Management’s Discussion and Analysis
Commodity Fair Value Adjustments The fair value adjustments at March 31, 2020 increased the margin on commodity sales by $6 million as the $2 million unfavourable fair value position at March 31, 2019 improved to $4 million favourable at March 31, 2020. Entering into lower priced natural gas purchase contracts during the year averaged Asset Optimization Margin SaskEnergy uses its access to natural gas markets to execute purchases and sales of natural gas to generate margins. By utilizing off-peak transportation and storage capacity, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods
down the contract price and increased the differential between the contract price and market prices. SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such contracts are not required to be reported at market value.
while minimizing its exposure to price risk. In most cases, the purchases and sales are executed at the same time, thereby mitigating much of the price risk that would
normally be associated with such transactions. SaskEnergy also uses purchases and sales of natural gas to mitigate transportation constraints, which are executed at a cost. 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
$
144 142
(80)
Asset optimization sales
$
224 $
Asset optimization purchases
213
71
2
11
(9)
Realized margins on asset optimization sales
(36)
Impact of fair value adjustments
(22)
(14) (12)
7
Revaluation of natural gas in storage
19
$
(27) $
8 $
(35)
Margin on asset optimization sales
contributed to stronger pricing. The Corporation was left with limited asset optimization opportunities due to the reduced volatility, which resulted in the Corporation selling 47 PJs less natural gas at lower margins compared to the same period in 2018-19. Some transportation capacity within Alberta was also secured through asset optimization contracts to meet customer obligations.
The realized margin on asset optimization sales at March 31, 2020, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $2 million. This is $9 million lower than the $11 million margin for the period ending March 31, 2019. At the beginning of October 2019, TC Energy enacted a temporary policy which reduced volatility and 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. At March 31, 2020, the fair value adjustment on asset optimization derivative instruments decreased the asset optimization margin by $36 million, compared to a decrease of $22 million for the same period in 2018-19. The purchase contracts
outstanding at March 31, 2020 were an unfavourable $0.20 per GJ higher than market price, a decline of $0.66 per GJ compared to the favourable $0.46 per GJ less than market price in the prior year. This unfavourable shift in the price differential during 2019-20 was partially offset by the favourable variance related to lower volumes of purchase contracts outstanding.
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