Significant Events $150 million offering of 4.60% Cumulative Rate Reset Preference Shares Announcement of major expansion plans Completion and commercial operations commencement of wind projects Impairment of North East U.S. assets Sale of hydro facilities Debt and equity base shelf prospectuses On December 18, 2012, Capital Power Corporation issued 6 million Cumulative Rate Reset Preference Shares, Series 3 at $25 per share for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters. The Series 3 Shares will pay fixed cumulative preferential dividends of $1.15 per share per annum, yielding 4.60% per annum, payable on the last business day of March, June, September and December each year, as and when declared by the Board of Directors of Capital Power Corporation, for the initial period ending December 31, 2018. The Series 3 Shares are subject to specified redemption, conversion and reset rights. Standard & Poor’s (a division of the McGraw Hill Companies, Inc.) (S&P) has assigned a rating of P-3 and DBRS Limited (DBRS) has assigned a rating of Pfd-3 (low) for these Series 3 Shares. In December 2012, Capital Power announced expansion plans including its joint venture agreement with ENMAX Corporation (ENMAX) for the construction, ownership and operations of the Shepard Energy Centre with scheduled completion in early 2015 and its intention to develop the Capital Power Energy Centre, a large natural gas facility that is scheduled for completion in the 2017 to 2020 timeframe when additional generation in Alberta is required to meet growing demand and replace generation from the retirement of coal-fired units. Capital Power completed construction of its 150 MW Halkirk facility located in central Alberta. The Alberta Electric System Operator declared Halkirk commercially operational on December 1, 2012. The facility was completed slightly ahead of scheduled timing and approximately 8% under budgeted cost of $357 million. Capital Power also completed construction of its 142 MW Quality Wind facility located in British Columbia with its commercial operation date being November 6, 2012. Construction was completed on time and approximately 10% below its $455 million budget. During the second quarter of 2012, Capital Power recognized a pre-tax impairment charge of $74 million with respect to its North East U.S. plants which reduced the carrying amount of the related property, plant and equipment and goodwill. This impairment was based on reduced expected operating margins for the Bridgeport, Rumford and Tiverton plants largely as a result of weaker spark spreads in the North East U.S power markets. The reduction in spark spreads is attributable to market and other changes since the April 2011 acquisition of the North East U.S. assets; the fair value paid was consistent with other transactional values in the market at the time of acquisition. If expected operating margins strengthen, a portion of the impairment loss could be reversed. The impairment charge, after income taxes and non-controlling interests, was excluded from net income attributable to shareholders in determining normalized earnings per share. The impairment charge had no cash flow impact. On October 12, 2012, Capital Power completed the sale of its two British Columbia hydro facilities, Brown Lake and Miller Creek. The two facilities, which generate 40 MW into the British Columbia power grid, were sold to Innergex Renewable Energy Inc. (Innergex) for approximately $69 million and a pre-tax gain of $15 million was recorded in the Company’s consolidated statement of income. The gain on disposal, after income taxes and non-controlling interests, was excluded from net income attributable to shareholders in determining normalized earnings per share. The gain on disposal had no cash flow impact. On June 12, 2012, CPLP filed a Canadian base shelf prospectus, which expires in July 2014, under which it may offer and issue medium-term notes, due not less than one year from the date of issue, to the public in an aggregate principal amount not to exceed $1 billion. On February 16, 2012, Capital Power filed a Canadian base shelf prospectus, which expires in March 2014, under which it may raise up to $2 billion collectively in common shares of the Company, preferred shares of the Company and subscription receipts exchangeable for common shares and/or other securities of the Company. Capital Power Corporation Management’s Discussion and Analysis 2012 24