2013/14
Annual Reportcontents

COMMUNICATIONSSTR ATEGICPL AN

OPE RATIONALOVERVIEWCORPOR ATE
GOVERNANCE

FINANCIALSTATEMENTS

3

Message from the Chair

5

Message from the President & CEO

7

About the Alberta Energy Regulator

8

Our First Year17

2014–17 Strategic Plan24

our priorities — protective

30

our priorities — effective

36

our priorities — efficient40

our priorities — credible46

measuring our performance47

putting it all together

51

Operational Overview

52

operations

54

strategy & regulatory

56

stakeholder & government relations

58

corporate services

60

law branch

61

office of public affairs

65

Corporate Governance66

board of directors

70

executive leadership team71

hearing commissioners

75

Financial Statements

76

independent auditor’s report78

statement of operations

79

statement of financial position

80

statement of cash flows

81

notes to the financial statements

87

schedules to the financial statements

Since June 2013, the AER published
17 decisions, 24 bulletins, 52 news releases,
and a variety of guides and publications
to keep Albertans informed.

Message fromthe Chair

Gerard Protti
Chair

3

It was just over a year ago that I was appointed chairof the Alberta Energy Regulator (AER), created by theGovernment of Alberta to act as the single regulator ofenergy resource development in our province. I can say
without reservation that it has been quite a year.
On June 17, 2013, the government proclaimed certain
sections of the Responsible Energy Development Act,launching the AER and our new governance model, which
separates the corporate, operational, and adjudicative
functions. That moment came after years of planning,
through the government’s Regulatory Enhancement
Project, and many months of hard work on the part ofour staff.
That was just the start. Besides retaining all regulatory
functions of the Energy Resources Conservation Board,
the AER took on responsibility for sections of the Public
Lands Act, Part 8 of the Mines and Minerals Act, theEnvironmental Protection and Enhancement Act, and theWater Act as they relate to energy resource development.
We are now a single, full life-cycle regulator of energy
resource development in Alberta — from initial applicationand exploration, to abandonment, reclamation, andremediation. In addition, we have a new strategic plan that
ensures our work is supported by four strong priorities:
Protectiveof public safety and the environment
Effective
through resource conservation and infrastructure liability management
Efficientin our processes and requirements
Credibleby creating confidence and trust in the regulatory system
Alberta is a beautiful province blessed with some of
the world’s most impressive oil and natural gas resources.
At the AER, we’re committed to becoming a best-in-classenergy regulator that makes sure the development of thoseresources is safe, environmentally responsible, and efficient,and brings economic benefits for all Albertans.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

The AER has close to 1200 employees
working in 15 locations across Alberta —from Medicine Hat to High Level.

Message fromthe President & CEO

Jim Ellis
President &Chief Executive Officer

5

The Alberta Energy Regulator has reached an exciting
milestone as we approach the one-year mark. We havetransitioned to Alberta’s single energy regulator and now
turn our focus to becoming a regulator that is protective,
effective, efficient, and credible — a regulator that isbest in class.
I’m proud of what AER employees have accomplished
to date. We have a new mandate and a new approachto energy regulation. We’ve taken on new regulatory
functions in public lands, geophysical work, and theprotection of our air, land, and water. We’ve establisheda new vision, built an entirely new organizational structure,and developed an ambitious three-year strategic plan.
And yet, the AER wasted no time in demonstrating
our commitment to our vision. Over the past year, we’ve
moved quickly to respond to issues and concerns withreal action:
We created an online incident-reporting tool that provides
transparent, open information on oil-and-gas-related incidents
in Alberta, updated daily.
We increased access to AER hearings, offering live audio
broadcasts (where technically possible) to help Albertans learn
more about the energy development process.
We took action to address potential risks in in situ oil sands
development where steam-assisted gravity drainage techniques
are used at shallow depths, taking time to conduct a full technicalreview before allowing new technologies in this area.
We called for the independent proceeding into emissions in thePeace River area and immediately took action to respond to
the panel’s recommendations to address the issue.
These are just a few highlights of how we strive to
be a different kind of regulator. This is how we intend
to operate in the months ahead: focusing on key
projects — some of which are highlighted in this report —that deliver measurable results. Through this work wewill demonstrate to stakeholders at home and aroundthe globe that we will achieve our vision of being a
best-in-class energy regulator.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

Our Mandate
The AER’s mandate is to ensure the safe,
efficient, orderly, and environmentally responsible
development of hydrocarbon resources overtheir entire life cycle. This includes allocating
and conserving water resources, managing
public lands, and protecting the environment
while providing economic benefits for
all Albertans.

Our Vision
The Alberta Energy Regulator is recognized as
best in class, ensuring the safe, environmentally
responsible development of energy resources
for the benefit of all Albertans.

2014–17 STRATEGIC PLAN

About the Alberta
Energy Regulator

7

The Alberta Energy Regulator (AER) is the single provincial regulator
for oil, natural gas, oil sands, and coal development in Alberta. The AER
provides for 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 their economic benefits for all Albertans.

Our Responsibilities
With established reserves of 167 billion barrels ofbitumen and crude oil, 33.7 trillion cubic feet of naturalgas, and 37 billion tons of coal, the AER regulates
some of the world’s largest hydrocarbon resources.
Developing and transporting these resources requires
significant infrastructure; the AER regulates›› a provincial pipeline network of 415 000 kilometres,›› 181 300 operating wells,›› more than 50 000 oil and gas facilities,›› more than 200 thermal oil sands projects,›› 9 oil sands mines,›› 5 bitumen upgraders,›› 11 coal mines, and›› 4 coal processing plants.

With the AER,
Alberta now
has a single
regulator for oil,natural gas, oilsands, and coaldevelopment.

To ensure that this activity is safe, environmentally responsible, and closely
managed, the Government of Alberta has granted the AER authority to›› review and make decisions on proposed energy developments,›› oversee all aspects of energy resource activities in accordance withgovernment policies,›› regularly inspect energy activities to ensure that all applicablerequirements are met,›› take enforcement action to respond to companies that fail to comply
with AER requirements, and›› hold hearings on proposed energy developments.
Supporting all of this work are close to 1200 technical staff, scientists,
inspectors, investigators, stakeholder engagement specialists, lawyers,
regulatory experts, and other employees working from 15 locations
stretching from Medicine Hat in the south to High Level in the north.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

8

Our First Year
Energy regulation in Alberta spans 76 years and has evolved over time.
This evolution continued in June 2013 when the AER became a new organization
with an entirely new governance structure and took over responsibilities previously
held by the Energy Resources Conservation Board (ERCB). We then worked
to take on additional regulatory functions related to energy development from
Alberta Environment and Sustainable Resource Development (ESRD).
This journey began with the Governmentof Alberta’s Regulatory Enhancement
Project, which was designed to ensurethat Alberta’s resource policy development, public consultations, and energy
development regulation are efficientand competitive while supporting public
safety, environmental management,
and resource conservation objectives.
From this process the government passed
the Responsible Energy Development
Act (REDA) in 2012, and on June 17, 2013,
the AER was created.
The AER is part of the Government ofAlberta’s Integrated Resource Management
System, which includes›› the Government of Alberta, which sets
policy;›› the Alberta Environmental Monitoring,
Evaluation and Reporting Agency,
which provides data and information;›› the Aboriginal Consultation Office,which manages First Nations consultation on behalf of the Government ofAlberta; and›› the Policy Management Office, which is
the key interface between government
and the AER on policy issues related toenergy development.
Creating the AER was a complex taskthat required careful implementation,
especially considering that all energy
regulation activities in the province

ABOUT THE ALBERTA ENERGY REGULATOR

continued throughout the transition.
The AER managed this transition with
the Government of Alberta through athree-phased approach.

›› Phase 1 occurred in June 2013
when the government proclaimed
certain sections of REDA, resulting
in the launch of the AER and its new
governance model. At that time
the AER took on all responsibilities
previously managed by the ERCB.

›› Phase 2 occurred in November 2013
when we took on responsibilities from
ESRD, beginning with public land andgeophysical jurisdiction, and establisheda Private Surface Agreements Registry
for landowners and residents who wish
to register private agreements they
have signed with companies.

›› Phase 3 occurred on March 29, 2014,
when the AER took responsibility for
sections of the Environmental Protection
and Enhancement Act and the Water Act
as they relate to energy development —the final phase in creating a single
regulator for upstream oil, oil sands,
natural gas, and coal development
in Alberta.
Our transition is now complete, and the
AER is the single regulator of energy
development in Alberta — from initial
application and exploration, to construction
and development, to abandonment,
reclamation, and remediation.

9

2013/14 Highlights
Our first year was full of milestones and accomplishments. We met targets
around building Alberta’s single energy regulator and demonstrated ourcommitment to transparency, accountability, and results.

Early successes in efficiency with updated
well logging requirements
Until February 2014, making sense of well logging requirements inAlberta was more taxing than the act itself. That is, until the AER updated
Directive 080: Well Logging to introduce more efficient well logging andsubmission requirements.
An outdated requirement was not keeping up with changes in technology,
and as a result, logging waivers were being processed for over 5000 wells,
creating additional work for industry and the regulator.
The new directive has been in place for only a few months, but positive
results are already being reported:›› a reduction in waivers,›› a decrease in processing times and costs,›› requirements that are more current with today’s drilling practices, and›› a more efficient submission system.
At the end of the day, both industry and the AER save time andimprove efficiency while maintaining our environmental standards.

Highlights
ALBERTA ENERGY REGULATOR Annual Report 2013/14

Highlights
June
Officially launched the AER,
taking on regulatory responsibilities
from the former ERCB.

—

Established a new governance modelthat separates the corporate, operational,
and governance responsibilities fromadjudicative functions.

—Introduced an online incident-reporting tool
to improve transparency by postingenergy-related incidents that may impact
the public or the environment.

—

Maintained provincial operations during
the 2013 Southern Alberta floods,
including emergency response andbusiness continuity during the closureof our head office in Calgary.

—

Expanded our social media presence,launching new tools to better inform
Albertans about the work of the AER(see page 44 for details).

July
Committed to conducting afull-scale audit on Plains Midstream
Canada’s Alberta operations.

—

Called for a public proceeding
into emissions and odours
generated by heavy oil operationsin the Peace River area.

AugustCreated the Stakeholder and Government
Relations Division to enhance the AER’s
outreach to our various stakeholders.

—Established a presence in downtown
Edmonton, Slave Lake, and Peace River.

—

Supported the Government ofAlberta in the release of the Alberta
Pipeline Safety Review and the AER’s
response to the recommendationsin the independent report.

2013
NovemberEstablished a new organizational structurefeaturing a “matrix” approach that combines thefunctional areas of the organization with the key
sector areas to improve our operations.

—

Developed the target operating model, a blueprint
to help the AER deliver on our mandate.

—Took on expanded authority under the Public
Lands Act and Part 8 of the Mines and Minerals Act
as they relate to energy development.

December
Provided landowners with new tools to protect their rights
and give them more access to information with thePrivate Surface Agreements Registry.

—

Enhanced transparency by publishing public notices ofapplications and decisions online.

—

Launched a new process allowing Albertans to file a statementof concern if they feel they are directly impacted by an applicationfor energy development.

—

Increased our focus on enforcement with a new approach tocompliance, including additional authorities and enforcement tools.

—

Improved processing of applications under the Public Lands Act
to address backlogs and delays (see page 38 for details).

Highlights
January
Held a public proceeding into emissions
and odours generated by heavy oil
operations in the Peace River area.

—

Took action to address potential
risks associated with in situ oil sands
development where steam-assisted
gravity drainage techniques are usedat shallow depths, taking time to
conduct a full technical review before
allowing new technologies in this area.

February
Updated the Licensee Liability Rating
Program to better reflect actual
abandonment and reclamation costs,
protecting Albertans from financial risk(see page 34 for details).

—

Issued Directive 080: Well Logging,which updates our requirements forthe submission of well logs, making
the process more efficient(see page 9 for details).

March
Completed the transition to the
AER by assuming responsibility
for the Environmental
Protection and Enhancement
Act (EPEA) and the Water
Act, including reclamation andremediation.

—

Completed hiring of more than
235 employees to support
all phases of the transition
to the single regulator.

—

Issued the panel report forthe proceeding into emissions
and odours generated byheavy oil operations in
the Peace River area.

—

Signed a memorandum of
understanding with theGovernment of the Northwest
Territories (GNWT) to provide
technical support, on a cost
recovery basis, for all aspects of
upstream oil and gas regulation
as the GNWT assumes
responsibility for the sector
from the federal government.

2014
April
Released the official AER response to theproceeding into emissions and odours generated
by heavy oil operations in the Peace River area,
accepting the panel’s recommendations(see page 28 for details).

—

Released the revised Directive 060: Upstream
Petroleum Industry Flaring, Incinerating, andVenting, which strengthens regulations to
reduce impacts related to flaring, venting,and incineration of gas in Alberta.

May
Increased access to hearings by offering live audio broadcasts of AER proceedings
where technically possible.

—

Signed a memorandum of understanding with the British Columbia Oil and Gas
Commission, creating new opportunities to share information, collaborate on
research, and improve our regulatory processes.

—

Launched the AER’s first strategic plan with a focus on becoming a best-inclass energy regulator by being protective, effective, efficient, and credible.

2014–17 STRATEGIC PLAN

STRATEGIC
PLAN

ALBERTA ENERGY REGULATOR Annual Report 2013/14

The AER now processes more than
60 000 applications each year. In 2013,
the AER conducted 12 367 inspections.

2014–17 Strategic Plan

17

A World-Class Resource
Alberta’s energy resources rank among the world’s largest and include
bitumen, crude oil, natural gas, natural gas liquids, and coal.
Topping that list is bitumen from the province’s oil sands deposits, withremaining established reserves at 167 billion barrels in 2013, truly making
them a world-class resource. To put things in perspective, less than
10 billion barrels of bitumen have been extracted since the late 1960s.
At 761 million barrels, bitumen production accounted for 78 per centof Alberta’s total crude oil and bitumen production in 2013. Bitumen
production in 2013 increased by 5 per cent from mining projects andby 12 per cent from in situ projects, resulting in an overall raw bitumen
production increase of about 8 per cent over 2012. As was the case inpast years, the in situ production technique of steam-assisted gravity
drainage (SAGD) continues to drive the increases in bitumen production.
In 2013, crude oil production increased by about 5 per cent, prompted
largely by horizontal multistage fracturing completion methods in“tight” oil formations.
Conventional natural gas reserves were 32 trillion cubic feet (Tcf)
in 2013, while total production was 3.4 Tcf. Natural gas liquids(NGLs) production increased by 6 per cent after a decline in 2012.
Alberta is also a world leader in coalreserves. In 2013, our coal reserves
remained unchanged at 37 billion tons,
while only 32 million tons were produced.
Alberta’s metallurgical coal primarily
serves the Asian steel industry, withJapan and now China being the leading
importers of Alberta coal. Overall,
total marketable production of coal
has increased by 3 per cent relative to2012, mainly due to the return of somecoal-fired units to service. On February
27, 2014, the AER approved Coalspur
Mines (Operations) Ltd.’s Vista coal mine
project, with numerous conditions.

Alberta’s energy
resources rank among
the world’s largest
and include bitumen,
crude oil, natural gas,
natural gas liquids,
and coal.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

18

A study conducted by the regulator in 2012 estimated that thehydrocarbons resource from shales — so-called “shale gas,” “shale
NGLs,” and “shale oil” — is 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 barrels of crude oil.
However, geological and reservoir engineering constraints, recovery
factors, and additional economic factors, as well as social and environmental considerations, will ultimately determine the potential recoveryof these large resources.

POTENTIAL ENERGY SUPPLY

TCF

3424

58.6

BBLS

in-place natural gas

423.6
in-place crude oil

2014–17 STRATEGIC PLAN

BBLS

in-place natural gas liquids

19

Drivers for Change
The energy development landscape in Alberta, as in many regions of
the world, is changing rapidly. Influencing this change are advances intechnology, especially the drilling of long-reach horizontal wells thatare completed by multistaged hydraulic fracturing. By combining newtechnology with established methods to develop oil and gas reserves,companies are able to tap resources trapped in organic-rich shales
and tight rock previously considered uneconomic.
The impacts of this change are significant:›› It alters historical geographic supply and demand patterns.
›› It increases resource development opportunities.
›› It drives competition for investment dollars.
›› It creates new environmental risks.
The AER understands that these challenges require a new regulatory
approach that ensures these resources are developed›› safely, to protect the public;›› responsibly, to protect the environment; and›› efficiently, to manage the costs of regulation.
At the same time, the rise of social media and real-time communications
calls for the AER to increase transparency and information sharing to
inform stakeholders about energy resource development in Alberta.
Now more than ever, the AER must proactively identify and manage
emerging risks.
Alberta has world-class resources. We must ensure that the development of these resources is safe and environmentally responsible andprovides benefits to all Albertans. This requires a best-in-class energy
regulator, one that addresses the risks and challenges of today’s
production technologies, anticipates new trends, and applies effective
and efficient regulatory oversight.
The AER is committed to making the regulatory system more efficientand effective. Now that we have completed the transition to a single
regulator, we turn our focus to transformation by›› making our regulatory processes more efficient,›› making our requirements more effective, and›› modernizing and integrating our IT systems to support these new
business processes.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

20

We arecommitted
to being a
best-in-classenergyregulator.

As part of the Government of Alberta’s Integrated Resource Management System, the AER must be equipped to manage cumulative effects.
This is even more important as energy resource development evolves
from small-scale, well-by-well projects to large-scale projects that
require more infrastructure and have larger footprints, such as thosetargeting resource plays and oil sands.
The AER must consider the cumulative impact of these developments
along with other uses of the landscape. As pressure on the land
continues to increase, we must ensure that regulations align withland-use policies and related energy and environmental policies asa single integrated system.
Public opinion research conducted in 2014 indicated that Albertans
are most concerned about the protection of water, soil, human andanimal health, and water usage. Further, they wanted their regulator
to focus on public safety, enforcing the rules, incident response, andenvironmental protection.
The AER also recognizes that stakeholders play a large role in theregulatory process and need assurance that the regulatory system
satisfies their expectations of safety, environmental protection, appropriate assessment of risks, and transparent, open communications.

2014–17 STRATEGIC PLAN

21

Becoming Best in Class — The AER Strategic Plan
Albertans count on the AER to provide strong regulatory oversight ofenergy development across the province. We’re expected to protect
what matters most: public safety and the environment, while ensuring
economic benefits from our energy resources. That’s our mandate,our core business, and what we focus on every day.
This is important work. But to move beyond that core work, to truly
reach our vision to be best in class, we need a strategy, a focus on a
few strategic priorities, and a plan for how we will direct our humanand capital resources to those priorities in a way that delivers results —results for the AER and our stakeholders.
The AER 2014–17 strategic plan plots a roadmap that helps us selectprojects and initiatives at an enterprise level, determining what will serve
our organization best, help us reach our vision, and make the most of
our resources.
To become best in class, we know we need to do more; reaching our
vision calls for a proactive strategy that identifies our key priorities andestablishes clear performance measures to ensure that we stay on track
and can demonstrate our results.
The strategic plan includes our strategic priorities, strategic outcomes,
themes (areas of focus), and performance measures and targets against
which the AER will monitor its progress and how others will measure
our success.
Our strategy reflects our mandate, our vision, and our pursuit of best inclass by being protective, effective, efficient, and credible.

Our strategy is designed to help us reachour vision: The Alberta Energy Regulator
is recognized as best in class, ensuring
the safe, environmentally responsible
development of energy resources for the
benefit of all Albertans.
ALBERTA ENERGY REGULATOR Annual Report 2013/14

22

2014–17 Strategic Plan
Strategic
priorities

Strategic
outcome

Theme
Play-Based Regulation(land and water)

Protective
Develop integrated
whole-systemregulatory approach

Effective managementof public safety, andcumulative environmental risks and impacts

Tailings water
management
Air emissions
Integrated Resource
Management System
Aging Infrastructureand Liability Management

Effective
Strengthenrisk-based
regulation

Effective managementof resource conservationand minimize financial
liability on Albertans

Reservoir containment

Pipeline safety

Operations continuous
improvement

EfficientTransform Alberta’s
energy regulatory
system to improve
efficiency

The regulatory systemis efficient, minimizing duplication, withhighly efficient
processes, and onlyintervening to thelevel necessary

Regulatory
simplification

Open, transparent
communication

Credible
Increase trust andconfidence in how
energy is developedin Alberta

2014–17 STRATEGIC PLAN

Stakeholders are
confident about
how energy isdeveloped in Alberta

Stakeholder
engagement
Best-in-class review

23

Performancemeasures

Performancetargets

Volume of all water (fresh,
saline, and recycled) used
for oil, oil sands, and gas
operations

Work with GoA to set
benchmarks and requirements
for reduction of water use forenergy resource development

VisionVolume of gas flared and vented
from oil and gas operations

Flaring levels are withinprovincial guidelines

Proportion of inactive
wells that meet current
suspension requirements

100 per cent of high-risk inactive
wells meet AER suspension
requirements

Adoption of risk-based
regulation to respond tochanges in technology
and complexity in oilsands development

Complete shallow SAGD
caprock integrity study

Number of incidents per
kilometre of pipelines
regulated by the AER

Pipeline incident rate
reduced by 4 per centRegulatory process
efficiencies$60 million in verified cost savings
from efficiency initiatives in thefirst year

Relevant regulatory
requirements

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

Percentage of Albertans
confident that oil and gas
development is occurring
responsibly

10 per cent increase inawareness of the AER and
its role in regulating energy
development in Alberta

Stakeholder rating of AER
performance in key areasof concern

10 per cent increase inpositive perceptions/rankingsof AER performance

Recommendations forbest-in-class performanceare developed throughstakeholder collaboration

Completion and release ofrecommendations in 2015

* Performance measures and targets will be modified andexpanded following input from stakeholders and partners.

The AER is recognized as best in class, ensuring the safe, environmentally
responsible development of energy resources for the benefit of all Albertans.

Implementation of regulationsaligned with Alberta’s Tailings
Management Framework

ALBERTA ENERGY REGULATOR Annual Report 2013/14

24

our priorities — protective
At the AER, we know that regulating a world-classenergy resource is a huge responsibility. The firstpriority of our strategic plan is to be protective.
We will protect public safety and the environment.
The AER recognizes that any type of industrial
activity comes with risks. These risks can be minimized through strong regulatory requirements atevery stage of energy resource development andby making sure that energy resource projects are
remediated at the end of their lives.
This means we will manage Alberta’s energy resource
development to respond quickly and effectively to newtechnologies, market conditions, and potential risks.

protective
Develop an integrated,
whole-system regulatory
approach to safety,
environmental protection,and risk management

As new technology drives the intensity and scale ofdevelopment, we need a new approach to energy
regulation. The AER will address cumulative impacts
and align with the province’s Integrated Resource
Management System as part of the decision-making
process for approving energy resource development.
We will focus on what’s important to Albertans:›› public safety,›› protecting our water resources,›› making sure companies follow safety andenvironmental requirements, and›› enforcing compliance when those requirements
are not met.
We will do this by working on projects that deliver
measurable results in environmental performance,increasing our ability to protect public safety andhelping us reduce cumulative environmental impacts.
We will do more than deliver on our mandate bystrategically focusing on key projects.

2014–17 STRATEGIC PLAN

25

Play-Based Regulation
Recognizing the distinct challenges of developing unconventional
resources in Alberta — especially with respect to water use, concerns
around hydraulic fracturing, and the regional effects of large-scale
operations — the AER will be conducting a pilot of play-based regulation.
This project will›› establish requirements for subsurface reservoir management for the pilot
area that respond to the unique challenges of this kind of development;›› create a single application and decision-making process, whichmeans addressing multiple activities under one integrated application
process;›› conduct a full review of the costs and benefits of the play-based
approach; and›› require companies to work together on plans for surface development
to minimize the number of facilities and surface impacts, reduce theuse of fresh water and reuse water where possible, and engage
stakeholders.

Council of Canadian Academies studies
shale gas in Canada
Shale gas development in Canada provides both economic opportunities and social and environmental challenges. In a recent paper
titled Environmental Impacts of Shale Gas Extraction in Canada, theCouncil of Canadian Academies (CCA) identified elements for effective
risk management of technologies to develop and produce shale gas,management systems to control the risks to the environment andpublic health, an effective regulatory system, regional planning toaddress cumulative impacts, and stakeholder engagement.
The AER has decades of experience in regulating horizontal fracturing
operations, something recognized by the CCA in its report.
“Because the AER is a senior and respected regulatory agency, its
regulations are widely used as guidance by other regulatory bodies
in Canada.”
The AER addresses all five elements outlined in the CCA paper inour draft Unconventional Regulatory Framework and is applying
them in the delivery of the play-based regulation project, which
focuses on large-scale shale gas development projects.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

26

protective
Compliance Assurance Framework
To ensure that energy companies follow the rules, our staff are active
across the province, holding industry training sessions and carrying out
inspections, audits, and investigations.
Our new approach to compliance puts our focus on higher-risk activities,
such as developments near populated or environmentally sensitive areas.
In those cases, we would inspect more frequently to make sure that allof our requirements are followed.
When companies fail to follow our rules and requirements, the AER has
the authority to take strong action, including shutting down their facilities.
With new authority under the Environmental Protection and Enhancement
Act, the Water Act, and the Public Lands Act, the AER has more enforcement tools available to respond to companies that fail to comply withrequirements. Simply stated, companies that are allowed to develop
Alberta’s oil and gas resources must follow all rules, regulations, andrequirements. If they don’t, there are serious consequences. The AER’s
enforcement tools include›› more frequent and detailed inspections,›› more stringent planning requirements,›› enforcement orders,›› shutting down operations,›› levying of administrative penalties, and›› prosecution.
The AER will provide Albertans with information about industry’s
performance record, including our easy-to-access incident-reporting
tool and regular posting of investigation reports and complianceactivities on our website.

Working Together to Address
Tailings Management
Through our risk-based approach to energy regulation, the AER assesses
potential risks to safety, the environment, and the responsible orderly
development of energy resources. We use this risk assessment todetermine how to best respond to those priority areas where risks may
be higher, such as the growing number of tailings ponds associated withoil sands mining.

2014–17 STRATEGIC PLAN

27

Working as part of a larger province-wide initiative to regulate tailings
management, the AER provides scientific and technical advice to theGovernment of Alberta as it works to develop a tailings management
framework. This framework will provide clear policy direction to ensurethat the risks associated with tailings ponds are effectively managed.
Once the framework is complete, the AER will work with the Alberta
Environmental Monitoring, Evaluation and Reporting Agency to monitor
water quality in those tailings ponds areas. Working together as partof an integrated team, the AER’s goal is simple — to effectively manage
tailings ponds growth and minimize the footprint of tailings ponds
throughout their life cycle.

Addressing Air Emissions
We’ll also address air emissions caused by energy resource development, specifically in the Peace River area, as we continue to act on therecommendations made by the AER panel from the proceeding intoodours and emissions from heavy oil operations in the Peace River
area. We’ve already taken important steps to address the issue by
requiring operators in the area to reduce venting from their facilities.

Performance measures and targets
MeasureVolume of all water (fresh, saline, and recycled)
used for oil, oil sands, and gas operations

MeasureVolume of gas flared and vented fromoil and gas operations

TargetWork with the Government of Alberta to set
benchmarks and requirements for reduction ofwater use for energy resource development

TargetFlaring levels are withinprovincial guidelines

Implementation of regulations alignedwith Alberta’s Tailings Management
Framework

ALBERTA ENERGY REGULATOR Annual Report 2013/14

Responding to concerns in Peace River

In July 2013, president and CEO
Jim Ellis called for a proceeding
to examine odours and emissions
generated by heavy oil operations in
the Peace River area. The proceeding
allowed residents and operators to
express their concerns in a publicforum. The proceeding included areview of industry practices andexplored possible solutions to thisimportant issue.
The independent AER hearing
panel released its recommendations
on March 31, 2014. The AER acted

2014–17 STRATEGIC PLAN

immediately to address the recommendations, accepting all those in our jurisdiction
on April 15, 2014.
That same day, the AER released arevised version of Directive 060: Upstream
Petroleum Industry Flaring, Incinerating,and Venting. These revisions requirecompanies to conserve gas, regardlessof the economics of an energy operation,and give the AER enforcement tools to
address off-lease hydrocarbon odours.
In early May, the AER made further
revisions to Directive 060 and released arevised Directive 056: Energy Development

Applications and Schedules. The changes
will ensure that casing and tank-top gas
are conserved in the Peace River area.
Companies that fail to meet these newrequirements will face enforcement action.
“We are developing a strategy tomeet the panel’s remaining recommendations that are within our jurisdiction,”
said Carol Crowfoot, vice presidentof the Regulatory Operations andEconomics Branch. “This includes strategies to reduce emergency flaring andfugitive emissions and to increase gas
conservation in the Peace River area.”

The AER is also exploring opportunities with the Government of Alberta
to establish and expand a regional
air quality monitoring program in thePeace River region.
We’re working on long-term
strategies to reduce flaring, venting,and incineration and to increasegas conservation in Alberta. We willcontinue to find ways to improve ourapproach to addressing air emissions
and protecting the environment while
ensuring the conservation of Alberta’s
oil and gas resources.

30

our priorities — effective
Alberta’s energy resources provide economic benefits
for all Albertans, and the AER regulates development
in a way that reduces potential risks and ensures that
Albertans receive the greatest possible economic
benefit. We also protect Albertans from the risk offinancial liability associated with aging oil and gas
infrastructure, especially if companies fail.
To do this, we must be effective and focus on risk-based
regulation. Risk-based regulation means that regulatory
activities are prioritized so that the most significant risks
receive the greatest attention. Put simply, the higher therisk, the stricter our requirements.

effective
Strengthen risk-based
regulation

It’s all about the effective management of our energy
resources on behalf of Albertans — the owners of that
resource. It’s about understanding our resources —where they are, how much we have — and how toensure they are developed so as to optimize benefits
to Albertans.
To become a more effective regulator, the AER willcontinue to put our risk-based approach into action.
We will focus on projects that›› reduce risks to public safety and the environment,›› limit the financial risks to Albertans,›› effectively manage resource conservation, and›› improve industry performance.
These risk-based projects will include reservoir containment, improving pipeline safety, and the Inactive Well
Compliance Program.

2014–17 STRATEGIC PLAN

31

Reservoir Containment
We regularly assess our requirements to determine whether
they are best suited to respond to potential risks in energy
resource development.
For example, earlier this year, the AER responded to a potential
risk at certain steam-assisted gravity drainage (SAGD) operations
by establishing specific requirements for these projects at shallow
depths. SAGD is an in situ technique used to produce bitumen
by injecting steam into an underground oil sands reservoir toseparate the sand and the bitumen, which is then produced.
While SAGD production has been practised for years, more
and more projects are being proposed in areas where oil sands
deposits are at shallow depths. The AER is concerned that atshallower depths, steam, bitumen, or other fluids might escape
the reservoir and reach the surface.
The AER feels that the potential risks involved in more complex
shallow projects require further technical review to ensure that
we have the best possible regulatory requirements in place.
We are now working on that technical review, which will
include stakeholder consultation. The result could include
new rules and requirements that address potential risks andensure that development using this method is safe andenvironmentally responsible.

Risk-based regulation meansthat regulatory activities
are prioritized so that themost significant risks receive
the greatest attention.
Put simply, the higher the risk,
the stricter our requirements.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

32

effective
Improvements in Pipeline Safety
Pipeline safety has improved over the past 20 years. In fact, pipeline
incidents have fallen from 2.1 incidents per 1000 km of pipeline in2008 to 1.4 incidents per 1000 km in 2013.* This is good news, butmore can be done.
The AER recognizes that pipeline safety is a top concern for Albertans
and will work to further reduce the rate of pipeline incidents acrossthe province. We’ll do that by›› focusing inspections on pipelines at major water crossings and›› improving integrity programs as Alberta’s pipeline inventory
continues to grow.
* The AER requires pipeline operators to report ALL pipeline incidents, including breaks, test

failures, and external contact with the pipeline — regardless of whether there is an actual leak.

2014–17 STRATEGIC PLAN

33

Inactive Well Compliance Program
The AER will ensure that all high-risk inactive wells comply with regulatory requirements so that they may be safely suspended. The Inactive
Well Compliance Program will offer innovative solutions for well inventory management while addressing the root causes of noncompliance.
We will accomplish this by creating›› a robust compliance monitoring and management system;›› a plan to bring inactive wells into compliance;›› a reduction in liability, improved well integrity, and clear andconsistent expectations for industry; and›› a clear plan for enforcement.

Performance measures and targets
MeasureProportion of inactive
wells that meet current
suspension requirements

Target
100 per cent of high-risk
inactive wells meet AER
suspension requirements

MeasureAdoption of risk-based
regulation to respond tochanges in technology andcomplexity in oil sands
development

TargetComplete shallow SAGD
caprock integrity study

MeasureNumber of incidents per
kilometre of pipelines
regulated by the AER

TargetPipeline incident rate
reduced by 4 per cent

ALBERTA ENERGY REGULATOR Annual Report 2013/14

Effectively managing financial risk

Created in 2002, the AER’s Licensee
Liability Rating (LLR) Program protects
Albertans from paying the costs toabandon and reclaim orphan wells,
facilities, and pipelines arising fromdefunct licensees. It also minimizes thefinancial risk to the Orphan Fund, which
is funded by the energy industry andpays for abandonment and reclamation
when the licensee is unable to do
the work.
Using an asset-to-liability calculation, the AER evaluates licensees eachmonth. If a licensee’s liabilities exceed
its assets, its liability management
rating (LMR) will fall. If the LMR falls

2014–17 STRATEGIC PLAN

below an established level, the AER
will request a security deposit forthe difference. If a licensee doesabandonment and reclamation work,
it can improve its LMR, which may
reduce the required security deposit.
If a licensee becomes defunct,the Orphan Fund, administered by theOrphan Well Association, pays the costs
to suspend, abandon, remediate, andreclaim a well, facility, or pipeline in the
LLR Program. The LLR Program ensuresthis cost is not transferred to Albertans.
Financial security collected by the LLR
Program is used to reduce the costs to
the Orphan Well Association.

In May 2013, the regulator, with full
support from the Canadian Associationof Petroleum Producers and the
Explorers and Producers Associationof Canada, implemented updates tothe LLR Program to address concernsthat the program underestimated thecost of abandonment and reclamation.
The result included a more realistic
assessment of abandonment andreclamation costs along with otherfactors to better assess liabilities andfurther reduce financial risk to theOrphan Fund.
At the same time, the Orphan Fund
saw a 25 per cent rise in industry

funding to help address the number ofwells, facilities, and pipelines that must be
abandoned and reclaimed by the Orphan
Well Association.
In response to concerns regarding the
LLR Program changes, the AER introduced
the LLR Program Management Plan.
This plan implements financial security
requirements for licensees experiencing
difficulties.
The LLR Program supports robustenergy development, which helps drive our
economy while still protecting Albertans.

36

our priorities — efficient
When the Government of Alberta initiated theRegulatory Enhancement Project, one of its main
goals was to improve Alberta’s competitive advantage.
One way to accomplish this is to make Alberta’s
regulatory system as efficient as possible.
We believe that transforming the regulatory system will
reduce duplication, resulting in more efficient processes
and ensuring that the regulator intervenes to minimize
unacceptable risks. Reduced costs, greater certainty,
and clearer processes will benefit landowners, industry,
and the public. At the same time, regular and openreporting on our activities and results will demonstrate
our performance.

efficientTransform Alberta’s energy
regulatory system toimprove efficiency“Efficient” means more than just cutting the cost of
regulation or saving time. Efficient means reducing
duplication in our system, changing our processes toimprove our ability to get the work done, and ensuringthat we only intervene to the level necessary. For
example, making sure that our data collection policies
focus on gathering information we need to do ourjob as opposed to gathering outdated informationor duplicate information because “that’s how it has
always been done.”
Achieving efficiencies will not be easy. After decades ofmultiple regulators overseeing energy resource development, Alberta’s regulatory system has grown to be very
complicated as new rules have been added over time.
The AER ensures that unnecessary costs in our system
are not economic obstacles to future development.
Our goal is to design a simpler regulatory system —one that protects the public and the environment, andimproves performance at minimum cost.
The AER will achieve excellence in efficiency without
sacrificing excellence in being an effective andprotective regulator.

2014–17 STRATEGIC PLAN

37

Continuous Improvement of Operations
The AER is responding to concerns about the effectiveness, efficiency,
and transparency of regulatory processes and requirements byremaining true to our promise to provide safe, efficient, orderly, andenvironmentally responsible regulation of Alberta’s energy resource
sector. This will be achieved by›› enhancing how we process applications and conduct
surveillance operations,›› establishing a continuous improvement process,›› eliminating redundancies and improving processes,›› setting clear expectations and meeting them, and›› using a risk-based approach to conducting business.

Regulatory Simplification Project
Effective regulation means ensuring that all regulatory requirements
are necessary, accessible, easy to understand, and enforceable.
It means ensuring that all requirements clearly add value. This projectwill identify outdated, redundant, unnecessary, and confusing orcontradictory requirements and eliminate or simplify them.
The AER will›› inventory all regulatory requirements,›› align strategic outcomes with each requirement,›› reduce/eliminate duplication and inconsistencies, and›› consolidate our regulatory requirements.

Performance measures and targets
MeasureRegulatory process efficiencies

MeasureRelevant regulatory requirements

Target$60 million in verified cost savings fromefficiency initiatives in the first year

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

ALBERTA ENERGY REGULATOR Annual Report 2013/14

A new approach to public lands

On November 30, 2013, the AER
assumed responsibility for the Public
Lands Act (PLA) as it relates to energy
resource development. The AER is
now responsible for issuing, amending,maintaining, and inspecting all landuse dispositions and authorizations
for energy activities.
With the arrival of the new
applications associated with the PLA ,AER staff had to determine how many
applications were being processed or
waiting to be processed. What they
discovered was daunting — a backlogof thousands of PLA applications,with little detailed information about
the applications themselves.

2014–17 STRATEGIC PLAN

This backlog coincided with thewinter drilling season, the busiest timeof year for energy operators, who
continued to submit new applications
on top of the existing backlog.
AER staff asked operators to submit
their top 10 priorities for processing;no other applications were accepted
until the priority applications werecompleted. This way, priority applications for drilling operations on public
land were processed.
At the same time, the AER used
analytics and detailed tracking sheets
to assess the remaining applications,giving staff a clearer picture of thescope of work required. By using thisstrategy, nearly half of the 5300 backlogged applications have been processedsince December 1, 2013.
While examining the tracking sheets,
it became apparent that PLA application
processing was not meeting its targets.
For example, applications with a 20-day
target were taking 56 days to process,while applications with a 30-day target
were taking more than 300 days. The
AER has introduced changes to the
PLA application process to reduce theprocessing times and will continue tomake improvements in the months ahead.

The PLA tracking system was ahighly successful project for the AER.
It clearly demonstrated how an analytical
approach to evidence-based decisionmaking can create efficiencies in our
process without sacrificing the scientificreview required to make decisions.
With more than 60 000 applicationsof all types processed by the regulator
each year, this type of detailed process
management will be key to our efficientand effective operations and be a criticalpart of the AER’s journey to becoming
a best-in-class energy regulator.

40

our priorities — credible
Being a best-in-class regulator means more than providing best-in-class regulation. It means we must ensurethat all of our stakeholders are confident about how
energy development is regulated in Alberta.
At the AER we know that doing our job and doing it wellis important.
We know that the development of Alberta’s oil and gas
resources attracts international attention. The fact is, thework we do is of interest to people across North America
and beyond, as energy development continues to be asource of worldwide debate.

credible
Increase trust and confidence
in how energy is developedin Alberta

We also know we must do more than simply regulate
well. We have a responsibility to share Alberta’s 76-year
tradition of strong regulatory oversight of energy
development — to tell our story and build relationships
with our stakeholders. To be best in class, we must›› report on the results of our work,›› be open to discussing issues of concern to ourstakeholders,›› share information about the work that we do, and›› work toward a common definition of what is meantby “best in class.”
To do that, we’ll engage stakeholders throughout
Alberta, across Canada, and beyond to assess whatdefines best in class and to determine how the AER
will meet that standard.
Here at home we’ll also improve engagement with stakeholders, raise awareness of our role in energy resource
regulation, increase transparency and accountability,and provide more education about energy development.
Our strategic focus will include being best in class andsharing Alberta’s regulatory story.

2014–17 STRATEGIC PLAN

41

Best-in-Class Project
Alberta has a 76-year tradition of strong energy regulation, but weknow there is more that can be accomplished. The development ofAlberta’s energy resources attracts international attention. We operateon the world stage.
It’s not enough for the AER to declare itself a best-in-class regulator.
We must define what that means and discuss with our stakeholders
here in Alberta and beyond what qualities a best-in-class regulator
demonstrates and what it would take for the AER to meet that standard.
The best-in-class project will›› provide a definition of “best in class” and a method for measuring
the performance of best-in-class regulators;›› engage experts, academics, regulators, and think tanks throughout
Alberta, Canada, and internationally; and›› build international relationships by sharing differing perspectives onenergy development with a focus on strategy, organizational design,
the role regulatory bodies play in society, and how the best regulators
communicate, share information, and build partnerships.
At the end of the day, we will have a definition of what it means to be
best in class that will lead our efforts in the years ahead — one that
our stakeholders helped to develop and confirm.

Our strategic focus
will include being bestin class and sharing
Alberta’s regulatory story.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

42

credible
Sharing Alberta’s Story
The AER welcomed 24 foreign delegations since June 2013.
Government officials, industry representatives, and regulators fromaround the world travel to Alberta to learn about how we regulate
the province’s energy resource industry. In the coming months andyears, we’ll expand that network, reaching out to provincial andfederal counterparts to share information, work together on common
goals, and build formal partnerships that improve our ability toregulate as we learn from each other.
We’ll share information and expertise formally by forming partnerships with other regulators and informally by participating in research
projects, conferences, and public education programs.
Recognizing that our energy development activities attract worldwide attention, we’ll work to better inform interested parties acrossthe globe about the AER and how we protect public safety and theenvironment through our regulatory requirements and commitment
to ensuring industry compliance.

2014–17 STRATEGIC PLAN

43

Building AwarenessIn the past year, the AER has made it easier for Albertans to learn
about and have a say in energy resource development activities
around the province. We’ve been building awareness by›› posting all applications submitted to the AER online, including
applications for oil and gas wells, pipelines, coal mines, oil sands
developments (both mines and in situ), and facilities;›› publishing decisions made on applications online, whether they’reapproved or denied;›› reviewing and responding to every statement of concern filed byanyone who believes they may be directly and adversely affectedby an application;›› offering live streamed audio of public hearings (when technicallyand logistically possible) so Albertans can listen to the proceedingfrom anywhere; and›› responding to hundreds of calls, e-mails, and other requests for
information as well as participating in community meetings.
We are committed to making sure that Albertans know what the
AER does and understand who to contact when they have questions
or concerns. Through face-to-face meetings, social media, printmaterials, and community engagements, we will continue to connect
with Albertans and encourage them to connect with us.

Performance measures and targets
MeasurePercentage of Albertans
confident that oil andgas development isoccurring responsibly

MeasureRecommendations for bestin-class performance aredeveloped throughstakeholder collaboration

Target
10% increase in awarenessof the AER and its role
in regulating energy
development in Alberta

TargetCompletion and release ofrecommendations in 2015

MeasureStakeholder rating of
AER performancein key areas of concern

Target
10% increase in positive
perceptions/rankingsof AER performance

ALBERTA ENERGY REGULATOR Annual Report 2013/14

Connecting to Albertans with social media

The AER uses a variety of communications tools to interact with our stakeholders.
Our publications, presentations, online content, and social media tools help inform,
explain, and clarify how the AER carries out our regulatory responsibilities acrossthe province.
TWITTER – @AER_news
was launched on June17, 2013, and we havebeen using Twitter toupdate our over 900(and growing!) followers
on AER news, projects,
and new regulatory
requirements. Our
Twitter presence allows
for real-time, two-way
communication with our
stakeholders.

2014–17 STRATEGIC PLAN

LINKEDIN – We’rerecruiting new staff andsharing information on
important news andregulatory changes
with more than 6200
connections, including
employees, interested
followers, energy experts,
and other LinkedIn users.

YOUTUBE – Our channel,
ABEnergyRegulator,
provides videos that
explain the energy
industry and demonstrate
how we ensure thatenergy development issafe, efficient, orderly,
and environmentally
responsible. The AER
YouTube channel featuresindustry presentations,animations, and videos ontechnical issues.

AER BLOG – Launchedon April 1, the blog
features monthly stories
by AER employees
addressing topics
of interest to ourstakeholders. In addition
to the blog, we postcontent on aer.ca,
including publications
such as EnerFAQs, fact
sheets, bulletins, andstatistical reports to
update Albertans about
energy development
activities.

AUDIOCASTS – We’ve
recently started providing
live audio streams of public
hearings, where technicallypossible. Although all AER
hearings are open to the
public, the audio streams
make it possible for those
who can’t attend a hearing
to follow it online, and it
reflects our commitment
to improved information
access and transparency.

Social media is helping the
AER prepare for the next
era in energy regulation,building new relationships
with Albertans while
telling our story on theworld stage.

46

measuring our performance
To demonstrate the results of our work, we must measure andreport on our performance. For example, each year we process morethan 60 000 applications, perform over 12 000 inspections, and issue
hundreds of enforcement actions. While these numbers are important,
it is what we achieve with this activity that is important to Albertans.
To truly be best in class and to deliver on all elements of our strategicplan, we must demonstrate results. How well did we protect public
safety and the environment? How were we effective or efficient?
How did we measure stakeholder awareness and perception?
We must measure the efficiency of our processes and the effectiveness of our requirements in meeting clear outcomes. We will measureindustry performance — both industry as a whole and as individualcompanies.
Each strategic priority is paired with performance measures andtargets that will help the AER define success and clearly demonstrate
the results of our actions. We know that these are new targets, ones
that we may refine in the weeks and months ahead as we meet withstakeholders throughout the province. In some cases, our measuresand targets are clearly defined, while in other cases, the targets may
be more closely linked to Government of Alberta policy outcomes
and require additional discussion. In all cases, clear and measurable
targets demonstrate that the AER is transparent, accountable, anddriven by results.
We’ll report regularly on our progress in meeting these targets,providing evidence where we have been successful and explaining
if we have failed. Internal performance indicators will be usedthroughout the organization to provide us with early signs of ourprogress and with opportunities to change course if necessary.
These are not just performance measures and targets for the AER,
but for industry and the province as a whole. Our ability to reduce
pipeline incidents, increase compliance for abandoned wells,
decrease the use of fresh water, find cost savings, and improve
Albertans’ confidence in the regulatory system are important results
for all stakeholders.

Clear and measurable targets demonstratethat the AER is transparent, accountable,
and driven by results.
2014–17 STRATEGIC PLAN

putting it all together

47

A plan is only as solid as its execution. Now that the AER boardof directors has approved the strategic plan, we are working withstakeholders and employees to refine the projects that will, along with
our operating plans, deliver on our key priorities.
The success of our strategic plan depends on a corporate operating planthat delivers the key projects under our strategic priorities, as well as
critical day-to-day functions that support all the AER’s work. This includes
information technology, human resources, change-management initiatives,
leadership development, media and public awareness programs, strong
financial management, and a framework for continuous improvement.

It’s about our people
Our people are our most important element in successfully delivering ourstrategic plan and achieving our vision. The AER prides itself on employing
knowledgeable, skilled, and talented people who take pride in their workand go the extra mile to uphold our mandate.
When all employees work towards shared goals, results are achieved more
rapidly. That’s why it is vital that every section, division, branch, and employee
is focused on making their own unique contribution to the organization’s
goals. No one person, team, or project can achieve results on their own —we need the work, dedication, and ownership of the entire organization.
Focusing on our strategic priorities and outcomes is important to our
success as we manage the day-to-day work of the AER while transforming
how we do business.
To succeed, we must ensure that we possess the tools to do our jobs
with confidence and skill.
We will provide our employees with opportunities to develop the skills
needed to execute the elements of our strategic plan, such as›› performance measurement,›› project management,›› business process design, and›› continuous improvement.
Since last June, AER employees have made tremendous progressconstructing a regulator that will live up to its mandate to provide for thesafe, efficient, orderly, and environmentally responsible development ofAlberta’s energy resources. Working together, we will realize our visionof becoming that best-in-class organization to regulate our world-classresources for the benefit of all Albertans.
ALBERTA ENERGY REGULATOR Annual Report 2013/14

2014–17 STRATEGIC PLAN

OPERATIONALOVERVIEWALBERTA ENERGY REGULATOR Annual Report 2013/14

In 2013, Alberta’s pipeline incident rate
dropped to 1.4 incidents per 1000 kilometresof pipeline — the lowest in over 20 years.

Operational
Overview

51

As the AER was launched and took on new responsibilities, a new
mandate, and a new vision, we needed a new way to do business.
Part of that transformation included restructuring our organization
to ensure that we can effectively carry out all of our responsibilities,align our actions with AER-wide goals, and deliver measurable andmeaningful results to our stakeholders.
To do that we created one organization with one leadership teamworking towards one vision, and moved to a new organizational
structure. Our new structure improves our effectiveness by creating amore collaborative team that focuses our efforts on the organization’s
top priorities.
Rather than the traditional flat structure with vertical reporting andnatural silos, the AER’s organizational structure follows a matrix modelthat combines the functional areas of the organization with the key
sector areas, all depending upon the foundational support provided
by global functions such as Human Resources, Information Services,
Administrative Services, and Law. These areas intersect, creating
collaborative teams from both function and sector areas.
Under the new structure, the AER has been organized into divisions,branches and offices, groups, sections and teams. These divisions
have achieved much since being established in the fall of 2013 andwill continue to deliver results for Albertans in 2014.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

52

operations
In an organization responsible forregulating energy resource development,
the Operations Division carries out the
AER’s core work across Alberta.
At the highest level, the Operations
Division fulfills two main functions: it
ensures that energy resource developments comply with AER regulatory
requirements throughout their life cycles
and that the AER’s regulatory processes
continually become more effective andefficient. Within this division,›› the Authorizations Branch processes
applications for new energy resource
developments;›› the Environment and Operational
Performance Branch monitors ongoing
operations through inspections,compliance evaluation, and emergency
preparedness review;›› the Closure and Liability Branchoversees the end-of-life aspects ofenergy developments;›› the Mining Branch is responsible forboth oil sands and coal mining;›› the In Situ Branch regulates thegrowing in situ oil sands developments;and›› the Oil and Gas Branch regulates
conventional and unconventionalenergy resource developments, as wellas pipelines and other infrastructure.

AER Operations staff
work with industry to
make sure that all
regulatory requirements
are followed.
OPERATIONAL OVERVIEW53Sector Branches andFunction Branches
The Operations Division is organized
into two types of branches: sector andfunction. Three sector branches, Oiland Gas, In Situ, and Mining, focus on
the overall regulatory performanceof the companies in each sector.
Authorizations, Environment andOperational Performance, and Closureand Liability are function branches
that focus on the efficient executionof regulatory processes. The sectors
and functions work together, sharing
resources to ensure that we are applying
efficient, standard processes to thevarious sectors we regulate, and that
our work is prioritized according to themost significant risks in each sector.

In February 2014, the AER created theLicensee Liability Rating (LLR) Program
Management Plan to complement theexisting LLR Program, which protects
Albertans and the province’s Orphan Fundfrom abandonment and reclamation costs
for oil and gas wells, facilities, and pipelines. The LLR Program Management Plan
aims to increase compliance by allowing
companies to make payments overlonger time frames. As of February 2014,
92 per cent of participating companies
complied with the program and the AER’s
Oilfield Waste Liability Program.
Finally, the Operations Division establishedinterim guidelines to ensure safe operationof new shallow steam-assisted gravity
drainage for in situ oil sands developments.

Compliance and Enforcement
The First YearThe Operations Division successfullytransitioned regulatory responsibilities
from Alberta Environment and Sustainable Resource Development to create
the single energy regulator. This included
hiring and assimilating more than 235
new employees and implementing anorganizational structure to deliver on
the AER’s broader regulatory strategy.
After assuming responsibility for Public
Lands Act approvals in December 2013,
the Authorizations Branch worked quickly
to address industry’s requirements for the
winter drilling program. The Operations
Division established a new procedure for
rapidly processing priority applications,and it made other changes that haveincreased processing capacity for thesetypes of applications by 50 per cent.

Operations staff use a risk-based inspection strategy. This means they design
inspection programs to focus on energy
resource developments determined to behigher risk or in areas where there havebeen recent incidents or public complaints.
In 2013, the AER conducted 12 367 initialinspections and investigations. As aresult, 420 high-risk noncomplianceswere discovered, of which 217 wererelated to pipelines.
AER Operations staff work with industry
to make sure that all our regulatory
requirements are followed. To ensure thatindustry employees better understandregulatory requirements, Operations
staff work to educate industry throughtargeted presentations and operator
awareness sessions.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

54

strategy & regulatory
Navigating the AER
The Strategy and Regulatory Divisionnavigated the AER through its first yearwith a focus on identifying and managing issues, risks, and opportunities,
while ensuring that the organization
maintained an integrated approachto regulatory development.
By providing the organization with
scientific and fact-based information,
the Strategy and Regulatory Division
sets the path for the AER, keeping
projects and initiatives aligned with
our priorities. We do this through thework of three branches:›› the Corporate Planning and Enterprise
Projects Branch, which ensures that
initiatives and projects align with the
AER’s mandate and vision;›› the Regulatory Operations andEconomics Branch, which implements
practical operating procedures forregulatory development and reports
on energy statistics; and›› the Science and Evaluation Branch,which collects and reports on reservoir
and play-level information and theimpacts of energy development onenvironmental and social outcomes.
The Alberta Geological Survey is partof this branch and provides the AER
with scientific peer-reviewed research,
mapping, and reporting on Alberta’s
geology, earth resources, geologicalhazards, and groundwater at theregional scale.

OPERATIONAL OVERVIEW

55

Achieving Goals
The Strategy and Regulatory Division
oversaw the AER’s transition as it became
responsible for regulatory functions
assumed from Alberta Environment andSustainable Resource Development.
This shift meant new responsibilities forexisting staff and determining how these
new functions would change how the
AER operates.
By planning and collaborating, thisdivision led the development of a new
strategic plan for 2014–17. This plan
outlines the AER’s core work and establishes four key priorities that guide the
AER in choosing projects and initiatives
to support our vision.
The Strategy and Regulatory Divisiondeveloped a new standard operatingprocedure for regulatory development.
This document provides a new approachto our regulatory work, establishingpriorities for changing our regulatory
requirements; ensures that the AER
meets the province’s regulatory needs
with efficiency and purpose; andprovides Albertans with best-in-classservice that aligns with our mandate.
Anchoring the division’s work are a riskbased regulatory model and innovative
approaches to effectively and efficiently
make the important decisions. Accuratedata, skilled and knowledgeable staff,
and a strong commitment to excellencefuel the division’s work in helping theregulator capitalize on opportunities.
As the next year unfolds, the Strategy
and Regulatory Division will continue
to guide the AER with expertise andstrong leadership as it regulates energy
development in Alberta.

This division led the development of a new
strategic plan for 2014–17. This plan outlines the
AER’s core work and establishes four key priorities
that guide the AER in choosing projects andinitiatives to support our vision.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

56

stakeholder &government relations
The AER doesn’t work in isolation:
landowners, First Nations and Métis,energy companies and industry
associations, the Government ofAlberta, nongovernment agencies,and environmental organizations all
have a stake in our work. While ourprimary stakeholders are here inAlberta, we have relationships withgroups across Canada, the UnitedStates, and around the world.
Each stakeholder has a uniqueperspective and interest in Alberta’s
energy resource development, which
is why the AER established a newdivision dedicated to stakeholder
engagement and relationship building:the Stakeholder and Government
Relations Division (SGR).

Specific Stakeholder Focus
Regulating one of the world’s largest
energy resources attracts attention fromacross Canada, our U.S. neighbours,
and our peers from around the globe.
This national and international interest
compels the AER to work with thesegroups to ensure that our role as a single
regulator is clear and that their voices
are heard. SGR also promotes knowledge
sharing and best practices for energy
development, while allowing the AER tolearn from other jurisdictions.

The development ofAlberta’s energy
resources attracts
global attention.
OPERATIONAL OVERVIEW57

SGR builds these mutually beneficial
relationships through three groups:›› Alberta Government Relations›› Alberta Stakeholder Engagement›› National and International Stakeholder
and Government Relations
All three focus on specific stakeholder
groups to ensure that the AER fulfills its
commitment and promise to Albertans.

The division also fostered existing, anddeveloped new, relationships with key
Government of Alberta partners in 2013:›› Alberta Environment and Sustainable
Resource Development›› Alberta Energy›› The Policy Management Office›› Aboriginal Relations / Aboriginal
Consultation Office›› International and Intergovernmental
Relations

Engaging Through Change
After establishing the division and staffing it with strong leaders and experienced
people, SGR immediately implemented
engagement plans for the transition to
the single regulator, including›› hosting 10 well-attended industry
information sessions;›› meeting with over 20 national, international, and provincial delegations;›› co-hosting a global two-day conferencewith the International Energy Agency;and›› developing high-profile memorandumsof understanding with the British
Columbia Oil and Gas Commission
and the Government of the Northwest
Territories.

›› Health›› Municipal Affairs
This work involved clarifying roles,
accountabilities, and processes tosupport integrated policy development
and delivery.

Engaging from theInside Out
SGR also recognizes the importance ofworking internally to support other AER
divisions and working together to achieve
the organization’s goals and vision. Since
it was established, SGR has provided
advice and information to support thedevelopment of regulatory requirements
and initiatives, as well as providing
alternative dispute resolution support
on energy development applications.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

58

corporate services
Regulating Alberta’s energy resources
is what the AER does, but without thepeople, infrastructure, and information
for support, our work could not be done.
The AER’s Corporate Services Divisionfocuses on the crucial components of
how the organization functions, thepeople who power the AER engine, andthe information it collects and distributes
to Albertans.
The division includes technology, data,
workplace services, finance, administration,and human resources. These are elements
vital to any organization because they
control the internal workings, enabling
employees to do their jobs and allowing
business to take place.

Supplying and Managing
Resources
Through all phases of the AER’s transition,
the Corporate Services Division supported
the core business by ensuring that timelines were met and resources wereeffectively managed.
The entire AER is supported by theexpertise, advice, and services provided
by the six branches of the Corporate
Services Division:›› Information Services›› Human Resources›› Finance›› Administrative and Workplace Services›› Information Management›› Internal Audit

OPERATIONAL OVERVIEW59

Before, during, and after the June 2013
launch, Corporate Services staff worked
full out. With an influx of new staff
supporting the AER’s new functions,roles, and responsibilities, the division
was bustling with the hiring of more than
450 new staff (to support the transition
to the single regulator and as part ofregular operations), maintaining infrastructure, and managing the regulator’s
new industry-funded model.
The transition also required that thedivision

Delivering for our
Stakeholders
Recognizing the importance of providing
our stakeholders with timely andaccurate information, the division used
the regulator’s launch year to develop
better ways of accessing information.
Through tools such as the Private Surface
Agreements Registry, Public Notice ofApplication, and Publication of Decision,
the division works to deliver on the AER’s
promise of transparency.

›› implement and provide significant
change-management support;›› execute a short-term plan for staff
placement;›› offer more than 400 professional
development courses and learning
opportunities to staff;›› maintain excellent health and safety
programs;›› oversee the process to transfer, share,and store ESRD records;›› implement a financial administrative
system for the Public Lands Act,
the Mines and Minerals Act, and theMine Financial Security Program;›› streamline revenues charged to

The AER’s
Corporate Services
Division focuses on the
crucial components of
how the organization
functions, the people who
power the AER engine,
and the information it
collects and distributes
to Albertans.

industry and improve work processes;›› update documents and forms to alignwith the AER’s new GST status, andinform vendors of this change;›› participate in the Government ofAlberta’s results-based budgeting
process under the Resource Management and Environmental StewardshipLine of Business; and›› promote waste reduction by implementing an electronic submission form
and requirements in directives.
ALBERTA ENERGY REGULATOR Annual Report 2013/14

60

law branch
Creating a new entity to regulate theprovince’s energy resources takes expert
knowledge of legislation, the ability tocreate strong regulations, and a dedicatedteam of lawyers who work with precision
to help build and support the new AER.
The AER’s Law Branch played a key rolein creating the AER. Working closely with
our government partners, the branch
was actively involved in drafting the
Responsible Energy Development Act —the statute that created the AER.
As we transitioned into a full life-cycle
regulator over the last 12 months,
Law’s input was critical in developing
the regulations needed to support the
responsibilities transferred from theGovernment of Alberta.

Law’s input
was critical indeveloping theregulations needed
to support the
responsibilities
transferred fromthe Governmentof Alberta.

OPERATIONAL OVERVIEW

Since June 2013, the Law Branch has›› developed AER policy under the Public
Interest Disclosure (Whistleblower
Protection) Act,›› created the proposed mandate androles document under the province’s
Alberta Public Agencies Governance Act,›› provided legal advice on proceedings,
and›› advised on regulatory functions,hearings, and appeals.
Outside of legislation and regulation
development, the branch provides legal,
strategic, and corporate governanceadvice to all of the AER’s divisions, hearing
commissioners, and board of directors,
while representing the AER before thecourts and acting as the corporate secretary.
Branches throughout the AER also benefit
from Law’s counsel on issues such as
employment law and reviewing leases
and contracts.

office of public affairs
Building Alberta’s new regulator
required tremendous communications
efforts. From a new logo and mandate,to new products to explain who we are,what we do, and how our work benefits
Albertans, the Office of Public Affairs(OPA) supported the AER in its launch
and transition to the single regulator.

›› creating award-winning multimedia

OPA provides effective communications
advice and support to the AER byoffering a wide range of services to theorganization, including media relations
and crisis communications, strategicplanning and advice, internal andcorporate communications, editing,graphic design, digital media, andweb services.

›› conducting public opinion research

Like every division of the AER, OPA
was committed to the launch andtransition of the new regulator. With afocus on ensuring that stakeholders hadaccess to information, providing clear,accurate communications products,
and supporting all aspects of each phaseof implementation, OPA supported
the AER by

OPA continues to support the AER by
providing strategic communications
and advice on AER operations andensuring that stakeholders have accessto accurate, timely, clear information
about energy development in Alberta.
As the AER turns its focus to reaching
our vision, OPA will work with all divisions
and branches to deliver on our priorities
and meet our targets by 2017.

›› developing and launching a new logo,

61

products, including video, audio, a new
website, and new employee intranet;›› executing the launch and opening of
all AER locations across Alberta;›› supporting the new vision and strategicplan with external and internal
communications;and media monitoring to provide insightand advice on stakeholder opinion;and›› coordinating emergency response,
including flood response and incident
communications.

brand, and visual identity;›› designing and launching a new website,
including support for public notice of
applications, publication of decisions,and the online incident-reporting tool;›› supporting change management withinternal communications planningand advice;›› supporting the Executive Leadership
Team in all aspects of external andinternal communications;

ALBERTA ENERGY REGULATOR Annual Report 2013/14

2014–17 STRATEGIC PLAN

CORPORATE
GOVERNANCE

ALBERTA ENERGY REGULATOR Annual Report 2013/14

@AER_news posted 275 tweets,
including 42 photos and videos,
to over 900 followers since our launch.

Corporate
Governance65

How an organization is governed determines how it carries out its daily businessand how successful it is at achieving its goals. For this reason, corporate governance
was a key consideration when the Alberta Energy Regulator was created in June 2013.
The AER’s governance structure separates the corporate, operational, and governanceresponsibilities from adjudicative functions (hearings on energy applications). This isa significant change from the former Energy Resources Conservation Board (ERCB)
model where these functions were combined. Through its revised model, the AER
seeks to realize its full potential as the single regulator of Alberta’s energy resource
development, as well as gain the confidence of its many stakeholders.

Board ofDirectors

President
and CEO

Hearing
Commissioners

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 theregulator’s business affairs,
including approval of
the strategy and budget.
The directors are also
charged with approving
regulatory change andsetting 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.

The president and CEO,who reports directly tothe chair, is accountablefor day-to-day operations,which include receiving
and making decisions on
applications, monitoringand investigating energy
resource activities forcompliance, and closureof energy developments,
including remediation
and reclamation.

Hearing commissioners are
responsible for conducting
all hearings into energy
applications and regulatory
appeals. Reporting to achief hearing commissioner,
they are independent
adjudicators, operating freeof political interference;
their decisions may only bereviewed by the Court ofAppeal of Alberta.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

66

board of directors
Highlights
A key feature of the Responsible Energy Development Act (REDA)
is that it separates the adjudicative functions of the regulator (conducting hearings and issuing decisions on energy resource development)from the governance of an organization responsible for applying andenforcing the regulations. The AER’s governance is through a boardof directors that assumed responsibility in June 2013.
During our inaugural year, the AER took on responsibility of regulatory
functions for energy resource development from the ERCB and theregulatory functions for public lands, geophysical work, and theprotection of our air, land, and water from Alberta Environment andSustainable Resource Development.
Achieving the objectives of a one-stop regulator required the board
to meet frequently: 11 meetings between June 2013 and May 2014. The
board addressed a number of administrative details during this period:›› developing conflict of interest and whistleblower policies and termsof reference;›› approving a strategic plan and budget, including introducing rules
to adjust annual industry levies; and›› holding board meetings across Alberta and using these occasions
to meet with stakeholders and visit operating sites to learn more
about the AER’s regulatory responsibilities.
The board has four committees: Audit and Finance; Governance;
Human Resources, Health and Safety; and Regulatory Review.
During the first year, the Audit and Finance Committee has focused onbanking and credit facilities in addition to an ongoing review of financial
statements and upgrades to financial and IT systems. The GovernanceCommittee reviewed and modified the AER’s bylaws and the terms ofreference for each committee, reviewed performance reporting by otherregulatory bodies to recommend the form of an annual report, anddeveloped a board performance evaluation tool. The Human Resources,
Health and Safety Committee has focused on employee turnover, safety
statistics, the effectiveness of recruitment, the general approach to AER
compensation and benefits, and compensation for senior management.
REDA clearly assigns responsibility for approving policy to the Alberta
Department of Energy, and the application and enforcement of policy to
the AER. The Regulatory Review Committee reviews recommendations
for policy changes prior to submission to the board and thereafter the

CORPORATE GOVERNANCE

67

Department of Energy. The Regulatory Review Committee also reviews
and approves changes to AER procedures and the AER’s extensive
guidance documentation. One major policy recommendation approvedby the Government of Alberta on the recommendation of the AER was
regulation of odours and emissions from sites, which played a key rolein AER’s action on emissions in the Peace River area.
The board and its committees focus on oversight of the AER to ensurethat the organization is focused on the key strategic objective: to bea protective, effective, efficient, and credible best-in-class regulator.

Peter C. Flynn, Ph.D, P.Eng.

Gerard Protti , M.A., ICD.D

Cameron Bailey

Elizabeth (Liz) Dowdeswell, O.C., M.Sc.

Sheila O’Brien , C.M., B.A.

Dr. David Chalack , D.V.M, ICD.D

Governance Committee Chair

Human Resources,
Health and Safety
Committee Chair

Chair

Fred Estlin, B. Admin ., F.C.A

Audit and FinanceCommittee Chair

Andy Neigel, RPF, B.Sc. Forestry

ALBERTA ENERGY REGULATOR Annual Report 2013/14

68

Committees are an important part of any board. In general, their role is toreceive the reports and recommendations of management, provide information,
make recommendations to the board for approval, and make decisions on behalfof the board in their areas of authority.

Governance Committee
Tim Plumptre, founder of the Instituteon Governance, defines governanceas “the process whereby societies
and organizations make important
decisions, determine whom they
involve, and how they render account.”
The AER’s Governance Committee
works to embody this definition by
setting processes to clarify how
decisions are made. It helps the boardof directors on governance mattersaffecting operations and on specificmatters from the board of directors,
the chair, or executive management.

Audit and FinanceCommittee
The Audit and Finance Committee helps
and advises the board of directors withaccounting, financial reporting, risk
management, and auditing. Fulfilling anoversight role, this committee monitors,
oversees, and makes recommendations
to the board on›› financial statements and other financial
information,›› the adequacy and effectiveness of the
AER’s systems of internal controls,›› risk management,›› audit functions, and›› monitoring the development of the
AER risk management system.

CORPORATE GOVERNANCE

Regulatory Review
Committee
This committee helps ensure that proposed
AER regulatory instruments support andcontribute to the AER’s mandate and vision,
are applied enterprise-wide, are consistent
with the current regulatory and economic
environment, and receive adequate
feedback from AER staff and stakeholders.
It also makes certain that these instruments
are based on sound science, technicalexpertise, and engineering and economic
principles, and that they can be supported
legally. In addition, the committee helps
determine applicable approvals required forregulatory instruments, such as the boardof director approval, Government of Alberta
approval, or both.

Human Resources,
Health and Safety Committee
This committee monitors, oversees, andmakes recommendations to the board on
the AER’s human resources management.
It also advises on strategy and planning,
compensation philosophy, workforce
engagement, selection, remuneration,and performance assessment of the chief
executive officer, and compensationand succession planning for senior
executives (see page 89 for statements).
This committee also oversees the AER’s
Occupational Health and Safety policies,
practices, and performance to ensure thatbest-in-class standards are maintained.

69

The AER board of directors manages the AER’s business and affairs byproviding direction to management and taking other appropriate actions within
its capacity and powers to fulfill its responsibilities as set out in the Responsible
Energy Development Act and other enactments. According to the General Bylawof the Alberta Energy Regulator, the board must meet at least four times per year.

Meeting Attendance(June 2013–May 2014)
Director

Board Meetings Attended

Gerard Protti, Chair

11 of 11

Cameron Bailey

11 of 11David Chalack

11 of 11

Elizabeth Dowdeswell

11 of 11

Fred Estlin

11 of 11

Peter Flynn

11 of 11

Andy Neigel

11 of 11

Sheila O’Brien

10 of 11

ALBERTA ENERGY REGULATOR Annual Report 2013/14

70

executive leadership team

Kim Blanchette

Rick Brown

Kirk Bailey

Patricia Johnston

Jim Ellis

Cal Hill

Vice President
Office of Public Affairs
General Counsel
Executive Vice President
Law

Executive Vice President
Corporate Services
President and CEO
Jennifer Steber

Executive Vice President
Operations
Executive Vice President
Strategy and Regulatory

Executive Vice President
Stakeholder and Government
Relations

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

CORPORATE GOVERNANCE

hearing commissioners

71

Hearing commissioners represent a key part of the Alberta Energy Regulator’s
mandate by fulfilling its adjudicative functions.
The hearing commissioners conduct all of the AER’s hearings into energy applications
and regulatory appeals, and also carry out specially called inquiries, such as thePeace River proceeding into odours and emissions from heavy oil operations, heldin January 2014. They are also involved in developing the organization’s hearing
procedures and rules. There are both full-time and part-time hearings commissioners;
all report to a chief hearing commissioner who in turn reports to the AER’s chair.
Hearing commissioners are independent adjudicators, operating free of politicalinterference. Only the Court of Appeal of Alberta may review and overturn theirdecisions. They also function independently from the AER’s operations staff.

Alex Bolton , P.Geo.

Rob McManus , B . A ., M.E .Des.

John Lawson , MPA

Cecilia Low, B . Sc., LL .B., LL .M.

Barbara McNeil , B . Sc., C .M.

Jurgen Preugschas

Christine Macken , B . A .

Terry Engen

Lorne Ternes , LL .B .

Brad McManus , Q .C .

Heather Kennedy, B . Sc. (Hons)

Chief Hearing Commissioner*(Full-time)(Full-time)(Full-time)(Full-time)(Full-time)(Part-time)(Part-time)(Part-time)(Part-time)(Part-time)* Mr. A. Bolton was appointed chief hearing commissioner on May 14, 2014.
Prior to that, Mr. B. McManus served as chief hearing commissioner.

Hearing Commissioner Activities
From the AER’s launch on June 17, 2013, to the end of April 2014, AER hearing
commissioners have held four oral hearings, two written hearings, and a public
proceeding. It is important to note that six scheduled hearings were cancelled
as the reasons for holding the hearing were resolved.
The AER has issued 17 decision reports for hearings and cancelled hearings, including
two decision reports related to the Peace River proceeding. Three decision reports
were for matters transitioned from the ERCB to the AER.
In addition, AER hearing commissioners will conduct alternative dispute resolution
when a hearing or a regulatory appeal is to occur. Between June 2013 and April 2014,
hearing commissioners participated in three alternative dispute resolution processes.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

2014–17 STRATEGIC PLAN

FINANCIAL
STATEMENTS

ALBERTA ENERGY REGULATOR Annual Report 2013/14

Since the AER’s launch, 24 foreigndelegations have visited Alberta
to learn how we regulateenergy development.

Alberta Energy Regulator

Financial Statements

75

For the year ended March 31, 2014

Independent Auditor’s ReportStatement of Operations

Statement of Financial Position

Statement of Cash Flows

Notes to the Financial Statements

Schedules to the Financial Statements

ALBERTA ENERGY REGULATOR Annual Report 2013/14

76

INDEPENDENT AUDITOR ’S REPORTTo the Board of Directors of theAlberta Energy Regulator

Report 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, 2014, and the statements of operations and cash flows forthe year then ended, and a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation ofthese 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 statementsthat are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
My responsibility is to express an opinion on these financial statements
based on my audit. I conducted my audit in accordance with Canadian
generally accepted auditing standards. Those standards require that
I comply with ethical requirements and plan and perform the audit toobtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of
the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control.

FINANCIAL STATEMENTS

77

An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of thefinancial statements.
I believe that the audit evidence I have obtained is sufficient andappropriate to provide a basis for my audit opinion.
OpinionIn my opinion, the financial statements present fairly, in all material
respects, the financial position of the Alberta Energy Regulator as at
March 31, 2014, and the results of its operations, its remeasurement
gains and losses, and its cash flows for the year ended March 31, 2014
in accordance with Canadian public sector accounting standards.

		 [Original signed by Merwan N. Saher, FCA]
Auditor General
May 9, 2014
Edmonton, Alberta

ALBERTA ENERGY REGULATOR Annual Report 2013/14

78

STATEMENT OF OPER ATIONSYear Ended March 31 (in thousands)

2014

2013

Estimates

Actual$166,148$ 181,668-

36,30054,543(Schedule 3)

ActualRevenues
Industry levies and assessments
Provincial grant$

124,881

Information, services and fees

9,259

7,431

6,994

Investment

2,500

1,023

895

177,907226,422

187,313

Energy regulation (Schedule 1)

170,857

208,310

173,726

Orphan abandonment (Note 4)

12,75016,172

13,001

183,607

224,482

186,727

Expenses

Annual operating surplus (deficit)$(5,700)$

1,940

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

FINANCIAL STATEMENTS

$

586

79

STATEMENT OF FINANCIAL POSITION
As at March 31 (in thousands)

2014

2013

AssetsCash and cash equivalents (Note 5)$

42,055$100,211

Security deposits (Note 6)

36,64752,520Accounts receivable

3,892

3,480

Prepaid expenses and other assets

9,660

10,091

Tangible capital assets (Note 7)

54,97253,147$

210,790$

155,885$

21,582$

18,981

Liabilities
Accounts payable and accrued liabilities
Grant payable to Orphan Well Association

10,750

8,972

Security deposits (Note 6)

100,21152,520

Deferred revenue (Note 8)

2,971

1,485

Deferred lease incentives (Note 9)23,535

24,157Pension obligations (Note 10)

3,291

3,260

162,340

109,375

Net assets at beginning of year

46,51045,924

Annual operating surplus

1,940

586

Net assets at end of year

48,45046,510Net Assets$

210,790$

155,885

Contractual obligations and Contingent liabilities (Notes 11 and 13)
The accompanying notes and schedules are an integral part of these financial statements.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

80

STATEMENT OF CASH FLOWS
Year Ended March 31 (in thousands)

2014

2013

Operating transactions
Annual operating surplus

$

1,940

$

586

Non-cash items included in net operating results
Amortization of tangible capital assets (Note 7)

12,045

11,667

-

121

31

16

Loss on disposal of tangible capital assets
Change in pension obligations(1,370)(1,367)

12,646

11,023

Amortization of deferred lease incentives (Note 9)(Increase)/decrease in accounts receivable

(412)

772

Decrease/(increase) in prepaid expenses and other assets

431(2,046)2,601(2,180)

Increase/(decrease) in grant payable to Orphan Well Association

1,778

(287)

Increase/(decrease) in deferred revenue

1,486

(38)

Additions to deferred lease incentives

748-

19,2787,244

Acquisition of tangible capital assets (Note 7)(13,870)(7,448)Cash applied to capital transactions(13,870)(7,448)

Increase/(decrease) in cash and cash equivalents

5,408

(204)

Cash and cash equivalents at beginning of year

36,64736,851

Increase/(decrease) in accounts payable and accrued liabilities

Cash provided by operating transactions

Capital transactions

Cash and cash equivalents at end of year$

42,055The accompanying notes and schedules are an integral part of these financial statements.

FINANCIAL STATEMENTS$

36,647

81

NOTES TO THE FINANCIAL STATEMENTS
March 31, 2014 (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 (REDA).
The AER’s mandate provides for the safe, efficient, orderly and environmentally responsible
development of hydrocarbon resources over their entire life cycle. This includes the conservationand management of water, the disposition and management of public lands and protection of
the environment.
Effective June 17, 2013, the AER was established to supersede the Energy Resources Conservation
Board (ERCB). The AER is responsible for the regulatory functions of the ERCB as well as certain
functions of Alberta Environment and Sustainable Resource Development (ESRD) that relate to
public lands, water and the environment.
The 2013 comparative figures are those of the ERCB. The 2014 figures combine 77 days of ERCB
operations from April 1, 2013 to June 16, 2013 with the balance of the fiscal year those of the AER.

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 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)

AssetsFinancial assets are assets that could be used to discharge existing liabilities or finance future
operations and are not for consumption in the normal course of operations. Financial assetsof the AER are limited to financial claims, such as advances to and receivables from otherorganizations.
Tangible capital assets are recorded at historical cost and amortized over the estimated usefullife of the assets using the following methods:
Leasehold improvements					Straight line
Furniture and equipment					Straight line
Computer hardware							Straight line
Computer software — purchased		Straight line
Computer software — developed		Declining balance
Work-in-progress, which includes developed computer software and leasehold improvements,
is not amortized until a project is complete.

(d)Liabilities
Liabilities are recorded to the extent that they represent obligations as a result of events andtransactions occurring prior to the end of the fiscal year. The settlement of liabilities will resultin a sacrifice of economic benefits in the future.

(e)

Net assets
Net assets represent the difference between the carrying value of assets held by the AER and
its liabilities.
PSAS requires a “net debt” presentation for the statement of financial position in the summary
financial statements of governments. Net debt presentation reports the difference between
financial assets and liabilities as “net debt” or “net financial assets” as an indicator of the
future revenues required to pay for past transactions and events. The AER operates within
the government reporting entity, and does not finance all its expenditures by independently
raising revenues. Accordingly, these financial statements do not report a net debt indicator.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

82

Note 2

Summary of significant accounting policies and reporting practices(continued)(f)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										Amortized Cost
Accounts receivable											 Amortized Cost
Security deposits													Cost
Accounts payable and accrued liabilities				CostGrant payable to the Orphan Well Association			Cost
Fair value is the amount of consideration agreed upon in an arm’s length transaction between
knowledgeable, willing parties who are under no compulsion to act. The fair values of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities, grant payable to theOrphan Well Association and security deposits are estimated to approximate their carrying values.
The AER has not designated any financial assets or liabilities in the fair value category and has notengaged in foreign currency transactions. The AER has no remeasurement gains or losses andconsequently has not presented a statement of remeasurement gains and losses.

(g)

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 the active
employees, which is 7 years.
Past service cost arising from plan amendments is accounted for in the period of the plan amendments.
Defined contribution plan accounting is applied to Government of Alberta multi-employer defined
benefit pension plans as the AER has insufficient information to apply defined benefit plan accounting.

Note 3(h)Deferred lease incentives
Deferred lease incentives, consisting of leasehold improvement costs and reduced rent benefits,
are amortized on a straight-line basis over the term of the lease.

(i)		

Future accounting changes
Liability for contaminated sites
In June 2010, the Public Sector Accounting Board issued an accounting standard, Liability forcontaminated sites, effective for fiscal years starting on or after April 1, 2014. Contaminated sites
are a result of contamination being introduced into air, soil, water or sediment of chemical, organic,or radioactive material, or live organism that exceeds an environmental standard. The entity
would recognize a liability related to the remediation of such contaminated sites subject to certain
recognition criteria. Management is currently assessing the impact of this change in accounting
standards on the financial statements effective the next fiscal period.

Reorganization
Under the proclamation of portions of REDA in June 2013, the AER was created and assumed all
responsibilities of the ERCB including all assets, liabilities, obligations, commitments and contingencies.
In November 2013, additional portions of REDA were proclaimed transferring the public land andgeophysical jurisdictions. The remaining portions of REDA were proclaimed in March 2014 whichtransferred all environmental and water jurisdictions. The transfer of jurisdiction from ESRD to the AER
represented a final step in creating a single regulator for upstream oil, oil sands, natural gas and coaldevelopment in Alberta.
Under REDA the AER has regulatory responsibilities for the entire life cycle of upstream energy resources
development in the province. To accomplish this the AER has taken over administration of the regulatory
functions previously provided by the ESRD in respect of energy resource activities.
Transferred assets		
		Cash		Security deposits
		Transferred at end of year$

Transferred liabilities

1,386

Security deposits

29,343

Deferred revenue$ 30,729

Transferred at end of year

$ 29,343
1,386$ 30,729

In addition, the AER received $1,392,361 in letters of credit related to deposits received due to additional
responsibilities assumed from ESRD.

FINANCIAL STATEMENTS

83

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, 2014, the AER collected $15,242 (2013 - $12,151) in levies and$930 (2013 - $850) in application fees.

Note 5

Cash and cash equivalents
Cash and cash equivalents consist of a deposit in the Consolidated Cash Investment Trust Fundwhich is managed by the Province of Alberta to provide interest income at competitive rates while
maintaining maximum security and liquidity of depositors’ principal. The Fund is comprised ofhigh quality short-term and mid-term fixed income securities with a maximum term to maturityof three years. As at March 31, 2014, securities held by the Fund have a time-weighted return of
1.2% per annum (2013 - 1.3%).

Note 6

Security deposits
The AER encourages the timely and proper abandonment and reclamation of upstream wells,
facilities, pipelines, mines, mine sites and oilfield waste management facilities by holding various
forms of security. At March 31, 2014, the AER held $100,211 (2013 - $52,520) in cash and an
additional $1,595,700 (2013 - $112,580) in letters of credit of which, $29,343 in cash and $1,392,151
in letters of credit related to deposits received due to additional responsibilities assumed from
ESRD. The security, along with any interest earned, will be returned to the depositors upon meeting
specified refund criteria.

Note 7

Tangible capital assets
Leasehold
Furniture &Improvements equipment

Land
Estimated useful life

Computerhardware &softwareIndefinite

Term ofthe lease

5–12 years

4–5 years

$

$

$

Total

Historical cost
Beginning of year
Additions282

11,291$ 105,962-

25,954
2,639

2,039

9,192

$ 143,489
13,870282

28,593

13,330115,154

157,359

Accumulated amortization
Beginning of year

$

-

$

Amortization expense
-

4,653

$

7,395

$

78,294$

90,342

1,351

896

9,798

12,045

6,004

8,291

88,092

102,387

Net book value at March 31, 2014

$

282

$

22,589

$

5,039

$

27,062$

54,972Net book value at March 31, 2013

$

282

$

21,301

$

3,896

$

27,668$53,147

Historical cost includes work-in-progress at March 31, 2014 totaling $2,122 comprised of:computer hardware and software $1,507 (March 31, 2013 - $835) and leasehold improvements $615
(March 31, 2013 - nil).

ALBERTA ENERGY REGULATOR Annual Report 2013/14

84

Note 8Deferred Revenue
2014		Balance at beginning of year$

Received during year

$

1,523

3,758

Less amounts recognized as revenue

371(2,272)

Balance at end of year

Note 9

2013

1,485

$

(409)

2,971

$

1,485

Deferred lease incentives
The AER has entered into various lease agreements which provide for lease incentives comprised of
reduced rent benefits and leasehold improvement costs. These amounts are included in deferred lease
incentives and are amortized on a straight line basis over the term of the lease.
																							 2014									

2013

		

Total

Total

$ 25,524

				Leaseholdimprovement
costs

Balance at beginning of year$

Additions during the year
Amortization
Balance at end of year

Note 10$

20,095

Reducedrent
benefits

4,062$ 24,157

320

428

748

-

(1,140)(230)(1,370)(1,367)4,260$ 23,535$ 24,157

19,275$$PensionThe 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 PublicService Managers. For the year ended March 31, 2014, the expense for these pension plans is equal
to the contribution of $13,194 (2013 - $10,229).
In addition, the AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) andtwo supplementary pension plans to compensate senior staff who do not participate in the government management pension plans. Retirement benefits are based on each employee’s years of service
and remuneration.
The effective date of the most recent actuarial funding valuation for SEPP was December 31, 2011.
The accrued benefit obligation as at March 31, 2014 is based on the extrapolation of the results of thisvaluation. The effective date of the next required funding valuation for SEPP is December 31, 2014.
Pension plan assets are valued at market values. During the year ended March 31, 2014 the weighted
average actual return on plan assets was 9.2% (5.4% in 2013).
Significant weighted average actuarial and economic assumptions used to value accrued benefit
obligations and pension benefit costs are as follows:		March 31, 2014

March 31, 2013

Accrued benefit obligations

Discount rate

5.3%

5.0%

Rate of compensation increase

3.8%

3.8%

Long-term inflation rate

2.3%

2.3%

2014

2013

Discount rate

5.0%

5.0%

Expected rate of return on plan assets

5.0%

5.0%

Rate of compensation increase

3.8%

3.8%

		
Pension benefit costs for the year

FINANCIAL STATEMENTS85

Note 10Pension (continued)
The funded status and amounts recognized in the Statement of Financial Position are as follows:		March 31, 2014

March 31, 2013Market value of plan assets$$

37,85934,568

Accrued benefit obligations

43,231

39,732

Plan (deficit)(5,372)(5,164)

Unamortized actuarial loss
Pension obligations

2,081
$

(3,291)

1,904$(3,260)$1,921

The pension benefit costs for the year include the following components:		Current period benefit cost

2014
$

2,022

Interest cost
Expected return on plan assets

2013

2,030

1,900

(1,786)(1,671)

Amortization of actuarial losses

395
$

2,661

334
$

2,484

$

2,468

Additional information about the defined benefit pension plans is as follows:		
AER contribution
Employees’ contribution
Benefits paid

2014
$

2,630

2013

507

444

3,024

1,859

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

Note 11

March 31, 2014

March 31, 2013

Equity securities

49.4%

50.9%

Debt securities

39.0%

38.0%

Other

11.6%

11.1%

		

100.0%

100.0%

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 each of thenext five years and thereafter are as follows:
2015$

19,781

2016

16,9582017

15,2862018

14,2932019

11,9822020–2086
		131,565$

209,865

ALBERTA ENERGY REGULATOR Annual Report 2013/14

86

Note 12

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 on 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
2014

Other entities

2013

2014

2013

Revenues

Provincial grant$

36,300Information, services and fees

$

146
$

36,44654,543$161$

54,704$

Entities in the Ministry
2014

-

$

-

144
144

149
$

149

Other entities

2013

2014

2013

ExpensesComputer services

$

2,154

Buildings

Note 13

$

-

2,043

$

-

1,197

$

1,483

553

548

Administrative

275

-

617

636

Consulting services

153

44

173

424

$

2,582

$

2,087

$

2,540

$

3,091

Receivable from

$

86

$

132

$

15

$

21

Payable to

$

4,571

$

4,494

$

605

$

188

Contingent liabilities
Accruals have been made in specific instances where it is likely that losses will be incurred based ona reasonable estimate.

Note 14

Approval of financial statements
These financial statements were approved by the AER Board of Directors on May 9, 2014.

FINANCIAL STATEMENTS87

SCHEDULES TO THE FINANCIAL STATEMENTSSCHEDULE 1 Energy Regulation Expenses
Year Ended March 31 (in thousands)

2014
Personnel$

2013

136,564$

114,682

Consulting services

21,962

14,247

Buildings

14,66013,994Computer services

12,71010,719Amortization of tangible capital assets

12,045

11,667

Travel and transportation

5,076

3,946

Administrative

3,161

2,814

Equipment rent and maintenance

1,108

946

Abandonment and enforcement

1,024

590

-

121

Loss on disposal of tangible capital assets$

208,310$

173,726

ALBERTA ENERGY REGULATOR Annual Report 2013/14

88

SCHEDULES TO THE FINANCIAL STATEMENTSSCHEDULE 2A ERCB Salaries and Benefits Disclosure
Year Ended March 31 (in thousands)

2014
Position

2013

Base Salary(a)Other Cash
Benefits(b)OtherNon-cash
Benefits(c)

$

$

$

Chairman (d)

-

-

-

Total
$

Total
-

$

310

(d)

48

9

1

58

283

Board Member 1 (e)

40

123

1

164

266

Board Member 2

(e)

40

157

11

208

265

Board Member 3 (e)

40

-

11

51

246

Board Member 4 (e)

40

137

11

188

245

Board Member 5

(e)

40

-

11

51

242

Board Member 6 (e)

40

194

3

237

213

Acting Chairman(a)Pensionable base pay.

(b)

Payments in lieu of vacation, health, retirement allowances and pension benefits.

(c)		

Employer’s contributions to all employee benefits including Employment Insurance, Canada Pension Plan,
Alberta pension plans, supplementary retirement plans and health benefits or payments made on behalf ofthe employees for professional memberships and tuition fees. Automobiles were provided, but no amount isincluded in these figures.

(d)

The Chairman’s position became vacant on December 31, 2012. The Vice-Chairman served the ERCB as
Acting Chairman effective January 1, 2013 to June 16, 2013.

(e)		

Total 2014 compensation reflects compensation earned by Board Members to June 16, 2013.

FINANCIAL STATEMENTS89

SCHEDULES TO THE FINANCIAL STATEMENTSSCHEDULE 2B AER Salaries and Benefits Disclosure
Year Ended March 31 (in thousands)

2014
Base
Salary(a)Position

2013

Other Cash
Benefits(b)OtherNon-cash
Benefits(c)

$

$

Total

Total

255

N/A

Board of Directors$

Chairman (d)

248

-

7

$

Board Director 1 (d)

88

-

6

94

N/A

Board Director 2 (d)

94

-

6

100

N/A

Board Director 3

(d)

88

-

6

94

N/A

Board Director 4

(d)

95

-

2

97

N/A

Board Director 5

(d)

95

-

7

102

N/A

Board Director 6

(d)

90

-

6

96

N/A

Board Director 7(d)

89

-

3

92

N/A

President and Chief
Executive Officer (e)

416

6

136

558

N/A

Chief Hearing
Commissioner (f)

165

35

12

212

N/A

Executive Vice-President,
Corporate Services (g)

195

4

65

264

N/A

Executive Vice-President
and General Counsel (h)

205

24

50

279

N/A

Executive Vice-President,
Operations (i)

192

4

44

240

N/A

Executive Vice-President,
Stakeholder & Government Relations (j)

166

12

56

234

N/A

Executive Vice-President,
Strategy & Regulatory(k)

206

23

49

278

N/A

Executive(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, health, vehicle allowances and pension benefits.

ALBERTA ENERGY REGULATOR Annual Report 2013/14

90

SCHEDULE 2B (continued)(c)		

Contributions to all benefits as applicable including Employment Insurance, Canada Pension Plan,
Alberta pension plans, health benefits or payments made for professional memberships and tuition fees.
If automobiles were provided, no amount is included in these figures.

(d)

Total 2014 compensation reflects compensation earned by members of the Board of Directors appointed
subsequent to June 16, 2013 as a result of the proclamation of REDA.

(e)		

The incumbent held the position effective June 17, 2013. This is a new position as the result of the proclamationof REDA.

(f)		

The incumbent held the position effective June 17, 2013. This is a new position as the result of the proclamationof REDA.

(g)

The incumbent held the position effective July 1, 2013. This is a new position as the result of the proclamationof REDA.

(h)

The incumbent held the position effective June 17, 2013. This is a new position as the result of the proclamationof REDA.

(i)		

The incumbent held the position effective August 12, 2013. This is a new position as the result of the
proclamation of REDA.

(j)		

The incumbent held the position effective August 12, 2013. This is a new position as the result of the
proclamation of REDA.

(k)

The incumbent held the position effective June 17, 2013. This is a new position as the result of the proclamationof REDA.

(l)		

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, amarket 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 theemployee group. Current service cost is the actuarial present value of the benefits earned in the fiscal year. Prior
service and other costs include amortization of past service costs, amortization of actuarial gains and losses,
and interest accruing on the actuarial liability. The costs detailed below are only for those employees included in
Schedule 2(b) who participate in the SEPP and SRP maintained by the AER to compensate senior staff who do
not participate in the government management pension plans.
Pension Expense for the Period
June 17, 2013 to March 31, 2014
Position

Executive Vice-President and General Counsel
Executive Vice-President, Operations
Executive Vice-President, Strategy & Regulatory(m)

Prior Service& Other Costs

Total

26

3

29

-

-

-

23

11

34

Total

N/A
(m)

N/A
N/A

Pension expense is determined at the beginning of the fiscal period. As this employee became a member ofthe AER’s supplementary pension plans on August 12, 2013 the estimated pension expense is nil.

Position

Executive Vice-President and General Counsel
Executive Vice-President, Operations
Executive Vice-President, Strategy & Regulatory

(n)

2013

Current
Service Cost

Accrued
Obligation
June 16, 2013

Changes in
Accrued
Obligation

Accrued
Obligation
March 31, 2014

229

72

301

-

44

44 (n)

813

56

869

The accrued obligation at March 31, 2014 is an estimate only as the March 31, 2014 accounting disclosure isbased on a December 31, 2012 valuation extrapolated to March 31, 2014.

FINANCIAL STATEMENTS

91

SCHEDULES TO THE FINANCIAL STATEMENTSSCHEDULE 3 EstimatesYear Ended March 31, 2014 (in thousands)

PLAN
Estimates (a)Changes

Authorized
Budget$$ActualRevenues
Industry levies and assessments

15,250$ 181,398-

36,30036,300Information, services and fees

9,259

-

9,259

7,431

Investment

2,500

-

2,500

1,023

177,907

51,550229,457

226,422

Energy regulation

170,857

28,500199,357

208,310

Orphan abandonment

12,7503,250

16,00016,172

183,607

31,750215,357

224,482(5,700)19,80014,1001,940

Capital Investment

9,000

19,80028,80013,870Less: Amortization(14,700)-(14,700)(12,045)

Net capital investment(5,700)19,80014,1001,825

Provincial grant

166,148$

181,668
36,300

Expenses

Annual operating surplus (deficit)
Capital

$

(a)

-

$

-

$

-

$

115

Estimates are based on the AER Business Plan for the year ended March 31, 2014. The Estimates and Changes havebeen approved by the Treasury Board of the Government of Alberta as the Authorized Budget.

ALBERTA ENERGY REGULATOR Annual Report 2013/14