Saskpower shows $205M profit despite decline in consumption
Saskpower is bracing for a revenue hit as the COVID -19 pandemic takes a bite out of electricity sales, and there’s still no word on whether rates will go up to cushion the blow.
Dustin Duncan, minister responsible for Saskpower, said it’s too early to provide any assurances about what the pandemic will mean for power bills. Electricity sales volumes have already fallen 10 per cent over the first three months of the current fiscal year, costing $50 million in lost revenue.
Duncan said Saskpower will balance its financial targets with the need to avoid “unduly burdening our customers around the province that have also faced their own financial challenge.”
Those comments came as Saskpower released its 2019-20 annual report on Monday. It revealed limited impact from the COVID -19 pandemic during the previous fiscal year, with the federal carbon tax playing a more important role.
Net income was up $8 million to $205 million, even as power consumption fell year-on-year for the first time since 2009.
Electricity sales volumes to customers dropped by 2.1 per cent year-over-year to 23,072 gigawatt hours. That was partly because of lower demand from the potash, pulp, pipeline and steel sectors, and partly because of weather and better energy efficiency.
But in financial terms, electricity sales actually increased $43 million to $2.6 billion, thanks to the carbon tax rate rider that Saskpower put onto energy bills in April 2019. That’s the line item on your power bill marked “federal carbon tax.”
Yet the rate rider hasn’t been enough to make up the increased costs Saskpower is accounting for due to the tax. The report put expenses due to the federal carbon tax at $87 million since Jan. 1, 2019. That resulted in a $6 million shortfall as of March 31, 2020.
Troy King, vice-president for finance and business performance, said Saskpower expects to recover the shortfall by the end of the current fiscal year.
Though COVID-19 is a major risk factor for 2020-21, it didn’t have a significant impact on the 2019-20 financial results. The fiscal year ended in March, just as Saskpower was facing up to the potential health impacts of the virus. Roughly 2,300 employees were working remotely during the initial phase of the COVID-19 pandemic, the report noted.
Expenses related to the pandemic are expected to be minimal, mostly related to cleaning and personal protective equipment. But revenue in 2020-21 is a different story. The annual report warned that the financial impact of the pandemic “is not something we can yet accurately determine.”
Beyond the plunge in sales volumes, Saskpower is also facing about $47 million in deferred utility bill payments.
Asked whether the 10-per-cent hit to sales would force rate increases over 2020-21, Saskpower CEO Mike Marsh noted that lower demand also has a positive impact on expenses.
“A $50 million drop in revenues does not necessarily mean a drop in net income, and it’s really the net income that drives a rate increase requirement going forward,” he said.
“So we’re watching this carefully. As the economy rebounds across Canada and in Saskatchewan, we will be looking at what that impact might be and what we might need going forward.”
But no one at a Monday teleconference for media could make any promises.
Saskpower reported $696 million in capital spending for 201920, down from the $833 million spent over the previous fiscal year. Roughly half of last year’s capital spending went to repair aging infrastructure, while $253 million went to growth projects, including new generation capacity.
That includes $22 million spent over 2019-20 on the new Chinook Power Station, which was officially opened in December near Swift Current.
Roughly 45 per cent of Saskatchewan’s power generation comes from 10 gas-fired facilities, while 18 per cent comes from hydro and five per cent from wind.
A mix of gas and renewables is at the core of Saskpower’s emissions reduction target of cutting 2005 levels by 40 per cent by 2030. Marsh said the Crown is on track to meet that target, and could even exceed it.
As of 2019, emissions were 11.7 per cent higher than 2005 levels, according to the annual report. That was slightly better than the target for last year.
Coal still provides about 31 per cent of Saskpower’s generation capacity, however. Its remaining coal plants will have to close by 2030 under federal regulations unless they are fitted with carbon and capture storage (CCS) technology.
Duncan could not give any assurances for whether more coal plants will be fitted with CCS, and could not even provide a date for when such an announcement could be made.
Duncan has also floated the idea of using small modular nuclear reactors (SMR), saying it could help reach net zero emissions by 2050.
Marsh said Saskpower is still doing technical evaluations on various vendors that can supply SMR technology.
But he said a decision wouldn’t come until 2024.
If Saskpower decides to go ahead with SMRS, he expects it could be in place by the early 2030s.