1. ORGANIZATION AND NATURE OF OPERATIONS

General

We, together with our consolidated subsidiaries, are a publicly-traded Delaware limited partnership. We are a geographically and operationally diversified organization that provides crude oil and liquid petroleum gathering, transportation and storage services, and natural gas gathering, treating, processing, marketing and transportation services in the Gulf Coast and Mid-Continent regions of the United States of America. We hold our assets in a series of limited liability companies and limited partnerships that we own either directly or indirectly. Our Class A common units are traded on the NYSE, under the symbol “EEP.”

We were formed in 1991 by our General Partner, which is an indirect, wholly-owned subsidiary of Enbridge. We own and operate the crude oil and liquid petroleum transportation assets of the OLP, which owns the United States portion of a crude oil and liquid petroleum pipeline system extending from western Canada through the upper and lower Great Lakes region of the United States to eastern Canada.

Midcoast Energy Partners, L.P.

MEP is a publicly-traded Delaware limited partnership formed by us to serve as our primary vehicle for owning and growing our natural gas and natural gas liquids midstream business in the United States. MEP’s Class A common units are traded on the NYSE under the ticker symbol “MEP.” MEP is a consolidated subsidiary.

On January 26, 2017 MEP entered into the Merger Agreement with our General Partner, an indirect subsidiary, whereby our General Partner will acquire for cash, subject to terms and conditions thereof, all of the outstanding publicly held Class A common units of MEP at a price of $8 per common unit for an aggregate transaction value of $170.2 million. The public interest to be acquired by our General Partner represents an approximate 25% effective interest in our natural gas gathering and processing business. In connection with the execution of the Merger Agreement, we have entered into a support agreement with MEP and our General Partner whereby we have agreed, in our capacity as a holder of MEP units, to vote our units in favor of the merger agreement and the transactions contemplated by the merger agreement.

On July 1, 2014, we sold a 12.6% limited partner interest in Midcoast Operating, to MEP, for $350.0 million in cash, which reduced our total ownership interest in Midcoast Operating from 61% to 48.4%. The change in our total ownership interest in Midcoast Operating was recorded as an equity transaction, and no loss on the sale was recognized in our consolidated statements of income or comprehensive income. The increase in MEP’s ownership interest in Midcoast Operating resulted in a reclassification of $125.4 million from the partners’ capital accounts on a pro-rata basis to “Noncontrolling interest” in our consolidated statements of financial position.

At December 31, 2016, our total ownership interest in MEP was approximately 53.9%, which includes 2.9% of MEP’s Class A common units, 100% of MEP’s outstanding subordinated units, and 100% of MEP’s general partner. In addition, we directly own 48.4% of the limited partner interests in Midcoast Operating. On February 15, 2017, the subordination period ended. On that date, the outstanding subordinated units converted into a new class of MEP’s common units, which we refer to as the MEP Class B common units.

Enbridge Energy Management, L.L.C.

Enbridge Management is a Delaware limited liability company that was formed in May 2002. Our General Partner, through its direct ownership of the voting shares of Enbridge Management, elects all of its directors. Enbridge Management’s listed shares are traded on the NYSE under the symbol “EEQ.” Enbridge Management owns all of a special class of our limited partner interests that we refer to as i-units and derives all of its earnings from its investment in us.

Enbridge Management’s principal activity is managing our business and affairs pursuant to a delegation of control agreement among our General Partner, Enbridge Management and us. The delegation of control agreement provides that Enbridge Management will not amend or propose to amend our partnership agreement, allow a merger or consolidation involving us, allow a sale or exchange of all or substantially all of our assets or dissolve or liquidate us without the approval of our General Partner. In accordance with its limited liability company agreement, Enbridge Management’s activities are restricted to being our limited partner and managing our business and affairs.

Enbridge Inc.

Enbridge is the indirect parent of our General Partner, and its common shares are publicly traded on the NYSE in the United States and the Toronto Stock Exchange, or TSX, in Canada under the symbol “ENB.” Enbridge is a leader in energy transportation and distribution in North America, with a focus on crude oil and liquids pipelines, natural gas pipelines and natural gas distribution. At December 31, 2016 and 2015, Enbridge and its consolidated subsidiaries held an effective 41.7% and 42.2% outstanding ownership interest in us, respectively, through its ownership in Enbridge Management and our General Partner.

Business Segments

We conduct our business through two operating segments: Liquids and Natural Gas.

Liquids

Our Liquids segment includes the Lakehead, North Dakota and the Mid-Continent crude oil systems. Our Lakehead system consists of a series of interstate common carrier crude oil and liquid petroleum pipelines that are regulated by the FERC, and storage assets, all of which are located in the Great Lakes and Midwest regions of the United States. Our Lakehead system, together with the Enbridge system in Canada owned by Enbridge, forms the longest liquid petroleum pipeline in the world. The Lakehead system, which spans approximately 2,211 miles and includes approximately 5,022 miles of pipe and 75 pump stations, has been in operation for more than 60 years and is the primary transporter of crude oil and liquid petroleum from western Canada to the United States. The Lakehead system primarily serves all the major refining centers in the Great Lakes and Midwest regions of the United States and the province of Ontario, Canada. Our North Dakota crude oil system is approximately 660 miles long, has 20 pump stations, multiple delivery points and storage facilities with an aggregate working storage capacity of approximately 1.8 million barrels. The North Dakota system connects directly into the Lakehead system in the state of Minnesota. Our Mid-Continent system consists of approximately 433 miles of crude oil pipelines, including the FERC-regulated Ozark pipeline and approximately 25.1 million barrels of storage capacity, which serve refineries in the United States Mid-Continent region from Cushing, Oklahoma.

Natural Gas

Our Natural Gas segment consists of natural gas and NGL, rail and liquid marketing services, gathering and transportation pipeline systems, natural gas processing and treating facilities and an NGL fractionation facility, predominantly located in active producing basins in east and north Texas, as well as the Texas Panhandle and western Oklahoma. At December 31, 2016, our Natural Gas segment is comprised of four active and six standby natural gas treating plants and 15 active and 10 standby natural gas processing plants, excluding plants that are inactive based on current volumes. In addition, our Natural Gas segment includes approximately 10,800 miles of natural gas gathering and transmission pipelines, approximately 282 miles of NGL gathering and transportation pipelines, as well as rail cars used for transporting NGLs and crude oil.

Our Natural Gas segment provides natural gas supply, transportation, balancing, storage and sales services for producers and wholesale customers on our natural gas pipelines as well as other interconnected natural gas pipeline systems. We primarily provide marketing services to increase the utilization of our natural gas pipelines, realize incremental income on gas purchased at the wellhead and provide value-added services to customers.