SASKENERGY 2018-19 ANNUAL REPORT
$22 million unfavourable market value adjustment on outstanding asset optimization contracts. The value of natural gas in storage is sensitive to gas prices. At the end of March 2019, the value of gas in storage was $26 million, or $14 million below cost. At the end of March 2018, the value of natural gas in storage was $37 million, or $33 million below cost, due to the decline in gas prices in the last quarter of the 2017-18 fiscal year. The volume of natural gas in storage in 2018-19 declined from the previous year, improving the effect of the adjustment to net realizable value. The difference between the $33 million unfavourable adjustment at the end of the previous fiscal year and the current $14 million unfavourable adjustment to the cost of gas in storage was a $19 million favourable market value adjustment during the current fiscal year.
Excluding market value adjustments, financial results for 2018-19 are $24 million higher than the same period in 2017-18. The increase in net income is due to a higher commodity margin, delivery revenue and transportation revenue. Weather was the primary driver increasing delivery revenue. It was 10 per cent colder than normal in 2018-19, and five per cent colder in comparison to the same period in 2017-18. The increase in both the number of customers and customer load growth contributed to additional transportation and delivery revenue relative to 2017-18. Much of the load growth is the result of continued economic growth in the province, driven by expansion in the major industrial sectors of enhanced oil recovery and power generation. As natural gas production continues to decline, Saskatchewan increasingly relies on gas production in Alberta to meet its delivery requirements. This results in increased transportation utilization on the TransCanada Mainline system to import natural gas from Alberta. These increasing requirements have resulted in higher overall operating costs compared to the prior year. While the increase in load requires higher spending in some areas, the continued focus on efficiency and cost management have helped to mitigate increases in both operating costs and employee benefits. Market value adjustments contributed $13 million to SaskEnergy’s consolidated net income. The differential between the contract price and market prices decreasing from $0.76 per GJ at the end of 2017-18 to $0.03 per GJ in 2018-19 are resulting in a favourable market value adjustment of $35 million on outstanding commodity purchase contracts. This was partially offset by the volume of outstanding asset optimization purchase contracts being 65 petajoules (PJs) lower than at March 31, 2018, resulting in a 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.
CONSOLIDATED FINANCIAL RESULTS
$210
$160
$110
$60
$10
-$40
Dec 2014
Mar 2016 Mar 2017 Mar 2018 Mar 2019
12 months ending
Consolidated net income (loss )
Income before unrealized market value adjustments
With the exception of those contracts entered into for an entity’s own 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.
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