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

## 30. Risk management, continued: 

## Credit risk, continued 

## Loans and long-term financing 

As at December 31, 2012 loans and long-term financing consists primarily of notes receivable attributable to two Alberta PPA syndicate members. The Company is exposed to credit risk in the event of non-performance by the syndicate members, but does not anticipate such non-performance. Although the syndicate members are not investment grade, the notes receivable are secured by security interests in the syndicate members' respective shares of the power syndicate agreement. 

## Trade and other receivables and financial derivative instruments 

Trade and other receivables are substantially made up of receivables related to the generation and sale of electricity to customers including industrial and commercial customers, independent system operators from various regions and government-owned or sponsored entities and the settlement of financial derivative instruments related to merchant price risk mitigation and trading activities. The Company manages its credit risk on these financial assets through its credit adjudication process, dealing with creditworthy counterparties and utilizing the credit risk mitigation practices noted above. 

## Generation credit risk 

Credit risk exposure from PPAs, agreements with independent system operators, power and steam sales contracts, and certain energy supply agreements is predominantly restricted to trade and other receivables and contract default. In certain cases, the Company relies on a single or small number of customers to purchase all or a significant portion of a facility’s output. The failure of any one of these counterparties to fulfill its contractual obligations could negatively impact the Company’s financial results. Financial loss resulting from events of default by counterparties in certain PPAs and steam purchase arrangements may not be recovered since the contracts may not be replaceable on similar terms under current market conditions. Consequently, the Company’s financial performance depends on the continued performance by customers and suppliers of their obligations under these long-term agreements. Credit risk exposure is mitigated by dealing with creditworthy counterparties that are determined to be investment grade based on the Company's internally assigned ratings or employing mitigation strategies as noted above, netting amounts by legally enforceable set-off rights, and, when appropriate, taking back security from the counterparty. Credit risk with counterparties in this asset class that are government-owned or sponsored entities and regulated public utility distributors is generally considered low. 

## Wholesale and merchant credit risk 

Credit risk exposure for wholesale and merchant trading counterparties is measured by calculating the costs (or proceeds) of replacing the commodity position (physical and derivative contracts), adjusting for settlement amounts due to or due from the counterparty and, if permitted, netting amounts by legally enforceable set-off rights. Financial loss on wholesale contracts could include, but is not limited to, the cost of replacing the obligation, amounts owing from the counterparty or any loss incurred on liability settlements. Wholesale and merchant credit risk exposure is mitigated by trading with investment grade and creditworthy counterparties, portfolio diversification, monitoring of credit exposure limits, margining to reduce energy trading risks, obtaining parent company guarantees, and when appropriate taking back security from counterparties. 

## Trade and other receivables and allowance for doubtful accounts 

Trade and other receivables consist primarily of amounts due from customers including industrial and commercial customers, independent system operators from various regions, government-owned or sponsored entities, and other counterparties. Larger commercial and industrial customer contracts and contract-for-differences provide for performance assurances including letters of credit if deemed appropriate. The Company also has credit exposures to large suppliers of electricity and natural gas. The Company mitigates these exposures by dealing with creditworthy counterparties and, when appropriate, taking back appropriate security from the supplier. 

