MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Overview Capstone's Adjusted EBITDA and AFFO were both higher than in 2012. Adjusted EBITDA performance primarily reflected the following: • Bristol Water's revenue increased due to higher regulated water tariffs. This was partially offset by higher non-controlling interest due to the reduction in ownership interest in May 2012; •  The Cardinal gas cogeneration facility's ("Cardinal") revenue increased due to higher power rates and more production in 2013 due to fewer outage hours; •  The ReD wind facilities added $4,352 of Adjusted EBITDA since acquisition on October 1, 2013; • Erie Shores Wind Farm ("Erie Shores") revenue increased due to higher power generation as a result of more favourable wind conditions, including contributions from the WindBOOST, a wind turbine control system installed in 2013; and •  Corporate project development costs increased due to the acquisition of ReD. Project development costs for power were also higher in 2013  due to the activities of our new development subsidiary launched in December 2012. In addition, Capstone's AFFO was affected by: • Corporate taxes paid increased due to payment of the final 2012 tax installment on preferred dividends in the first quarter of 2013; •  Debt service costs increased primarily due to higher project debt following the ReD acquisition. In addition, the interest payments were higher  for the hydro facilities as the debt was outstanding for a full year in 2013 compared with six months in 2012; and • Cardinal's maintenance capital expenditures decreased in 2013 following the hot gas path inspection, required every three years, completed in  2012. For the year ended Dec 31, 2013 Dec 31, 2012 Revenue 389,503 357,610 Expenses (220,433) (207,167) Interest income 4,096 4,886 Distributions from equity accounted investments 3,982 2,001 Less: non-controlling interest (“NCI”) (48,727) (36,987) Adjusted EBITDA 128,421 120,343 Adjusted EBITDA of consolidated businesses with NCI (48,693) (48,202) Distributions from businesses with NCI 8,111 8,091 Principal from loans receivable 1,096 984 Interest paid (23,444) (23,312) Dividends paid on Capstone’s preferred shares (3,750) (3,750) Income taxes (paid) recovery (2,534) (612) Maintenance capital expenditures (4,387) (5,398) Scheduled repayment of debt principal (14,886) (12,581) AFFO 39,934 35,563 AFFO per share 0.493 0.473 Payout ratio 60.9% 94.9% Dividends declared per share 0.300 0.450 Revenue  increased by $31,893, or 8.9%, primarily due to Bristol Water where higher regulated water tariffs and water consumption increased revenue by $17,183. In the power segment, ReD represented $5,714 of the increase while higher electricity generation at Cardinal and Erie Shores contributed $9,060. Expenses increased by $13,266, or 6.4%, as follows: •  Operating expenses  increased by s $8,802, or 4.5%, primarily due to Bristol Water where higher repairs and maintenance activities, and  inflationary increases for energy, consumables, wages and salaries, were the major factors. In the power segment, ReD contributed $1,475 while Cardinal increased by $580 primarily due to higher fuel expenses as more fuel was required for production, partially offset by lower gas transportation costs. •  Project development costs  increased by  s $5,165, or 1,415%, primarily due to $4,278 of costs for the acquisition of ReD. In addition,  Capstone's power development costs increased by $1,146, which includes $829 related to Capstone's power development subsidiary, while $317 was for costs on the wind projects under construction. • Administrative expenses  decreased by  s $701, or 6.3%, due to lower staff costs, offset partially by higher professional fees. Interest income decreased by e $790, or 16.2%, primarily due to $495 and $476 related to Värmevärden and Bristol Water, respectively. The Värmevärden decrease reflected a reduction in the interest rate and lower outstanding shareholder loans in 2013, following the 2012  recapitalization. The Bristol Water decrease was attributable to a lower average cash balance in 2013 due to the funding of the capital expenditure program. 24 CAPSTONE INFRASTRUCTURE CORPORATION