2020-21 SaskEnergy Annual Report

Management’s Discussion and Analysis

Workforce Talent The risk to organizational performance related to adapting and matching the corporate skill set to an evolving environmental and business landscape. • SaskEnergy has responded to evolving customer expectations and shifts to a greener energy focus by reframing the structure to meet those needs. In order to address these challenges, new skills must be acquired and developed within the organization. • Continuing through the transformation and progressing through the necessary efforts to adapt the current recruitment and employee engagement and development processes will be a focus for addressing this risk. Transportation and Delivery Rate Adjustment Approval The possibility of required transportation and delivery rate adjustments not receiving approval. • As a rate regulated utility, the risk of not receiving approval for a rate change is always present; however, the absence of recent rate changes, the impact of the COVID-19 pandemic on customers’ finances, and the economic outlook have made this more relevant. Failure to receive approval for rate adjustments impacts the Corporation’s ability to achieve its targeted rate of return. • SaskEnergy is proactive in targeting efficiencies and prudently manages its capital and operating spending to reduce the requirement for future rate increases. The continuation of these efforts will support the Corporation’s forecasting efforts in developing its rates strategy. Systemic Health and Safety The risk of a significant incident, or a systemic health and safety incident, occurring and the subsequent impact on employee safety and the ability of employees to operate the system. • Given the nature of SaskEnergy’s operations, there is an ever present and inherent safety risk to employees, which makes managing this risk a top priority. As evidenced by the COVID-19 pandemic, the possibility of a widespread health event impacting employee wellbeing, and the ability to operate, is also something that must also be considered and prepared for. • The acceptability for risk associated with safety is lower than all others and, as such, many mitigating actions exist spanning from process specific up to

statistical monitoring and emergency situation planning. These efforts and associated programs continue to mature and improve with a goal of driving the safety risk down as low as practical. In addition to the top priority strategic risks identified above, the Corporation’s financial results are subject to the following risks: Weather SaskEnergy has designed its transmission and distribution system, and operating plans, based on a severely cold winter that is expected to occur once every 20 years. Financial projections, as well as commodity and delivery rates, are based on a ‘normal’ or typical winter. To the extent that weather differs from normal, SaskEnergy will generate more revenue (colder than normal) or less revenue (warmer than normal). A severely cold winter can also result in significantly higher operating costs, as such a winter puts more stress on equipment and requires more labour and material to manage. SaskEnergy has mitigated some of the risk of weather by increasing the amount of delivery revenue recovered through the basic monthly charge to customers but still retains a significant amount of this risk. Natural Gas Prices Natural gas prices can change significantly, and often do over a short period of time. As selling prices are set in advance of gas purchases, it is possible that commodity rates do not generate enough revenue to cover the cost of gas purchased or, alternatively, that the commodity rate recovers more than the cost of gas. Under the current regulatory model, SaskEnergy is not allowed to earn a margin on the sale of gas to customers, nor is it subject to realized losses. Differences between the cost of gas purchased and the revenue earned on the sale of gas to customers are collected in the GCVA and incorporated into the calculation of the commodity rate when rates are reset, usually in April or November each year. Gas prices also have a significant impact on market value adjustments. Market value adjustments include the impact of fair value adjustments as well as the revaluation of natural gas in storage. Fair value adjustments represent the change in value of gas purchased or gas sales contracts from one reporting period to the next. In addition, gas prices can affect the net realizable value of natural gas in storage, as it is valued at the lesser of cost or what could be realized in the market when it is sold. As discussed in the financial risk management section of the consolidated financial statements, SaskEnergy has risk management policies in place to limit the impact that market prices can have on the financial results.


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