MANAGEMENT’S DISCUSSION AND ANALYSIS
Depreciation and Amortization Balancing safety and system integrity with the growing demand for service continued through 2018-19. Strategic capital investments required to ensure the necessary infrastructure is in place to meet increasing load growth has increased the capital asset base, resulting in increased depreciation and amortization. This was offset by lower depreciation resulting from changes made to depreciation rates based on the recommendations from an external depreciation study. Effective April 1, 2018, depreciation expense decreases for distribution services, mains and natural gas transmission lines were recorded. The decrease was primarily due to extending the useful lives of natural gas transmission lines, slightly offset by increased depreciation due to a decrease in the useful lives of distribution meters. In 2018-19, depreciation and amortization was $99 million, $1 million lower than the same period in 2017-18. Net Finance Expense Net finance expenses were $52 million in 2018-19 compared to $48 million in 2017-18. The increase in finance expenses that resulted from increased investment was partly offset by lower interest rates. The low interest rate environment has allowed the Corporation to LIQUIDITY AND CAPITAL RESOURCES As a Crown corporation, SaskEnergy’s primary sources of capital are cash from operations, debt — which is borrowed through the province’s General Revenue Fund — and equity advances from CIC, the Province’s Crown corporation holding company. Equity advances are rarely used to finance Crown corporations as CIC prefers to use its Subsidiary Crown Dividend Policy to manage its equity interests in its commercial enterprises. Cash from operations is SaskEnergy’s most important source of capital. As a utility, cash from operations is relatively stable and the Corporation relies on it to fund dividends, debt servicing costs, and a significant proportion of its investment in natural gas facilities. Long and short-term debt can be borrowed through the
replace maturing long-term debt with lower cost debt. Effective April 1, 2017, the Corporation early adopted IFRS 9 Financial Instruments . Under the new financial instruments standard, debt retirement funds are classified as fair value through other comprehensive income. As a result, any market value adjustments associated with debt retirement funds no longer impact net income as they are recorded in other comprehensive income. Other Gains and Losses Other gains of $11 million for the 12 months ending March 31, 2019 were $24 million higher compared to the loss of $13 million for the same period in 2017-18. Effective October 1, 2018, the Corporation sold its two natural gas liquid extraction plants, which were accounted for in its Bayhurst Energy Services Corporation (BESCO) subsidiary. One of the facilities was recorded as assets held for sale at March 31, 2018. The sale resulted in an impairment reversal of $13 million and was partially offset by losses on other asset sales and other impairments. In 2017-18, the Corporation recorded impairments of $25 million on its natural gas liquid extraction facilities, offset by a net impairment recovery of $9 million on its non-core storage assets. Insurance proceeds of $2 million were also recorded in the prior year. Province of Saskatchewan to meet any long or short- term incremental capital requirements, and to repay debt as it matures. Sources of liquidity include Order in Council authority to borrow up to $500 million in short- term loans, and a $35 million uncommitted line of credit with the Toronto-Dominion Bank. By borrowing through the Province, SaskEnergy has access to the Province’s borrowing capacity and North American capital markets. Throughout 2018-19, The SaskEnergy Act allowed the Corporation to borrow up to $1,700 million. Cabinet approval to change the act and revise the Corporation’s borrowing capacity to $2,500 million was granted subsequent to March 31, 2019 and the Corporation will have access to the increased borrowing limit in 2019-20.
(millions)
March 31, 2019
March 31, 2018
Change
$
280 (271) -
$
312 (258) (58)
$
(32) (13) 58
Cash provided by operating activities Cash used in investing activities Cash used in financing activities
$
9 $
Increase/(decrease) in cash and cash equivalents
(4) $
13
30
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