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,

2014/15
Annual Reportorderly, and environmentally responsible
development of energy resources. This
includes allocating and conserving water,
managing public lands, and protecting
the environment, while securing economic benefit for all Albertans.

Contents

01

03

05

07

12

18

21

31

43

53

65

75

81

89

102

Message from the Chair

About the Alberta
Energy Regulator

Protective

Credible

Corporate Governance

124
Glossary

Message from the
President and CEOYear In Review
and Highlights

Effective

Delivering theStrategic Plan

Management’s Discussion
and Analysis

Message: An Employee’s
Perspective

2014–15 Progress Report

EfficientOperational
Overview

Financial Statements

2» Message from the Chair“ The AER’s story…is one
that we, as a board, areproud of and work hard
to maintain.”

Gerard Protti
Chair

ABOUT AER

1

On behalf of the board of directors, I’m
pleased to report that 2014/15 was filled withaccomplishments and progress as the Alberta
Energy Regulator (AER) developed innovative
processes and continued its transformation
into a protective, effective, efficient, andcredible regulator.
Although we completed the third phase of
our transition to the AER, from a legislative
perspective, in April 2014, the complex transformation process continued this past year.
As transformation unfolded, staff continued
to ensure that the regulator’s oversight andenforcement responsibilities were maintainedat the highest level. Since the expansion of ourmandate, the AER integrated operational andcapital budgets and adjusted administration
fees, which are paid by industry to support theregulator’s ongoing costs. These adjustments
required extensive consultation with our industry and government stakeholders. The boardof directors monitored this work and were
impressed by the coordination and results ofthese consultations and the performance of
AER staff during this period.
Another critical part of the AER’s transformation was the successful integration of new
employees. AER leaders managed the taskwell, helping employees transition from theEnergy Resources Conservation Board,
Alberta Environment and Sustainable
Resource Development (now Alberta

Environment and Parks), and new hires
from other organizations. Once again, theboard of directors noted the great strides
taken by leaders and staff to build a highperforming and innovative organization.
Being innovative extends to our increased
mandate to protect the environment. To
ensure that we meet our responsibilities toprotect the air, water, land and biodiversity,
we have developed a work plan that plotsa clear, strategic environmental path thatcomplements the AER’s 2014–17 strategic plan.
As a regulator that often breaks new groundin regulatory development, the AER had many
opportunities over the last 12 months to speakat conferences and stakeholder meetings here
in Alberta, across Canada, and worldwide. This
work is important for upholding the AER’s
reputation as a credible regulator and achieving our vision of becoming best in class. The
board was pleased to witness the commitment
shown by the president and chief executive
officer, the executive leadership team, andAER staff, who proudly told the AER story.
The AER’s story of transition, transformation,and progress is one that we, as a board, areproud of and work hard to maintain. I lookforward to the challenges, successes, andopportunities that lie ahead in the next
chapter of our story.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

2» Message from the

President and CEO“ …we must transform the
AER to reach our vision of
becoming best in class.”

Jim Ellis
President &Chief Executive Officer

ABOUT AER

3

For the AER, the past year was one ofcontinued change and transformation. As
Alberta’s single regulator for energy resource
development, we focused on delivering on
our strategic plan to be a protective, effective,
efficient, and credible regulator—one that isbest in class.
We’ve made great progress in delivering onthese priorities by• providing more information on incidents,
investigations, and enforcements with ourCompliance Dashboard,• responding swiftly to seismic activity in
Fox Creek by implementing a “traffic light”
protocol for companies conducting hydraulic fracturing activities in the area,• focusing on our expanded environmental
mandate by hiring Dr. Monique Dubé as our
first chief environmental scientist to lead ourefforts of finding opportunities to improve
the AER’s environmental performance (seestory on page 41),
• carrying out targeted inspections focusedon reducing odours and emissions in thePeace River region, and• launching a new approach to stakeholder
engagement with our multistakeholder
engagement advisory committee.
This progress earned our pipeline safety
program recognition from the Office of the
Auditor General of Alberta. In its 2015 audit
report, the Auditor General made six recommendations to improve our surveillance andenforcement activities, which we accepted
and are addressing.

As a regulator funded through an industry
levy, and accountable to the Governmentof Alberta, which reviews and approves ourbudget, we have responded to the impact of
low oil prices by demonstrating fiscal restraint
in our operations and introducing efficiencies
that save money for industry while upholding
public safety and environmental protection.
By reducing duplication and finding new
approaches to regulatory oversight, we havegenerated more than $270 million in verified
annual savings for industry—making the AER
a “levy-neutral” regulator*.
While we’re pleased with this progress, theAER exists to protect what matters most toAlbertans: public safety and the environment,
specifically Alberta’s land, water, air, andbiodiversity. This is the heart of our mandate.
We’ve made positive progress in delivering on
our strategic initiatives while conducting ourcore regulatory work. Still, we must transformthe AER to reach our vision of becoming bestin class. We will accomplish this through our
1200 employees, who exhibit the passion
and drive that is key to our success as wetransform our organization and deliver on
our mandate and vision.
Last year, we published our first annual reportto share our vision, our plan, and our priorities.
While I am pleased by our progress to date,more must be done. As we reflect on our
progress in this year’s annual report, we share
our plans to improve our operations and meet
our targets in the pursuit of our vision.

* Terms coloured blue can be found in the Glossary section on page 124.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

4» Message: An

Employee’s Perspective“ [AER staff] all share thedesire to do our best to
get the job done and do itwith excellence.”

Steve Tymchyshyn
Environment &Operational Performance

ABOUT AER

5When I started working as an inspector at the
AER in 2013, I did so after leaving a long careerwith Environment and Sustainable Resource
Development (ESRD), now Alberta Environment and Parks. I was open to change andnew challenges and was very excited toembark on such an important journey withthis new regulator.
I’m very proud to say I work for the AER. I’m
proud of how we uphold our commitments toprotect people, the environment, and Alberta’s
energy resources.
Being a part of the journey to become best inclass has made me realize how much can beaccomplished when you are surrounded bypassionate and skilled people. When I thinkback to my first days at the AER, I’m amazed atwhat we’ve accomplished. The AER is leading
the way in responsible energy regulation. We
are building a reputation as a trusted andstrong regulator through our actions.
When you think about the people who are
considered to be the best at what they do,they all have one thing in common: the ability
to take action. They don’t sit on the sidelines
talking a big game or thinking of why something can’t happen; instead, they makethings happen.

to the final results of this work, I believe wealready display many best-in-class qualities.
As an AER employee, to me, being best inclass means• using the tools and resources available toachieve the best possible outcome,• accepting the challenges of our job and theopportunities to explore new approaches
and work with new people,• being humble and prepared to makemistakes,• being resilient and driven to continually
improve and learn, and• having a commitment to excellence.
I see these qualities and traits in my colleagues
and in the AER’s leadership team. We all sharethe desire to do our best to get the job done
and do it with excellence. Despite working
from numerous locations across Alberta, weare united through our shared passion.
As we continue on our journey, we will encounter challenges and unknowns. To get the results
we have set out to achieve, I encourage mycolleagues to follow sports psychologist
Dr. Jeff Spencer’s advice and “feel the fear anddo it anyway.”
I’m proud of our work in 2014/15 and I’m readyto do more of the same in the year ahead.

As an organization, we are working to define
what it means to be best in class through ourBest-in-Class Project. And while I look forward

ALBERTA ENERGY REGULATOR Annual Report 2014/15

6

OUR MANDATE
The AER’s mandate is to ensure the safe, efficient,orderly, and environmentally responsible developmentof hydrocarbon resources over their entire life cycle.
This includes allocating and conserving water resources,
managing public lands, and protecting the environment
while providing economic benefits for all Albertans.

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

ABOUT AER

7

ABOUT THE ALBERTA
ENERGY REGULATORThe Alberta Energy Regulator (AER) is
the single provincial regulator for oil,natural gas, oil sands, and coal development in Alberta. The AER ensures
the safe, efficient, orderly, and environmentally responsible development ofenergy resources. This includes allocating
and conserving water, managing public
lands, and protecting the environment,
while securing economic benefits for
all Albertans.

Our Responsibilities
With established reserves of 166 billion
barrels of bitumen, 1.8 billion barrels of
crude oil, 31 trillion cubic feet of conventional natural gas, and 37 billion tonsof coal, the AER regulates some of theworld’s largest hydrocarbon resources.
Developing and transporting theseresources requires significant infrastructure; the AER regulates• over 421 000 kilometres (km)of pipelines,• over 178 000 operating wells,• 29 000 oil facilities,• 50 thermal in situ (oil sands recovery)
projects,• 9 oil sands mines,• 4 coal processing plants, and• 11 producing coal mines.

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 proposedenergy developments (over 40 000
applications each year),• oversee all aspects of energy resource
activities in accordance with government policies,• regularly inspect energy activities toensure that all applicable requirements
are met,• take enforcement action in response tocompanies that fail to comply with AER
requirements, and• hold hearings on proposed energy
developments.
Supporting all of this work are 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.
The AER also boasts two world-classservices that few other regulators have:
the Core Research Centre (CRC) and theAlberta Geological Survey (AGS).

ALBERTA ENERGY REGULATOR Annual Report 2014/15

8

The CRC collects, preserves, and displays
core samples, drill cuttings, and drillingand completion records of oil and gas
wells in Alberta, which are used bycompanies large and small to researchand develop our energy resources. The
CRC houses more than 1.5 million boxesof core, 20 million vials of drill cutting
samples, and daily drilling reports fromover 400 000 wells.
The AGS provides both the AER andAlbertans in general with a scientific view
into the world beneath Alberta, including
rocks, minerals, soils, and water. Expert
teams of geoscientists study such important themes as our valuable groundwater
resources and how oil and gas development affects seismic events.

Alberta’s Single
Energy Regulator
The AER was created upon proclamationof the Responsible Energy Development Act, which dissolved 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), now Alberta Environment and

ABOUT AER

Parks, itself having been created by amerger of two government ministries notlong before the AER was formed.
The AER is just one part of Alberta’s
Integrated Resource Management
System. This Government of Alberta
initiative considers the combined effects

Supporting all of this work are
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.

9of existing and future development andis designed to achieve environmental,
economic, and social outcomes fromresource development.
In addition to the AER, this system includes• the Government of Alberta, which sets
policy as it relates to energy development in the province;• 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, whichacts as the main interface between
government and the AER.

What We Don’t Regulate
The AER regulates all aspects of energy
resource development in Alberta, which
includes oil, natural gas, natural gas
liquids, oil sands, and coal. However,
we do not regulate• any aspect of electricity generation
or distribution, including gas utility
pipelines;• the price of natural gas;
• gasoline or any other refined petroleum
products;• renewable energies, such as wind
power; or• oil and gas pipelines that cross provincial or international borders.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

10

ENSURING STRONG ENVIRONMENTAL PERFORMANCE : REGULATING WITH A PLAN
Creating the AER involved taking on environmental functions from Alberta Environment
and Sustainable Resource Development (ESRD),
now Alberta Environment and Parks, significantly expanding our environmental mandate.
To ensure our success with our new responsibilities, we took stock of our environmental
functions to understand how to best deliveron this mandate and brought in expert help
by establishing the new position of chiefenvironmental scientist, which was filled by
Dr. Monique Dubé (see page 41).
Dr. Dubé has only been with the AER since
September 2014 but has already made valuablechanges that help us identify ways to improve
environmental performance in Alberta’s energy
sector and strengthen our own environmental
vision. Under her direction, we are developinga three-year environmental work plan thatsets the direction, activities, and priorities forenvironmental protection across the AER.
This work plan has four themes that align with
the AER’s four priorities:
1. Monitor and report on environmental
performance (protective): The assessmentand management of cumulative effects
is fundamental to achieving the AER’s
environmental mandate and to managing
resource development for land-use planningand policy. The AER, Alberta Environment
and Parks, and the Alberta Environmental
Monitoring, Evaluation, and Reporting
Agency (AMERA) have developed a cumulative effects management “blueprint” toprovide an understanding of how to assess
cumulative impacts and implement methods

ABOUT AER

to manage them among members of Alberta’s
Integrated Resource Management System(IRMS). The blueprint will allow the AER to
test methods of managing cumulative effects
and new ways of regulating the energy
industry, such as in play-based regulation.
2. Responsive and adaptive environmental
management (effective): A clear andwell-understood mandate is necessary todeliver responsive and adaptive environmental management, which is why we’vethoroughly reviewed Alberta’s existing

CUMULATIVE EFFECTS
Energy development, like all industrial
activity, has an impact on the environment. The AER knows that these impacts
can multiply when development occurs
rapidly in a specific area, which is what
we refer to as “cumulative effects.” In suchcases, pressures on the environment andimpacts on local residents can be greaterthan when those operations are spread
across the province, simply because theland only has so much capacity to support
human and industrial activity.
Managing cumulative effects is one of the
AER’s top priorities. We are developing
new regulations and systems that willallow us to look at the whole picture when
we assess an application so that when
the cumulative effects of development are
growing too high, we can take measures
to reduce them.

11legislation. This review has helped us
develop a clear environmental mandate—
one that is distinct from that of Alberta
Environment and Parks and AEMERA, andone that will support our interactions with
our partners and stakeholders in areas likeenvironmental monitoring and cumulative
effects assessment.
We have also clarified our role with Alberta
Health and Alberta Health Services. While
the AER is not a human health regulator,some of our partners are, so it’s critical that
we support them by sharing information
about industry compliance, AER investigation history, emissions monitoring, andenvironmental monitoring. These clear
distinctions will help us better work with
our partners to serve Albertans, especiallywhere stakeholders repeatedly raise healthconcerns related to the energy industry’s
environmental performance.
We must develop a new process to address
stakeholders’ recurring concerns in a more
timely fashion. A new process will enhance
information sharing, which will help healthregulators examine possible links between
industry activities and public health. Sucha process is currently being tested in the
Lochend, Didsbury, and Fort McKay areas.
3. Environmental cooperation and alignment(efficient): The AER is responsible for thefull life cycle of energy resource regulationin Alberta. To increase efficiency, cooperation, and consistency across the AER forenvironmental matters, we have establishedcommittees called Environmental Communities of Practice to address issues related toair and greenhouse gasses, surface water,
groundwater, land, and biodiversity.
We are also looking to improve environmental monitoring; we are reviewing
environmental monitoring requirementsfor oil sands operators to better align andcoordinate with AEMERA and the joint
Canada-Alberta oil sands monitoring
program and to support cumulative effects
assessment and regulatory decision-making.
4. Recognized environment expertise (credible):
The AER employs highly skilled experts to
inform regulation at every level. It is important that this expertise be available to ourstakeholders and that we be able to explain
our decisions that impact the environment in
an open and transparent manner. To address
this, the AER will publish AER Environmental
Perspectives, a publication on environmental
issues, as well as establish a series of scienceseminars to support continuous learning
within and outside the AER.
With the expansion of our environmental
mandate, we’ve also taken inventory of our
in-house environmental expertise to identify
training opportunities, areas of capacity (e.g.,water, air, land, etc.), and gaps that need tobe filled.
All of this work—and other work to come—fuels
the AER’s environmental engine, allowing us to
seize opportunities to fulfill this important partof our mandate.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

12

YEAR IN REVIEWOur Second Year

2014/15 Highlights

Our first full year was largely focusedon the complex task of merging thefunctions of three regulatory bodies
into one—a challenge considering that
all energy regulation activities in theprovince had to continue throughout thetransition. We also developed our 2014–17
strategic plan, a road map designed tohelp us arrive at our vision by focusing
on our four priorities of being protective,
effective, efficient, and credible.

The AER reached a number of milestones over the past 12 months, moving
us toward achieving the goals in our
strategic plan and fulfilling our mandate
to ensure the safe, efficient, orderly, andenvironmentally responsible developmentof Alberta’s oil, oil sands, natural gas andcoal resources.

Once we completed our transition to
becoming Alberta’s single regulator at
the end of March 2014, we turned ourattention to the even greater challengeof transforming the AER into a regulator
that is truly best in class.

Once we completed ourtransition …we turned ourattention to the even greater
challenge of transforming the
AER into a regulator that istruly best in class.

YEAR IN REVIEWThe AER unveiled our Compliance
Dashboard, which not only provides
daily updates on incidents reported to
the regulator, but also includes updates
on ongoing investigations and enforcement actions.
We completed our comprehensive audit
of Plains Midstream Canada’s pipeline
operations, reviewing all aspects of
Plains’s operations and directing thecompany to make improvements in a
number of areas to ensure it complies
with AER requirements.
The AER worked with Albertans andcompanies to resolve energy-related
disputes with our alternative dispute
resolution (ADR) process in a positive
way. On at least 20 occasions, formal
concerns about applications werewithdrawn due to agreements
reached through the ADR process.

13

The AER took swift action in response to
several seismic events in the Fox Creekarea, and we continue to explore any
links between these events and hydraulicfracturing. While these events posed no
threat to the public or the environment,
the AER responded quickly by issuingan order directing companies to monitor
and report seismic activity in the Fox
Creek area.
The AER continued to address concerns
about odours and emissions from heavy
oil production facilities in the Peace Riverregion by strengthening requirements
and carrying out a series of intensive
inspections that we refer to as “compliance sweeps.” Since we started thisprogram in June 2014, we completed
742 inspections related to the Peace River
proceeding, 729 of which demonstrated
that companies were complying with ourregulations. When companies failed tocomply with our requirements, we acted
quickly, shutting in sites when needed.
We will continue to monitor industry
compliance in this area. See page 22
for more information on air emissions.
We focused on efficiency by reducing
duplication and finding new ways to
conduct our work while ensuring wecontinue to protect public safety and theenvironment. Such efforts have resulted

We launched the Best-in-Class
Project, to help identify the
key attributes of a world-class
regulator….
in more than $270 million in annual costsavings for operators.
We strengthened our relations at home
and abroad by working in partnershipwith other jurisdictions such as theNorthwest Territories, British Columbia,
and Mexico; we formed a new agreementwith the Dutch environmental organization Deltares, which will provide expertiseon environmental protection and water
management. At the same time, we havepromoted collaboration and knowledge
sharing among western Canadian regulators with the launch of the Western
Regulators’ Forum (page 54).
We launched the Best-in-Class Project tohelp identify the key attributes of a worldclass regulator, understand how the AER
can adopt these attributes, and measure
our progress.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

14» Year in Review

HIGHLIGHTSCOMPLIANCE DASHBOARD

PLAINS AUDITThe AER launched a newtool with information on
incidents, our complianceand enforcement activities,
and investigations.

The AER completed its audit
of Plains Midstream Canada’s
operations in Alberta following
instances of noncomplianceand several significant
pipeline incidents. The AER’s
audit identified key areas for
improvement and made it clear
the company has to comply with
our pipeline requirements.

PEACE RIVERCOMPLIANCE SWEEPS

Following through on ourcommitments from last year’s
Peace River proceeding,we conducted “compliancesweeps” to ensure that industry
is complying with the newrules. We continue to monitor
compliance and work with thecommunity to deliver on all of
the recommendations.

YEAR IN REVIEWRESPONSE TO SEISMIC EVENTS

We created new seismic
monitoring and reporting
requirements for oil and gas
operations in the Fox Creek area.
We now have thresholds forwhen to report seismic events
and when to invoke a response
plan or halt activity entirely.

15

TAILINGS MANAGEMENTFRAMEWORK

To support the Government ofAlberta’s Tailings Management
Framework, we are developing
new regulatory tools to ensurethat oil sands tailings areappropriately managed andthat all environmental
requirements are met.

PLAY-BASED REGULATION PILOT

We carried out the play-based
regulation pilot: a first step
towards a new framework
for regulating oil and gas
development. The pilot will
help develop new regulatory
requirements for unconventional
oil and gas development that
addresses cumulative effects
and encourages collaboration
among operators.

MULTISTAKEHOLDER ENGAGEMENTADVISORY COMMITTEE

We established amultistakeholder engagementadvisory committee
whose members represent
environmental nongovernmentalorganizations, landowners,
community groups, First Nations
and Métis groups, and others
to create more opportunities
for open communication
with our stakeholders.

RECLAMATIONCERTIFICATE INSPECTION

With new responsibilities foroverseeing reclamation, we
completed our first reclamation
certificate inspection, ensuringthat industry is meeting its
reclamation commitments.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

16» Year in Review

HIGHLIGHTS
TAKING ON ENVIRONMENTAL
IMPACT ASSESSMENTS

As the final step in our transition
to becoming the single energy
regulator in Alberta, we havebegun reviewing environmental
impact assessments (EIAs)
associated with new energy
developments.

WESTERN REGULATORS’ FORUM

With the BC Oil and Gas
Commission, the Saskatchewan
Department of Economy, andthe National Energy Board, we
created the Western Regulators’
Forum to strengthen energy
regulation in western Canada
with a focus on flaring, venting,emissions, wellbore integrity,and pipeline safety.

MAKING IMPROVEMENTS IN
PIPELINE SAFETY

The AER has begun
implementing the six
recommendations made by
the Auditor General of Alberta’s
pipeline safety audit.
With a focus on enhancing
staff training, enhancing
surveillance, and establishing
performance measures andtargets, we’re committed to
improving our performance.

YEAR IN REVIEWWINTER DRILLING

The AER launched a newprogram that significantly
improved processing times forapplications during the winterdrilling season. We achieved
our targets during the 2014/15
winter drilling season, meeting
our turnaround time forapplications 97 per centof the time.

17

AGREEMENTS WITH MEXICO,THE N.W.T., AND DELTARESCOST SAVINGSTHROUGH EFFICIENCY

We forged three newpartnerships with our peers,signing memorandumsof understanding with
Mexico’s energy regulator,
the Government of theNorthwest Territories, andthe Dutch water research
institute Deltares.

In our 2014–17 strategic plan,
we committed to reducing
industry costs by $60 million
in the 2014/15 year; we actually
reduced costs by $270 million.

DAM SAFETY INSPECTION
PROGRAMRESPONDING TO CONCERNS ANDRESOLVING ISSUES

Through our alternative dispute
resolution (ADR) process,we helped Albertans andcompanies resolve disputes
in a positive way. Last year, atleast 20 formal concerns wereresolved due to agreements
reached through ADR, andthree hearings were cancelled.

Receiving responsibility
for dams related to energy
resource development in 2014,
the AER takes dam safety
seriously. Responding to the
Auditor General of Alberta’s
recommendations, the AERlaunched a program to inspect
the 65 AER-regulated dams by
the end of October 2015 andmake the results available
to the public.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

18

2014/15 PROGRESS REPORT
To become best in class and to deliveron the priorities set out in our 2014–17
strategic plan, we must achieve results
and report on our progress. This means
demonstrating how we’ve ensured public

safety and protected the environment,
how we’ve been effective and efficient inensuring compliance, how we’ve engaged
our stakeholders, and whether Albertansare confident in the AER.

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

PROTECTIVE
Develop an integrated
whole-systemregulatory approach

Volume of gas flared and vented from oil and gas operations

Proportion of inactive wells meeting current requirements

EFFECTIVE
Strengthenrisk-based
regulation

Adoption of risk-based regulation to respond to changes intechnology and complexity in oil sands development
Number of incidents per kilometre of pipelines regulatedby the AER

EFFICIENT
Transform Alberta’s
energy regulatory
system to improve
efficiency

CREDIBLE
Increase trust andconfidence in how
energy is developedin Alberta

Regulatory process efficiencies

Relevant regulatory requirements

Percentage of Albertans confident that oil and gas
development is occurring responsibly
Stakeholder rating of AER performance in key areasof concern
Recommendations for best-in-class performance

2014–15 PROGRESS REPORT19

Last year, we identified performancemeasures and targets that align with ourpriorities; these are guideposts to help
AER define success and demonstrate theresults of our actions. As we complete
the first full year of our journey, we arerefining our targets and measures andassessing where we need improve our
performance. In some cases we havemade changes to our strategic plan tobetter refine our targets.

TargetStatus

You can see the updated strategic planon page 70.

Work with Government of Alberta toestablish requirements for water use inenergy resource development

Work continues on managing water use for energy
development by building a performance dashboard forwater use that will inform requirements for reduction

Implementation of regulations aligned with
Alberta’s Tailings Management Framework

Tailings Management Framework released by Governmentof Alberta in March 2015; a new directive will be in place by
December 2015

Flaring levels are within provincial guidelines

Total gas flared was within the provincial guidelines (670 cubic
metres) at approximately 485 million cubic metres; gas vented
was an estimated 445 million cubic metres*
The AER continues to support an integrated approach to resource
development through the Government of Alberta’s IRMS

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

Of the 227 high-risk inactive wells in Alberta as of April 2014,
218 (96 per cent) were brought into compliance with AER
requirements by the end of April 2015

Complete shallow SAGD integrity study

An AER study into reservoir containment is nearing completion
and will be released in 2015

Pipeline incident rate reduced by 4 per cent

The pipeline incident rate increased from 1.4 per1000 km in 2013 to 1.6 per 1000 km in 2014

$60 million in verified savings; year one

The AER achieved $270 million in verified annual cost savingsin 2014/15

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

We simplified our processes and reduced overlap in regulatory
requirements that resulted in improved efficiencies

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

41 per cent of Albertans are aware of the AER and its role inregulating oil and gas development, an increase of 9 per cent

10 per cent increase in positive perceptions/rankings of AER performance

In 2015, 77 per cent of Albertans expressed confidence in the
AER’s ability to fulfill its mandate

Completion and release of recommendationsin 2015

Recommendations for best-in-class performance will be delivered
to the AER in summer 2015

* A technical review of the data is underway and numbers will be confirmed with the
publication of ST60B: Upstream Petroleum Industry Flaring and Venting.

2014–17
Our Priorities

20

Develop an
integrated
whole-systemregulatory
approach

2014–17 STRATEGIC PLAN21

P R OT E C T I VE
Regulating a world-class energy resource
is a huge responsibility, which is why the
first priority of our strategic plan is to beprotective—we will protect the public andthe environment.

• protecting the land,• making sure companies follow safety
and environmental requirements, and• enforcing compliance when thoserequirements are not met.

The AER recognizes that any industrial
activity carries risks. Strong and effective
rules at every stage of oil, gas, and coaldevelopment can minimize these risks.

We do this by undertaking regulatory
projects that deliver measurable results inenvironmental performance, increase ourability to ensure public safety, and help
us reduce cumulative impacts. We work
to exceed our mandate by strategicallyfocusing on key projects.

The AER regulates Alberta’s energy
resource development to respond quickly
and effectively to new technologies,changing market conditions, and any
potential risks.
Emerging technologies employed by oil
and gas companies drive the intensity
and scale of oil and gas development,
and we must always respond with new
approaches to energy regulation. The
AER is addressing cumulative impacts
and aligning with the Governmentof Alberta’s Integrated Resource
Management System as part of thedecision-making process for approving
oil and gas development. We focus onwhat Albertans have told us mattersmost to them:• public safety,• protecting our water resources,

What We AccomplishedIn our 2014–17 strategic plan, we committed to achieving specific goals to ensurethat the AER continues to bea protective regulator. Although thestrategic plan stretches over three years,
we are pleased to report that we accomplished many goals in the first year.

Reclamation Certificate
The AER took another major step as afull life-cycle energy regulator in October
2014 when we completed our firstreclamation certificate inquiry at the siteof a former coal mine west of Edmonton.
This involved verifying that the company

ALBERTA ENERGY REGULATOR Annual Report 2014/15

22completed the required work and by
examining all vegetation on the land fromtrees to grasses and wetland plants.
Companies must submit reclamationplans when they apply under the Environmental Protection and Enhancement Act
for any energy development—regardlessof size—to specify how they will return theland to an equivalent land capability. Thismeans that once reclamation is complete,
the AER requires that the land will be able
to support the various uses that existed
before the project began—we expect
nothing less.

The AER requires that alltechnologies used to burnwaste gas be designed tomeet the province’s Alberta
Ambient Air Quality
Objectives and Guidelines.

2014–17 STRATEGIC PLAN

Air Emissions
Last year, the AER changed therequirements in Directive 060: Upstream
Petroleum Industry Flaring, Incinerating,and Venting to prohibit odours andreleases from travelling off oil and gas
development sites, in addition to requiring
gas conservation, even in cases where
it might not be economical to do so.
These changes give the AER additional
enforcement authority to ensure that all
our requirements are met.
Before flaring or incinerating waste gas,companies must consider economicalalternatives and the environmental
impacts and benefits of eliminating or
reducing flares. The AER requires that alltechnologies used to burn waste gas bedesigned to meet the province’s Alberta
Ambient Air Quality Objectives andGuidelines. Recognizing the long-termand environmental impacts of flaring andventing gas, the AER’s goal is to ensurethat oil and gas operations adhere tothese air quality guidelines.
Flaring and venting limits for 2014 were
within the provincial guidelines of 670
cubic metres per year, with total gas
flared at approximately 485 million cubic

23

P ROTEC T IVE
metres, down from 495 cubic metres in
2013. Total gas vented was an estimated445 million cubic metres, an increase
from 403 million cubic metres in 2013.
The increase in venting volumes is due
to increases in heavy oil production in
2014. These estimates are currently
under technical review by the AER andwill be confirmed and released in September 2015.

Action in Peace River
The AER is committed to ensuring that
operators meet all requirements forflaring and venting across the provinceand has carried out a number of“compliance sweeps” (that is, targeted
inspections focused on a small geographicarea) in the Peace River region. During
four periods between June 2014 andFebruary 2015, teams of AER inspectors
conducted 742 inspections of oil and gas
facilities to make sure companies werecomplying with Directive 060. Of thoseinspections, 729 sites were in compliance.
When companies failed to comply with
our requirements, we acted quickly,
shutting in sites when required. Results ofthese sweeps can be found at www.aer.ca.

Plains Midstream Audit
In August 2013, following a number ofpipeline incidents and other complianceproblems, the AER conducted a thoroughaudit of Plains Midstream Canada’s
pipeline operations under a section 22
order of the Oil and Gas Conservation
Act. The audit examined all aspects of
Plains’s operations, and the AER directed
the company to make improvements
in a number of areas in order to ensurecompliance with AER requirements.
The AER will continue to focus on thecompany’s operations and will follow
up in 2015 to verify that it continues toimprove pipeline safety and is complying
with all AER requirements.

PEACE RIVER COMPLIANCE SWEEPS

Noncompliant

Compliant

729

13
742

total
inspections

ALBERTA ENERGY REGULATOR Annual Report 2014/15

24Play-based Regulation Pilot
Play-based regulation is one of thesystems the AER plans to use to addresschanges in the intensity and scale of oil
and gas development that result fromthe use of new technologies, such as
multistage hydraulic fracturing. Over the
past 12 months, the AER has carried out aplay-based regulation pilot project in theFox Creek area to test its effectiveness.
Through this pilot, the AER accepted
single-project applications for multiple
energy development activities; applicants
were required to engage stakeholders
for the entire project plan instead of forTargets
The 2014–17 strategic plansets out specific targets andmeasures. Here is a glimpse
at where we are.

2014–17 STRATEGIC PLAN

each individual well, as is the case in the
traditional regulatory system. Discussing
the plan for the entire project allows
local residents to get a better pictureof a project’s impacts, helping them tounderstand the long-term effects of any
agreements they reach with an applicant.
This also leads to a better understandingof a project’s cumulative impacts beforehand, which, in turn, allows companies toconsider different options to reduce these
impacts. To that end, the AER, along with
our government partners in the Integrated
Resource Management System (IRMS),
have developed a “blueprint” to help

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

Volume of gas flared and vented
from oil and gas operations

25

P R OT E C T I VE
us understand the best ways to assess
cumulative effects and implement methods
to manage them. Pilot projects such as
the one at Fox Creek allow the AER to
test ways to mitigate cumulative effects.
The play-based regulation pilot is the firststep towards a proposed new framework
for regulating oil and gas development.
Once the pilot project wraps up by the fallof 2015, the AER will carefully analyze theresults and make recommendations formoving this regulatory approach forward
to other parts of Alberta.

What’s Next
In the year ahead, we will continue
to focus on projects such as tailings
management and industry performance,in addition to working closely withgovernment, to make the AER a stronger,
more protective regulator.

Tailings Management
Managing the tailings produced fromoil sands mining has been a challengeever since commercial development
began decades ago. Since 2009, tailings
management had been governed by
Directive 074: Tailings Performance

Work with Government of Alberta toestablish requirements for water use inenergy resource development

Work continues on managing water use for energy
development by building a performance dashboard for water
use that will inform requirements for reduction

Implementation of regulations aligned with
Alberta’s Tailings Management Framework

Tailings Management Framework released by Governmentof Alberta in March 2015; a new directive will be in place by
December 2015

Flaring levels are within provincial guidelines

Total gas flared was within the provincial guidelines (670 cubic
metres) at approximately 485 million cubic metres; gas vented
was an estimated 445 million cubic metres*
The AER continues to support an integrated approach to resource
development through the Government of Alberta’s IRMS

*A technical review of the data is underway and numbers will be confirmed with the
publication of ST60B: Upstream Petroleum Industry Flaring and Venting.
ALBERTA ENERGY REGULATOR Annual Report 2014/15

26

We are committed to pursuing
opportunities to improve
environmental performancearound tailings management.

Criteria and Requirements for Oil Sands
Mining Schemes. While tailings management improved under Directive 074—as
operators invest in new technologies,
share information and best practices, andwork to meet regulatory requirements for
reducing tailings volumes and managing
the landscape—more can be done. This
past March, the Government of Alberta
released a new policy to provide direction
for managing fluid tailings volumes during
mining operations and long after activities cease. The Tailings Management
Framework represents an evolution in
how industry, the AER, and government
manage the risks of both existing and newtailings ponds, and focuses on progressive reclamation.

2014–17 STRATEGIC PLAN

The AER is responsible for applying thisgovernment policy in the field by draftingand enforcing new regulatory requirements. We are committed to pursuing
opportunities to improve environmental
performance around tailings management. Developing these requirements
will require thoughtful analysis andcareful implementation, with an end goalof reducing the environmental footprint
inherent with tailings, and ultimately
ensuring that the land can be reclaimed.
We expect to have new requirements by
the end of 2015. During this transition
period, operators are expected tocontinue to proactively manage fluid
tailings volumes, as they have been doing
for several years. We will engage our
stakeholders and update all Albertans as
we implement regulatory requirements
for this new policy.

Dam Safety Inspection ProgramThis past March, the Auditor Generalof Alberta released an audit of Alberta
Environment and Parks’s managementof the province’s Dam Safety Program.
In 2014, the AER accepted responsibility
for the regulation of all dams related
to development of Alberta’s energy
resources. The transition of these responsibilities was completed in September

27

P R OT E C T I VE
2014, and the AER now regulates 65 of
the approximately 1500 dams in Alberta.
Forty of those 65 dams are related to oilsands development while the remaining
25 are related to coal mining.
The AER has begun a thorough inspection program to ensure the integrity of
all AER-regulated dams. We expect tocomplete the program by the end of
October 2015 and the results will bemade public.

Integrated Resource
Management System
While the AER is the single regulator foroil and gas development in Alberta, wedon’t operate in a silo. We are a part ofan Integrated Resource Management
System (IRMS), to manage resources in
the province. This includes:• the Government of Alberta, whichsets 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; and• the Policy Management Office, which is
the key interface between government
and the AER on policy issues related toenergy development.
We will continue to work to strengthen
the IRMS and take into consideration the
combined effects of existing and future
development, while achieving environmental, economic, and social outcomesfrom resource development.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

28

SHINING A LIGHT ON INDUSTRY COMPLIANCE

2014–17 STRATEGIC PLAN

29

As part of our work in becoming a best-in-class regulator, the AER needs to do morethan ensure that appropriate requirements are in place: we need to communicate how
we are enforcing those requirements in a way that will make Albertans feel confident
in our ability as an energy regulator.
The AER’s new Compliance Dashboard, unveiled in February 2015, gives Albertans abetter picture of how we regulate oil and gas development and enforce our requirements. Found at www.aer.ca, the dashboard includes information on• incidents, including those reported through the incident reporting tool since its
launch in June 2013;• investigations, including those transferred from Alberta Environment and Parks,
and any investigation closed as of July 2014; and• compliance activities and enforcement actions that go back to July 2014.
As described by our president and chief executive officer, Jim Ellis, “We wanted thisinformation online—easy to access, easy to read, easy to search. It’s a spotlight, notjust on industry, but on the AER as well.”
The AER historically has made such information available through the Freedom ofInformation and Protection of Privacy Act (FOIPPA) process. We wanted to make thatsame information available more broadly to the public without requiring Albertans toengage FOIPPA.
The AER conducts thousands of compliance activities each year. For example,
we follow up with companies when they fail to conduct instrument tests on aregular basis, accurately measure flare gas volumes, or engage local authorities
for planning purposes.
The dashboard highlights the noncompliances that have the potential to impact
public safety, the environment, and resource conservation.
The AER continuously strives to improve public reporting to ensure transparency
and ease of use. In that spirit, the Compliance Dashboard improves on (and replaces)
the AER publication ST108: AER Monthly Action Summary and the online incidentreporting tool.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

2014–17
Our Priorities

30

Strengthenrisk-based
regulation

2014–17 STRATEGIC PLAN

31

E F F E C T IVE
The AER regulates development in a
way that reduces risks and ensures that
Albertans reap the economic rewardsof our energy resources. We know wemust effectively manage the crude oil,gas, bitumen, natural gas liquids, andcoal on behalf of Albertans, who own
these resources.
It’s about understanding our resources—
where they are, how much we have—and how to ensure they are developedin a safe, environmentally responsible
manner. It’s also about protecting
Albertans from the risk of financial
liability associated with aging oil andgas infrastructure, especially whencompanies become bankrupt.

• effectively manage resource conservation, and• improve industry performance.
Last year, we saw progress on a numberof projects, in addition to pipeline safety
and the Inactive Well Compliance Program(IWCP), while also responding to seismic
events in the Fox Creek area.

What We Accomplished
Becoming a more effective regulator is apriority in our 2014–17 strategic plan. One
year into this plan, we’re making good on
our promises.

Inactive Well Compliance Program
To do this, we must focus on risk-based
regulation. Risk-based regulation meansthat regulatory activities are prioritized sothat the most significant risks receive thegreatest attention. Put simply, the higher
the risk, the greater our attention.
To become a more effective regulator, theAER will continue to put our risk-based
approach into action. We will focus on
projects that• reduce risks to public safety andthe environment,• limit the financial risks to Albertans,

Alberta has a large number of inactive
wells. An inactive well—one that has
been suspended and is no longer
producing—does not necessarily pose arisk to public safety or the environment.
However, inactive wells that are close towhere people live or work, are leaking,or contain a hazardous substance (forexample, hydrogen sulphide gas) areconsidered high risk.
When the AER was created in June
2013, companies were failing to comply
with the requirements of Directive 013:
Suspension Requirements for Wells on

ALBERTA ENERGY REGULATOR Annual Report 2014/15

32

close to half of Alberta’s inactive wells(about 37 000); less than 1 per cent, or
227 wells, were considered high risk.
The AER launched the IWCP in July 2014
to ensure that all inactive wells are safe
and secure. The IWCP is addressing thebacklog of inactive noncompliant wells inAlberta by requiring companies to bring
20 per cent of these into compliance eachyear. At that rate, we expect all inactive
wells will comply with AER requirements
within five years. We started by addressing high-risk wells, and by the end of April
2015, we reduced these by 96 per cent,and we are well on our way to reaching
our strategic-plan target of 100 per centby 2017.
In addition to managing the backlog, theAER will require companies to preventthe growth of noncompliant inactive wells
to ensure that all inactive wells meet therequirements and timeframes of Directive
013. We conduct random audits and field
inspections to verify industry compliance.

…by the end of April 2015,
we reduced inactive wells by
96 per cent, and we are well on
our way to reaching our strategicplan target of 100 per centby 2017.

HIGH RISK INACTIVE WELLS

Compliant

48
227

179

84

143

Noncompliant

135

92

Pipeline Safety Recommendations
Pipeline safety is a top concern forAlbertans, and we constantly work tofurther reduce pipeline incidents acrossthe province through inspections, investigations, education, and audits.

2014–17 STRATEGIC PLAN

218

9
Apr
2014

June
2014

Sept
2014

Dec
2014

Apr
2015

33

E F F E C T IVE
What’s more, if the AER sees that a pipeline operation is (or is at risk of) causing
unacceptable impacts to public safety or
the environment, we can, and do, orderan immediate suspension of operations
until the problems are corrected. We
also require pipeline operators to report
all pipeline incidents, including breaks,
test failures, and external contact with apipeline—regardless of whether there isan actual leak.
In 2014, the pipeline incident rate was 1.6
per 1000 kilometres, up from 1.4 in 2013.
This increase is in large part due to both
the AER focusing more attention on thepipeline sector through inspections andeducation, and operators doing a betterjob of checking their lines and reporting
any problems. While the overall incident
rate was up, most of that increase were
smaller incidents with limited environmental impacts; there were fewer large
pipeline releases in 2014. Now that we’ve
increased our scrutiny of this sector,
we will continue to work with industry
to reduce the number of incidents inAlberta’s pipelines.
In the March 2015 report of the Auditor
General of Alberta, the pipeline safety
audit found that the AER has well-functioning pipeline regulations, notingthat “Albertans can be assured thatthe regulator is performing its essentialfunction of overseeing pipeline safety andreliability in Alberta.”
This audit made six recommendations
for improvement that focused on surveillance and enforcement activities, which
included• using risk-management activities tomake informed decisions;• formalizing a training program for ourcore pipeline staff;• identifying performance measuresand targets;• expanding our analysis of factors that
contribute to pipeline incidents, beyond
the primary causes;• assessing the type of data we requirefrom pipeline operators to help makeeffective decisions, as well as the way
we collect this data; and• implementing a risk-based compliance
process to evaluate the safety andloss-management systems and integrity-management programs of pipeline
operators.
The AER welcomes any process that may
further improve pipeline safety in Alberta,
and we accepted all recommendations.
We have already begun implementingchanges, including improvements insurveillance and enforcement, establishing performance measures and targets,and enhanced training for AER staff.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

34

Seismic Events:“Traffic-light” Protocol
This past January, the AER recorded
several seismic events in the Fox Creek
area that might have been related tohydraulic fracturing.
While these events posed no threat to the
public or the environment, the AER took
precautionary measures to ensure thatenergy resources are developed safely
and responsibly. AER experts responded
quickly by issuing an order directing
companies to monitor and report seismic
activity in the Fox Creek area.
This “traffic light” process defines thestages at which companies need to takeaction when seismic activity is observed,
which could include reporting events

Targets
The 2014–17 strategic plansets out specific targets andmeasures. Here is a glimpse
at where we are.

2014–17 STRATEGIC PLAN

AER TRAFFIC LIGHT SYSTEM – DUVERNAY ZONE,FOX CREEK> 4.0ML*cease operations,inform the AER> 2.0ML
inform the AER,
invoke response plan

< 2.0MLno action required*M L = Local magnitude.

Proportion of inactive wells meetingcurrent requirements
Adoption of risk-based regulation to
respond to changes in technology andcomplexity in oil sands development
Number of incidents per kilometreof pipelines regulated by the AER

35

E F F E C T IVE
to the AER, implementing responseplans, and halting operations altogether,
depending on the level of seismic activity.
See page 39 for more information.

What’s Next
We are stepping up our efforts to help us
become a more effective regulatory body.
Among other initiatives, we will continue
to focus on reservoir containment,
address Alberta’s inactive wells, ensurethat dams under our jurisdiction are
safe, and work with peer regulators fromwestern Canada on a pipeline integrity
management project.

Reservoir Containment Project
The AER is committed to making theregulatory system more efficient andeffective while addressing the risks andchallenges of today’s evolving production
technologies (being protective), and thisextends to what occurs below the ground.
With the continued growth of in situ
bitumen recovery techniques such as
steam-assisted gravity drainage (SAGD)
in the oil sands, ensuring that shallow
bitumen deposits can be developed
safely continues to be a key priority for
an effective regulator.
“Thermal” operations—also called in situ
oil sands development—such as SAGD
and a similar process called cyclic steam

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

Of the 227 high-risk inactive wells in Alberta as of April 2014,
218 (96 per cent) were brought into compliance with AER
requirements by the end of April 2015

Complete shallow SAGD integrity study

An AER study into reservoir containment is nearing completion
and will be released in 2015

Pipeline incident rate reduced by 4 per cent

The pipeline incident rate increased from 1.4 per1000 km in 2013 to 1.6 per 1000 km in 2014

ALBERTA ENERGY REGULATOR Annual Report 2014/15

36

stimulation (CSS) uses techniques that
produce bitumen by injecting steam into
underground oil sands reservoirs to heatbitumen, separate it from the sand, andallow it to be produced.

protective and effective; we’ve engaged
industry and independent consultants
to review and provide feedback on thiswork. We will have draft requirements
ready for stakeholder consultation in 2015.

One challenge of these techniques
is making certain that “caprock”—arelatively impermeable rock, such as
shale, that forms a barrier above andaround a bitumen deposit to prevent
fluids from migrating beyond the reservoir—maintains its integrity in order tocontain the bitumen within the reservoir.
Our Reservoir Containment Project will
establish formal requirements for reservoir containment in areas where shallow
thermal projects occur.

While we complete our work, applications
for thermal projects are assessed case bycase. Applicants must submit a reservoir
containment study proving that a project
can operate safely and set a maximum
operating pressure for the project.

As part of our commitment to being aprotective regulator, we use a risk-basedmodel of regulation to place more attention on higher-risk activities. The AER is
currently reviewing our shallow thermal
development approval criteria and has
deferred decisions related to applications
from five companies. Once the criteria
is established, the AER will reassess
the applications.
The AER has completed thorough technical work to ensure that risks are wellunderstood and that outcomes will be

2014–17 STRATEGIC PLAN

Protecting Albertansfrom Abandonment
and Reclamation Costs
In 2014, the AER updated our Licensee
Liability Rating (LLR) program, which
protects Albertans from the cost to
abandon and reclaim upstream oil andgas wells, facilities, pipelines, and theirassociated sites. The program is basedon a comparison of assets (which is basedon production) to liabilities (abandonment and reclamation costs). When thisratio falls below 1.0, the licensee owes
financial security.
Implemented in a three-phased approach,the changes were introduced to addressconcerns that the previous LLR program
greatly underestimated the cost ofabandonment and reclamation liabilities.

37

E F F E C T IVE
The changes increased the liability
costs and the asset values by one-thirdin each phase.
Each phase of the changes required
some licensees to pay financial security.
However, when it came time to implement
the final phase of the changes, it became
apparent that they could result in 110
companies owing an additional $22.2
million of financial security, meaningthat some companies would not havethe means to pay the additional security.
Although this phase requires the least
security to be paid, the climate of low oil
prices made it more difficult for licensees
to meet the payment.
We delayed this final phase by threemonths to give companies—particularly
small companies—time to assess theiroptions to comply with changes to the
LLR program, enhancing their ability
to remain financially viable. Financially
viable companies are less likely to failand create orphan wells, facilities, andpipelines, which the industry-funded
Orphan Well Association (OWA) thenpays to abandon and reclaim. The additional time provided to companies is also
intended to minimize financial risks to
OWA, which protects Albertans from thecost to abandon and reclaim upstreamorphaned oil and gas infrastructure.
The OWA manages the abandonment andreclamation of orphaned oil and gas wells,
facilities, pipelines, and their associatedsites. This not-for-profit organization—unique to Alberta—is funded by theannual orphan levy, which is collectedfrom industry by the AER on behalf of the
OWA. In March 2015, the AER collected a$15 million levy.
The OWA sets the annual levy amount,in consultation with the Canadian Association of Petroleum Producers and the
Explorers and Producers Association of
Canada. It is based on the estimated costof abandonment and reclamation activities each year.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

38

RESPONDING TO SEISMIC EVENTS

2014–17 STRATEGIC PLAN

39

This past January, the AER recorded several seismic events near Fox Creek withmagnitudes between 2.4 and 4.4, which might have been related to hydraulicfracturing in the area.
While these events posed no threat to the public, infrastructure, or the environment,
as a regulator, it’s our job to take precautionary measures to ensure that energy
resources are developed safely and responsibly.
We immediately called upon the services of many technical experts who work at the
AER, in particular, geoscientists from the Alberta Geological Survey (AGS), who areresponsible for monitoring seismic activity in Alberta.
AER experts responded quickly by issuing Subsurface Order No. 2 that spelled out
how companies operating in the Duvernay geological zone in the Fox Creek area
must monitor and report seismic activity. This “traffic light” process defines thestages at which operators need to take action when seismic activity is observed;
depending on the level of seismic activity, operators might need to report eventsto the AER, implement response plans, and, at certain levels, cease operations
altogether.
The traffic light system requires companies in the area covered by Subsurface OrderNo. 2 to prepare a hazard assessment, monitor local seismic activity around theiroperations, and have a seismic-event response plan.
• If no seismic events above a 2.0 local magnitude (ML) are observed by the company
within 5 km of operations, the traffic light is green and industry operations at thatsite continue as normal.
• If a seismic event above a 2.0 ML is observed within 5 km of operations, the traffic
light is yellow and the industry company must invoke their seismic-event response
plan and notify the AER.
• If a seismic event above a 4.0 ML is observed within 5 km of operations, the traffic
light is red and operations must cease until the AER is satisfied that the company
can resume operations safely and without likely inducing further seismicity above
a 4.0 ML .
This response is an interim measure until the AER fully studies seismic events in thisarea and their potential connection with energy development. If the AER becomesaware of similar seismic events elsewhere in the province, we may extend the orderto other areas.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

40» Environment Matters – Meet Our

Chief Environmental Scientist

Monique Dubé, Ph.D.
Chief Environmental Scientist

2014–17 STRATEGIC PLAN

41

With the launch of the AER, we were given an
expanded mandate to protect the environment. That, in addition to the feedback from
Albertans expecting strong environmental
performance from industry and the regulator,
prompted us to hire an expert to help us fulfill
these commitments.
Dr. Monique Dubé, with her 25 years ofacademic, regulatory, industry, and consulting
experience, joined the AER in 2014 to become
our first chief environmental scientist and help
drive our promise of enhancing industry’s
environmental performance.
We spoke to Dr. Dubé to learn more about why
she chose to be the first person in this role,
what her vision for the role is, and to find out
how she plans to help us support our environmental mandate and responsibilities.
Q Why did you choose the AER?
I’ve intentionally worked in diverse areas ofenvironment—in academia, government, andindustry and with First Nations—because
experiencing alternative perspectives is apriority for me. When the chance to work at
the AER arose, especially with its expanded
environmental mandate, I saw it as anopportunity to apply my appreciation ofdiverse perspectives to improving the balance
between energy resource development andenvironmental protection in Alberta.
Q What is the role of the chief environmental
scientist?
My role is to provide strategic oversight to
the AER that will improve industry’s environmental performance. I do this by ensuring that
there’s awareness of environmental issues
facing the energy sector and that environmental issues are represented as part of thebalanced conversation.

Q How will your work improve industry’s
environmental performance?
The key to success is linking industry performance with environmental performance—you
cannot have one without the other and expect
positive results. As chief environmental
scientist, I have established four key outcomesto help achieve this balance:
1. monitor and report on environmental
performance,
2. be responsive and adaptive with environmental management,
3. increase cooperation and alignment acrossthe AER for environment, and
4. be recognized for our environmental
expertise.
Q What do you see your challenges andpriorities being for 2015?
Being new to the organization is one of mychallenges. However, I’ve invested significant
time over the past eight months speaking
with staff and identifying opportunities thatwill move the AER’s environmental agenda
forward in 2015 in the four key outcome
areas I just mentioned. I’m pleased to saythat work has already begun to clarify the
AER’s environmental mandate, establish the
AER’s environmental communities of practice,and form strategic working groups with key
government agencies. The other challenge will
be to remain focused on these four outcome
areas to deliver measurable progress in aconstantly evolving industry and environment.
The AER is committed to enhancing environmental performance and protecting
what matters most to Albertans: land, water,
air, and biodiversity. Our studies show that
Albertans feel some progress has been made(45 per cent of those surveyed expressed thatenvironmental performance has improved
over the past two years), but we know there’s
more work to be done and we’re committed todelivering on this important priority.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

2014–17
Our Priorities

42

Transform Alberta’s
energy regulatory
system to improve
efficiency

2014–17 STRATEGIC PLAN

43

EFFIC IENT
One of the Government of Alberta’s main
goals in creating the AER was to improve
Alberta’s competitive advantage andto build an environment that attracts
investment. One way to accomplish thisis to make Alberta’s regulatory system
as efficient as possible while continuing
to enhance our regulatory system andensure that our requirements protect
public safety and the environment.
The AER has already taken on the
responsibilities of three good regulators.
However, to be a great, single regulator,
we must blend the best features of
all three to ensure that our people,
processes, and systems align.
In this way we can create an efficientregulatory system, ensure certainty forstakeholders, and help secure economic
opportunities for Albertans, which will
help establish the AER as a credible andtrusted regulator. To accomplish this, wemust transform the way we do business.
The AER must turn government policy
into effective regulatory requirements.
We will do that by simplifying the decision-making process and becoming more
efficient. We believe that this will leadto improved environmental protection
and increase trust and confidence in how
Alberta’s energy resources are developed.

Achieving efficiencies will not be easy.
After decades of multiple regulators
overseeing energy resource development,
Alberta’s regulatory system has becomecomplex, with new rules being added
over time.
Our focus on efficiency is not just aboutsaving money but rather reducing duplication and finding new approaches toregulatory oversight. This has included• eliminating requirements that don’t
contribute to our mandate,• no longer gathering information that
doesn’t serve a regulatory purpose,• eliminating requirements that became
redundant after the Energy Resources
Conservation Board and Environment
and Sustainable Resource Development
merged to form the AER,
• eliminating requirements that havebecome redundant due to advancesin technology,• shifting our focus to outcome-based
requirements (the public safety andenvironmental outcomes we expect)from prescriptive ones (telling companies how they should operate and design
their equipment and processes), and• upholding our mandate of safeguarding
the public and the environment.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

44

The AER will achieve excellence in efficiency while ensuring that we uphold ourrigorous requirements for public safety
and environmental protection.

What We Accomplished
The AER has identified how we can
improve our regulatory system to makeit more efficient and introduce morecertainty for stakeholders. We’ve moved
quickly, but carefully, to implement suchchanges.

Regulatory Certainty
In July 2014, the AER announced quicker
and more consistent processing times forwell applications that fall under the Public
Lands Act.

Targets
The 2014–17 strategic plan setsout specific targets and measures for becoming an efficientregulator. This is where we areafter one year.

2014–17 STRATEGIC PLAN

We implemented the first series ofprocess changes in September 2014.
These new timelines range from fivebusiness days for temporary field authorizations to 90 business days for more
complex applications.
The initial results were better than
expected: all major projects were
processed within the 90-day timeframe
and averaged 62 days, while new oil
and gas applications were processed
within their 60-day target and averaged
30 days. We met our targets during
the 2014/15 winter drilling season; onaverage, we met the turnaround time foran application 97 per cent of the time.

Regulatory process efficiencies

Relevant regulatory requirements

45

EFFIC IENTWith a new approach and an accountable
regulator, our application process is wellon its way to being more efficient, effective, and timely.

Finding Efficiencies: Focusing
on the Right Priorities
Over the past year, the AER has beenfinding new ways to eliminate outdated
requirements that simply don’t serve theirinitial purpose and changing our internal
processes to improve our day-to-day
work. We’ve done this while ensuringthat our commitment to safeguard
public safety and the environment is
our top priority.
Through our Near-Term Action Program,
we have completed several projects to$60 million in verified savings; year one
Complete a full regulatory review to identify
and execute opportunities for consolidationand simplification

reduce unnecessary requirements; someof these projects have had welcomed
environmental benefits too. By revisingoutdated rules that address low-risk
activities, we’ve been able to make smallchanges that create significant impact.
Along with regulatory improvements,
we needed to look at our day-to-day
operations as well. The Continuous
Improvement Initiative has helped
improve the way we do business and has
implemented over 130 improvements
during the past year. For example, wehave established best practices, newguidelines, and checklists for our various
applications and published these on our
website. By making these items accessible to everyone, we are being clear and

The AER achieved $270 million in verified annual cost savingsin 2014/15
We simplified our processes and reduced overlap in regulatory
requirements that resulted in improved efficiencies

ALBERTA ENERGY REGULATOR Annual Report 2014/15

46transparent with Albertans about theapplications we receive and how they
are reviewed. And we have developed a
Public Statement of Concerns Application
Review process—making sure statementsof concerns are handled properly acrossall application types. This guarantees
that when concerns are brought forward
by the public, we are better equipped torespond.
So why the focus on efficiency? In
today’s economic environment, wemust make the most of our resources byfocusing efforts on what matters most:the safe, efficient, and environmentally
responsible development of Alberta’s
energy resources. While we surpassed
our $60 million target in regulatory cost
reductions in our first year, our focus
is not on the money saved. Rather,

2014–17 STRATEGIC PLAN

our focus is on reducing duplication in
outdated requirements and enacting new
requirements to meet challenges posedby new technologies, including tougher
rules for flaring, venting, and tailings
management and managing cumulative
effects. This allows our highly trained
staff to concentrate on higher-risk activities as well as leading-edge regulatory
work such as play-based regulation andour single application, review, and decision approach to resource development.

What’s Next
This year, the AER will advance projects
that will help us deliver on our vision andtransform our regulatory system to better
manage the life cycle of energy development activities.

47

EFFIC IENTOne Application, One Review,
One Decision: A New Approachto Development
Each year, the AER receives more than
40 000 applications, which can include
everything from requests to access aparcel of land, approval to drill a well, toa request to use water. Today, operators
may submit 10–30 applications for asingle-well development. This also means
landowners and other stakeholders must
review 10–30 applications. By reducingthat number to one comprehensive application, we will provide Albertans with abetter picture about what is proposed intheir communities.

Albertans will have thedetails up front about the fullscope of the energy project,including water use, the impact
the project will have on thelandscape, and the detailsof the final reclamation andremediation plan.

Single Application
Starting with a few small pilots, we arechanging how we approach those many
applications. This means we’ll accept asingle application for multiple activities
related to a project that would traditionally be applied for individually.
The AER already posts every application
we receive on our website, and the single
application will be no different. What isdifferent is that Albertans will be able tosee the entire application at once, looking
at all the elements of a project, rather
than reviewing them one at a time overmany months or years. Albertans will
have the details up front about the fullscope of the energy project, including
water use, the impact the project will
have on the landscape, and the details of
the final reclamation and remediation plan.
Those with concerns will continue tohave the ability to file a statement ofconcern with the AER; we will continue
to review all statements of concern. In
fact, with all of the information available
through this process, it will be easier
to identify concerns associated with aparticular project.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

48

CURRENT APPLICATION PROCESS

2

3

1

4

PER

PER

PER

PER

Well/
compressor

Water reservoir/
pipeline/facility (battery withtanks)

Access road

Water pipeline

SINGLE APPLICATION PROCESS

Application

1

Public notice
Approval for all activites,
all statutes
Well
Pipeline
Water pipeline

Facility (battery
with tanks)

Water reservoir

2014–17 STRATEGIC PLAN

Access road49

EFFIC IENT
Single Review
Once we receive the single application,
our technical experts will review thedetails with the same rigour we use forall energy applications. We will examine
any risks associated with the project. We
will look at the kind of activity, where
it is located, and the operator’s history,
before making any decisions. We will also
examine how the operator has engaged
with the community, landowners, andFirst Nations or Métis impacted by the
proposed development.

Single Decision
Once we have completed our review, we
will make a single decision. If the application meets all AER requirements, we canthen issue an approval for the project toproceed. But our work doesn’t stop there.
Once the project is underway, the AER
will continue to monitor it at every stage,

including when construction starts, while
the project is operating, and when it isready to close.
This isn’t about cutting corners. It’s aboutlooking at energy developments from a
broader perspective—from beginning toend—and making decisions about energy
projects with all of the information up
front. It helps you understand the connection between activities being proposed inyour community.
As with any new approach to regulation,
we have to test it and find any improvements that need to be made. We will be
testing this new approach using pilot
projects in different areas of the province.
The results of these pilots will help us
learn more before deciding how to
implement it across the province.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

50

IMPROVING OPERATIONS, IMPROVING PERFORMANCE

2014–17 STRATEGIC PLAN

51

As the AER institutes new requirements to improve industry performance and ensurethat public safety and the environment are protected, we’re making sure we are as
efficient as possible. We’ve completed a number of projects through our Near-Term
Action Program ( NTAP).
For example, last October, we revised organic soil conservation requirements, negating the need to disturb the soil in certain areas when preparing to drill a well. This
regulatory change reduces a development’s footprint while saving time, money, andthe landscape.
We’ve also examined our day-to-day operations. The Continuous Improvement
Initiative has helped improve how we do business through over 130 improvements
during the past year. For example, we established best practices, new guidelines,
and checklists for various applications and published these on our website, allowing
Albertans to see how we receive and review applications.
We introduced a system to customize subsurface requirements for specific geological zones in certain areas to better suit the type of resource being developed andexempted companies from seeking a formal approval under the Pipeline Rules for
temporary surface pipelines transporting water, which is a low-risk activity that iscovered as part of the approval for an entire project.
By revising outdated rules and unnecessary processes that address low-risk activities,
we’ve been able to quickly advance small regulatory changes and create significant
impacts immediately.
These efficiencies are improving our operations and allow us to deliver regulatorychanges that are clear, current, and reduce costs. While this improves Alberta’s
competitive environment by reducing the regulatory burden, it also allows the
AER to focus our efforts on what Albertans expect from the regulator—ensuring
public safety, enforcing the rules, and protecting the environment. This means
turning our full attention to things like abandoned wells, flaring and venting, andtailings management.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

2014–17
Our Priorities

52

Increase trustand confidence
in how energy
is developedin Alberta

2014–17 STRATEGIC PLAN

53

C R E D I B LE
Being a best-in-class regulator means morethan providing best-in-class regulation. Itmeans ensuring that our stakeholders are
confident about how energy development
is regulated in Alberta.
Our work on the first three priorities ofour strategic plan—protective, effective,and efficient—is critical in achieving our
vision. But without our final priority,
without ensuring we are credible, we will
not be successful; if Albertans don’t trust
us, they will not engage our processes.
That credibility must be earned. We
know from years of research that Albertans seek a regulator that enforces therules and protects the public and theenvironment. Data collected from surveys
conducted over the last decade showthat Albertans’ top concerns aroundenergy resource development are thesafeguarding of water and soil, theprotection of human and animal health,and water usage.
We also know that our stakeholders expect,and deserve, a regulator that is transparent,
accountable, and approachable.
We understand that the development ofAlberta’s oil and gas resources attracts
international attention. The fact is, thework we do is of interest to people acrossNorth America and beyond, as energy
development continues to be a source ofworldwide debate.
We also know that we must do more thansimply regulate well. We have a responsibility to share Alberta’s 77-year traditionof strong regulatory oversight of energy
development—to tell our story and build
relationships with our stakeholders. To
achieve this, we must
• report on the results of our work,• be open to discussing issues of concern
with our stakeholders,• share information about the work that
we do, and• work toward a common definition ofwhat is meant by “best in class.”
To do that, we are engaging stakeholders
throughout Alberta, across Canada, andbeyond to assess what defines best inclass and to determine how the AER willmeet that standard.
Here at home, we’ve also improved
engagement with stakeholders,raised awareness of our role in energy
regulation, increased transparency
and accountability, and provided moreeducation about energy development.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

54

What We AccomplishedBeing recognized as a credible andtrusted regulator is a priority in our
2014–17 strategic plan. We have mademany strides in achieving this objective.
Ultimately, however, Albertans will let us
know if we have achieved credibility.

Helping Address Concerns
and Resolve Disputes
Alternative dispute resolution (ADR) is aprocess that helps Albertans and companies resolve energy-related disputes
in a positive way. The AER’s team ofprofessional mediators help parties workthrough contentious issues and promotecollaborative solutions that meet everyone’s needs.

Through our ADR program, energy
resource companies are often able toresolve concerns early, simplifying theapplication process and avoiding formal
hearings. Solutions arrived at in mediation
are tailor-made for each unique situation
and are achieved through consensus.
On at least twenty occasions this year,
formal concerns about applications
were withdrawn due to agreements
reached through the ADR process. As
well, several potential hearings were
avoided through the resolution of
disputes in ADR, including two where
hearings had already been scheduled.
In some cases, AER hearing commissioners
conduct ADR when a hearing or a regulatory appeal is to occur, as defined in the
Responsible Energy Development Act.

in 159 cases, of which

ADR does more than solve issues andaddress concerns, it makes the overall
process more efficient and timely. During
the past year, the ADR team was involvedin 159 cases, of which 88 per cent wereresolved through mediation.

88 per cent were resolved

Western Regulators’ Forumthrough mediation.

The AER launched the Western Regulators’ Forum in 2014. This is a working
partnership between the AER, theDuring the past year, theADR team was involved

2014–17 STRATEGIC PLAN

55

C R E D I B LE
National Energy Board, the BC Oil and
Gas Commission, and the Saskatchewan
Department of the Economy; the forum
aims to strengthen energy regulation
through collaboration that will allow allpartners to pursue common priorities.

This forum is another avenue that canhelp the AER make certain that we achieve
our strategic priorities of being protective,
effective, efficient, and credible.

The forum identifies opportunities
to collaborate on research, develop
regulatory processes and standards, andwork together on other areas of sharedinterest; this in turn helps to ensure thatenergy regulation in Canada is the best it
can be. Through working committees, theforum is focusing on three main projects:
1. Venting, flaring, and emissions –reducing emissions, responding
to public concerns, harmonizing
regulations around reporting andmeasurement, aligning with federal
initiatives, and managing cumulative
air impacts.
2. Wellbore integrity – harmonizing
standards around design, construction,
maintenance, and testing and abandonment and ensuring that these standards
are reviewed and updated.
3. Pipeline safety indicators – identifying
common pipeline safety performance
metrics using industry-reported data.

The AER’s strategic plan involves sharing
Alberta’s regulatory story, here in Alberta,
across Canada, and worldwide.

Open and Transparent
Communication

Last year we published our first annual
report and companion materials, suchas the Report to Albertans, which was
distributed province-wide. We alsoenhanced our social media presence in aneffort to make the AER a more open andtransparent organization.
We are continuing to communicate
with Albertans and recently added a
new external newsletter. AER Focus is aquarterly newsletter meant to inform our
public, industry, and other stakeholders
about projects and activities that demonstrate how we’re meeting the goals of ourstrategic plan. AER Focus is available on
our website, and anyone can subscribe toreceive an e-mail version.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

56

AER’S PAUL FERENSOWICZ RECEIVES THE GOLDCROSS OF MERIT OF THE REPUBLIC OF POLAND
While the AER is fueled by teamwork, andhard work is appreciated and shared acrossthe organization, it is still important to recognize extraordinary individual achievement,
especially when the honour originates far from
Canadian soil.
In May 2015, Paul Ferensowicz, a senior advisor
with Corporate Planning and Enterprise
Projects, received the Gold Cross of Merit of
the Republic of Poland for sharing knowledge
and expertise on Alberta’s regulatory regime.
The Order of Merit was established in 1923, andis awarded primarily to Poles who have madesignificant contributions in service to the state.
Paul received the prestigious accolade fromAmbassador Marcin Bosacki on behalf of the
President of Poland during a special ceremonyin Ottawa commemorating the 224-year
anniversary of Poland’s constitution and the70-year anniversary of the end of World War II.
Over the course of five years, working closelywith the Polish Minister of Foreign Affairs,
Paul drew on his expertise and those of his AER
colleagues to inform various officials on theworkings of Alberta’s regulatory framework.
Notably, in 2011, Paul spent three weeks
meeting with the Polish government, municipalities, and industry organizations, providing
insight into potential shale gas developmentin the region. Poland is in the early stagesof developing its energy resources and has
welcomed the opportunity to collaborate with amodern, fully functioning regulatory body.

2014–17 STRATEGIC PLAN

The AER has hosted a number of delegations
from Poland, sharing regulatory knowledge,
discussing opportunities and risks related toenergy development, and networking with key
officials. The success of these gatherings isclearly evident, as two more Polish delegations
have already planned a visit in summer 2015.
Poland’s Gold Cross of Merit is a world-classachievement, and we’re proud to see it given
to Paul Ferensowicz, a first-class individualand member of the AER. He is quick to point
out, however, that the honour is a reflection of
the technical knowledge and excellence that
resides within the entire organization—highlighting the exemplary team efforts that are
crucial to being a best-in-class regulator.

57

C R E D I B LE
The AER also continued to provide
provincial, national, and international
media outlets with opportunities to see
how we regulate the oil and gas industry.
These included media “ride-alongs” forthe Peace River compliance sweeps,
editorial boards for the 2013/14 annual
report, a media tour to in situ operations
in northeast Alberta, and year-end
interviews with our CEO.
What Albertans say matters to us. Data
collected from public opinion research
conducted over more than a decadeshow that Albertans’ top concerns
around energy resource development
are the protection of water and soil,
the protection of human and animal
health, and water usage. They expect theregulator to remain consistent in ensuring
public safety (89 per cent), enforcing therules (85 per cent), ensuring appropriate
emergency response (84 per cent), andprotecting the environment (82 per cent).
The majority of Albertans (77 per cent)expressed confidence in the regulator’sability to carry out its mandate. While the
AER is pleased with confidence levels,
we continue to strive for improvements,
especially in key performance areas
such as enforcement of requirements,
protecting the environment, and becoming
more transparent.

Awareness of the AER is important toensure that Albertans understand how oil
and gas development is regulated so thatthey can make informed decisions about
our performance. Awareness increased bynine per cent in 2015, with 41 per cent ofAlbertans responding that they are awareof the AER and our role.
This research provides the AER withmore than just a report card of how we’re
doing—it helps us better understand what
is important to Albertans, what information they want from the regulator, andhow we can improve our performanceover time.

The AER continues to strive
for improvements, especiallyin key performance areas
such as enforcement of
requirements, protecting theenvironment, and becoming
more transparent.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

58

Formalizing National andInternational Relationships

Developing relationships
and partnerships with otherregulators has also been
important to the AER. We
are strengthening our ties
with regulators acrossCanada, in the UnitedStates, and beyond.

Targets
The 2014–17 strategic plansets out specific targets andmeasures. Here is a look atwhere we are.

2014–17 STRATEGIC PLAN

Developing relationships and partnerships with other regulators has also been
important to the AER. We are strengthening our ties with regulators acrossCanada, in the United States, and beyond.
Last year, the AER signed a memorandumof understanding (MOU) with Mexico’senergy regulator, the Comisión Nacionalde Hidrocarburos, which formalizes anagreement to work collaboratively on
regulatory best practices in the development of hydrocarbon resources.
We also implemented a service
agreement with the Government of theNorthwest Territories to provide technicalexpertise for onshore shale oil and gas

Percentage of Albertans confident
that oil and gas development isoccurring responsibly
Stakeholder rating of AER
performance in key areasof concern
Recommendations forbest-in-class performance

59

C R E D I B LE
development, in addition to signing
an MOU with the Netherlands-based
research institute Deltares. This institutehas expertise to support the AER in
environmental protection and water
management and an international
reputation for expertise in understanding
and managing groundwater and will help
us fulfill our expanded mandate, which
includes parts of Alberta’s Water Act.
Such partnerships strengthen theregulatory system, which is good for the
resource, the economy, the environment,
and public safety.

Best-in-Class Project
Alberta’s oil and gas activities attract
international attention, which means thatthe province’s regulator operates on theworld stage. For this reason, it is important that the AER stands proudly in the
spotlight to inform the world about ourefforts to realize our vision of becoming
a best-in-class regulator by being protective, effective, efficient, and credible.
But we know that we cannot simply
declare ourselves best in class. We needto define what that means, find consensus
on what makes a high-performing regulator, and know where we rank in meetingthat goal. That’s why we launched
the Best-in-Class Project. Run by the
University of Pennsylvania’s Program on
Regulation, the project has three main
objectives:• to identify the key attributes of a bestin-class regulator,

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

41 per cent of Albertans are aware of the
AER and its role in regulating oil and gas
development, an increase of 9 per cent

10 per cent increase in positive perceptions/rankings of AER performance

In 2015, 77 per cent of Albertans expressed
confidence in the AER’s ability to fulfill its mandate

Completion and release of recommendationsin 2015

Recommendations for best-in-class performance
will be delivered to the AER in summer 2015

ALBERTA ENERGY REGULATOR Annual Report 2014/15

60• to understand how the AER can adopt
these attributes, and• to identify how to credibly measure theconcept of best in class.
Considerable work has gone into theinitiative this past year, including a
stakeholder summit in Calgary and a First
Nations dialogue session in Edmonton.
We eagerly anticipate the university’s
findings, which will be delivered in a final
report to be published in the summerof 2015. From this, we can define what
it means to be best in class, and thatdefinition will then guide our path in theyears ahead—one that our stakeholders
helped to choose and confirm.

What’s Next
In the year ahead, the AER will continue
to build on work already under way tomake us a credible regulator. Amongother initiatives, we will significantly
enhance the way we engage our many
stakeholders and strengthen our
national and international role as aleading energy regulator.

2014–17 STRATEGIC PLAN

Multistakeholder Engagement
Advisory Committee
Shortly after the AER was established inJune 2013, we created the Stakeholder
and Government Relations Division toenhance outreach to our various stakeholders and build stronger relationships.
Now we are going even further by establishing a multistakeholder engagementadvisory committee.
This committee is made up of representatives from AER stakeholder groups,
who receive updates and information

Representatives from themultistakeholder engagementadvisory committee have theopportunity to ask questions,
identify issues, and communicate
the values and interests of thegroup they represent.

61

C R E D I B LE
about the AER’s regulatory change andtransformation initiatives at regularlyscheduled meetings.
Stakeholder representatives also havethe opportunity to ask questions, identify
issues, and communicate the values andinterests of the group they represent.
More importantly, the representatives
can help us understand these values andinterests in the context of specific energy
development projects, while identifying
any risks they believe these projects
would pose. The committee will provide
the AER with meaningful feedback on
how we engage Albertans on issues liketailings management, our new single
application approach, and our Best-inClass Project.

Regulatory Diplomacy
We have developed a national/international
strategy, with one of the key elements
being to advance the AER’s credibility
through “regulatory diplomacy.”
Regulatory diplomacy lets the AER
demonstrate national and international
leadership on regulating energy resources.
It enhances our reputation by building
national and international relationships
and allows us to take advantage of any
opportunities that arise.
Through regulatory diplomacy, we will
create strategic alliances with our national
and international stakeholders and work
to influence, inform, and elevate provincial, national, and international energy
regulation practices.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

62

LISTENING TO OUR STAKEHOLDERS

2014–17 STRATEGIC PLAN

63

As the AER moves toward becoming a risk-based, full life-cycle regulator, it isimportant that we truly understand the values and interests of our stakeholders.
To help ensure this happens, the AER has established a multistakeholder engagementadvisory committee.
This committee is made up of representatives from key AER stakeholder groups andwill meet eight to ten times a year. At these meetings, the stakeholder representatives receive updates and information about the AER’s regulatory changes andtransformation initiatives.
Stakeholder representatives have the opportunity to ask questions, bring issues
forward, and communicate the values and interests of the groups they represent.
What’s more, the representatives help the AER understand these values and interestsin the context of specific energy development projects, which includes identifying
potential risks that they believe these projects pose.
The committee will also provide guidance on engaging stakeholders and seeking
feedback on regulatory change and other initiatives. It is an advisory body rather
than a steering committee; it has no mandate to make decisions or report on activities.
The committee is part of our goal to transform how the AER engages our stakeholders. We know that successfully engaging our stakeholders requires support andcommitment from AER staff and active participation of our external stakeholders,
particularly landowners and residents, aboriginal groups, environmental nongovernmental organizations, municipalities, and community-based multistakeholder groups.
The energy industry and the Government of Alberta will continue to be informed
and engaged on regulatory issues but won’t be formally represented on theadvisory committee.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

64

Alberta’s energy resource reserves rank among
the world’s largest and include bitumen, crudeoil, natural gas, natural gas liquids, and coal.

2014–17 STRATEGIC PLAN

65

DELIVERING THE
STRATEGIC PLAN
A World-Class Resource
Alberta’s energy resource reserves areamong the world’s largest and include
bitumen, crude oil, natural gas, natural
gas liquids, and coal.
Topping this list is bitumen from the province’s oil sands deposits, with remaining
established reserves at 166 billion barrels
in 2014, truly a world-class resource.
To put things in perspective, less than
10 billion barrels of bitumen have been
extracted since the late 1960s.
At 841 million barrels (or 2.3 million
barrels per day), raw crude bitumen
production accounted for 80 per centof Alberta’s total crude oil and bitumen
production in 2014. Bitumen production
in 2014 increased by 6 per cent formining projects and by 14 per cent for insitu projects, resulting in an overall raw
bitumen production increase of about
11 per cent over 2013.
Of the total bitumen production, 47.4 percent was used as feedstock for upgraders,yielding 953 thousand barrels per day of
upgraded production. Alberta refineries
processed 311 thousand barrels per dayof upgraded bitumen and 23 thousandbarrels per day of nonupgraded bitumen.

In Alberta, crude oil production increased
by about 1 per cent in 2014. Conventional
natural gas reserves were 31 trillion cubicfeet (Tcf) in 2014, while total production
was 3.4 Tcf. Natural gas liquids (NGLs)
production increased by 4 per cent in 2014.
In 2014, our coal reserves remained
unchanged at 37 billion tons, while only
33 million tons were produced.
A study conducted by the regulator in2012 estimated that the hydrocarbon
resources from shale are estimated to
be a very large and important potential
energy supply for Alberta and the world.
Best estimates put the in-place resource
at 3424 Tcf of gas, 58.6 billion barrels of
NGLs, and 423.6 billion barrels of crude oil.
Alberta’s energy resources significantly
contribute to both Alberta’s and Canada’s
economies. The value of our energy
resource production reached a record
high in 2014, exceeding $110 billion. Amid
the current low crude oil and natural gas
price environment, the contribution ofenergy resources to Alberta’s economy
is expected to be lower in 2015. However,the AER forecasts that after 2015, thevalue of energy commodities will return
to higher levels with the return of stronger oil and natural gas prices.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

66

Drivers for Change
The energy development landscapein Alberta, as elsewhere, is changing
rapidly, driven by advances in technology,
especially the drilling of horizontal wells
that are brought into production bymultistage hydraulic fracturing. Thismeans companies can now tap resourcestrapped in organic-rich shales and tightrock previously considered inaccessible.
The impacts of this change are significant:• It alters historical geographic supplyand-demand patterns.
• It increases resource development
opportunities.
• It drives competition for investment
dollars.
• It creates new environmental risks.

POTENTIAL ENERGY SUPPLY

3424
in-place natural gas

Tcf

The AER understands that these challenges require a regulatory approach that
ensures the resources are developed• safely, to protect the public;• responsibly, to protect the environment;and• efficiently, to manage the costs ofregulation.
We also want to do this in a transparent
manner to ensure information is clear andtimely and that the AER is accountable.
The economic landscape has changed,
and the AER must regulate within thereality of low oil prices and decreased
production. We are committed to enhancing our processes, finding efficiencies,and ensuring we continue to pursue thetransformation of the regulatory system.

58.6
in-place natural gas liquids

423.6
in-place crude oil

2014–17 STRATEGIC PLAN

BillionBBLS

BillionBBLS

67

In June 2014, the AER’s mandate
expanded to include additional environmental responsibilities. This gave
us the opportunity to examine ourexisting environmental functions andconsider environmental performance
improvement opportunities to better
serve stakeholders.

As part of the Government of Alberta’s
Integrated Resource Management
System, the AER must be equipped
to manage cumulative impacts. Thisis even more important as oil and gas
development evolves from small-scale,well-by-well projects to large-scale
projects that require more infrastructure
and leave larger footprints.

Last September, we hired a chief environmental scientist, Dr. Monique Dubé,
to help fulfill our new mandate andcommitment to improving environmental
performance. Through Dr. Dubé, theAER developed a more comprehensive
environmental vision and began work
under a three-year work plan that sets
the direction, activities, and priorities
for environmental protection acrossthe organization.

The AER must consider the cumulative
effect of these developments alongwith other industrial or recreational usesof the landscape. As pressure on theland continues to increase, we mustensure that regulations align withland-use policies and related energy
and environmental policies as a single
integrated system.

VALUE OF ENERGY COMMODITIES PRODUCED IN 2014

Natural gas

Natural gas liquids

9.9
0.3
Sulphur

15.5
Billiondollars

Crude oil

18.5
Marketable
bitumen

66.5
ALBERTA ENERGY REGULATOR Annual Report 2014/15

68

Meanwhile, public opinion research
conducted in 2015 indicated that positiveawareness of the AER has increasedby 9 per cent and that Albertans are
expressing confidence in the AER’s
ability to deliver on its mandate. Thatsaid, Albertans expect the AER to focus
on public safety, enforcing our rules,
responding to incidents, and protecting
the environment.
The AER also recognizes that our stakeholders play a large role in the regulatory
process and want to be assured that theregulatory system meets their expectations of public safety, environmental
protection, thorough assessment of risks,
and transparent and open communications.

2014–17 STRATEGIC PLAN

Refining Our Strategic Plan
The AER is expected to protect whatmatters most—public safety and theenvironment—while protecting economic
benefits for all Albertans.
This is important work. But to truly reachour vision, we must have a clear strategy,
focus on strategic priorities, and determine how we will responsibly manage ourbudget and staff to deliver results for the
AER and our stakeholders.
When we launched the plan in 2014, we
knew that our road map must help us
identify our key priorities and establish
clear performance measures to ensurethat we stay on track and demonstrate
our results. We also knew that we would

69

amend this road map along the way torespond to new challenges and risks andto take advantages of new opportunities
to transform our organization.
In 2015, we have amended our plan
to include the new activity life-cycle
approach (NALA), our new approach todevelopment that involves a single application, single review, and single decision,
which is an innovative project that marks
an important step in our transformation.
This approach will eventually result infaster application review times, provide
more information on proposed energy
development to our stakeholders, andallow us to focus more on compliancethrough all stages of development.
We’ve also included a stronger focus
on our people; investing in the training,development, recruitment, and retentionof our staff will help ensure success inmeeting our targets by making certain we
have highly skilled and talented employees at every level of our operations.
At the same time, we’ll continue torespond to valuable recommendations
from the Auditor General of Alberta
on how to improve our pipeline safety
performance and ensure that Alberta’s

The AER strategic plan
includes our strategic priorities,
strategic outcomes, themes(i.e., areas of focus), andperformance measures andtargets against which we will
monitor our progress….

dams related to energy resource development are immediately assessed as part ofour dam safety inspection program.
The AER strategic plan includes our
strategic priorities, strategic outcomes,
themes (i.e., areas of focus), and performance measures and targets against
which we will monitor our progress
and that others will use to measure
our success.
We will continue to refine and amend
the plan to respond to new challenges
and opportunities.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

70

2014–17
STRATEGIC PLAN
Strategic
priorities

Strategic
outcomes

ThemesPlay-based regulation(land and water)

PROTECTIVE
Develop an integrated
whole-systemregulatory approach

Effective managementof public safety, andcumulative environmental
risks and impacts

Tailings
management
Air emissions
Integrated Resource
Management System
Aging infrastructure
and liability management

EFFECTIVE
Strengthenrisk-based
regulation

Effective managementof resource conservationand minimize financial
liability on Albertans

Reservoir containment

Pipeline safety

EFFICIENT
Transform Alberta’s
energy regulatory
system to improve
efficiency

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

Regulatory reform

New Activity Life-cycle
Approach (NALA)

Open, transparent
communication

CREDIBLE
Increase trust andconfidence in how
energy is developedin Alberta

Stakeholders are confident
about how energy isdeveloped in Alberta

Stakeholder engagement

Best-in-class review

Human capital

71

Performancemeasures

Performancetargets

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

Work with GoA to set benchmarks andrequirements for reduction of water use
for energy resource development

VisionReduce overall tailings
Flaring levels are withinprovincial guidelines

TBD

TBD

Proportion of inactive wells that meetcurrent suspension requirements

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

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

No unintended loss ofreservoir containment

Number of incidents per
kilometre of pipelines regulatedby the AER

Pipeline incident rate
reduced by 4 per centRegulatory process efficiencies$400 million in cost savings fromefficiency initiatives in 2015

Relevant regulatory requirements

Complete a full regulatory review to
identify and execute opportunities forconsolidation and simplification

Improve efficiency of AER
application decisions

Establish final NALA blueprint tobe approved by June 30, 2015

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

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

Stakeholder rating of AER performance in
key areas of concern

10 per cent increase in positive perceptions/rankings of AER performance

Recommendations for best-in-classperformance are developed throughstakeholder collaboration

Completion and release ofrecommendations in 2015

Highly skilled andengaged employees

Establish a baseline in 2015, withan increase in the rating in 2016

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

Volume of gas flared and vented
from oil and gas operations

72» The Year Ahead
The AER is committed to deliveringon our strategic plan and becoming
a best-in-class regulator, all while
delivering excellence in our day-today regulatory work.
But claiming that we have delivered on
our commitments means little unless
Albertans have the chance to assess
our work—which means that we mustmeasure our performance, refine ourtargets, and report on our progressin being a regulator that is protective,
effective, efficient, and credible.
As we measure our performance, we mustassess the efficiency of our processes
and the effectiveness of our regulatory
requirements. We will also measure theperformance of both industry as a wholeand each individual company.
As we move into the second year of
our strategic plan, we’re working to
improve our targets and measures anddemonstrate that the AER is transparent,
accountable, and driven by results.

2014–17 STRATEGIC PLAN

In the coming months, we will provide
regular reports on our progress inmeeting our targets and establish newtargets as we meet the previous ones.
We will provide evidence where wehave been successful and explain where
we have failed. We will use internal
performance indicators throughout theorganization to give us early signs ofour progress or indicate that we shouldchange course if necessary.
For the strategic plan to succeed, weneed to deliver on the key projects under
our strategic priorities as well as criticalday-to-day functions that support all of
the AER’s work. Information technology,
human resources, change-management
initiatives, leadership development, media
and public awareness programs, strong
financial management, and a framework
for continuous improvement all play a rolein achieving success.
The AER’s employees are responsible forthe success we’ve had to date, and theircommitment will be key to ensuring that
we achieve our vision.

73

Whether they are introducing new
requirements to protect public safety,
finding more efficient ways of doing
business, building relationships withstakeholders at home and abroad,responding to concerns in communities
across Alberta, or providing the corporate services we need to operate,
AER employees are at the heart of ourwork and are the driving force behind
Alberta’s regulator.
The AER works every day to fulfill ourmandate to provide for the safe, efficient,orderly, and environmentally responsible development of Alberta’s energy
resources. Working together, we willoversee our world-class resources forthe benefit of all Albertans.

The AER is committed todelivering on our strategic planand becoming a best-in-class
regulator, all while delivering
excellence in our day-to-day
regulatory work.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

74

OPERATIONAL OVERVIEW

75

OPERATIONALOVERVIEW
Operations Division
The Operations Division is divided into
sector and function branches:• Industry Operations focuses on
the resource itself, on working withindustry, and on achieving Governmentof Alberta policy outcomes. Industry
Operations includes four sectors:-- Oil and Gas (conventional, unconventional, geothermal, and otherinfrastructure)-- In Situ-- Mining (oil sands and coal)-- Pipelines (all pipelines)• The vice president of Industry Operations leads teams that are responsible
for setting day-to-day priorities thatalign with the strategic plans andpriorities of the AER.
-- Function branches focus on themechanics: how things get done.
This is where our technical andprocess experts reside; they workwith their colleagues in the sector
branches to ensure that we areapplying efficient, standard processes
to the various sectors we regulate.
Function branches include the Authorizations Branch, Environment andOperational Performance Branch, andClosure and Liability Branch.
• Vice presidents of function branches
are accountable for defining how
the work gets done, for balancing
consistency and effectiveness, and for
responding to the unique needs of thesector teams:-- The Authorizations Branch delivers
project approvals and permits that
focus on the start of new resource
developments.
-- The Environment and Operational
Performance Branch monitors
ongoing operations, including
operating approvals, inspections,compliance, and emergency
preparedness.
-- The Closure and Liability Branchoversees the end-of-life aspects ofenergy developments.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

76

Strategy andRegulatory Division
The Strategy and Regulatory Division
identifies and manages issues, risks,and opportunities while managing theregulatory development process. This
separation between the day-to-day
operational work and the regulatory
development means each gets thefocus and attention it needs.
The Strategy and Regulatory Divisioncomprises four branches that help
to deliver expertise to the wholeorganization:• Corporate Planning and Enterprise
Projects Branch facilitates the processof corporate planning and prioritization,
ensuring that regulatory initiatives andprojects are aligned with our mandate
and vision.

OPERATIONAL OVERVIEW• Regulatory Operations and Economics
Branch ensures we deliver consistent,
predictable, and transparent regulatorychange. This branch implements
practical operating procedures forregulatory development and reports onenergy statistics, including forecasting
and cumulative land impacts data.
• Science and Evaluation Branch
produces and reports on current andreliable indicators in energy resource,
environmental, and social outcomes
related to energy development at thereservoir to play-based scales.
• The Alberta Geological Survey is abranch that provides the AER with
scientific peer-reviewed research,
mapping, and reporting on Alberta’s
geology, earth resources, geologicalhazards, and groundwater at theregional scale.

77

Stakeholder and
Government Relations
Division
Landowners, First Nations and Métis, oiland gas companies and industry associations, and nongovernmental organizations
and environmental nongovernmentalorganizations, municipalities, not tomention our Government of Alberta partners, all have a stake in our work. Eachstakeholder has a unique perspective andinterests, which is why the AER createda group dedicated to engagement andrelationship building—the Stakeholder
and Government Relations Division (SGR).
Building strong relationships between
the AER and its stakeholders andpartners has many strategic advantages
but is also an objective in its own right.
Stronger relationships result in moretransparent, cooperative, and productive
conversations. These build a foundationof trust that enables the relationships towithstand future issues that might arise.
Effective engagement improves regulatory decision-making and creates a better
regulator, which benefits all Albertans
and our working partners.

To regulate the world’s third-largest
energy resource effectively, credibly,and protectively, we are committed tolearning from and sharing best practices
and knowledge with our peers acrossCanada, in the United States, and aroundthe globe. There is also a great deal that
the AER can learn from Alberta-based
stakeholders who have a vested interestin the responsible development of our oil
and gas resources.
SGR builds these mutually beneficial
relationships through four branches:• Alberta Government Relations works
with AER staff and our Government ofAlberta partners to ensure that policy
development and regulatory delivery
for development of Alberta’s energy
resources are integrated and alignedwith each other.
• Alberta Stakeholder Engagement
engages our Alberta stakeholders tounderstand how they are affected by, orconcerned about, energy development
in Alberta. This engagement informs
how the AER responds to issues andconcerns, achieves desired outcomes,
and builds confidence through anaccessible, reliable, and consistent
regulatory process.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

78• National and International Stakeholder
and Government Relations ensures that
the AER remains informed and engaged
about what is happening in otherjurisdictions and advances the AER’s
credibility through regulatory diplomacy and by increasing stakeholder
trust and confidence in how energy isdeveloped in Alberta.
• The Public Affairs Branch works tobuild credibility by communicating
how the AER is protective, effective,and efficient. Public Affairs is responsible for making sure that the AER’s
communications, both internal andexternal, are clear, helpful, and timely.
Public Affairs provides many services
to the organization, including media
relations and crisis communications,strategic planning and advice, internaland corporate communications, editing,graphic design, digital media services,and web services.
Together, these branches focus on all AER
stakeholders and government partners
to ensure that the AER fulfills its commitment and promise to Albertans.

Corporate Services
Division
This division focuses on people,
infrastructure, and information and isdesigned to support the organization withkey corporate functions such as technology, data, workplace services, finance,
administration, and human resources.
The Corporate Services Division supports
the organization with essential knowledge, advice, and services related to theirareas of expertise. Services are provided
from Calgary and, where it makes sense,
in field offices to ensure that all AER
employees have access to the vital corporate services required to do their jobs.
The division is committed to providing the
AER with the tools needed to conduct ourbusiness and make the AER a great place
to work. Branches under the Corporate

OPERATIONAL OVERVIEW

79Services Division include the following:• Administrative/Workplace Services• Finance• Human Resources• Information Management• Information Services• Internal Audit

Law Branch
The Law Branch provides services byassigning AER lawyers to projects,
teams, applications, regulatory initiatives,
proceedings, etc. on an as-needed basis.
This approach will continue. The Law
Branch also continues to take steps toincrease its expertise in the specified
enactments. In addition, this branchdrafts all legislative, rule, and regulation
content for the numerous statutes
we administer and drafts and reviews
contracts. It also addresses all issues
around litigation and appeals.
Our lawyers understand and haveexpertise in the statutes the AER
administers—including all rules andregulations—as they relate to energy
development, which include• the Responsible Energy
Development Act,• the Oil and Gas Conservation Act,• the Pipeline Act,• the Oil Sands Conservation Act,• the Coal Conservation Act,• the Water Act,• the Environmental Protection andEnhancement Act,• the Public Lands Act, and• parts of the Mines and Minerals Act.
One change is in how we manage the
AER’s responsibilities as a public bodyunder the Freedom of Information andProtection of Privacy Act (FOIPPA).
Formerly, the FOIPPA team reported
directly to the AER general counsel.
Recognizing that responses to accessrequests under FOIPPA are only oneof several means by which the AER
manages and disseminates information,
this function has now been moved to
the Information Management Branchof Corporate Services and now reports
indirectly to the Law Branch.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

80

CORPORATE GOVERNANCE

81

CORPORATEGOVERNANCE
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
AER was created in June 2013.
The AER’s governance structure separates the corporate, operational, andgovernance responsibilities from adjudicative functions (hearings on energy
applications). Through this model, the
AER seeks to realize its full potential as
the single regulator of Alberta’s energy
resource development, as well as gain theconfidence of its many stakeholders.

Board of Directors
A chair heads the AER and leads aboard of directors; none are involvedin the AER’s day-to-day operations or
decisions. Rather, these directors set
the general direction of the regulator’sbusiness affairs, including approval of thestrategy and budget. The directors arealso charged with approving regulatorychange and setting performance expectations for the AER and its president andchief executive officer. In this way, the
AER’s board operates as a truly “corporate-style” board.

President and Chief
Executive Officer
The president and chief executive officer,
who reports directly to the chair, isaccountable for day-to-day operations,which include receiving and making
decisions on applications, monitoringand investigating energy resource
activities for compliance, and overseeing
reclamation and remediation of energy
developments at the end of their life cycle.

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

ALBERTA ENERGY REGULATOR Annual Report 2014/15

82» Board of Directors
Board Highlights 2014/15
During the nine meetings the AER’s boardof directors held over the 2014/15 fiscal
year, the board approved changes to the
2014–17 strategic plan (see page 70) andmonitored the AER’s progress on delivering on the plan’s four key priorities.
The board developed and implemented
tools that will help ensure strong leadership and governance, such as a board
evaluation process, a chief executive
officer and executive management
performance and assessment process,and a chief executive officer succession
plan.
Additionally, the board continued tocarry out the important work of its fourcommittees:• The Audit and Finance Committee
reviewed the formulas that would determine the administration fees charged toindustry. The committee also met with
the Auditor General of Alberta for its
standing annual audit meeting.
• The Human Resources, Health, andSafety Committee integrated new
employees to the AER, reviewed theleadership development initiativewith the University of Alberta, and

CORPORATE GOVERNANCE

developed health and safety measurement tools.
• The Governance Committee conducted
the annual review of the terms ofreference of board committees and the
AER bylaws.
• Meanwhile, the Regulatory Review
Committee reviewed changes to anumber of regulatory documents,
including the Pipeline Rules, the Oil
and Gas Conservation Rules, andDirective 058: Oilfield Waste Management Requirements for the Upstream
Petroleum Industry, in addition to the2015 orphan fund levy.

Board Committees
Committees are an important part ofany board. In general, their role is toreceive the reports and recommendationsof management, provide information,
make recommendations to the board forapproval, and make decisions on behalf ofthe board in their areas of authority.

Regulatory Review Committee
This committee helps ensure that
proposed AER regulatory instruments
support and contribute to the AER’s
mandate and vision, are applied enterprise-wide, are consistent with the current

83

Director Board Meetings Attended

Andy Neigel, RPF, B.Sc.Forestry(June 2014 to March 2015)

Gerard Protti, Chair
Cameron Bailey
David Chalack
Elizabeth Dowdeswell
Cassie DoyleFred EstlinPeter Flynn
Andy Neigel
Sheila O’Brien

Cassie Doyle

9 of 98 of 99 of 93 of 9*1 of 9**9 of 98 of 99 of 98 of 9* Resigned, June 26.
** New to board effective February 2015.

Fred Estlin, B. Admin., F.C.A
Audit and FinanceCommittee Chair
Dr. David Chalack, D.V.M. ICD.D
Sheila O’Brien, C.M., B. A.
Human Resources Health and
Safety Committee Chair
Gerard Protti, M. A., ICD.D
Chair,
Nomination Committee ChairPeter C. Flynn, Ph.D., P.Eng.
Governance Committee Chair
Cameron Bailey
Risk Management Committee
Chair

ALBERTA ENERGY REGULATOR Annual Report 2014/15

84

regulatory and economic environment,
and receive adequate feedback from
AER staff and stakeholders. It also makes
certain that these instruments are basedon sound science, technical expertise,and engineering and economic principles,
and that they can be supported legally. In
addition, the committee helps determine
applicable approvals required for regulatory instruments, such as approval fromthe board of directors, the Governmentof Alberta, or both.

Human Resources, Health, andSafety 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, staff selection, remuneration,and performance assessment of the chief
executive officer, and compensation andsuccession planning for senior executives.
This committee also oversees the AER’s
occupational health and safety policies,
practices, and performance to ensurethat standards are maintained.

Audit and Finance Committee
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 tothe 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.

Risk Management Committee
The Risk Management Committee wasestablished in May 2015 to assist theboard of directors fulfill its responsibilities of overseeing risk management
at the AER. This includes looking at
internal controls relating to enterprise risk
management and to helping the AER’s
leadership team and the board of directors make informed, strategic decisions.

Nomination Committee
Governance Committee
The AER’s Governance Committee
establishes processes to clarify how the
AER makes decisions. It helps the boardof directors address governance mattersaffecting operations and on specificmatters from the board of directors, thechair, or executive management.

CORPORATE GOVERNANCE

Also new in 2015, the Nomination
Committee was formed to lead theprocess of identifying and selecting
candidates for appointment, or reappointment, to the board of directors. The
committee also makes recommendations
to the board of directors for director
succession plans.

85» Executive Leadership TeamThe AER president and
CEO reports directly
to the chair of the AER
board of directors
and is accountable forday-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.

Standing

Rick Brown
Executive Vice President
Corporate Services
Jim Ellis
President and Chief
Executive Officer
Martin Krezalek
Chief of Staff, Office of the
President and CEO
Cal Hill
Executive Vice President
Strategy and Regulatory

Sitting

Jennifer Steber
Executive Vice President
Stakeholder and
Government Relations
Patricia Johnston
General Counsel
Executive Vice President Law
Kirk Bailey
Executive Vice President
Operations
Tristan Goodman
Vice President
Corporate Planning andEnterprise Projects

ALBERTA ENERGY REGULATOR Annual Report 2014/15

86» Hearing Commissioners
Hearing commissioners represent a key
part of the AER’s mandate by having
responsibility for its adjudicative
functions. They are appointed by theGovernment of Alberta through an Orderin Council for specified terms and include
both full-time and part-time hearing
commissioners, all of whom report to achief hearing commissioner, who in turnreports to the AER’s chair.
The hearing commissioners conducthearings and inquiries, acting as decision-makers on major energy applications
and regulatory appeals. They are also
involved in developing the organization’shearing procedures and rules. Hearing
commissioners may also conduct
alternate dispute resolution (ADR) once
it is determined that an application or aregulatory appeal will go to a hearing.
Hearing commissioners are independent
adjudicators, operating free of politicalinterference. Only the Court of Appealof Alberta may review and overturntheir decisions. They also function
independently from the AER’s
operations staff.

CORPORATE GOVERNANCE

Hearing Commissioner
Activities
Over the past 12 months to the end of
March 2015, 18 files were referred to thechief hearing commissioner. Twelve files
were assigned to hearing commissioners
to conduct ADR; eight were completed
and four are in progress. Of thosecompleted, three files were resolved
through mediation, one application waswithdrawn, three files were resolved after
ADR was initiated, and one file went toa hearing.
Hearing commissioners conducted four
hearings: two oral hearings—including theGrand Rapids pipeline hearing in June
and July 2015—and two written hearings.
Six scheduled hearings were cancelled
as the reasons for holding a hearing wereresolved. The AER issued 10 decision
reports for hearings held and cancelledhearings during this period.

87

Heather Kennedy, B.Sc.
Part-Time Hearing
Commissioner

Brad McManus, Q.C.
Full-Time Hearing
Commissioner

Terry Engen
Part-Time Hearing
Commissioner

Alex Bolton, B.Sc., MMSc.,

Christine Macken, B.A.
Full-Time Hearing
Commissioner

Barbara McNeil, B.Sc., C.M.
Full-Time Hearing
Commissioner

Rob McManus, B. A., M.E.Des.
Full-Time Hearing
Commissioner

Not pictured

P.Geo.

Chief Hearing
Commissioner
John Lawson, MPA
Part-Time Hearing
Commissioner
Cecilia Low, B.Sc., LL.B., LL.M.
Full-Time Hearing
Commissioner

Lorne Ternes, LL.B
Part-Time Hearing
Commissioner

Jurgen Preugscha
Part-Time Hearing
Commissioner

ALBERTA ENERGY REGULATOR Annual Report 2014/15

88

FINANCIAL STATEMENTS

89

MANAGEMENT’S DISCUSSION
AND ANALYSISThis management’s discussion and analysis (MD&A) should be read in conjunction with theaudited financial statements of the Alberta Energy Regulator (AER) for the years ended
March 31, 2015 and 2014, and accompanying notes. The AER’s financial statements and thefinancial data in this MD&A have been prepared in accordance with Canadian public sector
accounting standards (PSAS).
All comparisons are between the years ended March 31, 2015 and 2014, unless otherwise noted.
The 2014 figures combine 77 days of the Energy Resources Conservation Board (ERCB) operations from April 1, 2013 to June 16, 2013 with the balance of the fiscal year being those of the AER.
All amounts are expressed in thousands of Canadian dollars, unless otherwise noted.

About the AER
On June 17, 2013, the Government of Alberta proclaimed certain sections of the Responsible
Energy Development Act (REDA), launching the AER. Regulatory functions were transferredfrom Alberta Environment and Sustainable Resource Development (ESRD) to the AER in phases
between June 17, 2013, and March 31, 2014. This included taking on new responsibility for public
lands under the Public Lands Act and geophysical activities under the Mines and Minerals Act,as well as authority for the Environmental Protection and Enhancement Act and the Water Act
as they relate to energy development.
The AER is the single provincial regulator for oil, gas, oil sands, and coal development in Alberta.
The AER ensures the safe, efficient, orderly, and environmentally responsible development ofhydrocarbon resources over their entire life cycle. This includes allocating and conserving water,
managing public lands, and protecting the environment, while providing economic benefits for
all Albertans.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

90

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

Summary Annual Highlights
The AER recovers its operating and capital asset costs through two separate revenue sources.
The two sources of revenues are industry levies and assessments and other revenue. Provincial
grants were received in fiscal 2014 and 2015 for costs associated with the implementation of the
AER, which was a Government of Alberta initiative.
Years Ended March 31
Industry levies and assessments

2015$

258 2782014$

1 8 1 668$

Change% Change

76 6 1 0

42

Provincial grant

19 80036 300(1 6 500)(45)

Other revenue

9 914

8 454

1 460

17

Total revenue

287 992

226 42 26 1 570

27

Energy regulation

256 827

208 3 1 0

48 5 1723

1 5 760

1 6 1 72

(412)

(3)

Total expenses

272 5 87

224 482

48 10521

Capital Investment

20 85413 870

6 984

50Orphan abandonment

Total Revenues
Industry Levies and Assessments
Administration Levy
REDA authorizes the AER to levy an administration fee on the sectors that it regulates. Funds
from industry levies and assessments are used to support the AER’s operations and fulfill the
AER’s mandate to ensure the safe, efficient, orderly, and environmentally responsible development of hydrocarbon resources over their entire life cycle.
The AER’s revenue requirements directly affect operator levy invoices. Other factors also
contribute to the fee determination at an operator level, including an increase or decrease inwells or entities within the sector, ownership transfer and amalgamations, new entrants, andvolume fluctuations. Invoices vary according to individual operations, are based on operating
statistics for the previous calendar year, and are levied to operators according to which sector
they operate within.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Years Ended March 31
Oil and gas

2015$

176 4752014$

119 380$

91

Change% Change

57 09548

Oil sands

63 06242 36820 694

49

Coal

3 630

2 650

980

37

Other

111

2 028

(1 91 7)(95)

76 852

46

Total

$

243 278$

166 426$

The administration levy for the year ended March 31, 2015, increased by $76 852, or 46 per cent.
An increase in the levy was required to fund the increased responsibilities of the AER. The Total
Expenses and Tangible Capital Assets sections of this MD&A contain further discussion on theincreased expenditures of the AER.
Orphan Well Levy
Years Ended March 31
Orphan well levy

2015
$

$

-

Penalties
Total revenue

15 0002014$

15 000

15 000$242$

15 242$

Change% Change

-

-

(242)

(100)

(242)

(2)

Under part 11 of the Oil and Gas Conservation Act, the AER, by regulation, prescribes an orphan
fund levy which is approved by the Government of Alberta. This levy is based on the revenue
requirements identified by the Alberta Orphan Well Association (OWA). All levies collected arepaid directly to the OWA and are not used to recover the AER’s costs.
Provincial Grant
Years Ended March 31
Provincial grant2015$

19 8002014$

36 300$Change% Change(16 500)(45)

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

Provincial grant revenue was $19 800 in fiscal year 2015, a decrease of $16 500, or 45 per cent.
The $36 300 provincial grant received in fiscal year 2014 included funds for transition and set
up costs of the AER. The 2015 grant related to the final costs of implementing the AER andsupported its expanded responsibilities. The provincial grant decreased because transitionalcosts that were incurred before the proclamation of REDA were not required in fiscal 2015.
Other Revenue
Years Ended March 31
Other revenue

2015
$

9 914

2014
$

8 454

$

Change% Change

1 460

17

Other revenue consists of investment income, first-time well licence fees, data subscriptions,recoverable abandonment, and enforcement revenue and sales of electronic data and publications.

Total Expensesi) Energy Regulation
Years Ended March 31
Personnel

2015$

178 5 1 0

2014$

136 564$

Change% Change

41 94631

Consulting services

19 99021 962(1 972)(9)

Buildings

18 0 1 6

14 6603 356

23Computer services

15 9 1 2

12 7 1 0

3 202

25

Amortization of tangible
capital assets

1 1 836

12 045(209)(2)

Other expenses*

12 56310 3692 1 9421

48 5 1 7

23

Total Energy Regulation Expense$

256 827$

208 310$* Consists of travel and transportation, administrative, equipment rent and maintenance, abandonment andenforcement costs, and loss on disposal and write-down of tangible capital assets.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

93

Total expenses of the AER reflect the AER’s use of its sources of revenue to fund expendituresand capital investment each fiscal year. Details of significant annual expenditures are included
below.
Personnel
In fiscal 2015, personnel costs were $178 510, which is $41 946, or 31 per cent, higher than in fiscal
2014 because of the AER’s increased employee base. To be a protective, effective, efficient, andcredible regulator, the AER must retain and attract qualified individuals with appropriate skill
sets. In fiscal 2015, the AER accepted a number of key new responsibilities and initiatives thatnecessitated more employees. Specifically, the AER:
• increased regulatory responsibility due to functions transferred from ESRD to the AER-- The AER accepted regulatory responsibility for all energy resource activities under the
Public Lands Act and Part 8 of the Mines and Mineral Act. ESRD was previously responsible
for these activities. The AER’s responsibility for regulatory oversight of these items began inNovember 2013.
-- The AER accepted regulatory responsibility for all energy resource activities included in theEnvironmental Protection and Enhancement Act and the Water Act. ESRD was previously
responsible for these activities. The AER’s responsibility for regulatory oversight of these
items began in March 2014.
• created and expanded the following functions to help the AER become more protective,
effective, efficient, and credible:-- The AER created the Transformation Management Office to oversee and develop strategy
for the AER’s transition to a best-in-class regulator.
-- The AER created the Enterprise Project Management Office to establish a consistent,
efficient, and effective project methodology at the AER.
-- The AER enhanced the Stakeholder and Government Relations function.
Consulting Services
The AER hires outside consultants to provide strategic technical advice and certain operational
services. The costs of consulting services in fiscal 2015 were $19 990, a decrease of $1 972, or 9 per
cent, from fiscal 2014. In fiscal 2014, most consultants were hired to help ensure the efficienttransition of regulatory functions from ESRD and the ERCB to the AER. Fiscal 2015 consultants
were hired to set up functions that will increase the AER’s efficiency and effectiveness; fewer
projects in fiscal 2015 required consultants, and consultation expenses were consequently lower.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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

Buildings
The AER leases several offices throughout the province. In fiscal 2015, building costs increased
by $3 356, or 23 per cent. The AER’s head office lease in Calgary is the most significant building
cost, and the increase in costs relates mainly to increased rental rates at the head office and to
more leased office space at the AER’s Edmonton offices.
Computer Services
Computer services costs relate to maintenance and server-hosting costs of the AER. Costs
totalled $15 912, which was $3 202, or 25 per cent, higher in fiscal 2015 than in fiscal 2014. The
increase in costs is due to an increase in data centre and server expenses caused by an expanded
employee base and increased responsibilities of the AER.
Amortization of Tangible Capital Assets
Capital assets are amortized over their estimated useful lives in accordance with PSAS. In fiscal
2015, amortization of tangible capital assets was consistent with 2014. The majority of the AER’s
additions to capital assets occurred late in fiscal 2015; therefore, there was no significant effecton amortization expense.

ii) Orphan Abandonment
Years Ended March 31
Orphan abandonment

2015$

15 7602014$

16 172$

Change% Change

(412)

(3)

Orphan abandonment expenses remained relatively consistent because the OWA did not change
its revenue requirements.
Tangible Capital Assets
Tangible capital assets totalled $63 211 in fiscal 2015 compared to $54 972 in fiscal 2014. In fiscal
2015, the AER’s investment in tangible capital assets was $20 854. The formation of the AER
necessitated expanding and restructuring existing and new leased office spaces. The AER’s
development and investment in information technology infrastructure and systems is a key
component of its operations. Costs to maintain and update the AER’s information technology
environment in fiscal 2015 were $9 906, and funded system enhancements and equipment and

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

95

software purchases necessary due to the expanded mandate. In fiscal 2014, the AER invested$13 870 in tangible capital assets, which included the creation or expansion of office space andrequired upgrades of information technology infrastructure.

Security Deposits
2015
Cash
Security

Years Ended March 31
LLR$

92 6352014
CashSecurity$

70 832

2015
Lettersof Credit$

1 53 521

2014
Letters of
Credit$203 338

Mine Financial Security Program

24 02023 087

1 548 938

1 387 849

Other

6 1 80

6 292

4 782

4 513

$

122 835$

100 2 1 1$

1 707 241$

1 595 700

The AER collects financial security under a number of different programs to protect the publicfrom paying significant costs associated with abandoning and decommissioning energy development sites.
• The Licensee Liability Rating (LLR) program is designed to-- prevent the costs of suspending, abandoning, remediating, and reclaiming a well, facility,or pipeline in the LLR program from being borne by the public of Alberta should a licensee
become defunct and-- minimize the risk to the orphan fund posed by the unfunded liability of licensees in the program.
Effective May 1, 2013, the AER made changes to the LLR program to address concerns that theprevious LLR program significantly underestimated abandonment and reclamation liabilities oflicensees; the changes were made with the support of the Canadian Association of Petroleum
Producers and the Explorers and Producers Association of Canada. These changes increased
the amount of security that licensees who participate in the LLR program must deposit and arebeing implemented over three years, with updates effective May 1 of each year.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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

As of March 31, 2015, the AER held $92 635 in cash under the LLR program. This is $21 803,
or 31 per cent, higher than on March 31, 2014. The increase in cash security received wascaused mainly by the implementation of the second phase of the changes to the LLR program
discussed above.
The total amount of letters of credit held under the LLR program as of March 31, 2015, was$153 521, which is $49 817, or 24 per cent, lower than in fiscal 2014. In fiscal 2015, $80 million
in letters of credit outstanding under the LLR program as of March 31, 2014, were returned toa licensee that had made a significant business acquisition. This was offset by the increase inletters of credit received due to the implementation of the second phase of the changes to the
LLR program discussed above.
• The Mine Financial Security Program (MFSP) was developed to manage liabilities associatedwith coal and oil sands mining operations. The program requires a base amount of security foreach project, which would provide the funds necessary to place the site in a safe and securestate and maintain care and custody should the approval holder fail to meet its obligations.
Approval holders are responsible for the suspension, abandonment, remediation, and reclamation of lands disturbed by resource development. As mines are depleted, security amounts
increase. Additional security must also be posted when a mine owner does not meet certain
financial tests.
Annually, approval holders report to the AER on the status of reclamation and land disturbances
and adjust their MFSP security deposits accordingly. In fiscal 2015, an additional $161 089 inletters of credit was placed with the AER under the MFSP as a result of additional land disturbances caused by mining and processing operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

97

Financial Position and Liquidity
Years Ended March 31
Cash and cash equivalents, beginning of year2015$

42 0552014$

36 647

Operating Activities

32 8391 9 278

Investing Activities(20 854)(1 3 870)

Cash and cash equivalents, end of year$

54 040$42 055The AER’s cash balance on March 31, 2015, was $54 040, compared to $42 055 on March 31, 2014.
The increase is primarily the result of the following:• Operating activities provided cash of $32 839 in fiscal 2015, while fiscal 2014 provided cash of$19 278.
The increase in fiscal 2015 is mainly attributable to the increase in annual operating surplus andchanges in non-cash working capital.
-- The annual operating surplus in fiscal 2015 was $15 405 compared to an annual operating
surplus of $1 940 in fiscal 2014. This increase of $13 465 is due to the AER’s expenditures
being lower than originally budgeted. Refer to the Overall Analysis of Actual and Expected
Results section of this MD&A for further discussion of actual and budgeted expenditures.
-- Accounts receivable were $12 245 on March 31, 2015, compared to $3 892 on March 31, 2014,
an increase of $8 353. The increase is mainly due to the timing of the orphan well levy in2015. In fiscal 2015, the levy fees were due after fiscal year-end. In fiscal 2014, invoices were
issued in February and were due before March 31, 2014.
-- Accounts payable and accrued liabilities on March 31, 2015, were $33 511 compared to$21 582 on March 31, 2014, an increase of $11 929. The increase in the accounts payable andaccrued liabilities balance on March 31, 2015, is attributable to the AER’s increased activities.
-- The grant payable to the OWA was $15 055 on March 31, 2015, compared to $10 750 on
March 31, 2014, an increase of $4 305. The AER collects the orphan well levy on behalf of the
OWA and transfers the collected amounts to the OWA.
• Investing activities in fiscal 2015 used cash of $20 854, compared to $13 870 in fiscal 2014, forthe purchase of tangible capital assets.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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

Overall Analysis of Actual and Expected Results
2015
Authorized
BudgetYears Ended March 31

2015 Actual

Change% Change

1 10-

Revenues
Industry levies and assessments$

258 1 68$258 278$

Provincial grant

1 9 800

19 800--

Other revenue

11 2 59

9 914(1 345)(14)289 2 27287 992(1 235)-264 2 27

256 827(7 400)(3)

15 50015 760260

2279 727272 587(7 140)

(3)

9 500

15 4055 905

38

Expenses
Energy regulation
Orphan abandonment

Annual operating surplus
CapitalCapital Investment

24 20020 854(3 346)(1 6)

Less: Amortization(14 700)(1 1 836)(2 864)

(24)

-

(779)

(779)

(100)

9 500

8 239

(1 26 1)

(1 5)

7 166

100

Loss on disposal and writedown of tangible capital assets
Net capital investment
$

-

$

7 166

$

Total Expenses
The AER’s energy regulation expenses for the year were $256 827, which is $7 400, or 3 per cent,less than the authorized budget. In the latter portion of the fiscal year, the AER received approval
to issue an in-year industry levy for $35 900 to fund directed changes in the AER’s mandate. The
AER initiated budget cost savings, in line with other provincial agencies, to address the existing
economic climate in Alberta caused by the collapse of world oil prices and, consequently, did not
spend all available funds.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

99

Risks and Risk Management
The AER is exposed to various risks in delivering its mandate. To ensure the AER can better
manage its risks, it has developed a risk management process that identifies risks, assesses theimpact and likelihood of them occurring, and determines how best to mitigate these risks. The
AER’s management is responsible for the ongoing operations of the organization, including
managing its risks.
Risk management is a key element of organizational governance and is characterized by aprocess of continuous review and improvement. The key features of the AER’s governance andinternal control environment, which allows the AER to manage its risks, are as follows:• The AER’s business is governed by a board of directors. Directors are independent from any
person or entity having a material interest in the AER and are appointed by Orders in Council
made by the Lieutenant Governor in Council under REDA.
• The AER has an Enterprise Risk Management Program in place, which provides a common
framework to identify and analyze risks and ensure that those managing risk are appropriately
mitigating it.
• The AER is committed to maintaining a high level of ethics and integrity. The AER board
and management foster these values throughout the organization and maintain an effective
whistleblower policy. The AER also maintains a code of conduct applicable to its directors,
officers, employees, and contractors that reflects the values and integrity of the AER andprovides rules and guidance on adhering to the AER’s values. All directors, officers, employees,
and contractors must abide by the policy.
• AER management is responsible for establishing and maintaining adequate internal controls
over financial reporting. These controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with PSAS. Internal controls, no matter how well they are designed,have inherent limitations and provide only reasonable assurance with respect to financial
statement preparation. Accordingly, they may not prevent or detect all misstatements.
• The Audit and Finance Committee reviews and monitors the system of internal controls, therisk management program, the external audit process and the AER’s process for ensuring
compliance with the laws and regulations under which it operates.
• The AER’s internal audit function provides the AER with an objective and independent assessment of internal controls and identifies opportunities to improve operational and financial

ALBERTA ENERGY REGULATOR Annual Report 2014/15

100

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

reporting. The AER’s internal audit department reports directly to the Audit and FinanceCommittee and, if required, discusses matters with the Audit and Finance Committee independent of management.
• The AER carries insurance coverage that is reviewed and approved by the Audit and FinanceCommittee. The insurance coverage may not be adequate to cover all possible risks and theproceeds of any insurance claim may not be adequate to cover all potential losses.

Future Outlook
Fiscal 2016 Estimates Compared to Fiscal 2015 Authorized Budget
2015
Authorized
Budget2016
Estimates

Years Ended March 31

Change% Change

1 1 925

5

Revenues
Industry levies and assessments$

270 093$258 1 6 8$-19 800(19 800)

(100)

8 159

1 1 259(3 100)(28)

278 252289 227(10 975)(4)Energy regulation

250 252

264 227(13 975)(5)Orphan abandonment

30 5001 5 500

15 00097

280 752279 727

1 025-(2 500)

9 500(12 000)(126)

Provincial grant
Other revenue

Expenses

Annual operating surplus (deficit)
CapitalCapital Investment

9 000

24 200(15 200)(63)

Less: Amortization(1 1 500)(1 4 700)(3 200)(22)

Net capital investment(2 500)

9 500(12 000)

(126)

-

-

$

MANAGEMENT’S DISCUSSION AND ANALYSIS

-

$

-

$

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

101

The estimate for industry levies and assessments is $11 925, or 5 per cent, higher in 2016 thanthe 2015 authorized budget. The increase in the levy occurred due to a $15 000 increase to theorphan fund to support estimated orphan abandonment costs. This increase is partially offset
by a $3 075 reduction to the AER’s industry levy in 2016.
The estimate for provincial grants is zero, $19 800 lower than in fiscal 2014. The $19 800 provincial grant in the current fiscal year was directed to the remaining implementation costs of the AER.
Funds from industry levies and assessments are used to support the AER’s operations. The
decrease in estimated energy regulation costs of $13 975, or 5 per cent, relates to the AER’s
commitment to reduce expense targets in 2016 due to the current economic downturn in Alberta.
Estimated capital investment for 2016 is $15 200, or 63 per cent, less than the 2015 budget. The
transition to the AER has been completed, and the AER expects that fewer funds will be requiredin 2016.

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

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

ALBERTA ENERGY REGULATOR Annual Report 2014/15

102

ALBERTA ENERGY REGULATORFINANCIAL STATEMENTS
For the Year Ended March 31, 2015

Independent Auditor’s ReportStatement of Operations

Statement of Financial Position

Statement of Cash Flows

Notes to the Financial Statements

Schedules to the Financial Statements

FINANCIAL STATEMENTS

103

Independent Auditor’s Report
To the Board of Directors of the Alberta 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, 2015, and the statements of operations
and cash flows for the year then ended, and a summary of significant accounting policies and otherexplanatory information.

Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statementsin accordance with Canadian public sector accounting standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are freefrom 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. Thosestandards require that I comply with ethical requirements and plan and perform the audit to obtainreasonable 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 fair presentation 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. An audit also includes evaluating the

ALBERTA ENERGY REGULATOR Annual Report 2014/15

104

appropriateness of accounting policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis formy audit opinion.

OpinionIn my opinion, the financial statements present fairly, in all material respects, the financial positionof the Alberta Energy Regulator as at March 31, 2015, and the results of its operations, its remeasurement gains and losses, and its cash flows for the year then ended in accordance with Canadianpublic sector accounting standards.

[Original signed by Merwan N. Saher, FCA]

Auditor General
May 14, 2015
Edmonton, Alberta

FINANCIAL STATEMENTS

105

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

2015
Estimates(Schedule 3)

2014
ActualActualRevenues
Industry levies and assessments$

222 268$258 278$

1 8 1 668

Provincial grant

1 9 800

1 9 800

36 300Information, services, and fees

8 759

8 260

7 431

Investment

2 500
$

253 3271 654$

287 992

1 023$

226 422

Expenses
Energy regulation (Schedule 1)

229 627

256 827

208 3 1 0

Orphan abandonment (Note 3)

1 5 500

1 5 760

1 6 1 72245 1 2 7

272 587

224 482

Annual operating surplus (Note 12)

$

8 200

$

15 405$

1 940

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

ALBERTA ENERGY REGULATOR Annual Report 2014/15

106

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

2015

2014

AssetsCash and cash equivalents (Note 4)$

54 040$42 055

Security deposits (Note 6)

1 2 2 835

100 2 1 1

Accounts receivable1 2 245

3 892

Prepaid expenses and other assets

10 353

9 660

Tangible capital assets (Note 7)

63 2 1 1

54 972$262 684$

210 790$

33 5 1 1$

21 582

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

15 05510 750

Security deposits (Note 6)

122 835

100 2 1 1

Deferred revenue (Note 9)

2 056

2 97 1

Deferred lease incentives (Note 10)

23 02323 535Pension obligations (Note 11)

2 349

3 291

198 829

162 340

63 85548 45063 85548 450Net Assets
Accumulated operating surplus (Note 12)$262 684

Contractual obligations (Note 13)

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

FINANCIAL STATEMENTS$

210 790

107

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

2015

2014

Operating transactions
Annual operating surplus$

15 405$

1 940

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

1 1 836

1 2 045

779-

Loss on disposal and write-down of tangible capital assets
Change in pension obligations

(942)

31

(1 430)(1 370)25 64812 646(8 353)(41 2)

(693)

43 1

Increase in accounts payable and accrued liabilities

1 1 929

2 601

Amortization of deferred lease incentives (Note 10)(Increase) in accounts receivable(Increase)/decrease in prepaid expenses and other assets

Increase in grant payable to Orphan Well Association

4 305

1 778

(Decrease)/increase in deferred revenue

(915)

1 486

Additions to deferred lease incentives (Note 10)

91 8

748

32 83919 278Acquisition of tangible capital assets (Note 7)(20 854)(1 3 870)

Cash applied to capital transactions(20 854)(1 3 870)

Increase in cash and cash equivalents

1 1 985

5 408

Cash and cash equivalents at beginning of year

42 05536 647

Cash provided by operating transactions

Capital transactions

Cash and cash equivalents at end of year$

54 040$42 055The accompanying notes and schedules are an integral part of these financial statements.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

108

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
March 31, 2015 (in thousands)
Note 1

Authority and purpose
The Alberta Energy Regulator (AER) is an independent and quasi-judicial organization of
the Government of Alberta. The AER operates under the Responsible Energy Development
Act (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 conservation and management of water, the disposition and management of public lands
and protection of the environment.
The AER was established on June 17, 2013 to supersede the Energy Resources Conservation
Board (ERCB). The AER is responsible for the historic regulatory functions of the ERCB aswell as certain functions of Alberta Environment and Sustainable Resource Development that
relate to public lands, water and the environment.

Note 2

Summary of significant accounting policies and reporting practices
These financial statements are prepared in accordance with Canadian Public Sector Accounting Standards (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 transfer is authorized and the AER is eligible to receive the funds.

(b) Expenses
Expenses are reported on an accrual basis. The cost of all goods consumed and services received during the year is expensed.
(c)

FINANCIAL STATEMENTS

AssetsFinancial assets are assets that could be used to discharge existing liabilities or financefuture operations and are not for consumption in the normal course of operations.
Financial assets of the AER are limited to financial claims, such as advances to andreceivables from other organizations.

109

Note 2

Summary of significant accounting policies and reporting practices (continued)
Tangible capital assets are recorded at historical cost, which includes amounts that are
directly related to the acquisition, design, construction, development, improvement or
betterment of the assets and are amortized over their estimated useful lives using thefollowing methods:
Leasehold improvements
Straight line
Term of the lease
Furniture and equipment
Straight line
5 – 12 years
Computer hardware
Straight line
4 – 5 years
Computer software – purchased
Straight line
4 – 5 years
Computer software – developed
Declining balance 5 years
Work-in-progress, which includes developed computer software and leasehold improvements, is not amortized until a project is complete and the asset is put into service.
Tangible capital assets are written down when conditions indicate that they no longer
contribute to the AER’s ability to provide goods and services, or when the value of
future economic benefits associated with the tangible capital assets is less than their
net book value. The net write-downs are accounted for as expense in the Statementof Operations.
(d) Liabilities
Liabilities are recorded to the extent that they represent obligations as a result of
events and transactions occurring prior to the end of the fiscal year. The settlement ofliabilities will result in 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 thedifference 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.

(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 and costAccounts receivable
Security deposits
Accounts payable and accrued liabilities
Grant payable to the Orphan Well Association

Amortized cost
Amortized cost
Cost
Cost

ALBERTA ENERGY REGULATOR Annual Report 2014/15

110Note 2

Summary of significant accounting policies and reporting practices (continued)
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 fairvalues of cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, grant payable to the Orphan 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,has no significant foreign currency transactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses and consequently has
not presented a statement of remeasurement gains and losses.
(g) Pension
Accrued 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 8.3 years.
Past service cost arising from plan amendments is accounted for in the period of theplan amendments.
Defined contribution plan accounting is applied to the Government of Alberta multiemployer defined benefit pension plans as the AER has insufficient information to apply
defined benefit plan accounting. The AER is not responsible for future funding of theplan deficit other than through contribution increases.
(h) Deferred lease incentives
Deferred lease incentives, consisting of leasehold improvement costs, reduced rent
benefits and rent-free periods, are amortized on a straight-line basis over the term of
the lease.
(i)

FINANCIAL STATEMENTS

Measurement uncertainty
Measurement uncertainty exists when there is a variance between the recognizedor disclosed amount and another reasonably possible amount. The amounts recorded
for amortization of tangible capital assets are based on estimates of the useful life of
the related assets. Accrued defined benefit obligations are subject to measurement
uncertainty due to the use of actuarial assumptions. The resulting estimates are withinreasonable limits of materiality and are in accordance with the AER’s significant accounting policies.

111

Note 2

Summary of significant accounting policies and reporting practices (continued)(j)Note 3

Changes in accounting policy
Liability for contaminated sites
In June 2010, the Public Sector Accounting Board issued an accounting standard, Liability for contaminated sites, effective for fiscal years starting on or after April 1, 2014.
Contaminated sites are a result of contamination being introduced into air, soil, wateror sediment of chemical, organic, or radioactive material, or live organism that exceeds
an environmental standard. The AER adopted this accounting standard retroactively
as of April 1, 2014 but without restatement of prior period results. The adoption of thestandard did not have an impact on the AER’s financial statements.

Orphan 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, 2015, the AER collected $15 000 (2014 $15 242) in levies and $760 (2014 - $930) in application fees.

Note 4

Cash and cash equivalents
During 2015, the AER transferred its cash and cash equivalents from the Consolidated CashInvestment Trust Fund (the Fund) to a Premier Investment Account. The account earns
interest calculated based on the average monthly cash balance. The funds are able to bewithdrawn upon request. During the year ended March 31, 2015, the AER earned interest at
the rate of 1.3%.
As at March 31, 2014, the Consolidated Cash Investment Trust Fund was comprised of highquality short-term and mid-term fixed income securities with a maximum term to maturity of
three years and securities held by the Fund had a time-weighted return of 1.2% per annum.
The Fund is managed by the Province of Alberta to provide interest income at competitive
rates while maintaining maximum security and liquidity of depositors’ principal.

Note 5

Financial instruments
The AER has the following financial instruments: accounts receivable, accounts payable andaccrued liabilities, grant payable to the Orphan Well Association and security deposits.
The AER has exposure to the following risks from its use of financial instruments:(a)Liquidity risk
Liquidity risk is the risk that the AER will encounter difficulty in meeting obligations
associated with financial liabilities. The AER does not consider this to be a significant
risk as the AER collects funding at the beginning of the year to meet all obligations thatarise during the year. In addition, the available credit facility provides financial flexibility
to allow the AER to meet its obligations if funding cannot be collected on a timely basis.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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Note 5

Financial instruments (continued)(b)Note 6

Credit risk
The AER is exposed to credit risk from potential non-payment of accounts receivable.
As at March 31, 2015, the amount of financial assets that were past due was not significant and there were no material uncollectible receivable balances.

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 byholding various forms of security. At March 31, 2015, the AER held $122 835 (2014 - $100 211)
in cash and an additional $1 707 241 (2014 - $1 595 700) in letters of credit. The security,
along with any interest earned, will be returned to the depositors upon meeting specified
refund criteria.

Note 7

Tangible capital assets
ComputerLeasehold

Furniture andhardwareLand

improvements

equipment

and software

Indefinite

the lease5 – 12 years

4 – 5 years

Total

Term of
Estimated useful life
Historical cost
Beginning of year

$

282

$

28 593$13 330$115 1 54$

157 359

Additions

-

8 023

2 925

9 906

20 854

Disposals, including write-downs-(5 61 )

( 1 0 1)

(1 061)(1 723)282

36 05516 1 5 4

123 999

176 490

Accumulated amortization
Beginning of year$

Amortization expense

-

$

-

Disposals, including write-downs

6 004

$

1 736

8 29 1$

1 032

88 092$9 068

102 387
1 1 836

-

-

(96)

(848)

(944)

-

7 740

9 227

96 3 1 2

1 13 279

Net book value at March 31, 2015

$

282

$

28 3 1 5

$

6 927

$

27 687$63 2 1 1

Net book value at March 31, 2014

$

282

$

22 589

$

5 039

$

27 062$54 972

Historical cost includes work-in-progress at March 31, 2015 totaling $454 (March 31, 2014 $2 122) comprised of: computer hardware and software $321 (March 31, 2014 - $1 507) andleasehold improvements $133 (March 31, 2014 - $615).

FINANCIAL STATEMENTS113

Note 8

Revolving line of credit
During 2015, the AER entered into an unsecured $50 000 revolving line of credit. Amounts
borrowed can only be applied to general corporate purposes and exclude the funding ofoperating deficits and/or capital expenditures. Bank advances on the line of credit are payable on demand and bear interest at prime less 0.5%. As at March 31, 2015, the outstandingbalance for the revolving line of credit was $nil.

Note 9Deferred revenue

2015
Balance at beginning of year$

Received during year
Less amounts recognized as revenue
Balance at end of year$

2 97 1

2014
$

1 485

347

3 758

(1 262)(2 272)

2 056

$

2 971

Note 10 Deferred lease incentives
The AER has entered into various lease agreements which provide for lease incentives comprised of reduced rent benefits, rent-free periods and leasehold improvement costs. Theseamounts are included in deferred lease incentives and are amortized on a straight line basis
over the term of the lease.

2015

Balance at beginning of year

Leaseholdimprovement
costs

Reduced rent
benefits andrent-free
periods$$

Additions during the year
Amortization
Balance at end of year

2014

$

19 275

4 260

Total
$

23 535Total$

24 1 5 7

2 37

681

918

748

(1 1 8 1 )(249)(1 430)(1 370)18 3 3 1

$

4 692

$

23 023$23 535

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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Note 11PensionThe AER participates in the Government of Alberta’s multi-employer pension plans: Management Employees Pension Plan, Public Service Pension Plan and Supplementary Retirement
Plan for Public Service Managers. For the year ended March 31, 2015, the expense for thesepension plans is equal to the contribution of $17 325 (2014 - $13 194). Pension expense recorded is comprised of employer contributions to the plans that are required for its employees during the year, which are calculated based on actuarially determined amounts that are
expected to provide the plans’ future benefits.
In addition, the AER maintains its own defined benefit Senior Employees Pension Plan
(SEPP) and two supplementary pension plans to compensate senior staff who do not participate in 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,
2013. The accrued benefit obligation as at March 31, 2015 is based on the extrapolation of theresults of this valuation. The effective date of the next required funding valuation for SEPP is
December 31, 2016.
Pension plan assets are valued at market values. During the year ended March 31, 2015 theweighted average actual return on plan assets was 11.7% (9.2% in 2014).
Significant weighted average actuarial and economic assumptions used to value accrued
benefit obligations and pension benefit costs are as follows:

March 31, March 31,
2015
2014
Accrued benefit obligations
Discount rate
Rate of compensation increaseLong-term inflation rate

4.9%

5.3%

0% for 2016,
3.5% thereafter

3.8%

2.0%

2.3%

2015

2014

Pension benefit costs for the year
Discount rate

5.3%

5.0%

Expected rate of return on plan assets

5.3%

5.0%

Rate of compensation increase

3.8%

3.8%

FINANCIAL STATEMENTS115

Note 11Pension (continued)

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

March 31, March 31,
2015
2014
Market value of plan assets$

45 087$37 859Accrued benefit obligations

49 51043 231

Plan (deficit)(4 423)(5 372)

Unamortized actuarial loss

2 074

2 081

Pension obligations$(2 349)$(3 291)The pension benefit costs for the year include the following components:

2015
Current period benefit cost

$

3 625

2014
$

2 022

Interest cost

2 394

2 030

Expected return on plan assets(2 1 1 0)(1 786)

Amortization of actuarial losses

396

395

$

4 305

$

2 661

Additional information about the defined benefit pension plans is as follows:

2015
AER contribution
Employees’ contribution
Benefits paid

$

5 247

2014
$

2 630

73 1

507

3 350

3 024

ALBERTA ENERGY REGULATOR Annual Report 2014/15

116

Note 11Pension (continued)
The asset allocation of the defined benefit pension plans’ investments is as follows:

March 31, March 31,
2015
2014
Equity securities

49.9%

49.4%

Debt securities

38.4%

39.0%

Other

11 .7%

11 .6%

100.0%

100.0%

Unrestricted
net assets

Accumulated
surplus$$Note 12 Accumulated operating surplus
Accumulated operating surplus is comprised of the following:
Investments
in tangible
capitalassets (a)Balance at beginning of year$

Annual operating surplus
Net investment in capital assets
Balance at end of year$

35 697

12 75315 40515 4059 1 83(9 1 8 3)-

44 880$18 975(a) Excludes leasehold improvement costs received by the AER as a lease incentive.

FINANCIAL STATEMENTS

48 450-$63 855

117

Note 13 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 foreach of the next five years and thereafter are as follows:
2016$

21 2712017

1 7 8252018

1 6 7622019

1 2 5982020

1 1 5902021 – 2086

1 18 940$

198 986

Note 14 Related party transactions
Related parties are those entities consolidated or accounted for on the modified equity basis
in the Province of Alberta’s financial statements.
The AER had the following transactions with related parties recorded in the Statement of
Operations and the Statement of Financial Position at the amount of consideration agreed
upon between the related parties:

Entities in the Ministry

2015

Other entities

2014

2015

2014

Revenues
Provincial grant$

Information, services and fees

19 875$150$

20 02536 300$146$

36 446

-

$

136
$

136

144

$

144

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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Note 14 Related party transactions (continued)
Entities in the Ministry

2015

Other entities

2014

2015

2014

ExpensesComputer services$

2 1 22

$

2 154

$

1 167

$

1 197

Buildings

-

-

600

553

Administrative

-

275

933

61 7

82

153

321

173

Consulting services
$

2 204

$

2 582

$

3 02 1$

2 540

Receivable from

$

10

$

86

$

4

$

15

Payable to

$

4 460

$

4 571

$

669

$

605

Note 15 Comparative figures
The AER was established on June 17, 2013 to supercede the ERCB. The 2014 comparative
figures combine 77 days of ERCB operations from April 1, 2013 to June 16, 2013 with thebalance of the fiscal year being those of the AER.

Note 16 Approval of financial statements
These financial statements were approved by the AER Board of Directors on May 14, 2015.

FINANCIAL STATEMENTS

119

ALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS
Schedule 1 Energy Regulation Expenses
Year Ended March 31 (in thousands)

2015
Personnel$

178 5102014$

136 564

Consulting services

19 9902 1 962

Buildings

18 016

14 660Computer services

15 91212 7 1 0

Amortization of tangible capital assets

1 1 836

12 045

Travel and transportation

5 582

5 076

Administrative

3 77 1

3 161

Abandonment and enforcement

1 258

1 024

Equipment rent and maintenance

1 173

1 108

Loss on disposal and write-down of tangible capital assets

779

-

$

256 827$

208 310

ALBERTA ENERGY REGULATOR Annual Report 2014/15

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ALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS
Schedule 2 Salaries and Benefits Disclosure
Year Ended March 31 (in thousands)
2014
Restated (h)

2015
Other
Position

Base salary (a)Other cash

non-cashbenefits (b)benefits (c)$$Total (d)Total (e)Board of Directors
Chairman

$

285

-

6

$

291

$

255

Board Director 1

116

-

15

131

97

Board Director 2

112

-

17

129

96

Board Director 3

113

-

14

127

94

Board Director 4

115

-

4

119

100

Board Director 5

116

-

1

1 17

102

Board Director 6

107

-

1

108

92

Board Director 7

28

-

1

29

94

President and Chief Executive Officer

527

77

106

710

558

Chief Hearing Commissioner

209

7

45

261

212

274

75

62

411

290

274

76

68

418

305

316

65

68

449

270

274

93

65

432

260

274

69

71

414

304

(f)

Executives(g)

Executive Vice-President,
Corporate Services (h)Executive Vice-President andGeneral Counsel (h) (i)Executive Vice-President,
Operations (h) (i)Executive Vice-President, Stakeholder& Government Relations (h)Executive Vice-President,
Strategy & Regulatory (h) (i)(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 and pension benefits, and vehicle and relocation allowances. The 2015 balances include short term incentive payments for Executive Vice-Presidents.
(c) Contributions to all benefits as applicable including employer’s share of Employment Insurance, Canada Pension Plan, Alberta and AER pension plans, health benefits or payments made for professional memberships andtuition fees. If automobiles were provided, no amount is included in these figures.

FINANCIAL STATEMENTS

121

Schedule 2

Salaries and Benefits Disclosure (continued)(d) Salaries and benefits for the Board of Directors are presented in descending order.
(e) Total 2014 compensation reflects compensation earned by members of the Board of Directors and Executives
appointed subsequent to June 16, 2013 as a result of the proclamation of REDA.
(f) The incumbent left the position effective June 26, 2014.
(g) This position was held by two individuals in the current period.
(h) The 2014 figures have been restated to include short term incentive payments made to Executive Vice-Presidents as other cash benefits in 2014. These short term incentive payments were approved on May 8, 2014.
Restated figures for Executive Vice-Presidents are provided below:
2014
Other
Base

Other cash

non-cashsalarybenefits

benefits

Total

Executive Vice-President, Corporate Services

1 95

30

65

290

Executive Vice-President and General Counsel

205

50

50

305

Executive Vice-President, Operations

192

34

44

270

& Government Relations

166

38

56

260

Executive Vice-President, Strategy & Regulatory

206

49

49

304

Position

Executive Vice-President, Stakeholder(i) 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 includedin Schedule 2 who participate in the SEPP and SRP maintained by the AER to compensate senior staff who do notparticipate in the government management pension plans.
2015

2014

Prior
Current

service andPosition

service cost

other costs

Executive Vice-President and General Counsel

$

$

36

6

Total
$

42

Total
$

29

Executive Vice-President, Operations ( j)

51

1

52

-

Executive Vice-President, Strategy & Regulatory

24

16

40

34

ALBERTA ENERGY REGULATOR Annual Report 2014/15

122

Schedule 2

Salaries and Benefits Disclosure (continued)( j) Pension expense is determined at the beginning of the fiscal period. As this employee became a member of the
AER’s pension plans on August 12, 2013 the estimated pension expense in fiscal 2014 was $nil.
AccruedChanges

Accruedobligationin accrued

obligation

Position

April 1, 2014

obligation

March 31, 2015

Executive Vice-President and General Counsel

$

$

$

30 1

102

403

2014
$

301

Executive Vice-President, Operations (k)

44

81

125

44

Executive Vice-President, Strategy & Regulatory

869

239

1 108

869

(k) 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

123

ALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS
Schedule 3 EstimatesYear Ended March 31, 2015 (in thousands)
Plan
Estimates (a)Authorized
budgetChanges

ActualRevenues
Industry levies and assessments$

222 268$

35 900$258 1 6 8$

258 278

Provincial grant

19 800-19 80019 800Information, services and fees

8 759

-

8 759

8 260

Investment

2 500

-

2 500

1 654

253 3 27

35 900289 2 2 7

287 992

Energy regulation

229 627

34 600264 2 2 7

256 827

Orphan abandonment

1 5 500-

15 50015 760245 1 2 734 600279 7 2 7

272 587

8 200

1 300

9 500

15 405

Capital investment

22 900

1 300

24 20020 854

Less: Amortization(14 700)-(14 700)(1 1 836)

-

-

-

(779)

8 200

1 300

9 500

8 239

Expenses

Annual operating surplus
CapitalLoss on disposal andwrite-down of tangible
capital assets
Net capital investment
$

-

$

-

$

-

$

7 1 66(a) Estimates are based on the AER Business Plan for the year ended March 31, 2015. The Estimates and Changes
have been approved by the Treasury Board of the Government of Alberta as the Authorized budget.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

124

GLOSSARYALBERTA AMBIENT AIR QUALITYOBJECTIVES AND GUIDELINES
A set of objectives developed by Alberta
Environment and Sustainable Resource
Development to protect the quality ofAlberta’s air. Objectives and guidelines
are based on scientific and technicalresearch and also account for social andeconomic factors. Where applicable,
objectives align with other North American jurisdictions.
BEST-IN-CLASSThe best of its kind or providing thehighest level of service, guidance, or
expertise possible. The AER’s vision is tobe “recognized as being best in class,”and has launched the Best-in-Class
Project with the University of Pennsylvania to help define this term.
CAPROCKA relatively impermeable rock, suchas shale, that forms a barrier above
and around a hydrocarbon (oil, gas, orbitumen) deposit to prevent fluids from
migrating beyond the reservoir.
COMPLEX APPLICATIONSApplications for oil and gas development
projects that have multiple factors toconsider, such as land access, associatedinfrastructure, water use, and emissions.

GLOSSARYCOMPLIANCE SWEEPS
A series of targeted inspections the AER
does in a specific area, like Peace River; inJune 2014, August 2014, November 2014,
February 2015, and May 2015 compliancesweeps took place ensure that Peace
River operators were complying with new
requirements for managing emissions.
CONTINUOUS IMPROVEMENTINITIATIVEThe AER began the continuous improvement initiative to encourage employees tobring forward solutions that will improve
the way we do business; employees share
their ideas through an intake system
and AER leadership decides whether toimplement them.
CUMULATIVE EFFECTS/IMPACTS
The combined effects of development ina specific area that puts pressure on theenvironment and residents.
CYCLIC STEAM STIMULATION (CSS)
A technique that produces bitumen
by injecting steam into undergroundoil sands reservoirs (i.e., wells) to heatbitumen, separate it from the sand,and allow it to flow to the well andbe produced.

125

EMISSIONS
Gases that are released, intentionally orunintentionally, into the air from energy
developments. The AER regulates emissions through Directive 060: Upstream
Petroleum Industry Flaring, Incinerating,and Venting.
FLARINGThe burning of natural gas that cannot
be processed or sold at the end of a flare
stack (i.e., a long metal pipe that gas issent up, much like a chimney). This causes
the flame associated with flaring.
INCINERATINGThe mixing and combusting of waste
gas streams, air, and fuel in an enclosed
chamber. Air and gas are mixed at acontrolled rate and ignited. No flame isvisible from an incinerator that is operating properly.
VENTING
The intentional and controlled release of
uncombusted gas.

ENVIRONMENTAL IMPACTASSESSMENT (EIA)
The process used to predict the environmental effects (positive or negative)of an energy development project. The
information gathered for an EIA helps the
AER decide on applications for complex
or large projects.
ENVIRONMENTAL PROTECTION AND
ENHANCEMENT ACT (EPEA)
Legislation, or law, supporting andpromoting the protection, enhancement,
and wise use of the environment. The AER
assesses applications under EPEA for all
activities relating to energy development.
INTEGRATED RESOURCEMANAGEMENT SYSTEM (IRMS)
The Government of Alberta’s approachto managing Alberta’s energy resourcesthat considers the combined effects ofexisting and future development andaims to coordinate the environmental,
economic, and social aspects of energy
development. The IRMS includes the AER;
the Government of Alberta; the Alberta
Environmental Monitoring, Evaluation andReporting Agency; the Aboriginal Consultation Office; and the Policy Management
Office.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

126

LEVY-NEUTRAL REGULATOR
Every year, the AER levies an administration fee on industry to fund ourregulatory activities; as part of our goal
to become a best-in-class regulator, weare trying to offset the cost of this levy byfinding cost-saving efficiencies that offset
the annual industry levy.
LOCAL MAGNITUDE
A measure of the strength of an earthquake within 100 kilometres of its centre,
as measured by a seismograph—the
instrument used to record and measurevibrations during an earthquake. Values
range from one to ten on the Richter scale.
MAXIMUM OPERATING PRESSURE
A limitation set on operating pressures
for some energy development operations,e.g., pipelines and in situ oil sands recovery, in order to prevent problems with
infrastructure or geological structuresthat can be caused by high operatingpressures.
NEAR-TERM ACTION PROGRAM (NTAP)
An AER project that aims to increase ourefficiency by eliminating duplication andstreamlining regulatory requirements for
low-risk activities.

GLOSSARYNEW ACTIVITY LIFE-CYCLEAPPROACH (NALA)
An AER project that will change how weprocess applications for development;
under NALA, we will accept a single
application for a single project, rather
than the eight to ten (or more) applications that are often required under ourcurrent regulations.
ORGANIC-RICH SHALES
Fine-grained rocks with low permeability
that are rich in hydrocarbons—i.e., oil, gas,or natural-gas liquids.
PIPELINE INTEGRITYMANAGEMENT PROJECT
A project initiated by the Western Regulators’ Forum to enhance industry’s pipeline
safety performance.
PIPELINE RULES
A regulation governing pipelines.
PLAY-BASED REGULATION
An AER project designed to give stakeholders a clearer picture of development,
more effectively address cumulative
effects (i.e., on a holistic basis), reduce
industry’s footprint by encouraging
collaboration between operators, andreduce duplicative and unnecessary
infrastructure.

127

PUBLIC LANDS ACT
Legislation, or law, guiding the use ofland owned by the province of Alberta(i.e., public land). The AER regulates
energy resource development on public
lands, ensuring that energy exploration,
development, and ongoing operations on
public lands are carried out responsibly.
RECLAMATION CERTIFICATE
Reclamation certificates are required
for all publicly-owned land as statedin the Environmental Protection andEnhancement Act. Operators are required
to return the land to its equivalent state—i.e., as close to its pre-project state as
possible—once an oil and gas projectis complete.
RECLAMATION CERTIFICATE INQUIRYAn on-site investigation that confirms thestatements in a reclamation certificate
application.
REGULATORY DIPLOMACYAn AER effort to increase cooperationand knowledge sharing among energy
regulators around the world.

RESPONSIBLE ENERGY DEVELOPMENT
ACT (REDA)
A piece of legislation, or law, establishingand empowering the AER. REDA sets out
the AER’s mandate, structure, powers,
duties, and functions.
RISK-BASEDThe practice of focusing on higher risk
areas or activities.
RISK-BASED REGULATIONPart of the AER’s effort to meet thedemands of a new energy development
landscape, risk-based regulation will allow
us to be more effective by concentrating
our resources on higher-risk activities.
Many of the AER’s major projects, including the one application, one review, one
decision approach, the Near-Term Action
Program, and the play-based regulation
project, are part of the effort take a morerisk-based approach to regulating energy
development.
STEAM-ASSISTED GRAVITY DRAINAGE(SAGD)
A method of in situ oil sands recovery
where steam is injected into a horizontal
well to heat the bitumen in a reservoir
and allow it to flow; gravity pulls theheated bitumen to a second horizontal
well positioned below the first and thebitumen is then produced to the surface.

ALBERTA ENERGY REGULATOR Annual Report 2014/15

128

SUBSURFACE ORDER
A subsurface order is issued pursuant
to section 11.104 of the Oil and Gas
Conservation Rules and specifies rules
and requirements to better suit development, production, and data gathering
for specific geological zones over adefined area.
TAILINGS
Tailings are a by-product of the processused to extract bitumen from mined oilsands and consist of water, silt, sand, clay,
and residual bitumen. Sand and otherheavy particles quickly separate from thewater, but smaller particles of clay andsilt remain in suspension, forming fluid
tailings. Fluid tailings can take decades
to settle and are an ongoing challenge
for the oil sands mining industry.
TAILINGS MANAGEMENTFRAMEWORK OF THE MINEABLEATHABASCA OIL SANDS
Developed by the Government of Alberta
to provide the AER with direction to
manage fluid tailings volumes.

GLOSSARY

TEMPORARY FIELD AUTHORIZATION
Short-term authorizations under the
Public Lands Act and the Mines andMinerals Act.
TIGHT ROCK
Low-permeability rock (i.e., fluid does nottransmit easily through the rock) fromwhich hydrocarbon recovery is difficult.
Unconventional recovery techniques,
such as hydraulic fracturing, are required
to produce resources in tight rock.
WELLBORE INTEGRITY
Preventing the escape of fluids (liquids
or gases), either at the surface or to othersubsurface zones.

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ALBERTA ENERGY REGULATOR Annual Report 2014/15

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