Funds from operations and funds from operations excluding non-controlling interests in CPILP Capital Power uses funds from operations as a measure of the Company’s ability to generate cash from its current operating activities to fund capital expenditures, debt repayments, dividends to the Company’s shareholders and distributions to non-controlling interests. Funds from operations are net cash flows from operating activities, including finance and current income tax expenses, and excluding changes in working capital. The Company includes interest and current income tax expenses recorded during the period rather than interest and income taxes paid. The timing of cash receipts and payments of interest and income taxes and the resulting cash basis amounts are not comparable from period to period. The timing of cash receipts and payments also affects the period-to-period comparability of changes in operating working capital which are also excluded from funds from operations. The Company divested its 29% indirect ownership of CPILP as of November 5, 2011. Prior to the sale, the Company used funds from operations excluding non-controlling interests in CPILP to provide a more meaningful measure of the Company’s operating cash flows since the non-controlling interests in CPILP’s funds from operations were approximately 71%. A reconciliation of net cash flows from operating activities to (i) funds from operations and (ii) funds from operations excluding non-controlling interests in CPILP is as follows: (unaudited, $millions) Year ended December 31 Three months ended December 31 2012 2011 2012 2011 Net cash flows from operating activities per Consolidated Statements of Cash Flows 242 461 29 151 Add (deduct) items included in calculation of net cash flows from operating activities per Consolidated Statements of Cash Flows: Interest paid 59 88 22 44 Miscellaneous financing charges paid and realized loss on the settlement of forward bond contracts included in other items 15 15 2 1 Income taxes paid 7 14 1 1 Change in non-cash operating working capital 140 (42) 46 (69) 221 75 71 (23) Finance expense excluding unrealized changes on interest rate derivative contracts and amortization and accretion charges (78) (98) (17) (24) Current income tax expense (4) (5) - (5) Funds from operations 381 433 83 99 Less funds from operations due to non-controlling interests in CPILP - 81 - 11 Funds from operations excluding non-controlling interests in CPILP 381 352 83 88 Capital Power Corporation Management’s Discussion and Analysis 2012 20