SaskEnergy First Quarter Report - June 30, 2021

Management Discussion and Analysis

Capital additions of $32 million through 2021 were $10 million lower than the Corporation’s 2020 investment. Many system expansion projects planned for 2021 were either reduced or deferred by the Corporation and its customers through 2020 due to the uncertainty of the impact of a suppressed oil and gas market and COVID-19. System expansion spending in the current year is consistent with levels anticipated after the reductions or deferrals incurred in 2020. Risk management spending on the distribution system increased in 2021 as the Corporations service upgrade program returned to normal levels year over year as the prior year focused on a risk based approach while limiting public interactions with customers in 2020. Reliability of natural gas service spending decreased in 2021 by $2 million as the Corporation reduced spending on building and leasehold improvements compared to 2020. OUTLOOK SaskEnergy began its return to a “new normal” operating environment in the first quarter of 2021-22 as the Province continued to monitor and remove COVID-19 pandemic restrictions. The Corporation continues to promote and maintain the health and safety of personnel and the public while maintaining its ability to deliver core services. In addition to the pandemic, the volatility of global oil prices continues to create uncertainty for natural gas production. More than 70 per cent of the production of natural gas in Saskatchewan is associated with oil production; hence, as oil producers face price instability and uncertain capital markets, variable oil production results in variable natural gas production. The reduction in Saskatchewan gas supply will need to be met by increased imports from Alberta. As SaskEnergy adapts to flat or declining customer demand, there will be an increased focus on core operations and operational excellence to safeguard its financial strength into the future. In 2021-22, income from operations is forecasted to be $35 million, which is a decrease of $24 million from the 2020-21 result. The decrease is primarily due to large transmission customer connections that were completed in the prior year resulting in higher customer contribution revenue. The number of residential customers connecting to SaskEnergy’s distribution system is expected to remain level compared to 2020-21, with 3,000 new customers forecasted in 2021-22. Energy efficiency programs offered by the Corporation and implemented by SaskEnergy customers reduce the amount of natural gas they use. Initiatives targeted to support a greener energy strategy, increasing Government policy and regulations, and increasing needs for business and technology support create cost pressure for SaskEnergy. To offset the decline in revenue and increased costs, SaskEnergy will continue to focus on operational excellence, achieving cost savings through business process improvements, leveraging technology and collaboration with other Crown corporations and executive government. SaskEnergy is committed to providing solutions and service that benefit customers and Saskatchewan by leveraging the Corporation’s expertise and the province’s private sector. Throughout 2021-22, SaskEnergy will make $263 million in net capital investments in the province, including maintaining the safety and reliability of the natural gas transmission and distribution systems, meeting regulatory compliance, and optimizing the Corporation’s business systems.


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