Alliance Pipeline Limited Partnership 2018 Management's Discussion and Analysis Alliance Pipeline Limited Partnership 2018 Management’s Discussion and Analysis The Alliance System The Alliance System (“System”) consists of a 3,849 kilometre (“km”) (2,392 mile) integrated Canadian and United States (“U.S.”) natural gas transmission pipeline, delivering rich natural gas from the Western Canadian Sedimentary Basin (“WCSB”) and the Williston Basin in North Dakota to the natural gas market in Chicago. The System has been in commercial service since December 2000 and currently delivers an average of 1.7 billion cubic feet per day (“bcf/d”) of rich gas to the Aux Sable natural gas liquids (“NGLs”) extraction facility, owned by Aux Sable Liquid Products L.P. (“Aux Sable”), an affiliate of Alliance Pipeline Limited Partnership (“Alliance Canada”). Rich gas is natural gas with relatively high NGLs content; mainly ethane, propane, butane and condensates. The System connects with the Aux Sable NGLs extraction facility in Channahon, Illinois, which extracts NGLs from the natural gas transported before delivery to downstream pipelines. The pipeline connects in the Chicago area, through its downstream header, 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, the Northeast, and the Gulf Coast of the U.S., and Eastern Canada. All shippers have signed extraction agreements that give Aux Sable the right to extract the NGLs from the rich gas transported. The System also has three connections, two in North Dakota and one in Iowa, to provide for deliveries of small amounts of natural gas to ethanol production plants. Facilities include 14 mainline compressor stations that operate between approximately 31,000 horsepower (“hp”) and 46,000 hp each spaced at approximately 193 km intervals; mainline block valves spaced on average at 32 km intervals; operating and maintenance facilities; and an associated SCADA system. Page 1 Alliance Pipeline Limited Partnership 2018 Management’s Discussion and Analysis On December 1, 2015, Alliance Canada commenced the implementation of its Services Offering providing shippers with competitive long-term fixed firm tolls and biddable tolls for seasonal firm, short-term firm and interruptible transportation (“IT”) services. This replaced the original firm cost-of-service contracts. The Services Offering provides shippers with a variety of natural gas transmission services and tolling options for the safe and reliable transportation of their gas, and includes both full-path and segmented receipt and delivery services. A new Canadian trading pool and a revised Hydrocarbon Dewpoint (“HCDP”) specification were also introduced to further facilitate the transportation of rich gas. Alliance Canada The Alliance Canada portion of the System consists of approximately 1,561 kms (970 miles) of natural gas mainline pipeline and 732 kms (455 miles) of related lateral pipelines connected to natural gas receipt locations, primarily at gas processing facilities in northwestern Alberta and northeastern British Columbia, and related infrastructure. Alliance Canada owns the Canadian portion of the System. Alliance Canada is jointly owned by an affiliate of Enbridge Inc. and an affiliate of Pembina Pipeline Corporation and is subject to federal regulation by the National Energy Board (“NEB”). Alliance U.S. The Alliance U.S. portion of the System consists of approximately 1,556 kms (967 miles) of infrastructure including the 129 km (80 mile) Tioga Lateral in North Dakota. Alliance U.S., an affiliate of Alliance Canada, owns the U.S. portion of the System. Alliance U.S. is jointly owned by an affiliate of Enbridge Inc. and an affiliate of Pembina Pipeline Corporation and is subject to federal regulation by the Federal Energy Regulatory Commission (“FERC”). About this Document The following Management’s Discussion and Analysis (“MD&A”) is as of February 4, 2019 and should be read in conjunction with our audited, consolidated financial statements for the year ended December 31, 2018, and our 2017 Annual Information Form dated May 4, 2018. All amounts in this MD&A are in millions of Canadian dollars except per unit amounts. All financial information in this MD&A has been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). This MD&A reviews the significant events and transactions that impacted our performance during the the three and twelve months ended December 31, 2018. Throughout this MD&A, the terms, we, us, our, and Alliance Canada mean Alliance Pipeline Limited Partnership. Collectively, Alliance Canada and Alliance Pipeline L.P. (“Alliance U.S.”) are referred to as the System. Additional information about our business is available at www.alliancepipeline.com and on SEDAR at www.sedar.com. Page 2 Alliance Pipeline Limited Partnership 2018 Management’s Discussion and Analysis Strategy The Alliance System is unique in its ability to transport rich natural gas. Rich natural gas, primarily from the WCSB, is transported in a single continuous dense phase to Chicago where the pipeline interconnects with the Aux Sable NGLs extraction facility. The NGLs extracted at the Aux Sable facility are available for sale in U.S. markets, while the natural gas is delivered to downstream markets through the Alliance Chicago Exchange hub (“ACE”). Alliance Canada’s business model is based on extensive consultation with shippers resulting in a variety of natural gas transmission services and tolling options. This business model was developed in a manner that is cognizant of "cost based" parameters. These services provide a more dynamic and flexible market-focused approach under which Alliance Canada assumes a higher degree of business risk and provides service flexibility to effectively respond to evolving market conditions. Alliance Canada's natural gas transmission services, coupled with rich gas delivery capabilities, are designed to enable producers to maximize the value of their product. This provides significant competitive advantages which can include: Saving producers processing and infrastructure costs, and providing an opportunity to reduce the time to market for their rich gas production; Providing access to the Aux Sable NGLs extraction facility allowing for considerable economies of scale; and Delivering value added products to alternative markets for NGLs while only paying a transportation charge based on volume. These services can potentially provide shippers with a higher net back for rich natural gas. Alliance Canada will continue to engage with shippers to support the optimization of commercial operations and the evaluation of new opportunities and services that meet the current and potential needs of shippers as they plan for growth initiatives and future prospects. Health and Safety Stewardship At Alliance Canada, safety and environmental stewardship are our top core values. We consider both of these core values in our daily decisions and actions with the goal of being incident free. That means protecting the environment around us and keeping our neighbours, employees and contractors safe. We comply with or exceed all applicable health, safety and environmental laws and regulations in all material respects. Natural gas pipelines in Canada are required to meet construction, operating and maintenance standards established by the NEB, other federal regulators and the Canadian Standards Association. Alliance Canada is subject to the NEB’s Onshore Pipeline Regulations for designing, constructing, operating and abandoning pipelines. Operationally, we comply in all material respects with the NEB Act, the Onshore Pipeline Regulations and all applicable safety regulations, standards and codes. We conduct patrols of rights of way, required inspections and audits of pipeline condition through investigative excavations, and assessments of the levels of protection related to our cathodic protection system, relief valves and mainline valves. In addition to complying with general operating and maintenance requirements, we have rigorous integrity management programs that regularly assess the condition of the System. Our robust pipeline integrity lifecycle efforts have resulted in three cycles of in-line inspections completed in 18 years of operations. Page 3 Alliance Pipeline Limited Partnership 2018 Management’s Discussion and Analysis Our maintenance program includes monthly, quarterly, semi-annual and annual inspections of all compressor station and meter station facilities. Maintenance expenditures vary from year to year. We are now in our second decade of operations and as the System matures and technology changes, we anticipate increased maintenance requirements for some facilities and optimization for other facilities that have undergone improvements or upgrades. As part of our maintenance inspection program, routine internal safety and security audits are performed at compressor station facilities with corrective actions as required. We have developed a structured Health and Safety Management System based on Occupational Health and Safety Management Guidelines. This system is part of Alliance Canada’s Integrated Management System that has been developed for integration of key operational programs to manage hazards and risks associated with operation of the System. We facilitate inspections and audits when agencies that regulate our industry request them, and follow defined practices