Customer Capital Contributions
SaskEnergy Incorporated First Quarter Report 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 customer contribution revenue can vary significantly period-over-period as various factors influence their receipt and recognition as revenue. The contributions received, less potential refunds, are recognized as revenue once the related property, plant and equipment is available for use. Customers may earn a refund of some or all of the contributions they make depending on how much gas they flow. The amount of contributions that are likely to be refunded are estimated and recorded in deferred revenue until the eligible refund period expires or a refund is earned by the customer. Customer capital contribution revenue of $2 million for the three months ending June 30, 2016 was equal to the same period last year. March 31, 2011
Other Revenue
Other revenue primarily consists of gas processing fees and natural gas liquid sales from two natural gas liquid extraction plants. Compression and gathering service revenue and royalty revenues comprise the remaining balance of other revenue. Royalty revenues are generated from a gross overriding royalty on several natural gas-producing properties in Saskatchewan and Alberta, which have diminished due to the continuing decline of conventional natural gas production, a result of low natural gas prices. Other revenue of $2 million for the three months ending June 30, 2016 was $1 million lower than 2015, a result of lower compression and gathering revenue.
Other Expenses and Net Finance Expense (before FVA)
Other expenses and net finance expense, as reported in the condensed consolidated financial statements, are as follows:
June 30 Three months ended
(millions)
2016
2015 Change
Employee benefits
$
21 30 23
$
23 29 21
$
(2)
Operating and maintenance Depreciation and amortization
1 2
Saskatchewan taxes
2
2
-
Other Expenses
$
76
$
75
$
1
Net finance expense (before FVA)
$
11
$
12
$
(1)
Increasing investment in safety and integrity, strong customer growth and the need to import more natural gas from Alberta, as Saskatchewan natural gas production declines, are key factors contributing to increases in other expenses. Employee benefits expense of $21 million is $2 million lower than prior year as the Corporation was able to manage vacant positions, through efficiency initiatives while generating cost savings. Overtime was reduced through collaboration with other Crown corporations and third parties, plus a continued focus on efficiencies. Operating and maintenance expense of $30 million was comparable to prior year, with a slight increase in third party transportation costs as customers continue to require additional cross border transportation capacity to bring gas in from Alberta. This was almost fully offset by cost savings in contract and consulting, material and supplies, vehicle and advertising costs. Depreciation and amortization of $23 million was $2 million above prior year as capital additions increase the asset base and depreciation and amortization. Saskatchewan taxes of $2 million equal the prior year. Net finance expenses, before the impact of fair value adjustments, were $11 million for the three months ending June 30, 2016 and were $1 million lower than 2015. Long-term debt levels remain consistent with prior year, while lower interest rates allowed the Corporation to replace higher cost long-term debt with lower cost long-term debt as it matures. There was a $3 million favourable fair value adjustment on debt retirement funds during 2016, an outcome of lower interest rates on fixed-rate investments.
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2016-17 FIRST QUARTER REPORT
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