Fourth Quarter Results

Total sales revenue in the fourth quarter of 2008 was up from 2007 in spite of voluntary curtailment of electricity production at the Iroquois Falls and Kingston facilities that negatively affected sales. Increased TransCanada PipeLines Limited (TCPL) tariffs continued to adversely affect the cost of sales. Nonetheless, gross margin, in aggregate, was comparable to 2007. Net income and distributable cash compared unfavourably to 2007 which included the CAD15.3 million one-time impact of a settlement with Calpine Corporation related to a gas contract.

Sales of CAD50.6 million in the quarter increased by CAD2.0 million, while distributable cash of CAD21.2 million was down by CAD8.7 million compared to the fourth quarter of 2007.

Electricity revenue under the Iroquois Falls power purchase agreement was down CAD1.3 million from the fourth quarter of the previous year as production was curtailed during lowerpriced off-peak periods (nights, weekends and statutory holidays); affordably priced market gas allowed for additional quantities of gas to be purchased to enhance 2007 fourth quarter production. Non-contracted revenue earned from sales of electricity and operating reserves into the wholesale market decreased by CAD0.2 million. Steam sales were up compared to the same quarter last year due to a higher price, while sales of natural gas were up CAD1.0 million as more market gas was purchased and resold to mitigate fixed transportation costs under the plant’s gas transportation contract compared to the fourth quarter of 2007. Cost of sales was CAD0.9 million higher than last year as a decrease in the quantity of gas consumed, commensurate with lower consumption, was offset by a significant increase in firm transportation tolls from TCPL and a higher cost of gas resold associated with increased mitigation of fixed transportation costs. Plant operating costs of CAD2.4 million were up CAD0.5 million largely due to a retroactive true-up of costs with General Electric related to the preceding five-year period of the gas turbine maintenance agreement.

Electricity revenue at the Kingston facility decreased from the fourth quarter of last year due to additional off-peak plant curtailment to allow for extra gas resales. Steam revenue was down as lower demand was only partially offset by an increase in the average selling price of steam.

Revenue from the resale of natural gas was up CAD2.1 million from the previous year due to a combination of higher volumes and gas market prices. The cost of natural gas consumed was higher in the fourth quarter of 2008 compared to the same period last year, primarily due to a significant increase in firm transportation tolls from TCPL partially offset by lower production.

The cost of gas resold was up largely due to higher volumes and an escalation of contracted gas prices. Plant operating costs in the fourth quarter of 2008 approximated 2007’s expenditures.

During the fourth quarter, INVISTA (Canada) Company (INVISTA) informed Kingston LP that it intended to shut down its facility indefinitely starting sometime in mid-2009. INVISTA will give Kingston LP six months notice once a shut down date has been determined. The shut down will only be avoided if INVISTA finds a third party to purchase and operate its facility. Lost steam revenue is expected to be largely off-set by additional gas sales. However, the extent of this off-set is contingent on the market prices of gas.

Mont Miller’s electricity production was 5% higher than the same period last year as the wind farm achieved a 40% capacity factor. The turbines continued to perform well, with quarterly equipment reliability of 98% and only minimal downtime for Vestas to complete the final Metso gearbox replacement; all associated costs were covered under Mont Miller’s warranty, maintenance and service agreement. Mont Miller continues to surpass the 95% annual equipment reliability guaranteed under the WMS agreement. Plant operating expenses were consistent with 2007.

Revenue from electricity sales at the German wind farms was up 22% during the fourth quarter as a result of the weakening of the Canadian dollar versus the euro and a 3% increase in production.

The turbines continued to perform very well as the farms achieved an overall reliability of 97% and a capacity factor of 19%.

The Fund’s management and administration costs were up CAD1.8 million in the quarter largely due to the management incentive fee to the Manager (CAD1.6 million versus CAD nil in 2007). The Managerdid not earn a fee last year as it received a one-time gas management incentive fee in connection with the Calpine settlement.

The Fund’s investment in Panda Energy Corporation (“PEC”) generated investment income of CAD2.6 million this quarter through a combination of interest and dividend payments, higher than the same period last year by CAD0.7 million commensurate with higher dividends and interest income, mainly due to a weakening of the Canadian dollar. Fourth quarter investment income also includes CAD0.5 million of fees and interest earned on the Fund’s advances to Thorold CoGen LP (Thorold LP) and CAD0.2 million in commitment fees from the loan associated with the Jardin d’Eole project, compared to CAD0.1 million in fees and interest from Thorold LP in 2007.

Included in the fourth quarter results for 2007 was the CAD15.3 million settlement of the claim associated with Calpine’s default on January 1, 2006 in delivering natural gas to the Iroquois Falls facility under a long-term supply contract.

During the fourth quarter, the Fund recorded the following non-cash adjustments:

A foreign exchange gain of CAD10.1 million on the translation of the PEC senior loan balance to the quarterend Canadian dollar/U.S. dollar exchange rate,

A CAD3.0 million foreign exchange loss on the Fund’s U.S. and euro foreign exchange contracts not designated as a part of a hedging relationship, and

A CAD5.3 million loss on the change in fair value of interest rate swaps associated with the debt at the Kingston facility. These non-cash amounts were the result of the continued weakening of the Canadian dollar versus the U.S. dollar and euro during the fourth quarter and the decline in variable interest rates. During the fourth quarter of 2008, the Kingston facility recorded a CAD1.4 million loss on the disposal of its property, plant and equipment related to the dismantling of its Dowtherm system that had been used to transfer heat to its steam host but from which no revenue had been received since 2000.

A CAD4.5 million current tax charge had been recorded in the fourth quarter of 2007 by Iroquois Falls Power Corp. related to the Calpine settlement, compared to CAD0.2 million in 2008.

The above factors combined with a future tax recovery of CAD11.0 million resulted in net income for the fourth quarter of 2008 being CAD8.4 million lower than the fourth quarter of 2007, with the majority of the decrease being associated with the one-time income in 2007 arising from the settlement of the Calpine claim.

During the quarter, cash and cash equivalents increased by CAD0.4 million as operating results provided CAD20.6 million of cash, which was partially offset by CAD3.4 million used for investing activities, including the funding of the loan to Thorold LP, and CAD17.1 million of cash used for financing activities, which includes Unitholder distributions and scheduled principal repayments on the long-term loans.