Management’s Discussion and Analysis
extraction plant assets. gains of the prior fiscal year on the sale of natural gas liquid extraction plant assets. Transmission load growth resulting from continued economic growth in the province contributed to the Corporation’s highest level of transportation and storage revenue in its history. As Saskatchewan natural gas demand continued to increase, the province increasingly relied on gas production in Alberta to meet its delivery requirements. This resulted in increased transportation utilization on TC Energy’s Canadian Mainline system to import natural gas from Alberta, which contributed to higher overall operating costs. While the increase in infrastructure resulting from increasing loads required higher spending in some areas, the continued focus on efficiency and cost management helped to mitigate increases. At March 31, 2020, the fair value adjustment on asset optimization derivative instruments decreased the asset optimization margin by $36 million. The price differential on purchase contracts outstanding at March 31, 2020 were an unfavourable $0.66 per GJ compared to the price differential between average contract and market price in the prior year. This was partially offset by the fair value adjustments on commodity sales at March 31, 2020, which increased the margin by $6 million as the fair value position improved by entering into lower priced natural gas purchase contracts during the year. 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 own 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.
CONSOLIDATED FINANCIAL RESULTS
$210
$160
$110
$60
$10
-$40
2015-16
2016-17 2017-18 2018-19 2019-20
Income before unrealized market value adjustments
Consolidated net income
Through much of 2019-20, the Corporation was able to purchase lower priced natural gas and inject it into storage, which reduced the average cost of natural gas in storage. In addition, higher forward market prices also positively affected the revaluation of natural gas in storage.
Commodity Margin SaskEnergy sells natural gas to its distribution customers at a commodity rate approved by Provincial Cabinet based on the recommendations of the Saskatchewan Rate Review Panel (SRRP). The commodity rate, which is reviewed April 1 and November 1 of each year, is determined based on rate-setting principles and is designed to recover the realized costs associated with the sale of natural gas to distribution customers. Regulatory principles require that utilities do not earn a profit or realize 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.
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