CAPITAL POWER CORPORATION Management’s Discussion and Analysis This management’s discussion and analysis (MD&A), dated March 1, 2013, should be read in conjunction with the audited consolidated financial statements of Capital Power Corporation and its subsidiaries for the years ended December 31, 2012 and December 31, 2011, the annual information form of Capital Power Corporation for the year ended December 31, 2012 and the cautionary statements regarding forward-looking information which begins on page 3. In this MD&A, any reference to the Company or Capital Power, except where otherwise noted or the context otherwise indicates, means Capital Power Corporation together with its subsidiaries. In this MD&A, financial information for the years ended December 31, 2012, 2011 and 2010 is based on the audited consolidated financial statements of the Company which were prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are presented in Canadian dollars unless otherwise specified. In accordance with its terms of reference, the Audit Committee of the Company’s Board of Directors reviews the contents of the MD&A and recommends its approval by the Board of Directors. The Board of Directors has approved this MD&A as of March 1, 2013. Contents The Business and Corporate Structure........................................................................................................................12 Corporate Strategy ......................................................................................................................................................12 Forward-looking Information ........................................................................................................................................13 Performance Overview ................................................................................................................................................14 Outlook ........................................................................................................................................................................17 Non-GAAP Financial Measures ...................................................................................................................................18 Financial Highlights......................................................................................................................................................23 Significant Events ........................................................................................................................................................24 Subsequent Event .......................................................................................................................................................25 Plant Summary ............................................................................................................................................................26 Portfolio Optimization...................................................................................................................................................28 Consolidated Net Income.............................................................................................................................................29 Results by Plant Category and Other...........................................................................................................................30 Consolidated Other Expenses and Non-controlling Interests.......................................................................................36 Other Comprehensive Income .....................................................................................................................................37 Financial Position.........................................................................................................................................................38 Liquidity and Capital Resources ..................................................................................................................................39 Contractual Obligations and Contingent Liabilities.......................................................................................................42 Transactions with Related Parties ...............................................................................................................................44 Risks and Risk Management .......................................................................................................................................45 Environmental Matters .................................................................................................................................................54 Critical Accounting Estimates and Accounting Judgments ..........................................................................................54 Future Accounting Changes ........................................................................................................................................56 Financial Instruments...................................................................................................................................................58 Disclosure Controls and Procedures and Internal Control over Financial Reporting ...................................................60 Summary of Quarterly Results.....................................................................................................................................61 Share and Partnership Unit Information.......................................................................................................................66 Additional Information ..................................................................................................................................................66 Capital Power Corporation Management’s Discussion and Analysis 2012 11