2020-21 SaskEnergy Annual Report

ANNUAL REPORT 2020-21

Responsible energy for a sustainable Saskatchewan

VISION Environmental sustainability and economic prosperity for future generations. CORPORATE VISION Providing critical energy for a greener Saskatchewan and reducing our emissions from operations by 35 per cent by 2030. MISSION SaskEnergy delivers natural gas and energy solutions responsibly to the residents, businesses and industries of Saskatchewan.

VALUES

SAFETY We are always committed to our personal safety, the safety of our team and the public. INTEGRITY We are accountable for our decisions, our actions, and the results. STEWARDSHIP We are responsible in our use of all resources.

SPIRIT We support a respectful, dynamic and a diverse work environment that encourages achievement. RELATIONSHIPS We succeed through strong internal and external collaboration, trust and open communication.

Responsible energy for a sustainable Saskatchewan

As Saskatchewan’s natural gas utility, SaskEnergy has a responsibility to support and protect the province and the people who call it home. Whether providing safe, reliable and affordable energy to our customers, reducing the impact of our daily operations on the environment, or introducing programs and services to assist customers in reducing end-use emissions, we are committed to Saskatchewan and its prosperity. Contents 43

Management’s Discussion and Analysis Introduction Strategic Scorecard Measures Operating Environment

Consolidated Financial Statements and Notes Corporate Governance and Stakeholder Engagement Supplementary Information Glossary of Key Success Measures Glossary of Natural Gas Measurements Saskatchewan Natural Gas Transmission Lines

6 7 8 9 14

Corporate Profile Letter of Transmittal Chair’s Message President’s Message Financial and Operating Highlights

20 20 27 29 36 37 38 38

80

Consolidated Financial Results Liquidity and Capital Resources Capital Additions Outlook Risk Management and Disclosure Critical Accounting Policies and Estimates Accounting Policy Changes

81

83

86

41

87

42

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Our Sustainability Framework

Our Business Our natural gas system has served Saskatchewan and its people for close to seven decades.

Resilience and Reliability

SaskEnergy’s sustainability framework includes three pillars — Environment, Prosperity, and People — which set a strong foundation for our future.

SaskEnergy provides more energy to the province than any other system and meets the majority of the energy demand in Saskatchewan.

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Delivering Value to Our Customers

Looking Back at 2020-21

Performance highlights from the past year.

We strive to provide value to our customers by focusing on five key strategic imperatives.

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Our Business

As a provincial Crown corporation, SaskEnergy’s roots are deep. Our natural gas system has served Saskatchewan and its people for close to seven decades. We are defined by our commitment to environmental sustainability and economic prosperity for future generations. It is our corporate mission to deliver natural gas and energy solutions responsibly to the residents, businesses and industries of Saskatchewan, and we strive to provide our service in a way that meets the expectations of our customers. SaskEnergy delivers essential energy to 337 communities throughout the province and our rural distribution network has a broader reach than any other gas distribution utility in Canada. We are committed to a lower carbon future — not only within our own operations but together with our customers through programs, services and education. Our number one priority is to safely provide reliable and affordable energy to our customers. Through our distribution and transmission systems, we serve homes, businesses, farms, commercial and industrial customers throughout Saskatchewan. We also own and operate a number of natural gas compression and storage facilities and transport energy over the Alberta, Manitoba and United States borders.

1,100 Dedicated

400,000+ Customers in 93% of Saskatchewan communities

89% Overall residential customer satisfaction rating

employees working in more than 50 locations

15,209 Kilometres of transmission lines

71,305 Kilometres of distribution lines

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Our Business

CUSTOMER PROFILE

Industrial

Residential

Commercial

• Potash mines • Power generation • Enhanced oil recovery

• Urban • Rural

• Retail businesses • Restaurants • Small hospitals • Curling rinks • Hotels • Warehouse buildings

• Manufacturing • Large hospitals • Universities

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Corporate Profile

Crown Investments Corporation of Saskatchewan

SaskEnergy Incorporated

Many Islands Pipe Lines (Canada) Limited

Bayhurst Gas Limited

Saskatchewan First Call Corporation

TransGas Limited

Transmission and Storage

Natural Gas In Storage

Inter-provincial Transmission

Underground Facility Screening and Notification Service

BG Storage Inc.

Storage Joint Arrangement

Bayhurst Gas Limited (Bayhurst) owns, produces and sells natural gas from its two storage facilities in the western area of Saskatchewan. BG Storage Inc. (BGSI) is a wholly owned subsidiary of Bayhurst Gas Limited and owns a 50 per cent interest in a natural gas storage business, which is operated through a joint arrangement with Faro Energy Ventures Ltd. Many Islands Pipe Lines (Canada) Limited (MIPL) is a transmission company that owns eight transmission gas line interconnections to Alberta, two into the United States, and one into Manitoba, all of which connect to the TransGas system. MIPL is regulated by the Canada Energy Regulator. Saskatchewan First Call Corporation (Sask 1st Call) provides a centralized “Click Before You Dig” underground facility screening and notification service. Sask 1st Call was established primarily for safety reasons to maintain a database of oil, natural gas and other underground infrastructures. Sask 1st Call provides a service whereby landowners and other stakeholders planning any ground disturbance can contact Sask 1st Call to request the location of natural gas lines and non-gas line-related facilities of its subscribers. Sask 1st Call’s rate structure is intended to recover all operational costs and operate on a break-even basis.

SaskEnergy Incorporated (SaskEnergy or the Corporation) is a Saskatchewan Crown corporation governed by The SaskEnergy Act . It is a designated subsidiary of Crown Investments Corporation of Saskatchewan (CIC). CIC is also a Crown corporation and effectively operates as the Province’s holding company for commercial Crown corporations (such as SaskPower, SaskTel and SGI) and various commercial investments. SaskEnergy’s main business is the natural gas distribution utility. SaskEnergy owns and operates the distribution utility, which has the exclusive legislated franchise to distribute natural gas within the province of Saskatchewan. The Provincial Cabinet regulates SaskEnergy’s delivery service and commodity rates. All rate changes are subject to review by the Saskatchewan Rate Review Panel, an independent body, prior to receiving Provincial Cabinet approval. SaskEnergy’s corporate structure includes four wholly owned subsidiaries and one indirect wholly owned operating subsidiary, as follows: TransGas Limited (TransGas) owns and operates the transmission utility and has the exclusive legislated franchise to transport natural gas within the province of Saskatchewan. It also owns and operates a natural gas storage business, which is integrated with the transmission gas line system.

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Letter of Transmittal

Regina, July 2021

To His Honour The Honourable Russ Mirasty, S.O.M., M.S.M. Lieutenant Governor of Saskatchewan Province of Saskatchewan

Dear Sir:

I have the honour to submit herewith the Annual Report of SaskEnergy Incorporated for the fiscal year ending March 31, 2021, in accordance with The SaskEnergy Act . The Financial Statements included in this annual report are in the form approved by Crown Investments Corporation of Saskatchewan as required by The Financial Administration Act, 1993 and have been reported on by the auditors.

Respectfully submitted,

Honourable Don Morgan, Q.C. Minister Responsible for SaskEnergy Incorporated

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Chair’s Message

On behalf of the SaskEnergy Board of Directors, it is my pleasure to join the Minister Responsible for SaskEnergy, the Honourable Don Morgan, in presenting the SaskEnergy 2020-21 Annual Report. The past year saw the people and communities of Saskatchewan come together in large and small ways to overcome the unprecedented challenges presented by the COVID-19 pandemic. As a key infrastructure provider in our province, SaskEnergy experienced many of the same impacts as other businesses, successfully navigating the urgent need for new logistical and safety considerations for employees and customers, and changes in market demand and supply chain. The Board was pleased with the response on these fronts, and particularly recognizes those teams that continued to provide essential services to our customers without fail. It was evident throughout 2020-21 that the team at SaskEnergy, from leadership to frontline staff, recognize the vital role each and every one of them plays in supporting customers and communities — whether through reliable energy delivery, promoting safety through programming or assisting customers in achieving greater energy efficiency. It is fitting, then, that the title of this annual report is ‘Responsible energy for a sustainable Saskatchewan’. SaskEnergy has demonstrated its commitment to reliable, affordable energy for customers, now and in the future, while building meaningful relationships with communities and Indigenous groups and providing a safe workplace for its employees. Looking ahead, the Board will continue to align SaskEnergy with the Government of Saskatchewan’s Crown Sector Priorities and Saskatchewan’s Growth Plan. It will ensure the Corporation continues adapting to Saskatchewan’s changing energy needs and will support SaskEnergy’s focus on customers, financial sustainability, priority investments, private sector engagement, collaboration with other Crowns and the development of a skilled labour force. The Board is committed to the effective stewardship and transparent governance of SaskEnergy. Thank you to the Executive team, management and employees for their contributions to the company, and to our province, in 2020-21.

Susan Barber, Q.C. Chair, SaskEnergy Board of Directors

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President’s Message

This past year has forced us all to temporarily change the way we live, the way we interact with each other, and the way we work. While this has been challenging, I could not be more proud of SaskEnergy’s team of employees who came together in 2020-21 to serve our customers and support them through the COVID-19 pandemic. SaskEnergy’s success as a company is a direct reflection of their efforts, and our accomplishments this year would not have been possible without our team across the province. For the most part, when SaskEnergy customers don’t know we are there, it is a sign we are doing our job properly. Thanks to the reliability of our natural gas system and the efforts of our employees, we keep gas flowing to homes, hospitals, businesses and industry in Saskatchewan, even during the coldest days, weeks and months of the year. In 2020-21, SaskEnergy added 3,001 net new customers to the distribution system — nearly 1,000 more than expected — and surpassed 400,000 total customers. As well, the record for provincial daily gas usage was broken once again on February 12, 2021. From an affordability standpoint, SaskEnergy’s commodity rate is the lowest it has been in more than 20 years, and our total residential natural gas utility rate is the third-lowest in Canada. These achievements

are testament to the importance of natural gas in providing Saskatchewan with essential energy — both for residential customers and for industry, including increased power generation from natural gas — and to the reliability of natural gas year round. Throughout the pandemic, our teams sought to do everything we could to put customers’ minds at ease, allowing them to turn their attention to the many other changing factors in their lives. Avoiding outages, attending to service calls while keeping customers, employees and communities safe, maintaining stable rates, providing additional flexibility in payment terms — these are just some of the many ways SaskEnergy stepped up for our customers last year. SaskEnergy also provided more than $2 million in rebates to homeowners and businesses that purchased high efficiency natural gas heating systems, and to homeowners who purchased carbon monoxide alarms. Our Tune-up Assistance Program assisted an additional 731 income qualified homeowners in 2020-21 by providing free home heating tune-ups, which help to make sure that customers’ furnaces are operating efficiently, effectively and safely. This program, which has been in place since 2017, was recognized with the Canadian Gas Association’s Michael Mulcahy Award for Excellence and Innovation in Customer Care and Service in June of 2020. Even with the additional demands of the pandemic, I am proud to say that SaskEnergy achieved its best-ever corporate total recordable injury frequency rate. Safety is an established priority at our company and continues to be top of mind, every day and in every situation. At the same time, we recognize our growing role in contributing to environmental protection, and assisting customers in meeting their environmental objectives, while supporting economic development and recovery in Saskatchewan communities. To minimize our impact on the environment, SaskEnergy has committed to reducing emissions from our operations by 35 per cent by 2030. This will be achieved through emissions reduction targets in our Corporate Plan, by improving the efficiency of our equipment and infrastructure, and by investing in projects that reduce operational emissions. In 2020-21, as part of this work, SaskEnergy enacted a corporate biosecurity policy, which seeks to prevent the transmission and spread of environmental and agricultural infectious diseases and invasive species. In addition, we reduced our overall greenhouse gas emissions by 12,900 tonnes of carbon dioxide equivalent (CO 2 e) over 2019 levels. Our capital plan is aligned to customer demand and remains flexible in order to adapt to changing customer needs. That said, as a company, SaskEnergy is pivoting from an era of system growth to one of system sustainability. Plans to further increase delivery capacity in high growth areas are developed but on hold, pending customer forecasts. Throughout this changing business environment, we will continue to seek efficiencies and cost reductions as we make strategic capital investments to support customer demand and the provincial economy, maintain the safety of our system, and provide affordable rates to our customers. SaskEnergy’s future success will require us to be focused and flexible — in meeting customer expectations, in reducing our impact on the environment and meeting evolving regulatory requirements, and in continuing to play a critical role in delivering the energy the people of Saskatchewan need. The right organizational structure, along with technology and a talented workforce will be crucial for executing on our plans and meeting our strategic objectives. However, our focus on core priorities will not change — we will responsibly deliver natural gas to the residents, businesses and industries of Saskatchewan while supporting environmental sustainability and economic prosperity for future generations. My sincere thanks, once again, to all SaskEnergy employees and management for their efforts in 2020-21, as well as to the Board of Directors for their strategic governance and oversight.

Ken From President and Chief Executive Officer

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Our Sustainability Framework

Sustainability for SaskEnergy means providing reliable, affordable energy to our customers today and for years to come while also acknowledging their desire for a cleaner energy future. It is about strengthening relationships with customers, communities and Indigenous groups while also providing an inclusive, safe working environment for our employees. SaskEnergy’s sustainability framework includes three pillars — Environment, Prosperity, and People. These pillars align with our corporate vision and set a strong foundation for our future as a sustainable energy provider for Saskatchewan.

Pillar One: Environment

Pillar Two: Prosperity

Pillar Three: People

SaskEnergy takes pride in its people, recognizing it is employees who drive the success of our organization and play a pivotal role in our future sustainability. To be successful, we must provide a safe and engaging workplace; recognize the value of our employees; support diversity and inclusion; and invest in a workforce to meet customer needs and expectations.

Our prosperity focus aligns with our vision: Environmental sustainability and economic prosperity for future generations. Our focus on prosperity means we support the Saskatchewan economy by investing in the rural, urban and Indigenous communities where we live and work. We deliver affordable, reliable energy to residents, businesses and industry to support our standard of living, while always considering our impact on the environment.

As an organization, we have long considered the impact of our own operations as well as the impact of our customers’ activities on the environment. We have a strong foundation set to meet stakeholder expectations. Our environmental sustainability efforts are focused on reducing emissions from our operations, supporting customers in reducing end-use emissions and protecting the local environment, including plant life, wildlife, wetlands, native prairie and species at risk.

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Resilience and Reliability

Natural gas provides Saskatchewan with much needed, reliable energy — particularly during some of the country’s most extreme weather. SaskEnergy’s underground gas line infrastructure delivers more energy to customers than any other energy source in the province. Natural gas is a key fuel for much of the province’s electrical generation, reducing the dependency on conventional coal — and the carbon intensity of Saskatchewan’s electricity generation portfolio — while also supporting the growth of renewable energy as a ready backup for the variability of wind and solar. For many customers, including hospitals and large businesses, not only does natural gas serve as the primary heating source, it is also used as an emergency backstop during electrical outages. SaskEnergy’s expansive underground infrastructure network is designed to provide reliable service, meaning we can adapt to system disruptions with little or no impact to customer supply. Our service is 99.99 per cent reliable. This system resilience means end-use service disruptions are rare, regardless of weather conditions, which allows business and industrial customers to operate efficiently year-round while residential customers are connected to a dependable, affordable energy source.

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Looking Back at 2020-21

20 year anniversary SaskEnergy First Nations Safety Calendar that promotes natural gas safety and features student artwork from First Nations throughout Saskatchewan

More than $2.2 million in rebates to homeowners and businesses that purchased and installed qualifying high efficiency natural gas heating systems

1,015 carbon monoxide (CO) alarms distributed to Saskatchewan residents through the Tune-Up Assistance Program and Home Heating Tune-Up Program

Tune-Up Assistance Program • Received the Canadian Gas Association’s Michael Mulcahy Award for Excellence and Innovation in Customer Care and Service • 731 income qualified homeowners assisted with free furnace maintenance

Enacted a corporate biosecurity policy to help further reduce the impact of operations on the landscape

Strengthening system reliability investments in transmission infrastructure and gas lines near Shaunavon and Pierceland

Approximately $245,000 in rebates to homeowners who purchased carbon monoxide (CO) alarms through the CO Alarm Rebate Program

Completed projects to support customer operations in potash production, enhanced oil recovery and diesel production

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12,900 tonnes carbon dioxide equivalent (CO 2 e) year-over-year reductions in greenhouse gas emissions from operations

Created re-nesting structures for cliff swallows adjacent to our Crane Lake compressor station, in consultation with Environment and Climate Change Canada

Joined the Prairie Conservation Action Plan (PCAP) partnership to raise awareness and take action on initiatives to conserve native prairie and species at risk in Saskatchewan

1.43 recordable injuries per 100 employees

Launched text messaging service to keep customers up-to-date on their service with SaskEnergy 155,720 line locate requests received by Sask 1st Call — 10 per cent more than last year

saskenergy.com transgas.com new websites with more self-service options for our customers

the lowest rate in the Corporation’s history

$2.575 per gigajoule lowest commodity rate in more than 20 years

1.59 petajoules new record for customers’ daily gas usage set on February 12

Established and expanded collaborations with Indigenous environmental organizations

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Financial and Operating Highlights

CONSOLIDATED FINANCIAL INFORMATION ($ millions)

2020-21 2019-20

2018-19

284 186

Delivery

284 187

289 163

Transportation and storage

11 (4) 49

Commodity margin

23

45 11 29

Asset optimization margin Customer capital contributions

2

36

-

Other revenue

-

4

Total revenue and margins

526 102 174 117

532

541

Employee benefits

96

89

Operating and maintenance Depreciation and amortization

169 109

163

99 15 52

16 55

Saskatchewan taxes Net finance expense Other losses (gains)

16 55 21

3

(11) 407 134

Total expenses

467

466

59 22 81 21

66

Income before unrealized market value adjustments

Market value adjustments CONSOLIDATED NET INCOME

(23)

32

43 24

166

Dividends declared

60

3,294

Total assets

3,222

2,938

204

Cash provided by operating activities Cash used in investing activities Cash provided by financing activities

270

280

(235)

(341)

(271)

30

66

-

212

Capital additions Total net debt Debt/Equity ratio

316

299

1,613 58/42 5.2%

1,501 58/42 6.1%

1,313 55/45 12.9%

Rate of return on equity

OPERATING STATISTICS Distribution energy ( petajoules ) Residential/Farm

40 31

37 33

42 35

Commercial

165 236

170 247

Industrial

164 1 234

TOTAL

Transmission energy ( petajoules ) Domestic

348

364

362

5

Export

37

33

TOTAL

353

401

395

Number of customers Distribution

402,827

399,826

397,367

122

Transmission

118

119

1 Industrial consolidated volumes restated for 2019-20 due to a billing adjustment.

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Financial and Operating Highlights

OPERATING SUMMARY – DISTRIBUTION

2020-21 2019-20

2018-19

5,962 2,694 5,664 (1.9%)

Sales in million cubic metres 1

5,965 2 2,631 5,706

6,344 2,681 6,076

Residential annual average usage (cubic metres)

Degree days 3

Percentage (colder) warmer than normal NATURAL GAS LINE (kilometres) SaskEnergy Incorporated

(2.3%)

(9.8%)

71,305

70,996

70,707

1 Retail, industrial and asset optimization. 2 Sales in million cubic metres restated for 2019-20 due to a billing adjustment.

3 A unit measuring the extent to which the temperature falls below 18° Celsius. Normal weather in 2020-21 (12 months ending March 31, 2021) would have been 5,558 degree days.

OPERATING SUMMARY – TRANSMISSION

2020-21 2019-20

2018-19

1.59

Peak day natural gas flows (petajoules)

1.55

1.50

Feb. 12

Date of peak day flow Storage cavern sites Storage caverns Storage field sites 1 Producing field sites 1

Jan. 15

Feb. 7

6

6

6

19

18

18

4 1

4 1

4 1

NATURAL GAS LINE (kilometres) TransGas Limited Transmission

14,575

14,537

14,458

167 445

Gathering

167 443

167 443

Many Islands Pipe Lines (Canada) Limited

22

Bayhurst Gas Limited

22

22

TOTAL

15,209

15,169

15,090

SYSTEM COMPRESSION TransGas Limited stations

24

24

24

1 3

Many Islands Pipe Lines (Canada) Limited stations

1 3

1 3

Bayhurst Gas Limited stations Mobile compressor units COMPRESSION HORSEPOWER TransGas Limited

17

17

17

83,968

83,968

77,248

5,040 6,300

Many Islands Pipe Lines (Canada) Limited

5,040 6,300

5,040 6,300

Bayhurst Gas Limited

TOTAL

95,308

95,308

88,588

1 Includes Bayhurst Gas Limited.

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Financial and Operating Highlights

QUARTERLY FINANCIAL AND OPERATING HIGHLIGHTS

2020-21 FINANCIAL HIGHLIGHTS ($ millions) Realized margin on commodity sales Realized margin on asset optimization sales

March 31, 2021

Q1

Q2

Q3

Q4

6 $

11

$

1

$

- $

4 $

(4)

(4)

-

-

-

58 47

284 186

Delivery

41 46

86 46

99 47 31

Transportation and storage Customer capital contributions

2

49

8

8

526 102 169 117

Total revenue

104

95 22 39 28

144

181

Employee Benefits

25 38 29

24 43 29

31 49 31

Operating and maintenance Depreciation and Amortization

16

Saskatchewan taxes

3

6

3

4

Impairment loss on trade and other receivables

5

2

-

2

1

55

Net finances expenses Other (gains) losses

13

14

14

14

3

(2)

-

-

5

467

Total expenses

108

109

115

135

Consolidated Income (loss) before unrealized market value adjustments

$

59

$

(4)

$

(14) $

29

$

46

21

Dividends declared

3

2

8

8

204

Cash provided by operating activities

56

25

44

79

(212)

Capital additions

(42)

(57)

(79)

(34)

OPERATING HIGHLIGHTS Distribution

236 -2%

Energy distributed (petajoules) Weather (compared to last 30 years)

46

44

69

77

-18%

-12%

-2%

1%

Transmission

353

Energy transported (petajoules)

73

74

100

106

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Financial and Operating Highlights

2019-20 FINANCIAL HIGHLIGHTS ($ millions) Realized margin on commodity sales Realized margin on asset optimization sales

March 31, 2020

Q1

Q2

Q3

Q4

$

23

$

2 4

$

1 3

$

11

$

9

2

(1)

(4)

54 46

284 187

Delivery

41 48 11

90 47

99 46

Transportation and storage Customer capital contributions

36

9

8

8

532

Total revenue

115

104

155

158

96

Employee Benefits

24 37 26

19 39 27

25 40 28

28 48 28

164 109

Operating and maintenance Depreciation and Amortization

16

Saskatchewan taxes

3

6

3

4

Impairment loss on trade and other receivables

5

-

1

1

3

55 21

Net finances expenses Other (gains) losses

13

14

14

14 21

-

-

-

466

Total expenses

103

106

111

146

Consolidated Income (loss) before unrealized market value adjustments

$

66 24

$

12

$

(2)

$

44 22 58

$

12

Dividends declared

-

-

2

270

Cash provided by operating activities

61

48

103

(316)

Capital additions

(56)

(101)

(101)

(58)

OPERATING HIGHLIGHTS Distribution

234 -2%

Energy distributed (petajoules) Weather (compared to last 30 years)

48

36

66

84

-3%

-12%

-5%

1%

Transmission

401

Energy transported (petajoules)

88

95

107

111

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Financial and Operating Highlights

QUARTERLY YEAR-OVER-YEAR ANALYSIS Operating results generally vary from quarter to quarter as a result of changes in general economic conditions and seasonal fluctuations. Results in one quarter are not necessarily indicative of how the Corporation will perform in a future quarter. Natural gas consumption has unique seasonal aspects as customers typically use natural gas as heating fuel during cold winter months through the third and fourth quarters. Fourth Quarter (three months ending March 31) Income increased by $34 million, a result of customer capital contributions being $23 million higher in 2021 as customer projects were completed. Other losses were $16 million lower in 2021 and contributed to increased income in 2021. Winter weather was comparable year over year, contributing to similar revenue patterns. Third Quarter (three months ending December 31) Income decreased $15 million in 2020 as commodity margins declined $7 million, a result of higher natural gas

market prices increasing the average cost of commodity purchases. Delivery revenue decreased $4 million as weather was slightly colder than the prior year. Second Quarter (three months ending September 30) The net loss realized in 2020 was $12 million higher, due to transportation and storage revenue declining $2 million in 2020 and customer capital contributions being $3 million lower in 2020. Employee benefit costs also increased in 2020, a result of filling vacant positions. First Quarter (three months ending June 30) A loss of $4 million in 2020 was $16 million lower than $12 million of income realized in 2019 as reduced volatility in natural gas market prices limited asset optimization opportunities. In addition, customer capital contributions were $7 million higher in 2019 as customer projects were completed.

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Delivering Value to Our Customers

Safety A safe energy source

Customer Value

Environment Future sustainability

Reliability Always available

Ease of Service Convenient service

Affordability Competitive energy cost

Our customers are the reason we exist, and delivering value to customers is paramount to SaskEnergy. We strive to provide value to our customers by focusing on five key strategic imperatives:

Safety • Committed to the safety of our people and the public • Continuous improvement of safety-related work practices • Collaboration with other agencies and associations Reliability • Competitive advantage compared to other energy sources • 24/7 service delivery • Few unplanned service interruptions Affordability • Stable and competitive rates • Lowest cost energy source in Saskatchewan • Delivery charges among the lowest in Canada

Environment •

Responsible energy company

• •

Committed to a lower carbon future Help customers meet their environmental aspirations

• Reduce impact of operations on the environment Ease of Service • Convenient and responsive service

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Management’s Discussion and Analysis

INTRODUCTION The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial performance for the 12 months ending March 31, 2021. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. The MD&A is presented as at May 19, 2021, and should be read in conjunction with the Corporation’s audited consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS). The MD&A contains certain forward-looking statements that are subject to inherent uncertainties and risks. Many of these risks are described in the Risk Management and Disclosure section of the MD&A. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The Corporation’s financial results are subject to variation, especially given the volatility of natural gas prices. In order to compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments; realized margin on commodity sales; and realized margin on asset optimization sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. Unrealized market value adjustments vary considerably with the market prices of natural gas, drive significant changes in the Corporation’s consolidated net income and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition, and may not be comparable to similar measures presented by other entities. STRATEGIC SCORECARD MEASURES In late 2020-21, SaskEnergy introduced a Corporate Plan that focuses on strategies to address the rapidly changing operating environment. The Plan includes a new vision, corporate vision, mission, values and strategic imperatives, which align with the Crown Sector Strategic Priorities identified by CIC.

To meet the Corporation’s strategic imperatives and create value for customers, SaskEnergy will improve operational efficiency and focus on sustainability — providing reliable, affordable energy to customers while recognizing their desire for a cleaner energy future. SaskEnergy is committed to reducing the impact of daily operations on the environment and to assisting customers in reducing their end-use emissions. This will be achieved by increasing budgets for energy efficiency and low carbon programs for customers. The Corporation will also continue to reduce emissions from internal operations through environmental and sustainability programs. At the same time, SaskEnergy will support Saskatchewan’s economy now and in the future by investing in the communities it serves by buying local, enhancing procurement processes, and rewarding vendors that demonstrate Saskatchewan content and Indigenous participation. SaskEnergy’s success is driven by its employees, and they are recognized for the value they provide, their diversity, and their role in the Corporation’s future sustainability. Each year, as part of the strategic planning process, SaskEnergy aligns performance metrics in the scorecard to track progress toward achieving its strategy. The final scorecard, including metrics and targets for the five-year planning horizon, is presented to SaskEnergy’s Board of Directors as part of the annual Corporate Plan approval. The CIC Board reviews the Plan and confirms compliance with the Crown Sector Strategic Priorities prior to its approval. Progress toward these targets is monitored and reported throughout the year, allowing management to take any corrective action to achieve the targets. SaskEnergy’s balanced scorecard is focused on four quadrants — Organizational, Operations, Financial and Customer. Strategic actions within the Organizational and Operations quadrants will produce desired results in the Customer and Financial quadrants. The following discussion outlines the Corporation’s 2020-21 performance relative to its strategic scorecard targets for the 12 months ending March 31, 2021, and provides targets for the new measures identified within the Plan. All measures are defined in the Glossary of Key Success Measures.

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Management’s Discussion and Analysis

Vision Environmental sustainability and economic prosperity for future generations.

Corporate Vision Providing critical energy for a greener Saskatchewan and reducing our emissions from operations by 35 per cent by 2030.

Mission SaskEnergy delivers natural gas and energy solutions responsibly to the residents, businesses and industries of Saskatchewan.

Strategic Action

Quadrant

1.1 Alignment 1.2 Operational Governance 1.3 Safe and Inclusive Culture 1.4 Workforce Development 1.5 Technology 2.1 Project Execution Excellence 2.2 Operational Excellence 2.3 Data-Driven Operations 2.4 Customer Experience 2.5 Greener Energy Provider

ORGANIZATIONAL

OPERATIONS

Outcomes

3.1 Debt-to-Equity Ratio, Regulated Return on Equity (ROE), Operating and Maintenance (O&M) per Customer, O&M per Book Value of Assets, Delivery Rates 3.2 Investment in Green Initiatives

FINANCIAL

4.1 Residential and Business “SaskEnergy is the best energy value choice for me. Service is seamless and easy to access when I need it.” 4.2 Industrial “Natural gas is reliable and affordable. It allows me to operate efficiently and contribute to the Saskatchewan economy.”

CUSTOMER

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Management’s Discussion and Analysis

ORGANIZATIONAL

The right organizational structure, technology and a talented workforce are crucial for bringing business strategy to life. SaskEnergy’s organizational design focuses on the entire talent ecosystem to build the team, and skills, for the future.

March 31, 2020 Actual

March 31, 2021 Actual

March 31, 2021 Target

March 31, 2022 Target

March 31, 2023 Target

March 31, 2024 Target

March 31, 2025 Target

March 31, 2026 Target

Organizational Strategic Measures Safety Culture Total Recordable Injury Frequency Rate

1.43 N/A

2.31

1.88

1.78 16.0

1.81 15.0

1.69 14.0

1.62 13.0

1.50 12.0

Injury Severity Rate

N/A

N/A

Workforce Development Representative Workforce • Women in Management Roles

N/A

N/A

N/A

42.0% 42.5% 43.0% 43.5% 44.0%

14.0%

• Indigenous

14.5%

16.0% 14.5% 15.0% 15.5% 16.0% 16.5%

Below Public Sector Average

Above Public Sector Average

Above Public Sector Average

Non- survey year

Public Sector Average

Non- survey year

Non- survey year

Non- survey year

Employee Experience

Safety Culture

• a continued focus on process safety, as well as streamlined business processes to assess and mitigate risk; and • reinforcing the corporate framework for safety communication and awareness to inform and support operational areas. In addition to a focus on safety, SaskEnergy takes a number of specific actions toward emergency preparedness. Through the corporate Emergency Management Program, SaskEnergy develops, trains and practices for emergencies to minimize their effects to customers, employees and communities. Some key actions include: • emergency response training for key staff; • incident command training, table top exercises and full-scale exercises; • natural gas awareness training for first responders throughout Saskatchewan; and • cooperative and coordinated emergency response efforts with other utilities, ministries and agencies in the province. The Injury Severity Rate is a new measure being reported beginning in 2021-22. It measures the number of lost worker days, due to injury, per 100 workers.

Employee and public safety are at the core of SaskEnergy’s work activities. Hazard identification, risk assessment and mitigation, and sharing learnings to promote awareness and continual improvement are safety priorities throughout the organization. At the end of the 2020-21 fiscal year, SaskEnergy achieved a Total Recordable Injury Frequency Rate (TRIF) of 1.43, meaning there were 1.43 recordable injuries for every 100 full-time employees. This is a decrease from both the 2019-20 TRIF of 2.31 and the TRIF target of 1.88, and is the lowest TRIF in the Corporation’s history. SaskEnergy believes that a strong safety culture informs individual and collective decisions made each day by employees and contractors, and will ultimately result in success in this priority area. Key safety initiatives undertaken include: • public safety efforts to continue to decrease the number of third-party line contacts with buried infrastructure; • collaboration with industry peers and third-party consultants to measure, evaluate and effectively manage safety culture;

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Management’s Discussion and Analysis

Workforce Development Recognizing that employees drive the success of the organization, SaskEnergy is committed to providing learning and development opportunities that prepare its workforce for the future. Workforce development includes enhancing capabilities to match a more digital and greener world, as well as a focus on coaching, mentoring, leadership development and succession. Representative Workforce Aligned with Crown Sector Strategic Priorities, SaskEnergy aims to have a workforce reflective of Saskatchewan’s population by providing opportunities to qualified people, and recognizing that Indigenous people represent a large portion of Saskatchewan’s current and future labour force. Actual results were slightly below the targeted benchmark due to reduced hiring activity. This can be attributed to the impact of the pandemic health crisis coupled with the challenging economic conditions that the energy sector is experiencing. Women in management roles, including professionals, has been added as a new measure for future years. SaskEnergy’s percentage is currently lower than the

Saskatchewan Human Rights Commission’s recommended target and is an area of focus toward developing a diverse and inclusive workforce. Employee Experience SaskEnergy is committed to the attraction, retention and engagement of employees. Employee experience is primarily dependent on a positive corporate culture, supportive managers/supervisors, trust in leadership and opportunities to perform meaningful work. An employee engagement survey was conducted in February 2021, which measured SaskEnergy’s results to the public sector norm. The survey produced a variety of data points, including the overall engagement score, which is slightly below the public sector norm. However, the Corporation’s engagement score increased from the prior survey, which is commendable, particularly in light of these unprecedented times. SaskEnergy is implementing a comprehensive action plan that includes connecting diversity and inclusion initiatives to the Corporation’s strategy, recruiting from a larger talent pool, and targeting learning and development to diverse groups.

These strategic actions are categorized as sustaining SaskEnergy’s core business of delivering safe, reliable and affordable natural gas to its customers, and advancing the Corporation’s business into the future. OPERATIONS

March 31, 2020 Actual

March 31, 2021 Actual

March 31, 2021 Target

March 31, 2022 Target

March 31, 2023 Target

March 31, 2024 Target

March 31, 2025 Target

March 31, 2026 Target

Operations Strategic Measures

Operational Excellence Distribution – Operating and Maintenance Costs per Customer Transmission – Operating and Maintenance Costs per Book Value of Assets Managed

$337

$330

$353 $340 $345 $345 $345 $350

6.7%

6.6%

6.5% 6.4% 6.7% 6.8% 7.0% 7.4%

Residential Delivery Rates

Competitive Competitive Competitive Competitive Competitive Competitive Competitive Competitive

Unplanned Distribution Customer Outages Events Greener Energy Provider Output Based Performance Standard (OBPS) – Emissions (Tonnes of CO 2 e/MWh)

33

N/A

49

48

48

48

47

47

0.62

N/A

0.58

0.68

0.66

0.64

0.62

0.60

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Management’s Discussion and Analysis

Operational Excellence

SaskEnergy provides price protection for its distribution customers through the practice of hedging natural gas purchases. As a result, customers typically pay higher costs for natural gas but are not subject to the volatility of market prices. Unplanned Distribution Customer Outages Events are unplanned outages that arise from activities such as third-party damage (line hits), operator error, facilities failure and security issues. During 2020-21, there were a total of 33 reported outages, which is below the target of 49 outages for the year. Greener Energy Provider SaskEnergy continues to concentrate on environmental sustainability throughout its operations by measuring the intensity of greenhouse gas (GHG) emissions relative to the amount of compression used to transport natural gas. This measure is calculated using a cumulative average at the end of each quarter. In 2020-21, SaskEnergy introduced a revised environmental success measure. This measure continues to focus on the intensity of GHG emissions per unit of compression, as in previous years, but was modified to reflect the federal emissions metric created by Environment and Climate Change Canada for the transmission industry under the federal Output Based Pricing System (OBPS). The metric is mainly influenced by fuel combustion and flaring, and will fluctuate throughout the year based on operational requirements.

In alignment with the Crown Sector Priority of financial stability, and with a continued emphasis on operational efficiency, SaskEnergy is committed to the cost-effective delivery of natural gas services to its customers. This will be accomplished through operational excellence in daily operations, capital expenditures and effective resourcing. Distribution Operating and Maintenance Costs per Customer were better than target in 2020-21. Customer growth was higher than target, with 3,001 net new customers compared to the 2,300 that were anticipated. Efficiency initiatives and vacancy management also contributed to SaskEnergy exceeding the efficiency target by year end. Major projects that focus on customer service and technological efficiencies were completed during the year. Transmission Operating and Maintenance Costs per Book Value of Assets Managed is slightly higher than target. Cost savings were achieved through continued focus on efficiencies and vacancy management; however, lower capital additions resulted in the net book value of property, plant and equipment and intangible assets being lower than planned. SaskEnergy achieved its goal of having competitive residential delivery rates with the major utilities across Canada. A typical residential customer in Regina paid $556 for delivery service in 2020-21, which is the third-lowest rate in Canada. Hamilton, Ontario remains the lowest with a rate of $432 for a typical customer. SaskEnergy also had the third-lowest total residential natural gas utility rate (delivery and commodity combined) in Canada.

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Management’s Discussion and Analysis

SaskEnergy is committed to the long-term sustainability of the Corporation, measured through its debt-to-equity ratio, and its regulated return on equity on both the distribution and transmission divisions. Achieving a greener energy future is also a high priority. FINANCIAL

March 31, 2020 Actual

March 31, 2021 Actual

March 31, 2021 Target

March 31, 2022 Target

March 31, 2023 Target

March 31, 2024 Target

March 31, 2025 Target

March 31, 2026 Target

Financial Strategic Measures

58/42

Debt/Equity Ratio

58/42

61/39 59/41 59/41 59/41

58/42 56/44

Regulated Return on Equity - Distribution

N/A

N/A

N/A

7.4% 8.3% 8.3% 8.3% 8.3%

Regulated Return on Equity - Transmission/Storage

N/A

N/A

N/A

6.3% 8.57% 8.57% 8.57% 8.57%

Investment in Green Initiatives ($millions)

N/A

N/A

N/A

$4

$5

$6

$6

$6

Financial Strength SaskEnergy preserves an adequate capital structure while providing reasonable financial returns to its holding company, CIC, and competitive rates to customers. The Corporation balances the interests of both CIC and its customers while focusing on annual profitability and efficient operations with a long-term view on financial sustainability. SaskEnergy’s financial performance in 2020-21 reflected its proven commitment to safely deliver natural gas to its customers in Saskatchewan. Weather was two per cent colder than normal, resulting in higher delivery revenue that was partly offset by anticipated rate increases that did not occur as planned. SaskEnergy completed two large customer projects during 2020-21, which resulted in higher than expected customer capital contributions. Industrial customer demand was impacted by the collapse in global oil prices early in the year, which led to lower than planned transportation and storage revenue, partially offsetting the favourable revenue variances. The collapse in global oil prices, along with the COVID-19 pandemic, negatively impacted SaskEnergy’s customers and created uncertainty around how financial results would be affected. In response, SaskEnergy re-organized its resources to focus efforts on essential core work, dedicating employees to this work and reducing the number of embedded contractors. Vacant positions were

also managed to align resources with core work. These two actions resulted in significant savings in both employee obligations and contract and consulting services. In addition, savings were realized in travel-related expenses due to the restrictions on travel outside and within the province. In addition to operating expense reductions, SaskEnergy reduced its capital program by approximately 40 per cent to align to customer demand. This resulted in lower actual depreciation and interest costs than were budgeted assuming the higher capital outlay. SaskEnergy’s net income before unrealized market value adjustments was $59 million in 2020-21, which was $7 million lower than the $66 million realized in the previous year. This resulted in a consolidated debt-to-equity ratio of 58 per cent debt and 42 per cent equity at March 31, 2021, which is within the target range of 58 to 63 per cent debt. Three new measures are being introduced in 2021-22. The Regulated Return on Equity for both distribution and transmission and storage is a measure that better aligns with industry, providing more comparable results. The measure for Investment in Green Initiatives demonstrates SaskEnergy’s commitment to a greener energy future.

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