primarily due to rising third-party transportation costs related to importing natural gas to meet growing load requirements.
SaskEnergy Incorporated First Quarter Report Revenue
March 31, 2011
An approved delivery rate increase of 3.4 per cent effective April 1, 2019 is providing additional delivery revenue to offset increasing cost pressures resulting from customer growth and integrity investments experienced in recent years. Customer connections, which are closely related to the strength of the provincial economy, are expected to increase modestly to 2,300 new customers through 2019-20. Industrial and commercial demand for service is expected to continue to grow. SaskEnergy currently expects delivery and transportation and storage revenue to increase by $23 million in 2019-20. Transportation rates increased effective May 1, 2018 but will remain unchanged in 2019-20.
Commodity and Asset Optimization Margins
Short-term natural gas prices decreased during the nine months ending December 31, 2019. Prices further into the future have remained relatively constant compared to prices at March 31, 2019. This suggests that the market believes the likelihood of higher prices in the future is small. Currently, the differential between current and forward prices, a driver for much of SaskEnergy’s asset optimization activity, is relatively flat. Other asset optimization activities, which leverage off-peak transportation and storage capacity in the distribution utility, are expected to generate margins; however, the potential for asset optimization margins is expected to be lower than it has been in the past. Forecasted results are based on normal weather as defined by the 30-year average. To the extent that weather is colder than normal, delivery revenue will increase, and to the extent that weather is warmer than normal, delivery revenue will be lower. Transportation, storage, and other revenue items are typically not influenced by weather, as is the case with operating expenses. Commodity revenue and gas purchases are both affected by weather but typically offset each other.
Summary
SaskEnergy’s financial performance is expected to remain strong. Weather will be a key factor affecting 2019-20 financial results. Capital expenditure requirements and rising costs will remain a challenge throughout the forecast period as SaskEnergy adjusts to continued customer load growth, infrastructure renewal requirements, shifting natural gas supply dynamics and regulatory compliance. A low natural gas price environment will continue to create challenges from an asset optimization perspective. Delivery and transportation revenue will continue to grow along with increasing operating costs. SaskEnergy will continue to focus on providing safe and reliable service to its customers and investing in safety and growth initiatives while actively seeking operating and capital deployment efficiencies through collaboration, business process changes and technology initiatives.
Accounting Changes
In 2018-19, the Company adopted IFRS 15 Revenue from Contracts with Customers . Refer to the consolidated financial statements for the year ended March 31, 2019 for more information. (IFRS 9, Financial Instruments was early adopted in 2017-18).
In 2019-20, the Company adopted IFRS 16 Leases (Refer to the unaudited condensed interim financial statements for the three-months ended December 31, 2019 for more information).
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2019-20 THIRD QUARTER REPORT
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