The Company holds retail and commercial natural gas customer contracts in Alberta, acquired as part of the July 1, 2009 acquisition of assets from EPCOR. The future unavoidable costs of meeting the terms of these contracts are expected to exceed the economic benefits to be received under these contracts. As a result, a provision was recorded to reflect the estimated present value of the loss on these contracts. The expected timing of settlement of these contracts range from 2013 to 2046 and the costs were discounted using risk free rates between 1.10% and 2.46%. The timing and settlement of the obligation is dependent on expectations or renewal of the contracts and expectations of the forward price of natural gas. Income taxes are determined based on estimates of the Company’s current income taxes and estimates of deferred income taxes resulting from temporary tax differences. Deferred tax assets are assessed to determine the likelihood that they will be realized from future taxable income. Estimates of the value of electricity and natural gas consumed by customers but not billed until subsequent to period- end are based on volume data provided by the parties responsible for delivering the commodity and contracted prices. Actual results may differ from these estimates with adjustments to previous estimates being recorded in the period that they become known. The Company has exercised judgment in determining whether the risks and rewards of its generation assets which are subject to a PPA or other electricity purchase agreement (EPA) are transferred to the contracted purchaser, in determining whether a lease exists and if so, whether the lease should be treated as a finance or operating lease. The PPA under which the Company’s Kingsbridge1 power generation facility operates and the EPA under which the Quality Wind facility operates are accounted for as finance leases. For other power generation plants operating under PPAs, their assets are accounted for as assets under operating leases. The following new and amended accounting and reporting standards will be effective in future periods as indicated. The Company has preliminarily assessed the effect on its consolidated financial statements of adopting these standards and amendments. For those standards where earlier application is permitted, Capital Power expects to apply the changes on the effective date. International Accounting Standard (IAS) 1 Presentation of Financial Statements In June 2011, the International Accounting Standards Board (IASB) issued amendments to IAS 1 which requires entities to group items within other comprehensive income on the basis of whether or not they will be reclassified to income or loss in a future period. The implications of adopting the amendments to IAS 1 will be limited to the Company’s presentation within its statement of other comprehensive income. The amendments are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Earlier application is permitted. IAS 19 Employee Benefits In June 2011, the IASB issued an amendment to IAS 19 which introduced changes related to: (a) eliminating the option to defer the recognition of actuarial gains and losses, known as the corridor method, (b) requiring a new method of calculating finance costs on defined benefit plans where a single discount rate is applied to the net pension assets or obligations, and (c) requiring enhanced disclosures regarding the characteristics and associated risks of the entities’ defined benefit plans. Capital Power expects that the adoption of this new standard will have an immaterial effect on its consolidated financial statements. Amendments to IAS 19 are effective for annual periods beginning on or after January 1, 2013 and are to be applied retrospectively. Earlier application is permitted. Capital Power Corporation Management’s Discussion and Analysis 2012 56 Future Accounting Changes Leases or arrangements containing a lease Revenue recognition Income taxes