net realizable value impact at the end of 2015 due to declining market prices despite a lower volume of gas in inventory. Consequently, the net realizable value of gas marketing natural gas in storage was $24 million below cost as at December 31, 2015, which $1 million lower than the revaluation adjustment required at December 31, 2014.
Delivery Revenue
1,200
The Corporation earns delivery revenue based on the volume of natural gas delivered to distribution customers plus a basic monthly charge. Delivery revenue is highly dependent on weather as natural gas is primarily used as heating fuel by residential and commercial customers during the cold winter months. Delivery revenue of $215 million is $17 million below 2014. Based on weather data for the past 30 years, 2015 was 6% warmer than normal while 2014 was 9% colder than normal. The warmer weather reduced volumes delivered to residential and commercial customers compared to 2014, resulting in lower delivery revenue. This was partially offset by the full year effect of a delivery rate increase effective September 1, 2014 and increased customer growth. A delivery rate increase, needed to meet SaskEnergy’s revenue requirements, takes effect January 1, 2016.
YTD 2015 - 6% warmer than normal YTD 2014 - 9% colder than normal
1,000
800
600
400
200
-
Jan Feb Mar Apr May Jun Jul
Aug Sep Oct Nov Dec
2015 Actual
2014 Actual
30 year average
During the fourth quarter of 2015, delivery revenue of $64 million was $5 million lower than the fourth quarter of 2014. Weather, which was 13% warmer than normal in the fourth quarter of 2015 compared to only 2% warmer than normal in the same period in 2014, reduced the volume of natural gas delivered to customers.
Transportation and Storage Revenue
The Corporation’s subsidiary, TransGas, provides receipt and delivery transportation through the use of the TransGas Energy Pool (TEP), a notional point where producers, marketers and end-users can match supplies to demand. For receipt service , the Corporation offers both firm and interruptible transportation from points of receipt to TEP. For delivery service, the Corporation offers firm and interruptible service for gas delivered from TEP to consumers within Saskatchewan or for export. A number of customers moved from interruptible service to firm delivery contracts during the second quarter of 2014. When customers contract for firm rather than interruptible service contracts, revenue certainty improves which provides the support required for pipeline expansions. Integral to the Corporation’s transmission system are several strategically located natural gas storage sites with the capacity to provide operational flexibility along with a reliable and competitive natural gas storage service. Year-to-date, transportation and storage revenue of $119 million was $21 million above the same period in 2014. On a quarter-over-quarter basis, transportation and storage revenue of $30 million was $3 million above the fourth quarter of 2014. The increased demand for gas within the province and higher export deliveries resulted in greater receipt, export and delivery revenues. A rate increase effective January 1, 2015 also contributed to higher revenue. Conversely, storage revenue was down slightly from the same period last year due to storage de-contracting, a result of the low natural gas price environment.
Customer Capital Contribution Revenue
The Corporation receives capital contributions from customers in exchange for the construction of new, customer-specific service connections. Generally, contributions related to transmission system projects tend to be larger but less frequent than contributions related to the distribution system. The volume and magnitude of contributions can vary significantly period over period as varying factors influence their receipt and revenue recognition. The contributions received, less potential refunds, are recognized as revenue once the related property, plant, and equipment is available for use. The amount of contributions refundable are estimated and recorded in deferred revenue until the eligible refund period expires. During 2015, the Corporation refined the estimation process used to calculate the amount of contribution that is deferred for potential refund. The new estimate is based on the customer’s requested delivery capacity rather than management’s estimate of customer’s future delivery, and is considered a more reliable estimate of the amounts likely to be refunded. Customer capital contribution revenue of $38 million for the twelve months of 2015 was $5 million above the same period last year. The fourth quarter customer capital contribution revenue of $24 million was $8 million higher than 2014, a result of the $12 million impact resulting from the change in estimate related to transmission project customer contributions being
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2015/2016 FOURTH QUARTER REPORT
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