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In its first provincial budget, Premier Jason Kenney’s United Conservative Party government has targeted reductions in the Alberta Energy Regulator’s budget of $147-million, or 58 per cent, over the next four years.Christopher Katsarov/The Globe and Mail

Alberta’s energy regulator faces deep budget and staff cuts as it goes about overseeing the province’s dominant industry after damning reports by investigators about its previous leadership’s conduct.

In its first provincial budget, Premier Jason Kenney’s United Conservative Party government has targeted reductions in the Alberta Energy Regulator’s (AER) budget of $147-million over the next four years.

The reductions are set to begin in the upcoming budget year, starting with a 7 per cent cut to $236-million.

In the next year alone, the government expects the AER’s staff to be reduced by 270 full-time positions, or 22 per cent, according to the province’s fiscal plan, released on Thursday. In the provincial budget, the Kenney government made sweeping cuts to public services, including the elimination of 2,000 public-sector jobs.

A key question is where the reductions will take place at the AER, which currently employs 1,240 people. The agency ensures that the oil, gas and coal industries operate safely and within environmental regulations. As the energy industry’s fortunes have suffered, the AER has struggled to deal with a massive buildup in underfunded environmental liabilities tied to aging oil and gas wells.

“The AER is confident that its core duties will not be affected by these reductions,” spokesman Bob Curran said in an e-mail on Friday.

The cuts come at a fraught time for the AER, which is seeking to recover from revelations stemming from three public probes that detailed how former chief executive officer Jim Ellis and a handful of allied senior officials diverted a portion of the AER’s funds, staff and other resources into an affiliated unit called the International Centre of Regulatory Excellence (ICORE), and deceived the board as they went about doing so.

The investigators concluded that the executives’ real aim was to create future work and contracts for themselves, and that ICORE distracted the regulator from its main duties. The regulator is funded by industry levy and not directly by government, but the province sets how much the regulator collects. Mr. Kenney had previously said the fees charged to companies are “unacceptably high.” Alberta Energy Minister Sonya Savage is leading a review into the inner workings of the regulator, saying approvals for projects take far too long.

Any cuts will come from areas that don’t fall under the agency’s key mandate of energy regulation, safety and environmental protection, Ms. Savage said in an interview.

“What comes out of that review will feed into where priority needs to be placed and what area they need to focus jobs,” she said.

AER executives, led by interim CEO Gord Lambert, had previously been devising a reorganization assuming a budget cut of 18 per cent. But late last week, the agency’s board, led by chairwoman Beverly Yee, put the brakes on those efforts and said it would work with the government on a wider review and reworking of the organization. It was not immediately known whether that abrupt change of plans was in anticipation of the much deeper budget cut announced on Thursday.

An energy-industry official said he does not believe the regulator’s effectiveness will be harmed as its funding is reduced.

“Normally, a cut of that nature would make us in the industry pretty concerned because it is an important agency that we need. However, I think there have been so many problems lately at the Alberta Energy Regulator,” said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents smaller energy companies.

Mr. Goodman said staff dealing in core regulatory functions number about 600, with the remainder in various support and administrative roles. “I’m always sensitive when you get that much government cut, but with the recent problems it’s encountered it needs a pretty big overhaul.”

With a report from Emma Graney

Editor’s note: An earlier version of this article erroneously put the percentage cut over four years at 58 per cent. The reduction of $147-million is from the cumulative budget totals over the period, rather than the amount of reduction by the fourth year's budget.

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