Another Downgrade

On 26 May, U.S.-based Standard & Poor’s dropped the Province of Alberta’s credit rating two notches to A+.  The Report [Standard-and-Poors-2017-0526-Credit-Analysis-Report]  cites continuing budgetary deterioration and growing debt as the causes of the downgrade. The downgrade comes as no surprise although the drop to A+ from a AAA only four or five years ago is distressing for Alberta taxpayers.  This distress is manifest in the double whammy of historically high borrowing levels and borrowing costs that are now higher than British Columbia, Ontario,  and Quebec, the latter two provinces seen by some analysts as “fiscal basket cases.”

As the Table below illustrates, for a provincial government bond maturing in about seven years, Alberta’s June 1, 2024 bond is trading to yield 1.795 semi-annually, which is higher than the bonds of similar maturity dates of all the provinces listed. Although 10 basis points (one basis point is one-one-hundredth of one per cent) may not sound like a lot- over many years and ten of billions, these numbers add up rather quickly. (Ten basis points on $10 billion a year is $10 million.)


Province Maturity Date Yield
Alberta 01-Jun-24 1.795
British Columbia 18-Dec-23 1.617
Ontario 02-Jun-24 1.748
Quebec 01-Sep-24 1.773
Manitoba 02-Jun-24 1.79
Saskatchewan 03-Jun-24 1.745
Source: RBC Direct Investing 2 June 2017

Standard and Poor’s downgrades Alberta credit27-5-17 GM

S and P hits Alberta with another credit downgrade27-5-17 EJ

This fiscal year (since 1 April 2017) the Province has borrowed $2.25 billion in term debt. As of 2 June 2017, total term debt outstanding was slightly over $50 billion.

The figure below includes debt borrowed on behalf of other entities such as the Alberta Capital Finance Authority (ACFA) and Alberta Treasury Branches (ATB Financial). These entities in turn lend the funds to municipalities and other institutions such as airports authorities and to Alberta consumers and businesses. About $18 billion of total lending is borrowed for other entities.  As such these entities have offsetting assets (e.g. loans) from which the proceeds will be used to retire this debt. Thus total direct debt is approximately $32.4 billion (at current exchange rates) is direct debt that will be funded from future taxes and fees and possibly more borrowing.  The latter source of funding is known as “re-funding.”

Alberta Term Debt Outstanding  at 2 June 2017 (millions) Total ($) Exchange Rate Total $ CAD
Total Australian dollar debt outstanding 200 1.0033 200.66
Total Canadian dollar debt outstanding 40,278 40,278
Total Euro debt outstanding 637 1.5218 969.38
Total British Pound Sterling debt outstanding 650 1.739 1,130.35
Total United States dollar debt outstanding 5600 1.3504 7,562.24
Source: Alberta Treasury Board and Finance, Term Debt Outstanding as of 2 June 2017 $50,140.63   2 June 2017

[Note: The computation of the total Canadian dollar debt outstanding does not take into account currency swaps that are routinely entered into when a foreign borrowing is undertaken. The total foreign currency debt is converted using the 2 June 2017 exchange rates published by the Bank of Canada.]  

Budget 2017 showed a total of $18.7 billion in borrowing this fiscal year. According to the table on page 119,  the province’s financial requirements this fiscal year are, respectively,  $5.95 billion for capital purposes; $6.4 billion for the “fiscal plan;”  $2.5 billion for ATB Financial; $3.05 billion for ACFA; $481 for the Alberta Petroleum Marketing Commission; and $315 million for the Agriculture Financial Services Corporation.  This year there is no requirement for re-funding maturing issues.  However in fiscal 2019-2020, $3.8 billion must be re-funded.

The next few years will be a busy time for the Alberta government’s debt managers.


The Alberta Energy Regulator advertises (Again)

Alberta Electric System Operator (AESO)

The following ad seeking candidates for the position of AESO board members appeared in the Edmonton Journal last week.

AESO ad director2-6-17 EJ

While the ad is extremely general it should include the ability to read near- microscopic print!

The Alberta Energy Regulator advertises (Again)

In April, Boydon a well-known executive search firm placed an ad on behalf of the Alberta Energy Regulator (AER) for board commissioners. On 24 May 2017, the following advertisement was run with considerably less verbiage (see below) for the position of Board Director at the Regulator..

Ad Alberta Energy Regulator Board Member24-3-17 EJ

In an earlier article (Alberta Energy Regulator Advertises- 20 April 2017), we commented on the bold language of the earlier ad. The former ad (below) boasted of its “full life-cycle regulatory oversight of energy resource development: from  application and construction to abandonment and reclamation, and everything in between.” [Emphasis added] The original ad’s bombast included “For the past 75 years, Alberta’s oil and gas regulator has adapted to meet innovations in technology, new industry activity, and changing societal expectations. The Alberta energy Regulator is building on this foundation and preparing the province for the next era in energy regulation.”

Advertisement-Hearing Commisioners Alberta Energy Regulator15-4-17 EJ

The April ad listed a detailed set of proficiencies that few talented individuals, outside the energy-environment-legal world would be qualified for.   Happily, the regulator and its search agent in their most recent venture to encourage applicants have used less effusive language to describe the regulator’s role.  Also the AER  and its head hunter has become more realistic in drafting job listings that encourage, rather than discourage, more applicants with diverse backgrounds to apply.

It is understandable that regulatory agencies wish to attract the most qualified applicants.  However who defines qualified?  Is the agency (which is ultimately accountable to the Legislative Assembly through a Minister), the sole source of advice on the competencies for these positions. What role, if any, does the Minister or her department have in reviewing the ad and in filtering the applicants. Further effort may be needed in strengthening the role of the Public Agencies Secretariat in husbanding resources to co-ordinate the hundreds of ads and applicants for key agency roles. Indeed, legislative scrutiny of key agencies such as AIMCo, ATB, the Securities Commission Labour Relations Board,  Agriculture Financial Services Corporation, the Workers Compensation Board, and the Alberta Gaming and Liquor Commission, might be a good idea.

Now it really gets interesting

The electoral outcome of the British Columbia election was settled last week. This week it appears that a “coalition” agreement between the B.C. Greens and the New Democratic Party will serve to defeat Christy Clark’s government. The Agreement Text section 2 (c ) relates to Climate Change and reads as follows:

Immediately employ every tool available to the new government to stop the expansion of the Kinder Morgan pipeline, the seven-fold increase in tanker traffic on our coast, and the transportation of raw bitumen through our province. (Emphasis added.)

Over the coming months, both journalists, government officials, and lawyers from many constituencies will be pressing their claims. A range of litigation respecting the pipeline have been “joined” and will likely wind up before the Supreme Court in the fall. The cases involving a challenge to the authority of the National Energy Board are found on the agency’s Website. There are over 25 separate filings.  Applicants include the Cities of Vancouver and Burnaby and many indigenous nations including: Tsleil-Waututh Nation, the Squamish Nation, Coldwater Indian Band, Kwantlen First Nation, Cheam First Nation, Chawathil First Nation,  Stk’emlupsemc Te Secwepemc Nation, Upper Nicola Band, and the Musqueam Indian Band. In addition, Raincoast Conservation Foundation and Living Oceans Society are also challenging the NEB’s decision.


In Alberta, Premier Rachel Notley has signaled strongly her government’s position that Alberta will not permit the B.C. government thwarting the construction of the pipeline. As a passionate advocate for Kinder Morgan (an American-owned concern), she risks alienating some of her membership who have questioned the wisdom of doubling down on fossil fuels. Mayes cartoon31-5-17 EJBut Notley’s embrace of the oil industry shows her pragmatic side. “Big Oil” still employs many workers, including high paid, unionized construction workers and pipeline employees. Her early speeches made as the business community began to determine if she were ideological, were comforting. In a speech at the Calgary Stampede Investment Forum on 7 July 2015 she said:

This attitude of pushing the limits of what’s possible influences every aspect of the oil sands, from research and development to environmental management to the service and support fields. It’s a tremendous asset which has transformed Alberta into one of the world’s leading oil producers. And I’m here today to emphasize that the province has a government determined to defend this advantage, by being constructive at home, and by building relationships around the world. (Emphasis added.)

In New York in September 2015, she addressed the RBC Capital Markets investment forum:

We will be honest, thoughtful partners to enterprise. And we will maintain a warm welcome for investors, and uphold their right to earn fair returns on their investments. This definitely applies to energy.T he energy industry is very important to Alberta and always will be. In addition to having the third-largest oil deposits in the world in the oil sands, we also have abundant conventional oil and natural gas…as well as renewable forms of energy, especially wind and solar power. We’re an energy province and that’s not about to change. To expand existing oil sands projects, establish new opportunities in the energy economy, and pioneer advanced technologies – all this requires investment on a large scale. So under our government’s leadership, Alberta’s abundant oil and gas reserves will remain wide open to investment. (Emphasis added.)

Premiers, even social democratic ones, do recognize that capital markets (which are now supplying over a quarter of the government’s financing this year), need to be assuaged. Both the royalty report and the Climate Change report were crafted with financial markets as a key audience. So the battle with the British Columbia government in now on. Although Ms. Notley has tacked rightward, she still needs to be wary about Alberta environmental constituencies.  A key step will be to ensure that Kinder Morgan uses its considerable resources to make absolutely sure its current and future pipeline systems are the safest in the world. A meeting with the proponents to convey that message would be to Alberta’s advantage.

Trans Mountain’s necessity questioned as tanker traffic slumps17-6-17 GM

Notley says PM still backs Trans Mountain15-6-17 GM

PM remains ‘committed’ to pipeline, Notley says15-6-17 EJ

Coalition asks banks to shun pipeline13-6-17 GM

Neighbours, professors more reliable on energy issues- poll8-6-17 EJ

Governing looks easier when you’re in opposition10-6-17 GM

Trans Mountain will test Confederation 10-6-17 GM

A pipeline rattles the political landscape3-6-17 GM

Trudeau and Notley must hold firm on Trans Mountain expansion9-6-17 EJ

Kinder Morgan says it won’t make more Trans Mountain concessions3-6-17 GM

Notley brushes off B.C. Greens3-6-17 EJ

Notley could benefit from Trump’s climate pact pull-out3-6-17 EJ

Trans Mountain changes off table3-6-17 EJ

Legal Notice Trans Mountain Pipeline ULC2-6-17 EJ

Minister calls B.C. Green Party leader ‘hypocritical’ for criticism of Notley2-6-17 EJ

How a splash of green ruined a match made of orange2-6-17 GM

A Tangled Pipeline Battle1-6-17 EJ

No B.C. government has right to block pipeline, Notley warns17-5-17 GM

Notley to B.C. Hands off pipeline17-5-17 EJ

Notley took the biggest loss in B.C. election13-5-17 GM

‘Our pipeline’ Notley’s elusive Holy Grail31-5-17 GM

PM defends Trans Mountain as BC Greens, NDP gear up for fight31-5-17 GM

‘That pipeline will be built’31-5-17 EJ

Trans Mountain faces new risk from NDP, Greens30-5-17 GM

Trans Mountain proponents headed for showdown with B.C.31-5-17 EJ

TransMountain IPO comes at bad time for Kinder Morgan20-5-17 GM

‘Ugly Storm’ hits debut of Kinder Morgan31-5-17 EJ

Narrowing the playing field

Alberta Energy Regulator advertises for Hearing Commissioners

In the 15 April edition of the Edmonton Journal an ad appeared seeking interested individuals to apply for a position as a Hearing Commissioner with the Alberta Energy Regulator (AER). The request for applicants proclaimed that “The AER ensures the safe, efficient, orderly, and environmentally responsible development of hydrocarbon resources….and protecting the environment while providing economic benefits for all Albertans… and provides full life-cycle regulatory oversight of energy resource development: from application and construction to abandonment and reclamation, and everything in between.” [Emphasis added]  Pretty powerful regulator!  Perhaps too powerful? Why should the public care?

Advertisement-Hearing Commisioners Alberta Energy Regulator15-4-17 EJ

Historically, vacancies on government boards were not advertised.  Under Ed Stelmach, progress was made to require boards to advertise for board positions. Today we have a situation where incumbent boards are exercising too much discretion in determining what skill sets should go into a recruitment process. The above advertisement is likely to discourage “outsiders” to apply.

In a recent post [Baby steps at AIMCo board], the removal of the highly restrictive qualification for AIMCo directors (“proven and demonstrable experience and expertise in investment management, finance, accounting or law or experience as an executive or a director in a senior publicly traded issuer) was praised. Likewise, the qualifications for Hearing Commissioners might be seen as absurdly, or unnecessarily, high and carefully biased to those with an “understanding” (and acceptance?) of the current system.

Criteria for successful applicants include:  “in-depth experience and knowledge of Alberta’s energy activities including technical, regulatory, safety, legal and financial requirements, an understanding of landowner, Aboriginal and environmental issues, and an understanding of provincial government policy, legislation and operations.”  Not only does the successful candidate appear to have to have worked in this field for their entire work life, they also must “have knowledge of the principles of administrative law and natural justice, and experience presiding over or participating in public hearings and designing and leading alternative dispute resolution processes.”  This seems to be code for a lawyer.  Furthermore “Your aptitude for adjudicative decision-making includes good listening skills, open mindedness, sound judgment, and the ability to interpret legislation and organize and analyze complex evidence,” adds to an already long list of relatively scarce pool of applicants.

In addition to filtering qualified candidates the ad suggests that “Technical training and experience in the fields of geoscience, engineering or environmental science are preferred, but not required.” [Emphasis added]

It’s not clear whether such a person exists. Certainly personnel with the Pembina Institute might meet some of the requirements, but still might be given a pass on the basis of being short on the administrative law or knowledge of financial or safety requirements.

Such ads underline the challenge a new government faces with bureaucratic and regulatory forces which appear to serve the interests that are being regulated. Who outside the industry and the energy bureaucracy would put their credentials forward in the face of such a high bar?  Is there not some on-the-job training for those with a generalist background?

The flow back and forth between the Energy department and AER and the industry is a well-known feature of “the system.” It is time for the government to take leadership in the appointments process to protect the public interest against the natural inclination of the industry’s self-interest to foster “sound judgment” when key regulatory decisions are made.