Annual Report201920
2019/20
ANNUALREPORT

01

OUR MANDATE
The Alberta Energy Regulator ensures thesafe, efficient, orderly, and environmentally
responsible development of hydrocarbon
resources over their entire life cycle. This
includes allocating and conserving water
resources, managing public lands, andprotecting the environment while providing
economic benefits for all Albertans.

OUR MISSION
To regulate Alberta’s energy resources
by protecting what matters most toAlbertans—public safety, the environment,
and economic value.

AN ACKNOWLEDGEMENT
In the spirit of reconciliation, the AER acknowledges that our head
office is located on the Treaty 7 traditional territory of the Blackfoot
Confederacy (Kainai, Piikani, and Siksika Nations), the Tsuu T’ina
Nation, the Stoney Nakoda Nation, and the Métis Nation Region 3.
We are situated on land where the Bow River meets the Elbow River,and the traditional name of this place is “Mohkinstsis,” which we now
call the City of Calgary.

OUR VISION
The Alberta Energy Regulator is recognized
for regulatory excellence, ensuring the safe,
environmentally responsible development of

02

energy resources for the benefit of all Albertans.

We also have field centres located on the traditional territories ofTreaty 6 and Treaty 8, and all other regions of the Métis Nationof Alberta.

CONTENTS

About Us

A Message from
Our ChairHighlights &Performance Metrics

Strategy & Delivery

Financials

01 03 05 09 10

03

WHAT WE
DON’T

WHAT WE REGULATE

over

over

over

over

433 000

146 000

30 000490

kilometresof pipelines*

operating natural gas& oil wells

oil facilities

activegas processing plants

gasoline

pipelines thatcross borders

over

over

21 000

16

230

4

gas facilities

experimental
in situ projects

primary/enhanced
recovery projects (in situ)

coal processing
plantselectricity

regulatednatural gas rate

04

36

8

4

9

thermal/enhanced
in situ projects

operatingoil sands mines

activebitumen upgraders

producingcoal mines*Operating, permitted, abandoned, and discontinued. In addition to inspection and incident response support for 12 000 kilometresof pipelines regulated by the Alberta Utilities Commission.

renewables
March 2020

ABOUT US
AROUND THE PROVINCE
Alberta’s energy sector is vast and complex. It includes
crude oil, natural gas, oil sands, and coal resources, theproduction value of which totaled $81.2 billion in 2019.
Ensuring that it operates in a safe, efficient, orderly, andenvironmentally responsible manner is no simple task:enter the AER, the single regulator for energy development in the province.
Few organizations anywhere are responsible for as large
and varied a mix of energy resources. We oversee somevery large established reserves:• 1.7 billion barrels of conventional oil• 162 billion barrels of bitumen• 27.7 trillion cubic feet of natural gas• 36.6 billion tons of coal
To produce and move this energy to market requires
more than 146 000 natural gas and oil wells, over
433 000 kilometres of pipelines (about half of Canada’s
entire pipeline network), over 51 000 oil and gas facilities,
8 operating oil sands mines, over 230 in situ projects,
4 active bitumen upgraders, as well as 9 producing coalmines and 4 coal processing plants.
We are a full life-cycle regulator, responsible for all
stages of development from exploration and production
to closure and reclamation.

The AER is accountable to both the Ministers of Energy
and Environment and Parks. Our regulatory frameworkensures that government policy and legislation is carriedout so that we achieve the environmental outcomes that
Albertans expect.

High Level
Field Centre

Fort McMurray
Regional Office

The Government of Alberta created the AER in 2013 when
it proclaimed the Responsible Energy Development Act.
We took on regulatory functions related to energy
development that were held by Alberta Environment
and Parks, and we combined them with the regulatory
functions of the AER’s predecessor, the Energy Resources
Conservation Board.
The AER works closely with government departments on
regulatory and policy issues, including Alberta Energy,
Alberta Environment and Parks, Alberta Health, andAlberta Indigenous Relations, and the Aboriginal
Consultation Office.
Since 1938, Alberta has relied on strong regulation to ensurethat our energy resources are developed responsibly.
Today, the 970 talented and dedicated employees of the
AER work to protect what matters to Albertans—public
safety, the environment, orderly energy development,
and economic benefit for Albertans and all Canadians.

Wood Buffalo
National Park

Grande Prairie
Field Centre

Slave Lake
Regional Office
Bonnyville
Field Centre

Edmonton Regional Office &Alberta Geological Survey
Drayton Valley
Field Centre

JasperNational
Park

Wainwright
Field Centre
Red Deer
Field Centre

Banff
NationalPark

13Core Research Centre
Calgary Head Office
Midnapore Field Centre
Medicine Hat
Field Centre

locations970
employees

01

A MESSAGE

02

HELLO,In September 2019, I joined the Alberta Energy
Regulator as part of the organization’s interim
board. Reflecting on this past year, it has beena time of unprecedented change and uncertainty
for the AER and its employees. From a reorganization, to investigations, to our current pandemic,
the past 12 months have been especially stressful.
On behalf of the board, I would like to thank every
leader and employee for their patience, dedication,and commitment throughout this challenging timeand for their support as we move forward in ourjourney of renewal.

Earlier this year, the board helped guide the process tointroduce new leadership and critically needed changes
to the AER’s structure. The goal of the reorganization
was to improve efficiencies, increase collaboration,and help the AER operate more effectively within theconstraints of a significantly reduced budget.

Despite all of the challenges we have faced this past
year, the critical work of the AER has never wavered, andwe have made great progress in overcoming uncertainties
and strengthening the foundation of the AER. This work
has included significant emphasis on addressing therecommendations from the International Centre ofRegulatory Excellence (ICORE) investigation reports.
In particular, we have made improvements to a numberof key policies, including those related to expenses,
conflict of interest, whistleblowing, and maintaining a
respectful workplace. We have also recovered funds
previously spent on ICORE activities, and better defined
the AER’s mandate and what the board, CEO, and the
AER’s governing ministers are responsible for and how
they interact with one another.

Similarly, we announced a permanent board in April 2020.
I was honored to accept the position of chair, and I lookforward to continuing to work with my board colleagues
and AER employees to continue to build on our progressand ensure the safe, environmentally responsible
development of Alberta’s energy resources.

On the leadership front, we hired a new CEO, Laurie Pushor.
Since taking on this role, Laurie has moved quickly toestablish a new executive and senior leadership team,learn about the people of the AER, and develop relationships with both employees and external stakeholders.

DAVID GOLDIE,CHAIR, AER BOARD OF DIRECTORS

03

HIGHLIGHTS &PERFORMANCE
METRICS

04

Over the past year, the AER has focused heavily on
regulatory change, with particular attention on the redtape reduction and the regulatory efficiency initiatives.
The AER has also continued implementing the Integrated
Decision Approach and addressing liability challenges inenergy development during the worst economic downturn in the province’s history.

Pipeline Safety
Despite the total length of pipelines in the province
continuing to grow, the number of high-consequencepipeline incidents dropped by 17 per cent from theprevious year. This decrease can be explained by• lower activity in the oil and gas sector and• the AER putting more focus on leak detection andeducating industry on integrity management programs.

High-consequence pipeline incidents decreased.

INCIDENTS BY CONSEQUENCE RATING

24
35

High

356

Medium

20
50

Low

320

High-consequence incidents
decreased by 17% from theprevious year.

Inspections
Inspections allow field inspectors to determine if
regulatory requirements have been met and provide an
opportunity to work directly with companies to bringthem back into compliance. Noncompliant inspections
are triaged to determine the significance or impact of
the noncompliance. Based on the results of the triage
assessment, an investigation may be warranted. The
investigation may result in an enforcement action.
In 2019/20, the AER conducted 9625 inspections, ofwhich 7451 resulted in a finding of compliance. The
inspections resulted in the issuance of 42 enforcement
actions:• 25 orders• 1 prosecution• 16 warning letters

About 82% of the incidents
were low consequence.

2018

2019

High: Incidents that could

Medium: Incidents that could

Low: Incidents that involve

have significant impact on

have a moderate impact onlittle to no substance release,the public, wildlife, or thethe public, wildlife, or thehave little to no impact onenvironment, or that involve

environment, but have no

the public, wildlife, and thethe release of a substance

impact on a flowing

environment, and have nothat affects a large area or

water body.

impact on a water body.

water body.

05

Liability Management
The prolonged economic downturn and historic low oil
prices have resulted in a growing inventory of inactive
infrastructure and increased insolvencies. The primarymethod of liability reduction of inactive infrastructureand sites is completion of closure activities. The AER
tracks industry submitted decommissioning and reclamation data.
The total number of wells decommissioned in 2019 reachedclose to 6000—an increase of almost 700 more wellsfrom 2018.

through the AER’s OneStop system to find other licensees
to collaborate with and plan closure work in the same area.
Forty-four of the 56 companies—who combined holdmore than half of the province’s inactive oil and gas
liability—committed to spend nearly $244 million, which
represented four per cent of their deemed inactive
liability as defined in Directive 011 – Licensee Liability
Rating (LLR) Program: Updated Industry Parameters andLiability Costs. An additional 12 companies participatedin the collaborative-only components of the programusing the mapping functionality available through the
AER’s OneStop system to find other licensees planningclosure work in the same area. These licensees did notcommit to a closure spend target.

Area-Based Closure Program
The area-based closure (ABC) program developed by
Canadian Association of Petroleum Producers, Explorers
and Producers Association of Canada, Petroleum
Services Association of Canada, and the AER encourages companies to work together to close oil and gas
infrastructure and sites more efficiently and effectively.
Pilot programs have shown that efficiencies gained
through collaboration and economies of scale can havecost savings of up to 40 per cent. More closure work can
be completed with the same closure budget using the
program principles to help reduce liabilities associatedwith inactive sites.
For the 2019 calendar year, 56 companies participated in the
ABC program using the mapping functionality available

06

DECOMMISSIONED WELLSLEFT IN A SAFE AND SECURE CONDITION

4435

2015

5392 5301

5994

3518

2016

2017

2018

2019

Note: Decommissioning data is based on the timeliness of

Red Tape Reductionindustry submissions. Historical counts are subject to change asa licensee may complete decommissioning work in 2017 and not

The AER’s red tape reduction initiative was formed in
May 2019 in response to the Government of Alberta’s
Red Tape Reduction Act. The government set a goal toreduce regulations by one-third, cut costs and inefficient
processes, and speed up approvals.
To meet this goal, four reduction targets were set forevery ministry and agency in Alberta:• 5% of requirements were to be eliminated byMarch 2020
• 12% by March 2021
• 20% by March 2022
• 33% by March 2023
The AER has approximately 41 500 requirements across
210 regulatory instruments such as directives, forms,
and manuals. In 2019/2020, the AER reduced the total
number of requirements by 1069 (a 2.6 per cent net
reduction). The majority of this work was the result of
making minor or administrative regulatory changes,
as well as eliminating duplication, redundancies, andobsolete requirements.

submit the data until 2019. Data pulled as of March 24, 2020.

RECLAMATION CERTIFICATES ISSUED

3698
2056

2612 2658

893
2015

2016

2017

2018

2019

Note: Reclamation data as of October 19, 2020. Reclamation
data from 2015 appears lower due to the backlog created during
OneStop implementation with many certificates being processedin 2016.

Regulatory Efficiency
The regulatory efficiency initiative (REI) was launched
in January 2018 to improve application timelines, ensure
modern and effective regulations, and continue totransform how the AER operates.
The AER identified a number of projects for implementation under the REI within an 18 to 24-month periodthat are intended to reduce regulatory burden across theregulatory lifecycle using a risk-informed approach.
As of March 31, 2020, the AER has completed 27 ofthese projects.
The AER is also working with other ministries to identify
legislative reforms for government consideration based oninternal AER analysis and feedback from key stakeholders.
In 2019/20, 95 per cent of AER applications met
turnaround targets as a result of the REI work. Every
application receives a turnaround target that reflects thecomplexity of the application process at the time theapplication is received.

APPLICATION TURNAROUND TARGETS

95% met target
5% did not meet target

Directives were updated to provide efficiency and costsaving opportunities to industry.
For example, updates made to Directive 081: Water
Disposal Limits and Reporting Requirements for Thermal
In Situ Oil Sand Schemes allows produced water recycling and the use of alternative fluids, removes a barrier
to greenfield investments, and represents estimatedcapital cost savings of up to $200 million per greenfieldproject. Collectively, existing projects could yield costsavings of up to $273 million (according to the Canadian
Association of Petroleum Producers) and annual
incremental savings of approximately $3.75 million.

IDA/OneStop
The Integrated Decision Approach (IDA) has transformed
the AER’s regulatory delivery processes and systems tobetter protect public safety and the environment and toensure the safe and responsible development of Alberta’s
energy resources across their full life cycle.
Within IDA, OneStop—a technology that uses a complex
set of rules to automate routine (low-risk) applications,and forward nonroutine (high-risk and more complex)
applications to technical experts for review—has helped
the AER transform is processes.
Under IDA/OneStop, the AER has• created assessment rules and a structured review
process to increase focus on high-risk applications;• created a consistent, risk-informed approach to audits
and inspections across the organization; and• incorporated empirical evidence during its decisionmaking process.

Since 2014, IDA and OneStop have increased regulatory
certainty and reduced regulatory burden as evidenced by
the following:• an estimated cost savings of close to $300 million
annually (provided by CAPP, based on 2017 data)• over 55 000 applications submitted in OneStop
since 2016
• a 76 per cent reduction in application timelines(2019/20)• a 50 per cent reduction in application timelines(2018/19)• automation of close to 31 000 routine applications• the ability to collect life-cycle data
• increased decision/investment certainty andenhanced transparency• the elimination of duplicated work
• increased access to data
• increased consistency in decision-making
We continue to move applications and submissions into
OneStop. In 2019/20, the following were moved:• applications for reclamation certificates• new pipelines applications• new and amended applications under the Water Act• integrated applications for major projects• area-based closure activities• new well applications• new, amended, and renewal applications under the
Public Lands Act

07

Additional Actions Undertaken in 2019/20
While improving the efficiency of the regulatory process
was a priority in 2019/20, and it will continue to be afocus. Work in other areas of the business also produced
results worth noting:• The Alberta Water Use Performance Report
was released.
• The 2018 State of Fluid Tailing Management for
Minable Oil Sands report was published.
• Manual 19: Decommissioning, Closure, and Abandonment of Dams at Energy Projects was released.
• E-learning tools to help industry understandAlberta’s new requirements to reduce methane
emissions went live.
• The report, Wihtamâtotan – Telling Each Other(Indigenous Knowledge Remediation, Reclamationand the AER: A Project with the Woodland Cree First
Nation) was created and shared.
In the past year, the AER also received one disclosure ofwrongdoing under the AER’s Whistleblower Protection
Policy, which did not proceed to the investigation stage.
The matter is now closed.

08

STRATEGY &DELIVERY

Looking forward, we will be focusing on a numberof priorities:• Developing a new strategic plan for the AER that
focuses on the organization’s long-term priorities.
• Supporting the AER’s efforts to develop a morecollaborative and inclusive culture.
• Establishing a scoreboard of key performance metrics
to measure how well the organization is functioning
and to identify successes and areas for improvement.
We anticipate sharing much of this information
externally in the spirit of openness and accountability.
• Reviewing and providing guidance on the AER’s
stakeholder engagement processes so that we areengaging effectively and maintaining an appropriatebalance among stakeholder priorities.
• Updating the AER’s levy system under which we
obtain our funding from industry to reflect our current
regulatory work fairly.
• Supporting the AER’s red tape reduction workthrough our review and approval of proposed
regulatory changes.

09FINANCIAL HIGHLIGHTS
2020

SUMMARY ANNUAL HIGHLIGHTS

Adjusted budget

2019
ActualActual(in thousands)
Revenues
Administration fees$

232 722$233 393$253 149

Orphan well abandonment levy and fees

60 50061 03945 959Other revenue

4 409

5 248

8 1 12–3 134

297 631299 680

310 354

Energy regulation

263 83 1

264 248257 903

Orphan well abandonment

60 50061 03945 959–1 548

324 331325 287

305 4 10(26 700)(25 607)

4 944

Capital investment

12 30012 70419 145

Less: Amortization of tangible capital assets(16 000)(15 947)(15 329)(67)(1 19)(3 310)

3 697

ICORE

Expenses

ICORE

CapitalLoss on disposal and write-down of tangible capital assets(3 700)Net capital investment(Deficit)/surplus

010$(23 000)$(22 297)$

1 247

All amounts are expressed in thousands of Canadian dollars.

All amounts are expressed in thousands of Canadian dollars.

The AER is an industry-funded regulator that is accountable to the Government of Alberta. The AER provides for
its operating expenses and capital investment throughtwo separate revenue sources: an administration levy
and other revenue. The AER also collects an orphan welllevy, which is paid directly to the Alberta Orphan Well
Association (OWA).
The previous table summarizes the results of the AER’s
operations and net capital investment for the year ended
March 31, 2020. The complete audited financial statements
begin on the following page.
Administration fees
Alberta’s Responsible Energy Development Act authorizes
the AER to levy administration fees on the sectors thatit regulates. The AER is responsible for regulating theprovince’s oil and gas, oil sands, and coal sectors. The
funds collected from industry levies are used to support
the AER’s operations and fulfil the AER’s mandate toensure the safe, efficient, orderly, and environmentally
responsible development of hydrocarbon resources
over their entire life cycle. The administration fees forthe year ending March 31, 2020, decreased by $19 756
or 8%. This decrease is related to budget reductions
directed by the Government of Alberta (GOA). In 2020,
the AER collected 73% of industry levies from oil andgas, 25% from oil sands, and 2% from coal operations.
Orphan well abandonment levy and fees
Under Part 11 of the Oil and Gas Conservation Act, the
AER is required to prescribe an orphan fund levy. Thislevy is based on the revenue requirements identified by
the OWA board and approved by the GOA. In 2020, theAER collected an orphan well levy of $60 000, which is$15 000 more than in 2019. An increase in the orphan
well levy was requested by the OWA and approved by
the GOA to address the increasing volume of orphanwells. In addition, the AER issued $150 in penalties and$694 in application fees. All amounts collected were paid
directly to the OWA.

critical role in helping the AER achieve outcomes atthe lowest possible cost. Investments in information
technology help the AER remain efficient, relevant,and responsive.

Other revenue
Other revenue consists of data subscriptions, enforcement
revenue, sales of electronic data and publications, revenue
from projects performed on a cost recovery basis, andinvestment income. In 2020, other revenue decreased by$2864 or 35%. In 2020, the AER recognized $1126 lessrevenue than in 2019 as a result of completing a project
performed on a cost recovery basis for Alberta Environment and Parks. In addition, the AER recognized $1726
less in investment income due to a decreased budget,and beginning the fiscal year with partial collection ofadministrative fees.

In 2020, the AER made capital investments of $12 704.
Capital investment projects in 2020 were focused on thedevelopment and implementation of OneStop as partof the AER’s Integrated Decision Approach program.
OneStop allows companies to submit one integrated
application which covers activities over the life of the
project and to receive decisions in a single approval
document. Capital investment reduced from 2019, asin 2019, the AER spent $6000 on one-time roof repairs
to address integrity safety concerns at the AER’s Core
Research Centre.

ICORE

Budget Management

In 2019, the AER recovered $3134 in revenue fromICORE Energy Services (NFP) for consulting services
performed by the AER. The AER severed ties withICORE Energy Services (NFP) in December 2018.

During 2020, the AER continued to demonstrate
its commitment to effective budget managementby executing budget reductions in all non-staffing
expenditure areas. These areas included IT, operations,buildings, and fleet. These cost-saving measures wereoffset by increased termination costs associated withrequired staff reductions in order to achieve the fiscal
2020/21 budget.

Energy regulation
Salaries, wages, and employee benefits accounted for73 per cent of energy regulation expenses in 2020.
During the year, the AER underwent a reorganization
and reduced the number of employees to become more
effective, efficient, and resilient in the delivery of its
mandate. This resulted in significant staff reduction
costs as the AER worked to achieve the fiscal 2020/21
budget. Offsetting staff reduction costs included lower
expenditures in computer services, buildings, andadministrative expenses.
Capital Investment
Developing and acquiring capital assets, most significantly investments in information technology, plays a

The AER completed the year within the GOA-approved
deficit of $23 000. The AER will recover this deficit overthe next two fiscal years.

ADMIN. FEE COLLECTION

73% oil & gas
25% oil sands
2% coal11Alberta Energy Regulator
Financial Statements
For the Year Ended March 31, 2020

Statement of Management Responsibility
Independent Auditor's ReportStatement of Operations
Statement of Financial Position
Statement of Change in Net Debt
Statement of Cash Flows
Notes to the Financial Statements
Schedules to the Financial Statements

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements of the Alberta Energy Regulator and all other information
relating to the AER contained in this annual report have been prepared and presented bymanagement, who is responsible for the integrity and fair presentation of the information.
These financial statements are prepared in accordance with Canadian public sector accounting
standards. The financial statements necessarily include some amounts that are based on informed
judgments and best estimates of management. The financial information contained elsewhere in thisannual report is consistent with that in the financial statements.
Management is responsible for maintaining an effective system of internal controls designed toprovide reasonable assurance that financial information is reliable, transactions are properly
authorized, assets are safeguarded and liabilities are recognized.
The Auditor General of Alberta, the AER’s external auditor appointed under the Auditor General Act,
performed an independent external audit of these financial statements in accordance with Canadian
generally accepted auditing standards, and has expressed his opinion in the accompanying
Independent Auditor’s Report.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities forfinancial reporting and internal controls. The Board of Directors exercises this responsibility throughthe Audit and Finance Committee, composed of Directors who are not employees of the regulator.
The Audit and Finance Committee meets with the internal auditors and the external auditors-both in
the presence and in the absence of management to discuss their audit, including any findings as tothe integrity of financial reporting processes and the adequacy of our systems of internal controls.
The internal and external auditors have full and unrestricted access to the Audit and FinanceCommittee.

[Original signed by Laurie Pushor]
President and Chief Executive Officer[Original signed by Naren Makwana]Vice-President Finance and Enterprise Performance (interim)

Date: June 18,2020

Independent Auditor’s Report
To the Board of Directors of the Alberta Energy Regulator
Report on the Financial Statements

Qualified Opinion
I have audited the financial statements of the Alberta Energy Regulator (the AER), which comprisethe statement of financial position as at March 31, 2020, and the statements of operations, change
in net debt, and cash flows for the year then ended, and notes to the financial statements, including
a summary of significant accounting policies.
In my opinion, except for the effects of the matter described in the Basis for qualified opinion
section of my report, the accompanying financial statements present fairly, in all material respects,
the financial position of the AER as at March 31, 2020, and the results of its operations, its changes
in net debt, and its cash flows for the year then ended in accordance with Canadian public sector
accounting standards.

Basis for qualified opinion

The AER has not appropriately presented and disclosed the nature of its relationship and its
transactions with ICORE Energy Services (ICORE NFP), an organization created by the AER andincorporated under the Canada Not-for-profit Corporations Act. I examined the nature of therelationship between the AER and ICORE NFP, and the related transactions, and determined that
under Canadian public sector accounting standards the AER controlled ICORE NFP from May 17,2017 until December 19, 2018, when the AER resigned its membership and control of ICORE NFP.

The AER concluded that ICORE NFP is not controlled and presents the relationship and transactions
with ICORE NFP as a related party in schedule 4 - related party transactions. Because the AER
controlled ICORE NFP, its financial results up to December 19, 2018 should have been consolidated
into the AER’s financial statements. Had the AER consolidated ICORE NFP, the AER’s statement ofoperations for the year ended March 31, 2019 would have additional ICORE Energy Services (NFP)
revenue of $l.0 million and additional ICORE Energy Services (NFP) expense of $0.7 million.
Further, expenses reported on the AER’s statement of operations for the year ended March 31,
2019 classified as Energy Regulation should be $2.3 million lower and expenses classified as ICORE
Energy Services (NFP) should be $2.3 million higher. Schedule 4 – related party transactions does
not accurately describe the nature of the relationship between the AER and ICORE NFP as acontrolled entity. The statement of operations for the year ended March 31, 2020 is not misstatedbecause the AER did not control ICORE NFP after December 19, 2018.
I conducted my audit in accordance with Canadian generally accepted auditing standards. My
responsibilities under those standards are further described in the Auditor's Responsibilities for the
Audit of the Financial Statements section of my report. I am independent of the AER in accordance2with the ethical requirements that are relevant to my audit of the financial statements in Canada,
and I have fulfilled my other ethical responsibilities in accordance with these requirements. I
believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis formy qualified opinion.

Other information
Management is responsible for the other information. The other information comprises theinformation included in the Annual Report, but does not include the financial statements and myauditor’s report thereon. The Annual Report is expected to be made available to me after the date ofthis auditor’s report.
My opinion on the financial statements does not cover the other information and I do not express
any form of assurance conclusion thereon.

In connection with my audit of the financial statements, my responsibility is to read the otherinformation identified above and, in doing so, consider whether the other information is materiallyinconsistent with the financial statements or my knowledge obtained in the audit, or otherwise
appears to be materially misstated.

If, based on the work I will perform on this other information, I conclude that there is a material
misstatement of this other information, I am required to communicate the matter to those charged
with governance.

Responsibilities of management and those charged with governance for the financial
statements
Management is responsible for the preparation and fair presentation of the financial statements inaccordance with Canadian public sector accounting standards, and for such internal control as
management determines is necessary to enable the preparation of the financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the AER’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless an intention exists to liquidate or to cease operations,or there is no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the AER’s financial reporting
process.

Auditor's responsibilities for the audit of the financial statements
My objectives are to obtain reasonable assurance about whether the financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor'sreport that includes my opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial
statements.

3

As part of an audit in accordance with Canadian generally accepted auditing standards, I exercise
professional judgment and maintain professional skepticism throughout the audit. I also:
•

•
•
•

•

Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the AER's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the AER’s ability to continue as a going
concern. If I conclude that a material uncertainty exists, I am required to draw attention in myauditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up
to the date of my auditor’s report. However, future events or conditions may cause the AER tocease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.

I communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that I identify during my audit.

[Original signed by W. Doug Wylie FCPA, FCMA, ICD.D]
Auditor General
June 18, 2020
Edmonton, Alberta

4

ALBERTA ENERGY REGULATORSTATEMENT OF OPERATIONSYEAR ENDED MARCH 31, 2020

2020

2019

Budget(Note 4, Schedule 3)

ActualActual(in thousands)
Revenues
Administration fees
Orphan well abandonment levy and fees
Information, services and fees$

ICORE Energy Services (NFP) (Schedule 4)Investment income$

867
292,944

Expenses (Note 2 and Schedule 1)
Energy regulation
Orphan well abandonment (Note 5)
ICORE Energy Services (NFP) (Schedule 4)

236,331
55,813

Annual operating surplus (deficit)
Accumulated surplus at beginning of year
Accumulated surplus at end of year

232,72255,813
3,542$

233,393
61,0394,693
555
299,680$

253,149
45,959
5,831
3,134
2,281
310,354

292,144264,248
61,039325,287800(25,607)

4,944

66,51767,31766,51740,91061,57366,517$257,903
45,9591,548
305,410$

The accompanying notes and schedules are part of these financial statements.

5

ALBERTA ENERGY REGULATORSTATEMENT OF FINANCIAL POSITION
AS AT MARCH 31, 2020

2020

2019
(in thousands)

Financial assets
Cash and cash equivalents (Note 6)
Accounts receivable (Note 7)
Pension assets (Note 12)$

Liabilities
Bank indebtedness (Note 6)
Accounts payable and accrued liabilities (Note 8)
Payable to Orphan Well Association
Deferred lease incentives (Note 10)
Net debt
Non-financial assets
Tangible capital assets (Note 13)
Prepaid expenses and other assets
Net assets
Accumulated surplus (Note 14)

$

1,920
1,505
3,425

$

19,7407,484
2,141
29,365812
17,955609
15,94935,325(31,900)

20,505
1,928
17,56840,001(10,636)

63,105
9,705
72,81066,415
10,73877,15340,910$66,517

Contingent liabilities (Note 15)
Contractual obligations (Note 16)
The accompanying notes and schedules are part of these financial statements.

6

ALBERTA ENERGY REGULATORSTATEMENT OF CHANGE IN NET DEBTYEAR ENDED MARCH 31, 2020

2020

2019

Budget(Note 4, Schedule 3)

Annual operating surplus (deficit)$

Acquisition of tangible capital assets (Note 13)
Amortization of tangible capital assets (Note 13)
Loss on disposal and write-down of tangible capital assets
Decrease in prepaid expenses and other assets(Increase)/decrease in net debt
Net debt at beginning of year
Net debt at end of year

800

Actual(in thousands)$(25,607)$(12,704)
15,94767
1,033(21,264)(10,636)(31,900)(12,300)
11,500$(10,636)(10,636)

Actual

$

4,944

$

(19,145)
15,329
119
1,048
2,295
(12,931)(10,636)

The accompanying notes and schedules are part of these financial statements.

7

ALBERTA ENERGY REGULATORSTATEMENT OF CASH FLOWSYEAR ENDED MARCH 31, 2020

2020

2019
(in thousands)

Operating transactions
Annual operating (deficit) surplus
Non-cash items included in annual operating (deficit) surplus:
Amortization of tangible capital assets (Note 13)
Loss on disposal and write-down of tangible capital assets
Change in pension assets
Amortization of deferred lease incentives (Note 10)$(25,607)$

4,944

15,94767
636(1,619)(10,576)
5,564
1,033
(2,550)(1,319)(7,848)15,329119(1,403)(1,631)
17,358
64
1,048
3,482
1,122
167
23,241

Capital transactions
Acquisition of tangible capital assets (Note 13)
Cash applied to capital transactions(12,704)(12,704)(19,145)(19,145)

Financing transactions
Proceeds from line of credit
Debt repayment
Cash provided by financing transactions

64,587(63,775)
812-(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

(19,740)
19,740-4,096
15,644
19,740Decrease in accounts receivable
Decrease in prepaid expenses and other assets(Decrease)/increase in accounts payable and accrued liabilities(Decrease)/increase in payable to Orphan Well Association
Additions to deferred lease incentives (Note 10)
Cash (applied to) provided by operating transactions$$

The accompanying notes and schedules are part of these financial statements.

8

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 1AUTHORITY
The Alberta Energy Regulator (AER) is an independent and quasi-judicial organization of the Government of Alberta. The AER
operates under the Responsible Energy Development Act. The AER's mandate provides for the safe, efficient, orderly andenvironmentally responsible development of hydrocarbon resources over their entire life cycle. This includes allocating andconserving water resources, managing public lands, and protecting the environment while providing economic benefits for all
Albertans. The AER is exempt from income taxes under the Income Tax Act.

Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES
These financial statements are prepared in accordance with Canadian Public Sector Accounting Standards (PSAS).
Basis of financial reporting
Revenues
All revenues are reported on the accrual basis of accounting. Cash received for which services have not been provided by year
end is recognized as unearned revenue and recorded in accounts payable and accrued liabilities.
Investment Income
Investment income includes interest income.
Expenses
Expenses are reported on an accrual basis. The cost of all goods consumed and services received during the year is expensed.
Employee future benefits
The AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary pension plans tocompensate senior staff who do not participate in the government management pension plans. Retirement benefits are based oneach employee's years of service and remuneration.
Pension assets represent the sum of the accumulated cash contributions less the sum of the current and prior years' pension
expense.
Accrued benefit obligations are actuarially determined using the projected benefit method prorated on length of service andmanagement's best estimate of expected plan investment performance, projected employees' compensation levels andretirement age of employees.
Accrued benefit obligations and pension benefit costs for the year are calculated using the expected rate of return on plan assets
as the discount rate, which is determined using market values of plan assets.
Actuarial gains and losses are amortized over the average remaining service period of the active employees, which is
10.9 years (2019 - 10.9 years).
Past service cost arising from plan amendments is accounted for in the period of the plan amendments.
Gains and losses determined upon a plan curtailment are accounted for in the period of curtailment.
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension Plan,
Public Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. Defined contribution planaccounting is applied to these plans as the AER has insufficient information to apply defined benefit plan accounting.
Accordingly, pension expense comprises employer contributions to the plans that are required for its employees during the year,
which are calculated based on actuarially pre-determined amounts that are expected to provide the plans' future benefits.

9

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)
Basis of financial reporting (continued)
Valuation of financial assets and liabilities
The AER's financial assets and liabilities are generally measured as follows:
Financial Statement Component
Cash and cash equivalents
Accounts receivable
Bank indebtedness
Accounts payable and accrued liabilities
Payable to the Orphan Well Association
Deferred lease incentives

Measurement
Cost
Lower of cost or net recoverable value
Cost
Cost
Cost
Amortized cost

The AER has not designated any financial assets or liabilities in the fair value category, has no significant foreign currencytransactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses andconsequently has not presented a statement of remeasurement gains and losses.
Financial assets
Financial assets are assets that could be used to discharge existing liabilities or finance future operations and are not for
consumption in the normal course of operations.
Financial assets are the AER's financial claims on external organizations and individuals at the year end.
Cash and cash equivalents
Cash comprises cash on hand and demand deposits.
Accounts receivable
Accounts receivable are recognized at the lower of cost or net recoverable value. A valuation allowance is recognized whenrecovery is uncertain.
Liabilities
Liabilities are present obligations of the AER to external organizations and individuals arising from past transactions or eventsoccurring before the year end, the settlement of which is expected to result in the future sacrifice of economic benefits. They arerecognized when there is an appropriate basis of measurement and management can reasonably estimate the amounts.
Liabilities include all financial claims payable by the AER at fiscal year end.
Bank indebtedness
Bank indebtedness comprises the amount outstanding for the revolving line of credit.
Deferred lease incentives
Deferred lease incentives, consisting of leasehold improvement costs, reduced rent benefits and rent-free periods, are amortizedon a straight-line basis over the term of the leases.

10

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)
Basis of financial reporting (continued)
Environmental Liabilities
Contaminated sites are a result of contamination of a chemical, organic or radioactive material or live organism that exceeds anenvironmental standard, being introduced into soil, water or sediment.
A liability for remediation of contaminated sites from an operation(s) that is no longer in productive use and may be due to
unexpected events resulting in contamination, is recognized net of any expected recoveries, when all of the following criteria aremet:- an environmental standard exists;- contamination exceeds the environmental standard;- the AER is directly responsible or accepts responsibility;- it is expected that future economic benefits will be given up; and- a reasonable estimate of the amount can be made.
Non-financial assets
Non-financial assets are acquired, constructed or developed assets that do not normally provide resources to discharge existing
liabilities, but instead:- are normally employed to deliver AER services;- may be consumed in the normal course of operations; and- are not for sale in the normal course of operations.
Non-financial assets of the AER include tangible capital assets, prepaid expenses and other assets.
Tangible capital assets
Tangible capital assets are recognized at cost less accumulated amortization, which includes amounts that are directly related tothe acquisition, design, construction, development, improvement or betterment of the assets. Cost includes overhead directly
attributable to construction and development of the asset.
The cost of the tangible capital assets, excluding land, is amortized over their estimated useful lives as follows:
Leasehold improvements
Straight line
Term of the lease
Furniture and equipment
Straight line
5 - 12 years
Computer hardware
Straight line
4 years
Computer software - purchased
Straight line
4 years
Computer software - developed
Declining balance
5 years
Amortization is only expensed when the tangible capital asset is put into service.
Work-in-progress, which may include developed computer software and leasehold improvements, is not amortized until a projectis complete and the asset is put into service.
Tangible capital assets are written down when conditions indicate that they no longer contribute to the AER's ability to provide
goods and services, or when the value of future economic benefits associated with the tangible capital assets is less than their
net book value. The net write-downs are accounted for as an expense in the Statement of Operations.

11ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)
Basis of financial reporting (continued)
Prepaid expenses
Prepaid expenses are recognized at cost and amortized based on the terms of the agreements.
Measurement uncertainty
Measurement uncertainty exists when there is a variance between the recognized or disclosed amount and another reasonably
possible amount, whenever estimates are used. The amounts recognized for amortization of tangible capital assets are based on
estimates of the useful life of the related assets. Accrued defined benefit obligations are subject to measurement uncertainty due
to the use of actuarial assumptions. The resulting estimates are within reasonable limits of materiality and are in accordance with
the AER's significant accounting policies. In addition, estimates for contingent liabilities are subject to measurement uncertainty.
These estimates are recorded when the contingency is determined to be likely and measurable however the actual amount of
any settlement may vary from the estimate recorded.

Note 3

FUTURE ACCOUNTING CHANGESThe Public Sector Accounting Board has approved the following accounting standards:
PS 3280 Asset Retirement Obligations (effective April 1, 2021)
This standard provides guidance on how to account for and report liabilities for retirement of tangible capital assets.
PS 3400 Revenue (effective April 1, 2022)
This standard provides guidance on how to account for and report on revenue, and specifically, it addresses revenue arisingfrom exchange transactions and unilateral transactions.
Management is currently assessing the impact of these standards on the financial statements.

Note 4BUDGET
The budget and budget adjustments reflected on Schedule 3 have been approved by the Government of Alberta.

Note 5

ORPHAN WELL ABANDONMENT(in thousands)
The Government of Alberta has delegated the authority to manage the abandonment and reclamation of wells, facilities andpipelines that are licensed to defunct licensees to the Alberta Oil and Gas Orphan Abandonment and Reclamation Association(Orphan Well Association). The AER transfers orphan well abandonment levy and application fees to the Orphan Well
Association. During the year ended March 31, 2020, the AER collected $60,345 (2019 - $45,379) in levies and $694 (2019 $580) in application fees.

12

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 6

CASH AND CASH EQUIVALENTS AND BANK INDEBTEDNESS(in thousands, unless otherwise noted)
2019

2020
Cash and cash equivalents

$

(812)

$

19,740-$(812) $

19,740Bank indebtedness

Cash and cash equivalents are held in an account with a Canadian chartered bank and earn interest calculated based on the
average monthly cash balance. The funds are available to be withdrawn upon request. During the year ended March 31, 2020,
the AER earned interest at an annual average rate of 2.1% (2019 - 2.1%).
The AER has an unsecured $75 million (2019 - $50 million) revolving line of credit. Amounts borrowed can only be applied togeneral corporate purposes and exclude the funding of capital expenditures.
Bank advances on the line of credit are payable on demand and bear interest at a rate of prime less 0.75% (2019 - prime less0.5%). For the year ended March 31, 2020, interest expense on the revolving line of credit was $143 (2019 - $nil).
Note 7

ACCOUNTS RECEIVABLE(in thousands)
Accounts receivable are unsecured and non-interest bearing.

2019

2020

Accounts receivable - general
Accounts receivable - ICORE Energy Services (NFP)

Gross amount

Allowancefor doubtful
accounts$$$
Note 8

5,084
5,084

$

Net
recoverable
value(3,164) $(3,164) $

1,920
1,920

Net
recoverable
value
$
$

5,314
2,170
7,484

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES(in thousands)
Accounts payable
Accrued liabilities
Unearned revenue

$

$

2020
3,052
14,177726
17,955

2019
$

$

3,823
14,7191,963
20,505

13

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 9FINANCIAL INSTRUMENTS(in thousands)
The AER has the following financial instruments: cash and cash equivalents, accounts receivable, bank indebtedness, accounts
payable and accrued liabilities, and payable to the Orphan Well Association.
Financial risk management
The AER has exposure to the following risks from its use of financial instruments:(a) Liquidity risk
Liquidity risk is the risk that the AER will encounter difficulty in meeting obligations associated with its financial liabilities. Liquidity
requirements of the AER are met primarily through the collection of funding at the beginning of the year to fund operating
expenses and capital expenditures throughout the year. The AER manages liquidity risk by having established budget processes
and regularly monitoring cash flows to ensure the necessary funds are on hand to fulfill upcoming obligations. In addition, the
AER maintains a revolving line of credit which provides financial flexibility to allow the AER to meet its obligations if funding
cannot be collected on a timely basis. As at March 31, 2020, the AER had bank indebtedness of $812 (2019 - $nil).
(b) Credit risk
The AER is exposed to credit risk from potential non-payment of accounts receivable. A substantial portion of the AER's
accounts receivable includes balances due from operators in the oil and gas industry, and is subject to normal industry credit
risk. The AER regularly monitors the financial status of operators and assesses the collectability of accounts receivable. The
AER's maximum exposure to credit risk is limited to the carrying amount of accounts receivable presented in the Statement of
Financial Position at the reporting date. The AER established a valuation allowance that corresponds to the specific credit risk ofoperators, historical trends and economic circumstances.

Note 10 DEFERRED LEASE INCENTIVES(in thousands)
The AER has entered into various lease agreements which provide for lease incentives comprising reduced rent benefits, rentfree periods and leasehold improvement costs. These amounts are included in deferred lease incentives in the Statement of
Financial Position and are amortized on a straight-line basis over the term of the lease.
2019

2020

Balance at beginning of year
Additions
Amortization
Balance at end of year

ReducedLeaseholdrent benefits
improvement and rent-free
periods
costs$
14,143 $3,425 $
(1,252)(367)$
12,891 $3,058 $

Total
17,568 $(1,619)15,949 $Total
19,032167(1,631)
17,568Note 11 ENVIRONMENTAL LIABILITIES(in thousands)
As at March 31, 2020, the AER is not responsible, nor has it accepted responsibility, for performing remediation work at
contaminated sites. As at March 31, 2020, the AER's liability for contaminated sites was $nil (2019 - $nil).

14

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 12 EMPLOYEE FUTURE BENEFITS(in thousands, unless otherwise noted)
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension Plan,
Public Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. For the year ended March 31,
2020, the expense for these pension plans is equal to the contribution of $15,533 (2019 - $16,598). The AER is not responsible
for future funding of the plan deficit other than through contribution increases.
In addition, the AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary pension
plans to compensate senior staff who do not participate in the government management pension plans. Retirement benefits are
based on each employee's years of service and remuneration.
All the information presented in the note below is related to the AER's defined benefit pension plans.
The effective date of the most recent actuarial funding valuation for SEPP was December 31, 2018. The accrued benefit
obligation as at March 31, 2020 is based on the extrapolation of the results of this valuation. The effective date of the next
required funding valuation for SEPP is December 31, 2021.
Pension plan assets are valued at market values. During the year ended March 31, 2020, the weighted average actual return onplan assets was -3.7% (3.7% in 2019).
Significant weighted average actuarial and economic assumptions used to value accrued benefit obligations and pension benefit
costs were as follows:
Accrued benefit obligations
Discount rate
Rate of compensation increaseLong-term inflation ratePension benefit costs for the year
Discount rate
Expected rate of return on plan assets
Rate of compensation increase

2020

2019

4.8%
0% until March 31, 2021,
3.5% thereafter
2.0%

5.1%
0% until Sep 30, 2019,3.5% thereafter
2.0%

2020
5.1%
5.1%

2019

0% until Sep 30, 2019,3.5% thereafter

5.0%
5.0%

0% until Sep 30, 2019,3.5% thereafter

The funded status and amounts recognized in the Statement of Financial Position were as follows:
Market value of plan assets
Accrued benefit obligations
Plan (deficit) surplus
Unamortized actuarial losses (gains)
Pension assets

$

$

2020
65,442 $(72,461)(7,019)8,524
1,505 $

201967,789(63,836)
3,953(1,812)
2,141

15

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 12 EMPLOYEE FUTURE BENEFITS (continued)(in thousands, unless otherwise noted)
The pension benefit costs for the year included the following components:
Current period benefit cost
Interest cost
Expected return on plan assets
Loss on curtailments
Unamortized (gains) recognized in curtailments
Amortization of actuarial (gains) losses$$
Additional information about the defined benefit pension plans is as follows:
AER contributions
Employees' contributions
Benefits paid
The asset allocation of the defined benefit pension plans' investments was as follows:
Equity securities
Debt securities
Alternatives
Other

$

2020
4,326 $
3,382
(3,574)
1,342
(172)
(53)
5,251 $

2019
4,123
3,097
(3,252)
279
4,247

2020
4,616
839
5,325

2019
5,649
898
3,028

2020
42.3%
24.7%
19.6%
13.4%
100.0%

$

2019
45.8%
22.8%
18.0%
13.4%
100.0%

During the year, the AER underwent a re-organization and reduced the number of employees to become more effective, efficientand resilient in the delivery of its mandate and to meet the reduced budget targets. This resulted in a curtailment due to the
reduction in the number of active employees in the AER's maintained defined benefit pension plans. The curtailment impact is a
$1,342 (2019 - $nil) increase in the accrued benefit obligations recognized immediately through pension expense.

16

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 13 TANGIBLE CAPITAL ASSETS(in thousands)
2020

Estimated useful life

2019

Land

Leaseholdimprovements

Furniture andequipment

Computerhardware andsoftwareIndefinite

Term of thelease

5-12 years

4-5 years

Total

Total

Historical cost(1)Beginning of year$

Additions

282

$

-

Disposals, including write-downs

45,724$

11

13,615$

3

137,253$

12,690196,874$

12,704

186,834
19,145

-

-

(506)

(6,523)(7,029)(9,105)282

45,735

13,112

143,420

202,549

196,874

Accumulated amortization
Beginning of year

$

-

$

17,444

$

2,735

8,933

$

1,000

104,082$

12,212

130,459$-

Effect of disposals, including writedowns

-

-

(506)

(6,456)(6,962)(8,986)-

20,1799,427

109,838

139,444

130,459

Net book value at March 31, 2020

$

282

$

25,556

$

3,685

$

33,582Net book value at March 31, 2019

$

282

$

28,280

$

4,682

$

33,171

15,947

124,116

Amortization expense$

15,32963,105$66,415(1) As at March 31, 2020, historical cost of computer hardware and software includes work-in-progress totalling $76 (2019 - $5,726).

Note 14 ACCUMULATED SURPLUS(in thousands)
The accumulated surplus of the AER is calculated as the sum of the AER's net debt and its non-financial assets. The
accumulated surplus represents the net assets of the AER and comprises the following:
2020

Balance at beginning of year
Annual operating (deficit) surplus
Net investment in capital assets(a)Balance at end of year

Investments in Unrestrictedtangible capital net assets(debt)
assets(a)$52,272 $14,245 $(25,607)(2,058)2,058$
50,214 $(9,304) $

2019

Total
66,517 $(25,607)
40,910 $Total
61,573
4,944
66,517(a) Excludes leasehold improvement costs received by the AER as a lease incentive and related amortization.

17

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 15 CONTINGENT LIABILITIES(in thousands)
The AER is involved in legal matters where damages are being sought. These matters may give rise to contingent liabilities.
Accruals have been made in specific instances where it is likely that losses will be incurred based on a reasonable estimate. As
at March 31, 2020, accruals totalling $630 (2019 - $91) have been recognized as a liability.
Note 16 CONTRACTUAL OBLIGATIONS(in thousands)
As at March 31, 2020, the AER had contractual obligations totalling $171,894 (2019 - $194,921).
Contractual obligations are obligations of the AER to others that will become liabilities in the future when the terms of thosecontracts or agreements are met.
As at March 31, 2020, estimated payment requirements for obligations under operating leases and contracts for each of the next
five years and thereafter are as follows:
2020-212021-222022-232023-242024-25
Thereafter$$

43,40523,676
18,387
14,218
11,62960,579171,894

Note 17 ASSETS UNDER ADMINISTRATION(in thousands)
The AER administers security deposits in accordance with specified acts and regulations. Security deposits are held on behalf ofdepositors with no power of appropriation and therefore are not reported in these financial statements. The AER does not haveany financial risk associated with security collected. Security, along with any interest earned, will be returned to the depositors
upon meeting specified refund criteria.
As at March 31, 2020, assets under administration included the following types of security deposits:
2020

Liability Management Rating programs and landfills
Mine Financial Security program
Other programs

$

$

Cash
98,812
39,146
6,834
144,792

2019

2020

2019

Cash
$ 103,518
35,2306,958$ 145,706

Letters ofcredit$220,667
1,434,643
7,778$ 1,663,088

Letters ofcredit$223,847
1,426,714
7,689$ 1,658,250

18

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2020
Note 18 COMPARATIVE FIGURES
Certain 2019 figures have been reclassified, where necessary, to conform to the 2020 presentation.
Note 19 APPROVAL OF FINANCIAL STATEMENTS
These financial statements were approved by the AER Board of Directors on June 18, 2020.

19

ALBERTA ENERGY REGULATOR
EXPENSES - DETAILED BY OBJECTYEAR ENDED MARCH 31, 2020

Schedule 1

2020

2019
(in thousands)

Salaries, wages and employee benefits
Orphan well abandonment
Buildings
Computer services
Amortization of tangible capital assets
Consulting services
Administrative
Travel and transportation
Equipment rent and maintenance
Loss on disposal and write-down of tangible capital assets
Abandonment and enforcement$$

192,271
61,03920,577
17,23815,947
12,429
3,492
1,815
412
67
325,287$$

179,73145,95921,21920,12815,32913,715
4,424
3,978
753
119
55
305,41020

ALBERTA ENERGY REGULATORSALARY AND BENEFITS DISCLOSURE
YEAR ENDED MARCH 31, 2020

Schedule 2

2020
Base
salary (a)

2019
Other
non-cashbenefits (c)Other cash
benefits (b)

Total

Total

(in thousands)
Position
Board of Directors
Chair (d)Members (e)Executives
President and Chief Executive Officer
Former President and Chief Executive Officer (f)Chief Hearing Commissioner
Interim Executive Vice-President, Corporate Services (g,o)
Former Executive Vice-President, Corporate Services (h)Executive Vice-President, Stakeholder & Government Engagement (i,o)
Former Executive Vice-President, Stakeholder & Government Engagement (j)Executive Vice-President, Strategy & Regulatory (k,o)
Interim Executive Vice-President, Operations (l,o)
Former Executive Vice-President, Operations (m,o)
Executive Vice-President and General Counsel
Former Executive Vice-President and General Counsel (n)

$

75
305
367
219
107
155
155
107
155
275
-

$

134
19
12
199
480
9
199
14
-

$

3
27

$

10
58
38
53
51
32
40
74
-

78
332

$

168
369

511
296
157
407
686
148
394
363
-

183
591
309
823
275
737
434
384
218
358

(a)
(b)

Includes retainers and per diems for Board Directors and regular salary and acting pay for Executives.
Includes payments in lieu of vacation, pension and health benefits, as well as severance, vehicle allowances and other cash reimbursements. There were no bonuses paidin 2020.

(c)Includes contributions to all benefits as applicable, including employer's share of Employment Insurance, Canada Pension Plan, Government of Alberta and AER pension
plans, health benefits, and payments made for professional memberships, tuition fees, fair market value of parking and other taxable benefits.

(d)Two individuals occupied this position during 2020. The current Chair was appointed on September 6, 2019 with remuneration set at $nil. Amounts disclosed are for theformer Chair while she occupied the position until September 6, 2019.

(e)

Board members are remunerated with monthly honoraria, based on rates prescribed in the Orders in Council. The former Board of Directors consisted of four members
until April 28, 2019 and three members from April 28, 2019 until September 6, 2019, at which time their appointments were rescinded. For the remainder of the fiscal year
the Board of Directors consisted of four members appointed effective September 6, 2019. Remuneration for one Board member is set at $nil.

(f)

The incumbent left the position effective November 30, 2018 and retired effective January 31, 2019. An automobile was provided to the incumbent, but no dollar amount
was included in other non-cash benefits for 2019.

(g)

Two individuals occupied this position during 2020. The position was vacant from April 1, 2019 to June 24, 2019, at which time the Executive Vice-President, Strategy &Regulatory was appointed Interim Executive Vice-President, Corporate Services and held both positions until October 23, 2019 with no increase in base salary. The
position was filled on October 28, 2019. Amounts disclosed are for the current Interim Executive Vice-President, Corporate Services appointed to the position on October28, 2019.

(h)

The incumbent held the position until April 1, 2019, at which time the incumbent was terminated. Severance pay of $334 was expensed in 2019.

(i)

The incumbent held the position until October 23, 2019, at which time the incumbent was terminated. Other cash benefits include $168 of severance pay. The Executive
Vice-President, Stakeholder & Government Engagement position was eliminated effective October 28, 2019.

(j)

On June 1, 2018, the incumbent was appointed to the position of Executive Lead for the International Centre of Regulatory Excellence development project, continuing toreport directly to the President and Chief Executive Officer. The incumbent was terminated effective January 31, 2019. Severance pay of $335 was included in other cash
benefits for 2019. The 2019 figure has been restated by $5 to include taxable benefits to conform to the 2020 presentation.

(k)

On June 24, 2019, the incumbent was appointed Interim Executive Vice-President, Corporate Services and held both this position and that of Executive Vice-President,
Strategy & Regulatory until the incumbent was terminated on October 23, 2019. The incumbent did not receive an increase in base salary for holding both positions. Other
cash benefits include $449 of severance pay. The Executive Vice-President, Strategy & Regulatory position was eliminated effective October 28, 2019.

(l)

The incumbent held the position effective October 28, 2019.

(m) The incumbent held the position until October 23, 2019, at which time the incumbent was terminated. Other cash benefits include $171 of severance pay.
(n)

The incumbent left the position effective September 2, 2018, at which time the incumbent was appointed to the position of Executive Counsel, continuing to report directly
to the Former President and Chief Executive Officer. The incumbent left the position of Executive Counsel effective January 4, 2019.

21

ALBERTA ENERGY REGULATORSALARY AND BENEFITS DISCLOSURE
YEAR ENDED MARCH 31, 2020

Schedule 2 (continued)(o) Under the terms of the AER's defined benefit SEPP and two supplementary retirement plans (SRP), employees may receive supplemental retirement
payments. Retirement arrangement costs as detailed below are not cash payments in the period but are the period expense for rights to future compensation.
Costs shown reflect the total estimated cost to provide annual pension income over an actuarially determined post-employment period. The SEPP and SRP
provide future pension benefits to participants based on years of service and remuneration. The cost of these benefits is actuarially determined using the
projected benefit method pro-rated on service, a market interest rate and management's best estimate of expected costs and the period of benefit coverage.
Net actuarial gains and losses of the benefit obligations are amortized over the average remaining service life of the employee group. Current service cost is
the actuarial present value of the benefits earned in the fiscal year. Prior service and other costs include amortization of past service costs, amortization of
actuarial gains and losses, and interest accruing on the actuarial liability.

SEPP AND SRP RETIREMENT BENEFITS(in thousands)
The costs detailed below are only for those employees, included in Schedule 2, who were employed during the year ended March 31, 2020 and participated in the
SEPP and SRP maintained by the AER. The SEPP and SRP provide retirement benefits to compensate senior staff who do not participate in the government
management pension plans.
2020

Position(g,p)
Interim Executive Vice-President, Corporate Services
Executive Vice-President, Stakeholder & Government Engagement (i,q)(k,q)
Executive Vice-President, Strategy & Regulatory(m,q)
Former Executive Vice-President, Operations

Current
service cost
$
33
28
14
7

Prior service
and other costs
$
1
-

2019

$

Total

33

$

Total

28
15
7

35
40
23
11

The SEPP and SRP accrued obligation for each executive employed by the AER during the year ended March 31, 2020 is outlined in the following table:

PositionInterim Executive Vice-President, Corporate Services (g,p)
Executive Vice-President, Stakeholder & Government Engagement (i,q)
Executive Vice-President, Strategy & Regulatory(k,q)(m,q)
Former Executive Vice-President, Operations

Accruedobligation
April 1, 2019
$
85
40
466
55

Changes in
accruedobligation
$
43
(24)
252
(55)

Accruedobligation
March 31, 2020$
128

Accruedobligation March
31, 2019
$
85

16
718
-

40
466
55

(p) The 2019 figures have been restated as the incumbent was a member of the pension plans prior to his appointment in 2020. The 2020 figures include allamounts for the year ended March 31, 2020.
(q) Includes service to October 23, 2019.

22

ALBERTA ENERGY REGULATORACTUAL RESULTS COMPARED WITH BUDGETYEAR ENDED MARCH 31, 2020

Schedule 3

Budget(Note 4)
Revenues
Administration fees
Orphan well abandonment levy and fees
Information, services and fees
Investment income$

Expenses
Energy regulation
Orphan well abandonment

CapitalCapital investment
Less: Amortization of tangible capital assets
Loss on disposal and write-down of tangible capital
Net capital investment(Deficit) (b)(a)

Adjustments
Adjusted budget(in thousands)

232,72255,8133,542
867
292,944$$

232,72260,5003,542
867
297,631$

233,393
61,0394,693
555
299,680

236,331
55,813292,144800

27,5004,687
32,187(27,500)

263,83160,500324,331(26,700)

264,248
61,039325,287(25,607)12,300(11,500)(4,500)(4,500)12,300(16,000)

12,704(15,947)(67)(3,310)

800
$

4,687
4,687

Actual-$(23,000)(3,700)$(23,000)$(22,297)(a) The Adjustments include an increase for severance costs associated with staff reductions to meet multi-year Government of Alberta targets, an increase in orphan
well levy required to re-align with the previously approved three-year business plan and an increase in amortization expense related to the implementation of various
streams of OneStop technology solutions that support the AER’s Integrated Decision Approach.
(b) The AER has been approved by the Government of Alberta to recover the current year deficit over the next two years.

23

ALBERTA ENERGY REGULATORRELATED PARTY TRANSACTIONSYEAR ENDED MARCH 31, 2020

Schedule 4

The AER, in the normal course of business, entered into various transactions with entities consolidated or accounted for on the modified
equity basis in the Government of Alberta's Consolidated Financial Statements. These entities are considered to be related parties of the
AER. Related parties also include key management personnel and close family members of those individuals. In 2020, there were no amounts
or transactions, other than compensation, between the AER and its key management personnel. Key management personnel compensation isdisclosed in Schedule 2.
Related Party Transactions with Government of Alberta Entities
The AER recognized the following transactions with Government of Alberta entities in the Statement of Operations and the Statement of
Financial Position at the amount of consideration agreed upon between the related parties:
Entities in the
Ministry of Energy
2020
2019
(in thousands)
Revenues
Information, services and fees

$

96

$

Other entities
2020(in thousands)
54$

Entities in the
Ministry of Energy
2020
2019
(in thousands)
ExpensesComputer services
Administrative
Buildings
Consulting services

$

$

454
454

Receivable from$

Payable toContractual obligations (a)

$

2019

618

$

1,397

Other entities
2020
2019
(in thousands)

$

2,050
2,050

119

$

$

94

$

-

$

$

3,635
561
509
470
5,175

$

$

2,896
714
612
625
4,847

69

$

4

$

113

$

373

$

89

$

2,277

$

-

$

10,390$7,326(a) Contractual obligations are obligations of the AER to related parties that will become liabilities in the future when the terms of thosecontracts or agreements are met.

24

ALBERTA ENERGY REGULATOR

Schedule 4 (continued)

RELATED PARTY TRANSACTIONSYEAR ENDED MARCH 31, 2020
ICORE Energy Services (NFP)(in thousands)
The AER was the operating and governing member of a not-for-profit (NFP) corporation, ICORE Energy Services (NFP), from May 17,2017 to December 19, 2018, when the AER resigned its membership. The AER was a related party with ICORE Energy Services (NFP)
from May 17, 2017 to November 30, 2018 as the President and Chief Executive Officer of the AER was also the President and Director of
ICORE Energy Services (NFP) during that period.
During this time, the AER incurred in-kind costs for salaries of AER employees and third-party costs for travel and consulting expenses toprovide services to ICORE Energy Services (NFP). In 2019, the AER invoiced ICORE Energy Services (NFP) for costs incurred on a costrecovery basis.
The Statement of Operations for the year ended March 31, 2019 included $3,134 in revenues for amounts invoiced to ICORE Energy
Services (NFP) and $1,548 in expenses. These expenses included in-kind costs of $1,103 and third-party costs of $445.
At March 31, 2019, accounts receivable in the Statement of Financial Position included $2,693 due from ICORE Energy Services (NFP),
of which $523 was provided for in the allowance for doubtful accounts. In June 2019, the AER received $2,681 from ICORE Energy
Services (NFP) for these accounts receivable.
The AER concluded that it did not exercise control over ICORE Energy Services (NFP) as this control was exercised by the Directors andofficers of ICORE Energy Services (NFP) in their personal capacity. These individuals directed ICORE Energy Services (NFP) andundertook its activities without the required authorization of the AER, its Board, or the Government of Alberta, in particular theincorporation of ICORE Energy Services (NFP) and causing the AER to become a member of ICORE Energy Services (NFP) in
contravention of the Financial Administration Act. As a result, ICORE Energy Services (NFP) financial results were not consolidated into
the AER’s financial statements for the year ended March 31, 2019. This conclusion is also supported by other facts and relevant guidance
under the Public Sector Accounting Standards, including the fact that ICORE Energy Services (NFP) was not carrying out AER
operations, functions, or mandate, and that despite temporary reliance on AER resources, ICORE Energy Services (NFP) was intended
to operate outside and independently of the AER.

25

LET’S CONNECT
ALBERTA ENERGY REGULATORHead Office
Suite 1000, 250 – 5 Street SW
Calgary, Alberta T2P 0R4

www.aer.ca

ABEnergyRegulator

inquiries
1-855-297-8311@aer_news

Alberta Energy Regulator (AER)

resource.aer.ca

www.annual-report.aer.ca

inquiries@aer.ca
24-hour emergency
1-800-222-6514

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