Cash used for financing activities was $53 million during the first quarter of 2015. With the cold weather, the Corporation provides service to customers to meet their high natural gas consumption, resulting in high revenue and cash flows in the first quarter. This increase in cash flow contributes to reducing short term debt outstanding at the end of March 2015. In addition, given the Corporation’s relatively high short-term debt balances and attractive interest rates on long-term debt, the Corporation converted $62 million of its short-term debt to long-term debt during the first quarter of 2015 at an effective interest rate of 2.7%. SaskEnergy’s debt ratio at the end of the period was 60%, slightly lower than December 31, 2014 and slightly higher than the Corporation’s long-term target of 57%. OUTLOOK In close alignment with Saskatchewan Crown Sector Priorities and the Saskatchewan Plan for Growth, SaskEnergy’s 2015 efforts will continue to focus on the four strategic mandates: Service Excellence, Achieving Growth, Our Team and Creating Value. The Corporation is financially well-positioned to achieve its business objectives in 2015 and over the five-year planning horizon. Currently, 2015 is characterized by a forward pricing curve for natural gas that shows very little differential between current market prices and future market prices, which is good for customers and large consumers of natural gas who value stability and low prices. The $4.84 per GJ commodity rate approved on July 1, 2014, combined with a lower average cost of gas, due to declines in market prices, will continue to provide more favourable margins on commodity sales in 2015 and reduce the GCVA owing from customers. The Corporation’s gas marketing activities are not expected to provide the margins that were typical prior to 2014 when traditionally volatile natural gas prices allowed for price arbitrage transactions to be undertaken at relatively high margins. The gas marketing margin expected in 2015 is forecast to be slightly higher than the 2014 margin based on market conditions at the end of 2014. SaskEnergy will continue to look for opportunities throughout the year to extract additional value out of gas markets by leveraging its assets and expertise. The Corporation expects to see the pace of Saskatchewan’s economy slow to moderate levels in 2015 as commodity prices are not expected to recover significantly before the end of the year. In light of this, SaskEnergy has tempered its expectations for customer connection rates to levels closer to the ten year average. These lower expectations mean that delivery revenue growth will decline due to slower customer growth, compounded by reduced customer consumption due to increasing energy efficiency. Residential customer capital contributions have declined and are forecasted to be lower than 2014. Industrial and commercial demand for service is expected to continue at strong levels and exhibit steady growth through 2015, which will slightly mitigate the declines related to residential customers. The heightened focus on security of natural gas supply and the need to look at cost effective options for sourcing that supply will continue in 2015. Saskatchewan production levels for conventional natural gas have been in steady decline for the past several years and are expected to remain at current levels going forward. As major industrial projects come on line, load pressures will increase and operating costs to meet those loads will continue to increase, though not to the same degree as in 2014. Third party transportation expenses, which were the key driver of higher operating costs in 2014, will decrease in 2015 as the investment in the Bayhurst to Rosetown pipeline will assist in managing third party transportation requirements. The outlook for labour markets and contractor demand are unclear given the downturn in the provincial economy. The Corporation will continue pursuing its resourcing strategy which calls for relatively stable employee levels augmented by third party contract resources. In addition, efficiency initiatives will enhance productivity and will allow SaskEnergy to meet its business commitments in a nimble and cost effective manner with a focus on cost savings in employment, contract and consulting and vehicle costs. SaskEnergy will continue to focus its efforts on providing safe and reliable service to customers without creating undue rate pressure. Spending will focus on upgrading infrastructure to meet load and service requirements, as well as the integrity of transmission, distribution and storage systems. The 2015 capital plan also includes funding for growth-related projects such as gas processing and associated gas capture. The Corporation has spent $30 million on capital projects in 2015 and plans to spend a total of $238 million on capital investment in 2015, which will be funded through operating cash flows and debt which will be made available through the Province at what are expected to be historically low interest rates.
In summary, SaskEnergy will continue to focus on investing in safety and growth initiatives and realizing efficiencies while targeting an income before unrealized market value adjustments of $73 million in 2015.
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2015 FIRST QUARTER REPORT
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