Capital Expenditures
Capital expenditures during 2016-17 of $198 million were lower than in prior years due in part to a slowdown in provincial economic growth. Slower economic growth has reduced the requirements for new facilities and also reduced the cost of building new infrastructure. SaskEnergy has continued its focus on upgrading its aging infrastructure. Capital expenditures of $54 million on these programs were comparable to expenditures of $55 million during the previous 12-month period. Of the current year expenditures, $23 million was spent on pipeline protection, inspections, modifications and repairs. The Corporation allocated $18 million to service tee upgrades in urban and rural communities and $13 million was incurred for the renewal or replacement of other major infrastructure facilities. In addition to these integrity expenditures, investments in compression assets of $12 million facilitated the revitalization of operations at Success and Unity as well as additions to the mobile compressor fleet. The Corporation is also developing a fleet of skid mounted compressors that have more capacity than trailer mounted mobile compressors and will be used at key locations for pipeline compression and storage injection.
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Dec. 2013 Dec. 2012 12 months ending
Dec. 2014
Dec. 2015
Mar. 2016
Mar. 2017
OUTLOOK Factors that are expected to affect SaskEnergy in the near future include the growth of the provincial economy, a declining supply of natural gas in the province resulting in increased reliance on imported natural gas, and rising customer expectations for safe, reliable natural gas services. Assuming normal weather conditions through 2017-18, net income before market value adjustments is expected to be approximately $91 million, an increase of $21 million over the 2016-17 actual result. The increase is primarily due to the return to normal weather as 2016-17 was seven per cent warmer than normal. Continued expenditure restraints are expected to limit cost increases in 2017-18. In close alignment with Crown Sector Strategic Priorities and the Saskatchewan Plan for Growth, SaskEnergy will continue to focus on the four strategic mandates: Service Excellence, Achieving Growth, Our Team and Creating Value. Projected provincial economic recovery will drive continued growth in demand for natural gas as major customers in potash production, enhanced oil recovery, and natural gas power generation expand operations through 2017-18. The continued growth in natural gas demand combined with declining conventional gas production means that more gas will be imported or acquired from gas production associated with oil production. This shift in source of supply, together with an aging pipeline system, will require incremental investments in pipeline facilities. SaskEnergy is projecting to invest more than $750 million over the next three years. This additional investment will be primarily funded through cash from operations, with an additional $300 million to be financed with incremental long-term debt. The additional load growth will generate more revenue for the Corporation; however, the investment in infrastructure will also increase operating costs and put pressure on delivery and transportation rates. The Corporation continues to work with other Crown corporations, and other business enterprises, to investigate technological solutions to more efficiently serve customers and maintain facilities. Since 2009, SaskEnergy has achieved $42 million of operating efficiency savings and another $4 million has been targeted for 2017-18. Operating Expenses As the number of customers increases, the natural gas pipeline infrastructure required to serve those customers grows, and the cost of operating the pipeline system rises. Generally, the addition of new customers and load reduces the average cost to serve customers, so costs do not rise at the same rate as the expansion of the system. However, as the pipeline and distribution system continues to age, and supply shifts from conventional Saskatchewan production to associated gas production and Alberta supply, additional investments are required that do not generate additional revenue. Expenditures to address safety and system integrity do not increase revenues and therefore add pressure to utility rates. Consequently, the average cost of serving customers is expected to rise. Depreciation expense and finance expense are expected to rise by $10 million as a direct result of capital expenditures, while operating expenses (employee benefits and operating and maintenance) are expected to rise by $7 million even with projected efficiency savings of $4 million in 2017-18. The cost increases are primarily due to rising third-party transportation costs related to importing natural gas to meet growing load requirements.
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2016-17 ANNUAL REPORT SASKENERGY
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