Other Expenses
Other expenses consist of employee benefits, operating and maintenance, depreciation and amortization, and Saskatchewan taxes. With strong growth in the provincial economy in recent years, the Corporation has experienced significant growth in its customer base and pipeline facilities. The increasing investment in facilities directly affects depreciation and amortization and corporate capital taxes. Other expenses of $152 million in 2015 represent a slight increase of $5 million over the same period in 2014, reflecting the Corporation’s continued focus on improving operating cost efficiencies. For the second quarter of 2015, other expenses of $75 million were $1 million above 2014 with the primary driver for both being an increase in depreciation and amortization combined with cost increases to transport additional gas into Saskatchewan to meet growing demand.
Net Finance Expenses
Net finance expenses, before the impact of fair value adjustments, were $21 million in 2015 compared to $22 million in 2014. Decreasing interest expense is a direct result of increased earnings on debt retirement funds, partially offset by the higher debt financing needed to fund the Corporation’s growing capital expenditure requirements. There was also a $3 million unfavourable fair value adjustment on debt retirement funds during 2015, an outcome of increased interest rates on fixed-rate investments. On a quarterly basis, net finance expenses of $12 million, before the impact of fair value adjustments were slightly above 2014 due to increased levels of debt.
Other (Losses) Gains
Recent changes in the oil and gas market have led to declining natural gas and natural gas liquid prices, which have adversely affected cash flows generated from gas processing plant assets. A $3 million impairment on gas processing plant assets was recorded in the first quarter of 2015 to recognize the impact of a decline in natural gas liquid prices on its value in use. This contrasted the $3 million gain recorded in the second quarter of 2014 for the sale of storage and distribution assets.
LIQUIDITY AND CAPITAL RESOURCES
Three months ended June 30
Six months ended June 30
(millions)
2015
2014 Change
2015
2014 Change
Cash provided by operating activities Cash used in investing activities Cash used in financing activities (Decrease) increase in cash and cash equivalents
$
80
$
93
$
(13)
$
169
$
173
$
(4)
(44) (45)
(50) (35)
6
(75) (98)
(80) (79)
5
(10)
(19)
$
(9)
$
8
$
(17)
$
(4)
$
14
$
(18)
Cash from operations and debt borrowed from the Province of Saskatchewan’s General Revenue Fund are the primary sources of liquidity and capital for SaskEnergy. Sources of liquidity include Order in Council authority to borrow up to $400 million in short-term loans. The Corporation holds a $35 million uncommitted line of credit with the Toronto-Dominion Bank. Over the longer term, The SaskEnergy Act allows the Corporation to borrow up to $1,700 million. Cash from operating activities was $169 million in 2015, a decrease of $4 million from the first six months of 2014. This is due to lower volumes sold to customers and lower delivery service revenue, both due to the near normal weather in 2015 compared to the extreme weather in 2014. This was partially offset by a higher commodity rate in 2015 increasing cash flow compared to 2014. The decline in natural gas prices continues to limit the Corporation’s gas marketing activities. The volume of gas marketing natural gas in storage declined by 4 PJ from year end as existing sales contracts were settled, contributing to cash from operating activities. Cash used in investing activities totaled $75 million for the first six months, $5 million below 2014. The majority of the capital investment was focused on $30 million of system expansion and growth initiatives, which are a result of Saskatchewan residential and industrial growth, as well as safety and integrity programming of $31 million, a sign of the Corporation’s ongoing commitment to a safe, reliable system. The Corporation funds its high level of capital requirements with cash from operations and debt from the Province of Saskatchewan.
10
2015 SECOND QUARTER REPORT
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