Management’s Discussion and Analysis
Natural Gas Sales and Purchases Natural gas sales and purchases include rate-regulated commodity sales to distribution customers and non- regulated asset optimization activities. Although IFRS Accounting Standards requires these activities to be presented together in the consolidated financial statements, the Corporation manages them as distinct and separate businesses. Therefore, the MD&A addresses these natural gas sales and purchases separately. IFRS Accounting Standards mandates that derivative instruments, such as natural gas purchase and sales contracts, be recorded at fair value until their settlement date, except for contracts entered into for an entity’s normal usage. Changes in the fair value of these instruments, driven by fluctuations in future natural gas prices, are recorded in net income through natural gas sales or purchases, depending on the specific contract. Upon settlement, the amount paid or received by SaskEnergy becomes realized and recorded in natural gas sales or purchases. Most of SaskEnergy’s natural gas contracts are for normal usage and are recorded at the contract price upon settlement. Net Commodity Sales Subject to Section 16 of The SaskEnergy Act , SaskEnergy’s charges, rates, terms and conditions are outlined in the Terms & Conditions of Service Schedule. This schedule sets natural gas commodity rates, approved by Provincial Cabinet, based on the recommendations of the Saskatchewan Rate Review Panel. The commodity rate is designed on rate-setting principles, to recover the realized costs associated with the sale of natural gas to distribution customers. Regulatory principles require utilities to neither earn a profit nor incur losses on the sale of gas to customers over the long term. Consequently, SaskEnergy accumulates differences between the commodity revenue earned and the cost of natural gas sold in a Gas Cost Variance Account (GCVA). The balance in the GCVA, which is not included in SaskEnergy’s financial statements, is either recovered from or refunded to customers as part of future commodity rates. SaskEnergy prepares its financial statements on a consolidated basis while applying IFRS Accounting
Standards. Consequently, the amounts determined for rate-setting purposes are different than those reported within its consolidated financial statements, most notably related to intercompany charges for transportation services. As such, results reported in the Corporation’s consolidated financial statements may not be reflected in the GCVA. SaskEnergy’s natural gas price risk management program aims to reduce the impact of price volatility on the cost of gas and to support rates that are competitive with other utilities. Establishing certainty in the cost of gas helps mitigate price volatility, while competitive rates often require natural gas purchase prices to follow market prices. As a result, the balance between the two opposing objectives may shift based on current market conditions. To ensure a secure supply of natural gas, SaskEnergy uses non-financial derivatives, known as forward or physical natural gas contracts, for the physical delivery of natural gas. The purchase price in these forward contracts may be fixed or based on a variable index price. While fixed price contracts mitigate natural gas price volatility, variable or market prices can offer competitive rates depending on the pricing environment. SaskEnergy also uses financial derivatives and physical swaps to manage future natural gas purchase prices. The net commodity sales realized excludes the impact of unrealized fair value adjustments on derivative instruments, which can fluctuate significantly between periods and do not reflect the settlement amount of the related natural gas contracts. The Corporation’s net commodity sales realized for the 12 months ending March 31, 2025, were $3 million higher than in 2023-24, with net realized result of $0.64 per GJ through 2024-25 being slightly higher than the $0.59 per GJ for the same period ending March 31, 2024. Declining market prices for natural gas, as well as the Corporation’s continued focus on natural gas price risk management, resulted in the Corporation receiving approval to decrease its commodity rate from $4.20 per GJ to $3.20 per GJ effective October 1, 2023, which reduced commodity sales revenues in 2024-25 compared to 2023-24.
(millions)
March 31, 2025
March 31, 2024
Change
$
209 $
Commodity sales
225 $
(16) (19)
164
Commodity cost of sales
183
45
Net commodity sales realized Unrealized fair value adjustments
42
3
8
(32)
40 43
$
53 $
Net commodity sales
10 $
34
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