MANAGEMENT’S DISCUSSION AND ANALYSIS
Useful Lives and Depreciation and Amortization Rates for Property, Plant and Equipment and Intangible Assets With a combined carrying amount of $2,494 million, property, plant and equipment and intangible assets constitute a significant component of the Corporation’s assets. As a result, changes in assumptions related to the calculation of depreciation and amortization expense may have a significant impact on SaskEnergy’s net income. At March 31, 2019, a one-year decrease in the estimated service life of the Corporation’s capital asset base would have increased the Corporation’s depreciation and amortization expense by approximately $2 million. The Corporation’s property, plant and equipment, and its intangible assets are depreciated and amortized on a straight-line basis over the estimated service life of the asset. The estimated service lives are based on periodic depreciation studies with annual reviews for reasonability. Any changes in the estimated service life of assets are treated as prospective adjustments to depreciation and amortization. A depreciation study was conducted and implemented effective April 1, 2018. Depreciation useful lives were extended for transmission lines from 50 years to 60 years resulting in a reduction of current year depreciation. The reduction of useful lives for distribution meters from 32 years to 25 years is resulting in a small offsetting increase in depreciation expense for 2018-19. Estimated Unearned Customer Capital Contributions, Contract Liabilities and Refund Liabilities Customer capital contributions, related to the construction of new, customer-specific service connections, are initially recognized as contract liabilities until the related property, plant and equipment are available for use. The Corporation’s customer capital contributions, particularly those related to the transmission system, are often subject to refunds over a certain period. Consequently, when the related property, plant and equipment are available for use, an estimate of the potential refund is recorded as a liability until the refund period has passed. At March 31, 2019, the Corporation estimated $16 million of contract liabilities, where the customer has paid a customer capital contribution in advance of construction and the related facilities are not yet available for use. The Corporation estimated $8 million in refund liabilities,
where the customer’s facilities are in service and a refund may be available to the customer depending on the amount of natural gas the customer actually flows compared to what was estimated at contract inception. Estimated Future Costs of Decommissioning Liabilities The Corporation determines its obligations, legal and constructive, for the future costs of decommissioning certain natural gas facilities by estimating both the associated costs and timing of the necessary cash flows. The timing of future decommissioning is conditional upon the Corporation’s anticipated ongoing use for these facilities, while future decommissioning costs are estimated based on the Corporation’s experience and presented on a discounted basis. At March 31, 2019, the Corporation’s provisions were estimated at $200 million. A one per cent increase in the discount rates used to determine the provisions would have resulted in a $65 million decrease in provisions at the end of March 31, 2019. A one per cent decrease would have resulted in a $73 million increase. ACCOUNTING POLICY CHANGES New and amended standards, such as IFRS 15 Revenue From Contracts With Customers and issued by the International Accounting Standards Board (IASB), became effective April 1, 2018. In addition, the Corporation early adopted IFRS 9 Financial Instruments effective April 1, 2017. The impact of the adoption of these standards has been discussed in Note 3 of the Corporation’s consolidated financial statements. The IASB has issued new and amended standards that will become effective in future periods. Details on future changes in accounting policies are provided within Note 3 of the consolidated financial statements.
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