Management Discussion and Analysis
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 June 30, 2021 and March 31, 2021, as near term forward natural gas market prices continue to increase and exceed weighted average cost. There was no revaluation impact on the first quarter net income. Revenue
Three months ended June 30
Transportation and storage revenue Customer capital contributions
Delivery Revenue Delivery revenue is driven by the number of customers and the amount of natural gas they consume. Weather is the external factor that most affects delivery revenue, as residential and commercial customers consume natural gas primarily as heating fuel. Delivery revenue decreased $4 million in 2021 as weather was normal in 2021 compared to 18 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 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 only pay receipt and delivery tolls when they deliver or receive gas. Integral to the Corporation’s transmission system are several strategically located natural gas storage sites, which have the capacity to provide operational flexibility along with a reliable and competitive natural gas storage service. Receipt and delivery service revenues combined for a $2 million increase in 2021 compared to 2020 as domestic customer’s increased firm transportation contracting in 2021. Rate increases effective April 1, 2021 on receipt and delivery services are also contributing to higher transportation revenue compared to 2020 as the Corporation addresses increasing third party transportation expenses. population while keeping rates competitive. Transportation and Storage Revenue Storage revenue in 2021 of $2 million equaled 2020 as the abundant supply of natural gas, coupled with small or even negative differentials between current and forward natural gas market prices, limits the demand for natural gas storage to customers with relatively low load factors who use the service to mitigate receipt transportation charges. Customer Capital Contributions The Corporation receives capital contributions from customers to partially offset the cost of constructing facilities to connect them to the transmission and distribution systems. Generally, contributions related to transmission system projects tend to be larger but less frequent than contributions related to the distribution system. The volume and magnitude of customer capital contributions can vary significantly across reporting periods as various factors influence their receipt and recognition as revenue. Customer capital contributions in 2021 were $2 million higher than 2020 as more distribution system customer connections were completed in 2021 and the related customer capital contribution was recognized as revenue.
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