CHANGES IN ACCOUNTING POLICIES

Goodwill

We previously performed our annual goodwill impairment test on October 1 of each fiscal year. Beginning with the quarter ended December 31, 2017, we moved the annual goodwill impairment test from October 1 to April 1 to better align with the preparation and review of our business plan, which is used in the test. The change does not delay, accelerate or avoid an impairment charge.

ADOPTION OF NEW STANDARDS

Simplifying the Measurement of Goodwill Impairment

Effective January 1, 2017, we early adopted Accounting Standards Update (ASU) 2017-04 and applied the standard on a prospective basis. Under the new guidance, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value; this amount should not exceed the carrying amount of goodwill. We applied this standard as at December 31, 2017 in the measurement of the goodwill impairment relating to the gas midstream reporting unit (Note 15).

Clarifying the Definition of a Business in an Acquisition

Effective January 1, 2017, we early adopted ASU 2017-01 on a prospective basis. The new standard was issued with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. This accounting update was applied to acquisitions and dispositions that occurred in the year.

Accounting for Intra-Entity Asset Transfers

Effective January 1, 2017, we early adopted ASU 2016-16 on a modified retrospective basis. The new standard was issued with the intent of improving the accounting for the income tax consequences of intra-entity asset transfers other than inventory. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The adoption of the pronouncement did not have a material impact on our consolidated financial statements.

Improvements to Employee Share-Based Payment Accounting

Effective January 1, 2017, we adopted ASU 2016-09 and applied certain amendments on a modified retrospective basis with the remaining amendments applied on a prospective basis. The new standard was issued with the intent of simplifying and improving several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of the pronouncement did not have a material impact on our consolidated financial statements.

Simplifying the Embedded Derivatives Analysis for Debt Instruments

Effective January 1, 2017, we adopted ASU 2016-06 on a modified retrospective basis. The new guidance simplifies the embedded derivative analysis for debt instruments containing contingent call or put options. The adoption of the pronouncement did not have a material impact on our consolidated financial statements.

FUTURE ACCOUNTING POLICY CHANGES

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

ASU 2018-02 was issued in February 2018 to address a specific consequence of the Tax Cuts and Jobs Act (TCJA). This accounting update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from TCJA. The amendments eliminate the stranded tax effects that were created as a result of the reduction of historical U.S. federal corporate income tax rate to the newly enacted U.S. federal corporate income tax rate. The accounting update is effective January 1, 2019, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. We are currently assessing the impact of the new standard on the consolidated financial statements.

Improvements to Accounting for Hedging Activities

ASU 2017-12 was issued in August 2017 with the objective of better aligning a company’s risk management activities and the resulting hedge accounting reflected in the financial statements. The accounting update allows 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 and is to be applied on a modified retrospective basis. We are currently assessing the impact of the new standard on our consolidated financial statements.

Clarifying Guidance on the Application of Modification Accounting on Stock Compensation

ASU 2017-09 was issued in May 2017 with the intent to clarify the scope of modification accounting and when it should be applied to a change to the terms or conditions of a share based payment award. Under the new guidance, modification accounting is required for all changes to share based payment awards, unless all of the following are met: 1) there is no change to the fair value of the award, 2) the vesting conditions have not changed, and 3) the classification of the award as an equity instrument or a debt instrument has not changed. The accounting update is effective January 1, 2018 and will be applied on a prospective basis. We do not expect the adoption of this accounting update to have a material impact on our consolidated financial statements.

Amending the Amortization Period for Certain Callable Debt Securities Purchased at a Premium

ASU 2017-08 was issued in March 2017 with the intent of shortening the amortization period to the earliest call date for certain callable debt securities held at a premium. The accounting update is effective January 1, 2019 and will be applied on a modified retrospective basis. We are currently assessing the impact of the new standard on our consolidated financial statements.

Improving the Presentation of Net Periodic Benefit Cost related to Defined Benefit Plans

ASU 2017-07 was issued in March 2017 primarily to improve the income statement presentation of the components of net periodic pension cost and net periodic postretirement benefit cost for an entity’s sponsored defined benefit pension and OPEB plans. In addition, only the service cost component of net benefit cost is eligible for capitalization. The accounting update is effective January 1, 2018 and will be applied on a retrospective basis for the statement of earnings presentation component and a prospective basis for the capitalization component. We do not expect the adoption of this accounting update to have a material impact on our consolidated financial statements.

Clarifying Guidance on Derecognition and Partial Sales of Nonfinancial Assets

ASU 2017-05 was issued in February 2017 with the intent of clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. The ASU clarifies the scope provisions of nonfinancial assets and how to allocate consideration to each distinct asset, and amends the guidance for derecognition of a distinct nonfinancial asset in partial sale transactions. The accounting update is effective January 1, 2018 and will be applied on a modified retrospective basis. We do not expect the adoption of this accounting update to have a material impact on our consolidated financial statements.

Clarifying the Presentation of Restricted Cash in the Statement of Cash Flows

ASU 2016-18 was issued in November 2016 with the intent to clarify guidance on the classification and presentation of changes in restricted cash and restricted cash equivalents within the statement of cash flows. The accounting update requires 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. We currently present the changes in restricted cash and restricted cash equivalents under investing activities in the Consolidated Statement of Cash Flows. The accounting update is effective January 1, 2018 and will be applied on a retrospective basis. We will amend the presentation in the Consolidated Statement of Cash Flows to include restricted cash and restricted cash equivalents with cash and cash equivalents and we will retrospectively reclassify all periods presented.

Simplifying Cash Flow Classification

ASU 2016-15 was issued in August 2016 with the intent of reducing diversity in practice of how certain cash receipts and cash payments are classified in the Consolidated Statement of Cash Flows. The new guidance addresses eight specific presentation issues. The accounting update is effective January 1, 2018 and will be applied on a retrospective basis. We assessed each of the eight specific presentation issues and the adoption of this ASU does not have a material impact on our 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 recognizes 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. We are currently assessing the impact of the new standard on our consolidated financial statements. The accounting update is effective January 1, 2020.

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 are currently gathering a complete inventory of our lease contracts in order to assess the impact of the new standard on our consolidated financial statements. The accounting update is effective January 1, 2019 and will be applied using a modified retrospective approach.

Recognition and Measurement of Financial Assets and Liabilities

ASU 2016-01 was issued in January 2016 with the intent to address certain aspects of recognition, measurement, presentation and disclosure of financial assets and liabilities. Investments in equity securities, excluding equity method and consolidated investments, are no longer classified as trading or available-for-sale securities. All investments in equity securities with readily determinable fair values are classified as investments at fair value through net income. Investments in equity securities without readily determinable fair values are measured using the fair value measurement alternative and are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Investments in equity securities measured using the fair value measurement alternative are reviewed for indicators of impairment each reporting period. Fair value of financial instruments for disclosure purposes is measured using exit price. The accounting update is effective January 1, 2018 and applied on a prospective basis. We do not expect the adoption of this accounting update to have a material impact on our consolidated financial statements.

Revenue from Contracts with Customers

ASU 2014-09 was issued in 2014 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 than the present standards in addition to additional disclosures. The new standard is effective January 1, 2018. The new standard permits either a full retrospective method of adoption with restatement of all prior periods presented, or a modified retrospective method with the cumulative effect of applying the new standard recognized as an adjustment to opening retained earnings in the period of adoption. We have decided to adopt the new standard using the modified retrospective method.

We have reviewed our revenue contracts in order to evaluate the effect of the new standard on our revenue recognition practices. Based on our assessment to-date, the adoption of the new standard will have the following impact to our financial statements:


•	A change in presentation in the Gas Distribution business related to payments to customers under the earnings sharing mechanism which are currently shown as an expense in the Consolidated Statements of Earnings. Under the new standard, these payments will be reflected as a reduction of revenue.


•	Estimates of variable consideration, required under the new standard for certain Liquids Pipelines, Gas Transmission and Midstream and Green Power and Transmission revenue contracts as well as the allocation of the transaction price for certain Liquids Pipelines revenue contracts, may result in changes to the pattern or timing of revenue recognition for those contracts.

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Non-cash consideration received in the form of a percentage of the products derived from processing natural gas in the Gas Transmission and Midstream business was previously accounted for as revenue when the commodity was sold to third parties. Under the new standard, the non-cash consideration will be accounted for as revenue when processing services are performed. The commodity will continue to be accounted for as revenue when it is subsequently sold to third parties. The impact of this change will be an increase in costs and revenues due to the recognition of this non-cash consideration.

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Service fee revenue, from processing natural gas for certain contracts in the Gas Transmission and Midstream business whereby Enbridge purchases natural gas at the wellhead, then processes and subsequently sells the gas, was previously presented as revenue. Under the new standard, processing fees charged on natural gas purchased by Enbridge are presented as a reduction of commodity costs upon the transfer of control of the natural gas at the wellhead.

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Revenue from certain contracts in the Gas Transmission and Midstream business that provide for Enbridge to process and sell customers’ natural gas and retain a percentage of the resulting processed natural gas and/or NGLs as payment for processing services rendered, commonly referred to as Percentage of Proceeds and Percentage of Liquids contracts, was previously presented on a gross basis whereby Enbridge recorded one hundred percent of the value of the natural gas and products sold as revenue, with the cost of the natural gas purchased recorded as commodity cost. Under the new standard only Enbridge’s share of the products retained and sold is presented as revenue and no commodity cost is recorded.

•

Certain payments received from customers to offset the cost of constructing assets required to provide services to those customers, referred to as Contributions in Aid of Construction (CIAC) were previously recorded as reductions of property, plant and equipment regardless of whether the amounts were imposed by regulation or negotiated. Under the new standard, negotiated CIACs are deemed to be advance payments for services and must be recognized as revenue when those future services are provided. Negotiated CIACs will be accounted for as deferred revenue and recognized over the term of the associated revenue contract.

Upon adoption, we will recognize the significant cumulative effect of initially applying the new standard as an increase in the opening balance of retained deficit of approximately $120 million, an increase in property, plant and equipment of $130 million and an increase in deferred revenue of $120 million, subject to final determination, as at January 1, 2018. The adoption of the new standard will also result in changes in classification between Revenue and Commodity costs as discussed above.

We have also developed and tested processes to generate the disclosures which will be required under the new standard commencing in the first quarter of 2018.