MANAGEMENT’S DISCUSSION AND ANALYSIS The Corporation's risk management approach is comprehensive. It combines the experience and specialized knowledge of individual business segments and corporate oversight functions as well as various analytic tools and methodologies, including a risk matrix (see chart to the right), to assist the Corporation in regularly assessing and updating the net exposure (including mitigants) of each known material risk facing the Corporation in the following four risk categories: operational; strategic; financial; and legal and regulatory. The Corporation's assessment process prioritizes risks. The Corporation requires that risk assessments (which encompass operational, strategic, financial and legal and regulatory risks) be performed at each business unit and at the corporate level (which takes into consideration the business unit risks that are significant to the consolidated organization). Those risks that have affected the Corporation's financial statements, and risks that are reasonably likely to affect them in the future are presented in the table below, grouped according to: Risks related to the utilities - district heating segment, which is accounted for using the equity method, have not been included on the basis that they  are not considered to have a material financial impact to Capstone's consolidated results.  In addition to the risks described in this “Managing Risk” section, there are numerous other risk factors, many of which are beyond the Corporation's  control and the effects of which can be difficult to predict, that could be material to investors or cause the Corporation's results to differ significantly from its plans, objectives and estimates. For a more comprehensive list and description of the risks affecting the Corporation, its power infrastructure  facilities, Bristol Water and Värmevärden, please refer to the “Risk Factor” section of the Corporation's most recently filed Annual Information Form, as supplemented by risk factors contained in any of the following documents filed by the Corporation with securities commissions or similar  authorities in Canada after the date of this annual MD&A, which are available on SEDAR at www.sedar.com: material change reports; business  acquisition reports; interim financial statements; interim management's discussion and analysis; and information circulars. 44 CAPSTONE INFRASTRUCTURE CORPORATION Risks Related to the Corporation and its Businesses Managing Risk • Corporate and company-wide risks; •  Risks specific to Capstone's power infrastructure segment; and • Risks specific to the utilities - water segment  5 Catastrophic Rare Unlikely Somewhat Likely Likelihood of Risk Occurrence Likely Almost  Certain Impact of Risk Major Moderate Minor Insignifi cant 1 2 3 4 5 4 3 2 1 Risk and Description Impact Monitoring and Mitigation Corporate and Company-wide Financing risk  is a financial risk  k concerning the ability to access timely and  cost effective debt or equity to support  construction of power facilities, Bristol  Water's capital expenditure program,  business acquisitions and replace maturing  debt. Inability to access cost effective debt or equity  could result in higher interest costs, lower earnings  or liquidity difficulties. For an acquisition, this could also prevent  Capstone from realizing a growth opportunity  preventing Capstone from achieving its strategic  objectives. Capstone maintains relationships with multiple financial institutions that have the resources to provide some or all financing requirements. Capstone endeavours to secure committed financing prior to making offers to acquire businesses. In addition, most existing project debt amortizes over the term of the PPAs and debt maturities are staggered. Foreign currency risk  is a financial risk  k concerning volatility of the Canadian dollar  against currencies from countries where  Capstone entities either operate or make  purchases. In the absence of mitigation, appreciation of the Canadian dollar could result in lower Canadian- dollar equivalent cash flows and earnings from foreign operations to Capstone. The fair value of businesses outside Canada may also decline if the Canadian dollar appreciates. Appreciation of the Canadian dollar could result in lower cost for acquisitions denominated in foreign currencies. To the extent practicable and economic in the circumstances, Capstone typically enters into economic hedging arrangements that minimize the impact of foreign currency volatility on cash flows between Canada and foreign jurisdictions. However, Capstone usually does not enter into arrangements to hedge financial statement earnings or carrying values of its foreign businesses. Expense management risk  is a financial  k risk concerning unexpected non- recoverable increases in operating and  administrative costs.  Expenses with near-term exposures  include Cardinal's and Whitecourt's fuel  supply and transportation costs. Unanticipated increases in costs could result in lower earnings and cash flow. Capstone attempts to mitigate this risk by seeking high operating margin businesses that operate under long- term, fixed-price contracts and have contractual frameworks that accommodate cost escalation.