Letter to shareholders

Delivering the value you count on

In a challenging environment, Enbridge delivered solid results, we continued to grow and our outlook remains positive.

Al Monaco David Arledge

By any measure, 2015 was a difficult year for the energy business. Our customers experienced historically low oil and gas prices, and rebalancing of global supply and demand is now expected to take longer. North American energy investment dropped by US$69 billion1 or 35 percent over the previous year and capital markets have been highly volatile. At the same time, opposition to energy infrastructure development remains a challenge–making it difficult for oil and gas producers to gain access to North American and global market pricing. New governments in Alberta and Canada were elected on platforms of change, with strong views on energy and the environment.

Even with all of these challenges, our company performed very well in 2015 because our business model is built to weather this type of environment. Most important, we achieved excellent safety and operating performance and provided reliable energy transportation for our customers. In 2015, we delivered a record $1.9 billion in adjusted earnings or $2.20 per common share; $3.2 billion in Available Cash Flow from Operations (ACFFO) or $3.72 per common share; and we increased our dividend by 33 percent. We raised $5 billion in capital and maintained our financial strength and discipline so that we remain resilient through this downturn. We put into service 14 new projects valued at $8 billion, the majority on time and on budget.

We also continue to develop new opportunities that will sustain our growth and position Enbridge for the future.

How we’re meeting the challenges of the current business environment

In the current business environment, it’s important that we remain disciplined in how we approach the business, operate our assets and invest capital. The following principles will continue to govern our approach.

Focus on safety and operational reliability.This is our Number One priority because providing safe and reliable energy transportation drives value for our customers, and the public expects us to protect them and the environment. It’s this priority that guides everything we do and supports our vision to be North America’s leading energy delivery company.

Minimize commodity price exposure and maintain a low-risk business model. For the vast majority of our business, the transportation and distribution tolls we charge don’t depend on the price of oil and gas. Where we do have some exposure to commodity price, interest rates and foreign exchange, we closely manage those risks. In addition, our existing assets and new investments are underpinned by strong commercial structures that generate stable and predictable financial results.

Ensure capital investment discipline and access to capital. We invest significant amounts of capital, so it’s important that we allocate that capital to the best projects. We also need to ensure we can effectively fund new investments from internal sources or from the capital markets. We maintain a sound balance sheet, strong investment grade credit ratings and significant liquidity to protect against disruptions in the capital markets.

Focus on competitiveness. It’s even more important in today’s difficult business environment to focus on competitiveness. A big part of that is ensuring that we understand the supply and demand fundamentals that drive our business today and in the future. It also means keeping our costs in line and continually improving the effectiveness of what we do.

In 2015, we closely managed our supply chain costs; reduced our workforce by five percent; and realized capital cost savings through the optimization of our Regional Oil Sands System–an initiative that will also deliver significant toll savings to our shippers.

Developing our people. Our competitive advantage depends on the strength of our people. We focus on staff development at all levels of the organization and provide good opportunities for people to grow. We also make it a practice to rotate our management team members so we have a broad base of diverse and capable decision-making experience across the organization.

We believe focusing on these priorities will translate into consistently strong financial performance and value creation for our shareholders over the next five years and well into the future.


Because Safety Matters

Our annual Safety Report to the Community highlights our approach to safety, how we’re performing and what we are focusing on to be even safer in the future. The Report is available online at enbridge.com/safetyreport

Safety Report


Introducing ACFFO

In 2015, we introduced a new financial metric–Available Cash Flow from Operations, or ACFFO–to complement adjusted EPS.

ACFFO provides a greater degree of transparency into the cash flow generating capability of our businesses that drive shareholder value.

We also think it’s a good way to measure our performance, especially with respect to growth potential and our capacity to pay dividends.

For 2016 and going forward, ACFFO will be a key performance measure for the Company as a whole and the focus of our annual guidance.

How we delivered value in 2015

Solid Results

Our strong results in 2015 reflect the strength of our business model.

Annual adjusted earnings were $1.9 billion or $2.20 per common share, a 16 percent increase over 2014. ACFFO for the full year 2015 was $3.2 billion or $3.72 per common share. That represented an increase of more than 23 percent year-over-year.

Robust cash flow growth in turn supported strong dividend growth. In the first quarter, we increased our dividend by 33 percent, and announced in December a further 14 percent dividend increase effective with the first quarter of 2016. This was the 21st consecutive year of increased dividends for the Company. These increases reflect strong year-over-year growth and the confidence we have in our outlook. Equally important, our dividend growth has not come at the expense of our financial strength as ACFFO coverage of our dividend remains very strong at approximately two times.

Safe and Reliable Operations

Over the past five years, we’ve invested $5 billion in the safety and integrity of our systems. We’ve transformed our approach to safety, focusing not just on improving our systems and processes, but importantly, on how each and every member of the Enbridge team thinks about safety. We continue to strengthen our safety culture and to hold ourselves accountable to each other and to our stakeholders.

We’re seeing the outcome of our efforts. We achieved solid safety performance across all of our businesses in 2015. Our total recordable injury frequency–a measure of on-the-job safety–was the lowest in the past five years. All of our business units experienced strong performance in detecting and preventing releases from our pipelines and distribution systems, even as we moved record volumes on our liquids systems.

Being a leader in safety and protection of the environment is critical for our company’s ongoing business success. It helps us optimize system reliability and throughputs, which benefits our customers, and it helps sustain the growth of our company for the future.

20 year growth


Record Throughputs

2.6Mbpd
Our liquids mainline system started 2016 on a high note, delivering a record 2.6 million barrels per day (bpd) in January.

We expect this level of performance to continue because our mainline is underpinned by strong supply and demand fundamentals.

We’re seeing growing volumes from Canada’s oil sands; and we offer shippers unparalleled connectivity to key refining markets. In addition to connecting them to 3.5 million bpd of market demand, we provide them with stable, economical tolls so they can achieve the best netbacks.

Over the past five years, we’ve invested $5 billion in the safety and integrity of our systems.

Execution of the Growth Plan

We have placed $8 billion of projects into service since the beginning of 2015–an exceptional performance under any circumstances. Major accomplishments are highlighted below:

  • We continue to deliver new market access for our Liquids Pipelines customers. We’ve largely completed the Western Gulf Coast Access and Eastern Access programs and we made substantial progress with our Light Oil Market Access Program. Together, these three initiatives add 1.7 million barrels per day of incremental market access for our customers.
  • In Gas Distribution, we’re nearing completion of our $0.9-billion Greater Toronto Area (GTA) Project to upgrade the backbone of Enbridge Gas Distribution’s system, supporting continued customer growth and enhancing reliability.
  • In early 2016, we grew our Canadian natural gas midstream presence with the acquisition of the Tupper Main and Tupper West gas plants and associated pipelines in the Montney Region in northeastern B.C., one of the most attractive gas plays in North America.
  • In the offshore Gulf of Mexico, where we’re one of the largest natural gas and oil transporters, the Big Foot Gas Pipeline portion of the Walker Ridge Gas Gathering System and the Big Foot Oil Pipeline were installed on the sea floor and are awaiting installation of the upstream facilities by producers. In early 2016, we completed and placed into service the Heidelberg Oil Pipeline more than three months ahead of schedule.
  • In Power Generation, we secured two new investments that further advance our strategy to extend and diversify our growth. The 400-MW Rampion Offshore Wind project in the UK is a natural extension of our existing wind business and a strategic entry point into an international market. The 103-MW New Creek Wind Project in West Virginia brings our net interests in renewable generating capacity to nearly 2,000 MW.

Enbridge’s Major Projects (MP) group continues to be a source of competitive advantage in driving value for our customers and shareholders. MP’s execution capability combines disciplined processes, supply chain management, and the capacity and experience to get things done.

Maintaining Financial Flexibility and Access to Capital

We have the financial flexibility to successfully fund our growth projects in an effective and efficient manner. We generate significant cash flow net of dividends, which can be redeployed into new investments. We have a strong balance sheet and access to a variety of low-cost funding sources.

In 2015, we completed our Financial Strategy Optimization, which included an increase to the Company’s targeted dividend payout, as well as the $30.4-billion drop down of Enbridge’s Canadian Liquids Pipelines business and certain Canadian renewable energy assets to our sponsored vehicle Enbridge Income Fund.

We expect our sponsored vehicle strategy will further enhance the value of our capital program by providing access to diversified sources of low-cost funding. The strategy is also expected to improve our competitiveness to pursue new investment opportunities and to extend our industry-leading growth rate beyond 2019.

In 2015, the Company directly and through its affiliates collectively raised more than $1.7 billion of equity capital and $3.7 billion of term debt capital.

We believe the amount of capital required to support our commercially secured growth program is very manageable given the strong cash generating capability of our assets, our diversified sources of capital, solid investment-grade credit ratings and available liquidity of $10 billion as of the end of 2015. In late February 2016, we entered into an agreement with a group of Canadian and U.S. financial institutions to issue $2.3 billion of common shares–sufficient to fulfill equity funding requirements for our consolidated commercially secured growth program through the end of 2017.

We remain focused on the execution and funding of our very attractive secured growth program, while maintaining the balance sheet strength needed to support our longer-term business plans.

Disappointments

Although we’re pleased with our results, 2015 was not without disappointments.

Persistent low prices for natural gas and natural gas liquids continue to pose headwinds for our Gas Pipelines and Processing business. In Liquids Pipelines, earnings were impacted by the nearly year-long delay in receiving regulatory approval to bring the reversed Line 9 into service.

We also anticipate delays on our Line 3 Replacement and Sandpiper projects. While we were pleased to receive greater clarity from the Minnesota Public Utilities Commission in January 2016 on the regulatory process for both projects, the timeline for approval will be extended and is expected to result in a delay to the in-service dates for both projects into early 2019.

Despite our financial strength and our significant accomplishments in 2015, Enbridge was impacted, along with many of our peers, by broader market reaction to commodity prices, interest rates and the continuing challenges facing the energy sector. We’ve experienced volatility in our share price and we’re disappointed Enbridge’s solid attributes were not reflected in the Company’s valuation in 2015, resulting in negative shareholder return of 20 percent. That said, our three-, five- and 10-year total shareholder return well exceeds the performance of broader market indices.

Superior Long-Term Returns

How we will deliver value in the future

Our commercially secured growth program alone, in combination with our existing business, is expected to deliver very attractive compound average annual growth in ACFFO per share of 12 – 14 percent over our five-year (2015 – 2019) planning horizon.

That should readily support a base level of dividend growth in the range of 10 – 12 percent.

However, cash flow and dividend growth could well exceed these levels depending on the success we have in securing and funding new growth opportunities beyond those that have been commercially secured.

We will continue to evaluate new investments that diversify and extend our growth and build an opportunity set for the future. While we see further opportunities to grow our Liquids Pipelines business, we are increasingly looking to develop and grow our new platforms in renewable power generation, natural gas infrastructure and gas-fired generation, power transmission and energy marketing, as well as international opportunities to invest in energy infrastructure in select regions outside Canada and the United States.

As always, investments will need to pass stringent criteria and fit within our business model. We will continue to focus most of our attention on organic growth and assets that enhance our strategic position. Given the current environment, we’ll be lowering the microscope even further to make sure that we’re deploying capital to the most optimal projects. When we decide to move on opportunities, we’ll bring those forward with executable and effective funding sources identified.

There’s no doubt that the current energy environment is challenging, but we believe that the long-term fundamentals of energy are very strong and that our business will continue to thrive. We believe global energy demand will continue to grow by about 30 percent over the next two decades, driven by global population growth, increasing urbanization to larger-scale cities and the desire for increasing living standards, particularly in developing nations. With this level of energy growth, it’s critical that we continue to develop all sources of energy supply in a sustainable way.

North America has tremendous unconventional oil and gas reserves that will help meet the world’s energy needs. We also possess the skills and technology to ensure that these resources are competitive and developed sustainably. Enbridge is a big part of that in a couple of ways.

First, we have a number of projects under way that will help our resources get to the best markets and to consumers who need that energy. There’s no doubt that pipelines remain the lowest cost, most efficient and safest way to transport oil and natural gas. We see continued opportunities to expand and extend our pipeline systems to help meet North America’s energy needs and contribute to energy security, as well as build connectivity to coastal markets that enable exports.

Second, we see significant opportunity in the transition to a lower carbon future as we look to expand and diversify our energy businesses. It’s an opportunity we recognized more than a decade ago when we first invested in wind power generation and it’s one we’re actively pursuing today as one of Canada’s largest renewable energy companies. With our established natural gas and power generation businesses, Enbridge is well positioned to play a leadership role in the shift in the energy supply mix, and transition to a lowercarbon future.

2015 was one of the most challenging years our industry has faced in decades. Enbridge has persevered–and we’re well positioned to withstand the current turbulent market environment.


Helping Customers Conserve Energy

Enbridge Gas Distribution (EGD) is helping its more than two million residential, commercial and industrial customers to use energy wisely through a wide range of demand-side management (DSM) programs, including energy-efficiency audits, financial rebates for adopting energy-saving equipment, and energy reports to help consumers better understand their energy usage.

Cumulatively since 1995, EGD’s DSM programs have saved approximately 9.6 billion cubic meters of natural gas and reduced carbon dioxide equivalent emissions by 18 million tonnes, which is similar to taking approximately 3.5 million cars off the road for a year or serving approximately four million homes for a year.




Offshore Wind

Our recent investment in Rampion provides us with a timely and effective entry point to the European offshore wind business.

The business comes with strong market fundamentals, sound commercial underpinnings and attractive returns. Half of Europe’s generating capacity will come from renewables by 2025, and offshore wind will play an important role in that growth.

It is forecast that over the next decade some €100 billion will be invested in the European offshore wind industry, and more than 20 gigawatts of offshore capacity is expected to be developed in Europe over the next five years alone.

Acknowledgements

Enbridge has a highly capable and energetic team of people with a proven track record of delivering value to customers and shareholders alike. We thank them for their outstanding work in 2015 in building the Company and putting it in a strong position for future growth.

In 2015, Lorne Braithwaite and Charles Schultz retired from the Board and we thank them for their valuable contribution to the Board’s deliberations over the years. We also welcomed to the Board Rebecca Roberts, who was President of Chevron Pipe Line Company from 2006 to 2011 and President of Chevron Global Power Generation from 2003 to 2006.

In a turbulent environment, Enbridge’s reliable and proven business model sets us apart

2015 was a year of challenge and change for the energy sector.

As we begin 2016, the energy landscape continues to evolve–driven by changing dynamics of supply and demand, and shaped by the imperative to protect our environment while meeting our global energy needs. This isn’t new to us. We’re managing our business to weather these kinds of tough conditions, we’re very mindful of current market conditions and we will remain vigilant.

We’re confident in the strength and quality of our assets, and we believe our approach–and the principles we’ve adhered to over the years–uniquely position Enbridge to manage through these turbulent times and to continue to deliver the value you count on today and over the long term.

Al Monaco signature
Al Monaco
President & Chief Executive Officer

David A. Arledge signature
David A. Arledge
Chair Board of Directors

March 8, 2016

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