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Saskatchewan System
The Saskatchewan System transports crude oil from producing fields in Southern Saskatchewan and Southwestern Manitoba as well as natural gas liquids from the Steelman gas processing plant to Cromer, Manitoba where the liquids enter Enbridge's mainline pipeline to be transported to the United States.
The Saskatchewan System is comprised of the Saskatchewan Gathering, Westspur, Weyburn and Virden pipeline systems. Collectively referred to as the Saskatchewan System, these crude oil and liquids pipeline systems comprise approximately 296 kilometres of trunk line, 1,900 kilometres of gathering pipeline and related terminals and tankage facilities. The capacity of each of the Saskatchewan Gathering and the Westspur Systems is 190,000 barrels per day (bpd) and the capacity of the Weyburn and Virden Systems is 47,000 bpd and 37,000 bpd, respectively.
The Saskatchewan Gathering System and the Westspur System are regulated by Saskatchewan Energy and Resources (SER) and the NEB, respectively. Both systems follow the principles for establishing tolls outlined in agreements with shippers, signed in 1985, expired in 1995, and now monitored on a customer complaint basis. The Saskatchewan Gathering System and the Westspur System tolling agreements are based on a cost of service methodology and are designed to provide toll revenues sufficient to recover operating costs, depreciation, deemed interest expense, income tax and to provide an administrative expense allowance as well as a return on rate base. This methodology increases the stability and predictability of cash flows generated by these systems.
The Weyburn and Virden Systems are regulated by the SER and Manitoba Science, Technology, Energy and Mines (STEM), respectively. Rates are established based on historical precedence, signed agreements, or both, with customers and are updated to reflect changing market conditions when warranted.
The SIR and the NEB exercise statutory authority over various matters such as construction and operations, and may exercise authority over rates and ratemaking agreements with customers and underlying accounting principles. The regulators do not regularly review or approve the rates established by the pipeline systems comprising the Saskatchewan System. However, in the event of a customer complaint, the regulator would review and provide a ruling on the rates in question. There have been no customer toll complaints filed to date for any of the systems comprising the Saskatchewan System.
The Saskatchewan System maintenance program maintains its productive capacity and includes sump tanks, berm and line repairs, piping modifications, and tank and meter repairs. Maintenance expenditures will vary year to year as some maintenance is performed on a cyclical basis. For example, software upgrades are scheduled every five years. Tank repairs occur annually; although, the extent of repairs will fluctuate each year based on the age and size of the tank. The program also includes annual system integrity programs which consist of cathodic protection, inline inspections, station integrity, tank integrity, as well as chemical injections, which serve as corrosion inhibitors, into the lines.
EARNINGS
|
(millions of Canadian dollars) Year ended December 31, |
2007 |
2006 |
|---|---|---|
Earnings before the impact of tax changes |
13.5 |
13.0 |
Revalue future taxes due to tax rate changes |
5.8 |
14.0 |
Earnings |
19.3 |
27.0 |
Earnings for the year ended December 31, 2007 of $19.3 million were lower than the prior year primarily due to significant future tax rate reductions in the second quarter of 2006. Future taxes in the Saskatchewan System result from temporary differences between the accounting value of the property, plant and equipment and the tax basis. Earnings before the impact of tax changes were positively impacted by two factors. Higher throughputs on the Virden system resulted in higher tariff revenue and earnings in the year. Additionally, the Saskatchewan System benefited from the impact of higher oil prices on its allowance oil gains on the Weyburn and Virden systems.
Earnings from both the Saskatchewan Gathering System and the Westspur System reflect an equity return on rate base. The rate used to calculate the equity return is not expected to change; however, the rate base will change due to depreciation over time as well as maintenance and enhancement capital additions. Earnings from both the Weyburn System and the Virden System reflect toll revenues less costs incurred.
Revenue for the year ended December 31, 2007 was $54.4 million compared with $51.7 million in the prior year period. This $2.7 million increase was primarily reflective of greater cost of service recoveries on the Saskatchewan Gathering and Westspur Systems including higher operating expenses driven by an increase in labour costs, as well as increased throughputs on Weyburn and Virden. Revenue for the Saskatchewan Gathering and Westspur Systems primarily reflect the cost of service recovery, whereby an increase in costs result in increased revenue.