Algonquin Power & Utilities Corp. – Consolidated Financial Statements ALGONQUIN POWER & UTILITIES CORP.  1.  Significant accounting policies (continued) Notes to the Consolidated Financial Statements  December 31, 2012 and 2011   (in thousands of Canadian dollars except as noted and amounts per share)  The Company recognizes a liability for asset retirement obligations based on the fair value of  the liability when incurred, which is generally upon acquisition, construction, development or  through the normal operation of the asset. Concurrently, the Company also capitalizes an asset  retirement cost, equal to the estimated fair value of the asset retirement obligation, by increasing  the carrying value of the related long-lived asset. The asset retirement costs are depreciated  over the asset’s estimated useful life and are included in depreciation expense on the  Consolidated Statements of Operations, or regulatory assets when the amount is recoverable  through rates. Increases in the asset retirement obligation resulting from the passage of time  are recorded as accretion of asset retirement obligation in the Consolidated Statements of  Operations, or regulatory assets when the amount is recoverable through rates. Actual  expenditures incurred are charged against the accumulated obligation. The Company has several share-based compensation plans: a share option plan; an employee  common share purchase plan (“ESPP”); a deferred share unit (“DSU”) plan; and a performance  share unit (“PSU”) plan. The Company recognizes all employee stock-based compensation as a  cost in the financial statements. Equity classified awards are measured at the grant date fair  value of the award. The Company estimates grant date fair value of options using the  Black-Scholes option pricing model. Noncontrolling interest represents the portion of equity ownership in subsidiaries that is not  attributable to the equity holders of the parent Company. Noncontrolling interests are initially  recorded at fair value and subsequently the amount is adjusted for the proportionate share of  earnings and other comprehensive income attributable to the non-controlling interests and any  dividends or distributions paid to the noncontrolling interests. If a transaction results in the acquisition of all, or part, of a noncontrolling interest in a  subsidiary, the acquisition of the noncontrolling interest is accounted for as an equity  transaction. No gain or loss is recognized in consolidated net earnings or comprehensive  income as a result of changes in the noncontrolling interest, unless a change results in the  loss of control by the Company. Certain of the Company’s U.S. based wind businesses (see note 3(d)) are organized as limited  liability corporations and partnerships and have noncontrolling Class A membership equity  investors which are entitled to allocations of earnings, tax attributes and cash flows in  accordance with contractual agreements. The share of earnings attributable to the noncontrolling interest holders in these subsidiaries is calculated using the Hypothetical  Liquidation at Book Value (“HLBV”) method of accounting. HLBV uses a balance sheet  approach, which measures the allocation of income or loss of the Class A’s membership in  each period by calculating the change in the amount of distribution the partners would  contractually be entitled to based on a hypothetical liquidation of the book value carrying  amounts of the entity at the beginning of a reporting period compared to the end of that  period.  2012 Annual Report 84 (t) Noncontrolling interests  (s) Stock based compensation  (r) Asset retirement obligations 