ENVIRONMENTAL, HEALTH AND SAFETY REGULATION Capstone's Canadian power facilities and the water distribution and district heating businesses, respectively, operated by Bristol Water and Värmevärden (collectively the “Facilities”) hold all material permits and approvals required for their operations and are managed to comply with environmental, health and safety laws. Bristol Water is also subject to the CRC Energy Efficiency Scheme, a mandatory UK carbon emissions reduction plan for significant consumers of energy. Costs for 2012-2013 are projected to be an immaterial amount. Risk and Description Impact Monitoring and Mitigation Taxation risk  is a financial risk concerning  k higher income and other taxes attributable  to adverse legislation changes, including  tax rate increases, or interpretations by  tax authorities on audit. As a multi-national corporation, Capstone  is exposed to global taxation initiatives or  individual country differences from  Canada. Higher taxation results in both lower income and cash flow available for dividends to shareholders. Capstone monitors the trends and policies of taxation authorities in the OECD jurisdictions where its businesses operate. Capstone minimizes exposures to adverse tax rulings by choosing structures that adhere to taxation regulations, are commonly used in practice and wherever practical supported by opinions of external advisers. Integration risk is an operational risk k concerning the ability to incorporate an  acquired business in a timely manner and  to realize the projected benefits and  synergies from the acquisition.  Capstone is currently integrating ReD. Failure to integrate businesses in a timely manner could lead to cost overruns or lost revenues and delay future business development initiatives. Capstone continuously improves its integration  framework to promote the objectives of timeliness and  cost effectiveness. Management is experienced in the acquisition and  integration of businesses and has a track record for successfully integrating new businesses. Human resources retention risk is an  k operational risk concerning the ability to  attract, retain and motivate key staff. Inability to retain key staff could prevent or delay Capstone from executing its business strategy, thereby causing the company to fall short of its financial forecasts. Capstone mitigates this risk by providing competitive compensation as well as career and development opportunities. Power Power purchase agreement renewal risk is an operational risk concerning the finite  term of contracts for the sale of electricity  and the ability to renew the agreements  on favourable terms.  Capstone’s near-term PPA expiries are  Cardinal in 2014, Whitecourt in 2014 and  Sechelt in 2017. Failure to secure PPA renewals for power facilities that have remaining useful lives could result in lost revenue, unanticipated shut down costs and impairment of asset carrying values. Capstone enters into discussions with PPA  counterparties as early as possible to maximize the  potential for renewal on favourable terms. Where renewal is not possible, Capstone pursues alternative arrangements, including pursuing bilateral arrangements and alternative revenue streams, including  market pricing. For debt on facilities with PPAs,  Capstone fully amortizes the debt up to the expiry of the PPA. Renewable resources risk is an  k operational risk concerning the  dependence of power production on adequate resources such as wind, sunlight  and water flow. Inadequate wind, sunlight or water flow leads to lower power production which results in lower revenues. Capstone maintains facilities in quality condition to  maximize availability for power generation when  renewable resources are available and strongest. Capstone also seeks to diversify its portfolio of  businesses to mitigate the dependency on a single resource or geography. Development risk  is an operational risk k concerning the construction of new power  generation facilities in line with the  requirements of awarded PPAs. Delays and cost overruns in the construction of new facilities could lead to lower earnings and where PPA requirements are not met, cancellation of the PPA resulting in lost revenue and impairment of any capitalized costs for the facility. Capstone has professional project management processes and uses experienced contractors and advisors. Capstone contracts include a combination of incentives, liquidated damages, or fixed-pricing to align suppliers interests to achieve the commercial operations dates. Utilities - Water Capital Program Delivery Risk is an operational risk concerning the ability to  complete capital expenditures required by  Bristol Water’s approved AMP5 business  plan on a timely basis. Inability to complete projects in a timely manner would result in a lower RCV, which would reduce future revenues. In addition, shortfalls in the capital expenditure program would result in financial penalties from the regulator. Bristol Water has monitoring and professional project management processes together with appropriate construction arrangements, which include contingency and risk provisions. This is used in conjunction with overall program management to minimize the risk to achieving required delivery dates. Health and Safety Risk is an operational k risk concerning failure of Bristol Water’s  policies and procedures to prevent an  accident or water quality incident. Accidents and other incidents could have harmful impacts on employees or the communities that Bristol Water serves, leading to reputational damage, penalties and remediation costs resulting in lower net income. Bristol Water minimizes its accident and incident rate by monitoring and following procedures implemented to meet the standards and legislation applicable to the water industry and companies operating in the UK. Price Review Risk  is a regulatory risk  k concerning an adverse decision by Ofwat  on Bristol Water's proposed business plan  for AMP6. An adverse regulatory decision for price or capital expenditure plans could result in lower revenues and earnings. Bristol Water submits its proposal to Ofwat following dialogue with Ofwat and careful consultation of the  public and consumer councils. When necessary, Bristol  Water can choose to appeal to the Competition Commission. Ofwat also has a primary duty to ensure that water  companies are able to finance themselves including earning a reasonable return on capital. 2013 ANNUAL REPORT  45