SaskEnergy Second Quarter Report - September 30, 2022

Management’s Discussion and Analysis

Customer Capital Contributions The Corporation receives capital contributions from customers to partially offset the cost of constructing facilities to connect them to the transmission and distribution systems. Generally, contributions related to transmission system projects tend to be larger but less frequent than contributions related to the distribution system. The volume and magnitude of contribution revenue can significantly vary period-over-period, as various factors influence their receipt and recognition as revenue. Customer capital contributions were $3 million higher in 2022, resulting from developers in Saskatoon and Regina requiring more gas line installations in the distribution utility than in the six months ended September 30, 2021. Other Expenses SaskEnergy’s expenses are driven to a large degree by its investment in its transmission, distribution and storage systems. Depreciation and amortization expense, net finance expense and Saskatchewan taxes are directly tied to the investment in facilities. As the level of investment in facilities increases, these expenses also increase. Employee benefit expenses and operating and maintenance expenses are also driven by the Corporation’s investment in facilities, although less directly. As the number of customers increases and infrastructure to serve those customers grows, the costs to operate and maintain the system increases. These expenses increase primarily because the amount of work to service and maintain the natural gas system grows as the kilometres of gas lines, number of service connections and amount of compression equipment increases. Additional regulatory requirements and changing public perceptions have resulted in accelerated prevention, detection and mitigation initiatives, adding pressure to transmission, distribution and storage rates. Other expenses, net finance expenses and other (gains) losses, as reported in the condensed consolidated financial statements are as follows:

Three months ended September 30,

Six months ended September 30,

(millions)

2022

2021 Change 2022

2021 Change

$

24 44 31

$

51 89 62 11

Employee benefits

24 44 31

$

$

- - - -

$

51 85 61 10

$

-

(4) (1) (1) (3) (9)

Operating and maintenance Depreciation and amortization

7

Saskatchewan taxes

7

Impairment (Recovery) on trade and other receivables

1

1

-

(1) (1)

(2)

$

214 $

$

107 $

$

205

$

106

$

18

$

35

Net finance expenses

$

14

$

29

$

(6)

$

(4)

$

(1)

$

(1)

$

(1)

$

-

Other gains

$

(1)

$

-

Employee Benefits Demographics, coupled with post-covid employee expectations, are resulting in labour shortages and prolonged vacancies for many organizations. SaskEnergy is facing greater challenges with attraction and retention of personnel than historically experienced. The turnover rate, which is typically low, has increased to over 5%. In response, SaskEnergy is focusing on enhancing the employee experience by introducing hybrid remote work arrangements, improving versatility with benefits and strengthening the Corporation’s talent programs. Employee benefit costs in 2022 equal 2021, as the Corporation manages the impact of a tight labour market. Operating and Maintenance Operating and maintenance expenses were $4 million higher than in 2021, as growing demand and increasing natural gas imports from Alberta are resulting in more natural gas being transported and over greater distances. Vehicle and equipment operating costs are also higher in 2022, resulting from increasing fuel prices, but were partially mitigated by implementing additional scheduling efficiencies resulting in reduced vehicle and equipment costs.

10

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