Alberta reviewing future of regulated rate option for electricity

A power line is pictured in Calgary. The price of electricity has soared in recent months. (Evelyne Asselin/CBC - image credit)
A power line is pictured in Calgary. The price of electricity has soared in recent months. (Evelyne Asselin/CBC - image credit)

The future of Alberta's regulated rate option (RRO) for electricity is in question as it undergoes a provincial review — a move one economist says isn't surprising given how high rates have climbed in recent months, though he questions what the alternative might be.

"If you get rid of the RRO … what is the default and how do you ensure that it's reasonable?" said Blake Shaffer, an assistant professor in the University of Calgary's economics department.

In Alberta, the RRO is the default electricity option for consumers who don't want to sign a contract with a competitive retailer. It's also used by those who can't sign a contract because of certain barriers, such as a poor credit score or a lack of cash to pay an up-front deposit, said Shaffer.

Rather than being locked into a fixed rate for a set period, customers on the RRO pay a monthly rate that's tied directly to the market price of electricity.

That can mean customers see significant price swings on their monthly bills. In recent months, those prices have hit record highs.

In December, regulated rates surpassed 20 cents per kilowatt hour and surged even higher this year, though customers on the RRO have recently been paying no more than 13.5 cents per kilowatt hour after the province brought in a temporary price cap. (Any costs over and above that cap have been deferred, and will have to be repaid eventually.)

University of Calgary
University of Calgary

Premier says rate could be phased out

Alberta Premier Danielle Smith said Saturday — on Corus Entertainment's Your Province, Your Premier radio program — that the regulated rate is the most volatile rate.

She said fixed income seniors, renters and newcomers are among the most affected by price fluctuations.

"We've got to do something more to make sure that they have a lot more price stability. So we're going to be figuring out the best way to phase that rate out," Smith said.

In a statement, the provincial government told CBC News it's now reviewing the RRO "as part of our ongoing work to explore ways to improve affordability and rate stability for Albertans."

"As part of this review, we will be working with industry and others to examine various options, including around the future of the RRO, to ensure the needs of Albertans are being met," said Andrea Farmer, a spokesperson for the Ministry of Affordability and Utilities.

She added that no final decisions on the RRO have yet been made.

The province didn't specify what options are being considered, or what an alternative to the RRO could look like.

The NDP's energy and natural gas critic, Kathleen Ganley, said in a statement the RRO plays an important role in making sure everyone has access to power, no matter their financial circumstances.

"Any changes to the RRO would require continued regulatory oversight of prices and the ability for Albertans with low credit to access affordable electricity," she said.

'Has it served its purpose?'

David Bell/CBC
David Bell/CBC

Speaking at a recent conference, the head of Enmax Power agreed the RRO needs to be "seriously" looked at.

"I don't think that there was ever the intention that we would have customers on the RRO as long as we have," said Jana Mosley, president of Enmax Power, during a panel discussion hosted by the Independent Power Producers Society of Alberta.

"We really do need to think seriously about, 'Has that served its purpose?'"

Given the cost pressures consumers are facing, Janine Sullivan, president and CEO of FortisAlberta, said it's understandable the RRO is up for discussion. She noted it would likely be a complex program to phase out if the province decided to go that route.

"We have over 330,000 customers on the RRO in our service area, so just the education and the transition of those customers from something like that into a different arrangement will be very complex," she said.

Policy reform could help people get off RRO

While there are still many Albertans using the RRO, their ranks have declined in recent years, Shaffer said, with a particular drop in the last year as prices have skyrocketed.

Currently, about 63 per cent of Alberta customers are on competitive retail electricity contracts and the other 37 per cent are on the RRO, according to the latest numbers from the Market Surveillance Administrator.

Some have remained on the RRO because they don't have the credit score or the deposit money to sign a contract, Shaffer said. One simple way to reduce reliance on the RRO, he said, could be to reduce those barriers.

"The government could really easily step in and say to the competitive retailers, 'Look, we will cover any non-bill payment that's needed, but we're going to make sure you allow people even with low credit to go and get their electricity from you," said Shaffer.

Shaffer said this would likely reduce the amount of non-payment overall, as people with low credit scores or low incomes would have more stability in their monthly bills.

"I'm actually confused as to why the government over the past two years hasn't moved to try to help folks get on to fixed rates by removing those credit barriers."

Shaffer hopes to see this policy change made sooner rather than later, as anyone still on the RRO after the temporary cap is lifted will be left to pay the deferred costs.

The province said its review will continue through 2023.