Asset Optimization and Commodity Margins
SaskEnergy Incorporated First Quarter Report While long term natural gas prices have decreased slightly from the end of March 2018, near term natural gas prices have increased. Over a longer period, forward natural gas prices have displayed a flat to slightly increasing trend suggesting that the likelihood of significantly higher prices in the future is low. Current market prices are fairly representative of long term prices, resulting in the differential between current and forward prices being fairly small. This differential is the driver for much of SaskEnergy’s asset optimization activity in the past, with the exception of summer to winter spreads. These market conditions adversely affect the prospect for generating the high margins required to support SaskEnergy’s non-core storage business. March 31, 2011 Lower natural gas market prices are expected to reduce the average cost of gas, which is expected to result in a lower commodity rate for customers in 2018-19. As part of the normal course of business, commodity rates are reviewed regularly and adjusted as required. In September, the Corporation applied to the Saskatchewan Rate Review Panel for a 26.5 per cent decrease to its Commodity Rate from $3.65 per GJ to $2.65 per GJ, as well as a 3.7% increase to its Delivery Service Rate, both effective April 1, 2019. In addition, the Panel supported SaskEnergy’s request for an interim rate of $2.95 per GJ effective November 1, 2018. This partial decrease will allow customers to take advantage of lower rates during the winter heating season while allowing the Panel necessary time to properly analyze SaskEnergy’s application.
Summary
Although, SaskEnergy’s financial performance is expected to remain strong, there are risks to the outlook. Capital expenditure requirements and rising costs will remain a challenge throughout the forecast period as SaskEnergy adjusts to continued customer load growth, infrastructure renewal requirements, shifting natural gas supply dynamics and regulatory compliance. Delivery and transportation revenue will continue to grow, partially offset by increased operating costs. SaskEnergy will continue to focus on providing safe and reliable service to its customers and investing in safety and growth initiatives while actively seeking operating and capital deployment efficiencies through collaboration, process changes and technology initiatives. Weather for the remainder of the winter will be a key factor affecting 2018-19 financial results. Forecasted results are based on normal weather as defined by the 30-year average. To the extent that weather is colder than normal, delivery revenue will increase, and to the extent that weather is warmer than normal, delivery revenue will be lower. Assuming weather is not extremely cold, transportation, storage, and other revenue items are typically not impacted by weather, as is the case with operating expenses. Commodity revenue and gas purchases are both affected by weather but typically offset each other.
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2018-19 THIRD QUARTER REPORT
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