## Unbilled Energy Revenues 

Revenues related to natural gas, electricity and water delivery are generally recognized upon delivery to customers. The determination of customer billings is based on a systematic reading of meters throughout the month. At the end of each month, amounts of natural gas, energy or water provided to customers since the date of the last meter reading are estimated, and the corresponding unbilled revenue is recorded. Factors that can impact the estimate of unbilled energy include, but are not limited to, seasonal weather patterns compared to normal, total volumes supplied to the system, line losses, economic impacts and composition of customer classes. Estimates are reversed in the following month and actual revenue is recorded based on subsequent meter readings. 

## Derivatives 

APUC uses derivative instruments to manage exposure to changes in commodity prices, foreign exchange rates and interest rates. Derivative instruments that do not meet the normal purchases and sales exception are recorded at fair value. Changes in the derivative's fair value are recognized as regulatory assets or liabilities when the regulator permits recovery of the hedging strategy. For derivative designated in a cash flow hedge relationship, the effective portion of the change in fair value is deferred to accumulated other comprehensive income, until the hedged transaction occurs and is recognized in earnings. The ineffective portion is immediately recognized in earnings. For derivative or financial instruments designated as a hedge of the foreign currency exposure of a net investment in foreign operations, foreign currency transaction gain or loss that are effective as an economic hedge of the net investment in a foreign operation are reported in other comprehensive income. 

Management's judgment is required to determine if a transaction meets the definition of a derivative and, if it does, whether the normal purchases and sales exception applies or whether individual transactions qualify for hedge accounting treatment. Management's judgment is also required to determine the fair value of derivative transactions. APUC determines the fair value of derivative instruments based on forward market prices in active markets adjusted for nonperformance risk. A significant change in estimate could affect APUC’s results of operations. 

## Pension and Postretirement Benefits 

In conjunction with recent utilities acquisitions, the Company assumed defined benefit pension and post- retirement benefit plans for qualifying employees in the related acquired businesses. The obligations and related costs are calculated using actuarial concepts, which include critical assumptions related to the discount rate, expected rate of return on plan assets and medical cost trend rates. These assumptions are important elements of expense and/or liability measurement and are updated on an annual basis, or upon the occurrence of significant events. A significant change in estimate could affect APUC’s results of operations. In addition, the determination of the fair value of pension and postretirement benefits assets and liabilities acquired in the business acquisitions has been based upon management’s preliminary estimates and assumptions. The Company will continue to review information and perform further analysis. The actual fair values of the assets acquired and liabilities assumed may differ from the amounts noted. 

Additional disclosure of APUC’s critical accounting estimates is also available SEDAR at www.sedar.com and on the APUC website at www.AlgonquinPowerandUtilities.com. 

