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The three levels of the fair value hierarchy are defined as follows:
Level 1: Fair value determined using unadjusted quoted prices in active markets;Level 2: Fair value determined using pricing inputs that are observable; andLevel 3: Fair value determined using unobservable inputs only when relevant observable inputs are not available.
The fair values of the Corporation's financial instruments, including derivatives, reflect point-in-time estimates based on current and relevant market information about the instruments as at the balance sheet dates. The estimates cannot be determined with precision as they involve uncertainties and matters of judgment and, therefore, may not be relevant in predicting the Corporation's future consolidated earnings or cash flows.
The following table details the estimated fair value measurements of the Corporation's financial instruments, all of which were measured using Level 2 pricing inputs, except for certain long-term debt as noted.
As atAsset (Liability) March 31, 2013 December 31, 2012 Carrying Estimated Carrying Estimated($ millions) Value Fair Value Value Fair Value----------------------------------------------------------------------------Long-term other asset - Belize Electricity (1) 106 n/a (2) 104 n/a (2)Long-term debt, including current portion (3) (6,014) (7,332) (5,900) (7,338)Waneta Partnership promissory note (4) (48) (52) (47) (51)Fuel option contracts (5) - - (1) (1)Natural gas commodity derivatives: (5) Swaps and options (33) (33) (51) (51) Gas purchase contract premiums (3) (3) (8) (8)--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Included in long-term other assets on the consolidated balance sheet(2) The Corporation's expropriated investment in Belize Electricity is recognized at book value, including foreign exchange impacts. The actual amount of compensation that the Government of Belize may pay to Fortis is indeterminable at this time (Notes 18 and 20).(3) The Corporation's $200 million unsecured debentures due 2039 and consolidated borrowings under credit facilities classified as long-term of $266 million (December 31, 2012 - $150 million) are valued using Level 1 inputs. All other long-term debt is valued using Level 2 inputs.(4) Included in long-term other liabilities on the consolidated balance sheet(5) The fair values of the derivatives were recorded in accounts payable and other current liabilities as at March 31, 2013 and December 31, 2012. The fair value of the fuel option contracts as at March 31, 2013 was less than $1 million.
The fair value of long-term debt is calculated using quoted market prices when available. When quoted market prices are not available, as is the case with the Waneta Partnership promissory note and certain long-term debt, the fair value is determined by either: (i) discounting the future cash flows of the specific debt instrument at an estimated yield to maturity equivalent to benchmark government bonds or treasury bills, with similar terms to maturity, plus a credit risk premium equal to that of issuers of similar credit quality; or (ii) by obtaining from third parties indicative prices for the same or similarly rated issues of debt of the same remaining maturities. Since the Corporation does not intend to settle the long-term debt or promissory note prior to maturity, the excess of the estimated fair value above the carrying value does not represent an actual liability.
