Alliance Pipeline Limited Partnership Financial Statements and Notes

Alliance Pipeline Limited Partnership 2018 Financial Statements and Notes

Alliance Pipeline Limited Partnership 2018 Consolidated Statements of Income Years Ended December 31 2018 2017 2016 (thousands of Canadian dollars) Revenues Transportation revenue 438,891 373,741 341,436 Transportation revenue from related parties (Note 11) 83,210 116,199 113,119 Service revenue from related parties (Note 11) 38,788 45,013 45,218 Other revenue 16,175 10,709 10,607 Other revenue from related parties (Note 11) 7,011 12,506 9,842 Total revenues (Note 3) 584,075 558,168 520,222 Expenses General and administrative 47,737 78,947 78,927 General and administrative from related parties (Note 11) 23,886 2,159 1,759 Operations and maintenance 90,371 108,183 90,742 Operations and maintenance from related parties (Note 11) 13,124 1,353 1,249 Property taxes 22,652 22,840 23,493 Depreciation 67,527 69,976 70,738 Total expenses 265,297 283,458 266,908 Operating income 318,778 274,710 253,314 Interest income and other (Note 4) 2,088 3,929 10,010 Interest expense (51,849) (57,490) (62,311) Net income 269,017 221,149 201,013 Net income attributable to Partners 266,327 218,938 199,003 Net income attributable to General Partner 2,690 2,211 2,010 See accompanying notes to the consolidated financial statements Certain 2016 and 2017 balances have been adjusted for the impact of the adoption of Accounting Standards Codification ( ASC ) 606, Revenue from Contracts with Customers. See Note 16 for details. Certain expenses have been reclassified as a result of the transition to the Owner-Operator model effective June 25, 2018. Page 1

Consolidated Statements of Cash Flows Years Ended December 31 2018 2017 2016 (thousands of Canadian dollars) Operating activities Net income 269,017 221,149 201,013 Depreciation 67,527 69,976 70,738 Amortization of deferred financing fees 629 668 730 Changes in non-cash working capital (Note 5) 1,438 24,871 (20,388) Cash provided by operating activities 338,611 316,664 252,093 Investing activities Changes in transportation deposits 1,688 1,489 1,869 Proceeds from investments (Note 13) - 9,999 2,332 Changes in net restricted investments 116 150 (106) Net additions to property, plant and equipment (10,552) (9,213) (262) Cash provided by (used in) investing activities (8,748) 2,425 3,833 Financing activities Capital contributions (reimbursements) - (4,000) 5,800 Repayment of long-term debt (82,967) (83,960) (82,959) Distributions to partners (276,100) (232,600) (175,000) Debt issuance costs (108) (124) (106) Cash provided used in financing activities (359,175) (320,684) (252,265) Net change in cash and trust accounts (29,312) (1,595) 3,661 Cash and trust accounts, beginning of year 80,690 82,285 78,624 Cash and trust accounts, end of year (Note 5) 51,378 80,690 82,285 Supplemental disclosure of cash flows information: Interest payments 51,221 56,819 62,515 Non-cash changes in property, plant and equipment (1,361) 7,331 4,386 See accompanying notes to the consolidated financial statements Certain 2016 and 2017 balances have been adjusted for the impact of the adoption of ASC 606. See Note 16 for details. Page 2

Consolidated Balance Sheets December 31 2018 2017 (thousands of Canadian dollars) ASSETS Current assets Cash and trust accounts (Note 5) 51,378 80,690 Accounts receivable 44,225 41,296 Accounts receivable from related parties (Note 11) 13,615 22,350 Inventory 10,073 9,048 Other current assets 403 2,286 Total current assets 119,694 155,670 Investments held in trust 43,326 31,646 Long-term related party receivable - 3,978 Property, plant and equipment (Note 6) 960,060 1,015,674 TOTAL ASSETS 1,123,080 1,206,968 LIABILITIES Current liabilities Accounts payable and accrued liabilities (Note 11) 20,729 40,463 Accounts payable and accrued liabilities to related parties (Note 11) 12,429 2,228 Current portion of long-term debt (Note 10) 203,969 82,967 Restricted transportation deposit 8,999 7,311 Other current liabilities 869 711 Total current liabilities 246,995 133,680 Regulatory liabilities (Note 8) 64,798 44,503 Other long-term liabilities (Note 9) 8,677 15,644 Long-term debt (Note 10) 493,095 696,543 PARTNERS' EQUITY 309,515 316,598 TOTAL LIABILITIES AND PARTNERS' EQUITY 1,123,080 1,206,968 See accompanying notes to the consolidated financial statements Certain 2017 balances have been adjusted for the impact of the adoption of ASC 606. See Note 16 for details. On behalf of the Board of Alliance Pipeline Ltd., General Partner: Signed Stephen J. Neyland, Director Signed J. Scott Burrows, Director Page 3

Consolidated Statements of Changes in Partners Equity Years Ended December 31 2018 2017 2016 (thousands of Canadian dollars) Class A Units Class A - number of units 556,207 556,207 556,207 Class A unit value - opening balance 239,090 249,101 226,356 Net income 235,219 193,366 175,759 Distributions to partners (241,412) (203,377) (153,014) Class A unit value - closing balance 232,897 239,090 249,101 Class B Units Class B - number of units 73,558 73,558 73,558 Class B unit value - opening balance 42,762 44,087 41,079 Net income 31,108 25,572 23,244 Distributions to partners (31,927) (26,897) (20,236) Class B unit value - closing balance 41,943 42,762 44,087 Contributed Surplus Contributed surplus - opening balance 28,033 32,033 26,233 Partner contributions (reimbursements) - (4,000) 5,800 Contributed surplus - closing balance 28,033 28,033 32,033 General Partner General Partner - opening balance 6,713 6,828 6,568 Net income 2,690 2,211 2,010 Distributions to partners (2,761) (2,326) (1,750) General Partner - closing balance 6,642 6,713 6,828 TOTAL PARTNERS' EQUITY 309,515 316,598 332,049 See accompanying notes to the consolidated financial statements Certain 2016 and 2017 balances have been adjusted for the impact of the adoption of ASC 606. See Note 16 for details. Page 4

Note 1 General Business Description Notes to the Consolidated Financial Statements (thousands of Canadian dollars, unless otherwise noted) Alliance Pipeline Limited Partnership ( Alliance ) was formed under the laws of the Province of Alberta on February 1, 1996. Alliance owns and operates the Canadian portion of a 3,849 kilometre high-pressure natural gas transmission pipeline and related infrastructure. The U.S. portion is owned by Alliance Pipeline L.P. ( Alliance U.S.). Alliance and Alliance U.S. have entered into contracts with shippers to transport natural gas from supply areas primarily in the Northwest Alberta and the Northeast British Columbia portions of the Western Canadian Sedimentary Basin and the Williston Basin in North Dakota to delivery points primarily near Chicago, Illinois. The pipeline connects in the Chicago area with five interstate natural gas pipelines and two local natural gas distribution systems, which provide shippers with access to natural gas markets in the Midwest, Northeast and Gulf Coast of the United States and Eastern Canada. Alliance s pipeline operations are regulated by the National Energy Board ( NEB ) under the National Energy Board Act. Alliance Pipeline Ltd. Alliance is managed by Alliance Pipeline Ltd. ( General Partner ). The General Partner was established on April 17, 1997, and continues to operate under the federal laws of Canada. The General Partner is allocated 1% of net income or loss, and undistributed income of Alliance with the remaining 99% being allocated equally between an affiliate of Enbridge Inc. and an affiliate of Pembina Pipeline Corporation ( Partners ). The General Partner s sole activity is managing the business and affairs of Alliance. The rights, powers, duties and obligations of the General Partner are set out in Alliance s Second Amended and Restated Limited Partnership Agreement ( Partnership Agreement ) effective June 25, 2018. Alliance Pipeline Abandonment Trust The Alliance Pipeline Abandonment Trust ( Trust ) was established in the Province of Alberta on January 28, 2015 to set aside funds collected through pipeline abandonment surcharges. The use of funds in the Trust is restricted to payments for future abandonment costs and Alliance is the primary beneficiary. Implementation of the Owner-Operator Model On March 27, 2018, Alliance Pipeline Ltd., as the General Partner of Alliance, announced a transition to an Owner- Operator model whereby an Enbridge Inc. ( Enbridge ) affiliate and a Pembina Pipeline Corporation ( Pembina ) affiliate, collectively the Operators, will manage all of Alliance s functions. This new model took effect on June 25, 2018. Note 2 Summary of Accounting Policies Basis of Presentation The consolidated financial statements of Alliance have been prepared by management in accordance with United States Generally Accepted Accounting Principles ( U.S. GAAP ). All dollar amounts are stated in thousands of Canadian dollars, unless otherwise noted. The consolidated financial statements include the accounts of Alliance and the Trust. All significant intercompany accounts and transactions are eliminated upon consolidation. Page 5

Alliance Pipeline Limited Partnership 2018 In management s opinion, the consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies. Certain prior period balances have been adjusted to conform to current year presentation due to the adoption of Accounting Standards Codification ( ASC ) 606, Revenue from Contracts with Customers. Use of Estimates The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect both the amount and the timing of the recognition of Alliance s assets, liabilities, revenues and expenses and the related disclosures. Management regularly evaluates these estimates utilizing historical experience, consultation with experts and other methods management considers reasonable in the circumstances. Actual results may differ from these estimates. Revisions to accounting estimates are recognized in the period for which the estimate is revised and in any future periods affected. Revenue Recognition Effective January 1, 2018, revenue is presented in accordance with ASC 606, which introduced new principles for measurement and recognition of revenue arising from the contracts with customers. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The transaction price in the contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, allocation of the transaction price to each performance obligation is based on the best estimate of the stand-alone selling price of each distinct good or service in the contract. The majority of the revenue, including transportation revenue and service revenue from related parties, is recognized over time using both the output and input measures of progress. Under the output method, revenue is recognized based on the value of goods or services transferred to a customer to date relative to the remaining goods and services promised under the contract. The input method recognizes revenue based on Alliance s effort or inputs to satisfy the performance obligation. These inputs may include materials used, cost of labour, or other expenses. Revenues from the sale of goods to customers are recognized at a point in time when goods are transferred to the customers. Contract Estimates Accounting for contracts with customers involves the use of various techniques to estimate contract revenue. Contract estimates are based on various assumptions that are required to project the outcome of future events. These assumptions include performance factors, historical data, and estimated expenditures. Contract Balances The differences in timing of revenue recognition, reimbursements and cash collections may result in recognition of invoiced receivables, unbilled receivables, contract assets and contract liabilities. Amounts are invoiced in accordance with the contractual terms on a monthly basis or upon achievement of contractual milestones. Generally, billing occurs subsequent to the recognition of revenue, resulting in receivables from contracts with customers. Under some contracts, Alliance receives advances from customers which are recognized as contract liabilities. These liabilities are presented in the Consolidated Balance Sheets as part of other current liabilities and other long-term liabilities. Page 6

Revenue Categories Firm Transportation Services Firm transportation services are offered to shippers on a take-or-pay basis. Alliance makes firm transportation services available to shippers during the contract period. The transaction price includes a demand charge, which is a fixed take-orpay charge and usage charges, which are comprised of a variable consideration. Alliance refunds the consideration received during a qualifying outage through a demand charge credit. The refund liability is measured at the amount of consideration received from shippers where the service was not available due to the qualifying outage. Firm transportation services revenue is recognized over the term of the contract as services are provided using an output measure of progress. The fixed consideration is recognized in revenue as the service is made available to the shippers. The variable consideration is recognized in revenue as the actual volume of natural gas is transported. Rich gas credits are considered a variable consideration as they fluctuate in response to the gas composition and volumes transported. Rich gas credits are estimated using a single most likely amount based on historical data. The variability in the consideration is resolved one quarter after the service is provided based on the composition and volume of gas transported during the period. Alliance collects compressor fuel gas in-kind from the shippers as part of the consideration for the firm transportation services. Compressor fuel gas collected is non-cash consideration. The fair value of the compressor fuel gas collected varies after the contract inception due to changes in the fair value of the compressor fuel gas and fluctuations in the volume of the compressor fuel gas, which are interrelated. Due to the interrelation between these factors, compressor fuel gas collected is measured at the fair value at the time service is provided. Transportation revenues from firm transportation services are recognized in a manner consistent with the underlying shipper agreements. Differences between transportation revenue and actual toll receipts are recognized as regulatory assets or liabilities and settled through future tolls. Priority Interruptible and Interruptible Transportation Services Priority Interruptible ( PITS ) and Interruptible ( IT ) transportation services are offered on a daily basis. The entire performance obligation is satisfied by the end of each day based on the actual volume of natural gas that is transported. Revenue is recognized as shippers utilize the services. The entire transaction price is variable in nature as it is based on the actual volumes of natural gas transported. Alliance collects compressor fuel gas in-kind from the shippers as part of the consideration for PITS and IT transportation services. Compressor fuel gas collected is a non-cash consideration. The fair value of the compressor fuel gas collected varies after the contract inception due to changes in the fair value of the compressor fuel gas and fluctuations in the volume of the compressor fuel gas, which are interrelated. Due to the interrelation between these factors compressor fuel gas collected is measured at fair value at the time service is provided. Transportation revenues from PITS and IT services are recognized in a manner consistent with the underlying shipper agreements. Differences between transportation revenue and actual toll receipts are recognized as regulatory assets or liabilities and settled through future tolls. Page 7

Service Revenue from Related Parties The Executive, Managerial and Administrative service agreement ( EMA ) allows Alliance and Alliance U.S., an entity related by virtue of common ownership, to allocate shared services in exchange for reimbursement of incurred costs plus the applicable mark-up. Services allocated to Alliance U.S. are invoiced in Canadian dollars on a monthly basis and recognized over time using the input method based on the costs incurred to date. The entire consideration under the EMA is variable. The majority of the variability in the transaction price is resolved as the services are provided. The remainder of the consideration is estimated using a single most likely amount based on the projected cost and historical data. Ancillary Services Ancillary services include term park and loan services. Shippers have the option to either store gas or borrow gas from Alliance. All of the revenue from term park and loan services is recognized over time using an output measure of progress. Alliance recognizes revenue based on the actual quantities of gas parked or loaned. The uncertainty related to the amount of consideration is resolved as the service is provided to the customers. Other Revenue and Other Revenue from Related Parties Other revenue includes sales of operational line pack, shipper imbalance transactions, Manpower Service Agreements ( MSA ) revenue, revenue from construction contracts and other contracts with customers. Under construction contracts, Alliance builds interconnection facilities to provide customers access to Alliance s pipeline. Revenue from construction contracts, where Alliance has title to the constructed asset, is recognized over the term of the related firm transportation contract or over a specified period of time when there is no firm transportation agreement in place. Where the customer has title to the constructed asset, revenue is recognized upon completion of the constructed asset. Under the MSA, Alliance provides customers with maintenance services and other technical and non-technical expertise in conjunction with maintenance of the interconnection facility. Revenue from the MSA is recognized over the term of the agreement using an input method based on costs incurred to date. The uncertainty related to the consideration for variable costs is resolved as the services are provided and costs are incurred. Other revenue also includes the sales of natural gas for operational purposes and shipper imbalance transactions. The revenue is recognized at a point in time when the title of gas is transferred to the customer. Practical Expedients ASC 606 provides optional practical expedients to simplify the application of accounting and disclosure requirements. Alliance applied the practical expedient that permits the recognition of revenue in an amount that corresponds directly with the value to the customer for performance completed to date and which Alliance has the right to collect from the customer. This practical expedient is applicable to firm transportation services, term park and loan services, and the service revenue from related parties. No other practical expedients were applied. Page 8

Alliance Pipeline Limited Partnership 2018 Regulated Operations In order to reflect the economic effects of the actions of the regulator, recognition of certain revenues and expenses may differ from that otherwise expected under U.S. GAAP applicable to non-regulated businesses. Regulatory assets represent amounts that are expected to be recovered from shippers in future periods through tolls. Regulatory liabilities represent amounts that are expected to be credited to shippers in future periods and amounts collected from shippers relating to future costs. Transportation revenue is adjusted to reflect differences between the period in which the rate-regulated surcharges are collected through toll receipts and the period the related costs are incurred. Cash and Trust Accounts Cash and trust accounts consist of amounts held in demand deposit accounts with major financial institutions. Cash The carrying value of cash approximates fair value due to the short-term nature of these assets. Trust Accounts The use of amounts in the operating and debt service trust accounts is restricted. Under the terms of Alliance s financing agreements, all funds received from shippers in settlement of transportation tolls or as a transportation security deposit, including interest earned on trust account balances, are restricted and segregated in trust accounts. At the completion of each fiscal quarter, management determines the amount of cash necessary to satisfy debt servicing and operating requirements and applies to have available 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. Transportation security deposit funds are not available for distribution. Investments Held in Trust Alliance Pipeline Abandonment Trust Alliance collects abandonment funds through pipeline abandonment surcharges and sets aside those funds in the Trust until such time that the funds are required to settle future abandonment related expenditures. The Trust is consolidated and presented on the consolidated financial statements as investments held in trust. The use of amounts in the Trust is restricted to pay future abandonment costs. As per the Trust agreement, Alliance is the primary beneficiary of the Trust and Alliance will be required to absorb any losses or shortfalls that may occur through additional future funding collected from shippers through the pipeline abandonment surcharges. Inventory Inventory consists of materials and supplies, as well as natural gas, which is referred to as operational line pack. Inventory is carried at the lower of weighted average cost or net realizable value. Materials and supplies are periodically reviewed for physical deterioration and obsolescence. Page 9

Property, Plant and Equipment Pipeline in Service Assets Pipeline in service assets are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, commencing from the in service date. Pipeline in service assets include the pipeline, compressor stations, meter stations, capital line pack and other related assets used to provide transmission services. Other Assets General plant assets consist of field offices and ancillary equipment. These assets are recognized at cost and are depreciated on a straight-line basis over the useful lives of the assets, commencing when the asset is placed in service. Administrative assets include head office furniture and equipment, information systems and leasehold improvements. These assets are recognized at cost and depreciated on a straight-line basis over the useful life of the asset or term of the lease, commencing when the asset is placed in service. Land, capital spares, assets held for sale and assets under construction are recognized at cost and are not subject to depreciation. Additions and Disposals Additions to property, plant and equipment are recognized at cost. Expenditures included in the costs of property, plant and equipment are reviewed to determine if expenditures increase the output, lower the associated operating costs, or extend the useful life of the assets. Costs not meeting the criteria of the capitalization policy are expensed. When depreciable property is retired or disposed of, the impact is recognized in net income in the period the transaction occurred. Asset Retirement Obligation The asset retirement obligation ( ARO ) associated with the retirement of a long-lived asset is recognized in the period when it can be reasonably determined. The statutory, contractual or legal obligation associated with the retirement and reclamation of a tangible long-lived asset is recognized at fair value. The fair value approximates the cost a third party would charge to retire the asset and is recognized at the present value of future cash flows. The ARO asset is depreciated on a basis consistent with depreciation and amortization of the underlying assets. A provision for ARO has not been recognized in these consolidated financial statements. The ARO amount is considered indeterminate because there is no data or information that can be derived from past practice, industry practice or management intentions to enable Alliance to reasonably estimate the timing and scope of the pipeline retirement. 39 Long-Lived Asset Impairment Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the assets, an impairment loss is recognized. The impairment loss is determined based on the excess carrying value of the assets over their fair value. Significant changes in market conditions resulting from events, such as changes in natural gas available to Alliance, the condition of an asset, or a significant change in contracted revenues, would generally require a review of the cash flows related to the long-lived assets. Page 10

Reimbursements for Construction Activities Reimbursements received in relation to the construction of property, plant and equipment are applied against the carrying amount of the related property, plant and equipment, and deferred and amortized to income on the same basis as the property, plant and equipment. When a reimbursement relates to expenses, it is recognized in net income during the same period as the related costs or revenues. Reimbursements are recognized when Alliance complies with all reimbursement conditions, and there is reasonable assurance of compensation. Fair Value Measurement Alliance is required to determine the fair value of all its financial instruments using valuation techniques based on the fair value hierarchy. The hierarchy is based on whether inputs are observable in an active market or unobservable. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to quoted prices in an active market and the lowest to unobservable data as outlined below. Level 1 This category includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets. An active market for an asset or liability is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an on-going basis. Level 2 This category includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Financial instruments in this category are valued using models or other industry standard valuation techniques derived from observable market data. Such valuation techniques include inputs such as quoted forward prices, time value, volatility factors and broker quotes that can be observed or corroborated in the market for the entire duration of the financial instrument. Level 3 Level 3 financial instruments are those with inputs for the asset or liability that are not based on observable market data (unobservable inputs). Deferred Financing Costs Alliance capitalizes external costs of obtaining debt financing and includes them in long-term debt. The deferred charge is amortized over the life of the related debt using the effective interest method. Foreign Currency Translation Alliance transacts business in Canadian dollars and other foreign currencies. Transactions denominated in foreign currencies are translated into Canadian dollars using the exchange rate prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars using the rate of exchange in effect at the Consolidated Balance Sheets date. Exchange gains and losses resulting from translation are included in the Consolidated Statements of Income in the period in which they arise. Page 11

Income Taxes Alliance is not a taxable entity for federal and provincial income tax purposes. Accordingly, no recognition is given to income taxes for financial reporting purposes. Income tax on Alliance s net income is borne by the individual Partners through the allocation of net income for tax purposes. Net income for consolidated financial statement purposes may differ significantly from net income for tax purposes for individual Partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the net income for tax purposes allocation requirements under Alliance s Limited Partnership Agreement. The net taxable temporary difference, which has not been recognized in these consolidated financial statements, is $11.6 million (December 31, 2017 $8.6 million). Adoption of New Standards Effective January 1, 2018, Alliance adopted ASC 606 issued by the Financial Accounting Standards Board ( FASB ). The primary impact of the adoption of ASC 606 on Alliance s consolidated financial statements is the change in measurement of the compressor fuel gas collected from the shippers in exchange for transportation services. Prior to the adoption of ASC 606, compressor fuel gas collected was included in the transaction price of the transportation services at the volume of gas consumed. Under ASC 606, the amount of compressor fuel gas that is recognized in the transaction price is measured at the volume of compressor fuel gas collected. Per ASC 606, the classification of the differences between the volume of compressor fuel gas collected and the volume of compressor fuel gas consumed on the Consolidated Balance Sheets has changed. Prior to the adoption of ASC 606, the difference was classified as fuel gas imbalance. Under the new guidance, the difference is recognized as part of inventory. Certain revenue items were reclassified on the Consolidated Statements of Income with the adoption of ASC 606. ASC 606 was adopted using the full retrospective transition method. See Note 16 for the details of the impact on the prior period consolidated financial statements. Future Accounting Policy Changes Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), replacing the existing leases guidance, to be effective on January 1, 2019, with early adoption permitted. The Company will adopt the new standard on its effective date. ASC 842 introduces a new lease definition which increases the focus on control of the underlying asset and may change which contracts are identified as leases. In addition, ASC 842 introduces a dual classification on-balance sheet leasing accounting model that requires a lessee to recognize a right-of-use ( ROU ) asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating leases, with classification affecting the pattern of expense recognition and presentation in the Consolidated Statements of Income. Lessor accounting remains similar to the current standard. A modified retrospective transition approach is required for leases existing at, or entered after, the beginning of the earliest comparative period presented in the consolidated financial statements. In July 2018, the FASB issued a transition option allowing entities to not apply the new guidance, including disclosure requirements, to the comparative periods presented on the financial statements in the year of adoption. Alliance will apply this transition option which will result in the cumulative effect of initial application recognized as an adjustment to the opening balance of retained earnings at January 1, 2019 and no restatement of the comparative period. Page 12

Alliance has substantively completed the process to identify leases and is performing detailed analysis under the new standard, designing and implementing a new system for lease accounting and continuing to evaluate the process changes that will be necessary to meet the new requirements. The most significant impact will be the recognition of ROU assets and lease liabilities for operating leases related to office space and vehicles. The quantitative impact of applying ASC 842 on the financial statements in the period of initial application has not yet been finalized. Alliance has not yet concluded on the election of practical expedients. Measurement of Credit Losses In June 2016, FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities measure credit losses for most financial assets and certain other financial instruments that are not measured at fair value through net income. The current treatment uses the incurred loss method for recognizing credit losses which delays the recognition until it is probable that a loss has been incurred. The new treatment uses the expected credit loss method which is based on expected losses rather than incurred losses. This new treatment will result in more timely recognition of credit losses which will be recognized as an allowance rather than a direct write down of the amortized cost basis. Alliance is currently evaluating the impact of the adoption of this guidance effective January 1, 2021, to be applied using a modified retrospective approach, and has not yet determined the effect on the consolidated financial statements. Note 3 Revenue Revenue Categories Years Ended December 31 2018 2017 2016 Firm transportation services (1) 486,419 456,514 425,391 PITS/IT services 32,969 31,873 28,374 Ancillary services 2,713 1,553 790 Service revenue from related parties 38,788 45,013 45,218 Other revenue and other revenue from related parties 23,186 23,215 20,249 Total revenue 584,075 558,168 520,022 (1) Includes long-term and seasonal/short-term firm transportation revenue. Contract balances at December 31, 2018 include deferred revenue for advances received for construction contracts of $9.9 million (December 31, 2017 $7.9 million), and are included in accounts payable and accrued liabilities and other long-term liabilities on the Consolidated Balance Sheets. Receivables from contracts with customers at December 31, 2018 are $56.0 million (December 31, 2017 $65.6 million), and are included in accounts receivable, accounts receivable from related parties and long-term related party receivable on the Consolidated Balance Sheets. Page 13

Note 4 Interest Income and Other Years Ended December 31 2018 2017 2016 Insurance proceeds - 1,726 416 Interest income 1,327 1,057 1,474 Sub-lease income 468 443 - Forgone revenue reimbursement - - 7,970 Other 293 703 150 Total interest income and other 2,088 3,929 10,010 Forgone revenue reimbursement relates to amounts invoiced for lost revenue due to the outage for the Regina Bypass Project in 2016. Note 5 Supplemental Cash Flows Information Changes in Non-Cash Working Capital Years Ended December 31 2018 2017 2016 Accounts receivable (2,995) 12,634 (25,935) Accounts receivable from related parties 8,735 (74) (535) Inventory (1,025) 1,010 (3,544) Long-term related party receivable 3,978 164 (432) Other current assets 1,883 (1,021) 436 Accounts payable and accrued liabilities (20,227) 5,405 4,896 Accounts payable and accrued liabilities to related parties 10,201 998 372 Recoverable cost variance 8,499 5,875 4,302 Other current and long-term liabilities (7,611) (120) 52 Total changes in non-cash working capital 1,438 24,871 (20,388) Cash and Trust Accounts December 31 2018 2017 Cash 365 3,419 Trust accounts 51,013 77,271 Total cash and trust accounts 51,378 80,690 Page 14

Note 6 Property, Plant and Equipment December 31 2018 2017 Cost Pipeline in service assets 2,767,387 2,759,378 General plant and administrative assets 54,727 54,727 Assets under construction 5,714 4,588 Capital spares 12,166 10,243 Land 2,520 2,520 Accumulated Depreciation 2,842,514 2,831,456 Pipeline in service assets 1,831,889 1,768,477 General plant and administrative assets 50,565 47,305 Total property, plant and equipment 960,060 1,015,674 Property, plant and equipment includes an equity component of allowance for funds used during construction of $135.0 million (December 31, 2017 $135.0 million) as a capitalized asset, recorded at cost at December 31, 2018. The recorded value, after accumulated amortization, is $44.6 million (December 31, 2017 $47.7 million). Note 7 Accounts Payable and Accrued Liabilities December 31 2018 2017 Accounts payable and accrued liabilities 5,336 6,587 Interest accruals 516 516 Operating accruals 8,493 13,487 Capital accruals 899 190 Employee benefits payable - 15,105 Deferred revenue 4,485 3,476 Other 1,000 1,101 Total accounts payable and accrued liabilities 20,729 40,462 Note 8 Regulatory Liabilities December 31 2018 2017 Recoverable cost variance 19,445 10,946 Pipeline abandonment surcharges 45,353 33,557 Total regulatory liabilities 64,798 44,503 A recoverable cost variance reflects the differences between amounts invoiced for specified recoverable costs, as outlined in the transportation tariff, and the related expenses recognized in the Consolidated Statements of Income. The pipeline abandonment surcharges relate to the difference between funds collected and estimated expenses related to the future abandonment of pipeline assets. Page 15

Note 9 Other Long-Term Liabilities December 31 2018 2017 Deferred lease incentive benefits 1,131 1,776 Employee benefits (1) 2,131 9,443 Deferred revenue 5,415 4,425 Total other long-term liabilities 8,677 15,644 (1) 2018 outstanding employee benefits to be settled by the related party employer. Note 10 Long-Term Debt Authorized at December 31, 2018 Nominal interest rate Carrying Value Year of maturity December 31, 2018 December 31, 2017 Revolving credit facility (1) 200,000 Prime + 0.45% or BA + 1.20% 2021 2,000 2,000 Senior notes 120,000 4.928% 2019 120,000 120,000 Senior notes 191,223 7.181% 2023 191,223 216,937 Senior notes 67,758 5.546% 2023 67,758 88,758 Senior notes 148,248 7.217% 2025 148,248 165,165 Senior notes 169,416 6.765% 2025 169,416 188,752 Total interest bearing facilities 698,645 781,612 Deferred financing fees (1,581) (2,102) Less: current portion (203,969) (82,967) Total long-term debt 493,095 696,543 (1) Interest on the revolving credit facility is based on bankers' acceptance rates, plus applicable margins, for terms not exceeding six months. On May 3, 2018. Alliance decreased the applicable margin by five basis points on drawn BA borrowings to 1.20% based on thecurrent Alliance credit rating. The interest expense on long-term debt, excluding deferred financing fees, for the year ended December 31, 2018 is $49.9 million (December 31, 2017 $55.5 million, December 31, 2016 $61.1 million). Long-Term Debt Commitments and Financial Covenants Scheduled principal repayments of long-term debt for the years ending December 31 are as follows: 2019 203,969 2020 83,969 2021 84,905 2022 83,924 2023 72,969 Thereafter 168,909 698,645 Alliance must maintain a debt service reserve equal to scheduled principal and interest payments in the succeeding six month period. At December 31, 2018 and December 31, 2017, this debt service reserve was satisfied by letters of credit. Page 16

Alliance s long-term debt, which consists of senior secured and unsecured notes, revolving credit facility draws and debt service reserve and other letters of credit, is collateralized by a first priority perfected security interest in Alliance s transportation agreements with its shippers, NEB permit, certain other material contracts, trust accounts into which transportation revenue is deposited, and a grant of security interest over Alliance s real property and tangible personal property. Alliance is required to meet certain financial conditions and adhere to certain covenants on an on-going basis. Alliance has covenants governing its long-term debt. Key financial covenants include a maximum borrowing amount not to exceed at any time 70% of the rate base by more than U.S. $10.0 million. Rate base does not have a standardized meaning under U.S. GAAP. In general, the rate base consists of the value of property as used by the utility in providing service, in accordance with rules set by a regulatory agency. Prior to making distributions, Alliance s debt service coverage ratio shall be at least 1.25 for the four preceding fiscal quarters and the four succeeding fiscal quarters. The debt service coverage ratio is defined as the ratio of cash inflows minus operating costs to the scheduled debt service payable for a twelve month period. Alliance is in compliance with all debt covenants at December 31, 2018. Senior Notes The 4.928% senior unsecured note pays interest in arrears, on June 16 and December 16 of each year, and the principal repayment amount is due in 2019. All other senior notes pay interest and principal semi-annually on June 30 and December 31. At December 31, 2018, the 4.928% senior notes are presented as part of the current portion of long-term debt. Revolving Credit Facility The revolving 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 revolving credit facility to $300.0 million, if required. The borrowing capacity of the committed revolving credit facility is reduced by $75.0 million in letters of credit that Alliance is required to maintain as a debt service reserve, $3.0 million in letters of credit to support commercial obligations, and drawings on the revolving credit facility of $2.0 million, leaving $120.0 million available as an operating line of credit. The allocation of the revolving credit facility between the debt service reserve and operating line can change from year to year depending on Alliance s debt service reserve requirement, which changes over time. There are provisions to extend the revolving credit facility but in no case can the length of the revolving credit facility extend beyond four years. Extensions are subject to bank syndicate acceptance. Note 11 Transactions with Related Parties Alliance engaged in related party transactions that were conducted in the normal course of business, and unless otherwise noted, were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Related parties are entities related by virtue of common ownership, unless otherwise noted. Transportation Revenue Alliance has transportation contracts with shippers who are also related entities of the Partners of Alliance. The terms of the transportation revenue transactions are the same as those offered to independent third parties. Page 17

Alliance Pipeline Ltd. Alliance does not directly employ any of the individuals responsible for managing or operating the business, nor does Alliance have any directors. Effective June 25, 2018, Alliance transitioned to the Owner-Operator model whereby the General Partner engages affiliates of the Partners, which are also referred to as the Operators, to provide management, administrative, operational and workforce related services. Prior to the transition to an Owner-Operator model, the General Partner provided these services to Alliance and all costs and reimbursements were settled between the General Partner and Alliance. Operators Effective June 25, 2018 affiliates of Enbridge have been engaged under the terms of the Construction and Operations Services Agreement and affiliates of Pembina have been engaged under the terms of the Commercial Operations Services Agreement (collectively the Services Agreements ) to provide management, administrative, operational and workforce related services on behalf of the General Partner. Affiliates of Enbridge also provide consulting services associated with commercial feasibility study for an expansion related to the open season that occurred earlier this year under the Services Agreements. These services were previously provided under a separate consulting services agreement. Alliance reimburses the Operators for costs incurred under the terms of such Services Agreements. The Operators do not record any profit margin for the services charged to Alliance. Invoiced services from the Operators are settled on a monthly basis by Alliance. All amounts exchanged under the Services Agreements are presented as general and administrative from related parties and operations and maintenance from related parties. Outstanding payables and related accruals due to these transactions totaled $14.2 million at December 31, 2018 (December 31, 2017 $0.9 million). Alliance Pipeline L.P. The EMA service agreement allows Alliance and Alliance U.S., an entity related by virtue of common ownership, to allocate shared services in exchange for reimbursement of incurred costs plus applicable mark-up. Certain amounts reimbursed under the EMA service agreement with Alliance U.S. also include a recovery of costs plus mark-up relating to the use of common administrative assets. Services allocated to Alliance U.S. are invoiced in Canadian dollars on a monthly basis. Amounts were exchanged under this agreement are presented as part of service revenue from related parties. Service allocations from Alliance U.S. are invoiced to Alliance in U.S. dollars on a monthly basis. Amounts paid to Alliance U.S. under the EMA are presented as part of general and administrative expense from related parties. Previously, amounts paid under the EMA were presented as part of administrative service agreement fee. NRGreen Power Limited Partnership Alliance provides management, administrative, operational and workforce related services to NRGreen Power Limited Partnership ( NRGreen ), an entity related by virtue of a common ownership group. Agreements between Alliance and NRGreen, with respect to waste heat supply, manpower services and compressor site access, have been executed in exchange for reimbursement of incurred costs. Services are invoiced to NRGreen on a quarterly basis in the month following the quarter-end. Amounts exchanged under this agreement are presented as part of service revenue from related parties and interest income and other. Page 18

During the year ended December 31, 2018, Alliance purchased available carbon offsets from NRGreen under the terms of the Offset Purchase Agreement. Amounts due from Related Parties (excluding Transportation Revenue) December 31 2018 2017 Alliance Pipeline entities 5,594 17,757 NRGreen entities 458 549 Total amounts due from related parties (excluding transportation revenue) 6,052 18,306 Amounts due to Related Parties December 31 2018 2017 Enbridge affiliates 8,628 880 Pembina affiliates 5,560 - Alliance Pipeline entities 372 1,325 NRGreen entities 1 23 Total amounts due to related parties 14,561 2,228 Note 12 Partners Equity Partners Capital Alliance is authorized to issue an unlimited number of Class A and B units. The Class A and B units are voting and participate equally in profits, losses and capital distributions of Alliance. The Class A units and the Class B units are equal with respect to all rights, benefits, obligations and limitations provided under the Limited Partnership Agreement. The Class A and B units are held equally by the Partners. The General Partner does not hold any units. Any units issued by Alliance must be first offered to the Partners in proportion to their ownership interests. On October 2, 2017, Pembina Pipeline Corporation announced the closing of its business combination with Veresen Inc. whereby it acquired all issued and outstanding common shares of Veresen Inc. On December 20, 2017, all Class A and Class B units of Alliance, previously held by Veresen Inc., were transferred from Pembina Pipeline Corporation to an affiliate of Pembina Pipeline Corporation, a Partner of Alliance. Distributions to Partners The General Partner may, at any time, declare for distribution to the General Partner and the holders of the Class A units and the Class B units such portion of the net income of Alliance, including any undistributed income and net of contributions, as the General Partner determines in good faith to be in the best interest of Alliance, as follows: 1% to the General Partner; and 99% to the holders of Class A units and Class B units. Distributions are only permitted to be made to the General Partner and/or the holders of the Class A and Class B units upon lender approval. Page 19

Note 13 Financial Instruments The following table provides the fair value of financial instruments. Regulatory liabilities are not considered financial instruments and therefore are not included. December 31, 2018 Carrying Value Fair Value Financial Assets Cash and trust accounts 51,378 51,378 Accounts receivable 44,225 44,225 Accounts receivable from related parties 13,615 13,615 Investments held in trust 43,326 43,326 Financial Liabilities Accounts payable and accrued liabilities 20,729 20,729 Accounts payable and accrued liabilities to related parties 12,429 12,429 Restricted transportation deposit 8,999 8,999 Other current liabilities 869 869 Long-term debt 698,645 766,400 Other long-term liabilities 2,131 2,131 December 31, 2017 Carrying Value Fair Value Financial Assets Cash and trust accounts 80,690 80,690 Accounts receivable 41,296 41,296 Accounts receivable from related parties 22,350 22,350 Investments held in trust 31,646 31,646 Long-term related party receivable 3,978 3,978 Financial Liabilities Accounts payable and accrued liabilities 40,462 40,462 Accounts payable and accrued liabilities to related parties 2,228 2,228 Restricted transportation deposit 7,311 7,311 Other current liabilities 711 711 Long-term debt 781,612 869,467 Other long-term liabilities 15,644 15,644 Long-term debt in the above schedule includes the current portion of the liability and excludes financing fees for comparison to the fair value. The fair value of the long-term debt is based on the quoted market prices for similar instruments. At December 31, 2018, long-term debt qualifies as a Level 2 measurement. Other financial assets and liabilities, including accounts receivable and accounts payable, are short-term in nature, and as such, their carrying values approximate fair values. At December 31, 2018, cash qualifies as a Level 2 measurement. Page 20