Notes to the Consolidated Financial Statements
ii. Natural gas sales Natural gas sales are non-regulated asset optimization activities. The Corporation uses its access to natural gas markets to execute sales with offsetting purchases of natural gas to generate margins. Forward natural gas sales are recognized at fair value until the contract is realized into revenue at the point in time the contract becomes due. In most cases, the sales and the associated purchases are executed at the same time, thereby mitigating much of the price risk that would normally be associated with such transactions. By utilizing off-peak transportation and storage capacity, the Corporation is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods while minimizing its exposure to price risk. The Corporation also uses sales and accompanying purchases of natural gas to mitigate transportation constraints, which are generally executed at a cost. iii. Transportation and storage services In all transportation services, the performance obligation to the customer is the transport of natural gas, with only the points of origin and the destinations differing. As such, all transportation contracts (Intra-Provincial Delivery, Utility, Export and Receipt) are assessed on a portfolio basis and are combined and referred to as “transportation services”. Commencing with the first month and continuing for the term of the service contract, customers shall pay all applicable service charges set forth in the Tariff Rates and Charges Schedules as approved by the Corporation or set by any regulatory body having jurisdiction as provided for in the Tariff. Firm and Interruptible transportation services have been deemed two separate contracts under the Tariff and as such are assessed separately. Firm transportation service contracts Transportation service is offered on a guaranteed basis, where the Corporation warrants service will be available every day of the contract unless prevented by force majeure. Customers will generally pay a demand fee and a commodity charge for firm service, which has a higher priority than other transportation services. Firm service contracts may have a term as short as one month, but generally are contracted on a longer-term basis; they do not have a significant financing component and there is no non-cash consideration. Over the term of the contract, customers receive access to transportation services on a daily basis and the customer benefits as the service is provided. Transaction prices published in the Corporation’s tariff are allocated to the performance obligation based on the volumes contracted with the customer. The performance obligation is satisfied and revenue is recorded at the point in time that the transportation services are complete and billed monthly based on the right to invoice practical expedient, with collection generally occurring in the following month. Interruptible transportation service contracts Transportation service is not provided on a guaranteed basis. The Corporation can generally interrupt service performance with short or no notice. The Corporation may curtail an interruptible customer’s service if the service is required to serve a higher priority customer. Curtailment of interruptible service may occur to protect the operational integrity of the natural gas system and ensure delivery to their firm transportation contract holders. Curtailment generally will restrict service to customers that have interruptible transportation contracts. Interruptible customers will be curtailed in order of priority to ensure firm deliveries are met first. Interruptible service usually costs less than firm service as interruptible service is less reliable. The entire interruptible service contract is variable based on customer flow of an unknown quantity of natural gas contracted at a predetermined rate. Transaction prices published in the Corporation’s tariff are allocated to the performance obligation based on the measured volumes transported by the customer. Interruptible services may have a term as short as one month. Interruptible transportation services are recognized as revenue at the point in time that the Corporation completes the transportation services to the customer. These services are generally invoiced in the month after the services are performed, as this is when the service performance obligation is complete. There are no significant financing components, nor any non-cash consideration.
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