SaskEnergy Third Quarter Report - December 31, 2018

Revaluation of Natural Gas in Storage

SaskEnergy Incorporated First Quarter Report At each reporting period, the Corporation measures the net realizable value of natural gas in storage held for asset optimization transactions 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 continued out 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 natural gas in storage offset the impact of fair value changes. The increasing market price environment in the nine months ending December 31, 2018 had a favourable impact on financial results. Through much of 2017-18, the Corporation was able to purchase lower priced natural gas and inject it into storage, reducing the average cost of natural gas in storage. The increase in natural gas market prices at December 31, 2018 improved the net realizable value by $14 million compared to the end of March 2018. March 31, 2011

Revenue

Three months ended December 31

Nine months ended December 31

(millions)

2018

2017 Change

2018

2017 Change

Delivery revenue

$

84 45 13

$

85 34

$

(1)

$

179 118

$

170 102

$

9

Transportation and storage revenue Customer capital contributions

11

16

7 2

6

20

15

5

Other revenue

-

(2)

4

5

(1)

$

142

$

128

$

14

$

321

$

292

$

29

Delivery Revenue

Weather

Delivery Revenue is driven by the number of customers and the amount of natural gas they consume. As residential and commercial customers consume natural gas primarily as heating fuel, weather is the factor that most affects delivery revenue. Delivery revenue was $179 million and $84 million for the nine months and three months ending December 31, 2018 respectively, $9 million higher and $1 million lower than the same periods in 2017. Weather was 6 per cent colder than normal through the nine months ending December 31, 2018, compared to 2 per cent colder than normal weather in 2017, contributing to higher revenues in the current period. Rate increases effective November 1, 2017 and November 1, 2018 also contributed to the year over year growth. The rate adjustments are a response to rising operating costs related to expanding natural gas infrastructure and continued focus on safety and integrity programs to maintain infrastructure and manage increasing regulatory requirements.

1,200

YTD 2018-19 - 6%colder than normal

1,000

YTD 2017-18 - 2%colder than normal

800

600

400

200

-

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2018-19 Actual

2017-18 Actual

2018-19 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 that 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. With a firm contract, customers pay for the amount of capacity they have contracted for whether they use it or not. Under an interruptible contract, customers may deliver or receive gas only when there is available capacity on the system and pay receipt and delivery tolls when they deliver or receive gas.

7

2018-19 THIRD QUARTER REPORT

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