SaskEnergy Incorporated First Quarter Report Revaluation of Natural Gas in Storage
March 31, 2011 At each reporting period, the Corporation measures the net realizable value of gas marketing natural gas in storage 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. In recent years, low natural gas prices have translated to reduced prices on the forward price curve. As much of the natural gas in storage is held to meet future sales contracts, it is not unusual to see net realizable value adjustments on gas in storage offset the impact of fair value changes. The declining market price environment at the end of March 2016 provided an opportunity for the Corporation to purchase lower priced natural gas and inject it into storage, which reduced the average cost of gas in storage. When natural gas market prices increased throughout the nine months ended December 31, 2016, the $34 million unfavourable net realizable value impact at the end of March 2016 improved by $27 million to $7 million at the end of December.
Revenue
Three months ended December 31
Nine months ended December 31
2016
2015 Change
2016
2015 Change
(millions)
$
77 34
$
154
Delivery revenue
$
64 30 24
$
13
$
135
$
19
99 17
Transportation and storage revenue Customer capital contributions
4
90 35
9
9 2
(15)
(18)
7
Other revenue
4
(2)
9
(2)
$
122
$
277
$
122
$
-
$
269
$
8
Delivery Revenue
Weather
Delivery Revenue is driven by customer growth and the amount of natural gas customers consume. As residential and commercial customers consume natural gas primarily as heating fuel, weather is the factor that most affects delivery revenue within a reporting period. Delivery revenue was $154 million for the nine months, and $77 million for the three months ending December 31, 2016, $19 million and $13 million higher than the same periods in 2015. A 4.5 per cent rate increase effective January 1, 2016 and an 8.6 per cent increase effective November 1, 2016 contributed to higher revenues. The rate increases help the Corporation offset increasing operating costs related to the growing natural gas infrastructure and increasing focus on safety and integrity programs that address the aging infrastructure. Colder weather in October and December 2016 compared to 2015 also contributed to higher revenue in 2016.
1,200
1,000
YTD 2016-17 - 8% warmer than normal YTD 2015-16 - 10% warmer than normal
800
600
400
200
-
Apr May Jun Jul
Aug Sep Oct Nov Dec Jan Feb Mar
2016-17 Actual
2015-16 Actual
2016-17 Budget
Transportation and Storage Revenue
The Corporation generates transportation revenue by taking delivery of gas from customers at various receipt points in Saskatchewan and Alberta, and delivering natural gas to customers at various delivery points in the Province. The transportation toll structure consists of a receipt service charge which customers pay when they put gas onto the pipeline transportation system, and a delivery service charge, which customers pay when they take delivery off of the pipeline transportation system. Gas delivered to the system by customers is considered to be part of the TransGas Energy Pool (a notional point where producers, marketers and end-users can match supplies to demand) until it is delivered to the end-use customer. For receipt and delivery services, the Corporation offers both firm and interruptible transportation. Under a firm service contract, the customer has a right to deliver or receive a specified quantity of gas on each day of the contract. Under an interruptible contract, the customer may deliver or receive gas only when there is available capacity on the system. With a firm contract, customers pay for the amount of capacity they have contracted for whether they use the capacity or not. With an interruptible contract, customers only pay receipt and delivery tolls when they deliver or receive gas. Transportation and storage revenue was $99 million for the nine months and $34 million for the three months ending December 31, 2016, $9 million and $4 million above the same periods in 2015. Industrial customer and power generation related load growth continues to increase demand for natural gas within the province and is driving higher transportation revenue. A 2.5 per cent transportation rate increase effective January 1, 2016, is also contributing to the higher transportation revenue year-over-year.
7
2016-17 THIRD QUARTER REPORT
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