It’s a consumer world out there—there’s no denying it—and one of the biggest impacts of consumerism is the fact that price isn’t always dictated by value. There are, when you think about it, some very peculiar things that can drive up the prices of even the most basic of items. A t-shirt can range from $5 to $500 based on a name brand alone. There is one thing that does help to save us (arguably) from over-inflating prices, though: competition.
Competition among brands inspires companies to keep their prices as competitively low as possible in order to attract more buyers. Think of it this way: if Bell decides to sell the iPhone 7 for $600 when Rogers is selling it for $900, then Rogers is going to have to find a way to lower its prices—or otherwise make its contract more appealing—if it’s going to stay in the game. It’s no different when it comes to the energy market.
Deregulation of the energy markets in Canada
Deregulation of the natural gas market began in 1985 in Canada. The restructuring of the energy market resulted in more competitive rates and wider varieties of energy plans for consumers—without a regulated rate, energy providers had to find more creative ways to generate interest in their products over those of their competitors. That meant creating more options for consumers to choose from.
Deregulation of the electricity market is not universal in Canada. Alberta and Ontario are the provinces with the least regulated electricity markets. Residents in both provinces are free to purchase electricity from various retailers. However, Alberta and Ontario have varying degrees of deregulation. Alberta’s energy market evolved to full deregulation in 2001 for electricity and natural gas. Alberta’s Rate of Last Resort (RoLR)*, formerly known as the Regulated Rate Option (RRO), is the regulated energy option for residents. However, the RoLR is not managed by the Alberta government. The Alberta Utilities Commission reviews and approves rates for the RoLR. In Ontario, the provincial government through the Ministry of Energy and Electrification sets the overall policy for the electricity sector. As of 2005, Ontario residents can purchase electricity plans from competitive retailers. However, the transmission of electricity is still regulated in the province.
Other provinces in Canada have greater levels of regulation in the electricity market. For example, most residents in B.C. purchase electricity from the province’s regulated provider, B.C. Hydro. Fortis B.C. delivers to customers in areas that are not served by B.C. Hydro. The natural gas market in B.C. is deregulated, but natural gas is still delivered by Fortis B.C.
What are some reasons for deregulating the energy market?
Competition can only keep the prices low before a company has to find other ways to appeal to its demographic. For the energy market, that meant creating a variety of different rate plans that consumers could choose from based on their own needs, wants, and lifestyles.
For instance, consumers worried about an unpredictable future market and looking to maintain a predictable bill that is easy to budget, can lock into a fixed rate plan for the duration of a contract (usually 1-5 years long). Those who are hesitant about locking into a fixed rate can opt for a floating or variable rate that changes based on the current market price of energy. Some choose the regulated options, or the time-of-use or tiered plan to get the lowest possible market rates at the time of use.
However, the deregulation of the energy market doesn’t just create a variety of rate options to choose from; it also prompted companies to create rate plans that could cater specifically to the needs of their consumers. For instance, there are providers who offer competitive rates to large businesses that consume greater amounts of electricity and natural gas. There are also rate plans that cater to startups and small businesses, and, of course, there are rate plans that address a residential need or desire to start incorporating green or renewable energy sources into the home.
In other words, the deregulation of the energy market created an opportunity for consumers to shape the energy market by creating a competitive market that is forcing providers to market to the consumer using plans that are designed to appeal to their specific needs.
What are some disadvantages of deregulating the energy market?
While a deregulated energy market has advantages, there are disadvantages to consider as well. To start, some private energy retailers are not always fully transparent with their rates or contract terms. This can result in hidden fees and contracts that are difficult to exit.
There have been arguments that deregulated energy markets lead to higher utility bills for consumers and greater price volatility. In a recent report by the Alberta Federation of Labour, published in October 2024, the authors argue that Alberta’s deregulated energy market has resulted in Albertans paying $24 billion more for electricity than other Canadians in 2001. Furthermore, the AFL report argues that during the deregulation period in Alberta, the electricity consumer price index increased by an average of 1.8% per year higher than that of Canada as a whole. The report also cites
Some consumers may find deregulated energy markets overwhelming due to the number of retailer options available to them. Furthermore, consumers have a greater responsibility to research energy retailers to find an energy plan that is right for them. Regulated energy markets are more streamlined. Since most regulated provinces have a single electricity provider, consumers do not have to worry about deciding which provider they want to sign up with. At the same time, some consumers prefer to have a variety of options available to them, rather than a single regulated provider.
Deregulated electricity markets have a history of grid instability. In 2024, Alberta experienced two significant grid events, in January and April respectively. During the January grid event, multiple grid alerts were issued due to extreme cold weather, and the province’s electricity grid was unable to meet demand; at one point, reserve power was a little as 10 MW. Residents were asked to reduce their energy consumption to relieve pressure on the grid. Two grid alerts were issued in early April (on April 3 and 5 respectively) with rotating power outages occurring in Edmonton. These two examples highlight the grid instability that can occur in a deregulated electricity market. The AFL report also notes that from January 2022 to April 2024, Alberta Accounted for 33% of all level 3 Energy Emergency Alerts (EEA) in North America. This is the most severe level in which rolling blackouts or brownouts are likely or are in progress. In 2024 alone, Alberta accounted for 86% of EEA3 alerts in North America. It is important to note that regulated electricity markets can experience grid alerts and instability as well. However, the trend appears that deregulated markets can experience them at a greater rate.
If you are looking for a way to make sure you are using the deregulated market to your greatest advantage, contact us at Energyrates.ca today.
*Disclaimer: On April 18, 2024, the Alberta government announced the RRO would be renamed to the Rate of Last Resort (RoLR). The proposed change was done to provide more clarity to electricity consumers and encourage them to explore other retail energy options. The RoLR will be set at a fixed rate every two years rather than month-to-month as was the case for the RRO. The RoLR came into effect on January 1, 2025. We have updated certain sections of this article with the term RoLR.
