Regulatory Asset
Alliance Canada has recorded a long-term deferred asset for the cumulative difference between depreciation expense included in the financial statements and depreciation expense included in transportation tolls. The pipeline is fully contracted to 2015, however, intentions for renewal are declared annually commencing in 2010. There is no certainty as to whether Alliance will retain 100% contracted capacity beyond the primary term of the TSAs when the majority of the deferred asset is to be recovered. The carrying value of this asset reflects management’s assessment as to its ultimate recoverability.

Depreciation
Depreciation of property, plant and equipment, the Fund’s largest asset with a net book value at December 31, 2006 of $1,349.0 million, or 72.6% of total assets, generally is provided on a straight-line basis over the estimated service lives of the assets commencing when the asset is placed in service. When it is determined that the estimated service life of an asset does not reflect the expected remaining period of benefit, prospective changes are made to the estimated service life. In general, estimates of service lives are based on third party engineering studies, experience and industry practice. There are a number of assumptions inherent in estimating the service lives of the Fund’s assets including the level of exploration, drilling, reserves and production of crude oil and natural gas in the supply areas served by the Fund’s pipelines as well as the demand for crude oil and natural gas and the integrity of the Fund’s systems. Changes in these assumptions could result in adjustments to the estimated service lives, which could result in material changes to depreciation expense in future periods in any of the Fund’s business segments, with the exception of the Corporate segment. Generally, revised assumptions have historically resulted in extended useful lives.

Asset Retirement Obligations
The fair value of asset retirement obligations (AROs) associated with the retirement of long-lived assets are recognized as long–term liabilities in the period 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 present value of expected future cash flows is determined using assumptions such as the probability of abandonment in place versus removal and the estimated costs required upon abandonment in each case, the discount rate and the estimated time to abandonment. The undiscounted amount of expected cash flows required to settle the asset retirement obligations (ARO) is estimated at $43.5 million (2005 – $41.0 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%. A legal obligation exists for costs associated with retirement of the Alliance Canada pipeline. However, a provision for asset retirement obligations has not been recognized, as it is not possible to make a reasonable estimate of the fair value of the liability due to the indeterminate timing and scope of the retirement for pipeline in service assets. The Fund’s estimates of retirement costs and the timing of settlement of these costs could change as a result of changes in timing and cost estimates as well as changes in regulatory requirements.