Page 168 - KELAG Annual Report 2019
P. 168

Hedge accounting is used in the KELAG Group to sell the electricity it produces as well as to
                                      procure electricity and gas for customers. Here, forward contracts for electricity and gas are used
                                      to hedge the price for future deliveries for the long term. In addition, the future payments of
                                      variable-rate financial liabilities are hedged using an interest rate swap, which swaps variable
                                      interest payments for fixed interest payments. In both cases, KELAG has designated derivatives as
                                      hedging  instruments  to  hedge  the  cash  flows  from  future  expected  transactions  (cash  flow
                                      hedges).

                                      The aim of hedging with energy forward contracts is to lower the cash flow uncertainty resulting
                                      from market price fluctuations. To achieve this, forwards are generally entered into in stages, so
                                      as to be able to better cover the demand needed over time with hedging instruments as well as
                                      to  avoid  the  danger  of  an  excessive  hedge. The  timing  and  amount  of  the  hedge  for  future
                                      deliveries depends on the respective price developments, among other things. Once the relevant
                                      contractual conditions (such as term, volume, price basis, etc.) of the forward contracts entered
                                      into for electricity and gas correspond with those of the hedged items, the Group performs a
                                      qualitative test of effectiveness. As a rule, this assumes that the change in value of the hedging
                                      instruments offset more or less all of the future cash flow changes.

                                      On account of the higher liquidity, Austrian energy deliveries are usually hedged with forwards
                                      on European lead markets. If Austrian forwards are used, these entirely cover all risks from the
                                      hedged item. If forwards from European lead markets are used, these only partially cover the risks
                                      from the hedged item. This is why the risk from cash flow changes relating to the risk components
                                      of the price in the respective lead market, which is inherent to the Austrian price, uses hedge
                                      accounting in this case. As the Austrian price comprises the price of liquid European lead markets
                                      plus cross-border spreads, there is a close correlation between the prices in the respective lead
                                      markets and in Austria. The key conditions between the hedging instruments and the planned
                                      cash flows with regard to the risk components are also identical in this case.


                                      As the entire risk of a change in the market price for electricity and gas is hedged in terms of the
                                      hedged item or the hedged item components, the hedge ratio stands at 100%. Reasons for hedge
                                      ineffectiveness are the actual volume of deliveries being lower than originally planned as well as
                                      changes to the counterparty’s and KELAG’s credit risk; the risk of ineffective portions is minimised
                                      by corresponding hedge measures. Any ineffective portions to be recognised are determined
                                      using the hypothetical derivative method and posted through profit or loss as of the reporting
                                      date. The future cash flows hedged by forward contracts will occur in the next three years (2020
                                      to 2022) and have a corresponding effect on profit or loss.

                                      The objective of hedging in the area of financing is to use an interest rate swap to lower the cash
                                      flow risk associated with an increase in the market interest rates for financial liabilities. Once the
                                      relevant contractual conditions (such as term, volume, market interest rate, etc.) of the interest
                                      rate swap entered into correspond with those of the hedged item, there is a qualitative test of
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