Management’s Discussion and Analysis
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 Accounting Standards 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 Accounting Standards 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 derivative instruments, driven by movements 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, the amounts paid or received become realized and are recognized in natural gas sales or purchases. The majority of SaskEnergy’s natural gas contracts are normal usage and are not recorded at fair value but at the contract price upon settlement. Net Commodity Sales Subject to Section 16 of The SaskEnergy Act , SaskEnergy’s charges, rates, terms and conditions are described in a Terms & Conditions of Service Schedule. This schedule sets natural gas commodity rates, as 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 neither earn a profit nor incur losses on the sale of gas to customers over the long term. Consequently, SaskEnergy accumulates differences between 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 Accounting Standards. Consequently, the amounts determined for rate-setting purposes are different than those reported within its consolidated financial statements, most notably related to intercompany charges for natural gas transportation services. 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, SaskEnergy's approach to balancing these objectives may shift depending on prevailing 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 sales to customers, as reported in the condensed consolidated financial statements, were as follows:
Three months ended June 30,
(millions)
2026
2025 Change
Commodity sales
$
31 26
$
25 20
$
6 6
Commodity purchases
Realized margin on commodity sales Unrealized fair value adjustments
5 1 6
5
-
(7) (2)
8 8
Margin on commodity sales
$
$
$
The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments. 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 three months ended June 30, 2026, was $5 million, unchanged
5
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