In this MD&A, the CPILP facilities are discussed on a combined basis rather than individually unless otherwise stated. During the period that the Company indirectly owned CPILP, the CPILP fleet consisted of 20 facilities located in Canada and the U.S. with PPAs and fuel supply contracts that provided stable cash flows. Capital Power's commodity portfolio is comprised of generation assets, customer positions and trading positions. All commodity risk management and optimization activities are centrally managed by Capital Power's commodity portfolio management group. Portfolio optimization includes activities undertaken to manage Capital Power's exposure to commodity risk and enhance earnings. Overall commodity exposure within the portfolio is managed within limits established under Capital Power's risk management policies. Capital Power manages its output from its commercial plants, contracted plants with residual commodity exposure and acquired PPAs under its networked hub strategy. Capital Power sells and/or buys physical and/or financial forward contracts that are generally non-unit specific, reducing exposure to plant specific availabilities. Capital Power also takes specific and limited positions in the electricity, natural gas, and emission markets outside of the Alberta and U.S. Northeast regions to develop capability to support Capital Power's growth strategy and to generate trading profits. Capital Power's commodity portfolio team performs the following functions: Capital Power controls its trading activities by measuring and reporting portfolio risk, validating transactions, valuing the portfolio and managing and reporting credit exposures. Capital Power uses mark-to-market valuation and Value- at-Risk (VaR) techniques to assess the risk of its commodity portfolio. The VaR methodology is a statistically-defined, probability-based approach that takes into consideration market volatilities and risk diversification by recognizing offsetting positions and correlations between products and markets. This technique utilizes historical data and back testing to assess market risk arising from possible future changes in commodity prices over the holding period. Capital Power actively manages the aggregate VaR exposure of its commodity portfolio within approved limits as set out in Capital Power's risk management policies. North East U.S. portfolio optimization includes electricity trading in the eastern Canada and North East U.S. markets. Other portfolio activities include natural gas trading in North American markets and electricity trading in the Pacific North West U.S. markets. The Company also holds retail and commercial natural gas customer contracts in Alberta but is seeking opportunities to exit these natural gas contracts or allow them to expire as it no longer participates in the competitive natural gas retail market. Capital Power Corporation Management’s Discussion and Analysis 2012 28  Manages price and volume risk in Capital Power's commodity portfolio;  Sets the generation unit offer strategy for electricity, capacity and ancillary services in order to optimize returns while managing potential exposure arising from generation and transmission risks, including unplanned outages;  Acquires and schedules deliveries of natural gas supplies used to generate electricity;  Derives earnings from wholesale trading of electricity, natural gas and emissions products in deregulated North America markets;  Ensures compliance with existing and emerging market-based environmental regulations such as the GHG offset investments and purchases that are designed to proactively manage potential compliance risks and costs associated with GHG regulations; and  Explores and researches electricity, natural gas and emissions markets to ensure preparedness for effective commodity portfolio management of Capital Power's growing commodity portfolio. Portfolio Optimization