Market Prices Since December 2015, natural gas prices have continued to weaken and we anticipate prices will remain low throughout the fifth quarter of 2015/2016. It is expected 2016 will continue to be characterized by a forward pricing curve for natural gas that shows a very small differential between current market prices and future market prices. This is good for customers and large consumers of natural gas who value stability and low prices. The lower price environment will continue to lower the average cost of gas sold and have a favourable impact on margins through the fifth quarter of 2015/2016 and forward. Commodity Margin The $4.84 per GJ commodity rate approved on July 1, 2014, combined with a lower average cost of gas, due to declines in market prices, provided favourable margins on commodity sales in the first four quarters of 2015 and reduced the Gas Cost Variance Account owing from customers. On October 21, 2015, Cabinet approved a $0.54 per GJ reduction to the commodity rate to $4.30 per GJ, based on the recommendations of the Saskatchewan Rate Review Panel. The commodity rate reduction takes effect January 1, 2016 together with an average 4.5% increase to the delivery rate, resulting in an overall bill decrease for customers. Gas Marketing Margin Based on current market conditions, the volume of gas marketing activity has declined by 50% in the first four quarters of 2015/2016, however by leveraging its assets and expertise SaskEnergy has found several opportunities which allow it to maintain slightly higher margins through 2015/2016 and forward. Delivery Revenue The weather through the first four quarters of 2015/2016 have been warmer than normal, with the fourth quarter winter heating season registering 13% warmer than normal. The warmer weather has decreased delivery volumes and revenue, resulting in the fifth quarter forecast being revised to incorporate the impact of weather being 10% warmer than normal. In addition, the pace of Saskatchewan’s provincial economy has slowed through 2015 and the Corporation tempered its expectations for customer connection rates to levels closer to the ten year average. Residential customer capital contributions declined and are forecasted to be lower than recent years, while industrial and commercial demand for service is expected to continue at strong levels and exhibit steady growth. A delivery rate increase takes effect January 1, 2016 which will provide additional revenue to alleviate cost pressures related to maintaining a safe and reliable distribution system. The Corporation will also continue to focus on efficiencies that will offset cost pressures to ensure Delivery Service Rates remain competitive. Transportation Revenue Transportation and storage service rate increases implemented effective January 1, 2016 will increase transportation service rates by an average of 2.5% and storage rates by an average of 5.8% for an overall average 3.0% increase. The rate increase will address increasing capital and operating costs to continue providing high quality, safe and reliable service to transmission customers including an increased focus on system integrity, emergency response and public awareness. Another major factor for the rate adjustment is the increasing cost of importing natural gas supply from Alberta. Other Expenses The heightened focus on security of natural gas supply and the need to look at cost effective options for sourcing that supply will continue in 2016. Saskatchewan production levels for conventional natural gas have been in steady decline for the past several years and are expected to remain at current levels going forward. As major industrial projects come on line, load pressures will increase and operating costs to meet those loads will continue to increase, though not to the same degree as in recent years. The Corporation continues to pursue its resourcing strategy which calls for relatively stable employee levels augmented by third party contract resources. In addition, efficiency initiatives have enhanced productivity and will continue to allow SaskEnergy to meet its business commitments in a nimble and cost effective manner with a focus on cost savings in employee benefits, contract and consulting, advertising and vehicle costs. Capital Investment SaskEnergy will continue to focus its efforts on providing safe and reliable service to customers while trying to mitigate undue rate pressure. Spending will focus on upgrading infrastructure to meet load and service requirements, as well as the integrity of transmission, distribution and storage systems. The Corporation has spent $214 million on capital projects in the first twelve months with plans to spend an additional $37 million in the fifth quarter of 2015/2016. These capital expenditures will be funded through operating cash flows and debt made available through the Province at what are expected to be historically low interest rates. In summary, SaskEnergy will continue to focus on investing in safety and growth initiatives and realizing efficiencies, while forecasting income before unrealized market value adjustments of $34 million for the fifth quarter of 2015/2016 bringing total income before unrealized market value adjustments to $122 million for the fifteen month period ending March 31, 2016.
12
2015/2016 FOURTH QUARTER REPORT
Made with FlippingBook Ebook Creator