2004 Crown Investments Corporation of Saskatchewan Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS2004 ResultsEarnings were $108.7 million 1 (2003 - $40.9 million).Revenue of $317.4 million (2003 - $312.9 million) was higher due to increased transportation volumes.Operating expenses were $247.3 million (2003 - $244.6 million).SaskEnergy incurred a gain on commodity sales of $37.8 million (2003 - $27.3 million loss).Debt was $754.5 million (2003 - $772.9 million). The decline was primarily due to improved earnings whichallowed SaskEnergy to repay a portion of its short-term debt.Capital spending of $67.8 million (2003 - $79.1 million) was primarily for new customer connections,supporting pipeline and storage system expansion and pipeline integrity programs.SaskEnergy’s commodity rate to its customers was among the lowest of the provincial utilities.Net new customer additions to the distribution system were 2,082 (2003 - 1,783).The transmission pipeline system throughput increased by one per cent compared to 2003.Debt ratio of 68 per cent (2003 - 72 per cent).Rate of return on equity of 33 per cent (2002 - 14 per cent).Dividend declared to CIC of $70.0 million (2003 - $26.7 million).Earnings ($ millions)Debt ($ millions)Capital Spending ($ millions)1251007550250108.740.92004 20038006004002000754.5 772.92004 200310080604020067.8200479.120032005 OutlookThe outstanding balance of $25.1 million in the Gas Cost Variance Account at the end of 2004 will continue to berecovered in 2005.TransGas Ltd., SaskEnergy’s natural gas transmission subsidiary, implemented an average 3.4 per cent reductionto service rates for 2005.TransGas is developing a new storage project near Asquith which will serve the needs of a growing demand inthe Saskatoon area.SaskEnergy does not anticipate any change to distribution delivery rates in 2005. Rates for delivery service havenot changed since 1997.Key Factors Affecting PerformanceWeather: a one per cent change in winter temperature affects net income by approximately $0.7 million (warmerweather decreases revenue, colder weather increases revenue).Energy conservation efforts by customers are expected to continue to reduce consumption.Volatility of natural gas prices.Energy transported on the transmission system can be affected by the level of natural gas production inSaskatchewan and demand for natural gas within the province.1Changes in Accounting Policy: SaskEnergy adopted the new accounting standard for asset retirement obligations effective January 1, 2004which was required to be applied retroactively. Net impact was a $0.1 million decrease to earnings and a $0.9 million increase to closingequity in 2003. CIC adopted this policy effective January 1, 2003. As such, for consolidation purposes, CIC records SaskEnergy’s net income$0.9 million higher than SaskEnergy.C I C52