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RISK MANAGEMENT AND FINANCIAL INSTRUMENTS | 6 Months Ended
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Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
RISK MANAGEMENT AND FINANCIAL INSTRUMENTS | 10. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS MARKET RISK Our earnings, cash flows and other comprehensive income/(loss) (OCI) are subject to movements in foreign exchange rates, interest rates, commodity prices and our share price (collectively, market risks). Formal risk management policies, processes and systems have been designed to mitigate these risks. The following summarizes the types of market risks to which we are exposed and the risk management instruments used to mitigate them. We use a combination of qualifying and non-qualifying derivative instruments to manage the risks noted below. Foreign Exchange Risk We generate certain revenues, incur expenses and hold a number of investments and subsidiaries that are denominated in currencies other than Canadian dollars. As a result, our earnings, cash flows and OCI are exposed to fluctuations resulting from foreign exchange rate variability. We employ financial derivative instruments to hedge foreign currency-denominated earnings exposure. A combination of qualifying and non-qualifying derivative instruments is used to hedge anticipated foreign currency-denominated revenues and expenses and to manage variability in cash flows. We hedge certain net investments in US dollar-denominated investments and subsidiaries using US dollar-denominated debt. Interest Rate Risk Our earnings, cash flows and OCI are exposed to short-term interest rate variability due to the regular repricing of our variable rate debt, primarily commercial paper. We have a policy of limiting the maximum floating rate debt to 30% of total debt outstanding. To ensure compliance with our policy, we monitor and adjust our debt portfolio mix of fixed and variable rate debt instruments in conjunction with the use of derivative instruments. We have implemented a program to partially mitigate the impact of short-term interest rate volatility on interest expense via the execution of floating-to-fixed interest rate swaps and costless collars. These swaps have an average fixed rate of 3.1%. Our earnings and cash flows are also exposed to variability in longer term interest rates ahead of anticipated fixed rate term debt issuances. A combination of qualifying and non-qualifying forward starting interest rate swaps is used to hedge against the effect of future interest rate movements. We have established a program including some of our subsidiaries to partially mitigate our exposure to long-term interest rate variability on forecasted term debt issuances via execution of floating-to-fixed interest rate swaps with an average swap rate of 3.4%. Commodity Price Risk Our earnings, cash flows and OCI are exposed to changes in commodity prices as a result of our ownership interests in certain assets and investments, as well as through the activities of our energy marketing subsidiaries. These commodities include natural gas, crude oil, power and natural gas liquids (NGL). We employ financial and physical derivative instruments to fix a portion of the variable price exposures that arise from physical transactions involving these commodities. For our US Gas Utilities, changes in derivatives' fair values are deferred as regulatory assets or liabilities until settlement. We use primarily non-qualifying derivative instruments to manage commodity price risk. Equity Price Risk Equity price risk is the risk of earnings fluctuations due to changes in our share price. We have exposure to our own common share price through the issuance of various forms of stock-based compensation, which affect earnings through the revaluation of outstanding units every period. TOTAL DERIVATIVE INSTRUMENTS We have a policy of entering into individual International Swaps and Derivatives Association, Inc. (ISDA) agreements, or other similar derivative agreements, with the majority of our financial derivative counterparties. These agreements provide for the net settlement of derivative instruments outstanding with specific counterparties in the event of bankruptcy or other significant credit events and reduce our credit risk exposure on financial derivative asset positions in those circumstances. The following tables summarize the Consolidated Statements of Financial Position location and carrying value of our derivative instruments, as well as the maximum potential settlement amounts, in the event of the specific circumstances described above.
June 30, 2025 | Derivative Instruments Used as Cash Flow Hedges |  | Derivative Instruments Used as Fair Value Hedges |  | Non- Qualifying Derivative Instruments |  | Total Gross Derivative Instruments as Presented |  | Amounts Available for Offset |  | Total Net Derivative Instruments |
(millions of Canadian dollars) |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | 33 |  |  | 33 |  |  | (19 | ) |  | 14 |
Interest rate contracts |  | 12 |  |  | — |  |  | 20 |  |  | 32 |  |  | (15 | ) |  | 17 |
Commodity contracts |  | — |  |  | — |  |  | 391 |  |  | 391 |  |  | (230 | ) |  | 161 |
|  | 12 |  |  | — |  |  | 444 |  |  | 456 |  |  | (264 | ) |  | 192 |
Deferred amounts and other assets |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | 75 |  |  | 75 |  |  | (33 | ) |  | 42 |
Interest rate contracts |  | 26 |  |  | — |  |  | 91 |  |  | 117 |  |  | (28 | ) |  | 89 |
Commodity contracts |  | — |  |  | — |  |  | 116 |  |  | 116 |  |  | (43 | ) |  | 73 |
|  | 26 |  |  | — |  |  | 282 |  |  | 308 |  |  | (104 | ) |  | 204 |
Other current liabilities |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | (334 | ) |  | (334 | ) |  | 19 |  |  | (315 | )
Interest rate contracts |  | (12 | ) |  | — |  |  | (26 | ) |  | (38 | ) |  | 15 |  |  | (23 | )
Commodity contracts |  | (1 | ) |  | — |  |  | (395 | ) |  | (396 | ) |  | 230 |  |  | (166 | )
|  | (13 | ) |  | — |  |  | (755 | ) |  | (768 | ) |  | 264 |  |  | (504 | )
Other long-term liabilities |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | (721 | ) |  | (721 | ) |  | 33 |  |  | (688 | )
Interest rate contracts |  | (12 | ) |  | — |  |  | (67 | ) |  | (79 | ) |  | 28 |  |  | (51 | )
Commodity contracts |  | — |  |  | — |  |  | (122 | ) |  | (122 | ) |  | 43 |  |  | (79 | )
|  | (12 | ) |  | — |  |  | (910 | ) |  | (922 | ) |  | 104 |  |  | (818 | )
Total net derivative asset/(liability) |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | (947 | ) |  | (947 | ) |  | — |  |  | (947 | )
Interest rate contracts |  | 14 |  |  | — |  |  | 18 |  |  | 32 |  |  | — |  |  | 32 |
Commodity contracts |  | (1 | ) |  | — |  |  | (10 | ) |  | (11 | ) |  | — |  |  | (11 | )
|  | 13 |  |  | — |  |  | (939 | ) |  | (926 | ) |  | — |  |  | (926 | )
December 31, 2024 | Derivative Instruments Used as Cash Flow Hedges |  | Derivative Instruments Used as Fair Value Hedges |  | Non- Qualifying Derivative Instruments |  | Total Gross Derivative Instruments as Presented |  | Amounts Available for Offset |  | Total Net Derivative Instruments |
(millions of Canadian dollars) |  |  |  |  |  |  |  |  |  |  |  |
Other current assets |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 78 |  |  | 47 |  |  | 125 |  |  | (29 | ) |  | 96 |
Interest rate contracts |  | 44 |  |  | — |  |  | 23 |  |  | 67 |  |  | (39 | ) |  | 28 |
Commodity contracts |  | 2 |  |  | — |  |  | 360 |  |  | 362 |  |  | (191 | ) |  | 171 |
Other contracts |  | — |  |  | — |  |  | 3 |  |  | 3 |  |  | — |  |  | 3 |
|  | 46 |  |  | 78 |  |  | 433 |  |  | 557 |  |  | (259 | ) |  | 298 |
Deferred amounts and other assets |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | 83 |  |  | 83 |  |  | (71 | ) |  | 12 |
Interest rate contracts |  | 9 |  |  | — |  |  | 137 |  |  | 146 |  |  | (27 | ) |  | 119 |
Commodity contracts |  | — |  |  | — |  |  | 197 |  |  | 197 |  |  | (39 | ) |  | 158 |
|  | 9 |  |  | — |  |  | 417 |  |  | 426 |  |  | (137 | ) |  | 289 |
Other current liabilities |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (73 | ) |  | (731 | ) |  | (804 | ) |  | 29 |  |  | (775 | )
Interest rate contracts |  | (58 | ) |  | — |  |  | (22 | ) |  | (80 | ) |  | 39 |  |  | (41 | )
Commodity contracts |  | — |  |  | — |  |  | (451 | ) |  | (451 | ) |  | 191 |  |  | (260 | )
|  | (58 | ) |  | (73 | ) |  | (1,204 | ) |  | (1,335 | ) |  | 259 |  |  | (1,076 | )
Other long-term liabilities |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | — |  |  | (1,579 | ) |  | (1,579 | ) |  | 71 |  |  | (1,508 | )
Interest rate contracts |  | — |  |  | — |  |  | (80 | ) |  | (80 | ) |  | 27 |  |  | (53 | )
Commodity contracts |  | (1 | ) |  | — |  |  | (238 | ) |  | (239 | ) |  | 39 |  |  | (200 | )
|  | (1 | ) |  | — |  |  | (1,897 | ) |  | (1,898 | ) |  | 137 |  |  | (1,761 | )
Total net derivative asset/(liability) |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 5 |  |  | (2,180 | ) |  | (2,175 | ) |  | — |  |  | (2,175 | )
Interest rate contracts |  | (5 | ) |  | — |  |  | 58 |  |  | 53 |  |  | — |  |  | 53 |
Commodity contracts |  | 1 |  |  | — |  |  | (132 | ) |  | (131 | ) |  | — |  |  | (131 | )
Other contracts |  | — |  |  | — |  |  | 3 |  |  | 3 |  |  | — |  |  | 3 |
|  | (4 | ) |  | 5 |  |  | (2,251 | ) |  | (2,250 | ) |  | — |  |  | (2,250 | )
The following table summarizes the maturity and notional principal or quantity outstanding related to our derivative instruments:
June 30, 2025 | 2025 |  |  | 2026 |  |  | 2027 |  |  | 2028 |  |  | 2029 |  | Thereafter |  | Total |  |
Foreign exchange contracts - US dollar forwards - purchase (millions of US dollars) |  | 798 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 798 |  |
Foreign exchange contracts - US dollar forwards - sell (millions of US dollars) |  | 3,330 |  |  | 5,627 |  |  | 4,841 |  |  | 3,552 |  |  | 1,278 |  |  | 30 |  |  | 18,658 |  |
Foreign exchange contracts - British pound (GBP) forwards - sell (millions of GBP) |  | 18 |  |  | 28 |  |  | 32 |  |  | — |  |  | — |  |  | — |  |  | 78 |  |
Foreign exchange contracts - Euro forwards - sell (millions of Euro) |  | 63 |  |  | 121 |  |  | 81 |  |  | 67 |  |  | 66 |  |  | 129 |  |  | 527 |  |
Interest rate contracts - short-term pay fixed rate (millions of Canadian dollars) |  | 1,338 |  |  | 2,230 |  |  | 1,175 |  |  | 549 |  |  | 34 |  |  | — |  |  | 5,326 |  |
Interest rate contracts - long-term pay fixed rate (millions of Canadian dollars)1 |  | 1,048 |  |  | 1,860 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,908 |  |
Interest rate contracts - costless collar (millions of Canadian dollars) |  | 981 |  |  | 1,760 |  |  | 1,319 |  |  | 51 |  |  | — |  |  | — |  |  | 4,111 |  |
Commodity contracts - natural gas (billions of cubic feet)2 |  | 42 |  |  | 91 |  |  | 56 |  |  | 22 |  |  | 14 |  |  | 2 |  |  | 227 |  |
Commodity contracts - crude oil (millions of barrels)2 |  | (15 | ) |  | 2 |  |  | 2 |  |  | 1 |  |  | 1 |  |  | 1 |  |  | (8 | ) |
Commodity contracts - power (megawatt per hour (MW/H)) |  | 149 |  |  | 142 |  |  | 85 |  |  | 30 |  |  | 29 |  |  | (2 | ) | 37 |  | 3
1 Represents the notional amount of long-term debt issuances hedged. 2 Represents the notional amount of net purchase/(sale). 3 Total is an average net purchase/(sale) of power. Derivatives Designated as Fair Value Hedges The following table presents foreign exchange derivative instruments that are designated and qualify as fair value hedges. The realized and unrealized gain or loss on the derivative is included in Other income/ (expense) or Interest expense in the Consolidated Statements of Earnings. The offsetting loss or gain on the hedged item attributable to the hedged risk is included in Other income/(expense) in the Consolidated Statements of Earnings. Any excluded components are included in the Consolidated Statements of Comprehensive Income.
| Three months ended June 30, |  | Six months ended June 30, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
(millions of Canadian dollars) |  |  |  |  |  |  |  |
Unrealized gain/(loss) on derivative |  | 28 |  |  | (29 | ) |  | (14 | ) |  | (92 | )
Unrealized gain/(loss) on hedged item |  | (51 | ) |  | 26 |  |  | (1 | ) |  | 100 |
Realized gain/(loss) on derivative |  | (36 | ) |  | (12 | ) |  | 25 |  |  | 47 |
Realized gain/(loss) on hedged item |  | 51 |  |  | — |  |  | (23 | ) |  | (79 | )
The Effect of Derivative Instruments on the Statements of Earnings and Comprehensive Income The following table presents the effect of cash flow hedges and fair value hedges on our consolidated earnings and comprehensive income, before the effect of income taxes:
| Three months ended June 30, |  | Six months ended June 30, |
| 2025 |  | 2024 |  | 2025 |  | 2024 |
(millions of Canadian dollars) |  |  |  |  |  |  |  |
Amount of unrealized gain/(loss) recognized in OCI |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Interest rate contracts |  | 21 |  |  | 10 |  |  | (14 | ) |  | 148 |
Commodity contracts |  | (3 | ) |  | 3 |  |  | (2 | ) |  | 15 |
Other contracts |  | — |  |  | — |  |  | — |  |  | 1 |
Fair value hedges |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 18 |  |  | (11 | ) |  | 12 |  |  | (26 | )
|  | 36 |  |  | 2 |  |  | (4 | ) |  | 138 |
Amount of (income)/loss reclassified from AOCI to earnings |  |  |  |  |  |  |  |
Foreign exchange contracts ¹ |  | (15 | ) |  | 12 |  |  | (3 | ) |  | 31 |
Interest rate contracts ² |  | 9 |  |  | 12 |  |  | 17 |  |  | 12 |
Commodity contracts 3 |  | — |  |  | (1 | ) |  | — |  |  | (1 | )
|  | (6 | ) |  | 23 |  |  | 14 |  |  | 42 |
1 Reported within Interest expense and Other income/(expense) in the Consolidated Statements of Earnings. 2 Reported within Interest expense in the Consolidated Statements of Earnings. 3 Reported within Transportation and other services revenues in the Consolidated Statements of Earnings. We estimate that a loss of $1 million from AOCI related to open cash flow hedges will be reclassified to earnings in the next 12 months. Actual amounts reclassified to earnings depend on the foreign exchange rates, interest rates and commodity prices in effect when derivative contracts that are currently outstanding mature. For all forecasted transactions, the maximum term over which we are hedging exposures to the variability of cash flows is two years as at June 30, 2025. Non-Qualifying Derivatives The following table presents the unrealized gains and losses associated with changes in the fair value of our non-qualifying derivatives:
| Three months ended June 30, |  | Six months ended June 30, |
| 2025 |  | 2024 |  | 2025 |  | 2024 |
(millions of Canadian dollars) |  |  |  |  |  |  |  |
Foreign exchange contracts 1 |  | 1,195 |  |  | (209 | ) |  | 1,233 |  |  | (939 | )
Interest rate contracts 2 |  | 33 |  |  | 17 |  |  | (40 | ) |  | 122 |
Commodity contracts 3 |  | 4 |  |  | (50 | ) |  | 126 |  |  | (117 | )
Other contracts 4 |  | — |  |  | — |  |  | (3 | ) |  | (1 | )
Total unrealized derivative fair value gain/(loss), net |  | 1,232 |  |  | (242 | ) |  | 1,316 |  |  | (935 | )
1 Reported within Other income/(expense) in the Consolidated Statements of Earnings. 2 Reported within Interest expense in the Consolidated Statements of Earnings. 3 For the respective six months ended periods, reported within Transportation and other services (2025 - $105 million gain; 2024 - $60 million loss), Commodity sales (2025 - $42 million gain; 2024 - $2 million loss), Commodity costs (2025 - $18 million gain; 2024 - $20 million loss) and Operating and administrative expense (2025 - $20 million gain; 2024 - $23 million loss) in the Consolidated Statements of Earnings.The fair value change in our US Gas Utilities is deferred as regulatory assets/(liabilities) (2025 - $59 million asset; 2024 - $12 million liability). 4 Reported within Operating and administrative expense in the Consolidated Statements of Earnings. LIQUIDITY RISK Liquidity risk is the risk that we will not be able to meet our financial obligations, including commitments and guarantees, as they become due. In order to mitigate this risk, we forecast cash requirements over a 12-month rolling time period to determine whether sufficient funds will be available. Our primary sources of liquidity and capital resources are funds generated from operations, the issuance of commercial paper and draws under committed credit facilities and long-term debt, which includes debentures and medium-term notes. Our shelf prospectuses with securities regulators enable ready access to either the Canadian or US public capital markets, subject to market conditions. In addition, we maintain sufficient liquidity through committed credit facilities with a diversified group of banks and institutions which, if necessary, enables us to fund all anticipated requirements for approximately one year without accessing the capital markets. We were in compliance with all the terms and conditions of our committed credit facility agreements and term debt indentures as at June 30, 2025. As a result, all credit facilities are available to us and the banks are obligated to fund us under the terms of the facilities. We also identify other potential sources of debt and equity funding alternatives, including reinstatement of our dividend reinvestment and share purchase plan or at-the-market equity issuances. CREDIT RISK Entering into derivative instruments may result in exposure to credit risk from the possibility that a counterparty will default on its contractual obligations. In order to mitigate this risk, we enter into risk management transactions primarily with institutions that possess strong investment grade credit ratings. Credit risk relating to derivative counterparties is mitigated through the maintenance and monitoring of credit exposure limits, contractual requirements and netting arrangements. We also review counterparty credit exposure using external credit rating services and other analytical tools to manage credit risk. We have credit concentrations and credit exposure, with respect to derivative instruments, in the following counterparty segments:
| June 30, 2025 |  | December 31, 2024 |
(millions of Canadian dollars) |  |  |  |
Canadian financial institutions |  | 249 |  |  | 344 |
US financial institutions |  | 191 |  |  | 128 |
European financial institutions |  | 75 |  |  | 116 |
Asian financial institutions |  | 32 |  |  | 53 |
Other 1 |  | 209 |  |  | 332 |
|  | 756 |  |  | 973 |
1 Other is comprised of commodity clearing house and crude oil, natural gas and power counterparties. As at June 30, 2025, we did not provide any letters of credit in lieu of providing cash collateral to our counterparties pursuant to the terms of the relevant ISDA agreements. We held no cash collateral on derivative asset exposures as at June 30, 2025 and December 31, 2024. Gross derivative balances have been presented without the effects of collateral posted. Derivative assets are adjusted for non-performance risk of our counterparties using their credit default swap spread rates and are reflected at fair value. For derivative liabilities, our non-performance risk is considered in the valuation. Credit risk also arises from trade and other long-term receivables, and is mitigated through credit exposure limits and contractual requirements, the assessment of counterparty credit ratings and netting arrangements. Within the Gas Distribution and Storage segment, credit risk is mitigated by the utilities' large and diversified customer base and the ability to recover expected credit losses through the ratemaking process. We actively monitor the financial strength of large industrial customers and, in select cases, have obtained additional security to minimize the risk of default on receivables. Generally, we utilize a loss allowance matrix which contemplates historical credit losses by age of receivables, adjusted for any forward-looking information and management expectations to measure lifetime expected credit losses of receivables. The maximum exposure to credit risk related to non-derivative financial assets is their carrying value. FAIR VALUE MEASUREMENTS Our financial assets and liabilities measured at fair value on a recurring basis include derivatives and other financial instruments. We also disclose the fair value of other financial instruments not measured at fair value. The fair value of financial instruments reflects our best estimates of market value based on generally accepted valuation techniques or models and is supported by observable market prices and rates. When such values are not available, we use discounted cash flow analysis from applicable yield curves based on observable market inputs to estimate fair value. FAIR VALUE OF FINANCIAL INSTRUMENTS We categorize our financial instruments measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 Level 1 includes financial instruments measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for a financial instrument is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Under the fair value hierarchy, cash and cash equivalents are classified as Level 1. Our Level 1 instruments consist primarily of exchange-traded derivatives used to mitigate the risk of crude oil price fluctuations, US and Canadian treasury bills, and investments in exchange-traded funds held by our captive insurance subsidiaries. We also have restricted long-term investments in exchange-traded funds and common shares held in trust in accordance with the regulatory requirements of the Canada Energy Regulator (CER) under the Land Matters Consultation Initiative (LMCI) and to cover future pipeline decommissioning costs in the state of Minnesota. Level 2 Level 2 includes financial instrument valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Financial instruments in this category are valued using models or other industry standard valuation techniques derived from observable market data. Such valuation techniques include inputs such as quoted forward prices, time value, volatility factors and broker quotes that can be observed or corroborated in the market for the entire duration of the financial instrument. Derivatives valued using Level 2 inputs include non-exchange traded derivatives such as over-the-counter foreign exchange forward and cross-currency swap contracts, interest rate swaps, physical forward commodity contracts, as well as commodity swaps and options for which observable inputs can be obtained. We have also categorized the fair value of our long-term debt, investments in debt securities held by our captive insurance subsidiaries, and restricted long-term investments in Canadian government bonds held in trust in accordance with the CER's regulatory requirements under the LMCI as Level 2. The fair value of our long-term debt is based on quoted market prices for instruments of similar credit risk and tenor. When possible, the fair value of our restricted long-term investments is based on quoted market prices for similar instruments and, if not available, based on broker quotes. Level 3 Level 3 includes derivative valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the derivative's fair value. Generally, Level 3 derivatives are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available or have no binding broker quote to support Level 2 classification. We have developed methodologies, benchmarked against industry standards, to determine fair value for these derivatives based on the extrapolation of observable future prices and rates. Derivatives valued using Level 3 inputs primarily include long-dated derivative power, NGL and natural gas contracts, basis swaps, commodity swaps, and power and energy swaps, physical forward commodity contracts, as well as options. We do not have any other financial instruments categorized in Level 3. We use the most observable inputs available to estimate the fair value of our derivatives. When possible, we estimate the fair value of our derivatives based on quoted market prices. If quoted market prices are not available, we use estimates from third-party brokers. For non-exchange traded derivatives classified in Levels 2 and 3, we use standard valuation techniques to calculate the estimated fair value. These methods include discounted cash flows for forwards and swaps and Black-Scholes-Merton pricing models for options. Depending on the type of derivative and nature of the underlying risk, we use observable market prices (interest, foreign exchange, commodity and share price) and volatility as primary inputs to these valuation techniques. Finally, we consider our own credit default swap spread, as well as the credit default swap spreads associated with our counterparties, in our estimation of fair value. Fair Value of Derivatives We have categorized our derivative assets and liabilities measured at fair value as follows:
June 30, 2025 | Level 1 |  | Level 2 |  | Level 3 |  | Total Gross Derivative Instruments |
(millions of Canadian dollars) |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |
Current derivative assets |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 33 |  |  | — |  |  | 33 |
Interest rate contracts |  | — |  |  | 32 |  |  | — |  |  | 32 |
Commodity contracts |  | 65 |  |  | 72 |  |  | 254 |  |  | 391 |
|  | 65 |  |  | 137 |  |  | 254 |  |  | 456 |
Long-term derivative assets |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 75 |  |  | — |  |  | 75 |
Interest rate contracts |  | — |  |  | 117 |  |  | — |  |  | 117 |
Commodity contracts |  | 2 |  |  | 14 |  |  | 100 |  |  | 116 |
|  | 2 |  |  | 206 |  |  | 100 |  |  | 308 |
Financial liabilities |  |  |  |  |  |  |  |
Current derivative liabilities |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (334 | ) |  | — |  |  | (334 | )
Interest rate contracts |  | — |  |  | (38 | ) |  | — |  |  | (38 | )
Commodity contracts |  | (79 | ) |  | (71 | ) |  | (246 | ) |  | (396 | )
|  | (79 | ) |  | (443 | ) |  | (246 | ) |  | (768 | )
Long-term derivative liabilities |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (721 | ) |  | — |  |  | (721 | )
Interest rate contracts |  | — |  |  | (79 | ) |  | — |  |  | (79 | )
Commodity contracts |  | (8 | ) |  | (23 | ) |  | (91 | ) |  | (122 | )
|  | (8 | ) |  | (823 | ) |  | (91 | ) |  | (922 | )
Total net financial asset/(liability) |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (947 | ) |  | — |  |  | (947 | )
Interest rate contracts |  | — |  |  | 32 |  |  | — |  |  | 32 |
Commodity contracts |  | (20 | ) |  | (8 | ) |  | 17 |  |  | (11 | )
|  | (20 | ) |  | (923 | ) |  | 17 |  |  | (926 | )
December 31, 2024 | Level 1 |  | Level 2 |  | Level 3 |  | Total Gross Derivative Instruments |
(millions of Canadian dollars) |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |
Current derivative assets |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 125 |  |  | — |  |  | 125 |
Interest rate contracts |  | — |  |  | 67 |  |  | — |  |  | 67 |
Commodity contracts |  | 34 |  |  | 72 |  |  | 256 |  |  | 362 |
Other contracts |  | — |  |  | 3 |  |  | — |  |  | 3 |
|  | 34 |  |  | 267 |  |  | 256 |  |  | 557 |
Long-term derivative assets |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | 83 |  |  | — |  |  | 83 |
Interest rate contracts |  | — |  |  | 146 |  |  | — |  |  | 146 |
Commodity contracts |  | 1 |  |  | 14 |  |  | 182 |  |  | 197 |
|  | 1 |  |  | 243 |  |  | 182 |  |  | 426 |
Financial liabilities |  |  |  |  |  |  |  |
Current derivative liabilities |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (804 | ) |  | — |  |  | (804 | )
Interest rate contracts |  | — |  |  | (80 | ) |  | — |  |  | (80 | )
Commodity contracts |  | (52 | ) |  | (116 | ) |  | (283 | ) |  | (451 | )
|  | (52 | ) |  | (1,000 | ) |  | (283 | ) |  | (1,335 | )
Long-term derivative liabilities |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (1,579 | ) |  | — |  |  | (1,579 | )
Interest rate contracts |  | — |  |  | (80 | ) |  | — |  |  | (80 | )
Commodity contracts |  | (1 | ) |  | (31 | ) |  | (207 | ) |  | (239 | )
|  | (1 | ) |  | (1,690 | ) |  | (207 | ) |  | (1,898 | )
Total net financial asset/(liability) |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  |  | (2,175 | ) |  | — |  |  | (2,175 | )
Interest rate contracts |  | — |  |  | 53 |  |  | — |  |  | 53 |
Commodity contracts |  | (18 | ) |  | (61 | ) |  | (52 | ) |  | (131 | )
Other contracts |  | — |  |  | 3 |  |  | — |  |  | 3 |
|  | (18 | ) |  | (2,180 | ) |  | (52 | ) |  | (2,250 | )
The significant unobservable inputs used in the fair value measurement of Level 3 derivative instruments were as follows:
June 30, 2025 | Fair Value |  | Unobservable Input | Minimum Price/ Volatility |  | Maximum Price/Volatility |  | Weighted Average Price/Volatility |  | Unit of Measurement
(fair value in millions of Canadian dollars) |  |  |  |  |  |  |  |  |  |
Commodity contracts - financial ¹ |  |  |  |  |  |  |  |  |  |
Natural gas |  | 8 |  | Forward gas price |  | 2.31 |  |  | 8.99 |  |  | 5.22 |  | $/mmbtu 2
Crude |  | 5 |  | Forward crude price |  | 63.63 |  |  | 87.11 |  |  | 83.24 |  | $/barrel
Power |  | (7 | ) | Forward power price |  | 31.69 |  |  | 185.09 |  |  | 69.54 |  | $/MW/H
Commodity contracts - physical ¹ |  |  |  |  |  |  |  |  |  |
Natural gas |  | (45 | ) | Forward gas price |  | 0.35 |  |  | 13.79 |  |  | 4.42 |  | $/mmbtu 2
Crude |  | (6 | ) | Forward crude price |  | 65.05 |  |  | 112.22 |  |  | 85.79 |  | $/barrel
Power |  | (7 | ) | Forward power price |  | 28.70 |  |  | 139.72 |  |  | 70.66 |  | $/MW/H
Commodity options 3 |  |  |  |  |  |  |  |  |  |
Natural gas |  | 69 |  | Forward gas price |  | 3.62 |  |  | 11.03 |  |  | 7.22 |  | $/mmbtu 2
|  |  | Price volatility | 3% |  | 74% |  | 52% |  |
|  | 17 |  |  |  |  |  |  |  |  |
1 Financial and physical forward commodity contracts are valued using a market approach valuation technique. 2 One million British thermal units (mmbtu). 3 Commodity options contracts are valued using an option model valuation technique. If adjusted, the significant unobservable inputs disclosed in the table above would have a direct impact on the fair value of our Level 3 derivative instruments. The significant unobservable inputs used in the fair value measurement of Level 3 derivative instruments include forward commodity prices. Changes in forward commodity prices could result in significantly different fair values for our Level 3 derivatives. Changes in the net fair value of derivative assets and liabilities classified as Level 3 in the fair value hierarchy were as follows:
| Six months ended June 30, |
| 2025 |  | 2024 |
(millions of Canadian dollars) |  |  |  |
Level 3 net derivative liability at beginning of period |  | (52 | ) |  | (131 | )
Total gain/(loss), unrealized |  |  |  |
Included in earnings 1 |  | 42 |  |  | (38 | )
Included in OCI |  | (1 | ) |  | 15 |
Included in regulatory assets/liabilities |  | (132 | ) |  | — |
Settlements |  | 160 |  |  | 5 |
Level 3 net derivative asset/(liability) at end of period |  | 17 |  |  | (149 | )
1 Reported within Transportation and other services revenues, Commodity costs and Operating and administrative expense in the Consolidated Statements of Earnings. There were no transfers into or out of Level 3 as at June 30, 2025 or December 31, 2024. Net Investment Hedges We currently have designated a portion of our US dollar-denominated debt as a hedge of our net investment in US dollar-denominated investments and subsidiaries. During the six months ended June 30, 2025 and 2024, we recognized unrealized foreign exchange gains of $494 million and losses of $425 million, respectively, on the translation of US dollar-denominated debt, in OCI. During the six months ended June 30, 2025 and 2024, we recognized realized losses of $81 million and $113 million, respectively, associated with the settlement of US dollar-denominated debt that had matured during the period, in OCI. Fair Value of Other Financial Instruments Certain long-term investments in other entities with no actively quoted prices are classified as Fair Value Measurement Alternative (FVMA) investments and are recorded at cost less impairment. The carrying value of FVMA investments totaled $185 million and $187 million as at June 30, 2025 and December 31, 2024, respectively. We have restricted long-term investments and cash held in trust for the purpose of funding pipeline abandonment in accordance with the CER's regulatory requirements under the LMCI, to cover future pipeline decommissioning costs in the state of Minnesota and to satisfy retirement obligations as Wexpro properties are abandoned. These investments are classified as available-for-sale, recognized at fair value and included in Restricted long-term investments and cash in the Consolidated Statements of Financial Position. As at June 30, 2025, the fair value of investments in Level 1 and Level 2 was $746 million and $378 million, respectively (December 31, 2024 - $491 million and $507 million, respectively). Our Level 2 investments had a cost basis of $377 million as at June 30, 2025 (December 31, 2024 - $540 million). There were unrealized holding gains of $30 million and $46 million on these investments for the three and six months ended June 30, 2025, respectively (2024 - gains of $12 million and losses of $1 million, respectively). During the six months ended June 30, 2025, we purchased and sold investments totaling $892 million and $801 million, respectively (2024 - purchases of $240 million and sales of $197 million). The resulting net cash flow impact is presented under Cash Flows from Investing Activities in the Consolidated Statements of Cash Flows. We have wholly-owned captive insurance subsidiaries whose principal activity is providing insurance and reinsurance coverage for certain insurable property and casualty risk exposures of our operating subsidiaries and certain equity investments. As at June 30, 2025, the fair value of investments in equity funds and debt securities held by our captive insurance subsidiaries was nil and $1.1 billion, respectively (December 31, 2024 - $114 million and $1.1 billion, respectively). Our investments in debt securities had a cost basis of $1.1 billion as at June 30, 2025 and December 31, 2024. These investments in equity funds and debt securities are recognized at fair value, classified as Level 1 and Level 2 in the fair value hierarchy, respectively, and are recorded in Other current assets and Long-term investments in the Consolidated Statements of Financial Position. There were unrealized holding gains of $1 million for the three and six months ended June 30, 2025, respectively (2024 - gains of $5 million and $21 million, respectively). As at June 30, 2025 and December 31, 2024, our long-term debt, including finance lease liabilities, had a carrying value of $100.6 billion and $101.6 billion, respectively, before debt issuance costs and a fair value of $98.7 billion and $98.9 billion, respectively. The fair value of financial assets and liabilities other than derivative instruments, certain long-term investments in other entities, restricted long-term investments, investments held by our captive insurance subsidiaries and long-term debt described above approximate their carrying value due to the short period to maturity.

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