LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash generated from operations, commercial paper issuances, available capacity under credit facilities and access to capital markets in Canada and the United States for the issuance of long-term debt, equity, or other securities are expected to be sufficient to satisfy liquidity and capital expenditure requirements. Subsequent to December 31, 2006, the available capacity under credit facilities was increased to approximately $4.3 billion.

The Company continues to manage its debt to capitalization ratio to maintain a strong balance sheet. The debt to capitalization ratio at December 31, 2006, including short-term borrowings, but excluding non-recourse short and long-term debt, was 64.6%, compared with 64.5% at the end of 2005.

The Company’s current liabilities routinely exceed current assets. Current liabilities include current maturities of long-term debt, which are typically refinanced with long-term debt. Excluding current maturities of long-term debt, the Company does not have a working capital deficit.

The Company’s cash balance at the end of the year includes $7.2 million (2005 – $16.4 million; 2004 – $6.0 million) held in trust in joint ventures, pursuant to finance agreements within the joint ventures.

Operating Activities
Cash from operating activities increased to $1,297.7 million for the year ended December 31, 2006 from $947.0 million for the year ended December 31, 2005 and $886.7 million for the year ended December 31, 2004.

Cash provided by earnings net of non-cash items, was $1,171.0 million for the year ended December 31, 2006, compared with $1,300.9 million and $1,027.8 million for 2005 and 2004, respectively. In 2005, the Company received special dividends from Noverco totaling $70 million which resulted in most of the variance between 2005 and 2006.

Changes in operating assets and liabilities were $480.6 million higher in 2006 compared with 2005. The increase was due primarily to the impact of a declining trend in the price of natural gas in the latter half of 2006 compared with an increasing trend in 2005. This caused reductions in accounts receivable and gas inventories in the current year, compared to increases in the prior year, partially offset by a decrease in payables in the current year, compared with an increase in the prior year, all within EGD.

Changes in operating assets and liabilities were lower in 2005 compared with 2004. The majority of this change was in EGD where higher commodity prices in 2005 increased accounts receivable and inventory.

Since the Company’s pension plans are adequately funded, no additional funding above usual levels is anticipated for 2007.

Investing Activities
Cash used for investing activities for the year ended December 31, 2006 was $1,580.0 million compared with $876.5 million in 2005, an increase of $703.5 million. The majority of the increase was due to expenditures on property, plant and equipment, including the commencement of capital expenditures on a number of Liquids Pipelines projects and a $280.2 million investment in EEP as well as the acquisition of a 65% interest in the Olympic Pipeline for $101.4 million.

In 2005, the majority of cash spent on investing was for additions to property, plant and equipment, primarily in EGD. The increase in additions to property, plant and equipment in 2005, compared with 2004, was due to increased expenditures on capital projects. In 2005, the Company also made contingent payments to the former owners of the Company’s 25% interest in CLH because CLH met cumulative volume targets. In 2004, the Company also made smaller contingent payments to the former owners of the 25% interest in CLH.

In 2005, the Company made minor acquisitions throughout the year amounting to $88.6 million whereas, in 2004, $833.9 million was used for acquisitions including Enbridge Offshore Pipelines, acquired for $743.4 (net of cash acquired) and other minor acquisitions. Cash proceeds from the sale of the investment in AltaGas partially offset the use of cash for acquisitions in 2004.

Financing Activities
In 2006, the Company generated $268.1 million through financing activities compared with cash used for financing activities of $22.1 million in 2005 and cash generated during 2004 of $114.4 million.

During 2006, the Company issued $1,125.0 million of new long-term debt in the form of medium term notes and repaid $400.0 million in medium term notes which matured during 2006. Short-term borrowings at EGD are used primarily to finance working capital, including inventory. EGD’s short-term borrowings decreased by $266.9 million in 2006, reflecting the impact of decreasing natural gas prices. This decrease in short-term borrowings was partially offset by an increase in short-term debt to finance capital expenditures and investments.

Throughout 2005, the Company issued $1,020.1 million new long-term debt. This new debt replaced higher interest rate medium-term notes, which matured during 2005, and short-term debt, primarily commercial paper. The repayment of short-term debt was partially offset by an increase in short-term borrowings at EGD. EGD’s short-term borrowings were higher at the end of 2005 due to increased commodity prices.

Dividends on common shares have increased again in 2006 due to an increased number of common shares outstanding and a higher dividend rate.

In 2004, cash was generated through a net issuance of $788.0 million of debt, partially offset by the payment of dividends. The Company also repaid $350.0 million of preferred securities at the end of 2004.

Debt Covenants
Enbridge Inc. and all of its subsidiaries are in compliance with all debt covenants. However currently, EGD does not meet a new long-term debt issuance test contained in its trust indenture due primarily to significantly warmer weather and a decline in EGD’s allowed return on equity. In order for EGD to issue new long-term debt, EGD requires a long-term debt interest coverage ratio of 2.0 times for 12 consecutive months out of the last 23 months. Although EGD cannot issue new long-term debt until it meets the test, EGD may refinance existing long-term debt or issue new short-term debt without having to meet the new issue test.

Equity Issuance
On February 2, 2007, Enbridge closed the issuance of 13.5 million common shares for $38.75 per share to the public and issued 1.5 million common shares to Noverco for $38.75 per share, which maintains Noverco’s ownership interest in Enbridge at approximately 9.5%. Gross proceeds from both offerings were $581.2 million.

Preferred Securities
The Company has $200.0 million of 7.8% Preferred Securities outstanding. On December 18, 2006, the Company announced its intention to redeem all 8,000,000 Preferred Securities on February 15, 2007 for $25.00 per Preferred Security plus accrued and unpaid interest of $0.2458 per security for the period covering from the last interest payment date of December 31, 2006 to the redemption date of February 15, 2007.

Expected Capital Expenditures
The numerous potential organic growth projects and other growth initiatives described in the business unit sections will require capital funding. The Company also requires capital for ongoing core maintenance and capital improvements in many of its businesses. In total, Enbridge expects to spend approximately $2.5 billion during 2007 on capital projects and maintenance. The Company expects to finance these expenditures through cash from operating activities, the equity issuance described above and additional debt, if required.

The decision to finance with debt or equity is based on the capital structure for each business and the overall capitalization of the consolidated enterprise. Certain of the regulated pipeline and gas distribution businesses issue long-term debt to finance capital expenditures. This external financing may be supplemented by debt or equity injections from the parent company. Debt, and equity when required, has been issued to finance business acquisitions, investments in subsidiaries, and long-term investments. Funds for debt retirements are generated through cash provided from operating activities, as well as through the issue of replacement debt.

Payments due for contractual obligations over the next five years and thereafter are as follows: