0001173911-18-000016.txt : 20181102 0001173911-18-000016.hdr.sgml : 20181102 20181101182141 ACCESSION NUMBER: 0001173911-18-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 37 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181102 DATE AS OF CHANGE: 20181101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENBRIDGE ENERGY MANAGEMENT L L C CENTRAL INDEX KEY: 0001173911 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 611414604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31383 FILM NUMBER: 181155082 BUSINESS ADDRESS: STREET 1: 5400 WESTHEIMER COURT CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 713-821-2000 MAIL ADDRESS: STREET 1: 5400 WESTHEIMER COURT CITY: HOUSTON STATE: TX ZIP: 77056 10-Q 1 eem930201810q-document.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o

 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to           
Commission file number 1-31383
 
 
 
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
 
61-1414604
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)

5400 Westheimer Court
Houston, Texas 77056
(Address of Principal Executive Offices) (Zip Code)
(713) 627-5400
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o 
 
Smaller reporting company o
Emerging growth company o
 
  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

The Registrant had 98,611,093 Listed Shares outstanding as of October 30, 2018.

DOCUMENTS INCORPORATED BY REFERENCE:
Quarterly Report on Form 10-Q of Enbridge Energy Partners, L.P. for the quarterly period ended September 30, 2018.
 



ENBRIDGE ENERGY MANAGEMENT, L.L.C.

TABLE OF CONTENTS

 
PART I — FINANCIAL INFORMATION
  
 
 
 
 
 
 
 
 
PART II — OTHER INFORMATION
  

In this report, unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” or “Enbridge Management” are intended to mean Enbridge Energy Management, L.L.C. We are a limited partner of Enbridge Energy Partners, L.P., which we refer to as "the Partnership”. References to “Enbridge” refer collectively to Enbridge Inc. and its subsidiaries other than us.

This Quarterly Report on Form 10-Q includes forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including with respect to the transactions contemplated by the Agreement and Plan of Merger, dated September 17, 2018, by and among by and among Enbridge Energy Management, L.L.C., Enbridge Inc., Winter Acquisition Sub I, Inc., and solely for the purposes of Article I, Section 2.4 and Article X, Enbridge Energy Company, Inc. (the Proposed Merger). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including, without limitation, statements regarding the consummation of the Proposed Merger, including the timing and expected effects thereof, which are statements that frequently use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “opportunity,” “plan,” “position,” “projection,” “should,” “strategy,” “target,” “will” and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made, and we undertake no obligation to publicly update any forward-looking statement. Our results of operations, financial position and cash flows are dependent on the results of operations, financial position and cash flows of the Partnership. Many of the factors that will determine these results are beyond the Partnership’s or our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include: (1) the risk that Enbridge may be unable to obtain governmental, shareholder and regulatory approvals required for the Proposed Merger, whereby Enbridge will acquire all of our outstanding Listed Shares or required governmental, shareholder and regulatory approvals may delay the Proposed Merger or result in the imposition of conditions that could cause the parties to abandon the Proposed Merger; (2) the risk that a condition to closing of the Proposed Merger may not be satisfied; (3) the timing to complete the Proposed Merger; (4) the ability to realize expected cost savings, benefits and any other synergies from the Proposed Merger and the proposed simplification of Enbridge's overall corporate structure may not be fully realized or may take longer to realize than expected; (5) disruption from the Proposed Merger may make it more difficult to maintain relationships with customers, employees or suppliers; (6) the impact and outcome of pending and future litigation, including litigation, if any, relating to the Proposed Merger; (7) the effectiveness of the various actions the Partnership has taken resulting from its strategic review process; (8) changes in the demand for the supply of, forecast data for, and price trends related to crude oil and liquid petroleum, including the rate of development of the Alberta Oil Sands; (9) the Partnership's ability to successfully complete and finance expansion projects; (10) the effects of competition, in particular, by other pipeline systems; (11) shut-downs or cutbacks at the Partnership's facilities or refineries, petrochemical plants, utilities or other businesses for which the Partnership transports products or to whom the Partnership sells products; (12) hazards and operating risks that may not be covered fully by insurance; (13) any fines, penalties and injunctive relief assessed in connection with any crude oil release; (14) state or federal legislative and regulatory initiatives or actions that affect cost and investment recovery or that have an effect on rate structure, or other changes in or challenges to the Partnership's tariff rates; (15) changes in laws or regulations to which the Partnership is subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance; and (16) permitting at federal, state and local levels or renewals of rights of way.

Forward-looking statements regarding sponsor support transactions or sales of assets (to Enbridge or otherwise) are further qualified by the fact that Enbridge is under no obligation to provide additional sponsor support and neither Enbridge nor any other party is under any obligation to offer to buy or sell us assets, and we are under no obligation to buy or sell any such assets. As a result, we do not know when or if any such

i


transactions will occur. Any statements regarding sponsor expectations or intentions are based on information communicated to us by Enbridge, but there can be no assurance that these expectations or intentions will not change in the future.

For additional factors that may affect results, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017 and in any Quarterly Report on Form 10-Q filed thereafter, which is available to the public over the Internet at the United States Securities and Exchange Commission’s (the SEC), website (www.sec.gov) and at our website (www.enbridgemanagement.com). Also see information regarding forward-looking statements and “Item 1A. Risk Factors” included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of risks to the Partnership that also may affect us.

ii


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF INCOME
(unaudited; in millions, except per share amounts)
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
Equity loss from investment in Enbridge Energy Partners, L.P.
$
(1.9
)
 
$
(2.5
)
 
$
(6.0
)
 
$
(7.5
)
Loss before income taxes
(1.9
)

(2.5
)

(6.0
)

(7.5
)
Income tax benefit
0.6

 
0.8

 
1.9

 
2.4

Net loss
$
(1.3
)

$
(1.7
)

$
(4.1
)

$
(5.1
)
Net loss per share, (basic and diluted)
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)
Weighted average shares outstanding
97.1

 
86.7

 
93.9

 
84.8

Distribution paid per share
$
0.350

 
$
0.350

 
$
1.050

 
$
1.283

_____________________
The accompanying notes are an integral part of these financial statements.




































1


ENBRIDGE ENERGY MANAGEMENT, L.L.C. 
STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
Net loss
$
(1.3
)

$
(1.7
)

$
(4.1
)

$
(5.1
)
Equity in other comprehensive income of Enbridge Energy Partners, L.P., net of tax benefit of $0.6, $0.8, $1.9 and $2.4, respectively
1.3

 
1.7

 
4.1

 
5.1

Comprehensive income
$

 
$

 
$

 
$

_____________________
The accompanying notes are an integral part of these financial statements.

 





































2


ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 
Nine months ended September 30,
  
2018
 
2017
Operating activities:
  

 
  

Net loss
$
(4.1
)

$
(5.1
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Loss from equity investment in Enbridge Energy Partners, L.P.
6.0

 
7.5

Due from affiliates
(0.2
)
 

Deferred income tax benefit
(1.9
)
 
(2.4
)
Net cash used in operating activities
(0.2
)
 

 
 
 
 
Investing activities:
 
 
 
Net cash used in investing activities

 

 
 
 
 
Financing activities:
 
 
 
Net cash provided by financing activities

 

 
 
 
 
Decrease in cash and cash equivalents
(0.2
)
 

Cash and cash equivalents at beginning of year
0.8

 
0.8

Cash and cash equivalents at end of period
$
0.6

 
$
0.8

_____________________
The accompanying notes are an integral part of these financial statements.



























3


ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF FINANCIAL POSITION
(unaudited; in millions, except voting shares amounts)
 
September 30,
2018
 
December 31,
2017
ASSETS
  

 
  

Cash
$
0.6

 
$
0.8

Due from affiliates
0.2

 

Total assets
$
0.8


$
0.8

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Shareholders’ equity
 
 
 
Voting shares - unlimited authorized; (7.4 and 6.8 issued and outstanding at September 30, 2018 and December 31, 2017, respectively)
$

 
$

Listed Shares - unlimited authorized; (98.6 and 89.8 issued and outstanding at September 30, 2018 and December 31, 2017, respectively)
1,857.7

 
1,760.7

Accumulated deficit
(1,833.5
)
 
(1,732.4
)
Accumulated other comprehensive loss
(23.4
)
 
(27.5
)
Total liabilities and shareholders’ equity
$
0.8


$
0.8

_____________________
The accompanying notes are an integral part of these financial statements.

  































4


ENBRIDGE ENERGY MANAGEMENT, L.L.C. 
STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited; in millions) 
  
Listed Shares
 
Accumulated Deficit
 
Accumulated other comprehensive income (loss)
 
Total
December 31, 2017
$
1,760.7

 
$
(1,732.4
)
 
$
(27.5
)
 
$
0.8

Net loss

 
(4.1
)
 

 
(4.1
)
Share distributions
97.0

 
(97.0
)
 

 

Equity in other comprehensive income of Enbridge Energy Partners, L.P.

 

 
4.1

 
4.1

September 30, 2018
$
1,857.7

 
$
(1,833.5
)
 
$
(23.4
)
 
$
0.8

 
 
 
 
 
 
 
 
December 31, 2016
$
1,622.9

 
$
(1,565.6
)
 
$
(56.5
)
 
$
0.8

Net loss

 
(5.1
)
 

 
(5.1
)
Share distributions
107.1

 
(107.1
)
 

 

Equity in other comprehensive income of Enbridge Energy Partners, L.P.

 

 
5.1

 
5.1

September 30, 2017
$
1,730.0

 
$
(1,677.8
)
 
$
(51.4
)
 
$
0.8

_____________________
The accompanying notes are an integral part of these financial statements.


5


ENBRIDGE ENERGY MANAGEMENT, L.L.C. 
NOTES TO THE FINANCIAL STATEMENTS (unaudited)


1. BUSINESS OVERVIEW

The terms “we,” “our,” “us” and “Enbridge Energy Management” as used in this report refer collectively to Enbridge Energy Management, L.L.C. unless the context suggests otherwise.

General Business Description
We are a limited partner of Enbridge Energy Partners, L.P., (the Partnership), through our ownership of i-units, a special class of the Partnership’s limited partner interests. Under a delegation of control agreement among us, the Partnership and its general partner, Enbridge Energy Company, Inc., (the General Partner), we manage the Partnership’s business and affairs. The General Partner is an indirect, wholly-owned subsidiary of Enbridge Inc. (Enbridge), an energy infrastructure company based in Calgary, Alberta, Canada.

Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP), for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all the information and notes required by U.S. GAAP for annual financial statements and should therefore be read in conjunction with our annual financial statements and notes presented in our Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, the interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the interim periods reported. These interim financial statements follow the same significant accounting policies as those included in our annual financial statements for the year ended December 31, 2017.

2. CHANGES IN ACCOUNTING POLICIES

There were no significant accounting pronouncements issued during the nine months ended September 30, 2018, that had a material impact on our results of operations, financial position or cash flows.

3. INCOME TAXES

The terms of the i-units provide that the units owned by us will not be allocated income, gain, loss or deductions of the Partnership for tax purposes until such time that we dispose of our investment in the Partnership. As a result, actual realization of any long-term deferred income tax asset or liability would only occur upon liquidation of our investment in the Partnership.

Based on the estimates of our future operating income included in our forecasts, including curing impacts, we have concluded that it is not more likely than not that our deferred tax assets will be realized. As a result, we continue to maintain a full valuation allowance on those tax assets as of September 30, 2018.

The effective income tax rates are presented in the following table:
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
  
(unaudited; in millions except for tax rate amounts)
Loss before income taxes
$
(1.9
)
 
$
(2.5
)
 
$
(6.0
)
 
$
(7.5
)
Income tax benefit(1)
0.6

 
0.8

 
1.9

 
2.4

Effective income tax rate
31.6
%
 
32.0
%
 
31.7
%
 
32.0
%
_____________________
(1)
Amortization of accumulated other comprehensive income into earnings is recorded before tax to recognize the related tax benefit. Recognition of the tax benefit in earnings does not impact the balance of the deferred tax asset and associated full valuation allowance, which was previously recorded when the losses were reflected in other comprehensive income.



6


4. CONTINGENCIES

We are a participant in various legal proceedings arising in the ordinary course of business. Some of these proceedings are covered, in whole or in part, by insurance. We believe that the outcome of all these proceedings will not, individually or in the aggregate, have a material adverse effect on our financial condition.

5. SUMMARIZED FINANCIAL INFORMATION FOR ENBRIDGE ENERGY PARTNERS, L.P.

The following table provides summarized financial information of the Partnership:
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
  
(unaudited; in millions)
Operating revenues
$
560

 
$
616

 
$
1,689

 
$
1,817

Operating expenses
303

 
350

 
955

 
971

Operating income
$
257

 
$
266

 
$
734

 
$
846

Income from continuing operations
$
207

 
$
196

 
$
566

 
$
607

Net income
207

 
196

 
566

 
550

Noncontrolling interests
(103
)
 
(103
)
 
(293
)
 
(262
)
Series 1 preferred unit distributions

 

 

 
(29
)
Accretion of discount on Series 1 preferred units

 

 

 
(8
)
Net income attributable to Enbridge Energy Partners, L.P.
$
104

 
$
93

 
$
273

 
$
251

Net income attributable to the General Partner(1)
(12
)
 
(11
)
 
(36
)
 
(35
)
Net income attributable to common units and i-units(2)
$
92

 
$
82

 
$
237

 
$
216

_____________________
(1)
Net income attributable to the General Partner includes net income attributable to the general partner interest as well as to Class F units and Class E units.
(2)
The Partnership allocates its net income among the General Partner and limited partners using the two-class method in accordance with applicable authoritative accounting guidance. Under the two-class method, the Partnership allocates its net income after noncontrolling interests to the General Partner and limited partners, including us, according to the distribution formula for available cash as set forth in the Partnership Agreement.

We owned approximately 21.4% and 19.5% of the Partnership at September 30, 2018 and 2017, respectively.

6. SUBSEQUENT EVENTS

Share Distribution
On October 24, 2018, our board of directors declared a share distribution payable on November 14, 2018, to shareholders of record as of November 7, 2018, based on the $0.35 per limited partner unit distribution declared by the Partnership.

The Partnership’s distribution increases the number of i-units that we own. The amount of this increase is calculated by dividing the cash amount distributed by the Partnership per common unit by the average closing price of one of our Listed Shares on the New York Stock Exchange (NYSE) for the 10 trading day period immediately preceding the ex-dividend date for our shares, multiplied by the number of shares outstanding on the record date. We distribute additional Listed Shares to our shareholders and additional voting shares to the General Partner in respect of these additional i-units.

7


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our financial statements and the accompanying notes included in Item 1. Financial Statements of this Quarterly Report on Form 10-Q and in conjunction with the audited financial statements and accompanying footnotes in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission (SEC) on February 16, 2018.

RECENT DEVELOPMENTS

PROPOSED MERGER

On September 18, 2018, we announced our entry into a definitive agreement (the Merger Agreement) with respect to the Proposed Merger pursuant to which a wholly-owned subsidiary of Enbridge will be merged with and into us with us surviving as an indirect wholly-owned subsidiary of Enbridge. Under the terms of the Merger Agreement, at the effective time of the Proposed Merger, Enbridge will acquire all of our outstanding Listed Shares not currently beneficially owned by Enbridge in an all stock-for-stock transaction at a ratio of 0.3350 common shares of Enbridge per Listed Share (the Agreed Exchange Ratio), in a taxable transaction to our shareholder. The Agreed Exchange Ratio represents an approximate 16% increase to the exchange ratio of 0.2887 common shares of Enbridge per Listed Share that was initially offered by Enbridge on May 17, 2018. The Proposed Merger is part of Enbridge's sponsored vehicle restructuring initiative to simplify its corporate structure.

The completion of the Proposed Merger is subject to certain and customary closing conditions, including (i) the affirmative vote of a majority of the outstanding Listed Shares (other than the Listed Shares held by Enbridge and its affiliates) (the Shareholder Approval) as of the close of business on November 5, 2018, the record date for determining the shareholders entitled to vote on the Proposed Merger, (ii) the concurrent closing of the merger of Winter Acquisition Sub II, LLC with and into the Partnership, with the Partnership continuing as the sole surviving entity (the Partnership Merger), (iii) the Enbridge common stock issuable in connection with the Proposed Merger having been approved for listing on the NYSE and the Toronto Stock Exchange, subject to official notice of issuance, iv) Enbridge's registration statement on Form S-4 having become effective under the Securities Act of 1933, as amended (the Securities Act). (v) the expiration or termination of any waiting period (and any extension thereof) applicable to the Merger under the Hart-Scott Rodino Antitrust Improvements Act of 1976, and (vi) the absence of any governmental order prohibiting the consummation of the Proposed Merger or the other transactions contemplated thereby. The obligation of each party to the Merger Agreement to consummate the Proposed Merger is also conditioned upon the accuracy of the representations and warranties of the other parties as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers), the performance by the other parties of all obligations under the Merger Agreement at or prior to closing and receipt of an officer’s certificate evidencing the satisfaction of the foregoing.

As a result of the completion of the Proposed Merger, our Listed Units will no longer be publicly traded. Subject to the satisfaction or waiver of certain conditions, including the Shareholder Approval, the Proposed Merger is targeted to close in the fourth quarter of 2018.

RESULTS OF OPERATIONS

The information set forth under Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Partnership’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, is hereby incorporated by reference, as our results of operations, financial position and cash flows are dependent on the results of operations, financial position and cash flows of the Partnership.

Our results of operations consist of our share of earnings from the Partnership, attributed to our ownership of the i-units, a special class of limited partner interest in the Partnership. At September 30, 2018 and 2017, through our ownership of i-units, we had an approximate 21.4% and 19.5%, respectively, limited partner voting interest in the Partnership. Our percentage ownership of the Partnership will change over time as the number of i-units we own becomes a different percentage of the total limited partner interests outstanding due to our ownership of additional i-units and other issuances of limited partner interests by the Partnership.


8


During the first quarter of 2016, our share of losses in the Partnership, driven primarily from curing losses, exceeded the carrying amount of our investment in the Partnership. As a result, we discontinued application of the equity method of accounting when the carrying amount of our investment was reduced to zero and we no longer provide for additional losses as we are not obligated to provide further financial support to the Partnership. Further, we amortize into earnings the remaining accumulated other comprehensive loss on a straight-line basis over the remaining term of the Partnership's underlying hedge contracts. As a result, our net loss for the three and nine months ended September 30, 2018, consist of amortization of the remaining accumulated other comprehensive loss.

The following table presents our results of operations:
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
  
(unaudited; in millions)
Equity loss from investment in Enbridge Energy Partners, L.P.
$
(1.9
)
 
$
(2.5
)
 
$
(6.0
)
 
$
(7.5
)
Loss before income taxes
(1.9
)
 
(2.5
)
 
(6.0
)
 
(7.5
)
Income tax benefit
0.6

 
0.8

 
1.9

 
2.4

Net loss
$
(1.3
)
 
$
(1.7
)
 
$
(4.1
)
 
$
(5.1
)

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2017

There were no material change in our net loss as there were no material changes in the amortization of the remaining accumulated other comprehensive income or income tax benefits, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2017

There were no material change in our net loss as there were no material changes in the amortization of the remaining accumulated other comprehensive income or income tax benefits, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Our authorized capital structure consists of two classes of limited liability company interests: (i) our Listed Shares, which are traded on the NYSE and represent limited liability company interests with limited voting rights, and (ii) our voting shares, which represent limited liability company interests with full voting rights and are held solely by the General Partner. At September 30, 2018, our issued capitalization consisted of $1,857.7 million associated with our 98.6 million Listed Shares outstanding.

We use our capital to invest in i-units of the Partnership. We have, from time to time, raised capital through public equity offerings. Any net cash proceeds we receive from the sale of additional shares will immediately be used to purchase additional i-units. We have not issued additional shares in 2018. The number of our shares outstanding, including the voting shares owned by the General Partner, will at all times equal the number of i-units we own in the Partnership. Typically, the General Partner and owners of the Partnership’s Class A and Class B common units, Class F units and Class E units will receive distributions from the Partnership in cash. We receive additional i-units under the terms of the Partnership Agreement instead of receiving cash distribution on the i-units we own. The number of additional i-units we receive is calculated by dividing the amount of the cash distribution paid by the Partnership on each of its common units by the average closing price of one of our Listed Shares on the NYSE for the 10 trading day period immediately preceding the ex-dividend date for our shares, multiplied by the number of our shares outstanding on the record date. We make share distributions to our shareholders concurrently with the i-unit distributions we receive from the Partnership that increases the number of i-units we own. As a result of our share distributions, the number of shares outstanding is equal to the number of i-units that we own in the Partnership.

We are not permitted to borrow money or incur debt other than with Enbridge and its affiliates without the approval of holders owning at least a majority of our shares.

Under the Enbridge purchase provisions, which are a part of our limited liability company agreement, Enbridge has the right and obligation, under limited circumstances, to purchase our outstanding shares. On September 18,

9


2018, we announced our entry into the Merger Agreement with Enbridge, to acquire all of our outstanding Listed Shares not beneficially owned by Enbridge. The purchase offer under the Proposed Merger was not made under the purchase provisions, and as such, none of the purchase provisions are applicable, refer to Recent Developments for further details.

Enbridge generally agrees to indemnify us for any tax liability attributable to our formation, our management of the Partnership or our ownership of the i-units. Additionally, Enbridge generally agrees to indemnify us for any taxes arising from a transaction involving the i-units to the extent the transaction does not generate cash sufficient to pay such taxes, in each case, other than any Texas franchise taxes or other capital-based foreign, state or local taxes that are required to be paid or reimbursed by the Partnership under the delegation of control agreement.

If we incur liabilities or other obligations in connection with the performance of our obligations under the delegation of control agreement, we are entitled to be reimbursed or to be indemnified by the Partnership or the General Partner. Thus, we expect that our expenditures associated with managing the business and affairs of the Partnership and the reimbursement of these expenses that we receive will continue to be equal. As previously stated, we do not receive quarterly cash distributions on the i-units we hold. Therefore, we expect neither to generate nor to require significant amounts of cash in ongoing operations. Any net cash proceeds we receive from the sale of additional shares will immediately be used to purchase additional i-units. Accordingly, we do not anticipate any other sources of or needs for additional liquidity. For further details regarding any contingencies, refer to Item 1. Financial Statements – Note 4 - Contingencies.

SHARE DISTRIBUTIONS

The following table sets forth our distributions, as approved by the board of directors during the nine months ended September 30, 2018.
Distribution Declaration Date
 
Record Date
 
Distribution
Payment Date
 
Distribution
per Unit of the Partnership
 
Average Closing Price of the Listed Shares
 
Additional i-units Owned
 
Listed Shares Distributed to Public
 
Shares Distributed to General Partner
 
 
 
 
 
 
(in million, except per unit amounts)
July 25, 2018
 
August 7, 2018
 
August 14, 2018
 
$0.35
 
$10.64
 
3.2
 
2.8
 
0.4
April 27, 2018
 
May 8, 2018
 
May 15, 2018
 
$0.35
 
$9.45
 
3.4
 
3.0
 
0.4
January 31, 2018
 
February 7, 2018
 
February 14, 2018
 
$0.35
 
$13.90
 
2.3
 
2.0
 
0.3

We had non-cash operating activities in the form of i-units distributed to us by the Partnership and corresponding non-cash financing activities in the form of share distributions to our shareholders in the amounts of 97.0 million and $107.1 million during the nine months ended September 30, 2018 and 2017, respectively.

CHANGES IN ACCOUNTING POLICIES

There were no significant accounting pronouncements issued during the nine months ended September 30, 2018, that had a material impact on our results of operations, financial position or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The nature of our business and operations is such that we do not conduct activities or enter into transactions of the type requiring discussion under this item.

For a discussion of these matters as they pertain to the Partnership, please read Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk of the Partnership’s Quarterly Report on Form 10-Q, which is hereby incorporated by reference as activities of the Partnership have an impact on our results of operations and financial position.


10


ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We and Enbridge maintain systems of disclosure controls and procedures designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018. Based upon that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures are effective at the reasonable assurance level. In conducting this assessment, our management relied on similar evaluations conducted by employees of Enbridge affiliates who provide certain treasury, accounting and other services on our behalf.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended September 30, 2018.

11


PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a participant in various legal proceedings arising in the ordinary course of business. Some of these proceedings are covered, in whole or in part, by insurance. We believe the outcome of all these proceedings will not, individually or in the aggregate, have a material adverse effect on our financial condition. The disclosures included in Part I – Item 1. Financial Statements – Note 4 - Contingencies, address the matters required by this item and are incorporated herein by reference.

JUDY MESIROV v. ENBRIDGE ENERGY CO., INC. ET AL.

On July 20, 2015, plaintiff Peter Brinckerhoff (the Plaintiff), individually and as trustee of the Peter R. Brinckerhoff Trust, filed a Verified Class Action and Derivative Complaint in the Court of Chancery of the State of Delaware against the Enbridge Energy Company Inc., Enbridge, Enbridge Energy Partners, L.P., Enbridge Pipelines (Alberta Clipper) L.L.C., Enbridge Energy, Limited Partnership, us, and the following individuals: Jeffrey A. Connelly, Rebecca B. Roberts, Dan A. Westbrook, J. Richard Bird, J. Herbert England, C. Gregory Harper, D. Guy Jarvis, Mark A. Maki, and John K. Whelen, (collectively, the Director Defendants). The initial Complaint asserted both class action claims on behalf of holders of the Partnership's Class A Common Units, as well as derivative claims brought on behalf of the Partnership. The Plaintiff’s claims arose out of the January 2, 2015 repurchase by the Partnership of the General Partner’s 66.67% interest in the pipeline that runs from the Canadian international border near Neche, North Dakota to Superior, Wisconsin on the Partnership's Lakehead System (Alberta Clipper Pipeline), known as the 2015 Transaction. First, the Plaintiff alleged that the 2015 Transaction improperly amended without Public Unitholder consent the Sixth Amended and Restated Agreement of Limited Partnership (the LPA) so as to allocate to the Public Unitholders gross income that should have been allocated to the General Partner (the Special Tax Allocation). Second, the Plaintiff alleged that the Partnership paid an unfair price for the General Partner’s 66.67% interest in the Alberta Clipper Pipeline such that the 2015 Transaction breached the LPA because it was not fair and reasonable to the Partnership. The initial Complaint asserted claims for breach of fiduciary duty, breach of the covenant of good faith and fair dealing, breach of residual fiduciary duties, tortious interference, aiding and abetting, and rescission and reformation.

On April 29, 2016, the Court of Chancery granted Enbridge’s and the Director Defendants’ motion to dismiss and dismissed the case in its entirety. On May 26, 2016 the Plaintiff appealed that dismissal to the Delaware Supreme Court. On March 20, 2017, the Delaware Supreme Court reversed in part and affirmed in part the ruling of the Court of Chancery. Specifically, the Delaware Supreme Court affirmed that the enactment of the Special Tax Allocation did not breach the LPA, but reversed on the question of whether the Plaintiff had adequately alleged that the price the Partnership paid in the 2015 Transaction, including the Special Tax Allocation component, was fair and reasonable to the Partnership. On November 15, 2017, Plaintiff filed a Verified Second Amended Complaint (the Second Amended Complaint). The Second Amended Complaint added Piper Jaffray & Co. as successor to Simmons & Company International (Simmons) as a direct Defendant. Simmons acted as the financial advisor to our Special Committee in the 2015 Transaction. The Second Amended Complaint also revised many of the allegations against Enbridge and the Director Defendants. On December 18, 2017, all Defendants except Simmons filed their brief in support of their motion to dismiss the Second Amended Complaint. On January 19, 2018, Simmons filed its brief in support of its motion to dismiss the Second Amended Complaint.
 
On February 28, 2018, Plaintiff filed a Motion for Leave to File a Verified Third Amended Complaint and a Motion to Intervene on behalf of a proposed new plaintiff, Judy Mesirov (subsequently amended). On March 23, 2018, Plaintiff filed a Verified Third Amended Complaint and a Motion for Voluntary Dismissal of Brinckerhoff. On April 3, 2018, all Defendants filed their briefs in support of their motions to dismiss the Third Amended Complaint. Plaintiff Brinckerhoff has now been dismissed as a named Plaintiff. Plaintiff Mesirov filed a Fourth Amended Complaint, which is substantially the same as the Third Amended Complaint except that it substitutes Judy Mesirov in place of Peter Brinckerhoff as the named Plaintiff. On August 29, 2018, the Court granted in part and denied in part Defendants’ Motions to Dismiss the Third (now Fourth) Amended Complaint. All direct claims have now been dismissed, and only derivative claims for breach of contract (including equitable remedies of rescission or reformation) against Enbridge Energy Company Inc and aiding and abetting a breach of contract against Simmons remain in the Fourth Amended Complaint.  On September 28, 2018, Plaintiff filed a Fifth Amended Complaint, adding Enbridge and the Director Defendants as defendants to the derivative claims. 


12


On September 18, 2018, Enbridge announced that it (on behalf of itself and certain of its wholly owned U.S. subsidiaries) had entered into definitive merger agreements with us, under which Enbridge would, subject to certain approvals of shareholders and other conditions, acquire all of our Listed Shares (other than those held by Enbridge and its wholly owned subsidiaries). If the Proposed Merger transaction to buy-in Enbridge Energy Partnership, L.P. closes and Enbridge acquires all of the outstanding Class A common units of Enbridge Energy Partnership, L.P., Plaintiff will lose standing to continue her derivative claims on behalf of Enbridge Energy Partners, L.P., and Enbridge will become the owner of such derivative claims. Trial is currently scheduled for the second quarter of 2019.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 16, 2018, except as described below.

THE PROPOSED MERGER IS SUBJECT TO CONDITIONS, INCLUDING SOME CONDITIONS THAT MAY NOT BE SATISFIED ON A TIMELY BASIS, IF AT ALL. FAILURE TO COMPLETE THE PROPOSED MERGER, OR SIGNIFICANT DELAYS IN COMPLETING THE PROPOSED MERGER, COULD NEGATIVELY AFFECT THE PARTNERSHIP'S BUSINESS AND FINANCIAL RESULTS AND THE TRADING PRICES OF OUR LISTED SHARES.

The completion of the Proposed Merger is not assured and is subject to risks, including the risk the Shareholder Approval is not obtained and the risks associated with the closing of the Partnership Merger. Further, the Proposed Merger may not be completed even if the Shareholder Approval is obtained. The Merger Agreement contains conditions, some of which are beyond our control, that, if not satisfied or waived, may prevent, delay or otherwise result in the Proposed Merger not occurring. In particular, the Proposed Merger is subject to the concurrent closing of the Partnership Merger, which itself is subject to the satisfaction of certain closing conditions, including (i) the receipt of approval of holders of 66 2/3% of the outstanding limited partner units of the Partnership entitled to vote on such matter and (ii) the receipt of approval of a majority of the outstanding Class A common units (other than such units held by Enbridge and its affiliates) and the outstanding i-units of the Partnership held by us (other than such units voted at the direction of Enbridge and its affiliates) entitled to vote on such matter, voting as a single class. As a result, the Proposed Merger is subject to risks affecting the Partnership Merger, which are further described in the Partnership’s quarterly report on Form 10-Q, filed with the SEC as of November 1, 2018. Further information regarding the Partnership Merger can be found in Partnership’s current report on Form 8-K, filed with the SEC as of September 17, 2018.

If the Proposed Merger is not completed, or if there are significant delays in completing the Proposed Merger, Enbridge's and the Partnership's future business and financial results and the trading price of our Listed Shares could be negatively affected, and each of the parties will be subject to several risks, including the following:
the parties may be liable for expenses to one another under the terms and conditions of the Merger Agreement; and
there may be negative reactions from the financial markets due to the fact that current prices of our Listed Shares may reflect a market assumption that the Proposed Merger will be completed.

BECAUSE THE EXCHANGE RATIO IS FIXED AND BECAUSE THE MARKET PRICE OF ENBRIDGE COMMON SHARES WILL FLUCTUATE PRIOR TO THE COMPLETION OF THE PROPOSED MERGER, OUR SHAREHOLDERS CANNOT BE SURE OF THE MARKET VALUE OF THE ENBRIDGE COMMON SHARES THEY WILL RECEIVE AS MERGER CONSIDERATION RELATIVE TO THE VALUE OF OUR LISTED SHARES THEY EXCHANGE.

The market value of the consideration that our unitholders will receive in the Proposed Merger will depend on the trading price of Enbridge common shares at the closing of the Proposed Merger. The exchange ratio that determines the number of Enbridge common shares that our shareholders will received in the Proposed Merger is fixed at 0.3350 common shares of Enbridge per Listed Share. This means that there is no mechanism contained in the Merger Agreement that would adjust the number of Enbridge common shares that our shareholders will receive based on any decreases or increases in the trading price of Enbridge common shares. Share price changes may result from a variety of factors (many of which are beyond Enbridge’s and our control), including:
changes in Enbridge's or the Partnership's business, operations and prospects;
changes in market assessments of Enbridge's or the Partnership's business, operations and prospects;
changes in market assessments of the likelihood that the Proposed Merger will be completed;
interest rates, commodity prices, general market, industry and economic conditions and other factors generally affecting the price of Enbridge common shares or our Listed Shares; and

13


federal, state and local legislation, governmental regulation and legal developments in the businesses in which Enbridge and the Partnership operate.

If the price of Enbridge common shares at the closing of the Proposed Merger is less than the price of Enbridge common shares on the date that the Merger Agreement was signed, then the market value of the merger consideration will be less than contemplated at the time the Merger Agreement was signed.

WHEN OUR SHAREHOLDERS RECEIVE THE MERGER CONSIDERATION DEPENDS ON THE COMPLETION DATE OF THE PROPOSED MERGER, WHICH IS UNCERTAIN.

Completing the Proposed Merger is subject to several conditions, not all of which are controllable by us. Accordingly, the date on which our shareholders will receive merger consideration depends on the completion date of the Proposed Merger, which is uncertain and subject to several other closing conditions.

ITEM 6. EXHIBITS

Reference is made to the “Index of Exhibits” following immediately below, which is hereby incorporated into this Item.

INDEX OF EXHIBITS

Each exhibit identified below is filed as a part of this Quarterly Report on Form 10-Q. Exhibits included in this filing are designated by an asterisk (“*”); all exhibits not so designated are incorporated by reference to a prior filing as indicated.
Exhibit
Number
 
Description
 
 
 
 
 
 
101.INS*
 
XBRL Instance Document.
101.SCH*
 
XBRL Taxonomy Extension Schema Document.
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


14


 
Enbridge Energy Management, L.L.C.
(Registrant)
 
 
 
Date: November 1, 2018
By:
/s/ Mark A. Maki
 
 
Mark A. Maki
President
(Principal Executive Officer)
 
 
 
 
 
 
Date: November 1, 2018
By:
/s/ Christopher J. Johnston
 
 
Christopher J. Johnston
Vice President, Finance
(Principal Financial Officer)

15
EX-31.1 2 eem9302018-exhibit311.htm EXHIBIT 31.1 Exhibit


Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. Maki, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Enbridge Energy Management, L.L.C.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions)

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
 
By: /s/ Mark A. Maki
Date: November 1, 2018
 
Mark A. Maki
President
(Principal Executive Officer)



EX-31.2 3 eem9302018-exhibit312.htm EXHIBIT 31.2 Exhibit


Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher J. Johnston, certify that:


1.
I have reviewed this Quarterly Report on Form 10-Q of Enbridge Energy Management, L.L.C.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions)

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
By: /s/ Christopher J. Johnston

Date: November 1, 2018
 
Christopher J. Johnston
Vice President, Finance
(Principal Financial Officer)



EX-32.1 4 eem9302018-exhibit321.htm EXHIBIT 32.1 Exhibit


Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002
Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18 of the United States Code

The undersigned, being the Principal Executive Officer of Enbridge Energy Management, L.L.C. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 (the “Quarterly Report”) filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), as amended, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
By: /s/ Mark A. Maki

Date: November 1, 2018
 
Mark A. Maki
President
(Principal Executive Officer)




EX-32.2 5 eem9302018-exhibit322.htm EXHIBIT 32.2 Exhibit


Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002
Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18 of the United States Code

The undersigned, being the Principal Financial Officer of Enbridge Energy Management, L.L.C. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 (the “Quarterly Report”) filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), as amended, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
By:/s/ Christopher J. Johnston

Date: November 1, 2018
 
Christopher J. Johnston
Vice President, Finance
(Principal Financial Officer)




EX-99.1 6 eep930201810-qxexhibit991.htm EXHIBIT 99.1 Exhibit
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o

 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to           
Commission file number 1-10934
 
 
 
ENBRIDGE ENERGY PARTNERS, L.P.
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
 
39-1715850
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)

5400 Westheimer Court
Houston, Texas 77056
(Address of Principal Executive Offices) (Zip Code)
(713) 627-5400
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o 
 
Smaller reporting company o
Emerging growth company o
 
  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

The registrant had 326,517,110 Class A common units outstanding as of October 30, 2018.
 



ENBRIDGE ENERGY PARTNERS, L.P.

TABLE OF CONTENTS

 
PART I — FINANCIAL INFORMATION
  
  
 
 
 
 
 
 
 
PART II — OTHER INFORMATION
  

In this report, unless the context requires otherwise, references to “we,” “us,” “our,” or the “Partnership” are intended to mean Enbridge Energy Partners, L.P. and its consolidated subsidiaries. We refer to our general partner, Enbridge Energy Company, Inc., as our “General Partner.” References to “Enbridge” refer collectively to Enbridge Inc., and its subsidiaries other than us. References to “Enbridge Management” refer to Enbridge Energy Management, L.L.C., the delegate of our General Partner that manages our business and affairs.

This Quarterly Report on Form 10-Q includes forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including with respect to the transactions contemplated by the Agreement and Plan of Merger, dated September 17, 2018, by and among Enbridge Energy Partners, L.P., Enbridge Energy Company, Inc., Enbridge Energy Management, L.L.C., Enbridge Inc., Enbridge (U.S.) Inc., Winter Acquisition Sub II, LLC, and, solely for the purposes of Articles I, II and XI, Enbridge US Holdings Inc. (the Proposed Merger). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including, without limitation, statements regarding the consummation of the Proposed Merger, including the timing and expected effects thereof, which are statements that frequently use words such as “anticipate,” “believe,” “consider,” “continue,” “could,” “estimate,” “evaluate,” “expect,” “explore,” “forecast,” “intend,” “may,” “opportunity,” “plan,” “position,” “projection,” “should,” “strategy,” “target,” “will” and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made, and we undertake no obligation to publicly update any forward-looking statement. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include: (1) the risk that Enbridge may be unable to obtain governmental, unitholder and regulatory approvals required for the Proposed Merger, whereby Enbridge will acquire all of our outstanding public Class A common units or required governmental, unitholder and regulatory approvals may delay the Proposed Merger or result in the imposition of conditions that could cause the parties to abandon the Proposed Merger; (2) the risk that a condition to closing of the Proposed Merger may not be satisfied; (3) the timing to complete the Proposed Merger; (4) the ability to realize expected cost savings, benefits and any other synergies from the Proposed Merger and the proposed simplification of Enbridge's overall corporate structure may not be fully realized or may take longer to realize than expected; (5) disruption from the Proposed Merger may make it more difficult to maintain relationships with customers, employees or suppliers; (6) the impact and outcome of pending and future litigation, including litigation, if any, relating to the Proposed Merger; (7) the effectiveness of the various actions we have taken resulting from our strategic review process; (8) changes in the demand for, the supply of, forecast data for, and price trends related to crude oil and liquid petroleum, including the rate of development of the Alberta Oil Sands; (9) our ability to successfully complete and finance expansion projects; (10) the effects of competition, in particular, by other pipeline systems; (11) shut-downs or cutbacks at our facilities or refineries, petrochemical plants, utilities or other businesses for which we transport products or to whom we sell products; (12) hazards and operating risks that may not be covered fully by insurance; (13) any fines, penalties and injunctive relief assessed in connection with any crude oil release; (14) state or federal legislative and regulatory initiatives or actions that affect cost and investment recovery or that have an effect on rate structure, or other changes in or challenges to our tariff rates; (15) changes in laws or regulations to which we are subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance; and (16) permitting at federal, state and local levels or renewals of rights of way.

i



Forward-looking statements regarding sponsor support transactions or sales of assets (to Enbridge or otherwise) are further qualified by the fact that Enbridge is under no obligation to provide additional sponsor support and neither Enbridge nor any third party is under any obligation to offer to buy or sell us assets, and we are under no obligation to buy or sell any such assets. As a result, we do not know when or if any such transactions will occur. Any statements regarding sponsor expectations or intentions are based on information communicated to us by Enbridge, but there can be no assurance that these expectations or intentions will not change in the future.

For additional factors that may affect results, see “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in any Quarterly Report on Form 10-Q filed thereafter, which is available to the public over the Internet at the United States Securities and Exchange Commission's (the SEC) website (www.sec.gov) and at our website (www.enbridgepartners.com).

ii


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENBRIDGE ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per unit amounts)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Operating revenues:
  

 
  

 
  

 
  

Transportation and other services
$
527

 
$
596

 
$
1,586

 
$
1,745

Transportation and other services - affiliates
33

 
20

 
103

 
72

Total operating revenues (Note 3)
560


616


1,689


1,817

Operating expenses:
 
 
 
 
 
 
 
Environmental costs, net of recoveries
4

 
1

 
(18
)
 
15

Operating and administrative
62

 
77


198


239

Operating and administrative - affiliates
64

 
85


195


235

Power
83

 
81


235


221

Depreciation and amortization
111

 
112


330


329

Impairment of long-lived asset (Note 6)
1

 

 
37

 

Gain on sale of assets (Note 6)
(22
)
 
(6
)
 
(22
)
 
(68
)
Total operating expenses
303

 
350

 
955

 
971

Operating income
257


266


734


846

Interest expense, net
102

 
104


307

 
306

Allowance for equity used during construction
16

 
12


48


33

Income from equity investment in joint venture (Note 7)
37

 
22


93


28

Other income (expense)

 

 
(1
)
 
5

Income from continuing operations before income taxes
208


196


567


606

Income tax benefit (expense)
(1
)
 


(1
)

1

Income from continuing operations
207


196


566


607

Loss from discontinued operations, net of taxes (Note 6)

 




(57
)
Net income
207


196


566


550

Noncontrolling interests (Note 10)
(103
)
 
(103
)

(293
)
 
(262
)
Series 1 Preferred unit distributions

 



 
(29
)
Accretion of discount on Series 1 Preferred units

 



 
(8
)
Net income - controlling interests
$
104


$
93


$
273


$
251

Net income allocable to common units and i-units:
 
 
 
 
 
 
 
Income from continuing operations
$
92

 
$
82

 
$
237

 
$
254

Loss from discontinued operations (Note 4)

 

 

 
(38
)
Net income allocable to common units and i-units
$
92

 
$
82

 
$
237

 
$
216

Net income per common unit and i-unit (basic and diluted):
 
 
 
 
 
 
 
Income from continuing operations (Note 4)
$
0.21

 
$
0.19

 
$
0.55

 
$
0.65

Loss from discontinued operations (Note 4)

 

 

 
(0.10
)
Net income per common unit and i-unit (Note 4)
$
0.21


$
0.19


$
0.55


$
0.55

Weighted average common units and i-units outstanding (basic and diluted)
431

 
421

 
428

 
392

Cash Distributions paid per limited partner unit
$
0.350

 
$
0.350

 
$
1.050

 
$
1.283

_____________________
The accompanying notes are an integral part of these consolidated financial statements.

1


ENBRIDGE ENERGY PARTNERS, L.P. 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)

 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
Net income
$
207


$
196


$
566


$
550

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Change in cash flow hedges

 
(4
)



(25
)
Reclassification to income on cash flow hedges
8

 
10


28


31

Other comprehensive income, net of tax
8

 
6

 
28

 
6

Comprehensive income
215

 
202

 
594

 
556

Comprehensive income attributable to noncontrolling interests
(103
)
 
(103
)
 
(293
)
 
(262
)
Series 1 Preferred unit distributions

 

 

 
(29
)
Accretion of discount on Series 1 Preferred units

 

 

 
(8
)
Comprehensive income attributable to common units and i-units
$
112

 
$
99

 
$
301

 
$
257

_____________________
The accompanying notes are an integral part of these consolidated financial statements.






























2


ENBRIDGE ENERGY PARTNERS, L.P. 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 
Nine months ended September 30,
  
2018
 
2017
Operating activities:
  

 
 
Income from continuing operations
$
566


$
607

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
330


329

Changes in unrealized loss on derivative instruments, net
8

 
1

Environmental costs, net of recoveries
(23
)
 
15

Distributions from equity investment in joint venture
93

 
28

Income from equity investment in joint venture (Note 7)
(93
)
 
(28
)
Gain on sale of assets (Note 6)
(22
)
 
(68
)
Allowance for equity used during construction
(48
)
 
(33
)
Amortization of debt issuance and hedging costs
27

 
27

Impairment of long-lived asset (Note 6)
37

 

Other
1

 

Changes in operating assets and liabilities
62

 
(319
)
Net cash provided by operating activities
938


559

Net cash used in discontinued operations


(171
)
 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(467
)
 
(418
)
Proceeds from the sale of assets (Note 6)
15

 
319

Proceeds from the sale of Midcoast assets (Note 6)

 
1,310

Equity investment in joint venture
(9
)
 
(1,577
)
Distributions from equity investment in joint venture in excess of cumulative earnings
57

 
12

Other

 
(3
)
Net cash used in investing activities
(404
)
 
(357
)
Net cash used in discontinued operations

 
(25
)
 
 
 
 
Financing activities:
 
 
 
Redemption of Series 1 Preferred units (Note 11)

 
(1,200
)
Payment of Series 1 Preferred unit dividends (Note 11)

 
(357
)
Net proceeds from Class A common unit issuances (Note 11)

 
1,225

Distributions to partners
(390
)
 
(475
)
Repayments to General Partner and affiliates
(157
)
 
(1,706
)
Borrowings from General Partner and affiliates
297

 
1,500

Net borrowings (repayments) under credit facilities (Note 8)
238

 
(1,065
)
Net commercial paper borrowings (Note 8)
19

 
686

Repayment of long-term debt (Note 8)
(400
)
 

Acquisition of noncontrolling interest in subsidiary (Note 12)

 
(360
)
Sale of noncontrolling interest in subsidiary (Note 12)

 
450

Contributions from noncontrolling interests
205

 
1,390

Distributions to noncontrolling interests
(364
)
 
(376
)
Other
(2
)
 
(1
)
Net cash used in financing activities
(554
)
 
(289
)
Net cash provided by discontinued operations

 
229

 
 
 
 
Net decrease in cash and cash equivalents and restricted cash - continuing operations
(20
)
 
(87
)
Net increase in cash and cash equivalents and restricted cash - discontinued operations

 
33

Cash disposed as part of the Midcoast sale

 
(51
)
Cash and cash equivalents and restricted cash at beginning of year - continuing operations
35

 
115

Cash and cash equivalents and restricted cash at beginning of year - discontinued operations

 
18

Cash and cash equivalents and restricted cash at end of period - continuing operations
$
15

 
$
28

Cash and cash equivalents and restricted cash at end of period - discontinued operations
$

 
$

 
_____________________
The accompanying notes are an integral part of these consolidated financial statements.

3


ENBRIDGE ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited; in millions, except number of Class F units)
 
September 30,
2018
 
December 31,
2017
ASSETS
  

 
  

Current assets:
  

 
 
Cash and cash equivalents
$
15

 
$
35

Receivables, trade and other
76

 
65

Due from General Partner and affiliates
84

 
101

Accrued receivables
87

 
105

Other current assets
24

 
24

  
286

 
330

Property, plant and equipment, net
13,104

 
12,896

Equity investment in joint venture (Note 7)
1,517

 
1,565

Other assets, net
43

 
37

Total assets
$
14,950


$
14,828

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable and other
$
224

 
$
173

Due to General Partner and affiliates
34

 
48

Interest payable
88

 
85

Environmental liabilities
16

 
23

Property and other taxes payable
83

 
106

Current portion of long-term debt
600

 
500

  
1,045

 
935

Long-term debt
6,126

 
6,366

Loans from General Partner and affiliate
750

 
610

Other long-term liabilities
244

 
178

  
8,165

 
8,089

Commitments and contingencies (Note 13)


 


Partners’ capital:
 
 
 
Class E units (18.1 authorized and issued at September 30, 2018 and December 31, 2017, respectively)
774

 
774

Class A common units (326.5 outstanding at September 30, 2018 and December 31, 2017, respectively)
491

 
860

Class B common units (7.8 authorized and issued at September 30, 2018 and December 31, 2017, respectively)

 

i-units (98.6 and 89.8 authorized and issued at September 30, 2018 and December 31, 2017, respectively)

 

Class F units (1,000 authorized and issued at September 30, 2018 and December 31, 2017, respectively)
267

 
267

General Partner
321

 
68

Accumulated other comprehensive loss
(171
)
 
(199
)
Total Enbridge Energy Partners, L.P. partners’ capital
1,682

 
1,770

Noncontrolling interests
5,103

 
4,969

Total Partners’ capital
6,785

 
6,739

Total Liabilities and Partners’ capital
$
14,950


$
14,828

_____________________
The accompanying notes are an integral part of these consolidated financial statements.


4


ENBRIDGE ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(unaudited; in millions)
 
Nine months ended September 30,
  
2018
 
2017
Series 1 Preferred units:
  

 
  

Beginning balance
$

 
$
1,192

Redemption of preferred units (Note 11)

 
(1,200
)
Net income


29

Distribution payable

 
(29
)
Accretion of discount on preferred units

 
8

Ending balance



Class D units:
 
 
 
Beginning balance

 
2,518

Waiver of Class D units (Note 11)

 
(2,479
)
Distributions

 
(39
)
Ending balance



Class E units:
 
 
 
Beginning balance
774

 
778

Net income
19


19

Distributions
(19
)
 
(23
)
Ending balance
774


774

Class A common units:
 
 
 
Beginning balance
860

 

Net income
(26
)

141

Issuance of Class A units (Note 11)

 
1,200

Distributions
(343
)
 
(381
)
Sale of noncontrolling interest in subsidiary (Note 12)

 
29

Ending balance
491


989

Class B common units:
 
 
 
Net income
8


9

Sale of noncontrolling interest in subsidiary (Note 12)

 
1

Distributions
(8
)
 
(10
)
Ending balance



i-units:
 
 
 
Net loss


(9
)
Sale of noncontrolling interest in subsidiary (Note 12)

 
9

Ending balance



Class F units:
 
 
 
Beginning balance
267

 

Issuance of Class F units (Note 11)

 
263

Net income
11


11

Distributions
(11
)
 
(7
)
Ending balance
267


267

_____________________
The accompanying notes are an integral part of these consolidated financial statements.




5


ENBRIDGE ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL - (continued)
(unaudited; millions of dollars)
 
Nine months ended September 30,
  
2018
 
2017
Incentive distribution units:
  

 
  

Beginning balance

 
495

Waiver of incentive distribution units (Note 11)

 
(490
)
Distributions

 
(5
)
Ending balance

 

General Partner:
 
 
 
Beginning balance
68

 
(667
)
Net income
261


80

Waiver of Class D units and incentive distribution units (Note 11)

 
2,969

Issuance of Class F units (Note 11)

 
(263
)
Contributions

 
92

Sale of Midcoast assets (Note 6)

 
(2,127
)
Distributions
(8
)
 
(9
)
Sale of noncontrolling interest in subsidiary (Note 12)

 
1

Ending balance
321

 
76

Accumulated other comprehensive loss:
 
 
 
Beginning balance
(199
)
 
(339
)
Changes in fair value of derivative financial instruments recognized in other comprehensive income


(25
)
Changes in fair value of derivative financial instruments reclassified to income
28

 
31

Ending balance
(171
)
 
(333
)
Noncontrolling interests:
 
 
 
Beginning balance
4,969

 
3,846

Capital contributions
205


1,410

Sale of noncontrolling interest in subsidiary (Note 12)

 
411

Acquisition of noncontrolling interest in subsidiary (Note 12)

 
(360
)
Sale of Midcoast assets (Note 6)

 
(297
)
Net income
293

 
262

Distributions to noncontrolling interests
(364
)

(376
)
Ending balance
5,103

 
4,896

Total Partners’ Capital at end of period
$
6,785

 
$
6,669

_____________________
The accompanying notes are an integral part of these consolidated financial statements.



6

ENBRIDGE ENERGY PARTNERS, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


1. GENERAL

The terms “we,” “our,” “us” and “Enbridge Energy Partners” as used in this report refer collectively to Enbridge Energy Partners, L.P. and its subsidiaries unless the context suggests otherwise. Those terms are used for convenience only and are not intended as a precise description of any separate legal entity within Enbridge Energy Partners.

Nature of Operations
We, together with our consolidated subsidiaries, provide crude oil and liquid petroleum gathering, transportation and storage services. In June 2017, we sold all of our ownership interest in our Midcoast gas gathering and processing business to our General Partner (the Midcoast Sale), which is an indirect wholly-owned subsidiary of Enbridge Inc. (Enbridge) The sale of this ownership interest represented a strategic shift in our business and met the criteria for classification as discontinued operations, which resulted in the results of operations, cash flows and financial position of our natural gas business for the prior periods being reflected as discontinued operations. For further information refer to Note 6 - Asset Held for Sale, Dispositions and Discontinued Operations.

Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP), for interim consolidated financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all the information and notes required by U.S. GAAP for annual consolidated financial statements and should therefore be read in conjunction with our annual consolidated financial statements and notes presented in our Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, the interim consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the interim periods reported. These interim consolidated financial statements follow the same significant accounting policies as those included in our annual consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards.

Our operations and earnings for interim periods can be affected by seasonal fluctuations in the supply of and the demand for crude oil, as well as other factors such as the timing and completion of our construction projects, the effect of environmental costs and related insurance recoveries on our Lakehead System, the impact of forward commodity prices and differentials on derivative financial instruments that are accounted for at fair value and may not be indicative of annual results.

2. CHANGES IN ACCOUNTING POLICIES

Adoption of New Standards
Clarifying Guidance on Derecognition and Partial Sales of Nonfinancial Assets
Effective January 1, 2018, we adopted Accounting Standards Update (ASU) 2017-05 on a modified retrospective basis. The new standard clarifies the scope provisions of nonfinancial assets and how to allocate consideration to each distinct asset upon sale or partial sale and amends the guidance for derecognition of a distinct nonfinancial asset in partial sale transactions so that an in-scope partial sale results in the recognition of a full gain or loss. The adoption of this accounting update did not have a material impact on our consolidated financial statements.

Clarifying the Presentation of Restricted Cash in the Statement of Cash Flows
Effective January 1, 2018, we adopted ASU 2016-18 on a retrospective basis. The new standard clarifies guidance on the classification and presentation of changes in restricted cash and restricted cash equivalents within the statement of cash flows. The amendments require that changes in restricted cash and restricted cash equivalents be included within cash and cash equivalents when reconciling the opening and closing period amounts shown on the statement of cash flows. For current and comparative periods, we amended the presentation in our consolidated statements of cash flows to include restricted cash and restricted cash equivalents with cash and cash equivalents.




7


Simplifying Cash Flow Classification
Effective January 1, 2018, we adopted ASU 2016-15 on a retrospective basis. The new standard reduces diversity in practice of how certain cash receipts and cash payments are classified in the statements of cash flows. The new guidance addresses eight specific presentation issues. We assessed each of the eight specific presentation issues and the adoption of this ASU did not have a material impact on our consolidated financial statements.

Revenues from Contracts with Customers
Effective January 1, 2018, we adopted ASU 2014-09 on a modified retrospective basis to contracts that were not yet completed at the date of initial application. The new standard was issued with the intent of significantly enhancing consistency and comparability of revenue recognition practices across entities and industries. The new standard establishes a single, principles-based five-step model to be applied to all contracts with customers and introduces new and enhanced disclosure requirements. It also requires the use of more estimates and judgments, as well as additional disclosures. The adoption of this new standard did not have a material impact on our consolidated financial statements, see Note 3 - Revenue for further details.

Future Accounting Policy Changes
Amended Guidance on Cloud Computing Arrangements
In August 2018, ASU 2018-15 was issued to provide guidance on the accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The amendment aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Additionally ASU 2018-15 specifies that an entity would apply Accounting Standard Codification (ASC) 350-40 to determine which implementation costs related to a hosting arrangement that is a service contract should be capitalized and which should be expensed. Furthermore, the amendments in the update require capitalized costs be amortized on a straight-line basis generally over the term of the arrangement and presented in the same income statement line as fees paid for the hosting service. The new standard also requires that the balance sheet presentation of capitalized implementation costs to be the same as that of the prepayment of fees related to the hosting arrangement, as well as similar consistency in classifications from a cash flow statement perspective. ASU 2018-15 is effective January 1, 2020 and early adoption is permitted. We are currently assessing the impact of the new standard on our consolidated financial statements.

Disclosure Effectiveness
In August 2018, the Financial Accounting Standards Board issued amendments as a part of its disclosure framework project aimed to improve the effectiveness of disclosures in the notes to financial statements.

ASU 2018-13 was issued to modify the disclosure requirements in ASC 820, Fair Value Measurement. The amendments in ASU 2018-13 eliminate and modify some disclosures, while also adding new disclosures for fair value measurements. This update is effective January 1, 2020; however, entities are permitted to early adopt the eliminated or modified disclosures. We are currently assessing the impact of the new standard on our consolidated financial statements.

Improvements to Accounting for Hedging Activities
ASU 2017-12 was issued in August 2017 with the objective of better aligning an organization's risk management activities and the resulting hedge accounting reflected in the financial statements. The amendments allow cash flow hedging of contractually specified components in financial and non-financial items. Under the new guidance, hedge ineffectiveness is no longer required to be measured and hedging instruments’ fair value changes will be recorded in the same income statement line as the hedged item. The ASU also allows the initial quantitative hedge effectiveness assessment to be performed at any time before the end of the quarter in which the hedge is designated. After initial quantitative testing is performed, an ongoing qualitative effectiveness assessment is permitted. The accounting update is effective January 1, 2019, with early adoption permitted and is to be applied on a modified retrospective basis. We are currently assessing the impact of the new standard on the consolidated financial statements.

Accounting for Credit Losses
ASU 2016-13 was issued in June 2016 with the intent of providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Current treatment uses the incurred loss methodology for recognizing credit losses that delays the recognition until it is probable a loss has been incurred. The accounting update adds a new impairment model, known as the current expected credit loss model, which is based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses, which the Financial Accounting Standards Board believes will result in more timely recognition of such losses.

8


The accounting update is effective January 1, 2020. We are currently assessing the impact of the new standard on our consolidated financial statements.

Recognition of Leases
ASU 2016-02 was issued in February 2016 with the intent to increase transparency and comparability among organizations. It requires lessees of operating lease arrangements to recognize lease assets and lease liabilities on the statement of financial position and disclose additional key information about lease agreements. The accounting update also replaces the current definition of a lease and requires that an arrangement be recognized as a lease when a customer has the right to obtain substantially all of the economic benefits from the use of an asset, as well as the right to direct the use of the asset. We will adopt the new standard on January 1, 2019 and we intend to apply the transition practical expedients offered in connection with this update. The election to apply the package of practical expedients allows an entity to not apply the new lease standard to the prior year comparative periods in the year of adoption. Application of the package of practical expedients also permits entities not to reassess a) whether any expired or existing contracts contain leases in accordance with the new guidance, b) lease classifications, and c) whether initial direct costs capitalized under ASC 840 continue to meet the definition of initial direct costs under the new guidance.

Further, ASU 2018-01 was issued in January 2018 to address stakeholder concerns about the costs and complexity of complying with the transition provisions of the new lease requirements as they relate to land easements. The amendments provide an optional transition practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under existing guidance. We intend to elect this practical expedient in connection with the adoption of the new lease requirements.

In July 2018, ASU 2018-11 was issued to address additional stakeholder concerns regarding the unanticipated costs and complexities associated with the modified retrospective transition method as well as the requirement for lessors to separate components of a contract. Under the new guidance, entities are provided with an additional transition method which allows entities to apply the new standard at the date of adoption and to elect not to recast comparative periods presented. This amendment also provides a practical expedient which allows lessors to combine associated lease and nonlease components within a contract when certain conditions are met. We intend to adopt the new transition option in connection with the adoption of the new lease requirements; however, we continue to evaluate the lessor practical expedient to combine lease and nonlease components.

We have substantially completed the process of identifying existing lease contracts and are currently performing detailed evaluations of our leases under the new accounting requirements. We believe the most significant change to our financial statements will be the recognition of lease liabilities and right-of-use assets in our consolidated statements of financial position for operating leases. We continue to assess the necessary changes to accounting and business processes in order to implement the recognition and disclosure requirements of the new lease standard.

3. REVENUE

Revenues from Contracts with Customers

Major Products and Services
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2018
 
(in millions)
Operating revenues:
 
 
 
Transportation
$
543

 
$
1,633

Storage and other
21

 
70

Total revenues from contracts with customers
564

 
1,703

Other
(4
)
 
(14
)
Total revenues
$
560

 
$
1,689



9


Recognition and Measurement of Revenue
 
Three months ended September 30,
 
Nine months ended September 30, 2018
 
2018
 
2018
 
(in millions)
Revenues from products and services transferred over time - crude oil pipeline transportation and storage
$
564

 
$
1,703


Payment terms
Payments are received monthly from customers under long-term transportation contracts.

Contract balances
Contract assets represent the amount of revenue which has been recognized in advance of payments received for performance obligations we have fulfilled (or partially fulfilled) and prior to the point in time at which our right to the payment is unconditional. Amounts included in contract assets are transferred to accounts receivable when our right to the consideration becomes unconditional.

Contract liabilities represent payments received for performance obligations which have not been fulfilled. Contract liabilities primarily relate to make-up rights.

We had Receivables balances of $255 million and $218 million at January 1, 2018 and September 30, 2018, respectively. At September 30, 2018, we had no material contract assets and $3 million in contract liabilities.

Revenues to be Recognized from Unfulfilled Performance Obligations
Total revenues from performance obligations expected to be fulfilled in future periods is $537 million, of which $32 million and $128 million are expected to be recognized during the remaining three months ending December 31, 2018 and for the year ended December 31, 2019, respectively.

Certain revenues such as flow-through operating costs charged to shippers are recognized at the amount for which we have the right to invoice our customers. Those revenues are not included in the amounts for revenues to be recognized in the future from unfulfilled performance obligations above. Variable consideration is excluded from the amounts above due to the uncertainty of the associated consideration, which is generally resolved when actual volumes and prices are determined. Additionally, the effect of escalation on certain tolls which are contractually escalated for inflation has not been reflected in the amounts above as it is not possible to reliably estimate future inflation rates. Finally, revenues from contracts with customers which have an original expected duration of one year or less are excluded from the amounts above.

Significant Judgments made in Recognizing Revenues
Judgment is required in estimating variable consideration for volumetric transportation and sales contracts. We estimate variable consideration for these contracts as the most likely amount based on actual volumes transported and delivered when those quantities are determined at the conclusion of each month using metered volumes and actual average monthly index prices for commodity sales contracts.


10


4. NET INCOME PER LIMITED PARTNER UNIT

We determined basic and diluted net income per limited partner unit as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
  
(in millions, except per unit amounts)
Continuing operations:
  

 
  

 
  

 
  

Net income
$
207

 
$
196


$
566


$
607

Noncontrolling interests
(103
)
 
(103
)
 
(293
)
 
(281
)
Series 1 Preferred unit distributions

 

 

 
(29
)
Accretion of discount on Series 1 Preferred units

 

 

 
(8
)
Net income - continuing operations
104

 
93

 
273

 
289

Distributions:
 
 
 
 
 
 
 
Incentive distributions to Class F units
(4
)
 
(4
)
 
(11
)
 
(12
)
Distributed earnings attributed to our General Partner
(3
)
 
(3
)
 
(10
)
 
(9
)
Distributed earnings attributed to Class E units
(6
)
 
(6
)
 
(19
)
 
(19
)
Total distributed earnings to our General Partner, Class E and Class F units
(13
)
 
(13
)
 
(40
)
 
(40
)
Total distributed earnings attributed to our common units and i-units
(152
)
 
(148
)
 
(451
)
 
(441
)
Total distributed earnings
(165
)
 
(161
)
 
(491
)
 
(481
)
Overdistributed earnings
$
(61
)
 
$
(68
)
 
$
(218
)
 
$
(192
)
 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Net loss
$

 
$


$


$
(57
)
Noncontrolling interest

 

 

 
19

Net loss - discontinued operations
$

 
$

 
$

 
$
(38
)
Weighted average common units and i-units outstanding
431

 
421

 
428

 
392

 
 
 
 
 
 
 
 
Basic and diluted earnings per unit:
 
 
 
 
  

 
  

Distributed earnings per common unit and i-unit - continuing operations(1)
$
0.35

 
$
0.35

 
$
1.05

 
$
1.13

Overdistributed earnings per common unit and i-unit(2)
(0.14
)
 
(0.16
)
 
(0.50
)
 
(0.48
)
Net income per common unit and i-unit (basic and diluted) - continuing operations(3)
0.21

 
0.19

 
0.55

 
0.65

Net loss per common unit and i-unit (basic and diluted) - discontinued operations(3)

 

 

 
(0.10
)
Net income per common unit and i-unit (basic and diluted)
$
0.21

 
$
0.19

 
$
0.55

 
$
0.55

_____________________
(1)
Represents the total distributed earnings to common units and i-units divided by the weighted average number of common units and i-units outstanding for the period.
(2)
Represents the common units’ and i-units’ share (98%) of distributions in excess of earnings divided by the weighted average number of common units and i-units outstanding for the period and overdistributed earnings allocated to the common units and i-units based on the distribution waterfall that is outlined in our partnership agreement.
(3)
For the three and nine months ended September 30, 2018, 18.1 million anti-dilutive Class E units were excluded from the if-converted method of calculating diluted earnings per share. For the three months ended September 30, 2017, 18.1 million anti-dilutive Class E units were excluded from the if-converted method of calculating diluted earnings per share. For the nine months ended September 30, 2017, 43.2 million anti-dilutive Preferred units and 18.1 million anti-dilutive Class E units were excluded from the if-converted method of calculating diluted earnings per unit and 66.1 million of Class D units were excluded from the if-converted method of calculating diluted earnings per unit as the General Partner irrevocably waived all of its rights associated with the Class D units effective April 27, 2017.


11


5. REGULATORY MATTERS

Regulatory Accounting
Our over and under recovery revenue adjustments and net regulatory asset amortization are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
  
2018
 
2017
 
2018
 
2017
  
(in millions)
Net regulatory (liability) asset balance at beginning of period
$
(34
)
 
$
(24
)
 
$
3

 
$
12

Prior period true-up

 

 
4

 
(5
)
Current period (over) under recovery revenue adjustments
(13
)
 
29

 
(50
)
 
2

Amortization of prior year regulatory asset
(2
)
 
(1
)
 
(6
)
 
(5
)
Net regulatory (liability) asset balance at end of period
$
(49
)
 
$
4

 
$
(49
)
 
$
4


6. ASSET HELD FOR SALE, DISPOSITIONS AND DISCONTINUED OPERATIONS

Asset Held for Sale
In the first quarter of 2018, we satisfied the conditions as set out in our agreements for the sale of our Line 10 crude oil pipeline, a component of our Lakehead System. Line 10 originates near Hamilton, Ontario and terminates at West Seneca, New York. We own the United States portion of Line 10, while a subsidiary of the indirect parent of our General Partner, Enbridge owns the Canadian portion.

We expect to close the sale of Line 10 within one year, subject to regulatory approval and certain closing conditions. As such, during the first quarter of 2018, we classified our portion of Line 10 assets as held for sale and measured them at the lower of their carrying value or fair value less costs to sell, which resulted in a loss of $37 million included within “Impairment of long-lived asset” on our consolidated statements of income for the nine months ended September 30, 2018. The remaining held for sale assets and liabilities were not material.

Dispositions
In July 2018, we entered into an agreement to sell to a third party unnecessary materials related to the Sandpiper Project for cash proceeds of approximately $30 million, of which we received approximately $15 million during the three months ended September 30, 2018 with the remaining balance being held in an escrow account as of September 30, 2018. The remaining balance will be released from escrow once the purchaser takes possession of all the purchased materials. Under the terms of the agreement, title was transferred to the purchaser in late September 2018 when payment of the remaining balance was deposited in the escrow account. As a result, we recorded a gain on disposition of $22 million net of selling costs, included in "Gain on sale of assets" on our consolidated statements of income.

During the nine months ended September 30, 2017, we sold unnecessary pipe related to the Sandpiper Project for cash proceeds of approximately $103 million. A gain on disposition of $57 million was included in "Gain on sale of assets" on our consolidated statements of income.

In March 2017, we completed the sale of the Ozark Pipeline to a subsidiary of MPLX LP for cash proceeds of approximately $220 million, including reimbursement costs. A gain on disposition of $11 million was included in “Gain on sale of assets” on our consolidated statements of income.

Discontinued Operations
Sale of Natural Gas Business
In June 2017, we completed the sale of all of our ownership interest in our Midcoast gas gathering and processing business to our General Partner for $2.3 billion, which included cash consideration of $1.3 billion and outstanding indebtedness at Midcoast Energy Partners, L.P. (MEP) of $953 million. This sale included our 48.4% limited partnership interest in Midcoast Operating, L.P., our 51.9% limited partnership interest in MEP, and our 100% interest in Midcoast Holdings, L.L.C., MEP’s general partner. We recorded no gain or loss on the sale as this transaction was between entities under common control of Enbridge. The carrying value of the net assets sold was $4.3 billion. As a result of

12


the transaction, partners’ capital decreased by $2.1 billion, all of which was allocated to the General Partner’s capital account. Noncontrolling interest (NCI) in MEP of $297 million was eliminated.
The following table presents the operating results from discontinued operations of our Midcoast gas gathering and processing business, which have been segregated from our continuing operations in our consolidated statements of income:
 
Nine months ended September 30,
 
2017
 
(in millions)
Operating revenues
$
1,161

Operating expenses:
 
Commodity costs
1,011

Operating and administrative
133

Depreciation and amortization
74

  
1,218

Operating loss
(57
)
Interest expense, net
17

Other income
18

Loss before income taxes
(56
)
Income tax expense
(1
)
Loss from discontinued operations, net of taxes
$
(57
)

7. EQUITY INVESTMENT IN JOINT VENTURE

The following table presents our equity investment in a joint venture and ownership interest in MarEn Bakken Company LLC (MarEn).
 
Ownership
Interest
 
September 30,
2018
 
December 31,
2017
 
 
 
(in millions)
MarEn Bakken Company LLC
75%
 
$1,517
 
$1,565

In February 2017, our joint venture with Marathon Petroleum Corporation (MPC), MarEn, closed its acquisition to acquire a 49% interest in Bakken Pipeline Investments LLC (BPI). BPI owns 75% of the Dakota Access Pipeline (DAPL) and the Energy Transfer Crude Oil Pipeline (ETCOP), collectively the Bakken Pipeline System. The Bakken Pipeline System was placed into service June 1, 2017. Our investment subsidiary, Enbridge Holdings (DakTex) L.L.C. (DakTex) and MPC indirectly hold 75% and 25% interests, respectively, of MarEn. The purchase of DakTex's effective 27.6% interest in the Bakken Pipeline System was $1.5 billion and funded through a bridge loan from Enbridge (U.S.) Inc., (EUS) an affiliate of our General Partner and was re-paid and terminated on April 27, 2017, as a result of the finalization by our Board of Directors of a joint funding arrangement with our General Partner. This arrangement resulted in DakTex now being owned 75% by our General Partner and 25% by us. Refer to Note 12 - Related Party Transactions for further details on our joint funding arrangements.

We account for our investment in MarEn under the equity method of accounting. For the three and nine months ended September 30, 2018, we recognized $37 million and $93 million, respectively, and $22 million and $28 million for the three and nine months ended September 30, 2017, respectively, in “Income from equity investment in joint venture" in our consolidated statements of income representing our equity earnings for this investment, net of amortization of the excess of the purchase price over the underlying net book value (basis difference).


13

ENBRIDGE ENERGY PARTNERS, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Our equity investment includes basis difference of the investees’ assets at the purchase date, which is comprised of $14 million in goodwill and $931 million in amortizable assets. We amortized $9 million and $28 million for the three and nine months ended September 30, 2018, respectively and $10 million and $13 million for the three and nine months ended September 30, 2017, respectively, which was recorded as a reduction to equity earnings.

8. DEBT