27 ENBRIDGE 2000 ANNU AL REPORT This external financing may be supplemented by debt or equity injections from the parent company. Debt, and equity when required, related to non-regulated activities have been issued mainly to finance business acquisitions and investments in subsidiaries. Funds for debt retirements are generated through cash provided from operating activities, as well as through the issue of replacement debt. During 2000, investing activities in regulated operations were financed primarily through operating cash flows. Additional medium term notes were issued to finance equity investments and other non-regulated activities. During 2000, a public common share issue generated net proceeds of $144 million. During 1999, debt was issued within regulated entities, primarily to refinance maturing debt and investing activities. Corporate capital, primarily Preferred Securities, medium term notes and variable rate financing, was utilized to finance equity investments in Alliance, Vector and AltaGas. In 1998, the Energy Transportation segment issued debt to finance the Enbridge System expansions, while the Energy Distribution segment issued debt to finance its core system expansion. Non-regulated debt, Preferred Shares and a common equity offering were issued to finance the investment in Alliance and other acquisitions. As Enbridge continues to diversify its energy transportation and service businesses in North America and internationally and expands its non-regulated businesses, the risk profile of the Company may change. Entry into non-regulated businesses imposes greater economic exposure and requires more “at risk” capital to be spent. Analysis and control procedures and the Company’s expectation of higher returns from these businesses mitigate or justify such risk. The Company’s exposure to commodity prices, specifically the spread between natural gas and natural gas liquids prices, increased in 2000 because of  the commencement of operations at Aux Sable. Management actively manages and mitigates operational risks. Earnings and cash flows are subject to volatility stemming mainly from movements in the U.S./Canadian dollar exchange rate and interest rates. The rates for customers of Enbridge Financial Risk Natural Gas Prices RISK MANAGEMENT Operational Risk Interest Costs Foreign Exchange Consumers Gas are impacted by the price of natural gas. In order to manage these risks for both shareholders and customers, Enbridge uses a variety of derivative financial instruments to create offsetting positions to specific exposures. The Company does not use derivative financial instruments to create speculative positions. In implementing its hedging programs, the Company has established analysis and execution procedures, which require formal approval of either the Board  of Directors or a committee of senior management. Ongoing monitoring and senior management reporting procedures are in place. Details of the financial instruments used and outstanding are provided in Note 9 to the consolidated financial statements. Derivative financial instruments are entered into at inception only to manage price risk. In the case of foreign currency cash flow hedges, the principal amounts of the financial instruments are grossed up to account for income taxes so that a proper matching of after-tax amounts is achieved. In 1997, the Company established a hedging program to eliminate 80% to 100% of the long-term exposure related to U.S. dollar denominated investments. At December 31, 2000, future cash flows of approximately U.S.$60 million per year (1999 and 1998 — U.S.$39 million) and redemption of the investment in OCENSA of U.S.$100 million (1999 and 1998  — U.S.$100 million) were hedged. To hedge against the effect of future interest rate movements on certain of its short-term and long-term debt, Enbridge enters into various interest rate derivative financial instruments. The Company also enters into interest rate instruments to hedge a portion of the interest cost in anticipation of future debt issues related to specific capital projects. Enbridge hedges the cost of a portion of the future natural  gas supply requirements of its gas distribution operations, as allowed by the OEB. As the cost of natural gas flows through  to customers, the customer benefits from this risk mitigation strategy. The OEB monitors the policies, procedures and results of this hedging program.