WHEREAS the Alberta Energy Regulator (AER) recently released Bulletin 2017-21, announcing the “New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals”; and
WHEREAS the changes to Directive 067 included requiring additional information at the time of application, increased discretion regarding the rejection of applications where an applicant possesses a risk, and requirements for keeping corporate structure information up to date; and
WHEREAS the changes to Directive 067 did not include any requirements or consideration of the status of municipal property taxes towards an application/transfer of license or liability rating, and the AER continues to transfer licenses of properties that have outstanding property taxes; and
WHEREAS the collection of outstanding oil and gas property taxes continues to a large challenge for many municipalities; and
WHEREAS the Municipal Government Act has provisions to collect such debts, but the methods have been largely unsuccessful in practice, and have led to lengthy legal proceedings in an effot to collect such unpaid taxes;
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate that the Alberta Energy Regulator (AER) be required to ensure that there are no outstanding municipal property taxes before licenses are transferred, including licensed properties declared as “Orphan Sites”; and
FURTHER BE IT RESOLVED that outstanding property taxes form part of the liability rating for oil and gas companies; and
FURTHER BE IT RESOLVED that oil and gas companies be required to post deposits in the amount of all outstanding municipal property taxes before they can apply for a license or transfer, and that these deposits are forwarded to the municipality from the AER upon the approval of the license or transfer.
5-17F: Alberta Energy Regulator – Amendment to Transfer Approval Process
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) requests the Government of Alberta amend the Municipal Government Act (MGA), and other provincial legislation, regulations and policies, including AER Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process to:
FURTHER BE IT RESOLVED that the AAMDC request that Alberta Energy direct the AER that prior to refunding any security deposits, check with all municipalities in which the company requesting the refund had leases in, to ensure property taxes are current.
DEVELOPMENT: RMA appreciates the recognition and the multiple steps being taken by the Government of Alberta to address the challenges faced by municipalities as a result of oil and gas operators who are have not payed property taxes. At this moment, however, there has been only limited improvements for municipalities through the Provincial Education Requisition Credit (PERC) program which only applies to the education property tax portion of the unpaid linear oil and gas property taxes. Until the amendments listed in the resolution are made, or more substantial improvements to the overall liability management system are provided, this resolution is assigned a status of Intent Not Met.
4-17S: Collection of Outstanding Taxes for Education Requisitions from the Province of Alberta
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties request that the Government of Alberta develop new tools or utilize existing mechanisms to ensure that municipalities that are unable to collect education property taxes through the tax recovery process be exempted from forwarding those uncollectible tax amounts to Alberta Education, or have the uncollectible amount refunded.
DEVELOPMENT: In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.
At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued.
This resolution is assigned a status of Accepted, and the RMA will continue to work with the Government of Alberta to support the long-term viability of the PERC program and develop other mechanisms to address unpaid linear property taxes.
3-16S: Recovery of Linear Property, Commercial Property, and Education Requisition Tax Arrears
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) request the Government of Alberta to amend the Municipal Government Act (MGA), and other provincial legislation to broaden the tax recovery power of municipalities to collect linear property taxes by granting a lien in favour of the municipality as follows:
A lien equivalent to that granted to the Alberta Energy Regulator (AER) by s. 103 of the Oil and Gas Conservation Act (OGCA) that being: “on the debtor’s interest in any well, facilities, and pipelines, land or interests in land, including mines and minerals, equipment and petroleum substances” and the power to garnish funds owed to the debtor;
A lien which ranks in priority (or equivalent) to the lien granted in favour of the AER by s. 103(2) of the OGCA;
FURTHER BE IT RESOLVED that the AAMDC requests the Government of Canada to amend the federal Bankruptcy and Insolvency Act to recognize municipal linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests;
FURTHER BE IT RESOLVED that the AAMDC request the Government of Alberta to provide a credit reimbursement to compensate for the education property taxes that become uncollectable due to linear and commercial property bankruptcy.
DEVELOPMENT: In 2016, Alberta Municipal Affairs had convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education, and the AER. The purpose of this working group was to address the concerns identified in resolution 3-16S and resolution 5-15F. More specifically, the working group explored how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to relieve or exempt municipalities from paying provincial education property tax requisitions on linear properties in which the municipality has not been able to gather tax revenues from the property owner.
Early in 2017, the working group completed their research and Government of Alberta staff internally developed options for the Minister of Municipal Affairs based on the working group’s findings. In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties, may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.
At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued. The creation of PERC meets the request in the third operative clause of this resolution.
5-15F: Recovery of Linear Property Tax Arrears
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) requests the Government of Alberta to amend the Municipal Government Act (MGA), and other provincial legislation to broaden the tax recovery power of municipalities to collect linear property taxes by granting a lien in favour of the municipality as follows:
FURTHER BE IT RESOLVED that the AAMDC requests the Federation of Canadian Municipalities to request the Government of Canada to amend the federal Bankruptcy and Insolvency Act to recognize municipal linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests;
FURTHER BE IT RESOLVED that the AAMDC request the Province of Alberta to provide a credit reimbursement to compensate for the Education Property Taxes that becomes uncollectable due to linear property bankruptcy.
DEVELOPMENT: In 2016, Alberta Municipal Affairs had convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education, and the AER. The purpose of this working group was to address the concerns identified in resolution 3-16S and resolution 5-15F. More specifically, the working group explored how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to relieve or exempt municipalities from paying provincial education property tax requisitions on linear properties in which the municipality has not been able to gather tax revenues from the property owner.
Early in 2017, the working group completed their research and Government of Alberta staff internally developed options for the Minister of Municipal Affairs based on the working group’s findings. In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties, may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.
At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued. The creation of PERC meets the request in the third operative clause of this resolution.
The Government of Alberta has not amended the Municipal Government Act (MGA) to broaden the tax recovery powers of municipalities, and municipal powers to seize assets to account for unpaid linear property taxes continues to rank lower in priority than that of the AER and other organizations.
Similarly, RMA has received no indication from the Government of Canada of a willingness to amend the federal Bankruptcy and Insolvency Act to place municipal interests above other non-secured interests.
RMA assigns this resolution a status of Accepted in Part and will continue to advocate on all aspects of this resolution.
Alberta Energy
The Government of Alberta (GoA) adheres to the polluter-pays principle. It is the expectation of Albertans and of this government that industry should continue covering the costs related to cleaning up and decommissioning oil wells and associated infrastructure. The GoA is committed to ensuring the liabilities associated with the full life cycle of energy development are managed appropriately and that Albertans and the environment are protected.
The GoA continues to review the management of historic, current, and future liabilities associated with oil and gas wells and facilities. The Rural Municipalities of Alberta participated in engagement sessions held in summer 2017 as part of the review. This input will be considered in recommendations being developed to improve the liability management system. The Minister of Energy has already publicly indicated that new tools for measuring corporate health will be among the outcomes of the review and we expect further details to be announced in the coming months.
Alberta Energy Regulator
The Alberta Energy Regulator (AER) is committed to protecting what matters to Albertans—public safety and the environment—all while ensuring the rules are followed at every stage of development. In December 2017, the AER updated Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. Under Directive 067, energy operators must disclose financial information to the AER including audited financial statements and the existence of insolvency proceedings.
The AER does not verify that municipal taxes have been paid by energy operators before approving license transfers. We do not currently have jurisdiction to impose conditions on license transfers relating to unpaid municipal taxes. However, we have been working with Alberta Municipal Affairs on how municipalities can recover unpaid taxes from oil and gas operators. As part of the working group, we provided information on our requirements for oil and gas operators to transfer licenses for wells, facilities, pipelines, and other energy infrastructure.
Applications for energy development, including license transfers, are posted to the AER’s Public Notice of Application tool on aer.ca for 30 days. During this time, Albertans (including municipalities) who believe that they are directly and adversely affected by a proposed application or license transfer can file a statement of concern with the AER. We review all statements of concern and consider these concerns when making decisions on applications.
Developing Alberta’s energy resources comes with a responsibility to restore the land to a state similar to before development took place. Our Licensee Liability Rating (LLR) program is one of many AER programs that are intended to ensure that energy operators—not Albertans—are held responsible for cleaning up energy infrastructure and their associated sites. The LLR program calculates a monthly ratio for each licensee (i.e. energy operator) based on their deemed assets (production) and liabilities (estimated abandonment and reclamation costs). This is known as the Liability Management Rating (LMR).
To improve their LMR, energy operators can reclaim or sell less-productive assets, increase their assets (by optimizing production or purchasing highly productive sites), or post security (by way of cash or letter of credit) with the AER. Unpaid municipal taxes do not form part of a company’s LMR.
The AER allows license transfers if:
In 2020, the Government of Alberta announced a new Liability Management Framework which includes a series of mechanisms and requirements to improve and expedite reclamation efforts and set clear industry expectations throughout the life cycle of oil and gas projects. Under this new framework, the Government of Alberta directed the AER to develop new liability management programs to implement this new framework. The AER is currently building programs, systems, and processes to implement the framework. One such initiative is the development of Directive XXX: Licensee Life-Cycle Management, which will replace Directive 006: Licensee Liability Rating (LLR) Program and Licensee Transfer Process. In the summer of 2021, the AER reached out to stakeholders to provide feedback on Directive XXX. RMA’s feedback focused on the limited inclusion of unpaid taxes as a factor in assessing a company’s “capabilities and performance.” The directive only includes unpaid taxes as a consideration on public lands during the license transfer process. RMA’s position is that it should not matter whether a development is on public or private land in terms of whether the AER considers unpaid taxes as a factor in a company’s lifecycle management performance, and the focus should not be specifically on license transfers. The AER is in the process of reviewing the feedback and has stated that the directive will be finalized in fall 2021.
The Government of Alberta has indicated that the new Licensee Capability Assessment System will be implemented at some point to replace the Licensee Liability Rating program, and that changes made to Directive 067 to allow the AER to consider unpaid municipal taxes as a factor in assessing licensee risk may be integrated into the new system. RMA considers this a positive step in better addressing unpaid municipal taxes from the oil and gas industry and looks forward to better understanding how the new system will consider unpaid taxes.
Given that lack of payment of municipal taxes is often a sign of financial distress for companies, and may lead to further abandonment of other commitments, RMA urges the AER to consider unpaid taxes on all land in the liability rating for oil and gas companies.
This resolution is assigned a status of Intent Not Met, and RMA will continue to advocate on this issue.