Algonquin Power & Utilities Corp. – Consolidated Financial Statements ALGONQUIN POWER & UTILITIES CORP.  Notes to the Consolidated Financial Statements  December 31, 2012 and 2011   (in thousands of Canadian dollars except as noted and amounts per share)  24. Financial instruments (continued) (b) Derivative instruments (continued)  (ii) Cash flow hedges (continued)  The Company expects $3,852 of unrealized gains currently in accumulated other comprehensive loss to be reclassified into net earnings within the next twelve months, as the  underlying hedged transactions settle.  (iii) Foreign exchange hedge of net investment in foreign operation  The Company periodically uses a combination of foreign exchange forward contracts and  spot purchases to manage its foreign exchange exposure on cash flows generated from the  U.S. operations. APUC only enters into foreign exchange forward contracts with major  Canadian financial institutions having a credit rating of A or better, thus reducing credit risk on  these forward contracts. Concurrent with its $150,000 debentures offering in December 2012, APCo entered into a  cross currency swap, coterminous with the debentures, to effectively convert the Canadian  dollar denominated offering into U.S. dollars. APCo designated the entire notional amount of  the cross currency fixed for fixed interest rate swap and related short-term USD payables  created by the monthly accruals of the swap settlement as a hedge of the foreign currency  exposure of its net investment in APCo’s U.S. operations. The gain or loss related to the fair  value changes of the swap and the related foreign currency gains and losses on the USD  accruals that are designated as, and are effective as, an economic hedge of the net  investment in a foreign operation are reported in the same manner as the translation  adjustment (in other comprehensive income) related to the net investment. A foreign currency  loss of $1,669 was recorded in other comprehensive income in 2012.  APCo provides energy requirements to various customers under contracts at fixed rates. While the production from the Tinker Assets are expected to provide a portion of the energy  required to service these customers, APUC anticipates having to purchase a portion of its  energy requirements at the ISO NE spot rates to supplement self-generated energy.  (iv) Other derivatives  This risk is mitigated though the use of short term financial forward energy purchase  contracts which are derivative instruments. In January 2011, APUC entered into electricity  derivative contracts for a term ending February 2014, which are net settled fixed-for-floating  swaps whereby APUC will pay a fixed price and receive the floating or indexed price on a  notional quantity of 91,216 MW-hrs of energy over the remainder of the contact term at an  average rate of approximately U.S. $52.89 per MW-hr. The estimated fair value of these  forward energy hedge contracts at December 31, 2012 was a net liability of $286 (2011 -  $1,169). These contracts are not accounted for as hedges and changes in fair value are  recorded in earnings as they occur. 2012 Annual Report 135