Management’s Discussion and Analysis
Operating and Maintenance SaskEnergy continues to focus on the identification of efficiencies to maintain its financial strength. This includes identifying opportunities for standardization, simplification, and the elimination of waste from its processes. Operational excellence will remain an area of focus for the Corporation to achieve financial and business process efficiencies. Operating and maintenance expenses were $7 million higher than the same period in 2022, which is primarily resulting from leveraging technology and enhancing customer service offerings. The modernization of technology solutions to cloud computing arrangements, typically involves ongoing licensing and hosting fees compared to the historical purchase model. Adding functionality to the Corporation’s online customer portal and mobile application is expanding customer service offerings and is also contributing to rising hosting fees in 2023. The Corporation’s ongoing commitment to safety and the environment, combined with the recent installation of two key transmission system natural gas line projects, are resulting in increasing leak survey, post project environmental monitoring and cathodic protection costs. With growing system requirements, resulting from customers continuing to choose, and other customers transitioning to, natural gas as their energy source, transportation costs are also increasing as more natural gas is being transported and over larger distances. Higher regulator fees, for the Corporation’s cross boarder transmission system subsidiary, are resulting from the subsidiary transitioning into a higher fee structure. In addition, overall global inflation is leading to increasing operating materials and supply costs as well as external contractor costs. Depreciation and Amortization Balancing safety and system integrity with demand for service continued through 2023. Strategic capital investments required the necessary distribution and transmission infrastructure be put in-service to meet current customer demand, resulting in increased depreciation and amortization — which was $11 million higher than the same period in 2022. Changes made to depreciation rates, based on an external depreciation study, as well as a change in management assumptions for amortization of intangible and compression assets also contributed to higher depreciation in 2023. (Recovery) Loss on Trade and Other Receivables Lower customer receivable balances outstanding at December 31, 2023, are resulting from warmer weather through 2023 compared to 2022, combined with a lower commodity rate. This is resulting in a $2 million recovery of the previous impairment on trade and other receivables. Net Finance Expenses Net finance expenses for 2023 were $5 million higher than in 2022, resulting from additional long-term debt issuances of $125 million in 2023 and increasing short-term market interest rates. The Corporation’s average short-term debt interest costs climbed to 4.9 per cent through the nine months ending December 31, 2023 compared to 2.6 per cent through the same period in 2022. Other net losses (gains) Losses in 2023 are resulting from increasing decommissioning costs pertaining to forecasted abandonment activities at a non-operational storage facility. These losses were partially offset by a gain resulting from the sale of land and building assets at one of the Corporations construction facilities. The net gain in the prior year, is resulting from the sale of storage related assets. LIQUIDITY AND CAPITAL RESOURCES As a Crown corporation, SaskEnergy’s primary sources of capital are cash from operations and debt — which is borrowed through the Province’s General Revenue Fund. Cash from operations is SaskEnergy’s most important source of capital. As a utility, cash from operations is relatively stable and the Corporation relies on it to fund a significant proportion of its investment in its natural gas facilities and the debt servicing costs on those investments. 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 line of credit with the Toronto-Dominion Bank. Under The SaskEnergy Act , the Corporation may borrow up to $2,500 million of debt upon approval of the Lieutenant Governor in Council.
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