Counterparty risk is the possible financial loss associated with the potential inability of counterparties to satisfy their contractual obligations to Capital Power, including payment and performance. In the event of default by a purchasing counterparty, existing PPAs and other agreements may not be replaceable on similar terms. Capital Power is also dependent upon its cogeneration hosts and suppliers of fuel to its plants. If a wholesale electricity market counterparty defaults, Capital Power may not be able to replace such counterparty to effectively manage short or long electricity positions, resulting in reduced revenues or increased power costs. Furthermore, a prolonged deterioration in economic conditions could increase the foregoing risks. Strategies for managing counterparty credit risk The development, construction, ownership and operation of Capital Power's generation assets carry an inherent risk of liability related to public health, and worker health and safety due to exposure to high voltage electricity, high pressure steam, moving and rotating machinery, heavy equipment, driving, environmental hazards and more. Strategies for managing health and safety risk Capital Power’s ability to continuously operate its facilities and grow the business is dependent upon attracting, retaining and developing sufficient labour and management resources. Capital Power is facing a demographic shift as a significant number of its employees are expected to retire over the next several years . Failure to secure sufficient qualified labour may negatively impact Capital Power’s operations or construction and development projects, or may increase expenses. Capital Power’s current collective bargaining agreements expire periodically and Capital Power may not be able to renew them without a labour disruption or without agreeing to significant increases in labour costs. Effective December 21, 2012, the Company completed negotiations with Communications, Energy and Paperworkers Union of Canada Local 1123 at the Island Generation facility to renew its labour contract which expired in April 2012. This ended the Company’s lockout of the union employees which started on October 30, 2012. The Company had adequate management staffing and contingency plans and continued to operate the plant during this labour disruption. Strategies for managing human resources risk In the course of assessing development and acquisition opportunities, Capital Power may be required to incur significant expenditures, such as those related to preliminary engineering, permitting, legal and other expenses, prior to determining whether a project is feasible and economically viable. There can be no assurance that Capital Power will pursue or win any opportunity assessed. The risks associated with acquisitions of additional companies or assets in the power generation industry include the failure to identify material problems during due diligence, the overpayment for assets and the inability to arrange financing for an acquisition. Further, the integration and consolidation of acquisitions requires substantial human, financial and other resources. There can be no assurances that any future acquisitions will perform as expected or that the returns from such acquisitions will support the indebtedness incurred to acquire them or the capital expenditures needed to develop them. Competition, acquisition and development risk People risk  Establish a credit policy including limits for credit risk exposure levels.  Conduct periodic credit reviews on existing counterparties.  Use credit enhancements such as cash deposits, prepayments, parent company guarantees, bank letters of credit, master netting agreements, margin account and credit derivatives.  Monitor and report credit risk exposures.  Establish and maintain company-wide health and safety system with regular measurements and compliance audits.  Maintain facility specific safety programs and work procedures.  Ensure that contractors and other stakeholders align with Capital Power’s health and safety policies and procedures.  Establish and maintain good human resource practices including monitoring developments and contingency plans. Capital Power Corporation Management’s Discussion and Analysis 2012 50