[SaskPower Annual Report 2013] It takes POWER TO GROW A POWERFUL NEW ERA Our province is changing, and with of the province. We’re seeing a need SaskPower has a long-term plan to its transformation come record- for more power, more often, in more upgrade Saskatchewan’s electricity breaking times for Saskatchewan and places and by more people. grid. We’re projecting internal SaskPower. Along with extraordinary From expanding access to electricity investments of $1 billion a year for economic and population growth, our in the North to reinforcing the the long term as we work to renew province continues to experience a supply of electricity in the South, and rebuild our entire power system. rising need for power. our company is driven to ensure that Our company is committed to our In 2013, while Saskatchewan marked reliable, affordable and sustainable vision of innovation, performance and its highest ever recorded population power is available to fuel farms, service. We are investing responsibly and yearly increase in job creation, it businesses and industry while also to ensure our customers have the also marked its highest ever demand lighting and heating our homes.Photo to beelectricity placed they need — for today and for electricity. At SaskPower, the In order to renew aging infrastructure for future generations. Because it impact of Saskatchewan’s incredible while meeting increasing demand, takes power to grow. growth can be felt in every corner CONTENTS 2 Performance highlights 4 Letter of transmittal 5 Our strategic context 6 A message to our stakeholders 8 IT TAKES POWER TO GROW: year at a glance 16 Management’s discussion and analysis 74 Consolidated financial statements and notes 111 Corporate governance 125 Five-year financial summary 126 Five-year revenue statistics 127 Five-year generating and operating statistics 128 System map CORPORATE PROFILE Established in 1929, SaskPower’s corporate mission is to provide reliable, affordable and sustainable electricity for our customers. We are defined by our commitment to support economic growth and enhance quality of life in our province. SaskPower’s team is made up of over 3,000 permanent full-time employees. We manage more than $8.6 billion in assets. Our company operates three coal-fired power stations, seven hydroelectric stations, six natural gas stations and two wind facilities. Combined, they generate 3,428 megawatts (MW) of electricity. SaskPower also buys power from the North Battleford Generating Station, Cory Cogeneration Station, Meridian Cogeneration Station, Spy Hill Generating Station, Red Lily Wind Power Facility, SunBridge Wind Power Facility, Prince Albert Pulp Inc. and NRGreen Kerrobert, Loreburn, Estlin and Alameda Heat Recovery Facilities. At the end of the year, our company’s total available generation capacity was 4,281 MW. We are responsible for serving more than 500,000 customers within Saskatchewan’s geographic area of approximately 652,000 square kilometres. About three customers are supplied per circuit kilometre. We maintain more than 151,000 kilometres of power lines, 51 high voltage switching stations and 185 distribution substations. Our company also has interties at the Manitoba, Alberta and North Dakota borders. SASKPOWER ANNUAL REPORT 2013 1 PERFORMANCE HIGHLIGHTS $2,000210002000 21,000 GWh 24000$600600 24,000 GWh Electricity Sales fuel and Purchase power Electricity Sales (GWh) gross elec supp 1,500200001500 20,000 23000450450 23,000 1,000190001000 19,000 22000300300 22,000 18000500500 18,000 21000150150 21,000 1700000 17,000 20000 0 20,000 1010 1111 1212 1313 1010 1111 1212 1313 10 11 12 13 10 11 12 13 SASKATCHEWAN ELECTRICITY SALES FUEL AND PURCHASED POWER ■ ELECTRICITY SALES (MILLIONS) ■ FUEL AND PURCHASED POWER (MILLIONS) ■ ELECTRICITY SALES (GWH) ■ GROSS ELECTRICITY SUPPLIED (GWH) $1,6001600 $800800 Other Transmission & Distribution 1,2001200 600600 Generation 800800 400400 400400 200200 00 0 0 1010 1111 1212 1313 1010 1111 1212 1313 CAPITAL EXPENDITURES (MILLIONS) OPERATING, MAINTENANCE AND ADMINISTRATION ■ GENERATION ■ OM&A (MILLIONS) ■ TRANSMISSION AND DISTRIBUTION ■ OTHER 2 SASKPOWER ANNUAL REPORT 2013 Financial indicators (in millions) 2013 2012 Change Revenue $ 2,045 $ 1,855 $ 190 Expense 1,878 1,726 152 Income before unrealized market value adjustments 167 129 38 Net income 114 135 (21) Capital expenditures 1,318 981 337 Long-term debt 3,568 2,980 588 Short-term advances 804 763 41 Finance lease obligations 1,137 435 702 Return on equity1 8.2% 7.0% 1.2% Per cent debt ratio2 69.8% 67.1% 2.7% 1. Return on equity = (income before unrealized market value adjustments)/(average equity). 2. Per cent debt ratio = (debt)/(debt + equity), where debt = (long-term debt + short-term advances + finance lease obligations + bank indebtedness – debt retirement funds – cash and cash equivalents). Operating s tatistics (GWh)1 2013 2012 Change Saskatchewan electricity sales 20,753 19,497 1,256 Exports 497 460 37 Total electricity sales 21,250 19,957 1,293 Gross electricity supplied 23,155 22,129 1,026 Line losses (1,905) (2,172) 267 Net electricity supplied 21,250 19,957 1,293 Electricity trading purchases 266 362 (96) Line losses – (1) 1 Electricity trading sales 266 361 (95) Generating capacity2 (net MW) 4,281 4,104 177 Peak load2 (net MW) 3,543 3,314 229 Customers 500,879 490,611 10,268 1. One gigawatt hour (GWh) is equivalent to the energy consumed by 125 typical houses in one year. 2. Megawatt (MW) is a unit of bulk power: 1,000 kilowatts. The unit is generally used to describe the output of a commercial generator. 16%1616 100%100100 return on equity long term target 1212 757575 8 8 505050 4 4 252525 0 0 0 00 1010 1111 1212 1313 1010 1111 1212 1313 10 11 12 13 10 11 12 13 RETURN ON EQUITY VS. LONG-TERM TARGET PER CENT DEBT RATIO VS. LONG-TERM TARGET RANGE ■ RETURN ON EQUITY ■ PER CENT DEBT RATIO ■ LONG-TERM TARGET ■ LONG-TERM TARGET RANGE SASKPOWER ANNUAL REPORT 2013 3 Letter of TRANSMITTAL Regina March 2014 To Her Honour The Honourable Vaughn Solomon Schofield, S.O.M., S.V.M. Lieutenant Governor of Saskatchewan Province of Saskatchewan Madam: I have the honour to submit herewith the Annual Report of the Saskatchewan Power Corporation for the year ended December 31, 2013. The report includes the financial statements for the year in the form approved by the Treasury Board, duly certified by the auditors of the Saskatchewan Power Corporation, all in accordance with The Power Corporation Act. I have the honour to be, Madam, your obedient servant, Honourable Bill Boyd Minister Responsible for Saskatchewan Power Corporation 4 SASKPOWER ANNUAL REPORT 2013 Letter of TRANSMITTAL OUR STRATEGIC CONTEXT OUR VISION A world-leading power company through innovation, performance and service. OUR MISSION Reliable, affordable, sustainable power. OUR VALUES Safety, dedication and respect. OUR CORE STRATEGIES AND KEY PRIORITIES People [p 6, p 22] Financial [p 6, p 32] Stewardship [p 7, p 38] • CUSTOMER EXPERIENCE • PROCESS EFFICIENCY AND • INFRASTRUCTURE MANAGEMENT, • WORKFORCE EXCELLENCE COST MANAGEMENT RENEWAL AND GROWTH • STAKEHOLDER RELATIONS • SUPPLY MIX DIVERSIFICATION • ENVIRONMENTAL STEWARDSHIP • TECHNOLOGY ENABLEMENT SASKPOWER ANNUAL REPORT 2013 5 A message to our STAKEHOLDERS How many of us wake up in the morning and start thinking about power? Likely not many. Electricity isn’t top of mind for many people. However, for all of our customers its impact cannot be denied. Electricity powers their lives, and their livelihoods. That’s why SaskPower employees have a responsibility to think about electricity every day and in every way. Our customers count on us for the reliable, affordable and sustainable energy that gives them the power to grow. Saskatchewan is using more electricity than ever. In 2013, we set a new all-time record for peak load of 3,543 megawatts (MW). This represents a 7% — or 229 MW — increase over the previous year’s record. To provide context, one MW can power about 1,000 homes. Meanwhile, with increased economic activity, a growing population and changing lifestyles, our summer peak is now almost as high as our winter peak. Today, our company’s primary challenge is to expand and renew SaskPower’s grid to meet the needs of a growing and dynamic province. We’re well on the way, with a multi-year, multi-billion dollar infrastructure program that is securing Saskatchewan’s electricity future. Whatever challenges SaskPower faces, we have a clear corporate plan for ongoing success. During the year — for the first time in our company’s history — we delivered SaskPower’s business strategy face-to-face with nearly all employees. At its heart are three areas of focus: people, financial and stewardship. PEOPLE Customer connections continue to be remains paramount. In 2013, we SaskPower is committed to making an area of special focus. In 2013, we bettered our safety target and the delivery of a positive customer achieved a significant performance improved on the prior year. However, experience part of everything we do. improvement for new connects. our ultimate goal remains to eliminate In 2013, we continued to encounter This was despite a 6% increase in all safety-related incidents. heightened expectations, highlighted new connect construction volume by one million telephone inquiries. In and a record $132 million spent on FINANCIAL the face of growing customer needs, distribution new connects. Fiscal 2013 was a solid year for we are achieving customer service Preparing for the future depends SaskPower, with an operating income improvements. on having a strong workforce, both of $167 million and return on equity SaskPower’s Service Delivery Renewal today and tomorrow. Once again, of 8.2%. We invested $2 billion in (SDR) Program has provided a new SaskPower was named one of Saskatchewan’s electricity system, interactive telephony system and Canada’s Top Employers for Young which included a record $1.3 billion billing system.