translated into lower distribution and transmission customer connections in 2016-17 compared to 2015-16. Also, customer capital contribution revenue in 2015-16 includes the impact of changing the estimate of deferred transmission customer contributions. During 2015-16, the Corporation refined its estimates of the amount of contribution deferred for potential refund. The new estimate is based on the customer’s requested delivery capacity rather than management’s estimate of customer’s future delivery, and is considered a more reliable estimate of the amounts likely to be refunded. Other Revenue Other revenue primarily consists of gas processing fees and natural gas liquids sales from two natural gas liquids extraction plants. Compression and gathering service revenue and royalty revenues comprise the remaining balance of other revenue. Royalty revenues are generated from a gross overriding royalty on several natural gas-producing properties in Saskatchewan and Alberta, which have diminished due to the continuing decline of conventional natural gas production and as a result of low natural gas prices. Other revenue of $10 million for the 12 months ending March 31, 2017 was $2 million lower than 2015-16, a result of lower throughput on gas processing plants. Other Expenses SaskEnergy’s expenses are driven to a large degree by its investment in its transmission, distribution and storage systems. Depreciation expense, net finance expense and Saskatchewan taxes are directly tied to the investment in facilities. As the level of investment in pipeline facilities increases, these expenses also increase. Employee benefit costs and operating and maintenance costs are also driven by the investment in assets, though 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 pipeline system increases as the kilometres of pipeline, number of service connections, and compression equipment increases. The cost of maintaining the safety, integrity and reliability of the Corporation’s transmission, storage and distribution systems increases with the age of the pipeline system and adds pressure to transmission, distribution and storage rates. Employee Benefits Investments in technology, such as the customer service information system, AMI and work management systems, as well as streamlining business process have helped to reduce staffing levels and overtime, resulting in an overall reduction in employee benefit costs. These initiatives, together with a significant one-time effort to manage with fewer people in support of restraint measures, resulted in employee benefit costs of $87 million, almost $3 million lower than in 2015-16. Operating and Maintenance Integrity expenditures and higher third-party pipeline transportation charges to bring gas into Saskatchewan to meet growing load requirements and declining Saskatchewan production resulted in an increase in operating and maintenance expenses to $134 million in 2016-17, $10 million higher than in 2015-16. SaskEnergy was able to mitigate the impact of higher integrity expenditures and transportation charges through continued efficiency efforts and both short- and longer-term cost saving measures. This resulted in reduced costs for vehicles and equipment, consulting fees, travel, non-safety related training, and advertising. One of the primary efficiency initiatives has been the implementation of a mobile compression strategy. Beginning in 2010, the Corporation began replacing its aging fleet of natural gas compressors with new energy efficient mobile compressors. These units use energy efficient technology to reduce fuel consumption and emissions, and are mounted on trailers so that they can be easily relocated throughout the system depending on where additional compression is required. In 2014, SaskEnergy began implementing AMI technology, which collects customer consumption information electronically, thereby eliminating the need to manually read customer meters and estimate customer consumption for the purpose of billing. Depreciation and Amortization The Corporation continues to balance safety and system integrity with the growing demand for service. Strategic capital investments to meet customer requirements and replace aging infrastructure have increased the capital base resulting in increased depreciation and amortization. In 2016-17, depreciation and amortization was $96 million, $7 million higher than the same period in 2015-16.
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Management’s Discussion & Analysis
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