5. Financial and derivative instruments (continued)
b. Level 2
Level 2 valuations are based on inputs that are either directly or indirectly observable for the asset or liability as at the reporting date. Inputs include quoted market prices, time value, volatility factors and broker quotations which can be substantially observed or corroborated in the marketplace. The fair value of debt retirement funds is determined by Saskatchewan’s Ministry of Finance using a market approach with information provided by investment dealers. To the extent possible, valuations reflect indicative secondary pricing for these securities. In all other circumstances, valuations are determined with reference to similar actively traded instruments. The fair value of natural gas derivative instruments is determined using a market approach. The Corporation obtains quoted market prices from sources such as the New York Mercantile Exchange and the Natural Gas Exchange, independent price publications and over-the-counter broker quotes. The fair value of long-term debt is determined for disclosure purposes only using an income approach. Fair values are estimated using the present value of future cash flows discounted at the market rate of interest for the equivalent Province of Saskatchewan debt instruments.
c. Level 3
Level 3 inputs are unobservable for the particular assets and liabilities as at the reporting date.
Notional values are an approximation of future undiscounted net cash flows. For physical natural gas contracts, the notional value is based on the contract price. Where contract prices are referenced to an index price that has not yet been fixed, the market price is used to estimate the contract price. As at June 30, 2018 natural gas derivative instruments had the following fair values, notional values, and maturities:
(millions)
2019
2020
2021
2022
2023
Total
Fair value
$
9
$
(2)
$
(2)
$
(1)
$
-
$
4
Notional value
(21)
(24)
(10)
1
-
(54)
Fair value - increase (decrease) in net income Notional value - estimated undiscounted net cash inflow (outflow)
6. Assets held for sale
As at June 30, 2018, a non-current asset was classified as held for sale within the condensed consolidated statement of financial position. During the 2017-18 year, the Corporation committed to a plan to sell a natural gas processing plant within the next 12-month period. The assets are measured at carrying amount, which is also equal to their fair value less costs to sell and were no longer depreciated. The carrying amount of the natural gas processing plant assets held for sale as at June 30, 2018 was $8 million.
7. Long-term debt
During the quarter, the Corporation issued $100 million in long-term debt with an effective interest rate of 3.2%. The long- term debt was issued at a premium of $1 million.
8. Commitments and contingencies
a. Commitments
At period end, the Corporation had $120 million of outstanding contractual commitments for the procurement of goods and services in the future.
18
2018-19 FIRST QUARTER REPORT
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