CAPITAL POWER CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) 33. Commitments and contingencies: (a) Under the terms of the acquired Alberta PPAs, the Company is obligated to make monthly payments for fixed and variable costs. The estimated annual total of these payments for 2013 is $93 million. It is expected that the annual payments over the remaining terms of the Alberta PPAs, as described in note 18, will range from $93 million to $108 million, adjusted for inflation, other than in the event of a forced outage. The actual amounts for future years may vary from estimates depending on generation volume and scheduled outages. (b) The Company has entered into a series of agreements with a third party to purchase a 50% interest in the 800 MW Shepard Energy Centre (Shepard) in southern Alberta. The Company expects to invest approximately $860 million, including capitalized borrowing costs, into Shepard, which is expected to commence commercial operations in 2015. The two parties will build, own and operate Shepard under a joint venture agreement. In conjunction with the joint venture agreement, the parties will be subject to various commercial agreements, including a 20 year tolling agreement. Under the tolling agreement, 75% of Capital Power’s share of the output will be sold at a fixed capacity charge to the other party to the joint venture for the years 2015 through 2017 decreasing to 50% of the output for the years 2018 to 2035. As at December 31, 2012, the Company has paid a $50 million deposit into an escrow account, which reduces the Company’s total remaining expected investment to $810 million. (c) The Company’s Port Dover & Nanticoke Wind Project (PDNW) will be located in southern Ontario, and developed by a subsidiary of the Company at an expected total cost of $340 million. As at December 31, 2012 the estimated total remaining capital cost to be incurred is $272 million. Energy generated by PDNW will be sold under a 20-year contract with the third party. PDNW is expected to commence commercial operations in 2013. (d) The K2 wind joint venture, in which the Company holds a 33% interest as described in note 32, will develop, construct and operate the 270 MW K2 Wind Ontario (K2) power project in southern Ontario. K2 has an expected capital cost of $874 million, which will be shared by each of the three venturers equally through their equity interests in the jointly controlled entity. As at December 31, 2012 the estimated total remaining capital cost for the Company’s share of the project is $285 million. Energy generated by K2 will be sold under a PPA to a third party. K2 is expected to commence commercial operations in 2015 pending regulatory and other approvals. Included in the estimated remaining capital cost to be incurred by the Company is the Company’s $5 million share of a termination payment to a third party outside of this joint venture, for a previous contract related to the construction of wind turbines, that will be required upon receipt of regulatory approval for K2. (e) The Company has entered into a number of long-term energy purchase and transportation contracts, operating and maintenance contracts, contracts to purchase environmental credits and operating leases for premises in the normal course of operations. Some of the energy purchase and transportation contracts are measured at their fair value and recorded on the consolidated statement of financial position as derivative financial instruments assets and liabilities as appropriate. The energy purchase and transportation contract amounts disclosed below are based on gross settlement amounts. Approximate future payments under each group of contracts are as follows: 1 Operating lease amounts include $4 million per year through 2031 which will be payable to the Company’s related party, EPCOR, for the leasing of office space. 129 Energy purchase and transportation contracts Operating and maintenance contracts Environmental credits Operating leases 1 Within one year $ 105 $ 10 $ 13 $ 5 Between one and five years 54 49 41 20 After five years 52 69 2 59 $ 211 $ 128 $ 56 $ 84