Home and business owners in Alberta often have questions about their electricity bills. How are electricity prices set? Who sets electricity prices? How can you find the best electricity prices for your home or business?
You’ll find everything you need to know about how electricity rates and prices are determined in Alberta below.
How are energy rates in Alberta determined?
Electricity is measured by kilowatt per hour (kWh) and you’re charged a kWh price that’s multiplied by the amount of electricity you use.
As a guideline, one kWh is the amount of energy that 1,000 watts consume in an hour. For example, a 100-watt light bulb uses one kWh every 10 hours. If you’re paying 4c/kWh, that light bulb is costing you 4 cents for every 10 hours that it’s on.
On average, a home in Alberta uses 7,200 kWh of electricity a year, although monthly usage can vary with the season. However, two households with the same level of consumption can still have vastly different bills.
How can that be?
Regulated rates vs competitive retail rates
Households and businesses in Alberta have had access to retailer-provided electricity since 2001 when the process of deregulation, which began in 1996, started gaining steam.
Now, there are essentially two ways to be billed for the electricity you use in Alberta:
1. Regulated rates
Electricity is traded as a commodity. By default, Albertans can choose between regulated retailer rates set by the Alberta Utilities Commission (AUC) or a competitive retailer like ATCO Energy.
The Rate of Last Resort (RoLR) is primarily designed as a safety net for those who don’t qualify for a competitive option. If someone can't meet the credit requirements to enroll or remain with a supplier, the RoLR ensures they still receive a power supply.
The AUC approves regulated rates, which vary by service area. RoLR customers are subject to all pricing fluctuations influenced by market conditions, the current economy and more.
In 2017, a Regulated Rate Cap of 6.8 ¢/kWh was introduced, but it was removed in 2019. The cost to subsidize the cap was enormous. Even though competitive options were available well below the capped rate were readily available, subsidizing the rate cap cost Albertans nearly $100 million to discount the rate.
Learn more about the Rate of Last Resort.
2. Competitive retail rates
These are based on the current prices offered by retail energy providers and give you more flexibility in choosing an energy plan.
Most retailers give you the option to choose between paying a guaranteed rate (sometimes called a fixed rate), a variable rate (sometimes called a floating rate) with a built-in retail markup price added.
Did you know?
ATCO Energy is the only retailer in the province to also offer the ATCO Advantage Rate plan, letting you unlock a wholesale rate with no additional retail markup.
Unlike conventional floating rates, the ATCO Advantage Rate plan removes the added costs, making it a more attractive and cost-effective choice for savvy consumers looking to capitalize on market conditions without the extra fees.
Why is the Rate of Last Resort less than ideal?
Since the Rate of Last Resort is the default option, it gives you less control over your plan. The RoLR doesn’t come with the perks, flexibility, or rate choices of a retail plan.
While the RoLR offers a fixed rate over a two-year term, it doesn't necessarily guarantee stable prices during the term. Changes in market conditions can cause the rate to increase even during the two-year period, making it less predictable than it might seem at first glance.
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Competitive retail rates
With competitive retail rate options, you have the freedom and ability to shop around in a deregulated market. Some of the choices offered by competitive retailers are extremely attractive.
You can choose an electricity provider and plan that works specifically for your own energy use in your home or business.
At ATCO Energy, we offer energy plans tailored to homes and businesses. These plans come with lots of choice and flexibility, and you're free to switch, cancel or change plans anytime.
For homeowners, guaranteed and wholesale market electricity rates give you freedom and control over your electricity plan choices.
Businesses can choose between guaranteed and variable rates, and have access to local business energy experts.
1. Guaranteed rate (or fixed rate)
A guaranteed rate is a stable rate option that gives you predictability for the term of your plan. When the market fluctuates, your price per kilowatt hour (kWh) remains constant.
You'll pay a guaranteed all-in rate based on your consumption for every kWh of electricity you use. Because your consumption will vary from month to month, your energy charge will vary, but the price you pay for each kWh won’t.
The guaranteed rate is ideal for customers looking to minimize volatility in their energy charges from month to month.
2. Variable rate (or floating rate)
A variable rate provides more flexibility because it doesn't lock you into a fixed price.
The price of electricity on the market fluctuates throughout the day and appears on your bill as a weighted monthly average. The variable rate option follows these market prices, and a retail markup is added on to every kWh consumed.
Variable rate prices can change due to weather, demand spikes, or disruptions in power generation. This option suits customers who are comfortable with market unpredictability and willing to take risks.
3. ATCO Advantage Rate Plan
In 2020, ATCO Energy introduced another option: the Wholesale Market Rate.
Similar to a variable rate, this option fluctuates with market prices. However, instead of the retail markup typically added to variable rates, the ATCO Advantage Plan lets residential customers pay Alberta's wholesale energy price. Instead of a markup on every kWh consumed, a flat daily fee gives you access to the same wholesale prices a retailer pays.
The Wholesale Market Rate option is suited to customers that are willing to experience occasional, typically seasonal spikes, in exchange for lower rates over time.
What is the difference between competitive retailers and the Rate of Last Resort (RoLR)?
As you already know, competitive retailers offer deregulated rate options including a variable (floating) rate and a guaranteed (fixed) rate, while the RoLR is a regulated option.
Guaranteed vs. variable vs. wholesale rates
Think of interest rates for mortgages when buying a house.
Some people prefer the safety of knowing how much their payments will be each month for years ahead while others prefer to pay a flexible, variable rate based on market conditions.
Those who prefer a variable rate will select from a range of options offered by a broker or directly with the bank. Many of these same mortgage providers will also offer a fixed rate option.
Buying a home is such a major investment that even minor fluctuations in interest rates can impact the monthly layout on the mortgage – thousands and thousands of dollars over the course of a few years.
As a general rule, when the interest rates start to fall, variable rates are more attractive and when they start to rise, fixed rates become more attractive.
Just like your fixed rate mortgage, guaranteed rates stay the same no matter how high or how low market rates go.
Variable rates, on the other hand, follow market prices along with built-in markup for every bit of electricity used.
Wholesale rates also follow market prices, but without the built-in markup. A flat daily fee replaces some of the uncertainty associated with typical variable rate plans.
When assessing which is best for your home, it helps to analyze not only current energy rates but also the historical averages and electricity rate trends in Alberta.
What are the other costs besides electricity (kWh) usage on your bill?
To receive electricity to your premises, you need a distributor and a retailer.
Both technically and legally, these companies must be separated. Even though the same parent company can provide both (e.g., ATCO Energy and ATCO Gas), there is a “firewall” between regulated and deregulated services. This is to protect the customer by making sure all distributors treat Albertans equally, no matter who they choose as their retailer.
However, you will receive one bill from the retailer that also includes fees and charges from your distributor.
While your electricity usage and rate factor into your bill, they aren't the biggest component. Retailers primarily earn from your usage costs. However, other charges go to the companies that generate and deliver energy to your home.
The usage costs largely compensate the retailer, but other charges are flow-through charges remitted to the companies that generate and deliver the energy to your home.
These charges mainly cover the installation, operation, and maintenance of the infrastructure used to transmit and deliver energy to your home.
So, other charges apart from the actual electricity usage appearing on your bill may include:
- Transmission charges (quarterly transmission riders that may be credits or charges)
- Distribution/delivery charges
- Local access fees
- Balancing pool riders
- Transmission access rider
Various other charges, such as a Rural Electrification Association (REA) charge, may appear on your bill if you're on the Rate of Last Resort option.
Understanding distribution and transmission charges
You already know that the more electricity you use, the higher your bill. But the AUC estimates that only 19-35 percent of the average bill is energy usage.
As well as the cost of usage, your bill comprises the additional components detailed above. The major items involve the costs of generating and transporting electricity across the province.
So, the distribution charge will make up between 24 and 52 percent of the total average bill and the transmission charge will comprise 13-23 percent of the total.
Distribution charges cover the costs incurred by the distribution company that delivers electricity from the transmission system to your home using poles, wires, etc.
Costs cover three main elements of the distribution system:
- Building the system
- Operating the system
- Maintaining the system
Your bill includes a fixed fee, based on the number of days in the billing period, plus a variable component that is based on your energy usage.
Think of the fixed component as the “price of entry” that everybody pays to the grid. If you receive electricity from it and your power flows through it, whether you use it or not, you need to pay it.
So, if you go on holiday and only use a tiny amount of electricity in a particular month, you’ll still have a distribution charge included on your monthly bill. Because you used less electricity for the billing period, though, the variable charges would be lower.
The transmission charge covers the costs of planning Alberta’s transmission grid and transporting electricity via the grid from where it is generated to the distribution system.
These charges vary according to usage for homeowners and, for businesses in Alberta, the transmission charge becomes a little more complex.
Note that your payments include maintenance and upgrades of the grid. The transmission component of your bill may increase as this helps to protect the continuous and efficient supply of electricity to your premises wherever you are in Alberta.
Learn more about the charges included in your energy bills.
How can you compare electricity rates in Alberta?
The Utilities Consumer Advocate website is a good resource for Albertans who want to find out more about the electricity rates, and it includes a cost comparison tool. The website www.energyrates.ca also provides a comprehensive comparison tool. You’ll notice that retail rates are highly competitive, and rates often differ by only a fraction of a cent. So you’ll also want to consider things like administration fees, customer service and whether or not it’s a local company investing in Alberta’s communities.
What are your options with ATCO Energy?
ATCO Energy provides guaranteed rate and market rate plans for electricity customers.
The guaranteed rate is provided via plans that range from one to three years in length. You’re typically rewarded with a lower rate for signing up for the longer plans, even though you’re not locked in and can change your mind any time.
A guaranteed rate helps you predict your bills over the next 12, 24, or 36 months due to the stable rate offered.
The ATCO Advantage Plan is a market rate plan that provides more flexibility.
This option allows you to tap into wholesale pricing with no retail markups or monthly administration fees—just a flat, predictable daily fee.
There may be spikes over time, especially during the winter. However, with this option, when rates are low, your bill will be lower and during the course of the year, wholesale rates tend to be the better value.
Bear in mind that whether you opt for a longer guaranteed term or the ATCO Advantage Rate, you're never locked in to your plan. It’s flexible and you are not bound by long-term commitments so you can switch anytime.
Our rates and term lengths are our guarantees to you, but you're free to change your plan anytime.
