Integrated Information Systems The Corporation’s information systems are becoming increasingly integrated throughout operations, increasing the risk that a failure in one system could lead to a failure in another system, impacting the Corporation’s ability to meet operational requirements. The Corporation mitigates this risk through its project prioritization process and project management methodology related to system development. The Corporation also has up-to-date business continuity and disaster recovery plans for critical operations as well as information technology processes. Attraction and Retention of Skilled Employees With Saskatchewan’s growing economy, competition to attract and retain skilled employees has increased. This risk is compounded by the significant number of the Corporation’s employees who will be eligible to retire over the next five years. SaskEnergy’s ability to attract and retain a sufficient number of appropriately skilled, diverse and motivated people will affect its ability to execute its Business Plan. SaskEnergy manages this risk through its recruitment, hiring and training processes. The Corporation also conducts a quarterly succession planning assessment and utilizes a cross training strategy. In addition, SaskEnergy monitors, and adjusts when appropriate, compensation and benefits as part of the job evaluation process, utilizing industry comparisons. Employer/Employee Relationship The Corporation’s relationship with its employees is important to the continued safe operation of its transmission, storage and distribution systems. Possible consequences of a deteriorating relationship with employees include loss of productivity and labour disruption. SaskEnergy maintains open dialogue with its union through joint union-management committees, the collective bargaining process, a focus on safety and providing an environment that offers employees a healthy work life balance. Contracts, Derivatives, Credit Policies SaskEnergy’s exposures to contractual obligations through its various contracts and natural gas derivatives are significant and if not actively managed through a proactive governance program could result in substantial monetary, reputational and legal loss. Corporate governance establishes the framework and principles to manage the known risks associated with the contracts and derivatives of a thriving natural gas utility. The management of these risks, reviewed and approved by the Board of Directors, are governed by numerous Executive and management committees as well as established, best practice tested policies which attempt to mitigate known risks of loss. The Corporation is also subject to risks specifically related to financial instruments that, depending on the significance, may not have been discussed above. Risks specific to financial instruments are discussed in Note 11 of the consolidated financial statements.
Critical Accounting Policies And Estimates The Corporation prepares its consolidated financial statements in accordance with IFRS, using the accounting policies described in Note 3 of the consolidated financial statements. The application of these accounting policies requires management to make a number of judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. These judgments, estimates and assumptions, which are based on historical experience and other factors that are considered relevant, are reviewed on an ongoing basis. The Corporation’s critical accounting policies and estimates, those that could materially impact the Corporation’s consolidated financial statements, have been summarized below. Estimated Unbilled Revenue Commodity sales and delivery revenues are recognized when natural gas is delivered to customers. SaskEnergy estimates the volume of natural gas delivered but not billed, as it is currently impracticable to read all customer meters on December 31 of each year. The volume of unbilled sales is determined by comparing the estimated total volume of natural gas delivered to the distribution system to the volume of natural gas billed to customers. Regular meter readings throughout the year are used to reconcile volumes purchased with volumes billed. At year end, the unbilled revenue related to commodity sales and delivery revenue was $61 million. Net Realizable Value of Natural Gas in Storage Held for Resale The Corporation’s natural gas in storage is valued at the lower of weighted average cost and net realizable value. When determining the net realizable value, the Corporation uses quoted future market prices based on anticipated delivery dates, taking into account the Corporation’s existing natural gas contracts, ability to withdraw natural gas from storage and management’s intention. At year end, the revaluation reduced the carrying amount of natural gas in storage by $23 million. A $0.79 per GJ improvement in the differential between the weighted average cost and net realizable value would completely eliminate the $23 million revaluation. Fair Value of Financial and Derivative Instruments The Corporation uses natural gas derivative instruments to secure its supply of natural gas and manage the impact of natural gas price variability. Prior to settlement, SaskEnergy records all natural gas derivative instruments at fair value. The fair value is determined based on quoted market prices and takes into account the credit quality of both counterparties and the Corporation. Given fluctuations in natural gas prices, fair value adjustments vary throughout the length of the contract. At year end, a $1.00 per GJ increase in natural gas prices throughout the forward curve would have increased the fair value of outstanding natural gas contracts by $87 million.
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Management’s Discussion & Analysis
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