Alberta's electricity 'rate of last resort' is coming Jan. 1 as response to volatile prices
New stable price intended to provide predictability but lands above current rates
On the first day of 2025, Alberta's default electricity rate is set to be replaced by the new "rate of last resort," in what the province says is a bid to protect consumers from a volatile electricity pricing landscape.
To understand the change, it's important to first understand how the landscape has looked until now for electricity rates in the province.
In Alberta, residents must choose how they want to pay for their electricity, much like a mortgage.
They can choose a contract involving a fixed rate or a rate that floats from month to month, from more than 50 retailers. If they don't sign a contract, they're automatically enrolled on the default regulated rate option from a local provider.
It all can be confusing for people who move to the province from other parts of the country, said Blake Shaffer, an economist with the University of Calgary who specializes in electricity markets.
"That's pretty foreign to most people, who have one provider and pay what they're told to pay," Shaffer said.
Regulated rate option has reached record highs
The default rate in Alberta — to reiterate, what residents are put on if they don't set up a contract — has long been called the regulated rate option, or RRO.
According to the Market Surveillance Administrator's last quarterly report, there were around 413,000 residential customers on the RRO as of June 2024.
"The name is perhaps a bit misleading. Because I think when people hear regulated, they think stable," Shaffer said.
Up until now, the RRO has been a variable rate — meaning prices fluctuate monthly, depending on the market price of electricity.
The fluctuating nature of the RRO is received differently by residents depending on current market prices, noted economist Joel MacDonald, founder of EnergyRates.ca, an energy price comparison website.
"At times of very low electricity, everyone says, 'free market capitalism. This is amazing. This is the best system in the world. Everyone should be like Alberta,'" he said.
"At times of very high electricity, people say, 'why do we have a deregulated market? This is capitalism at its worst. I'm paying so much for electricity.'"
The RRO reached record-high levels in July, August and September 2023, according to EnergyRates.ca.
In April 2024, the provincial government announced it would revise the RRO in both name and structure. The goal, it said later in the year, was to protect Alberta's ratepayers from power price spikes, noting the default rate has tended to be more expensive and volatile than competitive options.
The newly-named rate of last resort will be set with a stable price for two years in an attempt to provide some predictability. The term is set to begin on Jan. 1, 2025, then end on Dec. 31, 2026, and be in the range of 12 cents per kilowatt.
But that 12-cent rate is higher than what is currently available to Albertans through fixed rates, Shaffer noted.
"To be blunt, there's zero reason for anyone to be on the rate of last resort. Going forward, you can go out and get a fixed rate from a myriad of [companies] right now, anywhere from seven to 10 cents," Shaffer said on Tuesday's episode of Alberta at Noon.
LISTEN | Your questions about power rates:
To put that into perspective, Shaffer noted that about three cents would save a customer around $20 per month, which would add up to around $250 per year.
"It's not nothing. And that is not having to be riskier in any way. That's simply going out there and signing up with, again, one of these many competitive retailers," he said.
Credit concerns
Shaffer said one of his biggest issues with the two-year fixed rate is that it comes as the province is entering a period of relatively lower prices.
"The people that were on the default rate, paying through the nose the last few years, are about to reap the benefits of lower prices," he said.
"But no, because they're switching to a two-year fixed rate, and they've set it quite high."
Given the recent volatility, Shaffer said he expects the name change was enacted, in part, to discourage people from remaining on the default rate.
In September, the provincial government said the Utilities Consumer Advocate would contact all customers on the rate of last resort every 90 days to confirm whether they would like to stay on that rate, and to encourage them to explore their options.
LISTEN | Breaking down the rate of last resort:
The government noted that not all Albertans are able to sign a competitive contract, and that in some rural areas, the rate of last resort may be a consumer's only option to receive power.
It added that the rate of last resort will be set every two years and could only be changed by a maximum of 10 per cent between the two-year terms, with an eye toward making the rate more stable and predictable.
Shaffer said he would like to see the government step in to help those individuals who are not able to get off of default rates should they have poor credit or can't afford a security deposit.
"[The government] could have stepped in for this issue of people not being able to get off the default rate because of credit concerns, and effectively fronted or waived that security deposit, and provided some bill non-payment insurance for the retailers," Shaffer said.
A spokesperson in the office of Alberta Affordability and Utilities Minister Nathan Neudorf said the government strongly encourages Albertans to explore electricity options and find the best rate available to them.
"For the small number of consumers unable to move off the rate of last resort due to financial difficulties, there are often other financial supports already available to them," wrote Ashley Stevenson in a statement.
"Albertans looking for more information on power rates, help with their utility bills, or are experiencing a dispute with their provider should contact the Utilities Consumer Advocate."
Contracts and strategies
MacDonald, the founder of EnergyRates.ca, said Alberta remains a good place for electricity agreements.
"A lot of Albertans are used to cable contracts, cellphone contracts, that have fixed-term and very high penalties for trying to exit," he said.
"Electricity contracts aren't like that at all. Even though you might be signing for two- or a five-year fixed price, the vast majority of them — all of the major retailers — allow you to exit with no exit fee and 30 days' notice."
The best strategy for Albertans, MacDonald said, is to stay on the fixed rate, which does average lower than the floating rate, and keep an eye on the competitive retail pricing.
"If and when they see there's a lower rate available, they can do two things. They can call up their current retailer and say, 'Hey, we saw company X is advertising lower than yours. Will you match that?' And if not, it's a simple online process to sign up to a new retailer," he said.
"The nice thing is you don't have to worry about trying to time the market. You're not trying to find the lowest fixed price, and guess when that's going to be available. Because as soon as the lower price is available, you simply sign up to it."
The provincial government has said approximately 26 per cent of residential customers purchase electricity through the rate of last resort.
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