Employee Benefits Employee benefits of $91 million for the 12 months ended December 31, 2015 were $1 million below 2014. Weather was a factor that greatly affected operations in 2014, but had minimal negative impact in 2015. Employee overtime in 2015 was substantially lower than 2014 primarily due to the return to less severe operating conditions. In addition, by managing vacancies and continued focus on efficiency, the Corporation operated with 14 fewer full-time equivalents in 2015 compared to 2014. A freeze on management wage increases during 2015, part of austerity measures implemented by the Province, also contributed to the improvement in employee benefit costs. Employee benefits were $24 million for the three months ended March 31, 2016, which is slightly lower than normal. The Corporation continues to actively manage vacant positions and overtime requirements while continuing to identify and implement efficiency initiatives. Operating and Maintenance SaskEnergy’s focus on improving operational efficiency has allowed it to provide reliable high quality service to customers while reducing operating and maintenance costs from $126 million in 2014 to $118 million for the 12 months ended December 31, 2015. By strategically prioritizing maintenance programs, collaborating with Crown and industry partners, and implementing a number of temporary austerity measures, the Corporation reduced operating and maintenance expenses by $4 million. Specific areas for focused cost management included travel and non-safety related training, consulting fees, advertising, materials and supplies. In contrast, the cost of moving gas on other pipeline systems continued to increase during 2015 as additional pipeline capacity was required to bring gas into the province from Alberta. Operating and maintenance expenses were $34 million for the three months ended March 31, 2016, a slight increase compared to normal as third-party transportation costs and safety and integrity programs continue to increase. Depreciation and Amortization The Corporation continues to balance safety and system integrity in an environment of growing demand for service. Strategic capital investments to meet customer requirements and replace aging infrastructure have increased the capital asset base, resulting in additional depreciation and amortization. For the 12 months ended December 31, 2015, depreciation and amortization of $87 million was $4 million higher than 2014, a result of capital additions to the transmission and distribution systems. Depreciation and amortization was $23 million for the three months ended March 31, 2016, a slight increase compared to prior years, resulting from additional capital investment. Net Finance Expenses Net finance expenses, before the impact of fair value adjustments, were $46 million for the 12 months ended December 31, 2015 compared to $44 million in 2014. Higher earnings on debt retirement funds were fully offset by the higher debt financing needed to fund the Corporation’s capital expenditures. There was also a $3 million unfavourable fair value adjustment on debt retirement funds during 2015, an outcome of higher interest rates on fixed interest rate investments. Net finance expenses, before the impact of fair value adjustments, were $10 million for the three months ended March 31, 2016 as there were no changes to the debt structure. There was also a $1 million favourable fair value adjustment on debt retirement funds during the first three months of 2016. Other (Losses) Gains Recent increases in oil production and related natural gas liquid by-products have led to declining natural gas and natural gas liquid prices, which have adversely affected cash flows generated from the Corporation’s natural gas liquid extraction plant assets. Temporary impairment losses on natural gas liquid extraction plant assets of $3 million were recorded in each of the first quarter of 2015 and the fourth quarter of 2014 to recognize the impact of declining natural gas liquid prices on an asset’s value in use. The 2015 impairment loss and $2 million of losses on other asset disposals were offset by $5 million of insurance proceeds relating to Prud’homme and Landis incidents that occurred in prior years. The Prud’homme insurance proceeds were disclosed as a contingent asset in the December 31, 2014 consolidated financial statements. In March 2016, a $3 million impairment adjustment was recorded 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.
Management’s Discussion & Analysis
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