Algonquin Power & Utilities Corp. – Consolidated Financial Statements ALGONQUIN POWER & UTILITIES CORP.  Notes to the Consolidated Financial Statements  December 31, 2012 and 2011   (in thousands of Canadian dollars except as noted and amounts per share)  7. Regulatory matters (continued) (a)  Environmental remediation costs recovery: EnergyNorth is responsible for the cleanup of  certain former gas manufacturing facilities. Actual expenditures are recovered through  rates over a period of 7 years (see note 21 (a) (ii)).  (b)  Pension and post-retirement benefits: As part of a business acquisition, a regulatory  asset or liability is set up for the amounts of pension and post-retirement benefits that  have not yet been recognized in net periodic cost and were presented as accumulated  comprehensive income prior to the acquisition. The portion currently recovered through  rates is amortized over the future services years of the employees. The portion related to  the current acquisitions which amounts to U.S. $43,484 was authorized by the Regulator  as a regulatory asset and recovery is expected to start following the next rate case.  (c)  Storm costs: Granite State incurred repair costs resulting from certain storms, which are  expected to be recovered through rates.  (d)  Deferred energy cost: The revenue of the electric and natural gas utilities include a  component which is designed to recover the cost of electricity or natural gas through  rates charged to customers. Under deferred energy accounting, to the extent actual  natural gas and purchased power costs differ from natural gas and purchased power  costs recoverable through current rates that difference is not recorded on the consolidated statement of operations but rather is deferred and recorded as a regulatory  asset or liability on the balance sheet. These differences are reflected in adjustments to  rates and recorded as an adjustment to cost of natural gas or electricity in future time  periods, subject to regulatory review. (e)  Derivatives: Derivatives are utilized to manage the price risk associated with natural gas  purchasing activities. The gains and losses associated with these derivatives are  recoverable through its deferred energy cost, as noted above, (note 24(b)(i)).  (f)  Rate case costs: The costs to file, prosecute and defend rate case applications are  referred to as rate case costs. These costs are capitalized and amortized over the period  of rate recovery granted by the regulator. (g)  Alternative revenue program: In 2011, the regulator of one of Liberty Utilities’ utilities  ordered to phase-in the rate increases it had granted over a 12 month period. (h)  Asset retirement obligation: Asset retirement obligations incurred by the utilities are  expected to be recovered through rates. (i)  Cost of removal: The regulatory liability for cost of removal represents amounts that have  been collected from ratepayers for costs that are expected to be incurred in the future to  retire the utility plant.  (j)  Rate-base offset: The Regulator for the Midwest Gas Utilities imposed a rate base offset  that would reduce the revenue requirement at future rate proceedings. The rate base  offset declines on a straight-line basis over a period of ten years.  The Company records carrying charges on the regulatory balances related to energy costs, storm  costs and rate adjustments. As recovery of regulatory assets is subject to regulatory approval, if  there are any changes in regulatory positions that indicate recovery is not probable, the related  cost would be charged to income in the period of such determination.  2012 Annual Report 102