4584

NEW ZEALAND GAZETTE

No. 140

NOTES TO THE FINANCIAL STATEMENTS

20. FINANCIAL INSTRUMENTS (continued)

Contract amounts of foreign exchange instruments outstanding at balance date are as follows:

Cross Currency Interest Rate Swaps
1,667,538
1,148,123

Forward Foreign Exchange Contracts
74,004
147,547

The cash settlement requirements of the above instruments approximate the contract amounts shown above.

(b) Interest Rate

ECNZ has a mixture of medium to long term borrowings that are used to fund ongoing activities. It is ECNZ policy to manage exposure to interest rate risk via the use of interest rate swaps, forward rate agreements, interest rate options and interest rate futures.

The notional principal or contract amounts of interest rate contracts outstanding at balance date are as follows:

Interest Rate Swaps
741,371
609,634

Forward Rate Agreements
64,000
198,000

Interest Rate Options
210,000
676,000

The cash settlement requirement of interest rate swaps is the net interest receivable/payable of $408,549 (1994 $915,000). The best approximation for FRAs is the current market value which is $14,569 (1994 $16,842).

The cash settlement requirement of interest rate options is the net market value of the options, at strike date, if the option is exercised. Based on current market rates at 30 June 1995 this would be $130,890 (1994 $805,772).

(c) Revenue - Electricity hedge contracts

As part of its energy supply contracts, ECNZ has entered into electricity price hedges with customers for the period 1 July 1995 to 31 March 1996. Under these contracts ECNZ sells electricity forward at a fixed price (hedge price) together with a limited volume of call options. Any difference on maturity between the hedge price and the spot price is settled between the parties, irrespective of how much electricity is supplied. If the spot price is greater than the hedge price, ECNZ must settle with the counterparty. Conversely, if the spot price is less than the hedge price the counterparty must settle with ECNZ. It is not practicable to estimate the fair value of electricity hedge contracts as the secondary market for electricity price hedge products, namely seasonal hedge, monthly hedge and call options, was not sufficiently active as at 30 June 1995. The contract amount of electricity price hedges at balance date amounted to $356 million (June 1994 $266 million).

ECNZ’s Board of Directors have issued a policy to manage ECNZ’s exposure to the risk of being over hedged by issuing a hedge limit equivalent to the sale of 26,000 GWh in any one year. Total sales for the year ended 30 June 1995 were 30,008 GWh.

(ii) Fair Values

The estimated fair values of ECNZ’s other financial instruments are as follows:

June 1995
Carrying value
Fair value

June 1994
Carrying value
Fair value

Term Receivables

• 32,000
  32,000

Short Term Loans
106,573
99,244
90,017
104,380

Term Liabilities
1,277,340
1,381,737
2,646,887
2,730,000

Currency and Interest Rate Swaps

(9,147)

(23,977)

Foreign Exchange Contracts

(1,651)

832

Forward Rate Agreements

(15)

17

Interest Rate Options

(131)

806

Cash and liquid deposits, debtors, trade creditors, other debtors and creditors and short term investments are excluded from the table above because, due to their short term nature, the carrying value of these items is equal to their fair value.