Three months ended June 30
SaskEnergy Incorporated First Quarter Report (millions) Employee benefits
2019
2018
Change
March 31, 2011 22 (2) $
$
24 37 26
$
Operating and maintenance Depreciation and amortization
32 25
(5) (1)
Saskatchewan taxes
3
3
-
$
90
$
82
$
(8)
Net finance expenses
$
13
$
12
$
(1)
Other gains (losses)
$
-
$
-
$
-
Employee Benefits
Operational and business reviews have identified moderate full time equivalent increases in key strategic areas as part of the Corporation’s success in meeting current and future business needs. Ongoing efficiency efforts and management of planned overtime and vacancies resulted in a reduction of full time equivalents in other areas, however employee benefit costs of $24 million were $2 million higher than 2018-19. This is due to contractor positions being transitioned into full-time equivalent positions in the later part of 2018-19.
Operating and Maintenance
Higher transportation on the TCPL mainline transportation system increased operating and maintenance expenses to $37 million in 2019-20, $5 million higher than in 2018-19. With the growing demand for imported natural gas from Alberta, the Corporation’s transition to a net importer of natural gas is resulting in more natural gas being transported and over greater distances. Rate increases on the third party transportation systems are also increasing transportation expenditures. SaskEnergy was able to mitigate the impact of higher transportation and safety and integrity expenditures through continued efficiency efforts and cost saving measures.
Depreciation and Amortization
Balancing safety and system integrity with the growing demand for service continues through 2019-20. Strategic capital investments required to ensure the necessary infrastructure is in place to meet increasing load growth, has increased the capital asset base, resulting in increased depreciation and amortization. In 2019-20, depreciation and amortization was $26 million, $1 million higher than the same period in 2018-19.
Net Finance Expense
Net finance expenses were $13 million in 2019-20 compared to $12 million in 2018-19. The increase in finance expenses that resulted from increased investment was partly offset by lower interest rates. The low interest rate environment has allowed the Corporation to replace maturing long-term debt with lower cost debt.
LIQUIDITY AND CAPITAL RESOURCES
As a Crown corporation, SaskEnergy’s primary sources of capital are cash from operations, debt — which is borrowed through the province’s General Revenue Fund — and equity advances from CIC, the Province’s Crown corporation holding company. Equity advances are rarely used to finance Crown corporations as CIC prefers to use its Subsidiary Crown Dividend Policy to manage its equity interests in its commercial enterprises. Cash from operations is SaskEnergy’s most important source of capital. As a utility, cash from operations is relatively stable and the Corporation relies upon it to fund its investment in natural gas facilities, including new construction to support provincial growth and integrity spending on existing infrastructure. Long and short-term debt can be borrowed through the Province of Saskatchewan to meet any long or short-term incremental capital requirements, and to repay debt as it matures. Sources of liquidity include Order in Council authority to borrow up to $500 million in short-term loans, and a $35 million uncommitted line of credit with the Toronto-Dominion Bank. By borrowing through the Province, SaskEnergy has access to the Province’s borrowing capacity and North American capital markets. The SaskEnergy Act allows the Corporation to borrow up to $2,500 million.
9
2019-20 FIRST QUARTER REPORT
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