AGL Energy Limited Annual Report 2011 123 The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding at the end of the  reporting period: The aggregate notional principal amount of the outstanding interest rate swap contracts at 30 June 2011 was $880.0 million  (2010: $370.0 million). Included in this amount are $370.0 million (2010: $nil) of forward interest rate swap contracts, of which  $335.0 million commences in the 2012 financial year and $35.0 million commences in the 2015 financial year. The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the Australian BBSW. The consolidated  entity will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow  hedges in order to reduce the consolidated entity’s cash flow exposure resulting from variable interest rates on borrowings. Interest rate  swap settlement dates coincide with the dates on which interest is payable on the underlying borrowings. The gain or loss from remeasuring the hedging instruments at fair value is recognised in other comprehensive income, to the extent that  the hedge is effective. The gain or loss relating to the ineffective portion of the hedge is recognised immediately in profit or loss as part of  finance costs. Amounts previously recognised in other comprehensive income and accumulated in equity in the hedging reserve are  reclassified to profit or loss and included in finance costs when the hedged interest expense is recognised. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately to profit or  loss. During the year, no hedges were de-designated and all underlying forecast transactions remain highly probable to occur as per original  forecast. The following table details the movements in the hedging reserve from interest rate swap contracts: The following sensitivity analysis has been determined based on the exposure to interest rates for both derivative and non-derivative  instruments at the end of the reporting period and the stipulated change taking place at the beginning of the financial year and held  constant throughout the reporting period. At the end of the reporting period, if interest rates had been 50 basis points higher or lower and all other variables were held constant,  the consolidated entity’s profit after tax and other comprehensive income would have been affected as follows: Interest rate sensitivity Average contracted fixed interest rate  Notional principal amount  Fair value Outstanding receive floating pay  2011 2010 2011 2010 2011 2010 fi xed contracts % % $m $m $m $m Less than 1 year  6.32 4.93 325.0 45.0 (1.3) – 1 to 2 years  5.50 6.32 30.0 325.0 (0.2) (6.4) 2 to 3 years  5.51 – 130.0 – (1.3) – 3 to 4 years  5.46 – 260.0 – (1.6) – 4 to 5 years  5.47 – 55.0 – – – 5 years or more  5.63 – 80.0 – 0.5 – 880.0 370.0 (3.9) (6.4) 2011 2010 Hedging reserve  $m $m Balance at beginning of financial year  (4.5) (15.2) Loss in fair value of cash flow hedges  (2.7) (6.8) Reclassified to finance costs  5.2 22.1 Income tax on items taken directly to or reclassified from equity  (0.7) (4.6) Balance at end of financial year  (2.7) (4.5) Cash flow ineffectiveness recognised immediately in profit or loss  – – Profit after tax  Other comprehensive income Increase/(decrease) Increase/(decrease) 2011 2010 2011 2010 $m $m $m $m Interest rates +0.5% (50 basis points)  0.1 (0.1) 5.6 1.5 Interest rates – 0.5% (50 basis points)  (0.1) 0.1 (5.7) (1.5)