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Electricity

About Electricity Prices

At its most basic, electricity is priced at the balancing point of supply and demand. Lowest-cost generators are dispatched first and the more expensive ones are only brought in as necessary to handle a higher load.

Electricity prices are set every hour at the lowest price that brings on enough supply to meet the demand. When demand is low, the cost of electricity can be lower since only the lower-cost generators are running.

For each hour of every day the actual Pool price is a weighted average. Power distributors take energy from the power pool and pay the declared hourly Pool price for the energy they buy.

Even so, it is also important to note that most of the electricity traded in the province is not priced at the hourly Pool price; rather the price is set in a contract between the buyer and seller. For example, forwards market trading organizations, such as the Alberta Watt Exchange, provides wholesale power purchasers with the option to buy quantities of power (one hour out, one day out, one month out, one quarter out, and one year out).

Electricity retailers, in turn, buy large blocks of energy and then repackage it into offers to end use consumers, whether that is through the regulated rate or contracts.

 

The Alberta Government 5-Year Regulated Rate Option*

In 2005, a new 5-Year Regulated Rate Option (RRO) was approved by the Alberta Government for residential, farm and small commercial businesses. This was set into place to ensure that customers who did not wish to sign a competitive contract were able to receive electricity service.

The RRO was a mix of short term and long term market prices which allowed customers time to research and become familiar with their options. This rate is automatically provided to all eligible customers by the wire service provider for the customer’s territory and was put in place as a way to smooth the eventual transition to a completely deregulated energy market. The transition schedule since July 2006 has been to incorporate a greater percentage of short term market prices to longer term market prices each year. This in turn has lead to increased volatility of the RRO prices month-to-month.

July 1, 2009 saw another ratio change as short term market price will make up 80% of the RRO and the remaining 20% will be from long term market prices. By July 2010, the RRO will be based100% on short term market prices each month. This does not mean that the RRO will necessarily be higher, just more volatile.

 

*www.energy.gov.ab 2 “A Decision by Government Offers Continued Choice and Protection to Alberta Electricity Consumers”. (June 8, 2005) Government of Alberta

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