The AER mess offers Kenney a rare opportunity

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Damning conclusions of three investigations into the case of the Alberta Energy Regulator’s runaway CEO are all Premier Jason Kenney needs to remake the agency in his own image.

It’s an ideal time for Mr. Kenney’s United Conservative Party government to turn the page on the Alberta Energy Regulator (AER) after a period of scandal and blunder that has shaken the industry’s and the public’s confidence in it.

It will now be up to the both constituencies to determine whether the government strikes a balance between running a regulator that does not bog down responsible oil and gas and making sure a multibillion-dollar problem of underfunded environmental liability is dealt with. The government’s messaging has so far been very light on the latter.

The government, elected on its pro-oil policies, has been adamant that the regulator must be much more industry-friendly, and has talked about removing hurdles for the oil patch in its quest to regain investors.

The province’s Ethics Commissioner, Public Interest Commissioner and Auditor-General all issued reports on Friday that detailed how former chief executive officer Jim Ellis and a handful of senior AER officials had diverted the regulator’s money, staff and resources into a pricey side-hustle, and deceived the board as they went about doing so.

The venture, with the highfalutin moniker International Centre of Regulatory Excellence (ICORE), was a not-for-profit unit aimed at schooling other jurisdictions on how to oversee their energy industries. According to the reports, the executives’ real aim was to create future work and contracts for themselves.

With its CEO distracted with ICORE, the AER was left with strained resources to deal with its priorities, the investigators said. Front and centre are those ballooning liabilities tied to aging oil and gas wells.

The former military man left the AER last November amid growing criticism of ICORE after a whistle-blower complaint. The regulator then operated under an interim CEO as investigators asked questions, pored over documents and demanded executives behind ICORE hand over their cellphones.

These are not ideal circumstances for the province’s dominant industry, which is under severe financial strain after nearly half a decade of downturn. The AER is funded by industry levy, and its job is to make sure companies operate safely and within environmental rules. It also determines whether producers that buy assets have the financial wherewithal to clean them up. It has fallen down in that regard key times in recent years, in the name of keeping the wheels of commerce turning.

Now, though, it is clear that the UCP wants a clean slate, and more control, at the AER. Check out its changes so far: The government first put the industry-funded regulator on a tight financial leash, imposing a $150-million interim budget, about $100-million less than last year. That prompted the need for staff cuts, which could begin later this month.

Then, in September, the Premier and his Energy Minister, Sonya Savage, fired the board of directors and installed a new five-member slate. Two of them, chairwoman Beverly Yee and Grant Sprague, were deputy ministers in the provincial government, pointing to a much shorter arm’s-length relationship. If the public has any concerns about objectivity, the UCP can point to the expensive mess that occurred under a more independent board.

When she announced the new directors, Ms. Savage formally launched a review of the AER, stressing that it had become too slow in dealing with industry applications, a problem she said had plagued it for years. It was “not competitive," she said then, using a favourite phrase of the Canadian Association of Petroleum Producers.

Any push to streamline the AER must be done with the realization that risks are never far. Two days before investigators released their reports, Bellatrix Exploration Ltd. filed for protection from creditors so it could restructure and seek a buyer, showing how depressed natural gas prices keep threatening the financial health of the industry. Meanwhile, lenders have become nervous about extending credit after a Canadian Supreme Court decision that prioritizes environmental cleanup over the interests of secured creditors.

Mr. Kenney has a rare opportunity now to bring in fixes that restore confidence in what is arguably the most important regulatory watchdog in Alberta. Removing some of its teeth could be very expensive indeed.