Algonquin Power & Utilities Corp. – Management’s Discussion & Analysis Liberty Utilities estimates the remaining cost of these MGP-related environmental cleanup activities will be  $68,180 which at a discount rate of 3.5% represents $56,587 at December 31, 2012, which has been accrued  as Liberty Utilities’ estimate of costs for known issues. By rate orders, the Regulator provided for the recovery of  site investigation and remediation costs and accordingly, at December 31, 2012 the Company has reflected a  regulatory asset of $55,721 for the remediation of the MGP and related sites.  APUC’s policy is to record estimates of environmental liabilities when they are known or considered probable  and the related liability is estimable. There are no known material environmental liabilities as at December 31,  2012. Cycles and Seasonality The hydroelectric operations of APCo are impacted by seasonal fluctuations. These assets are primarily “run- of-river” and as such fluctuate with natural water flows. During the winter and summer periods, flows are  generally lower while during the spring and fall periods flows are generally higher. The ability of these assets to  generate income may be impacted by changes in water availability or other material hydrologic events within a  watercourse. It is, however, anticipated that due to the geographic diversity of the facilities, variability of total  revenues will be minimized. The strength and consistency of the wind resource will vary from the estimate set out in the initial wind studies  that were relied upon to determine the feasibility of the facility. If weather patterns change or the historical data  proves not to accurately reflect the strength and consistency of the actual wind, the assumptions underlying the  financial projections as to the amount of electricity to be generated by the facility may be different and cash  could be impacted. Liberty Utilities (West) and Liberty Utilities (Central)’s demand for water is affected by weather conditions and  temperature. Demand for water during warmer months is generally greater than cooler months due to  requirements for irrigation, swimming pools, cooling systems and other outside water use. If there is above  normal rainfall or rainfall is more frequent than normal the demand for water may decrease adversely affecting  revenues.  Liberty Utilities (West) region’s demand for energy is primarily affected by weather conditions and conservation  initiatives. Above normal snowfall in the Lake Tahoe area brings more tourists with an increased demand for  electricity by small commercial customers. Liberty Utilities (West) provides information and programs to its  customers to encourage the conservation of energy. In turn, demand may be reduced which could have short  term adverse impacts to revenues.  Prior to January 1, 2013, Liberty Utilities (West) was exposed to volume sales risk related to seasonal weather  variations. Effective on January 1, 2013, pursuant to a CPUC approved Rate Case decision, a Base Revenue  Requirement Balancing Account (BRAAM) rate mechanism has been implemented. The BRAAM removes the  seasonal variations of the revenues and flattens the net revenue (minus Fuel, Purchased Power, ECAC) to a  monthly rate of $3.0 million or $35.5 million annually. This substantially eliminates the risk of revenue variations  associated with seasonal weather changes.  Liberty Utilities (East) and Liberty Utilities (Central) natural gas demand is driven by the seasonal heating  requirements of its residential, commercial, and industrial customer. That is, the colder the weather the greater  the demand for natural gas to heat homes and businesses. As such, Liberty Utilities (East) and Liberty Utilities  (Central)’s natural gas demand profiles typically crests in the winter months of January and February and  declines in the summer months of July and August.  APUC and certain of its subsidiaries are involved in various litigations, claims and other legal proceedings that  arise from time to time in the ordinary course of business. Any accruals for contingencies related to these items  are recorded in the financial statements at the time it is concluded that a material financial loss is likely and the  related liability is estimable. Anticipated recoveries under existing insurance policies are recorded when  reasonably assured of recovery. APCo owns debt on seven hydroelectric facilities owned by Trafalgar. In 1997, an affiliate of APMI moved to  foreclose on the assets, and subsequently Trafalgar went into bankruptcy. Trafalgar, APUC and an affiliate of  APMI are involved in litigation over, among other things, a civil proceeding on the foreclosure on the assets and  in bankruptcy proceedings. With respect to the civil proceedings, the Second Circuit Court of Appeal dismissed all the claims against APCo  in the civil proceedings and remanded one issue to the District Court. On April 3, 2012, the District Court  Litigation risks and other contingencies  2012 Annual Report 64