✨ Financial Instruments Report
NEW ZEALAND GAZETTE
No. 94
Horowhenua Energy Limited Line and Energy Businesses - Annual Report 1997
7. Financial instruments
Credit risk
Financial instruments which potentially subject the Company to credit risk principally consist of bank balances, accounts receivable and financial guarantees.
The Company performs credit evaluations on all customers requiring credit. Where a satisfactory credit reference is obtained the Company generally does not require collateral.
Maximum exposures to credit risk as at balance date are:
| Line 1997 | Energy 1997 | |
|---|---|---|
| $000 | $000 | |
| Bank Balances | 4,703 | - |
| Receivables | 1,793 | 1,411 |
The above maximum exposures are net of any recognised provision for losses on these financial instruments.
Investments in short term deposits are made with registered banks with satisfactory credit ratings. Exposure with any one financial institution is restricted in accordance with company policy.
Credit facilities
The Company has total banking facilities of $9,700,000 (1996: $7,200,000).
Electricity Hedge Contracts
Revenue - electricity price hedging contracts
The Company has entered into an electricity price hedge with a generator. Under this agreement the company agrees a fixed price for around 8.4 million of its electricity needs over the next 3 years. The Company also has arrangements to purchase electricity from an associate company which holds hedge contracts. These contracts do not directly expose the Company to hedge risk. The Company’s policy is not to enter any speculative position in relation to electricity hedge pricing contracts.
On maturity of the electricity price hedges any difference between the hedge price and the spot market price is settled between the parties. Settlement occurs irrespective of the amount of electricity actually supplied. If the spot market price is greater than the hedge price the electricity generator must settle the difference with the Company. Conversely if the spot market price is less than the hedge price, the Company must settle the difference with the electricity generator.
Credit risk - electricity price hedging contracts
With respect to electricity price hedges, the Company’s exposure is on any potential difference between the spot price and the hedge price, where on maturity of these agreements the spot price is greater than the hedge price. The Company does not anticipate any non-performance of any obligations which may exist on maturity of these agreements.
Fair value - electricity price hedging contracts
The fair value of electricity price hedging contracts can vary from day to day as the spot market price for electricity varies. As at balance date the secondary market measure for electricity price hedging contracts was not sufficiently active in order to obtain a reliable measure of the fair value of the Company’s hedging contracts. On maturity of these agreements there is potentially an asset or liability in relation to the electricity price hedges which has not been recognised in the financial statements.
Fair values
There were no differences between the fair value and carrying amounts of financial instruments as at 31 March 1997.
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VUW Te Waharoa —
NZ Gazette 1997, No 94
NZLII —
NZ Gazette 1997, No 94
✨ LLM interpretation of page content
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Horowhenua Energy Limited Line and Energy Businesses - Annual Report 1997
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🏭 Trade, Customs & Industry30 May 1997
Electricity, Information Disclosure, Horowhenua Energy Limited, Financial Statements, Performance Measures, Valuation, Audit