Delivery Revenue
SaskEnergy Incorporated First Quarter Report The warmer weather through the first three months of 2016-17 decreased delivery volumes and revenue compared to 2015.Delivery revenue is not expected to improve significantly until colder weather in November drives the heating load. Consequently, 2016-17 financial results will be highly dependent on winter weather conditions through the third and fourth quarters. The pace of Saskatchewan’s provincial economy and residential customer growth is expected to remain subdued through 2016-17. Customer connection levels are expected to decline in comparison to recent years while industrial and commercial demand for service is expected to continue at strong levels. The 4.5 per cent delivery rate increase effective January 1, 2016 will result in increased delivery revenue relative to prior years. March 31, 2011 During the first quarter, the Corporation submitted an application to the Saskatchewan Rate Review Panel for an average rate increase of 8.6 per cent effective November 1, 2016. Regular delivery service rate increases are required to offset cost pressures related to maintaining a safe and reliable distribution system and an industry standard rate of return. The Corporation will also continue to focus on efficiencies that will offset cost pressures to ensure delivery service rates remain competitive. The commodity rate decrease will more than offset the increase to the delivery service rates such that customers will see an overall reduction on their bills.
Transportation Revenue
Transportation and storage service rate increases implemented effective January 1, 2016 will result in higher transportation and storage revenue. This is required to address increasing capital and operating costs related to increased focus on system integrity, emergency response, public awareness and the increasing cost of importing natural gas supply from Alberta. During the first quarter, Alberta border capacity has operated at 90 per cent of capacity as customers maximize purchases of natural gas and storage injections. A corresponding increase to revenue has not been realized as customers have transported much of the incremental volume of gas on their firm contracts. Increased demand to import gas from Alberta is expected to continue as market prices are expected to fall again once Alberta storage fills in August.
Other Expenses
The economic downturn in the Province has driven SaskEnergy to put even more focus on austerity during 2016. The cost reductions realized during the first quarter are indicative of the efforts that SaskEnergy will make to contain costs through the remainder of the year. Additional cost savings may be achievable as SaskEnergy continues to focus efficiencies through collaboration with other Crown Corporations, business process changes and technology initiatives. The economic downturn may create favourable pricing and availability among many suppliers and contractors. This would present opportunities for SaskEnergy/TransGas to effectively manage capital and operating projects in the near term to realize long-term savings. The Corporation is expecting staffing levels to remain consistent through 2016. Leveraging efficiency and productivity initiatives, SaskEnergy will continue to meet the Province’s growing natural gas requirements as fiscal constraint measures continue during the economic downturn.
Capital Investment
SaskEnergy will continue to focus its efforts on providing safe and reliable service to customers while managing rate pressure. Spending will focus on upgrading infrastructure to meet industrial customer’s load growth, new service requirements, as well as the integrity of transmission, distribution and storage systems. The Corporation is forecasting to spend $292 million on capital expenditures ($249 net of capital customer contributions) for the 12 months ending March 31, 2017. These capital expenditures will be funded through operating cash flows and debt 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 forecasting income before unrealized market value adjustments of $77 million for 2016-17.
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2016-17 FIRST QUARTER REPORT
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