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

09
Financial
statements
Notes to the Financial Statements
For the year ended 30 June 2011
21 Financial Instruments continued
The following table summarises the impact of changes in commodity prices on the Corporation’s post-tax profit
and equity. For the 2010 financial year, a 6% movement in electricity prices was applied to the forward electricity
curve. All variables other than the electricity price were held constant in the summary below. For the 2011 financial
year, variability in electricity prices does not impact Endeavour Energy’s cash flows, and a nil impact has therefore
been disclosed.
Price risk – impact of changes in electricity prices
2011 2010
Profit or loss
$’000
Equity
$’000
Profit or loss
$’000
Equity
$’000
6% increase in electricity price – – 8,097 28,634
6% decrease in electricity price – – (8,893) (28,634)
(ii) Commodity price risk
Price risk is the risk that Endeavour Energy’s cash flows will be adversely affected by movements in commodity prices
that increase the Australian dollar value of commodity payables. Endeavour Energy is exposed to price risk through
the purchase of goods for the capital asset program.
Regular reports are submitted to the Endeavour Energy Board, detailing hedging positions undertaken for commodity
price risk, including volume and mark to market valuations of hedging undertaken.
The following table summarises the impact of changes in commodity prices on the Corporation’s post-tax profit and
equity. A 5% movement in commodity prices has been applied to the forward commodity curve as at balance date.
All variables other than the commodity price are held constant in the summary below.
Price risk – impact of changes in commodity prices
2011 2010
Profit or loss
$’000
Equity
$’000
Profit or loss
$’000
Equity
$’000
5% increase in commodity price 940 – – –
5% decrease in commodity price (940) – – –
Sensitivity to reasonably possible price movements in the above table reflects Endeavour Energy’s use of commodity
derivatives within a portfolio to manage risk. As the designation is “fair value through profit and loss” the movement
in equity is nil.
(d) Interest rate risk
Interest rate risk is the risk of a reduction in earnings and/or the net present value of the Corporation as a consequence
of adverse movements in interest rates. Interest rate risk is managed by the Treasury function within Endeavour Energy.
The Corporation’s exposure to market risk for changes in interest rates relates primarily to interest bearing liabilities
as Endeavour Energy borrows funds at both fixed and floating interest rates. The Corporation’s policy is to manage its
interest cost using a mix of fixed and variable rate debt, and by the use of interest rate derivatives. Hedging activities
are evaluated regularly to align with interest rate views and defined risk appetite, ensuring optimal strategies are
applied by either positioning the Statement of Financial Position or protecting interest expense through different
interest rate cycles.
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