Consolidated Financial Statements
Most significantly, low natural gas prices and a commodity rate increase effective July 1, 2014 contributed to a higher realized commodity margin in 2015 compared to 2014. Gas marketing activities generated higher margins despite selling 50 per cent less gas in a lower natural gas price environment, which had relatively small pricing differentials between current and forward prices. SaskEnergy achieved these results through diligent market analysis and innovative ways of taking advantage of the limited trading opportunities that arose. Transportation revenues continue to improve with industrial load growth contributing an additional $15 million in 2015, combined with $6 million resulting from rate increases. Load growth from the top five major industrial customers increased transportation revenue by 36 per cent on average for the 12 months ended December 31, 2015 as compared to 2014, due to increasing contract demand for transportation service while also importing additional gas from Alberta. For the three months ended March 31, 2016, income before unrealized market value adjustments was consistent with results from prior years. Weather for the first three months of 2016 was 14 per cent warmer than normal, resulting in lower
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Income before unrealized market value adjustments Consolidated net income (loss)
delivery volumes and commodity sales to customers. A commodity rate decrease effective January 1, 2016 was offset by a distribution system delivery service rate increase and a transmission system transportation service rate increase.
Natural Gas Sales and Purchases Included within natural gas sales and purchases are rate-regulated commodity sales to distribution customers and non-regulated gas marketing 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. As derivative instruments, natural gas contracts are 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. 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. 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 natural gas sold to distribution customers without earning a profit or incurring a loss over the long term. For rate-setting purposes, 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 recorded for financial reporting purposes, is either recovered from or refunded to customers as part of future commodity rates. Consequently, lower commodity margins in one year are often followed by higher commodity margins in the subsequent year as is the case in 2014 and 2015. For financial reporting purposes, the Corporation prepares its financial statements on a consolidated basis while applying IFRS. As a result, the amounts determined for rate-setting purposes are different than those reported within its consolidated financial statements. The most notable differences are the elimination of intercompany costs in the preparation of the consolidated financial statements, including transportation costs paid to TransGas, as well as the timing related to recognition of financial derivative settlements. While a gain or loss is commonly reported in the Corporation’s consolidated financial statements, it should not be taken as indicative of the results recorded within the GCVA.
Management’s Discussion & Analysis
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