Endeavour Energy Annual Performance Report - Parliament of New ...

21 Financial Instruments continued
(b) Credit risk
Credit risk is the risk of financial loss arising from another party to a contract, or financial position failing to discharge
a financial obligation thereunder. The carrying amount of the Corporation’s financial assets represents the maximum
credit exposure. The Corporation’s maximum exposure to credit risk at the reporting date was:
2011
$’000
2010
$’000
Cash and cash equivalents 3,288 30,355
Trade and other receivables 221,245 309,965
Treasury derivatives designated at fair value through profit or loss – 298
Treasury derivatives classified as cash flow hedges 1,149 1,376
Electricity derivatives classified as held for trading – 70,481
Electricity derivatives classified as cash flow hedges – 390
Total exposure to credit risk 225,682 412,865
Endeavour Energy’s Treasury function control risk through the use of external credit ratings which are used to derive
risk limits as approved by the Board of Directors, and monitoring procedures. Endeavour Energy does not have any
significant exposure to any individual customer or counterparty outside Board approved counterparty limits.
Credit risks from derivative contracts (excluding electricity derivatives) recognised in the Statement of Financial
Position is minimised due to Endeavour Energy having policies in place which prevent excessive counterparty
concentration, and limit individual counterparty exposure based on an assessment of individual counterparties
credit worthiness.
Endeavour Energy no longer has credit risk in relation to electricity derivative contracts, as the risks and rewards
of electricity derivative contracts have been transferred to Origin Energy through a Pass Through Agreement
entered into as part of the sale of the Retail business.
Financial assets which are neither past due nor impaired have been transacted with approved creditworthy
counterparties in accordance with Board approved financial risk management policies, and are assessed on a
continual basis.
(c) Price Risk
(i) Electricity price risk
Price risk is the risk that Endeavour Energy’s cash flows will be adversely affected by the movements in commodity
prices that will increase the Australian dollar value of commodity payables. Endeavour Energy was exposed to price
risk through electricity purchasing within the National Electricity Market (NEM) pool up to the sale completion date
(1 March 2011). Upon sale of the Retail business, Endeavour Energy ceased the purchase and sale of electricity and
is no longer exposed to variability in electricity prices.
Prior to 1 March 2011, Endeavour Energy purchased electricity from the NEM pool to meet customer load
requirements. Price risk arose from the purchase of electricity at variable pool prices in the NEM. Endeavour Energy’s
Board used a combination of risk management tools such as swaps, options and futures contracts transacted with
market participants and energy trading operators to hedge the customer load and control exposure to NEM pool
prices. Trading was performed under Board approved mandates which permitted active portfolio management
within regularly monitored risk limits. The limits considered measurements of cash flow at Risk and Earnings at Risk,
accompanied by Volumetrics Position Analysis.
Endeavour Energy Annual Performance Report 2010–11
81