AGL Energy Limited Annual Report 2012 131 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 2012 was $3,159.0 million  (2011: $880.0 million). Included in this amount are $400.0 million (2011: $370.0 million) of forward interest rate swap contracts, of which  $235.0 million commenced in the 2013 financial year, $145.0 million commences in the 2015 financial year and $20.0 million commences  in the 2016 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 originalforecast. 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: The sensitivity to a 50 basis point increase or decrease in interest rates is considered reasonable, given the market forecasts available at the  reporting date and under the current economic environment in which the consolidated entity operates. The movements in profit after tax are mainly attributable to an increase/decrease in interest expense from floating rate borrowings and an  increase/decrease in interest income from cash and cash equivalents. The movement in other comprehensive income is due to an increase/ decrease in the fair value of interest rate swaps designated as cash flow hedges. Average contracted  fixed interest rate Notional principal amount Fair value Outstanding receive floating pay fixed contracts 2012  % 2011 %  2012  $m 2011 $m  2012  $m 2011 $m  Less than 1 year 5.52  6.32  399.0  325.0  (3.0) (1.3) 1 to 2 years 5.63  5.50  255.0  30.0  (8.4) (0.2) 2 to 3 years 5.53  5.51  410.0  130.0  (20.3) (1.3) 3 to 4 years 5.96  5.46  1,805.0  260.0  (146.5) (1.6) 4 to 5 years 5.56  5.47  60.0  55.0  (4.3) –  5 years or more 5.41  5.63  230.0  80.0  (11.4) 0.5  3,159.0  880.0  (193.9) (3.9) Hedging reserve 2012  $m 2011  $m Balance at beginning of financial year (2.7) (4.5) Loss in fair value of cash flow hedges (39.4) (2.7) Reclassified to finance costs 5.2  5.2  Income tax on items taken directly to or reclassified from equity 10.2  (0.7) Balance at end of financial year (26.7) (2.7) Cash flow ineffectiveness recognised immediately in profit or loss –  – Profit after tax Increase/(decrease) Other comprehensive income Increase/(decrease) 2012  $m 2011  $m 2012  $m 2011  $m Interest rates +0.5% (50 basis points) 1.1  0.1  28.3  5.6  Interest rates –0.5% (50 basis points) (1.1) (0.1) (28.9) (5.7) Interest rate sensitivity