Management’s Discussion and Analysis
System expansion capital projects provide incremental capacity for the transmission and distribution systems, through the installation of new or expanded gas line or facility assets, thus enabling demand growth. Higher investment of $35 million in system expansion projects through 2023 are resulting from spending on Regina reinforcement projects, which will increase available delivery capacity in west Regina, and position the Corporation to meet new customer demand. In addition, transmission system work in 2023 is focused on the Melfort East Expansion project, which involves gas line expansion to meet demand growth. Risk management capital projects concentrate on mitigating the likelihood of a negative consequence occurring on the SaskEnergy system, such as damage or loss of gas containment. These consequences typically include damage to infrastructure, environment and potential harm to or loss of human life. Risk management spending of $64 million is approximately one-third of the Corporation’s 2023 year-to-date capital investment and increased $10 million over 2022 expenditures. This is resulting from an increased focus on replacement of cathodic protection, measurement and service assets. In addition, pipeline inspection and survey costs are higher in 2023, resulting from increasing costs and a growing infrastructure. Reliability of natural gas in service includes enhancements, modifications or upgrades to facilities, ensuring that natural gas demand will be met without failure or loss of service. Reliability of natural gas service spending increased $10 million in 2023 compared to the same period in 2022. The Corporation purchased additional construction equipment in the current year as supply chain issues pushed planned delivery of fleet vehicles and equipment from 2022 to 2023. Additional focus is being placed on investing in system improvement work on town border stations and district regulator stations in 2023. Business and technology optimization ensures that every investment in information technology, every resource allocated and every application in development or in production, meets the Corporation’s business goals, and is comparable to prior year. OUTLOOK With the outlook for provincial natural gas demand continuing to grow in the short to intermediate term, SaskEnergy will continue to focus on core operations and strive for efficiencies to support its continued financial strength. Recognizing the importance of reducing emissions, SaskEnergy has several initiatives targeted to support emissions reductions from both internal operations and customer-focused initiatives. Offsetting the cost pressures created by these efforts, SaskEnergy continues its focus on operational excellence to achieve cost savings through business process improvements, leveraging technology, and collaboration with other Crown corporations and executive government. Modest incremental growth is expected primarily from SaskEnergy’s industrial customers in 2023-24, with additions from the value-added agricultural sector and from gas-fired power generation leading the way. While the number of residential customers connecting to SaskEnergy’s distribution system is expected to continue increasing, total demand and revenue growth from this customer segment is expected to remain stable due to energy efficiency improvements. Despite the expected customer growth, SaskEnergy is forecasting lower earnings in 2023-24 due to lower asset optimization margins and lower customer capital contributions. Increasing employee benefits expenses and operating costs combined with higher interest expense are also having negative impacts on earnings. After a period of high natural gas prices in 2022, prices began to fall, allowing SaskEnergy to request a decrease to its commodity rate. In September 2023, SaskEnergy obtained approval from the Government of Saskatchewan for a 24.5 per cent decrease to the commodity rate effective October 1, 2023, dropping it from $4.20 to $3.20 per gigajoule and a five per cent delivery service rate increase. SaskEnergy sets its rates at a level that ensures the maintenance of safe, reliable and affordable natural gas service across Saskatchewan. The combined commodity and delivery service rate adjustments result in an overall bill decrease for the average residential customer. Affordability remains a top priority for SaskEnergy and its focus on operational excellence will mitigate cost pressures to keep the delivery of natural gas affordable for its customers. SaskEnergy is committed to providing solutions and service that benefit customers and Saskatchewan, by leveraging the Corporation’s expertise and the province’s private sector. Throughout 2023-24, SaskEnergy will increase its capital investment in the province, with key areas of focus including: maintaining the safety and reliability of the natural gas transmission and distribution systems, enhancing customer experience, and supporting the emissions reduction strategy.
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