10. Financial and derivative instruments (continued) The fair value of the Corporation’s outstanding natural gas contracts is presented in the consolidated statement of financial position as follows: (millions) 2014 2013 Fair value of derivative instrument assets $ 21 $ 28 Fair value of derivative instrument liabilities (107) (39) $ (86) $ (11) Financial assets and liabilities are offset within the consolidated statement of financial position if the Corporation has the legal right to offset and intends to settle on a net basis. When natural gas contracts settle or become realized, the Corporation records the amount due to or from counterparties within trade payables or trade receivables, respectively. The Corporation offsets these amounts when the counterparty and timing of settlement are the same, which reflects the Corporation’s expected future cash flows from settling its natural gas contracts. At year end, the following amounts were netted within the consolidated statement of financial position: (millions) 2014 2013 Trade and other receivables Gross amount recognized $ 21 $ 31 Amount offset (13) (17) Net amount presented in the consolidated statement of financial position $ 8 $ 14
Trade and other payables Gross amount recognized
$ 41
$ 37
Amount offset
(17)
(13)
Net amount presented in the consolidated statement of financial position
$ 24
$ 24
11. Financial risk management Through the normal course of business, the Corporation has exposure to market risk (natural gas price risk, interest rate risk and foreign currency risk), liquidity risk and credit risk related to its financial and derivative instruments. The Board of Directors, through the Audit and Finance Committee, has the overall responsibility for the establishment and oversight of the Corporation’s risk management efforts. The Corporation’s risk management policies and strategies, approved by the Board of Directors and reviewed regularly by the Audit and Finance Committee, provide the framework within which the Corporation may use financial and derivative instruments to manage its risks. The Corporation’s significant risk management policies include the Corporate Derivatives Policy, the Commodity Risk Management Policy, the Corporate Debt and Interest Rate Risk Management Policy, the Foreign Currency Risk Management Policy and the Corporate Credit Risk Management Policy. The objectives, policies and processes for managing risk were consistent with the prior year. a. Natural gas price risk The Corporation purchases natural gas for resale to its customers. While natural gas is purchased at fluctuating market prices, the Corporation sells natural gas to customers at a fixed commodity rate that is reviewed semi-annually. As part of its natural gas price risk management, the Corporation uses derivative instruments to manage the price of the natural gas it buys. The Corporation’s objective is to reduce the volatility of natural gas prices and to have rates that are competitive to other utilities. The Corporation also purchases and sells natural gas in the open market to generate incremental income through its gas marketing activities. The purchase or sale price of natural gas may be fixed within the contract or referenced to a floating index price. When the price is referenced to a floating index price, natural gas derivative instruments may be used to fix the settlement amount. The types of natural gas derivative instruments the Corporation may use for price risk management include natural gas price swaps, options, swaptions and forward contracts. The Corporation’s commodity price risk management strategy establishes specific hedging targets, which may differ depending on current market conditions, to guide risk management activities. Additionally, the Corporation uses mark-to- market value, value-at-risk and net exposure to monitor natural gas price risk. These metrics are measured and reported daily to the Commodity Risk Management Committee, a subcommittee of the Corporation’s Executive Committee.
54
Consolidated Financial Statements
Made with FlippingBook Ebook Creator