Management’s Discussion and Analysis
CONSOLIDATED FINANCIAL RESULTS Consolidated Net Income
Three months ended September 30,
Six months ended September 30,
(millions)
2021 Change
2021 Change 2022
2022
Income (loss) before unrealized market value adjustments Impact of fair value adjustments Revaluation of natural gas in storage
$
7
$
10 15
$
$
(20)
$
27
$
(25)
35
16
52
(37)
37
(21)
1
-
-
-
-
1 7
$
25
$
24
$
(2)
$
17
$
$
27
Consolidated net income
Income before unrealized market value adjustments was $10 million in 2022, $35 million favourable compared to the $25 million loss in 2021, resulting from higher commodity and asset optimization margins, higher delivery and transportation & storage revenues and higher customer capital contributions. This was partially offset by higher natural gas transportation costs, vehicle expenses and finance expense costs. The Corporation received approval to increase its commodity rate to address increasing natural gas market prices and the large gas cost variance account balance owing from customers to the Corporation. Conversely, the Corporation was able to take advantage of unutilized transportation capacity as natural gas line projects continued to be delayed in Alberta and increased maintenance projects limited transportation capacity on Alberta systems — the result being improved asset optimization margins. Delivery revenue improved in 2022 due to weather being three per cent colder than in 2021 and a delivery rate increase effective August 1, 2022, which will address increasing operating costs. Transportation and storage revenues are higher in 2022, primarily resulting from rate increases effective April 1, 2022 on receipt and delivery services, as the Corporation addresses increasing third-party transportation expenses, combined with customers increasing firm and interruptible transportation contracting across all services. These were partially offset by higher operating costs, due to increasing third-party transportation expenses and higher vehicle costs, which are resulting from fuel price increases. Finance expense costs are higher due to increasing average interest rates on short-term debt and higher long-term debt borrowing costs, as the Corporation borrowed additional long-term debt to support its capital investment requirements. Stronger natural gas market prices at September 30, 2022 generated a $15 million favourable fair value adjustment, resulting from a 15 PJ increase in natural gas contracts outstanding at September 30, 2022, which are recorded at a favourable price differential between average transaction price and average market price. In addition, natural gas in storage was recorded at weighted average cost, which was lower than net realizable value at September 30, 2022 and March 31, 2022. There was no impact on net income resulting from the revaluation of natural gas in storage. Natural Gas Sales and Purchases Included within natural gas sales and purchases are rate-regulated commodity sales to distribution customers and non- regulated asset optimization 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. With the exception of those contracts entered into for an entity’s normal usage, IFRS requires derivative instruments such as natural gas purchase and sales contracts to be 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. The majority of SaskEnergy natural gas contracts are normal usage and are not recorded at fair value but at the contract price.
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