Risk Management: The Corporation's earnings from, and net investments in, foreign subsidiaries are exposed to fluctuations in the US dollar-to-Canadian dollar exchange rate. The Corporation has effectively decreased the above-noted exposure through the use of US dollar borrowings at the corporate level. The foreign exchange gain or loss on the translation of US dollar-denominated interest expense partially offsets the foreign exchange loss or gain on the translation of the Corporation's foreign subsidiaries' earnings, which are denominated in US dollars. The reporting currency of Caribbean Utilities, Fortis Turks and Caicos, FortisUS Energy Corporation and Belize Electric Company Limited ("BECOL") is the US dollar.
As at March 31, 2013, the Corporation's corporately issued US$557 million (December 31, 2012 - US$557 million) long-term debt had been designated as an effective hedge of the Corporation's foreign net investments. As at March 31, 2013, the Corporation had approximately US$16 million (December 31, 2012 - US$17 million) in foreign net investments remaining to be hedged. Foreign currency exchange rate fluctuations associated with the translation of the Corporation's corporately issued US dollar borrowings designated as effective hedges are recorded in other comprehensive income and serve to help offset unrealized foreign currency exchange gains and losses on the net investments in foreign subsidiaries, which gains and losses are also recorded in other comprehensive income.
Effective from June 20, 2011, the Corporation's asset associated with its expropriated investment in Belize Electricity does not qualify for hedge accounting as Belize Electricity is no longer a foreign subsidiary of Fortis. As a result, foreign exchange gains and losses on the translation of the long-term other asset associated with Belize Electricity are recognized in earnings. The Corporation recognized in earnings a foreign exchange gain of approximately $2 million during the three months ended March 31, 2013 ($1.5 million foreign exchange loss for the three months ended March 31, 2012).
From time to time, the Corporation and its subsidiaries hedge exposures to fluctuations in interest rates, foreign exchange rates and fuel and natural gas prices through the use of derivative instruments. The Corporation and its subsidiaries do not hold or issue derivative instruments for trading purposes. As at March 31, 2013, the Corporation's derivative contracts consisted of fuel option contracts, natural gas swap and option contracts, and gas purchase contract premiums. The fuel option contracts are held by Caribbean Utilities and the remaining derivative instruments are held by the FortisBC Energy companies.
The following table summarizes the Corporation's derivative instruments.
----------------------------------------------------------------------------Derivative Instruments (Unaudited) As at March 31, December 31, 2013 2012 Carrying Carrying Number of Value (2) Value (2)Liability Maturity Contracts Volume (1) ($ millions) ($ millions)--------------------------------------------------------------------------------------------------------------------------------------------------------Fuel option contracts (3) 2013 6 13 - (1)Natural gas derivatives:Gas swaps and options 2014 35 19 (33) (51)Gas purchase contract premiums 2014 46 80 (3) (8)--------------------------------------------------------------------------------------------------------------------------------------------------------(1) The volume for fuel option contracts is reported in millions of imperial gallons and for natural gas derivatives is reported in petajoules.(2) Carrying value is estimated fair value. The liability represents the gross derivatives balance.(3) The carrying value of the fuel option contracts was less than $1 million as at March 31, 2013.
