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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2019

GENERAL INFORMATION ON RATE REGULATION AND ITS ECONOMIC EFFECTS

We record assets and liabilities that result from regulated ratemaking processes that would not be recorded under GAAP for non-regulated entities. See Note 2 - Significant Accounting Policies for further discussion.

A number of our businesses are subject to regulation by various regulators, including the CER, OEB and FERC. We also collect and set aside funds to cover future pipeline abandonment costs for all CER regulated pipelines as a result of the CER's regulatory requirements under LMCI (Note 14) and to cover future removal and site restoration reserves as approved by the OEB and other agencies. Amounts expected to be paid for these future costs are recognized as long-term regulatory liabilities. Our significant regulated businesses and the related accounting impacts, are described below.

Liquids Pipelines

Canadian Mainline

Canadian Mainline includes the Canadian portion of the mainline system and is subject to regulation by the CER. Tolls (excluding Lines 8 and 9) are currently governed by the 10-year CTS, which establishes a CLT for all volumes shipped on the Canadian Mainline and an IJT for all volumes shipped from western Canadian receipt points to delivery points on Enbridge’s Lakehead System, as well as delivery points on the Canadian Mainline downstream of the Lakehead System. The CTS was negotiated with shippers in accordance with CER guidelines, was approved by the CER in June 2011, and took effect July 1, 2011. Under the CTS, a regulatory asset is recognized to offset deferred income taxes as a CER rate order governing flow-through income tax treatment permits future recovery. No other material regulatory assets or liabilities are recognized under the terms of the CTS.

Southern Lights Pipeline

The United States portion of the Southern Lights Pipeline is regulated by the FERC and the Canadian portion of the Southern Lights Pipeline is regulated by the CER. Shippers on the Southern Lights Pipeline are subject to long-term transportation contracts under a cost-of-service toll methodology. Toll adjustments are filed annually with the regulators and provide for the recovery of allowable operating and debt financing costs, plus a pre-determined after-tax rate of return on equity of 10%.

Gas Transmission and Midstream

BC Pipeline and BC Field Services

Until December 31, 2019, our Gas Transmission and Midstream business in British Columbia was comprised of BC Pipeline and BC Field Services. BC Pipeline and BC Field Services provide fee-for-service based natural gas transmission and raw gas gathering and processing services, respectively.

BC Pipeline is regulated by the CER under full cost-of-service regulation. Under the current CER-authorized rate structure for our BC Pipeline, income tax costs are recovered in tolls based on the current income tax payable and do not include accruals for deferred income tax. However, as income taxes become payable as a result of the reversal of the temporary differences that created the deferred income taxes, it is expected that tolls will be adjusted to recover these taxes. Since most existing temporary differences are related to property, plant and equipment costs, this recovery is expected to occur over the life of the BC Pipeline assets.

On December 31, 2019, we closed the sale of our BC Field Services business to Brookfield Infrastructure Partners L.P. and its institutional partners (Brookfield) (Note 8). The BC Field Services business was regulated by the CER under the Framework for Light-Handed Regulation. Regulatory assets of $349 million, related to the regulatory offset to deferred income tax liabilities associated with the BC Field Services business, were derecognized as a result of this sale.

Spectra Energy Partners, LP

Most of SEP's gas transmission and storage services are regulated by the FERC and may also be subject to the jurisdiction of various other federal, state and local agencies. Rates for the FERC jurisdictional services are governed by the applicable FERC-approved natural gas tariffs while rates for the intrastate and/or gathering services are governed by the appropriate state gas commissions.

Gas Distribution and Storage

Enbridge Gas Inc.

Enbridge Gas' distribution rates, beginning in 2019, are set under a five-year IR framework using a price cap mechanism. The price cap mechanism establishes new rates each year through an annual base rate escalation at inflation less a 0.3% productivity factor, annual updates for certain costs to be passed through to customers, and where applicable, the recovery of material discrete incremental capital investments beyond those that can be funded through base rates. The IR framework includes the continuation and establishment of certain deferral and variance accounts, as well as an earnings sharing mechanism that requires Enbridge Gas to share equally with customers, any earnings in excess of 150 basis points over the annual OEB approved return on equity.

FINANCIAL STATEMENT EFFECTS

Accounting for rate-regulated activities has resulted in the recognition of the following significant regulatory assets and liabilities on the Consolidated Statements of Financial Position:



December 31,	Recovery/Refund Period Ends	2019		2018
(millions of Canadian dollars)
Regulatory assets/(liabilities), net
Liquids Pipelines
Deferred income taxes¹	Various	1,767		1,673
Tolling deferrals	Various	(25	)	(28	)
Recoverable income taxes	Through 2040	24		27
Pipeline future abandonment costs²	Various	(293	)	(201	)
Other deferrals	Various	32		—
Gas Transmission and Midstream
Deferred income taxes¹	Various	511		826
Regulatory liability related to income taxes³	Various	(866	)	(912	)
Long-term debt⁴	Various	108		124
Pipeline future abandonment costs²	Various	(159	)	(111	)
Other	Various	215		205
Gas Distribution and Storage
Deferred income taxes¹	Various	1,273		1,132
Purchased gas variance	2020	(19	)	197
Pension plans and OPEB	Various	275		118
Future removal and site restoration reserves⁵	Various	(1,424	)	(1,107	)
Federal carbon program	2020	145		—
Long-term debt⁴	Various	362		387
Constant dollar net salvage adjustment	2018	—		6
Other	Various	88		(4	)

The deferred income taxes balance represents the regulatory offset to deferred income tax liabilities to the extent that it is expected to be included in regulator-approved future rates and recovered from future customers. The recovery period depends on the timing of the reversal of the temporary differences. In the absence of rate-regulated accounting, this regulatory balance and the related earnings impact would not be recorded.

The pipeline future abandonment costs liability results from amounts collected and set aside in accordance with the CER’s LMCI to cover future abandonment costs for CER regulated Canadian pipelines. Funds collected are included in Restricted long-term investments (Note 14).Concurrently, we reflect the future abandonment cost as a regulatory liability. The settlement of this balance will occur as pipeline abandonment costs are incurred.


3	Relates to the establishment of a regulatory liability as a result of the United States tax reform legislation enacted December 22, 2017.


4	The debt balance represents our regulatory offset to the fair value adjustment to debt that resulted from the merger with Spectra Energy. The offset is viewed as a proxy for the regulatory asset that would be recorded in the event such debt was extinguished at an amount higher than the carrying value.

Future removal and site restoration reserves result from amounts collected from customers by us, with the approval of the OEB, to fund future costs for removal and site restoration relating to property, plant and equipment. These costs are collected as part of depreciation charged on property, plant and equipment that is recorded in rates. The balance represents the amount that we have collected from customers, net of actual costs expended on removal and site restoration. The settlement of this balance will occur over the long-term as future removal and site restoration costs are incurred. In the absence of rate-regulated accounting, costs incurred for removal and site restoration would be charged to earnings as incurred with recognition of revenue for amounts previously collected.

OTHER ITEMS AFFECTED BY RATE REGULATION

Allowance for Funds Used During Construction and Other Capitalized Costs

Under the pool method prescribed by certain regulators, it is not possible to identify the carrying value of the equity component of AFUDC or its effect on depreciation. Similarly, gains and losses on the retirement of certain specific fixed assets in any given year cannot be identified or quantified.

Operating Cost Capitalization

With the approval of regulators, certain operations capitalize a percentage of specified operating costs. These operations are authorized to charge depreciation and earn a return on the net book value of such capitalized costs in future years. In the absence of rate regulation, a portion of such operating costs would be charged to earnings in the year incurred.