Gas Marketing Fair Value Adjustments
SaskEnergy Incorporated First Quarter Report The Corporation enters into various natural gas contracts (swaps, options and forwards) in its gas marketing strategies, which are subject to volatility of natural gas market prices. The fair value adjustment at September 30, 2017 on gas marketing derivative instruments increased the gas marketing margin by $4 million for the six month period. At the end of September 30, 2017, the AECO near month price dropped to $0.90 per GJ, having a favourable impact on gas marketing natural gas sales contracts. At the end of September 2017, the volume of outstanding contracts was 27 PJs less than at March 31, 2017, which also contributed to the favourable impact on the gas marketing margin. March 31, 2011
Revaluation of Natural Gas in Storage
At each reporting period, the Corporation measures the net realizable value of gas marketing natural gas in storage 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 translated to reduced prices 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 gas in storage offset the impact of fair value changes. The declining market price environment in the six months ending September 30, 2017 had both favourable and unfavourable impacts on financial results. The Corporation was able to purchase lower priced natural gas and inject it into storage, reducing the average cost of gas in storage. However, the decrease in natural gas market prices throughout September 2017 reduced the net realizable value by an additional $7 million compared to the end of March 2017.
Revenue
Three months ended September 30
Six months ended September 30
(millions)
2017
2016 Change
2017
2016 Change
Delivery revenue
$
39 34
$
35 33
$
4 1
$
85 68
$
77 65
$
8 3
Transportation and storage revenue Customer capital contributions
6 1
6 3
-
8 3
8 5
-
Other revenue
(2)
(2)
$
80
$
77
$
3
$
164
$
155
$
9
Delivery Revenue
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 $85 million and $39 million for the six months and three months ending September 2017 respectively, $8 million and $4 million higher than the same periods in 2016. An 8.6 per cent rate increase effective November 1, 2016 contributed to the higher revenues. The rate increase was a response to rising operating costs related to expanding natural gas infrastructure and greater focus on safety and integrity programs that address the aging infrastructure and increasing regulatory requirements.
Weather
1,200
1,000
YTD 2017-18 - 8% warmer than normal
YTD 2016-17 - 19% warmer than normal
800
600
400
200
-
Apr May Jun Jul
Aug Sep Oct Nov Dec Jan Feb Mar
2017- 18 Act ual
2016- 17 Act ual
2017- 18 Normal Weather
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
7
2017-18 SECOND QUARTER REPORT
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