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(Expressed in thousands of United States dollars) 

## 8. Property, Plant and Equipment (“PP&E”) 

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Included in PP&E are a number of capital projects in progress with a total cost to date of $20.4 million (December 31, 2010: $21.1 million). These projects primarily relate to various improvements to the Generation System. 

Also included in Generation and T&D is freehold land with a cost of $5.0 million (December 31, 2010: $4.7 million). In addition, line inventory with a cost of $5.6 million (December 31, 2010: $5.1 million) is included in T&D. Engine spares with a net book value of $16.3 million (December 31, 2010: $15.0 million) are included in Generation. 

The capitalisation of ‘Financing Costs’ is calculated by multiplying the Company’s Cost of Capital rate by the average work in progress for each month. The cost of capital rate for fiscal 2011 is 8.75% (2010: 8.75%) and will be adjusted annually. As a result, during the year ended December 31, 2011, the Company recognised $3.7 million in AFUDC. The Company recognised an amount of $3.0 million for year ended December 31, 2010 under the provision for AFUDC. 

The Company capitalised an amount of $2.9 million (December 31, 2010: $2.2 million) for the year ended December 31, 2011 under the provision for GEC (see Note 1). 

In accordance with the Licences when an asset is impaired or disposed of, before the original estimated useful life, the cost of the asset is reduced and the net book value is charged to accumulated depreciation. This treatment is in accordance with rate regulated accounting and differs from the Canadian GAAP treatment of a loss being recognised on the statement of earnings. The amount charged to accumulated depreciation is net of any proceeds received in conjunction with the disposal of the asset. This amount within accumulated depreciation is to be depreciated as per the remaining life of the asset when the unit is placed into service. In the case of the 16 MW unit which was damaged in September 2010 (see Note 5 for greater detail), insurance proceeds are applied to accumulated depreciation and as the asset is repaired the costs incurred are being capitalised. 

