"EPCOR's earnings from operations met expectations in the second quarter, even as market conditions continued to change, and as we prepared for the closing of the Capital Power Initial Public Offering in early July," said EPCOR Utilities Inc. President and CEO, Don Lowry. "Overall, our Genesee plants continued to perform well and our water portfolio showed gains, in part driven by the Gold Bar Wastewater Treatment operation which was transferred to EPCOR on March 31, 2009."

"EPCOR's second quarter results were impacted by the Capital Power transaction, primarily by expenses incurred to reorganize our people and systems into two separate entities. The sale was effective in early July, the beginning of the third quarter."

Highlights of EPCOR's financial performance:

- Cash flow from operating activities for the three months ended

June 30, 2009 was $104 million compared with $41 million for the

corresponding period in the previous year.

- Cash flow from operating activities for the six months ended June 30,

2009 was $251 million compared with $139 million for the

corresponding period in the previous year.

- Net income was $50 million on revenues of $740 million for the

three months ended June 30, 2009 compared with $16 million on

revenues of $865 million for the corresponding period in the previous

year.

- Net income was $154 million on revenues of $1,630 million for the

six months ended June 30, 2009 compared with $84 million on revenues

of $1,664 million for the corresponding period in the previous year.

- Other comprehensive loss was $18 million for the three months ended

June 30, 2009 compared with other comprehensive income of $1 million

for the corresponding period in the previous year.

- Other comprehensive income was $4 million for the six months ended

June 30, 2009 compared with $24 million for the corresponding period

in the previous year.

- Investment in capital projects for the three months ended June 30,

2009 was $168 million compared with $186 million for the

corresponding period in the previous year.

- Investment in capital projects for the six months ended June 30, 2009

was $304 million compared with $294 million for the corresponding

period in the previous year.

Management's discussion and analysis (MD&A) of the quarterly results are shown below. The MD&A and the unaudited interim financial statements are available on EPCOR's website (www.epcor.ca) and will be available on SEDAR (www.sedar.com).

EPCOR's wholly-owned subsidiaries build, own and operate electrical transmission and distribution networks, water and wastewater treatment facilities and infrastructure in Canada. EPCOR, headquartered in Edmonton, Alberta, has been named one of Canada's Top 100 employers for nine consecutive years, and was selected one of Canada's 10 Most Earth-Friendly Employers. EPCOR's website is www.epcor.ca.

EPCOR Utilities Inc.

Interim Management's Discussion and Analysis

June 30, 2009

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This management's discussion and analysis (MD&A), dated August 3, 2009, should be read in conjunction with the unaudited interim consolidated financial statements of EPCOR Utilities Inc. and its subsidiaries for the three and six months ended June 30, 2009 and 2008, the audited consolidated financial statements and MD&A for the year ended December 31, 2008 and the cautionary statement regarding forward-looking information on page 27. In this MD&A, any reference to "the Company", "EPCOR", "we", "our" or "us", except where otherwise noted or the context otherwise indicates, means EPCOR Utilities Inc., together with its subsidiaries. Financial information in this MD&A is based on the unaudited interim consolidated financial statements, which were prepared in accordance with Canadian generally accepted accounting principles (GAAP), and is 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.

OVERVIEW

EPCOR is wholly-owned by The City of Edmonton. On May 8, 2009, EPCOR announced its plan to create Capital Power Corporation (CPC) and sell substantially all of its power generation assets and related operations to CPC, as described under Significant Events. The sale was effective early July 2009 and EPCOR's results for the second quarter were impacted by transactions and events which occurred in preparation for the sale. Administration expenses were incurred in the second quarter for professional and consulting fees and other reorganization costs.

EPCOR's power and water operations continued to deliver good results, and earnings from operating activities met our expectations for the second quarter. Consistent with their performance in the first quarter, our Genesee plants performed well and net availability incentive income was earned under the terms of the Power Purchase Arrangement (PPA) for Genesee 1 and 2. This was in contrast to their performance in the corresponding period in 2008 when there were three planned outages at the Genesee plants and net penalties were incurred at Genesee 1 and 2. Water revenues from the City of Edmonton customer base benefited from rate increases on April 1, 2009 and higher sales volumes due to drier than normal weather conditions in the month of June. Earnings from our water operations also benefitted from contributions from the Gold Bar Wastewater Treatment Plant (Gold Bar) operation which was transferred to EPCOR on March 31, 2009.

Canadian and U.S. financial markets stabilized somewhat in the second quarter of 2009. Narrower credit spreads and higher repayments than anticipated on the notes which EPCOR received in exchange for its Canadian non-bank sponsored asset-backed commercial paper (ABCP) resulted in a $2 million increase in the fair value of the notes in the quarter. Although financial markets stabilized in the quarter, we were and are mindful of how quickly market conditions can change. Accordingly, we continued to rely on our ability to issue commercial paper and draw on our credit facilities to finance capital expenditures during the period.

Progress continued on our capital expenditure program. The second of the three units at Clover Bar Energy Centre is expected to be commissioned in the third quarter of 2009 and Power LP completed its repowering project for its North Island plant on May 1, 2009.

On June 30, 2009, our joint proposal with Enbridge Inc. for an integrated gasification combined cycle (IGCC) carbon capture power generation facility at Genesee was one of three projects selected by the Government of Alberta for the negotiation of letters of intent under the province's $2 billion program for large-scale carbon capture and storage (CCS) projects. The Province of Alberta is working to have letters of intent signed in August 2009. Construction of the project will be subject to conditions such as regulatory approvals, economic and engineering assessments, and successful negotiation of an agreement with the Province of Alberta. EPCOR's progress in finding technology solutions that can lead to low-emission power from coal was marked by an agreement reached in May 2009 with Siemens Energy Inc. to provide power generation technology for EPCOR's Genesee IGCC power generation facility. EPCOR's interest in the Genesee IGCC CCS project was included in the sale of generation assets to Capital Power LP effective early July 2009.

SIGNIFICANT EVENTS

Announcement of initial public offering of Capital Power Corporation

common shares

On May 8, 2009, EPCOR announced its plans to create CPC, a power generation company that is permanently headquartered in Edmonton. The final prospectus for the initial public offering of 21,750,000 common shares of CPC, at $23.00 per common share was filed with securities regulators in Canada on June 25, 2009. The initial public offering closed on July 9, 2009.

Through a series of transactions (the Reorganization), as described more fully in the CPC prospectus, EPCOR sold substantially all of its power generation assets net of certain liabilities, and related operations including its 30.6% interest in EPCOR Power LP (Power LP), to CPC and its subsidiaries (Capital Power), effective early July 2009. The assets and related operations were previously included in EPCOR's Generation and Energy Services segments. EPCOR also entered into various agreements with Capital Power to provide for certain aspects of the separation of the power generation business from EPCOR, to provide for the continuity of operations and services and to govern the ongoing relationships between the two groups of entities.

The total consideration for the sale consisted of $468 million of cash, 56.6 million exchangeable LP units of Capital Power LP and an $896 million long-term loan receivable from Capital Power LP. In addition, EPCOR holds one special limited voting share in CPC providing the right to vote separately as a class in connection with certain amendments to the articles of CPC, including an amendment to change or permit the change of the location of the head office of CPC from The City of Edmonton. The difference between EPCOR's carrying value of its investment in the power generation business ($2,909 million) and the consideration received results in an estimated loss on disposal of $107 million which includes estimates of income tax related charges to recognize unrealizable future income tax assets, direct expenses incurred in connection with the sale, and underwriters' commissions. The amount will be finalized when the transaction is recorded in the third quarter financial statements and may differ materially from the current estimate.

Immediately following completion of the Reorganization, EPCOR held 56.6 million exchangeable LP units of Capital Power LP (exchangeable for common shares of CPC on a one-for-one basis) representing approximately 72.2% of Capital Power LP, while CPC held the remaining 27.8%. Each exchangeable LP unit is accompanied by a special voting share of CPC which entitles the holder to a vote at CPC shareholder meetings, subject to the restriction that such voting shares must at all times represent not more than 49% of the votes attached to all CPC common shares and special voting shares together. The special shares also entitle EPCOR to elect a maximum of four out of twelve directors of CPC. As a result of these restrictive rights, EPCOR has significant influence, but not control, of CPC and therefore will use the equity method to account for its investment in Capital Power.

Effective July 2009, income from Power LP will be included in the income from EPCOR's investment in Capital Power and EPCOR will no longer consolidate the financial results of Power LP.

EPCOR may eventually sell all or a substantial portion of its ownership interest in Capital Power, subject to market conditions, its requirements for capital and other circumstances that may arise in the future, and reinvest the proceeds from the share sales in EPCOR's growing utility infrastructure businesses, including water and wastewater treatment, and power transmission and distribution.

Asset-backed commercial paper exchanged for notes

On January 21, 2009, the restructuring of ABCP was implemented. Under the restructuring, the affected ABCP was exchanged for term floating-rate notes (notes), maturing no earlier than the scheduled termination dates of the underlying assets. The exchange was recorded at the estimated fair value of the ABCP on January 21, 2009. The key information on EPCOR's notes is as follows:

(i) EPCOR's allocation of notes under the restructuring was as

follows:

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Pool Series Rating Face amount

($ millions)

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MAV2 Class A-1 A $ 47 67%

Class A-2 A 9 13%

Class B Unrated 2 2%

Class C Unrated 2 2%

MAV3 IA Tracking Unrated 11 16%

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$ 71 100%

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(ii) For the Master Asset Vehicle 2 (MAV2) pool notes, the underlying

asset lives are anticipated to average nine years. The remaining

notes come from Master Asset Vehicle 3 (MAV3) in the form of

Ineligible Asset Tracking (IA Tracking) notes. These notes are

expected to amortize over the lives of the underlying assets which

have a weighted average life of approximately 18 years. In certain

limited circumstances, the expected repayment dates could be

longer than the expected asset lives.

(iii) ABCP investors, including EPCOR, were paid the accumulated accrued

interest, net of ABCP restructuring costs, collateral requirements

and other costs, on their existing ABCP from the date of the

standstill in August 2007 to the date of the restructuring. For

the three and six months ended June 30, 2009, EPCOR received

$2 million and $4 million respectively, of accrued interest on

ABCP and interest on the new notes.

At June 30, 2009, the Company held $40 million in notes, all of which were received in exchange for ABCP which was purchased during the third quarter of 2007 at an original cost of $71 million. As the notes are classified as held-for-trading financial assets, they are subject to ongoing fair value adjustments at each reporting date. At June 30, 2009, the fair value of the notes was estimated at $40 million compared with a fair value of $38 million and $42 million for the ABCP at March 31, 2009 and December 31, 2008, respectively. The $2 million increase for the second quarter was primarily due to narrower credit spreads. The $4 million decrease in the first quarter was primarily due to lower short-term and higher long-term market interest rates which were taken into account in calculating the fair value of the notes. In 2008, a $9 million reduction in the fair value of the ABCP was recognized in the first quarter and there was no change in fair value in the second quarter.

The estimate of fair value is subject to significant risks and uncertainties including the timing and amount of future cash payments, market liquidity, the quality and tenor of the assets and instruments underlying the notes, including the possibility of margin calls, and the future market for the notes. Accordingly, the fair value estimate of the notes may change materially.

CONSOLIDATED RESULTS OF OPERATIONS

Net income

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(Unaudited, $ millions) Three Six

months months

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Net income for the periods ended June 30, 2008 $ 16 $ 84

Unrealized fair value changes on derivative

instruments and natural gas inventory held for

trading, excluding Power LP fair value changes 36 69

Higher Genesee PPA availability incentive income 19 30

Maintenance expenses for Genesee scheduled

turnarounds in 2008 11 19

Higher water rates and sales volumes, net of

franchise fees 5 7

Gold Bar operating income excluding

administration expenses 5 5

Lower financing expenses, excluding Power LP

financing expenses 4 11

Fair value changes on notes exchanged for ABCP 2 7

Lower foreign exchange expense, excluding Power LP

foreign exchange expense 1 7

Lower gain on sale of Battle River PSA - (4)

Gains on sales of portfolio investments in 2008 (3) (3)

Lower income from Power LP (8) (27)

Lower Alberta electricity margins (9) (14)

Higher administration expenses, excluding Power LP

administration (26) (31)

Other (3) (6)

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Increase in net income 34 70

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Net income for the periods ended June 30, 2009 $ 50 $ 154

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Net income was $50 million and $154 million for the three and six months ended June 30, 2009 respectively, compared with $16 million and $84 million for the corresponding periods in 2008. The increases were primarily due to the net impact of the following:

- In the three and six months ended June 30, 2009, the unrealized fair

value changes were favourable compared with the corresponding periods

in the prior year primarily due to the fair value changes relating to

our power and natural gas derivative contracts that were not

designated as hedges for accounting purposes, as discussed under

Energy Services later in this MD&A and due to the fair value changes

on the Joffre contract-for-differences (CfD), as discussed under

Generation. These favourable variances were partly offset by

unfavourable unrealized fair value changes in our forward foreign

exchange contracts compared with the prior year, as discussed under

Generation.

- Availability incentive income was earned in the three and six months

ended June 30, 2009 under the terms of the Genesee 1 and 2 PPA

compared with a net availability penalty in the corresponding periods

in 2008. The net penalty in 2008 was due to major scheduled

turnaround work on Genesee 1 in the first and second quarters and on

Genesee 2 in the second quarter.

- Maintenance expenses for Genesee were lower due to the scheduled

maintenance turnarounds in the first quarter of 2008 for Genesee 1

and for all three Genesee units in the second quarter of 2008 whereas

there were no maintenance turnarounds in 2009. The back-to-back

timing of the maintenance turnarounds in 2008 was required to

accommodate the Alberta Electric System Operator's upgrade of the new

high-voltage transmission lines in the Genesee and Keephills area.

- Water rates were higher in the three and six months ended June 30,

2009 compared with the corresponding periods in 2008 primarily due to

increased rates under the performance-based rate tariff (PBR) as

approved by The City of Edmonton. Water sales volumes were also

higher due to drier weather conditions in the second quarter of 2009

compared with the second quarter of 2008.

- The Gold Bar operation was transferred to EPCOR from the City of

Edmonton on March 31, 2009 and contributed $5 million of operating

income before administration expenses in the second quarter.

- Financing expenses, excluding unrealized fair value adjustments and

Power LP's financing expenses were lower in the three and six months

ended June 30, 2009 compared with the corresponding periods in 2008

primarily due to higher capitalized interest and collection of

interest and principal related to the ABCP as described under

Significant Events. The Company capitalizes borrowing costs as part

of its cost of capital construction projects and in the second

quarter and first half of 2009, construction work-in-progress for

Keephills 3 and the Clover Bar Energy Centre was higher compared with

the corresponding periods in 2008.

- In the first quarter of 2009, the fair value of the notes exchanged

for ABCP decreased $4 million due to lower short-term and higher

long-term market interest rates, and in the second quarter of 2009,

the fair value of the notes increased $2 million due to narrower

credit spreads, which are taken into account in calculating the fair

value of the notes. In the first quarter of 2008, the fair value of

EPCOR's ABCP decreased $9 million and there was no change in its fair

value in the second quarter of 2008.