Other Revenue
Other revenue primarily consists of revenues from natural gas processing operations and royalty revenues. The Corporation’s natural gas processing operations include gas processing at two separate gas plants and the sale of natural gas liquids from the processing operations. Royalty revenue is generated from a gross overriding royalty on several natural gas-producing properties in Saskatchewan and Alberta. Other revenue of $8 million for the first nine months of 2015 is $5 million lower than 2014 as a result of lower natural gas liquid prices. The $2 million for the third quarter of 2015 was $2 million lower than 2014, also due to the decline in natural gas liquid prices.
Other Expenses
Other expenses consist of employee benefits, operating and maintenance, depreciation and amortization, and Saskatchewan taxes. With strong growth in the provincial economy in recent years, the Corporation has experienced significant growth in its customer base and pipeline facilities. The increasing investment in facilities directly affects depreciation and amortization and corporate capital taxes. Other expenses of $228 million for the first nine months in 2015 represent a slight increase of $6 million over the same period in 2014. For the third quarter of 2015, other expenses of $76 million were $1 million above 2014 with the primary driver for both being cost increases to transport additional gas into Saskatchewan to meet growing demand combined with an increase in depreciation and amortization resulting from increases to the capital asset base.
Net Finance Expenses
Net finance expenses, before the impact of fair value adjustments, were $33 million in 2015 and equaled 2014. Increased earnings on debt retirement funds were fully offset by the higher debt financing needed to fund the Corporation’s growing capital expenditure requirements. There was also a $4 million unfavourable fair value adjustment on debt retirement funds during 2015, an outcome of increased interest rates on fixed-rate investments. On a quarterly basis, net finance expenses of $12 million, before the impact of fair value adjustments, were slightly above 2014 due to increased levels of debt.
Other (Losses) Gains
Recent changes in the oil and gas market have led to declining natural gas and natural gas liquid prices, which have adversely affected cash flows generated from gas processing plant assets. An impairment on gas processing plant assets of $3 million was recorded in the first quarter of 2015 to recognize the impact of a decline in natural gas liquid prices on their value in use. In addition, a customer specific transmission pipeline was sold in the third quarter, which resulted in a loss on the retirement of the pipeline assets that is recorded in other losses and gains. Upon sale of the pipeline, SaskEnergy recognized a customer contribution related to the pipeline that was no longer refundable, resulting in no impact to the financial results on the sale of the pipeline. These two losses contrast the $3 million gain recorded in the second quarter of 2014 for the sale of storage and distribution assets. LIQUIDITY AND CAPITAL RESOURCES
Three months ended September 30
Nine months ended September 30
2015
2014 Change
2015
2014 Change
(millions)
$
34
$
203
Cash provided by operating activities Cash used in investing activities Cash used in financing activities (Decrease) increase in cash and cash equivalents
$
23
$
11 48
$
196
$
7
(57)
(132)
(105)
(185)
53
23
(75)
72
(49)
(7)
(68)
$
-
$
(4)
$
(10)
$
10
$
4
$
(8)
Cash from operations and debt borrowed from the Province of Saskatchewan’s General Revenue Fund are the primary sources of liquidity and capital for SaskEnergy. Sources of liquidity include Order in Council authority to borrow up to $500 million in short-term loans, which was increased by $100 million in the third quarter of 2015. The Corporation holds a $35 million uncommitted line of credit with the Toronto-Dominion Bank. Over the longer term, The SaskEnergy Act allows the Corporation to borrow up to $1,700 million. Cash from operating activities was $203 million in 2015, an increase of $7 million from the first nine months of 2014. This is due to a higher commodity rate in 2015 increasing cash flow compared to 2014. This was partially offset by lower volumes sold to customers and lower delivery service revenue, both due to higher heat values of natural gas sold in 2015 and the near normal weather in 2015 compared to the extreme weather in 2014. The decline in natural gas prices continues to limit the Corporation’s gas marketing activities. The volume of gas marketing natural gas in storage of 25 PJ at the end of September
10
2015 THIRD QUARTER REPORT
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