Alberta is exploring the future of the regulated electricity tariff option
The future of Alberta’s Regulated Tariff Option (RRO) for electricity is in question as it undergoes a provincial review – a move the economist says isn’t surprising given the rise in tariffs in recent months, though he wonders what the alternative might be.
“If you get rid of the RRO… what is the default value and how do you ensure it is appropriate?” said Blake Shaffer, an assistant professor at the University of Calgary School of Economics.
In Alberta, the RRO is the default electricity option for consumers who do not wish to contract with a competing retailer. It is also used by those who, due to certain obstacles, such as Bad credit or a lack of cash to make an upfront payment can’t sign a contract, Shaffer said.
Rather than being tied to a fixed tariff for a period of time, RRO customers pay a monthly rate that is directly tied to the market price of electricity.
This can mean that customers see significant price fluctuations on their monthly bills. In recent months, these prices have reached record highs.
Regulated rates topped 20 cents per kilowatt-hour in December and have risen even further this year, although RRO’s customers recently paid no more than 13.5 cents per kilowatt-hour after the province imposed a temporary price cap. (Any costs in excess of this cap have been deferred and will eventually have to be repaid.)
Premier says rate could be phased out
Alberta Premier Danielle Smith said on Saturday – on Corus Entertainment’s radio show Your Province, Your Premier – that the regulated rate is the most volatile rate.
She said fixed-rate seniors, renters and newcomers have been hit hardest by price fluctuations.
“We still have to do something to ensure they have much more price stability. So we’re going to figure out what’s the best way to phase that rate out,” Smith said.
In a statement, the provincial government told CBC News that it is 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 consider various options, including the future of RRO, to ensure the needs of Alberta residents are met,” said Andrea Farmer, a spokeswoman for the Department of Affordability and utilities.
She added that no final decisions on the RRO have been made yet.
The province has not indicated what options are being considered or what an alternative to the RRO might look like.
NDP energy and gas critic Kathleen Ganley said in a statement the RRO plays an important role in ensuring everyone has access to electricity, regardless of their financial situation.
“Any change to the RRO would allow for continued government oversight of prices and the ability for low-credit Albertans to access affordable electricity,” she said.
‘Did it serve its purpose?’
At a recent conference, the head of Enmax Power agreed that RRO had to be taken “seriously”.
“I don’t think there was ever any intention that we would have customers at the RRO as long as we have them,” said Jana Mosley, president of Enmax Power, during a panel discussion hosted by the Independent Power Producers Society of Alberta became.
“We really need to think seriously, ‘Did this do the trick?'”
Given the cost pressures consumers are facing, Janine Sullivan, President and CEO of FortisAlberta, said it’s understandable that the RRO is up for discussion. She noted that phasing out the program would likely be a complex one if the province chose to go that route.
“We have over 330,000 customers on the RRO in our coverage area, so just training and transitioning those customers from something like this to a different arrangement is going to be very complex,” she said.
Political reform could help people get out of the RRO
While there are still many Albertans using the RRO, their ranks have declined in recent years, Shaffer said, with a notable decline last year as prices have skyrocketed.
Currently, about 63 percent of Alberta’s customers have competitive electricity retail contracts and the other 37 percent have RROs, according to the latest figures from the Market Surveillance Administrator.
Some have stayed with the RRO because they don’t have the credit or deposit money to sign a contract, Shaffer said. A simple way to reduce dependence on the RRO could be to break down these barriers.
“The government could really easily step in and say to competing retailers, ‘Look, we’re taking all the necessary payments without an invoice, but we’re going to make sure that you allow people, even those with little credit, to get their electricity from you,'” Shaffer said .
Shaffer said this would likely reduce the amount of delinquencies overall because people with low credit or low incomes would have more stability in their monthly bills.
“I’m really puzzled as to why the government hasn’t tried to help people get to fixed interest rates by removing these borrowing barriers for the last two years.”
Shaffer hopes this policy change will be made sooner rather than later, as anyone still in the RRO after the temporary cap is lifted will have to pay the deferred costs.
The province said its review would continue through 2023.