2015-16 SaskEnergy Annual Report

Engagement, Attraction and Retention of Skilled Employees With Saskatchewan’s changing economy, competition to attract and retain skilled employees has changed. This risk is still relevant because it is extremely important to have the right people in the right place at the right time. However, how this risk is managed and the effort required by management has changed. The Corporation has effective processes in place to manage turnover and is able to attract and retain a sufficient number of appropriately skilled, diverse and engaged people through its recruitment, hiring and training processes. The Corporation also conducts a quarterly succession planning assessment, utilizes a cross-training strategy, conducts employee engagement surveys and utilizes a leadership network. In addition, SaskEnergy monitors, and adjusts when appropriate, compensation and benefits as part of the job evaluation process, utilizing industry comparisons. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Corporation prepares its consolidated financial statements in accordance with IFRS, using the accounting policies described in Note 3 of the consolidated financial statements. The application of these accounting policies requires management to make a number of judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. These judgments, estimates and assumptions – which are based on historical experience and other factors that are considered relevant – are reviewed on an ongoing basis. The Corporation’s critical accounting policies and estimates — which could materially impact the Corporation’s consolidated financial statements — have been summarized below. Estimated Unbilled Revenue Commodity sales and delivery revenues are recognized when natural gas is delivered to customers. SaskEnergy estimates the volume of natural gas delivered but not billed, as it is currently impracticable to read all customer meters on March 31 of each year. As the AMI project continues to install meter-reading modules on natural gas meters, the reliance on the unbilled revenue estimate will decline. For meters without meter-reading modules installed, the volume of unbilled sales is determined by comparing the estimated total volume of natural gas delivered to the distribution system with the volume of natural gas billed to customers. Regular meter readings throughout the year are used to reconcile volumes purchased with volumes billed. At March 31, 2016, the unbilled revenue related to commodity sales and delivery revenue was $23 million. Net Realizable Value of Natural Gas in Storage Held for Resale The Corporation’s natural gas in storage is valued at the lower of weighted average cost and net realizable value. When determining the net realizable value, the Corporation uses quoted future market prices based on anticipated delivery dates, taking into account the Corporation’s existing natural gas contracts, ability to withdraw natural gas from storage and management’s intention. At March 31, 2016, the revaluation reduced the carrying amount of natural gas in storage by $34 million. A $1.30 per GJ, improvement in the differential between the weighted average cost and net realizable value would completely eliminate the $34 million revaluation. Fair Value of Financial and Derivative Instruments The Corporation uses natural gas derivative instruments to secure its supply of natural gas and manage the impact of natural gas price variability. Prior to settlement, SaskEnergy records all natural gas derivative instruments at fair value. The fair value is determined based on quoted market prices and takes into account the credit quality of both counterparties and the Corporation. Given fluctuations in natural gas prices, fair value adjustments vary throughout the length of the contract. At March 31, 2016, a $1.00 per GJ increase in natural gas prices throughout the forward curve would have increased the fair value of outstanding natural gas contracts by $60 million. Conversely, a decrease of $1.00 per GJ would have decreased the fair value of natural gas derivative instruments by $61 million. Useful Lives and Depreciation and Amortization Rates for Property, Plant and Equipment and Intangible Assets With a combined carrying amount of $2,125 million, property, plant and equipment and intangible assets constitute a significant component of the Corporation’s assets. As a result, changes in assumptions related to the calculation of depreciation and amortization may have a significant impact on SaskEnergy’s net income. As at March 31, 2016, a one-year decrease in the estimated service life of the Corporation’s capital asset base would have increased the Corporation’s depreciation and amortization by approximately $2 million. The Corporation’s property, plant and equipment and intangible assets are depreciated and amortized on a straight-line basis over the estimated service life of the asset. The estimated service lives are based on extensive studies with annual reviews for reasonability. Any changes in the estimated service life of assets are treated as prospective adjustments to depreciation and amortization.


Management’s Discussion & Analysis

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