Management’s Discussion and Analysis
Customer Capital Contributions The Corporation receives capital contributions from customers to partially offset the cost of constructing facilities to connect them to the transmission and distribution systems. Generally, contributions related to transmission system projects tend to be larger but less frequent than contributions related to the distribution system. The volume and magnitude of contribution revenue can significantly vary period-over-period, as several factors influence their receipt and recognition as revenue. Customer capital contributions were $1 million lower in 2023, resulting from fewer gas line installations in the distribution utility compared to the three months ended June 30, 2022. Other Expenses SaskEnergy’s expenses are driven to a large degree by its investment in its transmission, distribution and storage systems. Depreciation and amortization expense, net finance expense and Saskatchewan taxes are directly tied to the investment in facilities. As the level of investment in facilities increases, these expenses also increase. Employee benefit expenses and operating and maintenance expenses are also driven by the Corporation’s investment in facilities, although less directly. As the number of customers increases and infrastructure to serve those customers grows, the costs to operate and maintain the system increases. These expenses increase primarily because the amount of work to service and maintain the natural gas system grows as the kilometres of gas lines, number of service connections and amount of compression equipment increases. Additional regulatory requirements and changing public perceptions have resulted in accelerated prevention, detection and mitigation initiatives, adding pressure to transmission, distribution and storage rates. Other expenses, net finance expenses and other (gains) losses, as reported in the condensed consolidated financial statements are as follows:
Three months ended June 30,
(millions)
2023
2022 Change
$
28 48 35
Employee benefits
$
27 45 31
$
(1) (3) (4) (1) (9)
Operating and maintenance Depreciation and amortization
5
Saskatchewan taxes
4
$
116 $
107
$
$
19
Net finance expenses
$
17
$
(2)
$
1
Other losses
$
-
$
(1)
Employee Benefits Full-time equivalents are trending higher in 2023 than 2022 levels, resulting in employee benefit costs increasing $1 million compared to 2022 as the Corporation was able to fill vacant positions. Operating and Maintenance Operating and maintenance expenses were $3 million higher than in 2022, as the Corporation’s upgraded online customer- portal is resulting in additional hosting fees in 2023 compared to 2022. In addition, growing demand and increasing natural gas imports from Alberta are resulting in more natural gas being transported and over greater distances, thus increasing transportation expenses. Third party rate increases on transportation services are also contributing to the higher
transportation expenses in 2023. Depreciation and Amortization
Balancing safety and system integrity with demand for service continued through 2023. Strategic capital investments required the necessary infrastructure be put in-service to meet current customer demand, resulting in increased depreciation and amortization — which was $4 million higher than the same period in 2022. Higher depreciation resulted from changes made to depreciation rates based on an external depreciation study as well as a change in management assumptions for amortization of intangible assets.
10
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