Management’s Discussion and Analysis
OUTLOOK In the final quarter of the 2019-20 fiscal year, two extremely impactful situations unfolded. The emergence of COVID-19 and its declaration as a global pandemic occurred simultaneously with a collapse in global oil prices. These two factors have caused uncertainty for producers and consumers of natural gas. Almost 60 per cent of the production of natural gas in Saskatchewan is associated with oil production; hence, as oil producers are forced to shut-in wells due to record low oil prices, associated natural gas production is also inadvertently shut-in. The reduction in Saskatchewan gas supply will require more natural gas to be imported from RISK MANAGEMENT AND DISCLOSURE SaskEnergy is subject to a number of risks in the transmission, storage, distribution and sale of natural gas. The Corporation’s effectiveness at managing risk directly affects its performance. The nature of natural gas, and the operation of high pressure gas lines, means that risk management is a critical operational focus for all employees at SaskEnergy. The Corporation’s approach to risk management is to thoroughly examine its operating activities to identify existing and emerging risks, effectively communicate those risks throughout the organization and actively manage them through its Enterprise Risk Management (ERM) process. SaskEnergy undertakes annual risk assessments that are used as inputs to the strategic and business planning process. The ERM process establishes roles and responsibilities as well as a general strategy for the Corporation to manage its risks. While risk management is the responsibility of all levels of management, the Board of Directors and Executive Committee set the tone and provide leadership direction for the ERM process. The Executive Committee is responsible for formally identifying strategic risks that impact SaskEnergy’s goals, participating in the risk assessment process and developing strategic risk management plans. As many of the risks facing the organization evolve, the Corporation’s risk management plans remain adaptive and flexible in addressing risks. The Board of Directors is responsible for the risk management policy and framework. The Board oversees risk management efforts by reviewing annual reports on risk management processes and controls, and ensuring that key corporate initiatives appropriately address the identified risks. At the beginning of the fiscal year, a number of risks were identified as requiring strategic attention and they were a focus throughout the Corporation’s operations during the year. Each of these risks continue to be relevant to
Alberta. Restrictions imposed to contain the pandemic and market uncertainty have resulted in an economic slowdown with the potential for reduced industrial and commercial gas demand. Residential heating load is unlikely to change significantly. Local and global business closures, global supply chain disruptions, and social- distancing requirements will cause challenges and delays to system improvements, but are unlikely to impact the Corporation’s ability to transport or market natural gas. SaskEnergy will continue to monitor and manage the impact of both COVID-19 and the collapse in oil prices on its business strategies as both situations evolve. the organization’s performance and are discussed in detail below; however, the emergence of the COVID-19 global health pandemic and the collapse in global oil prices will impact business risks. These events continue to evolve and have a significant impact on both the business risks previously identified, as well as increasing the magnitude of previously lower risk concerns, including: • Employee health and safety - The risk of transmission and infection of the organization’s employees and customers resulted in operating changes and restrictions to ensure business continuity and to maintain the essential services the Corporation provides. • Credit risk - The public health order to close businesses and the resulting impact on employment and the economy combined with the implementation of the Crown Utility Interest Waiver Program announced by the Province of Saskatchewan as part of its Financial Support Plan, will increase the Corporation’s credit risk exposure. The amount of resulting credit losses are presently unknown, but will be increasingly monitored. • Customer demand - The oil price collapse and its impact on the provincial economy is expected to have an impact on the short- and long-term demand for natural gas consumption, primarily among industrial and commercial customers. SaskEnergy continually reviews and rationalizes its capital program to ensure expansion plans match updated forecasts. There is no recent precedent to rely on to provide an accurate forecast for the impact of the current situation. However, as it evolves, the organization continues to react and address risks as they arise. The above noted risks are among the most significant items impacted at present, but it is likely that the previously identified enterprise risks will also be impacted as the situation unfolds.
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