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PARTNERS' CAPITAL
 12 Months Ended
Dec. 31, 2016
Partners' Capital Notes [Abstract]  
PARTNERS’ CAPITAL
20. PARTNERS’ CAPITAL
 
Our capital accounts are comprised of a 2% general partner interest and 98% limited partner interests. Our limited partner interests at December 31, 2016, include Series 1 preferred units, Class D units, Class E units, Class A and Class B common units, i-units and incentive distribution units, or IDUs. We refer to our Class A and Class B common units collectively as common units. Our limited partners have limited rights of ownership as provided for under our partnership agreement and, as discussed below, the right to participate in our distributions. Our General Partner manages our operations, subject to a delegation of control agreement with Enbridge Management, and participates in our distributions. At December 31, 2016 and 2015, our outstanding ownership interests were as follows: 
 
 
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Series 1 preferred units
 
 
9.7
%
 
9.9
%
Class D units owned by our General Partner
 
 
13.3
%
 
13.6
%
Class E units owned by our General Partner
 
 
3.7
%
 
3.7
%
Class A common units owned by the public
 
 
43.7
%
 
44.5
%
Class A common units owned by our General Partner
 
 
9.4
%
 
9.6
%
Class B common units owned by our General Partner
 
 
1.6
%
 
1.6
%
i-units owned by Enbridge Management(1)
 
 
16.6
%
 
15.1
%
Incentive distribution units owned by our General Partner
 
 
—
%
 
—
%
General Partner interest
 
 
2.0
%
 
2.0
%
 
 
 
100.0
%
 
100.0
%
 
 
  (1)
For the years ended December 31, 2016 and 2015, our General Partner owned 11.7% of Enbridge Management, which owns all of our i-units.
 
Series 1 Preferred Unit Amendment
 
On July 30, 2015, we amended our limited partnership agreement to extend the deferral of distribution payments, to extend the rate reset pricing date, and to defer the conversion option date, as discussed below. The amendment was accounted for as a modification to the Series 1 Preferred Unit Agreement, as the difference in the fair value of the Preferred Units before and after the modification was insignificant.
 
The Preferred Units are entitled to annual cash distributions of 7.50% of the issue price, payable quarterly, which are subject to reset on June 30, 2020, and each subsequent five-year anniversary thereafter. However, these quarterly cash distributions, during the first full twenty quarters ending June 30, 2018, will accrue and accumulate, which we refer to as the Payment Deferral. These amounts will be paid in equal amounts over a twelve-quarter period beginning in the first quarter of 2019.
 
On or after June 1, 2018, at the sole option of the holder of the Preferred Units, the Preferred Units may be converted into Class A Common Units, in whole or in part, at a conversion price of $27.78 per unit plus any accrued, accumulated and unpaid distributions, excluding the Payment Deferral, as adjusted for splits, combinations and unit distributions. At all other times, redemption of the Preferred Units, in whole or in part, is permitted only if: (1) we use the net proceeds from incurring debt and issuing equity, which includes asset sales, in equal amounts to redeem such Preferred Units; (2) a material change in the current tax treatment of the Preferred Units occurs; or (3) the rating agencies’ treatment of the equity credit for the Preferred Units is reduced by 50% or more, all at a redemption price of $25.00 per unit plus any accrued, accumulated and unpaid distributions, including the Payment Deferral.
 
As discussed above, the Series 1 Preferred Unit Agreement was amended on July 30, 2015 to, among other things, extend the first conversion date of the Preferred Units. As a result, the remaining unamortized beneficial conversion feature after the amendment will be amortized ratably over the extended period through June 30, 2018.
 
Equity Restructuring Transaction
 
On July 1, 2014, we entered into an equity restructuring transaction, or Equity Restructuring, with the General Partner in which the General Partner irrevocably waived its right to receive cash distributions and allocations of items of income, gain, deduction, and loss in excess of 2% in respect of its general partner interest in the incentive distribution rights, or Previous IDRs, in exchange for the issuance to a wholly-owned subsidiary of the General Partner of (i) 66.1 million units of a class of limited partner interests designated as Class D units, and (ii) 1,000 units of a class of limited partner interests designated as Incentive Distribution Units, or IDUs.
 
The Class D units entitle the holder thereof to receive quarterly distributions equal to the amount derived by multiplying the number of Class D units outstanding by the distribution rate paid on our common units. The Class D units are convertible on a one-for-one basis into our Class A common units any time after the fifth anniversary of issuance, or July 1, 2019, at the holder’s option. We may redeem the Class D units in whole or in part after the 30-year anniversary of issuance, or July 1, 2044, at our option for either a cash amount equal to the notional value per unit, or with newly issued Class A common units with an aggregate market value at redemption equal to 105% of the aggregate notional value of the Class D units being redeemed. The Class D units have a notional value of $31.35 per unit, which was the closing price of our Class A common units on June 17, 2014, and have the same voting rights as the Class A common units. In the event of a liquidation event (or any merger or other extraordinary transaction), the Class D units entitle the holder thereof to a preference in liquidation equal to 20% of the notional value, with such preference being increased by an additional 20% on each anniversary of issuance, resulting in a liquidation preference equal to 100% of the notional value on and after July 1, 2018. The Class D units have a liquidation preference equal to their notional value at July 1, 2014 of $31.35 per unit, which is also the liquidation value of the units.
 
The IDUs entitle the holder thereof to receive 23% of the incremental distributions we pay in excess of $0.5435 per common unit and Class D unit per quarter. In the event of any decrease in the Class A common unit distribution below the quarterly distribution level of $0.5435 per unit in any quarter during the five years commencing with the fourth quarter of 2014, the distribution we pay on the Class D units will be decreased to the amount that we would have paid in respect of the Previous IDRs had the Equity Restructuring not occurred. The difference in the distribution as a result of this adjustment would be allocated to the Class A and Class B common units, Class E units and the i-units on a pro-rata basis. In addition, we reduced the third quarter 2014 distribution on the Class D units so that the aggregate distributions paid in calendar year 2014 with respect to the previous IDRs, the Class D units, and the IDUs did not exceed the distribution that we would have paid in calendar year 2014 in respect to the Previous IDRs had the Equity Restructuring not occurred.
 
We recorded the Class D units and IDUs at their fair values of $2,480.0 million and $491.7 million, respectively, with the offset being recorded as a reduction to the carrying amounts of the capital accounts of the Class A and Class B common units, the i-units and the general partner on a pro rata basis. We determined the fair values of the Class D units using a market approach based upon the closing price of the Class A common units as of July 1, 2014 adjusted for differences in specific rights granted to the Class D units and other economic factors that would affect the fair value of the Class D units. We determined the fair value of the IDUs using an income approach on the basis of discounted cash flows from expected quarterly distributions.
 
Alberta Clipper Drop Down
 
On January 2, 2015, we completed a transaction, or the Drop Down, pursuant to which we acquired the remaining 66.7% interest in the U.S. segment of the Alberta Clipper Pipeline from our General Partner. The consideration consisted of approximately 18,114,975 units of a class of limited partner interests designated as Class E units issued to the General Partner. The Class E units were issued at a notional value of $38.31 per unit, which was determined based on the trailing five-day volume-weighted average price of our Class A common units as of that date, which was the date on which we and the General Partner entered into a contribution agreement setting forth the terms of the Drop Down. In addition, we repaid the borrowings outstanding of $306.0 million on the A1 Term Note owed to the General Partner.
 
The Class E units are entitled to the same distributions as Class A common units held by the public and are convertible into Class A common units on a one-for-one basis at the General Partner’s option. The Class E units were not entitled to distributions with respect to the quarter ended December 31, 2014. The Class E units are redeemable at our option after 30 years, if not earlier converted by the General Partner.
 
The Class E units have a liquidation preference equal to their notional value at December 23, 2014 of $38.31 per unit, which is also the liquidation value of the units. If the aggregate EBITDA attributable to the Series AC interest in the OLP for calendar years 2015 and 2016 is less than $265.9 million, then 1,305,142 of the Class E units will be cancelled by us effective as of June 15, 2017, for no consideration and will no longer be deemed outstanding for any purposes under our partnership agreement. Aggregate EBITDA attributable to the Series AC interest in the OLP for calendar years 2015 and 2016 exceeded the threshold, and therefore no Class E units will be cancelled.
 
In addition, during each taxable year during the period from January 1, 2015 through December 31, 2037 in which a majority of the Class E units issued on the closing date of the Drop Down remain outstanding, holders of Class A common units, Class B common units and Class D units (including those held by the General Partner) will be specially allocated items of gross income that would otherwise be allocated to holders of Class E units, to the extent that such an amount of gross income exists, in an annual amount equal to $40.0 million. The annual amount of such allocation will be reduced to $20.0 million for each taxable year beginning after December 31, 2037.
 
We recorded the Drop Down as an equity transaction. No loss on the acquisition of the remaining ownership interests in Alberta Clipper was recognized in our consolidated statement of income or comprehensive income. We reduced the carrying value of the related “Noncontrolling interest” in Alberta Clipper of $403.7 million to zero. In addition, we recorded the Class E units at their fair value of $767.7 million. We determined the fair value of the Class E units using a market approach based upon the closing price of the Class A common units as of January 2, 2015, adjusted for differences in specific rights such as the liquidation preference granted to the Class E units and other economic factors that would affect the fair value of the Class E units.
 
The difference of $364.0 million between the fair value of the Class E units and the carrying value of the noncontrolling interest in Alberta Clipper was recorded as a reduction to the carrying amounts of the capital accounts of  the Class A and Class B common units, the i-units and the General Partner interest on a pro rata basis. The recording of this transaction reduced the carrying values of the Class A and Class B common units below zero. Our partnership agreement requires that such capital account deficits are brought back to zero, or “cured,” by additional allocations from the capital accounts of the i-units and General Partner interest on a pro-rata basis. As a result the i-units’ and General Partner interest’s capital balances were reduced by $46.7 million and $1.0 million, respectively, to cure the deficit balances in the Class A and Class B common units. This initial curing did not impact earnings allocated to either the i-units or the General Partner interest.
 
Curing
 
Our limited partnership agreement does not permit capital deficits to accumulate in the capital accounts of any limited partner and thus requires that such capital account deficits be “cured” by additional allocations from the positive capital accounts of the common units, i-units, and our General Partner, generally on a pro-rata basis. For the years ended December 31, 2016 and 2015, the carrying amounts for the capital accounts of the Class A and Class B common units were reduced below zero due to distributions to limited partners in excess of earnings attributable to such limited partners. As a result, for the year ended December 31, 2016, the capital balances of the i-units and our General Partner interests were reduced by $126.0 million and $789.5 million, respectively, to cure the applicable deficit balances. For the year ended December 31, 2015, the capital balances of the i-units and our General Partner interests were reduced by $362.3 million and $30.5 million, respectively, to cure the applicable deficit balances.
 
Shelf-Registration Statement
 
From time to time, we may seek to satisfy liquidity needs through the issuance of registered debt or equity securities. In February 2015, we filed with the SEC a new shelf registration statement, or the 2015 Shelf, on Form S-3 that replaced our prior shelf registration statement which expired in December 2014. The 2015 Shelf allows us to issue an unlimited amount of equity and debt securities in underwritten public offerings.
 
Issuance of Class A Common Units
 
The following table presents the net proceeds from our Class A common unit issuances for the year ended December 31, 2015. There were no issuances of Class A common units for the years ended December 31, 2016 and 2014.
 
2015 Issuance Date
 
Number of
Class A
common unit
Issued
 
Offering
Price
per Class A
common units
 
Net Proceeds
to the
Partnership(1)
 
General
Partner
Contribution(2)
 
Net Proceeds
Including
General
Partner
Contribution
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except units and per unit amounts)
 
March
 
 
8,000,000
 
$
36.70
 
$
288.8
 
$
6.0
 
$
294.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Net of underwriters’ fees and discounts, commissions and issuance expenses.
(2)
Contributions made by the General Partner to maintain its 2% general partner interest.
 
The proceeds from the March 2015 offering were used to fund a portion of our capital expansion projects and for general partnership purposes.
 
Class B common units
 
All of our outstanding Class B common units are held by our General Partner and have rights similar to our Class A common units except that they are not currently eligible for trading on the NYSE.
 
i-units
 
The i-units are a separate class of our limited partner interests, all of which are owned by Enbridge Management and are not publicly traded.
 
Enbridge Management, as the owner of our i-units, votes together with the holders of the common units as a single class. However, the i-units vote separately as a class on the following matters:
 
•
Any proposed action that would cause us to be treated as a corporation for United States federal income tax purposes;
 
•
Amendments to our partnership agreement that would have a material adverse effect on the holder of our i-units, unless, under our partnership agreement, the amendment could be made by our General Partner without a vote of holders of any class of units;
 
•
The removal of our General Partner and the election of a successor general partner; and
 
•
The transfer by our General Partner of its general partner interest to a non-affiliated person that requires a vote of holders of units under our partnership agreement and the admission of that person as a general partner.
 
In all cases, Enbridge Management will vote or refrain from voting its i-units in the same manner that owners of Enbridge Management’s shares vote or refrain from voting their shares. Furthermore, under the terms of our partnership agreement, we agree that we will not, except in liquidation, make a distribution on an i-unit other than in additional i-units or a security that has in all material respects the same rights and privileges as the i-units.
 
Distributions
 
Our partnership agreement requires us to distribute 100% of our “available cash”, which is generally defined in our partnership agreement as the sum of all cash receipts plus reductions in cash reserves established in prior quarters less cash disbursements and additions to cash reserves in that calendar quarter. Enbridge Management, as delegate of our General Partner under the delegation of control agreement, computes the amount of our “available cash.” Typically, our General Partner and owners of our common units will receive distributions in cash. We also retain reserves to provide for the proper conduct of our business, to stabilize distributions to our unitholders and our General Partner and, as necessary, to comply with the terms of our agreements or obligations (including any reserves required under debt instruments for future principal and interest payments and for future capital expenditures). We make distributions to our partners approximately 45 days following the end of each calendar quarter in accordance with their respective percentage interests.
 
Our General Partner is granted discretion by our partnership agreement, which discretion has been delegated to Enbridge Management, subject to the approval of our General Partner in certain cases, to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures, and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When Enbridge Management determines our quarterly distributions, it considers current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level.
 
Distributions of our available cash are generally made 98% to holders of our limited partner units and 2% to our General Partner. However, distributions are subject to the payment of incentive distributions to our General Partner to the extent that certain target levels of distributions to the unitholders are achieved. Before July 1, 2014 the incentive distributions payable to our General Partner were 15%, 25% and 50% of all quarterly distributions of available cash that exceed target levels of $0.295, $0.35 and $0.495 per limited partner units, respectively. After July 1, 2014, the incentive distributions payable to the IDUs are 25% of all quarterly distributions of available cash that exceed the target level of $0.5435 per limited partner unit. As set forth in our partnership agreement, we will not make cash distributions on our i-units, but instead, will distribute additional i-units such that the cash is retained and used in our operations and to finance a portion of our capital expansion projects.
 
Enbridge Management, as owner of the i-units, does not receive distributions in cash. Instead, each time that we make a cash distribution to our General Partner, holders of the Class D and Class E units, and holders of our Class A and Class B common units, the number of i-units owned by Enbridge Management and the percentage of our total units owned by Enbridge Management will increase automatically under the provisions of our partnership agreement with the result that the number of i-units owned by Enbridge Management will equal the number of Enbridge Management’s listed and voting shares that are then outstanding. The amount of this increase in i-units is determined by dividing the cash amount distributed per common unit by the average price of one of Enbridge Management’s listed shares on the NYSE for the 10 trading day period immediately preceding the ex-dividend date for Enbridge Management’s shares multiplied by the number of shares outstanding on the record date. The cash equivalent amount of the additional i-units is treated as if it had actually been distributed for purposes of determining the distributions to be made to our General Partner.
 
Distribution to Partners
 
The following table sets forth our distributions, as approved by the board of directors of Enbridge Management, during the years ended December 31, 2016, 2015 and 2014.
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
Distribution
 
Retained
 
 
 
 
 
 
 
 
Distribution
 
 
 
 
available
 
of i-units to
 
from
 
 
 
 
Distribution
 
 
 
Payment
 
Distribution
 
for
 
i-unit
 
General
 
Distribution
 
Declaration Date
 
Record Date
 
Date
 
per Unit
 
distribution
 
Holders  (1)
 
Partner  (2)
 
of Cash
 
 
 
 
 
 
 
 
 
 
(in millions, except per unit amounts)
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
October 28
 
November 7
 
November 14
 
$
0.5830
 
$
263.7
 
$
46.6
 
$
1.0
 
$
216.1
 
July 28
 
August 5
 
August 12
 
$
0.5830
 
 
262.5
 
 
45.5
 
 
0.9
 
 
216.1
 
April 29
 
May 6
 
May 13
 
$
0.5830
 
 
261.2
 
 
44.3
 
 
0.9
 
 
216.0
 
January 29
 
February 5
 
February 12
 
$
0.5830
 
 
259.6
 
 
42.7
 
 
0.9
 
 
216.0
 
 
 
 
 
 
 
 
 
 
$
1,047.0
 
$
179.1
 
$
3.7
 
$
864.2
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
October 30
 
November 6
 
November 13
 
$
0.5830
 
$
258.7
 
$
41.8
 
$
0.9
 
$
216.0
 
July 30
 
August 7
 
August 14
 
$
0.5830
 
 
257.9
 
 
41.0
 
 
0.8
 
 
216.1
 
April 30
 
May 8
 
May 15
 
$
0.5700
 
 
249.9
 
 
39.5
 
 
0.8
 
 
209.6
 
January 29
 
February 6
 
February 13
 
$
0.5700
 
 
233.9
 
 
38.9
 
 
0.8
 
 
194.2
 
 
 
 
 
 
 
 
 
 
$
1,000.4
 
$
161.2
 
$
3.3
 
$
835.9
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
October 31
 
November 7
 
November 14
 
$
0.5550
 
$
221.8
 
$
37.3
 
$
0.8
 
$
183.7
 
July 31
 
August 7
 
August 14
 
$
0.5550
 
 
224.7
 
 
36.7
 
 
0.8
 
 
187.2
 
April 30
 
May 8
 
May 15
 
$
0.5435
 
 
214.5
 
 
35.3
 
 
0.7
 
 
178.5
 
January 30
 
February 7
 
February 14
 
$
0.5435
 
 
213.7
 
 
34.6
 
 
0.7
 
 
178.4
 
 
 
 
 
 
 
 
 
 
$
874.7
 
$
143.9
 
$
3.0
 
$
727.8
 
 
(1)
We issued 8,571,429, 4,980,552 and 4,562,088 i-units to Enbridge Management, L.L.C., the sole owner of our i-units, during 2016, 2015 and 2014, respectively, in lieu of cash distributions.
(2)
We retained an amount equal to 2% of the i-unit distribution from our General Partner to maintain its 2% general partner interest in us.