The Company considers reputation risk to be a consequence of all other risks that it faces. If a certain risk factor results in positive or negative consequences to the Company, its reputation may also be positively or negatively affected. In part, the Company manages its reputation risk by employing appropriate risk management strategies for all identified risks. Capital Power’s property, business interruption and liability insurance coverages are established and maintained to minimize financial exposures associated with extreme weather and other events. The insurance coverages are subject to deductibles, limits and exclusions, and may not provide sufficient coverage for these and other insurable risks. There can be no assurance that such insurance will continue to be offered on an economically feasible basis or that all events that could give rise to a loss or liability are insurable. There can be no assurance that any risk management steps taken by Capital Power with the objective of mitigating the foregoing risks will avoid future loss due to the occurrence of such risks. The Company has recorded decommissioning provisions of $173 million as at December 31, 2012 for its generation plants and the Genesee coal mine as it is obliged to remove the facilities at the end of their useful lives and restore the plant and mine sites to their original condition. Decommissioning provisions for the coal mine are incurred over time as new areas are mined, and a portion of the liability is settled over time as areas are reclaimed prior to final pit reclamation. The Company is obligated to purchase environmental credits totaling approximately $56 million in future years and expects to use these credits to comply with certain environmental regulations. On April 23, 2012, Capital Power and its partners of TransAlta, Enbridge Inc. and the federal and provincial governments decided not to proceed with their carbon capture and storage project following an extensive engineering and design study. While the project proved to be technically feasible, the economics of the project did not support a decision to proceed. In preparing the consolidated financial statements, management necessarily made estimates in determining transaction amounts and financial statement balances. The following are the Company’s critical accounting estimates which make assumptions about matters that are highly uncertain at the time the accounting estimate is made or period-to-period changes in the estimate would have a material impact on financial condition, changes in financial condition or financial performance. The Company is required to estimate the fair value of certain assets and obligations for determining the valuation of derivative instruments and certain other financial instruments. Fair values of derivative instruments are determined, when possible, using exchange or over-the-counter price quotations by reference to quoted bid, ask or closing market prices as appropriate, in the most advantageous active market for that instrument. When traded markets are not considered to be sufficiently active or do not exist, the Company uses appropriate valuation and price modeling techniques commonly used by market participants to estimate fair value. The Company may also rely on price forecasts prepared by third party market experts to estimate fair value when there are limited observable prices available. Fair values determined using valuation models require the use of assumptions concerning the amounts and timing of future cash flows. Fair value amounts reflect management’s best estimates and maximize, when available, the use of external readily observable market data including future prices, interest rate yield curves, foreign exchange rates, quoted Canadian dollar swap rates, counterparty credit risk, the Company’s own credit risk, and volatility. It is possible that the assumptions used in establishing fair value amounts will differ from future outcomes and the impact of such variations could be material. Depreciation and amortization allocate the cost of assets and their components over their estimated useful lives on a systematic and rational basis. Estimating the appropriate useful lives of assets requires significant judgment and is generally based on estimates of the life characteristics of common assets. Non-financial assets Financial instruments Critical Accounting Estimates and Accounting Judgments Environmental Matters Capital Power Corporation Management’s Discussion and Analysis 2012 54