Notes to the Condensed Consolidated Financial Statements (unaudited)
As at September 30, 2021, natural gas derivative instruments had the following fair values, notional values and maturities in the next five fiscal years:
(millions)
2022
2023
2024
2025
2026
Total
$ $
61
Fair value
$ $
22
$ $
19
$ $
14
$ $
5
$ $
1
(14)
Notional value
3
(11)
4
(4)
(6)
Fair value - increase (decrease) in net income
Notional value - estimated undiscounted net cash (outflow) inflow
6. FINANCIAL RISK MANAGEMENT Through the normal course of business, the Corporation has exposure to market risk (natural gas price risk and interest rate 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 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 financial and derivative instruments may be used 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 and the Corporate Credit Risk Management Policy. The objectives, policies and processes for managing risk were consistent with the prior period. 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 strategy, derivative instruments are used to manage the price of the natural gas it buys. The objective is to reduce cost of gas variability 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 asset optimization 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 that may be used 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. Based on period-end closing positions, an increase of $1.00 per gigajoule (GJ) in natural gas prices would have increased net income, through an increase in the fair value of natural gas derivative instruments, by $52 million (March 31, 2021 - $29 million). Conversely, a decrease of $1.00 per GJ would have decreased net income, through a decrease in the fair value of natural gas derivative instruments, by $52 million (March 31, 2021 - $29 million). b. Liquidity risk Liquidity risk is the risk that the Corporation is unable to meet its financial obligations as they become due. The Corporation has credit facilities available to refinance maturities in excess of anticipated operating cash flows.
p.22
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