Algonquin Power & Utilities Corp. – Management’s Discussion & Analysis TREASURY RISK MANAGEMENT  Foreign currency risk  Market price risk  2012 Annual Report 58 APUC attempts to proactively manage the risk exposures of its subsidiaries in a prudent manner. APUC  ensures that both APCo and Liberty Utilities maintain insurance on all of their facilities. This includes property  and casualty, boiler and machinery, and liability insurance. It has also initiated a number of programs and  policies including currency and interest rate hedging policies to manage its risk exposures.  There are a number of monetary and financial risk factors relating to the business of APUC and its subsidiaries. Some of these risks include the U.S. versus Canadian dollar exchange rates, energy market prices, interest  rate, liquidity and commodity price risk considerations, and credit risk associated with a reliance on key  customers. The risks discussed below are not intended as a complete list of all exposures that APUC may  encounter. A further assessment of APUC and its subsidiaries’ business risks is also set out in the most recent  AIF.  Currency fluctuations may affect the cash flows APUC would realize from its consolidated operations, as certain  APUC subsidiary businesses sell electricity or provide utility services in the United States and receive proceeds  from such sales in U.S. dollars. Such APUC businesses also incur costs in U.S. dollars. At the current  exchange rate, approximately 59% of EBITDA in 2012 and 75% of cash flow from operations is generated in  U.S. dollars. APUC estimates that, on an unhedged basis, a $0.10 increase in the strength of the U.S. dollar  relative to the Canadian dollar would result in a net impact on U.S. operations of approximately $6.3 million  ($0.04 per share) on an annual basis. APUC manages this risk primarily through the use of natural hedges by using U.S. long term debt to finance its  U.S. operations. APUC’s policy is not to utilize derivative financial instruments for trading or speculative  purposes. The majority of APCo’s electricity generating facilities sell their output pursuant to long-term PPAs. However,  certain of APCo’s hydroelectric facilities in the New England and New York regions sell energy at current spot  market rates. In this regard, each $10.00 per MW-hr change in the market prices in the New England and New  York regions would result in a change in revenue of $1.0 million on an annualized basis.  Liberty Utilities is not exposed to market price risk as rates charged to customers are stipulated by the  respective regulatory bodies.  On May 15, 2012, APCo entered into a financial hedge, which expires December 31, 2016 with respect to its  Dickson Dam hydroelectric facility located in the Western region. The financial hedge is structured to hedge  75% of APCo’s production volume against exposure to the Alberta Power Pool’s current spot market rates. For  the unhedged portion of production, each $10.00 per MW-hr change in the market prices in the Western region  would result in a change in revenue of $0.2 million on an annualized basis.  The July 1, 2012 acquisition of Sandy Ridge Wind Facility included a financial hedge which commences on  January 1, 2013 for a 10 year period. The financial hedge is structured to hedge 72% of the Sandy Ridge Wind  Facility’s production volume against exposure to PJM Western Hub current spot market rates. For the unhedged  portion of production, each $10 per MW-hr change in the market prices would result in a change in revenue of  about $0.3 million for the year.  The December 10, 2012 acquisition of Senate Wind Facility included a physical hedge which commences on  January 1, 2013 for a 15 year period. The physical hedge is structured to hedge 64% of Senate Wind Facility’s  production volume against exposure to ERCOT North Zone current spot market rates. For the unhedged portion  of production, each $10 per MW-hr change in the market prices would result in a change in revenue of about  $1.1 million for the year.  The December 10, 2012 acquisition of the Minonk Wind Facility included a financial hedge which commences  on January 1, 2013 for a 10 year period. The financial hedge is structured to hedge 73% of the Minonk Wind  Facility’s production volume against exposure to PJM Northern Illinois Hub current spot market rates. For the  unhedged portion of production, each $10 per MW-hr change in market prices would result in a change in  revenue of about $1.1 million for the year.  The January 1, 2013 acquisition of the Shady Oaks Wind Facility included a power sales contract which  commences on January 1, 2013 for a 20 year period. The power sales contract is structured to provide pricing  certainty for approximately 85% of the Shady Oaks Wind Facility’s production volume against exposure to PJM 