Gas Marketing Fair Value Adjustments
SaskEnergy Incorporated First Quarter Report The Corporation enters into various natural gas contracts (swaps, options and forwards) in its gas marketing strategies, which are subject to volatility of natural gas market prices. The fair value adjustment at September 30, 2016 on gas marketing derivative instruments reduced the gas marketing margin by $1 million compared to the unfavourable fair value adjustment of $5 million at the end of the same period in 2015. As the AECO near month spot price dropped to a 20 year low prior to March 2016 the Corporation entered into buy sell transactions, utilizing the price differential between spot prices and forward prices. Between April and the end of September 2016, the spot price increased $1.54 per GJ and at the same time older purchase and sales contracts matured. At the end of September 30, 2016, the volume of outstanding contracts was 16 PJs less than at March 2016. With a lower volume of contracts outstanding and average market prices increasing on those outstanding contracts the fair value adjustment improved compared to March 2016, but still remained unfavourable at September 30, 2016. This is more prominent in the three month period ending September 30, 2016 where the impact of the fair value adjustment is $4 million. March 31, 2011
Revaluation of Natural Gas in Storage
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 throughout the six months ended September 30, 2016, the $34 million unfavourable net realizable value impact at the end of March 2016 improved by $14 million to $20 million at the end of September.
Revenue
Three months ended September 30
Six months ended September 30
(millions)
2016
2015 Change
2016
2015 Change
Delivery revenue
$
35 33
$
32 31
$
3 2
$
77 65
$
71 60 11
$
6 5
Transportation and storage revenue Customer capital contributions
6 3
9 2
(3)
8 5
(3)
Other revenue
1 3
5
-
$
77
$
74
$
$
155
$
147
$
8
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.
1,000
YTD 2016-17 - 14% warmer than normal
YTD 2015-16 - 4% warmer than normal
800
- Delivery revenue was $77 million for the six months, and $35 million for the three months ending September 30, 2016, $6 million and $3 million higher than the same periods in 2015. A 4.5 per cent rate increase effective January 1, 2016 contributed to higher revenues. Delivery revenue is typically lower in April through September as residential and commercial customers don’t have large heating requirements in the warmer months. The Saskatchewan Rate Review Panel has recommended, and Cabinet has approved, an 8.6 per cent delivery rate increase effective November 1, 2016. The increase will help the Corporation offset increasing operating costs related to the growing natural gas infrastructure and increasing focus on safety, while expanding integrity programs to address the aging infrastructure. 200 400 600 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 charge which customers pay when they put gas onto the pipeline transportation system, and a delivery service charge which customers pay when they take delivery off of the pipeline transportation system. Gas delivered to the system by customers is considered to be part of the TransGas Energy Pool (a
7
2016-17 SECOND QUARTER REPORT
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