SaskEnergy Incorporated First Quarter Report The realized margin on asset optimization sales at December, 2019, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $6 million. This is $3 million lower than the $9 million margi f r the s m period in 2018-19. Due to market conditions, the Corporation’s opportunity to enter nto asset optimization activity has been limited and therefore sold lower volumes of natural gas at slightly higher margins compared to the same period in 2018-19. Some transportation capacity within Alberta was also secured through asset optimization transportation contracts to meet customer obligations. These transportation contracts had an unfavourable effect on the 2019-20 asset optimization margin. March 31, 2011
Asset Optimization Fair Value Adjustments
The Corporation enters into various natural gas contracts (swaps and forwards) in its asset optimization strategies, which are subject to volatility of natural gas market prices. The fair value adjustment at December 31, 2019 on asset optimization derivative instruments decreased the asset optimization margin by $33 million compared to a decrease of $7 million for the same period in 2018-19. Between April 1, 2019 and December 31, 2019, near term natural gas market prices declined, allowing the Corporation to enter into lower priced natural gas purchase and sale transactions simultaneously. The purchase contracts outstanding at December 31, 2019 were $0.22 per GJ more than market price, while purchase contracts outstanding at the end of March 31, 2019 were $0.46 per GJ less than market price. This decrease in the favourable price differential in 2019-20 is responsible for an unfavourable fair value adjustment, which was slightly offset by the favourable variance related to the increase in price differentials on outstanding sale contracts.
Revaluation of Natural Gas in Storage
At each reporting period, the Corporation measures the net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. Through the first nine months of 2019-20, the Corporation was able to purchase lower priced natural gas and inject it into storage, reducing the average cost of natural gas in storage; however, lower near term forward market prices adversely affected net realizable value. Consequently, the net realizable value of asset optimization natural gas in storage was $11 million below cost at December 31, 2019. The net realizable value adjustment was $14 million below cost at March 31, 2019, resulting in a $3 million favourable increase in the revaluation of natural gas in storage at December 31, 2019.
Revenue
Delivery revenue, transportation and storage revenue, customer capital contributions and other revenue, as reported in the consolidated financial statements, were as follows:
Three months ended December 31
Nine months ended December 31
(millions)
2019
2018 Change
2019
2018 Change
Delivery revenue
$
90 47
$
84 45 13
$
6 2
$
185 141
$
179 118
$
6
Transportation and storage revenue Customer capital contributions
23
8
(5)
28
20
8
Other revenue
-
-
-
-
4
(4)
$
145
$
142
$
3
$
354
$
321
$
33
Delivery Revenue
Delivery revenue is driven by the number of customers and the amount of natural gas they consume. As residential and commercial customers consume natural gas primarily as heating fuel, weather is the external factor that most affects delivery revenue.
8
2019-20 THIRD QUARTER REPORT
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