Management’s Discussion and Analysis
Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts in its asset optimization strategies, which are subject to volatility of natural gas market prices until the natural gas contracts are realized. Unrealized fair value adjustments on the Corporation’s asset optimization derivative instruments did not impact the margin on asset optimization sales. Natural gas market prices trended higher through the three months ended June 30, 2022, and declined below March 31, 2022, levels leading into June 30, 2022. The overall decline in market prices resulted in the favourable price differential declining between average contract prices and average market prices on future asset optimization purchase contracts by $0.43 per GJ, resulting in a $17 million unfavourable fair value adjustment. This was offset by the $17 million favourable fair value adjustment resulting from the unfavourable price differential on outstanding asset optimization sale contracts decreasing from $1.23 per GJ at March 31, 2022 to $0.76 per GJ at March 31, 2022. 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. With June 30, 2022 near-term natural gas market prices declining below March 31, 2022 levels, asset optimization natural gas in storage was recorded at net realizable value at June 30, 2022, which was $1 million below cost and had a $1 million unfavourable impact on net income. Revenue Delivery revenue, transportation and storage revenue, and customer capital contributions, as reported in the condensed consolidated financial statements, were as follows:
Three months ended June 30,
(millions)
2022
2021 Change
$
57 $
Delivery revenue
54 49
$
3 8 1
57
Transportation and storage revenue Customer capital contributions
5
4
$
119 $
Revenue
107 $
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Delivery Revenue Natural gas delivery rates are designed to recoup all distribution facility and operating costs necessary for delivery of natural gas to customers throughout the year. Natural gas storage and transportation costs — as well as ongoing investments related to safety, system integrity and growing infrastructure — are factored into delivery rates. Other considerations impacting natural gas delivery services include regulatory code compliance and industry best practices regarding safety. To minimize these impacts on delivery service customers, the Corporation strives to make the most effective use of resources and technology, and to collaborate with other Crown corporations and executive government. Delivery revenue is primarily driven by the number of customers and the amount of natural gas they consume. Weather is the most significant external factor affecting delivery revenue, as residential and commercial customers consume natural gas primarily as heating fuel. Delivery revenue was $3 million higher than 2022 due to weather being eight per cent colder than normal in 2022 compared the same period in 2021. Transportation and Storage Revenue The Corporation generates transportation revenue by receiving 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 charge, which customers pay when they put gas onto the natural gas transportation system, and a delivery service charge that customers pay when they 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
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