Management Discussion and Analysis
Asset Optimization Unrealized 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 until the natural gas contracts are realized. Unrealized fair value adjustments on the Corporation’s asset optimization derivative instruments decreased the margin on asset optimization sales by $2 million. Stronger natural gas market prices at September 30, 2021 increased the favourable price differential between average contract prices and average market prices on future asset optimization purchase contracts by $0.98 per GJ, resulting in a $14 million favourable fair value adjustment. This was fully offset by the $16 million unfavourable fair value adjustment resulting from the unfavourable price differential on outstanding asset optimization sale contracts increasing from $0.18 per GJ to $1.27 per GJ. Revaluation of Natural Gas in Storage The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. At each reporting period, the Corporation measures net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. Asset optimization natural gas in storage was recorded at weighted average cost at September 30, 2021 and March 31, 2021, as forward natural gas market prices continue to increase and exceed weighted average cost. There was no impact on net income resulting from revaluation of natural gas in storage. Revenue
Three months ended September 30,
Six months ended
September 30,
(millions)
2021
2020 Change 2021
2020 Change
$
40 51
$
94
Delivery revenue
$
41 46
$
(1)
$
99 93 10
$
(5)
100
Transportation and storage revenue Customer capital contributions
5
7
3
7
8
(5) (1)
(3) (1)
$
94
$
201
Revenue
$
95
$
$
202
$
Delivery Revenue Natural gas delivery rates are designed to recoup all distribution facility and operating costs necessary for delivery of natural gas to customers throughout the year. Natural gas storage and transportation costs as well as ongoing investments related to safety, system integrity and growing infrastructure are also factored into delivery rates. Other considerations impacting natural gas delivery services include regulatory code compliance and industry best practices regarding safety. To minimize these impacts on delivery service ratepayers, the Corporation strives to make the most effective use of materials, technology, resources and collaborate with other Crown corporations. Delivery revenue is primarily driven by the number of customers and the amount of natural gas they consume. Weather is the most significant external factor affecting delivery revenue, as residential and commercial customers consume natural gas primarily as heating fuel. Delivery revenue decreased $5 million in 2021 due to residential customer volumes decreasing 3 PJ as weather was 7 per cent warmer than normal in 2021 compared to 10 per cent colder than normal in 2020. In alignment with Saskatchewan Crown Sector Strategic Priorities, the Corporation continues its customer focus through continuous improvements in service delivery and identifying ways to advance quality of service to the province’s The Corporation generates transportation revenue by receiving natural 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 receipt service charges, which customers pay when they contract to deposit gas on the natural gas transportation system, and delivery service charges that customers pay when they contract to take delivery off the natural gas transportation system. For receipt and delivery services, the Corporation offers both firm and interruptible transportation contracts. Under a firm service contract, the customer has a right to deliver or receive a population while keeping rates competitive. Transportation and Storage Revenue
p.7
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