Annual report financial statements - Meridian Energy

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011
25. Financial Instruments (continued)
c) Cash Flow Hedging
Cash Flow Hedges – CFDs
Meridian currently sells and purchases
electricity at spot prices from the market
exposing it to changes in the price of
electricity. As described in note 24 –
Financial Risk Management, it is Group
policy to manage this risk on a net basis
by entering into CFDs which swap receipt
(payment) of spot electricity prices based
on a specified volume of electricity with
fixed electricity payments (receipts) for
an equivalent volume. Cash settlements
are made on these instruments on a
monthly basis and impact income on an
accrual basis. As discussed in Note 24 –
Financial Risk Management, for accounting
purposes, from 1 January 2009 all of the
CFDs are classified as held for trading with
movements in fair value recognised in
the income statement. Upon cessation of
hedge accounting the balance in the cash
flow hedge reserve is amortised as contract
volumes expire over the remaining life of
the respective contracts.
Cash Flow Hedges – FECs
Meridian hedges highly probable forecast
capital expenditures through a combination
of forward exchange contracts and
foreign currency options. The cash flows
associated with these contracts are timed
to mature when payment for the capital
expenditure is made. The contracts
range in maturity from 0 to 36 months.
For contracts designated as hedges for
accounting purposes, when the cash flows
occur Meridian adjusts the carrying value
of the asset acquired.
Cash Flow Hedges – CCIRSs
Meridian hedges its foreign currency
exposure on foreign currency denominated
debt using CCIRSs in a combination of
cash flow and fair value hedges. The cash
flow hedge component represents the
expected foreign currency cash flows on
the debt relating to the credit margin paid
by Meridian on the borrowings. Cash flows
relating to the debt and the CCIRSs are
settled quarterly for the NZ cash flows and
semi-annually for the foreign currency
(US and Australian dollars). Income is
affected by these settlements on an
accrual basis.
The table below shows the movements
in the cash flow hedge (‘CFH’) reserve
for the period.
GROUP AND PARENT
FECs
$’000
DEBT – CFH
OF MARGIN
$’000
CFDs
$’000
TAX
$’000
TOTAL
$’000
Opening Balance at 1 July 2009 (9,094) 4,024 (2,823) 2,368 (5,525)
Amount Recognised in Equity (29,449) (1,429) - 9,150 (21,728)
Amount Removed from Equity:
- Amortised to Profit or Loss 1 - - 1,625 (455) 1,170
- Included in Initial Cost of Assets 4,974 - - (1,393) 3,581
- Reclassified to Profit or Loss 2 33,087 - - (9,926) 23,161
Closing Balance at 30 June 2010 (482) 2,595 (1,198) (256) 659
Ineffectiveness Recognised in the
Income Statement from Cash Flow Hedges
- (304) - - -
GROUP AND PARENT
FECs
$’000
DEBT – CFH
OF MARGIN
$’000
CFDs
$’000
TAX
$’000
TOTAL
$’000
Opening Balance at 1 July 2010 (482) 2,595 (1,198) (256) 659
Amount Recognised in Equity 6,419 (4,558) - (521) 1,340
Amount Removed from Equity:
- Amortised to Profit or Loss 1 - - 1,518 (425) 1,093
- Included in Initial Cost of Assets (4,596) - - 1,287 (3,309)
Closing Balance at 30 June 2011 1,341 (1,963) 320 85 (217)
Ineffectiveness Recognised in the
Income Statement from Cash Flow Hedges
- - - - -
1 Included in Net Change in Fair Value of Financial Instruments.
2 Includes losses on FECs not expected to be recovered in one or more future periods.
54 MERIDIAN ENERGY LIMITED