16 annual
17 reportorderly, and environmentally
responsible development ofhydrocarbon resources
over their entire life cycle.
This includes allocating andconserving water resources,
managing public lands, andprotecting the environment
while providing economic
benefits for all Albertans.

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

our vision

ensures the safe, efficient,

our mission

our mandate

The Alberta Energy Regulator

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

contents
ABOUT THE ALBERTA ENERGY REGULATOR

1MESSAGES

5HIGHLIGHTS

10

PROTECTING WHAT MATTERS

13

YEAR-IN-REVIEW30

MOVING FORWARD

33

OPERATIONAL OVERVIEWS

41

CORPORATE GOVERNANCE

45

MANAGEMENT’S DISCUSSION & ANALYSIS

53

FINANCIALS

71

GLOSSARY85

ABOUT
THE AERABOUT

ABOUT THE AER

1

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

This is our role, but how does this work in the realworld?
The Alberta Energy Regulator (AER) is the single
provincial regulator for oil, natural gas, oil sands,
and coal development in Alberta. This means thatcompanies deal with the AER when carrying out
activities in each stage of energy development,from initial exploration, to operation, right throughto closure, including reclamation and remediation.
The AER ensures the safe, efficient, orderly, and environmentally responsible development of energy
resources. It’s our job to make certain that Alberta’soil, gas, bitumen, and coal are developed and transported in ways that• ensure public safety;• protect our air, water, land, and biodiversity; and• make the best use of our valuable energy resources.

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

This includes allocating and conserving water, managing public lands, and protecting the environment… The AER decides when, where, and how the energy
industry may use water, and we make sure that Alberta’s water resources are protected. We regulate
any energy development that occurs in the province,
and we work to ensure this development doesn’t
damage our province’s environment.
… while securing economic benefits for all Albertans.
We are part of a broader government system that
ensures that Alberta and its citizens receive full value
for our energy riches.

OUR RESPONSIBILITIESFew organizations on the planet steward such a large
and varied mix of energy resources and infrastructure as the AER. We oversee some very large established reserves:• 1.6 billion barrels of conventional oil• 165 billion barrels of bitumen• 28.2 trillion cubic feet of natural gas• 36.6 billion tons of coalThat’s a lot of energy, and it requires a lot of infrastructure to produce, mine, process, and move tomarkets. We’re also responsible for regulating thisinfrastructure, which belongs to what’s called “upstream” development:• more than 422 000 kilometres of oil and gas
pipelines, in addition to inspection and incident
response support for 12 000 kilometres of pipelines regulated by the Alberta Utilities Commission• over 167 000 operating wells• 30 000 oil facilities• 21 000 gas facilities• 50 thermal in situ (oil sands recovery) projects• 9 oil sands mines• 5 bitumen upgraders• 4 coal processing plants• 6 producing coal mines

Annual Report 2016/17

2

ABOUT THE AER

WHAT WE REGULATE*KILOMETRES OF PIPELINESOPERATING NATURAL GAS & OIL WELLSOIL FACILITIESGAS FACILITIESTHERMAL/ENHANCEDIN SITU PROJECTSOIL SANDSMINES

BITUMENUPGRADERS

Alberta
Energy Regulator* In addition
to inspection and incident response support for 12 000 kilometresof pipelines regulated by the Alberta Utilities Commission.

COAL
PROCESSING PLANTS

PRODUCING
COAL MINESABOUT THE AER

The Government of Alberta gives the AER authority
to ensure that companies develop the province’s
massive energy resources in a safe and environmentally responsible fashion, and without wasting theseresources:• We review applications and make decisions on
proposed energy developments (almost 134 000
applications processed since June 2013).
• We oversee all aspects of energy resource activities in accordance with government policies.
• We regularly inspect energy activities to ensurethat all applicable requirements are met.
• We penalize companies that fail to comply with
AER requirements.
• We hold hearings on proposed energy developments.
To make it happen, the AER employs 1200 inspectors,
technical staff, engineers, geologists, scientists, investigators, stakeholder engagement specialists, mediators, lawyers, regulatory experts, and other employees in 15 offices and field centres around Alberta.
The AER also offers two unique and world-classservices: the Core Research Centre (CRC) and theAlberta Geological Survey (AGS).
The CRC collects, preserves, and displays coresamples (1.5 million boxes of these cylindrical rocksamples), drill cuttings (20 million vials of them), anddrilling and completion records from over 400 000
wells;companies use these to research what’s below
the ground and to plan how to develop oil and gas.

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

ALBERTA’S SINGLE ENERGY REGULATORThe Government of Alberta created the AER in 2013
when it proclaimed the Responsible Energy Development Act. We took on regulatory functions thatare related to energy development and that were
held by Alberta Environment and Parks (previously Alberta Environment and Sustainable Resource
Development) and combined them with the regulatory functions of the Energy Resources Conservation
Board.

3

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

WHAT WE DON’T
REGULATE

The AER’s role is to develop and enforce rules andregulations around energy development, taking direction from government policy.

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

RENEWABLES
NATURAL GAS PRICEPIPELINES THATCROSS BORDERS

Annual Report 2016/17

4

MESSAGES

Alberta Energy Regulator

MESSAGES

5MESSAGE from the chair
Albertans are resilient. We’ve demonstrated it over
and over again throughout our history.
These last few years have been difficult, with our
economy suffering through low commodity prices
and overwhelming uncertainty. Despite these challenges, Albertans remain steadfast in their commitment to focus on maximizing opportunities.
Alberta made international headlines for otherreasons in 2016, namely for its rapid and compassionate response during the Fort McMurray wildfires.
Not only did AER employees jump into action by supporting Alberta’s response to the blaze, many did soknowing that their own homes were threatened. The
board and I are proud of their commitment and thankall staff involved for their extraordinary efforts.
I also want to acknowledge and congratulate President and CEO Jim Ellis on being named the Resource
Leader of the Year for 2016 by the Alberta Chamberof Resources. This accolade reflects Jim’s dedication
to building an excellent regulator and serves as an
exceptional example to all employees.
Both senior leadership and employees have demonstrated what it means to be an excellent regulator.

Throughout this report, you’ll read stories of how
the people of the AER are maintaining our commitment to safety and environmental protection. Thisis something we demand not only of ourselves butof the industry we regulate by being innovative andresolute about protecting the public and the environment. An example of this is the launch of the industry
performance program that sets the foundation formeasuring, evaluating, and reporting on energy development activities that we regulate.
Last year, the board bid farewell to some of the AER’s
original directors—Dr. David Chalack, Peter Flynn,
Andy Neigel, and Sheila O’Brien. These individuals
had been with the AER since its creation in 2013 andcontributed extensively to the board’s committees;
these contributions are all detailed in previous annual
reports. Their departure is a loss in expertise andcontinuity for the board and they will be missed. The
board thanks them for their contributions and wishes
them well.

Norminton, and Jack Royal—who will bring expertiseand experience that will help the organization continue its journey toward excellence.
The year ahead will be a pivotal one that will include
releasing a refreshed strategy for 2018 that will continue to strengthen our position as a trusted regulator and partner to our stakeholders and all Albertans.

GERRY PROTTICHAIR

The board’s specific activities can be found on page 46.
With the departure of the previously mentioned
directors, we are fortunate to welcome new, highly
qualified people to the board—Stan Boutin, Monica

Annual Report 2016/17

6

MESSAGESMESSAGE from thepresident and ceo
The past year brought further economic uncertainty
for our province and its energy industry. It alsooffered the promise of recovery.

Through good times and bad, the AER’s core business remains creating requirements around energy
development and enforcing these requirements.
This is how we protect what Albertans have told us
matters to them: our air, land, water, and biodiversity.
In February we issued the Pipeline Performance
Report, the first in a series on industry performance
to increase transparency and drive accountability.
It’s important that the AER provide Albertans with abetter understanding of how pipeline safety is being
managed; it’s also important operators work towards
zero incidents. In addition to pipelines, we’re applying this approach to water use in the energy industry.

JIM ELLIS

Sometimes the emergencies we respond to aren’tcaused by pipeline spills or blowouts.

PRESIDENT AND CEO

Last spring, the AER stepped up to support response efforts when wildfires swept across northeast
Alberta. We had “boots on the ground” in the field,
in emergency operations centres, and in our offices
across the province. Using innovative technology, we
provided valuable information to government and industry as well as ensured the safe startup of energy
operations once crews brought the fire under control.
This was a testament to the dedication and resolveof our employees.

Alberta Energy Regulator

Building relationships with our stakeholders andother Albertans continues to be an important part ofour work. Since the AER was formed in 2013, we’ve
prioritized engagement and have realized successes.
That said, an area that’s needed a lot more work
is how we engage Alberta’s indigenous peoples—
something that we’re taking steps to address.
One such step was our collaboration with indigenous
elders to develop Voices of Understanding, adocument about the process of using oral decision-making to help improve interactions between
the AER and indigenous people. This document
focuses on the processes and protocols of circle
management—a decision-making method for theBlackfoot people.
We’ve continued to find efficiencies in our regulatory
system, allowing us to not only focus on higherrisk activities but to generate over $224 million insavings for industry in 2016/17 ($1.9 billion since2014) without compromising public safety or environmental protection.
You can read about these and other stories in this,our fourth, annual report. As we reflect on the challenges we faced and the progress we made in the
2016/17 fiscal year, we share our plans to improve ouroperations and meet our targets in the pursuit of ourvision of regulatory excellence.

Building relationships with
our stakeholders and other
Albertans continues to be an
important part of our work.

8

MESSAGESMESSAGE: anemployee’s perspective
Since my university days, one of the questions I havebeen asking myself is how can I make a difference?
The answer soon came to me when I started working
for the Energy and Utilities Board, one of the AER’s
predecessors, in 2001. As a new employee, I quickly
realized that the regulator is a place where I could
make a difference.
I’m fortunate to work in the AER’s Closure and Liability Branch, which is responsible for ensuring thatthe infrastructure associated with energy development such as wells, facilities, pipelines, coal mines
and oil sands mines, and their associated sites, movethrough the life cycle to reclamation once they are
no longer used for resource development. In otherwords, my colleagues and I help ensure that Alberta
and Albertans are protected both today and well into
the future.
Dealing with this issue isn’t an AER-only challenge.
Whether the issue is what to do with thousands ofinactive wells or a coal mine, regulators around theworld are facing the same monumental challenges.
And while I wouldn’t say there is comfort in knowingthat we aren’t alone in this situation, we are definitely
benefitting from other jurisdictions’ experience.

I see the benefits of reaching out to our peer regulators in my role at the AER and in my role as chairof the Interstate Oil and Gas Compact Commission’sInternational Committee, which comprises senior
regulatory officials from across North America and istasked with identifying, investigating, and analyzing
the energy sector’s key international issues. In bothroles, I work with many dedicated people trying to
improve all aspects of regulation. This collaboration
leaves me with no doubt that the more we put into
practice the knowledge and experience we learn
from each other within the AER and across the world,
the better equipped we all are to deliver on our respective mandates.
One thing I often remind myself of is that while ourregulatory responsibility may end at our provincial
boundaries, the foundation of our mandate to provide
for the efficient, safe, orderly, and environmentally
responsible development of energy resources should
know no boundaries.
So here, at the AER, is where I’m making a difference,and I’m doing it alongside some of the most dedicated experts in energy regulation—all of whom haveenough knowledge, experience, and talent to carry
the AER’s work through the next 80 years.
DAVID HARDIE
PROGRAM LEAD, CLOSURE STRATEGYCLOSURE & LIABILITY BRANCH

Alberta Energy Regulator

MESSAGES

9

Whether the issue is what
to do with thousands ofinactive wells or a coalmine, regulators around theworld are facing the same
monumental challenges.

Annual Report 2016/17

10

HIGHLIGHTS

ON
OFF
Supported the government response to
the Fort McMurray wildfire by providing
valuable information to industry and by
ensuring the safe startup of operations
once the fire was controlled.

$224
MILLION
Generated over $224 million in annual
savings for industry by making ourregulatory processes more efficient,
without compromising public safety or
environmental protection.

Launched Resource.aer.ca, a site where the
AER posts stories, images, and video about
Alberta’s energy development and how it’sregulated—with more than 80 stories andsome 30 000 visitors.

HIGHLIGHTS 2016/17
17
recommendations
1
Developed new rules to manage
tailings with the ongoing support ofa committee of AER stakeholders.

Alberta Energy Regulator

Worked with Alberta Health on a
year-long study into air quality andodour concerns near Fort McKay
by making 17 recommendations toimprove conditions.

application
reviewdecision

Piloted a new approach requiring asingle, integrated application for all
activities within a project instead of
separate ones for each activity. This new
approach gives a clearer picture of thebroader impacts of energy development.

HIGHLIGHTS

Issued Directive 086, which strengthened
public safety and environmental protection
by introducing new subsurface reservoir
containment rules for projects in the
Athabasca area.

Partnered with Mexico to create theInternational Centre of Regulatory
Excellence—a not-for-profit institution
to help regulators worldwide train,
collaborate, and innovate.

4053

reclaimed sites

Issued 4053 reclamation certificates,
confirming that companies met all
requirements to reclaim an energy site.

Worked with indigenous elders to develop
Voices of Understanding, a document about
using indigenous oral decision-making tohelp improve interactions between the AER
and indigenous people.

Developed the Industry
Performance Program andreleased a detailed reporton pipeline performance.

82%
77%

82% of Albertans and 77%
of stakeholders expressed
confidence in the AER.

11

Culminated years of commitment to
Peace River-area residents by releasing
new requirements to control gas
emissions from heavy oil and bitumen
operations in the region.

Launched the Enterprise Learning
Branch to provide coordinated andstandardized training to ensure AER
employees have the necessary skills
and knowledge to do their jobs well.

reduceby

3%

Exceeded our target to reduce
pipeline incidents in 2016 with adrop of 3% to 1.1 per 1000 km.

Annual Report 2016/17

12

PROTECTING WHAT MATTERSPROTECTING
WHAT MATTERS

Alberta Energy Regulator

PROTECTING WHAT MATTERS

13

a protective, effective, efficient,and credible regulator
The AER oversees all oil and gas, oil sands, and coaldevelopment throughout the entire life cycle—from
initial exploration, to operation, right through to
closure, which includes reclamation and remediation.
This comes with tremendous responsibility; the Government of Alberta trusts the AER with making surethat energy development is carried out in a way that
ensures that the public and the environment areprotected and that Albertans receive the greatest
value from their resources. For this reason our four
strategic priorities are protective, effective, efficient,and credible.
The AER’s core business is to develop regulatory requirements around energy development—taking direction from government policy—and enforce theserequirements. This is how we protect what mattersto Albertans—our air, land, water, and biodiversity.
In the last year, we’ve developed the Industry Performance Program and released a detailed reporton pipeline performance. Pipeline incidents dropped
to 1.1 per 1000 km while we exceeded our target to
reduce high-consequence incidents.

In addition, the AER works to ensure that our requirements effectively address odours and emissions from energy facilities; in 2016 we worked with
Alberta Health on a study into air quality and odour
concerns near Fort McKay and made 17 recommendations to improve conditions. We also concluded
years of commitment to Peace River area residents
by releasing new requirements for controlling gas
emissions from heavy oil and bitumen operations in
the region.
The AER understands that its regulatory requirements affect industry’s ability to develop Alberta’s
resources in a timely and efficient manner. We continue to examine the efficiency of our requirements—
eliminating ones that are outdated or redundant orthat fail to adapt to current technological trends—
all while ensuring that operations are safe and theenvironment is protected.

Through these and other efforts, the AER is fulfilling
its role as a regulator that is protective, effective,
efficient, and credible.

Over the last year we• developed the Industry Performance Program andreleased a detailed report on pipeline performance,• saw pipeline incidents drop to 1.1 per 1000 km,• made 17 recommendations to improve air quality
and odour conditions near Fort McKay, and• strengthened relationships with indigenous
groups and provided awareness training
to AER staff across the organization.

We also work to be a credible regulator by seeking
better ways to engage with stakeholders, which
include indigenous communities. This work has included strengthening relationships with indigenous
groups and providing awareness training to AER staff
across the organization.

Annual Report 2016/17

14

PROTECTING WHAT MATTERS

a new way of learning
How do you prepare for the challenges you can’t
foresee? This is the question we asked ourselves
when the AER’s path to regulatory excellence wascarved in 2016.
But without eyes and ears to predict the future ofenergy regulation, preparing for it seemed like a difficult task.

“At the time, we weren’t sure we had the resources tofulfil the ‘stellar competency’ piece, which requires
us to look at whether our people have the best skills
needed to adapt to new risks and opportunities in
the regulatory realm,” reflects Aniko Parnell, directorof the Enterprise Learning Branch (ELB). “Although
we had some training in place, there was room for us
to improve.”

The AER’s research identified three core attributes
that would bring us closer to achieving excellence:utmost integrity, empathic engagement, and stellar
competence. The last one posed a problem.

“We had to ask ourselves, what’s next? How can we
get ahead of the things we can’t see, so that ourpeople are resilient and our organization is preparedto act in the face of new direction and innovation?”Enter the ELB—a team born to answer the unknown.
Its purpose is to reshape how the AER approaches“ In our quest to become
an excellent regulator,
opportunities to improveourselves are important.”—ANIKO PARNELL,
Director, Enterprise Learning Branch

Alberta Energy Regulator

learning so that our in-house experts are better
equipped to take on challenges that don’t exist yet—be they challenges that stem from technologicaladvances, changes in government policy, or unprecedented ideas in energy development.
“In our quest to become an excellent regulator, opportunities to improve ourselves are important,” Parnell
says. “Improving how we adapt to new risks and opportunities will result in increased confidence in the
AER’s ability to fulfil our mandate.”
What will that look like in action? That answer is still tocome. But the team has already taken steps to define
the unfamiliar in order to make learning more impactful, adaptive, and timely. Steps to “fill the gaps” haveincluded seeking feedback from AER staff, forming
a governance committee to become the eyes andears of technical and regulatory changes, and tracking where employees pursue their learning beyond
our walls.
While there’s much to do, Parnell acknowledges theimportance of this new direction. Life-long learningis the new norm; just as the news cycle never sleeps,
neither does the pace of innovation. AER staff must
be prepared to learn new skills and gain new knowledge when we need it, as we need it.

PROTECTING WHAT MATTERS

15

how a mapping tool
helped battle a beast
When wildfires struck northeast Alberta last May,
Eileen Rubiera and her team were putting the finishing touches on the AER’s new reclamation certification mapping tool. Little did anyone know, thetechnology would help fight the blazing beast.
In 2016, the AER implemented a new process to test
the Integrated Decision Approach technology tomanage a backlog of reclamation certificates. The
technology—called OneStop—ensures that all criteria
for reclamation are thoroughly assessed in a timely
manner, which in turn would allow AER staff to dedicate more resources to ensure that high-risk areas
and reclamation-certificate applications receive
greater attention.
That’s what the tool was designed for. But Rubiera,a geographic information system (GIS) manager
with the AER, understood the difficulty in mappinga disaster such as a wildfire—there’s just too muchinformation to keep track of at once. That’s when an
idea sparked: why not apply the newly created technology to map the danger zone?
“We had maps of the land and all of the oil and gas
facilities in the wildfire zone,” says Rubiera. “We knewthat if we could add the fire’s environmental informa-tion (wind direction and speed, weather conditions,satellite data such as fire locations), the AER’s tool
would be able to show a complete, real-time viewof the fire.”
The result? Within a day, the AER had designed a
one-of-a-kind fire map viewer that could show details
about the wildfire’s size and spread; environmental
factors like wind speed, air quality, and weather
conditions; and the oil and gas facilities and othercritical infrastructure in the Fort McMurray area—all
in real time.

It also helped first responders make decisions aroundevacuations and protection of critical infrastructure.
And when the initial dangers had subsided, themapping tool helped determine re-entry triggers forindustry operators.
“There’s no doubt in my mind—these maps made asignificant difference in how this fire was fought,”
says Rubiera.

The AER reached out to other agencies acrossAlberta, including the Government of Alberta, Environment Canada, Natural Resources Canada, andindustry, all of whom were quick to jump on board
and provide their specific GIS information for the
mapping tool.
The tool was initially used for response and recovery efforts by several parties: the Government ofAlberta, the Provincial Operations Centre, the AER’s
Emergency Coordination Centre, and even somesmall-to-mid-sized companies lacking their own GIS
capabilities.

Annual Report 2016/17

16

PROTECTING WHAT MATTERS

big promise for a big play
Can it all be tapped? That’s the question on people’s
minds.

DUVERNAY FORMATION

353-540

Tcf
natural gas

total in-place resource

44-83

billionbbl oilestimated resource

8-16

billion bbl
natural gas liquids

estimated resource

In late 2016, the AER revealed that the Duvernay Formation—a band of rock buried beneath the earth’s
surface that stretches from Alberta’s foothills eastward across the province—hides vast energy riches.
Based on data from the Alberta Geological Survey,
a branch of the AER, the report shows the total inplace resource for the Duvernay ranges from 353 to
540 trillion cubic feet (Tcf) of natural gas. The oil
resource is estimated to be 44 to 83 billion barrels(enough to fill as many as 5.3 million Olympic-size
pools), while the estimate for natural gas liquid is 8 to
16 billion barrels (up to 1 million Olympic-size pools).
But how much of these massive volumes are likely tobe recovered?
“What’s recovered or developed depends on a numberof factors, like drilling and completion optimization,
costs, commodity pricing, social, environmental andregulatory constraints,” says Krista Beavis, a reservoir
geologist with the AER.

Alberta Energy Regulator

The research provides an estimate of what portionof the total in-place estimates can reasonably bebooked as reserves in the next 30 years (the common
forecast period the AER uses, based on numerous
factors)—remaining proved plus probable reservesof 38 million barrels of oil and 1.2 Tcf of gas.
The Duvernay is a relatively new area of development, though it’s seen more and more multistage
horizontal wells since 2011. To the end of 2015, morethan 220 gas wells and 20 oil wells had been drilled.
And with Alberta’s oil sands for a neighbour, theliquids-rich Duvernay is positioned for growth. Condensate (a liquid) is used to dilute the thick bitumen
that is pulled out of the oil sands for ease of transportin pipelines.
While this is the first report of its kind, the AER
plans to release additional data for the Montney andCardium Formations.

PROTECTING WHAT MATTERS

17

technology and the AER
The AER isn’t typically in the business of cool, but acloser look at the gadgets we use to do our job could
make even the tech-savviest do a double take.
The fact is, technology plays a critical role in helping
us protect Albertans as we monitor oil and gas activities, and it is making our systems more accurate
and effective.
“Technology isn’t advancing just for the sake of itself.
The better we are at monitoring activity, the better
we are at preventing incidents,” says Al Duben, air
specialist with Surveillance & Enforcement at the
AER. “And with better monitoring technology weare more prepared to better manage incidents ifthey occur.”EYE IN THE SKY
Our newest aerial monitoring device—the first of its
kind in North America—is the optical gas imaging(OGI) drone. It features two cameras, one of which is
infrared, which enables us to see hydrocarbon gases.
It allows us to measure low levels of gas that we’ve
never been able to measure before.
The OGI also has three-dimensional (3D) modellingcapability. While photogrammetry—the science oftaking measurements from photographs—is not new

to the AER, it previously had to be done from a planeor helicopter.

general areas of concern, or industry’s own detection
efforts, but now we have data as proof of where weneed to focus our efforts.

“From the palm of our hand we’ll be able to see oil on
the surface of water if there’s a spill. The 3D mapping
then enables us to predict where the oil is likely toflow so that we can actually get ahead of the spill,”
adds Duben.
The OGI can also feed live information to a specialized computer that will produce 3D renderings withina couple of hours rather than days.

LASER TAG
Another new device, the laser gas detector (LGD),
identifies gas by projecting infrared light through the
air with fingerprint accuracy. Lightweight and portable, it’s used to measure methane, which is odourlessand very difficult to detect.
“Methane is important because when it’s detected
there’s a very high chance that a lot more is goingon and we’ve just scratched the surface of toxins,”
says Blair Reilly, manager of Emergency Management
at the AER.
The LGD allows the AER greater precision whentargeting specific locations for investigation. Previously, we relied on complaints from the public about
Annual Report 2016/17

18

PROTECTING WHAT MATTERS

clearing the air
River Area. Heavy oil in the Peace River area is heatedin tanks, and emissions of excess gas are released,causing an increase in the number of odour complaints from nearby residents. To address this, the
new rules include a complete ban on routine venting,and operators will be required to conserve at least
95 per cent of gas that would normally be vented,
flared, or incinerated.
Reducing odorous emissions from oil and gas operations does not have a one-size-fits-all regulation. As
the energy regulator, we receive odour complaints
from residents and do our best to find where theseemissions are coming from and what the impacts are.
Sure, there may be an obvious source such as a flare
stack, but what about emissions that have no obvious
source?
“When we find the source, we take action,” says Christina Winarski, Slave Lake Field Centre manager ofSurveillance & Enforcement with the Environment &Operational Performance Branch.

The directive also puts strict rules on reducing emissions off lease.
“Based on our findings that odour-causing emissions
were coming from other areas away from the tanks,
such as leaking equipment or during truck loading
and unloading activities or wear and tear, we realizedthat to be effective, this directive must go one stepfurther and regulate the fugitive emissions that are
unintentionally released,” says Winarski.
The new directive was developed in response to a2014 proceeding that was held in Peace River toaddress odours and emissions and that resulted in
20 recommendations.

TAKING ACTION IN PEACE RIVER
The AER has issued strict requirements for heavy
oil producers in the Peace River area to follow in
Directive 084: Requirements for Hydrocarbon Emission Controls and Gas Conservation in the Peace
Alberta Energy Regulator

RESPONSE IN FORT McKAY
Responding to recurrent complaints from Fort McKay
residents, the AER and Alberta Health conducted a
year-long study about air quality and odour impacts

from oil sands mining operations and released areport of findings in September 2016. The study
found that the air in Fort McKay does at times containemissions that exceed odour and health thresholds,
and that response protocols for odour and air quality
complaints must be improved.
The report made 17 recommendations that will be implemented. The AER and Alberta Health recommendations focus on improving air-quality monitoring tobetter understand emission sources, and on further
investigating the potential long-term health effectsof emissions.
These recommendations will be implemented overthe next few years and will be led by a multistakeholder group that includes the AER, government,
Fort McKay First Nation, Fort McKay Métis, industry,and other partners.

FLOWBACK STUDY
What’s next on the horizon? The AER has initiateda study with Alberta Health to better understandthe potential environmental and health risks of air
emissions from the flowback phase of hydraulicfracturing activities. Learn more about the study on
page 28.

PROTECTING WHAT MATTERS

19

a window on the AER
The business of keeping Alberta’s energy industry
on the straight and narrow can be a complex one.
To wade through the complexities, the AER employs
engineers, geoscientists, lawyers, environmental
scientists, and other experts who help develop andenforce the rules that ensure oil and gas development is safe.
In their jobs, these professionals often speak atechnical, specialized language that can seem confusing for many—even for some who work here. To
reduce the confusion, we constantly look for betterways to share our stories, a good example being the“Resource” news and information site, launched inJune 2016.
“Albertans have told us many times that they wantto learn more about our work,” says John Ludwick,
manager and editor-in-chief of Content and Publishing. “So being transparent by sharing our stories isa priority.”
Being transparent doesn’t mean simply posting technical reports and data on a website; it means reframing this information in ways that are accessible toeveryone and that make for a good read.

life to timely topics and issues and to how the AER is
involved in addressing them.
With dozens of stories organized into four categories—environment, safety and enforcement, community, and “Good2Know”—Resource offers a variety
of useful information about the energy industry, theAER, and our work.
From the get go, we relied on the theory, “if we build
it, they will come.” By providing Albertans, stakeholders, and those outside our province with a clearer
window on our world, we believed they would feel
more confident that Alberta’s massive energy resource is well regulated.
To the end of March, close to 30 000 people havevisited the site; those visitors have viewed more than
76 000 pages. Better yet, our 2017 public opinion
research suggests that more than ever, Albertans
are learning about the AER through online sources,
including Resource.
“We hope that by understanding our unique role in
the energy sector, people will feel confident that
we’re ensuring public safety and protecting the environment,” says Ludwick.

Resource accomplishes this by sharing weekly
stories, photos, infographics, and videos that bring
Annual Report 2016/17

20

PROTECTING WHAT MATTERS

We know indigenous peoples want their voicesreflected in our decisions. We need to work
together to find solutions while being mindful of
our cultural differences. However, many of ourprocesses fail to link western and indigenous
worldviews—this prompted the AER to set
out on a path to increased understanding.

Alberta Energy Regulator

PROTECTING WHAT MATTERS

21

WHEN voices matterAll of our voices matter.
Whether we speak in unison or one at a time, in one
language or another, in harmony or in discord, we all
have the right to be heard. This is true in the classroom, in the workplace, and at home. The regulatory
field should be no different.
We know indigenous peoples want their voices reflected in our decisions. We need to work together
to find solutions while being mindful of our culturaldifferences. However, many of our processes failto link western and indigenous worldviews—thisprompted the AER to set out on a path to increased
understanding.
We made it our mission to build a new type ofworking relationship—one based on trust and mutual
understanding—and challenged ourselves to lookbeyond what we know.
Blackfoot elder Dr. Reg Crow Shoe was our guide on
this journey. With his leadership and teachings, AER
employees explored how indigenous processes andworldviews can complement our own. Specifically,
the sessions explored traditional circle decision-making, a method that can be used to make decisions or
to resolve conflict.

AER employees came to understand the ways thatcircle management processes are mirrored in hearings, alternative dispute resolution, and mediation
processes we have in place today.
“There are applications, leaders, and proper times to
speak,” says Barbara McNeil, an AER hearing commissioner. “In many ways, circle decision-making
echoes what we want to achieve in mediation.”
Circle decision-making begins with an opening statement from the ceremonialist, who brings together
people from the involved parties. The ceremonialist
has the great honour of being the steward of thebundle—a physical and symbolic representation of
the right to carry out decisions from circle processes.
That right can only be transferred through ceremony.
Before discussions begin, participants cleanse theirminds, bodies, and spirits in a smudge ceremony. This
ceremonial practice includes lighting dried herbs in abowl or bundle to produce smoke.
Next, each circle participant discusses the issues
at hand. A second round of discussions seeks solutions. Understanding is built as participants gather
in a circle and take turns speaking, facilitating a safe
environment for people to share their knowledge andexperiences. Each voice is equal. The circle process
doesn’t end until a consensus or a decision is reached.
We explored our new awareness of this processwith Dr. Crow Shoe, and together we created Voicesof Understanding: Looking Through The Window, aguide intended to help AER staff and indigenous
communities understand how to draw parallels
between western and indigenous decision-making.
In an intimate circle ceremony hosted in the AER’s
Govier Hall, Dr. Crow Shoe transferred the rights tothe bundle containing the knowledge and process
behind Voices of Understanding to AER president
and CEO Jim Ellis.
Voices of Understanding prompts us to genuinely
consider the way we think and work and the processes, systems, and initiatives we use. On our quest toachieving regulatory excellence, this bundle does not
symbolize completion but rather a step further in ourjourney to awareness and validation of indigenous
decision-making.
This is but one piece in the foundation as we improve
our working relationships with Alberta’s indigenous
people. To carry this knowledge is a responsibility weare honoured to accept.

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PROTECTING WHAT MATTERS

BUILDING relationships withindigenous communities
As a country, we’re gaining a greater understandingof the challenges our indigenous communities face.
We can’t take back the past, but our journey towards
truth and reconciliation calls on us to recognize ourshortcomings and work together to build a new relationship based on mutual understanding and trust.
That’s why the AER’s Indigenous Engagement Groupis figuring out how we can do more to improve ourrelationships with indigenous communities acrossthe province.
Building deeper, long-lasting partnerships with Métis
and First Nations communities is more than something we have to do—it’s something we want to do toimprove how we deliver on our regulatory mandate.
Indigenous peoples steward Alberta’s land, air, andwater, so it’s important for the AER to acknowledge
the parallels between our worldviews and explore
how we can work together from a place of trust andmutual respect.

Alberta Energy Regulator

Over the last year, the AER’s Indigenous Engagement
Group laid the groundwork for what lies ahead. Its
work included delivering more indigenous awareness training sessions for AER leadership and staff,
organizing a gathering of Treaty 7 and AER executive leadership, and demonstrating a collaborative
approach to engagement.
Ongoing projects include working with indigenous
communities on area-based regulation (ABR) andreaching out to the Woodland Cree First Nation tostart a joint learning process regarding land reclamation, remediation, and indigenous traditional knowledge. These are just a few of the first steps taken to
implement the Truth and Reconciliation Commissionof Canada: Calls to Action and the United Nations
Declaration on the Rights of Indigenous Peoples(UNDRIP), and to work with communities to ensurethat traditional knowledge is reflected in our day-today process and decisions.

“ It’s important that AER
employees recognize thesignificant insight that theindigenous people of Alberta
can bring to our processes.”—ARLETTE MALCOLM,
Director of Indigenous Engagement

We also understand that to be the change we wish
to see in the world, our organization must commit
to change.

PROTECTING WHAT MATTERS“It’s important that AER employees recognize the significant insight that the indigenous people of Alberta
can bring to our processes,” says Arlette Malcolm,
director of Indigenous Engagement. “To become an
excellent regulator, we need to be able to engage
empathically; this means we need to listen to and understand the values and concerns of our stakeholders, including Alberta’s indigenous people. We needto build a relationship of listening, mutual respect,
and trust.”
This responsibility is not without challenges. Ourannual surveys of Albertans indicate that First
Nations and Métis communities show less satisfaction and less confidence in the regulator than do ourother stakeholder groups. It also indicated that we
do not adequately address indigenous communities’
concerns about the environment. We know we havegrowing to do.

The AER hopes to learn from indigenous people
about how we can collaborate to validate traditional
knowledge and traditional land-use values and linkthem with our existing practices. This is an essential
stepping stone towards understanding and addressing cumulative effects.

23

Voices of Understanding
After listening closely to the stories shared byBlackfoot elder Dr. Reg Crow Shoe, AER staff cameaway with a fuller understanding of traditional
decision-making models and how we canintegrate them into our day-to-day processes.

The AER will also evolve its processes to bettersupport a holistic approach to energy development—
one that is mindful of both indigenous and westernknowledge—in our Woodland Cree indigenous traditional knowledge and ABR projects, among others.
The AER is honoured to practise the lessons fromthe Voices of Understanding process and further our
understanding as we look ahead at how we can move
forward together.

Annual Report 2016/17

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PROTECTING WHAT MATTERS

enforcing the rules“ The AER’s investigators are peace officers; they have the authority
to apply for search warrants, lay charges, and serve companies or
people court summonses. These people are law enforcement.”—GREG JONES, Manager, Major Investigations Team

When companies fail to follow the AER’s rules, they
face enforcement. This can include shutting in operations, more frequent and detailed inspections, ormore stringent planning requirements.
In some cases, it can also mean paying a stiff fine or
facing prosecution.
All noncompliances are reviewed and the mostserious referred to AER investigators. An AER statutory decision-maker then reviews the investigation
report and decides whether enforcement is required,and which is the most appropriate enforcement tool.

PROSECUTIONS“The AER’s investigators are peace officers; they
have the authority to apply for search warrants, laycharges, and serve companies or people court summonses,” says Greg Jones, manager of the AER’s
Alberta Energy Regulator

ADMINISTRATIVE PENALTIES
Another enforcement tool is a fine, called an administrative penalty. The amounts differ, but all are basedon the seriousness of the offence and how it affects
public safety, the environment, or production of theenergy resource.
In short, the more serious the contravention and thegreater the impact, the higher the penalty.

major investigations team. “These people are law
enforcement.”
While prosecutions take place in a courtroom, AER
investigators draft the court documents that list
the charges and include a summons requiring thecompany to appear in court by law. Once signed
by a justice of the peace, they become official, andan AER investigator delivers them, in person, to thecompany.
When charges are laid, both the Crown prosecutorand defence counsel get to review the entire AER
investigation file. If a trial is held, AER investigators
testify about their involvement in the matter. The
court, not the AER, is responsible for deciding what
happens; the decision to penalize a company rests
with a judge.

ORDERS ENSURE COMPLIANCE
AER orders are legal documents that formally directa specific action or actions; they can be issued for
different purposes. Orders help the AER ensure that
oil and gas companies operate in a safe and environmentally responsible way.
The most commonly issued order is referred to as
a compliance order, which is designed to prevent,stop, or minimize environmental impacts or risks topublic safety. An order may also be punitive in natureand may be used to reprimand companies that don’t
follow AER rules and regulations.
At the end of the day, Albertans own our energy resources, so developing them is a privilege, not a right.
Every company must follow the rules to make certainthat oil and gas activities happen safely.

PROTECTING WHAT MATTERS

25

pipeline performance
Pipelines have been a hot topic for some time inAlberta and across North America, with the big question being, are they safe?
In our province, the numbers show they’re safer thanever. Still, the AER’s executive vice president of operations knew that more could be done to improve
pipeline safety, and that the solution wasn’t to justcraft more rules.
“We’re not going to improve performance by adding
more pages to the Pipeline Act,” Kirk Bailey noted,
knowing that more could be done to improve pipeline safety beyond crafting more rules.
This past February, the AER released a report revealing how pipeline operators are performing—with
details not only on the sector as a whole but on individual companies as well.
While the length of pipelines the AER regulates grewby 11 per cent in the last decade, pipeline incidents
actually dropped by 44 per cent, with the pipeline
failure rate dropping to 1.1 incidents per 1000 kilometres of pipeline in 2016 compared with 2.2 incidents
per 1000 kilometres in 2007.

The AER points to stronger requirements, industry
education, improvements to inspection programs,
and a greater focus on pipeline safety among operators for the improvement.
The report showed that pipeline incidents dropped
by three per cent in 2016 compared with 2015. Most
incidents were of medium to low consequence interms of impacts on the public, wildlife, and the environment. High-consequence incidents accounted
for about 7 per cent of all incidents in 2016.
While the decline in incident rates is encouraging,
the AER believes all pipeline incidents are preventable—especially high-consequence ones. Achieving
this will take a big effort in many small steps; in 2017
the AER aims to reduce the two-year average ofhigh-consequence pipeline incidents by two per cent.
The AER will continue to raise the bar each year
and take action to ensure that performance steadily
improves.
The pipeline report was the first to be released, but it
will not be the last. The AER will issue similar reportsthat will cover water use in energy development andinactive wells.

To make sure pipeline incidents receive theappropriate response, the AER assigns ahigh-, medium-, or low-consequence ratingbased on criteria that consider the impacts
on the public, wildlife, and the environment.

HIGH CONSEQUENCE
Incidents that could have significant impact
on the public, wildlife, or the environment,or that involve the release of a substancethat affects a large area or waterbody.

MEDIUM CONSEQUENCE
Incidents that could have a moderate impact
on the public, wildlife, or the environment,
and no impact on a flowing waterbody.

LOW CONSEQUENCE
Incidents that involve little to no substancereleased and have little to no impact on
the public, wildlife, or the environment(but no impact on a waterbody).
No matter the classification, operators
are responsible for all aspects of incident
response—from having a detailed emergency
response plan in place to taking actions
to remediate and reclaim a site.

Annual Report 2016/17

26

PROTECTING WHAT MATTERS

finding our core strength:
creating ICOREThis independent entity—borne from the
AER’s Regulatory Excellence initiative—willenable regulators to exchange best practices,advance their collective body of knowledge,
and train both emerging and establishedregulators from around the world.

Canada and Mexico. México y Canadá. No matter if
you say it English or Spanish, our countries enjoy along history of political, trade, social, environmental,
and security shared interests that date back to the1994 North American Agreement on Environmental
Cooperation and the 2004 Canada-Mexico Partnership.
In February 2017 the AER played a key role in yet
another important collaboration. Together with theGovernment of Mexico, we announced the formationof the International Centre of Regulatory Excellence,or ICORE.
It was easy to think that the partnership was reallyno big deal. Except that it was. When we see people

supporting one another, we call it philanthropy; whena regulator does it for other regulators, we call it regulatory excellence.
“Our ability to effectively manage energy development and environmental protection in Alberta
depends increasingly on our engagement beyond
provincial borders,” explains the AER’s president and
CEO Jim Ellis. “ICORE gives Canada the opportunity
to continue advocating for cooperation in the regulatory community on a global stage.”This independent entity—borne from the AER’s Regulatory Excellence initiative—will enable regulators
to exchange best practices, advance their collective
body of knowledge, and train both emerging and established regulators from around the world. The AER
is a regulator, not a trainer, therefore the creation of
ICORE can address work that’s beyond our mandate.
In the future, the AER can both contribute to anduse this centre of excellence as a hub for training
and innovation. Ultimately we believe this will leadto overall stronger and more protective regulators
the world over because, as experience tells us, there
is strength in numbers.

Alberta Energy Regulator

PROTECTING WHAT MATTERS

27

how a penny saved became
two billion dollars earned
We knew there were savings to be had, but we didn’tknow how much.

In 2017/18, we are targeting additional savings in theorder of $100 million.

However, three years and nearly two billion dollars
later, the AER’s efforts to make our regulatory requirements more efficient have translated into
real-world savings for an energy industry beset bylow commodity prices.

So why do it? Besides the fact that creating efficiencies and a more competitive environment wasa driver for merging three regulatory bodies to form
the AER, our efforts bring benefits to industry suchas lower operating costs, lower capital costs, andfewer regulatory delays. This allows companies tobring projects into operation faster, which in turnprovides economic benefits to Alberta.

But it wasn’t a response to oil prices that spurred
us to examine our requirements through a different
lens and spot opportunities to make improvements.
Work to make requirements more efficient started
in April 2014 as part of a bigger strategy to improve
how the AER regulates. Since this time, the AER has
generated over $1.9 billion in total cost savings forindustry without reducing environmental protection
and public safety rules and regulations. A portion ofthese are one-time savings, while the remainder aresavings that recur each year and help ensure that
Alberta’s regulatory system remains efficient andeffective.
To the end of March 2017, the AER has delivered
over $774 million of industry-verified cost savings
that recur annually through regulatory efficiency improvements. This means each year Alberta’s energy
industry saves over three-quarters of a billion dollars.

The savings we’ve achieved have been significant,and because they are applied to operations year overyear, the value of this regulatory efficiency work will
be realized by industry and Alberta for the next 30
years and beyond.

But more important is that regulating with outdated
or ineffective regulation doesn’t make Alberta safer.
In fact, it could tie up our resources on low-risk issues
and hinder action where the risks are greater. Creating efficiencies makes development safe, protects theenvironment better, and helps the economy. In thisway, everyone affected by energy development—bethey public stakeholders, indigenous communities, orAlbertans in general—benefit from more efficient andeffective regulatory requirements.
Making the regulatory system more efficient can becomplicated, but here in Alberta it’s made somewhat
easier because we have only one regulator, not multiple ones with competing interests.

Annual Report 2016/17

28

PROTECTING WHAT MATTERS

finding what’s in the flare
Necessity is the mother of invention, or so the saying
goes.
This past year, mother necessity gave birth to a
study—being led by the AER and Alberta Health—
into what types of substances are present during the“flowback” phase of hydraulic fracturing operations.
“Flowback” refers to the process by which fluids used
to fracture a well are pumped back to the surface
after hydraulic fracturing is complete. Separators
split out the liquids and any oil from the gas; theliquid goes to a tank where it’s disposed of, while thegas is burned in the flare stack.
The study is the first of its kind and looks at thecomposition and concentrations of the substancesin the flowback stream, the properties of the flareduring the flowback phase (such as flare temperature), and whether these substances present during
this process pose a risk to human health and the environment.
Other questions being answered are, what happens
to the gases? Are they released into the atmosphere?
Are they destroyed by the heat of the flare? Or havethey transformed into another substance?

Alberta Energy Regulator

The investigation was prompted by an AER assessment of recurring complaints from residents in the
Lochend and Didsbury areas of Alberta about hydraulic fracturing activities. The assessment found aknowledge gap about what emissions are generated
by flaring in the first stages of bringing a new wellinto production.
Gas(flare)Produced liquids(storage tank)

Well

Separator

Because no new development was occurring in theseareas at the time, the AER began testing wells around
Drayton Valley and Rocky Mountain House that werebeing drilled into the Cardium geological formation,

the same formation being developed at Lochend
and Didsbury.
AER experts designed a study to collect samples
between the separator and the flare stack during the
flowback period. Samples were then sent to a lab to
identify what substances are present.
Besides the AER and Alberta Health, other participants include InnoTech Alberta (part of Alberta Innovates), industry representatives, Alberta Environment and Parks, a public representative from thestudy area, and one of Canada’s top flare researchers
from Carleton University.
Once the study is complete, a report will follow. From
there the AER will decide what, if any, changes will bemade to the regulatory requirements.

The study is the first of its kind and looks at
the composition and concentrations of thesubstances in the flowback stream, the propertiesof the flare during the flowback phase (suchas flare temperature), and whether thesesubstances present during this process pose arisk to human health and the environment.

PROTECTING WHAT MATTERS

29

for everyone’s benefit
It’s rare that a change can benefit everyone, butwhen it happens, it leaves one wondering why thechange took so long in the first place.
The creation of the AER was one such change—
it brought together all energy-related regulatory
activities under one umbrella. Being responsible forall spill response and clean up has allowed us to be
more effective in our approach to remediation, which
benefits landowners, the energy industry, the regulator, and Albertans in general.
“Previously, the regulatory agencies had different
pieces of the puzzle. There were different computer
systems, different compliance structures, and different legislation,” said Sandra Blais, an advisor with
the AER.
Historically, contamination was allowed to remainin place until the site was decommissioned. But the
AER has taken a different approach, requiring more
active clean up at the time of a spill instead of waitingfor decommissioning, which reduces the likelihoodof contamination migrating over years in underground plumes.
While Blais said monitoring a spill and remediatingin the location instead of immediately removing
contaminated soil works well for some spills, in mostcases the longer it remains in soil, the greater risk itwill contaminate groundwater.
This change also means the land is returned backto what it was before the spill—farmland, forest, or
grassland—much quicker.

involve an energy company needing to pay financial
security to the AER that can be used to clean up
any spills if the company goes defunct. That means
the company—not Albertans—is held responsible forcleaning up energy infrastructure and their associated sites. And that benefits all Albertans.

The benefits also apply to the ones responsible forthe spill.
“Cleaning up spills immediately can mean a costsavings to industry,” said Sasha Desjardins, manager
of Remediation, Contamination Management, andReclamation. “For industry to do nothing is the mostexpensive option.”
Companies can remediate a spill before it spreads
and forego the cost to continually monitor the spill.
Energy companies need to prove to the AER thatthey have the financial ability to return the land backto a comparable state to what it was before energy
development. So for the AER, these changes allow
us to better assess how much it may cost companies
to clean up once their facility is no longer needed forenergy development.
Better data on spill cleanup costs make our calculations much more accurate and can sometimes
Annual Report 2016/17

30

YEAR-IN-REVIEWOUTCOME

2016/17REPORTING ON
OUR RESULTS
Since the AER’s launch in 2013, we have promisedthat we will be transparent. Keeping that promise requires us to report on our results by showing where
we have made progress over the last year, how weare working towards meeting the goals we have set,
and what challenges we have faced that may havecaused us delay.
The 2016–19 strategic plan was developed by examining the work we need to focus on based on our fourpillars of protective, effective, efficient, and credible.
The plan included our strategic priorities, outcomes,
and performance measures to ensure that we stayedon track and demonstrated our results. Like the AER
itself, the 2016–19 plan was fluid enough to allow us
to remain nimble in an ever-changing energy sector,
and was designed to move with the ebbs and flows
throughout the year.
The targets we set for ourselves in the strategic plan,such as reducing fluid tailings accumulation, lowering
oil sands’ emissions, and improving the application
process, all tie back to our commitment to regulatory
excellence—achieving it and living it as we work
toward it.

Alberta Energy Regulator

PROTECTIVE
Develop an integrated
whole-systemregulatory approach

EFFECTIVE
Strengthenrisk-based
regulation

Effective management ofpublic safety and cumulativeenvironmental risks and impacts

Effective management of resource
conservation and minimize financial
liability on Albertans

EFFICIENT
Transform
Alberta’s energy
regulatory system
to improve
efficiency

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

CREDIBLE
Increase trust andconfidence in how
energy is developedin Alberta

Stakeholders are confident
about how energy isdeveloped in Alberta

YEAR-IN-REVIEW

31

MEASURETARGETSTATUS

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

Public reporting of water use by industry

On track: Scheduled for spring 2017.

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

Ensure industry complies with establishedperformance standards

In progress: Revisions to Directive 085 being made toinclude public input. Expected in 2017.

Support multistakeholder engagement process
to facilitate early action on methane reduction

Target met: Multistakeholder process has been created andis being used to develop changes that will ensure a 45%
reduction in methane by 2025.

Ensure industry complies with establishedperformance standards

In progress: Draft regulatory development is 60% complete,ahead of targets.

Volume of oil sands emissions

Establish a tracking and reporting system foroil sands emissions

On hold: Provided input to the Oil Sands Advisory
Group. Awaiting government response.

Complete a risk assessment of energyrelated infrastructure by March 2018

Address high-risk items as they are identified

In progress: 96% of high-risk wells have been brought into
compliance through Directive 013, and the Inactive Well
Compliance Program has achieved 56% compliance.

Number of high-consequencepipeline incidents

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

Target met: 24% reduction in high-consequencepipeline incidents.

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

Target exceeded: $224 million in savings to stakeholders
due to organizational efficiency projects.

Improve efficiency of AER
application decisions

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

Target met: Three pilot projects completed.

Percentage of Albertans aware of the
AER who express confidence in theorganization’s ability to fulfil its mandate

80% confidence score

Ongoing: 82% of Albertans have confidence in the AER’s
ability to fulfil its mandate, while 77% of stakeholders
express confidence, with varied rankings among specificgroups (e.g., landowners, industry, and indigenous peoples).

Incorporate key attributes ofregulatory excellence

Begin implementing the AER model for
regulatory excellence

In progress: The Strategy and Development Branch was
created. Developed internal systems to improve efficiencies.

Level of skills and competencies

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

Target met: Created the Enterprise Learning Branch for
AER employees. Launched the International Centre ofRegulatory Excellence.

Employee engagement

Achieve 83% engagement in 2016/17

In progress: Launched many initiatives to improve employee
engagement. Results to be determined in 2017/18.

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

Target met: 100% of IRMS priorities supported by the AER.

Volume of methane emissions*Integrated Resource Management Framework.
Annual Report 2016/17

MOVINGFORWARDMOVING FORWARD

33

a world-class resource
Alberta’s energy reserves are among 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 reservesof 165 billion barrels in 2016—truly a world-class resource. To put things into perspective, 12.3 billion barrelsof bitumen have been extracted since the late 1960s.
At 897 million barrels per year (or 2.45 million barrels
per day), raw crude bitumen production accounted for 84 per cent of Alberta’s total crude oil andbitumen production in 2016. Bitumen production
in 2016 decreased by 4 per cent for mining projects
and by 2 per cent for in situ projects, resulting inan overall raw bitumen production decrease of about
3 per cent over 2016.
Of the total bitumen production, 42.5 per cent wasused as feedstock for upgraders, yielding 887 thousand barrels per day of upgraded production. Alberta
refineries processed 296 thousand barrels per day of
upgraded bitumen and 22 thousand barrels per dayof nonupgraded bitumen.

In Alberta, crude oil production decreased by 16 percent in 2016. Conventional natural gas remaining
established reserves were 28.2 trillion cubic feet(Tcf) in 2016, while total production was 3.8 Tcf.
Total natural gas liquids production increased by
4 per cent in 2016.
In 2016, our remaining established reserves of coaldecreased slightly to 36.6 billion tons, while only
28 million tons of marketable coal were produced.
Alberta’s energy resources significantly contributeto both Alberta’s and Canada’s economies. In 2016,the value of our energy resource production was$56.1 billion. The AER forecasts that in 2017, the valueof energy commodities will rebound to higher levels
with the return of higher oil and natural gas prices.

ALBERTA’S RESOURCES (2016)56.1

billionCdn$

value of productionin Alberta

165billionbbls

remaining established
bitumen reserves

897

millionbbls

raw crude bitumen
production

28.2

84%

Alberta’s total crude oil& bitumen production

Tcf

conventional natural
gas reserves

3.8

Tcf

total conventional natural
gas liquids production

Annual Report 2016/17

34

MOVING FORWARD

drivers for change
Today, development occurs on a larger scale, withprojects having a greater footprint on the landscapefrom multiple wells and associated infrastructure—roads, facilities, and pipelines—a departure from thedays of single wells scattered across the landscape.
The AER is looking closely at how multiple energy
activities will affect specific areas and at the
cumulative effects of those activities over time.

Our world has changed significantly over the last
decade, and we must keep pace to be a good regulator, let alone an excellent one. And achieving excellence is the AER’s vision.
In the past, local stakeholders living near energy development—the people directly affected by oil andgas activities—were the ones voicing their concerns.
Today, people the world over question the use offossil fuels and demand action on climate.
Closer to home, the Government of Alberta’s Climate
Leadership Plan—which aims to reduce Alberta’s
carbon emissions—is well underway, while this past
December the federal government and provinces
announced the Pan-Canadian Framework on Clean
Growth and Climate Change.
Meanwhile, the oil and gas industry is changing theway it develops Alberta’s resources; the growth inmultistage hydraulic fracturing activities and in situ
oil sands development means more large-scale projects that bring with them new challenges, risks, andopportunities.
Albertans want to know what’s happening and how
it affects their lives, their families, their communities,

Alberta Energy Regulator

the environment, and the industry. In response, we
re-examined our approach to stakeholder engagement by making it a core area of regulatory practice.
This includes forming committees in which indigenous peoples, environmental groups, municipalities,
landowners, and others have a voice in developing
regulatory requirements.
Not only is this sound practice, it also helps build
trust and confidence in the regulator, without which
we can’t succeed.
Today, development occurs on a larger scale, withprojects having a greater footprint on the landscapefrom multiple wells and associated infrastructure—roads, facilities, and pipelines—a departure from thedays of single wells scattered across the landscape.
The AER is looking closely at how multiple energy
activities will affect specific areas, and at the cumulative effects those activities have over time.
One way we can do this is to look at the big picture
by adopting a cumulative-effects-management approach. Cumulative effects are the total environmental changes caused by energy development activities
in combination with other past, present, and future
human actions. The impacts of each activity may

MOVING FORWARD

be insignificant by themselves, but when combinedwith other activities, the risk to the environment canbe great.
Part of our response is to change the way operators
submit those many applications, starting with a few
pilot projects. Instead of many separate applications,operators will submit them as one—a single application, with one public notice—and will receive one
single decision from the regulator, be it an approvalor denial. Besides being more efficient for industry,it gives communities a better idea about what companies are proposing.

To help achieve this, the AER is taking steps to makeindustry more accountable and to increase transparency by releasing data for Albertans to see. In February, we issued the Pipeline Performance Report,
which details how individual companies and industry
as a whole have been performing. The AER will issue
similar reports on water use for in situ operations,mining, and oil and gas activities.
If Alberta is to meet people’s changing expectations
and stay current with changing technologies, and stillcompete in the global market, its regulator must alsochange by working with all Albertans to manage ourenergy resources today and beyond.

35

People continue to be concerned about
the pipelines that carry our oil and gas tomarkets across North America and beyond.
They demand to see the facts and demandaction to ensure that pipelines are safe.

PIPELINE INCIDENT RATES

fallenalmost45%

in the last 10 years

Meanwhile, people continue to be concerned about
the pipelines that carry our oil and gas to markets
across North America and beyond. They demand to
see the facts and demand action to ensure that pipelines are safe. In Alberta, pipeline incident rates havefallen by almost 45 per cent in the last 10 years. While
this is encouraging, the AER believes all pipeline incidents are preventable; reaching this goal requires
a big effort.

Annual Report 2016/17

36

MOVING FORWARD

STRATEGIC PRIORITIES

2017–20
STRATEGIC PLAN

PROTECTIVE
Develop an integrated
whole-systemregulatory approach

STRATEGIC OUTCOMES

Effective managementof public safety, andcumulative environmental
risks and impacts

The AER is responsible for making sure the public
and the environment are protected. We have a clear
strategy to fulfil our mandate, reach our vision of regulatory excellence, and deliver results for Albertans,indigenous peoples, and our many stakeholders.
To develop our 2017–20 strategic plan, we examined
the work we need to focus on based on our fourpillars of protective, effective, efficient, and credible.
The plan includes our strategic priorities, outcomes,
and performance measures to ensure we stay on
track and demonstrate our results.
Ensuring the responsible use of Alberta’s water resources, reducing the inventory of aging infrastructure, lowering methane emissions, making certainthat pipelines operate safely, and effectively engaging our stakeholders and all Albertans are just a few
of the outcomes we’ll work to achieve.
This is a continuation of the important work we do;each year we update our strategic plan to make sure
we’re adapting to the changes taking place aroundus—from new technology to evolving stakeholder
expectations.
That said, we know we can take things further. That’s
why we’re closely examining our strategy to see how
it should evolve to better reach our overall outcomesas we ensure the safe, environmentally responsible
development of Alberta’s energy resources.

Alberta Energy Regulator

EFFECTIVE
Strengthenrisk-based
regulation

EFFICIENT
Transform Alberta’s
energy regulatory system
to improve efficiency

CREDIBLE
Increase trust andconfidence in how energy
is developed in Alberta

Effective managementof resource conservationand minimize financial
liability on Albertans

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

Stakeholders are
confident about
how energy isdeveloped in Alberta

MOVING FORWARD

37

FOCUSED OUTCOMESPERFORMANCE MEASURESPERFORMANCE TARGETS

VISION

Sustainable water use

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

Public reporting of water use by industry

Reduce fluid tailings accumulation
over mine life

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

Ensure industry complies with establishedperformance standards

Climate change – reduce
methane emissions

Volume of methane emissions

Climate change – 
oil sands emissions

Volume of oil sands emissions

Establish a tracking and reporting system foroil sands emissions

Cumulative effects management

Cumulative effects are managed

Develop a framework to manage cumulative effects

Reduce aging inventory liability

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

Address high-risk items as they are identified

Pipeline safety

Number of high-consequence pipeline incidents

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

Stakeholder savings resulting from reduced
regulatory burden that does not negatively
impact the environment or public safety$100 million in incremental savings tostakeholders in fiscal 2017/18

Improve efficiency of AER application decisions

Single decision-making framework for wells,
facilities, and pipelines available for use by
external parties not later than 31 December 2018

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

Maintain a confidence score above 80% annually

Level of skills and competencies

Close high-priority skill and capability gaps
through the implementation of the Enterprise
Learning Branch in 2017/18

Employee engagement

Achieve 83% engagement in 2017/18

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

Support multistakeholder engagement process
Ensure industry complies with establishedperformance standards

Effective engagement of Albertans,indigenous peoples, and stakeholders

Achieve regulatory excellence

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

Annual Report 2016/17

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

Regulatory efficiency

38

MOVING FORWARD

Alberta Energy Regulator

MOVING FORWARD

39

a new approach to
our strategic plan
In 2013, the Alberta Energy Regulator was created
to be protective, effective, efficient, and credible.
We released a strategic plan that outlined how we’dfocus our efforts, build relationships with stakeholders and Albertans, find new approaches to regulation, and reduce duplication, all while working to earn
confidence and improve our accountability.
We’ve accomplished much since our launch, but justas the world of energy development evolves to face
new challenges, our approach must also evolve. Low
oil prices have resulted in job losses and industry
consolidation; the world transitions to renewableforms of energy; new technologies are used to unlock
unconventional resources. These are just some of thefactors requiring new regulatory approaches.
At the same time, we know that Albertans expectand deserve to be better informed about and involved in the energy development process. We needto find new ways to include stakeholders, indigenous
communities, and Albertans in decisions, and wemust continue to report on our work in an open andtransparent way.
The AER strives to be excellent, and that means wemust demonstrate how our work delivers outcomesthat matter to Albertans—ensuring public safety
and environmental protection and enforcing our re-quirements, all while ensuring economic benefits forour province.
Our model for regulatory excellence will help us
become a regulator that demonstrates utmost integrity, stellar competence, and empathic engagement.
Over the past four years we’ve used our strategicplan to build a strong foundation for a regulator that
continues to improve and that seeks ground-breaking approaches to regulatory development, stakeholder engagement, and industry performance.

For four years we’ve based our strategicplan on our four pillars of being protective,
effective, efficient, and credible. Now we’redeveloping a new strategy for the AER,
one that considers the challenges we face
today and the ones that lie ahead.

So now we’re developing a new strategy for the AER,
one that considers the challenges we face today andthe ones that lie ahead. In the coming months, we’ll
reach out to stakeholders, indigenous communities,
and Albertans. We’ll discuss our strategy and explain
our plan to address big issues such as cumulative
effects, managing large-scale projects with an integrated approach, improving industry performance,
and addressing how we move aging oil and gas
infrastructure into abandonment and reclamation
more quickly.
Our new strategic plan will also include targets andmeasures that hold us accountable to Albertans,
ensuring that our work is related to outcomes thatmatter and that we deliver on our commitments.

Annual Report 2016/17

40

OPERATIONAL OVERVIEWSOPERATIONALOVERVIEWS

Alberta Energy Regulator

OPERATIONAL OVERVIEWS

41

OPERATIONS DIVISIONSTRATEGY & REGULATORY DIVISIONThe Operations Division oversees the full life cycleof energy resource development in Alberta. It works
with companies and stakeholders to assess new
development proposals and holds companies accountable for meeting regulatory requirements—from design and construction through to active operations and ultimately decommissioning.

The Strategy and Regulatory Division identifies andmanages issues, risks, and opportunities while steering the AER’s regulatory development.

The Alberta Geological Survey is a branch thatprovides the AER with scientific, peer-reviewed research, maps, and reports on Alberta’s geology, earth
resources, geological hazards, and groundwater at
the regional scale.

The division’s staff• use science and fact-based evaluation and forecasts to identify and manage issues, risks, andopportunities;• manage the regulatory development process; and• develop and implement the AER’s enterprise, strategic, and corporate operations plans.

Climate Policy Assurance Team is responsible for designing and delivering on the Government of Alberta’s climate change policy direction by creating andimplementing an effective and efficient regulatory
framework.

The division is made up of four branches:• Three functional branches that focus on consistentand efficient use of the existing regulatory tools
and processes to ensure compliance:-- Authorizations Branch works with companies
and stakeholders to make decisions about
whether new development proposals should
proceed,-- Environment & Operational Performance Branchmonitors projects during their production phaseto ensure regulatory compliance,-- Closure & Liability Branch holds companies
accountable for meeting the regulatory requirements that apply to projects that are no longer
operating.
• A fourth branch, Industry Operations, focuses on
industry performance reporting and improving theeffectiveness of our regulatory system across eachof the sectors we regulate: oil and gas, pipelines,
mining, and in situ.

The Strategy and Regulatory Division comprises fivebranches, one team, and two groups that help todeliver expertise to the AER.
Major Projects and Transformation Branch oversees
major AER projects, transformation initiatives, andcumulative effects management.
Regulatory Development and Economics Branch
ensures we deliver consistent, predictable, and transparent regulatory change. This branch implements
practical operating procedures for regulatory development and reports on energy statistics, including
reporting on Alberta’s current and future energy
supply and demand to ensure optimal regulatory
decision-making.
Reserves and Resources Branch monitors and reports
on current and reliable indicators in energy resource,
environmental, and social outcomes related to energy
development at the reservoir to play-based scales.

Strategy Branch identifies emerging risks, issues andopportunities, and directs the development of organizational strategy.
Enterprise Planning Group leads the process of enterprise planning and prioritization using risk, portfolio and performance management to ensure that
initiatives and projects support the achievement of
the AER’s outcomes. This group is the steward of the
AER’s Operational Excellence Management System.
The Environmental Sciences Group works to protect
Alberta’s environment by leading and providing strategic focus for the effective assessment and management of cumulative environmental risks and impacts
from energy development across AER divisions. This
group connects with environmental science experts
both within and external to the AER including provincial, national, and international stakeholders.

Annual Report 2016/17

42

OPERATIONAL OVERVIEWSSTAKEHOLDER & GOVERNMENTENGAGEMENT DIVISIONThe Stakeholder and Government Engagement division supports all AER work though engagement,
relationship building, information sharing, and collaborating with people and groups who are interested inor may be impacted by the AER’s decisions. The division builds mutually beneficial relationships throughfive branches:
Alberta Government Engagement works with AER
staff and our Government of Alberta partners toensure that policy development and regulatory delivery for development of Alberta’s energy resources are integrated and aligned, providing strategic
advice and engagement expertise to all areas of theorganization with respect to the Alberta government.
Alberta Stakeholder Engagement engages ourAlberta stakeholders and indigenous peoples tounderstand their interests, values, and concerns regarding energy development in Alberta. The branchleads engagement planning for the AER and connects people to the organization by leading complex
engagements, sharing information, and providing alternative dispute resolution services. In addition, thebranch plays a key role in providing strategic advice,and support on indigenous relations procedures andplans with the Alberta government.

Alberta Energy Regulator

National and International Relations leads and facilitates organization-wide improvement that is
informed by national and international perspectives.
The AER is committed to demonstrating national andinternational leadership in regulating energy resources by learning from and sharing best practices andknowledge with our peers across Canada and aroundthe globe.
Public Affairs is responsible for making sure that the
AER’s communications, both internal and external,
are clear, timely and easy to understand. It provides
many services to the organization, including media
relations and crisis communications, strategic planning and advice, internal and corporate communications, editing, graphic design, digital media services,and web services.
The Enterprise Learning Branch provides the strategic oversight, learning standards and supports required by the AER to achieve learning excellence inthe organization. The branch leads the assessment
and development of priority learning needs, andprovides transparency of learning resources for the
benefit of the enterprise.

CORPORATE SERVICES DIVISIONThe Corporate Services Division is committed to providing the foundational support necessary to enable
the AER to achieve its mandate. This division focuseson people and culture, infrastructure, information,

OPERATIONAL OVERVIEWS

and fiscal responsibility. It is designed to support
the organization with key corporate functions suchas technology, data and information management,
facilities services, finance, administration, internal
audit, and human resources.

ganization. This includes workforce planning, talentacquisition, performance management, career andsuccession management, leadership and core competency development, employee engagement, andtotal rewards.

Division branches include the following:
Administrative and Workplace Service interfaces
with all 17 AER locations to provide corporate realestate, facilities management and office support
services, procurement, fleet, corporate security, andbusiness continuity management in support of the
AER’s business needs throughout the province.

Information Management ensures the appropriate
retention of all AER records and the management of
all AER information and data assets while addressing
risks, ensuring availability of and providing access to
AER information and data to internal and external
stakeholders.

Finance ensures that the AER maintains appropriate
stewardship over its financial resources by providing accounting, planning, budgeting, and reporting
services. Finance is also responsible for providing
assistance in the development of appropriate internal control frameworks, leads financial stewardshiptowards a balanced budget, ensures the financial
statements are complete, accurate and authorized. It
also leads the administrative levy collection process
and provides advice and expertise to the AER leaders.
People and Culture provides AER leaders and employees with the policies, processes, programs, andinitiatives to support all aspects of people management and the employee experience within the or-Information Services provides AER with information technology and related services that enable theregulator to perform their mandate effectively andefficiently, while providing a governance model that
protects the technology assets and users of the regulator.
Internal Audit conducts independent audit andadvisory services to enhance effectiveness of AER
controls and processes to meet organizational objectives. It also interfaces with the Office of the Auditor
General of Alberta.

43

the board of directors, hearing commissioners, andall divisions. The branch focuses on legal and strategic advice and is designed to support functions
such as authorizations, contracts, hearings, litigation,
regulatory and strategic projects, government andstakeholder engagement, and Alberta’s Freedom ofInformation and Protection of Privacy Act.
Law Branch staff support the organization by providing essential knowledge, advice, and services related
to their areas of expertise. The branch understands
and has expertise in the business and strategic issues
in which the AER is engaged. In addition, the Law
Branch has expertise in the statutes the AER administers, including all regulations, rules, directives andpolicies. This includes the• Responsible Energy Development Act,• Oil and Gas Conservation Act,
• Pipeline Act,• Oil Sands Conservation Act,• Coal Conservation Act,
• Water Act,• Environmental Protection and Enhancement Act,
• Public Lands Act, and• Part 8 of the Mines and Minerals Act.

LAW BRANCHThe Law Branch provides high-quality legal andstrategic advice to the entire organization, including

Annual Report 2016/17

44

CORPORATE GOVERNANCECORPORATEGOVERNANCE
Alberta Energy Regulator

CORPORATE GOVERNANCE

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

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

45

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

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

Annual Report 2016/17

46

CORPORATE GOVERNANCE

board of directors
During the seven meetings the AER’s board of directors held throughout the 2016/17 fiscal year, theboard approved changes to the 2017–20 strategicplan and approved the 2017/18 budget.
Additionally, the board approved several rulechanges relating to regulatory instruments and administration and orphan levies while it monitored the
AER’s progress on delivering on the strategic plan’sfour key priorities.
The board strongly supported and endorsed boththe Integrated Decision Approach and the International Centre of Regulatory Excellence over the lastyear. The board received briefings on the Regulatory
Excellence Project, and provided comments on the
project and the recommendations, as well as on AER
action plans and development plans for the Enterprise Learning Branch.
The board’s risk management committee endorsed
the AER’s senior leadership’s identification and detailed analysis of 14 principal risks.
Two new pieces of legislation were also reviewed,
along with potential implications for the AER, by theboard: the new Public Sector Compensation Transparency Act and Bill 19: Reform of Agencies, Boards

Alberta Energy Regulator

and Commissions Compensation Act. These acts
may hinder the AER’s ability to attract and retain
the highly-skilled workforce needed to support the
AER’s mandate of protecting public safety, the environment, and maintaining economic benefits for all
Albertans. With these concerns in mind, the boardof directors will continue to monitor how these acts
may affect the AER’s ability to fulfil its mandate.
We welcomed Dr. Stan Boutin, Monica Norminton,
and Jack Royal to the AER board of directors in 2016.
These three people bring a breadth of strong environmental, legal, financial, and indigenous relations
expertise and perspectives to the board.
And while we welcomed the new directors, we said
goodbye to four long-standing directors: Dr. Peter
Flynn, who chaired the audit and finance committee;
Sheila O’Brien, who chaired the human resources,
health and safety committee; Andy Neigel, former
chair of the governance committee; and David
Chalack, a member of the human resources, healthand safety, and governance committees. All four ofthese former directors played critical roles in establishing strong governance practices and oversightfor the AER and the board thanks them for theircontributions and wishes them well in their futureendeavours.

Meetings
attended
1

JACK ROYAL
Governance Committee Chair

3
3

2

STAN BOUTIN3CASSIE DOYLE

4Governance Committee Chair
Human Resources, Health and Safety
Committee Chair
Risk Management Committee ChairGERRY PROTTI, M.A., ICD.D
Chair
Nomination Committee Chair

Not MONICA NORMINTON
pictured Audit and Finance Committee Chair

BY THE NUMBERS

7

meetings

2
3

6

committees

7
7

7
7

3
4

1

2

3

4

48

CORPORATE GOVERNANCE

BOARD COMMITTEESThe AER’s six board committees receive reports andrecommendations from management, provide information, make recommendations to the board forapproval, and make decisions on behalf of the board
in their areas of authority. The following summarizes
the business of each committee over the past year.
The Audit and Finance Committee reviewed the
AER’s management discussion and analysis (MD&A).
In addition to reviewing quarterly statements, theannual financial results, and the budget, the committee met with Internal Audit Services at each ofits meetings and monitored how AER management
incorporated internal audit recommendations. The
committee also met with the Auditor General ofAlberta for the annual audit entrance and exit meetings.
The Governance Committee fully reviewed the termsof reference for all board committees and corporate
bylaws to determine if revisions were required andmade recommendations for the board’s approval.
The committee also managed the annual board evaluation process.

Alberta Energy Regulator

The Human Resources, Health and Safety Committee received quarterly workforce metrics reportsthat covered a number of the organization’s talent
programs, including health and safety, learning anddevelopment, employee wellness, and recruitment.
In addition, the committee received special reports
about pension plans, a new recognition program, thecareer and succession management program, andthe competency framework.
The Nomination Committee met several times andplanned the recruitment of three new directors in
2016/17. This involved advertising the positions, conducting interviews, and making recommendations
to both the Ministers of Energy and Environment
and Parks. Three new directors were appointed in
September 2016. This committee also met in the fallof 2016 and winter of 2017 to plan for the potential
recruitment of two new directors in 2017.
The Regulatory Review Committee reviewed changes
to, and informed the board about, a number of regulatory instruments, including the following:• Specified Enactment Direction 002: Application
Submission• Directive 085: Fluid Tailings Management for Oil
Sands Mining Projects• Directive 013: Suspension Requirements for Wells

The committee took several rule amendments to theboard for approval, including the annual orphan andadministration levies, as well as amendments to the
Oil and Gas Conservation Rules to implement Directive 085.
The Risk Management Committee continued tooversee development of the enterprise risk management program. In November, the AER enterpriserisk manager provided the committee and the recently appointed directors with an overview of the
AER risk management framework and specific risk
exposures (mandate and organizational risks). In
the fourth quarter, the committee approved a newand enhanced principal risk assessment process andits application to three principal risks (dam safety,
tailings management, and odour management). The
committee requested that the entire principal risk
register be reassessed under the new process by
end of September 2017, and that detailed treatment
strategies be developed for all unacceptable risks.
As of March 2017, 12 principal risks out of 14 werereviewed and accepted by the committee, following
their approval by the AER executive leadership team.

CORPORATE GOVERNANCE

1

2

3

4

5

49

6

executive
leadership
team
Chair of the Board

President & CEO

1

CAL HILL

3

2

KIRK BAILEY
Executive Vice President
OperationsJENNIFER STEBER

5

Executive Vice President
Stakeholder & Government Engagement

Executive Vice President
Strategy & Regulatory

4

JIM ELLIS
President & Chief
Executive Officer

PATRICIA JOHNSTON
General Counsel,
Executive Vice President Law

6

RICK BROWN
Executive Vice President
Corporate Services

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

Annual Report 2016/17

50

CORPORATE GOVERNANCE

3

1
2

1
2
3

CINDY CHIASSON, LL.B
Full-time Hearing Commissioner

54

4

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

Chief Hearing Commissioner

Part-time Hearing Commissioner

Alberta Energy Regulator

67

Full-time Hearing Commissioner

ALEX BOLTON, B.Sc., MMSc., P.Geo. 5
LORNE TERNES, LL.B
Part-time Hearing Commissioner

7

6

BRIAN ZAITLIN, Ph.D., P.Geo., C.P.G.
Part-time Hearing Commissioner

8
9

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

9

11
10

8

10 JUDE DANIELS

Full-time Hearing Commissioner

Part-time Hearing Commissioner

CHRISTINE MACKEN, B.A.

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

Full-time Hearing Commissioner

Full-time Hearing Commissioner

HEATHER KENNEDY, B.Sc.
Part-time Hearing Commissioner

CORPORATE GOVERNANCE

51

hearing commissioners
Hearing commissioners are an important part of
the AER’s structure. Reporting to a chief hearing
commissioner, the hearing commissioners are responsible for conducting public hearings and alternative dispute resolution (ADR) processes related toenergy applications and regulatory appeals referredto them by the AER. Appointed by the Governmentof Alberta through an Order in Council, hearing commissioners are independent decision makers whose
decisions are only subject to review by the Court ofAppeal of Alberta.
Last year, the AER said farewell to full-time hearing
commissioner Brad McManus and part-time hearing
commissioners John Lawson and Jurgen Preugschas,
and we acknowledge each for the valuable contributions they have made.
The AER welcomed three new hearing commissioners in July 2016: full-time hearing commissioner
Cindy Chiasson and part-time commissioners Jude
Daniels and Brian Zaitlin. As a lawyer, Ms. Chiasson
brings experience in environmental and natural resource regulatory matters. Ms. Daniels has a background in regulatory, energy, and aboriginal law andis a member of the Métis Nation of Alberta. As an
accomplished geologist, Dr. Zaitlin has spent many
years in industry and academia.

Hearing commissioners have access to a range ofadjudicative and mediation processes to resolve
disputes. They strive to use the most appropriate
process based on the nature of the issue in dispute,the efficient and effective use of resources, and therequirements of natural justice and procedural fairness. Processes available include mediation, settlement conferences, binding dispute resolution, andoral, written, and electronic hearings before a panelof hearing commissioners or a single decision maker.

12 files referred to the chief
hearing commissioner
3 hearings held
4 files resolved without hearing

Since the AER was created in 2013, themediation process is used more often andfewer hearings are held

Since the AER was created in 2013, the mediation
process is used more often and fewer hearings are
held.
Last year, 12 files were referred to the chief hearing
commissioner for hearings, including• a joint provincial/federal review of a proposed oilsands mine,• a proposed steam-assisted gravity drainage (SAGD)
oil sands project,• five regulatory appeals, and• five proposed oil and gas applications.
Three hearings took place—two related to pipeline
projects and one related to an oil and gas project—while four files that were scheduled for hearings
were resolved through hearing commissioner facilitated ADR.
On two files, the parties reached agreement on theirown, and two applications were withdrawn prior toa hearing. Currently, there are three hearing-commissioner-facilitated ADR processes underway and10 pending files for hearings.

Annual Report 2016/17

MANAGEMENT’SDISCUSSION &ANALYSISMANAGEMENT’S DISCUSSION & ANALYSISThis management’s discussion and analysis (MD&A)
should be read in conjunction with the audited financial statements of the Alberta Energy Regulator(AER) for the years ended March 31, 2017 and 2016,
and accompanying notes. The AER’s financial statements and the financial data in this MD&A have been
prepared in accordance with Canadian public sector
accounting standards (PSAS).
All comparisons are between the years ended
March 31, 2017 and 2016, unless otherwise noted. Allamounts are expressed in thousands of Canadiandollars.

53

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

Annual Report 2016/17

54

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

SUMMARY ANNUAL HIGHLIGHTS

2017

2016

ActualActualRevenues
Administration levy$

238 774$240 168

Orphan well levy

30 44830 1 67

Government transfer - provincial grant

3 338

—

Other revenue

6 194

8 145

278 754

278 480

245 959

249 1 1 3

Orphan well abandonment

31 02831 1 1 1

Climate leadership plan

2 925

—

279 912280 224(1 158)( 1 744)

Capital investment

12 10914 196

Less: Amortization(14 037)(1 2 645)

(76)

(332)

(2 004)

1 219

Expenses
Energy regulation

Annual operating (deficit)
CapitalLoss on disposal and write-down of tangible capital assets
Net capital investment
Surplus (deficit)*Budget $(3 000)

Alberta Energy Regulator

$

846

$

(2 963)

MANAGEMENT’S DISCUSSION & ANALYSISThe AER is an industry-funded regulator that is accountable to the Government of Alberta. The AER recovers its operating and capital asset costs through two separate revenue sources: an administration levy andother revenue. The AER received a provincial grant in 2017 for costs associated with the implementation of
a component of the Climate Leadership Plan, which was initiated by the Government of Alberta. The AER
collects an orphan well levy, which is paid directly to the Alberta Orphan Well Association (OWA); it is not
used to recover the AER’s costs.

55

All amounts are expressed inthousands of Canadian dollars.

In 2017, the AER continued to face fiscal challenges due to the effect of low commodity prices and a reduced
budget.
The administration levy was $1 394, or 1 per cent less than the prior year. This decrease is largely due to the$1 690 reduction to the 2017 AER budget, which was offset by an increase in administration levy penalties. Other revenue also continued to decrease in 2017 as a result of the ongoing downturn in the oil andgas industry.
Energy regulation expenses were $3 154, or 1 per cent less than in the prior year. This decrease was mainly
the result of budget cuts requested by the Government of Alberta, and effective cost-control efforts.
The AER received the provincial grant of $3 338 to implement a component of Alberta’s Climate LeadershipPlan, which is designed to take action on climate change and protect the province’s health, environment,
and economy. The Climate Leadership Plan includes a target to reduce methane emissions in Alberta by
45 per cent by 2025. As the single regulator for energy development in Alberta, the AER is working to develop
and implement an efficient and effective regulatory framework that achieves the Government of Alberta’s
methane emissions reduction target.
In 2017, the AER demonstrated its commitment to fiscal responsibility and finished the year with $846 surplus.
In 2016, the AER had a deficit of $2 963, which was a result of a one-time approval from Treasury Board
and Finance to use $3 million of accumulated surplus to relocate one of the AER’s field centres in order toaddress safety concerns for staff.
Capital investments were $2 087 less than the prior year. In 2016, the AER spent $1 933 more on leasehold
improvements than in 2017, with most costs related to the relocation of two field offices.

Annual Report 2016/17

56

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

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

2017
Oil and gas

$

2016

173 080$

174 308

Oil sands

61 74662 184

Coal

3 576

3 601

372

75

Penalties
Total administration levy$

238 774$240 1 68

The administration levy for the year ending March 31, 2017, decreased by $1 394, or 1 per cent. This decrease
is related to budget reductions directed by the Government of Alberta and is offset by an increase in administration levy penalties.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

Orphan Well Levy

2017
Orphan well levy$

30 000

2016
$

448

Penalties
Total orphan well levy

57$

30 44830 0001 67$

30 1 67

Under Part 11 of the Oil and Gas Conservation Act, the AER is required to prescribe an orphan fund levy.
This levy is based on the revenue requirements identified by the OWA and approved by the Government ofAlberta. All levies collected are paid directly to the OWA and are not used to recover the AER’s costs.

Government Transfer - Provincial Grant

2016

2017
Government transfer - provincial grant

$

3 338

$

—

In 2017, the AER received a provincial grant of $3 338 to implement the methane emissions reduction initiative
within the Government of Alberta Climate Leadership Plan.

Other Revenue

2016

2017
Other revenue

$

6 194

$

8 145

Other revenue consists of investment income, first-time well licence fees, data subscriptions, recoverable
abandonment and enforcement revenue, and sales of electronic data and publications. In 2017, other revenue
decreased by $1 951, or 24 per cent, due to the continued decline in oil and gas activity.

Annual Report 2016/17

58

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

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

i) Energy Regulation Expenses

2016

2017
Salaries, wages, and employee benefits$

174 701$

180 705

Buildings

16 9361 5 198

Computer services

16 742

1 5 719

Amortization of tangible capital assets

14 037

12 645

Consulting services

13 24413 692Other expenses*

10 2991 1 154

Total energy regulation expenses$

245 959$

249 1 1 3

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

Salaries, Wages, and Employee Benefits
Salaries, wages, and employee benefits account for about 71 per cent of energy regulation expenses. In 2017,
salaries, wages, and employee benefits decreased by 3 per cent to $174 701 from $180 705 in 2016. Thisdecrease is primarily due to staff turnover that resulted in a 3 per cent decrease in the number of full-time
equivalent employees engaged in energy regulation. The AER had an average of 1 171 full-time employees in2017 (1 207 in 2016).

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

Buildings
The AER leases several offices throughout the province. In 2017, building costs increased by $1 738, or 11 percent. This increase is attributed to higher rental rates, increased operating costs, and a property tax exemption the AER received in 2016 and that related to 2015.

59

All amounts are expressed inthousands of Canadian dollars.

Computer Services
The AER’s computer services costs relate to data and information management, computer maintenance,and server hosting. In 2017, computer services costs were $16 742, an increase of $1 023, or 7 per cent, from2016. The increase in costs is due to new subscriptions and increased costs required to support additional
software the AER purchased in 2016.
Consulting Services
The AER hires outside consultants to provide strategic and technical advice and certain operational services.
In 2017, costs of consulting services were consistent with those incurred in 2016.
In 2017, the AER hired consultants to support work focused on regulatory excellence. This work included
the following:• Developing an integrated decision approach, which aims to create an integrated, risk-based approach toregulating hydrocarbon resources over their life cycle.
• Implementing the Priority Training Development project, which will develop and deliver targeted, highcalibre regulatory and technical training material for AER staff to close skill and training gaps in priority
areas. This project will allow the AER to progress towards regulatory excellence and focus on the areas ofdam safety, pipeline safety, and mines as three high priority areas.
• Creating the Enterprise Learning Branch, which will provide strategic oversight, learning standards, andsupport required by the AER to achieve learning excellence in the organization.
• Conducting a study into what substances are present during the “flowback” phase of hydraulic fracturing
operations.
• Contracting the services of information technology consultants to help the AER optimize and support its
information technology infrastructure.
• Carrying out other projects and initiatives that support the AER in delivering on its strategic plan to be aprotective, effective, efficient, and credible regulator.

Annual Report 2016/17

60

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

Amortization of Tangible Capital Assets
Capital assets are amortized over their estimated useful lives in accordance with PSAS. The cost of amortizing
tangible capital assets increased by $1 392, or 11 per cent, from the previous year. This increase is attributed
to additions made to capital assets at the end of 2016.

ii) Orphan Well Abandonment Expenses

2016

2017
Orphan well abandonment$

31 02 8$31 111

Orphan well abandonment expenses remained relatively consistent, as there was no change in OWA
approved funding.

iii) Climate Leadership Plan Expenses

2016

2017
Climate leadership plan

$

2 925

$

—

The AER is responsible for implementing a component of the Climate Leadership Plan. Climate Leadership
Plan expenses consist of the cost of staff and consultants involved in setting up a system for measuring
methane emissions and for updating regulations to include new methane reduction standards.

iv) Capital Investment

2016

2017
Capital investment$

12 109$14 196Developing and acquiring tangible capital assets, most significantly investment in information technology,
plays a critical role in helping the AER protect Albertans and is making the regulator’s processes more efficient and effective.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

In 2017, the AER made capital investments of $12 109 compared to $14 196 in 2016. Capital investments in2017 focused on the AER’s commitment to regulatory excellence and included the following:• Implementing a new reclamation certification mapping tool, which is an online system for receiving, processing, and tracking reclamation certificate applications. The new tool is designed to make the AER’s
application process more efficient and to ensure that all criteria for reclamation are thoroughly assessedin a timely manner.
• Developing the technology to support an integrated applications approach for pipeline projects. The technology is similar to that used in the reclamation certification application project, and it allows operators toapply for multiple authorizations under a single application.
• Developing a tool for providing information on water use versus water levels in the Fox Creek area. This
information will help the AER improve transparency and public engagement while addressing stakeholder
concerns about the impact of operator activity around Fox Creek.
• Conducting other projects to maintain security, reliability, integrity, and efficiency of the AER’s information
technology infrastructure and systems.

61

All amounts are expressed inthousands of Canadian dollars.

In 2016, the investment in tangible capital assets of $14 196 was focused primarily on upgrades to the AER’s
applications and databases and on the development of new systems required to support current operations
and to meet ongoing changes in the regulatory environment. In 2016, the AER also spent $1 933 more on
leasehold improvements with most costs related to the relocation of two field offices.

LIQUIDITY AND FINANCIAL POSITION
Liquidity

2017
Cash and cash equivalents, beginning of year

$

2016

24 851$54 040Operating transactions

20 233(14 993)

Capital transactions(1 2 109)(14 196)——

Financing transactions
Cash and cash equivalents, end of year$

32 975$24 85 1

Annual Report 2016/17

62

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

The AER collects funding at the beginning of the year to meet its operational requirements during that year.
An available bank credit facility provides financial flexibility if funding is not collected on time. The AER
anticipates that future liquidity will be adequate to fund its ongoing operations.
As at March 31, 2017, the AER had access to an unsecured $50 000 revolving line of credit with a Canadianchartered bank that can be used for general corporate purposes and that excludes the funding of operating
deficits and capital expenditures. Any drawdowns on the line of credit bear interest at the bank’s prime rate
less 0.5 per cent per annum. As at March 31, 2017, the AER had $nil (March 31, 2016: $nil) draws against thisline of credit.
In 2017, operating transactions provided cash of $20 233, while in 2016 they used cash of $14 993. The netincrease in cash inflow from operating transactions was primarily due to favourable variances in accounts
receivable, accounts payable, and accrued liabilities.
Cash used in capital transactions for the year ended March 31, 2017, was $12 109, compared to $14 196 in 2016.
Capital transactions reflect additions to the AER’s tangible capital assets. Details of the additions to tangible
capital assets are described in the capital investment section of this MD&A.
The AER ended 2017 with $32 975 in cash and cash equivalents compared to $24 851 at the end of 2016.

Accounts Receivable
Accounts receivable were $7 982 as at March 31, 2017, compared to $18 149 on March 31, 2016, a decrease of$10 167. The decrease is due to the timing of issuing the orphan well levy in 2017. In 2017, the levy was issued
earlier than in 2016.

Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities were $17 302 as at March 31, 2017, and were consistent with thoseoutstanding as at March 31, 2016.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

SECURITY DEPOSITS

Licensee Liability Rating Program$

Mine Financial Security Program
Other programs
Total security deposits

63

$

2017

2016

2017

2016

Cash

Cash

Lettersof Credit

Lettersof Credit$$

1 14 146$

107 695

232 255

183 162

40 99324 2301 345 974

1 340 5 1 3

7 162

6 200

5 408

4 664

138 1 2 5

$ 1 583 637

162 301$$

1 528 339

The AER collects financial security under a number of different programs to protect the public from paying
costs associated with abandoning and decommissioning energy development sites.
• The Licensee Liability Rating (LLR) Program is designed to minimize the risk to the orphan fund posed by
the unfunded liability of licensees in the program.
The program is based on a comparison of the ratio of assets (which are based on production) to liabilities(abandonment and reclamation costs).
As at March 31, 2017, the AER held $114 146 in cash under the LLR Program. This is $6 451, or 6 per cent,higher than on March 31, 2016. The total amount of letters of credit held under the LLR Program as at
March 31, 2017, was $232 255, which is $49 093, or 27 per cent, higher than in 2016. The increase in cash
and letters of credit held under the LLR Program was caused by a decline in production due to low oil andgas prices. This reduced asset values and decreased the asset-to-liability ratios for licensees.

Annual Report 2016/17

64

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

• The Mine Financial Security Program (MFSP) was developed to manage liabilities associated with coal andoil sands mining operations. The program requires for each project a base amount of security, which would
provide the funds necessary to place the site in a safe and secure state and maintain care and custodyshould the approval holder fail to meet its obligations. Approval holders have an option to provide full
financial security at any time in the life of the project based on the MFSP liability calculation. Approvalholders are responsible for the suspension, abandonment, remediation, and reclamation of lands disturbed
by resource development. As mines are depleted, security amounts increase. Additional security mustalso be posted when a mine owner does not meet certain financial tests. Annually, approval holders reportto the AER on the status of reclamation and land disturbances and adjust their MFSP security deposits
accordingly.
As at March 31, 2017, the AER held $40 993 in cash under the MFSP program. This is $16 763, or 69 per
cent, higher than on March 31, 2016. The total amount of letters of credit held under the MFSP as at
March 31, 2017, was $1 345 974, which is $5 461 higher than the amount of letters of credit held as at March
31, 2016. In 2017, additional security was placed with the AER as a result of land disturbances caused bycoal mining operations.

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS

65

All amounts are expressed inthousands of Canadian dollars.

ACTUAL RESULTS COMPARED WITH THE ADJUSTED BUDGET

2017

2017

Adjusted
BudgetActualRevenues
Administration levy$

238 403$238 7 74

30 00030 448Government transfer - provincial grant

3 624

3 338

Other revenue

5 013

6 1 94277 040278 754

Energy regulation

245 4 1 6

245 959

Orphan well abandonment

30 5003 1 028

Climate leadership plan

3 624

2 925

279 540279 9 1 2

(2 500)( 1 1 58)

Capital investment

9 000

12 1 09

Less: Amortization(1 1 500)(14 037)—(76)(2 500)(2 004)Orphan well levy

Expenses

Annual operating (deficit)
CapitalLoss on disposal and write-down of tangible capital assets
Net capital investment
$

—

$

846

Annual Report 2016/17

66

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

The AER prepares an annual budget that is approved by the Government of Alberta. The adjusted budget,
also approved by the Government of Alberta, includes $3 624 in both revenue and expenses related to themethane reduction component of the Climate Leadership Plan.
The AER’s total revenues were $1 714, or 1 per cent, higher than budget. The increase in revenues was theresult of an increase in administrative penalties and enforcement revenue. The AER’s total expenses wereconsistent with the budget. The AER’s net capital investments exceeded the budget by $496, or 20 per cent.
This variance is due to the acceleration of various capital expenditures, including those required to implement
the methane emissions reduction initiative within the Climate Leadership Plan.

RISK MANAGEMENT
A key role of AER leadership is to ensure that the wide variety of risks the AER is exposed to is managed
effectively. Due to the nature of its regulatory mandate, the AER faces two very distinct families of risks:• Organizational risks. The AER faces risks that may threaten its operational capabilities or compromise its
ability to fulfil its mandate. Examples include cyber attacks, external litigation, funding shortfalls, etc. The
AER owns these risks and develops appropriate internal controls to drive them down to an acceptable level.
• Mandate risks. These risks are associated with industry activities in the four sectors that the AER regulates (mining, in situ, oil and gas, and pipelines). They may adversely affect the environment, the healthand safety and social well-being of Albertans, or the economy of the province. Examples include pipeline
spills, oil and gas well leaks, release of contaminants, emission of offensive odours, and cumulative andenvironmental effects. Industry owns these risks and develops its controls to reduce them. However, itis the AER’s mandate to develop and implement regulatory instruments (e.g., directives and acts) andassociated controls (e.g., authorization processes for new energy projects, surveillance and enforcementof regulatory requirements on operating facilities, closure and reclamation processes for facilities reaching
the end of their life) within the mandate to drive risks down to levels acceptable to society while allowing
responsible energy development.
To this end, the AER has developed an enterprise risk management framework that supports the organization
in identifying, assessing, and managing risks. This framework includes the following:• A risk management policy stating the AER’s mandate of risk management as well as its commitment to-- taking a risk-informed approach to decision making, regulatory development, regulatory delivery, andorganizational management; and-- using a single-risk management framework that aligns with the ISO 31000-compliant Government ofAlberta Common Risk Management Framework (CRMF).

Alberta Energy Regulator

MANAGEMENT’S DISCUSSION & ANALYSIS• A unique set of risk management criteria that aligns with the CRMF to address the impacts, likelihood, andtolerance levels for both organizational and mandate risks.
• A risk management process, compliant with ISO 31000, but that allows flexibility in risk assessment approaches to address the broad variety of the AER’s risk exposures and decision-making needs.

67

All amounts are expressed inthousands of Canadian dollars.

The AER implements the risk management process at different levels across the organization to support
decisions and help prioritize resources in high-risk areas:• Mandate risks are continually assessed across all four sectors (mining, in situ, oil and gas, pipelines) andthroughout the life cycle of energy assets (design and construction, operation, closure, and abandonment).
Regulatory activities are then prioritized to focus on high-risk areas in order to-- improve the effectiveness of the AER’s current regulatory controls to better address root causes of failure
and increase regulatory oversight when and where appropriate; and-- to develop new regulatory instruments or update existing ones to keep pace with industry developments
and associated changes in risk levels.
• Organizational risks are assessed on an annual basis to identify key risk treatment strategies, which arethen incorporated into the strategic plan for the subsequent fiscal year.
• Mandate and organizational risks are filtered and rolled up through a principal risk program that addresses
the AER’s key risk exposures. Principal risks are reported to the AER’s leadership team and the boardof directors’ Risk Management Committee for their information, oversight, and strategic guidance. Thisrisk governance process ensures that key risks to the AER’s mandate and operations are being diligently
managed at the highest level of the organization.
Other functions complement the AER’s enterprise risk management program to further ensure that residual
risks are reduced to acceptable limits:• The Audit and Finance Committee oversees the system of internal financial controls, the external audit
process, and the AER’s process for ensuring compliance with applicable laws and regulations.
• AER management is responsible for establishing and maintaining adequate internal controls over financial
reporting. These controls are designed to provide reasonable assurance about the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with PSAS.
• The AER’s internal audit function provides the AER with an objective and independent assessment ofinternal controls and identifies opportunities to improve operational and financial reporting. The AER’sinternal audit department reports directly to the Audit and Finance Committee of the board of directors
and discusses matters with the Audit and Finance Committee independent of management.

Annual Report 2016/17

68

MANAGEMENT’S DISCUSSION & ANALYSIS

All amounts are expressed inthousands of Canadian dollars.

FUTURE OUTLOOK2018 Budget Compared to 2017 Adjusted Budget

2018

2017

BudgetAdjusted
Budget$$Revenues
Administration levy

244 847

238 40330 00030 000

—

3 624

4 409

5 013

279 256

277 040

Energy regulation

244 619245 41 6

Orphan well abandonment

30 50030 500

Climate leadership plan

6 637

3 624

281 756

279 540(2 500)( 2 500)

9 000

9 000

Less: Amortization(1 1 500)(11 500)

Net capital investment(2 500)(2 500)Orphan well levy
Government transfer - provincial grant
Other revenue

Expenses

Annual operating (deficit)
CapitalCapital investment$

Alberta Energy Regulator

—

$

—

MANAGEMENT’S DISCUSSION & ANALYSISOver the next year, the AER will continue laying the groundwork to support a 45 per cent reduction inmethane emissions from the oil and gas industry by 2025. The AER’s 2018 budget reflects changes in the
AER’s revenue and expenditure requirements necessary to implement this initiative. In 2018, the AER’s administration levy will increase by $6 637, which is $3 013 higher than what was required for the program in2017. In 2017, $3 624 required for the implementation of the methane reduction policy was funded by theGovernment of Alberta.

69

All amounts are expressed inthousands of Canadian dollars.

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

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

Annual Report 2016/17

70

FINANCIALSALBERTA ENERGYREGULATORFINANCIALSTATEMENTS

FOR THE YEAR ENDED
MARCH 31, 2017

Statement of Management Responsibility

71

Independent Auditor’s Report72

Statement of Operations

73

Statement of Financial Position

74

Statement of Change in Net Debt

75

Statement of Cash Flows76

Notes to the Financial Statements

77

Schedules to the Financial Statements

90

Alberta Energy Regulator

FINANCIALS

71

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements of theAlberta Energy Regulator (AER) and all other information relating to the AER contained in this annual
report have been prepared and presented by management, who is responsible for the integrity and fairpresentation of the information.
These financial statements are prepared in accordance with Canadian Public Sector accounting standards. The financial statements necessarily include
some amounts that are based on informed judgments
and best estimates of management. The financial information contained elsewhere in this annual report
is consistent with that in the financial statements.

The board of directors is responsible for ensuringthat management fulfills its responsibilities for financial reporting and internal controls. The board of directors exercises this responsibility through the Audit
and Finance Committee, composed of directors who
are not employees of the regulator. The Audit and
Finance Committee meets with the internal auditors
and the external auditors, both in the presence andin the absence of management to discuss their audit,
including any findings as to the integrity of financial reporting processes and the adequacy of oursystems of internal controls. The internal and external auditors have full and unrestricted access to the
Audit and Finance Committee.

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

[Original signed by Jim Ellis]

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

[Original signed by Tom Heywood]

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

Vice President, Finance and Chief Financial Officer
May 11, 2017

Annual Report 2015/16

72

FINANCIALS

INDEPENDENT AUDITOR’S REPORTTO THE BOARD OF DIRECTORS OF THE ALBERTA ENERGY REGULATORREPORT ON THE FINANCIAL STATEMENTS
I have audited the accompanying financial statements of the Alberta Energy Regulator, which comprise the statement of financial position as at March
31, 2017, and the statements of operations, change
in net debt and cash flows for the year then ended,
and a summary of significant accounting policies andother explanatory information.

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

AUDITOR’S RESPONSIBILITYMy responsibility is to express an opinion on thesefinancial statements based on my audit. I conducted
my audit in accordance with Canadian generally accepted auditing standards. Those standards requirethat I comply with ethical requirements and plan andAlberta Energy Regulator

perform the audit to obtain reasonable assurance
about whether the financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosuresin the financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers
internal control relevant to the entity’s preparationand fair presentation of the financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
I believe that the audit evidence I have obtained issufficient and appropriate to provide a basis for myaudit opinion.

OPINION
In my opinion, the financial statements present fairly,
in all material respects, the financial position of theAlberta Energy Regulator as at March 31, 2017, andthe results of its operations, its remeasurement gains
and losses, its changes in net debt, and its cash flows
for the year then ended in accordance with Canadianpublic sector accounting standards.

[Original signed by Merwan N. Saher FCPA, FCA]
Auditor General
May 11, 2017
Edmonton, Alberta

FINANCIALS73

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

2016

2017
Budget(Note 3, Schedule 3)
Revenues
Industry levies and assessments
Information, services and fees
Government transfer - provincial grant
Investment$

Expenses (Schedule 1)
Energy regulation
Orphan well abandonment (Note 4)
Climate leadership plan

268,403
4,146
867
273,416

Actual$245,416
30,500275,916

Actual269,222
5,132
3,338
1,062
278,754$245,959
31,0282,925
279,912270,335
6,867
1,278
278,480

249,113
31,111
280,224

Annual operating (deficit)(2,500)(1,158)(1,744)

Accumulated surplus at beginning of year
Accumulated surplus at end of year

62,111
59,611

62,111
60,95363,855
62,111$$$

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

Annual Report 2016/17

74

FINANCIALSALBERTA ENERGY REGULATORSTATEMENTOF FINANCIAL
POSITIONALBERTAENERGYREGULATOR
As
at
March
31
STATEMENT OF FINANCIAL POSITION(in thousands)As
at March 31(in thousands)

2017

2016
Restated2016- Note 2 (h)2017
Financial assets
Cash assets
and cash equivalents (Note 5)
Financial
Accounts(Note 6)(Note 5)
Cash and receivable
cash equivalents
Pension assets(Note(Note12) 6)
Accounts
receivable

Restated - Note 2 (h)$$Pension assets (Note 12)$$41,467

Liabilities
Accounts payable and accrued liabilities
Liabilities
Grant
payableto Orphan
Well Association
Accounts
payableand accrued
liabilities
Unearnedrevenue(Note 9)Grant
payableto Orphan
Well Association
Deferred
incentives(Note 10)
Unearnedlease
revenue(Note 9)Pension obligations(Note (Note12) 10)
Deferredlease incentives
Pension obligations (Note 12)
Net debt
Net debt
Non-financial assets
Tangible capital
Non-financial
assetsassets (Note 13)
Prepaid
expensesand other
Tangible capital assets(Noteassets
13)
Prepaid expenses and other assets

24,851
18,14924,851
18,14943,00043,000

17,302
14,11517,302
1,997
14,115
20,648
1,997
20,64854,062(12,595)
54,062

16,64315,093
16,643
1,604
15,093
22,264
1,604
692
22,26456,296692(13,296)
56,296(12,595)(13,296)

62,426
11,12262,42673,548
11,12264,43010,97764,43075,407
10,977

Accumulated surplus (Note 14)$

73,54860,953$75,407
62,111

Accumulated surplus (Note 14)
Contractual obligations (Note 16)$60,953$

62,111

Contractual obligations (Note 16)
The accompanying notes and schedules are part of these financial statements.
Alberta Energy Regulator

32,975
7,982
32,975510
7,982
41,467510

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

FINANCIALS75

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

2016

2017
Budget(Note 3)
Annual operating (deficit)
Acquisition of tangible capital assets (Note 13)
Amortization of tangible capital assets (Note 13)
Loss on disposal and write-down of tangible capital assets
Increase in prepaid expenses and other assets
Decrease (increase) in net debt
Net debt at beginning of year
Net debt at end of year$

(2,500)

Actual$(1,158)$(12,109)
14,03776(145)
701(13,296)(12,595)(9,000)11,500$(13,296)(13,296)

Actual
$(1,744)$(14,196)
12,645332(624)(3,587)(9,709)(13,296)

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

Annual Report 2016/17

76

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

Operating transactions
Annual operating (deficit)
Operatingtransactions
Non-cashitems included in net operating results
AnnualoperatingAmortization of(deficit)
tangible capital assets (Note 13)
Non-cashincludedin net operating
resultscapital assets
Loss onitems
disposal
and write-downof tangible
Amortizationoftangible
capitalassets(Note 13)
Change in pension obligations
Loss
on disposal
and write-downof tangible
capitalAmortizationof deferredlease incentives(Note10) assets

2016

2017

2016

$

(1,158)$(1,744)$$(Increase) in prepaid expenses and other assets
Decrease(increase) inin accounts
accounts payable
receivable
Increase (decrease)and accrued liabilities(Increase)inprepaid
expensesandotherassetsWell Association(Decrease) increase in grant payable to Orphan
Increase
Increase (decrease)(decrease) inin accounts
unearned payable
revenueand accrued liabilities(Decrease)increasein
grantpayableOrphanAdditions to deferred lease incentives to(Note10) Well Association
Increase(decrease)in unearned
revenuetransactions
Cashprovidedby (appliedto) operating
Additions to deferred lease incentives (Note 10)
Cashtransactions
provided by (applied to) operating transactions
Capital(1,158)14,03776
14,037(1,202)76(1,616)(1,202)
10,137(1,616)
10,167
10,137(145)
10,167
659
(145)
(978)
659
393
(978)
393
20,233
20,233(1,744)
12,645332
12,645(1,657)332(1,522)(1,657)
8,054(1,522)(5,904)
8,054(624)(5,904)(16,868)(624)
38(16,868)
(452)
38
763
(452)
(14,993)763(14,993)

Acquisition of tangible capital assets (Note 13)
CapitalCashtransactions
applied to capital transactions
Acquisition of tangible capital assets (Note 13)
Cash applied
to capital transactions
Financingtransactions(12,109)(12,109)(12,109)(12,109)(14,196)(14,196)(14,196)(14,196)

Proceeds from line of credit
Financingtransactions
Debt repayment
Proceeds
fromtolineof credit
Cash applied
financingtransactions
Debt repayment
Cash applied
to financing
Increase(decrease)in cash transactions
and cash equivalents

16,138(16,138)
16,138(16,138)
8,124--(29,189)

Cash and cash equivalents at beginning of year
Increasein cash atandcash
equivalents
Cash and(decrease)cash equivalents
endof year$Cash and cash equivalents at beginning of yearCashand cash equivalents
end of year
The accompanying
notes andatschedules
are part of these financial statements. $24,851
8,124
32,97524,851
32,975

Change in pension obligations
Amortizationof deferredleasereceivable
incentives (Note 10)
Decrease(increase)in accounts

Alberta Energy Regulator

2017

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

$$

54,040(29,189)
24,85154,04024,851

FINANCIALSALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
March 31, 2017
(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. The AER's mandate provides for the safe, efficient, orderly, andenvironmentally responsible development of hydrocarbon resources over their entire life cycle. This includes allocating andconserving water resources, managing public lands, and protecting the environment while providing economic benefits for all
Albertans.

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)77

Revenues
All revenues are reported on the accrual basis of accounting. Cash received for which services have not been provided byyear end is recognized as unearned revenue.
Government transfers
Transfers from the Government of Alberta, without stipulations for the use of the transfer, are recognized 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 isexpensed.

(c)

Valuation of financial assets and liabilities
The AER's financial assets and liabilities are generally measured as follows:
Financial Statement Component
Cash and cash equivalents
Accounts receivable
Accounts payable and accrued liabilities
Grant payable to the Orphan Well Association

Measurement
Cost
Lower of cost or net recoverable value
Cost
Cost

The AER has not designated any financial assets or liabilities in the fair value category, has no significant foreign currencytransactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses andconsequently has not presented a statement of remeasurement gains and losses.
(d)Financial assets
Financial assets are AER's financial claims on external organizations and individuals at the year end.
Cash and cash equivalents
Cash is comprised of cash on hand and demand deposits.

Annual Report 2016/17

(in thousands)

78

FINANCIALS

Financial Statement Component
Measurement
Cashandandpurpose
cash equivalents
Cost
Note 1 Authority
Accounts
receivable
Lower of costor net recoverable
value
The Alberta Energy Regulator (AER) is an independent and quasi-judicialorganizationof the Governmentof Alberta. The AER
Accounts
payableand accrued
liabilities
under
the
Responsible
EnergyDevelopment Act. TheCost
AER's mandate provides for the safe, efficient, orderly, and
ALBERTAoperates
ENERGYREGULATOR
Grant
payabletoSTATEMENTS
the Orphan
Well Association
Cost over their entire life cycle. This includes allocating andenvironmentally
responsible
developmentof hydrocarbon resources
NOTES TOTHE
FINANCIAL
conserving water resources, managing public lands, and protecting the environment while providing economic benefits for all
March 31, 2017The AER has not designated any financial assets or liabilities in the fair value category, has no significant foreign currency
Albertans.
(in thousands) transactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses andconsequently has not presented a statement of remeasurement gains and losses.
Note 12 Authority
Summary andof significant
Note
purpose accounting policies and reporting practices (continued)
These
financialstatementsare(AER)preparedaccordance andwith quasi-judicial
Canadian Public
Sector AccountingStandardsof(PSAS).
(d)
FinancialassetsThe
Alberta
EnergyRegulator
is aninindependent
organizationof the Government
Alberta. The AER
Financialassetsare AER'sEnergy
financialclaims on externalorganizations
and individuals
thesafe,yearefficient,end. orderly, andoperates
under theResponsible
Development
Act. The
AER's mandate
provides foratthe(a) Revenuesresponsible development of hydrocarbon resources over their entire life cycle. This includes allocating andenvironmentallyCashand cash
All revenues
areequivalents
reportedon the accrualbasisandof accounting.
Cashreceived forwhile
which
serviceseconomic
have notbenefits
been provided
conserving
water
resources,
managing
public lands,
protecting theenvironment
providingfor all by
year
end
is
recognizedasunearnedrevenue.
Cash is comprised of cash on hand and demand deposits.
Albertans.

ALBERTA ENERGYREGULATOR
Accounts
receivable
Governmenttransfers
Note
2 TO
Summaryof significant
accounting
policies
reportingpractices
NOTES
THE
FINANCIALSTATEMENTS
Accounts
receivable
are recognizedat theandlowerof stipulations
cost ornet recoverable
A valuation
when
Transfers
from theGovernmentof Alberta,
without
for the use ofvalue.
the transfer,
are allowance
recognizedisasrecognizedrevenue whenrecoveryisuncertain.
These
financialstatements
arepreparedinaccordancewithCanadianPublicSector
AccountingStandards(PSAS).
thetransferisauthorized
and
the
AER
is
eligibletoreceivethefunds.
March 31, 2017
(in thousands)(a) Revenues

PensionExpensesAll
revenues
reportedtheaccrualbasis
of costaccounting.
Cashreceived
forserviceshaveonnotbeen
byAccruedbenefitobligations
areactuariallydeterminedtheprojected
benefitmethodprorated
lengthservice
Expenses
arearereportedonon
anaccrualbasis.
ofusing
allgoods
consumed
andwhich
services
received
duringtheofprovided
year
is andSummary of significant
accounting
policiesandThereportingpractices(continued)
year
end is recognized
as unearned
revenue.
management's
best estimateof expected
plan investment performance, projected employees' compensation levels andexpensed.
(d) retirement
Financial assets(continued)
age of employees.
Pension(continued)
Governmenttransfers(c) Valuation of financial assets and liabilities
Accruedbenefitobligations
and liabilities
pensionbenefit
cost
formeasured
the yearcalculated
the areexpected
rate ofasreturnon planTransfers
fromtheGovernmentofAlberta,without
stipulations
forarethefollows:
use of theusingtransfer,recognizedrevenuewhen
The AER's
financialassets andaregenerallyasassetsas itsisdiscountrate.and
Thetheexpected
return on
assetsis determined using market values of plan assets.
the transfer
authorized
AER is eligible
to planreceivethe funds.
Financial Statement Component
Measurement(b) Actuarial
Expenseslosses are amortized over the averageremaining service period of the active employees, which is 10.5 6
Cash andgains
cash andequivalents
Cost
years.
Expenses
are reported on an accrual basis. The cost of all
goods
services value
received during the year is
Accounts receivable
Lower
of consumed
cost or net andrecoverable
expensed.
Accounts
payableand accrued
liabilities
Cost for in the period of the plan amendments.
Past
servicecost arisingfrom planamendments is accounted
Grant payable to the Orphan Well Association
Cost(c) Valuation of financial assets and liabilities
Defined contribution plan accounting is applied to the Government of Alberta multi-employer defined benefit pension plans as
TheAER
AER's
financialassetsandliabilities
areassets
generallymeasured
as fair
follows:
AERhashas
not designatedanyfinancial
or liabilities
in thevalue Accordingly,
category, haspension
no significant
foreigncurrencyof
theinsufficient
information
to applydefinedbenefitplan
accounting.
expenseis comprised
transactions
and
does
not
hold
any
derivative
contracts.
The
AER
has
no
significant
remeasurement
gains
orlossesemployercontributions
to the plans that are required for its
employees during the year, which are calculated based onand
Financial
Statement
Component
Measurement
consequently
has
notpresented
astatementofremeasurement
and losses.
actuarially pre-determined amounts that are expected to provide gains
the plans'
future benefits.
Cash and cash equivalents
Cost
Accounts
Lower of cost or net recoverable value(d) Liabilities
Financialreceivable
assets(e)
Accounts
payableandaccruedliabilities
Cost
Financialassetsare
AER'sfinancialclaimsonexternalorganizations
and individuals
at the year
end.
Liabilities represent present obligations of the AER to external organizations
and individuals
arisingfrom transactions orGrantpayabletotheOrphan
Well
Association
Cost
events occurring before the year end. They are recognized when there is an appropriate basis of measurement andCash and cash equivalents
management can reasonably estimate the amount.
The
has not designatedfinancialassetsdeposits.
or liabilities in the fair value category, has no significant foreign currency
CashAERis comprisedof cash onany
hand
and demandtransactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses andLiabilities
all financial claims payable by the AER at fiscal year end.
Accounts include
receivableconsequently
has not presented a statement of remeasurement gains and losses.
Accountsleasereceivable
are recognized at the lower of cost or net recoverable value. A valuation allowance is recognized when
Deferred
incentives
recovery isassets
uncertain.
(d) Financial
Deferred lease incentives, consisting of leasehold improvement costs, reduced rent benefits and rent-free periods, areFinancialare AER's financial
claimson externalorganizations and individuals at the year end.
amortizedassets
on a straight-line
basis over
the termof the lease.
PensionCashandbenefit
cash equivalents
Accruedobligations
are actuarially determined using the projected benefit method prorated on length of service andLiability
for contaminatedsites
management's
bestofestimate
expectedplan investment
Cashis comprised
cash onofhand
and demand
deposits. performance, projected employees' compensation levels andContaminated sites are a result of contamination of a chemical, organic or radioactive material or live organism that exceeds
retirement age of employees.
an environmental standard, being introduced into soil, water or sediment. The liability is recognized net of any expected(b)Note 2

Alberta Energy Regulator

(in thousands) Defined contribution plan accounting is applied to the Government of Alberta multi-employer defined benefit pension plans as

the
AER hasinsufficient
information
to apply
benefitremaining
plan accounting.
Accordingly,
pensionexpense iswhich
comprised
Actuarial
gains
and losses
are amortized
overdefined
the average
service periodof the active
employees,
is 10.5of
employercontributions to the plans that are required for its employees during the year, which are calculated based on
Authorityand purpose
years.
actuariallypre-determinedamountsare expected
to provide theorganizationplans' futureofbenefits.
The Alberta
EnergyRegulator (AER)
is an thatindependentand quasi-judicial
the Government of Alberta. The AER
Pastservicearising fromplanDevelopment
amendmentsAct.
is accounted
formandatein the periodof theforplan
under
the cost
Responsible
EnergyThe AER's
providesthe amendments.
safe, efficient, orderly, and
ALBERTAoperates
ENERGYREGULATOR(e) Liabilitiesresponsible development of hydrocarbon resources over their entire life cycle. This includes allocating andenvironmentally
NOTES TO THEDefined
FINANCIALSTATEMENTS
contributionplanaccounting
is applied
to theof Alberta andmulti-employer
definedbenefitpensionplans
Liabilities
represent
present
obligationsof the AER
to Government
externaltheorganizationsindividuals
fromtransactions
or asconserving
water
resources,
managing
publiclands,
andprotecting
environment
while
providingarising
economic
benefits
for all
March 31, 2017the AER has insufficient information to apply defined benefit plan accounting. Accordingly, pension expense is comprised ofevents occurring before the year end. They are recognized when there is an appropriate basis of measurement andAlbertans.
employer contributions
to the plans
thattheareamount.
required for its employees during the year, which are calculated based on(in thousands) management
can reasonably
estimate
actuarially pre-determined amounts that are expected to provide the plans' future benefits.
Note 22 Summary
Summaryof significant
significant
accounting
policies
andby
reportingpractices(continued)
Noteofpolicies
andreporting(continued)
Liabilities
include allaccounting
financial claims
payablethe AERpractices
at fiscal year
end.
These
financial statements
are prepared in accordance with Canadian Public Sector Accounting Standards (PSAS).
(continued)(e) Financial
Liabilities(d)assets(continued)
Deferredlease
incentives
Liabilities(continued)
represent
present obligations of the AER to external organizations and individuals arising from transactions or
Pension(a) Revenues
eventsoccurring
beforetheconsisting
yearpension
end.ofThey
are recognized
thereis an appropriate
of rent-freemeasurement
Deferredlease
incentives,
leaseholdimprovement
reducedrent
andAccrued benefit obligations
andbenefitcost
for the when
yearcosts,
arecalculatedusingbenefits
thebasis
expected
rate of periods,
returnand
onare
plan
All
revenues
arereported
onbasistheaccrualbasis
ofofaccounting.
Cash received for which services have not been provided bymanagement
canreasonably
estimate
amount.
amortizedonastraight-line
over
the
term
the
lease.
assets as its discount rate. The expected return on plan assets is determined using market values of plan assets.
year end is recognized as unearned revenue.
Liability
contaminatedsitesclaims payable by the AER at fiscal year end.
Liabilitiesfor
includefinancial
Actuarial
gains
andalllosses
are amortized over the average remaining service period of the active employees, which is 10.5
Governmenttransfers
Contaminated
sites
are
a
result of contamination of a chemical, organic or radioactive material or live organism that exceeds
years.
Transfers
from theGovernmentof introduced
Alberta, without
stipulations
the useTheof thetransfer,
are recognizedrevenue
when
Deferredlease
incentives
anenvironmental
standard,
being
into soil,
water or for
sediment.
liability
is recognized
net ofasany
expectedthetransferisauthorized
and
the
AER
is
eligibletoreceivethefunds.
Deferredlease
incentives,
consisting
leaseholdis improvement
reducedbenefits
andperiods,arerecoveries.
Acostliability
for remediation
ofof contaminatedsites normally
resultsfromanthatrent-free
is no longer
in productive
Past
servicearisingfromplan amendments
accounted
forcosts,
in theperiodofrenttheoperation
plan amendments.
amortizeda straight-line
the term criteriaof the lease.
use
and is onrecognizedwhenbasis
all of overthe following
are met:(b) Defined
Expensesplanstandard
accounting
is applied to the Government of Alberta multi-employer defined benefit pension plans as- ancontribution
environmental
exists;Liabilityforcontaminatedsites
Expensesarereportedonanaccrualbasis.
costbenefitof all goods
consumed andservices received
during theis year
is
the
AER
has
insufficient
information
toapplyThe
definedplan accounting.
Accordingly,
pension expensecomprisedof- contamination exceeds the environmental
standard;
expensed.
employercontributions
to
the
plans
that
are
requiredfor
its
employees
during
the
year,
which
are
calculated
basedonContaminated sites are a result of contamination of a chemical, organic or radioactive material or live organism that exceeds- the AER is directly responsible or accepts responsibility;
actuariallypre-determinedthat are expected
providethe plans'The
futurebenefits.
an environmental
standard,amounts
being introduced
into soil, towater
or sediment.
liability
is recognized net of any expected- it is expected
thatassets
future economic
benefits will be given up; and(c) Valuationoffinancialandliabilities
recoveries. A liability for remediation of contaminated sites normally results from an operation that is no longer in productive- a reasonable
of of
the
amountbe made.
(e) Liabilities
use andis recognizedwhenandallthefollowing
criteria
aremet: as follows:
The
AER's
financial estimate
assetsliabilities
arecangenerallymeasured- an environmental
standard
exists;of the AER to external organizations and individuals arising from transactions or
represent
present
obligations(f) Liabilities
Non-financial
assetsFinancial
Statement
Component
Measurement
eventsoccurring
beforethe year
They are recognized- contamination
exceeds
theend.
environmental
standard; when there is an appropriate basis of measurement andNon-financial
assetsare acquired, constructed or developed
assets that do not normally provide resources to discharge
Cash
and
cash
equivalents
Costmanagement
reasonably
estimateortheamount.
- theliabilities,
AERcanis directly
responsible
accepts
responsibility;
existing
but instead:Accounts receivable
Lower of cost or net recoverable value- it is expected that future economic benefits will be given up; andarenormally
employedtodeliver
AER
services;
Liabilities
financialclaimspayable by the AER Costat fiscal year end.
Accounts include
payablealland
accruedliabilities- a reasonable estimate of the amount can be made.
be consumed
in thenormalcourse of operations;
Grant- maypayableto the Orphan
Well
Association
CostandDeferred
incentives- areleasenot forsale in the normal course of operations.
(f) Non-financial
assets
The
AER
has
not
designatedanyarefinancialassetsor
liabilities
inthe fairvalue
category,
has noforeign
Deferredlease
incentives,
consistingof leasehold
improvement
costs,
reducedrent
benefits
andsignificant
rent-free
periods,currencyareNon-financial assetsofAER
limitedto tangible
capitalassets
assetsandprepaid
expensesandotherassets.
aretheacquired,
constructed
or developedthat
do
not normallyprovideresources
to dischargetransactions
does not holdanyderivative
The AER has no significant remeasurement gains or losses andamortized
onand
a straight-line
basis
over
the termcontracts.
of the lease.
existing liabilities, but instead:consequently
hasassets
not presented a statement of remeasurement gains and losses.
Tangible capital- arenormally
employed
to deliver AER services;
Liabilityforcontaminatedsites
Tangible capital assets arerecognized at cost, which includes amounts that are directly related to the acquisition, design,- mayassets
bedevelopment,
consumed
the normal
courseof ofoperations;(d) ContaminatedFinancialsites are a inresultof contaminationa chemical,
organic
radioactive
or liveorganismthat lives
exceeds
construction,
improvement
or bettermentof theandassetsandorareamortizedmaterial
over theirestimated
usefulusing
anstandard,
being
soil, wateror sediment.
liability atis therecognized
net of any expected- are assets
notmethods:
for aresalein the financial
normalintroduced
courseoperations.
Financial
AER'sclaims of
onintoexternalorganizations
and Theindividuals
year end.
theenvironmental
following
recoveries.
A liability
fortheremediationof contaminatednormally
from anexpenses
operationand
thatotheris noassets.
longer in productive
Non-financial
assets of
AER are limited
to tangiblesites
capitalassetsresults
and prepaid
Cashandandis cash
equivalents
use
recognizedwhen all of the following criteria are met:
Tangible
capital assets
Cashof cashon handand demand deposits.
- isancomprised
environmental
standard
exists;7
Tangible
capital assets
are recognizedat cost, which
includes amounts that are directly related to the acquisition, design,- contamination
exceeds
the environmental
standard;
Accounts
receivable
construction,
improvement
or bettermentof the assets and are amortized over their estimated useful lives using- the AERdevelopment,
is directly responsibleor accepts
responsibility;
Accounts
receivable
are recognized at the lower of cost or net recoverable value. A valuation allowance is recognized when
the following methods:- it isisexpectedthat future economic benefits will be given up; andrecovery
uncertain.
- a reasonable estimate of the amount can be made.
Pension7(f) Non-financial assets
Accrued benefit obligations are actuarially determined using the projected benefit method prorated on length of service andNon-financial
are acquired,constructed
or developed
assets that projected
do not normallyprovideresources tolevels
discharge
management'sassets
best estimateof expected
plan investment
performance,
employees'
compensation
andexisting
liabilities,
butinstead:retirement age of employees.
Note 1FINANCIALS

79

Annual Report 2016/17

80

FINANCIALSALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
March 31, 2017
(in thousands)
Note 2

Summary of significant accounting policies and reporting practices (continued)(f) Non-financial assets (continued)
Tangible capital assets (continued)
Leasehold improvements
Straight line
Furniture and equipment
Straight line
Computer hardware
Straight line
Computer software - purchased
Straight line
Computer software - developed
Declining balanceTerm of the lease5 - 12 years
4 years
4 years
5 years

Amortization is only charged if the tangible capital asset is put into service.
Work-in-progress, which includes developed computer software and leasehold improvements, is not amortized until a projectis complete and the asset is put into service.
Tangible capital assets are written down when conditions indicate that they no longer contribute to the AER's ability to provide
goods and services, or when the value of future economic benefits associated with the tangible capital assets is less thantheir net book value. The net write-downs are accounted for as expense in the Statement of Operations.
Prepaid expense
Prepaid expense is recognized at cost and amortized based on the terms of the agreements.
(g)

Measurement uncertainty
Measurement uncertainty exists when there is a variance between the recognized or disclosed amount and anotherreasonably possible amount. The amounts recognized for amortization of tangible capital assets are based on estimates of
the useful life of the related assets. Accrued defined benefit obligations are subject to measurement uncertainty due to theuse of actuarial assumptions. The resulting estimates are within reasonable limits of materiality and are in accordance with
the AER's significant accounting policies.

(h)Change in accounting policy
Security deposits
During the year, the AER changed its accounting policy with respect to the disclosure of security deposits in the AER
Financial Statements. The AER now discloses security held in the form of cash in the notes to the financial statements only.
In prior years, the AER included these security deposits on the Statement of Financial Position as financial assets andliabilities, explaining in the notes that these deposits are held on behalf of licensees. This change aligns the accounting
treatment of security deposits with other entities within the Government of Alberta.
This change in accounting policy has been applied retroactively with restatement of the prior period's Statement of Financial
Position. The effect of adopting this change decreases AER's financial assets and liabilities on the March 31, 2016 Statementof Financial Position in the amount of security deposits of $138,125.

Alberta Energy Regulator(i)

Future accounting changes

reasonably possible amount. The amounts recognized for amortization of tangible capital assets are based on estimates ofPrepaid
expensethe usefullife of the related assets. Accrued defined benefit obligations are subject to measurement uncertainty due to theuse of actuarial
resultingestimates based
are withinreasonableof materiality and are in accordance with
Prepaid
expenseassumptions.
is recognizedTheat costand amortizedon theterms of limits
the agreements.
the AER's significant accounting policies.
(g)ENERGY
Measurement
uncertainty
ALBERTAREGULATOR
Measurement
uncertainty
exists when there is a variance between the recognized or disclosed amount and another
NOTES TOFINANCIALSTATEMENTS(h) THE
Changein accounting
policyreasonably
possibleamount.
The amounts recognized for amortization of tangible capital assets are based on estimates ofMarch 31, 2017Security deposits
the useful life of the related assets. Accrued defined benefit obligations are subject to measurement uncertainty due to the(in thousands) During
the year,assumptions.
the AER changed
its accounting
policyrespect
to the disclosureof securityand
deposits
the AER withuse of actuarial
The resulting
estimates
arewith
withinreasonable
limits of materiality
are in inaccordance
Financial
The AER now
discloses security held in the form of cash in the notes to the financial statements only.
the AER'sStatements.
significant accounting
policies.
In prior years, the AER included these security deposits on the Statement of Financial Position as financial assets andNote 2 Summary of significant accounting policies and reporting practices (continued)
liabilities, explaining in the notes that these deposits are held on behalf of licensees. This change aligns the accounting(continued)(f) treatment
Non-financial
assetsdeposits(continued)(h)Changeinofaccounting
policywith
security
other entities within the Government of Alberta.
Security
Tangibledeposits
capital assets(continued)(continued)
Duringthe year,the AER changed
its been
accountingwithrespect
to the disclosure
security
depositsin the AER
Leaseholdimprovements
Straight
linerestatement
Termof theleaseThis changein accounting
policy has
appliedpolicy
retroactively
withof theofpriorperiod'sStatementof Financial
Financial
Statements.
AER this
nowchange
discloses
security AER's
held
infinancial
thelineformassets
of cashandin thenotes ontostatements
only.
Position.
The
effectof Theadopting
decreases
liabilities
theMarch 31,2016 Statement
Furnitureand equipment
Straight
5 -the12 financial
years
Inyears,
the
AER
includedthese
security
depositsontheStatementofFinancial
Positionasfinancialassetsandof prior
Financial
Positionintheamountofsecurity
depositsof$138,125.
Computer hardware
Straight line
4 years
liabilities, explaining in the notes that these deposits are held on behalf of licensees. This change aligns the accounting
Computersoftware - purchased
Straight line
4 years
ALBERTA ENERGYREGULATOR
treatmentof securitychanges
deposits with other entities within the Government of Alberta.
(i)
Future accounting
Computer software- developed
Declining balance
5 years
NOTES TO THE FINANCIAL
STATEMENTS
The Public Sector Accounting Board has issued the following accounting standards:
change in accounting policy has been applied retroactively with restatement of the prior period's Statement of Financial
March 31, 2017This
Amortizationis only Party
chargedif the tangible
capitalis put Transactions
into service. (effective April 1, 2017)
PS 2200 Related
Disclosureand PS
3420asset
Inter-entity
The effect of adopting this change decreases AER's financial assets and liabilities on the March 31, 2016 Statement(in thousands) Position.
PS 2200 defines a related party and establishes disclosures required for related party transactions; PS 3420 establishesofFinancial Positionin theincludes
amount of securitycomputer
deposits of$138,125.
Work-in-progress,which
softwareand public
leaseholdimprovements,
is not amortized
until a project
standards on how
to account fordeveloped
and report transactions
betweensectorentities that comprisea government's
iscomplete
and
the
asset
is
put
into
service.
Note 2 Summaryof significant
accounting
policies
andreportingpractices (continued)
reportingentity fromboth a provider
andrecipientperspective.
(i)
Future accounting changes(i)Future accounting changes (continued)
Tangibleare written
indicatethat theyno longer contribute to the AER's ability to provide
The
Publiccapital
Sectorassets
Accounting
Boarddown
has whenissuedconditions
the following
accounting
standards:
PS 3210
Assets, PS
3320
Contingent
AssetsandPS 3380
Contractual
Rights(effective
April capital
1, 2017)goods
andservices,
or
when
the
value
of
futureeconomic
benefits
associatedwith
theApriltangible
assets is less thanPS
2200
RelatedParty
Disclosureand PS
3420
Inter-entity
Transactions(effective
1, 2017)PS
3210
providesguidancefor
applying
thedefinitionofassetssetoutinFinancial
Statement
Concepts, PS 1000, and
their
net
book
value.
The
net
write-downs
areaccounted
foras
expensein
theStatementofOperations.
PS
2200 defines
a relatedparty andestablishes
disclosures
for related
party transactions;
PScontingent
3420 establishes
establishes
disclosure
standards
for assets;
PS 3320
definesrequiredand establishes
disclosure
standards on
assets;standards
onhowtoaccount
forandreporttransactions
betweenpublicsectorentitiesthat
compriseagovernment's
PS 3380 defines and establishes disclosure standards on contractual rights.
Prepaid
expensereportingentity from both a provider and recipient perspective.
Prepaid expense is recognized at cost and amortized based on the terms of the agreements.
8
PS 3430 Restructuring Transactions (effective April 1, 2018)
This standarduncertainty
provides guidance on how to account for and report restructuring transactions by both transferors and(g) Measurement
recipientsofassetsand/orliabilities,
togetherrelatedprograms
operatingorresponsibilities.
Measurement uncertainty
existswhen there
is a withvariance
betweenthe orrecognizeddisclosed amount and another

Note 3Note 4Note 5FINANCIALS

81

reasonably possible amount. The amounts recognized for amortization of tangible capital assets are based on estimates ofManagement
assessingthe impactof thesestandards
on thearefinancial
the useful life isof currently
the related
assets. Accrued
definedbenefitobligations
subjectstatements.
to measurement uncertainty due to theuse of actuarial assumptions. The resulting estimates are within reasonable limits of materiality and are in accordance with 8
Budgetthe AER's significant accounting policies.
The Budget is based on the AER Business Plan for the year ended March 31, 2017. The Budget and budget adjustments havebeen
byaccounting
the Governmentof Alberta.
(h) approved
Change inpolicySecurity deposits
Duringthe year, the AER changed its accounting policy with respect to the disclosure of security deposits in the AER
Orphan well abandonment
Financial
Statements.
The AERtonow
discloses
security held inand
thereclamation
form of cashofinwells,
the notes
to theonly.
The AER has delegated
the authority
managethe abandonment
facilities
andfinancial
pipelinesstatementsthat are licensed
In
prior
years,
the
AER
includedthese
security
depositsontheStatementofFinancial
Positionasfinancialassetsandto defunct licensees to the Alberta Oil and Gas Orphan Abandonment and Reclamation Association (Orphan Well Association). The
liabilities,
the abandonment
notes that these
deposits(levyare andheldapplication
on behalf offees)
licensees.
This changealigns the accounting
AER grants
all ofexplaining
its orphaninwell
revenues
to the Orphan
Well Association.
During thetreatmentofsecurity
deposits
with
otherentities
withintheGovernmentofAlberta.
year ended March 31, 2017, the AER collected $30,448 (2016 - $30,167) in levies and $580 (2016 - $944) in application fees.
This change in accounting policy has been applied retroactively with restatement of the prior period's Statement of Financial
Position. The effect of adopting this change decreases AER's financial assets and liabilities on the March 31, 2016 Statement
Cash andcash equivalentsof Financial
Position in the amount of security deposits of $138,125.
Cash and cash equivalents are held in an account with a Canadian chartered bank and earn interest calculated based on the
averagemonthly
cash balance.
The funds are available to be withdrawn upon request. During the year ended March 31, 2017, the(i)Futureaccountingchanges

Annual Report 2016/17

Note 482

FINANCIALS

Orphan well abandonment
The AER has delegated the authority to manage the abandonment and reclamation of wells, facilities and pipelines that are licensed
defunct licensees
to the Alberta Oil and Gas Orphan Abandonment and Reclamation Association (Orphan Well Association). The
ALBERTAto ENERGYREGULATORAER grants all of its orphan well abandonment revenues (levy and application fees) to the Orphan Well Association. During the
NOTES TOTHE
FINANCIALSTATEMENTS
year
ended
March 31, 2017,
the AER collected $30,448 (2016 - $30,167) in levies and $580 (2016 - $944) in application fees.

March 31, 2017
(in thousands)
Note 5Note 2

Note 6

Cash and cash equivalents
Summary of significant accounting policies and reporting practices (continued)
Cash and cash equivalents are held in an account with a Canadian chartered bank and earn interest calculated based on the(i)Futureaccountingchangesaveragemonthly
cash balance.
The (continued)
funds are available to be withdrawn upon request. During the year ended March 31, 2017, thePS
3210
Assets,PS
3320
Contingent
AER earned interest at the rate of 1.0%
(2016 -Assets1.1%).and PS 3380 Contractual Rights (effective April 1, 2017)
PS 3210 provides guidance for applying the definition of assets set out in Financial Statement Concepts, PS 1000, andestablishes disclosure standards for assets; PS 3320 defines and establishes disclosure standards on contingent assets;
Accounts
PSReceivable
3380 defines and establishes disclosure standards on contractual rights.
2016
2017
PS 3430 Restructuring Transactions (effective April 1, 2018)
Allowance
This standard provides guidance on how to account for and report restructuringtransactions
both transferors
andNet realizablefor doubtful
Netbyrealizable
recipients of assets and/or liabilities, together with related
programs
or
operatingresponsibilities.
value
Gross amountaccounts
value$
10,028 $(2,046) $Accounts receivable
Management is currently assessing the impact of these standards on the financial statements.

Note 7Note 3

7,982$

18,149Financial instruments
BudgetThe AER has the following financial instruments: accounts receivable, accounts payable and accrued liabilities and grant payable to
The Budget is based on the AER Business Plan for the year ended March 31, 2017. The Budget and budget adjustments have
the Orphan Well Association.
been approved by the Government of Alberta.
The AER has exposure to the following risks from its use of financial instruments:

ALBERTA ENERGY REGULATOR(a) Liquidity
Note
4 TO
Orphanwellrisk
abandonment
NOTES
THE FINANCIAL
STATEMENTS
The
AER
has
thetheauthority
to manage
thedifficulty
abandonment
andobligations
reclamationassociatedof wells, facilities
and pipelines
areAER
licensed
Liquidity risk isdelegated
the risk that
AER will
encounterin meetingwith financial
liabilities.that
The
does
March 31, 2017
tolicensees
to athe
Alberta Oil
GasAER
OrphanAbandonment
Reclamation
Association(OrphanWell Association).
notdefunctconsiderthis to besignificant
riskandas thecollects
funding at andthe beginningof theyear to meetall obligations
that ariseThe(in thousands)
AER
all ofInitsaddition,orphan thewellavailable
abandonment(levy andapplicationfees)
the theOrphanAssociation.
Duringtheduringgrants
the year.
credit revenues
facility provides
financial
flexibility
to to
allow
AERWellto meetits obligations
if funding
Note 7Note 5Note 6Note 8year
ended
March 31,
thebasis.
AER collected $30,448 (2016 - $30,167) in levies and $580 (2016 - $944) in application fees.
cannotbe collected
on2017,a timely
Financial instruments (continued)(b) Credit risk
The
exposedto credit risk from potential non-payment of accounts receivable. Accounts receivable include balances due
CashAER
andiscash
equivalentsfrom operators in the oil and gas industry and are subject to normal industry credit risk. The AER regularly monitors the financial 9
Cash and cash equivalents are held in an account with a Canadian chartered bank and earn interest calculated based on thestatus of operators and assesses the collectability of accounts receivable. The AER's maximum exposure to credit risk is limited toaverage monthly cash balance. The funds are available to be withdrawn upon request. During the year ended March 31, 2017, thethe carrying amount of accounts receivable at the reporting date and presented in the Statement of Financial Position. The AER
AER earned interest at the rate of 1.0% (2016 - 1.1%).
established a valuation allowance that corresponds to the specific credit risk of operators, historical trends and economic
circumstances.
Accounts Receivable
2016
2017
Revolving line of credit

During 2017, the AER had an unsecured $50,000 revolving line of credit. Amounts borrowed
can only be applied to general
Allowance
corporate purposes and exclude the funding of operating deficits and/or capital expenditures.
Bank Netadvanceson the Net
line ofcreditrealizablefor doubtful
realizable
are payable on demand and bear interest at prime less 0.5%. AsGrossat March
31,
2017,
the
outstandingbalancefortherevolvingvalueline ofamountaccounts
value
credit
was
$nil
(2016
-$nil).
$
10,028 $(2,046) $7,982 $
18,149Accounts receivable

Alberta Energy Regulator

Note 7For
the year
ended March 31, 2017, interest expense on the revolving line of credit was $13 (2016 - $nil) and is included in the
Financial
instruments
Statement of Operations.
The AER has the following financial instruments: accounts receivable, accounts payable and accrued liabilities and grant payable toNote 7

Financial instruments (continued)(b) Credit risk
The AER is exposed to credit risk from potential non-payment of accounts receivable. Accounts receivable include balances duefrom operators in the oil and gas industry and are subject to normal industry credit risk. The AER regularly monitors the financial
status of operators and assesses the collectability of accounts receivable. The AER's maximum exposure to credit risk is limited to
ALBERTA ENERGY REGULATOR
the carrying amount of accounts receivable at the reporting date and presented in the Statement of Financial Position. The AER
NOTES TOTHE FINANCIAL
establisheda valuationSTATEMENTS
allowance that corresponds to the specific credit risk of operators, historical trends and economic
March 31,circumstances.
2017

FINANCIALS

83(in thousands)
Note 8Note 7

Revolving line of credit
Financial instruments (continued)
During 2017, the AER had an unsecured $50,000 revolving line of credit. Amounts borrowed can only be applied to general(b) Credit risk
corporate
purposes and exclude the funding of operating deficits and/or capital expenditures. Bank advances on the line of creditThe
AER is exposedto creditrisk interest
from potential
non-paymentof accounts
Accounts
receivable
includeare payable
on demandand bearat primeless 0.5%. As
at March receivable.
31, 2017, theoutstandingbalancefor thebalances
revolvingdue
line offromin the -$nil).
oil and gas industry and are subject to normal industry credit risk. The AER regularly monitors the financial
creditoperators
was $nil (2016status of operators and assesses the collectability of accounts receivable. The AER's maximum exposure to credit risk is limited tothe carrying amount of accounts receivable at the reporting date and presented in the Statement of Financial Position. The AER
For the year ended March 31, 2017, interest expense on the revolving line of credit was $13 (2016 - $nil) and is included in theestablished a valuation allowance that corresponds to the specific credit risk of operators, historical trends and economic
Statement of Operations.
circumstances.

Note 9Note 8

Unearned revenue
Revolving line of credit
2017
2016
During 2017, the AER had an unsecured $50,000 revolving line of credit. Amounts borrowed can only be applied to general
Balance at beginning of year$
1,604 $
2,056
corporate purposes and exclude the funding of operating deficits and/or capital expenditures. Bank advances on the line of credit
Received
duringyear
395of
are payable on demand and bear interest at prime less 0.5%. As at March 31, 2017, the outstanding balance1,143
for the revolving line
Less amounts
(750)
(847)
creditwas $nil recognized(2016 -$nil).as revenue$
1,997 $
1,604
Balance at end of year

For the year ended March 31, 2017, interest expense on the revolving line of credit was $13 (2016 - $nil) and is included in theNote 10 Statement
Deferred lease
incentivesof Operations.
The AER has entered into various lease agreements which provide for lease incentives comprised of reduced rent benefits, rentperiodsrevenue
and leasehold improvement costs. These amounts are included in deferred lease incentives and are amortized on aNote 9 free
Unearnedstraight line basis over the term of the lease.
2017
2016

1,604 $ 20162,056
1,143
395
Reduced(750)(847)
Leaseholdrent benefits
improvement and rent-free $1,997 $
1,604
costs
Total
Total
periods
beginningof year$17,899 $4,365 $
22,264 $23,023Note 10 Balance
Deferredatlease
incentives
Additions during the year
The AER has entered into various lease agreements which provide for lease incentives comprised of reduced rent benefits, rent-763
Amortization(1,252)(364)(1,616)(1,522)free
periods and leasehold improvement costs. These amounts are included
in deferred lease
incentives andare amortized onaBalancelineat endof overyear the term of the lease.
$
16,647 $
4,001 $
20,648 $22,264straight
basis
Balance at beginning of year
Received during year
Less amounts recognized as revenue
Balance at end of year

2017

$

2016
2017
Note 11 Liability for contaminated sites
Reduced
As at March 31, 2017, the AER is not responsible, nor has it accepted responsibility, for performing remediation work at
Leaseholdrent benefits
contaminated sites. As at March 31, 2017, the AER's liability for contaminated sites was $nil (2016 - $nil).
improvement and rent-free
costs
periods
Total
Total
Balance at beginning of year$
17,899 $4,365 $
22,264 $23,023
Additions during the year
763
Amortization(1,252)(364)(1,616)(1,522)
Balance at end of year$
16,647 $
4,001 $
20,648 $22,264

Annual Report 2016/17

84

FINANCIALSALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
March 31, 2017
(in thousands)
Note 12 Pension
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension Plan, PublicService Pension Plan and Supplementary Retirement Plan for Public Service Managers. For the year ended March 31, 2017, theexpense for these pension plans is equal to the contribution of $17,766 (2016 - $18,026). The AER is not responsible for future
funding of the plan deficit other than through contribution increases.
In addition, the AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary pension
plans to compensate senior staff who do not participate in the government management pension plans. Retirement benefits are
based on each employee's years of service and remuneration.
The effective date of the most recent actuarial funding valuation for SEPP was December 31, 2014. The accrued benefit obligation
as at March 31, 2017 is based on the extrapolation of the results of this valuation. The effective date of the next required funding
valuation for SEPP is December 31, 2017.
Pension plan assets are valued at market values. During the year ended March 31, 2017 the weighted average actual return onplan assets was 8.5% (-3.4% in 2016).
Significant weighted average actuarial and economic assumptions used to value accrued benefit obligations and pension benefit
costs are as follows:
Accrued benefit obligations

March 31, 2017 March 31, 2016

Discount rate
Rate of compensation increaseLong-term inflation rate

4.6%

0% for 3 years, 0% for 2 years,
3.5%
3.5%
thereafter
thereafter
2.0%
2.0%
2017

Pension benefit costs for the year
Discount rate
Expected rate of return on plan assets
Rate of compensation increase

4.7%

2016
4.7%
4.7%

4.9%
4.9%

0% for 2 years,
3.5%
thereafter

0% for 1 year,
3.5%
thereafter

The funded status and amounts recognized in the Statement of Financial Position are as follows:
March 31, 2017 March 31, 2016
Alberta Energy Regulator

Market value of plan assets
Accrued benefit obligations
Plan (deficit)
Unamortized actuarial loss$

56,633 $58,200(1,567)2,077

47,85354,639(6,786)6,094

Rate of compensation increaseLong-term inflation ratePension benefit costs for the year

ALBERTA ENERGY REGULATOR
Discount rate
NOTES TO THE FINANCIAL STATEMENTS
Expected rate of return on plan assets
March 31, 2017
(in thousands)
Rate of compensation increase

3.5%
thereafter
2.0%

3.5%
thereafter
2.0%

2017

2016

FINANCIALS

4.7%
4.7%

4.9%
4.9%

0% for 2 years,
3.5%
thereafter

0% for 1 year,
3.5%
thereafter

85

Note 12 Pension (continued)
fundedstatus andinamounts
recognizedin the Statementof Financial
Positionas follows: Employees Pension Plan, Public
The AERparticipates
the Governmentof Alberta's
multi-employer
pensionplans:areManagement
Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. For the year ended March 31, 2017, theexpense for these pension plans is equal to the contribution of $17,766 (2016 - $18,026). The AERMarchis not 31,
responsible
for future2017 March
31, 2016
funding of the plan deficit other than through contribution increases.
Market value of plan assets$
56,633 $47,853
Accruedbenefitobligations
58,20054,639In
addition,
the AER
maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary
pensionplans
tocompensate
senior
staff
who
do
not
participate
inthegovernment
management
pensionplans.
Retirement
benefitsarePlan (deficit)(1,567)(6,786)
based
on
each
employee's
yearsof
serviceandremuneration.
Unamortized actuarial loss
2,077
6,094
Pension assets (obligations)
$
510 $
(692)
The effective date of the most recent actuarial funding valuation for SEPP was December 31, 2014. The accrued benefit obligation
as atpension
March 31,2017costs
is based
onyearthe extrapolationof the resultsof this valuation. The effective date of the next required fundingThe
benefitfor theinclude the following
components:
valuation for SEPP is December 31, 2017.
2017
2016
ALBERTA ENERGY REGULATOR
Current
periodbenefit
cost
$
4,302
$
4,375
NOTES TOTHE FINANCIAL
Pensionplan assets areSTATEMENTS
valued at market values. During the year ended March 31, 2017 the weighted average actual return on
Interest
costwas 8.5% (-3.4% in 2016).
2,690
2,573
assetsMarch 31,plan
2017
Expected
returnonplan
assets(2,358)(2,330)(in thousands)
Significant
weighted
averageactuarial and economic assumptions used to value accrued benefit obligations andAmortizationof actuarial
losses
861pension benefit436
costs are as follows:$
5,495 $
5,054
Note 12 Pension (continued)
Additional
information
about the defined benefit pension plans is as follows:
Accrued benefit
obligations

March 31, 2017 March 31, 2016112017 4.6%
2016 4.7%$0% for 3 6,697
years, $0% for 2 6,711
years,
840
861
3.5%
3.5%
3,001
3,216
thereafter
thereafter

Discount rate
AER contribution
Employees'
contribution increase
Rate of compensation
Benefits paid
Long-term inflation rate
The asset allocation of the defined benefit pension plans' investments is as follows:
Pension benefit costs for the year
Discount rate
Equitysecurities
Expected
rate of return on plan assets
Debt securities
Other
Rate of compensation increase
The funded status and amounts recognized in the Statement of Financial Position are as follows:
Note 13 Tangible capital assets
2017
Market value of plan assets
Accrued benefit obligations
Plan (deficit)
Unamortized actuarial loss

Land

Leaseholdimprovements
Term of theFurniture andequipment

Computerhardware andsoftware

2.0%

2.0%

2017
2016
March 31, 4.7%
2017 March 31, 4.9%
2016
48.8%
4.7%
0% for 2 36.0%
years,
3.5%
15.2%
thereafter
100.0%

47.9%
4.9%
0% for 137.7%
year,
3.5%
14.4%
thereafter
100.0%

2016
March 31, 2017 March 31, 2016$

56,633 $58,200Total(1,567)2,077

47,85354,639
Total(6,786)
6,094

Annual Report 2016/17

The asset allocation of the defined benefit pension plans' investments is as follows:
86

FINANCIALS

March 31, 2017 March 31, 2016securities
ALBERTAEquity
ENERGYREGULATOR
Debt
securities
NOTES TOTHE
FINANCIAL STATEMENTS
March 31,Other
2017

48.8%
36.0%
15.2%
100.0%(in thousands)

47.9%
37.7%
14.4%
100.0%

13 Pension
Tangible(continued)
capital assets
Note 122016

2017
Additional information about the defined benefit pension plans is as follows:
AER contribution
Employees' contribution
Benefits paid
Estimated useful life

Land

Leaseholdimprovements

Furniture andequipment

Computerhardware andsoftwareIndefinite

Term of thelease

5-12 years

4-5 years

The asset allocation of the defined benefit pension plans' investments is as follows:
Historical cost
Beginning of year

Equitysecurities
AdditionsDebt
securities
Disposals, including write-downs
Other

$

282

$

38,707$

15,249$$Beginning of year

-

937

802

10,370-(2)(1,241)(13,092)282

39,642

14,810124,146

$

-

$

9,920

$

8,804

$

97,952

-

2,495

-

(2)
Leasehold
12,413
improvements

Net book value at March 31, 2017
Estimated useful life$282
Indefinite

the$ Term of27,229
lease

$

6,274
5-12 years$

28,6414-5 years

Net book value at March 31, 2016
Historical cost

$

$

$

6,445

$

28,916

Effect of disposals, including writedowns
Land

282

28,787

2016
6,711
Total
861
3,216

48.8%
12,10947.9%
14,19636.0%(14,335)
15.2%
178,880
100.0%$

116,676

37.7%(9,580)14.4%
181,106
100.0%$

113,279

10,57014,037

Computer(1,240)(13,017)
Furniture andand
8,536 hardware
95,505equipment
software(14,259)(9,248)116,454
Total

116,676
Total

2017

972

$

31,
2017 March
31,
2016
126,868 March$
181,106$
176,490

Accumulated amortization

Note 13 Amortization
Tangible capital
assetsexpense

2017
6,697
Total
840
3,001

$

12,645

2016

62,426$64,430

Beginning
yearincludes work-in-progress$282$ 31, 2017
38,707totaling$ $4,65915,249
126,868$ comprised
181,106of: computer$
176,490
Historical ofcost
at March(March $31, 2016
- $3,767)

hardware and software $4,617 (March 31, -2016 - $3,767)937
and leasehold improvements$42(March 31, 201612,109- $nil).
Additions
802
10,370
Disposals, including write-downs(2)(1,241)(13,092)(14,335)
282

39,642

14,810124,146

14,196(9,580)178,880

181,106

Accumulated amortization
Beginning of year$

Amortization expense
Effect of disposals, including writedowns
Alberta Energy Regulator

Net book value at March 31, 2017

$

-

$

9,920

$

8,804

$

97,952$

116,676$

113,279

-

2,495

972

10,57014,037

12,645-(2)(1,240)(13,017)(14,259)(9,248)-12,413

8,536

95,505

116,454

116,676282$

27,229

$

6,274

$

28,641$62,426

12

FINANCIALSALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
March 31, 2017
(in thousands)

87

Note 14 Accumulated surplus
The accumulated surplus of the AER is calculated as the sum of the net debt of the AER and its non-financial assets. The
accumulated surplus represents the net assets of the AER. Accumulated surplus is comprised of the following:
2017

2016

Investments intangible capital Unrestrictedassets (a)net assets
Balance at beginning of year
Annual operating (deficit)
Net investment in capital assets
Balance at end of year
(a)

$

$

46,531 $(752)
45,779 $Accumulated Accumulated
surplussurplus15,580 $62,111 $63,855(1,158)(1,158)(1,744)752
15,174 $60,953 $62,111

Excludes leasehold improvement costs received by the AER as a lease incentive.

Note 15 Contingent liabilities
The AER, in the conduct of its normal activities, is a defendant in a number of legal proceedings. While the ultimate outcome andliability of these proceedings cannot be reasonably determined at this time, the AER believes that any settlement will not have amaterial adverse effect on the financial position or the results of operations of the AER. Based on legal advice, management has
concluded that none of the claims meet the criteria for recognizing an accrued liability under PSAS.
Note 16 Contractual obligations
Contractual obligations are obligations of the AER to others that will become liabilities in the future when the terms of thosecontracts or agreements are met.
Estimated payment requirements for obligations under operating leases and contracts for each of the next five years and thereafter
are as follows:
2018
2019
2020
2021
2022
Thereafter$$

30,764
20,691
15,23012,68012,91897,179189,462

Note 17 Assets under administration
The AER administers security deposit programs in accordance with specified acts and regulations. Security deposits are held on
behalf of depositors with no power of appropriation and therefore are not reported in these financial statements. The AER does not

Annual Report 2016/17

88

FINANCIALS

2018
2019
2020
2021 REGULATORALBERTA ENERGY
2022
NOTES TO THE
FINANCIAL STATEMENTS
Thereafter
March 31, 2017

(in thousands)$$

30,764
20,691
15,23012,68012,91897,179189,462

ALBERTA ENERGY REGULATOR

Note 1417 Accumulated
Assets under surplus
administration
NOTES TOTHE
FINANCIALSTATEMENTS
The AERadministers
securityin asaccordance
acts
regulations.
Security deposits
accumulated
surplusof thedeposit
AER isprograms
calculated
the sum ofwith
thespecified
net debt oftheandAER
and its non-financial
assets.are
Theheld on
March 31,behalf
2017of depositors
no power
appropriation
andtherefore
are not reported
these financial
accumulated
surpluswith
represents
theofnet
assets of the
AER.
Accumulated
surplus isincomprisedof thestatements.
following: The AER does nothave any financial risk associated with security collected. Security, along with any interest earned, will be returned to the depositors(in thousands)
2017
2016
upon meeting specified refund criteria.
Note 17 Assets under administration (continued)
Investments incapitalAccumulated
At March 31, 2017 assets under administration include security tangible
deposits held
underUnrestricted
the following programs:(a)assetsnet
assetssurplus
2017
2016
2017
Balance at beginning of year$
46,531 $
15,580 $ Letters
62,111ofAnnual operating (deficit)(1,158)(1,158)Cash
Cash
CreditNet
investment
in Ratingcapital program
assets(752) $ 107,695
752 $Licensee
Liability$
114,146
232,255$
45,77915,17460,953
Balanceat end Securityof year program
Mine Financial
40,993 $24,230 $ 1,345,974

Accumulated
surplus2016$ Letters
63,855of(1,744)Credit$183,162$ 1,340,513
62,111Other programs
7,162
5,408
4,664
incentive. 6,200(a) Excludes leasehold improvement costs received by the AER as a lease$
162,301 $ 138,125 $ 1,583,637 $ 1,528,339
13
Note 18 Related party transactions
Note 15 Contingent liabilities
Related parties are those entities consolidated or accounted for on the modified equity basis in the Government of Alberta's financial
The AER, in the conduct of its normal activities, is a defendant in a number of legal proceedings. While the ultimate outcome andstatements. Related parties also include key management personnel, comprising of the Board of Directors and the executive
liability of these proceedings cannot be reasonably determined at this time, the AER believes that any settlement will not have amanagement. In 2017, there were no business relationships, outstanding amounts or transactions other than compensation,material adverse effect on the financial position or the results of operations of the AER. Based on legal advice, management has
between the AER and its key management personnel. Key management personnel compensation is disclosed in Schedule 2.
concluded that none of the claims meet the criteria for recognizing an accrued liability under PSAS.
The AER had the following transactions with related parties recognized in the Statement of Operations and the Statement of
Financial Positionat the amount of consideration agreed upon between the related parties:
Note 16 Contractual
obligations
Contractual obligations are obligations of the AER to others that will become liabilities in the future when the terms of those
Entities in the Ministry
Other entities
contracts or agreements are met.
2017
2016
2017
2016
Estimated
Revenues payment requirements for obligations under operating leases and contracts for each of the next five years and thereafter
are asGovernment
follows:
transfer - provincial grant$
3,338 $
- $- $-Alberta Energy Regulator

Information, services and fees
66
153
417
176
2018
$
30,764$
3,404 $
153 $
417 $
176
2019
20,691
15,230
2020
Entities in the Ministry
Other entities
12,680
2021
2017
2016
2017
2016
12,9182022
Expenses
Thereafter
97,179Computer services$
2,199 $
2,124 $
1,651 $
1,714$
189,462
Buildings
617
846
Administrative
1,290
1,143
Note 17 Assets under administration
Consulting services
1,371
290
The AER administers security deposit programs in accordance with specified acts and regulations. Security deposits are held on
2,199 in$ these 2,124
4,929$ does3,993
behalf of depositors with no power of appropriation and therefore$ are not reported
financial$statements.
The AERnotNote 17 Assets under administration (continued)
At March 31, 2017 assets under administration include security deposits held under the following programs:
The AER had the following transactions with related parties recognized in the Statement of Operations and the Statement of
2017
2016
2017
2016
Financial Position at the amount of consideration agreed upon between
the related parties:
Letters ofLetters ofEntities
Other entities
ALBERTA ENERGY REGULATOR
Cash in the Ministry
CashCreditCredit2017
Licensee
Liability Rating
programNOTES TOTHE FINANCIAL
STATEMENTS$
114,146 $ 2016
107,695 $ 2017
232,255 $ 2016
183,162
Revenues
Mine
Financial
Security
program
40,99324,2301,345,974
1,340,513
March 31, 2017
Government transfer - provincial grant$
3,338 $
Other programs
7,162
6,200- $5,408- $4,664(in thousands)
Information, services and fees
66 $ 138,125
153 $ 1,583,637
417 $ 1,528,339
176$
162,301$
3,404 $
153 $
417 $
176
Note 1418 Accumulated
Related party surplus
transactions (continued)

FINANCIALS

89

Relatedparties aresurplus
those ofentities
consolidated
or accounted
equitybasis
Governmentof Alberta's
The
accumulated
the AER
is calculated
as the sumforofon
thethenetmodified
debt of the
AER
andinitsthe
non-financial
assets.
The financial
statements.
also theincludekey management
comprisingofMinistry
the Board of Directors
andthe entities
executive
accumulatedRelated
surplusparties
represents
net assetsof the AER.personnel,
Accumulated
surpluscomprised
the following:
Other
Entitiesin theismanagement. In 2017, there were no business relationships, outstanding
other than compensation,
2017amounts or transactions
2016
2017
2016
2017
between the AER and its key management personnel. Key management personnel compensation
is disclosed in Schedule2016
2.
Expenses
Investments in
Computer services$
2,199 $
2,124 $
1,651 $
1,714
tangibleincapital
Accumulated
Accumulated
The AER had the following transactions with related parties recognized
the Statementof Operations
and the StatementofUnrestricted
Buildings
617
846
Financial Position at the amount of consideration agreed upon between
the(a)related parties:
assetsnet assets
surplussurplus
Administrative
1,290
1,143
Balance at beginning of year$
46,531 $
15,580 $62,111 $63,855
Consulting services- Ministry 1,371 entities
290
Entities in the
Other
Annual operating (deficit)(1,158)(1,158)(1,744)$
2,124 $ 20174,929 $ 20163,993
20172,199 $ 2016
Net investment in capital assets
(752)
752
Revenues$
45,779 $15,174 $60,953 $62,111
Balance at end of year
Receivablefrom transfer - provincial grant$
3,505 $
91- $12- $6Government
3,338
leaseholdincentive.
(a) Excludes
Information,
servicesimprovement
and fees costs received by the AER as a lease66
153
417
176
Payable to
509 $
692 $
588
$
3,404
153- $
417
176
Note 15 Contingent liabilities
Unearnedrevenue- $Ministry$ the ultimate
583 entities$
The
AER, inthe conduct of its normal activities, is a defendant in$ a number
proceedings.- While
outcomeand Entitiesofinlegal
the
Other
liability of these proceedings cannot be reasonably determined at this 2017
time, the AER believes
that
anysettlement
will
not
have
2016
2017
2016a
material
adverseeffectonthefinancial
positionortheresultsofoperations
of
the
AER.
Based
on
legal
advice,management
has
Note 19 Expenses
Comparative figuresconcluded that none of the claims meet the criteria for recognizing an accrued liability under PSAS.
CertainComputer2016 figures
have been reclassified to conform to the 2017services$ presentation.
2,199 $
2,124 $
1,651 $
1,714
Buildings
617
846
Note 16
20 Contractual
Approvalof obligations
financial statements
Administrative
1,290
1,143
Contractual
obligations
are obligationsof theto others
becomein the futureterms of those
TheseConsulting
financialstatements
were approved
byAER
the AER
Boardthatof will
Directors
on liabilities
May
services- 11, 2017.
- when the1,371
290
contracts or agreements are met.
$
2,199 $
2,124 $
4,929 $
3,993
Estimated payment requirements for obligations under operating leases and contracts for each of the next five years and thereafter
Receivablefrom$
3,505 $
91 $
12 $
6
are
as follows:
14
Payable
to
$
509 $
2018
2019
Unearned$- $2020revenue
2021
2022 figures
Note 19 Comparative
CertainThereafter
2016 figures have been reclassified to conform to the 2017 presentation.

-

$

692

$

-

$

583

$

$

588
30,764
20,691
15,23012,680
12,91897,179189,462

Note 20 Approval of financial statements
Note 17 These
Assetsfinancial
under administration
statements were approved by the AER Board of Directors on May 11, 2017.
The AER administers security deposit programs in accordance with specified acts and regulations. Security deposits are held on
behalf of depositors with no power of appropriation and therefore are not reported in these financial statements. The AER does not

Annual Report 2016/17

90

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS
Expenses - Detailed by Object
Year Ended March 31, 2017

Schedule 1(in thousands)

2017
Salaries, wages and employee benefits
Orphan well abandonment grant
Buildings
Computer services
Amortization of tangible capital assets
Consulting services
Administrative
Travel and transportation
Equipment rent and maintenance
Loss on disposal and write-down of tangible capital assets
Abandonment and enforcement$$

Alberta Energy Regulator

2016
177,01431,02816,936
16,742
14,037
13,731
5,320
4,115
884
76
29
279,912$$

180,705
31,111
15,19815,71912,645
13,692
4,657
4,603
881
332
681
280,224

ALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS
Salaries
andBenefitsREGULATOR
Disclosure
ALBERTAENERGYYear
Ended TOMarch2017
SCHEDULE
THE31,FINANCIALSTATEMENTS(inthousands)
Salariesand Benefits Disclosure
Year Ended March 31, 2017
(in thousands)

Schedule 2
Schedule 2

FINANCIALS

91

2016
Other
Base
Other cash 2017 non-cash
2016(c)benefits(b)benefits
Total (d)salary (a)Total
Position
Other
Base
Other cash
non-cashbenefits(b)benefits (c)Total (d)salary (a)Boardof Directors
Total
Position
$
$
$
11
$
233
$
276
Chairman
222(e)
Board Director
106
4
110
77
Board
of Directors
Board
Director(f)
52
54
117
Chairman
$
222
$
$
112
$
233
$
276
(e)
Board Director(g)
47
34
50
-77
106
110
(f)
Board Director(g)
45
32
48
52
54
117
Board Director(g)
45
3
48
47
50
(g)
Board Director(h)
24
23
26
119
45
48
(g)
Board Director(h)
25
25
118
45
348
(h)
Board Director
22
2
24
106
24
26
119
Board Director(i)(h)
-25
67
25118
(j)
Board Director(h)
28
22
2
24
106
Board Director(i)67
Board Director(j)Executives
28
President and Chief Executive Officer (k)
527
29
139
695
725
209
18
59
286
287
Chief Hearing Commissioner
Executives
(k)
274
82
75
431
440
Executive andVice-President,
Corporate
President
Chief Executive
OfficerServices
527
29
139
695
725
274
83
103
460
453
Executive
Vice-President
and General Counsel (l)
209
18
59
286
287
Chief
Hearing
Commissioner(l)
Executive Vice-President, Operations
316
89
116
521
524
274
82
75
431
440
Corporate Services(l)
Executive Vice-President,
Stakeholder& Government
Engagement
95
74
443
451
274
83
103
460
453
Vice-President andGeneral Counsel
Executive Vice-President, Strategy& (l)Regulatory(l)
274
87
37
398
386
Operations
316
89
116
521
524
Executive Vice-President, Stakeholder & Government Engagement
274
95
74
443
451
Executive Vice-President, Strategy & Regulatory(l)
274
87
37
398
386
(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 basepay for Executives.
in lieu ofandvacationand healthbenefits,
vehicleallowances,
shortterm incentive
forinExecutive(b) Payments
Includes retainers
per diems
for Board
Directors.
Membersof theandBoardof Directors
do notpayments
participate
the AER'sVice-Presidents.
pension plans. Includes pensionable base(a)(c) Contributions
toallbenefits
asapplicableincludingemployer's
shareof
Employment
Insurance,
CanadaPensionPlan, Alberta and AER pension plans, healthpay for Executives.
or inpayments
made forprofessional
memberships
and tuition fees.
Payments
lieu of vacation
andhealth benefits,vehicle allowances,and short term incentive payments for Executive Vice-Presidents.
(b) benefits
Salariesandbenefits
for
the
Board
of
Directorsarepresented
descendingorder. Insurance, Canada Pension Plan, Alberta and AER pension plans, health(d)(c) Contributions to all benefits as applicable including employer'sinshareof Employment
benefitsor payments
madefor professional
memberships
incumbent
held theposition
effective August
1, 2015. and tuition fees.
(e) The
(f)
(d)
(g)
(e)
(h)
(f)
(i)
(g)
(j)
(h)
(k)
(i)
(j)
(k)

The
incumbent
left thefor
position
effective
September
30, 2016. in descending order.
Salariesand benefits
the Boardof Directors
are presented
The incumbent held the position effective October
2016.
August 1,1,2015.
The incumbent left the position effective June
16, 2016.
September
30, 2016.
The incumbent left2015.
heldthetheposition
positioneffective
effectiveSeptember
October 1,30,
2016.
The incumbent left the position effective June 16, 2015.
2016.
Automobile
provided,dollar amountin othernon-cash benefits.
The incumbent
left theno
position
effectiveincluded
September
30, 2015.
The incumbent left the position effective June 16, 2015.
Automobile provided, no dollar amount included in other non-cash benefits.

2017

Annual Report 2016/17

92

FINANCIALSALBERTA ENERGY REGULATORSCHEDULE TO THE FINANCIAL STATEMENTS
Salaries and Benefits Disclosure
Year Ended March 31, 2017
(in thousands)(l)

Schedule 2 (continued)

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 futurecompensation. 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 actuariallydetermined using the projected benefit method pro-rated on service, a market interest rate, and management's best estimate of expected costs and theperiod of benefit coverage. Net actuarial gains and losses of the benefit obligations are amortized over the average remaining service life of theemployee group. Current service cost is the actuarial present value of the benefits earned in the fiscal year. Prior service and other costs include
amortization of past service costs, amortization of actuarial gains and losses, and interest accruing on the actuarial liability. The costs detailed below are
only for those employees included in Schedule 2 who participate in the SEPP and SRP maintained by the AER to compensate senior staff who do notparticipate in the government management pension plans.

2017

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

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

Alberta Energy Regulator

2016

Current service
Prior service and other
cost
costs
43
$
$
10
57
4
24

$

Accrued obligation
April 1, 2016
$
475
204
1,175

Accrued obligation
March 31, 2017
$
525
270
1,180

Changes in accrued
obligation
$
50
66
5

Total

Total
53
61
24

$

47
56
27

2016
$

475
204
1,175

ALBERTA ENERGY REGULATOR

Schedule 3

SCHEDULE TO THE FINANCIAL STATEMENTS
ActualResults
Comparedwith Budget
ALBERTAENERGYREGULATOR
Year
Ended
March
31,
2017
SCHEDULE TO THE FINANCIAL STATEMENTS

Schedule 3

FINANCIALS

93(inthousands)
ActualResults Compared with Budget
Year Ended March 31, 2017
(in thousands)

Budget(Note 3)
Revenues
Industry levies and assessments
Information, services and fees
Revenues
Government transfer - provincial grantIndustry levies and assessments
Investment
Information, services and fees
Government transfer - provincial grant
Investment
Expenses
Energy regulation
Orphan well abandonment
Expenses
Climate leadership plan
Energy regulation
Orphan well abandonment
Annual operating (deficit)
Climate leadership plan
CapitalAnnual operating (deficit)
Capital investment
Less: Amortization
CapitalLoss on disposal and write-down of tangible capital assets
Capital investment
Net capital
investment
Less: Amortization
Loss on disposal and write-down of tangible capital assets
Net capital investment

Budget(Note 3)$
268,403
4,146$
268,403
867
4,146
273,416
867
273,416
245,416
30,500$Adjustments

Adjustedbudget(a)245,416
275,916
30,500(2,500)275,916(2,500)9,000(11,500)

Adjustments (a)
$
3,624
$
3,624
3,624
3,624
3,624
3,624
3,624
3,624
-

Adjustedbudget$268,403
4,146
3,624
$
268,403
867
4,146
277,0403,624
867
277,040
245,416
30,5003,624
245,416
279,540
30,500(2,500)3,624
279,540(2,500)9,000(11,500)

9,000(2,500)(11,500)-

9,000(2,500)(11,500)(2,500)$-$(2,500)

Actual$$Actual269,222
5,132
3,338
269,222
1,062
5,132
278,7543,338
1,062
278,754245,959
31,0282,925
245,959
279,91231,028(1,158)2,925
279,912(1,158)
12,109(14,037)(76)
12,109(2,004)(14,037)

$

(76)
846
(2,004)(a) Adjustments are for grant revenues and associated expenditures received from the Government of Alberta to implement a component of
$
- $
- $
- $
846
the Climate leadership plan.
(a) Adjustments are for grant revenues and associated expenditures received from the Government of Alberta to implement a component of
the Climate leadership plan.
Annual Report 2016/17

94

GLOSSARYGLOSSARY

Alberta Energy Regulator

GLOSSARY

A

Alternative dispute resolution (ADR)
ADR refers to alternate means of resolving
disputes outside of a hearing or a courtroom. It’s an umbrella term that includes
negotiation, mediation, facilitation, arbitration, and conciliation. These options aim to
help people explore and understand eachother’s interests and develop acceptable
solutions together by creating an environment that supports respectful discussion.

E

Empathic engagement
From the Regulatory Excellence initiative,
empathic engagement is an attribute that
we will need to exhibit to be excellent.
It means that we work together to makefully informed decision and build strong
relationships while being straightforward
about issues, listening carefully and responding respectfully to our stakeholders,and ensuring our decisions are understood.
We are fair, inclusive, and transparent. See
also stellar competence, utmost integrity.

Area-based regulation
A collaborative approach designed tomake geographically-specific rules andpractices that consider the unique environmental and energy-resource conditions in a defined geographic area. Thisis done in collaboration with the people
who live, work, and play in the area.

B

C

Bitumen
Extra-heavy oil that in its natural states does
not flow to a well. Bitumen can be sold as
either upgraded or nonupgraded. Upgraded
bitumen, which is typically used by refineries
as feedstock, has been processed into
synthetic crude oil. Nonupgraded bitumen isbitumen that is sold without any processing.
Cumulative effects
The total environmental changes causedby energy development activities incombination with other past, present,
and future human actions.

EmissionsGases 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.
See also flaring, incinerating, venting.

Environmental Protection andEnhancement Act
Legislation, or law, supporting and promoting the protection, enhancement, andwise use of the environment. The AER
assesses applications under EPEA for all
activities relating to energy development.

F

Flaring
The burning of natural gas that cannot
be processed or sold at the end of aflare stack (i.e., a long metal pipe thatgas is sent up, much like a chimney).
This causes the flame associated withflaring. See also emissions, venting.

95

Flowback
Flowback is the mixture of fluid that is collected after the hydraulic fracturing process,before production begins. Fluid is carried tothe surface and separated from the gas, which
is often vented or flared to the atmosphere.
Fugitive emissions
Potentially hazardous gas fumes thatescape from pipes undetected andare not visible to the naked eye.

H

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

I

Inactive well
A well that has been idle for 6 or 12 months,
depending on type, but has not been suspended in accordance with Directive 013:
Suspension Requirements for Wells.
Integrated decision approach
A regulatory approach in which the
AER reviews all aspects of a projectthrough a single application, including
how it will be constructed, operated, end
eventually reclaimed. Using technologybased processes, this approach applies
integrated and risk-informed decision making
across the life cycle of a development.

Annual Report 2016/17

96

L

GLOSSARY

Life cycle
All the stages in the life of a well, facility,
project, or other energy development.
The full life cycle begins with applicationand ends with reclamation.

O

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

P

Proved plus probable reserves
Proved reserves are those that can be
estimated with a high degree of certainty to be recoverable; probable reserves
are those additional reserves that areless certain to be recovered. The proved
plus probable reserve value can also be
defined as the best technical estimate.

R

reserves equal initial establishedreserves less cumulative production.
Responsible Energy Development Act (REDA)
Legislation, or law, establishing andempowering the AER. REDA sets out
the AER’s mandate, structure, powers,
duties, and functions.

S

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

Regulatory excellence
As defined by the University of Pennsylvania’s Penn Program on Regulation,
regulatory excellence embodies the attributes of utmost integrity, empathic
engagement, and stellar competence.

T

Alberta Energy Regulator

Stakeholder
Any individual, group of individuals, ororganization with an interest in theoutcome of a decision.

U

Statutory decision-makerA statutory decision-maker is an AER
manager or director who has beendelegated the authority to exercise
legislative powers to assess penalties.

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

Remaining established reserves
The amount of a resource that is stillin the ground. Remaining established

bitumen. Sand and other heavy particles
quickly separate from the water, but smaller
particles of clay and silt remain in suspension,
forming fluid tailings. Fluid tailings cantake decades to settle and are an ongoingchallenge for the oil sands mining industry.
See also Tailings Management Frameworkof the Mineable Athabasca Oil Sands.

Tailings
Tailings are a by-product of the process used
to extract bitumen from mined oil sands andconsist of water, silt, sand, clay, and residual

Upstream
The producing end of the energy industry.
Compare “downstream” operations,which include transport, refining, andmaking products.
Utmost integrity
From the Regulatory Excellence initiative,
utmost integrity is an attribute that we willneed to exhibit to be excellent. It means that
we are accountable as a protective, effective,
efficient, and credible regulator and that weare fair and unbiased. We adhere to government policy and take a leadership in
identifying policy gaps where they exist,
and we make evidence-based decisions
that consider the environment, the uniquenature of the energy development, traditional knowledge, and information brought
forward by local communities. See also
empathic engagement, stellar competence.

V

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

GLOSSARY

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Annual Report 2016/17

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