14. Financial risk management (continued)
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 $34 million (March 31, 2020 - $43 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 $34 million (March 31, 2020 - $43 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. The contractual maturities of the Corporation’s financial obligations, including interest payments and the impact of netting agreements, as at September 30, 2020 were as follows:
Contractual Maturities
Carrying Amount
Less Than
1 - 2
3 - 5
More Than
(millions)
1 Year
Years
Years
5 Years
Short-term debt
$
212
$
212
$
- -
$
- -
$
- - -
Trade and other payables
95 12
95
Lease liability Long-term debt
6
3
3
1,485
56
56
341
2,148
Derivative instruments
(19)
8
2
(13)
- -
Commitments
84
84
-
-
$
1,869
$
461
$
61
$
331
$
2,148
2020-21 Second Quarter Report
32
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