For financial reporting purposes, the Corporation prepares its financial statements on a consolidated basis while applying IFRS. Consequently, the amounts determined for rate-setting purposes are different than those reported within its consolidated financial statements. A gain or loss reported in the Corporation's consolidated financial statements may not be reflected in the GCVA. SaskEnergy’s natural gas price risk management program has two objectives: to reduce the impact of natural gas price volatility on the cost of gas and to support rates that are competitive with other utilities. Reducing the impact of price volatility requires establishing certainty in the cost of gas, while supporting competitive rates often means allowing purchase prices to follow market prices. As a result, the balance between the two objectives may change depending on current market conditions. In order to ensure a secure supply of natural gas, SaskEnergy contracts for the physical delivery of natural gas using non-financial derivatives, referred to as forward or physical natural gas contracts. The purchase price contained in these forward contracts may be fixed, or it may be based on a variable index price. While fixed price contracts reduce the impact of natural gas price volatility, variable or market prices can assist in offering competitive rates depending on the pricing environment. SaskEnergy may use financial derivatives and physical swaps to manage the future purchase price of natural gas.
The commodity margin on sales to customers, as reported in the condensed consolidated financial statements, was as follows:
Three months ended December 31,
December 31, Nine months ended
2020
2019 Change
2020
2019 Change
(millions)
Commodity sales
$
63 52 11
$
(4) (3) (7)
$
93 79 14
$
-
59 55
$
$
93 88
Commodity purchases
(9) (9)
4
5 4
Realized margin on commodity sales Impact of fair value adjustments
(15)
(2)
(13)
(2)
6
$
(11)
$
9
Margin on commodity sales
$
9
$
(20)
$
12
$
(3)
The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments, as these adjustments can fluctuate significantly from one period to the next and do not necessarily represent the amount that will be paid upon settlement of the related natural gas contract. The Corporation realized a $5 million margin on commodity sales for the nine months ended December 31, 2020 compared to $14 million for the same period ended December 31, 2019. During 2020, average revenue was $2.51 per GJ and average cost of gas sold was $2.36 per GJ, resulting in a margin of $0.15 per GJ. The margin is $0.22 per GJ lower than the average commodity margin of $0.37 per GJ through the same nine month period in 2019-20. With the AECO daily index averaging $2.17 per GJ throughout the nine months ended December 31, 2020 compared to $1.39 per GJ the year prior, the effect was a higher cost of gas sold in 2020-21, which increased the Corporation’s average cost of commodity purchases while decreasing the realized margin on commodity sales. Meanwhile the GCVA balance has decreased to $1 million owing to customers, down $12 million from the $13 million owing to customers at March 31, 2020.
2020-21 Third Quarter Report
9
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