SaskEnergy Second Quarter Report - September 30, 2016

efficiencies to help offset cost pressures and ensure delivery service rates remain competitive. The commodity rate decrease that was approved in combination with the delivery rate increase will more than offset the delivery service rate increase, such that customers will see an overall reduction on their bills.

SaskEnergy Incorporated First Quarter Report Tran portation Rev nue

March 31, 2011

Transportation and storage service rate increases implemented effective January 1, 2016 are resulting in higher transportation and storage revenue compared to 2015. The rate increases are addressing rising capital and operating costs related to an increasing focus on system integrity, emergency response, public awareness and the increasing cost of importing natural gas supply from Alberta. During the first quarter, Alberta border capacity operated at an average of 94 per cent of capacity and represents the growth in the province’s industrial sector as customers maximize purchases of natural gas and storage injections. Natural gas market prices are forecasted to remain low making expansion of Saskatchewan natural gas production uneconomical. Continued load growth within the industrial sector, increases the reliance on importing natural gas supply into the province. Rising demand for natural gas will continue to be sourced from conventional natural gas production in Alberta, which has begun to diminish and is being replaced by shale gas production. Long term sourcing is expected to shift to Northeastern British Columbia as Alberta supply tapers. As the Corporation’s dependency on importing higher volumes of natural gas continues, imports will be from further distances. Higher operating, maintenance and compression costs to maintain the additional infrastructure are expected in relation to importing natural gas from further distances. The current transportation rates are expected to cover these increasing transportation costs and no rate increases are expected through 2017-18.

Other Expenses

In response to the economic downturn in the Province and increasing pressures on transportation and delivery rates, SaskEnergy continues to focus on managing costs throughout 2016-17. With growing infrastructure and increasing dependency on Alberta natural gas supply resulting from growth in the customer base and industrial customer load, operating cost pressures are increasing. In the face of these costs pressures, the Corporation is focused on finding efficiencies in its operations through collaboration with other Crown Corporations, business process changes and technology initiatives The Corporation has achieved more than $38 million in efficiencies since 2009, with another $4 million planned this fiscal year. The Corporation is expecting staffing levels to remain consistent through 2016. Leveraging efficiency and productivity initiatives, SaskEnergy will continue to meet the Province’s growing natural gas requirements while keeping cost increases to a minimum.

Capital Investment

SaskEnergy will continue to focus its efforts on providing safe and reliable service to customers while managing rate pressure. Spending is focused on upgrading infrastructure to meet industrial customer load growth, new service requirements, as well as the integrity of the transmission, distribution and storage systems. The Corporation is forecasting to spend $292 million on capital expenditures ($249 net of capital customer contributions) for the 12 months ending March 31, 2017. These capital expenditures will be funded through operating cash flows and debt made available through the Province at what are expected to be historically low interest rates.

In summary, SaskEnergy will continue to focus on investing in safety and growth initiatives and realizing efficiencies, while forecasting income before unrealized market value adjustments of $77 million for 2016-17.

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2016-17 SECOND QUARTER REPORT

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