Management’s Discussion and Analysis
CONSOLIDATED FINANCIAL RESULTS Consolidated Net Income
Three months ended December 31,
Nine months ended December 31,
(millions)
2023
2022 Change 2023
2022 Change
Income before unrealized market value adjustments Impact of fair value adjustments Revaluation of natural gas in storage Consolidated net (loss) income
$
28
$
14
62
$
(34)
$
$
72
$
(58)
(24)
(38)
(53)
29
(38)
-
-
-
-
-
-
-
(24)
$
4
$
$
(5)
$
9
34
$
$
(58)
Income before unrealized market value adjustments was $14 million in 2023, $58 million unfavourable compared to income of $72 million in 2022. This is resulting from lower asset optimization margins and lower delivery revenue, along with higher employee benefits expenses, operating and maintenance expenses, depreciation and amortization expense, and finance costs. These were partially offset by a recovery on the allowance for trade and other receivables. Through the prior year’s nine months ended December 31, 2022, the Corporation was able to take advantage of unutilized transportation capacity as natural gas line projects continued to be delayed in Alberta. In combination with increased maintenance projects, which limited transportation capacity on Alberta systems, throughout the summer — higher-than normal asset optimization margins were realized in the prior year. The Alberta natural gas line projects were operationalized in 2023, which has removed the transportation capacity constraints experienced in 2022 and has contributed to lower natural gas market prices and decreased market price volatility, both limiting the Corporation’s asset optimization opportunities through 2023. Delivery revenue declined as unusually warm weather in the fall of 2023 reduced gas consumption by 8 PJs to the end of December compared to the prior year. Employee benefits expenses increased in 2023 as positions that were vacant in 2022 were filled. Operating and maintenance expenses increased in 2023 compared to 2022 as the Corporation modernizes technology solutions and enhances on-line and mobile customer service experiences, with both resulting in higher hosting fees to support the additional functionality implemented. In addition, leak survey, environmental monitoring and cathodic protection costs are increasing as the natural gas infrastructure continues to grow. Transportation and storage expenses increased as natural gas is sourced from greater distances and transportation service providers implemented rate increases. Depreciation and amortization expenses increased in 2023 compared to 2022 as the Corporation implemented both the results of a third-party depreciation study as well as a change in the management estimate on useful lives of intangible and compression assets. Finance costs continued to increase, a result of the rise in short-term, market interest rates, combined with long-term debt issues through 2023 increasing long-term debt financing costs. Forward market prices declined below March 2023 levels, generating a $38 million unfavourable fair value adjustment, as the favourable price differential between average deal price and average market price on outstanding commodity purchase contracts declined $0.62 per GJ at December 31, 2023 compared to March 31, 2023. Natural Gas Sales and Purchases Included within natural gas sales and purchases are rate-regulated commodity sales to distribution customers and non- regulated asset optimization activities. IFRS requires these activities to be presented together within the consolidated financial statements; however, the Corporation manages these activities as distinct and separate businesses and, as such, the MD&A addresses these natural gas sales and purchases separately. With the exception of those contracts entered into for an entity’s normal usage, IFRS requires derivative instruments such as natural gas purchase and sales contracts to be recorded at fair value until their settlement date. Changes in the fair value of the derivative instruments, driven by changes in future natural gas prices, are recorded in net income through natural gas sales or natural gas purchases depending on the specific contract. Upon settlement of the natural gas contract, the amount paid or received by SaskEnergy becomes realized and is recorded in natural gas sales or purchases. The majority of SaskEnergy’s natural gas contracts are normal usage and are not recorded at fair value.
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