Management’s Discussion and Analysis
Enterprise Risk Management SaskEnergy seeks to identify potential events and risks that may significantly affect its ability to achieve strategic goals and objectives. Throughout the organization, supporting processes are in place to expand risk management at an operational level. In 2019-20, SaskEnergy formalized a hazard identification and risk assessment program that identified nearly 300 operational hazards and tracked mitigations through the Corporation’s risk management system. SaskEnergy’s system integrity, safety and environmental protection programs combine predictive analysis and proactive response. Program effectiveness is demonstrated through reduced levels of gas leaks, failures, third-party contacts and other measures. The 2019-20 service upgrade program targeted the removal of compression-style fittings on curb valves that are more susceptible to leaks based on factors such as soil, service orientation and construction practices. Upgrades were completed in Regina, Saskatoon and Humboldt. Despite these efforts, unique ground conditions associated with a winter of many freeze and thaw cycles increased the failures of these valves. SaskEnergy’s leaks per 1,000 kilometres of mains was 8.53, which is lower than last year’s total of 10.07, but higher than the five-year average of 7.83 and above the target for the year of 5.30. In 2019-20, SaskEnergy continued damage prevention initiatives aimed at reducing leaks due to external interference, such as line hits. Initiatives included visual surveillance of key high pressure distribution mains; increased marking of both mains and services; increased supervision at excavation sites; ‘white lining’ work areas; and a number of other measures to increase awareness of SaskEnergy’s underground facilities. The Corporation continued to manage risk for its transmission lines using a combination of aerial and ground patrols, state-of-the-art remote monitoring, inspection digs and in-line inspection tools that look for the early signs of corrosion and check for unreported damage. As a result of these efforts, the Corporation recorded no failures in its gas line system during 2019-20, which exceeded the target of 0.07 failures per 1,000 kilometres per year. With respect to integrity capital spending in 2019-20, SaskEnergy met the target of $65.4 million, or 6.8 per cent of 2005 net book value, with total expenditures of $73.4 million or 7.63 per cent of 2005 net book value assets. This demonstrates the Corporation’s continued commitment to safety and integrity.
Financial Strength SaskEnergy preserves an adequate capital structure while providing reasonable financial returns to its holding company, CIC, and competitive rates to customers. The Corporation balances the interests of both CIC and its customers, while focusing on annual profitability and efficient operations with a long-term view on financial sustainability. SaskEnergy’s financial performance in 2019-20 reflected its proven commitment to safely deliver natural gas to its customers in Saskatchewan. Customer demand for natural gas was slightly higher than planned as weather was two per cent colder than normal. However, lower transportation and delivery rates were somewhat offset resulting in transportation revenue and delivery revenue being slightly below plan. SaskEnergy completed several large industrial customer projects during 2019-20, resulting in higher than expected customer contribution revenue. The Corporation continued to focus on operating efficiencies resulting in lower expenses than planned, primarily related to employee benefits and contract and consulting costs. SaskEnergy’s financial results were negatively impacted due to several losses that were recorded in 2019-20. As part of the continued effort to provide safe and reliable service to its customers, SaskEnergy began a project to expand storage capacity in the Regina area. During 2019-20, exploratory drilling and core analysis revealed geological issues at the chosen site; therefore, costs relating to seismic and test hole activity were written off. In addition, a permanent impairment loss was realized on natural gas inventory when it was determined that deliverability at one of the Corporation’s storage facilities was not able to produce all of the gas from the facility before the site’s planned decommissioning date. Capital investment levels during the year were managed as planned. Expansion of the natural gas system to meet customer demand and investment in the safety and integrity of the system were the key drivers for capital investment in 2019-20. SaskEnergy’s net income from operations was $66 million in 2019-20, slightly higher than planned. This resulted in consolidated return of average equity of 6.1 per cent, which is aligned to the target set for the year. The consolidated debt-to-equity ratio is 58 per cent debt and 42 per cent equity at March 31, 2020, which is within the target range of 58 to 63 per cent debt.
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