MANAGEMENT’S DISCUSSION & ANALYSIS
INTRODUCTION The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial condition and performance for the three month period ended March 31, 2015. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. This MD&A is presented as at May 22, 2015 and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2014 Annual Report. The following discussion contains certain forward-looking statements that are subject to inherent uncertainties and risks, which are described in the Risk Management and Disclosure section of SaskEnergy’s 2014 Annual Report. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The volume of natural gas distributed is sensitive to variations in the weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results should not be taken as indicative of the performance to be expected for the full year. In order to compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments, realized margin on commodity sales, and realized margin on gas marketing sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. These unrealized market value adjustments vary considerably with the market prices of natural gas, drive significant changes in the Corporation’s consolidated net income, and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition, and may not be comparable to similar measures presented by other entities. CONSOLIDATED FINANCIAL RESULTS
Consolidated Net Income
Three months ended March 31
2015
2014 Change
(millions)
$
49
Income before unrealized market value adjustments
$
39 13 11
$
10
6
(7)
Impact of fair value adjustments Revaluation of natural gas in storage
-
(11)
$
55
Consolidated net income
$
63
$
(8)
The demand for natural gas, is cyclical and depends on the time of year and changes from season to season, typically peaking in the first quarter before tapering off in the spring and summer months. High demand for natural gas in the coldest months of winter is driven by residential and commercial heating requirements. In the first quarter of 2014, one of the coldest winters Saskatchewan experienced in the past 30 years, the Corporation saw system and supply challenges which led to additional costs throughout all aspects of the Corporation’s business. In contrast the winter of 2015 was much closer to normal, and combined with natural gas price declines from the same period in 2014, there were fewer pressures on operating costs. Low natural gas market prices and a commodity rate increase effective July 1, 2014 have contributed to higher realized commodity margins in the first quarter of 2015, which is the main driver of the higher income before unrealized market value adjustments in 2015 relative to 2014. While throughput on the transportation and distribution systems is down relative to 2014, the impact that would have had on revenue has been offset by transportation and delivery rate increases, as well as an increase in firm transportation services and additional distribution customers.
5
2015 FIRST QUARTER REPORT
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