Management’s Discussion and Analysis
CONSOLIDATED FINANCIAL RESULTS Consolidated Net Income
March 31, 2021
March 31, 2020
(millions)
Change
$
59 15
Income before unrealized market value adjustments
$
66 $
(7)
Impact of fair value adjustments Revaluation of natural gas in storage
(30)
45
7
7
-
Consolidated net income
$
81
$
43 $
38
Income before unrealized market value adjustments exceeded expectations for 2020-21, but remained $7 million lower than 2019-20. This was a result of lower commodity and asset optimization margins, combined with higher employee benefit costs, operating and maintenance expenses and depreciation and amortization. Higher customer capital contributions and lower losses recognized in 2020-21 partially offset the unfavourable variances. The AECO daily index average was $0.84 per GJ higher for the 12 months ending March 31, 2021 compared to the year prior, which reduced commodity and asset optimization margins. Increasing transportation requirements are contributing to higher overall operating and maintenance costs, plus lower asset optimization margins as a component of the transport capacity was secured through asset optimization contracts. Employee benefit costs increased compared to the prior year as certain vacant positions were filled in key areas of the Corporation. Depreciation and amortization expenses increased in 2020-21, compared to 2019-20, due to additional capital investment in the depreciable asset base. Customer capital contributions increased in 2020-21 compared to the prior year as a large capital project for a transmission customer was completed in the fourth quarter and the related customer contribution was recognized. Losses on disposal of assets declined to normal levels in 2020-21 compared to the prior year. During 2019-20, other losses were recorded as the Corporation wrote off storage cavern exploration costs and natural gas inventory at one of its storage facilities. Stronger natural gas market prices resulted in the price differential between contract prices on asset optimization purchase contracts and future market prices improving $0.32 per GJ in 2020-21 compared to 2019-20. This resulted in a favourable fair value adjustment in 2020-21. In addition, natural gas market prices were higher than the cost of natural gas in storage at March 31, 2021, which positively affected the revaluation of natural gas in storage and resulted in a favorable impact on consolidated net income.
CONSOLIDATED FINANCIAL RESULTS
$180
$160
$140
$120
$100
$80
$60
$40
$20
2016-17 2017-18 2018-19 2019-20 2020-21 $0
Income before unrealized market value adjustments
Consolidated net income
Natural Gas Sales and Purchases Included within natural gas sales and purchases are rate-regulated commodity sales to distribution customers and non-regulated asset optimization activities. IFRS requires these activities to be presented together within the consolidated financial statements; however, the Corporation manages these activities as distinct and separate businesses and, as such, the MD&A addresses these natural gas sales and purchases separately. With the exception of those contracts entered into for an entity’s normal usage, IFRS requires derivative instruments such as natural gas purchase and sales contracts to be recorded at fair value until their settlement date. Changes in the fair value of the derivative instruments, driven by changes in future natural gas prices, are recorded in net income through natural gas sales or natural gas purchases depending on the specific contract. Upon settlement of the natural gas contract, the amount paid or received by SaskEnergy becomes realized and is recorded in natural gas sales or purchases.
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