Net Finance Expense Net finance expenses, before the impact of fair value adjustments, were $46 million in 2016-17 compared to $47 million in 2015-16. The increase in finance expenses that result from increased investment has been fully offset by lower interest rates. The low interest rate environment has allowed the Corporation to replace maturing long-term debt with lower-cost debt. Other expenses, net finance expenses before market value adjustments (MVA) and other (losses) gains, as reported in the consolidated financial statements, were as follows:
12 Months
12 Months
3 Months
15 Months
Ended March
Ended March
Ended March
Ended March
31, 2017 1
31, 2016 1
Change
31, 2015
31, 2016
(millions)
Employee benefits
$ 25
$ 115
$ 87
$ 90
$ (3)
Operating and maintenance
28
152
134
124
10
Depreciation and amortization
21
110
96
89
7
Saskatchewan taxes
3
15
12
12
–
77
392
329
315
14
Net finance expenses (before MVA)
9
56
46
47
(1)
Other (losses) gains
$ (3)
$ (3)
$ (33)
$ –
$ (33)
1 See note under table of Consolidated Net Income (loss) on page 27.
Other (Losses) Gains The current low natural gas price environment and general lack of optimism in the forward curve pricing for the natural gas commodity has adversely affected the economics for natural gas storage investments. As a result, SaskEnergy has recorded a $26 million impairment charge against its non-core storage facilities. Over the previous five years, non-core storage facilities have generated more than $65 million of profit; however, with the development of shale gas, the differentials between current and future prices of natural gas have disappeared. At March 31, 2017, the forward price of natural gas for delivery in March 2022 was $2.56 per GJ compared to $2.68 per GJ for gas delivered in April 2017, a negative differential of $0.12 per GJ. Five years ago, the price five years forward was $2.15 higher than the near month price at that time. Market conditions in 2012 allowed SaskEnergy to use its storage facilities to generate significant margins by purchasing gas in the spot market to be sold at the much higher prices in the future. Since then, forward price differentials have slowly diminished such that the current differentials are insufficient to support the book value of non-core storage assets. In addition to its storage assets, SaskEnergy has also recorded an impairment of $1 million on a waste heat recovery asset located at the Rosetown compressor station. Using advanced technology, the unit captures waste heat from gas compressor units to generate electricity. The Corporation has a power purchase agreement with SaskPower to sell electrical energy; however, electricity generated by the waste heat recovery unit has been consistently lower than original expectations. Through an assessment of its recoverable amount from future operations, it was determined that the estimated recoverable amount is less than the net book value of the waste heat recovery unit.
LIQUIDITY AND CAPITAL RESOURCES
12 Months
12 Months
3 Months
15 Months
Ended March
Ended March
Ended March
Ended March
31, 2017 1
31, 2016 1
Change
31, 2015
31, 2016
(millions)
Cash provided by operating activities
$ 89
$ 347
$ 225
$ 258
$ (33)
Cash used in investing activities
(31)
(241)
(198)
(210)
12
Cash used in financing activities
(53)
(100)
(37)
(47)
10
(Decrease) increase in cash and cash equivalents
$ 5
$ 6
$ (10)
$ 1
$ (11)
1 See note under table of Consolidated Net Income (loss) on page 27.
33
2016-17 ANNUAL REPORT SASKENERGY
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