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Derivative Instruments | 12 Months Ended
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Dec. 31, 2019
13. Derivative Instruments |
Derivative Instruments | 13. DERIVATIVE INSTRUMENTS
Derivative assets and liabilities relating to the foregoing categories consisted of the following:
|  | Derivative Assets |  | Derivative Liabilities
As at | December 31 | December 31 | December 31 | December 31
millions of Canadian dollars |  | 2019 |  | 2018 |  | 2019 |  | 2018
Cash flow hedges |  |  |  |  |  |  |  |
Foreign exchange forwards | $ | - | $ | - | $ | 1 | $ | 5
|  | - |  | - |  | 1 |  | 5
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | 8 |  | 71 |  | 39 |  | 1
Power purchases |  | 23 |  | 2 |  | 36 |  | 1
Natural gas purchases and sales |  | 2 |  | 2 |  | 5 |  | 4
Heavy fuel oil purchases |  | 1 |  | 1 |  | - |  | 1
Foreign exchange forwards |  | 2 |  | 29 |  | 6 |  | -
|  | 36 |  | 105 |  | 86 |  | 7
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 19 |  | 62 |  | 22 |  | 76
Natural gas swaps, futures, forwards, physical contracts |  | 151 |  | 125 |  | 381 |  | 403
|  | 170 |  | 187 |  | 403 |  | 479
Other derivatives |  |  |  |  |  |  |  |
Equity derivatives and interest rate swaps |  | 1 |  | 1 |  | - |  | -
|  | 1 |  | 1 |  | - |  | -
Total gross current derivatives |  | 207 |  | 293 |  | 490 |  | 491
Impact of master netting agreements with intent to settle net or simultaneously |  | (120) |  | (126) |  | (120) |  | (126)
|  | 87 |  | 167 |  | 370 |  | 365
Current |  | 54 |  | 148 |  | 268 |  | 260
Long-term |  | 33 |  | 19 |  | 102 |  | 105
Total derivatives | $ | 87 | $ | 167 | $ | 370 | $ | 365
Derivative assets and liabilities are classified as current or long-term based upon the maturities of the underlying contracts.
Details of master netting agreements, shown net on the Consolidated Balance Sheets, are summarized in the following table:
|  | Derivative Assets |  | Derivative Liabilities
As at | December 31 | December 31 | December 31 | December 31
millions of Canadian dollars |  | 2019 |  | 2018 |  | 2019 |  | 2018
Regulatory deferral | $ | 8 | $ | 1 | $ | 8 | $ | 1
HFT derivatives |  | 112 |  | 125 |  | 112 |  | 125
Total impact of master netting agreements with intent to settle net or simultaneously | $ | 120 | $ | 126 | $ | 120 | $ | 126
Cash Flow Hedges The Company has foreign exchange forwards to hedge the currency risk for revenue streams denominated in foreign currency for Brunswick Pipeline. The amounts related to cash flow hedges recorded in income and AOCI consisted of the following:
For the | Year ended December 31
millions of Canadian dollars |  | 2019 |  |  |  | 2018
| Foreign |  |  | Foreign
exchange | Power | exchange
forwards | swaps | forwards
Realized gain (loss) in operating revenue – regulated |  | (3) |  | - |  | 5
Realized gain (loss) in non-regulated fuel for generation and purchased power |  | - |  | 1 |  | -
Total gains (losses) in Net income | $ | (3) | $ | 1 | $ | 5
As at | December 31
millions of Canadian dollars |  | 2019 |  |  |  | 2018
| Foreign |  | Foreign
exchange | Power | exchange
forwards | swaps | forwards
Total unrealized gain (loss) in AOCI – effective portion, net of tax | $ | (1) | $ | (1) | $ | (6)
The Company expects $1 million of unrealized losses currently in AOCI to be reclassified into net income within the next twelve months, as the underlying hedged transactions settle.
As at December 31, 2019, the Company had the following notional volumes of outstanding derivatives designated as cash flow hedges that are expected to settle as outlined below:
millions |  | 2020
Foreign exchange forwards (USD) sales | $ | 30
Regulatory Deferral The Company has recorded the following changes in realized and unrealized gains (losses) with respect to derivatives receiving regulatory deferral:
For the | Year ended December 31
millions of Canadian dollars |  |  |  | 2019 |  |  |  | 2018
| Commodity swaps and forwards | Foreign exchange forwards | Commodity swaps and forwards |  | Foreign exchange forwards
Unrealized gain (loss) in regulatory assets | $ | (89) | $ | (6) | $ | (34) | $ | 4
Unrealized gain (loss) in regulatory liabilities |  | 9 |  | (8) |  | 29 |  | 24
Realized (gain) loss in regulatory liabilities |  | (2) |  | - |  | (8) |  | -
Realized (gain) loss in inventory (1) |  | (36) |  | (11) |  | (55) |  | (18)
Realized (gain) loss in regulated fuel for generation and purchased power (2) |  | 3 |  | (8) |  | (2) |  | (9)
Total change derivative instruments | $ | (115) | $ | (33) | $ | (70) | $ | 1
(1) Realized (gains) losses will be recognized in fuel for generation and purchased power when the hedged item is consumed.
(2) Realized (gains) losses on derivative instruments settled and consumed in the period; hedging relationships that have been terminated or the hedged transaction is no longer probable.
Commodity Swaps and Forwards As at December 31, 2019, the Company had the following notional volumes of commodity swaps and forward contracts designated for regulatory deferral that are expected to settle as outlined below:
| 2020 | 2021-2022
millions | Purchases | Purchases
Coal (metric tonnes) | - | 1
Natural Gas (Mmbtu) | 12 | 21
Heavy fuel oil (bbls) | - | 1
Power (MWh) | 1 | 3
Foreign Exchange Swaps and Forwards As at December 31, 2019, the Company had the following notional volumes of foreign exchange swaps and forward contracts designated as regulated deferral that are expected to settle as outlined below:
| 2020 | 2021-2022
Foreign exchange contracts (millions of US dollars) | $ | 173 | $ | 148
Weighted average rate |  | 1.3148 |  | 1.3264
% of USD requirements |  | 85% |  | 39%
The Company reassesses foreign exchange forecasted periodically and will enter into additional hedges or unwind existing hedges, as required.
Held-for-Trading Derivatives In the ordinary course of its business, Emera enters into physical contracts for the purchase and sale of natural gas, as well as power and natural gas swaps, forwards and futures, to economically hedge those physical contracts. These derivatives are all considered HFT. The Company has recognized the following realized and unrealized gains (losses) with respect to HFT derivatives:
For the | Year ended December 31
millions of Canadian dollars |  | 2019 |  | 2018
Power swaps and physical contracts in non-regulated operating revenues | $ | 1 | $ | (12)
Natural gas swaps, forwards, futures and physical contracts in non-regulated operating revenues |  | 281 |  | 205
Power swaps, forwards, futures and physical contracts in non-regulated fuel for generation and purchased power |  | (6) |  | 2
| $ | 276 | $ | 195
As at December 31, 2019, the Company had the following notional volumes of outstanding HFT derivatives that are expected to settle as outlined below:
millions |  | 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024
Natural gas purchases (Mmbtu) |  | 424 |  | 84 |  | 56 |  | 41 |  | 26
Natural gas sales (Mmbtu) |  | 345 |  | 33 |  | 9 |  | 2 |  | 2
Power purchases (MWh) |  | 1 |  | - |  | - |  | - |  | -
Power sales (MWh) |  | 1 |  | - |  | - |  | - |  | -
For the |  | Year ended December 31
millions of Canadian dollars | 2019 |  | 2018
| Equity | Interest rate
| derivatives | swaps
Unrealized gain in operating, maintenance and general | $ | 1 | $ | -
Unrealized gain (loss) in interest expense, net |  | - |  | (1)
Realized gain in operating, maintenance and general |  | 27 |  | -
Total gains (losses) in net income | $ | 28 | $ | (1)
Credit Risk The Company is exposed to credit risk with respect to amounts receivable from customers, energy marketing collateral deposits and derivative assets. Credit risk is the potential loss from a counterparty’s non-performance under an agreement. The Company man ages credit risk with policies and procedures for counterparty analysis, exposure measurement, and exposure monitoring and mitigation. Credit assessments are conducted on all new customers and counterparties, and deposits or collateral are requested on any high risk accounts. The Company assesses the potential for credit losses on a regular basis, and where appropriate, maintains provisions. With respect to counterparties, the Company has implemented procedures to monitor the creditworthiness and credit exposure of counterparties and to consider default probability in valuing the counterparty positions. The Company monitors counterparties’ credit standing, including those that are experiencing financial problems, have significant swings in default probabi lity rates, have credit rating changes by external rating agencies, or have changes in ownership. Net liability positions are adjusted based on the Company’s current default probability. Net asset positions are adjusted based on the counterparty’s current default probability. The Company assesses credit risk internally for counterparties that are not rated. As at December 31, 2019, the maximum exposure the Company has to credit risk is $860 million (2018 - $1,035 million), which includes accounts receivable net of collateral/deposits and assets related to derivatives. It is possible that volatility in commodity prices could cause the Company to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform thei r obligations under one or more agreements, the Company could suffer a material financial loss. The Company transacts with counterparties as part of its risk management strategy for managing commodity price, foreign exchange and interest rate risk. Counter parties that exceed established credit limits can provide a cash deposit or letter of credit to the Company for the value in excess of the credit limit where contractually required. The total cash deposits/collateral on hand as at December 31, 2019 was $259 mi llion (2018 - $346 million), which mitigates the Company’s maximum credit risk exposure. The Company uses the cash as payment for the amount receivable or returns the deposit/collateral to the customer/counterparty where it is no longer required by the Company. The Company enters into commodity master arrangements with its counterparties to manage certain risks, including credit risk to these counterparties. The Company generally enters into International Swaps and Derivatives Association agreements (“I SDA”), North American Energy Standards Board agreements (“NAESB”) and, or Edison Electric Institute agreements. The Company believes that entering into such agreements offers protection by creating contractual rights relating to creditworthiness, collatera l, non-performance and default. As at December 31, 2019, the Company had $115 million (2018 - $118 million) in financial assets, considered to be past due, which have been outstanding for an average 71 days. The fair value of these financial assets is $106 million (2018 - $107 million), the difference of which is included in the allowance for doubtf ul accounts. These assets primarily relate to accounts receivable from electric and gas revenue.
Concentration Risk |  |  |  |  |  |
The Company's concentrations of risk consisted of the following:
As at | December 31, 2019 | December 31, 2018
| millions of Canadian dollars | % of total exposure | millions of Canadian dollars | % of total exposure
Receivables, net |  |  |  |  |  |
Regulated utilities |  |  |  |  |  |
Residential | $ | 344 | 31% | $ | 384 | 28%
Commercial |  | 170 | 15% |  | 182 | 13%
Industrial |  | 66 | 6% |  | 57 | 4%
Other |  | 131 | 12% |  | 84 | 6%
|  | 711 | 64% |  | 707 | 51%
Trading group |  |  |  |  |  |
Credit rating of A- or above |  | 38 | 3% |  | 49 | 4%
Credit rating of BBB- to BBB+ |  | 59 | 5% |  | 70 | 5%
Credit rating of CCC- to CCC+ |  | - | 0% |  | 8 | 0%
Not rated |  | 95 | 9% |  | 108 | 8%
|  | 192 | 17% |  | 235 | 17%
Other accounts receivable |  | 184 | 16% |  | 273 | 20%
Classification as assets held for sale (1) |  | (55) | -5% |  | - | 0%
|  | 1,032 | 92% |  | 1,215 | 88%
Derivative Instruments (current and long-term) |  |  |  |  |  |
Credit rating of A- or above |  | 47 | 4% |  | 130 | 9%
Credit rating of BBB- to BBB+ |  | 8 | 1% |  | 9 | 1%
Not rated |  | 32 | 3% |  | 28 | 2%
|  | 87 | 8% |  | 167 | 12%
| $ | 1,119 | 100% | $ | 1,382 | 100%
(1) Emera Maine’s assets and liabilities are classified as held for sale. Refer to note 4 for further details.
Cash Collateral The Company’s cash collateral positions consisted of the following:
As at | December 31 | December 31
millions of Canadian dollars |  | 2019 |  | 2018
Cash collateral provided to others | $ | 101 | $ | 103
Cash collateral received from others |  | 2 |  | 77
Collateral is posted in the normal course of business based on the Company’s creditworthiness, including its senior unsecured credit rating as determined by certain major credit rating agencies. Certain derivatives contain financial assurance provisions that require collateral to be posted if a material advers e credit-related event occurs. If a material adverse event resulted in t he senior unsecured debt falling below investment grade, the counter parties to such derivatives could request ongoing full collateralization. As at December 31, 2019, the total fair value of these derivatives, in a l iability position, wa s $370 million (December 31, 2018 – $365 million). If the credit ratings of the Company were reduced below investment grade, the full value of the net liability position could be required to be posted as collateral for these derivatives.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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