Supply and Demand
The operation of the Fund’s liquids and natural gas pipelines is dependent upon the supply of and demand for crude oil and natural gas from western Canada and demand for crude oil from the refiners in the midwestern United States. The demand for crude oil by refiners is dependent upon a number of factors including the price of crude oil, the cost of operating the refinery and market prices for the various refined products. Supply is dependent upon a number of variables, including the level of exploration, drilling, reserves, and production of crude oil and natural gas; the accessibility of western Canadian crude oil and natural gas; the price and quality of crude oil and natural gas available from alternative Canadian and United States sources; and the regulatory environments in Canada and the United States, including the continued willingness of the governments of both countries to permit the export of crude oil and natural gas from Canada to the United States on a commercially acceptable basis.

Operating Risk
As with any comprehensive system, the operation of Alliance Canada, the Saskatchewan System, and Green Power involve many operating risks, including the failure of equipment, information systems or processes, poor performance of equipment (whether due to misuse, unexpected degradation or design, construction or manufacturing defects), lack of spare parts, operator error, labour disputes, disputes with interconnected facilities and carriers and catastrophic events such as natural disasters, fires, explosions, fractures, acts of terrorists and saboteurs, and other similar events, many of which are beyond the control of the respective systems. The occurrence or continuance of any of these events could increase the cost of operating Alliance Canada, the Saskatchewan System and/or Green Power and reduce transportation capacity, thereby potentially impacting cash flow. The Fund employs various inspection and monitoring methods to manage pipeline, turbine and facility integrity as well as to minimize system disruptions.

Regulation and Legislation
Earnings from Alliance Canada and the Saskatchewan System are subject to the actions of various regulators, including the NEB. Actions of the regulators related to tariffs, tolls and facilities impact earnings from these operations. Changes in regulation, including decisions by regulators on the applicable tariff structure or changes in interpretations of existing regulations by courts or regulators, could adversely affect the results of operations of Alliance Canada and the Saskatchewan System. Further, the nature and degree of regulation and legislation affecting energy companies in Canada and the United States has changed significantly in past years, and there is no assurance that further substantial changes will not occur. Such regulations and legislation may adversely affect the toll structure or other aspects of its business or the operations and creditworthiness of the shippers.

Adequacy of Insurance
Alliance Canada, the Saskatchewan System and Green Power currently maintain insurance considered by management to be consistent with prudent industry practice and applicable law for pipeline and electrical generation systems of a similar size and nature in Canada. In the event there is a total or partial loss within Alliance System, the Saskatchewan System and/or Green Power, there can be no assurance that the insurance proceeds received in respect thereof will be sufficient in any particular situation or sufficient to satisfy all indebtedness of the respective business segment.

Environmental Costs and Liabilities
The operation of the Saskatchewan System, and Alliance Canada are subject to federal, provincial and local laws and regulations relating to environmental protection and operational safety. Risks of substantial environmental costs and liabilities, including those from leaks and explosions, are inherent in pipeline operations and there can be no assurance that significant costs and liabilities will not be incurred, including those relating to claims for damages to property and persons resulting from operations of Alliance Canada and/or the Saskatchewan System. To mitigate this risk, Alliance Canada and the Saskatchewan System have established safety and environmental policies that are designed to ensure that all aspects of its operations comply with existing regulations relating to personal safety and protection of the environment. However, it is not possible to predict the effect that any future changes in environmental laws and regulations will have on their future earnings and there can be no assurance that environmental costs incurred by Alliance Canada or the Saskatchewan System will be partially or fully recoverable under their tolls.

Interest Rate Risk
The Fund is exposed to interest rate fluctuations on variable rate debt and on future debt issues. Increases in interest rates could reduce the Fund’s competitiveness and could have a materially adverse effect on the Fund’s cash flow and distributable cash. The Fund may use derivative financial instruments in order to manage interest rate risk. There are no interest rate derivative financial instruments outstanding at year-end.

Credit Risk
Currently, approximately 22% of firm capacity on Alliance Canada’s system is contracted to shippers who do not have an investment grade rating or acceptable credit status and are required to post security. These shippers have provided security to Alliance Canada, however, the security does not fully cover more than one year’s demand charges under the TSAs. There can be no assurance that a shipper’s security will be adequate to compensate Alliance if the shipper is unable to fulfill its obligations under its TSA.

Alliance Canada’s transportation tolls are calculated on the basis of a deemed firm capacity of 1,325 mmcf/d. Accordingly, a failure to pay by any of the shippers without obtaining a replacement shipper at the same transportation toll would decrease Alliance Canada’s revenues and earnings and therefore, Alliance Canada’s cash flows and financial condition could be adversely affected.

The Saskatchewan System’s trade receivables consist primarily of amounts due from companies operating in the oil and gas exploration and development industry and are collateralized by the crude oil and other products contained in the Saskatchewan System’s pipeline and storage facilities. Green Power is also exposed to credit risk due to the concentration of its counterparties as discussed under Green Power.

Easement Rights
Alliance Canada, Saskatchewan System and Green Power have acquired easement rights from landowners, tenants and service lease owners in order to construct, install and operate its pipeline and wind turbines. These easement rights were obtained through voluntary negotiation and, in certain cases, through statutory rights of entry. There can be no assurance that legal challenges will not be brought with respect to the form, content, or recording of such easements, or to Alliance Canada, the Saskatchewan System and/or Green Power’s compliance with the terms of such easements during the construction and operation of the pipeline or wind turbine.

Fluctuations in Distributions
Although the Fund’s policy is to distribute 95% of cash available for distribution, cash distributions are not guaranteed and distributions by the Fund will fluctuate. The actual amount of Distributable Cash will depend upon numerous factors, including operating cash flow, general and administrative costs, applicable taxes, debt service costs, capital expenditures, restrictions imposed by lenders, disruptions in service and reserves established by the Fund, ECT and Enbridge Income Partners LP (LP).

In addition, the amount of Distributable Cash may be affected by the proposed changes to the way income trusts and their investors are taxed beginning in 2011 under the Government of Canada’s Tax Fairness Plan as described above under the ‘Outlook’ section.

Finally, a decision by Alliance Canada to reduce or cease all distributions would negatively impact the Fund’s overall financial position. To mitigate this risk, the Fund, as a 50% owner of Alliance GP, has the right to appoint 50% (currently three of six) of the directors to the board of Alliance GP.

Potential Conflicts of Interests
Certain conflicts of interest could arise as a result of the relationships among Enbridge, the Manager, the Fund, ECT, LP and Enbridge Income Partners Holdings Inc (IP Holdings). The senior officers of the Manager are also employees of Enbridge, which could result in conflicts of interest. This risk is mitigated by the requirement for approval of material transactions between the aforementioned parties by a majority of the Independent ECT Trustees.

Continued Investment Eligibility
If the Fund ceases to qualify as a “mutual fund trust”, Ordinary Units will cease to be “qualified investments” under the Tax Act resulting in adverse income tax consequences for unitholders. In order for the Fund to maintain its status as a mutual fund trust under the Tax Act, the Trust monitors the ownership units to comply with the requirements of the Tax Act for “mutual fund trusts.”

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