Algonquin Power & Utilities Corp. – Consolidated Financial Statements ALGONQUIN POWER & UTILITIES CORP.  Notes to the Consolidated Financial Statements  (in thousands of Canadian dollars except as noted and amounts per share)  December 31, 2012 and 2011  Algonquin Power & Utilities Corp. (“APUC” or the “Company”) is an incorporated entity under the Canada  Business Corporations Act. APUC’s principal activity is the ownership of power generation facilities and  water, gas and electric utilities, through investments in securities of subsidiaries including corporations,  limited partnerships and trusts which carry on these businesses. APUC’s power generation business unit conducts business under the name Algonquin Power Co.  (“APCo”). APCo owns or has interests in renewable energy facilities and thermal energy facilities. APUC’s Utility Services business unit conducts business under the name of Liberty Utilities Co. (“Liberty  Utilities”). Liberty Utilities operates a portfolio of utilities in the United States of America providing electric,  natural gas, water distribution or wastewater services. The accompanying consolidated financial statements and accompanying notes have been  prepared in accordance with generally accepted accounting principles in the United States  (“U.S. GAAP”) and follow disclosures required under Regulation S-X provided by the  Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements of APUC include the accounts of  APUC and its wholly owned subsidiaries and variable interest entities (“VIEs”) where the  Company is the primary beneficiary. Intercompany transactions and balances have been  eliminated.  The regulated utility operating companies owned by Liberty Utilities are subject to rate  regulation generally overseen by the public utility commissions of the states in which they  operate (the “Regulator”). The Regulator provides the final determination of the rates  charged to customers. APUC’s regulated utility operating companies are accounted for  under the principles of U.S. Financial Accounting Standards Board ASC Topic 980  Regulated Operations (“ASC 980”). Under ASC 980, regulatory assets and liabilities that  would not be recorded under U.S. GAAP for non-regulated entities are recorded to the extent  that they represent probable future revenues or expenses associated with certain charges or  credits that will be recovered from or refunded to customers through the rate making  process. Included in Note 7, Regulatory Assets & Liabilities are details of regulatory assets  and liabilities, and their current regulatory treatment.  In the event the Company determines that its net regulatory assets are not probable of  recovery, it would no longer apply the principles of the current accounting guidance for rate  regulated enterprises and would be required to record an after-tax, non-cash charge (credit)  against income for any remaining regulatory assets (liabilities). The impact could be material  to the Company’s reported financial condition and results of operations.  The electric utilities’ and the water utilities’ accounts are maintained in accordance with the  Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission  (“FERC”) and National Association of Regulatory Utility Commissioners, respectively.  Cash and cash equivalents include all highly liquid instruments with an original maturity of  three months or less.   (d) Cash and cash equivalents  (c) Accounting for rate regulated operations   (b) Basis of consolidation  1.  Significant accounting policies  (a)  Basis of preparation  78 2012 Annual Report