The 2012 fourth quarter plant operating results for the Bridgeport, Rumford and Tiverton plants in the North East U.S. plant category were below average results of previous quarters primarily due to outage days experienced on a pre- emptive basis in consideration of Hurricane Sandy. Net pre-tax losses of $10 million related to the North East U.S. plants were incurred during the fourth quarter. A heat rate option that was in place on the Bridgeport facility at the time of acquisition in 2011 settled at a loss for November and December 2012 due to a significant shift in the underlying locational basis risk associated with the option. The basis risk existed because the plant delivers power to and procures gas from locations differing from those referenced in the heat rate option. The correlation between the locations has historically been very high for both power and natural gas. However, in November and December 2012, there was a spike in North East U.S. natural gas demand combined with supply constraints resulting in a significant shift in North East U.S. gas fundamentals. These factors led to a significant widening of the price spread between the Bridgeport plant’s natural gas consumption point and the heat rate option location resulting in the loss. In addition, December 2012 physical natural gas consumption for Bridgeport was locked-in at prices higher than actual prices resulting in an additional loss. These losses were partly offset by gains realized on a financial hedge executed to reduce the locational basis risk. These trades were implemented to limit the exposure to the natural gas basis risk associated with the heat rate option. 

## Factors impacting results for the previous quarters 

Significant events and items which affected results for the previous quarters were as follows: 

In the third quarter of 2012, Alberta commercial plants experienced strong performance which was dampened by an unscheduled outage at Genesee 1 resulting from a trial project intended to increase the marketability of fly ash by- product. 

In the second quarter of 2012, a pre-tax impairment loss of $74 million on Capital Power’s North East U.S. plants based on reduced expected operating margins for the Bridgeport, Rumford and Tiverton plants largely as a result of weaker spark spreads in the Northeast U.S. power market was recognized. Results for the North East U.S commercial plants were impacted by lower than expected market spark spreads and an unplanned outage at the Bridgeport facility. 

The 2012 first quarter reflected strong results for Alberta commercial plants and portfolio optimization largely due to the movement of Alberta power prices and their impact on portfolio position selling forward length at prices higher than the spot market. The production and contributions from Alberta commercial plants was strong with the inclusion of Keephills 3 since its commercial operations commenced in September 2011. The Company recognized significant unrealized net gains on its energy derivatives due to the reversal of unrealized losses accrued at the previous year- end on contracts which settled in the first quarter of 2012 and the impact of decreasing Alberta forward power prices on its portfolio position. 

In the fourth quarter of 2011, the Company sold its limited partnership units of CPILP to Atlantic Power effective November 5, 2011 resulting in the recognition of a pre-tax gain on disposal of $89 million after deducting legal and other disposal costs of $10 million. From that point forward, the Company’s operations and corporate structure were simplified as there was a decrease in the number of plants and legal entities and CPILP’s results were no longer consolidated with the Company’s results. Absent other changes, the disposal decreased revenues, net income and net income attributable to non-controlling interests for the fourth quarter of 2011 and future quarters relative to past quarters. Capital Power’s Genesee 3 plant experienced an unplanned outage which reduced its generation volumes but this was partly offset by increased generation from the Company’s CBEC facility. This and other Alberta portfolio optimization activities given the higher power prices experienced due to plant outages and higher demand helped offset a portion of the loss of earnings from Genesee 3 being offline. 

In the third quarter of 2011, the average Alberta power price increased significantly due to warmer temperatures, reduced supply resulting from several plant outages in the area, and Saskatchewan tie-line restrictions. Higher Alberta power prices had a favourable impact on the Company’s Alberta portfolio position. Sundance Unit 6 went offline on August 18, 2011 due to a transformer failure and remained offline until October 14, 2011 to also perform planned maintenance. The penalty revenues received for this outage were based on high rolling average power prices partly offset the loss of margin from the facility being unavailable on the Alberta commercial plant and portfolio optimization results. The high rolling average power prices also had a favourable impact on availability incentive income for the Alberta contracted plants which had 100% availability in the quarter. Corporate results included a $6 million foreign exchange losses related to the translation of U.S. denominated debt. 

