MANAGEMENT’S DISCUSSION AND ANALYSIS
Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts (swaps and forwards) in its asset optimization strategies, which are subject to the volatility of natural gas market prices. At March 31, 2019, the fair value adjustment on asset optimization derivative instruments decreased the asset optimization margin by $22 million, compared to an increase of $48 million for the same period in 2017-18. At the end of March 2019, the volume of outstanding purchase contracts was 65 PJs lower, and the volume of outstanding sale contracts was also 65 PJs lower, than at March 31, 2018. The decrease in contract volumes outstanding resulted in the unfavourable fair value adjustment in 2018-19. Between April 2018 and the end of March 2019, natural gas market prices were volatile, which allowed the Corporation to enter into natural gas purchase and sale transactions simultaneously, utilizing the favourable price differential between spot prices and forward prices. The purchase contracts outstanding at March 31, 2019 were $0.46 per GJ less than market price, while purchase contracts outstanding at March 31, 2018 were $0.37
per GJ less than market price. This increase in the favourable price differential in 2018-19 is fully offset by the unfavourable variance related to the decrease in volume of outstanding purchase and sale contracts. Revaluation of Natural Gas in Storage At each reporting period, the Corporation measures the net realizable value of natural gas in storage held for asset optimization transactions 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. Through much of 2018- 19, the Corporation was able to purchase lower priced natural gas and inject it into storage, which reduced the average cost of natural gas in storage; however, lower forward market prices continued to adversely affect net realizable value. Consequently, the net realizable value of asset optimization natural gas in storage was $14 million below cost at March 31, 2019, which is a $19 million increase from the revaluation adjustment at March 31, 2018.
Revenue Delivery revenue, transportation and storage revenue, customer capital contributions and other revenue, as reported in the consolidated financial statements, were as follows:
March 31, 2019
Excluding Effects of IFRS 15
IFRS 15 Effects
As currently reported
March 31, 2018
(millions)
Change
(1) $
289 $
Delivery revenue
$
290 $
271 $
18 26
163
Transportation and storage revenue Customer capital contributions
165
(2)
137
29
26
3
21
8
4
Other revenue
4
-
7
(3)
Revenue
$
485 $
- $
485 $
436 $
49
26
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