SaskEnergy Incorporated First Quarter Report The Corporation is also increasing capacity in the Saskatoon - Prince Albert area. This will allow for increased capacity to manage planned or unplanned outages during a cold winter. Additionally, storage capacity at Prud'Homme is critical for winter operation. A new 85 km NPS 20 gas line from Rosetown to Vanscoy will connect Rosetown supply to the Sa katoon South By ass NPS 20 gas line. These two gas lines will provide additional capacity for both the Lanigan and Prince Albert areas. March 31, 2011 Growth in and around the City of Saskatoon has resulted in a multi-year initiative that will address increased natural gas capacity and move high pressure transmission lines further away from populated areas. This accounted for the majority of the increased spending in 2019-20 compared to the same period in the prior year. The capital expenditure increases in 2019-20 on these projects were partially offset by installing compression at the Rush Lake interconnect in the prior year at a cost of $13 million to access additional Alberta supply on the Mainline. It was cost effective for the Corporation to receive additional supply on the Loomis to Herbert gas line, which is owned through the Many Islands Pipe Lines (Canada) Limited subsidiary, with the gas being sourced from the TC Energy Mainline or Foothills Pipelines. This project was completed in 2018-19.
OUTLOOK
With the Corporation’s fiscal period beginning April 1, peak winter heating loads begin to have a positive impact on the financial results in the third and fourth quarters.
Factors that are expected to affect SaskEnergy in the near future include the continued growth of the provincial economy, resulting in increased reliance on imported natural gas, and higher customer expectations for safe, reliable natural gas services. Assuming normal weather conditions in the fourth quarter of 2019-20, net income before market value adjustments is expected to be approximately $82 million, a decrease of $52 million over the 2018-19 actual result. The decrease is primarily due to 5% colder than normal weather to date and with the return to normal weather expected in the fourth quarter, weather will be significantly warmer than 2018-19 when it was ten per cent colder than normal. In addition, the commodity rate decrease effective April 1, 2019 will see less commodity revenues from customers in the current fiscal year. While SaskEnergy’s customer base expands every year, the growth of the industrial sector is contributing the most to this increased usage, driven by higher demand for natural gas from the enhanced oil recovery and power generation sectors. SaskEnergy plans years in advance where natural gas infrastructure will be needed to secure supply and increase gas line capacity. SaskEnergy plans to invest more than $1.065 billion net of customer contributions over the next three years. This investment will be primarily funded through long term debt, with an additional $591 million planned over the next three years. The additional load growth will generate more revenue for the Corporation; however, the investment in infrastructure will also increase operating costs and put pressure on delivery and transportation rates. The Corporation continues to work with other Crown corporations, and other business enterprises, to implement technological and process solutions to more efficiently serve customers and maintain facilities. Since 2009, SaskEnergy has achieved $52 million of operating efficiency savings and another $4 million has been targeted for 2019-20.
Operating Expenses
As the number of customers increase, the gas line infrastructure required to serve those customers grows, and the cost of operating the system rises. Generally, the addition of new customers and load reduces the average cost to serve customers, so costs do not rise at the same rate as the expansion of the system. Expenditures to address safety and system integrity do not increase revenues and therefore add pressure to utility rates. Consequently, the average cost of serving customers is expected to rise. Depreciation expense and finance expense are expected to rise by $15 million as a direct result of capital expenditures, while operating expenses (employee benefits and operating and maintenance) are expected to rise by $12 million even with projected efficiency savings of $4 million in 2019-20. The cost increases are
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2019-20 THIRD QUARTER REPORT
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