Revaluation of Natural Gas in Storage
SaskEnergy Incorporated First Quarter Report 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 continued out 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 increasing market price environment in the six months ending September 30, 2018 had a favourable impact on financial results. Through much of 2017-18, the Corporation was able to purchase lower priced natural gas and inject it into storage, reducing the average cost of gas in storage. The increase in natural gas market prices at September 30, 2018 improved the net realizable value by $16 million compared to the end of March 2018. March 31, 2011
Revenue
Three months ended September 30
Six months ended September 30
(millions)
2018
2017 Change
2018
2017 Change
Delivery revenue
$
43 36
$
39 34
$
4 2
$
95 73
$
85 68
$
10
Transportation and storage revenue Customer capital contributions
5
4 2
6 1
(2)
7 4
8 3
(1)
Other revenue
1 5
1
$
85
$
80
$
$
179
$
164
$
15
Delivery Revenue
Weather
1,200
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 $95 million and $43 million for the six months and three months ending September 30, 2018 respectively, $10 million and $4 million higher than the same periods in 2017. Weather was 15 per cent colder than normal through the six months ending September 30, 2018, compared to 8 per cent warmer than normal weather in 2017, contributing to higher revenues in the current period. Rate increases effective November 1, 2017 also contributed to the year over year growth. The rate adjustment was a response to rising operating costs related to expanding natural gas infrastructure and continued focus on safety and integrity programs to maintain infrastructure and manage increasing regulatory requirements.
1,000
YTD 2018-19 - 15% colder than normal
YTD 2017-18 - 8% warmer than normal
800
600
400
200
-
Apr May Jun Jul
Aug Sep Oct Nov Dec Jan Fe b Mar
2018-19 Actual
2017-18 Actual
2018-19 Budget
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 interruptible contract, customers may deliver or receive gas only when there is available capacity on the system and pay receipt and delivery tolls when they deliver or receive gas. Transportation and storage revenue was $73 million and $36 million for the six months and three months ending September 30, 2018, $5 million and $2 million higher than the same periods in 2017. Industrial customer and power generation related load growth continues to increase demand for natural gas within the province and is driving higher transportation revenue. A rate increase effective May 1, 2018 also contributed to higher revenue and helped address increasing costs to continue providing high quality, safe and reliable service to customers.
7
2018-19 SECOND QUARTER REPORT
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