Liberty Utilities estimates the remaining cost of these MGP-related environmental cleanup activities will be $68,180 which at a discount rate of 3.5% represents $56,587 at December 31, 2012, which has been accrued as Liberty Utilities’ estimate of costs for known issues. By rate orders, the Regulator provided for the recovery of site investigation and remediation costs and accordingly, at December 31, 2012 the Company has reflected a regulatory asset of $55,721 for the remediation of the MGP and related sites. 

APUC’s policy is to record estimates of environmental liabilities when they are known or considered probable and the related liability is estimable. There are no known material environmental liabilities as at December 31, 2012. 

## Cycles and Seasonality 

The hydroelectric operations of APCo are impacted by seasonal fluctuations. These assets are primarily “run- of-river” and as such fluctuate with natural water flows. During the winter and summer periods, flows are generally lower while during the spring and fall periods flows are generally higher. The ability of these assets to generate income may be impacted by changes in water availability or other material hydrologic events within a watercourse. It is, however, anticipated that due to the geographic diversity of the facilities, variability of total revenues will be minimized. 

The strength and consistency of the wind resource will vary from the estimate set out in the initial wind studies that were relied upon to determine the feasibility of the facility. If weather patterns change or the historical data proves not to accurately reflect the strength and consistency of the actual wind, the assumptions underlying the financial projections as to the amount of electricity to be generated by the facility may be different and cash could be impacted. 

Liberty Utilities (West) and Liberty Utilities (Central)’s demand for water is affected by weather conditions and temperature. Demand for water during warmer months is generally greater than cooler months due to requirements for irrigation, swimming pools, cooling systems and other outside water use. If there is above normal rainfall or rainfall is more frequent than normal the demand for water may decrease adversely affecting revenues. 

Liberty Utilities (West) region’s demand for energy is primarily affected by weather conditions and conservation initiatives. Above normal snowfall in the Lake Tahoe area brings more tourists with an increased demand for electricity by small commercial customers. Liberty Utilities (West) provides information and programs to its customers to encourage the conservation of energy. In turn, demand may be reduced which could have short term adverse impacts to revenues. 

Prior to January 1, 2013, Liberty Utilities (West) was exposed to volume sales risk related to seasonal weather variations. Effective on January 1, 2013, pursuant to a CPUC approved Rate Case decision, a Base Revenue Requirement Balancing Account (BRAAM) rate mechanism has been implemented. The BRAAM removes the seasonal variations of the revenues and flattens the net revenue (minus Fuel, Purchased Power, ECAC) to a monthly rate of $3.0 million or $35.5 million annually. This substantially eliminates the risk of revenue variations associated with seasonal weather changes. 

Liberty Utilities (East) and Liberty Utilities (Central) natural gas demand is driven by the seasonal heating requirements of its residential, commercial, and industrial customer. That is, the colder the weather the greater the demand for natural gas to heat homes and businesses. As such, Liberty Utilities (East) and Liberty Utilities (Central)’s natural gas demand profiles typically crests in the winter months of January and February and declines in the summer months of July and August. 

## Litigation risks and other contingencies 

APUC and certain of its subsidiaries are involved in various litigations, claims and other legal proceedings that arise from time to time in the ordinary course of business. Any accruals for contingencies related to these items are recorded in the financial statements at the time it is concluded that a material financial loss is likely and the related liability is estimable. Anticipated recoveries under existing insurance policies are recorded when reasonably assured of recovery. 

APCo owns debt on seven hydroelectric facilities owned by Trafalgar. In 1997, an affiliate of APMI moved to foreclose on the assets, and subsequently Trafalgar went into bankruptcy. Trafalgar, APUC and an affiliate of APMI are involved in litigation over, among other things, a civil proceeding on the foreclosure on the assets and in bankruptcy proceedings. 

With respect to the civil proceedings, the Second Circuit Court of Appeal dismissed all the claims against APCo in the civil proceedings and remanded one issue to the District Court. On April 3, 2012, the District Court 

