2016-17 SaskEnergy Annual Report

CONSOLIDATED FINANCIAL RESULTS Consolidated Net Income and Comprehensive Income (Loss) 12 Months

12 Months

3 Months

15 Months

Ended March

Ended March

Ended March

Ended March

31, 2017 1

31, 2016 1

Change

31, 2015

31, 2016

(millions)

Income before unrealized market value adjustments

$ 49

$ 135

$ 70

$ 86

$ (16)

Impact of fair value adjustments

6

(13)

63

(19)

82

Revaluation of natural gas in storage

(11)

13

(11)

24

Consolidated net income and comprehensive income

$ 55

$ 111

$ 146

$ 56

$ 90

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. Consequently, the financial statement comparative for the 12 month period ending March 31, 2017, is an audited 15-month fiscal period ending March 31, 2016. For the purposes of the management discussion and analysis, the 2015-16 fiscal year has been split into a 12-month period ending March 31, 2016, and a three-month period ending March 31, 2015. Both numbers are unaudited and are for comparative purposes only. Excluding market value adjustments, financial results for 2016-17 are $16 million lower than the same period ending March 31, 2016. The decline in net income is due to a number of impairments taken on non-core business activities, partially offset by improved returns on delivery and transportation services. The continued low gas price environment has adversely affected non-core storage activities leading to significant impairments of non-core storage facilities. For both transportation and delivery services, the number of customers and customer load continued to grow. On December 16, 2016 and on January 12, 2017 the provincial maximum daily consumption was 1.33 PJ, a new record that is three per cent higher than the maximum daily consumption recorded in prior years. Additionally, eight of the highest daily natural gas transportation loads occurred during the 2016-17 fiscal year. These incremental loads contributed to additional transportation and delivery revenue relative to 2015-16.

Consolidated Financial Statements

Much of the load growth is the result of continued economic growth in the province. SaskEnergy has seen an increase of 4,000 customers during the year and while the number of transportation customers has not increased significantly, existing customers continue to increase their level of activity driving additional load growth. Serving this increase in load requires additional expenditures, and while continued focus on efficiency and restraint initiatives resulted in a three per cent reduction to employee benefits, operating and maintenance expenses increased by approximately eight per cent over the prior year. The increase in operating expenses was due to the need to acquire additional transportation capacity on interconnecting pipeline systems to bring gas into the province from Alberta, as Saskatchewan’s gas production is not increasing fast enough to accommodate the incremental provincial demand for natural gas.

$150

$120

$90

$60

$30

$0

$-30

$-60

Dec. 2012

Dec. 2013

Dec. 2014

Dec. 2015

Mar. 2016

Mar. 2017

Market value adjustments contributed $76 million to SaskEnergy’s consolidated net income. During the year, a significant number of higher priced natural gas purchase contracts related to the Corporation’s commodity business expired, which had a positive impact on unrealized market value adjustments. In addition, forward natural gas prices have recovered compared to the relative lows at the end of the previous fiscal year. On March 31, 2017, the natural gas price for gas to be delivered in April 2017 was $2.68 per GJ compared to $2.48 per GJ as at March 31, 2016. The value of natural gas in storage is sensitive to gas prices. At the end of March 2016, the value of natural gas in storage was $86 million, or $34 million below cost, due to the decline in gas prices in the last quarter of the 2015-16 fiscal year. At the end of March 2017, the value of gas in storage remained at $86 million, but is now only $21 million below cost. The volume of natural gas in storage declined during the year as sales volumes exceeded purchases. The lower volume of gas in storage was a significant factor in the improved adjustment to net realizable value; however, the differential between the average cost of gas and the expected selling prices also narrowed. The narrowing in this differential was due to the relatively low price of natural gas purchases, which reduced the average cost of gas as well as the recovery of market prices at which the gas could be sold. The difference between the $34 million adjustment at the end of the previous fiscal year and the current $21 million adjustment to the cost of gas in storage has been reported as a $13 million favourable market value adjustment during the current fiscal year. Income before unrealized market value adjustments Consolidated net income (loss) 12 months ending

27

2016-17 ANNUAL REPORT SASKENERGY

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