Create shareholder value by adding infrastructure businesses that increase scale, expand future opportunities and potentially offer synergies.

Improve performance by entering infrastructure segments that diversify Capstone’s portfolio.

Operate infrastructure businesses in a responsible and sustainable manner.

Provide a work environment that attracts and retains skilled employees.

Maximize Capstone shareholders’ risk-adjusted return.





Our Business Code of Conduct outlines our commitment to respecting our stakeholders and to communicating with transparency. Read it online at:




In all we do, we act honestly, ethically and fairly, abiding by both the spirit and letter of our commitments and by our Code of Conduct and Ethics. We are accountable for our decisions and seek to communicate with transparency.

We are committed to managing Capstone Infrastructure in the best interests of our investors, which includes acting as a responsible corporate citizen in the communities where our businesses operate.

We foster a professional, safe work environment where our people have the tools and resources to excel and be successful and where they are recognized for their service and contributions.

We are committed to managing and growing our businesses profitably, which supports an attractive total return for our investors.

As a team, we work cooperatively and constructively to build Capstone Infrastructure and share a focus on achieving optimal performance.


We strive for excellence, innovation and creativity in the management and growth of our business and seek to effectively manage and mitigate risk.






Dear Fellow Shareholders:

In 2013, Capstone delivered strong financial performance. We also advanced our strategy to transform our business, lower our risk profile and build for tomorrow.

We achieved Adjusted EBITDA of $128.4 million, at the higher end of our range of expectations, reflecting strong operations across our businesses as well as three months of contribution from the operating wind power facilities we added to our portfolio in October 2013.

We also realized two of the three priorities we set for ourselves in 2013 while making significant progress on the third.

Our Priorities

We executed our growth strategy by acquiring Renewable Energy Developers Inc. (ReD)
The acquisition of ReD, a proven wind power developer, expands our complement of operating wind power facilities to a total of 194 net megawatts in Ontario and Nova Scotia, and establishes a new foothold in the wind power development arena. With a contracted development pipeline totalling an expected net 79 megawatts, we are now cultivating a higher return niche within our portfolio that will begin to contribute new cash flow to Capstone starting in 2014 and beyond as our development projects reach commercial operations, delivering accretive growth and value for shareholders. Two of our new development projects started construction in November 2013 with a third expected to get underway in 2014.

We maximized performance by enhancing the cash flow potential of our businesses
We constantly challenge ourselves to find new ways to enhance the efficiency and quality of our operations. These initiatives include predictive and preventive maintenance, detailed planning for capital expenditures that boost value, and the deployment of innovative tools to generate additional cash flow from our businesses. In 2013, these tools included the sale of renewable energy credits by Whitecourt, which contributed approximately $1 million in revenue, and the installation of WindBOOST at Erie Shores, a software tool that we expect to increase the facility’s annual production by about 1% to 3%. At Bristol Water, we continued to work closely with management to execute the company’s approximately C$520 million capital expenditure program for the current regulatory period that began in April 2010 and concludes in March 2015. This program, which is aimed at improving and expanding the company’s network of reservoirs, treatment facilities, water mains and pipes, will drive growth in Bristol Water’s regulated capital value, and accordingly, value for Capstone and our shareholders.

We made steady progress toward achieving a new PPA for Cardinal but did not cross the finish line
We were unsuccessful in finalizing a new power purchase agreement (PPA) for Cardinal in 2013, although steady progress was made. We anticipate securing a new 20-year PPA for the facility, and are working to bring the process to a conclusion in advance of the December 31, 2014 expiry of Cardinal’s current PPA. In the meantime, we are doing what we can to ready the plant and team for the work that lies ahead to convert the facility and prepare it for dispatchable operations. Cardinal is an exceptionally high quality facility that delivers significant value to Ontario and to ratepayers — today, tomorrowand for years to come.

Building for Tomorrow

As a shareholder myself, I recognize that the lack of clarity surrounding Cardinal’s future has been frustrating for our investors. Understandably, concern about this facility has overshadowed the overall high quality of our portfolio and affected our share price detrimentally.

Yet the journey we began in 2009 to broaden Capstone’s scope, diversify our portfolio and build for tomorrow has effectively transformed our business and multiplied the opportunities available to us. Over the past three years, we have deliberately re-focused our portfolio to reduce risk, extend our cash flow profile and establish a solid platform for the future. In particular, our investments in Bristol Water and Värmevärden have fundamentally changed Capstone’s risk profile by offering perpetual, increasing cash flow and the potential for considerable organic growth. And the establishment of a new power development platform positions us to deliver greater returns to our shareholders.

Combined, I believe these initiatives represent an inflection point for our company. Ten years after our debut as an income fund, and through years of transition and some challenge, Capstone today is poised to be a Canadian leader in owning and operating diversified infrastructure businesses that benefit the communities we serve, the people we employ, and our investors. As a result of the investment decisions made over the past few years, our portfolio in 2014 has greater growth potential than it did as recently as a few years ago, is significantly more diversified than the single asset we started with in 2004, and will increase in value as our new wind projects move into commercial operations and as Bristol Water’s regulated capital value grows.

Our Strategy

Capstone’s mission is to provide investors with an attractive total return from responsibly managed long-term investments in core infrastructure in Canada and internationally. Our strategy to accomplish this mission includes:

Growing value through acquisitions that increase our scale, diversify our portfolio and expand future opportunities
Our strategy is to develop, acquire and manage a portfolio of high quality power, utilities and transportation infrastructure businesses and public-private partnerships (P3s). Geographically, we are focusing our business development efforts primarily on North America, the United Kingdom, and Western and Northern Europe, with Australia and New Zealand remaining markets of interest. All are member countries of the Organization for Economic Cooperation and Development where there is relative political, legal, regulatory and economic stability and where we can effectively manage risks.

When pursuing new investment opportunities, we are mindful of the quality of future cash flow streams and risks. We carefully screen each investment opportunity to ensure long-term accretion to cash flow and a strong strategic fit. Our goal is to realize a total return in the range of 10% on the investments we make. We seek to invest in:

  • A combination of lower risk opportunities where cash flow is contractually defined such as operating power facilities or P3s;
  • Utility-like opportunities that offer the potential for predictable cash flow and steady growth; and
  • Higher return investments such as our new power development projects or user-pay forms of infrastructure such as toll roads.

We plan to remain active on the growth front in 2014, with a particular focus on the utilities and P3s segments. And while we focus on wholly-owned businesses, we remain open to collaborating or co-investing with like-minded partners, an approach that has been successful for us at Bristol Water and Värmevärden.

Pursuing organic growth initiatives
Bristol Water is a regulated business with a secure competitive position in a stable country and an attractive growth profile that we expect to be a significant driver of value for Capstone’s shareholders in the years ahead. In the current regulatory period, which runs from 2010 to 2015, Bristol Water’s real regulated rate base will grow by approximately 26% compared with an industry average of approximately 8%. We currently anticipate similar growth in the next regulatory period, which spans from April 2015 to March 2020, subject to regulatory approval of the draft business plan Bristol Water submitted to the Water Services Regulation Authority (Ofwat) in December 2013.

At Värmevärden, we are exploring the potential for the business to complete tack-on acquisitions and to increase its footprint in the fragmented Swedish district heating market.

Increasing our power development footprint
Our power development arm, Capstone Power Development, is focused on developing, acquiring and re-powering clean electricity generation projects in North America, targeting markets where there is a defined need for new capacity and energy supply. These early or later-stage opportunities offer the prospect of substantially higher investment returns than operating assets while also broadening our pipeline and creating a quality destination for capital. We are also focused on advancing our new pipeline of wind projects on time and budget. These projects, currently slated to enter commercial operations between 2014 and 2016, will extend our weighted average PPA term remaining and strengthen our long-term cash flow profile.

Responsibly operating our businesses with concern for all stakeholders
Our overall approach to managing our businesses is embedded in our commitment to corporate responsibility and the principles of honesty, transparency and respect. Across our businesses, workplace safety is a priority for all employees and contractors. Environmental and social consciousness is also an integral element of our business strategy and fundamental to sustained operating performance.

Ensuring the safe and reliable operation of our businesses is a complex and demanding task. Through hard work and commitment, our businesses have earned strong safety and environmental records. In 2014, we will continue to focus on ensuring the safety of our employees and the communities where we operate while protecting the environment.

Our Outlook

We are looking forward to a productive, successful year in 2014. We expect annual Adjusted EBITDA to be $140 million to $150 million, which reflects our expectation of continuing stable performance from our power assets, some growth from our utilities businesses, and a full year of contribution from the operating wind facilities we acquired from ReD1.

Our team worked exceptionally hard in 2013. While the outcome of our efforts has not yet been fully reflected in our share price, our portfolio is sound operationally and our businesses are running well. Moreover, our strategy of portfolio diversification has shifted the mix and cash flow characteristics of the businesses we own, creating a much stronger foundation for our company.

I am optimistic about the tomorrow we are building for this company, and expect our strategy to deliver long-term income and capital appreciation to shareholders in the years ahead.

Capstone is pursuing its strategy at a time of great global demand for new infrastructure spending fuelled by fiscal austerity, large and growing government deficits, and demographic trends. Global infrastructure requirements over the next 20 years are, in a word, staggering. With trillions of dollars needed, the private sector has a vital role to play in improving and building the new, more sustainable infrastructure that is required to unleash renewed economic growth and improved quality of life in Canada and internationally. For our shareholders, an investment in Capstone affords access to the infrastructure asset class and the ability to benefit from its investment merits, such as consistent demand, steady inflation-linked cash flow and a long, predictable life.

I would like to thank our Board of Directors for their continuing guidance and counsel and our employees for their excellent work and commitment to Capstone.

Finally, I would like to thank our shareholders for their investment in Capstone and continuing support. We are committed to delivering results that reward your trust, and look forward to reporting our progress to you over 2014.


Michael Bernstein
President and Chief Executive Officer


1 See page 20 of our 2013 Annual Report for a description of various other material factors or assumptions underlying our outlook.