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RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Tables)
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Summary of the Consolidated Statements of Financial Position location and carrying value of derivative instruments
The following table summarizes the Consolidated Statements of Financial Position location and carrying value of our derivative instruments.
 
We generally have a policy of entering into individual International Swaps and Derivatives Association, Inc. agreements, or other similar derivative agreements, with the majority of our financial derivative counterparties. These agreements provide for the net settlement of derivative instruments outstanding with specific counterparties in the event of bankruptcy or other significant credit events, and reduce our credit risk exposure on financial derivative asset positions outstanding with the counterparties in those circumstances. The following table summarizes the maximum potential settlement amounts in the event of these specific circumstances. All amounts are presented gross in the Consolidated Statements of Financial Position.

September 30, 2019
Derivative
Instruments
Used as
Cash Flow Hedges

Derivative
Instruments
Used as Net
Investment Hedges

Non-
Qualifying
Derivative Instruments

Total Gross
Derivative
Instruments as Presented

Amounts
Available for Offset

Total Net
Derivative Instruments

(millions of Canadian dollars)
 
 
 
 
 
 
Accounts receivable and other
 
 
 
 
 
 
Foreign exchange contracts
—

—

76

76

(66
)
10

Interest rate contracts
1

—

—

1

—

1

Commodity contracts
—

—

185

185

(41
)
144

 
1

—

261

262

(107
)
155

Deferred amounts and other assets
 
 
 
 
 
 
Foreign exchange contracts
17

—

123

140

(62
)
78

Commodity contracts
—

—

35

35

(7
)
28

Other contracts
1

—

1

2

(1
)
1

 
18

—

159

177

(70
)
107

Accounts payable and other
 
 
 
 
 
 
Foreign exchange contracts
(5
)
(14
)
(534
)
(553
)
66

(487
)
Interest rate contracts
(258
)
—

—

(258
)
—

(258
)
Commodity contracts
—

—

(140
)
(140
)
41

(99
)
Other Contracts
—

—

(1
)
(1
)
—

(1
)
 
(263
)
(14
)
(675
)
(952
)
107

(845
)
Other long-term liabilities
 
 
 
 
 
 
Foreign exchange contracts
—

—

(1,536
)
(1,536
)
62

(1,474
)
Interest rate contracts
(686
)
—

—

(686
)
—

(686
)
Commodity contracts
(1
)
—

(97
)
(98
)
7

(91
)
Other contracts
(1
)
—

(1
)
(2
)
1

(1
)
 
(688
)
—

(1,634
)
(2,322
)
70

(2,252
)
Total net derivative asset/(liability)
 
 
 
 
 
 
Foreign exchange contracts
12

(14
)
(1,871
)
(1,873
)
—

(1,873
)
Interest rate contracts
(943
)
—

—

(943
)
—

(943
)
Commodity contracts
(1
)
—

(17
)
(18
)
—

(18
)
Other contracts
—

—

(1
)
(1
)
—

(1
)
 
(932
)
(14
)
(1,889
)
(2,835
)
—

(2,835
)
 
December 31, 2018
Derivative
Instruments
Used as
Cash Flow Hedges

Derivative
Instruments
Used as Net
Investment Hedges

Non-
Qualifying
Derivative Instruments

Total Gross
Derivative
Instruments as Presented

Amounts
Available for Offset

Total Net
Derivative Instruments

(millions of Canadian dollars)
 
 
 
 
 
 
Accounts receivable and other
 
 
 
 
 
 
Foreign exchange contracts
—

—

47

47

(37
)
10

Interest rate contracts
22

—

—

22

(2
)
20

Commodity contracts
2

—

427

429

(114
)
315

 
24

—

474

498

(153
)
345

Deferred amounts and other assets
 
 
 
 
 
 
Foreign exchange contracts
23

—

39

62

(39
)
23

Interest rate contracts
5

—

—

5

—

5

Commodity contracts
19

—

33

52

(21
)
31

 
47

—

72

119

(60
)
59

Accounts payable and other
 
 
 
 
 
 
Foreign exchange contracts
(5
)
—

(610
)
(615
)
37

(578
)
Interest rate contracts
(163
)
—

(178
)
(341
)
2

(339
)
Commodity contracts
—

—

(273
)
(273
)
114

(159
)
Other contracts
(1
)
—

(4
)
(5
)
—

(5
)
 
(169
)
—

(1,065
)
(1,234
)
153

(1,081
)
Other long-term liabilities
 
 
 
 
 
 
Foreign exchange contracts
(1
)
(15
)
(2,196
)
(2,212
)
39

(2,173
)
Interest rate contracts
(201
)
—

—

(201
)
—

(201
)
Commodity contracts
—

—

(178
)
(178
)
21

(157
)
Other contracts
(1
)
—

(1
)
(2
)
—

(2
)
 
(203
)
(15
)
(2,375
)
(2,593
)
60

(2,533
)
Total net derivative asset/(liability)
 
 
 
 
 
 
Foreign exchange contracts
17

(15
)
(2,720
)
(2,718
)
—

(2,718
)
Interest rate contracts
(337
)
—

(178
)
(515
)
—

(515
)
Commodity contracts
21

—

9

30

—

30

Other contracts
(2
)
—

(5
)
(7
)
—

(7
)
 
(301
)
(15
)
(2,894
)
(3,210
)
—

(3,210
)
Summary of the maturity and notional principal or quantity outstanding related to derivative instruments
The following table summarizes the maturity and notional principal or quantity outstanding related to our derivative instruments:
September 30, 2019
2019

2020

2021

2022

2023

Thereafter1

Foreign exchange contracts - United States dollar forwards - purchase (millions of United States dollars)
1,049

1

—

—

—

—

Foreign exchange contracts - United States dollar forwards - sell (millions of United States dollars)
1,218

5,355

4,946

5,182

1,804

1,856

Foreign exchange contracts - British pound (GBP) forwards - sell (millions of GBP)
6

94

27

28

29

120

Foreign exchange contracts - Euro forwards - purchase (millions of Euro)
51

—

—

—

—

—

Foreign exchange contracts - Euro forwards - sell (millions of Euro)
—

23

94

94

92

606

Foreign exchange contracts - Japanese yen forwards - purchase (millions of yen)
—

—

—

72,500

—

—

Interest rate contracts - short-term pay fixed rate (millions of Canadian dollars)
2,204

6,152

4,124

405

48

156

Interest rate contracts - long-term debt pay fixed rate (millions of Canadian dollars)
1,509

3,125

1,579

—

—

—

Equity contracts (millions of Canadian dollars)
29

20

34

—

—

—

Commodity contracts - natural gas (billions of cubic feet)
(3
)
(26
)
3

21

4

—

Commodity contracts - crude oil (millions of barrels)
7

1

—

—

—

—

Commodity contracts - power (megawatt per hour) (MW/H))
90

80

(3
)
(43
)
(43
)
(43
)

1
As at September 30, 2019, thereafter includes an average net purchase/(sell) of power of (43) MW/H for 2024 through 2025.
Schedule of effect of cash flow hedges and net investment hedges on consolidated earnings and consolidated comprehensive income, before income taxes
The following table presents the effect of cash flow hedges and net investment hedges on our consolidated earnings and consolidated comprehensive income, before the effect of income taxes:
 
Three months ended
September 30,
Nine months ended
September 30,
 
2019

2018

2019

2018

(millions of Canadian dollars)
 
 
 
 
Amount of unrealized gain/(loss) recognized in OCI
 
 
 
 
Cash flow hedges
 
 
 
 
Foreign exchange contracts
2

(16
)
(11
)
2

Interest rate contracts
(231
)
69

(812
)
186

Commodity contracts
(1
)
4

(22
)
1

Other contracts
1

(10
)
6

(12
)
Net investment hedges
 
 
 
 
Foreign exchange contracts
(1
)
25

1

36

 
(230
)
72

(838
)
213

Amount of (gain)/loss reclassified from AOCI to earnings
 
 
 
 
Foreign exchange contracts1
2

7

4

4

Interest rate contracts2
36

38

108

132

Commodity contracts3
—

—

—

(1
)
Other contracts4
(1
)
7

(4
)
10

 
37

52

108

145

1
Reported within Transportation and other services revenues and Net foreign currency gain/(loss) in the Consolidated Statements of Earnings.
2
Reported within Interest expense in the Consolidated Statements of Earnings. Effective January 1, 2019 hedge ineffectiveness will no longer be measured or recorded. See Note 2 Changes in Accounting Policies.
3
Reported within Transportation and other services revenues, Commodity sales revenues, Commodity costs and Operating and administrative expense in the Consolidated Statements of Earnings.
4
Reported within Operating and administrative expense in the Consolidated Statements of Earnings.
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
20191

2018

 
20191

2018

(millions of Canadian dollars)
 
 
 
 
 
Unrealized gain/(loss) on derivative
—

3

 
—

(9
)
Unrealized gain/(loss) on hedged item
—

(3
)
 
—

8

Realized gain/(loss) on derivative
—

(3
)
 
—

(4
)
Realized gain/(loss) on hedged item
—

3

 
—

4


1
For the three and nine months ended September 30, 2019, there are no outstanding fair value hedges.
Schedule of unrealized gains and losses associated with changes in the fair value of non-qualifying derivatives
The following table presents the unrealized gains and losses associated with changes in the fair value of our non-qualifying derivatives:
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2019

2018

 
2019

2018

(millions of Canadian dollars)
 
 
 
 
 
Foreign exchange contracts1
(179
)
345

 
849

(356
)
Interest rate contracts2
—

6

 
178

4

Commodity contracts3
73

(113
)
 
(26
)
43

Other contracts4
(1
)
(8
)
 
4

(10
)
Total unrealized derivative fair value gain/(loss), net
(107
)
230

 
1,005

(319
)
1
For the respective nine months ended periods, reported within Transportation and other services revenues (2019 - $366 million gain; 2018 - $346 million loss) and Net foreign currency gain/(loss) (2019 - $483 million gain; 2018 - $10 million loss) in the Consolidated Statements of Earnings.
2
Reported as an (increase)/decrease within Interest expense in the Consolidated Statements of Earnings.
3
For the respective nine months ended periods, reported within Transportation and other services revenues (2019 - $15 million loss; 2018 - $16 million loss), Commodity sales (2019 - $418 million loss; 2018 - $42 million loss), Commodity costs (2019 - $382 million gain; 2018 - $90 million gain) and Operating and administrative expense (2019 - $25 million gain; 2018 - $11 million gain) in the Consolidated Statements of Earnings.
4
Reported within Operating and administrative expense in the Consolidated Statements of Earnings.
Schedule of group credit concentrations and maximum credit exposure, with respect to derivative instruments
We have credit concentrations and credit exposure, with respect to derivative instruments, in the following counterparty segments:
 
September 30,
2019

December 31,
2018

(millions of Canadian dollars)
 
 
Canadian financial institutions
38

28

United States financial institutions
68

107

European financial institutions
91

84

Asian financial institutions
7

6

Other1
151

337

 
355

562

 
1
Other is comprised of commodity clearing house and physical natural gas and crude oil counterparties.
Schedule of derivative assets and liabilities measured at fair value
We have categorized our derivative assets and liabilities measured at fair value as follows:
September 30, 2019
Level 1

Level 2

Level 3

Total Gross
Derivative
Instruments

(millions of Canadian dollars)
 

 

 

 

Financial assets
 

 

 

 

Current derivative assets
 

 

 

 

Foreign exchange contracts
—

76

—

76

Interest rate contracts
—

1

—

1

Commodity contracts
9

44

132

185

 
9

121

132

262

Long-term derivative assets
 

 

 

 

Foreign exchange contracts
—

140

—

140

Commodity contracts
—

23

12

35

Other contracts
—

2

—

2

 
—

165

12

177

Financial liabilities
 

 

 

 

Current derivative liabilities
 

 

 

 

Foreign exchange contracts
—

(553
)
—

(553
)
Interest rate contracts
—

(258
)
—

(258
)
Commodity contracts
(2
)
(21
)
(117
)
(140
)
Other contracts
—

(1
)
—

(1
)
 
(2
)
(833
)
(117
)
(952
)
Long-term derivative liabilities
 

 

 

 

Foreign exchange contracts
—

(1,536
)
—

(1,536
)
Interest rate contracts
—

(686
)
—

(686
)
Commodity contracts
—

(7
)
(91
)
(98
)
Other contracts
—

(2
)
—

(2
)
 
—

(2,231
)
(91
)
(2,322
)
Total net financial liabilities
 

 

 

 

Foreign exchange contracts
—

(1,873
)
—

(1,873
)
Interest rate contracts
—

(943
)
—

(943
)
Commodity contracts
7

39

(64
)
(18
)
Other contracts
—

(1
)
—

(1
)
 
7

(2,778
)
(64
)
(2,835
)
December 31, 2018
Level 1

Level 2

Level 3

Total Gross
Derivative
Instruments

(millions of Canadian dollars)
 

 

 

 

Financial assets
 

 

 

 

Current derivative assets
 

 

 

 

Foreign exchange contracts
—

47

—

47

Interest rate contracts
—

22

—

22

Commodity contracts
24

45

360

429

 
24

114

360

498

Long-term derivative assets
 

 

 

 

Foreign exchange contracts
—

62

—

62

Interest rate contracts
—

5

—

5

Commodity contracts
—

30

22

52

 
—

97

22

119

Financial liabilities
 

 

 

 

Current derivative liabilities
 

 

 

 

Foreign exchange contracts
—

(615
)
—

(615
)
Interest rate contracts
—

(341
)
—

(341
)
Commodity contracts
(7
)
(28
)
(238
)
(273
)
Other contracts
—

(5
)
—

(5
)
 
(7
)
(989
)
(238
)
(1,234
)
Long-term derivative liabilities
 

 

 

 

Foreign exchange contracts
—

(2,212
)
—

(2,212
)
Interest rate contracts
—

(201
)
—

(201
)
Commodity contracts
—

(23
)
(155
)
(178
)
Other contracts
—

(2
)
—

(2
)
 
—

(2,438
)
(155
)
(2,593
)
Total net financial liabilities
 

 

 

 

Foreign exchange contracts
—

(2,718
)
—

(2,718
)
Interest rate contracts
—

(515
)
—

(515
)
Commodity contracts
17

24

(11
)
30

Other contracts
—

(7
)
—

(7
)
 
17

(3,216
)
(11
)
(3,210
)
Schedule of significant unobservable inputs used in the fair value measurement of Level 3 derivative instruments
The significant unobservable inputs used in the fair value measurement of Level 3 derivative instruments were as follows:
September 30, 2019
Fair
Value

Unobservable
Input
Minimum
Price

Maximum
Price

Weighted
Average Price

Unit of
Measurement
(fair value in millions of Canadian dollars)
 
 
 
 
 
 
Commodity contracts - financial1
 
 
 
 
 
 
Natural gas
(22
)
Forward gas price
2.15

5.10

3.15

$/mmbtu2
Crude
30

Forward crude price
36.94

64.65

48.61

$/barrel
NGL
5

Forward NGL price
0.16

0.85

0.42

$/gallon
Power
(82
)
Forward power price
27.62

78.91

56.23

$/MW/H
Commodity contracts - physical1
 
 
 
 
 
 
Natural gas
(23
)
Forward gas price
1.01

6.81

1.50

$/mmbtu2
Crude
27

Forward crude price
45.27

92.65

52.73

$/barrel
NGL
1

Forward NGL price
0.53

0.75

0.71

$/gallon
 
(64
)
 
 
 
 
 
1
Financial and physical forward commodity contracts are valued using a market approach valuation technique.
2
One million British thermal units (mmbtu).
Schedule of changes in net fair value of derivative assets and liabilities classified as Level 3 in the fair value hierarchy
Changes in net fair value of derivative assets and liabilities classified as Level 3 in the fair value hierarchy were as follows:
 
Nine months ended
September 30,
 
2019

2018

(millions of Canadian dollars)
 

 

Level 3 net derivative liability at beginning of period
(11
)
(387
)
Total gain/(loss)
 

 

Included in earnings1
67

(146
)
Included in OCI
(22
)
—

Settlements
(98
)
163

Level 3 net derivative liability at end of period
(64
)
(370
)
1
Reported within Transportation and other services revenues, Commodity costs and Operating and administrative expense in the Consolidated Statements of Earnings.