SaskEnergy First Quarter Report - June 30, 2016

Revaluation of Natural Gas in Storage

SaskEnergy Incorporated First Quarter Report At each reporting period, the Corporation measures the net realizable value of gas marketing natural gas in storage based on forward market prices and anticipated delivery dates. The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. In recent years, low natural gas prices have translated to reduced prices on the forward price curve. The declining market price environment at the end of March 2016 provided an opportunity for the Corporation to purchase lower priced natural gas and inject it into storage. When natural gas market prices increased through the three months ended June 30, 2016, the $34 million unfavourable net realizable value impact at the end of March 2016 improved by $11 million to $23 million at the end of June 2016. March 31, 2011

Revenue

Delivery revenue, transportation and storage revenue, customer capital contributions and other revenue, as reported in the condensed consolidated financial statements, were as follows:

Three months ended June 30

(millions)

2016

2015

Change

Delivery revenue

$

42 32

$

39 29

$

3 3

Transportation and storage revenue Customer capital contributions

2 2

2 3

-

Other revenue

(1)

$

78

$

73

$

5

Delivery Revenue

Weather

1,200

Delivery Revenue is driven by customer growth and how much natural gas customers consume. As residential and commercial customers consume natural gas primarily as heating fuel, weather is the factor that most affects delivery revenue. During the three months ending June 30, 2016, delivery revenue of $42 million was $3 million higher than the same period in 2015, a result of the 4.5 per cent rate increase effective January 1, 2016. This was slightly offset by lower volumes consumed as the period was 17 per cent warmer than normal, based on weather data for the past 30 years, compared to 5 per cent warmer than normal for the same period in 2015. This year-over-year weather differential impacts delivery revenue less in the April to June period as weather is typically warm enough that residential and commercial customers don’t have large heating requirements.

1,000

YTD 2016-17 - 17% warmer than normal

YTD 2015-16 - 5% warmer than normal

800

600

400

200

-

Apr May Jun Jul

Aug Sep Oct Nov Dec Jan Feb Mar

2016-17 Actual

2015-16 Actual

2016-17 Budget

Transportation and Storage Revenue

The Corporation generates transportation revenue by taking delivery of 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 a receipt service in which customers pay when they put gas onto the pipeline transportation system, and a delivery service in which customers pay a separate toll when they take delivery off of the pipeline transportation system. When gas has been delivered to the system by customers, it is considered to be part of the TransGas Energy Pool (a notional point where producers, marketers and end-users can match supplies to demand) until it is delivered to the end-use customer. For its receipt and delivery service, the Corporation offers both firm and interruptible transportation. 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. Under an interruptible contract, the customer may deliver or receive gas only when there is available capacity on the system. With a firm contract, customers pay for the amount of capacity they have contracted for whether they use the capacity or not. Under an interruptible contract, customers only pay receipt and delivery tolls when they deliver or receive gas. Transportation and storage revenue of $32 million was $3 million above the same period in 2015. Industrial customer load growth continues to increase demand for natural gas within the province and drives higher transportation revenue. Additionally a 2.5 per cent transportation rate increase effective January 1, 2016, contributed to the favourable transportation variance year-over-year.

9

2016-17 FIRST QUARTER REPORT

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