2019-20 SaskEnergy Annual Report

ANNUAL REPORT 2019-20

Mission Deliver natural gas in a safe, reliable, affordable way. Vision Create customer value through safe, innovative energy solutions. Values SAFETY

We are always committed to our safety, the safety of our team and the public.

ACCOUNTABILITY We are accountable for our decisions, our actions and the results.

SPIRIT We create a positive and dynamic work environment that recognizes achievement and balance while supporting business success.

COLLABORATION We succeed through strong internal and external relationships, trust and open communication.

Our Business SaskEnergy is Saskatchewan’s natural gas distribution and transportation company serving residential, farm, commercial, and industrial customers. Our strong and vibrant workforce of more than 1,100 employees work in more than 50 locations across the province and serve more than 399,000 customers in 93 per cent of Saskatchewan communities. SaskEnergy owns and operates nearly 71,000 kilometres of distribution lines and more than 15,000 kilometres of transmission gas lines. Through our subsidiary, TransGas Limited (TransGas), we own and operate natural gas compression, storage and transmission facilities within Saskatchewan. TransGas transports natural gas for producers, industrial and commercial customers, as well as for SaskEnergy. Another subsidiary, Many Islands Pipe Lines (Canada) Limited (MIPL), owns a large diameter, low-kilometre transmission gas line system that transports natural gas over the Alberta, Manitoba and United States borders. We recognize the critical role we play in delivering essential energy to our customers and the importance of providing our service in a way that meets their evolving expectations. Through the safe, reliable and affordable delivery of natural gas, along with energy efficiency and public safety programming, SaskEnergy strives to produce high levels of service while providing customers with innovative energy solutions. SaskEnergy’s number one priority is to maintain a safe and reliable natural gas line system and we are proud to say that we have a 99.9 per cent reliability rating. Thanks to our comprehensive and well-coordinated gas line safety and integrity program, and the efforts of our provincial workforce, customers rarely experience an unplanned outage. We are committed to the communities we serve. SaskEnergy works to strengthen relationships and partnerships with stakeholders, including local communities, businesses, regulatory agencies and Indigenous groups and organizations. We are also committed to environmental stewardship in our operations as we anticipate Saskatchewan’s future energy requirements and ensure we have the technology and processes in place to reduce our environmental impact. SaskEnergy’s dedicated team of employees demonstrates our corporate values of Safety, Accountability, Spirit and Collaboration each day through their work and continue to rise to the challenge of a changing industry and the increased demand for natural gas in Saskatchewan.

Contents

5 6 7 8

CORPORATE PROFILE LETTER OF TRANSMITTAL MINISTER’S MESSAGE CHAIR’S MESSAGE

Management’s Discussion and Analysis PRESIDENT’S MESSAGE 11 FINANCIAL AND OPERATING HIGHLIGHTS 16 LOOKING BACK AT 2019-20 9 18 INTRODUCTION 18 STRATEGIC SCORECARD MEASURES 25 INDUSTRY OVERVIEW 27 CONSOLIDATED FINANCIAL RESULTS 35 LIQUIDITY AND CAPITAL RESOURCES 36 CAPITAL ADDITIONS 37 OUTLOOK 37 RISK MANAGEMENT AND DISCLOSURE 40 CRITICAL ACCOUNTING POLICIES AND ESTIMATES 42 ACCOUNTING POLICY CHANGES

Consolidated Financial Statements

44 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS 45 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 46 INDEPENDENT AUDITOR’S REPORT 48 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 49 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 50 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 51 CONSOLIDATED STATEMENT OF CASH FLOWS 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Corporate Governance

83 BOARD OF DIRECTORS 89 EXECUTIVE COMMITTEE 92 CORPORATE GOVERNANCE DISCLOSURE 101 STAKEHOLDER ENGAGEMENT 103 SUPPLEMENTARY INFORMATION 105 GLOSSARY OF KEY SUCCESS MEASURES 108 GLOSSARY OF NATURAL GAS MEASUREMENTS 109 SASKATCHEWAN NATURAL GAS TRANSMISSION LINES

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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 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

May 21, 2020

The Honourable Russ Mirasty, S.O.M., M.S.M. Lieutenant Governor of Saskatchewan

Sir: I respectfully submit the annual report of SaskEnergy Incorporated for the fiscal period ending March 31, 2020, in accordance with The SaskEnergy Act . The Consolidated Financial Statements are in the form approved by the Treasury Board, and have been reported on by the Corporation’s auditors.

Honourable Bronwyn Eyre Minister Responsible for SaskEnergy

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Minister’s Message

On behalf of Premier Scott Moe and the Government of Saskatchewan, I am pleased to present SaskEnergy’s 2019-20 Annual Report. Despite the challenges and economic uncertainty that we have faced, as a province, during the COVID-19 pandemic, SaskEnergy continues to provide safe, reliable service to Saskatchewan customers. The 2019-20 fiscal year was another successful one for the Corporation, which invested almost $330 million in capital expenditures to expand storage and delivery capacity for new and existing customers across the province. SaskEnergy continues to follow its mandate, which is to deliver natural gas in a safe, reliable and affordable way and to enhance customer value through innovative energy solutions. In 2019-20, SaskEnergy completed its 62-kilometre South Saskatoon gas line expansion project, which will bring increased capacity to central regions, including Saskatoon and Humboldt. The Corporation offered its most competitive commodity rate in 20 years and introduced a new Residential Furnace Replacement Program, which provided a $650 rebate to residential customers who installed high-efficiency furnaces and dispersed more than 840 rebates across 110 different communities. I would like to extend a heartfelt thank you to SaskEnergy’s frontline workers: for your dedication, adherence to safety, and for continuing to provide the people of Saskatchewan with safe, essential energy every day. Thank you, as well, to SaskEnergy employees, management and the Board of Directors for your excellent work over the last year.

Sincerely,

Honourable Bronwyn Eyre Minister Responsible for SaskEnergy

p.7

Chair’s Message

On behalf of the SaskEnergy Board of Directors, it is my pleasure to join the Minister Responsible for SaskEnergy, the Honourable Bronwyn Eyre, in presenting the SaskEnergy 2019-20 Annual Report. While 2019-20 came with unique challenges, including the COVID-19 pandemic, SaskEnergy showed resilience in its commitment to customers and to the province of Saskatchewan. Throughout these unprecedented times, SaskEnergy continued to provide safe and reliable natural gas delivery each day, while executing on strategic initiatives designed to ensure competitive and predictable rates to customers. The Corporation’s leadership team, management and employees clearly recognize the important role that SaskEnergy plays in meeting the needs of Saskatchewan’s residents and businesses. As evidenced throughout this report, SaskEnergy delivered on its strategic initiatives during the year, achieving strong results related to safety, rates and fiscal management, and providing value to its customers. Also clear is the recognition that the natural gas sector, like so many others, is subject to disruption from factors near and far, and that to be effective, SaskEnergy’s plans need to be flexible enough to withstand these forces. SaskEnergy will continue to engage and work with key stakeholder groups, including industrial and commercial customers, to establish and meet its targets. As a Board, we will support these efforts and ensure the Corporation is aligned with the Government of Saskatchewan’s Crown Sector Priorities and Saskatchewan’s Growth Plan with a focus on customers, financial sustainability, priority investments, technology and innovation, private sector engagement and the development of a skilled workforce. The Board is committed to the transparent governance of SaskEnergy, and thanks the Executive team, management and employees for their contributions this past year.

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

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President’s Message

I am pleased to report that 2019-20 was another strong year. SaskEnergy delivered solid operating and financial results, advanced our strategic priorities and focused on further improving the safety and reliability of our assets. It is the delivery of safe, reliable and affordable natural gas that is the foundation of SaskEnergy’s business and the reason our customers continue to entrust us with their energy needs. Any measure of our short- or long-term performance must align with these core tenets, and I am pleased with our 2019-20 achievements in this regard, as SaskEnergy was effective in meeting customer and stakeholder expectations. SaskEnergy decreased its commodity rate on April 1, 2019 to reflect the low natural gas price environment, resulting in the lowest commodity rate in 20 years. This contributed to SaskEnergy’s total residential natural gas utility rate being the third-lowest in Canada. SaskEnergy also experienced net growth of nearly 2,500 distribution customers and will reach the 400,000 customer mark during the next fiscal year. In 2019-20, transmission load growth in the province contributed to the Corporation’s highest-ever level of transportation and storage revenue. As Saskatchewan is a net importer of natural gas, securing reliable sources of supply to meet provincial gas requirements — both now and into the future — remains a high priority. Understanding the needs and plans of our large customers is critical to ensure that our system has the necessary infrastructure in place to fulfill their requirements.

Indeed, taking a long-term view of our business is key as we continue to meet the demand for natural gas in Saskatchewan and maintain the high level of service we provide to our customer base. In 2019-20, SaskEnergy’s overall residential customer satisfaction rating reached a five-year high of 91 per cent, with high levels of satisfaction being achieved in the categories of safety, reliability, affordability, ease of service and environment. We also recognize that expectations are changing and, while we continue to meet customer needs today, we must look to the expectations of our customers in the future. As a Crown corporation, it is our responsibility to implement solutions that make it easy for customers to do business with SaskEnergy, and in Saskatchewan. Technology will be a critical enabler in meeting the current and future needs of our customers and SaskEnergy can build on the success of work like our award-winning Customer Connect initiative, which was recognized with the Canadian Gas Association’s first-ever Michael Mulcahy Award for Excellence in Customer Care, Innovation and Service in 2019-20, and the Premier’s Award for Excellence in the Public Service. At the same time, it is imperative that we identify solutions that can assist in increasing energy efficiency, lowering emissions and reducing costs — both within our organization and for our customers. In 2019-20, SaskEnergy launched its Furnace Rebate Replacement Program to assist homeowners in replacing aging furnaces with new, high-efficiency furnaces. The program, which provided more than $550,000 in rebates, assisted participating customers in reducing their natural gas and electricity costs, as well as their greenhouse gas emissions. An additional $500,000 in rebates was also provided to commercial businesses to install energy efficient natural gas heating systems. Our future success will depend on many factors: innovative energy solutions that meet customer expectations, working with stakeholders and businesses to communicate the benefits of natural gas and the most reliable energy delivery system in North America, strengthening the communities in which we serve, and minimizing our impact on the environment. As a critical infrastructure service provider, we’ve taken the necessary steps to maintain the health, safety and well-being of our customers, employees and their communities during the COVID-19 public health emergency. Our commitment is to deliver reliable operations and excellent customer service. I can say with confidence that the people who make up this organization have carried SaskEnergy through change and challenges before and I want to assure you that we are prepared to get through this crisis. I want to thank the Chair and all board members for their valuable guidance and support to the Corporation by providing strategic governance and oversight for SaskEnergy. I’d like to close by acknowledging and sincerely thanking all SaskEnergy employees, who have proven their resilience and dedication to the Corporation and our customers through a year of significant challenges and changes. In the end, it’s our people who build our systems and serve our customers. They will continue to deliver safe, reliable and cost effective energy to people of Saskatchewan. It’s a privilege to work with them.

Ken From President and Chief Executive Officer

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“The Constellation Initiative paved the way for some very exciting improvements in our company and, most importantly, delivered real value to our customers. That’s what matters and, as we set our priorities and strategies to meet the growing demand for natural gas in our province, we will continue to seek ways to make customers’ lives easier.” — Ken From SaskEnergy President and CEO

AWARD-WINNING CUSTOMER CONNECT INITIATIVE

SaskEnergy is positioning itself for the future by making investments in its infrastructure, processes and people. One of these investments is the Customer Connect Constellation Initiative, which improved SaskEnergy’s ability to fulfill customer requests for natural gas service, from the initial project quote to the date the service is activated. As part of this initiative, SaskEnergy introduced an online tool for rural residential customers to apply and receive an estimate to install a new natural gas line on their property. SaskEnergy’s innovative approach to renewing its customer connect process was recognized with the Canadian Gas Association’s first-ever Michael Mulcahy Award for Excellence in Customer Care, Innovation and Service, as well as the Premier’s Award for Excellence in the Public Service.

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Financial and Operating Highlights

($ millions)

2019-20 2018-19

2017-18

2016-17 2015-16 1

284 187

Delivery

289 163

271 137

240 134

209 121

Transportation and storage

23

Commodity margin

45 11 29

41 26 21

25 14 55 10

28 20 58 12

2

Asset optimization margin Customer contributions

36

-

Other revenue

4

7

Total revenue and margins

532

541

503

478

448

96

Employee benefits

89

86

87

90

169 109

Operating and maintenance Depreciation and amortization

163

132 100

134

124

99 15 52

96 12 46 33

89 12 47

16 55 21

Saskatchewan taxes Net finance expense Other losses (gains)

14 48 13

(11) 407 134

-

Total expenses

466

393 110

408

362

Income before unrealized market value adjustments

66

70 76

86

(23)

Market value adjustments CONSOLIDATED NET INCOME

32

34

(30)

43 24

166

144

146

56 55

Dividends declared

60

39

29

3,222

Total assets

2,938

2,688

2,505

2,450

270

Cash provided by operating activities Cash used in investing activities

280

312

225

258

(341)

(271)

(258)

(198)

(210)

66

Cash (used in) provided by financing activities

-

(58) 255

(37) 198

(47) 212

329

Capital additions Total net debt Debt/Equity ratio

299

1,501 58/42 6.1%

1,313 55/45 12.9%

1,232 56/44 12.2%

1,210 59/41

1,156 61/39

Rate of return on equity

8.8% 11.6%

OPERATING STATISTICS Distribution energy (petajoules) Residential/Farm

37 33

42 35

39 33

34 30

32 27

Commercial

153 223

Industrial

170 247

147 219

129 193

127 186

TOTAL

Transmission energy (petajoules) Domestic

364

362

325

308

280

37

Export

33

25

18

24

TOTAL

401

395

350

326

304

Number of customers Distribution

399,826

397,367

394,592

390,886 386,886

118

Transmission

119

119

117

123

1 On November 30, 2015, the Government of Saskatchewan announced a change in the year end for CIC and its subsidiaries from December 31 to March 31, commencing with the 2015-16 fiscal year. For comparative purposes, the unaudited 12-month period ending March 31, 2016 is shown.

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“SaskEnergy’s integrated system of transmission, storage and distribution infrastructure is designed to meet the daily demand for natural gas in Saskatchewan, ensuring a safe and reliable supply even on the coldest days.” — Derek Leach Director, System Control

INCREASED CUSTOMER CONSUMPTION RESULTS IN NEW RECORD

The record for SaskEnergy customers’ daily gas usage was broken on three consecutive days during 2019-20, with a peak of 1.55 petajoules (PJ) occurring on January 15. Record-setting usage reflects higher demand for natural gas from residential, business and industrial customers. Increasing natural gas use for power production in Saskatchewan, mainly from SaskPower’s new Chinook Power Station near Swift Current, was a key contributor in attaining the record level.

Chinook Power Station Photo courtesy of SaskPower

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Financial and Operating Highlights

OPERATING SUMMARY – DISTRIBUTION

2019-20 2018-19

2017-18 2016-17

2015-16 1

5,697 2,631 5,706 (2.3%)

Sales in million cubic metres 2

6,344 2,681 6,076

5,607 2,736 5,787

5,004 2,543 5,155

4,785 2,387 4,901

Residential annual average usage (cubic metres)

Degree days 3

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

(9.8%)

(4.8%)

6.7%

12.2%

70,996

70,707

70,180

69,870

69,547

1 On November 30, 2015, the Government of Saskatchewan announced a change in the year end for CIC and its subsidiaries from December 31 to March 31, commencing with the 2015-16 fiscal year. For comparative purposes, the unaudited 12-month period ending March 31, 2016 is shown.

2 Retail, industrial and asset optimization. 3 A unit measuring the extent to which the temperature falls below 18° Celsius. Normal weather in 2019-20 (12 months ending March 31, 2020) would have been 5,578 degree days.

OPERATING SUMMARY – TRANSMISSION

2019-20 2018-19

2017-18

2016-17 2015-16 1

1.55

Peak day natural gas flows (petajoules)

1.50

1.50

1.36

1.35

Jan. 15

Date of peak day flow Storage cavern sites Storage caverns Storage field sites 2 Producing field sites 2

Feb. 7

Dec. 29

Jan. 12

Jan. 16

6

6

6

6

6

18

18

18

18

22

4 1

4 1

4 1

4 1

4 1

NATURAL GAS LINE (kilometres) TransGas Limited Transmission

14,537

14,458

14,373

14,465

14,397

167 443

Gathering

167 443

289 443

297 445

297 441

Many Islands Pipe Lines (Canada) Limited

22

Bayhurst Gas Limited

22

22

21

21

TOTAL

15,169

15,090

15,127

15,228

15,156

SYSTEM COMPRESSION TransGas Limited stations

24

24

25

25

24

1 3

Many Islands Pipe Lines (Canada) Limited stations

1 3

-

-

-

Bayhurst Gas Limited stations Mobile compressor units COMPRESSION HORSEPOWER TransGas Limited

3

3

3

17

17

17

17

13

83,968

77,248

82,841

79,765

76,315

5,040 6,300

Many Islands Pipe Lines (Canada) Limited

5,040 6,300

-

-

-

Bayhurst Gas Limited

6,300

6,300

6,300

TOTAL

95,308

88,588

89,141

86,065

82,615

1 On November 30, 2015, the Government of Saskatchewan announced a change in the year end for CIC and its subsidiaries from December 31 to March 31, commencing with the 2015-16 fiscal year For comparative purposes, the unaudited 12-month period ending March 31, 2016 is shown. 2 Includes Bayhurst Gas Limited.

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Financial and Operating Highlights

QUARTERLY FINANCIAL AND OPERATING HIGHLIGHTS 2019-2020 FINANCIAL HIGHLIGHTS ($ millions) Q1 Q2

March 31, 2020

Q3

Q4

815 772

Total revenue Total expenses

169 169

139 156

246 207

261 240

43

Consolidated net income (loss) Market value adjustments

-

(17) (15)

39

21

(23)

(12)

(5)

9

Income (loss) before unrealized market value adjustments

66 24

12

(2)

44 22 58

12

Dividends

-

-

2

270 329

Cash provided by operating activities

61 56

48

103

Capital additions

101

101

71

OPERATING HIGHLIGHTS Distribution

223

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

48

36

66

73

2% colder

3% colder

12% colder

5% colder 1% warmer

Transmission

401

Energy transported (petajoules)

88

95

107

111

2018-2019 FINANCIAL HIGHLIGHTS ($ millions)

March 31, 2019

Q1

Q2

Q3

Q4

933 767 166

Total revenue Total expenses

179 167

169 157

272 196

313 247

Consolidated net income (loss) Market value adjustments

12

12

76 10

66

32

6

11

5

Income (loss) before unrealized market value adjustments

134

6

1

66 17 63 85

61 43

60

Dividends

-

-

280 299

Cash provided by operating activities

59 38

32 81

126

Capital additions

95

OPERATING HIGHLIGHTS Distribution

247

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

48

44

70

85

3% colder

50% colder

1% colder 15% colder 10% colder

Transmission

395

Energy transported (petajoules)

77

79

110

129

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“The South Saskatoon gas line is the first step of a two-part plan to increase capacity for new residential, small business and large industry customers in the Saskatoon area, as well as surrounding areas such as Humboldt and even as far away as Prince Albert. In addition to ensuring customers have reliable natural gas service, this new line makes it easier for SaskEnergy to perform maintenance, inspections, and other activities without affecting customer delivery service.” —

Greg Acton Engineer, Facility Planning

MEETING CUSTOMER DEMAND NOW AND INTO THE FUTURE

Since 2013, Saskatoon has added nearly 32,000 new residents. This growth, coupled with commercial and industrial expansion, has increased demand for natural gas in Saskatoon and surrounding areas. When gas started flowing through SaskEnergy’s new South Saskatoon transmission line in October 2019, it marked the completion of a 62-kilometre system expansion that more than doubled capacity to the east side of the city.

p.15

Looking back at 2019-20 Safe, Reliable and Affordable Natural Gas Delivery

$111 million dedicated to system integrity initiatives

Lowest ever preventable vehicle collision rate

$2.57 per gigajoule lowest commodity rate in 20 years

Renewed safety and incident reporting system for employees

First company in Canada accredited to verify and re- verify gas chromatographs on behalf of Measurement Canada

Third lowest in Canada total residential natural gas utility rate

Benefitting Our Customers and Saskatchewan 98.6 % 91 % 25 years overall residential customer satisfaction rating Invested in gas line expansions in Humboldt, and in northeastern Saskatchewan, to meet provincial demand for natural gas 25,000 1,000 additional residential customers signed-up for paperless billing carbon monoxide (CO) alarms distributed in communities with higher numbers of CO incidents of distribution meters equipped with Advanced Metering Infrastructure modules

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

of Share the Warmth initiatives to benefit less fortunate individuals and families in Saskatchewan

$556,075 in rebates to homeowners that purchased qualifying high-efficiency natural gas furnaces through

$500,000 in rebates

Indigenous Engagement Charter signed to strengthen relationships with Indigenous peoples, businesses and communities

to commercial businesses to install energy efficient natural gas heating systems

the Residential Furnace Replacement Program

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“Sound environmental management is an integral part of our commitment to continually improve our processes so that natural gas delivery to our customers is provided in an environmentally responsible manner. We recognize the role SaskEnergy plays in the stewardship of a non-renewable resource, and our programs and policies are designed to reduce the impact of our daily operations on the environment.” — Kristen Darr Director, Health, Safety and Environment

COMMITTED TO ENVIRONMENTAL SUSTAINABILITY SaskEnergy’s commitment to environmental stewardship is integral in its operations including when new customers are connected to our system. In 2019-20, process improvements were implemented that resulted in a significant increase in secondary environmental and heritage screenings for distribution projects. When certain environmental and heritage concerns are flagged during initial project screening, the projects are referred to SaskEnergy’s Environmental & Sustainability department for secondary screening. A detailed review is then completed to look at satellite imagery, wildlife and wildlife habitat, heritage and archaeological sites, project impacts to water resources, as well as any potential for high risk invasive species. Permit and regulatory requirements, land use and construction restrictions are also identified and, in some cases, further screening is done by an archaeologist. Environmental screenings help protect customer property from unnecessary damages or the introduction of invasive species, and assist in ensuring customer projects are completed on time and on budget.

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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, 2020. 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 21, 2020, 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 SaskEnergy ensures its mission, vision and values continue to align with the Crown Sector Strategic Priorities identified by CIC. SaskEnergy’s four strategic mandates — One Company, One Team; Industry Leader; Fuel of Choice; Business and Technology Optimization — as set out in the Business Plan, support

the vision, mission and values of the Corporation. These mandates and strategic priorities provide guidance to SaskEnergy in its business planning process as well as its performance management and reporting. They also assist employees in making a link between their everyday efforts and their contribution to the Strategic Plan and the overall direction of the Corporation. SaskEnergy’s five-year strategy balances resources and activities to deliver gas in a safe, reliable and affordable way, while ensuring service is easily accessible and is being mindful of the environment. Over the next five years, SaskEnergy will focus on: • system expansion required to meet changing customer demand to ensure gas line capacity and alleviate pressures of a constrained gas line system; • addressing increased regulatory requirements by investing in infrastructure and administering the proper resource complement; • managing utility and commodity rates through balancing delivery, transmission and storage rates between the needs of SaskEnergy and the needs of customers to ensure safe, reliable service; and, • meeting changing customer expectations by demonstrating convenient and responsive service and environmental responsibility related to a non-renewable resource. SaskEnergy’s number one priority is to maintain a safe and reliable natural gas system. The Corporation’s strategic focus over the planning period emphasizes customer value and how it is defined. SaskEnergy identified five areas that define value for its customers — safe, reliable, affordable, ease of service and environmental stewardship. Each year, as part of the business planning process, SaskEnergy incorporates the Province’s strategic directives and evaluates the continued relevance of the performance metrics contained in the previous year’s scorecard. Any changes deemed appropriate are made and associated targets are developed for each metric. 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 Business Plan approval. The CIC Board reviews the Business 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. Regular reporting on the specific scorecard targets allows management to closely monitor progress and take any corrective action to achieve the targets.

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Management’s Discussion and Analysis

services. Although SaskEnergy is maintaining a healthy workforce with minimal absenteeism, the presence of COVID-19 in the province has SaskEnergy restricting some customer-facing non-critical services in an effort to protect employees and the public. The execution of the pandemic plan has an undetermined impact on SaskEnergy’s scorecard targets and until the current Business Plan has been revised to reflect this impact, no forward looking scorecard targets are available. The following discussion outlines the Corporation’s

In 2019-20, CIC led a Key Performance Indicator Optimization project, in which a consultant reviewed SaskEnergy’s performance metrics for relevancy and industry comparability. The review concluded that SaskEnergy’s scorecard is well balanced and has strong alignment with its vision and objectives. The financial and operational measures are relevant for SaskEnergy’s lines of business and generally align with its peer group. Due to the uncertainty of the impact of the COVID-19 pandemic, SaskEnergy will not be providing forward looking targets in this report. SaskEnergy’s Pandemic Preparedness Plan focuses on promoting and maintaining the health and safety of the Corporation’s personnel and the public while maintaining its ability to deliver core

2019-20 performance relative to its strategic scorecard targets for the 12 months ending March 31, 2020, which are further defined in the Glossary of Key Success Measures.

Create customer value through safe, innovative energy solutions. Vision

Deliver natural gas in a safe, reliable, affordable way. Mission

BUSINESS PRIORITY AREAS

STRATEGIC MANDATES

1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4

Leadership

ONE COMPANY, ONE TEAM

Employee Experience Strategic Workforce Enterprise Alignment

Safety

INDUSTRY LEADER

Leading Practice Alignment Enterprise Risk Management

Financial Strength

Rates Management

FUEL OF CHOICE

Core Growth

Environmental Sustainability

Stakeholder Relations

Business Process Improvement

BUSINESS & TECHNOLOGY OPTIMIZATION

Leveraging Information

Business-Driven Technology Management

Digital Business

p.19

Management’s Discussion and Analysis

ONE COMPANY, ONE TEAM

SaskEnergy has an integrated workforce that is focused on a common mission. High levels of trust and accountability enable the free flow of

information throughout the organization. Employees demonstrate SaskEnergy’s values, creating a work environment that is supportive and empowering.

March 31, 2019 Actual

March 31, 2020 Actual

March 31, 2020 Target

Strategic Measure Employee Experience

Non-survey year*

Below Public Sector Norm

Non-survey year*

Employee Survey

Strategic Workforce Youth (30 years of age or less)

12.8% 15.7%

15.0% 15.5%

13.1% 14.5%

Indigenous

*Based on leading practices, third-party employee surveys are conducted every second year.

Employee Experience Amid a period of frequent and significant change, SaskEnergy is committed to the attraction, retention and engagement of its employees. Fair and competitive total rewards offerings provide a foundation for these activities. However, the employee experience is primarily dependent on a positive corporate culture, supportive managers, trust in leadership and opportunities to perform meaningful work. With no formal employee survey taking place in 2019-20, the focus has been on sustaining positive results and improving on areas of concern identified in the previous year’s survey, which recorded an overall employee engagement score of 60 per cent, 12 points below the norm. SaskEnergy gathered further employee feedback on key engagement drivers, and included teams from across the Corporation to develop a comprehensive action plan to improve this result. The plan is focused on key engagement drivers including professional growth, organization vision, teamwork and innovation.

Strategic Workforce Aligned with Crown Sector Strategic Priorities, SaskEnergy generates a workforce reflective of Saskatchewan’s population by providing equal opportunity to qualified people, recognizing that youth and Indigenous people represent a large portion of Saskatchewan’s current and future labour force. SaskEnergy’s resourcing strategies focus on delivering customer service within a framework of financial accountability. Strategic workforce planning includes determining resourcing priorities, achieving the correct internal/external resource balance, succession and leadership development, and working closely with union representatives. The results for these metrics are lower than target as ongoing resource management has limited opportunities to hire.

p.20

Management’s Discussion and Analysis

INDUSTRY LEADER SaskEnergy is a leader in the categories that matter most. Strong personal, public, and process safety programs generate leading results. Integrated asset management practices support infrastructure systems,

programs and plans. SaskEnergy achieves consistent profitability from operations while maintaining a debt-to- equity ratio benchmarked against industry standards.

March 31, 2019 Actual

March 31, 2020 Actual

March 31, 2020 Target

Strategic Measure

Safety Total Recordable Injury Frequency Rate

2.31

Second Quartile

1.73*

Enterprise Risk Management SaskEnergy Leaks per 1,000 Kilometres of Mains

8.5

10.1

5.3

TransGas Natural Gas Line Failures per 1,000 Kilometres of Gas Line

0.00

0.28

0.07

7.63%

Safety and Integrity

6.72%

6.80%

Financial Strength Debt/Equity Ratio

58/42

55/45

59/41

6.1%

Consolidated Return on Equity

12.9%

6.1%

$

66

Income Before Unrealized Market Value Adjustments (millions)

$

134

$

64

*Beginning in 2019-20, the Corporation is reporting its actual Total Reportable Injury Frequency Rate.

Safety SaskEnergy focuses on a ‘safety first’ work

This is an increase from the 2018-19 TRIF of 2.08 and is higher than the corporate TRIF target of 1.73. Key safety initiatives undertaken during 2019-20 included: • public safety efforts to continue decreasing 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; and, • a continued focus on process safety, as well as streamlined business processes to assess and mitigate risk.

environment. Employee and public safety are at the core of every activity. Hazard identification, risk assessment and mitigation, and sharing learnings to promote awareness and continued improvement, are safety priorities throughout the organization. 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 prioritized area. In 2019-20, SaskEnergy achieved a Total Recordable Injury Frequency (TRIF) of 2.31, meaning there were 2.31 recordable injuries for every 100 full-time employees.

p.21

Management’s Discussion and Analysis

Enterprise Risk Management SaskEnergy seeks to identify potential events and risks that may significantly affect its ability to achieve strategic goals and objectives. Throughout the organization, supporting processes are in place to expand risk management at an operational level. In 2019-20, SaskEnergy formalized a hazard identification and risk assessment program that identified nearly 300 operational hazards and tracked mitigations through the Corporation’s risk management system. SaskEnergy’s system integrity, safety and environmental protection programs combine predictive analysis and proactive response. Program effectiveness is demonstrated through reduced levels of gas leaks, failures, third-party contacts and other measures. The 2019-20 service upgrade program targeted the removal of compression-style fittings on curb valves that are more susceptible to leaks based on factors such as soil, service orientation and construction practices. Upgrades were completed in Regina, Saskatoon and Humboldt. Despite these efforts, unique ground conditions associated with a winter of many freeze and thaw cycles increased the failures of these valves. SaskEnergy’s leaks per 1,000 kilometres of mains was 8.53, which is lower than last year’s total of 10.07, but higher than the five-year average of 7.83 and above the target for the year of 5.30. In 2019-20, SaskEnergy continued damage prevention initiatives aimed at reducing leaks due to external interference, such as line hits. Initiatives included visual surveillance of key high pressure distribution mains; increased marking of both mains and services; increased supervision at excavation sites; ‘white lining’ work areas; and a number of other measures to increase awareness of SaskEnergy’s underground facilities. The Corporation continued to manage risk for its transmission lines using a combination of aerial and ground patrols, state-of-the-art remote monitoring, inspection digs and in-line inspection tools that look for the early signs of corrosion and check for unreported damage. As a result of these efforts, the Corporation recorded no failures in its gas line system during 2019-20, which exceeded the target of 0.07 failures per 1,000 kilometres per year. With respect to integrity capital spending in 2019-20, SaskEnergy met the target of $65.4 million, or 6.8 per cent of 2005 net book value, with total expenditures of $73.4 million or 7.63 per cent of 2005 net book value assets. This demonstrates the Corporation’s continued commitment to safety and integrity.

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 2019-20 reflected its proven commitment to safely deliver natural gas to its customers in Saskatchewan. Customer demand for natural gas was slightly higher than planned as weather was two per cent colder than normal. However, lower transportation and delivery rates were somewhat offset resulting in transportation revenue and delivery revenue being slightly below plan. SaskEnergy completed several large industrial customer projects during 2019-20, resulting in higher than expected customer contribution revenue. The Corporation continued to focus on operating efficiencies resulting in lower expenses than planned, primarily related to employee benefits and contract and consulting costs. SaskEnergy’s financial results were negatively impacted due to several losses that were recorded in 2019-20. As part of the continued effort to provide safe and reliable service to its customers, SaskEnergy began a project to expand storage capacity in the Regina area. During 2019-20, exploratory drilling and core analysis revealed geological issues at the chosen site; therefore, costs relating to seismic and test hole activity were written off. In addition, a permanent impairment loss was realized on natural gas inventory when it was determined that deliverability at one of the Corporation’s storage facilities was not able to produce all of the gas from the facility before the site’s planned decommissioning date. Capital investment levels during the year were managed as planned. Expansion of the natural gas system to meet customer demand and investment in the safety and integrity of the system were the key drivers for capital investment in 2019-20. SaskEnergy’s net income from operations was $66 million in 2019-20, slightly higher than planned. This resulted in consolidated return of average equity of 6.1 per cent, which is aligned to the target set for the year. The consolidated debt-to-equity ratio is 58 per cent debt and 42 per cent equity at March 31, 2020, which is within the target range of 58 to 63 per cent debt.

p.22

Management’s Discussion and Analysis

FUEL OF CHOICE SaskEnergy is regarded as a trusted supplier of energy and, as a product, natural gas is regarded as a socially and financially sound choice for customers. Natural gas prices are very competitive, thanks to SaskEnergy’s

innovative transport and delivery strategies as well as the strong supply fundamentals in North America. Importantly, SaskEnergy has been successful in minimizing the environmental impact of its operations.

March 31, 2019 Actual

March 31, 2020 Actual

March 31, 2020 Target

Strategic Measure

Business Growth Investment Core Growth – SaskEnergy and TransGas Revenue Growth

2.3%

5.7%

4.7%

Rate Management

Competitive with Industry

Competitive with Industry

Competitive with Industry

Competitive Residential Delivery Rates

Customer Satisfaction SaskEnergy

91% 85%

90% 84%

90% 90%

TransGas

Environmental Greenhouse Gas Emissions (Tonnes of CO 2 e/ million Running Horsepower Hours)

324

326

325

Community Relationship Total Contracts – Percentage of Indigenous Labour Content

15%

18%

16%

Business Growth Investment SaskEnergy’s growth strategy continues to enhance the foundation of its core business of distribution, transmission and storage services to support a growing residential, commercial and industrial customer base. In addition, the Corporation seeks new opportunities to facilitate provincial economic growth through various partnerships.

SaskEnergy’s distribution utility customer accounts increased by 2,459 in 2019-20, which was lower than the planned increase of 3,600 customers. In addition, TransGas did not proceed with a rate adjustment in 2019-20. These factors resulted in revenue growth of 2.3 per per cent, which is below the planned growth of of 4.7 per cent.

p.23

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