New Zealand Gazette – 1998 – No. 189

Page 4442

✨ Financial Statements

4442 NEW ZEALAND GAZETTE No. 189

Electricity Corporation of New Zealand Limited

Notes to the Financial Statements

16. Contributions to Retirement Savings Plan

Contributions are made into ECNZ’s Retirement Savings Plan in respect of ECNZ employees who are members of the Plan. ECNZ contributes a maximum of 10 per cent of the relevant employee’s basic salary. These contributions are charged against profit.

17. Financial instruments

Currency, interest rate and revenue risk

Nature of activities and management policies with respect to financial instruments:

(a) Currency

ECNZ has exposure to foreign exchange risk as a result of offshore funding activities and transactions denominated in foreign currencies arising from normal trading activities. Where exposures are certain, such as borrowing commitments, it is ECNZ’s policy to hedge these risks as they arise. ECNZ uses cross currency interest rate swaps and forward foreign exchange contracts to manage these exposures.

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

	1998	1997
	$M	$M
Cross currency interest rate swaps	991	1,237
Forward foreign exchange contracts	124	163

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

(b) Interest rate

ECNZ has a mixture of current to long term borrowings that are used to fund ongoing activities. It is ECNZ’s 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:

	1998	1997
	$M	$M
Interest rate swaps	833	736
Forward rate agreements (FRAs)	193	163
Interest rate options	196	497
Interest rate futures	-	183

The cash settlement requirement of interest rate swaps is the net interest receivable of $4,034,539 (1997 $2,671,751 receivable).

The best approximation for FRAs is the current market value at balance date which is $337,689 (1997 $36,921).

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 balance date this would be $74,631 (1997 $852,997).

Futures are cash settled each day to reflect the market value at the close of the previous business day.

As part of its energy supply contracts, ECNZ entered into electricity price hedges with customers for the period to 30 September 2001. 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, is not sufficiently active at balance date.

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VUW Te Waharoa — NZ Gazette 1998, No 189

NZLII — NZ Gazette 1998, No 189

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✨ LLM interpretation of page content

🏭 Electricity Corporation of New Zealand Limited Statement of Financial Position (continued from previous page)

Domain🏭 Trade, Customs & Industry
KeywordsFinancial Statements, Fixed Assets, Current Liabilities, Valuations, Bonds, Equity, Deferred Taxation, Capital Commitments, Operating Leases, Retirement Savings Plan, Financial Instruments, Currency Risk, Interest Rate Risk, Revenue Risk, Foreign Exchange, Hedging, Swaps, Forward Contracts, Futures, Options, Electricity Hedge Contracts

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