Management’s Discussion and Analysis
Natural Gas Prices Natural gas prices can, and often do, change significantly over a short period of time. As the Corporation’s commodity rate is set in advance of its gas purchases, it is possible that SaskEnergy does not generate enough revenue to cover the cost of gas purchased or, alternatively, that it recovers more than the cost of gas. Under the current regulatory model, SaskEnergy is not allowed to earn a margin on the sale of gas to customers, nor is it subject to realized losses. Differences between the cost of gas purchased and the revenue earned on the sale of gas to customers are collected in the GCVA and incorporated into the calculation of the commodity rate when rates are reset. Gas prices also have a significant impact on market value adjustments, which include the impact of fair value adjustments as well as the revaluation of natural gas in storage. Fair value adjustments represent the change in value of natural gas purchase and sales contracts from one reporting period to the next. In addition, gas prices can affect the net realizable value of natural gas in storage, which is valued at the lesser of cost or what could be realized in the market when it is sold. As discussed in the financial risk management section of the consolidated financial statements, SaskEnergy has risk management policies in place to limit the impact that market prices can have on the financial results.
In addition to the top priority strategic risks identified above, the Corporation’s financial results are subject to the following risks: Weather SaskEnergy has designed its transmission and distribution system, and operating plans, based on a severely cold winter that is expected to occur once every 20 years. Financial projections, as well as commodity and delivery rates, are based on a ‘normal’ or typical winter. To the extent that weather differs from normal, SaskEnergy will generate more revenue (colder than normal) or less revenue (warmer than normal). A severely cold winter can also result in significantly higher operating costs, as such a winter puts more stress on equipment and requires more labour and materials to manage. A warm winter can result in significantly less operating costs, as a warmer winter puts less stress on equipment and requires less labour and materials to manage.
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