Management’s Discussion and Analysis
Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts in its asset optimization strategies, which are subject to volatility of natural gas market prices until the natural gas contracts are realized. The unrealized fair value adjustments on asset optimization derivative instruments had a $3 million unfavourable impact on outstanding asset optimization contracts in 2023. Revaluation of Natural Gas in Storage The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. At each reporting period, the Corporation measures net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. With forward natural gas market prices decreasing through 2023, and high inventory turnover, asset optimization natural gas in storage was recorded at weighted average cost at December 31, 2023 and March 31, 2023. With both periods below net realizable value, the impact on net income was $nil. Revenue Delivery revenue, transportation and storage revenue and customer capital contributions, as reported in the condensed consolidated financial statements, were as follows:
Three months ended December 31,
Nine months ended December 31,
(millions)
2023
2022 Change 2023
2022 Change
90 $
$
$
1 90 $
Delivery revenue
102
(12)
$
202 177
(12)
$
60
177
Transportation and storage revenue Customer capital contributions
59
1
- -
7
18
8
(1)
18
1 57 $
$
$
3 85 $
Revenue
169
$
(12)
397
(12)
$
Delivery Revenue Natural gas delivery rates are designed to recoup all distribution facility and operating costs necessary for delivery of natural gas to customers throughout the year. Natural gas storage and transportation costs — as well as ongoing investments related to safety, system integrity and growing infrastructure — are factored into delivery rates. Other considerations impacting natural gas delivery services include regulatory code compliance and industry best practices regarding safety. To minimize these impacts on delivery service customers, the Corporation strives to make the most effective use of resources and technology and to collaborate with other Crown corporations and executive government. Delivery revenue is primarily driven by the number of customers and the amount of natural gas they consume. Weather is the most significant external factor affecting delivery revenue, as residential and commercial customers consume natural gas primarily as heating fuel. Delivery revenue of $190 million for the nine months ending December 31, 2023, was $12 million lower than the same period ending December 31, 2022. Unusually warm weather in the fall of 2023 reduced gas consumption by 8 PJs in 2023 compared to the prior year. This decline was partially offset by higher revenue generated from the rate increases implemented effective August 1, 2022, and October 1, 2023, for all delivery services. The rate increases address rising operating costs related to safety, system integrity, a growing distribution infrastructure, improving customer experiences and rising inflation. Transportation and Storage Revenue The Corporation generates transportation revenue by receiving 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, which customers pay when they put gas onto the natural gas transportation system and a delivery service charge that customers pay when they take delivery off the natural gas transportation system. For receipt and delivery services, the Corporation offers both firm and interruptible transportation contracts. 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 either 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 only pay receipt and delivery tolls when they deliver or receive gas.
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