service to customers. The Corporation also experienced fewer staffing vacancies relative to the prior year, resulting in a modest increase in the level of full-time equivalents. As well, salary and wage rates increased during the year. Operating and maintenance costs increased from $97 million in 2013 to $126 million in 2014 as the supply and system challenges experienced throughout the first quarter, together with customer driven activity, placed upward pressure on the Corporation’s operating costs with the most significant impact related to transportation expense. In order to ensure a sufficient supply of natural gas to customers, the Corporation contracted additional third-party transport to import more natural gas from Alberta. As a consequence, third-party transportation expenses increased $15 million compared to 2013. TransGas had over 100 terajoules (TJ) per day of contracted firm TransCanada Pipelines (TCPL) mainline transport contracts in place as of November 1, 2014 compared to approximately 40 TJ per day of firm transport held on TCPL in November 2013. During the year, SaskEnergy saw an increase in customer arrears due to the colder winter and the suspension of collection activities during the post implementation phases of the new customer billing system project. As a result, SaskEnergy has increased its allowance for doubtful accounts. With the resumption of collection activities, SaskEnergy anticipates that customer arrears will return to levels experienced in previous years. Ongoing capital investment projects have increased the capital asset base, which results in additional depreciation and amortization expense. Depreciation and amortization expense of $83 million for 2014 was $6 million higher than the prior year as a result of SaskEnergy’s new customer billing system going into service and capital additions to the transmission and distribution systems during 2013. Capital expenditures continued to increase throughout 2014 and reached a record level of $299 million, which is $75 million (33 per cent) higher than 2013 expenditures of $224 million, and $112 million (60 per cent) higher than 2012 expenditures of $187 million. The company spent $86 million on customer connection projects and $55 million related to system integrity projects in 2014. The Distribution Utility spent $20 million on the AMI project in 2014. These projects enable the Corporation to better align its operations with the demands of customer growth and continued system safety and reliability. As customer demand within the Province continues to grow at a faster rate than provincial natural gas production, the Corporation is required to expand its capacity to import gas from Alberta. As a result, the largest transmission system capital expenditure of 2014 was the Bayhurst-to-Rosetown pipeline project. This project added approximately 150 TJ per day of transport capacity to the northern part of the transmission system. In addition, TransGas invested approximately $15 million of new capital for mobile compression and other facilities designed to increase supply capacity, flexibility, and reliability. These projects will assist the Corporation in meeting system and customer demands.
expansions of storage services. With current natural gas prices, the likelihood of refunding the contributions received from customers for past storage service expansions is considered unlikely, therefore customer contributions that were deferred due to the possibility of refund have now been recognized as revenue. Other Revenue Other revenue of $12 million, primarily consisting of natural gas processing operations and royalty revenues, was consistent with prior years. 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. Increased production volumes and processing fees were realized from a plant expansion that came online in October 2014 but were offset by lower market prices for the liquids that are extracted and sold. Royalty revenue from a gross overriding royalty on several natural gas-producing properties in Saskatchewan and Alberta was not significant due to the continuing decline in conventional natural gas production as a result of low natural gas prices. Other Expenses Sustained customer growth, changes in natural gas supply and enhanced focus on safety and integrity continue to place significant pressures on the Corporation’s operating costs and across the pipeline and gas distribution industries. While this emphasis comes at a considerable cost, it is essential to the Corporation’s successful operations and the safety of the people of Saskatchewan. The Distribution Utility serves nearly 381,000 customers and has been experiencing significant growth while increasing system integrity initiatives along the way. Innovation, creativity and collaboration are key leadership qualities adopted at SaskEnergy while cost management and safety have been embraced as key strategies for the Corporation. Becoming a net importer of natural gas has affected the operations of the transmission system. Load growth from industrial demand has required the Corporation to move more natural gas, and with a substantial amount of that natural gas coming from Alberta, the Corporation is now transporting natural gas further distances resulting in higher dependence on third-party transportation. To meet the demands on the system, the Corporation has implemented many operational changes to the transmission system and continues to focus on the development of mobile compression in order to improve operating efficiencies. Operating costs for 2014, consisting of employee benefits, operating and maintenance, depreciation and amortization and Saskatchewan taxes resulted in a $38 million increase in expenses — from $274 million in 2013 to $312 million in 2014. Employee benefits of $92 million were $3 million above 2013 as costs were impacted by additional overtime, most of which was incurred during the first quarter to ensure continued
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Management’s Discussion & Analysis
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