Varcoe: Get ready for the Rate of Last Resort, as Alberta tweaks — but keeps — its default electricity rate

Alberta will keep its regulated rate option for electricity — but rename it the Rate of Last Resort and tweak it to lower prices.

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Rate of Last Resort.

You can call it Alberta’s default electricity price, or the regulated rate option (RRO), but the name of the power price option used by almost one-third of consumers in the province is about to change.

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After examining various options in the past year — including phasing out the RRO — the Alberta government will announce Thursday several changes to the default rate for electricity.

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Among those moves will be a switch to rename it the Rate of Last Resort, as the province seeks to nudge consumers to shift off the volatile default price and instead examine contracts available from retail providers, either on a floating or longer-term rate.

It’s also going to make technical changes to the way the default rate is ultimately determined, saying these modifications should reduce the volatility — and potentially lower prices — that have whipsawed thousands of Albertans on the RRO.

Utilities Minister Nathan Neudorf said the name change was recommended by a working group that examined the default rate. It’s intended to help educate people to understand that the regulated rate is volatile.

“The word regulated (being) in there has given a lot of people the understanding that it’s protected, somehow — and it’s not,” Neudorf said in an interview.

“Changing the name to something a little more drastic — which is where we’re going with the Rate of Last Resort — will give an impetus and awareness to consumers that maybe they should be looking for something a little more stable.”

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In Alberta’s deregulated power market, consumers can sign up with one of more than 50 retailers or stay on the default rate.

Under the RRO, rates are set each month by the Alberta Utilities Commission (AUC), based on wholesale electricity rates in the province.

With soaring electricity prices over the past two years, the default price has gyrated wildly and hammered consumers.

The rate in Calgary jumped from 16 cents per kilowatt hour (kWh) last May, up to a record 31.9 cents in August. With lower wholesale prices this year, the RRO has dropped to 12.8 cents per kWh for April.

Many Albertans shifted off the default rate last summer when prices spiked, “yet with the population growth in the province, that number is virtually unchanged,” Neudorf noted.

About one-third of commercial users, 46 per cent of farm customers and 29 per cent of residential consumers are now on the default rate.

However, some vulnerable Albertans may not be able to obtain lower-priced contracts from retailers — if they have credit issues or just relocated to the province — and need to access the default rate, he said.

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More than half of Albertans were on the RRO in 2016, when the default rate averaged just 4.2 per kWh.

Neudorf hopes the new moniker will jolt people to examine leaving the RRO.

The Calgary Chamber of Commerce hosted the Honourable Nathan Neudorf, Minister of Affordability and Utilities in Calgary on Tuesday, December 12, 2023. Photo by Darren Makowichuk /DARREN MAKOWICHUK/Postmedia

“It’s an uncomfortable term, the rate of last resort,” he added. “There’s a discomfort to that name, and we’re hoping it just educates them that they have options.”

In the minister’s mandate letter from Premier Danielle Smith last year, Neudorf was asked to review various aspects of Alberta’s electricity system, including “exploring the potential phase-out of the regulated rate option for electricity.”

While the concept was examined, the minister said the default rate is “fairly foundational” to how the deregulated system works and is sometimes viewed as the benchmark rate. (For example, the City of Calgary has partially based its franchise fee charges to customers on the monthly default rate, which led to a surge in revenues for city hall last year.)

In some rural areas, the options for electricity contracts can also be limited and the RRO is sometimes the only choice.

As part of the regulatory changes, the province will require RRO providers — such as Enmax or Epcor — to contact the consumer within three months of providing power, and confirm if they wish to stay on the default rate.

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The changes will give default rate providers more flexibility in how they purchase power, procuring electricity on a longer two-year term for the RRO rate (up from the current three months), so it could potentially stabilize prices through hedging.

“It becomes the rate to beat because it’s more stable and more predictable,” Neudorf said.

“We expect industry to express some displeasure in these (changes) because it will put downward pressure on them and their competitive offerings.”

Government forecasts have indicated the default electricity rate last year would have averaged less than 12 cents per kWh under the proposed changes, instead of nearly 22 cents obtained through the existing three-month procurement period.

The changes will be introduced through regulations and legislation later this spring and are expected to be implemented by Jan. 1, 2025.

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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