Do you like to shop around for the lowest possible price? Are you willing to take the occasional risk? If so, a floating rate plan (a variable rate electricity or natural gas) may be the ideal energy plan for you.
Floating rate plans charge energy prices based upon current market conditions for electricity and natural gas.
When you sign up for a floating rate electricity or natural gas plan, you will not pay a fixed rate for the energy you use. Instead, the price you pay will be based upon how much electricity or natural gas currently costs and current market conditions.
Obviously, floating rate plans don’t just allow a provider to make up whatever price sounds good to them, but instead, calculates the monthly rate based upon the current market price for energy.
It’s also important to note that depending on your province, these market rate-based plans may have different names, such as floating or variable, but they usually follow the same logic: variable utility prices.
For instance, in Alberta, in 2024, Encor by EPCOR had a variable rate plan that calculates the price charged to consumers by taking the current Alberta wholesale price for a kilowatt-hour (kWh) of electricity, and adding ¢1 to it.
So, if the average market price for electricity in a given month is 3 cents per kWh, and you use 1,000 kWh of electricity that month, your total electricity cost in this scenario would be calculated thusly:
(3 cents/kWh + 1.0 cent/kWh) * 1,000 kWh = 4,000 cents, or $40.00
(Please note, this calculation doesn’t include other fees and surcharges, and may not reflect the retailer’s current rate.)
For example, in Ontario, Ontario Wholesale Energy had in 2024 a floating rate plan that takes the monthly average of the Hourly Ontario Energy Price (HOEP) for a kilowatt-hour (kWh) of electricity, and adds 0.95 cents to that rate, producing the retail rate they charge customers.
For example, if the HOEP price is 2.05 cents per kWh in a given month, and your business uses 1,000 kWh of electricity, here is how your electricity cost would be calculated:
(0.95 cents/kWh + 2.05 cents/kWh) * 1,000 kWh = 3,000 cents, or $30.00
(Please note, this calculation doesn’t include other fees and surcharges, and may not reflect the retailer’s current rate.)
But remember: The energy prices charged by floating rate plans change every month.
As we mentioned, floating rate plans calculate the cost of electricity or natural gas based upon the current market price of energy. That means that when demand rises or an outside event—such as a natural disaster or a trade conflict—occurs, the price of energy will rise, and so the price charged by your floating rate plan will rise as well.
In our example above, the Alberta market price of electricity was 3 cents per kWh, resulting in a price of 4.00 cents per kWh. Suppose that in the following month, electricity demand rises sharply, and an accident forces the temporary closure of a nuclear-powered electricity generation plant. As a consequence, the following month’s market price jumps to 7.00 cents per kWh.
If our hypothetical customer uses the same amount of electricity that they used in the previous month, their total electricity cost would be:
(7.00 cents/kWh + 1.0 cent/kWh) * 1,000 kWh = 8,000 cents, or $80.00
Despite using the exact same amount of electricity that they used the previous month, this customer sees their monthly electricity bill jump from $40.00 to $80.00, an increase of 100%. For a household on a tight budget, this can be a scary thing to contemplate.
In the hypothetical scenario we described above for Ontario, the price you paid was 3 cents per kWh (the HOEP price of 2.05, plus the retailer’s margin of 0.95 cents). Now imagine that in the following month, the demand for electricity in Ontario rises, and a flood shuts down a major electricity generation plant. Due to these two factors, the HOEP price jumps up to 4.0 cents per kWh.
If you use the same amount of electricity (1,000 kWh) that you used in the previous month, the electricity cost would be:
(4.0 cents/kWh + 0.95 cents/kWh) * 1,000 kWh = 4,950 cents, or $49.50
Despite the fact that you used the exact same amount of electricity in the previous month, your bill would have jumped from $30 to $49.50 in the space of a single month, an increase of 65%. For a home on a tight budget, this could be a very unpleasant surprise.
So, what are the benefits of a floating rate plan?
Typically, floating rate plans can offer lower rates than other types of plans when prices are low.
If you directly compare the prices offered by floating rate plans versus fixed rate plans — our handy energy rate comparison form can help you do just that—chances are that the floating rate plans will be much more inexpensive than other options, if current prices are low. That’s because floating rate plans are based upon conditions as they are right now, while other types of plans hedge against the future. When prices rise, a company can adjust the floating rate they charge you, but if you sign a fixed rate plan, they’re contractually obligated to preserve that rate for you.
It’s impossible to predict what floating electricity or natural gas rates will be in the near future, but taking a look at the historical ups and downs can give you some clues, including record highs and lows and potential short-term trends.
If you would like to take a look a historical floating rates and how they compare to a given fixed rate, go to our Alberta Energy Market Data page here. We have interactive charts that enable you to enter a fixed rate in cents/kWh and compare it to the historical variable rates in the province.
If you’re willing to take a risk, a variable rate plan is a good way to get the best possible rate right now, and if you’re lucky, you may continue to pay rates that are lower than other options. But on the other hand, you may end up being blindsided by sudden price hikes.
If your first priority is having an energy plan with a rate that is stable and predictable, then a variable rate plan is probably not your best option.
In case you’re not sure where to start or would like to make an informed financial decision regarding your business energy needs, we can help you with that. Here at EnergyRates.ca we have a team of energy experts ready to provide you with a free custom quote for electricity and natural gas, from small and large commercial to industrial energy consumers. Fill out the form above to get in contact.
