Management’s Discussion and Analysis
result, the balance between the two opposing objectives may change depending on current market conditions. In order to ensure a secure supply of natural gas, SaskEnergy contracts for the physical delivery of natural gas using non-financial derivatives, referred to as forward or physical natural gas contracts. The purchase price contained in these forward contracts may be fixed, or it may be based on a variable index price. While fixed price contracts reduce the impact of natural gas price volatility, variable or market prices can assist in offering competitive rates depending on the pricing environment. SaskEnergy may use financial derivatives and physical swaps to manage the future purchase price of natural gas.
For financial reporting purposes, the Corporation prepares its financial statements on a consolidated basis while applying IFRS. Consequently, the amounts determined for rate-setting purposes are different than those reported within its IFRS consolidated financial statements. A gain or loss reported in the Corporation’s consolidated financial statements may not be reflected in the GCVA. SaskEnergy’s natural gas price risk management program has two objectives: to reduce the impact of natural gas price volatility on the cost of gas and to support rates that are competitive with other utilities. Reducing the impact of price volatility requires establishing certainty in the cost of gas, while supporting competitive rates often means allowing purchase prices to follow market prices. As a
The commodity margin on sales to customers, as reported in the consolidated financial statements, was as follows:
March 31, 2020
March 31, 2019
(millions)
Change
$
165 $
228 $
(63)
Commodity sales
142
183
41
Commodity purchases
23
45 35
(22) (29)
Realized margins on commodity sales Impact of fair value adjustments
6
$
29 $
80 $
(51)
Margin on commodity sales
The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments, as these adjustments can fluctuate significantly from one period to the next and do not necessarily represent the amount that will be paid upon settlement of the related natural gas contract. The Corporation realized a $23 million margin on commodity sales for the 12 months ending March 31, 2020 compared to a $45 million margin for the same period ending March 31, 2019. An average margin of $0.35 per GJ in 2019-20 was slightly lower than the average commodity margin of $0.53 per GJ through 2018-19, due to a commodity rate decrease to $2.575 per GJ effective April 1, 2019 and the effect of 16 PJs less gas sold in 2019-20. When viewed from a commodity rate setting perspective, a lower commodity rate margin is indicative of SaskEnergy reducing the amount owing to customers in the GCVA. The GCVA balance has decreased to $13 million owing to customers, down $4 million from the balance owing to customers at March 31, 2019.
COMMODITY REVENUE
$140
$120
$100
$80
$60
$40
$20
$0
Residential
Small Commercial
Large Commercial
Industrial
Physical Swap Sales
Other
2019-20
2018-19
p.29
Made with FlippingBook Ebook Creator