## CAPITAL POWER CORPORATION 

Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) 

## 2. Significant accounting policies, continued: 

(d) Investments in joint ventures, continued: 

## Investments in jointly controlled entities 

The Company, along with two third parties, has an equal interest in a partnership established to develop, construct and operate a wind power project. Joint control of this partnership has been established by contractual agreement and the requirement of unanimous consent for strategic financial and operating decisions. 

The Company’s investment in this jointly controlled entity is accounted for under the equity method, and was recognized initially at cost. The accounting policies of the jointly controlled entity are aligned with the accounting policies of the Company. 

(e) Foreign currency translation: 

Transactions in foreign currencies are translated to the respective functional currencies of the Company, or the subsidiary concerned, at exchange rates in effect at the transaction date. At each reporting date monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the date of the statement of financial position. The translation for other non-monetary assets is not updated from historical exchange rates unless they are carried at fair value. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting foreign exchange gains and losses are included in net income. 

On consolidation the assets and liabilities of operations that have a functional currency that is different from the Company’s functional currency of Canadian dollars, principally on U.S. operations that have a functional currency of U.S. dollars, are translated into Canadian dollars at the exchange rates in effect at the date of the statement of financial position. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation gains and losses are deferred and included in accumulated other comprehensive income as part of translation gains and losses. 

(f) Revenue recognition: 

## Energy sales 

Revenues from the sales of electricity and natural gas are recognized when the risks and rewards of ownership pass to the buyer, collection is reasonably assured and the price is reasonably determinable. This occurs upon delivery or availability for delivery under take-or-pay contracts. These revenues include an estimate of the value of electricity and natural gas consumed by customers, but billed subsequent to period-end. 

The Company recognizes revenues from certain of its generation units operating under power purchase agreements (PPAs) as described in note 2(g). PPAs are a form of long-term sales arrangement between the owner of a generation unit and the contracted purchaser under the PPA. 

Revenues from other generation units operating under PPAs, which have not been assessed as containing a lease are recognized on delivery of output or upon availability for delivery as prescribed by the respective PPA. In determining the fair value of revenue to be recognized for certain long-term contracts which contain fixed rates which vary dependent on cumulative volume delivered, revenue is recognized as the lower of (1) the megawatt hours (MWhs) made available during the period multiplied by the billable contract price per MWh and (2) an amount determined by the MWhs made available during the period, multiplied by the average price per MWh over the term of the contract from the date of acquisition. Any excess of the contract price over the average price is recorded as deferred revenue. 

Revenues from the sale of other goods are recognized when the products have been delivered. 

## Service revenues 

Revenues from operating and management services are recognized when the service has been performed or delivered. 

