NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company uses a combination of fixed and variable-rate debt to manage the mix of its debt portfolio. The Company also uses derivative  financial instruments to manage interest-rate risk. The Company utilizes interest-rate swaps, which are typically designated as fair value hedges,  as a means to manage its interest rate exposure to achieve a lower cost of debt. In addition, the Company may utilize interest-rate derivative  instruments to lock in interest rate levels in anticipation of future financing. Hydro One may also enter into derivative agreements such as  forward-starting pay fixed-interest-rate swap agreements to hedge against the effect of future interest rate movements on long-term fixed-rate  borrowing requirements. Such arrangements are typically designated as cash flow hedges. No cash flow hedge agreements were in existence  as at December 31, 2013 or 2012. A hypothetical 10% increase in the interest rates associated with variable-rate debt would not have resulted in a significant decrease in Hydro One’s results of operations for the years ended December 31, 2013 or 2012. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss  or gain on the hedged item attributable to the hedged risk are recognized in the Consolidated Statements of Operations and Comprehensive  Income. The net unrealized loss (gain) on the hedged debt and the related interest-rate swaps for the years ended December 31, 2013 and  2012 are included in financing charges as follows: At December 31, 2013, Hydro One had $750 million (2012 – $750 million) of notional amounts of fair value hedges outstanding related  to interest-rate swaps, with assets at fair value of $12 million (2012 – $19 million). During the years ended December 31, 2013 and 2012,  there was no significant impact on the results of operations as a result of any ineffectiveness attributable to fair value hedges. Financial assets create a risk that a counterparty will fail to discharge an obligation, causing a financial loss. At December 31, 2013 and  2012, there were no significant concentrations of credit risk with respect to any class of financial assets. The Company’s revenue is earned from  a broad base of customers. As a result, Hydro One did not earn a significant amount of revenue from any single customer. At December 31,  2013 and 2012, there was no significant accounts receivable balance due from any single customer.  At December 31, 2013, the Company’s provision for bad debts was $36 million (2012 – $23 million). Adjustments and write-offs  were determined on the basis of a review of overdue accounts, taking into consideration historical experience. At December 31, 2013,  approximately 4% of the Company’s net accounts receivable were aged more than 60 days (2012 – 3%).  Hydro One manages its counterparty credit risk through various techniques including: entering into transactions with highly-rated counterparties;  limiting total exposure levels with individual counterparties consistent with the Company’s Board-approved Credit Risk Policy; entering into master  agreements which enable net settlement and the contractual right of offset; and monitoring the financial condition of counterparties. In addition  to payment netting language in master agreements, the Company establishes credit limits, margining thresholds and collateral requirements for  each counterparty. Counterparty credit limits are based on an internal credit review that considers a variety of factors, including the results of  a scoring model, leverage, liquidity, profitability, credit ratings and risk management capabilities. The determination of credit exposure for a  particular counterparty is the sum of current exposure plus the potential future exposure with that counterparty. The current exposure is calculated  as the sum of the principal value of money market exposures and the market value of all contracts that have a positive marked-to-market position  on the measurement date. The Company would offset the positive market values against negative values with the same counterparty only where  permitted by the existence of a legal netting agreement such as an International Swap Dealers Association master agreement. The potential  HYDRO ONE ANNUAL REPORT 2013 76 Fair Value Hedges Credit Risk Year ended December 31 (millions of Canadian dollars) 2013 2012 Unrealized loss (gain) on hedged debt  (8) (14) Unrealized loss (gain) on fair value interest-rate swaps  8 14 Net unrealized loss (gain)  – –