SaskEnergy First Quarter Report - June 30, 2022

First Quarter Report June 30, 2022

VISION Environmental sustainability and economic prosperity for future generations. CORPORATE VISION Providing critical energy for a greener Saskatchewan and reducing our emissions from operations by 35 per cent by 2030. MISSION SaskEnergy delivers natural gas and energy solutions responsibly to the residents, businesses and industries of Saskatchewan. VALUES

STEWARDSHIP We are responsible in our use of all resources. INTEGRITY We are accountable for our decisions, our actions, and the results. SAFETY We are always committed to our personal safety, the safety of our team and the public.

SPIRIT We support a respectful,

dynamic and a diverse work environment that encourages achievement.

RELATIONSHIPS We succeed through strong internal and external collaboration, trust and open communication.

TABLE OF CONTENTS Financial and Operating Highlights Management's Discussion and Analysis Introduction

3 4 5 6

Operating Environment

Consolidated Financial Results Liquidity and Capital Resources

11 1 2 1 3 1 4

Capital Additions

Outlook

Consolidated Financial Statements

Financial and Operating Highlights

CONSOLIDATED FINANCIAL INFORMATION ($ millions)

Three months ended June 30,

2022

2021

57 57

Delivery

54 49

Transportation and storage

2 6 5

Commodity margin

1 1 4

Asset optimization margin Customer capital contributions Total revenue and margins

127

109

27 45 31

Employee benefits

27 41 30

Operating and maintenance Depreciation and amortization

Saskatchewan taxes

Recovery on trade and other receivables

(2)

Net finance expense

Total expenses

124

114

Income (loss) before unrealized market value adjustments

(5)

(2)

15 10 64 33 30

Market value adjustments

CONSOLIDATED NET INCOME Cash provided by operating activities Cash used in investing activities Cash used in financing activities

73 28 36

Dividends declared

3,453 1,754 58.6%

Total assets Total net debt

3,277 1,630 58.3%

Debt ratio

OPERATING STATISTICS Distribution energy (petajoules) Residential/Farm

5 6

4 6

Commercial

43 54

Industrial

41 51

Total

8% colder

Weather (compared to last 30 years) Transmission energy (petajoules) Domestic

Normal

82 14 96

Export

Total

Cash from Operations $ millions

Cash used in Investing Activities $ millions

Income before MVA $ millions

(5)

(4)

(9)

2022 2021 2020

Management ’ s Discussion and Analysis

INTRODUCTION The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial performance for the three months ended June 30, 2022. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. The MD&A is presented as at August 17, 2022, and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2021-22 Annual Report. The MD&A contains certain forward-looking statements that are subject to inherent uncertainties and risks. Many of these risks are described in the Risk Management and Disclosure section of SaskEnergy’s 2021-22 Annual Report. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The volume of natural gas delivered to customers is sensitive to variations in weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results for the first three months of 2022-23 should not be taken as indicative of the performance to be expected for the full year. The Corporation’s financial results are subject to variation, especially given the volatility of natural gas prices. In order to compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments; realized margin on commodity sales; and realized margin on asset optimization sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. Unrealized market value adjustments vary considerably with market prices of natural gas, drive significant changes in the Corporation’s consolidated net income and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition, and may not be comparable to similar measures presented by other entities. The discussion of the Corporation’s results in the MD&A, set out on the following pages, is a comparison of the results for the three months ended June 30, 2022, to the results for the three months ended June 30, 2021, unless otherwise noted.

Management’s Discussion and Analysis

OPERATING ENVIRONMENT SaskEnergy monitors a number of important factors that could influence financial performance. Energy Transition Uncertainty

Europe continues to face an energy shortfall and increasing natural gas prices. To conserve and build natural gas storage levels, Germany and other European nations are turning back to coal to temporarily meet energy demands. These demands will also continue to be met, in part, with shipments of liquified natural gas (LNG). Canada is still expected to finally enter the LNG export market when the LNG Canada export facility near Kitimat, British Columbia opens – likely in 2025. A smaller project near Squamish has made incremental progress with a final investment decision now made; in-service is expected for 2027. Finite LNG export capacity has kept North America somewhat isolated from high global gas prices, and that bottleneck was compounded when a fire broke out at a Texas export terminal. The facility had been exporting around 2.5 per cent of US production. With the date of returned service yet unknown, this excess supply is now being diverted into US storage rather than shipping to Europe. Hot weather and LNG demand had resulted in NYMEX prices climbing over 60 per cent in the first two months of the quarter but falling oil prices and increased storage injections resulted in a return to prices experienced at the start of the quarter. Recent MD&A reports have often focused on the volatility of the gas market compared to the relative calm of prices since 2009; the last two quarters have now seen a return to price volatility not seen since the financial crisis in 2008. Despite continued delays to projects to debottleneck gas exports from Western Canada, prices have remained reasonably connected with the remainder of North America resulting in strong prices through May and a rapid decline through June. Through periods of maintenance, prices have briefly disconnected to the downside with more maintenance expected through the early parts of next quarter. This low-priced gas is used to fill storage for winter in Saskatchewan, though excess imports are not possible due to the limited transport capacity. Transport capacity for existing contracts is expected to be fully debottlenecked when upstream projects scheduled for April 2022 are fully put in-service by early 2023. SaskEnergy has no contractual exposure to these delays but may still be impacted by the volatile market reaction to them. Saskatchewan Natural Gas With the provincial economy continuing to recover and an improved outlook for the value-added agricultural sector, potash mining, enhanced oil recovery, and power generation, there is greater potential for increased demand over the next few years. Rising energy and carbon prices do present a risk for energy-intensive industries. Local supply continues to trend downward, increasing dependence on associated gas with oil production. There were no new natural gas wells drilled in the last fiscal year, leaving local supply highly dependent on the volatile global oil market. With increasing oil prices, rig activity in the province has improved, but not enough to expect meaningful gas supply increases. Natural Gas Prices The AECO daily index averaged $6.86 per GJ through the three months ended June 30, 2022, representing a large increase from $2.93 per GJ for the same period ended June 30, 2021; unsurprising, given the large increase seen to the entire global energy complex. Global prices have kept upward pressure on Western Canadian gas as exported gas is not available to fill the storage deficit in Alberta from last year’s cold winter. Some relief from high prices was seen as downstream prices fell and local maintenance again partially isolated the Alberta market. Traditionally, most natural gas in Saskatchewan (TEP) is priced at a differential to the AECO price. This AECO to TEP differential for the quarter averaged a $0.49 per GJ premium compared to $0.03 per GJ the year prior – the difference here can, again, be attributed to three weeks of maintenance that temporarily depressed Alberta prices. The differential may experience more upward pressure depending on maintenance activities through the rest of summer.

Management’s Discussion and Analysis

Winter prices appear to have stabilized looking forward, as expectations for cold weather are offset by warmer weather outside the prairie provinces and adequate storage levels across the continent. The following chart shows AECO natural gas prices:

AECO Monthly Index Historical Prices

$8.00

$7.00

$6.00

Forward Price at June 30, 2022

Limited Export Capacity from Alberta

$5.00

2015-Present Average Price $2.45/GJ

$4.00

$3.00

$2.00

$1.00

$0.00

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

CONSOLIDATED FINANCIAL RESULTS Consolidated Net Income

Three months ended June 30,

(millions)

2022

2021 Change

Income (loss) before unrealized market value adjustments

(5)

(1) (1)

Impact of fair value adjustments Revaluation of natural gas in storage

(16)

( 1) (9)

Consolidated net income

Income before unrealized market value adjustments was $3 million in 2022, $8 million favourable compared to the $5 million loss in 2021, resulting from a higher asset optimization margin, delivery revenue and transportation & storage revenue. This was partially offset by higher operating expenses and finance expense costs. The Corporation was able to take advantage of increasing natural gas market prices and higher market price volatility to improve asset optimization margins. Delivery revenue improved in 2022 due to weather being eight per cent colder than 2021. Transportation and storage revenues are higher in 2022, primarily resulting from rate increases effective April 1, 2022 on receipt and delivery services, as the Corporation addresses increasing third party transportation expenses, combined with customers increasing firm transportation contracting on receipt, delivery and export services. These were partially offset by higher operating costs, due to increasing third party transportation expenses and higher vehicle costs, which are resulting from fuel price increases. Finance expense costs are higher due to increasing average interest rates on short-term debt and lower borrowing costs capitalized to qualifying assets. The three months ended June 30, 2022 observed stronger natural gas market prices throughout most of the quarter, however near-term forward market prices declined below March 31, 2022 levels leading up to June 30, 2022. The result being a decline in the favourable price differentials on future commodity purchase contracts outstanding at June 30, 2022. The decline in near-term natural gas market prices also caused asset optimization natural gas in storage to be recorded at net realizable value at June 30, 2022, which was $1 million below cost and had a $1 million unfavourable impact on net income.

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 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 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 the derivative instruments, driven by changes 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 of the natural gas contract, the amount paid or received by SaskEnergy becomes realized and is recorded in natural gas sales or purchases. The majority of SaskEnergy natural gas contracts are normal usage and are not recorded at fair value but at the contract price. Commodity Margin SaskEnergy sells natural gas to its distribution customers at a commodity rate approved by Provincial Cabinet based on the recommendations of the Saskatchewan Rate Review Panel (SRRP). The commodity rate, which is reviewed April 1 and November 1 of each year, 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 do not earn a profit or realize losses on the sale of gas to customers over the long term. Consequently, SaskEnergy accumulates differences between the 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. Consequently, the amounts determined for rate-setting purposes are different than those reported within its IFRS consolidated financial statements. 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, the balance between the two opposing objectives may change depending on current 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 margin on sales to customers, as reported in the condensed consolidated financial statements, was as follows:

Three months ended June 30,

(millions)

2022

2021 Change

30 $

Commodity sales

20 $

Commodity cost of sales

9 1

Realized margin on commodity sales Unrealized fair value adjustments

(1)

16 17

(17) (16)

Margin on commodity sales

Management’s Discussion and Analysis

The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments, as 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, 2022, was $1 million higher than 2021, as SaskEnergy received approval to increase its commodity rate to $3.20 per GJ effective November 1, 2021. Higher sales volumes resulting from weather being eight per cent colder than prior year also contributed to favourable results in 2022. The rate adjustment and higher sales volumes in 2022 were almost fully offset by AECO daily index prices trending upwards, resulting in higher cost of sales, as the index averaged $6.86 per GJ through the three months ended June 30, 2022, a large increase from $2.93 per GJ for the same period ended June 30, 2021. The GCVA balance increased to $27 million owing from customers at June 30, 2022 compared to $15 million owing from customers at March 31, 2022, a result of the AECO daily index averaging $6.86 per GJ through the three months ended June 30, 2022 compared to an average of $3.81 per GJ throughout the 12 months ended March 31, 2022. Commodity Fair Value Adjustments Natural gas market prices trended higher through most of the first quarter of 2022-23 and then declined below March 31, 2022 prices leading up to June 30, 2022. With near-term forward market prices declining at June 30, 2022 the unrealized fair value adjustment on the Corporation’s commodity derivative instruments decreased the commodity margin by $1 million. The favourable price differential between average contract prices and average market prices on future commodity derivative instruments decreased from $1.50 per GJ at March 31, 2022 to $1.39 per GJ at June 30, 2022, resulting in the $87 million favourable fair value position at March 31, 2022 decreasing to $86 million favourable at June 30, 2022. SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such contracts are not required to be reported at market value. Asset Optimization Margin SaskEnergy uses its access to natural gas markets to execute purchases and sales of natural gas to generate margins. By utilizing off-peak transportation and storage capacity, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods. In most cases, the Corporation executes purchase and sales contracts at the same time, thereby mitigating much of the price risk that would normally be associated with such transactions. SaskEnergy also uses purchases and sales of natural gas to mitigate transportation constraints, which are executed at a cost. The asset optimization margin, as reported in the condensed consolidated financial statements, was as follows:

Three months ended June 30,

(millions)

2022

2021 Change

114 $

Asset optimization sales

30 $

84 79

108

Asset optimization cost of sales

Realized margin on asset optimization sales Unrealized fair value adjustments Revaluation of natural gas in storage

5 1

(1)

- -

(1)

Margin on asset optimization sales

The realized margin on asset optimization sales for the three months ended June 30, 2022, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $5 million higher than 2021. As AECO daily index prices trended higher and experienced additional volatility through the three months ended June 30, 2022, the Corporation took advantage of additional asset optimization opportunities and executed 9 PJ more than prior year and at margins of $0.31 per GJ compared to $0.12 per GJ in 2021.

Management’s Discussion and Analysis

Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts in its asset optimization strategies, which are subject to volatility of natural gas market prices until the natural gas contracts are realized. Unrealized fair value adjustments on the Corporation’s asset optimization derivative instruments did not impact the margin on asset optimization sales. Natural gas market prices trended higher through the three months ended June 30, 2022, and declined below March 31, 2022, levels leading into June 30, 2022. The overall decline in market prices resulted in the favourable price differential declining between average contract prices and average market prices on future asset optimization purchase contracts by $0.43 per GJ, resulting in a $17 million unfavourable fair value adjustment. This was offset by the $17 million favourable fair value adjustment resulting from the unfavourable price differential on outstanding asset optimization sale contracts decreasing from $1.23 per GJ at March 31, 2022 to $0.76 per GJ at March 31, 2022. Revaluation of Natural Gas in Storage The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. At each reporting period, the Corporation measures net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. With June 30, 2022 near-term natural gas market prices declining below March 31, 2022 levels, asset optimization natural gas in storage was recorded at net realizable value at June 30, 2022, which was $1 million below cost and had a $1 million unfavourable impact on net income. Revenue Delivery revenue, transportation and storage revenue, and customer capital contributions, as reported in the condensed consolidated financial statements, were as follows:

Three months ended June 30,

(millions)

2022

2021 Change

57 $

Delivery revenue

54 49

3 8 1

Transportation and storage revenue Customer capital contributions

119 $

Revenue

107 $

Delivery Revenue Natural gas delivery rates are designed to recoup all distribution facility and operating costs necessary for delivery of natural gas to customers throughout the year. Natural gas storage and transportation costs — as well as ongoing investments related to safety, system integrity and growing infrastructure — are factored into delivery rates. Other considerations impacting natural gas delivery services include regulatory code compliance and industry best practices regarding safety. To minimize these impacts on delivery service customers, the Corporation strives to make the most effective use of resources and technology, and to collaborate with other Crown corporations and executive government. Delivery revenue is primarily driven by the number of customers and the amount of natural gas they consume. Weather is the most significant external factor affecting delivery revenue, as residential and commercial customers consume natural gas primarily as heating fuel. Delivery revenue was $3 million higher than 2022 due to weather being eight per cent colder than normal in 2022 compared the same period in 2021. Transportation and Storage Revenue The Corporation generates transportation revenue by receiving gas from customers at various receipt points in Saskatchewan and Alberta and delivering natural gas to customers at various delivery points in the province. The transportation toll structure consists of a receipt service charge, which customers pay when they put gas onto the natural gas transportation system, and a delivery service charge that customers pay when they take delivery off the natural gas transportation system. For receipt and delivery services, the Corporation offers both firm and interruptible transportation contracts. Under a firm service contract, the customer has a right to deliver or receive a specified quantity of gas on each

Management’s Discussion and Analysis

day of the contract. With a firm contract, customers pay for the amount of capacity they have contracted for whether they use it or not. Under an interruptible contract, customers may deliver or receive gas only when there is available capacity on the system and only pay receipt and delivery tolls when they deliver or receive gas. Integral to the Corporation’s transmission system are several strategically located natural gas storage sites, which have the capacity to provide operational flexibility along with a reliable and competitive natural gas storage service. Receipt and delivery service revenues combined for an $8 million increase in 2022 compared to 2021, due to rate increases effective April 1, 2022 on receipt and delivery services as the Corporation addresses increasing third party transportation expenses. Domestic customers also increased firm transportation contracting in 2022 compared to 2021, which contributed to increasing transportation revenue in 2022. Included in transportation and storage revenue for the three months ended June 30, 2022 is $3 million of storage revenue, which equaled 2021. The abundance of natural gas limits the demand for natural gas storage to those customers with relatively low load factors who use the service to mitigate receipt transportation charges. Customer Capital Contributions The Corporation receives capital contributions from customers to partially offset the cost of constructing facilities to connect them to the transmission and distribution systems. Generally, contributions related to transmission system projects tend to be larger but less frequent than contributions related to the distribution system. The volume and magnitude of contribution revenue can vary significantly period-over-period as various factors influence their receipt and recognition as revenue. Customer capital contributions in 2022 were $1 million higher than 2021, due to increasing distribution system customer capital contributions. Other Expenses SaskEnergy’s expenses are driven to a large degree by its investment in its transmission, distribution and storage systems. Depreciation and amortization expense, net finance expense and Saskatchewan taxes are directly tied to the investment in facilities. As the level of investment in facilities increases, these expenses also increase. Employee benefit expenses and operating and maintenance expenses are also driven by the Corporation’s investment in facilities, although less directly. As the number of customers increases, and infrastructure to serve those customers grows, the costs to operate and maintain the system increases. These expenses increase primarily because the amount of work to service and maintain the natural gas system grows as the kilometres of gas lines, number of service connections, and amount of compression equipment increases. Additional regulatory requirements and changing public perceptions have resulted in accelerated prevention, detection and mitigation initiatives, adding pressure to transmission, distribution and storage rates. Other expenses, net finance expenses and other (gains) losses, as reported in the condensed consolidated financial statements are as follows:

Three months ended June 30,

(millions)

2022

2021 Change

27 45 31

Employee benefits

27 41 30

Operating and maintenance Depreciation and amortization

( 4) ( 1) ( 1) (2) (8)

Saskatchewan taxes

Recovery on trade and other receivables

(2)

107

Net finance expenses

(2)

Management’s Discussion and Analysis

Employee Benefits Employee benefit costs in 2022 equaled 2021, as wages and salaries were slightly lower in 2022 and were equally offset by lower allocations to capital projects. Operating and Maintenance Operating and maintenance expenses were $4 million higher than 2021, as growing demand and increasing natural gas imports from Alberta are resulting in more natural gas being transported, and over greater distances. Higher vehicle and equipment operating costs, a result of increasing fuel prices, also contributed to higher costs. Depreciation and Amortization Balancing safety and system integrity with the demand for service continued through 2022. Strategic capital investments required the necessary infrastructure be put in service to meet current customer demand, resulting in increased depreciation and amortization. Depreciation and amortization was $1 million higher than the same period in 2021. Recovery on Trade and Other Receivables No adjustment on trade and other receivables was required through the three months ended June 30, 2022 compared to a recovery of $2 million in 2021, as the allowance for expected credit loss estimate was reduced, a result of the provincial economic outlook beginning to improve in the prior year. Net Finance Expenses Net finance expenses for 2022 were $2 million higher than 2021. Higher long- and short-term debt interest costs due to the Corporation borrowing additional debt to support its capital investment requirements, along with declining debt retirement fund earnings contributed to the higher net finance expenses year over year. Debt retirement funds are monies set aside, typically 1 per cent of a debt issuance, to retire the long-term debt upon maturity. The Corporation makes regular contributions to the funds, which are held and invested by the Saskatchewan Ministry of Finance and can be impacted inversely by interest rate movements. LIQUIDITY AND CAPITAL RESOURCES As a Crown corporation, SaskEnergy’s primary sources of capital are cash from operations and debt — which is borrowed through the Province’s General Revenue Fund. Cash from operations is SaskEnergy’s most important source of capital. As a utility, cash from operations is relatively stable and the Corporation relies on it to fund a significant proportion of its investment in its natural gas facilities, and the debt servicing costs on those investments. Long and short-term debt can be borrowed through the Province of Saskatchewan to meet any long or short-term incremental capital requirements, and to repay debt as it matures. Sources of liquidity include Order in Council authority to borrow up to $500 million in short-term loans, and a $35 million uncommitted line of credit with the Toronto-Dominion Bank. Under The SaskEnergy Act , the Corporation may borrow up to $2,500 million of debt upon approval of the Lieutenant Governor in Council.

Three months ended June 30,

(millions)

2022

2021 Change

Cash provided by operating activities Cash used in investing activities Cash used in financing activities Increase in cash and cash equivalents

9 5

(28) (36)

(33) (30)

(6)

Management’s Discussion and Analysis

Operating Activities Cash provided by operating activities increased $9 million through the three months ended June 30, 2022 compared to the same period in 2021. Cash flows from operations increased in 2022, driven by the impact of a higher asset optimization margin, higher delivery revenue, transportation and storage revenue and customer capital contributions. These increased cash flows were partially offset by higher operating and maintenance expenses along with higher financing costs. Investing Activities Cash used in investing activities decreased $5 million compared to 2021, primarily due to capital investment required for system expansion projects declining in 2022 as investment in 2021 included the Pierceland expansion project, which was placed into service in 2021-22. Financing Activities Cash used in financing activities increased $6 million in 2022 compared to 2021, primarily due to higher dividends paid to the Corporation’s shareholder and lower net borrowing in 2022. The Corporation used $23 million for interest payments, $11 million for dividend payments and $29 million to repay short-term debt. In addition, during the first quarter of the fiscal year, the Corporation borrowed an additional $50 million of long-term debt at a discount of $12 million to support its capital investment requirements. The debt has an interest rate of 2.8 per cent and matures in 2052. SaskEnergy’s debt-to- equity ratio at the end of June 30, 2022 of 59 per cent debt and 41 per cent equity is within the Corporation’s long-term target range of 58 to 63 per cent debt.

CAPITAL ADDITIONS Capital additions, as reported in the condensed consolidated financial statements, were as follows:

Three months ended June 30,

(millions)

2022

2021 Change

Strategic Customer growth System expansion

9 2

6 9

(7) (4)

Operational Risk management

(3)

3 1

Reliability of natural gas service Business and technology optimization

2 1

17 32

(2) (6)

26 $

Capital additions

Capital additions through the three months ended June 30, 2022, were $6 million lower than the investment made in 2021, primarily due to a decrease in system expansion investment. Investment in customer growth projects increased $3 million in 2022 as the Corporation began work on the transmission and distribution system’s sections of the Moose Jaw supply project. There are three components to the project such as the construction of 30.5-kilometre NPS 16 gas line, Belle Plain meter station modifications and new distribution meter/regulating station. System expansion capital projects provide incremental capacity for the transmission/distribution systems, through the installation of new or expanded gas line or facility assets, thus enabling demand growth and the addition of new customers. Lower system expansion capital additions in 2022 are primarily a result of spending in 2021 on the Pierceland Supply project that was put into service in 2021-22.

Management’s Discussion and Analysis

Risk is the likelihood of a negative consequence, such as damage or loss of gas containment, occurring on the SaskEnergy system. These consequences typically include damage to infrastructure, environment, and potential harm to or loss of human life. Risk management spending decreased $3 million in 2022 as the Corporation’s investment in distribution system service upgrade and alteration programs returned to normal levels in 2022. The prior year’s approach was higher than normal as there was a return to regular public interactions with customers in 2021. Reliability of natural gas in service includes property purchases for corporate business and the enhancement and/or extension of the life of property through renovations, modifications and/or upgrades. These projects give customers a degree of confidence that natural gas demand will be met without failure or loss of service. Reliability of natural gas service spending increased in 2022 by $1 million as the Corporation’s investment level returned to normal levels in 2022 after having to reallocate resources from system integrity projects in 2021 to customer-focused service upgrade and alteration reliability projects in 2021, a result of a return to regular public interactions with customers in 2021. Business and technology optimization ensures that every investment in information technology, every resource allocated, and every application in development or production meets business goals and is comparable to the prior year. OUTLOOK SaskEnergy is entrusted with a key provincial asset in the natural gas transmission and distribution system and must ensure standards for safety and reliability are maintained. Safe and reliable service has always been a core priority for SaskEnergy and it will continue to be going forward. This is especially important now as the transition to cleaner energy may cause instability in other areas of the energy sector. The Corporation will continue to mature in the progress of addressing its emissions from operations and assisting customers in meeting their own sustainability goals. SaskEnergy recognizes customers are at the centre of its existence, and it is important to proactively anticipate customer needs and expectations. The Corporation is committed to making it easy for customers to interact, transact and receive service when and how they want it. Modest incremental growth is expected from SaskEnergy’s industrial customers in 2022-23, primarily in the value-added agricultural sector and from gas- fired power generation. The number of residential customers connecting to SaskEnergy’s distribution system is expected to be 3,000 new customers in 2022-23. However, customers continue to reduce their natural gas consumption by becoming more energy efficient, which results in little-to-no revenue growth from distribution utility customers. Continued focus on core operations and operational excellence will safeguard SaskEnergy’s financial strength into the future. In 2022-23, income from operations is projected to be $70 million, which is a decrease of $12 million from the 2021-22 result. The decrease is primarily due to the gain recognized as a result of the Corporation obtaining title to SaskEnergy’s head office building in 2021-22. Initiatives targeted to support emissions reductions from both internal operations and customer-focused initiatives also create cost pressure for SaskEnergy. The Corporation will achieve 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 2022-23, SaskEnergy will make $245 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.

Condensed Consolidated Financial Statements (unaudited)

15 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 16 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 17 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 18 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

19 GENERAL INFORMATION 19 BASIS OF PREPARATION 21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 21 NATURAL GAS IN STORAGE HELD FOR RESALE 21 FINANCIAL AND DERIVATIVE INSTRUMENTS 23 FINANCIAL RISK MANAGEMENT 25 ASSETS HELD FOR SALE 26 PROPERTY, PLANT AND EQUIPMENT

27 LEASE LIABILITY 27 LONG-TERM DEBT 2 8 COMMITMENTS AND CONTINGENCIES 2 8 UNREALIZED MARKET VALUE ADJUSTMENTS 29 NATURAL GAS SALES AND PURCHASES 2 9 DELIVERY REVENUE 30 TRANSPORTATION AND STORAGE REVENUE 30 NET FINANCE EXPENSES

Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, 2022

March 31, 2022 (audited)

Notes

(millions)

(unaudited)

ASSETS Current assets Cash and cash equivalents

132

Trade and other receivables

199

50 18

Natural gas in storage held for resale

Inventory of supplies Assets held for sale

7 5

113 325

Fair value of derivative instruments

121 345

12 67

Right-of-use assets Intangible assets

13 69

2,900

Property, plant and equipment

2,944

149

Debt retirement funds

146

3,453 $

3,517

LIABILITIES AND PROVINCE'S EQUITY Current liabilities Short-term debt

308 104

337 124

Trade and other payables

Dividends payable Contract liability

11 15

8 3

Refund liability

4 4

Current portion of lease liability Fair value of derivative instruments

9 5

484

531

3 5 6

Employee future benefits

4 5 6

Deferred revenue

Lease liability

135

Provisions

178

1,597 2,230

Long-term debt

1,559 2,283

Province's equity Equity advances

(14)

Other components of equity

(8)

1,215 1,223

Retained earnings

1,220 1,234

3,453 $

3,517

The accompanying notes are an integral part of the condensed consolidated financial statements

Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

For the Three Months Ended June 30, 2021

For the Three Months Ended June 30, 2022

Income before Unrealized Market Value Adjust- ments

Unrealized Market Value Adjust- ments (Note 12)

(millions)

Notes

Total

REVENUE Natural gas sales

144

161

13 14 15

50 54 49

(9)

41 54 49

57 57

- - -

57 57

Delivery

- - -

Transportation and storage Customer capital contributions

263

280

157

(9)

148

EXPENSES Natural gas purchases (net of change in inventory)

136

155

48 27 41 30

(24)

24 27 41 30

27 45 31

- - - -

27 45 31

Employee benefits

- - - -

Operating and maintenance Depreciation and amortization

Saskatchewan taxes

Recovery on trade and other receivables

(2)

243

262

147

(24)

123

NET INCOME (LOSS) BEFORE THE FOLLOWING

(2)

(17)

Net finance expenses

(15)

TOTAL NET INCOME (LOSS) ITEMS THAT MAY BE RECLASSIFIED TO NET INCOME (LOSS) Change in fair value of debt retirement funds designated as FVOCI (1)

(2)

(5)

(6)

COMPREHENSIVE INCOME (LOSS)

(8)

(5)

The accompanying notes are an integral part of the condensed consolidated financial statements (1) Fair value through other comprehensive income (FVOCI)

Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Other Components of Equity

Retained Earnings

Equity Advances

Total

(millions)

BALANCE, AT APRIL 1, 2021 Comprehensive income (loss)

1,155

1,084

(1) (7)

151

158

- -

(22) (50)

Dividends

(22)

- -

Equity advances repayment

(50)

BALANCE, AT MARCH 31, 2022 (audited)

1,234

1,220

(8) (6)

(5) (6)

Comprehensive income (loss)

- -

Dividends

(6)

BALANCE, AT JUNE 30, 2022 (unaudited)

1,223

1,215

(14)

The accompanying notes are an integral part of the condensed consolidated financial statements

Consolidated Financial Statements

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

For the Three Months Ended June 30,

(millions)

Notes

2022

2021

OPERATING ACTIVITIES Net income

Add (deduct) items not requiring an outlay of cash Net change in fair value of derivative instrument assets and liabilities Change in revaluation of natural gas in storage to net realizable value

1 1

12 12

(15)

31 17 51 22 73

Depreciation and amortization

30 15 40 24 64

Net finance expenses

Net change in non-cash working capital related to operations

Cash provided by operating activities

INVESTING ACTIVITIES Additions to intangible assets

(1)

(26)

Additions to property, plant and equipment

(31)

(1)

Decommissioning costs

(1)

(28)

Cash used in investing activities FINANCING ACTIVITIES Debt retirement funds installments

(33)

(10) (29)

(10) (39)

Repayment of short-term debt Proceeds from long-term debt

(1)

Repayment of principal on lease liability

(2)

(23) (11) (36)

Interest paid Dividends paid

(22)

(7)

Cash used in financing activities

(30)

INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS, END OF PERIOD

The accompanying notes are an integral part of the condensed consolidated financial statements

Notes to the Consolidated Financial Statements (unaudited)

1. GENERAL INFORMATION SaskEnergy Incorporated (SaskEnergy or the Corporation) is a Saskatchewan provincially owned Crown corporation operating under authority of The SaskEnergy Act . The address of SaskEnergy’s registered office and principal place of business is 1777 Victoria Avenue, Regina, Saskatchewan, Canada S4P 4K5. The Corporation owns and operates natural gas-related businesses located both within and outside Saskatchewan. The condensed consolidated financial statements should not be taken as indicative of the performance to be expected for the full year due to the seasonal nature of the natural gas utility business. By virtue of The Crown Corporations Act, 1993 , SaskEnergy has been designated as a subsidiary of Crown Investments Corporation of Saskatchewan (CIC), a Saskatchewan provincially owned Crown corporation. Accordingly, the financial results of SaskEnergy are included in the consolidated financial statements of CIC. As a provincial Crown corporation, SaskEnergy and its wholly owned subsidiaries are not subject to Federal or Provincial income taxes in Canada.

2. BASIS OF PREPARATION a. Statement of compliance

The Corporation’s condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The condensed consolidated financial statements do not include all the information required for the Corporation’s annual consolidated financial statements. Accordingly, these statements should be read with reference to the annual report for the year ended March 31, 2022. The accounting policies used in the preparation of these condensed consolidated financial statements conform with those used in the Corporation's most recent annual consolidated financial statements. The condensed consolidated financial statements were authorized for issue by the Audit and Finance Committee of the Board of Directors on August 17, 2022. b. Basis of measurement The condensed consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries with all significant transactions and balances being eliminated. The condensed consolidated financial statements have been prepared on the historical cost basis except for the following items, which are described in Note 3: Financial instruments classified as at fair value through profit or loss Financial instruments classified as at fair value through other comprehensive income Employee future benefits Provisions Natural gas in storage held for resale Property, plant and equipment c. Functional and presentation currency The condensed consolidated financial statements are presented in Canadian dollars, the Corporation’s functional currency, unless otherwise stated. All financial information presented in Canadian dollars has been rounded to the nearest million.

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