Financial Information Act Return - BC Hydro

Notes to Consolidated Financial Statements
For the Years Ended March 31, 2003 and 2002
Note 10: Financial Instruments
Fair Value
At March 31, 2003 and 2002, BC Hydro’s financial instruments included temporary investments,
accounts receivable, sinking funds, loans receivable, accounts payable, long-term debt, and interest rate
and foreign exchange derivative financial instruments. Derivative financial instruments are held with the
Province, which enters into such agreements with third parties on BC Hydro’s behalf.
The fair value of BC Hydro’s financial instruments approximates carrying amounts where applicable,
except as shown in the following table:
(in millions) 2003 2002
Carrying Value 1
Fair Value 2
Carrying Value 1
Fair Value 2
Bonds, notes and debentures $ (7,559) $ (8,826) $(7,795) $(8,527)
Revolving borrowings 3
(331) (331) (184) (184)
Long-term debt before current portion $ (7,890) $ (9,157) $(7,979) $(8,711)
Sinking funds $ 1,037 $ 1,063 $1,073 $1,094
Derivative financial instruments
Net foreign currency contracts $ (2) $ 38 $ 16 $ 43
Interest rate swaps – 11 – (2)
1
Carrying value represents the amount which is recorded in BC Hydro’s financial statements. Bracketed amounts represent
liabilities.
2
Market rates and prices used in determining fair value are as of the closing balance sheet date.
3 As the interest rates on revolving borrowings are reset on a regular basis, fair value approximates carrying value.
Credit Risk Management
BC Hydro is directly exposed to counterparty credit risk as a result of the sale of electricity and related
services to its domestic customers and purchase of electricity from independent power producers. BC
Hydro is also exposed to credit risk as a result of the purchase and sale of electricity and natural gas by its
subsidiary, Powerex. Powerex’s principal markets for power marketing services are power exchanges,
power pools, and utilities and their affiliates in the western United States and western Canada. Powerex
has concentrations of credit exposure to these parties throughout these regions. These concentrations of
risk exposure may affect BC Hydro’s overall credit risk in that certain Powerex customers may be
similarly affected by changes in economic, regulatory, political and other factors. With respect to
Powerex’s sales and purchases, credit risk is managed by authorizing transactions with only credit-worthy
counterparties as determined by BC Hydro Board-approved policies, and by monitoring the credit risk and
credit standing of counterparties on a regular basis.