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April 19, 2005 - Strong Operational Year For SaskEnergy; GCVA Accounting Treatment Impacts Earnings

April 19, 2005

Strong Operational Year For SaskEnergy;
GCVA Accounting Treatment Impacts Earnings

SaskEnergy's annual report was tabled in the Saskatchewan legislature today. "In 2004, SaskEnergy enjoyed a strong operational year while delivering competitive rates to its distribution and transmission customers," Minister responsible for SaskEnergy Harry Van Mulligen said. "The necessary accounting treatment of commodity sales continues to produce wide variability in SaskEnergy's annual earnings, repeating the pattern of 2002 and 2003."

The annual report shows a net income of $108 million and a dividend to the Crown Investments Corporation of $70 million. The net income breaks down into the following components:

  • $33 million from consolidated core operations, including the distribution and transmission companies that provide Saskatchewan people with safe and reliable natural gas service. For the eighth consecutive year, SaskEnergy offered either the lowest or second lowest rates in Canada, with no rate changes in 2004. The TransGas transmission utility continues to benefit from high historical drilling levels and volumes moved on the system, which helped afford two transmission rate decreases during the year. Saskatchewan remains one of the few jurisdictions in North America where natural gas production is increasing.
  • $37 million in net income from non-core operations involving activities from customers outside Saskatchewan. These business initiatives include using non-peak capacity in the pipeline network when not required by core customers and decommissioning and rationalizing gas from a storage facility near Meadow Lake.
  • $38 million in gains resulting from the accounting treatment of commodity sales to distribution customers. The gains in 2004 partially offset losses incurred in 2002 and 2003 when SaskEnergy protected customers from high commodity prices. Like utilities in other jurisdictions, SaskEnergy designs its commodity rate so that over the long term customers pay only the actual cost of gas.

SaskEnergy tracks differences between constantly changing market prices and its periodically changing rates so that over time, as per Canadian standard practice, the corporation can sell gas to its customers at cost. These differences are tracked through the Gas Cost Variance Account (GCVA), which is monitored by the Provincial Auditor, so that they can be factored into future rates. The latest rate increase recommended by the Saskatchewan Rate Review Panel in summer 2003 was expected to produce this relative magnitude of gain in SaskEnergy's financial statements for 2004.

It should be noted that only $33 million of the net income was generated from rates that SaskEnergy and TransGas customers pay, with the additional $37 million coming from out-of-province customers. This operational performance is very similar to 2003. The predominant reason for the extreme variability in profits from $41 million in 2003 to $108 million in 2004 is largely the result of the required accounting treatment of commodity sales.

Other highlights from the year include:

  • Ongoing profitability for SaskEnergy International's two equity investments in Chile and Mexico and positive net income from the Heritage Gas distribution utility in Nova Scotia; and,
  • Continuing debt reduction for SaskEnergy as it strives to meet its 65/35 debt-to-equity target.

"SaskEnergy's strong financial performance is due to its dedicated, hard-working employees, who serve their communities everyday," Van Mulligen said. "It is this spirit that will help SaskEnergy meet the challenges of today, and continue to play a vital role in the growth of our economy and our province."

For more information, contact:

Ron Podbielski
Phone: (306) 777-9432