SaskEnergy Third Quarter Report - December 31, 2023

202 3 -2 4 Financial Statements

Third Quarter Report Dec ember 3 1 , 2023

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

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

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.

TABLE OF CONTENTS Financial and Operating Highlights Management's Discussion and Analysis Introduction

3 4 4 6

Operating Environment

Consolidated Financial Results Liquidity and Capital Resources

11 12 1 3 1 4

Capital Additions

Outlook

Consolidated Financial Statements

Financial and Operating Highlights

CONSOLIDATED FINANCIAL INFORMATION ($ millions)

Three months ended December 31,

Nine months ended December 31,

2023

2022

90 60

190 177

Delivery

102

202 177

Transportation and storage

59 22

8 4 7

28 10 18

Commodity margin

31 29 18

Asset optimization margin Customer capital contributions Total revenue and margins

8 8

169

423

199

457

28 53 35

Employee benefits

27 52 32

148 105

Operating and maintenance Depreciation and amortization

141

94 14

Saskatchewan taxes

3 4

(3)

(2)

(Recovery) impairment loss on trade and other receivables

Net finance expense Other losses (gains)

(1)

Total expenses

141

409

137

385

Income before unrealized market value adjustments

(24)

(38) (24)

Market value adjustments

(53)

(38)

CONSOLIDATED NET (LOSS) INCOME Cash provided by operating activities Cash used in investing activities

209

162

(85)

(196)

(62)

(161)

(19)

Cash (used in) provided by financing activities

(1)

10 38

Dividends declared

3,616 1,867 60.5%

Total assets Total net debt

3,602 1,851 59.9%

Debt ratio

OPERATING STATISTICS Distribution energy (petajoules) Residential/Farm

11 10 49 70

18 17

16 12 48 76

23 20

Commercial

139 174

Industrial

130 173

Total

15% warmer

16% warmer

Weather (compared to last 30 years) Transmission energy (petajoules) Domestic

12% colder

7% colder

104

271

109

266

Export

Total

106

282

119

315

Cash used in Investing Activities $ millions

Income before MVA $ millions

Cash from Operations $ millions

209

250

196

192

161

162

130

125

2023

2022

2021

2023

2022

2021

2023

2022

2021

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 nine months ended December 31, 2023. 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 February 28, 2024 and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2022-23 Annual Report. 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 SaskEnergy’s 2022-23 Annual Report. 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 volume of natural gas delivered to customers is sensitive to variations in weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results for the first nine months of 2023-24 should not be taken as indicative of the performance to be expected for the full year. The Corporation’s financial results are subject to variation, especially given the volatility of natural gas prices. 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 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. The discussion of the Corporation’s results in the MD&A, set out on the following pages, is a comparison of the results for the nine months ended December 31, 2023, to the results for the nine months ended December 31, 2022, unless otherwise noted. OPERATING ENVIRONMENT SaskEnergy monitors a number of crucial factors that could influence financial performance. Weather and Global Variables After July 2023 landed as the hottest month on record (globally), 2023 looks to be the hottest year. This distinction was held by 2016 with a strong El Nino year, and another El Nino (combined with more CO 2 in the atmosphere) has pushed 2023 to the top of the list. El Nino is the result of warm equatorial waters of the Pacific Ocean acting like a global heat pump. Current forecasts have these conditions moderating and reaching a neutral state between March and May 2024. Locally, conditions are aligning with global averages. On a population weighted basis, December 2023 was the warmest December on record for both Alberta and Saskatchewan. On the supply side, American and Canadian producers continue to set new records for production levels. For the time being, this gas is keeping storage levels near all-time seasonal highs, and in the longer-term incremental LNG export capacity is expected to take up the slack. Current projects under consideration would have North America’s export capacity double by 2029 – up to 28 Bcf per day. This expansion is primarily driven by incremental natural gas production for the Permian basin wells of east Texas (increasing gas-to-oil ratios), and to a lesser extent by the LNG Canada facility expected on-line in late 2024 (2 Bcf per day). Strong North American supply and drought-induced slowdowns at the Panama Canal caused a surplus of LNG deliveries to Europe allowing the continent to enter the winter with full storage despite dramatically reduced Russian imports. This reduction in risk drove down the Dutch index price by 65 per cent over the calendar year; current prices are 90 per cent lower than the peaks seen in mid-2022. US prices showed similar action with a year-on-year fall of 40 per cent.

Management’s Discussion and Analysis

Saskatchewan Supply and Demand After an active maintenance season (with minimal market impacts), October saw a handful of low-priced days in Alberta due to curtailed western egress. Warm temperatures and high production levels saw Alberta storage net injecting until the last three days of November. Given high inventory levels, slow withdrawals in December, and the current forecast, storage could be full again as early as mid-summer 2024. Ample supply and limited demand further downstream left the differential between Alberta and Saskatchewan relatively flat – well below the cost of incremental transport. Saskatchewan Natural Gas Prices The AECO daily index averaged $2.18 per GJ through the three months ended December 31, 2023. The year-over-year decrease from $4.84 per GJ was largely a function of lower global prices, warm weather, and robust storage levels. Traditionally, most natural gas in Saskatchewan (TEP) is priced at a differential to the AECO price. This AECO to TEP differential for the quarter averaged $0.07 per GJ premium compared to $0.58 per GJ the year prior. As discussed last quarter, despite heavy maintenance, daily capacity from AECO to TEP has been readily available this year causing the spread to flatten out. The following chart shows AECO natural gas prices:

AECO Monthly Index Historical Prices

$8.00

$7.00

Forward Price at December 31, 2023 Average Price: $3.02/GJ

Limited Export Capacity from Alberta

$6.00

2015-Present Average Price: $2.61/GJ

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

Management’s Discussion and Analysis

CONSOLIDATED FINANCIAL RESULTS Consolidated Net Income

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

Income before unrealized market value adjustments Impact of fair value adjustments Revaluation of natural gas in storage Consolidated net (loss) income

(34)

(58)

(24)

(38)

(53)

(38)

(24)

(5)

(58)

Income before unrealized market value adjustments was $14 million in 2023, $58 million unfavourable compared to income of $72 million in 2022. This is resulting from lower asset optimization margins and lower delivery revenue, along with higher employee benefits expenses, operating and maintenance expenses, depreciation and amortization expense, and finance costs. These were partially offset by a recovery on the allowance for trade and other receivables. Through the prior year’s nine months ended December 31, 2022, the Corporation was able to take advantage of unutilized transportation capacity as natural gas line projects continued to be delayed in Alberta. In combination with increased maintenance projects, which limited transportation capacity on Alberta systems, throughout the summer — higher-than normal asset optimization margins were realized in the prior year. The Alberta natural gas line projects were operationalized in 2023, which has removed the transportation capacity constraints experienced in 2022 and has contributed to lower natural gas market prices and decreased market price volatility, both limiting the Corporation’s asset optimization opportunities through 2023. Delivery revenue declined as unusually warm weather in the fall of 2023 reduced gas consumption by 8 PJs to the end of December compared to the prior year. Employee benefits expenses increased in 2023 as positions that were vacant in 2022 were filled. Operating and maintenance expenses increased in 2023 compared to 2022 as the Corporation modernizes technology solutions and enhances on-line and mobile customer service experiences, with both resulting in higher hosting fees to support the additional functionality implemented. In addition, leak survey, environmental monitoring and cathodic protection costs are increasing as the natural gas infrastructure continues to grow. Transportation and storage expenses increased as natural gas is sourced from greater distances and transportation service providers implemented rate increases. Depreciation and amortization expenses increased in 2023 compared to 2022 as the Corporation implemented both the results of a third-party depreciation study as well as a change in the management estimate on useful lives of intangible and compression assets. Finance costs continued to increase, a result of the rise in short-term, market interest rates, combined with long-term debt issues through 2023 increasing long-term debt financing costs. Forward market prices declined below March 2023 levels, generating a $38 million unfavourable fair value adjustment, as the favourable price differential between average deal price and average market price on outstanding commodity purchase contracts declined $0.62 per GJ at December 31, 2023 compared to March 31, 2023. Natural Gas Sales and Purchases Included within natural gas sales and purchases are rate-regulated commodity sales to distribution customers and non- regulated asset optimization activities. IFRS requires these activities to be presented together within the consolidated financial statements; however, the Corporation manages these activities as distinct and separate businesses and, as such, the MD&A addresses these natural gas sales and purchases separately. With the exception of those contracts entered into for an entity’s normal usage, IFRS requires derivative instruments such as natural gas purchase and sales contracts to be recorded at fair value until their settlement date. Changes in the fair value of the derivative instruments, driven by changes in future natural gas prices, are recorded in net income through natural gas sales or natural gas purchases depending on the specific contract. Upon settlement of the natural gas contract, the amount paid or received by SaskEnergy becomes realized and is recorded in natural gas sales or purchases. The majority of SaskEnergy’s natural gas contracts are normal usage and are not recorded at fair value.

Management’s Discussion and Analysis

Commodity Margin SaskEnergy sells natural gas to its distribution customers at a commodity rate approved by Provincial Cabinet based on the recommendations of the Saskatchewan Rate Review Panel (SRRP). The commodity rate is determined based on rate- setting principles and is designed to recover the realized costs associated with the sale of natural gas to distribution customers. Regulatory principles require that utilities do not earn a profit or realize losses on the sale of gas to customers over the long term. Consequently, SaskEnergy accumulates differences between the commodity revenue earned and the cost of natural gas sold in a Gas Cost Variance Account (GCVA). The balance in the GCVA, which is not included in SaskEnergy’s financial statements, is either recovered from, or refunded to, customers as part of future commodity rates. SaskEnergy prepares its financial statements on a consolidated basis while applying IFRS. Consequently, the amounts determined for rate-setting purposes are different than those reported within its IFRS consolidated financial statements. A gain or loss reported in the Corporation’s consolidated financial statements may not be reflected in the GCVA. SaskEnergy’s natural gas price risk management program has two objectives: to reduce the impact of natural gas price volatility on the cost of gas and to support rates that are competitive with other utilities. Reducing the impact of price volatility requires establishing certainty in the cost of gas, while supporting competitive rates often means allowing purchase prices to follow market prices. As a result, the balance between the two opposing objectives may change depending on current market conditions. In order to ensure a secure supply of natural gas, SaskEnergy contracts for the physical delivery of natural gas using non-financial derivatives, referred to as forward or physical natural gas contracts. The purchase price contained in these forward contracts may be fixed, or it may be based on a variable index price. While fixed price contracts reduce the impact of natural gas price volatility, variable or market prices can assist in offering competitive rates depending on the pricing environment. SaskEnergy may also use financial derivatives and physical swaps to manage the future purchase price of natural gas. The commodity margin on sales to customers, as reported in the condensed consolidated financial statements, was as follows:

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

128 $

70 $

122

(52) (37) (15)

168 136

(40) (36)

Commodity sales

100

Commodity cost of sales

99 23

(4)

Realized margin on commodity sales Unrealized fair value adjustments

(35)

(24) (16)

(53) (30)

29 14

(37)

(7)

Margin on commodity sales

(5)

(2)

The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments, as these adjustments can fluctuate significantly from one period to the next and do not necessarily represent the amount that will be paid upon settlement of the related natural gas contract. The Corporation’s realized margin on commodity sales for the nine months ended December 31, 2023, was $4 million lower than in 2022. The commodity margin was $0.75 per GJ through the nine months ended December 31, 2023, slightly lower than the $0.76 per GJ for the same period ended December 31, 2022. To address AECO daily index prices trending upwards in 2022, SaskEnergy received approval to increase its commodity rate to $4.20 per GJ from $3.20 per GJ effective August 1, 2022. The Corporation was able to maintain the $4.20 per GJ commodity rate through 2022, largely due to its commodity price risk management strategy, while market prices climbed as high as $8.00 per GJ last year. Subsequently, the AECO daily index has dropped significantly in 2023, averaging $2.32 per GJ through the nine months ended December 31, 2023, compared to $5.22 per GJ in the same period ended December 31, 2022. The substantial decrease in the market moved gas prices below the commodity rate and increased the amounts owing to customers in the GCVA. Consequently, the Corporation received approval to decrease its commodity rate to $3.20 per GJ effective October 1, 2023. Lower natural gas prices and reduced commodity rates have reduced both commodity sales and commodity cost of sales compared to the prior year. Furthermore, the significantly warmer weather in the fall of 2023 has led to lower gas consumption, further contributing to the unfavourable variance.

Management’s Discussion and Analysis

The GCVA balance increased to $9 million owing to customers at December 31, 2023, compared to $2 million owing to customers at March 31, 2023 — a result of the average AECO daily index decreasing to $2.32 per GJ for the nine months ended December 31, 2023 compared $4.68 per GJ for the twelve months ended March 31, 2023. The 24.5 per cent decrease of commodity rate effective October 1, 2023, coupled with the Corporation’s commodity price risk management strategy, will ensure that the GCVA balance stays within the targeted level, and maintain a steady competitive commodity rate for customers. Commodity Fair Value Adjustments Fair value adjustments on commodity derivative instruments decreased the margin on commodity sales by $35 million as the $20 million favourable fair value position at March 31, 2023 decreased to $15 million unfavourable at December 31, 2023. The favourable price differential of $0.30 per GJ between contract prices and market prices on future commodity purchase contracts at March 31, 2023, decreased to an unfavourable price differential of $0.32 per GJ at December 31, 2023 due to significant decreases in gas prices. SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such contracts, termed “own use contracts”, are not required to be reported at market value. Asset Optimization Margin SaskEnergy uses its access to natural gas markets to execute purchases and sales of natural gas to generate margins. By utilizing off-peak transportation and storage capacity, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods. In most cases, the Corporation executes purchase and sales contracts at the same time, thereby mitigating much of the price risk that would normally be associated with such transactions. SaskEnergy also uses purchases and sales of natural gas to mitigate transportation constraints, which are executed at a cost. The asset optimization margin, as reported in the condensed consolidated financial statements, was as follows:

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

26 22

101 $

Asset optimization sales

75 68

(49) (46)

295 267

(194) (176)

91 10

Asset optimization cost of sales

Realized margin on asset optimization sales Unrealized fair value adjustments Revaluation of natural gas in storage

(3)

(18)

- -

(3)

- -

(1)

(2)

Margin on asset optimization sales

(3)

(20)

The realized margin on asset optimization sales for the nine months ended December 31, 2023, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $18 million lower than in 2022. In the prior year, energy prices in Western Canada increased through the nine months ending December 31, 2022, as major pipeline capacity projects in Alberta experienced continued construction delays. In combination with increased maintenance projects on natural gas systems in Alberta, both components factored into creating transportation capacity constraints, resulting in increasing natural gas market prices, increasing market price volatility through 2022 and increasing AECO to TEP price differentials. The Corporation was able to capitalize on its unutilized transportation capacity through the nine months ending December 31, 2022, and executed 53.0 PJ of asset optimization contracts at an average margin of $0.55 per GJ. The delayed construction projects in Alberta were operationalized in early 2023 and increased transportation capacity in Alberta. Natural gas prices, location price differentials and market price volatility have declined, as the transportation capacity constraints seen in 2022 are not being experienced in 2023. This is resulting in decreased opportunities for SaskEnergy to use its unutilized transportation capacity for asset optimization activities. The Corporation executed 37.9 PJ of asset optimization contracts at an average margin of $0.25 per GJ through the nine months ended December 31, 2023.

Management’s Discussion and Analysis

Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts in its asset optimization strategies, which are subject to volatility of natural gas market prices until the natural gas contracts are realized. The unrealized fair value adjustments on asset optimization derivative instruments had a $3 million unfavourable impact on outstanding asset optimization contracts in 2023. Revaluation of Natural Gas in Storage The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. At each reporting period, the Corporation measures net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. With forward natural gas market prices decreasing through 2023, and high inventory turnover, asset optimization natural gas in storage was recorded at weighted average cost at December 31, 2023 and March 31, 2023. With both periods below net realizable value, the impact on net income was $nil. Revenue Delivery revenue, transportation and storage revenue and customer capital contributions, as reported in the condensed consolidated financial statements, were as follows:

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

90 $

1 90 $

Delivery revenue

102

(12)

202 177

(12)

177

Transportation and storage revenue Customer capital contributions

- -

(1)

1 57 $

3 85 $

Revenue

169

(12)

397

(12)

Delivery Revenue Natural gas delivery rates are designed to recoup all distribution facility and operating costs necessary for delivery of natural gas to customers throughout the year. Natural gas storage and transportation costs — as well as ongoing investments related to safety, system integrity and growing infrastructure — are factored into delivery rates. Other considerations impacting natural gas delivery services include regulatory code compliance and industry best practices regarding safety. To minimize these impacts on delivery service customers, the Corporation strives to make the most effective use of resources and technology and to collaborate with other Crown corporations and executive government. Delivery revenue is primarily driven by the number of customers and the amount of natural gas they consume. Weather is the most significant external factor affecting delivery revenue, as residential and commercial customers consume natural gas primarily as heating fuel. Delivery revenue of $190 million for the nine months ending December 31, 2023, was $12 million lower than the same period ending December 31, 2022. Unusually warm weather in the fall of 2023 reduced gas consumption by 8 PJs in 2023 compared to the prior year. This decline was partially offset by higher revenue generated from the rate increases implemented effective August 1, 2022, and October 1, 2023, for all delivery services. The rate increases address rising operating costs related to safety, system integrity, a growing distribution infrastructure, improving customer experiences and rising inflation. Transportation and Storage Revenue The Corporation generates transportation revenue by receiving gas from customers at various receipt points in Saskatchewan and Alberta and delivering natural gas to customers at various delivery points in the province. The transportation toll structure consists of a receipt service charge, which customers pay when they put gas onto the natural gas transportation system and a delivery service charge that customers pay when they take delivery off the natural gas transportation system. For receipt and delivery services, the Corporation offers both firm and interruptible transportation contracts. Under a firm service contract, the customer has a right to deliver or receive a specified quantity of gas on each day of the contract. With a firm contract, customers either pay for the amount of capacity they have contracted for, whether they use it or not. Under an interruptible contract, customers may deliver or receive gas only when there is available capacity on the system and only pay receipt and delivery tolls when they deliver or receive gas.

Management’s Discussion and Analysis

Integral to the Corporation’s transmission system are several strategically located natural gas storage sites, which have the capacity to provide operational flexibility along with a reliable and competitive natural gas storage service. Transportation and Storage revenue for the nine months ended December 31, 2023 equaled the prior year results, as higher delivery service revenues are resulting from industrial customers executing higher contract demand and interruptible transportation services to meet their operating requirements. This was partially offset by customers decreasing export transportation service contracts in 2023 compared to 2022. High natural gas market prices in Canada through 2022 created incentives for customer to increase export services and supply Eastern Canada with natural gas as the region was experiencing higher natural gas market prices than Western Canada. This opportunity did not present itself in 2023 and export services are returning to normal levels. Storage revenue of $9 million, for the nine months ended December 31, 2023, equaled prior year results. Customers leverage storage services for balancing their transportation account and inject natural gas into storage in the summer to meet higher loads and demands in the winter. Customer Capital Contributions The Corporation receives capital contributions from customers to partially offset the cost of constructing facilities to connect them to the transmission and distribution systems. Generally, contributions related to transmission system projects tend to be larger but less frequent than contributions related to the distribution system. The volume and magnitude of contribution revenue can significantly vary period-over-period, as several factors influence their receipt and recognition as revenue. Customer capital contributions equaled the prior year as installations in the distribution utility are comparable year-over-year. Other Expenses SaskEnergy’s expenses are driven to a large degree by its investment in its transmission, distribution and storage systems. Depreciation and amortization expense, net finance expense and Saskatchewan taxes are directly tied to the investment in facilities. As the level of investment in facilities increases, these expenses also increase. Employee benefit expenses and operating and maintenance expenses are also driven by the Corporation’s investment in facilities, although less directly. As the number of customers increases and infrastructure to serve those customers grows, the costs to operate and maintain the system increases. These expenses increase primarily because the amount of work to service and maintain the natural gas system grows as the kilometres of gas lines, number of service connections and amount of compression equipment increases. Additional regulatory requirements and changing public perceptions have resulted in accelerated prevention, detection and mitigation initiatives, adding pressure to transmission, distribution and storage rates. Other expenses, net finance expenses and other losses (gains), as reported in the condensed consolidated financial statements are as follows:

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

82 $

28 $

27 52 32

(1) (1) (3) (1)

(4) (7)

Employee benefits

148 105

53 35

141

Operating and maintenance Depreciation and amortization

94 14

(11)

(1)

Saskatchewan taxes

(Recovery) impairment loss on trade

(3)

(2)

and other receivables

7 1

117 $

348 $

332

(16)

118

59 $

21 $

(2)

(5)

Net finance expenses

(1)

(3)

Other losses (gains)

Employee Benefits Full-time equivalents are trending higher in 2023 than 2022 levels, resulting in employee benefit costs increasing $4 million compared to 2022, as the Corporation was able to fill previously vacant positions.

Management’s Discussion and Analysis

Operating and Maintenance SaskEnergy continues to focus on the identification of efficiencies to maintain its financial strength. This includes identifying opportunities for standardization, simplification, and the elimination of waste from its processes. Operational excellence will remain an area of focus for the Corporation to achieve financial and business process efficiencies. Operating and maintenance expenses were $7 million higher than the same period in 2022, which is primarily resulting from leveraging technology and enhancing customer service offerings. The modernization of technology solutions to cloud computing arrangements, typically involves ongoing licensing and hosting fees compared to the historical purchase model. Adding functionality to the Corporation’s online customer portal and mobile application is expanding customer service offerings and is also contributing to rising hosting fees in 2023. The Corporation’s ongoing commitment to safety and the environment, combined with the recent installation of two key transmission system natural gas line projects, are resulting in increasing leak survey, post project environmental monitoring and cathodic protection costs. With growing system requirements, resulting from customers continuing to choose, and other customers transitioning to, natural gas as their energy source, transportation costs are also increasing as more natural gas is being transported and over larger distances. Higher regulator fees, for the Corporation’s cross boarder transmission system subsidiary, are resulting from the subsidiary transitioning into a higher fee structure. In addition, overall global inflation is leading to increasing operating materials and supply costs as well as external contractor costs. Depreciation and Amortization Balancing safety and system integrity with demand for service continued through 2023. Strategic capital investments required the necessary distribution and transmission infrastructure be put in-service to meet current customer demand, resulting in increased depreciation and amortization — which was $11 million higher than the same period in 2022. Changes made to depreciation rates, based on an external depreciation study, as well as a change in management assumptions for amortization of intangible and compression assets also contributed to higher depreciation in 2023. (Recovery) Loss on Trade and Other Receivables Lower customer receivable balances outstanding at December 31, 2023, are resulting from warmer weather through 2023 compared to 2022, combined with a lower commodity rate. This is resulting in a $2 million recovery of the previous impairment on trade and other receivables. Net Finance Expenses Net finance expenses for 2023 were $5 million higher than in 2022, resulting from additional long-term debt issuances of $125 million in 2023 and increasing short-term market interest rates. The Corporation’s average short-term debt interest costs climbed to 4.9 per cent through the nine months ending December 31, 2023 compared to 2.6 per cent through the same period in 2022. Other net losses (gains) Losses in 2023 are resulting from increasing decommissioning costs pertaining to forecasted abandonment activities at a non-operational storage facility. These losses were partially offset by a gain resulting from the sale of land and building assets at one of the Corporations construction facilities. The net gain in the prior year, is resulting from the sale of storage related assets. LIQUIDITY AND CAPITAL RESOURCES As a Crown corporation, SaskEnergy’s primary sources of capital are cash from operations and debt — which is borrowed through the Province’s General Revenue Fund. Cash from operations is SaskEnergy’s most important source of capital. As a utility, cash from operations is relatively stable and the Corporation relies on it to fund a significant proportion of its investment in its natural gas facilities and the debt servicing costs on those investments. Long- and short-term debt can be borrowed through the Province of Saskatchewan to meet any long- or short-term incremental capital requirements and to repay debt as it matures. Sources of liquidity include Order in Council authority to borrow up to $500 million in short-term loans and a $35 million line of credit with the Toronto-Dominion Bank. Under The SaskEnergy Act , the Corporation may borrow up to $2,500 million of debt upon approval of the Lieutenant Governor in Council.

Management’s Discussion and Analysis

Cash provided by and used in activities, as reported in the condensed consolidated financial statements are as follows:

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

209 $

Cash provided by operating activities Cash used in investing activities

162

(196)

(85)

(35) (29) (17)

(23)

(161)

(62)

(19)

Cash (used in) provided by financing activities (Decrease) increase in cash and cash equivalents

(1)

10 11

(4)

(6)

(7)

Operating Activities Cash provided by operating activities increased $47 million through the nine months ended December 31, 2023, compared to the same period in 2022, due to favourable changes in working capital. High accounts receivable balances at March 31, 2023 were collected through the nine months ending December 31, 2023 as the Corporation was emerging from the winter heating season. Account receivable balances at December 31, 2022 were comparable to balances at March 31, 2022, however warmer than normal weather through December 2023 compared to December 2022 are resulting in lower customer account receivable balances outstanding at December 31, 2023 and a favourable impact to working capital. Investing Activities Cash used in investing activities increased $35 million compared to 2022, primarily due to capital investment required for system expansion, risk management and reliability of natural gas service projects increasing in 2023. This was partially offset by lower investment in customer growth initiatives. Financing Activities Cash used in financing activities of $19 million in 2023 was $29 million more than the $10 million provided by financing activities in 2022, primarily due to higher cash from operating activities decreasing the Corporation’s reliance on short-term debt, a positive result taking into account short-term market interest rates are continuing to trend higher through 2023. The Corporation used $62 million for interest payments, $17 million for dividend payments and $14 million to pay debt retirement fund installments. In addition, the Corporation borrowed an additional $125 million of long-term debt in three increments in the first quarter to support its capital investment requirements.

CAPITAL ADDITIONS Capital additions, as reported in the condensed consolidated financial statements, were as follows:

Three months ended December 31,

Nine months ended December 31,

(millions)

2023

2022 Change 2023

2022 Change

20 18 23 16

41 49 64 29

Customer growth System expansion Risk management

4 9 3 7

59 14 54 19

(18)

35 10 10

Reliability of natural gas service

9 4

Business and technology optimization

(2)

(1)

188 $

Capital additions

152

The Corporation continues to strategically invest in high priority projects while identifying cost saving opportunities including optimizing resources, streamlining construction processes and collaborating with other Crown Corporations. Capital additions through the nine months ended December 31, 2023, were $36 million higher than the investment made in 2022. Investment in customer growth projects was $18 million lower than 2022 investment levels, as the Corporation focuses on investing in urban and rural mains and services in 2023 to support existing and future customer connections to the distribution system. In 2022, the Corporation focused on customer growth by enhancing the transmission system to meet the increasing demand for natural gas within the province’s value-added agriculture sector and gas-fired power generation industry.

Management’s Discussion and Analysis

System expansion capital projects provide incremental capacity for the transmission and distribution systems, through the installation of new or expanded gas line or facility assets, thus enabling demand growth. Higher investment of $35 million in system expansion projects through 2023 are resulting from spending on Regina reinforcement projects, which will increase available delivery capacity in west Regina, and position the Corporation to meet new customer demand. In addition, transmission system work in 2023 is focused on the Melfort East Expansion project, which involves gas line expansion to meet demand growth. Risk management capital projects concentrate on mitigating the likelihood of a negative consequence occurring on the SaskEnergy system, such as damage or loss of gas containment. These consequences typically include damage to infrastructure, environment and potential harm to or loss of human life. Risk management spending of $64 million is approximately one-third of the Corporation’s 2023 year-to-date capital investment and increased $10 million over 2022 expenditures. This is resulting from an increased focus on replacement of cathodic protection, measurement and service assets. In addition, pipeline inspection and survey costs are higher in 2023, resulting from increasing costs and a growing infrastructure. Reliability of natural gas in service includes enhancements, modifications or upgrades to facilities, ensuring that natural gas demand will be met without failure or loss of service. Reliability of natural gas service spending increased $10 million in 2023 compared to the same period in 2022. The Corporation purchased additional construction equipment in the current year as supply chain issues pushed planned delivery of fleet vehicles and equipment from 2022 to 2023. Additional focus is being placed on investing in system improvement work on town border stations and district regulator stations in 2023. Business and technology optimization ensures that every investment in information technology, every resource allocated and every application in development or in production, meets the Corporation’s business goals, and is comparable to prior year. OUTLOOK With the outlook for provincial natural gas demand continuing to grow in the short to intermediate term, SaskEnergy will continue to focus on core operations and strive for efficiencies to support its continued financial strength. Recognizing the importance of reducing emissions, SaskEnergy has several initiatives targeted to support emissions reductions from both internal operations and customer-focused initiatives. Offsetting the cost pressures created by these efforts, SaskEnergy continues its focus on operational excellence to achieve cost savings through business process improvements, leveraging technology, and collaboration with other Crown corporations and executive government. Modest incremental growth is expected primarily from SaskEnergy’s industrial customers in 2023-24, with additions from the value-added agricultural sector and from gas-fired power generation leading the way. While the number of residential customers connecting to SaskEnergy’s distribution system is expected to continue increasing, total demand and revenue growth from this customer segment is expected to remain stable due to energy efficiency improvements. Despite the expected customer growth, SaskEnergy is forecasting lower earnings in 2023-24 due to lower asset optimization margins and lower customer capital contributions. Increasing employee benefits expenses and operating costs combined with higher interest expense are also having negative impacts on earnings. After a period of high natural gas prices in 2022, prices began to fall, allowing SaskEnergy to request a decrease to its commodity rate. In September 2023, SaskEnergy obtained approval from the Government of Saskatchewan for a 24.5 per cent decrease to the commodity rate effective October 1, 2023, dropping it from $4.20 to $3.20 per gigajoule and a five per cent delivery service rate increase. SaskEnergy sets its rates at a level that ensures the maintenance of safe, reliable and affordable natural gas service across Saskatchewan. The combined commodity and delivery service rate adjustments result in an overall bill decrease for the average residential customer. Affordability remains a top priority for SaskEnergy and its focus on operational excellence will mitigate cost pressures to keep the delivery of natural gas affordable for its customers. SaskEnergy is committed to providing solutions and service that benefit customers and Saskatchewan, by leveraging the Corporation’s expertise and the province’s private sector. Throughout 2023-24, SaskEnergy will increase its capital investment in the province, with key areas of focus including: maintaining the safety and reliability of the natural gas transmission and distribution systems, enhancing customer experience, and supporting the emissions reduction strategy.

Condensed Consolidated Financial Statements (unaudited)

1 5 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 1 6 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1 8 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 1 9 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20 GENERAL INFORMATION 20 BASIS OF PREPARATION 2 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2 1 NATURAL GAS IN STORAGE HELD FOR RESALE 2 2 FINANCIAL AND DERIVATIVE INSTRUMENTS 2 3 FINANCIAL RISK MANAGEMENT 2 5 ASSETS HELD FOR SALE 2 6 PROPERTY, PLANT AND EQUIPMENT

2 6 LEASE LIABILITY 2 7 LONG-TERM DEBT 2 7 COMMITMENTS AND CONTINGENCIES 2 8 UNREALIZED MARKET VALUE ADJUSTMENTS 2 8 NATURAL GAS SALES AND PURCHASES 2 9 DELIVERY REVENUE 2 9 TRANSPORTATION AND STORAGE REVENUE 30 N ET FINANCE EXPENSES

Consolidated Financial Statements (unaudited)

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

March 31, 2023

December 31, 2023

Notes

(millions)

ASSETS Current assets Cash and cash equivalents

167

Trade and other receivables

248

47 21 11

Natural gas in storage held for resale

Inventory of supplies

Current portion of debt retirement funds

Assets held for sale

7 5

Fair value of derivative instruments

255

337

14 45

Right-of-use assets Intangible assets

12 51

3,134

Property, plant and equipment

3,020

168

Debt retirement funds

160

3,616

3,580

LIABILITIES AND PROVINCE'S EQUITY Current liabilities Short-term debt

268 114

311 145

Trade and other payables

Dividends payable Contract liability

Current portion of lease liability Current portion of long-term debt Fair value of derivative instruments

100

546

514

3 4 7

Employee future benefits

3 5 6

Deferred revenue

Lease liability

177

Provisions

158

1,667 2,404

Long-term debt

1,647 2,333

Province's equity Equity advances

(6)

Other components of equity

(10)

1,196 1,212 3,616

Retained earnings

1,235 1,247

3,580

The accompanying notes are an integral part of the condensed consolidated financial statements

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