Cash-strapped Albertans may be stuck repaying $200M cap on regulated rates, says report

Albertan households with low credit and small savings will be hit hardest by the consequences of the UCP's cap on the regulated rate option (RRO) for electricity, which will be lifted at the end of this month, according to a new report from the University of Calgary's School of Public Policy.

To deal with rising electricity bills through the winter, the province brought in a temporary cap on regulated rates — to 13.5 cents per kilowatt hour — between January and March.

Any costs above that were set aside to be repaid later.

According to the report, the three-month price cap came at a cost of $200 million. It will be repaid by raising the RRO rates between April 2023 to December 2024.

That means customers on the RRO rate can expect an increase of roughly 2.5 cents per kilowatt hour on their bills, the report says.

Co-author Sara Hastings-Simon, who's also an assistant professor in the School of Public Policy, says the problem is that the Albertans who will see higher power bills, in order to pay back the $200 million loan, are those who are least able to afford it.

"There's a certain group of people in Alberta that will have a very hard time leaving that rate, and that is anybody that has low credit or that can't afford a security deposit," said Hastings-Simon.

She said only 35 per cent of Albertan households remain on the regulated rate which is a record low, adding that it's estimated that half of that group isn't there by choice, but because of credit or cost barriers.

Plus, as the RRO rate goes up, Hastings-Simon said floating or fixed rates with competitive (and cheaper) providers will become more attractive for households who are able to make the switch.

As more people leave the RRO, its rate will increase even more to recover the deferred costs from the cap.

"It's not good public policy to leave those least able to pay with the bill for the rate cap," she said.

A bad gamble

Kristen van de Biezenbos, an associate professor of energy law at the University of Calgary, calls the price cap a Band-Aid solution but says the real issue runs much deeper.

The regulated rate offered by default providers (ENMAX in Calgary and EPCOR in Edmonton) was originally supposed to be a fair rate for people who don't want to think about power prices or people who aren't able to move to a competitive plan, she says.

But since the regulated rate is pegged to the province's pool price — the price of electrical energy decided by the Alberta Electric System Operator (AESO) each hour — van de Biezenbos says that's changed.

"To me, the underlying problem is that the pool prices are way too high. And since they're too high, that to me signals that there is a problem with the way that we have structured offer control," she said.

Van de Biezenbos said the provincial government likely made a bad guess that the pool price would end up being lower than the cap, so people on the RRO would overpay and there would be a surplus of money by the end of March.

That wasn't the case.

"This was a bad gamble by the UCP government," she said, pointing to RRO customers who were underpaying to the tune of $200 million. "That is a pretty colossal misfire in terms of where they thought the pool price was going to be."

The province's responsibility

For Hastings-Simon, there are a couple things the province can do to address this issue.

It can cover security deposits and credit requirements for Albertans who aren't able to do so themselves, enabling them to access the certainty of fixed rates with competitive providers, she says.

Or if Albertans continue leaving the RRO in droves, the provincial government may have no choice but to cover the $200 million cost of the cap.

"We see this as a policy issue that government needs to step into," said Hastings-Simon.

The RRO is currently under a provincial review, "as part of our ongoing work to explore ways to improve affordability and rate stability for Albertans," the province previously told CBC News.

No final decisions have been made yet, and it's still unclear what an alternative to the RRO could look like — or what would happen with the $200 million repayment.