Alberta Energy Regulator
Financial Statements
For the Year Ended March 31, 2019

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

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

Report on the Financial Statements

Qualified opinion
I have audited the financial statements of the Alberta Energy Regulator (the AER), which comprisethe statement of financial position as at March 31, 2019, and the statements of operations, change
in net debt, and cash flows for the year then ended, and notes to the financial statements, including
a summary of significant accounting policies.
In my opinion, except for the effects of the matter described in the Basis for qualified opinion
section of my report, the accompanying financial statements present fairly, in all material respects,
the financial position of the AER as at March 31, 2019, and the results of its operations, its changes
in net debt, and its cash flows for the year then ended in accordance with Canadian public sector
accounting standards.

Basis for qualified opinion
The AER has not appropriately presented and disclosed the nature of its relationship and its
transactions with ICORE Energy Services (ICORE NFP), an organization created by the AER andincorporated under the Canada Not‐for‐profit Corporations Act. I examined the nature of therelationship between the AER and ICORE NFP, and the related transactions, and determined that
under Canadian public sector accounting standards the AER controlled ICORE NFP from May 2017
until December 2018, when the AER resigned its membership and control of ICORE NFP.
The AER concluded that ICORE NFP is not controlled and presented the relationship andtransactions with ICORE NFP as a related party in schedule 4 - related party transactions. Because
the AER controlled ICORE NFP, its financial results up to December 2018 should have been
consolidated into the AER’s financial statements. Had the AER consolidated ICORE NFP, the AER’s
statement of operations would have additional ICORE Energy Services (NFP) revenue of $l.0 million
and additional ICORE Energy Services (NFP) expense of $0.7 million. Further, expenses reported on
the AER’s statement of operations classified as Energy Regulation should be $2.3 million lower andexpenses classified as ICORE Energy Services (NFP) should be $2.3 million higher. In addition,
Schedule 4 – related party transactions does not accurately reflect the nature of the relationshipbetween the AER and ICORE NFP as a controlled entity.
I conducted my audit in accordance with Canadian generally accepted auditing standards. My
responsibilities under those standards are further described in the Auditor's responsibilities for theaudit of the financial statements section of my report. I am independent of the AER in accordancewith the ethical requirements that are relevant to my audit of the financial statements in Canada,
and I have fulfilled my other ethical responsibilities in accordance with these requirements. I
believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis formy qualified opinion.

2

Responsibilities of management and those charged with governance for the financial
statements
Management is responsible for the preparation and fair presentation of the financial statements inaccordance with Canadian public sector accounting standards, and for such internal control as
management determines is necessary to enable the preparation of the financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the AER’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless an intention exists to liquidate or to cease operations,or there is no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the AER’s financial reporting
process.
Auditor's responsibilities for the audit of the financial statements
My objectives are to obtain reasonable assurance about whether the financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor'sreport that includes my opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, I exercise
professional judgment and maintain professional skepticism throughout the audit. I also:








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

3

I communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that I identify during my audit.
Report on other legal and regulatory requirements
In accordance with the Auditor General Act, I report the AER’s legislative non-compliance identified
during my audit, as follows: Lack of necessary approvals for the creation of ICORE NFP as required by the
Financial Administration Act.
 Collection and expenditure of third-party revenues beyond authority granted by the Responsible
Energy Development Act.
 Awarding bonuses to senior executives not permitted by the Reform of Agencies, Boards andCommissions Compensation Act.
 Failure to properly calculate and assess taxable benefits for employer subsidized parking
provided to employees as required by the Income Tax Act.
I also draw attention to my October 2019 report An Examination of the International Centre ofRegulatory Excellence (ICORE) as well as the Energy Section of my November 2019 Report of the
Auditor General. These reports detail key findings of the AER’s involvement with ICORE and otherfindings relating to the legal and regulatory requirements items noted above.

[Original signed by W. Doug Wylie FCPA, FCMA, ICD.D]
W. Doug Wylie FCPA, FCMA, ICD.D
Auditor GeneralNovember 4, 2019
Edmonton, Alberta

4

ALBERTA ENERGY REGULATORSTATEMENT OF OPERATIONSYEAR ENDED MARCH 31, 2019

2019

2018

Budget(Note 4, Schedule 3)

ActualActual(in thousands)
Revenues
Industry levies and assessments
Information, services and fees$

297,841
3,542

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

867
302,250

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

253,250
45,500

Annual operating surplus
Accumulated surplus at beginning of year
Accumulated surplus at end of year$

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

5$260,021
7,901
1,747
269,669

298,750

257,903
45,9591,548
305,410

251,667
15,796
1,586
269,049

3,500

4,944

620

61,57365,073$

298,528
6,411
3,134
2,281
310,354$

61,57366,517$60,953
61,573

ALBERTA ENERGY REGULATORSTATEMENT OF FINANCIAL POSITION
AS AT MARCH 31, 2019

2019

2018
(in thousands)

Financial assets
Cash and cash equivalents (Note 6)
Accounts receivable (Note 7)
Pension assets (Note 13)$

Liabilities
Accounts payable and accrued liabilities (Note 8)
Payable to Orphan Well Association
Deferred lease incentives (Note 11)
Net debt
Non-financial assets
Tangible capital assets (Note 14)
Prepaid expenses and other assets
Net assets
Accumulated surplus (Note 15)$

Contingent liabilities (Note 16)
Contractual obligations (Note 17)
The accompanying notes and schedules are part of these financial statements.

6

19,7407,484
2,141
29,365$

15,644
7,548
738
23,93020,505
1,928
17,56840,001(10,636)

17,023806
19,03236,861(12,931)

66,415
10,73877,15362,718
11,78674,504

66,517$

61,573

ALBERTA ENERGY REGULATORSTATEMENT OF CHANGE IN NET DEBTYEAR ENDED MARCH 31, 2019

2019

2018

Budget(Note 4, Schedule 3)

Annual operating surplus

$

3,500

Acquisition of tangible capital assets (Note 14)
Amortization of tangible capital assets (Note 14)
Loss on disposal and write-down of tangible capital assets
Decrease/(increase) in prepaid expenses and other assets
Decrease/(increase) in net debt
Net debt at beginning of year
Net debt at end of year

Actual(in thousands)
$

4,944

$

(19,145)
15,329
119
1,048
2,295
(12,931)(10,636)(15,000)
11,500(12,931)(12,931)$

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

7

Actual$620$(14,268)
13,848
128
(664)
(336)
(12,595)(12,931)

ALBERTA ENERGY REGULATORSTATEMENT OF CASH FLOWSYEAR ENDED MARCH 31, 2019

2019

2018
(in thousands)

Operating transactions
Annual operating surplus
Non-cash items included in annual operating surplus:
Amortization of tangible capital assets (Note 14)
Loss on disposal and write-down of tangible capital assets
Change in pension assets
Amortization of deferred lease incentives (Note 11)

$

4,944

$

620

15,329119(1,403)(1,631)
17,358
64
1,048
3,482
1,122
167
23,241

13,848128(228)(1,616)
12,752434(664)(2,276)(13,309)(3,063)

Capital transactions
Acquisition of tangible capital assets (Note 14)
Cash applied to capital transactions(19,145)(19,145)(14,268)(14,268)

Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

4,096
15,644
19,740(17,331)
32,975
15,644

Decrease in accounts receivable
Decrease/(increase) in prepaid expenses and other assets
Increase/(decrease) in accounts payable and accrued liabilities
Increase/(decrease) in payable to Orphan Well Association
Additions to deferred lease incentives (Note 11)
Cash provided by (applied to) operating transactions$

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

8$

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 1AUTHORITY
The Alberta Energy Regulator (AER) is an independent and quasi-judicial organization of the Government of Alberta. The AER
operates under the Responsible Energy Development Act. The AER's mandate provides for the safe, efficient, orderly andenvironmentally responsible development of hydrocarbon resources over their entire life cycle. This includes allocating andconserving water resources, managing public lands, and protecting the environment while providing economic benefits for all
Albertans.

Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES
These financial statements are prepared in accordance with Canadian Public Sector Accounting Standards (PSAS).
(a)Basis of financial reporting
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.
Investment Income
Investment income includes interest income.
Expenses
Expenses are reported on an accrual basis. The cost of all goods consumed and services received during the year isexpensed.
Employee future benefits
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.
Pension assets represent the sum of the accumulated cash contributions less the sum of the current and prior years'
pension expense.
Accrued benefit obligations are actuarially determined using the projected benefit method prorated on length of service andmanagement's best estimate of expected plan investment performance, projected employees' compensation levels andretirement age of employees.
Accrued benefit obligations and pension benefit costs for the year are calculated using the expected rate of return on plan
assets as the discount rate, which is determined using market values of plan assets.
Actuarial gains and losses are amortized over the average remaining service period of the active employees, which is
10.9 years (2018 - 10.9 years).
Past service cost arising from plan amendments is accounted for in the period of the plan amendments.
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension
Plan, Public Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. Defined contribution
plan accounting is applied to these plans as the AER has insufficient information to apply defined benefit plan accounting.
Accordingly, pension expense comprises employer contributions to the plans that are required for its employees during theyear, which are calculated based on actuarially pre-determined amounts that are expected to provide the plans' future
benefits.

9

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)(a)Basis of financial reporting (continued)
Valuation of financial assets and liabilities
The AER's financial assets and liabilities are generally measured as follows:
Financial Statement Component
Cash and cash equivalents
Accounts receivable
Accounts payable and accrued liabilities
Payable to the Orphan Well Association
Deferred lease incentives

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

The AER has not designated any financial assets or liabilities in the fair value category, has no significant foreign currencytransactions and does not hold any derivative contracts. The AER has no significant remeasurement gains or losses andconsequently has not presented a statement of remeasurement gains and losses.
Financial assets
Financial assets are assets that could be used to discharge existing liabilities or finance future operations and are not for
consumption in the normal course of operations.
Financial assets are the AER's financial claims on external organizations and individuals at the year end.
Cash and cash equivalents
Cash comprises cash on hand and demand deposits.
Accounts receivable
Accounts receivable are recognized at the lower of cost or net recoverable value. A valuation allowance is recognizedwhen recovery is uncertain.
Liabilities
Liabilities are present obligations of the AER to external organizations and individuals arising from past transactions or
events occurring before the year end, the settlement of which is expected to result in the future sacrifice of economic
benefits. They are recognized when there is an appropriate basis of measurement and management can reasonably
estimate the amounts. Liabilities include all financial claims payable by the AER at fiscal year end.
Deferred lease incentives
Deferred lease incentives, consisting of leasehold improvement costs, reduced rent benefits and rent-free periods, areamortized on a straight-line basis over the term of the leases.
Liability for contaminated sites
Contaminated sites are a result of contamination of a chemical, organic or radioactive material or live organism thatexceeds an environmental standard, being introduced into soil, water or sediment. The liability is recognized net of any
expected recoveries. A liability for remediation of contaminated sites normally results from an operation that is no longer inproductive use and/or unexpected events, and is recognized when all of the following criteria are met:
- an environmental standard exists;- contamination exceeds the environmental standard;- the AER is directly responsible or accepts responsibility;- it is expected that future economic benefits will be given up; and- a reasonable estimate of the amount can be made.

10

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES (continued)(a)Basis of financial reporting (continued)
Non-financial assets
Non-financial assets are acquired, constructed or developed assets that do not normally provide resources to discharge
existing liabilities, but instead:- are normally employed to deliver AER services;- may be consumed in the normal course of operations; and- are not for sale in the normal course of operations.
Non-financial assets of the AER are limited to tangible capital assets and prepaid expenses and other assets.
Tangible capital assets
Tangible capital assets are recognized at cost less accumulated amortization, which includes amounts that are directly
related to the acquisition, design, construction, development, improvement or betterment of the assets. Cost includes
overhead directly attributable to construction and development of the asset.
The cost of the tangible capital assets, excluding land, is amortized over their estimated useful lives as follows:
Leasehold improvements
Straight line
Term of the lease
Furniture and equipment
Straight line
5 - 12 years
Computer hardware
Straight line
4 years
Computer software - purchased
Straight line
4 years
Computer software - developed
Declining balance
5 years
Amortization is only expensed when the tangible capital asset is put into service.
Work-in-progress, which may include developed computer software and leasehold improvements, is not amortized until aproject is complete and the asset is put into service.
Tangible capital assets are written down when conditions indicate that they no longer contribute to the AER's ability toprovide goods and services, or when the value of future economic benefits associated with the tangible capital assets isless than their net book value. The net write-downs are accounted for as an expense in the Statement of Operations.
Prepaid expenses
Prepaid expenses are recognized at cost and amortized based on the terms of the agreements.
Measurement uncertainty
Measurement uncertainty exists when there is a variance between the recognized or disclosed amount and 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.

(b)

Change in accounting policy
The AER has prospectively adopted PS 3430 Restructuring Transactions from April 1, 2018. The adoption of this standard
did not affect the financial statements.

11

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 3

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

Note 4BUDGET
The budget for the year ended March 31, 2019 has been approved by the Government of Alberta.

Note 5

ORPHAN WELL ABANDONMENT(in thousands)
The Government of Alberta has delegated the authority to manage the abandonment and reclamation of wells, facilities andpipelines that are licensed to defunct licensees to the Alberta Oil and Gas Orphan Abandonment and Reclamation Association(Orphan Well Association). The AER transfers all of its orphan well revenues (levy and application fees) to the Orphan Well
Association. During the year ended March 31, 2019, the AER collected $45,379 (2018 - $15,106) in levies and $580 (2018 $690) in application fees.

Note 6

CASH AND CASH EQUIVALENTS
Cash and cash equivalents are held in an account with a Canadian chartered bank and earn interest calculated based on the
average monthly cash balance. The funds are available to be withdrawn upon request. During the year ended March 31, 2019,
the AER earned interest at an annual average rate of 2.1% (2018 - 1.4%).

Note 7

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

2018

2019

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

Gross amount

Allowancefor doubtful
accounts

$

$

$

12

9,517
2,693
12,210$Net
recoverable
value(4,203) $(523)(4,726) $

5,314
2,170
7,484

Net
recoverable
value
$
$

7,548
7,548

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 8ACCOUNTS PAYABLE AND ACCRUED LIABILITIES(in thousands)
Accounts payable
Accrued liabilities
Unearned revenue$$
Note 92019
3,823
14,7191,963
20,505

2018
$

$

4,992
10,191
1,840
17,023

FINANCIAL INSTRUMENTS
The AER has the following financial instruments: accounts receivable, accounts payable and accrued liabilities, and payable to
the Orphan Well Association.
Financial risk management
The AER has exposure to the following risks from its use of financial instruments:(a) Liquidity risk
Liquidity risk is the risk that the AER will encounter difficulty in meeting obligations associated with its financial liabilities. Liquidity
requirements of the AER are met primarily through the collection of industry levies and assessments, which are used to fundoperating expenses and capital expenditures. The AER does not consider liquidity risk to be a significant risk as the AER collects
sufficient funding at the beginning of the year to meet all obligations that arise during the year. In addition, the available credit
facility provides financial flexibility to allow the AER to meet its obligations if funding cannot be collected on a timely basis.
(b) Credit risk
The AER is exposed to credit risk from potential non-payment of accounts receivable. A substantial portion of the AER's
accounts receivable includes balances due from 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 the carrying amount of accounts receivable presented in the Statement of
Financial Position at the reporting date. The AER established a valuation allowance that corresponds to the specific credit risk ofoperators, historical trends and economic circumstances.

Note 10 REVOLVING LINE OF CREDIT(in thousands, unless otherwise noted)
The AER has an unsecured $50 million revolving line of credit. Amounts borrowed can only be applied to general corporate
purposes and exclude the funding of operating deficits and/or capital expenditures. Bank advances on the line of credit arepayable on demand and bear interest at a rate of prime less 0.5%. As at March 31, 2019, the outstanding balance for the
revolving line of credit was $nil (2018 -$nil).
For the year ended March 31, 2019, interest expense on the revolving line of credit was $nil (2018 - $nil).

13

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 11 DEFERRED LEASE INCENTIVES(in thousands)
The AER has entered into various lease agreements which provide for lease incentives comprising reduced rent benefits, rentfree periods and leasehold improvement costs. These amounts are included in deferred lease incentives in the Statement of
Financial Position and are amortized on a straight-line basis over the term of the lease.
2018

2019
ReducedLeaseholdrent benefits
improvement and rent-free
periods
costs$
15,395 $3,637 $
167
(1,252)(379)$
14,143 $3,425 $

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

Total
19,032 $167(1,631)
17,568 $Total
20,648(1,616)
19,032

Note 12 LIABILITY FOR CONTAMINATED SITES(in thousands)
As at March 31, 2019, the AER is not responsible, nor has it accepted responsibility, for performing remediation work at
contaminated sites. As at March 31, 2019, the AER's liability for contaminated sites was $nil (2018 - $nil).
Note 13 EMPLOYEE FUTURE BENEFITS(in thousands, unless otherwise noted)
The AER participates in the Government of Alberta's multi-employer pension plans: Management Employees Pension Plan,
Public Service Pension Plan and Supplementary Retirement Plan for Public Service Managers. For the year ended March 31,
2019, the expense for these pension plans is equal to the contribution of $16,598 (2018 - $17,540). The AER is not responsible
for future funding of the plan deficit other than through contribution increases.
In addition, the AER maintains its own defined benefit Senior Employees Pension Plan (SEPP) and two supplementary pension
plans to compensate senior staff who do not participate in the government management pension plans. Retirement benefits are
based on each employee's years of service and remuneration.
All the information presented in the note below is related to the AER's defined benefit pension plans.
The effective date of the most recent actuarial funding valuation for SEPP was December 31, 2016. The accrued benefit
obligation as at March 31, 2019 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, 2019.
Pension plan assets are valued at market values. During the year ended March 31, 2019, the weighted average actual return onplan assets was 3.7% (2018 - 4.8%).

14

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 13 EMPLOYEE FUTURE BENEFITS (continued)(in thousands, unless otherwise noted)
Significant weighted average actuarial and economic assumptions used to value accrued benefit obligations and pension benefit
costs were as follows:
2019

Accrued benefit obligations
Discount rate

2018

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

Rate of compensation increaseLong-term inflation rate

5.0%
0% until Sep 30, 2019,3.5% thereafter
2.0%

2019
5.0%
5.0%

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

2018

0% until Sep 30, 2019,3.5% thereafter

Rate of compensation increase

4.6%
4.6%

0% until Mar 31, 2018,
3.5% thereafter

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

$

$

2019
67,789 $(63,836)
3,953(1,812)
2,141 $

2018
61,932(58,919)
3,013(2,275)738

20194,123 $
3,097
(3,252)279
4,247 $

2018
4,267
2,824
(2,711)
560
4,940

2019
5,649
898
3,028

2018
5,169
875
3,544

The pension benefit costs for the year included the following components:
Current period benefit cost
Interest cost
Expected return on plan assets
Amortization of actuarial losses$$
Additional information about the defined benefit pension plans is as follows:
AER contributions
Employees' contributions
Benefits paid$

The asset allocation of the defined benefit pension plans' investments was as follows:
Equity securities
Debt securities
Alternatives
Other

15

2019
45.8%
22.8%
18.0%
13.4%
100.0%

$

2018
44.3%
23.3%
18.7%
13.7%
100.0%

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 14 TANGIBLE CAPITAL ASSETS(in thousands)
2019

Estimated useful life

2018

Land

Leaseholdimprovements

Furniture andequipment

Computerhardware andsoftwareIndefinite

Term of thelease

5-12 years

4-5 years

Total

Total

Historical cost(1)Beginning of year$

Additions

282

$

-

Disposals, including write-downs

39,835$

5,889

14,230$56

132,487$

13,200186,834$

19,145

178,880
14,268

-

-

(671)

(8,434)(9,105)(6,314)282

45,724

13,615

137,253

196,874

186,834

Accumulated amortization
Beginning of year

(1)

$

-

$

14,920

$

2,524

8,490

$

1,099

100,706$

11,706

124,116$-

Effect of disposals, including writedowns

-

-

(656)

(8,330)(8,986)(6,186)-

17,444

8,933

104,082

130,459

124,116

Net book value at March 31, 2019

$

282

$

28,280

$

4,682

$

33,171

Net book value at March 31, 2018

$

282

$

24,915

$

5,740

$

31,781

15,329116,454

Amortization expense$

13,84866,415$62,718

Historical cost includes work-in-progress at March 31, 2019 totalling $5,726 (March 31, 2018 - $6,650) comprising computer
hardware and software $5,726 (March 31, 2018 - $6,646), and leasehold improvements $nil (March 31, 2018 - $4).

Note 15 ACCUMULATED SURPLUS(in thousands)
The accumulated surplus of the AER is calculated as the sum of the AER's net debt and its non-financial assets. The
accumulated surplus represents the net assets of the AER and comprises the following:
2019
Investments intangible capital Unrestricted
net assets
assets(a)$47,323 $14,250 $
4,944
4,949
(4,949)$52,272 $14,245 $Balance at beginning of year
Annual operating surplus
Net investment in capital assets(a)Balance at end of year

2018

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

16

$

$

Total
60,953620
61,573

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 16 CONTINGENT LIABILITIESThe 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. Accruals based on reasonable estimateshave been recorded where it is likely that losses will be incurred. The accrual amounts are not material to the AER's financial
statements.
Note 17 CONTRACTUAL OBLIGATIONS(in thousands)
As at March 31, 2019, the AER had contractual obligations totalling $194,921 (2018 - $183,751).
Contractual obligations are obligations of the AER to others that will become liabilities in the future when the terms of thosecontracts or agreements are met.
As at March 31, 2019, estimated payment requirements for obligations under operating leases and contracts for each of the next
five years and thereafter are as follows:$

2019-20
2020-212021-222022-232023-24
Thereafter$

42,97329,71919,333
17,065
13,73672,095
194,921Note 18 ASSETS UNDER ADMINISTRATION(in thousands)
The AER administers security deposits in accordance with specified acts and regulations. Security deposits are held on behalf ofdepositors with no power of appropriation and therefore are not reported in these financial statements. The AER does not haveany financial risk associated with security collected. Security, along with any interest earned, will be returned to the depositors
upon meeting specified refund criteria.
As at March 31, 2019, assets under administration included the following types of security deposits:
2019

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

$

$

17

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

2018

2019

2018

Cash
$
86,574
41,5677,189$ 135,330

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

Letters ofcredit$189,910
1,351,072
5,414$ 1,546,396

ALBERTA ENERGY REGULATORNOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2019
Note 19 COMPARATIVE FIGURES
Certain 2018 figures have been reclassified to conform to the 2019 presentation.
Note 20 APPROVAL OF FINANCIAL STATEMENTS
These financial statements were approved by the AER Board of Directors on October 25, 2019.

18

ALBERTA ENERGY REGULATOR
EXPENSES - DETAILED BY OBJECTYEAR ENDED MARCH 31, 2019

Schedule 1

2019

2018
(in thousands)

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

$

$

19

179,73145,95921,21920,12815,32913,715
4,424
3,978
753
119
55
305,410$$

178,362
15,796
18,47918,094
13,848
14,463
4,582
4,471
815
128
11
269,049

ALBERTA ENERGY REGULATORSALARY AND BENEFITS DISCLOSURE
YEAR ENDED MARCH 31, 2019

Schedule 2

2019
Base
salary (a)

2018
Other
non-cashbenefits (c)Other cash
benefits (b)

Total

Total

(in thousands)
Position
Board of Directors

Board Director (f)Board Director
Board Director (g)Board Director (h)Board Director (i)Board Director (j)

162
97
95
87
62
13
-

Executives
Former President and Chief Executive Officer (k)President and Chief Executive Officer (l)Chief Hearing Commissioner
Executive Vice-President, Corporate Services (m)Former Executive Vice-President, Stakeholder & Government Engagement (n)Executive Vice-President, Stakeholder & Government Engagement (o,u)
Former Executive Vice-President, Strategy & Regulatory (p)Executive Vice-President, Strategy & Regulatory (q,u)
Former Executive Vice-President, Operations (r)Executive Vice-President, Operations (q,u)
Former Executive Vice-President and General Counsel (s,u)
Executive Vice-President and General Counsel (t)

442
130
214
273
230
189
273
273
210
158

Chair (d)Former Chair (e)Board Director

$

$

18
47
39
456
422
17
67
45
73
18

$

6
4
4
4
2
1
131
6
56
94
80
69
94
66
75
42

$

168
101
99
91
64
14
591
183
309
823
732
275
434
384
358
218

$

43
220
95
48
89
44
95
46
733
284
434
444
95
396
88
366
455
-

(a) Includes retainers and per diems for Board Directors. Members of the Board of Directors do not participate in the AER's pension plans. Includes pensionable base pay for
Executives.
(b) Includes payments in lieu of vacation, pension and health benefits, as well as severance, vehicle allowances, short-term incentive payments for Executive Vice-Presidents
and other cash reimbursements.
(c) Includes contributions to all benefits as applicable, including employer's share of Employment Insurance, Canada Pension Plan, Government of Alberta and AER pension
plans, health benefits, and payments made for professional memberships, tuition fees, fair market value of parking and other taxable benefits.
(d) The incumbent held the position of Board Director effective October 18, 2017. On April 1, 2018, the incumbent was appointed to the position of Chair.
(e) The incumbent left the position effective March 30, 2018.
(f) The incumbent held the position effective October 18, 2017.
(g) The incumbent held the position effective October 18, 2017. On December 3, 2018, the incumbent was appointed to the position of President and Chief Executive Officer.
On December 11, 2018, the incumbent's Board Director appointment was rescinded.
(h) The incumbent held the position effective February 12, 2019.
(i) The incumbent left the position effective February 19, 2018.
(j) The incumbent left the position effective September 30, 2017.
(k) The incumbent left the position effective November 30, 2018 and retired effective January 31, 2019. An automobile was provided to the incumbent, but no dollar amount
was included in other non-cash benefits for 2019 or 2018. The 2018 figure has been restated by $5 to include travel benefits to conform to the 2019 presentation.
(l) The incumbent held the position effective December 3, 2018.
(m) The incumbent held the position until April 1, 2019, at which time the incumbent was terminated. Other cash benefits include $334 of severance pay. The severance was
expensed in the current year.
(n) On June 1, 2018, the incumbent was appointed to the position of Executive Lead for the International Centre of Regulatory Excellence development project, continuing toreport directly to the President and Chief Executive Officer. The incumbent was terminated effective January 31, 2019. Other cash benefits include $335 of severance pay.
(o) The incumbent held the position effective July 23, 2018.
(p) The incumbent left the position effective July 4, 2017.
(q) The incumbent held the position effective May 8, 2017.
(r) The incumbent left the position effective June 2, 2017.
(s) The incumbent left the position effective September 2, 2018, at which time the incumbent was appointed to the position of Executive Counsel, continuing to report directly
to the President and Chief Executive Officer. The incumbent left the position of Executive Counsel effective January 4, 2019.
(t) The incumbent held the position effective September 3, 2018.

20

ALBERTA ENERGY REGULATORSALARY AND BENEFITS DISCLOSURE
YEAR ENDED MARCH 31, 2019

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

SEPP AND SRP RETIREMENT BENEFITS(in thousands)
The costs detailed below are only for those employees, included in Schedule 2, who were employed during the year ended March 31, 2019 and participated in the
SEPP and SRP maintained by the AER. The SEPP and SRP provide retirement benefits to compensate senior staff who do not participate in the government
management pension plans.
2018

2019
Current
service cost
$
39
22
11
31

Position
Executive Vice-President, Stakeholder & Government Engagement (o)Executive Vice-President, Strategy & Regulatory(q)Executive Vice-President, Operations(q)Former Executive Vice-President and General Counsel (s,v)

Prior service
and other costs
$
1
1
1

Total
$

Total
40
23
11
32

$

28
13
43

The SEPP and SRP accrued obligation for each executive employed by the AER during the year ended March 31, 2019 is outlined in the following table:
Accruedobligation
April 1, 2018
$
418
42
572

Position
Executive Vice-President, Stakeholder & Government Engagement (o)Executive Vice-President, Strategy & Regulatory(q)Executive Vice-President, Operations(q)Former Executive Vice-President and General Counsel (s,v)(v) Includes service to January 4, 2019.

21

Changes in
accruedobligation
$
40
48
13
102

Accruedobligation
March 31, 2019
$
40
466
55
674

Accruedobligation
March 31, 2018
$
418
42
572

ALBERTA ENERGY REGULATORACTUAL RESULTS COMPARED WITH BUDGETYEAR ENDED MARCH 31, 2019

Schedule 3

Budget(Note 4)

Actual(in thousands)

Revenues
Industry levies and assessments
Information, services and fees
ICORE Energy Services (NFP)
Investment income$

297,841
3,542

$

867
302,250

Expenses
Energy regulation
Orphan well abandonment
ICORE Energy Services (NFP)

253,250
45,500CapitalCapital investment
Less: Amortization of tangible capital assets
Loss on disposal and write-down of tangible capital assets
Net capital investment
Surplus$22

298,528
6,411
3,134
2,281
310,354298,750
3,500

257,903
45,9591,548
305,410
4,944

15,000(11,500)

19,145(15,329)

3,500

(119)
3,697

-

$

1,247

ALBERTA ENERGY REGULATORRELATED PARTY TRANSACTIONSYEAR ENDED MARCH 31, 2019

Schedule 4

The AER, in the normal course of business, entered into various transactions with entities consolidated or accounted for on the modified
equity basis in the Government of Alberta's Consolidated Financial Statements. These entities are considered to be related parties of the
AER. Related parties also include key management personnel and close family members of those individuals. In 2019, there were no
outstanding amounts or transactions, other than compensation, between the AER and its key management personnel. Key management
personnel compensation is disclosed in Schedule 2.
Related Party Transactions with Government of Alberta Entities
The AER recognized the following transactions with Government of Alberta entities in the Statement of Operations and the Statement of
Financial Position at the amount of consideration agreed upon between the related parties:
Entities in the
Ministry of Energy
2019
2018
(in thousands)
Revenues
Information, services and fees

$

54

$

Other entities
2019(in thousands)
67$

Entities in the
Ministry of Energy
2019
2018
(in thousands)
ExpensesComputer services
Administrative
Consulting services
Buildings

$

$

2,050
2,050

Receivable from$

Payable toContractual obligations (a)

$

2018

1,397

$

1,365

Other entities
2019
2018
(in thousands)

$

2,353
2,353

69

$

$

373

$

-

$

$

2,896
714
625
612
4,847

$

$

2,531
836
1,537
602
5,506

17

$

113

$

922

$

588

$

2,277

$

1,501

$

2,353

$

7,326

$

5,867

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

23

ALBERTA ENERGY REGULATOR

Schedule 4 (continued)

RELATED PARTY TRANSACTIONSYEAR ENDED MARCH 31, 2019
ICORE Energy Services (NFP)(in thousands)
The AER was the operating and governing member of a not-for-profit (NFP) corporation, ICORE Energy Services (NFP), fromMay 17, 2017 to December 19, 2018, when the AER resigned its membership. ICORE Energy Services (NFP) was incorporated under
the Canada Not-for-profit Corporations Act . The former President and Chief Executive Officer of the AER was also the President andDirector of ICORE Energy Services (NFP) from May 17, 2017 to November 30, 2018, when he resigned his directorship.
ICORE Energy Services (NFP) was established to provide training, innovation and advisory services to regulatory and internationalorganizations in Canada and internationally. During its membership, the AER, through a Memorandum of Understanding and Training
Course Licence Agreement, provided the following services to ICORE Energy Services (NFP):● assisted with the creation of training curriculum and materials; and● provided resources and technical expertise to assist ICORE Energy Services (NFP) in its training and advisory services.
The AER was a related party with ICORE Energy Services (NFP) from May 17, 2017 to November 30, 2018. During this time, the AER
incurred in-kind costs for salaries of AER employees and third-party costs for travel and consulting expenses to provide services to
ICORE Energy Services (NFP). During the year ended March 31, 2019, the AER invoiced ICORE Energy Services (NFP) for costs
incurred on a cost-recovery basis.
During the year ended March 31, 2019, the Statement of Operations included $3,134 (2018 - $nil) in revenues for amounts invoiced to
ICORE Energy Services (NFP) and $1,548 (2018 - $1,586) in expenses. These expenses included in-kind costs of $1,103(2018 - $1,148) and third-party costs of $445 (2018 - $438).
At March 31, 2019, accounts receivable in the Statement of Financial Position included $2,693 due from ICORE Energy Services (NFP)(March 31, 2018 - $nil). A receivable of $1,586 was not recorded at March 31, 2018 to recoup the expenditures from ICORE Energy
Services (NFP). Of the $2,693 referred to above, $523 was provided for in the allowance for doubtful accounts. In June 2019, the AER
received $2,681 from ICORE Energy Services (NFP) for these accounts receivable.
The AER concluded that it did not exercise control over ICORE Energy Services (NFP) as this control was exercised by the Directors andofficers of ICORE Energy Services (NFP) in their personal capacity. These individuals directed ICORE Energy Services (NFP) andundertook its activities without the required authorization of the AER, its Board, or the Government of Alberta, in particular theincorporation of ICORE Energy Services (NFP) and causing the AER to become a member of ICORE Energy Services (NFP) in
contravention of the Financial Administration Act . As a result, ICORE Energy Services (NFP) financial results were not consolidated into
the AER’s financial statements for the year ended March 31, 2019. This conclusion is also supported by other facts and relevant guidance
under the Public Sector Accounting Standards, including the fact that ICORE Energy Services (NFP) was not carrying out AER
operations, functions, or mandate, and that despite temporary reliance on AER resources, ICORE Energy Services (NFP) was intended
to operate outside and independently of the AER.

24