Annual Report

58
Ausgrid and Controlled Entity
Notes to financial statements
For the year ended 30 June 2015
Interest rates used for determining fair value
The entity uses the government yield curve as at 30 June 2015 plus an adequate constant credit spread to discount financial
instruments. The interest rates used are as follows:
Consolidated Entity & Ausgrid
2015 2014
Loans and borrowings 2.0% – 4.0% 2.5% – 4.5%
Deposits
Deposits represent liabilities for contractors’ deposits which can be refunded at any time after the end of the financial year. The net fair
value is the carrying value.
(iii) Valuation techniques used to derive level 2 and level 3 fair values
Ausgrid measures and recognises the following assets and liabilities at fair value on a recurring basis:
• Non novated energy derivative financial instruments
• Forward interest rate contracts
• System assets
• Land and buildings
Ausgrid has also measured assets and liabilities at fair value on a non‐recurring basis as a result of the reclassification of assets
as held for sale.
(iv) Recurring fair value measurements
The fair value of financial instruments that are not traded in an active market (for example, over‐the counter derivatives) is determined
using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as
little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument
is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The fair values of financial assets and financial liabilities are determined as follows:‐
The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets
are determined with reference to quoted market prices. In the absence of current quoted market prices, the price of the most recent
transaction will provide evidence of the current fair value.
The fair values of other financial assets and financial liabilities (excluding energy derivatives) are determined in accordance with
generally accepted pricing models based on discounted cash flow analysis using maximum observable market input data which include
prices from observable current market transactions and dealer quotes for similar instruments.
Non‐novated energy derivatives financial instruments
The fair value of electricity derivatives was calculated either using readily observed market sources or internally adjusted market prices.
The forward curve against which electricity derivatives are revalued is constructed from readily observed market sources. The inputs for
this curve are sourced from a combination of available independent broker quotes as well as closing Sydney Futures Exchange prices.
For those electricity derivatives, where directly appropriate market price valuations were not available, the net fair value for such
contracts had been calculated based on internally adjusted market price estimates for similar products or reasonable extrapolation of
the last observed relative reference prices. Certain other more complex contracts involving term structures, conditions and strike prices
for which there were no observable market prices had been valued based on entity specific inputs using models that were also used
in risk management. In all of these cases, estimated future cash flows resulting from the valuation exercise were discounted to derive
the relative net fair values as at reporting date. The discount rates used were sourced from a zero coupon yield curve constructed by an
independent content provider.
The discount factors also incorporate the impact of Ausgrid and counterparty credit in accordance with AASB 13.
System assets
System assets are valued using techniques described in Note 1(m). All resulting fair value estimates for system assets are
included in level 3.
Land and buildings
Land and buildings are valued using techniques described in Note 1(m). All resulting fair value estimates for land and buildings are
included in level 2.