Bulletin 2007-15 May 29, 2007 2007 Administration Fees, General Assessment, and Funding of Broad Industry Initiatives 1 General The Alberta Energy and Utilities Board (EUB) announces the 2007 administration fees. The EUB has a net revenue requirement, which is funded through a government grant and an administration fee. The administration fee, collected from each sector, reflects the EUB s estimated operating costs associated with regulating that sector. The government has approved a $12.0 million EUB funding increase for fiscal 2007/08. The funding increase translates into to a net revenue requirement increase of $10.5 million after deducting a $1.5 million increase in operating revenue. As a result, the 2007 Administration Fees and General Assessment will increase. While the government/industry funding ratio remains unchanged from the prior year, at 43 per cent government and 57 per cent industry, the industry portion of the funding increase is $6.0 million. This amount has been distributed across all industry sectors regulated by the EUB. The $6.0 million increase brings the total Administration Fee and General Assessment to $78.5 million for 2007. The allocation to industry sectors is based on EUB staff effort and the budget applicable to each sector. The following table identifies the distribution among the various sectors. Administration Fee Revenue ($000) 2007 sector 2006 sector Regulated by Sector allocation allocation OGC Act PUB Act AEUB Act Oil and gas 52 829 49 067 Oil sands 14 555 12 781 Utilities 6 852 6 719 Electric transmission 2 403 2 184 Coal 1 171 1 102 Electric generation 690 647 Total 78 500 72 500 It is important to note that many factors contribute to fee determination, including increase or decrease in wells or entities within the sector, ownership transfer and amalgamations, new entrants and, where applicable, volume fluctuations. For this reason, the actual impact at an invoice level is not directly proportionate to the percentage increase at the sector allocation level. As a result, invoices will vary according to individual entity operations and are based on operating statistics for the 2006 calendar year. Invoices to operators and utilities detailing the fee calculations will be mailed on May 29, 2007, and payments are due June 28, 2007. EUB Bulletin 2007-15 1
The Oil and Gas Conservation Act (OGC Act) and the Alberta Energy and Utilities Board Act (AEUB Act), authorizing the EUB to levy the administration fee in the oil and gas, oil sands, electric generation, and coal sectors, provide for the application of a late-payment penalty of 20 per cent on any portion of the fee that remains unpaid after June 28, 2007. The EUB can initiate action to close producing facilities for failure to pay an invoice or late-payment penalty. Late-payment penalties for the gas retail, gas transmission, gas distribution, electric transmission, electric retail, and electric distribution sectors will apply as stipulated in the Public Utilities Board Act (PUB Act). Note that oil and gas and oil sands sector invoices for 2007 administration fees are sent to and are payable by the operator. For conventional wells and oil sands schemes, operator means the entity that files well production and/or injection/disposal data with the Petroleum Registry of Alberta. If the operator fails to pay the fee, the licensee is responsible for payment of the invoiced amount plus any penalty. If an entity is buying a well or other asset subject to an administration fee or general assessment, it is important to agree with the seller as to who will be responsible for payment of the 2007 administration fee. 2 Oil and Gas 2.1 Administration Fees The annual administration fee collected from operators of wells is based on the production of oil/bitumen or gas during the preceding calendar year and on the number of producing and service wells. All operating wells are classified into one of eight base fee classes, as set out in Section 16.070 of the Oil and Gas Conservation Regulations and are illustrated in the table below. In addition, an adjustment factor is set annually by the Board under Section 16.081 of the Oil and Gas Conservation Regulations and applied to each base fee. This adjustment factor ensures that the total administration fee collected for the sector satisfies the net revenue requirement for the sector not funded by the Government of Alberta. Class Min production (m 3 /yr) Max production (m 3 /yr) Base fee 1 Service wells $100.00 2 0.0 300.0 $100.00 3 300.1 600.0 $125.00 4 600.1 1200.0 $312.00 5 1200.1 2000.0 $750.00 6 2000.1 4000.0 $1250.00 7 4000.1 6000.0 $1625.00 8 6000.1 > $1875.00 The adjustment factor of 0.943590 reduces the base fee specified for wells in all classes by 0.056410 (approximately 5.6 per cent). 2.2 Broad Industry Initiatives (BII) The Canadian Association of Petroleum Producers (CAPP) and the Small Explorers and Producers Association of Canada (SEPAC) have jointly requested that the EUB s administration fee process be used to collect $4 035 000 to fund broad industry initiatives in 2007 (see attached CAPP/SEPAC letter). The Board has agreed to this request and includes an additional charge for this purpose in the 2 EUB Bulletin 2007-15
2007 well administration fee invoices, increasing the adjustment factor used for invoicing from 0.943590 to 1.015660. The dollars collected for Broad Industry Initiatives (BII) are a pass-through of funds from industry entities to the two main industry associations. The EUB is not involved in the evaluation, selection, or monitoring of these initiatives. 3 Oil Sands The 2007 fees are split into five categories, which are subject to the adjustment factors identified below. Category ($000s) Adjustment factor Primary ongoing 1 640 1.164026 Thermal ongoing 4 305 2.142975 Thermal growth 3 075 1.888042 Mining ongoing 2 255 0.696741 Mining growth 3 280 12.737864 14 555 4 Utilities The general assessment payable in the categories listed below is calculated using an allocation factor which gives 75 per cent weight to the operating utility s actual revenue and 25 per cent weight to its average number of customers. These fees offset the cost of EUB operations relating to determination, administration, enforcement of applicable tariffs, and terms and conditions of service. The 2007 assessment is split into five categories: Category ($000s) Gas retail 1 062 Gas transmission 1 351 Gas distribution 1 544 Electric retail 1 351 Electric distribution 1 544 6 852 5 Electric Transmission The electric transmission sector levy offsets the costs of EUB operations relating to Alberta Electric System Operator (AESO) tariffs and need applications, Transmission Facility Owner (TFO) tariffs and facility applications, operations, and enforcement. The EUB levies the Independent System Operator (ISO) directly, based on the EUB s cost to administer this sector. 6 Coal The administration fee for coal is based on each mine s share of total production volumes for the year ended December 31, 2006. The rate is $0.036048 per tonne of marketable coal. EUB Bulletin 2007-15 3
7 Electric Generation The 2007 electric generation administration fee is based on a generator s share of total production for 2006. The production base for 2006 includes all marketed production by electric generators. Marketed production is the electric energy generated in Alberta by each operator of a power plant that is exchanged through the Power Pool of Alberta in the 2006 calendar year. The 2007 administration fee is $0.012927 per megawatt hour (MWh). 8 Regulatory Changes Amendments have been made to Sections 16.050, 16.080, 16.081, and 16.100 of the Oil and Gas Regulations (under the Oil and Gas Conservation Act), as well as the Administration Fees Regulation (under the Alberta Energy and Utilities Board Act) and the General Assessment Order (under the Public Utilities Board Act) to reflect the foregoing. The Minister of Energy has indicated a Government of Alberta intention to separate the EUB into two independent regulatory organizations, resources and utilities. As legislation to enact the separation has not yet been introduced, the effect of such a change is unknown at this time. During any transition period, the EUB will conduct business as usual. The requirements to pay fees for the current fiscal year remain unchanged. 9 Contact If you have questions about the 2007 administration fees, please contact Ms. Kris Klimczuk Alberta Energy and Utilities Board Finance Branch 640-5 Avenue SW Calgary, Alberta T2P 3G4 Telephone: (403) 297-4289 Fax: (403) 297-3195 E-mail: kris.klimczuk@eub.ca 10 Appeals Any appeals should be sent to the attention of Mr. Tony Rosgen Alberta Energy and Utilities Board Finance Branch 640-5 Avenue SW Calgary, Alberta T2P 3G4 Notwithstanding the filing of an appeal, payment of all invoices is required by June 28, 2007. Subsequent adjustments will be applied, as needed, following consideration of the appeal. <original signed by> J. Giesbrecht Chief Financial Officer Attachment 4 EUB Bulletin 2007-15