,285,739 1,000 Our capital accounts are comprised of a 2% general partner interest and 98% limited partner interests. Our limited partner interests at December 31, 2017 , include Class E units, Class F units, Class A and Class B common units, and i-units. We refer to our Class A and Class B common units collectively as common units. Our limited partners have limited rights of ownership as provided for under our partnership agreement and, as discussed below, the right to participate in our distributions. Our General Partner manages our operations, subject to a delegation of control agreement with Enbridge Management, and participates in our distributions. Issuance of Class A Units On April 27, 2017, we funded the redemption of the Series 1 Preferred Units through the issuance of 64 million Class A common units to our General Partner at a price of $18.66 per Class A common unit. The Class A common units were recognized on April 27, 2017, at fair value. The fair value of the Class A common units was $18.57 per unit, the market closing price on April 27, 2017, resulting in a $1.2 billion increase to the Class A unit capital account. The following table presents the net proceeds from our Class A common unit issuances for the year ended December 31, 2017 and 2015 . There were no issuances of Class A common units for the years ended December 31, 2016 . Issuance Date Number of Class A common unit Issued Offering Price per Class A common units Net Proceeds to the Partnership (1) General Partner Contribution (2) Net Proceeds Including General Partner Contribution (in millions, except units and per unit amounts) April, 2017 64,308,682 $ 18.66 $ 1,200 $ 24 $ 1,224 March, 2015 8,000,000 $ 36.70 $ 289 $ 6 $ 295 (1) Net of underwriters’ fees and discounts, commissions and issuance expenses. (2) Contributions made by the General Partner to maintain its 2% general partner interest. The proceeds from the April 2017 issuance were used to redeem in full our $1.2 billion of outstanding Series 1 Preferred Units held by our General Partner. The proceeds from the March 2015 offering were used to fund a portion of our capital expansion projects and for general partnership purposes. Redemption of Series 1 Preferred Units On April 27, 2017, we redeemed all of our outstanding Series 1 Preferred Units held by our General Partner at face value of $1.2 billion in cash. The remaining unamortized beneficial conversion feature discount of $9 million was recorded against the capital balance of the General Partner. Additionally, we repaid $357 million in deferred distributions on the Series 1 Preferred Units owed to our General Partner upon the closing of the Midcoast sale. Simplification of Incentive Distributions On April 27, 2017, a wholly-owned subsidiary of our General Partner irrevocably waived all of its rights associated with its 66 million Class D units and 1,000 IDUs, in exchange for the issuance of 1,000 Class F units. The waiving of the Class D units and IDUs by a wholly-owned subsidiary of our General Partner represents an extinguishment, resulting in a de-recognition of the Class D units and IDUs at their carrying value. The Class F units were recorded at their fair value of $263 million and the difference between the fair value of the Class F units and the de-recognized Class D units and IDUs were recorded as an increase of $2.7 billion to our General Partner’s capital account. We determined the fair value of the Class F units using an income approach on the basis of discounted cash flows from expected quarterly distributions. Alberta Clipper Drop Down On January 2, 2015, we completed a transaction (the Drop Down) pursuant to which we acquired the remaining 66.7% interest in the United States segment of the Alberta Clipper Pipeline from our General Partner. The consideration consisted of approximately 18,114,975 Class E units representing limited partner interests issued to the General Partner. The Class E units were issued at a notional value of $38.31 per unit, determined based on a trailing five -day volume weighted average of our Class A common units as of the date we entered into a contribution agreement with our General Partner outlining the terms of the Drop Down and repaid outstanding borrowings of $306 million to the General Partner. The Class E units are entitled to the same distributions as Class A common units held by the public and are convertible into Class A common units on a one-for-one basis at the General Partner’s option. The Class E units are redeemable at our option after 30 years, if not earlier converted by the General Partner. The Class E units have a liquidation preference equal to their notional value at December 23, 2014 of $38.31 per unit, which is also the liquidation value of the units. If the aggregate EBITDA attributable to the Series AC interest in the OLP for calendar years 2015 and 2016 is less than $266 million , then 1,305,142 of the Class E units were to be cancelled by us. Aggregate EBITDA exceeded the threshold, and therefore no Class E units were cancelled. In addition, during each taxable year during the period from January 1, 2015 through December 31, 2037 in which a majority of the Class E units issued on the closing date of the Drop Down remain outstanding, holders of Class A common units and Class B common units will be specially allocated items of gross income that would otherwise be allocated to holders of Class E units, to the extent that such an amount of gross income exists, in an annual amount equal to $40 million . The annual amount of such allocation will be reduced to $20 million for each taxable year beginning after December 31, 2037. We recorded the Drop Down as an equity transaction. No loss on the acquisition of the remaining ownership interests in Alberta Clipper was recognized in our consolidated statement of income or comprehensive income. We reduced the carrying value of the related NCI in Alberta Clipper of $404 million to zero . In addition, we recorded the Class E units at their fair value of $768 million . We determined the fair value of the Class E units using a market approach based upon the closing price of the Class A common units as of January 2, 2015, adjusted for differences in specific rights such as the liquidation preference granted to the Class E units and other economic factors that would affect the fair value of the Class E units. The difference of $364 million between the fair value of the Class E units and the carrying value of the NCI in Alberta Clipper was recorded as a reduction to the carrying amounts of the capital accounts of the Class A and Class B common units, the i-units and the General Partner interest on a pro-rated basis. The recording of this transaction reduced the carrying values of the Class A and Class B common units below zero. Our partnership agreement requires that such capital account deficits are brought back to zero, or “cured,” by additional allocations from the capital accounts of the i-units and General Partner interest on a pro-rated basis. As a result the i-units’ and General Partner interest’s capital balances were reduced by $47 million and $1 million , respectively, to cure the deficit balances in the Class A and Class B common units. This initial curing did not impact earnings allocated to either the i-units or the General Partner interest. Class B common units All of our outstanding Class B common units are held by our General Partner and have rights similar to our Class A common units, except with respect to certain allocations of taxable income. Class B common units are not publicly traded. i-units The i-units are a separate class of our limited partner interests, all of which are owned by Enbridge Management and are not publicly traded. Enbridge Management, as the owner of our i-units, votes together with the holders of the common units as a single class. However, the i-units vote separately as a class on the following matters: • Any proposed action that would cause us to be treated as a corporation for United States federal income tax purposes; • Amendments to our partnership agreement that would have a material adverse effect on the holder of our i-units, unless, under our partnership agreement, the amendment could be made by our General Partner without a vote of holders of any class of units; • The removal of our General Partner and the election of a successor general partner; and • The transfer by our General Partner of its general partner interest to a non-affiliated person that requires a vote of holders of units under our partnership agreement and the admission of that person as a general partner. In all cases, Enbridge Management will vote or refrain from voting its i-units in the same manner that owners of Enbridge Management’s listed shares vote or refrain from voting their listed shares. Furthermore, under the terms of our partnership agreement, we agree that we will not, except in liquidation, make a distribution on an i-unit other than in additional i-units or a security that has in all material respects the same rights and privileges as the i-units. Curing Our limited partnership agreement does not permit capital deficits to accumulate in the capital accounts of any limited partner and thus requires that such capital account deficits be “cured” by additional allocations from the positive capital accounts of the common units, i-units, and our General Partner, generally on a pro-rated basis. For the year ended December 31, 2017 , the carrying amounts for the capital accounts of the Class B common units were reduced below zero due to distributions to limited partners in excess of earnings and were subsequently cured. Class A units and i-units had positive capital balances and therefore, as outlined in the partnership agreement, we allocated earnings of $71 million to our General Partner to recover previous curing allocations made by the General Partner. For the year ended December 31, 2016 , the carrying amounts for the capital accounts of the Class A and Class B common units were reduced below zero due to distributions to limited partners in excess of earnings attributable to such limited partners. As a result, the capital balance of the i-units and our General partner interests were reduced by $126 million and $790 million , respectively, to cure the applicable deficit balance. Distributions Our partnership agreement requires us to distribute 100% of our “available cash”, which is generally defined in our partnership agreement as the sum of all cash receipts plus reductions in cash reserves established in prior quarters less cash disbursements and additions to cash reserves in that calendar quarter. Enbridge Management, as delegate of our General Partner under the delegation of control agreement, computes the amount of our “available cash.” Typically, our General Partner and owners of our common units will receive distributions in cash. We also retain reserves to provide for the proper conduct of our business, to stabilize distributions to our unitholders and our General Partner and, as necessary, to comply with the terms of our agreements or obligations (including any reserves required under debt instruments for future principal and interest payments and for future capital expenditures). We make distributions to our partners no later than 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Our General Partner is granted discretion by our partnership agreement, which discretion has been delegated to Enbridge Management, subject to the approval of our General Partner in certain cases, to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures, and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When Enbridge Management determines our quarterly distributions, it considers current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level. Distributions of our available cash are generally made 98% to holders of our limited partner units and 2% to our General Partner. However, distributions are subject to the payment of incentive distributions to our General Partner to the extent that certain target levels of distributions to the unitholders are achieved. Effective April 27, 2017, the wholly-owned subsidiary of our General Partner irrevocable waived all of its rights associated with its 66 million Class D units and 1,000 IDUs, in exchange for the issuance of 1,000 Class F units. Refer to Note 4 - Net Income Per Limited Partner Unit for further details regarding our distributions. As set forth in our partnership agreement, cash distributions declared on our i-units will be paid by a distribution of additional i-units such that the cash is retained and used in our operations and to finance a portion of our capital expansion projects. Enbridge Management, as holder of the i-units, does not receive distributions in cash. Instead, each time that we make a cash distribution in respect to our General Partner interest, Class A common units, Class B common units and Class E units, the number of i-units owned by Enbridge Management and the percentage of our total units owned by Enbridge Management will increase automatically under the provisions of our partnership agreement with the result that the number of i-units owned by Enbridge Management will equal the number of Enbridge Management’s listed and voting shares that are then outstanding. The amount of this increase in i-units is determined by dividing the cash amount distributed per common unit by the average price of one of Enbridge Management’s listed shares on the NYSE for the 10 trading day period immediately preceding the ex-dividend date for Enbridge Management’s shares multiplied by the number of shares outstanding on the record date. The cash equivalent amount of the additional i-units is treated as if it had actually been distributed for purposes of determining the distributions to be made to our General Partner. Distribution to Partners' The following table sets forth our distributions, as approved by the board of directors of Enbridge Management, during the years ended December 31, 2017 , 2016 and 2015 . Distribution Declaration Date Record Date Distribution Payment Date Distribution per Unit Cash Available for Distribution Amount of Distribution of i-units to i-unit Holders (1) Retained from General Partner (2) Distribution of Cash (in millions, except per unit amounts) 2017 October 27 November 7 November 14 $ 0.350 $ 161 $ 30 $ 1 $ 130 July 28 August 7 August 14 $ 0.350 160 29 1 130 April 27 May 8 May 15 $ 0.350 160 30 1 129 January 26 February 7 February 14 $ 0.583 265 48 1 216 $ 746 $ 137 $ 4 $ 605 2016 October 28 November 7 November 14 $ 0.583 $ 264 $ 47 $ 1 $ 216 July 28 August 5 August 12 $ 0.583 262 45 1 216 April 29 May 6 May 13 $ 0.583 261 44 1 216 January 29 February 5 February 12 $ 0.583 260 43 1 216 $ 1,047 $ 179 $ 4 $ 864 2015 October 30 November 6 November 13 $ 0.583 $ 259 $ 41 $ 1 $ 217 July 30 August 7 August 14 $ 0.583 258 41 1 $ 216 April 30 May 8 May 15 $ 0.570 250 40 1 $ 209 January 29 February 6 February 13 $ 0.570 234 39 1 $ 194 $ 1,001 $ 161 $ 4 $ 836 ____________ (1) We issued 7,941,650 , 8,571,429 and 4,980,552 i-units to Enbridge Management, L.L.C., the sole owner of our i-units, during 2017 , 2016 and 2015 , respectively, in lieu of cash distributions. (2) We retained an amount equal to 2% of the i-unit distribution from our General Partner to maintain its 2% general partner interest in us. |