The Alberta government is proposing measures, to take effect in January 2025, that aim to protect power consumers from wild price swings under the default rate and better inform them of their choices.
Albertans have three options when purchasing their electricity and natural gas utilities: the default power rate — currently called the Regulated Rate Option (RRO) — a competitive contract for a variable (floating) rate, or a competitive contract for a fixed rate.
The RRO rate currently fluctuates month-month based on market prices for electricity in Alberta. The rate is set by the Alberta Utilities Commission (AUC) and is not determined by the Alberta government.
Premier Danielle Smith says the RRO is misleadingly named because it can vary monthly according to weather and global events.
She says her United Conservative government aims to introduce legislation this spring renaming it the Rate of Last Resort so consumers can better understand what they’ve signed up for.
“We think this will send the right message to Albertans that this is the rate to sign up for only when there are no other options available,” Smith said.
Smith says her government is also planning to set the Rate of Last Resort every two years for each provider — up from the current 120 days or three months — so that there isn’t so much volatility.
David Gray, former executive director of the Utility Consumer Advocate, said the change is a big win for consumers and it should have been done years ago.
“We’ll never see 32-cent power again under that system. It’s something that we used to do and did up until 2007, when they tried to make the rate uglier, to shake people off of it,” Gray said.
According to EnergyRates.ca, in 2023, the average RRO price was 23.89 cents/kWh in the Edmonton region. The rate got as high as 32.957 cents/kWh in February of that year, and reached its lowest in May at 16.829 cents/kWh.
In Calgary last year, the average RRO price was 22.677 cents/kWh. The rate got as high as 32.349 cents/kWh in February 2023 and reached its lowest in May at 16.635 cents/kWh.
Gray said the two-year stable rate should result in RRO prices of 10 to 13 cents cents/kWh.
“That’s still significantly more than it should be, but that has more to do with the wholesale market that they’re planning to change in 2027,” he said, referring to a market restructuring the Alberta Electric System Operator has been tasked with drafting a design for. That is expected to be done this fall, with the aim of having new electricity market rules in effect in Alberta by 2027.
In the meantime, as part of Thursday’s RRO announcement, the province said it would also require providers to confirm with customers, within 90 days of providing their services, whether they want to sign on to a competitive rate or stick with the default.
It would also have providers share with customers how to access Utilities Consumer Advocate resources and remind them of their options on their monthly bills.
Alberta’s for-profit retail electricity market is home to over 50 power retailers that provide fixed and variable rate contracts.
There are many reasons for Albertans being on the RRO over a fixed or variable rate: they may be unable to sign a competitive contract due to poor credit or other financial difficulties, or live in a rural area where a variety of power options are not available.
Gray said the RRO changes could be devastating for electricity retailers.
“They’re going to be up against what’s really a pretty reasonable offering for consumers — that will probably be lower than what the five-year rate will be in many instances,” he said.
Although tens of thousands of people have moved away from the Regulated Rate Option, Affordability and Utilities Minister Nathan Neudorf said the province’s population growth has replaced them with new customers.
Approximately 29 per cent of residential customers get their power through the Regulated Rate Option.
Nothing with the current RRO system will change until next year at the earliest and the Opposition NDP says the “plan to make a plan” won’t protect consumers heading into summer.
New Democrat Opposition Leader Rachel Notley told reporters the UCP is still “bumbling around” trying to fix the problem it created when it scrapped the electricity price cap in 2019.
“Danielle Smith and the UCP made a decision to abandon families when they eliminated the cap on electricity rates. This caused utility prices to explode. Now, Alberta has the highest utility rates in the country,” said Alberta NDP Leader Rachel Notley.
“There was nothing in today’s announcement to protect Albertans this summer from the record-breaking rate spikes like we saw last year.”
The province had to offer temporary electricity rebates last summer to help residents with dramatic spikes in their bills.
Notley said a decreasing number of customers who have no choice but to stay on the regulated rate option will be left repaying larger shares of the cost of a temporary price cap put in place by the UCP last winter.
Notley said the UCP should not have removed the cap before coming up with a plan to ensure utility prices wouldn’t spike.
“Once again, Danielle Smith and the UCP put big interests over the interests of regular families,” Notley said.
EPCOR provides the RRO service in Edmonton, and in the surrounding territory served by Fortis Alberta, and said it would continue to provide this service for the renamed energy product.
Between the RRO and its own competitive retail electricity business Encor by EPCOR, the company said it has about 560,000 customers across Alberta.
“We support customer choice, a fair, efficient and openly competitive electricity market, and action on affordability,” said a statement by the Edmonton-based company, adding it looks forward to working with the government on the initiative.
“EPCOR has advocated for changes to Alberta’s electricity market that would reduce the price of power paid by our customers,” the company said.
Neudorf said the government is also looking at distribution, transmission and generation fees, which for some consumers can make up a large percentage of their power bills.
Gray said those regulated charges will be harder to change: either consumers need to use more power to increase throughput on the system — which is counterintuitive to energy conservation — or the province needs to take back some control of the delivery infrastructure.
Billions of dollars have been spend over the past two decades to expand Alberta’s transmission line network and that cost is passed on to consumers.
“That’s where we’re really getting stung, is this big overbuild of transmission that they started in 2007. The government could come in and buy out a part of that rate base — otherwise, you’re just stuck with what we’ve got.”
Previous updates to electricity market rules
The province began unveiling changes last month in what could be a series of significant tweaks to Alberta’s electricity market.
Alberta’s market is unique in Canada in that it is a for-profit, deregulated system. It pays generators only for the power they actually dispatch onto the grid and pays nothing for standby generating capacity.
The rules that govern the province’s current system were designed at a time when the bulk of Alberta’s power needs came from coal, and don’t necessarily work for a system that is now driven by natural gas and renewables.
In March, the province said it was updating its electricity market rules with new temporary measures it says will help lower consumers’ utility bills.
The new measures are aimed at the practice of “economic withholding,” a strategy regularly used by power generators in Alberta’s unique-to-Canada free-market electricity system.
Under Alberta’s competitive market design, electricity suppliers submit offers into the energy market known as the power pool every hour.
The Alberta Electric System Operator then dispatches the suppliers’ electricity, starting with the lowest-priced offers and moving higher until the province’s power needs for that hour are met.
Economic withholding is when power producers deliberately hold back some of their supply, offering it at a higher price. It’s a gamble that can pay off if the operator needs that power, since the producer makes more money, but backfires if the province’s power needs are met before it gets to the higher-priced offer.
The practice is not illegal, but has been highly criticized recently as one of the factors contributing to soaring consumer power bills in the province, as well as a growing number of occurrences where power prices in the province have been higher during off-peak periods than during periods of peak demand.
Under former Premier Rachel Notley’s NDP government, there had been a plan to transition from an “energy-only” to a capacity market, but the UCP later scrapped it.
— with files from Amanda Stephenson, The Canadian Press
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