Annual Report 2009 Generating long-term growth Capital Power Corporation Capital Power’s vision is to be one of North America’s most respected, reliable and competitive power generators. Capital Power (TSX: CPX) is a growth-oriented North American power producer, building on more than a century of innovation and reliable performance. Headquartered in Edmonton, Alberta, and employing nearly 1,100 people, Capital Power has interests in 31 facilities in Canada and the U.S. totaling approximately 3,500 MW of generation capacity. Capital Power and its subsidiaries develop, acquire and optimize power generation from a wide range of energy sources. Contents 1 Message from the Chairman 2 Message from the President & CEO 4 Generating long-term growth 6 New generation: construction & commissioning 8 Commercial plants 10 Contracted plants 12 Manager and operator: Capital Power Income L.P. 14 Board of Directors 16 Senior management team 18 Corporate responsibility reporting Certain information in this Annual Report is forward-looking within the meaning of Canadian securities law, as it is related to anticipated financial performance, events or strategies. When used in this context, words such as “will”, “anticipate”, “believe”, “plan”, “intend”, “target” and “expect” or similar words suggest future outcomes. By their nature, such statements are subject to significant risks, assumptions and uncertainties, which could cause Capital Power’s actual results and experience to be materially different than the anticipated results. Readers are advised that all information in this Annual Report is provided subject to the cautionary statement regarding forward-looking information, which is found in management’s discussion and analysis (MD&A) beginning at page 19. MESSAGE FROM THE CHAIRMAN Donald J. Lowry Dear Shareholders, Capital Power’s Initial Public Offering in July 2009 marked an historic moment in the 118-year history of our power generating business. With the support of thousands of individual and institutional investors, we launched a dynamic and growing independent power producer, committed to creating value for its shareholders. At the time, it was the first major IPO in Canadian markets since late 2007. The success of the offering was a vote of confidence in Capital Power’s business proposition, and the company’s ability to execute it. Capital Power’s experienced management and operating teams, and the quality of our operations and contracts, deliver a base of stable cash flow and provide a strong foundation for growth. To lead the company through its first months, we recruited a seasoned and expert team of Directors. They have managed and governed some of North America’s most successful power generation, energy, financial, legal and accounting firms, and are recognized as leaders in business and the community. Four of the Directors are nominated by EPCOR, which currently indirectly holds a 72% non-controlling interest in Capital Power’s business. Capital Power’s governance structure ensures that EPCOR’s voting rights are limited to a maximum of 49%, ensuring Capital Power’s independence. We will be honoured to present the other eight Directors for election at Capital Power’s Annual General Meeting on April 30, 2010. We encourage you to read more about the nominees in the Management Proxy Circular that will circulate with the Notice of the meeting. Our Directors work within a structure designed to meet the highest standards of corporate governance, and respond to the specific demands of our business. In addition to the Audit Committee and the Corporate Governance, Compensation and Nominating Committee, we have established an Environment, Health and Safety Committee to oversee matters relating to the impact of Capital Power’s operations on the environment and on workplace health and safety. Building on the success of a similar committee that oversaw the development of Genesee 3, we established the Keephills 3 Oversight Committee, which oversees the construction of that project. Leading each committee is a seasoned Director, familiar with the oversight and responsibilities associated with that committee’s mandate. From the Board’s perspective, the task now is to provide oversight and guidance on behalf of the Corporation’s shareholders, ensuring that Capital Power continues to safely and reliably operate its existing facilities, and deliver on new opportunities that have an appropriate level of risk. In this report you’ll find an update on how Capital Power is already making progress towards its goal of 10,000 megawatts of power generation by 2020. In addition to launching Capital Power as a standalone entity, in the last half of 2009 management commissioned new power generation, repowered existing facilities, and made substantial progress on project construction and business development. On behalf of the Board of Directors, we extend our thanks to the shareholders who have expressed confidence in the company through their investment, and to the leadership team and all 1,100 employees for their achievements in 2009. We look forward to a positive future for Capital Power, and the Directors look forward to meeting many of you at the Annual General Meeting. Sincerely, Donald J. Lowry Chairman Capital Power Annual Report 2009 1 MESSAGE FROM THE PRESIDENT & CEO Brian Vaasjo Generating long-term growth We’re not aiming to be just another independent power producer: we intend to stand out, with a combination of business strategy and financial discipline that delivers superior value to shareholders. On behalf of nearly 1,100 people of Capital Power, it’s my privilege to introduce our Annual Report for 2009, our first year in operation as an independent company. This report covers the final two quarters of the year, from the closing of our Initial Public Offering (IPO) in July 2009 when our shares began trading on the Toronto Stock Exchange under the symbol CPX. We accomplished a lot in our first two quarters, beginning of course with the successful $500 million IPO and the huge task of launching the new company. But that’s just the start. We’re not aiming to be just another independent power producer; we intend to stand out, with a combination of business strategy and financial discipline that delivers superior value to shareholders. We’re in one business, we have one focus: power generation. And we’re aiming to be a leader in that business, to be among the most respected, reliable and competitive power generators in North America. We’ve set ambitious targets for growth, from our current 3,500 megawatts (MW) of owned and/or operated capacity to 10,000 MW a decade from now. We call that ten by ’20. That’s an aggressive target, and we’re committed to meeting it. But I think we can do even more: I’ve challenged our people to start building the foundation today for a 20,000 MW company by 2020. That foundation has two parts: business strategy and financial discipline. First, our business strategy is to optimize the performance of every plant we own or operate, and to focus on selected markets where we can deliver superior results by managing plants as a group. We call that a “networked hub,” where we manage the physical performance of a group of plants to ensure maximum cost-effectiveness and operating efficiency. At the same time, we optimize financial performance by selling the plants’ output as a group and dispatching each plant within the group to maximum advantage. We’re prepared to be opportunistic if highly attractive contracted opportunities come our way outside of our target markets. But we’ve put a great deal of work into getting our business strategy right, and we’re going to stay focused on it. 2 Capital Power Annual Report 2009 We generated solid results in our first two quarters, despite an exceptionally tough power pricing environment through most of 2009. The second part of the foundation of Capital Power is financial discipline. Power generation is a capital-intensive business, and we are committed to maintaining the availability of low cost capital by keeping an investment grade credit rating. Our growth will also be disciplined: our first priority will be to maintain the strength of our balance sheet so that we’re positioned to take advantage of opportunities in tough markets when others are struggling. We’re also committed to maintaining an attractive dividend for shareholders. We will generate a base stream of cash flow to support that dividend, in part by maintaining a target of about half our cash flow from long-term contracts. This business balance provides investors with a visible stream of stable income, while also providing exposure to significant upside in power prices through our merchant operations in Alberta and eventually in other markets. We’ve got the foundation right, with an experienced and supportive Board of Directors and a lot of hard work by an outstanding leadership team. Now we’re moving on to the task of leveraging that foundation to build an organization that consistently delivers superior performance. I firmly believe we started life last July with the people who perform best in this business, and the best physical assets. Now we’re building the structure and culture we need to realize their potential. This new structure is aligned with our target markets and also with our focus on results: plant managers run their operations in a safe and environmentally responsible way, and the job of the corporate organization is to help them make megawatts and maximize the financial return from those megawatts. We’ve got the basics right. Now we have to execute, and we’re off to a strong start. As you’ll read in this report, we generated solid results in our first two quarters, despite an exceptionally tough power pricing environment through most of 2009. In the six months ended December 31, 2009, we delivered financial and operating performance in line with management’s expectations, including cash provided by operating activities of $2.22 per share and net income of $0.89 per share (both fully diluted).