Financial stability and strength Performance measure 2012 target 2012 actual results Normalized earnings per share (1) $1.50 to $1.70 $1.29 Funds from operations (1) $380 million to $420 million $381 million Cash flow per share (1) $3.90 to $4.30 $3.89 (1) Normalized earnings per share, funds from operations, and cash flow per share are non-GAAP measures. See Non-GAAP Financial Measures. Actual financial results achieved in 2012 compared with the 2012 financial targets reflected the overall impact of lower than expected power prices and the results of portfolio optimization activities. The most significant variances from the targets were losses upon settlement of Bridgeport heat rate option contracts, lower than expected wind volumes at Quality Wind, and lower than expected adjusted EBITDA (2) for the North East U.S. plants primarily due to the second quarter unplanned outage at Bridgeport, lower than expected spark spreads and lower than expected trading results. The results for North Carolina U.S. plants were also under target primarily due to higher than expected maintenance costs incurred during planned outages and higher fuel costs. These unfavourable variances from target were partly offset by the fourth quarter increase in adjusted EBITDA due to a change in the estimate of Genesee coal mine inventory. (2) Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses and gains on disposals (adjusted EBITDA) is a non-GAAP financial measure. See Non-GAAP Financial Measures. Net pre-tax losses of $10 million related to the North East U.S. plants were incurred in the fourth quarter of 2012. A heat rate option that was in place on the Bridgeport facility at the time of acquisition in 2011 settled at a loss for November and December 2012 due to a significant shift in the underlying locational basis risk associated with the option. The basis risk existed because the plant delivers power to and procures gas from locations differing from those referenced in the heat rate option. The correlation between the locations has historically been very high for both power and natural gas. However, in November and December 2012, there was a spike in North East U.S. natural gas demand combined with supply constraints resulting in a significant shift in North East U.S. gas fundamentals. These factors led to a significant widening of the price spread between the Bridgeport plant’s natural gas consumption point and the heat rate option location resulting in the loss. This Bridgeport heat rate option expires at the end of 2013 and this gas price differential risk has been fully mitigated for 2013. In addition, December 2012 physical natural gas consumption for Bridgeport was locked-in at prices higher than actual prices resulting in an additional loss. These losses were partly offset by gains realized on a financial hedge executed to reduce the locational basis risk. These trades were implemented to limit the exposure to the natural gas basis risk associated with the heat rate option. Wind volumes at the Quality Wind facility, which began operations in early November 2012, were lower than expected. Based on historical wind data, the period from November to January typically has the strongest wind regime and Capital Power’s forecast accordingly assumed an average capacity factor of 47% for this three-month period. The actual capacity factor for November and December averaged 27% and resulted in lower than forecasted operating margins of approximately $6 million in the fourth quarter of 2012. The actual capacity factor for January and February 2013 was in line with expectations. Revenues and adjusted EBITDA for 2012 were unfavourably impacted by an unplanned outage at the Bridgeport facility which was offline from May 2, 2012 to June 11, 2012 due to a condenser leak. The Company incurred $2 million in maintenance costs and lost an estimated $4 million in revenues as a result of this outage. Lower market spark spreads reflected the impact of lower natural gas prices resulting primarily from an oversupply of natural gas. Other trading results for the North East U.S. portfolio were under target by $10 million for full year 2012 These unexpected events were partly offset by the favourable pre-tax adjustment of $9 million recorded in the fourth quarter of 2012 related to a change in estimate for the Genesee mine coal inventory which primarily impacted the Alberta contracted plants. Capital Power Corporation Management’s Discussion and Analysis 2012 15