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Derivative Instruments | 12 Months Ended
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Dec. 31, 2024
Derivative Instruments |
Derivative Instruments | 16. 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 dollars 2024 2023 2024 2023 Regulatory deferral: Commodity swaps and forwards $ 25 $ 16 $ 44 $ 76 FX forwards 27 3 3 3 52 19 47 79 HFT derivatives: Power swaps and physical contracts 34 29 30 36 Natural gas swaps, futures, forwards, physical contracts 236 319 660 531 270 348 690 567 Other derivatives: Equity derivatives - 4 2 - FX forwards - 18 34 7 - 22 36 7 Total gross current derivatives 322 389 773 653 Impact of master netting agreements: Regulatory deferral (7) (3) (7) (3) HFT derivatives (148) (146) (148) (146) Total impact of master netting agreements (155) (149) (155) (149) Less: Derivatives classified as held for sale (1) (1) - (1) - Total derivatives $ 166 $ 240 $ 617 $ 504 Current (2) 115 174 526 386 Long-term (2) 51 66 91 118 Total derivatives $ 166 $ 240 $ 617 $ 504 (1) On August 5, 2024, Emera announced an agreement to sell NMGC. As at December 31, 2024, NMGC's assets and liabilities were classified as held for sale. For further details on the pending transaction, refer to note 4. (2) Derivative assets and liabilities are classified as current or long-term based upon the maturities of the underlying contracts. Cash Flow Hedges On May 26, 2021, a treasury lock was settled for a gain of $ 19 million that is being amortized through interest expense over 10 years as the underlying hedged item settles. As of December 31, 2024, the unrealized gain in AOCI was $ 12 million, after-tax (December 31, 2023 – $ 14 million, after-tax). For the year ended December 31, 2024, unrealized gains of $ 2 million (2023 – $ 2 million) have been reclassified from AOCI into interest expense, net. The Company expects $ 2 million of unrealized gains currently in AOCI to be reclassified into net income within the next twelve months. Regulatory Deferral The Company has recorded the following changes with respect to derivatives receiving regulatory deferral: Commodity Physical Commodity swaps and FX natural gas swaps and FX millions of dollars forwards forwards purchases forwards forwards For the year ended December 31 2024 2023 Unrealized gain (loss) in regulatory assets $ (27) $ 5 $ - $ (109) $ (3) Unrealized gain (loss) in regulatory liabilities 11 33 (3) (73) - Realized gain in regulatory assets (8) - - (5) - Realized loss in regulatory liabilities 4 - - 2 - Realized (gain) loss in inventory (1) 11 (8) - 4 (10) Realized (gain) loss in regulated fuel for generation and purchased power (2) 50 (6) (49) (9) (4) Other - - - (14) - Total change in derivative instruments $ 41 $ 24 $ (52) $ (204) $ (17) (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 and hedging relationships that have been terminated or the hedged transaction is no longer probable. As at December 31, 2024, the Company had the following notional volumes designated for regulatory deferral that are expected to settle as outlined below: millions 2025 2026-2027 Physical natural gas purchases: Natural gas (MMBtu) 6 - Commodity swaps and forwards purchases: Natural gas (MMBtu) 21 23 Power (MWh) 1 - Coal (metric tonnes) 1 - FX forwards: FX contracts (millions of USD) $ 208 $ 69 Weighted average rate 1.3361 1.3296 % of USD requirements 50% 17% HFT Derivatives The Company has recognized the following realized and unrealized gains (losses) with respect to HFT derivatives: For the Year ended December 31 millions of dollars 2024 2023 Power swaps and physical contracts in non-regulated operating revenues $ 12 $ (6) Natural gas swaps, forwards, futures and physical contracts in non-regulated operating revenues 195 1,043 Total gains in net income $ 207 $ 1,037 As at December 31, 2024, the Company had the following notional volumes of outstanding HFT derivatives that are expected to settle as outlined below: 2029 and millions 2025 2026 2027 2028 thereafter Natural gas purchases (Mmbtu) 262 111 43 30 73 Natural gas sales (Mmbtu) 299 69 16 8 4 Power purchases (MWh) 1 - - - - Power sales (MWh) 1 - - - - Other Derivatives As at December 31, 2024, the Company had equity derivatives in place to manage cash flow risk associated with forecasted future cash settlements of deferred compensation obligations and FX forwards in place to manage cash flow risk associated with forecasted USD cash inflows. The equity derivatives hedge the return on 2.9 million shares and extends until December 2025. The FX forwards have a combined notional amount of $ 520 million USD and expire in 2025 through 2026. For the Year ended December 31 millions of dollars 2024 2023 FX Equity FX Equity Forwards Derivatives Forwards Derivatives Unrealized gain (loss) in OM&G $ - $ (2) $ - $ 4 Unrealized gain (loss) in other income, net (44) - 28 - Realized gain (loss) in OM&G - 16 - (13) Realized loss in other income, net (12) - (11) - Total gains (losses) in net income $ (56) $ 14 $ 17 $ (9) 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 manages 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 probability 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, 2024, the maximum exposure the Company had to credit risk was $ 1.3 billion (2023 – $ 1.2 billion), which included 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 their 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, FX and interest rate risk. Counterparties 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, 2024 was $ 303 million (2023 – $ 310 million), which mitigated 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, North American Energy Standards Board agreements and, or Edison Electric Institute agreements. The Company believes entering into such agreements offers protection by creating contractual rights relating to creditworthiness, collateral, non-performance and default. As at December 31, 2024, the Company had $ 140 million (2023 – $ 142 million) in financial assets, considered to be past due, which have been outstanding for an average 61 days. The FV of these financial assets was $ 128 million (2023 – $ 127 million), the difference of which was included in the allowance for credit losses. 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, 2024 December 31, 2023 millions of dollars % of total exposure millions of dollars % of total exposure Receivables, net Regulated utilities: Residential $ 376 22% $ 476 31% Commercial 184 11% 194 13% Industrial 73 4% 84 5% Other 105 6% 103 7% Cash collateral 46 3% 94 6% 784 46% 951 62% Trading group: Credit rating of A- or above 88 5% 47 3% Credit rating of BBB- to BBB+ 42 2% 33 2% Not rated 165 10% 108 7% 295 17% 188 12% Other accounts receivable 331 20% 151 10% Classification as assets held for sale (1) 118 7% - 0% 1,528 90% 1,290 84% Derivative Instruments (current and long-term) Credit rating of A- or above 91 5% 138 9% Credit rating of BBB- to BBB+ 1 0% 7 1% Not rated 74 5% 95 6% 166 10% 240 16% $ 1,694 100% $ 1,530 100% (1) On August 5, 2024, Emera announced the sale of NMGC. As at December 31, 2024 NMGC's assets and liabilities were classified as held for sale. For further details, refer to note 4. Cash Collateral The Company’s cash collateral positions consisted of the following: As at December 31 December 31 millions of dollars 2024 2023 Cash collateral provided to others $ 198 $ 101 Cash collateral received from others $ 5 $ 22 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 adverse credit-related event occurs. If a material adverse event resulted in the senior unsecured debt falling below investment grade, the counterparties to such derivatives could request ongoing full collateralization. As at December 31, 2024, the total FV of derivatives in a liability position was $ 617 million (December 31, 2023 – $ 504 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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