Notes to Consolidated Statements

1. NATURE AND DESCRIPTION OF THE FUND

Enbridge Income Fund (the Fund) is an unincorporated open-ended trust established by a trust indenture under the laws of the Province of Alberta. The Fund commenced operations on June 30, 2003. Enbridge Management Services Inc. (EMSI), a wholly owned subsidiary of Enbridge Inc. (Enbridge), administers the Fund. EMSI also serves as the manager of Enbridge Commercial Trust (ECT), a subsidiary of the Fund.

The Fund conducts its business through three operating segments: Alliance Canada, Saskatchewan System and Green Power. These segments are strategic business units established along service lines by management to assess operational performance and to achieve the Fund's long-term goals.

ALLIANCE CANADA

Alliance Canada consists of the Fund's 50% interest in the Canadian portion of the 3,000 kilometre (km) Alliance System. The Alliance System, comprised of Alliance Canada and Alliance US, transports natural gas from supply areas in Northwestern Alberta and Northeastern British Columbia to delivery points near Chicago, Illinois. The Canadian portion includes approximately 1,560 km of the Alliance System's high-pressure, natural gas transmission system as well as its lateral pipeline system, which connects the mainline to a number of upstream receipt points, and related infrastructure.

SASKATCHEWAN SYSTEM

The Saskatchewan System includes four crude oil and liquids pipeline systems: Saskatchewan Gathering, Westspur, Weyburn, and Virden pipeline systems. Together these systems include approximately 296 km of trunk line and 1,900 km of gathering pipeline with capacities ranging from 37,000 barrels of oil per day (bpd) to 190,000 bpd.

GREEN POWER

Green Power includes the Fund's 33% to 50% interests in three wind power projects in Saskatchewan and Southern Alberta. Collectively, these wind power projects can generate a total of 71 megawatts (MW) of electricity. Green Power also includes the Fund's 50% interest in NRGreen, which develops and operates waste heat recovery power generation facilities primarily in Saskatchewan along the Alliance Pipeline. These facilities convert waste heat to electricity, which is then sold under long-term power purchase agreements.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Fund have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Amounts are stated in Canadian dollars unless otherwise noted. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities in the financial statements. Actual results could differ from these estimates.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Fund and its subsidiaries as well as its proportionate share of the accounts of its joint ventures.

REGULATION

Both Alliance Canada and the systems comprising the Saskatchewan System are subject to regulation by various authorities, including the National Energy Board (NEB), Saskatchewan Energy Resources (SER) and Manitoba Science, Technology, Energy and Mines (STEM). Regulatory bodies exercise statutory authority over matters such as construction, rates and ratemaking and agreements with customers. In order to recognize the economic effects of the actions of the regulator, the timing of recognition of certain revenues and expenses in these operations may differ from that otherwise expected under GAAP for non rate-regulated entities.

Regulatory assets represent amounts that are expected to be recovered from customers in future periods through rates. Regulatory liabilities represent amounts that are expected to be refunded to customers through rates. In the absence of rate regulation, the Fund would not recognize regulatory assets or liabilities and the earnings impact would be recorded in the period the expenses are incurred or revenues are earned. Long-term regulatory assets are recorded in Deferred Amounts and Other Assets and current regulatory assets are recorded in Accounts Receivable and Other. Regulatory liabilities are recorded in Accounts Payable and Accrued Liabilities.

Allowance for Funds Used During Construction (AFUDC) is included in the cost of property, plant and equipment and is depreciated over future periods as part of the total cost of the related asset. AFUDC includes both an interest component and, if approved by the regulator, a cost of equity component. In the absence of rate regulation, the Fund would capitalize only the interest component. Therefore, the capitalized equity component, the corresponding earnings during the construction phase and the subsequent depreciation would not be recognized by the Fund.

Certain regulators prescribe the pool method of accounting for property, plant and equipment where similar assets with comparable useful lives are grouped and depreciated as a pool. When those assets are retired or otherwise disposed of, gains and losses are not reflected in income but are booked as an adjustment to accumulated depreciation. Entities not subject to rate regulation write off the net book value of the retired asset and include any resulting gain or loss in earnings.

REVENUE RECOGNITION

For businesses which are not rate-regulated, revenues are recorded when products have been delivered or services have been performed. Delivery or service performance only takes place when there is a sales contract in place specifying delivery volumes or services required and sales prices. Customer credit worthiness is assessed before contracts are signed. However, certain operations are subject to regulation and, accordingly, there are circumstances where revenues recognized do not match the cash tolls or the billed amounts, resulting in the recognition of regulatory assets and liabilities.

The Saskatchewan Gathering and Westspur systems within the Saskatchewan System as well as Alliance Canada generate revenues under the cost of service model. As a result, revenues include amounts related to expenses recognized in the financial statements that are expected to be recovered from shippers in future tolls. Revenue is recognized in a given period for tolls received to the extent that expenses are incurred. Differences between the recorded transportation revenue and actual toll receipts give rise to regulatory receivable or payable balances.

FINANCIAL INSTRUMENTS

The Fund classifies financial assets as either held for trading, held to maturity, loans and receivables or available for sale. The Fund classifies financial liabilities as either held for trading or other financial liabilities.

Financial assets and liabilities that are "held for trading" are measured at fair value with changes in fair value recognized in earnings, except for derivatives that are designated as, and determined to be, effective hedging instruments, whose fair value is recorded in Other Comprehensive Income (OCI).

Financial assets that are "available for sale" are measured at fair value with changes in those fair values recorded in OCI. Financial assets that are "held to maturity" and "loans and receivables" and financial liabilities that are "other financial liabilities" are measured at amortized cost using the effective interest rate method of amortization.

Cash and cash equivalents are designated as "held for trading" and are measured at carrying value which approximates fair value due to the short-term nature of these instruments. Accounts receivable and other is designated as "loans and receivables". Accounts payable and other, distributions payable, long-term debt, non-recourse long-term debt and ECT Preferred Units are designated as "other financial liabilities".

Transaction Costs

Transaction costs are incremental costs directly related to the acquisition of a financial asset or the issuance of a financial liability. The Fund incurs transaction costs primarily through the issuance of debt and classifies these costs with the related debt. These costs are amortized using the effective interest rate method over the life of the related debt instrument.

Hedges

From time to time, the Fund uses derivatives and non-derivative financial instruments to manage changes in commodity prices and interest rates. Hedge accounting is optional and it requires the Fund to document the hedging relationship and to test the hedging item's effectiveness in offsetting changes in fair values or cash flows of the underlying hedged item on an ongoing basis. The Fund presents the earnings and cash flow effects of hedging items with the hedged transaction.

Cash Flow Hedges

The Fund uses cash flow hedges to manage changes in power prices and interest rates. The effective portion of the change in the fair value of a cash flow hedging instrument is recorded in OCI and reclassified to earnings when the hedged item impacts earnings. Any hedge ineffectiveness is recorded in current period earnings with the hedged item.

If a derivative instrument designated as a cash flow hedge ceases to be effective or is terminated, hedge accounting is discontinued and the gain or loss at that date is deferred in OCI and recognized concurrently with the related transaction. If a hedged anticipated transaction is no longer probable, the gain or loss is recognized immediately in earnings. Subsequent gains and losses from ineffective derivative instruments are recognized in earnings in the period they occur with the hedged item.

The Fund does not use derivative instruments for speculative purposes. However, if a derivative instrument is not an effective hedge for accounting purposes or is not designated as a hedging item, changes in the fair value are recorded in current period earnings.

INCOME TAXES

Pursuant to the Income Tax Act (Canada) as presently enacted, the Fund and ECT, as trusts, are not subject to income taxes to the extent that income and taxable capital gains are paid or payable to unitholders. In addition, each of the Fund and ECT are contractually committed to distribute to unitholders all or virtually all taxable income and taxable capital gains. However, certain subsidiary corporations are taxable and applicable income and capital taxes have been reflected in these consolidated financial statements.

For non-regulated operations, the liability method of accounting for income taxes is followed. Future income tax assets and liabilities are recorded based on temporary differences between the tax bases of assets and liabilities and their carrying values for accounting purposes. Future income tax assets and liabilities are measured using the tax rate that is expected to apply when the temporary differences reverse.

The regulated operations of the Fund recover tax expense based on the taxes payable method when prescribed by regulators or in ratemaking agreements that are subject to regulatory approval. Therefore, rates do not include the recovery of future income taxes related to temporary differences and the Fund does not record future income tax assets or liabilities related to these differences. The Fund expects that all future income taxes will be recovered in rates when they become payable.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are recorded at fair value and include short-term deposits with terms to maturity of three months or less when purchased.

PROPERTY, PLANT AND EQUIPMENT

Enhancement capital expenditures, including upgrades and expansions, and maintenance capital expenditures, including major renewals and improvements, are capitalized at cost with depreciation commencing when the asset is placed in service. Maintenance and repair costs are expensed as incurred.

Depreciation of property, plant and equipment is generally provided on a straight-line basis over the estimated service life of the assets commencing when the asset is placed in service. Depreciation of pipeline in service in the Saskatchewan System is determined based on unit of throughput. Line fill is not depreciated.

INTANGIBLE ASSETS

Intangible assets consist of acquired long-term transportation service agreements (TSAs) with shippers on Alliance Canada and the production incentive agreements for the Magrath and Chin Chute wind power projects. Intangible assets are amortized on a straight-line basis over the expected life of the agreements.

GOODWILL

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets upon acquisition of a business. Goodwill is not subject to amortization but is tested for impairment at least annually and written down to fair value if impairment occurs.

DEFERRED AMOUNTS

Deferred amounts and other assets include costs which regulatory authorities have permitted or are expected to permit to be recovered through future rates.

ASSET RETIREMENT OBLIGATIONS

The fair value of asset retirement obligations (AROs) associated with the retirement of long-lived assets are recognized when they can be reasonably determined. The fair value approximates the cost a third party would charge in performing the tasks necessary to retire such assets and is recognized at the present value of expected future cash flows. AROs are added to the carrying value of the associated asset and depreciated over the asset's useful life. The corresponding liability is accreted over time through charges to earnings and is reduced by actual costs of decommissioning and reclamation. The Fund's estimates of retirement costs could change as a result of changes in timing and cost estimates as well as changes in regulatory requirements.

Although a legal obligation exists for costs associated with retirement of the Alliance Canada pipeline, it is not possible to make a reasonable estimate of AROs due to the indeterminate timing and scope of the asset retirements.

COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to conform with the current year's financial statement presentation.

3. CHANGES IN ACCOUNTING POLICIES

FINANCIAL INSTRUMENTS, COMPREHENSIVE INCOME AND HEDGING RELATIONSHIPS

Effective January 1, 2007, the Fund adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530 "Comprehensive Income", Section 3251 "Equity", Section 3855 "Financial Instruments – Recognition and Measurement", Section 3861 "Financial Instruments – Disclosure and Presentation" and Section 3865 "Hedges". In accordance with the transitional provisions in these new standards, these policies were adopted prospectively and accordingly, the prior periods were not restated.

The adoption of the new standards did not impact the Fund's earnings or cash flows.

Comprehensive Income and Equity

The new standards introduce comprehensive income, which consists of earnings and OCI. The Fund's consolidated financial statements now include a Statement of Comprehensive Income. The Fund's OCI is currently comprised of the effective portion of changes in unrealized gains and losses related to cash flow hedges.

The Fund now presents a Consolidated Statement of Unitholders' Equity, which includes the change for each component of unitholders' equity. The cumulative changes in OCI are recorded in AOCI, a separate component of unitholders' equity. The components of AOCI are reflected in the Consolidated Statement of Comprehensive Income.

Financial Instruments

CICA Handbook Section 3855 establishes recognition and measurement criteria for financial instruments. The new standard requires that, generally, all financial instruments are recorded at fair value on initial recognition. Subsequent measurement depends on whether the instrument has been classified as "held to maturity", "held for trading", "available for sale" or "loans and receivables" as defined by Section 3855.

With the exception of recognizing derivative instruments, including hedge instruments, at fair value, the valuation of the Fund's financial instruments has not changed. The methods by which the Fund determines the fair value of its financial instruments have also not changed as a result of adopting this standard.

Impact on Adoption The adoption of the new standards resulted in the following adjustments on January 1, 2007: (millions of dollars)
Increase/(Decrease)	Assets	Liabilities and Equity
Deferred Amounts and Other Assets 1	(10.1)	-
Accounts Payable and Accrued Liabilities 2	-	1.0
Long-Term Debt 1	-	(5.4)
Non-Recourse Long-Term Debt 1	-	(4.7)
Long-Term Liabilities 2	-	5.1
Accumulated Other Comprehensive Loss 2	-	(6.1)
	(10.1)	(10.1)

1. The Fund reclassified unamortized deferred financing fees of $10.1 million from deferred amounts and other assets to long-term debt and non-recourse long-term debt.
2. The Fund recognized a liability of $6.1 million for unrealized losses related to its power purchase swap agreements designated as cash flow hedges.

FUTURE ACCOUNTING POLICY CHANGES

Capital Disclosures and Financial Instruments – Disclosure and Presentation

Effective January 1, 2008, the Fund will adopt new accounting standards for Capital Disclosures (CICA Handbook Section 1535) and Financial Instruments – Disclosure and Presentation (CICA Handbook Sections 3862 and 3863).

Under Section 1535, the Fund will disclose its objectives, policies and procedures for managing capital, any summary quantitative data about what the Fund manages as capital, whether the Fund has complied with any externally imposed capital requirements and, if the Fund has not complied with them, any consequences of non-compliance with these capital requirements.

The new Sections 3862 and 3863 replace Section 3861, Financial Instruments – Disclosure and Presentation. Disclosure requirements are revised and enhanced, while presentation requirements remain essentially unchanged. The new disclosure requirements will expand disclosure about the significance of financial instruments for the Fund's financial position and performance, the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks.

Accounting for the Effects of Rate Regulation

In August 2007, the Canadian Accounting Standards Board (AcSB) published its decision with respect to Rate Regulated Operations. The AcSB decided to retain much of the existing guidance related to rate-regulated operations however, the exemption from the requirement to record future income taxes, as currently provided in CICA Handbook Section 3465, Income Taxes, and the exemption from CICA Handbook Section 1100, Generally Accepted Accounting Principles, will be removed, effective January 1, 2009. The Fund will adopt these changes on January 1, 2009 and the principal effect will be the recognition of future income tax liabilities on the balance sheet, offset equally by regulatory assets.

4. FINANCIAL STATEMENT EFFECTS OF RATE REGULATION

GENERAL INFORMATION ON RATE REGULATION AND ITS ECONOMIC EFFECTS

Alliance Canada

The NEB approves the cost of service toll methodology for the Alliance pipeline, which was negotiated between Alliance Canada and its contracted shippers. Toll adjustments are filed annually with the regulator. The tolls include a return on equity component of 11.26% (2006 – 11.25%) after tax and are based on a deemed 70% debt and 30% equity structure.

Saskatchewan System

The Saskatchewan Gathering System and the Westspur System are regulated by SER and the NEB, respectively. Both systems follow the cost of service methodology. Tolls are subject to change from time to time based on the differences between the estimated cost of service and actual costs incurred and earn a 6.5% return on a semi-depreciated rate base.

The regulators do not regularly review or approve the rates established by the pipeline systems comprising the Saskatchewan System. However, in the event of a customer complaint, the regulator would review and provide a ruling on the rates in question.

REGULATORY RISK AND UNCERTAINTIES AFFECTING RECOVERY OR SETTLEMENT

The recognition of regulatory assets and liabilities is based on the actions, or expected future actions of the regulator. To the extent that the regulator's actions differ from the Fund's expectations, the timing and amount of recovery or settlement of regulatory balances could differ significantly from those recorded.

FINANCIAL STATEMENT EFFECTS

Accounting for rate-regulated entities has resulted in recording the following regulatory assets and liabilities:

				Earnings Impact 1
(millions of dollars) December 31,	2007	2006	Estimated Settlement Period (years)	2007	2006
REGULATORY ASSETS/(LIABILITIES)
Alliance Canada
Deferred transportation revenue 2	65.6	47.3	18	18.3	17.3
Transportation revenue adjustment 3	-	(0.8)	1	0.8	3.0
Saskatchewan System
Transportation revenue adjustment 3	(0.6)	0.7	1	(1.3)	1.1

1. Represents the effect of rate regulation on after tax reported earnings.
2. Deferred transportation revenue is related to the cumulative difference between GAAP depreciation expense included in the financial statements of Alliance Canada and depreciation expense included in transportation tolls. Alliance Canada expects to recover this difference over a number of years when depreciation rates in the TSAs are expected to exceed the GAAP depreciation rates, beginning in 2011 and ending in 2025. This regulatory asset is not included in the rate base.
3. The transportation revenue adjustment is the cumulative difference between actual expenses and estimated expenses included in transportation tolls. For Alliance Canada, the transportation revenue adjustment is recoverable/(refundable) under the TSAs with shippers and the Saskatchewan Gathering and Westspur Systems expect to recover/(refund) the difference in the following year through tolls. The transportation revenue adjustments are not included in the rate base.

OTHER ITEMS AFFECTED BY RATE REGULATION

Future Income Taxes

In the absence of rate regulation, future income taxes liabilities of $64.6 million (2006 – $77.4 million) associated with certain assets, primarily property, plant and equipment, would be recorded.

Accumulated unrecorded future income tax liabilities of $16.7 million (2006 – $13.7 million) relate to the regulatory deferral accounts identified above. In the absence of rate regulation, regulatory deferrals would not be recorded nor would the associated future income tax liabilities. As a result of these tax impacts, earnings during the year would increase by $12.8 million (2006 – $16.4 million).

Allowance for Funds Used During Construction (AFUDC)

To date, an equity component of $67.3 million (2006 – $67.3 million) is included in property, plant and equipment.

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

5. SEGMENTED INFORMATION

(millions of dollars) Year ended December 31, 2007	Alliance Canada	Saskatchewan System	Green Power	Corporate	Consolidated
Revenue	209.1	54.4	7.3	-	270.8
Operating and maintenance	(43.5)	(27.4)	(2.3)	-	(73.2)
Management and administrative	-	-	-	(4.8)	(4.8)
Depreciation and amortization	(62.0)	(16.6)	(3.2)	-	(81.8)
	103.6	10.4	1.8	(4.8)	111.0
Other income and expense	0.9	(0.3)	0.4	0.2	1.2
Interest expense	(47.5)	-	-	(14.3)	(61.8)
ECT preferred unit distributions	-	-	-	(36.5)	(36.5)
Income taxes	2.0	9.2	0.4	(4.4)	7.2
Earnings	59.0	19.3	2.6	(59.8)	21.1
Goodwill	308.1	-	-	-	308.1
Total assets	1,516.3	261.9	78.8	1.8	1,858.8
Capital expenditures	17.9	21.1	17.2	-	56.2

(millions of dollars) Year ended December 31, 2006	Alliance Canada	Saskatchewan System	Green Power	Corporate	Consolidated
Revenue	201.4	51.7	1.3	-	254.4
Operating and maintenance	(36.0)	(25.4)	(0.4)	-	(61.8)
Management and administrative	-	-	-	(4.3)	(4.3)
Depreciation and amortization	(61.3)	(16.7)	(0.5)	-	(78.5)
	104.1	9.6	0.4	(4.3)	109.8
Other income and expense	1.0	(0.3)	0.2	0.1	1.0
Interest expense	(48.7)	-	-	(11.4)	(60.1)
ECT preferred unit distributions	-	-	-	(35.2)	(35.2)
Income taxes	2.6	17.7	-	(0.5)	19.8
Earnings	59.0	27.0	0.6	(51.3)	35.3
Goodwill	308.1	-	-	-	308.1
Total assets	1,539.0	255.3	67.2	5.8	1,867.3
Capital expenditures	10.5	12.2	10.1	-	32.8

6. ACQUISITION

On October 1, 2006, the Fund purchased Enbridge's interests in three wind power projects including a 50% interest in the SunBridge project at Gull Lake, Saskatchewan, and a 33.3% interest in each of the Magrath and Chin Chute projects in Southern Alberta, for $42.1 million. The acquisition was financed through the existing credit facility.

The acquisition was accounted for using the purchase method. Earnings from the acquired assets have been included as of October 1, 2006.

(millions of dollars) Year ended December 31,	2006
Fair Value of Assets and Liabilities Acquired
Property, plant and equipment	41.8
Intangible assets	4.0
Working capital	0.5
Asset retirement obligations	(0.3)
Future income taxes	(3.9)
	42.1
Purchase Price
Cash (includes cash acquired of $0.6 million)	41.2
Transaction costs	0.9
	42.1

Enbridge is a related party to the Fund by virtue of its 41.9% equity interest in the Fund as well as its ownership of the Fund's ECT preferred units. The transaction has been recorded at fair value, which was approved by the Fund's Independent Trustees who were supported by independent financial, legal and technical advisors.

In conjunction with the purchase transaction, the Fund entered into a contract with Enbridge whereby Enbridge agreed to purchase all available emission reduction credits generated by the Fund's interest in the Chin Chute and Magrath projects over an initial 20-year term ending October 1, 2026 for a fixed price of $5 per tonne, based on a negotiated rate of converting megawatt hours generated to tonnes of emissions reduced, plus applicable taxes. Also in conjunction with the purchase transaction, to reduce the uncertainty associated with government support programs, Enbridge agreed to pay the Fund $10 per megawatt hour (MWh) of power produced by the Fund's interest in Chin Chute until such time that Wind Power Production Incentive (WPPI) or similar successor program funding was reinstated. These agreements are collectively referred to as the Production Incentive Agreements.

7. DEFERRED AMOUNTS AND OTHER ASSETS

Year ended December 31, (millions of dollars)	2007	2006
Regulatory receivable	65.6	48.0
Deferred financing charges (Note 3)	-	10.1
Other deferred amounts	9.4	2.2
	75.0	60.3

In July 2007, Alliance Canada acquired a $12.4 million investment in asset backed commercial paper, issued by a structured investment trust (the Trust). The investment is held in trust with Alliance Canada's Security Trustee as part of Alliance Canada's current debt service requirement. As a result of the liquidity issues arising in the asset backed commercial paper market, the Trust was unable to redeem this investment upon its maturity on August 31, 2007. Since there is no active market for asset backed commercial paper, the investment has been reclassified to other deferred amounts. The investment continues to be classified as a held-for-trading instrument. Due to the uncertainty involved in estimating the amount and timing of cash flows associated with this investment, Alliance Canada has incorporated a discounted cash flow approach to estimate the investment's fair value using the best information currently available. As a result, the Fund recognized a fair value discount of $0.4 million. This estimate of fair value may differ from the actual fair value that will be realized. The Fund's 50% share of the investment is recognized in other deferred amounts above.

The Fund does not anticipate that the issues surrounding its investment in asset backed commercial paper will have any significant impact on the Alliance Canada's operations or ability to meet upcoming debt obligations.

8. PROPERTY, PLANT AND EQUIPMENT

(millions of dollars) December 31, 2007	Weighted Average Depreciation Rate	Cost	Accumulated Depreciation	Net
Alliance Canada
Pipeline in service	4.0%	1,249.2	(244.8)	1,004.4
Plant assets	15.0%	3.2	(2.1)	1.1
Capital spares		5.6	-	5.6
Other assets	31.7%	10.8	(8.7)	2.1
		1,268.8	(255.6)	1,013.2
Saskatchewan System
Pipeline in service	5.3%	298.6	(68.8)	229.8
Line fill		5.3	-	5.3
Under construction		13.0	-	13.0
		316.9	(68.8)	248.1
Green Power
Machinery and equipment	4.4%	49.8	(2.9)	46.9
Other assets	5.3%	1.8	(0.2)	1.6
Under construction		19.2	-	19.2
		70.8	(3.1)	67.7
		1,656.5	(327.5)	1,329.0

(millions of dollars) December 31, 2006	Weighted Average Depreciation Rate	Cost	Accumulated Depreciation	Net
Alliance Canada
Pipeline in service	4.0%	1,233.5	(189.4)	1,044.1
Plant assets	15.5%	2.9	(1.8)	1.1
Capital spares	-	5.6	-	5.6
Other assets	31.0%	8.9	(7.4)	1.5
		1,250.9	(198.6)	1,052.3
Saskatchewan System
Pipeline in service	5.7%	284.3	(53.0)	231.3
Line fill	-	5.3	-	5.3
Under construction	-	6.9	-	6.9
		296.5	(53.0)	243.5
Green Power
Machinery and equipment	3.6%	46.9	(0.4)	46.5
Other assets	5.6%	1.8	-	1.8
Under construction	-	4.9	-	4.9
		53.6	(0.4)	53.2
		1,601.0	(252.0)	1,349.0

9. INTANGIBLE ASSETS

(millions of dollars) December 31, 2007	Weighted Average Amortization Rate	Cost	Accumulated Amortization	Net
Alliance Canada
Long term transportation agreements	4.4%	116.0	(23.2)	92.8
Green Power
Production incentive agreements	8.4%	4.0	(0.4)	3.6
		120.0	(23.6)	96.4

(millions of dollars) December 31, 2006	Weighted Average Amortization Rate	Cost	Accumulated Amortization	Net
Alliance Canada
Long term transportation agreements	4.4%	116.0	(18.0)	98.0
Green Power
Production incentive agreements	8.4%	4.0	(0.1)	3.9
		120.0	(18.1)	101.9

10. LONG TERM DEBT

(millions of dollars) December 31,	2007	2006
Medium Term Notes
4.19% due December 21, 2009	100.0	100.0
5.25% due December 22, 2014	90.0	90.0
Credit Facility	98.5	69.0
Deferred Financing Charges (Note 3)	(4.3)	-
	284.2	259.0

MEDIUM TERM NOTES

The Medium Term Notes (MTNs) are unsecured and redeemable by the Fund prior to maturity, in whole or in part, at the option of the Fund at the Government of Canada yield plus 0.14% and 0.25% for the Series 1 and Series 2 MTNs, respectively. Interest on the MTNs is payable semi-annually in June and December.

CREDIT FACILITY

On September 30, 2007, the Fund amended the existing three-year unsecured credit facility to increase the facility from $105.0 million to $150.0 million under the same terms and conditions as the previously existing facility.

The Fund may receive advances on the credit facility up to an aggregate principal amount of the credit limit by requesting prime rate advances, U.S. base rate advances, U.S. LIBOR advances, letter of credit advances, bankers' acceptance advances, or by requesting bankers' acceptance equivalent loans. Interest is charged at a rate per annum, dependent on the type of advance requested plus applicable margin. The current applicable margins range from nil to 0.53%. The maturity date of the credit facility is February 10, 2010.

At December 31, 2007, the Fund's credit facility had $0.2 million (2006 – $0.9 million) of letters of credit outstanding and $51.3 million (2006 – $35.1 million) in undrawn credit available.

11. NON RECOURSE LONG TERM DEBT

(millions of dollars) December 31,	2007	2006
Alliance Canada
Bank credit facility	43.0	25.4
Senior notes
7.230% due 2015	117.4	121.4
7.181% due 2023	174.8	180.8
5.546% due 2023	107.4	113.6
7.217% due 2025	139.9	144.5
6.765% due 2025	168.2	173.4
Deferred Financing Charges (Note 3)	(4.2)	-
	746.5	759.1
Fair Value Increment on Long-Term Debt Acquired	43.3	48.3
Total Non-Recourse Debt	789.8	807.4
Current Portion of Non-Recourse Debt	(28.7)	(26.1)
Non-Recourse Long-Term Debt	761.1	781.3

Non-recourse long-term debt maturities for the years ending December 31, 2008 through 2012 are $28.7 million, $30.9 million, $33.9 million, $36.3 million, and $81.9 million, respectively, and $539.0 million thereafter.

ALLIANCE CANADA BANK CREDIT FACILITY

The credit facility consists of a committed extendible revolving credit facility in the amount of $200.0 million with an expansion provision to facilitate timely increases of the facility to $300.0 million if required. The credit facility has an initial term of five years with provisions for extension of one additional year. In June 2007, Alliance Canada extended the maturity date of its existing credit facility from June 28, 2011 to June 28, 2012.

Interest is accrued and payable based on bankers' acceptance rates, plus applicable margins, for terms not exceeding six months. Amounts outstanding under the credit facility at December 31, 2007 bear interest at an average rate of 4.65% (December 31, 2006 – 4.78%).

At December 31, 2007, Alliance Canada's credit facility had $80.0 million (2006 – $100.0 million) of letters of credit outstanding and $34.0 million (2006 – $49.2 million) in undrawn credit available, of which the Fund's proportionate share is 50%.

ALLIANCE CANADA SENIOR NOTES

The Fund recorded the senior notes at their fair value on the date of the acquisition of its interest in Alliance Canada. The difference between the fair value and the principal amount of the debt is amortized using the effective interest method over the remaining life of the debt. The senior notes are non-recourse to the Fund as security provided by Alliance Canada is limited to the rights and assets of Alliance Canada and does not extend to the rights and assets of the Fund, except to the extent of the Fund's investment in Alliance Canada.

The senior notes may be redeemed by Alliance Canada at any time at a price equal to the greater of (i) the applicable Government of Canada yield price plus a premium and (ii) par, together with accrued interest. Alliance Canada may be required to redeem the senior notes, in whole or in part, from proceeds received under insurance claims or other claims for damages if the proceeds are not applied to repair or rebuild the Alliance pipeline system.

Interest on the senior notes is payable semi-annually in June and December. Principal repayments are closely tied to the recovery rates for depreciation contained in the TSAs.

Certain assets of Alliance Canada are pledged as collateral to Alliance Canada's lenders and to the lenders to Alliance Pipeline L.P., which operates the United States portion of the Alliance pipeline system. Alliance Canada's long-term debt is collateralized by a first priority perfected security interest in Alliance Canada's TSAs with its shippers, Alliance Canada's NEB permit, certain other material contracts, the trust accounts into which Alliance Canada's transportation revenue is deposited and a floating charge debenture over Alliance Canada's real property and tangible personal property. Alliance Canada is required to meet certain financial conditions and adhere to certain covenants on an ongoing basis.

12. INTEREST EXPENSE

(millions of dollars) December 31,	2007	2006
Interest expense on:
Long-term debt	13.1	10.0
Non-recourse long-term debt	52.0	53.3
Amortization of deferred financing fees and bank charges	1.8	2.0
Amortization of the fair value increment on debt	(5.1)	(5.2)
	61.8	60.1
Interest paid	65.3	63.3

13. ECT PREFERRED UNITS

The ECT preferred units are entitled to non-cumulative monthly distributions in an amount equal to the monthly distribution per ordinary unit. The ECT preferred units have no voting rights and mature on June 30, 2033, at which time ECT is obligated to redeem all of the outstanding ECT preferred units for a price of $10 per unit. At December 31, 2007 and 2006, 38,023,750 ECT preferred units were outstanding.

The ECT preferred units include both a debt and equity component as the holder has the option to request redemption based on a redemption price that is referenced to the market value of an ordinary unit. Upon request by the holder and satisfaction of the necessary conditions, including financing on terms acceptable to the Independent ECT Trustees, the ECT preferred units will be repurchased for cancellation by ECT with a repurchase price per ECT preferred unit based on the net issue price realized from the sale (or that could be realized from the sale) of an ordinary unit to the public. This redemption is paid in cash and the Fund must use its best efforts to finance the redemption request through the issue of additional equity or debt. As a result, it is necessary to record the fair value of the equity component at the date of issue. The equity component was assigned a nil value. Any gain or loss on the redemption of the debt component, based on the $10 per unit par value would be recorded as an equity transaction.

14. ASSET RETIREMENT OBLIGATIONS

(millions of dollars) December 31,	2007	2006
Obligations at beginning of year	7.9	7.1
Liabilities acquired with Wind Power acquisition	-	0.3
Accretion expense	0.5	0.5
Liabilities settled	(0.5)	-
Obligations at end of year	7.9	7.9

A legal obligation exists for the retirement of assets within the Saskatchewan System and Green Power operating segments. The undiscounted amount of expected cash flows required to settle the asset retirement obligations is estimated at $43.5 million with the majority estimated to be settled beginning in the year 2033. The liability for the expected cash flows, as reflected in the financial statements, has been discounted at 6.58%.

15. TRUST UNITS

UNITS OUTSTANDING

(millions of Canadian dollars, except number of units) December 31,	2007		2006
	Number of Units	Amount	Number of Units	Amount
Ordinary Units	20,125,000	188.4	20,125,000	188.4
Subordinated Units	14,500,000	145.0	14,500,000	145.0
	34,625,000	333.4	34,625,000	333.4

Pursuant to the trust indenture, an unlimited number of each of the ordinary units and the subordinated units may be issued. Each unit represents an equal undivided beneficial interest in any distributions from the Fund and in the net assets in the event of termination or wind-up of the Fund. All units have equal rights and privileges except with respect to distributions of distributable cash for which ordinary units have priority. This priority will terminate on July 1, 2008 provided that during the immediately preceding 12 consecutive months the Fund has declared and paid aggregate distributions of at least $0.825 per ordinary unit. Otherwise, the priority continues until the Fund has declared and paid aggregate distributions of at least $0.825 per ordinary unit for 12 consecutive months.

Ordinary and subordinated units are redeemable at any time at the option of the holder. The redemption price is equal to the lesser of 90% of the weighted average market price of the units during a 10 day period occurring immediately prior to the redemption date and the closing market price on the redemption date. The total amount payable by the Fund in respect of redemptions in any calendar month shall not exceed $0.1 million. To the extent that a unitholder is not entitled to receive cash upon the redemption of the ordinary or subordinated units, the redemption price shall be satisfied by way of the Fund distributing a pro-rata number of ECT notes or other assets held by the Fund.

The Fund makes monthly distributions to unitholders of record on the last business day of each month. The amount of cash distributed monthly consists of all amounts received by the Fund including the income, interest, dividends, return of capital or other amounts, if any, from investments held by the Fund, less amounts that may be paid by the Fund in connection with any cash redemptions or repurchases of ordinary or subordinated units and amounts which the administrator or the Trustees of ECT may reasonably consider necessary for payment of costs and expenses required for the operation of the Fund and for reasonable reserves.

The Fund's policy is to distribute approximately 95% of cash available for distribution on average over a five-year period. However, due to short-term cash flow variability, this ratio will fluctuate on a year to year basis. In the event the Fund pursues activities which are consistent with the purposes of the Fund as outlined in the Trust Indenture, the Fund has the discretion to set aside reasonable reserves for such amounts, thereby reducing the percentage of cash available distributed. For the year ended December 31, 2007, the Fund declared $33.1 million (2006 – $32.1 million) in cash distributions to ordinary and subordinated unitholders. Cash distributions of $36.5 million (2006 – $35.2 million) were also declared on the ECT preferred units during the year ended December 31, 2007.

16. FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS USED FOR RISK MANAGEMENT

The Fund is exposed to movements in interest rates and the price of power. From time to time, in order to manage these exposures, the Fund uses derivative financial instruments to create offsetting financial positions. These exposures include the following:

Interest Rates

There are no interest rate derivative financial instruments outstanding at December 31, 2007 and 2006.

Power Price

The Fund is exposed to movements in the price of power through its interest in wind power assets. To manage this exposure, the Fund uses two fixed price power agreements that convert the floating price received from sale to the Alberta pool to a fixed rate.

CREDIT RISK

Alliance Canada is exposed to credit risk since its business is concentrated in the natural gas transportation industry and its revenue is dependent upon the ability of its shippers to pay their monthly demand charges. A majority of the shippers operate in the oil and gas exploration and development or energy marketing/transportation industries and may be exposed to long-term downturns in energy commodity prices, including the price for natural gas, or other events impacting the creditworthiness of these industries. Alliance Canada limits, to some degree, its exposure to this credit risk by requiring its shippers to provide letters of credit or other suitable security unless they maintain specified credit ratings or financial positions.

The Saskatchewan System's trade receivables consist primarily of amounts due from companies operating in the oil and gas industry. The credit risk associated with these receivables is mitigated by credit exposure limits, contractual and collateral requirements and netting arrangements.

Green Power is exposed to credit risk since each project's primary source of fixed price revenue is a single counterparty. This risk is mitigated by requirements for counterparties to maintain specified credit ratings.

FAIR VALUES

The fair value of financial instruments, other than derivatives, represents the amounts that would have been received from or paid to counterparties to settle these instruments at the reporting date. The carrying amount of all financial instruments classified as current approximates fair value because of the short maturities of these instruments. The fair values of other financial instruments reflect the Fund's best estimates of market value based on generally accepted valuation techniques or models and supported by observable market prices and rates.

The aggregate fair value of the senior notes in Alliance Canada is $796.8 million (2006 – $850.1 million) based on quoted market prices. The fair values of the Series 1 MTNs and the Series 2 MTNs of the Fund, based on quoted market prices for similar issues, are $98.1 million (2006 – $99.1 million) and $88.0 million (2006 – $92.2 million), respectively. The approximate fair value of the ECT preferred units, valued at the December 31, 2007 closing price of $10.25 per ordinary unit (2006 – $13.20), is $389.7 million (2006 – $501.9 million).

HEDGING ACTIVITIES

The Fund uses the following cash flow hedges to manage changes in power prices.

	2007			2006
(millions of Canadian dollars, unless otherwise noted)	Notional Principal or Quantity	Fair Value Receivable/ (Payable)	Maturity	Notional Principal or Quantity	Fair Value Receivable/ (Payable)	Maturity
ChinChute Power Swap (MW/H)	2.0	(3.8)	2017	3.0	(2.5)	2017
Magrath Power Swap (MW/H)	2.8	(4.6)	2024	2.8	(3.6)	2024
	4.8	(8.4)		5.8	(6.1)

At December 31, 2007, the Fund has recorded a liability of $8.4 million for the unrealized fair value of effective cash flow hedges as well as a future income tax asset of $2.4 million for these cash flow hedges. Realized net losses of $0.3 million (after tax) from the Fund's power purchase swap agreements were recorded in revenue in the year. The Fund estimates that $1.0 million of AOCI will be reclassified to earnings in the next 12 months.

NON-HEDGING DERIVATIVES

The Fund does not use derivative instruments for speculative purposes. However, if a derivative instrument is not an effective hedge for accounting purposes or is not designated as a hedging item, changes in the fair value are recorded in current period earnings. The Fund recognized net unrealized mark to market derivative gain of $0.5 million (after tax) for the year ended December 31, 2007 (2006 – $nil) related to non-qualifying instruments.

17. INCOME TAXES

INCOME TAX RATE RECONCILIATION

(millions of dollars) Year ended December 31,	2007	2006
Earnings before income taxes	13.9	15.5
Combined statutory income tax rate	32.1%	32.5%
Income taxes at statutory rate	4.5	5.0
Increase/(decrease) resulting from:
Interest deductions of subsidiaries arising from intercorporate debt	(20.8)	(20.1)
Legislated tax changes on future income tax balances	(6.6)	(16.3)
Distributions on ECT preferred units	11.7	11.4
Deductions allocated to unitholders	6.0	4.9
Future income taxes related to regulated operations	(2.0)	(3.8)
Other	-	(0.9)
Income taxes/(recovery)	(7.2)	(19.8)
Effective income tax rate	(51.8%)	(127.7%)

COMPONENTS OF FUTURE INCOME TAXES

(millions of dollars) December 31,	2007	2006
Future income tax liabilities/(assets)
Differences in accounting and tax bases of:
Property, plant and equipment and intangible assets	78.2	91.2
Fair value increment on long-term debt acquired	(11.6)	(14.2)
Asset Retirement Obligation	(2.1)	(2.3)
OCI	(2.4)	-
Other	(0.7)	(1.9)
	61.4	72.8

On June 22, 2007, the "Tax Fairness Plan" income trust taxation legislation, Bill C-52, received Royal Assent. Under the enacted legislation, a distribution tax will be imposed on Enbridge Income Fund starting in 2011. This change resulted in the recognition of future income tax liabilities and expense of $1.9 million in the second quarter of 2007. This future income tax liability was reduced by $0.6 million as a result of the 3.5% reduction in the future income tax rates substantially enacted in December 2007. The enactment of Bill C-52 also resulted in a future income tax asset and an offset to AOCI to tax effect the unrealized fair value of power purchase swap agreements, which at December 31, 2007 was $2.4 million. Future income tax expense was not recorded for the temporary differences attributed to Alliance Canada because future income taxes are expected to be included in the approved rates charged to customers in the future and fully recovered.

Current income taxes were $1.9 million (2006 – $0.4 million.)

At December 31, 2007, the Fund has recognized the benefit of unused loss carryforwards of $2.4 million (2006 – $6.3 million). Unused tax loss carryforwards expire as follows: 2015 – $0.1 million and 2026 – $2.3 million.

18. JOINT VENTURES

The Fund's proportionate share of the net assets, earnings, cash flows and financial position of its interests in joint ventures is summarized below. This summary does not include the impact of the purchase price excess that resulted upon the acquisition of the joint ventures.

NET ASSETS

(millions of dollars) December 31,	Ownership Interest	2007	2006
Alliance Canada	50%	355.2	358.5
Green Power
NRGreen	50%	27.6	12.3
SunBridge	50%	8.9	9.6
Magrath	33%	13.4	14.6
ChinChute	33%	19.3	20.0
		424.4	415.0

EARNINGS

(millions of dollars) Year ended December 31,		2007	2006
Revenues		216.0	203.3
Operating and maintenance		(45.0)	(35.4)
Depreciation and amortization		(59.2)	(56.5)
Interest expense		(52.6)	(54.0)
Other income and expense		1.2	1.1
Proportionate share of net earnings		60.4	58.5

CASH FLOWS

(millions of dollars) Year ended December 31,		2007	2006
Cash provided by operating activities		97.1	100.1
Cash used in investing activities		(44.3)	(17.5)
Cash used in financing activities		(54.6)	(93.8)
Proportionate share of decrease in cash and cash equivalents		(1.8)	(11.2)

FINANCIAL POSITION

(millions of dollars) Year ended December 31,		2007	2006
Current assets		34.5	36.0
Property, plant and equipment		1,079.0	1,103.4
Deferred amounts and other assets		74.8	54.4
Current liabilities		(42.6)	(40.9)
Non-recourse long-term debt		(717.9)	(733.1)
Long-Term liabilities		(3.2)	(4.8)
Asset retirement obligation		(0.2)	-
Proportionate share of net assets		424.4	415.0

Included in the Fund's proportionate share of cash from Alliance Canada is $2.4 million (2006 – $4.0 million) of cash that is held in trust. Under the terms of Alliance Canada's finance agreements, all funds received from shippers in settlement of transportation tolls, as well as interest earned on trust account balances, are segregated in trust accounts and first applied to meet debt service and operating requirements before distributions, if any, are made to the partners. At the completion of each fiscal quarter, Alliance Canada determines the amount of cash and cash equivalents necessary to satisfy this requirement and applies to have funds, if any, in excess of this amount transferred to a non-trust account. Only funds in non-trust accounts may be distributed to the partners of Alliance Canada.

19. RELATED PARTY TRANSACTIONS

Alliance Canada has contracts with shippers who are also affiliates of the Fund through common ownership interests of Enbridge. The Fund's share of Alliance Canada's revenue from affiliates for the year ended December 31, 2007 is $12.3 million (2006 – $21.1 million) of which $1.0 million is included in accounts receivable. The terms of these contracts are the same as those agreed to with independent third parties.

Administrative and operation services agreements allow for Alliance Canada to provide services to Alliance US (an entity related to Alliance Canada by virtue of common ownership interests) in exchange for reimbursement of incurred costs or at rates consistent with those obtainable from independent third parties. Certain amounts reimbursed under the services agreements with Alliance Pipeline L.P. also include a recovery of costs relating to the use of common administrative assets. The Fund's share of amounts charged to Alliance Pipeline L.P. during the year ended December 31, 2007 was $10.1 million (2006 – $8.8 million) of which $0.7 million (2006 – $0.2 million) was included in accounts receivable as at December 31, 2007.

The Saskatchewan System does not have any employees and uses the services of Enbridge, which has a 41.9% equity ownership interest in the Fund, for managing and operating the business. These services, which are charged at cost in accordance with service agreements, amounted to $12.7 million for 2007 (2006 – $12.4 million) of which $0.8 million (2006 – $1.8 million) was included in payables at December 31, 2007.

The SunBridge project does not have any employees and uses the services of Enbridge for managing and operating the business. These services, which are charged at cost, amounted to $0.3 million for 2007

(2006 – $nil) with $0.1 million included in accounts payable at December 31, 2007 (2006 – $nil).

Under the management and administrative agreements with EMSI, a wholly owned subsidiary of Enbridge, an incentive fee is payable annually to EMSI equal to 25% of cash distributions above a base distribution level of $0.825 per unit per year. During the year ended December 31, 2007, incentive fees amounted to $3.5 million (2006 – $2.4 million), which were included in accounts payable at December 31, 2007 (2006 – $2.4 million). In addition, a base fee for providing administrative and management services is payable annually and is $0.1 million for the year ended December 31, 2007 (2006 – $0.1 million).

20. COMMITMENTS

At December 31, 2008, the Fund had operating lease obligations as detailed below:

(millions of dollars)	Total	Less than 1 year	2 years	3 years	4 years	5 years	After 6 years
Operating Leases	36.0	3.1	2.9	3.2	3.2	2.8	20.8

At December 31, 2007, the Fund has commitments of $8.1 million relating to both Alliance Canada's purchase of and maintenance of compressor equipment and NRGreen's capital commitments for the completion of the Loreburn, Estlin, and Alameda waste heat reduction facilities in 2008.

21. SUBSEQUENT EVENTS

DISTRIBUTION BY THE FUND

On January 15, 2008, the Fund made a monthly cash distribution in the amount of $0.08 per ordinary unit. A cash distribution of $0.08 per unit was also paid on the same date on the subordinated units and the ECT preferred units.

On January 18, 2008, the Fund declared a monthly cash distribution in the amount of $0.08 per ordinary unit to unitholders of record on January 31, 2008, which is payable on February 15, 2008. Cash distributions of $0.08 per unit were also declared on the same date on the subordinated units and the ECT preferred units.

CALPINE ENERGY SERVICES CANADA PARTNERSHIP (CESCA) CLAIM SETTLEMENT

In 2006, CESCA, a shipper on the Alliance system accounting for 1.5% of firm capacity, repudiated its firm transportation service agreement with Alliance Canada. Alliance Canada immediately arranged for the placement of this capacity and drew on CESCA's letter of credit for funds equal to twelve months of demand charges in respect of CESCA's former transportation capacity. The funds were deposited into an account held in trust with Alliance's Security Trustee to be applied against any shortfall on tolls arising from the new placement. Transportation revenue for 2007 was unaffected by this repudiation due to the re-marketing of the transportation capacity and utilization of the funds received as security.

In 2006, Alliance Canada and Alliance US filed proofs of claim in the Calpine Corporation Chapter 11 Bankruptcy proceedings. These claims in respect of guarantees provided by Calpine Corporation as security for the performance of CESCA's obligations under its transportation contracts. In 2007, an agreement with CESCA and related Calpine entities was reached, which provided Alliance Canada and Alliance US with one general unsecured claim against CESCA. On January 16, 2008, full payment for settlement of the two claims totaling $20.7 million was received.