TO OUR SHAREHOLDERS MESSAGE FROM THE PRESIDENT ANDCEO Throughout 2012, we remained focused on executing our strategy – a strategy that  remains unchanged and designed to create value throughout the business cycle. Capital  Power’s corporate strengths continue to be the pillars that support our strategy and vision  to be one of North America’s most respected, reliable and competitive power producers. ENMAX. For the first three years, 75% of  our generation from the Shepard facility  will be contracted, which will drop to 50%  for the balance of the 20 years. Overall,  it is an excellent arrangement for Capital  Power – it’s a terrific asset in our home  market and with the tolling agreement  with ENMAX for a large portion of our  output, it allows us to reposition our  Alberta portfolio and signifi cantly reduce  our business risk by increasing our overall  contracted position. Our power generation fleet of 16 facilities  continues to be both modern and relatively  young with an average MW-weighted  facility age of only 12 years. The age of our  fleet helps keep plant availability high and  reduces the risk of unplanned outages. With  the future additions of the two Ontario wind  facilities (Port Dover and Nanticoke and  K2 Wind) and our 50% ownership of the  Shepard Energy Centre, the fl eet continues  to operate with the latest technologies in  power generation.  Second, we announced the Capital Power  Energy Centre, a proposed facility with  up to 900 MWs of generation capacity  that will utilize General Electric’s latest  gas turbine technology. This facility would  be operational in the 2017-20 timeframe  when additional generation in the  province will be required to meet growing  demand and replace generation from  the retirement of coal-fired units. Capital  Power will strengthen its position as one of  the dominant power producers in Alberta  when these two large, efficient natural gas  facilities are added to the fl eet.  During 2012, we completed the sale of our  two remaining small hydro assets in British  Columbia as the last step in sharpening our  operational focus on four fuel types: natural  gas, coal, wind and solar. We continued to  demonstrate our construction expertise  with the completion of the Quality Wind  and Halkirk Wind projects on time and  under budget. The two wind facilities added  292 MWs to our fleet, which has now  grown to more than 3,600 MWs of owned  generation – almost double the generation  capacity compared to three years ago. For this reason, we announced major  expansion plans late last year with two  significant projects. First, we entered into  a joint venture agreement with ENMAX  Energy (ENMAX) for the construction  and ownership of the Shepard Energy  Centre, an 800 MW combined cycle  natural gas power plant located in  Calgary. Construction of the Shepard  facility is more than 50% completed  and is expected to begin commercial  operations in early 2015. As part of the  agreement, Capital Power has a 20-year  tolling agreement with ENMAX, where  we will receive fixed capacity payments  for our portion of power output from the  facility, with associated operations and  maintenance costs flowing through to  Capital Power has a history in utilizing  leading technology in Alberta. We introduced  super-critical coal technology to Alberta  and North America, LMS100 peaking  technology to Alberta and Canada, and  when the Shepard facility begins commercial  operations in 2015, it will be the most  effi cient combined cycle facility in Canada  and will eventually be surpassed by the  expected effi ciency at the Capital Power  Energy Centre when it is completed later  in the decade. Capital Power does and will  continue to own the best fl eet of generation  assets in one of the most attractive power  markets in North America. It gives us the  best peaking responsiveness, the best coal  reliability, the lowest environmental impact  and lowest cost, and the most competitive  natural gas combined cycle facility in Alberta.  We continue to be focused on our  geographic footprint and target markets  in North America. In our home market of  Alberta, an energy only market, power  prices are determined by supply and  demand. The near-term outlook for power  prices softened in the past year when  an arbitration decision ordered TransAlta  to restore their Sundance 1 and 2 units  back to service. The addition of 560  megawatts (MWs) of supply from these  two units expected in the fall of 2013 has  reduced the forward view of Alberta power  prices for the next few years. However,  the excess supply of generation in the  medium term is partially offset by the fact  that Alberta remains one of the fastest  growing economies and power markets in  North America. With increasing demand for  electricity and the retirement of older coal  facilities, these strong market fundamentals  will lead to higher power prices and new  build opportunities over time, making it an  attractive market to invest in.  CAPITAL POWER  2012 ANNUAL REPORT 2 MODERN FLEET AND  TECHNOLOGY FOCUS MARKET FOCUS STRATEGY BALANCE OF  CONTRACTED  AND MERCHANT  GENERATION MODERN  FLEET AND  TECHNOLOGY  FOCUS OPERATIONAL  EXCELLENCE CONSISTENT ACCESS TO LOW  COST CAPITAL INVESTMENT  GRADE CREDIT  RATING MARKET FOCUS