Weather will be a key factor affecting 2016-17 financial results. Forecasted results are based on normal weather. To the extent that weather is colder than normal, delivery revenue will increase, and to the extent that weather is warmer than normal, delivery revenue will be lower. Transportation, storage and other revenue are typically not impacted by weather, as is the case with operating expenses. Commodity revenue and gas purchases can both be affected by weather but typically offset each other. SaskEnergy’s financial performance is expected to remain strong. Capital expenditure requirements and rising costs will remain a challenge throughout the forecast period as SaskEnergy adjusts to continued customer load growth, infrastructure renewal and shifting natural gas supply dynamics. A low natural gas price environment will continue to create challenges from a gas marketing perspective, but could create opportunities to reduce commodity rates to customers. Delivery and transportation revenue will continue to grow along with growth in operating costs. The outcome will be moderate rate pressure assuming rate increases are regular. Over the forecast period, SaskEnergy will continue to focus on providing safe and reliable service to its customers and investing in safety and growth initiatives while actively seeking operating and capital deployment efficiencies through collaboration and technology initiatives. RISK MANAGEMENT AND DISCLOSURE The transmission, storage, distribution and sale of natural gas are subject to a number of risks that can affect SaskEnergy’s success in achieving its business objectives. The Corporation is also subject to risks specifically related to financial instruments that are not discussed below. Risks specific to financial instruments are discussed in Note 10 of the Consolidated Financial Statements. The Corporation does not seek to eliminate risk, but rather ensures existing and emerging risks are identified, communicated and effectively managed through its Enterprise Risk Management (ERM) process. The results from the annual risk assessment are used as inputs into the strategic and business planning session. The ERM policy establishes roles and responsibilities, as well as a general strategy for the Corporation to manage its risks. The Corporation identifies and manages its risks in support of its vision, mission and goals as set out in the Strategic Plan and throughout its operations. Risk management is the responsibility of all levels of management in the Corporation. However, the Board of Directors and Executive Committee set the tone for ERM. The Executive Committee is responsible for formally identifying strategic risks that impact the Corporation’s goals, actively participating in the risk assessment process and developing strategic risk management plans. Due to the ever-changing risks faced by the Corporation, it remains nimble and flexible in addressing the risks. The Board of Directors is responsible for the Corporation’s risk management policy and framework. The Board executes its role in the risk management process by participating in the risk assessment process. The Board also reviews an annual report that identifies the top corporate-wide risks, along with the processes and controls in place to manage and monitor each risk, the designated control owner(s) and the link to the Strategic Plan. The top risks as identified in the 2015 annual risk assessment process are discussed below. Pipeline, Facility and Operational Failure Pipeline, facility and operational failure could disrupt the effective operation of SaskEnergy’s natural gas storage, distribution and transmission infrastructure, negatively impacting public safety, the environment and customers. Operational hazards include severe weather conditions, fire, human error, mechanical failures, third-party pipeline encroachment, hazardous materials and acts of civil disobedience and sabotage. The occurrence of any of these events, many of which are outside the control of the Corporation, could impact financial results through increased operating costs and/or reduced revenues. Some of the primary processes used to mitigate the Corporation’s pipeline, facility and operational risk include system integrity programs, public awareness and safety programs, employee and operator training, plus environmental policies and procedures. The financial impacts of these risks are also mitigated, where possible and appropriate, through insurance. Interest Groups SaskEnergy is exposed to the risk of higher costs, delays or even project cancellations due to pressure by landowners and other interest groups. In recent years, the ability of landowners and interest groups to make claims and oppose projects in regulatory and legal forums has increased. This “not in my backyard” philosophy could impact the Corporation’s ability not only to develop new facilities through delays and additional costs, but also to operate existing facilities, and could potentially affect the integrity and reliability of its system. Through various programs and strategies, including stakeholder engagement, Aboriginal consultation, environmental assessments and public awareness, SaskEnergy works proactively with landowners and other interest groups to identify and develop appropriate responses to concerns regarding expansion and development of infrastructure. Security of Supply The transition from a net natural gas exporter to a net natural gas importer — a consequence of the substantial decline in natural gas production within Saskatchewan and increased consumption in the Province — has added complexity and increased costs for the transmission system to ensure that supply is available when and where needed. TransGas manages this risk through the business planning process, supply and demand forecasting and stakeholder consultation with existing and potential large customers. For the Distribution Utility, this also adds complexity from a supply planning perspective that is managed through its gas procurement strategy.
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Management’s Discussion & Analysis
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