15. COMMITMENTS AND CONTINGENCIES

Environmental Liabilities

We are subject to federal and state laws and regulations relating to the protection of the environment. These laws and regulations can change from time to time, imposing new obligations on us. Environmental risk is inherent to liquid hydrocarbon pipeline operations, and we are, at times, subject to environmental remediation at various contaminated sites. We manage this environmental risk through environmental policies and practices to minimize any impact our operations may have on the environment. To the extent that we are unable to recover payment for environmental liabilities from insurance or other potentially responsible parties, we will be responsible for payment of liabilities arising from environmental incidents associated with the operating activities of our liquids businesses. Our General Partner has agreed to indemnify us from and against any costs relating to environmental liabilities associated with the Lakehead system assets prior to the transfer of these assets to us in 1991. This excludes any liabilities resulting from a change in laws after such transfer. We continue to voluntarily investigate past leak sites on our systems for the purpose of assessing whether any remediation is required in light of current regulations.

As of September 30, 2017 and December 31, 2016, our consolidated statements of financial position included $18.1 million and $99.8 million, respectively, in “Environmental liabilities,” and $57.4 million and $50.8 million, respectively, in “Other long-term liabilities,” that we have accrued for costs to address remediation of contaminated sites, asbestos containing materials, management of hazardous waste material disposal, outstanding air quality measures for certain of our liquids assets and penalties we have been or expect to be assessed.

Lakehead Line 6B Crude Oil Release

On July 26, 2010, a release of crude oil on Line 6B of our Lakehead system was reported near Marshall, Michigan. We estimate that approximately 20,000 barrels of crude oil were leaked at the site, a portion of which reached the Kalamazoo River via Talmadge Creek, a waterway that feeds the Kalamazoo River. The released crude oil affected approximately 38 miles of shoreline along the Talmadge Creek and Kalamazoo River waterways, including residential areas, businesses, farmland and marshland between Marshall and downstream of Battle Creek, Michigan.

We continue to evaluate the need for additional remediation activities and are performing the necessary restoration and monitoring of the areas affected by the Line 6B crude oil release. All the initiatives we are undertaking in the monitoring and restoration phase are intended to restore the crude oil release area to the satisfaction of the applicable regulatory authorities.

As of September 30, 2017, our cumulative cost estimate for the Line 6B crude oil release remains at $1.2 billion. For purposes of estimating our expected losses associated with the Line 6B crude oil release, we have included those costs that we considered probable and that could be reasonably estimated at September 30, 2017. Our estimates exclude: (i) amounts we have capitalized, (ii) any claims associated with the release that may later become evident, (iii) amounts recoverable under insurance, and (iv) fines and penalties from other governmental agencies except as described in the Line 6B Fines and Penalties section below. Our assumptions include, where applicable, estimates of the expected number of days the associated services will be required and rates that we have obtained from contracts negotiated for the respective service and equipment providers. As we receive invoices for the actual personnel, equipment and services, our estimates will continue to be further refined. Our estimates also consider currently available facts, existing technology and presently enacted laws and regulations. These amounts also consider our and other companies’ prior experience remediating contaminated sites and data released by government organizations. Despite the efforts we have made to ensure the reasonableness of our estimates, changes to the recorded amounts associated with this release are possible as more reliable information becomes available. We continue to have the potential of incurring additional costs in connection with this crude oil release due to variations in any or all of the categories described above, including modified or revised requirements from regulatory agencies, in addition to fines and penalties as well as expenditures associated with litigation and settlement of claims.

The components underlying our cumulative estimated loss for the cleanup, remediation and restoration associated with the Line 6B crude oil release, the majority of which have been paid, include the following:



	(in millions)
Response personnel and equipment	$	547.3
Environmental consultants	224.3
Professional, regulatory, fines and penalties and other	443.4
Total	$	1,215.0

For the nine months ended September 30, 2017 and 2016, we made payments of $74.2 million and $17.3 million, respectively, for costs associated with the Line 6B crude oil release. As of September 30, 2017 and December 31, 2016, we had a remaining estimated liability of $64.1 million and $138.8 million, respectively.

Line 6B Fines and Penalties

At September 30, 2017, our total estimated costs related to the Line 6B crude oil release include $68.5 million in paid fines and penalties, which includes fines and penalties paid to the United States Department of Justice (DOJ) as discussed below.

Consent Decree

On May 23, 2017, the United States District Court for the Western District of Michigan, Southern Division (the District Court), approved the Consent Decree (the Consent Decree), which is our signed settlement agreement with the United States Environmental Protection Agency and the DOJ regarding the Lines 6A and 6B crude oil releases, both of which occurred in 2010. On June 15, 2017, Enbridge made a total payment of $67.8 million as required by the Consent Decree, which reflects a $61.0 million civil penalty for the Line 6B release, a $1.0 million civil penalty for the Line 6A release, and $5.8 million for past removal costs and interest.

In addition to the monetary fines and penalties, the Consent Decree calls for replacement of Line 3, which we initiated in 2014 and is currently under regulatory review in the State of Minnesota; refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Result of Operations-By Segment — Expansion Projects - Commercially Secured Projects — U.S.Line 3 Replacement Program for further details. The Consent Decree contains a variety of injunctive measures, including, but not limited to, enhancements to our comprehensive in-line inspections (ILI)-based spill prevention program; enhanced measures to protect the Straits of Mackinac; improved leak detection requirements; installation of new valves to control product loss in the event of an incident; continued enhancement of control room operations; and improved spill response capabilities. Collectively, these measures build on continuous improvements we have implemented since 2010 to our leak detection program, control center operations, and emergency response program. We estimate the total cost of these measures to be approximately $110 million, most of which is already incorporated into existing long-term capital investment and operational expense planning and guidance. Compliance with the terms of the Consent Decree is not expected to materially impact our overall financial performance.

Insurance

We are included in the comprehensive insurance program that is maintained by Enbridge for its subsidiaries and affiliates. On May 1 of each year, our insurance program is renewed and includes commercial liability insurance coverage that is consistent with coverage considered customary for our industry and includes coverage for environmental incidents such as those we have incurred for the crude oil release from Line 6B, excluding costs for fines and penalties.

Enbridge, together with us and its other affiliates, are covered under comprehensive property and liability insurance programs under which we are insured through April 30, 2018, with a liability program aggregate limit of $940.0 million, which includes sudden and accidental pollution liability. In the event that multiple insurable incidents which in aggregate exceed coverage limits occur within the same insurance period, the total insurance coverage will be allocated among the Enbridge entities on an equitable basis based on an insurance allocation agreement we have entered into with Enbridge and other Enbridge subsidiaries.

A majority of the costs incurred for the July 2010 Line 6B crude oil release, other than fines and penalties, are covered by the insurance policies that expired on April 30, 2011, which had an aggregate limit of $650.0 million for pollution liability for Enbridge and its affiliates. Including our remediation spending through September 30, 2017, costs related to Line 6B exceeded the limits of the coverage available under these insurance policies. Through September 30, 2017, we have recorded total insurance recoveries of $547.0 million for the Line 6B crude oil release, out of the $650.0 million aggregate limit.

In March 2013, we and Enbridge filed a lawsuit against the insurers of $145.0 million of coverage, as one particular insurer disputed our recovery eligibility for costs related to our claim on the Line 6B crude oil release and the other remaining insurers asserted that their payment was predicated on the outcome of our recovery with that insurer. We received a partial recovery payment of $42.0 million from the other remaining insurers and amended our lawsuit such that it included only one insurer.

Of the remaining $103.0 million coverage limit, $85.0 million was the subject matter of a lawsuit Enbridge filed against one particular insurer described above. In March 2015, Enbridge reached agreement with that insurer to submit the $85.0 million claim to binding arbitration. On May 2, 2017, the arbitration panel issued a decision that was not favorable to Enbridge. As a result, we will not receive any additional insurance recoveries in connection with the Line 6B crude oil release.

Legal and Regulatory Proceedings

We are subject to various legal and regulatory actions and proceedings which arise in the normal course of business, including interventions in regulatory proceedings and challenges to regulatory approvals and permits by special interest groups. Some of these proceedings are covered, in whole or in part, by insurance.

We are in the early stages of discovery in relation to a unitholder derivative action, with trial scheduled in the second quarter of 2018. Accordingly, an estimate of reasonably possible losses, if any, associated with causes of action cannot be made until all of the facts, circumstances and legal theories relating to such claims and the defenses are fully disclosed and analyzed. We have not established any reserves relating to this action. We believe the action is without merit and expect to vigorously defend against it. We believe an unfavorable outcome to be more than remote but less than probable.

A number of governmental agencies and regulators initiated investigations into the Line 6B crude oil release. As at September 30, 2017, there are no claims pending against us in United States state courts in connection with the Line 6B crude oil release.

We have accrued a provision for future legal costs and probable losses associated with the Line 6B crude oil release as described above in this footnote.