Financial Information Act Return - BC Hydro

Notes to Consolidated Financial Statements
For the Years Ended March 31, 2003 and 2002
Fair Value
The fair value of loans receivable, bonds, notes and debentures, and sinking funds reflects changes in the
general level of interest rates that have occurred since inception. Fair value is based on quoted market
values or, where no such information is available, is determined by discounting the expected future cash
flows of the financial instrument using market rates applicable to financial instruments with similar terms
and conditions. The fair value of a derivative financial instrument reflects the amount that BC Hydro
would receive or pay to terminate these instruments at the balance sheet date. The fair value of over-thecounter
derivative contracts is determined using pricing models, which take into account market prices
and contractual prices of the underlying instruments, as well as time value, yield curve and volatility factors
underlying the positions.
Sinking Funds
Sinking funds are held as individual portfolios or units in a pooled bond fund. Securities included in an
individual portfolio are recorded at cost, adjusted by amortization of any discounts or premiums arising
on purchase on a yield basis over the estimated term to settlement of the security. Realized gains and
losses are included in sinking fund income. Unrealized gains and losses are not recognized.
Units in the pooled bond fund are recorded at cost, adjusted by amortization of any realized and
unrealized gains and losses on a straight-line basis over the weighted average term to maturity of the
related debt portfolio.
Future Removal and Site Restoration Costs
Provisions for the costs, net of expected recoveries, for future removal and site restoration arising on the
retirement of capital assets are made where they can be reasonably estimated. These costs are charged to
depreciation expense on a straight-line basis over the expected useful lives of the related assets.
Provisions required are revised periodically in accordance with changes in BC Hydro’s assumptions and
estimates underlying the calculations and with experience arising from the removal of capital assets.
Deferred Revenue
Deferred revenue consists principally of amounts received under the Skagit River Agreements. Under
these agreements, BC Hydro is required to deliver a predetermined amount of electricity each year for an
80-year period ending in fiscal 2066. In return BC Hydro receives approximately US $22 million each
year for a 35-year period ending in fiscal 2020 and US $100,000 (adjusted for inflation) each year for an
80-year period ending in fiscal 2066.
The amounts received under the Skagit River Agreements are deferred and included in income on an
annuity basis over the electricity delivery period ending in fiscal 2066.
Contributions
Contributions in aid of construction are amounts paid by certain customers toward the cost of capital
assets required for the extension of services. These amounts are amortized over the expected useful life of
the related assets.
Contributions arising from the Columbia River Treaty relate to three dams built by BC Hydro in the
mid-1960s to regulate the flow of the Columbia River. The proceeds received were contributed to
BC Hydro to assist in financing the dams’ construction. These proceeds were deferred and are amortized
to income over the period ending in fiscal 2025, the minimum term of the treaty.