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Fair Value Measurements (Tables) | 12 Months Ended
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Dec. 31, 2020
16. Fair Value Measurements |
Classification of the methodology used by the Company to fair value its derivatives |
As at |  | December 31, 2020
millions of Canadian dollars |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Interest rate hedge | $ | 1 | $ | - | $ | - | $ | 1
|  | 1 |  | - |  | - |  | 1
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Power purchases |  | 9 |  | - |  | - |  | 9
Natural gas purchases and sales |  | 2 |  | 1 |  | - |  | 3
Heavy fuel oil purchases |  | - |  | 2 |  | - |  | 2
|  | 11 |  | 3 |  | - |  | 14
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 3 |  | 2 |  | 2 |  | 7
Natural gas swaps, futures, forwards, physical contracts and related transportation |  | 1 |  | 48 |  | 12 |  | 61
|  | 4 |  | 50 |  | 14 |  | 68
Other derivatives |  |  |  |  |  |  |  |
Foreign exchange forwards |  | - |  | 15 |  | - |  | 15
|  | - |  | 15 |  | - |  | 15
Total assets |  | 16 |  | 68 |  | 14 |  | 98
Liabilities |  |  |  |  |  |  |  |
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 4 |  | - |  | 4
Power purchases |  | 33 |  | - |  | - |  | 33
Heavy fuel oil purchases |  | 3 |  | 3 |  | - |  | 6
Natural gas purchases and sales |  | - |  | 2 |  | - |  | 2
Foreign exchange forwards |  | - |  | 17 |  | - |  | 17
|  | 36 |  | 26 |  | - |  | 62
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 4 |  | 2 |  | 1 |  | 7
Natural gas swaps, futures, forwards and physical contracts |  | 1 |  | 10 |  | 257 |  | 268
|  | 5 |  | 12 |  | 258 |  | 275
Other derivatives |  |  |  |  |  |  |  |
Equity derivatives |  | 1 |  | - |  | - |  | 1
|  | 1 |  | - |  | - |  | 1
Total liabilities |  | 42 |  | 38 |  | 258 |  | 338
Net assets (liabilities) | $ | (26) | $ | 30 | $ | (244) | $ | (240)
As at |  | December 31, 2019
millions of Canadian dollars |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Power purchases | $ | 23 | $ | - | $ | - | $ | 23
Natural gas purchases and sales |  | - |  | 2 |  | - |  | 2
Heavy fuel oil purchases |  | - |  | 1 |  | - |  | 1
Foreign exchange forwards |  | - |  | 2 |  | - |  | 2
|  | 23 |  | 5 |  | - |  | 28
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 1 |  | 3 |  | 1 |  | 5
Natural gas swaps, futures, forwards, physical contracts and related transportation |  | (7) |  | 46 |  | 14 |  | 53
|  | (6) |  | 49 |  | 15 |  | 58
Other derivatives |  |  |  |  |  |  |  |
Equity derivatives |  | 1 |  | - |  | - |  | 1
|  | 1 |  | - |  | - |  | 1
Total assets |  | 18 |  | 54 |  | 15 |  | 87
Liabilities |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Foreign exchange forwards |  | - |  | 1 |  | - |  | 1
|  | - |  | 1 |  | - |  | 1
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 31 |  | - |  | 31
Power purchases |  | 36 |  | - |  | - |  | 36
Natural gas purchased and sales |  | 3 |  | 2 |  | - |  | 5
Foreign exchange forwards |  | - |  | 6 |  | - |  | 6
|  | 39 |  | 39 |  | - |  | 78
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 5 |  | 2 |  | - |  | 7
Natural gas swaps, futures, forwards and physical contracts |  | 2 |  | 33 |  | 249 |  | 284
|  | 7 |  | 35 |  | 249 |  | 291
Total liabilities |  | 46 |  | 75 |  | 249 |  | 370
Net assets (liabilities) | $ | (28) | $ | (21) | $ | (234) | $ | (283)
Quantitative information about the significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy |
The change in the fair value of the Level 3 financial assets for the year ended December 31, 2020 was as follows:
| HFT Derivatives
millions of Canadian dollars | Power | Natural gas | Total
Balance, January 1, 2020 | $ | 1 | $ | 14 | $ | 15
Total realized and unrealized gains (losses) included in non-regulated operating revenues |  | 3 |  | (2) |  | 1
Net transfers out of Level 3 |  | (2) |  | - |  | (2)
Balance, December 31, 2020 | $ | 2 | $ | 12 | $ | 14
The change in the fair value of the Level 3 financial liabilities for the year ended December 31, 2020 was as follows:
| HFT Derivatives
millions of Canadian dollars | Power | Natural gas | Total
Balance, January 1, 2020 | $ | - | $ | 249 | $ | 249
Total realized and unrealized gains included in non-regulated operating revenues |  | 2 |  | 8 |  | 10
Net transfers out of Level 3 |  | (1) |  | - |  | (1)
Balance, December 31, 2020 | $ | 1 | $ | 257 | $ | 258
As at |  | December 31, 2020
millions of Canadian dollars |  | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted average (1)
Assets |  |  |  |  |  |
HFT derivatives – | $ | 1 | Modelled pricing | Third-party pricing | $20.50 - $62.45 | $31.14
Power swaps and |  |  |  | Probability of default | 0.02% - 9.74% | 2.52%
physical contracts |  |  |  | Discount rate | 0.01% - 0.73% | 0.25%
|  | 1 | Modelled pricing | Third-party pricing | $25.70 - $36.05 | $29.53
|  |  |  | Probability of default | 0.36% - 0.85% | 0.60%
|  |  |  | Discount rate | 0.06% - 0.41% | 0.28%
|  |  |  | Correlation factor | 100% - 100% | 100%
HFT derivatives – |  | 18 | Modelled pricing | Third-party pricing | $1.66 - $6.22 | $2.52
Natural gas swaps, futures, |  |  |  | Probability of default | 0.02% - 2.52% | 0.40%
forwards and physical contracts |  |  |  | Discount rate | 0.00% - 10.36% | 0.75%
|  | (6) | Modelled pricing | Third-party pricing | $1.82 - $8.44 | $4.66
|  |  |  | Basis adjustment | $0.00 - $1.33 | $0.44
|  |  |  | Probability of default | 0.02% - 12.58% | $1.95
|  |  |  | Discount rate | 0.00% - 0.67% | 0.13%
Total assets | $ | 14 |  |  |  |
Liabilities |  |  |  |  |  |
HFT derivatives – | $ | 1 | Modelled pricing | Third-party pricing | $1.13 - $62.45 | $36.90
Power swaps and |  |  |  | Own credit risk | 0.02% - 6.85% | 2.02%
physical contracts |  |  |  | Discount rate | 0.01% - 0.73% | 0.34%
|  | 1 | Modelled pricing | Third-party pricing | $37.25 - $62.45 | $55.00
|  |  |  | Own credit risk | 0.36% - 1.28% | 0.83%
|  |  |  | Discount rate | 0.01% - 0.40% | 0.31%
|  |  |  | Correlation factor | 100% - 100% | 100%
HFT derivatives – |  | 226 | Modelled pricing | Third-party pricing | $1.44 - $6.57 | $3.68
Natural gas swaps, futures, |  |  |  | Own credit risk | 0.02% - 2.52% | 0.10%
forwards and physical contracts |  |  |  | Discount rate | 0.00% - 8.79% | 0.43%
|  | 30 | Modelled pricing | Third-party pricing | $1.54 - $8.44 | $4.69
|  |  |  | Basis adjustment | $0.00 - $1.33 | $0.87
|  |  |  | Own credit risk | 0.03% - 12.58% | 0.10%
|  |  |  | Discount rate | 0.00% - 0.67% | 0.16%
Total liabilities | $ | 258 |  |  |  |
Net assets (liabilities) | $ | (244) |  |  |  |
(1) Unobservable inputs were weighted by the relative fair value of the instruments
As at |  | December 31, 2019
millions of Canadian dollars |  | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted average
Assets |  |  |  |  |  |
HFT derivatives – | $ | 1 | Modelled pricing | Third-party pricing | $21.40 - $74.05 | $35.03
Power swaps and |  |  |  | Probability of default | 0.01% - 1.14% | 0.21%
physical contracts |  |  |  | Discount rate | 0.15% - 6.65% | 2.78%
HFT derivatives – |  | 9 | Modelled pricing | Third-party pricing | $1.63 - $7.45 | $2.37
Natural gas swaps, futures, |  |  |  | Probability of default | 0.01% - 2.31% | 0.09%
forwards, and physical contracts |  |  |  | Discount rate | 0.01% - 20.93% | 1.55%
|  | 5 | Modelled pricing | Third-party pricing | $1.33 - $8.76 | $5.05
|  |  |  | Basis adjustment | $0.00 - $1.31 | $0.76
|  |  |  | Probability of default | 0.01% - 3.33% | 0.28%
|  |  |  | Discount rate | 0.01% - 4.71% | 0.91%
Total assets | $ | 15 |  |  |  |
Liabilities |  |  |  |  |  |
HFT derivatives – |  | 228 | Modelled pricing | Third-party pricing | $1.54 - $7.45 | $4.07
Natural gas swaps, futures, |  |  |  | Own credit risk | 0.01% - 2.31% | 0.12%
forwards and physical contracts |  |  |  | Discount rate | 0.01% - 18.63% | 1.89%
|  | 21 | Modelled pricing | Third-party pricing | $1.36 - $9.75 | $5.45
|  |  |  | Basis adjustment | $0.00 - $1.31 | $0.91
|  |  |  | Own credit risk | 0.01% - 3.33% | 0.06%
|  |  |  | Discount rate | 0.01% - 3.76% | 0.81%
Total liabilities | $ | 249 |  |  |  |
Net assets (liabilities) | $ | (234) |  |  |  |
Financial assets and liabilities included on the Consolidated Balance Sheets that are not measured at fair value |
Long-term debt is a financial liability not measured at fair value on the Consolidated Balance Sheets. The balance consisted of the following:
As at |  |
millions of Canadian dollars |  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
December 31, 2020 | $ | 13,721 | $ | 16,487 | $ | - | $ | 16,020 | $ | 467 | $ | 16,487
December 31, 2019 | $ | 14,180 | $ | 16,049 | $ | - | $ | 15,598 | $ | 451 | $ | 16,049

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