ensures the safe, efficient,orderly, and environmentally
responsible development ofhydrocarbon resources

This includes allocating andconserving water resources,
managing public lands, andprotecting the environment
while providing economic
benefits for all Albertans.

To regulate Alberta’s energy
resources by protecting whatmatters most to Albertans—public safety, the environment,
and economic value.

our vision

over their entire life cycle.

our mission

our mandate

The Alberta Energy Regulator

The Alberta Energy Regulator
is recognized for regulatory
excellence, ensuring the safe,
environmentally responsible
development of energy
resources for the benefitof all Albertans.

contents
ABOUT THE ALBERTA ENERGY REGULATOR

1MESSAGES

5HIGHLIGHTS

10

PROTECTING WHAT MATTERS

13

YEAR-IN-REVIEW36ACHIEVING EXCELLENCE IN ENERGY REGULATION

39

MOVING FORWARD

45

OPERATIONAL OVERVIEWS

55

CORPORATE GOVERNANCE

59

MANAGEMENT’S DISCUSSION & ANALYSIS

67

FINANCIALS81

GLOSSARY107

ABOUT
THE AERABOUT

ABOUT THE AER

1

THE ALBERTA ENERGY REGULATOR (AER) IS THE SINGLE PROVINCIAL REGULATORFOR OIL, NATURAL GAS, OIL SANDS, AND COAL DEVELOPMENT IN ALBERTA. THE AER
ENSURES THE SAFE, EFFICIENT, ORDERLY, AND ENVIRONMENTALLY RESPONSIBLE
DEVELOPMENT OF ENERGY RESOURCES. THIS INCLUDES ALLOCATING AND CONSERVING WATER, MANAGING PUBLIC LANDS, AND PROTECTING THE ENVIRONMENT
WHILE SECURING ECONOMIC BENEFITS FOR ALL ALBERTANS.

That’s what we say, but what do we mean?
The Alberta Energy Regulator (AER) is the single
provincial regulator for oil, natural gas, oil sands,
and coal development in Alberta. This means that inalmost all cases, companies deal with the AER alone
when developing or proposing to develop Alberta’s
energy resources.
The AER ensures the safe, efficient, orderly, and environmentally responsible development of energy
resources. It’s our job to make certain that Alberta’soil, gas, bitumen, and coal are developed and transported in ways that don’t• place people at risk;• harm our air, water, land, or biodiversity; or• waste these valuable energy resources.

* Items highlighted in green can be found in the glossary.

This includes allocating and conserving water, managing public lands, and protecting the environment… We determine when, where, and how the energy
industry may use water, and we make sure thatenergy development doesn’t harm Alberta’s water;
we regulate any energy development that occurs on
provincial lands; and we make sure energy development doesn’t damage any aspect of our province’s
environment.
… while securing economic benefits for all Albertans.
We are part of a broader government system making
sure that Alberta and its citizens receive full value forour energy riches.

OUR RESPONSIBILITIESFew organizations on this planet steward such alarge and varied mix of energy resources and infrastructure as the AER. We oversee some very large
established reserves:• 1.8 billion barrels of conventional oil• 165 billion barrels of bitumen• 29 trillion cubic feet of conventional natural gas• 37 billion tons of coalThat’s a lot of energy, and it requires a lot of infrastructure to produce, mine, process, and move tomarkets. We’re responsible for regulating this infrastructure too, which belongs to what’s called “upstream” development:• over 431 000 kilometres of pipelines (the distanceto the moon is 384 000 km)• over 174 000 operating wells• over 30 000 oil facilities• 50 thermal in situ (oil sands recovery) projects• 9 oil sands mines• 5 bitumen upgraders• 4 coal processing plants• 7 producing coal mines

Annual Report 2015/16

2

ABOUT THE AERPRIMARY/ENHANCEDRECOVERY PROJECTS(IN SITU)

EXPERIMENTAL
PROJECTSKILOMETRES OF PIPELINESGAS PROCESSING PLANTSOIL FACILITIESOPERATING NATURAL GAS & OIL WELLSGAS FACILITIESWHATWEREGULATE

THERMAL/ENHANCEDIN SITU PROJECTS

Alberta Energy Regulator

OIL SANDSMINES

BITUMENUPGRADERS

COAL
PROCESSING PLANTS

PRODUCING
COAL MINESABOUT THE AER

The Government of Alberta gives the AER authority to ensure that companies develop the province’s
massive energy resources in a safe and environmentally responsible fashion, and without waste.
• We review applications and make decisions on
proposed energy developments (over 47 000 applications processed in fiscal 2015/16).
• We oversee all aspects of energy resource activities in accordance with government policies.
• We regularly inspect energy activities to ensurethat all applicable requirements are met.
• We penalize companies that fail to comply with
AER requirements.
• We hold hearings on proposed energy developments.
To make it happen, the AER employs some 1200
inspectors, technical staff, scientists, investigators,
stakeholder engagement specialists, mediators,
lawyers, regulatory experts, and other employees in
15 locations around Alberta.
The AER also offers two unique and world-classservices: the Core Research Centre (CRC) and theAlberta Geological Survey (AGS).
The CRC collects, preserves, and displays coresamples (1.5 million boxes worth of these cylindrical rock samples), drill cuttings (20 million vials ofthem), and drilling and completion records from over
400 000 wells; companies use these to research
what’s below the ground and plan how to develop
oil and gas.

The AGS offers a scientific view into the world
beneath Alberta. AGS geoscientists provide many
services, including determining the effects of oil
and gas development on seismic events, monitoring
the Crowsnest Pass’s unstable Turtle Mountain, andmapping Alberta’s valuable groundwater resources.

ALBERTA’S SINGLE ENERGY REGULATORThe 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 previously held byAlberta Environment and Sustainable Resource Development (now Alberta Environment and Parks) andcombining them with the regulatory functions of theEnergy Resources Conservation Board.
The AER’s role is to develop and enforce rules andregulations around energy development, taking direction from government policy.

3

WHAT WE DON’T REGULATEThe AER’s authority is limited to activities that relate
to oil, bitumen, natural gas, and coal development.
We have no authority over any of the following:• any aspect of electricity generation or distribution,
including renewable energies, gas utility pipelines,
and the price of natural gas (these are regulatedby the Alberta Utilities Commission),• gasoline or other refined petroleum products, or• oil and gas pipelines that cross provincial orinternational borders (these are regulated by the
National Energy Board).

WHAT WE DON’T
REGULATEGASOLINE

The AER is a key partner in the government’s Integrated Resource Management System (IRMS), a collaborative approach to managing Alberta’s environment and natural resources. Other partners are thegovernment departments of Indigenous Relations,
Energy, Agriculture and Forestry, and Environment
and Parks.

ELECTRICITYRENEWABLES
NATURAL GAS PRICEPIPELINES THATCROSS BORDERS

Annual Report 2015/16

4

MESSAGESMESSAGES

Alberta Energy Regulator

MESSAGES

5MESSAGE from the chair
Weighed down by low oil and gas prices, there is no
denying that the past year has been among the morechallenging ones Alberta has endured in a long time.
When we launched the AER in 2013, we had no wayof knowing that the province would undergo such asignificant downturn within a couple of years.
The AER’s CEO and executive leadership team,hearing commissioners, and especially our employees, are to be commended for their work over the lastyear. Thanks to them, the AER has celebrated manysuccesses (discussed in more detail throughout thereport), including• our work to define and craft a made-in-Alberta
model of regulatory excellence;• moving towards a risk-based approach to energy
regulation;• launching programs that further protect our environment and ensure Albertans can trust theirregulator; and• introducing regulatory process efficiencies, significantly reducing the administrative costs to industry while maintaining high expectations for safety
and environmental performance.
In these uncertain times, Albertans can be assured
that AER inspectors continue to visit facilities aroundthe province and are diligent in ensuring that operations are safe for both the nearby land owners andcommunities and surrounding land, water, and air.

We continue to receive applications and authorize
projects; our stakeholders remain a priority, and we
strive to ensure all sides of the discussion are heard,
respected, and responded to.
The AER’s staff have continued to demonstratepassion for their work, and the CEO and the rest of
the executive leadership team have done a remarkable job of leading the regulator through challenging
times. The board recognizes and thanks the AER’s
management and staff for this diligence.
This work has included supporting our new government partners through their transition and moving
towards a regulatory approach that considers therisk an activity poses to public safety and the environment. It is clear that the old way of providing a
one-size-fits-all approach to regulation will no longer
suffice. In our line of work, generic regulation sometimes lacks precision and focus, and the only way toprevent this is to tailor our regulatory tools to fit theactivity and particularly its associated risk.

The board’s activities can be found on page 60.
As the board looks ahead to what’s in store for the
AER, there are a few things that we can count on:
continued excellence from a dedicated group ofstaff experts who demonstrate their care for Alberta,
strong relationships with our government partners
that ensure regulations and rules are the most effective they can be, and an agile organization thatwill evolve with technology to protect what mattersto Albertans.

GERRY PROTTICHAIR

Last year the board bid farewell to two directors
whose terms expired—Fred Estlin and Cam Bailey—
who played critical roles in the establishment ofstrong governance practices and oversight of the
AER. The board thanks them for their contribution
and wishes them well in their future endeavours.

Annual Report 2015/16

6

MESSAGESMESSAGE from thepresident and ceo
Alberta is living through some rocky times as we
grapple with the effects of a collapse in oil and gas
prices not seen for years. Like others, the AER’s
economists forecast a slow recovery beyond 2016,
which is little comfort, but that’s where we stand.

JIM ELLISPRESIDENT AND CEO

Regardless of this economic environment, the AER
continues to regulate one of the largest and mostdiverse energy sectors on the planet. While we must
understand the realities of our current economy,
protecting the environment and the public remain
our top priorities. That’s why over the last two years
we’ve worked to make our regulatory system more
efficient without compromising safety or the environment. These efforts have yielded hundreds ofmillions of dollars in savings to industry. This work isoutlined on page 30.
We’ve also delivered on commitments to strengthen
public safety and environmental protection. For
example, we completed our program to inspect alldams related to the development of oil sands, oiland gas, and coal; we also introduced the Integrated
Compliance Assurance Framework, which outlines
how we ensure companies are following our rules.
As we’ve delivered on these and many other initiatives, we’ve been ever mindful of securing Albertan’s
trust. Trust is earned; it takes time to achieve and canevaporate very quickly if we’re not careful. What’smore, trust leads to public confidence; people musthave confidence in the regulator so they know thatdevelopment can occur safely, in an environmentally
responsible manner, and without waste.

Alberta Energy Regulator

Other players share responsibility for gaining andholding Albertan’s trust and confidence. Government
must develop sound public policy that addresses
the issues of responsible development, and industry
must understand and follow the rules—and exceed
them where possible.
Our public stakeholders and Albertans in general
represent the final player, as their expectations
ultimately holds us accountable. The expectations ofpublic involvement in resource development decisions have never been greater. In fact, this is evident
the world over. People everywhere want to know
what’s happening and how it affects them, their communities, and the environment.
We continue to involve our stakeholders in a number
of issues. A good example is how we’ve worked
directly with numerous stakeholder groups to cocreate regulatory requirements to manage fluid tailings in the oil sands.
The AER is working to design a new regulatory approach that considers how multiple development activities could affect a specific area and the cumulative
effects of those activities over time. This area-based
regulation will take into account all impacts the development has on the local community.

All of this speaks to a vision we’ve had since we wereformed in 2013: excellence. We aspire to achieve excellence in energy regulation, which is what Albertans expect and is what they deserve. With that inmind, we undertook an initiative to become an excellent regulator.
We now have a model to guide our work and help us
become a regulator that has utmost integrity, stellar
competence, and empathic engagement—the three
attributes of an excellent regulator. We then took
this to stakeholders and Albertans for their input.
We have also created the Centre of Regulatory Excellence to ensure our employees have the skills,
knowledge, and training to carry out their responsibilities today and help us work towards achieving
excellence in the future. Our strategic plan, found on
page 52, outlines how we will achieve our vision andmeet expectations.
Regulatory excellence is one of the stories we will
share with you in this our third annual report. A hallmark of integrity is accountability, and within thesepages we make ourselves accountable by recounting our accomplishments, noting where we’ve met
our targets and where we have more work to do.
I encourage you to read some of our stories to get
to know us and understand how we are achieving
our vision.

TRUST

LEADS

TO

PUBLICCONFIDENCE; PEOPLE MUST HAVECONFIDENCE IN THE REGULATORSO THEY KNOW THAT DEVELOPMENT
CAN

OCCUR

SAFELY,INAN

ENVIRONMENTALLY RESPONSIBLE
MANNER, AND WITHOUT WASTE.

8

MESSAGESMESSAGE: anemployee’s perspective
To become an excellent regulator, we have to do
more than learn new systems and processes to adapt
to the ever-changing world of energy development,
we must listen to Albertans, understand their needs,
and adapt our approach accordingly. That’s what
I believe.
As a mediator and engagement specialist with the
AER’s alternative dispute resolution (ADR) program,
I am extremely honored that Albertans let me help
them with their concerns, property interests, andcommunity issues. To be a part of these crucial conversations is very humbling, especially as there’s
always so much to learn about people, the energy
industry, and ways to communicate effectively.
When I first started working for the regulator in
2001—back then we were called the Alberta Energy
and Utilities Board—there were challenges and tensions related to Alberta’s oil and gas industry acrossthe province. People were at odds over issues suchas sour gas development and natural gas flaring, andwe were seeking a better way to resolve these disputes beyond arbitration, enforcement, or intervening when conflicts had already escalated. The result
was ADR—in other words, mediation.

Through ADR, we empower the affected parties tomake their own decisions and find their own solutions, because the best way to resolve an issue is forall sides to give direct input. And it’s important tonote that the AER is not the final decision maker—
the folks around the table are. Being an engagement
specialist means I get to help connect everyone
involved—be it landowners, industry, government,
indigenous communities, municipalities, or the AER.
ADR, simply put, is about sharing information andunderstanding our stakeholders, and my role is tohelp facilitate it.
And I would not be successful without the guidance
and technical support from my colleagues sitting
next to me or on the other side of the province. They,
like me, truly care about this province and the people
who live here and dedicate their working careers tomaking the AER the best possible regulator it can be.
Personally and professionally, I find being part of
ADR and this collaborative process very rewarding.
I am a landowner myself, and development occurs
close to my home, so I can relate to what Albertans
hold near and dear: the safety and well-being offamily and the environment.
FIONA L e BLANCALBERTA STAKEHOLDER ENGAGEMENT

Alberta Energy Regulator

MESSAGES

9BEING AN ENGAGEMENT SPECIALIST MEANS I GET TO HELP CONNECT
EVERYONE INVOLVED—BE IT LANDOWNERS, INDUSTRY, GOVERNMENT,
INDIGENOUS COMMUNITIES, MUNICIPALITIES, OR THE AER.
Annual Report 2015/16

10

HIGHLIGHTS

Brought to life morethan 1 billion years ofAlberta’s geologicalhistory with the new
AGS website

1 000 000 000

TO

82%

77%

Saw public confidence levels in the AER
increase from 77 to 82 per centYEARSHIGHLIGHTS 2015/16
7
Sought stakeholder feedback
on Draft Requirements for
Hydrocarbon Emission Controls
and Gas Conservation in thePeace River Area
Alberta Energy Regulator

358

Carried out 7 compliancesweeps with 358 inspectionsin the Peace River area

6

12

Created a dashboard with 6 outcomesand 12 performance measures to reporton progress in reducing flaring, venting,and incinerating, and increasing gas
conservation in the Peace River area

HIGHLIGHTS

11100
Introduced the Integrated Compliance
Assurance Framework, which outlines
how we ensure companies arefollowing our rules

Inspected 100 energy-related
dams as part of the AER’s dam
safety inspection program

35

16

1500+

$200
MILLION

Hosted 35 delegations from 16
different countries, including
one from Mexico led by thatcountry’s energy minister

Welcomed feedback from 1500+ people
on the AER’s proposed model to achieve
regulatory excellence

Generated $200 million in annual
savings to industry as a result ofchanges made to Directive 017

Launched Conversations That
Matter, an animated video series
that explains complex energyrelated topics in a unique way—
viewed almost 60 000 times
Annual Report 2015/16

12

PROTECTING WHAT MATTERSPROTECTING
WHAT MATTERS

Alberta Energy Regulator

PROTECTING WHAT MATTERS

13

a protective, effective, efficient,and credible regulator
The AER oversees all oil and gas, oil sands, and coaldevelopment throughout the entire life cycle—from
initial exploration, to operation, right through to
closure, including reclamation and remediation.
With this comes tremendous responsibility; the Government of Alberta entrusts the AER with making
sure that energy development occurs in a way that
ensures the public is safe, the environment is protected, and Albertans receive the greatest value from ourresources. This is why we’ve organized our strategicplan around four priorities: being protective, effective, efficient, and credible.
The AER’s core business is to develop regulatory
requirements around energy development—taking
direction from government policy—and enforce theserequirements. This is how we protect what matters toAlbertans—our air, land, water, and biodiversity.

Over the last year, we’ve worked with our stakeholders to develop strong requirements to better manage
fluid tailings associated with oil sands mining operations. We also inspected almost 100 dams within
our jurisdiction (see page 23), and carried out thousands of inspections of energy facilities of all types
and sizes—from single sour gas facilities to massive
oil sands operations.
The AER makes sure our requirements effectively
address aging oil and gas infrastructure; in 2015 wecontinued to ensure that industry is bringing thousands of inactive wells into compliance with ourregulations. We also recognize the importance ofmoving towards an effective regulatory frameworkthat considers applications not on a well-by-wellbasis, but on larger-scale projects.
We understand that the regulatory burden we
impose on energy companies affects their ability todevelop Alberta’s resources in a timely and efficientmanner; this can impact our economy in terms ofroyalty payments, taxes, and jobs. Therefore, we continue to examine the efficiency of our requirements,
eliminating ones that are outdated, redundant, or failto adapt to current technological trends.
Finally, we work to be a credible regulator by continuously meeting with and seeking feedback from
Albertans, indigenous peoples, and our stakeholders, and communicating with them in ways that areaccessible and easy to understand.
Through all of our efforts, the AER is confident weare building an organization that will continue to beprotective, effective, efficient, and credible.

Over the last year we• inspected almost 100 dams,• carried out thousands of inspectionsof energy facilities of all types,• continued to ensure that industry is bringing
thousands of inactive wells into compliance, and• continuously met with and sought feedback
from Albertans, indigenous peoples, andour stakeholders.

Annual Report 2015/16

14

PROTECTING WHAT MATTERS

takingaction in
Peace River

The phone rings in the AER’s Slave Lake Field Centre:
the caller is complaining of a strong odour in thePeace River area and believes it’s from a nearby oil
and gas site.

local residents’ concerns, beginning in 2016 the
AER will be placing a field inspector in Peace Riverto enhance the investigative process and ensure atimely response to odour concerns in the area.

To investigate the cause of the odour, an AER inspector first checks local air monitoring stations tonarrow down where the odour may be coming from,based on current conditions and wind direction. Thenthe inspector contacts industry operators in the area
and asks them to check their facilities and reportback to the AER on findings.

Christina Winarski, manager of Enforcement and Surveillance at the Slave Lake Field Centre, encourages
people to call the AER when they smell an odour. “Werely on residents in the area to inform us if somethingis wrong,” she says. “This is an additional tool that
our inspectors use to discover and resolve any odour
issues, supplementing the strategic and focused surveillance program that we have developed for thePeace River area.”In this case, the source of the odour turns out to bea leaking valve which, when discovered, is repaired
immediately by the operator. The inspector then calls
the concerned resident back to report what happened. To ensure the operator fixed the problem correctly, the AER also follows up with an unannounced
inspection of the site.
Pinpointing the source of odours can be a challenge,
and this is an example of the standard AER process
for responding to odour complaints. In response toAlberta Energy Regulator

Over the past two years, the AER has made manychanges to regulations and stakeholder engagementin the Peace River area to address residents’ concerns about the odours. These changes were basedon recommendations made following a three-weekproceeding in early 2014 where stakeholders provided their views to an independent panel of hearing
commissioners.

PROTECTING WHAT MATTERS

Since the proceeding, the AER has increased communication with local residents in the area and inspect
oil and gas facilities more often. In addition, the AER
has created stringent new rules to control gas odours
emitted from operations in the area. Winarski saysthat “if we conduct inspections or see trends in air
monitoring data and find facilities not in compliancewith regulations, enforcement action is taken. Enforcement action can include ordering repairs, either
immediately or within a specific timeframe, or evenshutting down facilities.”
To measure progress and identify potential issues
in how industry is meeting our requirements, a performance dashboard on the Taking Action in Peace

River webpage shows exactly how industry is doing
in its efforts to reduce hydrocarbon emissions. For
example, it can be seen that there was zero gas
vented in the Reno area in 2015, contributing to an
overall decrease in venting in the Peace River area.
The information on the Peace River performancedashboard comes from a variety of sources, including
inspection results, odour complaints reported to the
AER, and reporting from industry.

15

ODOUR COMPLAINTS

in 201544%

reduction in odour complaints
received from the Peace River
area compared to 2014

Moving forward, the AER will continue to work with
Peace River area residents to ensure that companies
continue to comply with the rules.

TO MEASURE PROGRESS AND IDENTIFY POTENTIAL ISSUES IN HOW INDUSTRY IS
MEETING OUR REQUIREMENTS, A PERFORMANCE DASHBOARD ON THE TAKINGACTION IN PEACE RIVER WEBPAGE SHOWS EXACTLY HOW INDUSTRY IS DOING
IN ITS EFFORTS TO REDUCE HYDROCARBON EMISSIONS.

Annual Report 2015/16

16

PROTECTING WHAT MATTERS

building bridges with
Albertans through ADR
ADR RESOLUTION RATE

past
12 years

8095%

Swiss psychologist Carl Jung once said that the mostintense conflicts, if overcome, leave behind a sense of
security and calm that is not easily disturbed.
That’s why alternative dispute resolution (ADR) has
become such an important tool for the AER and its
stakeholders.
ADR refers to alternate means of resolving disputes
outside of a hearing or a courtroom. It’s an umbrella term that includes negotiation, mediation, facilitation, arbitration, and conciliation. Interest-based
mediation is the approach commonly used at the
AER and it brings parties together to communicate,understand the issues behind a dispute, and work

together to come up with a mutually acceptable resolution, while maintaining a good relationship.
ADR was developed to help people resolve disputes—in this case, disputes related to energy development and activity. ADR can be used at any stage inthe regulatory process: prior to companies submitting an application to the AER, during the application
review process, when a file is referred to the hearing
commissioners for a hearing, or when reclamation oroperational concerns arise.
Parties may choose direct negotiation, mediation or
facilitation with AER mediators, or enlist the service
of independent third-party mediators. The mediator
ensures all parties are heard and all points of vieware considered, helping to create collaborative, mutually acceptable solutions, no matter how complex
the topic might be.
“In 2015, we saw a rise in ADR with municipalities anddisputes involving three or more parties,” said Anna
Rose, ADR practice lead with the Alberta Stakeholder
Engagement branch. “These files tend to take weeks
or months rather than days to resolve; emerging
issues include water usage, hydraulic fracturing,proximity to communities, and excessive noise.”

Alberta Energy Regulator

PROTECTING WHAT MATTERS

The following principles apply to all mediation conducted by AER staff mediators and hearing commissioners:• ADR is confidential and without prejudice• Responsibility for resolution rests primarily withthe parties• Parties are fully informed of the ADR process andtheir options• Mediators are impartial• The procedures are fair to all parties
ADR specialists are found in AER locations acrossAlberta and in the hearing commissioners’ office.
They are trained in conflict management; many
hold professional designations in mediation, and alladhere to a strict code of ethics.

Collectively, the ADR team has more than a century
of experience in dispute resolution and is highly specialized. Over the past 12 years, they have maintained
a resolution rate of 80–95 per cent, travelling all over
Alberta to resolve disputes in homes, community
halls, even restaurants—anywhere the crucial conversations need to take place.

17

is destined for a hearing have the opportunity torequest ADR by hearing commissioner.
Continuous improvement is also an important partof the ADR program, as we look at new ways tostrengthen bonds between our stakeholders, including indigenous communities.

ADR by hearing commissioner is for files referred to “Our team is currently working on best practices when
the chief hearing commissioner for a hearing. This working with indigenous peoples,” confirmed Rose.
process provides the option for agreements reached “This includes a variety of ADR models such as transat ADR to form part of the regulatory decision. formative and narrative mediation and indigenous
Hearing commissioners may also conduct evaluative processes for conflict resolution like sharing circles.”mediation or binding decision making. Parties canuse the process to agree on matters for a hearing, With a focus on the future, innovative ways to resolve
such as procedural matters, statements of fact, anddisputes, and important discussions still to be had,expert witnesses. Parties who think their dispute
ADR will always be a cornerstone of our business.

“THANKS TO THE CAREFUL HANDLING AND CALM DISPOSITION OF OUR ADR REPRESENTATIVE, WE GAINED AN UNDERSTANDING OF BOTH SIDE’S POSITIONS. ADR
GUIDED US TO A PLACE WHERE BOTH THE COMPANY AND WE, THE LANDOWNERS,COULD BE CONTENT WITH THE RESOLUTION. WE ARE HAPPY WITH THE RESOLUTION, BUT EXCEEDINGLY HAPPY WITH THE KNOWLEDGE THAT THE ADR TEAMBROUGHT TO THE TABLE.”—ROY AND MELANIE SCHULZE
Annual Report 2015/16

18

PROTECTING WHAT MATTERS

focus on area-based regulation
What if decisions on oil and gas development addressed the individual needs and concerns of an
area? What if residents in communities collaborated
to find solutions to issues?

occurs now on a larger scale, in a project style withlarger impacts like multiple wells and infrastructure—
like roads, batteries, and pipelines—instead of single
wells.

This is the direction the AER is going over the next
few years. It’s a new vision for the future that considers the needs of each individual community. “Asthe regulator, we haven’t always done a great job of
acknowledging the individual needs of an area or
a community beyond those directly affected by anindividual activity,” says Scott Millar, director for the
AER’s area-based regulation project.

The AER needs to look more closely at how multiple
development activities could affect a specific area
and at the cumulative effects of those activities overtime.

It’s a direction the regulator needs to go, he adds. The
way energy resources are developed has changed
significantly in the past 20 years. It’s no longer the
drilling of scattered vertical wells. Development

Alberta Energy Regulator

Fortunately, the AER has already done some of thegroundwork in shifting how we regulate. In 2014, welaunched our play-based regulation project in theFox Creek area of Alberta.
That project looked at how resources would be developed and how that development impacted the land
and the community. For example, when a company

applies to drill a well, applications for many other activities, such as building an access road, connecting
to a water supply, and building a pipeline, may follow.
All of these activities have an impact, and under
the play-based regulation pilot, the applications to
conduct all of those activities came in as one, so the
AER could have a better sense of the big picture.
While this pilot included discussions with interested
stakeholders, it focused on generating awareness ofthe project as a whole. And while stakeholders foundthe complete project picture helpful, they told the
AER that engagement could still be improved.
“We know that residents, indigenous peoples, industry, and other stakeholders have unique concerns,
specific to their area,” says Millar. “Through areabased regulation, we’ll be working with those who

PROTECTING WHAT MATTERS“WE WILL BE ASKING STAKEHOLDERS

And we will learn from our first pilot and adjust along
the way.”

FOR THEIR HELP TO COME UP WITH
What is the ultimate goal?

19

The AER needs to look more closely at
how multiple development activities could
affect a specific area and at the cumulative
effects of those activities over time.

SOLUTIONS. IT WILL BE A MUCH
MORE COLLABORATIVE PROCESS FOR

Millar hopes that through a collaborative process,stakeholders and the AER will develop meaningful
solutions to community-based issues.

EVERYONE.”— SCOTT MILLAR, director for the
AER’s area-based regulation projectwork and live in an area to come up with solutions,instead of addressing an issue after decisions havebeen made.
Will the AER get everything right on the first try?
Unlikely, admits Millar. That’s why the AER is goingto test the concept by conducting a pilot in the Fox
Creek area. The community and people have concerns about water use and seismic events in an areaof the province with active development.
“It’s a fundamental change for the AER, but also for
our stakeholders and our industry,” says Millar. “Thisevolution is going to take a lot of hard work andcommitment on our part over the next few years.

Annual Report 2015/16

20

PROTECTING WHAT MATTERS

animating conversations
about the oil sands
The videos offer a solution to the unfamiliarity
and confusion about energy development andregulation that many Albertans experience.

You shouldn’t have to be an engineer, geologist, seismologist, or biologist to understand what’s going onin Alberta’s oil sands.
When Albertans asked for clear, straightforward information about oil and gas activity, we realized that
we needed to communicate our work from a different
perspective. It was time to pool our experts’ knowledge and deliver the facts in a more creative andtransparent way. Numerous brainstorming sessions
later, Conversations that Matter, a six-part animatedvideo series, was born.
Conversations that Matter gives Albertans easy-tounderstand information about energy development
and regulation in their province. Each episode makes
sense of a complex, highly technical topic by presenting it in an accessible way; animation, plain language, candid storytelling, and relatable characters

Alberta Energy Regulator

help break down technical material and industry
terms for all audiences to understand.
The videos offer a solution to the unfamiliarity andconfusion about energy development and regulationthat many Albertans experience. Several studies conducted by the AER over the last decade reveal that
Albertans continue to have specific concerns about
oil sands development, including safety, environmental protection, and incident response.
With these key areas in mind, 45 industry and subject
matter experts worked together to provide credible
and objective information in a digestible format. Fran
Hein, senior geological advisor, lent her technical expertise to the episode “How Big are the Oil Sands?”
She said one of the project’s greatest challenges
was translating complex terms into more common
language.

PROTECTING WHAT MATTERS

21

FIND CONVERSATIONSTHAT MATTER AT

www.youtube.com
ABEnergyRegulator“Moving away from the specialized language we use
among our colleagues was difficult,” explained Hein.
“Initially, I thought animation would make the videos
seem less scientific and would make them losemeaning. But it’s part of our mandate to inform thepublic. As scientists, we should be able to communicate with those who don’t have that background.”“As things came together, I realized the animationand plain language makes the subject matter more
approachable, to the point where Albertans can actually identify with the characters and their level ofunderstanding.”
By reducing technical language and adopting an
Albertans-first approach, Conversations that Matter
invites anyone to become aware of and learn more

about energy regulation. Each video then becomes atool that Albertans can use to assess the AER’s workand be able to hold us accountable for it.
“It’s a rewarding experience, to effectively deliver thesame, transparent information to everyone regardless of their background knowledge,” said Hein.

But the conversation’s not over yet: we’re now
looking to expand the series to inform Albertans on
topics like hydraulic fracturing. And as long as Albertans have questions, the AER will continue to answer
them in innovative ways.
Conversations that Matter can be viewed on YouTube.

This kind of approach is new and unconventional, andit’s working.
Since its official release in October 2015, Conversations that Matter has been viewed almost 60 000
times on YouTube and has been shown at conferences, trade shows, and other events worldwide.

Annual Report 2015/16

22

PROTECTING WHAT MATTERS“WE WORK IN ONE OF THE MOST STRINGENT REGULATORY ENVIRONMENTS
IN THE WORLD, AND THE AER’S DAM SAFETY PROGRAM REFLECTS THAT.
WE RESPECT THE GUIDANCE PROVIDED AND UNDERSTAND THE PROGRAM
IS PUTTING SAFEGUARDS IN PLACE TO ENSURE ALL DAMS IN ALBERTA ARE
MAINTAINED IN A SAFE AND EFFECTIVE MANNER.” —SUNCORDAM INSPECTIONS

November2015
the AER inspected

Alberta Energy Regulator

55 31
oil sands
operations

coal mines

14

oil and gas
operations

only

1

significant
deficiency

PROTECTING WHAT MATTERS

23

the AER shores
up dam safety
When you’re tasked with protecting dams related tooil and gas development, the last thing you want to
do is hold back, especially when you’re trying to holdeverything back.

tory requirements, the regulatory oversight was new
territory for the AER, so we had to become experts
in dam design, construction, and operations.

of potential spillage, slope instability, internal and external erosion, ground settlement, and groundwatercontamination.

So when the Auditor General of Alberta asked for thecreation of a new dam safety program in 2015, theAER promised it was going to be robust, efficient,and relevant for the future.

Once our initial homework was done, we establishedcontrol measures based on the full life cycle of eachfacility. And then we began assessing risk and building inspection guidelines related to consequence
ratings along with operator history and performance.

The report recommended that a reliable registry ofdams be maintained, risks and consequences of dam
failure assessed, and regulatory activities reported. It
also requested that deficiencies at containment facilities be corrected or managed immediately. Most of
the structures in our jurisdiction hold process fluids
and tailings from mining operations, so the impactof a breach or dam failure would be a major concern.

“The AER’s Dam Safety Program addresses higher-risk
facilities, like tailings ponds, by applying more regulatory resources to them,” explained Santiago Paz,
one of the AER’s dam safety engineers. “This means
more frequent inspections, audits, and performance
reporting by dam owners. From a best-practice perspective, higher-risk facilities require higher design
standards and a more thorough design review.”

We sent both geotechnical engineers and generalinspectors to ensure specifications in each facility
were being properly assessed. If poor performance
was discovered during any inspection, we continued
to monitor the facility and provided direction to theowner. If a facility was performing well, we scheduled
fewer future inspections.

Armed with a series of recommendations, new information, and unwavering determination to meet ourstandards, the AER was ready to build a watertightdam safety program.

With the structure in place to inspect the full spectrum of facilities in our jurisdiction, it was time to put
it to the test.

Despite the fact that owners are responsible for thesafety of their dams and for complying with regula-

Inspections of structures at 55 oil sands operations,
31 coal mines, and 14 oil and gas operations structures revealed only one significant deficiency.
Although we’re happy with the results, we know thisis simply the beginning of an important new regulatory function. But with the foundation of our dam
safety program now in place, we’re confident that
we have exceeded the recommendations from theauditor general’s report, and we will continue tostrengthen the program.

In November 2015, we released our findings from thefirst series of dam inspections. We focused on signsof potential failure of a structure, including indicators

Annual Report 2015/16

24

PROTECTING WHAT MATTERS

coming together
to go further
When energy regulation began in Alberta almost 80
years ago, it looked a lot different than it does today.
The regulator had no environmental specialists,hearing commissioners, or engagement experts—
they came much later as the organization adaptedand evolved. It took decades of experience and research for the AER to become what it is today; it has
been a journey of continuous improvement to meetstakeholder needs, and we will continue to evolve inthe decades to come.
Our work has drawn the attention of the world. Countries like China, Australia, Mexico, and even other
Canadian provinces and territories, including New
Brunswick, Nova Scotia, Newfoundland, the Yukon,
and the Northwest Territories, all want to learn about
the AER’s strong regulatory practices and how weprotect people, the environment, and the resource.
The last delegation to pass through our doors in2015 was a group of Mexican officials led by Mexican

Alberta Energy Regulator

Secretary of Energy Pedro Joaquin Coldwell andNational Hydrocarbons Commission President Juan
Carlos Zepeda Molina. For two days in December, the11-member delegation participated in a workshop designed by the AER, toured various oil and gas facilities in Alberta, and took in as much as possible about
Alberta’s oil and gas industry.
The visit, which was co-hosted by the provincial
and federal governments and a few oil and gas
companies, was considered a success by all, including Cecilia Villanueva Bracho, the Mexican consul
general to Alberta. Bracho was very impressed withthe program the AER helped put together for theofficials and points out that “it is very uncommon for
a delegation of this type to come to Canada, whichclearly demonstrates trust in the AER.”
Mexico is one of many countries the AER’s National and International Relations Branch works with totell our story. Last year we met with 35 delegations

from 16 countries. The reason we’ve dedicated an
entire branch to meeting with other countries is bestsummed up with a popular African proverb: If you
want to go fast, go alone. If you want to go far, go
together.
Any marathon runner will tell you that the key toendurance and strength is having the right people
along the way to give you the support needed tomake it to the finish line. By reaching out to others
who share the same goals, understand our challenges, and are interested in strengthening their own
regulations, we are building a support base that will
give us the ability to go the distance for Albertans.
Telling the Alberta story far and wide helps it beunderstood, but it also helps to strengthen our own
practices. With every meeting we have, we learn alittle more about ourselves and our story, we expand
our network of knowledge and expertise, and we go
further in our journey to excellence.

PROTECTING WHAT MATTERS

25

Countries visiting the AER

Australia

4
Kazakhstan

Canada7

5
Mexico

2

1

China

European
Union

Japan

1

1

Nigeria

PolandSaudi
ArabiaSouth
Africa12

1

2
Total number of visits

Taiwan1

Thailand2

Turkey1

UnitedKingdom3

UnitedStates35

1

SHARING ALBERTA’S STORY – DELEGATIONS

5

Average number of visitors in a delegation

Top 3 topics of interest
1. AER overview/our regulatory framework
2. Shale gas
3. Hydraulic facturing

3

Average number of AER presenters
Annual Report 2015/16

26

PROTECTING WHAT MATTERS

leader of the packRondine Cabot, a 10 year veteran of the AER’s inspection team, drops her four-year-old daughter off
at daycare and climbs into her pickup to begin her
commute to work. But today’s drive isn’t into her
office in Edmonton; she’ll be driving for three hours
this morning to check on a high-risk sour gas facility
near Fox Creek and an indigenous reserve.
Two days earlier, Rondine began her intensive investigation into the facility by checking Governmentof Alberta software programs to understand thefull scope of the operation. She checked the company’s Water Act approval to identify the company’s maximum withdrawal rate so she could verify
it during the inspection and checked for any environmental protection conditions the company mustmeet above and beyond the standard requirements.
She also combed through old records to see where
the energy operator had been deficient in the past, if
there had been any complaints from the public about
it, and how they’d fixed those problems.
Those old inspection and complaint records are kept
in an AER software program that details every pieceof energy infrastructure in the province, whether it’s

Alberta Energy Regulator

an abandoned well or pipeline or a currently operating facility. The program also helps Rondine and theother AER inspectors focus on the wells, pipelines,
mines, and facilities that pose the greatest threat toAlbertans or the environment. The program identified this facility as high risk because it processes ahigh concentration of lethal sour gas.

“We look at everything,” she said. “We start withanything that may affect public safety and go fromthere.”As Rondine makes her way northwest, she considers
her plan of action for inspecting the site. The mostimportant thing she’ll look for: that the company has
measures in place to protect the public and environment if something goes wrong.
“When I first get to a site, I look at the signage so the
public can call them to respond if there’s an emergency,” Rondine said. “People need to know whose
facility it is without having to go on the site.”Rondine pulls off the highway onto gravel roads
toward the facility, knowing that although she’s here
to inspect the facility, if there’s an oil and gas emergency nearby, she’ll be responding to that instead.
She needs to be able to react at a moment’s notice
to energy incidents.
“If there’s an emergency, the first thing we do is makesure the operator has enacted their emergency response plan. But we always send the person that’s
closest to respond.”

PROTECTING WHAT MATTERS

And sometimes that means helping out other field
offices if the emergency is near the office boundaries.

“WE HAVE THE AUTHORITY TO SHUT
A COMPANY DOWN. THERE ARE A“We have the flexibility to go where we see the need,”
she added.

LOT OF TOOLS AT OUR DISPOSAL

Thankfully, major incidents in the energy industry
are rare; there were just four well blowouts and 1.17
pipeline spills for every 1000 km of pipeline in theprovince in 2015. And on this day, Rondine makes
it to the sour gas facility without being called away.

TO MAKE SURE ENERGY COMPANIESAs she inches her way up the rutted, muddy leaseroad in her pickup, our logo—the shield depicting
Alberta’s diverse landscape and bold black letters
spelling out Alberta Energy Regulator—is immediately recognizable to the men in blue coveralls andhard hats working at the plant. And as Rondine steps
out of her truck in her light grey, AER-branded personal protective equipment; she stands out in stark
contrast.

TIES, FINES, ETC.”

Rondine makes her way to the office on site. The
plant manager stands from his desk, shakes her hand,and introduces himself.
“We’re usually received by operators very well,”Rondine says. “There have maybe been two times inmy 10 years that I haven’t been.

27

Nearly four hours later, after explaining numerous
AER requirements to the operators, Rondine’s inspection is complete. The facility has some minor
deficiencies, but nothing that put the public at risk.
Rondine will have to check in on them again soon to
make sure they’ve been fixed.
And if it’s not?

FOLLOWTHE

RULES:WARNINGS,

MORE INSPECTIONS OF THEIR FACILI-“We have the authority to shut a company down.
There are a lot of tools at our disposal to make sureenergy companies follow the rules: warnings, moreinspections of their facilities, fines, etc.”“But one of the most effective ways is to shut themin. If they can’t produce, they can’t make any money.
“They understand my job isn’t to get people into
And that’s a big incentive to follow the rules.”trouble; it’s to help them find areas where they can
improve. Whether it’s because of the impact to theRondine’s story represents one of the 11 216 inspecpublic or environment or because of the cost to clean tions the AER conducted in fiscal 2015/16. AER staff
it up, nobody wants spills to happen.”wield significant power when it comes to ensuring
Alberta’s energy industry follows the rules, and inSo the inspection begins and Rondine has become dustry personnel recognize that.
the leader of the pack.
— RONDINE CABOT, AER regional coordinator“They usually like to walk around the site with us tosee what it is we’re looking for; to make sure thatthey’re following the rules.”Annual Report 2015/16

28

PROTECTING WHAT MATTERS
H2O

Big-Picture Thinking
As Alberta’s energy regulator, it’s our job to makesure that energy development occurs in an environmentally responsible manner. One way we can do thisis by adopting a cumulative effects management
approach.
What are cumulative effects?
Cumulative effects can be defined differently depending on who you talk to, but to the AER, they are thetotal environmental changes caused by energy development activities in combination with other past,present, and future human actions. The impacts ofeach activity may be insignificant by themselves, butwhen they’re combined with the impacts from otheractivities, the risk to the environment can be great.
The regulatory system that we have in place today
was designed during a different period of energy development and tends to look more at each development activity in isolation, rather than looking at all of
the activities occurring in the area and their impacts
on water, land, biodiversity, and air quality. However,with the amount of energy development now occurring across the province, we need to shift our thinking and adopt a cumulative effects management approach to ensure that when we’re making decisions
on energy development, we’re looking at the bigger
picture, seeing the context of all activities that impact
the environment.
Adopting a cumulative effects management approachis no easy feat and will take some time to get right.
We’ll need to work closely with other government
agencies that are responsible for setting policy andalso responsible for environmental protection. It also
requires proper planning and testing of different
approaches. That’s why, over the next year, we will
undertake a number of initiatives—outlined here—
to start building a cumulative effects management
Alberta Energy Regulator
approach.

1

1

THE BLUEPRINT

As a first step, we developed a cumulative effects
management blueprint that maps out how we canmake decisions that better consider cumulative
effects on the environment, and how the AER canwork with our partners to implement the approach.
We tested the approach on a small scale last year
in central Alberta. We received water allocation
requests for five energy development projects andassessed the applications against interim water-use

thresholds that the government had set based onflow rates in the rivers where the projects were proposed. This exercise allowed us to better understandhow such requests cumulatively affected water
availability, which in turn allowed us to make a more
informed decision about each project application.
We will continue to refine the approach with ourpartners as government develops additional thresholds for air, water, land, and biodiversity.

PROTECTING WHAT MATTERS

29

3

4
2

2

AREA-BASED REGULATION

Cumulative effects need to be considered at every
stage of the regulatory process—from application,
to decision, through to project closure—and weneed a regulatory approach that looks at energy
development within an entire area, including subsurface reserves, as opposed to project-by-project. As
a result, we will be piloting an area-based regulatory
approach that will give us a better understanding of
the impacts of energy development and will consider the environment relative to government thresholds. For more information about ABR, see page 18.

3

SINGLE, INTEGRATED APPLICATIONSLast year, the AER began testing a single, integrated
application approach that allows energy companies
to submit one application for all activities of anenergy development project, rather than submitting
separate applications for each activity. This process
allows us to see the full scope of the project andbetter assess cumulative effects while being far
more efficient and effective as a regulator.

4 ACCOUNTABILITY
Cumulative effects management also means ensuring industry is accountable for its actions. As aresult, we’re developing environmental performance
metrics to help us assess industry’s actions against
thresholds established by government. Measuringperformance will also give us the insight we needto refine our regulatory approach to ensure we’re
successfully managing cumulative effects. Linking
industry performance with environmental performance is the key to success, and they need to workin tandem to achieve positive results.
Annual Report 2015/16

30

PROTECTING WHAT MATTERS

why less issometimes more
We’ve examined our regulatorymodel to identify and improve
AER requirements, focusing on
targeted changes with quick
and meaningful results.

Stacking rule upon rule seems like a good way toensure public safety and protect the environment.
After all, shouldn’t more rules bring about better
behaviour?
Thing is, technologies evolve and new types of resource plays emerge, which means the rules established years ago may no longer fit, or they may fail toaddress new risks altogether. Applying requirementsthat are outdated or duplicated or that fail to adapt
to emerging industry trends can make the AER an
ineffective and inefficient regulator and place undue
economic strain on companies.
We’ve examined our regulatory model to identify
and improve AER requirements, focusing on targetedchanges with quick and meaningful results.
Kim Eastlick leads the Near-Term Action Program(NTAP), which is finding ways to make the regulatory

Alberta Energy Regulator

system more effective and efficient through targeted, timely improvements. He took time to answer
some questions.
Is the AER doing this just because oil and gas prices
are low?
No, the AER’s work to make our regulations more
efficient started in April 2014, well before the current
downturn in energy prices. Our efforts to make theregulatory system more efficient are part of a bigger
strategy to improve how we regulate.
Don’t more regulations make for a safer province?
Regulating with obsolete or ineffective requirements
doesn’t mean we’re any safer. In fact it can tie up resources on issues that are not significant and hinder
regulatory action where the risks are greater. Our top
priority remains protecting the public and the environment, and any regulatory changes we’re making
either do not impact or actually enhance protection.

PROTECTING WHAT MATTERS

Can you give a specific example of a regulatorychange?
A good example of changes that brought aboutsignificant results at no risk to public safety or theenvironment is what we’ve done to Directive 017:
Measurement Requirements for Oil and Gas Operations. We responded to advances in oil and gas measurement technology by revising requirements in thisdirective to make them more relevant. The changes
to Directive 017 will also result in estimated annual
savings of over $200 million for industry.

We estimate that in fiscal 2015/16 alone, this programis delivering around $400 million of annual savings
for industry.

How has the program benefited industry; what
results have you seen?
There are three main benefits to industry from thisprogram: lower operating costs, lower capital costs,
and fewer regulatory delays that allow companies
to bring projects into operation faster, which in turnprovides economic benefits.

The changes we are making to ensure regulation isrelevant, efficient, and timely not only protect theenvironment and public safety, but also enable industry to improve its cost competiveness and contribute
more to Alberta’s economy in terms of royalty payments, taxes, and jobs.

It sounds like a great deal for the companies, butwhat do Albertans get from it?
By simplifying and integrating requirements, we’ve
improved both the relevance and quality of information that companies report to us, which helps us
better monitor whether they’re complying with theconditions set out in environmental approvals.

31

The AER talks a lot about regulatory excellence.
Does this fit in somehow?
Absolutely it does. First, ensuring that companies
are not facing needless regulatory burden is part ofbeing an excellent regulator.
Second, an excellent regulator listens to feedback
and actively seeks out and addresses outdated requirements. One of the attributes the AER identified
for regulatory excellence was “stellar competence,”
which means that we have the necessary expertiseto do our jobs well. Through NTAP, the AER’s experienced technical and regulatory specialists lead
young, enthusiastic, and innovative staff to not only
deliver better requirements, but also to develop
future leaders.

Annual Report 2015/16

32

PROTECTING WHAT MATTERS

learning why the earth
moves in Fox Creek
Residents of Fox Creek felt the ground tremble on
January 12, 2016. The reason: a 4.8 magnitude (ML)earthquake just 35 km from the northern Alberta
town.
The quake was the fourth over 4 ML to shake the areain the past year, all linked to hydraulic fracturing in aprovince that, traditionally, has been relatively quiet
on the earthquake front.

and the January event showed up on monitors
almost immediately.
The activity also caught the attention of area residents, the media, and Alberta Premier Rachel Notley,
who asked the researchers to provide an interim
report this spring. The study’s final report is due tobe published in November 2016.

“Our initial findings indicate a strong link between
When it hit, seismologists at the AER’s Alberta Geo- geological features in the area, for example faults andlogical Survey Branch (AGS) were assessing data ancient fossil reefs, and induced seismicity,” said AGS
from previous earthquakes in the Fox Creek area geoscientist Todd Shipman, manager of the Landas part of a formal study into “induced seismicity,” scape and Geological Hazards Group.
earthquakes that are triggered by human activity.
The latest earthquake would provide them with even “We need to continue to study the links between hymore data to analyze.
draulic fracturing operations, geology, and geomechanics and their effects on induced seismicity,” said
The AGS is using data from more than 53 monitors Kristine Haug, AGS geological engineer. “This inforthat measure seismic activity across the province,
mation will be included in the final report.”

Alberta Energy Regulator

PROTECTING WHAT MATTERS

And while none of the earthquakes linked to hydraulic fracturing have caused any impact to infrastructure or the environment, energy operators in the area
continue to be bound by AER’s Subsurface OrderNo. 2 when hydraulically fracturing in the area.

“WE NEED TO CONTINUE TO STUDY THE

Using a traffic light protocol, licensees fracturingin the Duvernay Zone in the Fox Creek area mustmonitor seismic activity and report any earthquakes
within 5 km of their wells during hydraulic fracturing
operations. They must also have a response plan andbe prepared to apply that plan to any induced seismicity above 2.0 ML.

MECHANICS AND THEIR EFFECTS ON

LINKS BETWEEN HYDRAULIC FRACTURING OPERATIONS, GEOLOGY, AND GEO-

33

AER
Traffic
Light
System –Traffic
Light
ProtocolDuvernay Zone, Fox Creek> 4.0M
2.0M>< 2.0ML

INDUCED SEISMICITY.”

cease operations,inform the AER—KRISTINE HAUG,
AGS geological engineer

Linform the AER,
invoke response plan

If monitoring picks up an earthquake of 4.0 M L or
greater, they must immediately cease operations
and report it to the AER. They will not be allowed toresume operations without AER approval.

Lno action required

March 2016

Alberta Energy Regulator

Annual Report 2015/16

34

PROTECTING WHAT MATTERS

protecting Albertans, one
oil and gas well at a time
These are difficult times in Alberta, particularly for
those that work in the oilpatch and for companies
that develop energy resources in Alberta.
With the sharp drop in global oil and gas prices,
some companies are finding it more economical tostop producing to save money, or possibly avoid
bankruptcy. But this leaves thousands of wells, pipelines, and infrastructure sitting inactive on Alberta’s
landscape. In tough times, it’s vital that the AER ison the job to ensure our rules are followed so thatcompanies, not Albertans, clean up and maintain thisinfrastructure.
We recognize that in times such as these, we must
make certain that Albertans are protected, while ensuring that the companies we regulate face no unnecessary fiscal pressure. Over the past year, we’ve
implemented programs and proposed changes toour requirements to meet this challenge.

whether or not they met our requirements on a caseby-case basis. Before the IWCP began, we didn’t have afull picture of the number of inactive wells acrossthe province.
“The IWCP is supported by a specially designed
system that’s helped us pinpoint which wells areactive, inactive, and suspended. To date, nearly
11 000 wells have been brought into compliance with
our suspension requirements,” said David Hardie, asenior advisor with the Closure and Liability Branch.
“At this rate, we’re on track to bring all 30 000 wellsin the program into compliance within five years.”

DIRECTIVE 013 UPDATEINACTIVE WELL COMPLIANCE PROGRAM

Operators can take one of three actions to bring inactive wells into compliance with our requirements:
reactivate it, suspend it indefinitely, or permanently
abandon the well. To suspend a well, operators must
do pressure tests and inspections to ensure it’s notleaking oil, gas, or other substances, such as hydrogen sulphide gas.

Last year, we launched the Inactive Well Compliance Program (IWCP) to address a backlog of
30 000 inactive wells in the province that don’t
comply with our rules. A well is considered inactive
when it has been idle for 6 or 12 months, depending
on its type. In the past, we identified inactive wells andDirective 013: Suspension Requirements for Wells
outlines our requirements for pressure tests andinspections, among other suspension, monitoring,and reporting requirements. We asked Albertans toprovide feedback on proposed changes to Directive

Alberta Energy Regulator

013, which includes extending the deadline for operators to complete suspension work and submit theinspection results to us from 60 days to 12 months.
“We believe these changes and the IWCP will allow
companies to focus on conducting inspections andpressure tests on multiple inactive wells by region,
rather than on a one-on-one basis,” said Hardie.

CHANGES TO LICENSEE LIABILITY RATING(LLR) PROGRAM
As part of our commitment to public safety and theenvironment, we’ve updated our Licensee Liability
Rating (LLR) Program to better reflect the costs ofabandoning and reclaiming inactive wells and facilities across the province. The program is designed
to ensure Albertans do not pay for abandonmentand reclamation. For instance, when a company’s
liabilities are greater than its assets, it must pay us
a financial security to cover all abandonment andreclamation costs.
“We require oil and gas companies operating inAlberta to participate in the LLR program. If a
company does not pay their financial security, we cantake a number of actions against the company which
can include issuing orders to companies that requirethem to suspend or abandon a well,” said Hardie.

PROTECTING WHAT MATTERS

35

THE WORK OF THE AER AND THE OWA
IN IDENTIFYING ORPHAN FACILITIESSUCH AS WELLS AND PIPELINES, AND

Despite the program, there are times where companies go bankrupt, leaving no one responsible formaking sure the company’s wells are abandoned andreclaimed. When this happens, we consider thesewells orphaned, and they fall under the care andcustody of the Orphan Well Association (OWA).

ENSURING THEY ARE ABANDONEDAND RECLAIMED PROPERLY, IS HIGHLY

Serving as a last resort, the OWA is a nonprofit organization whose role is to manage the abandonmentand reclamation of orphaned wells, facilities, andpipelines across the province. The OWA is funded byan annual levy collected by the AER from industry
on its behalf.
“The work of the AER and the OWA in identifying
orphan facilities such as wells and pipelines, and ensuring they are abandoned and reclaimed properly, ishighly complementary,” said Brad Herald, OWA chairand vice-president of the Canadian Association ofPetroleum Producers.

COMPLEMENTARY.

INACTIVE WELL

ABANDONED WELL

A well that is no longer being used to produce oilor gas, inject fluids, or dispose waste after 6 or 12months, depending on the well’s class.

Abandoned wells are permanently plugged withcement, cut at least one metre below the surface,and are covered with a vented cap atop the well.
Abandoned wells cannot be seen from the surface
once the land around it has been reclaimed.

SUSPENDED WELL
“The AER and the OWA work together to ensure thepublic is protected and that orphan sites are abandoned and reclaimed in an environmentally responsible manner.”A well that is no longer being used to produce oilor gas, inject fluids, or dispose waste and meetsrequirements set out in Directive 013. A suspended
well can be put back into production or moved to
the next life-cycle phase—abandonment.

Annual Report 2015/16

36

YEAR-IN-REVIEWOUTCOME

2015/16
REPORTING ON
OUR RESULTS
To become an excellent regulator and to deliver on
the priorities set out in our strategic plan, we mustachieve results and report on our progress. Thismeans demonstrating how we’ve ensured public
safety and protected the environment, how we’vebeen effective and efficient in ensuring compliance,
how we’ve engaged our stakeholders, and whether
Albertans are confident in the AER.
As we developed our strategic plan, we identified
performance measures and targets that align with
our priorities; these are guideposts to help the AER
define success and demonstrate the results of ouractions.
Our 2014–17 strategic plan was designed to help
us achieve our vision and address new risks andchallenges in energy development. We have learned
much about adapting to changes in technology andstakeholder expectations, how to define and achieve
regulatory excellence, and how to deliver a strategicplan that allows us to adjust to shifting circumstances.
The AER has come out with a 2016–19 strategic planthat is updated each year and that will ensure weremain adaptable and deliver clear outcomes andmeasurable results. You can see this new strategicplan on page 52.

Alberta Energy Regulator

PROTECTIVE
Develop an integrated
whole-systemregulatory approach

EFFECTIVE
Strengthenrisk-based
regulation

Effective management ofpublic safety and cumulativeenvironmental risks and impacts

Effective management of resource
conservation and minimize financial
liability on Albertans

EFFICIENT
Transform
Alberta’s energy
regulatory system
to improve
efficiency

The regulatory system is efficient,minimizing duplication, with highly
efficient processes, and onlyintervening to the level necessary

CREDIBLE
Increase trust andconfidence in how
energy is developedin Alberta

Stakeholders are confident
about how energy isdeveloped in Alberta

YEAR-IN-REVIEWMEASURETARGETSTATUS

Volume of all water (fresh, saline, andrecycled) used for oil, oil sands, andgas operations

Work with Government of Alberta (GoA) to
set benchmarks and requirements for reductionof water use for energy resource development

In progress: Consolidated water data and compiled
hydraulic fracturing and in situ oil sands volumes aspart of a multiyear program.
In progress: Drafted Directive 085 and gatheredindustry feedback to establish standards.

Reduce overall tailings
Volume of gas flared and vented
from oil and gas operations

37

Flaring levels are within provincial guidelines

Target met: We continue to monitor flaring levels andfocus on venting compliance.

AER expertise is provided to support the GoA’s
Integrated Resource Management System (IRMS)

Target met: Multiple deliverables completed/ongoingto support IRMS.

Proportion of inactive wells thatmeet current suspension requirements

100% of high-risk inactive wells meet
AER suspension requirements

Target met: All high-risk, inactive wells were compliant
by August 2015. Monitoring continues.

Adoption of risk-based regulation to
respond to changes in technology andcomplexity in oil sands development

No unintended loss of reservoir containment

Target met: Reservoir containment restrictions
incorporated in regulatory decisions.

Number of incidents per kilometre ofpipelines regulated by the AER

Pipeline incident rate reduced by 4%

Target met: Pipeline incident rate reduced by 27.78%(1.17 per 1000 km).

Regulatory process efficiencies$400 million in cost savings fromefficiency initiatives in 2015

Target met: $411–$448 million in savings throughNear-Term Action Plan and other efficiency initiatives.

Relevant regulatory requirements

Complete a full regulatory review to identify
and execute opportunities for consolidationand simplification

On hold: Ongoing reviews and implementation of
improvement opportunities.

Improve efficiency of AER
application decisions

Establish final New Activity Life-Cycle Approach(NALA) blueprint to be approved by June 30, 2015

Target met: NALA implementation
charter approved in 2015.

Percentage of Albertans confident
that oil and gas development isoccurring responsibly

10% increase in awareness of the AER and its role
in regulating energy development in Alberta

Target met: Awareness of the regulator increased from
41% in 2014 to 50% in 2015 as reported in the AER Surveyof Albertans and Stakeholders.*

Stakeholder rating of AER
performance in key areasof concern

10% increase in positive perceptions/rankings of
AER performance

Ongoing: 82% (an increase of 6.4%) of Albertans report confidence
in the regulator’s ability to fulfil our mandate. Stakeholders
reported confidence rates at 77% (an increase of 4%); however,these rankings varied amongst specific stakeholder groups.*

Recommendations for best-in-classperformance are developed throughstakeholder collaboration

Completion and release of recommendationsin 2015

Target met: Penn Program on Regulation’s final
framework for regulatory excellence released andstakeholder feedback gathered in fall of 2015.

Highly skilled andengaged employees

Establish a baseline in 2015, with an increasein the rating in 2016

Target met: 2015 employee engagement survey
completed with 81% response rate.
* Numbers tied to 2017 target.

Annual Report 2015/16

ACHIEVING EXCELLENCE IN ENERGY REGULATION

39

our path to excellence
From the time the AER was created, our vision was
to achieve excellence, to strengthen and improve
Alberta’s regulatory system.
To accomplish this, we knew we had to define what
excellence meant. We also knew we’d need help
making it happen.
In November 2014, we turned to the experts at theinternationally renowned University of Pennsylvania’s
Program on Regulation (PPR) to help identify the key
attributes of an excellent regulator, understand how
the AER can adopt these attributes, and measure
our progress. The excellence initiative generated asignificant amount of work. The PPR delivered 6 coreresearch papers, 15 expert papers, and an interim
report that generated international discussions on
this notion of regulatory excellence.
At the same time, we wanted to ensure that any
model we adopted reflected the unique values
and expectations of the people who live and workin Alberta. For this, we tapped into the knowledgeof Albertans, indigenous peoples, and our diverse
stakeholders through a series of dialogues hosted
by PPR in the spring of 2015.
These sessions were not stakeholder consultations
but opportunities to share our common vision forAlberta and discuss how we work together todevelop our energy resources in a manner that issafe, environmentally responsible, and respectful ofall viewpoints. This approach allowed us to learn fromacademics and experts in the field of regulation while
understanding what excellence means to Albertans.
We aren’t the first organization to state our intent tobe “excellent,” nor are we the first to engage experts
to help us define what that is. However, we wanted to
do more than an internal assessment of our work; wewanted to show leadership and invest in a universal
model, one that could be shared with regulators theworld over.
In fall 2015, the final, peer-reviewed report was released, entitled Listening, Learning, and Leading: A
Framework for Regulatory Excellence.
The report identified three core attributes of an excellent regulator—empathic engagement, utmost
integrity, and stellar competence—and presented amodel of regulatory organization, action, and performance.
While we had begun to identify how the report’s
findings could be applied in Alberta, we knew that
we needed to continue to seek input on our path toexcellence. Using the information we gathered from

MADE-IN-ALBERTA EXCELLENCE

2014

November

University of Pennsylvania’s Programon Regulation (PPR) consulted

6 15 1
research
papersexpertpapersinterimreport2015

Spring2015

Falldialogues were hosted by PPR

final report released

Annual Report 2015/16

40

ACHIEVING EXCELLENCE IN ENERGY REGULATION

Attributes for Excellence
For the AER, UTMOST INTEGRITY means that we areaccountable as a protective, effective, efficient, andcredible energy regulator that is fair and unbiased.
The AER adheres to Alberta government policy
and takes a leadership role in identifying policy
gaps where they exist. We make evidence-based
decisions that consider the environment, the uniquenature of the energy development, traditional
knowledge, and information brought forward by
local communities.

The AER is committed to respectful external andinternal engagement. For us, EMPATHIC ENGAGEMENT
means working together so that we can make fully
informed decisions and build strong relationships.
We are straightforward about the issues, listen
carefully, respond respectfully, and ensure ourdecisions are understood. We know that to build andmaintain relationships, we must be fair, inclusive,
and transparent.

means our people have therequired expertise and the necessary tools to carryout their responsibilities, which underpins the AER’s
ability to achieve its outcomes while adapting to
new risks and opportunities. We will seek expertiseand information outside of our organization to
make well-informed decisions. In this way, we areable to deliver outcomes, measure and report on
our performance, and continuously improve.

previous dialogues and research, we continued ourconversation with Albertans, indigenous peoples,stakeholders, and AER employees. We wanted to test
our own understanding, make sure we got it right,
and develop a made-in-Alberta version of this framework for regulatory excellence. We asked for honest
feedback on how we were performing against theexcellence framework and where we could improve.

STELLAR COMPETENCE

EmpathicEngagement

AER
Regulatory
Excellence
UtmostIntegrity

Alberta Energy Regulator

StellarCompetence

People overwhelmingly supported the model andprovided an honest assessment of our priorities,
gaps, and performance. We learned that we can• be more open and transparent;• better explain how decisions are made and thereasons for our decisions;• improve our relationships with Albertans, indigenous peoples, and stakeholders;• clarify our internal processes and priorities, including employee roles and responsibilities; and• ensure that our employees have the skills and tools
they need to carry out their responsibilities.

ACHIEVING EXCELLENCE IN ENERGY REGULATION

41

WHAT IS EMPATHIC ENGAGEMENT?
DICTIONARIES DEFINE EMPATHIC AS SHOWING UNDERSTANDING AND SHARING
We learned that we can• be more open and transparent;• better explain how decisions are madeand the reasons for our decisions;• improve our relationships with Albertans,indigenous peoples, and stakeholders;• clarify our internal processes andpriorities, including employee roles
and responsibilities; and• ensure that our employees havethe skills and tools they need tocarry out their responsibilities.

We learned that there are areas where the model
needed to adapt to our specific circumstances; weheard that we must measure our performance anddeliver on key outcomes to be successful.
Our final model provides us with clear definitions forutmost integrity, empathic engagement, and stellar
competence—the three core attributes. It shows how
we can put those attributes into action as we adopt
consistent processes, build a strong culture, engage
our stakeholders, and make decisions informed byrisk. This, in turn, allows us to drive industry to pro-

ANOTHER PERSON’S EXPERIENCES AND EMOTIONS. THROUGH EMPATHIC ENGAGEMENT, THE AER WANTS TO WORK TOGETHER WITH OUR STAKEHOLDERSAND OTHERS SO WE CAN MAKE FULLY INFORMED DECISIONS AND BUILD STRONGRELATIONSHIPS. WE PRACTICE EMPATHY BY BEING STRAIGHTFORWARD ABOUT
THE ISSUES, LISTENING CAREFULLY, RESPONDING RESPECTFULLY, AND ENSURING
THAT OUR DECISIONS ARE UNDERSTOOD.

tect public safety and the environment, while stillsecuring economic benefits.
With the attributes for regulatory excellence definedand a model clearly developed, we now begin to turn
our aspiration for regulatory excellence into tangible
actions. By establishing clear outcomes, a comprehensive strategic plan, and detailed work plans, andby committing to measuring and reporting on our
performance, we will continue to work with Albertans,indigenous peoples, stakeholders, our employees,
and the international community to embody regulatory excellence in all that we do.

From the outset, this initiative was about more thanreceiving a title of “excellent”; it was about becoming a regulator that continually improves its work,builds strong relationships, and leads the next era inenergy regulation. Excellence is the means of creating a strong, fair, transparent, and inclusive regulator
that delivers measurable outcomes for this province.

Annual Report 2015/16

42

ACHIEVING EXCELLENCE IN ENERGY REGULATION

what I learned
about excellence
Tiffany Novotny, director of the Transformation Management Office, shares what she learned from her
work on the AER’s regulatory excellence project.

I would like to personally thank Albertans who came
together last fall to weigh in on our model for regulatory excellence.

Most don’t aspire to be average, and no one can be
exceptional on their own. The AER is no different—we
aspire to excellence, and the way we achieve that isby working together.

More than 1500 people across the province, both
inside and outside our doors, rated the AER’s approach to the Penn Program on Regulation’s generalframework for excellence, ranked our current performance against that approach, and shared their top
priorities.
What I am personally most proud of is how we worked
together, respected what each person brought to thetable, and truly listened to ensure we had a holistic
view of what regulatory excellence is.
I certainly had a great time being a part of this initiative, and I’d like to share a few lessons I learned
along the way:
There are many ways to involve people – a new
digital age means new expectations for engagement.
Through workbooks, an online engagement tool,social media, a web survey, and face-to-face conversations across the province, we cast a broad net tohear from diverse groups of people (including ourAlberta Energy Regulator

employees, indigenous peoples, landowners, communities, industry, nongovernment organizations,
the Government of Alberta, synergy groups, national
and international regulators, academic institutions,and more).
Vulnerability is powerful – we knew we could not
simply declare ourselves “excellent” through thiswork; to understand what regulatory excellencemeant we needed help. This means admitting we’re
not perfect and asking others where and how to
improve. Asking allowed us to collectively define
regulatory excellence and develop a model that we
can continually measure ourselves against.
Listening says more – we had to set aside an oldbelief that top executives had to unilaterally set strategic direction. Through this initiative, we evaluatedmore than 20 research reports written by academic
powerhouses from around the globe and listened tomore than 1500 people. We can confidently say that
we have learned by including the public and our employees in creating our path forward.
We have to walk the talk – once you put the questions out there and you get answers, you need toACHIEVING EXCELLENCE IN ENERGY REGULATION

43

do something. We embraced the recommendations
from the Penn Program on Regulation, and throughthe What We Heard report, we showed how the data
we collected helped shape our model for regulatory
excellence. The information we gathered helped
drive tough decisions about gaps, priorities, andnext steps.
As we embark on the next phase of our journey, theproof will be in how we embody excellence in all that
we do.
As you can imagine, the process was both humblingand immensely valuable. We still have a lot of work to
do, and now we have a model that we built together
to help us get there.

“ALL STAKEHOLDERS WANT TO SEE THEMSELVES REFLECTED IN THE SYSTEM, ANDI WAS EXCITED TO BE INVOLVED IN THE REGULATORY EXCELLENCE PROCESSAND HAVE AN OPPORTUNITY TO REDEFINE HOW THE REGULATOR CONDUCTS
BUSINESS. THE ENTIRE PROCESS WAS VERY VALUABLE.”—GRAHAM GILCHRIST, a surface rights agent
and a member of the AER’s multistakeholder
engagement advisory committee

Annual Report 2015/16

MOVINGFORWARDMOVING FORWARD

45

a world-class resource
Alberta’s energy resource reserves are among theworld’s largest and include bitumen, crude oil, naturalgas, natural gas liquids, and coal.

29 trillion cubic feet (Tcf) in 2015, while total production was 3.6 Tcf. Natural gas liquids (NGLs) production increased by 5 per cent in 2015.

Topping this list is bitumen from the province’s oil
sands deposits, with remaining established reserves
at 165 billion barrels in 2015, truly a world-class resource. To put things in perspective, 11 billion barrelsof bitumen have been extracted since the late 1960s.

In 2015, our remaining established reserves of coalremained unchanged at 37 billion tons, while only
30 million tons of marketable coal was produced.

At 923 million barrels (or 2.5 million barrels per day),raw crude bitumen production accounted for 83 percent of Alberta’s total crude oil and bitumen production in 2015. Bitumen production in 2015 increased by
12 per cent for mining projects and by 8 per cent forin situ projects, resulting in an overall raw bitumen
production increase of about 10 per cent over 2014.
Of the total bitumen production, 44.6 per cent wasused as feedstock for upgraders, yielding 976 thousand barrels per day of upgraded production. Alberta
refineries processed 301 thousand barrels per day of
upgraded bitumen and 25 thousand barrels per dayof nonupgraded bitumen.
In Alberta, crude oil production decreased by 11 percent in 2015. Conventional natural gas reserves were

A study conducted by the regulator in 2012 estimated that the hydrocarbon resources from shale are
estimated to be a very large and important potential
energy supply for Alberta and the world. Best estimates put the in-place resource at 3424 Tcf of gas,58.6 billion barrels of NGLs, and 423.6 billion barrelsof crude oil.
Alberta’s energy resources significantly contributeto both Alberta’s and Canada’s economies. In 2015,
the value of our energy resource production was$67 billion. Amid the current low crude oil and natural
gas price environment, the contribution of energy
resources to Alberta’s economy is expected to belower in 2016. However, the AER forecasts that after
2016, the value of energy commodities will reboundto higher levels with the return of stronger oil andnatural gas prices.

ALBERTA’S RESOURCES (2015)67

billionCdn$

value of productionin Alberta

165billionbbls

remaining established
bitumen reserves

923

millionbbls

raw crude bitumen
production

29

Tcf

conventional natural
gas reserves

83%

Alberta’s total crude oil& bitumen production

3.6

Tcf

total conventional
natural gas production

Annual Report 2015/16

46

MOVING FORWARD

drivers for change
We know that our stakeholders play a crucialrole in the regulatory process, and throughour work on the Multistakeholder Engagement
Advisory Committee and discussions about
regulatory excellence, we have learned a great
deal about the importance of building stronger
relationships and working collaboratively with
Albertans, indigenous peoples, and stakeholders.

There’s little doubt that the energy development
landscape has changed just as the economic realityof persistent low oil prices has impacted the industry
we regulate. Regardless of the economics, we mustensure we protect what matters to Albertans—public
safety and the environment—while responding to
new technologies and challenges.
Change happens rapidly in the energy sector. Consider where we were in 2000: in situ development
was just beginning and we had a customer on oursouthern border thirsty for our crude. Stakeholder
concerns were local and usually limited to those directly impacted by development. In a province dominated by conventional oil and gas development, we
focused on prescriptive regulatory approaches that
addressed known risks and historical issues, and thatworked pretty well.
Today in 2016, our biggest customer has become amajor energy producer—in 2014 the United States
posted the largest production increase on the planet
and reduced its demand for imported oil. Oil prices
continue to slump as demand declines while theglobal community questions the use of fossil fuelsand demands action on climate change. Add to thatthe focus on Alberta’s oil sands by news outlets andsocial media that has thrust us onto the world stage.

Alberta Energy Regulator

Then we have advances in technology, putting multistage hydraulic fracturing and in situ development at
the forefront as single wells are replaced with largescale projects that bring new challenges, risks, andopportunities.
If Alberta is to address new technology, meet changing stakeholder expectations, and compete in the
global market, we must change how we operate.
When the government brought together three strong
regulators to form the AER in 2013, it was aboutbuilding an entity capable of ensuring public safety,
protecting the environment, managing cumulative
effects, confronting new risks, and seizing new opportunities.
We’ve managed the transition well, and we have accomplished much in almost three years. But we must
continue to change, seek excellence, and work with
Albertans to manage our energy resources today andbeyond.
We must ensure Albertans are protected from theenvironmental and financial consequences of inactive or abandoned wells as companies grapple withthe reality of low oil prices, and in some cases facebankruptcy. We must protect our water resources

MOVING FORWARD

47

and minimize the impacts of development on ourlandscape, all within the policies government sets tomanage our land.
And, we must ensure that the AER delivers resultson Alberta’s Climate Change Action Plan as we workwith industry to reduce methane emissions by 45 percent by 2025.
This work is important to Alberta and the people wholive here. Public opinion research conducted in 2016indicates that awareness of the AER has increased
and that Albertans are expressing confidence in the
AER’s ability to deliver on its mandate. To keep that
confidence, we must remain accountable throughopen, transparent information about our work andour performance. Albertans expect the AER to focus
our efforts on public safety, enforcing our rules, andprotecting the environment.
We know that our stakeholders play a crucial rolein the regulatory process, and through our work on
the Multistakeholder Engagement Advisory Committee and discussions about regulatory excellence,
we have learned a great deal about the importanceof building stronger relationships and working collaboratively with Albertans, indigenous peoples,and stakeholders.

Annual Report 2015/16

48

MOVING FORWARD

Alberta Energy Regulator

MOVING FORWARD

49

an evolution—our
2016–19 strategic plan
The AER has had to adapt to changes in technology
and stakeholder expectations, define and achieve
regulatory excellence, and deliver a strategic planthat allows us to adapt to shifting circumstances yet
keeps us focused on our vision:
The Alberta Energy Regulator is recognized for regulatory excellence, ensuring the safe, environmentally responsible development of energy resources forthe benefit of all Albertans.
Regulatory excellence is the overarching vision underwhich we do all of our work—the day-to-day deliveryof our mandate and our focus on a strategic plan thatmoves us closer to being truly protective, effective,
efficient, and credible.
The AER is expected to protect public safety andthe environment, while ensuring economic benefits
for all Albertans. We have a clear strategy to deliveron our mandate, reach our vision of regulatory excel-

lence, and deliver results for the AER and our many
stakeholders.
Protecting Alberta and the people who live here isimportant work, and the 2016–19 strategic plan helps
us identify our key priorities and establish clear
performance measures to ensure we stay on trackand demonstrate our results. This plan is updated
each year and is designed in a way that allows us torespond to new challenges and take advantage of
emerging opportunities.

The strategic plan includes our strategic priorities,
strategic and focused outcomes, performance measures, and targets against which the AER and others
will monitor our progress and measure our success. It
reflects our mandate and helps drive us to our visionby being protective, effective, efficient, and credible.

The energy development landscape is changing
rapidly, driven by economic circumstances, advances in technology, and changing expectations aroundenvironmental protection and managing cumulative
effects. The AER understands that we must ensure
energy resources are developed• safely, to protect the public;• responsibly, to protect the environment; and• efficiently to manage the costs of regulation.

Annual Report 2015/16

50

MOVING FORWARD

Courtesy of Cenovus Energy Inc.

PROTECTIVE

EFFECTIVE

Develop an integrated
whole-systemregulatory approach

Strengthenrisk-based
regulation

PROTECTIVE

Sands to manage fluid tailings volumes from oilsands mining. With a new directive in place, theAER will review companies’ plans to ensure they
are meeting our requirements to reduce tailings
volumes so that the tailings ponds can be fully reclaimed at the end of a mine’s life.
• Climate change – The Government of Alberta istaking action to address climate change. As partof this plan, the AER will ensure industry reduces
methane emissions from oil and gas operations
by 45 per cent by 2025 and oil sands operators
cap greenhouse gas emissions at 100 megatonnes.
We’ll start by engaging our many stakeholders andestablishing monitoring and tracking systems tobetter measure progress and report on the results.

The first priority of our strategic plan is to be protective: we will protect the public and the environment.
Any industrial activity brings some risk; strong andeffective rules at every stage of oil sands, oil, gas,and coal development can reduce these risks. Our
work will focus on meeting clear targets that resultin sustainable water use, improve environmental performance, manage cumulative effects, and address
climate change.
• Sustainable water use – We’ll focus on water use in
hydraulic fracturing, enhanced oil recovery, and all
oil sands development to ensure that companies
are using water responsibly, recycling where possible, and applying technology to use less water.
In the first year, we’ll begin reporting water use
and then track progress in how it’s being reduced.
• Reduce fluid tailings – In 2015, the Government of Alberta released the Tailings Management Framework of the Mineable Athabasca Oil

Alberta Energy Regulator

EFFECTIVE
To be effective, we must regulate development in a
way that reduces risk and ensures Albertans reap
the economic rewards of our energy resources. The

AER will continue to apply our risk-based approach,where higher-risk activities receive the greatest attention. This includes focusing on the following:• Aging infrastructure – Decades of oil and gas development has created issues with inactive wells—
those that have been suspended or are no longer
producing. We’ll make sure that companies properly abandon these wells, starting with those thatpose the greatest risk.
• Pipeline safety – Although the Auditor General ofAlberta has reported that Alberta’s pipelines arewell regulated, more work can be done. We will
start by targeting a reduction of high-consequencepipeline incidents by two per cent in 2017.

MOVING FORWARD

EFFICIENTCREDIBLE

Transform Alberta’s energy
regulatory system toimprove efficiency

Increase trust andconfidence in how energy
is developed in Alberta

EFFICIENT
An efficient regulatory system that ensures safety
and environmental requirements can help create acompetitive climate that attracts investment. Our
efforts to be more efficient are not just about saving
money, but also reducing duplication and finding
better ways to ensure our requirements are met.
We’re focusing on the following:• Regulatory efficiency and stakeholder savings –The AER has eliminated outdated requirements
and changed our processes to improve our dayto-day operations, which has led to $400 million in
annual savings in regulatory costs. We are making
sure that we protect public safety and the environment as we reduce duplication. This year, we’ll
seek to create an additional $100 million in annual
savings.
• Improving AER decisions – We’ve been seeking
new ways to improve our decision making by-- moving to a single-application approach thatprovides stakeholders with more information
about the full scope of projects;-- developing requirements that respond to concerns in specific areas of the province; and-- moving away from well-by-well, prescriptive
requirements to approaches that consider
entire projects, ensure stakeholders are engaged,
and address cumulative effects.

CREDIBLE
Albertans have told us they seek an energy regulator that protects the public and the environment andthat enforces the rules. Reporting on the results of
our work and improving how we involve our stakeholders will help us earn and keep public confidence.
We will work on the following in 2016/17:• Effective engagement – We will continue to find
new ways to involve our stakeholders through initiatives such as our Multistakeholder Engagement
Advisory Committee. We will ensure we’re on trackby measuring Albertans’ awareness of, and confidence in, the AER.
• Pursing regulatory excellence – After working with
Albertans and stakeholders on a model for regulatory excellence that’s appropriate for our province,
the AER is ready to take further action to makecertain we are a regulator that has utmost integrity, stellar competence, and empathic engagement.

51

Through our Centre of Regulatory Excellence, wewill make sure that AER employees have the skills
they need to do their jobs well, and we’ll continue
to build a workplace that engages and motivates
employees to excel.
• Integrated Resource Management System – As the
single regulator for oil, oil sands, natural gas, andcoal development, we play a key role in the Government of Alberta’s Integrated Resource Management System (IRMS). While the government sets
policy direction, the AER ensures that this direction is followed through our regulatory work. This
year, we will collaborate with our IRMS partners
to support key priorities like managing risks andaddressing cumulative effects.
While our strategic plan helps us focus on our key
priorities, we know that circumstances can change
rapidly. The AER will continue to refine and amend
our plan to respond to new challenges and opportunities while making sure we deliver on longer term
targets and commitments.

Annual Report 2015/16

52

MOVING FORWARD

STRATEGIC PRIORITIES

2016–19
STRATEGIC PLAN

The AER is responsible for ensuring that the public
and the environment are protected. We have a clear
strategy to fulfil our mandate, reach our vision of regulatory excellence, and deliver results for Albertans,indigenous peoples, and our many stakeholders.
To develop our new 2016–19 strategic plan, we examined the work we need to focus on based on our fourpillars of protective, effective, efficient, and credible.
The plan includes our strategic priorities, outcomes,
and performance measures to ensure we stay on
track and demonstrate our results.
Ensuring water is used in a sustainable fashion, reducing the inventory of aging infrastructure, lowering
methane emissions, making certain pipelines operatesafely, and effectively engaging our stakeholders andall Albertans are just a few of the outcomes we will
work to achieve in the 2016–19 strategic plan.
We will be updating this plan every year to ensure
we can adapt to the changes taking place aroundus—from new technology to evolving stakeholder expectations—all while demonstrating how the AER’s
work ensures the safe, environmentally responsible
development of Alberta’s energy resources.

Alberta Energy Regulator

PROTECTIVE
Develop an integrated
whole-systemregulatory approach

EFFECTIVE
Strengthenrisk-based
regulation

EFFICIENT
Transform Alberta’s
energy regulatory system
to improve efficiency

CREDIBLE
Increase trust andconfidence in how energy
is developed in Alberta

STRATEGIC OUTCOMES

Effective managementof public safety, andcumulative environmental
risks and impacts

Effective managementof resource conservationand minimize financial
liability on Albertans

The regulatory systemis efficient, minimizing
duplication, with highly
efficient processes, andonly intervening to thelevel necessary

Stakeholders are
confident about
how energy isdeveloped in Alberta

MOVING FORWARD

FOCUSED OUTCOMESPERFORMANCE MEASURESPERFORMANCE TARGETS

Sustainable water use

Volume of all water used (by source) for hydraulicfracturing, enhanced oil recovery, in situ oil sands,
and mineable oil sands

Public reporting of water use by industry

Reduce fluid tailings accumulation
over mine life

Total annual volume of fluid tailings, treated fluid
tailings, fines captured

Ensure industry complies with establishedperformance standards

53

VISION

Support multistakeholder engagement process tofacilitate early action on methane reduction

Climate change – reduce
methane emissions

Volume of methane emissions

Climate change – 
oil sands emissions

Volume of oil sands emissions

Establish a tracking and reporting system foroil sands emissions

Reduce aging inventory liability

Complete a risk assessment of energy-related
infrastructure by March 2018

Address high-risk items as they are identified

Pipeline safety

Number of high-consequence pipeline incidents

2% reduction in high-consequence pipeline
incidents from the previous two-year average

Stakeholder savings resulting from reduced
regulatory burden that does not negatively
impact the environment or public safety$100 million in savings to stakeholders infiscal 2016/17

Improve efficiency of AER application decisions

Conduct two pilot projects to evaluate the proof
of concept for the single application and approval
process by March 31, 2017

Percentage of Albertans aware of the AER who
express confidence in the organization’s ability tofulfil its mandate

80% confidence score

Incorporate key attributes of regulatory excellence

Begin implementing the AER model for
regulatory excellence

Level of skills and competencies

Address high-priority skill and capability gaps
through the implementation of a Centre ofRegulatory Excellence in 2016/17

Employee engagement

Achieve 83% engagement in 2016/17

Percentage of IRMS strategic priorities
supported by the AER100% of IRMS strategic priorities
supported by the AER

Ensure industry complies with establishedperformance standards

Effective engagement of Albertans,indigenous peoples, and stakeholders

Achieve regulatory excellence

The AER is an integral partner in the
Integrated Resource Management System

Annual Report 2015/16

The AER is recognized for regulatory excellence, ensuring
the safe, environmentally responsible development ofenergy resources for the benefit of all Albertans.

Regulatory efficiency

54

OPERATIONAL OVERVIEWSOPERATIONALOVERVIEWS

Alberta Energy Regulator

OPERATIONAL OVERVIEWSOPERATIONS DIVISIONThe Operations Division is divided into sector andfunction branches:• Industry Operations focuses on the resource itself,
on working with industry, and on achieving Government of Alberta policy outcomes. Industry Operations includes four sectors:-- Oil and Gas (conventional, unconventional, geothermal, and other infrastructure)-- In Situ-- Mining (oil sands and coal)-- Pipelines (all pipelines)• The vice president of Industry Operations leads
teams that are responsible for setting day-to-day
priorities that align with the strategic plans andpriorities of the AER.
-- Function branches focus on the mechanics: how
things get done.
This is where our technical and process experts
reside; they work with their colleagues in the
sector branches to ensure that we are applying efficient, standard processes to the various
sectors we regulate. Function branches include
the Authorizations Branch, Environment andOperational Performance Branch, and Closureand Liability Branch.

• Vice presidents of function branches are accountable for defining how the work gets done,
for balancing consistency and effectiveness, andfor responding to the unique needs of the sector
teams:-- The Authorizations Branch delivers project approvals and permits that focus on the start of
new resource developments.
-- The Environment and Operational Performance
Branch promotes compliance through education, prevention, and enforcement-focusedprograms. Its core functions include emergency
management, incident response, compliance assurance, and compliance program design.
-- The Closure and Liability Branch oversees theend-of-life aspects of energy developments,
which includes protecting Albertans from potential environmental issues and costs related
to abandoning and decommissioning energy
infrastructure.

STRATEGY & REGULATORY DIVISIONThe Strategy and Regulatory Division identifies andmanages issues, risks, and opportunities while steering the AER’s regulatory development.

55

The division’s staff• use science and fact-based evaluation and forecasts to identify and manage issues, risks, andopportunities;• manage the regulatory development process; and• develop and implement the AER’s enterprise, strategic, and corporate operations plans.
The Strategy and Regulatory Division comprises fivebranches and one group that help to deliver expertise to the AER:
• The Major Projects and Transformation Branchoversees major AER projects and transformation
initiatives.
• The Regulatory Operations and Economics Branch
makes sure that we deliver consistent, predictable,
and transparent regulatory change. This branch
implements practical operating procedures forregulatory development and reports on energy
statistics, including forecasting and data on cumulative land impacts.
• The Reserves and Resources Branch monitors andreports on current and reliable indicators in energy
resource, environmental, and social outcomes
related to energy development at the reservoir toplay-based scales.

Annual Report 2015/16

56

OPERATIONAL OVERVIEWS• The Alberta Geological Survey is a branch thatprovides the AER with scientific peer-reviewed
research, maps, and reports on Alberta’s geology,
earth resources, geological hazards, and groundwater at the regional scale.
• The Climate Policy Assurance Team is responsiblefor designing and delivering on the Government ofAlberta’s climate change policy direction by creating and implementing an effective and efficientregulatory framework.
• The Enterprise Planning Group facilitates theprocess of enterprise planning and prioritization,using risk and performance management, ensuringthat initiatives and projects are aligned with ourmandate and vision.

STAKEHOLDER & GOVERNMENTENGAGEMENT DIVISION
The AER recognizes empathic engagement as a key
attribute of regulatory excellence and strives to build
relationships with Albertans, indigenous peoples,stakeholders and our government partners. The
Stakeholder and Government Engagement division
supports all AER work though engagement, relationship building, information sharing, and collaboratingwith people and groups who are interested in or may
be impacted by the AER’s decisions.
A solid understanding of different perspectives andinterests helps the AER to define priorities, develop
solutions, improve our work, and make better, more
informed decisions. The AER’s engagement activiAlberta Energy Regulator

ties support stakeholder participation in regulatory
development and decision making at many different
stages in the development of Alberta’s oil and gas
resources. Building stronger relationships results inmore transparent, cooperative, and productive conversations. Our division builds these mutually beneficial relationships through six branches:• Alberta Government Engagement works with AER
staff and our Government of Alberta partners toensure that policy development and regulatory
delivery for development of Alberta’s energy resources are integrated and aligned with each other.
This branch provides strategic advice and engagement expertise to all areas of the organization withrespect to the Alberta Government.
• Alberta Stakeholder Engagement (ASE) engages
our Alberta stakeholders and indigenous peoples
to understand how they are affected by, or concerned about, energy development in Alberta.
This engagement informs how the AER responds
to issues and concerns. ASE connects with people
across the province through community, indigenous and alternative dispute resolution specialists.
• National and International Relations leads and facilitates organization-wide improvement that is informed by national and international perspectives.
The AER is committed to demonstrating national
and international leadership in regulating energy
resources by learning from and sharing best practices and knowledge with our peers across Canada
and around the globe.

OPERATIONAL OVERVIEWS• Public Affairs is responsible for making sure that
the AER’s communications, both internal and external, are clear, timely and easy to understand.
It provides many services to the organization, including media relations and crisis communications,strategic planning and advice, internal and corporate communications, editing, graphic design,
digital media services, and web services.
• The Centre of Regulatory Excellence, a newly
created branch, builds the expertise needed by the
AER’s workforce to deliver regulatory excellence
through a strategically focused and centralized
learning development center.
• The Environmental Science Program works toprotect Alberta’s environment by providing strategic focus for the effective management of cumulative environmental risks and impacts from energy
development.

CORPORATE SERVICES DIVISION
This division focuses on people, infrastructure, information, and fiscal responsibility. It is designed tosupport the organization with key corporate functions such as technology, data and information management, workplace services, finance, administration,internal audit, and human resources. In addition, the
AER’s chief environmental scientist reports to thisdivision’s executive vice-president.
The Corporate Services Division supports the organization with essential knowledge, advice, and services related to their areas of expertise. Services areprovided from Calgary and, where it makes sense, infield offices to ensure that all AER employees haveaccess to the vital corporate services required to dotheir jobs.
The division is committed to providing the AER withthe tools needed to conduct our business and makethe AER a great place to work. Branches under the
Corporate Services Division include the following:• Administrative/Workplace Services• Finance• People and Culture• Information Management• Information Services• Internal Audit

LAW BRANCHThe Law Branch provides services by assigning AER
lawyers to projects, teams, applications, regulatory
initiatives, proceedings, etc. on an as-needed basis.
This approach will continue. The Law Branch also
continues to take steps to increase its expertise in
the specified enactments. In addition, this branchdrafts all legislative, rule, and regulation content for
the numerous statutes we administer and drafts andreviews contracts. It also addresses all issues aroundlitigation and appeals.
Our lawyers understand and have expertise in thestatutes the AER administers—including all rules andregulations—as they relate to energy development,
which include

57• the Responsible Energy Development Act,• the Oil and Gas Conservation Act,• the Pipeline Act,• the Oil Sands Conservation Act,• the Coal Conservation Act,• the Water Act,• the Environmental Protection andEnhancement Act,• the Public Lands Act, and• parts of the Mines and Minerals Act.
In light of current market conditions it’s not surprising that the AER’s work in the area of insolvency has
increased exponentially in the last year, both in termsof the number of licensees that have become insolvent and the number of licensed properties. With thishas come an increased risk of unfunded end of life
obligations.
The Law Branch has actively engaged licensees andreceivers/trustees in an effort to lessen the risk to theOrphan Well Association, and ultimately the public,of having to bear these costs. Two examples are the
Redwater Energy Corp. litigation before the Courtof Queen’s Bench and the AER’s agreement in thematter of Spyglass Resources Corp. In both cases,
the AER’s objective has been to reduce the risk ofAlbertans having to bear the costs of addressing unfunded abandonment and reclamation obligations.

Annual Report 2015/16

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CORPORATE GOVERNANCECORPORATEGOVERNANCE

Alberta Energy Regulator

CORPORATE GOVERNANCE

How an organization is governed determines how it
carries out its daily business and how successful it
is at achieving its goals. For this reason, corporate
governance was a key consideration when the AER
was created in June 2013.
The AER’s governance structure separates the corporate, operational, and governance responsibilities
from adjudicative functions (hearings on energy
applications). Through this model, the AER seeks torealize its full potential as the single regulator of Alberta’s energy resource development, as well as gain
the confidence of its many stakeholders.

BOARD OF DIRECTORS
A chair heads the AER and leads a board of directors; none are involved in the AER’s day-to-day operations or decisions. Rather, these directors set thegeneral direction of the regulator’s business affairs,
including approval of the strategy and budget. The
directors are also charged with approving regulatory change and setting performance expectations for
the AER and its president and chief executive officer.
In this way, the AER’s board operates as a truly“corporate-style” board.

59

PRESIDENT AND CHIEF
EXECUTIVE OFFICER
The president and chief executive officer, who reports
directly to the chair, is accountable for day-to-day
operations, which include receiving and making decisions on applications, monitoring and investigating energy resource activities for compliance, andoverseeing reclamation and remediation of energy
developments at the end of their life cycle.

HEARING COMMISSIONERSHearing commissioners are responsible for conducting all hearings into energy applications andregulatory appeals. Reporting to a chief hearing
commissioner, they are independent adjudicatorsand operate free of political interference; their decisions may only be reviewed by the Court of Appealof Alberta.

Annual Report 2015/16

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CORPORATE GOVERNANCE

board of directors
BOARD HIGHLIGHTS
During the eight meetings the AER’s board of directors held throughout the 2015/16 fiscal year, the board
approved changes to the 2016–19 strategic plan andapproved the 2016/17 budget. Additionally, the board
approved several rule changes relating to regulatory
instruments and administration and orphan levies
while it monitored the AER’s progress on deliveringon the strategic plan’s four key priorities.
The board strongly supported and endorsed both
the Regulatory Excellence Project and the Centre ofRegulatory Excellence (CORE) over the last year. The
board received briefings on the Regulatory Excellence Project, and provided comments on the project
and the recommendations, as well as on AER actionplans and development plans for CORE.

The board made a significant governance changethat separated oversight for the AER’s risk management activities from the audit and finance committee
and created a separate risk management committeewith its own terms of reference.

1

Risk Management Committee Chair

2

And while we welcomed Ms. Doyle to the directors’ table, we said goodbye to two long-standing
members: Fred Estlin, who chaired the audit andfinance committee, and Cameron Bailey, the firstchair of the risk management committee. Both directors played critical roles in establishing strong governance practices and oversight for the AER, and theboard thanks them for their contributions and wishes
them well in their future endeavours.

ANDY NEIGEL, RPF, B.Sc.Forestry
Governance Committee Chair

3
The AER board of directors welcomed Cassie Doyleas its newest member last year. Ms. Doyle joined theboard in March 2015, bringing with her public sector
and governance experience, with a particular emphasis on the environment.

CASSIE DOYLESHEILA O’BRIEN, C.M., B.A.
Human Resources, Health and Safety
Committee Chair

7
8
7
8

4

DR. DAVID CHALACK, D.V.M. ICD.D885

PETER FLYNN, Ph.D., P.Eng.

8
8

Audit and Finance Committee Chair

68
8

GERRY PROTTI, M.A., ICD.D
Chair,
Nomination Committee Chair

Meetings
attended

BY THE NUMBERS

8

meetings

Alberta Energy Regulator

886committees

#
8

2
1

4
3

6
5

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CORPORATE GOVERNANCE

BOARD COMMITTEESThe AER’s six board committees receive reports andrecommendations from management, provide information, make recommendations to the board forapproval, and make decisions on behalf of the board
in their areas of authority. The following summarizes
the business of each committee over the past year.
The Audit and Finance Committee reviewed the
AER’s management discussion and analysis (MD&A).
In addition to reviewing quarterly statements and theannual financial results and budget, the committee
met with Internal Audit at each of its meetings andmonitored how AER management incorporated internal audit recommendations. The committee also
met with the Auditor General of Alberta for the
standing annual audit meeting.
The Governance Committee performed a full reviewof the terms of reference of all board committees
and corporate bylaws to determine whether revisions
were required and brought forward recommendations for the board’s approval. The committee also
managed the annual board evaluation process.

Alberta Energy Regulator

The Human Resources, Health and Safety Committee reviewed results of the occupational healthand safety audit, the balances and performance ofthe various pension plans administered by the AER,
and the governance and oversight of the individualplan assets and benefit provisions. The committee
also advised the board on the CEO and executive
team succession plans. Additionally, the committee
reviewed workforce metrics and the ongoing development of a new competency framework that will
support CORE.

• Directive 060: Upstream Petroleum Industry
Flaring, Incineration and Venting,• the Integrated Compliance Assurance Framework,and• draft directives outlining requirements for hydrocarbon emission controls and gas conservation in
the Peace River area.

The Nomination Committee prepared plans for the
potential recruiting new directors in fiscal 2016/17.

The Risk Management Committee participated in arisk management workshop through the Universityof Alberta. The committee also reviewed the AER’s
move toward a risk management process in addition to reviewing a third-party analysis of the AER’s
historical risk management systems. The committeebrought forward for board approval the principal risk
reports and recommendations for dam safety andinduced seismicity.

The Regulatory Review Committee reviewed changes
to and brought to the board for information a numberof regulatory instruments, including• Directive 050: Drilling Waste Management,• Directive 036: Drilling Blowout Prevention Requirements and Procedures,• Directive 017: Measurement Requirements for Oiland Gas Operations,

The committee took several rule amendments to theboard for approval, including the annual orphan andadministration levies.

CORPORATE GOVERNANCE

3

1
2

5

63

7

4

6

executive
leadership
team
Chair of the Board

President & CEO

1

RICK BROWN

4

Executive Vice President
Corporate Services

2

PATRICIA JOHNSTON
General Counsel,
Executive Vice President Law

3

JENNIFER STEBER

6

Executive Vice President Stakeholder &Government Engagement

5

MARTIN KREZALEK
Chief of Staff
Office of the President & CEO

KIRK BAILEY
Executive Vice President
Operations

7

CAL HILL
Executive Vice President
Strategy & Regulatory

The AER president and CEO reports directly to thechair of the AER board of directors and is accountable for day-to-day operations, which include receiving and making decisions on applications, monitoring and investigating energy resource activities forcompliance, and closure of energy developments,
including remediation and reclamation.

JIM ELLIS
President & Chief
Executive Officer

Annual Report 2015/16

64

CORPORATE GOVERNANCE

3
1

1
2

HEATHER KENNEDY, B.Sc.

2

5

7

4

4

CECILIA LOW, B.Sc., LL.B., LL.M.

Part-time Hearing Commissioner

Full-time Hearing Commissioner

ALEX BOLTON, B.Sc., MMSc., P.Geo. 5

BRAD MCMANUS, Q.C.

Chief Hearing Commissioner

Full-time Hearing Commissioner

67
8

ROB MCMANUS B.A., M.E.Des.

9
8

10

10 BARBARA McNEIL, B.Sc., C.M.

Full-time Hearing Commissioner

Full-time Hearing Commissioner

LORNE TERNES, LL.B

Not pictured

Part-time Hearing Commissioner

JURGEN PREUGSHA
Part-time Hearing Commissioner

3

JOHN LAWSON, MPA
Part-time Hearing Commissioner

Alberta Energy Regulator

6

CHRISTINE MACKEN, B.A.
Full-time Hearing Commissioner

9

TERRY ENGEN
Part-time Hearing Commissioner

CORPORATE GOVERNANCE

65

hearing commissioners
15 files referred to the chief
hearing commissioner
4 hearings held
9 files resolved without hearing

3 oral hearings
1 written hearing

Hearing commissioners represent an importantpart of the AER’s structure. Reporting to a chief
hearing commissioner, the hearing commissioners
are responsible for conducting public hearings andalternative dispute resolution processes related toenergy applications and regulatory appeals referredto them by the AER. Appointed by the Governmentof Alberta through an Order in Council, hearing commissioners are independent decision makers whose
decisions are only subject to review by the Court ofAppeal of Alberta.
Hearing commissioners have access to a range ofadjudicative and mediation processes to resolve
disputes. These include oral, written, and electronic
hearings before a panel of hearing commissioners(usually three) or a single decision maker as well as
hearing-commissioner-facilitated mediation, settlement conferences, and binding dispute resolution.
Hearing commissioners strive to ensure the mostappropriate process is used having regard for thenature of issues in dispute, the efficient and effective
use of resources, and the requirements of natural
justice and procedural fairness.

Since the AER was created in 2013, there has been
an increase in the use of mediation processes and a
decline in the number of hearings held.
In fiscal 2015/16, fifteen files were referred to the chief
hearing commissioner. During this time, four hearings
were held and nine files were resolved without theneed for a hearing. Of these, three oral hearings were
held; two of which were related to pipeline projects
and one was related to a regulatory appeal of an
AER decision to deny a reclamation certificate. One
written hearing was held, which resulted in a person
being sanctioned for failing to comply with previous
AER orders.
Of the nine files resolved without a hearing, hearing
commissioners or staff used alternative dispute resolution processes on six files. This resulted in thewithdrawal of statements of concern or requests toparticipate in a hearing on three files and the withdrawal of applications on three files. Eleven files forhearings are pending as of March 31, 2016.

Annual Report 2015/16

MANAGEMENT’SDISCUSSION &ANALYSISMANAGEMENT’S DISCUSSION & ANALYSISThis management’s discussion and analysis (MD&A)
should be read in conjunction with the audited financial statements of the Alberta Energy Regulator(AER) for the years ended March 31, 2016 and 2015,
and accompanying notes. The AER’s financial statements and the financial data in this MD&A have been
prepared in accordance with Canadian public sector
accounting standards (PSAS).
All comparisons are between the years ended
March 31, 2016 and 2015, unless otherwise noted. Allamounts are expressed in thousands of Canadiandollars, unless otherwise noted.

67

ABOUT THE AER
The AER is the single provincial regulator for oil,natural gas, oil sands, and coal development inAlberta, operating under the Responsible Energy
Development Act (REDA). The AER ensures the safe,
efficient, orderly, and environmentally responsible
development of hydrocarbon resources over their
entire life cycle. This includes allocating and conserving water resources, managing public lands, and protecting the environment while providing economic
benefits for all Albertans.

Annual Report 2015/16

68

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

SUMMARY ANNUAL HIGHLIGHTS

2016
Administration levy

$

2015

240 168$

243 2 78

Orphan well levy

30 1671 5 000

Provincial grant—

19 800

Other revenue

8 145

9 914

Total revenue

278 480

287 992

Energy regulation

249 1 1 3

256 827

Orphan abandonment

31 1 1 1

15 760Total expenses

280 224

272 587

Capital investment$

14 196$20 854The AER is an industry-funded regulator that is accountable to the Government of Alberta. The AER recovers
its operating and capital asset costs through two separate revenue sources: an administration levy and otherrevenue. The AER collects the orphan well levy, which is paid directly to the Alberta Orphan Well Association(OWA) and is not used to recover the AER’s costs.
With commodity prices low, the AER faced new challenges in fiscal 2016, including budget reductions in theadministration levy and energy regulation expenses. In addition, the AER received no government funding
in fiscal 2016. The provincial grant, which was received in fiscal 2015, was primarily for the remaining costsof setting up the new regulator.
To demonstrate fiscal restraint, continue its commitment to the effective management of its financial resources, and maximize the benefit from the funding it received, the AER extensively reviewed its budget. The
review identified a number of expenditures that could be reduced without affecting the AER’s mandate andits ability to advance key initiatives that contribute to the AER’s vision. Cost-saving initiatives that followed
the review included freezing salaries and reducing discretionary expenditures. These measures are reflectedin the AER’s energy regulation expenses, which decreased overall by $7 714, or 3 per cent, in fiscal 2016.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

Capital investment was reduced by $6 658, or 32 per cent, in fiscal 2016 compared to the previous year
because of one-time costs incurred in fiscal 2015 to set up the new regulator. Capital investment in 2015
included the expansion and restructuring of existing and new leased office spaces, as well as system enhancements and software purchases required to fulfil the AER’s expanded mandate.

69

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

TOTAL REVENUES
Administration Levy
REDA authorizes the AER to levy an administration fee on the sectors that it regulates. Funds from industry
levies and assessments are used to support the AER’s operations and fulfil the AER’s mandate to ensure thesafe, efficient, orderly, and environmentally responsible development of hydrocarbon resources over their
entire life cycle.
The AER’s revenue requirements directly affect operator levy invoices. Other factors also contribute to thefee determination at an operator level, including increases and decreases in wells or entities within the sector,
ownership transfers and amalgamations, new entrants, and volume fluctuations. Invoices vary according
to individual operations, are based on operating statistics for the previous calendar year, and are levied tooperators based on the sector they operate within.

2016
Oil and gas

$

2015

174 308$

176 475

Oil sands

62 18463 062

Coal

3 601

3 630

Other

75

111

Total administration levy$

240 1 68$

243 278

The administration levy for the year ended March 31, 2016, decreased by $3 110, or 1 per cent. This decrease
is related to the 2016 expense targets, which the AER reduced because of the current economic downturnin Alberta.

Annual Report 2015/16

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MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

Orphan Well Levy

2016
Orphan well levy$

30 000$

15 000

1 67

Penalties
Total orphan well levy

2015

$

30 1 67—$

15 000Under part 11 of the Oil and Gas Conservation Act, the AER, by regulation, prescribes an orphan fund levy.
This levy is based on the revenue requirements identified by the OWA and approved by the Government ofAlberta. All levies collected are paid directly to the OWA and are not used to recover the AER’s costs. In fiscal
2016, the Government of Alberta approved an increase to the orphan well levy from $15 000 to $30 000 toaddress the increase in orphan sites.

Provincial Grant

2015

2016
Provincial grant

$

—

$

19 800The AER did not receive provincial grant revenue in fiscal 2016. The 2015 grant was related to the final costsof implementing the AER and its expanded responsibilities.

Other Revenue

2015

2016
Other revenue

$

8 145

$

9 914

Other revenue consists of investment income, first-time well licence fees, data subscriptions, recoverable
abandonment, and enforcement revenue and sales of electronic data and publications. In fiscal 2016, otherrevenue decreased by $1 769, or 18 per cent, due to the current economic conditions and the overall decline
in oil and gas activity.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

71

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

TOTAL EXPENDITURES
Total expenditures reflect the AER’s use of its revenue sources to fund operating expenses and capital investment each fiscal year. Details of significant annual expenditures are included below.

i) Energy Regulation Expenses

2015

2016
Salaries, wages, and employee benefits$

180 705$

15 71 9Computer services

178 148
15 9 1 2

Buildings

15 19818 0 1 6

Consulting services

13 69219 990

Amortization of tangible capital assets

12 645

1 1 836

Other expenses*

11 154

1 2 925

Total energy regulation expenses$

249 1 1 3$

256 827* Includes travel and transportation, administrative, equipment rent and maintenance, abandonment and enforcement
costs, and loss on disposal and write-down of tangible capital assets.

Salaries, Wages, and Employee Benefits
Salaries, wages, and employee benefits account for about 70 per cent of energy regulation expenses. And,because stellar competence was one of the attributes Albertans and stakeholder groups identified as being
required for regulatory excellence, the AER must continue to retain and attract qualified individuals withappropriate skill sets.
In fiscal 2016, salaries, wages, and employee benefits increased by $2 557, or 1 per cent, as the AER hired
employees necessary to meet the increased regulatory responsibilities and support the functions expandedwith the setup of the new regulator. While new employees were hired, the AER remained within the Government of Alberta’s preapproved target for staffing levels.
Computer Services
The AER’s computer services costs relate to data and information management, computer maintenance, andserver hosting. In fiscal 2016, computer services costs were consistent with those incurred in 2015.

Annual Report 2015/16

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MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

Buildings
The AER leases several offices throughout the province. In fiscal 2016, building costs decreased by $2 818, or
16 per cent. This decrease is attributed mainly to property tax exemptions the AER received on its Calgary
properties. In fiscal 2014 and 2015, the AER applied to the City of Calgary to be classified as exempt fromtaxation. In fiscal 2016, the City of Calgary granted the AER property tax exemption status.
Consulting Services
The AER hires outside consultants to provide strategic and technical advice and certain operational services.
The costs of consulting services in fiscal 2016 were $13 692, a decrease of $6 298, or 32 per cent, from fiscal
2015. The AER undertook fewer projects in 2016 as it completed projects that were initiated in prior years
and others that were required to set up the new regulator.
In fiscal 2016, most consultants were hired to support work focused on the AER’s regulatory excellence
initiative. This work included the following:• contracting experts from the University of Pennsylvania’s Penn Program on Regulation to help define
regulatory excellence and identify the key attributes of an excellent regulator;• bringing in expertise to help with the Near-Term Action Program, a project aimed at making the AER more
effective and efficient by eliminating duplication and streamlining regulatory requirements;• the single integrated-application approach, a project that will change how the AER processes applications
for development; and• other projects and initiatives that support the AER in delivering on its strategic plan to be a protective,
effective, efficient, and credible regulator.
Amortization of Tangible Capital Assets
Capital assets are amortized over their estimated useful lives in accordance with PSAS. The cost of amortizing
tangible capital assets increased by $809, or 7 per cent, from the previous year. This increase is attributed tothe additions made to capital assets in fiscal 2016.

ii) Orphan Abandonment Expenses

2015

2016
Orphan abandonment$

31 111$15 760Orphan abandonment expenses were $31 111 in fiscal 2016, an increase of $15 351, or 97 per cent. The increase
is related to the change in OWA revenue requirements, which was approved by the Government of Alberta.
The revenue requirements were increased to address the increase in orphan sites.
Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

iii) Capital investment

2015

2016
Capital investment73$

14 196$20 854

Capital investment totalled $14 196 in fiscal 2016 compared to $20 854 in fiscal 2015. Developing and acquiring tangible capital assets, most significantly investment in information technology infrastructure andsystems, is a key component of AER operations.
In fiscal 2016, the AER’s investment in computer hardware and software was $10 567 and focused on the
upgrades to the AER’s applications and databases, as well as the development of new systems required tosupport current operations and meet ongoing changes in the regulatory environment. In addition, the AER
spent $3 629 on leasehold improvements, furniture, and equipment with the majority of the costs related to
the relocation of two field offices.
In fiscal 2015, the investment in tangible capital assets of $20 854 related primarily to the costs of setting up
the AER, which included expanding and restructuring existing and new lease office spaces, as well as systemenhancements and software purchases necessary for the expanded mandate.

LIQUIDITY AND FINANCIAL POSITION
Liquidity
The AER collects funding at the beginning of the year to meet all obligations that arise during the year. In
addition, an available bank credit facility provides financial flexibility and allows the AER to meet its obligations if funding cannot be collected on time. To date, the AER has not been required to draw on the credit
facility. The AER ended fiscal 2016 with $24 851 in cash and cash equivalents compared to $54 040 at theend of fiscal 2015.

Accounts Receivable
Accounts receivable were $18 149 on March 31, 2016, compared to $12 245 on March 31, 2015, an increase of$5 904. The increase is mainly due to the timing of issuing the orphan well levy in 2016. In fiscal 2016, thelevy was issued later than in fiscal 2015.

Accounts Payable
Accounts payable and accrued liabilities on March 31, 2016, were $16 643 compared to $33 511 on March 31,
2015, a decrease of $16 868. The decrease in the accounts payable and accrued liabilities balance on March
31, 2016, is attributed to the overall decrease in the AER’s expenditures in fiscal 2016 compared to fiscal 2015,
as well as the timing of payment for the AER’s computer services and consulting expenses.
Annual Report 2015/16

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MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

SECURITY DEPOSITS

Licensee Liability Rating Program

$

2016

2015

2016

2015

Cash

Cash

Lettersof Credit

Lettersof Credit$$

107 695$

92 635183 162

1 53 52 1

Mine Financial Security Program

24 23024 020

1 340 5 1 3

1 548 938

Other

6 200

6 180

4 664

4 782

Total security deposits$

138 1 2 5$

122 835$

1 528 339$

1 707 24 1

The AER collects financial security under a number of different programs to protect the public from paying
significant costs associated with abandoning and decommissioning energy development sites.
• The Licensee Liability Rating (LLR) program is designed to-- prevent the costs of suspending, abandoning, remediating, and reclaiming a well, facility, or pipelinein the LLR program from being borne by the public of Alberta should a licensee become defunct and-- minimize the risk to the orphan fund posed by the unfunded liability of licensees in the program.
The program is based on a comparison of the ratio of assets (which are based on production) to liabilities(abandonment and reclamation costs).
Effective May 1, 2013, the AER made changes to the LLR program to address concerns that the previous
LLR program underestimated abandonment and reclamation liabilities of licensees; the changes were madewith the support of the Canadian Association of Petroleum Producers and the Explorers and Producers
Association of Canada. These changes were implemented in a three-phased approach and increased theamount of security that licensees who participate in the LLR program must deposit. The last phase of the
program was implemented in fiscal 2016.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSISAs of March 31, 2016, the AER held $107 695 in cash under the LLR program. This is $15 060, or 16 per cent,higher than on March 31, 2015. The total amount of letters of credit held under the LLR program as of March
31, 2016, was $183 162, which is $29 641, or 19 per cent, higher than in fiscal 2015. The increase in cash andletters of credit held under the LLR program was caused by the implementation of the third phase of the
program changes discussed above, as well as by the decline in production due to low oil and gas prices,which reduced asset values and decreased the asset-to-liability ratios for licensees.

75

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

• The Mine Financial Security Program (MFSP) was developed to manage liabilities associated with coal andoil sands mining operations. The program requires a base amount of security for each project, which would
provide the funds necessary to place the site in a safe and secure state and maintain care and custodyshould the approval holder fail to meet its obligations. Approval holders have an option to provide full
financial security at any time in the life of the project based on the MFSP liability calculation. Approvalholders are responsible for the suspension, abandonment, remediation, and reclamation of lands disturbed
by resource development. As mines are depleted, security amounts increase. Additional security mustalso be posted when a mine owner does not meet certain financial tests. Annually, approval holders reportto the AER on the status of reclamation and land disturbances and adjust their MFSP security deposits
accordingly.
The total amount of letters of credit held under the MFSP as of March 31, 2016, was $1 340 513, which is$208 425, or 13 per cent, lower than in fiscal 2015. In fiscal 2016, $233 163 in letters of credit outstanding
under the MFSP as of March 31, 2015, were returned to licensees who originally elected to provide full
financial security and later elected to provide base security, in accordance with the MFSP. This was offset
by an additional $24 738 in letters of credit placed with the AER as a result of additional land disturbances
caused by mining and processing operations.

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MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

ACTUAL RESULTS COMPARED WITH BUDGET

2016

2016

BudgetActualRevenues
Administration levy$

240 093$240 1 6 8

Orphan well levy

30 00030 1 67

Other revenue

8 1 598 14 5278 252

278 480

Energy regulation

253 252

249 1 1 3

Orphan abandonment

30 50031 1 1 1

283 752

280 224(5 500)( 1 744)

Capital investment

9 000

14 196

Less: Amortization(1 1 500)(12 645)

Expenses

Annual operating (deficit)
Capital(332)

Loss on disposal and write-down of tangible capital assets
Net capital investment

1 219(2 500)$(3 000)$(2 963)The AER prepares an annual budget that is approved by the Government of Alberta.
The AER’s total revenues were consistent with budget. The AER’s energy regulation expenses for the year
were $4 139 less than budget, and net capital investment exceeded budget by $3 719. These variances are
due to the acceleration of implementing computer software development projects and upgrades.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSISRISK MANAGEMENT77

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

A key role of the AER’s management is to ensure that the wide variety of risks the AER is exposed to indelivering its mandate are managed responsibly. To this end, the AER has developed an enterprise risk management process that supports the organization in identifying, assessing, and managing risks. Effective risk
management is a key element of excellent organizational governance, and it is characterized by a process ofcontinuous review and improvement.
The key features of the AER’s governance and internal control environment, which directs and guides AER
risk management, are as follows:• The general direction of the AER’s business affairs is set by a board of directors. These directors are all
independent and appointed by Orders in Council made by the Lieutenant Governor in Council under REDA.
• The AER is committed to maintaining a high level of ethics and integrity. The AER board and management
foster these values throughout the organization and maintain an effective whistleblower policy. The AER
maintains a code of conduct applicable to its directors, officers, employees, and contractors. This code of
conduct reflects the values of the AER, and provides rules and guidance on adhering to these values in a
way that ensures the organization’s integrity is maintained.
• The board has established a standing Risk Management Committee that meets regularly to ensure that the
AER has effective risk management practices in place and to review the related systems of internal controlsthat are required to manage enterprise-level risks.
• The AER has an Enterprise Risk Management Program in place, which provides a common framework to
identify, assess, and manage risks in line with the organization’s mandate.
• The Audit and Finance Committee reviews and monitors the system of internal financial controls, the external audit process, and the AER’s process for ensuring compliance with applicable laws and regulations.
• AER management is responsible for establishing and maintaining adequate internal controls over financial
reporting. These controls are designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with PSAS.
• The AER’s internal audit function provides the AER with an objective and independent assessment ofinternal controls and identifies opportunities to improve operational and financial reporting. The AER’sinternal audit department reports directly to the Audit and Finance Committee and, if required, discusses
matters with the Audit and Finance Committee independent of management.

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78

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

FUTURE OUTLOOKFiscal 2017 Budget Compared to Fiscal 2016 Budget

2017

2016

BudgetBudgetRevenues
Administration levy$

238 403$240 093

Orphan well levy

30 00030 000

Other revenue

5 013

8 1 59273 4 1 6

278 252

Energy regulation

245 4 1 6

253 252

Orphan abandonment

30 50030 500275 9 1 6

283 752(2 500)(5 500)Capital investment

9 000

9 000

Less: Amortization(1 1 500)(1 1 500)

Net capital investment(2 500)(2 500)

Expenses

Annual operating (deficit)
Capital$Alberta Energy Regulator—$(3 000)MANAGEMENT’S DISCUSSION & ANALYSIS

Due to current fiscal limitations, the AER made the following reductions in the 2017 budget as compared to
the 2016 budget:• the administration levy was reduced by $1 690, or 1 per cent;• other revenue was reduced by $3 146, or 39 per cent; and• energy regulation costs were reduced by $7 836, or 3 per cent.

79

All amounts are expressed in thousands ofCanadian dollars, unless otherwise noted.

The AER’s 2016 budget identifies a budget deficit of $3 000. In fiscal 2016, the AER received a one-time
approval from Treasury Board and Finance to use $3 million of accumulated surplus to relocate the Grande
Prairie Field Centre in order to address safety concerns for staff, which included significant structural issues
and insufficient space. This expenditure did not require an increase in government funding or an additional
levy from industry. In fiscal 2017, the AER is forecasting a balanced budget.

FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements that are subject to certain assumptions and risks that create
uncertainties. These assumptions and risks could cause actual results to differ materially from results anticipated by the forward-looking statements.

ADDITIONAL INFORMATION
Additional information relating to the AER can be found on the AER’s website at www.aer.ca.

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80

FINANCIALSALBERTA ENERGYREGULATORFINANCIALSTATEMENTS

FOR THE YEAR ENDED
MARCH 31, 2016

Independent Auditor’s Report81Statement of Management Responsibility

82

Statement of Operations

83

Statement of Financial Position

84

Statement of Change in Net Debt

85

Statement of Cash Flows86

Notes to the Financial Statements

87

Schedules to the Financial Statements

101

Alberta Energy Regulator

FINANCIALS

81

INDEPENDENT AUDITOR’S REPORTTO THE BOARD OF DIRECTORS OF THE ALBERTA ENERGY REGULATORREPORT ON THE FINANCIAL STATEMENTS
I have audited the accompanying financial statements of the Alberta Energy Regulator, which comprise the statement of financial position as at March
31, 2016, and the statements of operations, change
in net debt and cash flows for the year then ended,
and a summary of significant accounting policies andother explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE
FINANCIAL STATEMENTSManagement is responsible for the preparation andfair presentation of these financial statements in accordance with Canadian public sector accounting
standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITYMy responsibility is to express an opinion on thesefinancial statements based on my audit. I conducted
my audit in accordance with Canadian generally accepted auditing standards. Those standards requirethat I comply with ethical requirements and plan andperform the audit to obtain reasonable assurance
about whether the financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosuresin the financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers
internal control relevant to the entity’s preparationand fair presentation of the financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.

OPINION
In my opinion, the financial statements present fairly,
in all material respects, the financial position of theAlberta Energy Regulator as at March 31, 2016, andthe results of its operations, its remeasurement gains
and losses, its changes in net debt, and its cash flows
for the year then ended in accordance with Canadianpublic sector accounting standards.
[Original signed by Merwan N. Saher FCPA, FCA]
Auditor General
May 11, 2016
Edmonton, Alberta

I believe that the audit evidence I have obtained issufficient and appropriate to provide a basis for myaudit opinion.

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82

FINANCIALSMANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements of theAlberta Energy Regulator (AER) and all other information relating to the AER contained in this annual
report have been prepared and presented by management, who is responsible for the integrity and fairpresentation 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 this annual report
is consistent with that in the financial statements.

Alberta Energy Regulator

The board of directors is responsible for ensuringthat management fulfills its responsibilities for financial reporting and internal controls. The board of directors exercises this responsibility through the 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 andin the absence of management to discuss their audit,
including any findings as to the integrity of financial reporting processes and the adequacy of oursystems of internal controls. The internal and external auditors have full and unrestricted access to the
Audit and Finance Committee.

Management is responsible for maintaining an effective system of internal controls designed to provide
reasonable assurance that financial information isreliable, transactions are properly authorized, assets
are safeguarded, and liabilities are recognized.

[Original signed by Jim Ellis]

The Auditor General of Alberta, the AER’s external
auditor appointed under the Auditor General Act,
performed an independent external audit of thesefinancial statements in accordance with Canadian
generally accepted auditing standards, and has expressed his opinion in the accompanying Independent Auditor’s Report.

[Original signed by Tom Heywood]

President and Chief Executive Officer[Original signed by Rick Brown]
Executive Vice President, Corporate Services

Vice President, Finance and Chief Financial Officer
May 11, 2016

FINANCIALS83

ALBERTA ENERGY REGULATORSTATEMENT OF OPERATIONSYear Ended March 31(in thousands)

2016
Budget(Note 3)
Revenues
Industry levies and assessments$

270 0932015
Actual$Actual270 335$

258 278—

19 800Information, services and fees

6 859

6 867

8 260

Investment

1 300

1 278

1 654

278 252

278 480

287 992

Expenses
Energy regulation (Schedule 1)

253 252

249 1 1 3

256 827

Orphan abandonment (Note 4)30 50031 1 1 1

15 760283 752

280 224

272 587

Annual operating (deficit) surplus(5 500)(1 744)15 405

Accumulated operating surplus at
beginning of year

63 85563 85548 450

Provincial grant

Accumulated operating surplus at end of year$

58 355$62 1 1 1$

63 855The accompanying notes and schedules are an integral part of these financial statements.

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84

FINANCIALSALBERTA ENERGY REGULATORSTATEMENT OF FINANCIAL POSITION
As at March 31(in thousands)

2016
Financial assets
Cash and cash equivalents (Note 5)$$

54 040

Security deposits (Note 7)

138 125

122 835

Accounts receivable

18 14912 245181 125

189 120

Liabilities
Accounts payable and accrued liabilities

16 64333 5 1 1

Grant payable to Orphan Well Association

15 093

1 5 055

Security deposits (Note 7)

138 1 2 5

1 22 835

Deferred revenue (Note 9)

1 604

2 056

22 26423 023692

2 349

194 42 1

198 829

Net debt(13 296)(9 709)Non-financial assets
Tangible capital assets (Note 13)

64 43063 2 1 1

Prepaid expenses and other assets

10 977

10 35375 40773 564

Deferred lease incentives (Note 10)
Pension obligations (Note 12)

Accumulated operating surplus (Note 14)$

Contractual obligations (Note 16)
The accompanying notes and schedules are an integral part of these financial statements.

Alberta Energy Regulator

24 851

2015

62 1 1 1$

63 855

FINANCIALS85

ALBERTA ENERGY REGULATORSTATEMENT OF CHANGE IN NET DEBT
Year Ended March 31(in thousands)

2016
Budget(Note 3)
Annual operating (deficit) surplus$(5 500)2015
Actual$(1 744)

Actual$15 405Acquisition of tangible capital assets (Note 13)(9 000)(14 1 96)

(20 854)

Amortization of tangible capital assets (Note 13)

11 50012 645

1 1 836

Loss on disposal and write-down of tangible capital assets

332

779

Increase in prepaid expenses and other assets

(624)

(693)

(Increase) decrease in net debt

(3 000)(3 587)

6 473

Net debt at beginning of year

(9 709)(9 709)(16 182)

Net debt at end of year$

(12 709)$(1 3 296)$(9 709)The accompanying notes and schedules are an integral part of these financial statements.

Annual Report 2015/16

86

FINANCIALSALBERTA ENERGY REGULATORSTATEMENT OF CASH FLOWS
Year Ended March 31(in thousands)

2016
Operating transactions
Annual operating (deficit) surplus

$

2015

(1 744)$15 405

Non-cash items included in net operating results
12 645

11 836332

779

Change in pension obligations(1 657)(942)

Amortization of deferred lease incentives (Note 10)(1 522)(1 430)8 054

25 648(5 904)(8 353)

(624)

(693)

(16 868)

11 929Amortization of tangible capital assets (Note 13)
Loss on disposal and write-down of tangible capital assets(Increase) in accounts receivable(Increase) in prepaid expenses and other assets(Decrease) increase in accounts payable and accrued liabilities

38

4 305

(Decrease) in deferred revenue

(452)

(915)

Additions to deferred lease incentives (Note 10)

763

918

Cash (used) provided by operating transactions(14 993)

32 839

Capital transactions
Acquisition of tangible capital assets (Note 13)(14 196)(20 854)

Cash applied to capital transactions(14 196)(20 854)(Decrease) increase in cash and cash equivalents(29 189)

11 985

Cash and cash equivalents at beginning of year

54 04042 055

Increase in grant payable to Orphan Well Association

Cash and cash equivalents at end of year$

The accompanying notes and schedules are an integral part of these financial statements.
Alberta Energy Regulator

24 8 5 1$

54 040FINANCIALS87

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
March 31, 2016
(in thousands)
Note 1

Authority and purpose
The Alberta Energy Regulator (AER) is an independent and quasi-judicial organization of theGovernment of Alberta. The AER operates under the Responsible Energy Development Act.
The AER’s mandate provides for the safe, efficient, orderly, and environmentally responsible
development of hydrocarbon resources over their entire life cycle. This includes allocating andconserving water resources, managing public lands, and protecting the environment whileproviding economic benefits for all Albertans.

Note 2

Summary of significant accounting policies and reporting practices
These financial statements are prepared in accordance with Canadian Public Sector AccountingStandards (PSAS).
(a)

Revenues
All revenues are reported on the accrual basis of accounting. Cash received for which services
have not been provided by year end is recorded as deferred revenue.
Government transfers
Transfers from the Government of Alberta are referred to as provincial grants.
Provincial grants, without terms for the use of the transfer, are recorded as revenue when thetransfer is authorized and the AER is eligible to receive the funds.

(b) Expenses
Expenses are reported on an accrual basis. The cost of all goods consumed and services
received during the year is expensed.
(c)Valuation of financial assets and liabilities
The AER’s financial assets and liabilities are generally measured as follows:
Financial Statement Component
Measurement
Cash and cash equivalents
Cost
Accounts receivable
Lower of cost or net recoverable value
Security deposits
Cost
Accounts payable and accrued liabilities
Cost
Grant payable to the Orphan Well Association
Cost

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FINANCIALS

Note 2

Summary of significant accounting policies and reporting practices (continued)
The AER has not designated any financial assets or liabilities in the fair value category, has
no significant foreign currency transactions and does not hold any derivative contracts. The
AER has no significant remeasurement gains or losses and consequently has not presented
a statement of remeasurement gains and losses.
(d) Financial assets
Financial assets are assets that could be used to discharge existing liabilities or financefuture operations and are not for consumption in the normal course of operations.
Financial assets of the AER are limited to cash and cash equivalents, security deposits andfinancial claims on other organizations.
(e)Liabilities
Liabilities are present obligations of the AER to others arising from past transactions
or events, the settlement of which is expected to result in the future sacrifice ofeconomic benefits.
PensionAccrued benefit obligations are actuarially determined using the projected benefit method
prorated on length of service and management’s best estimate of expected plan investment
performance, projected employees’ compensation levels and retirement age of employees.
The expected return on plan assets is determined using market values of plan assets.
Actuarial gains and losses are amortized over the average remaining service period of theactive employees, which is 9.6 years.
Past service cost arising from plan amendments is accounted for in the period of theplan amendments.
Defined contribution plan accounting is applied to the Government of Alberta multiemployer defined benefit pension plans as the AER has insufficient information to apply
defined benefit plan accounting. The AER is not responsible for future funding of the plan
deficit other than through contribution increases.
Deferred lease incentives
Deferred lease incentives, consisting of leasehold improvement costs, reduced rent benefits
and rent-free periods, are amortized on a straight-line basis over the term of the lease.

Alberta Energy Regulator

FINANCIALS

Note 2

89

Summary of significant accounting policies and reporting practices (continued)
Liability for contaminated sites
Contaminated sites are a result of contamination of a chemical, organic or radioactive material or live organism that exceeds an environmental standard, being introduced into soil,
water or sediment. The liability is recorded net of any expected recoveries. A liability for
remediation of contaminated sites is recognized when all of the following criteria are met:
• 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.
(f)

Non-financial assets
Non-financial assets are acquired, constructed or developed assets that do not normallyprovide 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 are limited to tangible capital assets and prepaid expenses
and other assets.
Tangible capital assets
Tangible capital assets are recorded at historical cost, which includes amounts that are
directly related to the acquisition, design, construction, development, improvement or
betterment of the assets and are amortized over their estimated useful lives using thefollowing methods:
Leasehold improvements
Straight line
Term of the lease
Furniture and equipment
Straight line
5 – 12 years
Computer hardware
Straight line
4 – 5 years
Computer software – purchased
Straight line
4 – 5 years
Computer software – developed
Declining balance
5 years
Amortization is only charged if the tangible capital asset is put into service.
Work-in-progress, which includes developed computer software and leasehold improvements, is not amortized until a project is complete and the asset is put into service.

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FINANCIALS

Note 2

Summary of significant accounting policies and reporting practices (continued)(f) Non-financial assets (continued)
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 expense in the Statement of Operations.
(g) Measurement uncertainty
Measurement uncertainty exists when there is a variance between the recognized or disclosed
amount and another reasonably possible amount. The amounts recorded 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 inaccordance with the AER’s significant accounting policies.
(h) Change in accounting policy
Adoption of net debt presentation
The net debt presentation with reclassification of comparatives has been adopted for thepresentation of financial statements. Net debt or net financial assets is measured as thedifference between the AER’s financial assets and liabilities.
The effect of this change results in changing the presentation of the Statement of Financial
Position and adding the Statement of Change in Net Debt.
(i)

Alberta Energy Regulator

Future accounting changes
In March 2015 the Public Sector Accounting Board (PSAB) issued the following
accounting standards:
PS 2200 Related Party Disclosure and PS 3420 Inter-entity Transactions (effective
April 1, 2017)
PS 2200 defines a related party and establishes disclosures required for related party
transactions; PS 3420 establishes guidance on how to account for and report transactions between public sector entities that comprise a government’s reporting entity fromboth a provider and recipient perspective. Management is currently assessing the impactof these standards on the financial statements.

FINANCIALS

Note 2

91

Summary of significant accounting policies and reporting practices (continued)(i) Future accounting changes (continued)
In June 2015 the PSAB issued the following accounting standards:
PS 3210 Assets, PS 3320 Contingent Assets and PS 3380 Contractual Rights (effective
April 1, 2017)
PS 3210 provides guidance for applying the definition of assets set out in Financial
Statement Concepts, PS 1000, and establishes general disclosure standards for assets;
PS 3320 defines and establishes disclosure standards on contingent assets; PS 3380
defines and establishes disclosure standards on contractual rights. Management iscurrently assessing the impact of these standards on the financial statements.
PS 3430 Restructuring Transactions (effective April 1, 2018)
This standard provides guidance on how to account for and report restructuring transactions by both transferors and recipients of assets and/or liabilities, together withrelated programs or operating responsibilities. Management is currently assessing theimpact of these standards on the financial statements.

Note 3

Budget
The Budget is based on the AER Business Plan for the year ended March 31, 2016. The Budget
has been approved by the Government of Alberta.

Note 4Orphan abandonment
The AER has delegated the authority to manage the abandonment and reclamation of wells,
facilities and pipelines that are licensed to defunct licensees to the Alberta Oil and Gas Orphan
Abandonment and Reclamation Association (Orphan Well Association). The AER grants all of
its orphan abandonment revenues (levy and application fees) to the Orphan Well Association.
During the year ended March 31, 2016, the AER collected $30 167 (2015 – $15 000) in levies and$944 (2015 – $760) in application fees.

Note 5

Cash and cash equivalents
Cash and cash equivalents are held in an account with a Canadian chartered bank and earninterest calculated based on the average monthly cash balance. The funds are available to bewithdrawn upon request. During the year ended March 31, 2016, the AER earned interest at therate of 1.1% (2015 – 1.3%).

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FINANCIALS

Note 6

Financial instruments
The AER has the following financial instruments: accounts receivable, accounts payable andaccrued liabilities, grant payable to the Orphan Well Association and security deposits.
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 financial liabilities. The AER does not consider this to be a significant risk as the
AER collects funding at the beginning of the year to meet all obligations that arise during
the year. In addition, the available credit facility provides financial flexibility to allow the
AER to meet its obligations if funding cannot be collected on a timely basis.
(b) Credit risk
The AER is exposed to credit risk from potential non-payment of accounts receivable. As
at March 31, 2016, the amount of financial assets that were past due was not significant andthere were no material uncollectible receivable balances.

Alberta Energy Regulator

Note 7

Security deposits
The AER collects financial security under a number of different programs to protect the publicfrom paying costs associated with abandonment and reclamation of upstream wells, facilities,
pipelines, mines, mine sites and oilfield waste management facilities. The security deposits areheld on behalf of licensees. The AER administers the programs in accordance with specified
acts and regulations and does not have any financial risk associated with security collected. At
March 31, 2016, the AER held $138 125 (2015 – $122 835) in cash and an additional $1 528 339(2015 – $1 707 241) in letters of credit. Security, along with any interest earned, will be returnedto the depositors upon meeting specified refund criteria.

Note 8

Revolving line of credit
During 2016, the AER had an unsecured $50 000 revolving line of credit. Amounts borrowed
can only be applied to general corporate purposes and exclude the funding of operating deficits
and/or capital expenditures. Bank advances on the line of credit are payable on demand andbear interest at prime less 0.5%. As at March 31, 2016, the outstanding balance for the revolving
line of credit was $nil (2015 – $nil).

FINANCIALS

Note 9Deferred revenue

2015

2016
$

Balance at beginning of year

2 056

$

395

347

Less amounts recognized as revenue(847)(1 262)

$

1 604

$

2 056

Deferred lease incentives
The AER has entered into various lease agreements which provide for lease incentives comprised of reduced rent benefits, rentfree periods and leasehold improvement costs. Theseamounts are included in deferred lease incentives and are amortized on a straight line basis
over the term of the lease.

2016

Balance at beginningof year

Reducedrent benefits
and rent-free
periods$$

Amortization
Balance at end of year

2015

Leaseholdimprovement
costs

Additions during
the year

Note 112 971

Received during year

Balance at end of year

Note 1093$

18 331

4 692

Total
$

Total

23 023$23 535

763

—

763

918

(1 1 95)(327)(1 522)(1 430)22 26423 02317 899

$

4 365

$

Liability for contaminated sites
As at March 31, 2016, the AER is not responsible, nor has it accepted responsibility, for performing
remediation work at contaminated sites. As at March 31, 2016, the AER’s liability for contaminatedsites was $nil (2015 – $nil).

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FINANCIALS

Note 12PensionThe 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, 2016, the expense for these pension
plans is equal to the contribution of $18 026 (2015 - $17 325). Pension expense recorded iscomprised of employer contributions to the plans that are required for its employees during
the year, which are calculated based on actuarially determined amounts that are expected toprovide the plans’ future benefits.
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 thegovernment management pension plans. Retirement benefits are based on each employee’s
years of service and remuneration.
The effective date of the most recent actuarial funding valuation for SEPP was December 31,
2014. The accrued benefit obligation as at March 31, 2016 is based on the extrapolation of theresults of this valuation. The effective date of the next required funding valuation for SEPP is
December 31, 2017.
Pension plan assets are valued at market values. During the year ended March 31, 2016 theweighted average actual return on plan assets was -3.4% (11.7% in 2015).
Significant weighted average actuarial and economic assumptions used to value accrued
benefit obligations and pension benefit costs are as follows:

Accrued benefit obligations
Discount rate

Rate of compensation increaseLong-term inflation rate

Alberta Energy Regulator

March 31,2016

March 31,
2015

4.7%

4.9%

0% for 2 years,
3.5%

0% for 1 year,
3.5%

thereafter

thereafter

2.0%

2.0%

FINANCIALS

Note 1295

Pension (continued)

2015

2016

Pension benefit costs for the year
Discount rate

4.9%

5.3%

Expected rate of return on plan assets

4.9%

5.3%

0% for 1 year,
3.5% thereafter

3.8%

Rate of compensation increase

The funded status and amounts recognized in the Statement of Financial Position are as follows:

Market value of plan assets

March 31,2016

March 31,
2015

$

$

47 85345 087

Accrued benefit obligations

54 63949 510Plan (deficit)(6 786)(4 423)

Unamortized actuarial loss

6 094

2 074

Pension obligations

$

(692)

$

(2 349)The pension benefit costs for the year include the following components:

2015

2016
Current period benefit cost

$

4 375

$

3 625

Interest cost

2 573

2 394

Expected return on plan assets(2 330)(2 1 1 0)

Amortization of actuarial losses

436

396

$

5 054

$

4 305

Annual Report 2015/16

96

FINANCIALS

Note 12Pension (continued)
Additional information about the defined benefit pension plans is as follows:

2015

2016
AER contribution
Employees’ contribution
Benefits paid$

6 71 1

$

5 247

861

731

3 216

3 350

The asset allocation of the defined benefit pension plans’ investments is as follows:

Alberta Energy Regulator

March 31,2016

March 31,2015

Equity securities

47.9%

49.9%

Debt securities

37.7%

38.4%

Other

14.4%

11 .7%

100.0%

100.0%

FINANCIALS

Note 13

97

Tangible capital assets

2016

2015
ComputerLeasehold

Furniture

hardwareimprove-and equip-

and soft-

Land

ments

ment

ware

Indefinite

the lease

5–12 years

4–5 years

$

Total

Total

Terms of
Estimated useful life
Historical cost
Beginning of year$

Additions
Disposals, including
write-downs

282

16 154$ 123 999

$ 176 490—$

36 0552 870

759

10 56714 196$157 359
20 854—(218)(1 664)(7 698)(9 580)(1 723)282

38 70715 249126 868

181 106176 490

96 312$ 113 279

Accumulated amortization
Beginning of year$

Amortization expense
Disposals, including
write-downs

Net book value atMarch 31, 2016
Net book value atMarch 31, 2015

—

$

7 740

$

9 227

$

$

102 387

—

2 266

1 066

9 313

12 645

11 836—(86)(1 489)(7 673)(9 248)

(944)

—

9 920

8 804

97 952

116 676

113 279$ 64 430

$

282

$

28 787

$

6 445

$

28 916$282$

28 315

$

6 927

$

27 687$63 2 1 1

Historical cost includes work-in-progress at March 31, 2016 totaling $3 767 (March 31, 2015 – $454)
comprised of: computer hardware and software $3 767 (March 31, 2015 – $321) and leasehold
improvements $nil (March 31, 2015 – $133).

Annual Report 2015/16

98

FINANCIALS

Note 14

Accumulated operating surplus
The accumulated operating surplus of the AER is calculated as the sum of the net debt of the
AER and its non-financial assets. The accumulated operating surplus represents the net assetsof the AER. Accumulated operating surplus is comprised of the following:

2016

Balance at beginningof year2015

Investments
in tangible
capitalassets (a)Unrestricted
net assets

Accumulated
operatingsurplus

Accumulated
operatingsurplus

$

$

$

$

44 88018 97563 85548 450

Annual operating(deficit) surplus—(1 744)(1 744)15 405

Net investment incapital assets

1 6 51(1 651 )——Balance at end of year$

46 5 3 1$

15 580$62 1 1 1$

63 855(a) Excludes leasehold improvement costs received by the AER as a lease incentive.

Note 15

Alberta Energy Regulator

Contingent liabilities
The AER, in the conduct of its normal activities, is a defendant in a number of legal proceedings.
While the ultimate outcome and liability of these proceedings cannot be reasonably determinedat this time, the AER believes that any settlement will not have a material adverse effect on thefinancial position or the results of operations of the AER. Based on legal advice, management
has concluded that none of the claims meet the criteria for recording an accrued liability
under PSAS.

FINANCIALS

Note 16

99

Contractual obligations
Contractual obligations are obligations of the AER to others that will become liabilities in the
future when the terms of those contracts or agreements are met.
Estimated payment requirements for obligations under operating leases and contracts for eachof the next five years and thereafter are as follows:
2 01 7$2018

20 1602019

16 3042020

12 5062021

12 296

Thereafter

109 52 1$

Note 1725 352

196 1 39

Related party transactions
Related parties are those entities consolidated or accounted for on the modified equity basis
in the Province of Alberta’s financial statements.
The AER had the following transactions with related parties recorded 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
2016

Other entities

2015

2016

2015

Revenues
Provincial grant$

Information, services
and fees

—

$

153
$

153

19 875$20 025

$

176

150
$

—

$

176

—
136

$

136

Annual Report 2015/16

100

FINANCIALS

Note 17

Related party transactions (continued)

Entities in the Ministry
2016

Other entities

2015

2016

2015

ExpensesComputer services

Alberta Energy Regulator

$

2 124

Buildings—

Administrative
Consulting services

$

2 122

$

1 7 14$

1 1 67

—

846

600

—

—

1 143

933

—

82

290

321

$

2 124

$

2 204

$

3 993

$

3 02 1

Receivable from

$

91

$

10

$

6

$

4

Payable to

$

—

$

4 460

$

588

$

669

Note 18

Comparative figures
Certain 2015 figures have been reclassified to conform to the 2016 presentation.

Note 19

Approval of financial statements
These financial statements were approved by the AER Board of Directors on May 11, 2016.

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS

101

Schedule 1

Energy Regulation Expenses
Year Ended March 31, 2016
(in thousands)

2016
Salaries, wages and employee benefits

$

2015

180 705$

178 148

Computer services

15 71 915 9 1 2

Buildings

15 19818 01 6

Consulting services

13 69219 990

Amortization of tangible capital assets

12 645

1 1 836

Travel and transportation

4 832

5 582

Administrative

4 373

4 133

Equipment rent and maintenance936

1 1 73Abandonment and enforcement

68 1

1 258

Loss on disposal and write-down of tangible capital assets

322

779

$

249 1 13$256 827

Annual Report 2015/16

102

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS

Schedule 2

Salaries and Benefits Disclosure
Year Ended March 31, 2016
(in thousands)

2016

Position

2015

Other

Other

Base

cash

non-cashsalary (a)benefits (b)benefits (c)

$

$

$

Total (d)Total

Board of directors
Chairman

269

—

7

$

276

$

291

Board Director

114

—

6

120

Board Director

117

—

1

118

117

Board Director

107

—

10

117

129

119

105

—

1

106

108

Board Director

(e)

72

—

5

77

—

Board Director

(f)

60

—

7

67

127

Board Director (g)

24

—

4

28

131

Board Director (h)

—

—

—

—

29

Board Director

Executives
President and Chief Executive Officer (i)Chief Hearing Commissioner(j)

Executive Vice-President, Corporate Services
Executive Vice-President and General Counsel
Executive Vice-President, Operations

(k)

(k)

Executive Vice-President, Stakeholder &Government Relations
Executive Vice-President, Strategy & Regulatory (k)Alberta Energy Regulator

529

48

148

725

710

21 0

17

60

287

261

275

90

75

440

411

275

90

88

453

418

317

99

108

524

449

275

99

77

451

432

275

73

38

386

41 4

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS

103

Schedule 2 (continued)

Salaries and Benefits Disclosure (continued)
Year Ended March 31, 2016
(in thousands)(a) Includes retainers and per diems for Board Directors. Members of the Board of Directors do not participate in the
AER’s pension plans. Includes pensionable base pay for Executives.
(b) Payments in lieu of vacation and health benefits, vehicle allowances, and short term incentive payments for Executive Vice-Presidents.
(c) Contributions to all benefits as applicable including employer’s share of Employment Insurance, Canada Pension
Plan, Alberta and AER pension plans, health benefits or payments made for professional memberships andtuition fees.
(d) Salaries and benefits for the Board of Directors are presented in descending order.
(e) The incumbent held the position effective August 1, 2015.
(f ) The incumbent left the position effective September 30, 2015.
(g) The incumbent left the position effective June 16, 2015.
(h) The incumbent left the position effective June 26, 2014.
( i ) Automobiles provided, no dollar amount included in other non-cash benefits. During 2016, a relocation expense,
related to home equity loss due to a required transfer of location, was paid in the amount of $127. Relocation expenses are a normal business expense and are not considered to be compensation.
( j ) The position was held by two individuals in 2015.
(k) 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 andother costs include amortization of past service costs, amortization of actuarial gains and losses, and interest accruing on the actuarial liability. The costs detailed below are only for those employees included in Schedule 2 who
participate in the SEPP and SRP maintained by the AER to compensate senior staff who do not participate in thegovernment management pension plans.

Annual Report 2015/16

104

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS

Schedule 2 (continued)

Salaries and Benefits Disclosure (continued)
Year Ended March 31, 2016
(in thousands)

2016

Position
Executive Vice-President andGeneral Counsel

Current
service cost

Prior service
and other
costs

$

$

39

8

Total
$

Total
47

$

42

Executive Vice-President,
Operations

54

2

56

52

Executive Vice-President,
Strategy & Regulatory

5

22

27

40

Position
Executive Vice-President andGeneral Counsel

Alberta Energy Regulator

2015

Accruedobligation
April 1, 2015

Changes in
accruedobligation

Accruedobligation
March 31, 2016

$

$

$

403

72

475

2015
$

403

Executive Vice-President,
Operations

1 25

79

204

125

Executive Vice-President,
Strategy & Regulatory

1 108

67

1 175

1 108

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS

105

Schedule 3

Actual Results Compared with Budget
Year Ended March 31, 2016
(in thousands)

2016
Budget(Note 3)

ActualRevenues
Industry levies and assessments$

270 093$

270 335—

Provincial grant
Information, services and fees

6 859

6 867

Investment

1 300

1 278

278 2 5 2

278 480

Energy regulation

253 2 5 2

249 1 1 3

Orphan abandonment

30 50031 1 1 1

283 7 52

280 224(5 500)(1 744)

Capital investment

9 000

14 1 96

Less: Amortization(1 1 500)(12 645)(2 500)

1 219

Expenses

Annual operating (deficit)
Capital		(332)

Loss on disposal and write-down of tangible capital assets

Net capital investment$(3 000)$(2 963)

Annual Report 2015/16

106

GLOSSARYGLOSSARY

Alberta Energy Regulator

GLOSSARY

A

abandoned well
A well that has been drilled, abandoned,
cut, and capped at surface.

continuous improvement initiative
The AER began the continuous improvement
initiative to encourage employees to bringforward solutions that will improve the way
we do business; employees share their ideas
through an intake system and AER leadership decides whether to implement them.

area-based regulation
A collaborative approach to energy regulation that seeks to account for the needsof individual communities and manage
cumulative effects with input from stakeholders. See also play-based regulation.

B

C

bitumen
Extra-heavy oil that in its natural states does
not flow to a well. Bitumen can be sold as
either upgraded or nonupgraded. Upgraded
bitumen, which is typically used by refineries as feedstock, has been processed into
synthetic crude oil. Nonupgraded bitumen isbitumen that is sold without any processing.
compliance sweeps
A series of targeted inspections the AER
does in a specific area, like Peace River; inJune 2014, August 2014, November 2014,
February 2015, and May 2015, compliancesweeps took place to ensure that Peace
River operators were complying with new
requirements for managing emissions.

relationships while being straightforward
about issues, listening carefully and responding respectfully to our stakeholders,and ensuring our decisions are understood.
We are fair, inclusive, and transparent. See
also stellar competence, utmost integrity.
Environmental Protection andEnhancement Act
Legislation, or law, supporting and promoting the protection, enhancement, andwise use of the environment. The AER
assesses applications under EPEA for all
activities relating to energy development.

cumulative effects/impacts
The total environmental changes causedby energy development activities incombination with other past, present,
and future human actions.

EemissionsGases that are released, intentionally or unintentionally, into the air from energy developments. The AER regulates emissions throughDirective 060: Upstream Petroleum Industry
Flaring, Incinerating, and Venting. See also
flaring, incinerating, venting.
empathic engagement
From the Regulatory Excellence initiative,
empathic engagement is an attribute that
we will need to exhibit to be excellent.
It means that we work together to makefully informed decision and build strong

107

F

flaring
The burning of natural gas that cannot
be processed or sold at the end of a flare
stack (i.e., a long metal pipe that gas issent up, much like a chimney). This causes
the flame associated with flaring. See
also emissions, incinerating, venting.
full life cycle
All the stages in the life of a well, facility,
project, or other energy development.
The full life cycle begins with applicationand ends with reclamation.

Annual Report 2015/16

108

H

I

GLOSSARY

hydraulic fracturing
The process of pumping fluid into a wellbore to create enough pressure to crack,or fracture, the rock layer. The fluid usuallycontains a proppant, like sand, that helps
keep the fractures open to allow oil
and gas to be produced to the well.

incinerating
The mixing and combusting of waste
gas streams, air, and fuel in an enclosed
chamber. Air and gas are mixed at a controlled rate and ignited. No flame is visible
from an incinerator that is operating properly.
See also emissions, flaring, venting.

L

Licensee Liability Rating Program
An AER program that seeks to prevent Albertans from having to pay for abandonmentand reclamation. The program compares acompany’s assets to its liabilities and requires
those with greater liabilities to pay security tocover all abandonment and reclamation costs.

hydrogen sulphide gas
A naturally occurring gas found in a varietyof geological formations and also formedby the natural decomposition of organic
matter in the absence of oxygen. H2S iscolourless, has a molecular weight that isheavier than air, and is extremely toxic. In
small concentrations it has a rotten egg
smell and causes eye and throat irritation.

Integrated Compliance Assurance Framework
The framework defines the outcomes andstates the guiding principles that AER staff
use when undertaking compliance assurance
activities. It describes the key components
of education, prevention, and enforcement.
It also sets out the AER’s approach toensuring effective delivery, management,
and reporting of compliance activities.

M

Multistakeholder Engagement Advisory
Committee
A committee formed by the AER to create
more opportunities for open communication with our stakeholders and to seek
input on AER initiatives. Members include
environmental nongovernmental organizations, landowners, community groups, First
Nations and Métis groups, and others.

inactive well
A well that has been idle for 6 or 12 months,
depending on type, but has not been suspended in accordance with Directive 013:
Suspension Requirements for Wells.

Integrated Resource Management
System (IRMS)
A Government of Alberta approach to managing Alberta’s environment and natural resources through cooperation between various
government ministries and agencies. Partners
are the AER, government departments ofIndigenous Relations, Energy, Agriculture
and Forestry, and Environment and Parks.

N

Near-Term Action Program (NTAP)
An AER project that aims to increase
our efficiency by eliminating duplicationand streamlining regulatory requirements
for low-risk activities.

O

oil sands
A mixture of sand, clay, water, and bitumen.

Alberta Energy Regulator

GLOSSARY

P

play-based regulation
An AER project designed to give stakeholdersa clearer picture of development, more
effectively address cumulative effects,
reduce industry’s footprint by encouraging
collaboration between operators, andreduce duplicative and unnecessary infrastructure. See also area-based regulation.
Public Lands Act
Legislation, or law, guiding the use ofland owned by the province of Alberta(i.e., public land). The AER regulates
energy resource development on public
lands, ensuring that energy exploration,
development, and ongoing operations on
public lands are carried out responsibly.

R

reclamation certificate
Reclamation certificates are required for all
publicly owned land as stated in the Environmental Protection and Enhancement
Act. Operators are required to return theland to its equivalent state—i.e., as close
to its pre-project state as possible—once
an oil and gas project is complete.

regulatory excellence
As defined by the University of Pennsylvania’s Penn Program on Regulation,
regulatory excellence embodies the attributes of utmost integrity, empathic
engagement, and stellar competence.
remaining established reserves
The amount of a resource that is stillin the ground. Remaining establishedreserves equal initial establishedreserves less cumulative production.
Responsible Energy Development Act (REDA)
Legislation, or law, establishing andempowering the AER. REDA sets out
the AER’s mandate, structure, powers,
duties, and functions.
risk-based
The practice of focusing on higher risk areasor activities.
risk-based regulation
Part of the AER’s effort to meet the demandsof a new energy development landscape,risk-based regulation will allow us to be more
effective by concentrating our resources on109higher-risk activities. Many of the AER’s major
projects, including the one application, one
review, one decision approach; the Near-Term
Action Program; the play-based regulation
project; and area-based regulation arepart of the effort to take a more risk-based
approach to regulating energy development.

S

stakeholder
Any individual, group of individuals, ororganization with an interest in the outcomeof a decision.
stellar competence
From the Regulatory Excellence initiative,
stellar competence is an attribute we willneed to exhibit to be excellent. It meansthat our people have the required expertiseand the necessary tools to carry out their
responsibilities and that we seek expertiseand information outside of our organization to make well-informed decisions. We
deliver outcomes, measure and report on our
performance, and continuously improve. See
also empathic engagement, utmost integrity.

Annual Report 2015/16

110

GLOSSARYsubsurface order
A subsurface order is issued pursuant tosection 11.104 of the Oil and Gas Conservation
Rules and specifies rules and requirements tobetter suit development, production,and data gathering for specificgeological zones over a defined area.

Tailings Management Framework of the
Mineable Athabasca Oil Sands
Developed by the Government of Alberta toprovide the AER with direction to manage
fluid tailings volumes. See also tailings.
traffic-light protocol
An AER process that defines the stages atwhich operators need to take action whenseismic activity occurs. Seismic events
between the magnitudes of 2 and 4 require
operators to report the event and activate
their induced seismicity plans; events withmagnitudes of 4 or greater require operators
to immediately cease hydraulic fracturing
operations at the affected well, while also
reporting the event and activating the plan.

suspended well
A well at which no significant producing
or injecting operations have occurred
during the past 12 months.

Ttailings
Tailings are a by-product of the process used
to extract bitumen from mined oil sands andconsist of water, silt, sand, clay, and residual
bitumen. Sand and other heavy particles
quickly separate from the water, but smaller
particles of clay and silt remain in suspension, forming fluid tailings. Fluid tailings cantake decades to settle and are an ongoingchallenge for the oil sands mining industry.
See also Tailings Management Frameworkof the Mineable Athabasca Oil Sands.

Alberta Energy Regulator

U

upstream
The producing end of the energy industry.
Compare “downstream” operations,which include transport, refining, andmaking products.

utmost integrity
From the Regulatory Excellence initiative,
utmost integrity is an attribute that we willneed to exhibit to be excellent. It means that
we are accountable as a protective, effective, efficient, and credible regulator andthat we are fair and unbiased. We adhere
to government policy and take a leadershipin identifying policy gaps where they exist,
and we make evidence-based decisions
that consider the environment, the uniquenature of the energy development, traditional knowledge, and information brought
forward by local communities. See also
empathic engagement, stellar competence.

Vventing
The intentional and controlled release of
uncombusted gas. See also emissions,flaring, incinerating.

GLOSSARY

111

www.annual-report.aer.ca

Annual Report 2015/16

ALBERTA ENERGY REGULATORHead Office
Suite 1000, 250 – 5 Street SW
Calgary, Alberta T2P 0R4
www.aer.ca
inquiries
1-855-297-8311
inquiries@aer.ca
24-hour emergency
1-800-222-6514@aer_news

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