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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2017
Fair Value Measurements [Abstract] |
FAIR VALUE MEASUREMENTS | 15. FAIR VALUE MEASUREMENTS The Company is required to determine the fair value of all derivatives except those which qualify for the NPNS exemption (refer to note 1), and uses a market approach to do so. The three levels of the fair value hierarchy are defined as follows: Level 1 - Where possible, the Company bases the fair valuation of its financial assets and liabilities on quoted prices in active markets (“quoted prices”) for identical assets and liabilities. Level 2 - Where quoted pr ices for identical assets and liabilities are not available, the valuation of certain contracts must be based on quoted prices for similar assets and liabilities with an adjustment related to location differences. Also, certain derivatives are valued usin g quotes from over-the-counter clearing houses. Level 3 - Where the information required for a Level 1 or Level 2 valuation is not available, derivatives must be valued using unobservable or internally-developed inputs. The primary reasons for a Level 3 classification are as follows: While valuations were based on quoted prices, significant assumptions were necessary to reflect seasonal or monthly shaping and locational basis differentials. The term of certain transactions extends beyond the period when quoted prices are available, and accordingly, assumptions were made to extrapolate prices from the last quoted period through the end of the transaction term. The valuations of certain transactions were based on internal models, although quoted prices wer e utilized in the valuations. Derivative assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set out the classification of the methodology used by the Company to fair value its derivatives:
As at |  | December 31, 2017
millions of Canadian dollars |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Power swaps | $ | 5 | $ | - | $ | - | $ | 5
Foreign exchange forwards |  | - |  | 2 |  | - |  | 2
|  | 5 |  | 2 |  | - |  | 7
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 127 |  | - |  | 127
Power purchases |  | 5 |  | - |  | - |  | 5
Natural gas purchases and sales |  | - |  | 5 |  | - |  | 5
Heavy fuel oil purchases |  | 4 |  | 8 |  | - |  | 12
Foreign exchange forwards |  | - |  | 32 |  | - |  | 32
|  | 9 |  | 172 |  | - |  | 181
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | - |  | 3 |  | 9 |  | 12
Natural gas swaps, futures, forwards, physical contracts and related transportation |  | - |  | 26 |  | 25 |  | 51
|  | - |  | 29 |  | 34 |  | 63
Other derivatives |  |  |  |  |  |  |  |
Interest rate swap |  | - |  | 2 |  | - |  | 2
|  | - |  | 2 |  | - |  | 2
Total assets |  | 14 |  | 205 |  | 34 |  | 253
Liabilities |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Power swaps |  | 2 |  | - |  | - |  | 2
Foreign exchange forwards |  | - |  | 5 |  | - |  | 5
|  | 2 |  | 5 |  | - |  | 7
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Power purchases |  | 3 |  | - |  | - |  | 3
Natural gas purchases and sales |  | 5 |  | 1 |  | - |  | 6
Foreign exchange forwards |  | - |  | 4 |  | - |  | 4
|  | 8 |  | 5 |  | - |  | 13
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 49 |  | 5 |  | (4) |  | 50
Natural gas swaps, futures, forwards and physical contracts |  | 6 |  | 47 |  | 187 |  | 240
|  | 55 |  | 52 |  | 183 |  | 290
Total liabilities |  | 65 |  | 62 |  | 183 |  | 310
Net assets (liabilities) | $ | (51) | $ | 143 | $ | (149) | $ | (57)
As at |  | December 31, 2016
millions of Canadian dollars |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Power swaps | $ | 10 | $ | - | $ | - | $ | 10
|  | 10 |  | - |  | - |  | 10
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 74 |  | - |  | 74
Power purchases |  | 7 |  | - |  | - |  | 7
Natural gas purchases and sales |  | 8 |  | 25 |  | - |  | 33
Heavy fuel oil purchases |  | 3 |  | 5 |  | 1 |  | 9
Foreign exchange forwards |  | - |  | 106 |  | - |  | 106
|  | 18 |  | 210 |  | 1 |  | 229
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | (7) |  | 1 |  | - |  | (6)
Natural gas swaps, futures, forwards, physical contracts and related transportation |  | - |  | 4 |  | 39 |  | 43
|  | (7) |  | 5 |  | 39 |  | 37
Total assets |  | 21 |  | 215 |  | 40 |  | 276
Liabilities |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Power swaps |  | 4 |  | - |  | - |  | 4
Foreign exchange forwards |  | - |  | 23 |  | - |  | 23
|  | 4 |  | 23 |  | - |  | 27
Regulatory deferral |  |  |  |  |  |  |  |
Power purchases |  | 4 |  | - |  | - |  | 4
Heavy fuel oil purchases |  | - |  | 6 |  | - |  | 6
Natural gas purchases and sales |  | 1 |  | 1 |  | - |  | 2
|  | 5 |  | 7 |  | - |  | 12
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 12 |  | 5 |  | - |  | 17
Natural gas swaps, futures, forwards and physical contracts |  | 4 |  | 24 |  | 389 |  | 417
|  | 16 |  | 29 |  | 389 |  | 434
Other derivatives |  |  |  |  |  |  |  |
Foreign exchange forwards |  | - |  | 1 |  | - |  | 1
Interest rate swaps |  | - |  | 1 |  | - |  | 1
|  | - |  | 2 |  | - |  | 2
Total liabilities |  | 25 |  | 61 |  | 389 |  | 475
Net assets (liabilities) | $ | (4) | $ | 154 | $ | (349) | $ | (199)
The change in the fair value of the Level 3 financial assets for the year ended December 31, 2017 was as follows:
| Regulatory Deferral | HFT Derivatives
millions of Canadian dollars | Oil financial derivatives | Physical natural gas purchases and sales | Power | Natural gas | Total
Balance, January 1, 2017 | $ | 1 | $ | - | $ | - | $ | 39 | $ | 40
Increase (reduction) in benefit included in regulated fuel for generation and purchased power |  | - |  | (1) |  | - |  | - |  | (1)
Unrealized gains (losses) included in regulatory assets or liabilities |  | (1) |  | 1 |  | - |  | - |  | -
Total realized and unrealized gains (losses) included in non-regulated operating revenues |  | - |  | - |  | 9 |  | 1 |  | 10
Net transfers out of Level 3 |  | - |  | - |  | - |  | (15) |  | (15)
Balance, December 31, 2017 | $ | - | $ | - | $ | 9 | $ | 25 | $ | 34
The change in the fair value of the Level 3 financial liabilities for the year ended December 31, 2017 was as follows:
| Regulatory Deferral | HFT Derivatives
millions of Canadian dollars | Oil financial derivatives | Physical natural gas purchases and sales | Power | Natural gas | Total
Balance, January 1, 2017 | $ | - | $ | - | $ | - | $ | 389 | $ | 389
Increase (reduction) in benefit included in regulated fuel for generation and purchased power |  | - |  | (1) |  | - |  | - |  | (1)
Increase (reduction) in benefit included in non-regulated fuel for generation and purchased power |  | - |  | 1 |  | - |  | - |  | 1
Total realized and unrealized gains (losses) included in non-regulated operating revenues |  | - |  | - |  | (5) |  | (206) |  | (211)
Net transfers into Level 3 |  | - |  | - |  | 1 |  | 4 |  | 5
Balance, December 31, 2017 | $ | - | $ | - | $ | (4) | $ | 187 | $ | 183
The Company evaluates the observable inputs of market data on a quarterly basis in order to determine if transfers between levels is appropriate. For the year e nded December 31, 2017, transfers out of Level 3 were a result of a n in crease in observable inputs. For the year e nded December 31, 2017, transfers into Level 3 were a result of a decrease in observable inputs. Significant unobservable inputs used in the fair value measurement of Emera’s natural gas and power derivatives i nclude third-party-sourced pricing for instruments based on illiquid markets; internally developed correlation factors and basis differentials; own credit risk; and discount rates. Internally developed correlations and basis differentials are reviewed on a quarterly basis based on statistical analysis of the spot markets in the various illiquid term markets. Where possible, Emera also sources multiple broker prices in an effort to evaluate and substantiate these unobservable inputs. Discount rates may inc lude a risk premium for those long-term forward contracts with illiquid future price points to incorporate the inherent uncertainty of these points. Any risk premiums for long-term contracts are evaluated by observing similar industry practices and in dis cussion with industry peers. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. The following table outlines quantitative information about the significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy:
As at |  | December 31, 2017
millions of Canadian dollars |  | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted average
Assets |  |  |  |  |  |
HFT derivatives – |  | 1 | Modelled pricing | Third-party pricing | $24.88-$117.90 | $92.93
Power swaps and |  |  |  | Probability of default | 0.00%-0.01% | 0.00%
physical contracts |  |  |  | Discount rate | 0.00%-0.13% | 0.00%
|  | 8 | Modelled pricing | Third-party pricing | $63.48-$117.00 | $102.68
|  |  |  | Correlation factor | 0.94%-0.99% | 0.96%
|  |  |  | Probability of default | 0.00%-0.00% | 0.00%
|  |  |  | Discount rate | 0.00%-0.00% | 0.00%
HFT derivatives – |  | 18 | Modelled pricing | Third-party pricing | $2.06-$8.24 | $3.61
Natural gas swaps, futures, |  |  |  | Probability of default | 0.00%-0.05% | 0.00%
forwards, physical contracts |  |  |  | Discount rate | 0.00%-0.29% | 0.06%
and related transportation |  | 7 | Modelled pricing | Third-party pricing | $2.04-$12.52 | $6.42
|  |  |  | Basis adjustment | 0.08%-0.71% | 0.52%
|  |  |  | Probability of default | 0.00%-0.00% | 0.00%
|  |  |  | Discount rate | 0.00%-0.09% | 0.01%
Total assets | $ | 34 |  |  |  |
Liabilities |  |  |  |  |  |
HFT derivatives – | $ | (6) | Modelled pricing | Third-party pricing | $24.88-$117.90 | $95.46
Power swaps and |  |  |  | Own credit risk | 0.00%-0.01% | 0.00%
physical contracts |  |  |  | Discount rate | 0.00%-0.13% | 0.00%
|  | 2 | Modelled pricing | Third-party pricing | $94.5-$117.00 | $105.52
|  |  |  | Correlation factor | 0.94%-0.99% | 0.96%
|  |  |  | Probability of default | 0.00%-0.00% | 0.00%
|  |  |  | Discount rate | 0.00%-0.00% | 0.00%
HFT derivatives – |  | 172 | Modelled pricing | Third-party pricing | $1.89-$11.81 | $4.64
Natural gas swaps, futures, |  |  |  | Own credit risk | 0.00%-0.00% | 0.00%
forwards and physical contracts |  |  |  | Discount rate | 0.00%-0.12% | 0.02%
|  | 15 | Modelled pricing | Third-party pricing | $2.15-$12.52 | $8.94
|  |  |  | Basis adjustment | 0.08%-0.71% | 0.53%
|  |  |  | Own credit risk | 0.00%-0.00% | 0.00%
|  |  |  | Discount rate | 0.00%-0.08% | 0.01%
Total liabilities | $ | 183 |  |  |  |
Net assets (liabilities) | $ | (149) |  |  |  |
As at |  | December 31, 2016
millions of Canadian dollars |  | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted average
Assets |  |  |  |  |  |
Regulatory deferral – Financial | $ | 1 | Modelled pricing | Third-party pricing | $69.64 | $69.64
oil derivatives |  |  |  | Probability of default | 0.80% | 0.80%
HFT derivatives – |  | 27 | Modelled pricing | Third-party pricing | $1.41 - $11.87 | $3.87
Natural gas swaps, |  |  |  | Probability of default | 0.00% - 0.07% | 0.01%
futures, forwards, |  |  |  | Discount rate | 0.00% - 0.32% | 0.05%
physical contracts |  | 12 | Modelled pricing | Third-party pricing | $1.83 - $11.87 | $6.16
and related transportation |  |  |  | Basis adjustment | (0.11)% - 0.64% | 0.39%
|  |  |  | Probability of default | 0.00% - 0.05% | 0.00%
|  |  |  | Discount rate | 0.00% - 0.10% | 0.00%
Total assets | $ | 40 |  |  |  |
Liabilities |  |  |  |  |  |
HFT derivatives – | $ | 386 | Modelled pricing | Third-party pricing | $1.55 - $11.87 | $6.26
Natural gas swaps, futures, |  |  |  | Own credit risk | 0.00% - 0.07% | 0.00%
forwards and physical contracts |  |  |  | Discount rate | 0.00% - 0.14% | 0.02%
|  | 3 | Modelled pricing | Third-party pricing | $1.83 - $11.87 | $5.93
|  |  |  | Basis adjustment | (0.11)% - 0.64% | 0.27%
|  |  |  | Own credit risk | 0.00% - 0.05% | 0.01%
|  |  |  | Discount rate | 0.00% - 0.10% | 0.01%
Total liabilities |  | 389 |  |  |  |
Net assets (liabilities) | $ | (349) |  |  |  |
The financial assets and liabilities included on the Consolidated Balance Sheets that are not measured at fair value consisted of the following:
As at |  |
millions of Canadian dollars |  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
December 31, 2017 | $ | 13,881 | $ | 15,217 | $ | 69 | $ | 14,346 | $ | 802 | $ | 15,217
December 31, 2016 | $ | 14,744 | $ | 15,723 | $ | 78 | $ | 14,843 | $ | 802 | $ | 15,723
Th e fair value of long-term debt instruments, classified as Level 1 in the fair value hierarchy, are valued using unadjusted quoted closing market prices that are traded in active markets. Those classified as L evel 2 are valued either by using recent quoted market prices for the instrument where the instrument is not frequently traded, by using quoted closing market prices for similar issues that are frequently traded in an active market or by using quoted market prices and applying estimated credit sp reads, provided by third-party pricing services, to the par value of the security. Those classified as L evel 3 are valued by discounting the future cash flows of the specific debt instrument at an estimated yield to maturity equivalent to benchmark gover nment bonds with similar terms to maturity, plus a credit risk premium equal to that of issuers of similar credit quality. The Company has designated $1.2 billion United States dollar den ominated Hybrid Notes as a hedge of the foreign currency exposure of its ne t investment in United States dollar denominated oper ations. An after-tax foreign currency gain of $97 million was recorded in Other Comprehensive Income for the year ended December 31, 2017 (2016 – $49 million l oss after-tax). There was no ineffect iveness for the year ended December 31, 2017 (2016 – nil). All other financial assets and liabilities, such as cash and cash equivalents, restricted cash, accounts receivable, short-term debt and accounts payable, are carried at cost. The carrying valu e approximates fair value due to the short-term nature of these financial instruments.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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