(Photo: Josh Appel on Unsplash)
What is the new Alberta Budget? What are the changes associated with the 2019 Alberta Budget?
On October 24, 2019, a new provincial budget for Alberta proposed by Premier Jason Kenney was released. What’s immediately noticeable in Alberta’s 2019 budget is that it outlines $1.3 billion in spending cuts as part of an effort to eliminate Alberta’s $8.7 billion budget deficit by 2022-2023.
One change that will affect many Albertans, particularly those with regulated-rate option (RRO) electricity plans, is the removal of the electricity rate cap by the United Conservative Party (UCP) government. Households and small businesses won’t have their regulated electricity bills funded by the province anymore whenever rates go above the threshold of 6.8 cents per kilowatt-hour (kWh).
According to an article by the Edmonton Journal, some of the main reductions within the Alberta budget include the reduction of Alberta’s public service by 7.7% in four years, elimination of the four-year post-secondary tuition freeze, freezing education funding, and the elimination of the Environment Ministry’s Climate Change office.
What was the electricity price cap, and how did it work?
The electricity price cap was put into effect in June 2017 by the New Democratic Party (NDP) government in order to prevent Albertans from paying more than 6.8 cents/kWh for electricity.
This price cap, again, was intended to protect energy consumers from price volatility. Alberta electricity rates exceeding this price would be paid by the government, thus protecting consumers from dealing with fluctuating energy rates.
Consumers that were on a regulated-rate option (RRO) electricity plan benefited from this cap. Without this price protection program, RRO plan consumers would have probably had to face unexpected rate increases and spikes, rather than a more affordable and stable rate.
How much would I have paid for electricity without a price cap? Did the price cap prevent consumers from spending more on electricity?
We can use 2019 as an example of how much consumers paid for RRO with the price cap in place, in comparison to how much consumers would have paid without this cap in the same year, from January to October.
In 2019, between January 1 and October 31, the regulated residential electricity prices without the price cap would have been 7.7426 cents/kWh in Edmonton (EPCOR RRO) and 7.1063 cents/kWh in Calgary (ENMAX RRO). With the price cap, consumers paid 6.791 cents/kWh in Edmonton and 6.5562 cents/kWh in Calgary this year.
In the Edmonton area, the regulated electricity costs between January and October could have been much higher, if you take into consideration that the RRO went above the 6.8 cents threshold in all months, except for March.
What’s particularly noteworthy is that in peak months, such as August 2019, electricity rates reached as high as 10.191 cents/kWh. If a household, for example, consumed 1,000 kWh in such a month, they would have paid $101.91 on their energy use. However, with the price cap in place, this household would have only paid around $68 instead.
In summary, the effect of the price cap on energy bills was that it kept electricity rates from rising significantly from month to month.
Why is the price cap on electricity rates being removed? When was the price cap originally supposed to end?
The reason for the removal of the price cap is twofold: Alberta is no longer transitioning to a capacity only market for electricity — the price cap was to protect against the high risk of volatile electricity prices that would come with this transition.
The second reason is that if the program continued until its 2021 completion date, the program would have cost taxpayers around $388 million over its entire duration. Thus, the removal of the cap is intended to save taxpayers money while also maintaining consumer choice.
Who is going to be affected?
The most impacted consumers from this change would be households and small businesses that are currently with RRO providers.
Since the government is no longer paying for costs exceeding 6.8 cents/kWh, these households and small businesses are subject to rate increases and more unpredictable energy costs. Anything can affect the energy market, so it’s almost safe to expect higher energy rates in the months ahead, or at least plenty of uncertainty.
These consumers could pay less or more depending on market conditions; for example, if rates were to go down to 3 cents, these consumers would pay 3 cents/kWh. However, if the rates increased to 15 cents, these consumers would have to pay 15 cents/kWh. The removal of the electricity price cap combined with other budget cuts could negatively impact house bottom lines, according to the Edmonton Journal.
Will regulated electricity rates (RRO) increase in Alberta?
Unfortunately, no one knows the answer to this yet, since it’s difficult to predict future electricity rates. However, we can take a look at historical electricity prices to get an idea of how pricing may change in the future.
Something to note is that regulated rates vary each month, so consumers will likely have unpredictable electricity bills from month to month. As we saw above, consumers would have paid much more in 2019 for electricity without the price cap.
If we also look at the current electricity rates, the electricity rates are more often than not above the price cap. Based on these observations, it’s not too much to expect more fluctuating electricity bills for RRO residential and business consumers in Alberta.
What can I do to secure lower energy bills? What other options other than RRO plans are available in Alberta?
In order to have lower energy bills, you could look for more predictable and cheaper energy providers. For example, you could look for energy suppliers that provide fixed-rate plans. Fixed-rate plans allow consumers to lock in a single, fixed electricity rate for a set period of time.
For the past year, fixed rates have been consistently cheaper than the maximum payable 6.8 cents/kWh for electricity, being priced as low as 5.89 cents/kWh.
So, if you value cost certainty, fixed-rate plans can be worth considering, since you will have predictable costs and will almost certainly pay a lower price in comparison to RRO plans.
Switching to a fixed-rate plan from an RRO plan can help protect you from financial uncertainty and spikes in Alberta electricity rates. As of November 2019, many competitive electricity retailers still offer fixed rates below 6 cents/kWh. You can learn more about what fixed-rate plans entail and what some of the advantages are at EnergyRates.ca.
Will the price of natural gas change? Does the price cap removal affect natural gas? What kind of plan is best for natural gas?
Natural gas is a different story altogether — the price cap removal on electricity won’t affect the price of natural gas.
In addition to this, regulated and floating rates have been cheaper than fixed-rate plans for natural gas in the past months. This is due to natural gas having reached historically low prices this year. So, it may be worth it staying with or switching to a natural gas floating-rate plan to enjoy the current low pricing associated with natural gas.
How to compare energy rates in Alberta and secure cheaper energy bills in the long run?
When you’re searching for predictable and cheaper energy rates, you might find it helpful to be able to compare rates between different energy retailers in Alberta.
EnergyRates.ca can be of help here — the website is a free, unbiased cost comparison tool for you to compare energy rates in Alberta, as well as in other provinces in Canada, including Ontario, Saskatchewan, British Columbia and Manitoba.
Both homeowners and businesses can use EnergyRates.ca to save on their electricity bills. All you need to do is fill in your postal code, whether you’re looking to compare natural gas or electricity rates and if you’re looking to get a quote for a residential, business, commercial or industrial facility.
Regardless of their consumption size, commercial energy consumers can get a free custom quote based on their energy use, detailing the best available energy providers and plans in their area.
