When deciding whether to lock in your utility rate, it’s important to carefully evaluate your options to ensure you choose the best plan for your needs and budget.
In Alberta, you have three main options for purchasing electricity and natural gas utilities:
- The Default Regulated Rate Option (RRO) – This rate is set by the Alberta Utilities Commission and can change monthly based on the current market. It offers predictability but can fluctuate with market conditions.
- Locking in a Fixed Rate – By choosing a fixed-rate plan, you lock in a specific rate for electricity or natural gas for a set period. This option provides stability and protection from market price fluctuations but may not always be the lowest rate available.
- Choosing the Variable (Floating) Rate – This rate varies based on the wholesale price and includes a transaction fee. It can potentially offer savings when market prices are low but also carries the risk of higher costs if market prices increase.
Consider your energy usage patterns, financial flexibility, and tolerance for risk when choosing between these options. Analyzing past utility bills and market trends can also provide valuable insights into which option might be the most cost-effective for you.
Remember, the right choice will depend on your specific circumstances and preferences.
What It Means to “Lock In” Utility Rates
Locking in utility rates involves:
- Agreeing to a Specific Fixed Price – This means you’ll be paying a set price per kilowatt-hour (kWh) for electricity and/or per gigajoule (GJ) for natural gas.
- Fixed Price Applies for Contract Duration – The agreed-upon rate will remain constant for all your utility usage throughout the entire length of your contract, regardless of market fluctuations.
This approach offers predictability in your utility bills, allowing you to budget more effectively without worrying about varying rates each month. However, it’s important to carefully consider the terms of the contract and your typical energy usage before committing to a fixed-rate plan.
Switching to a fixed rate from the Regulated Rate Option (RRO) or a variable (floating) rate could be a good move if:
- Having a consistent rate per unit of energy (kWh for electricity or GJ for natural gas) appeals to you.
- A fixed rate can make it easier to predict and budget for your monthly utility payments.
- You anticipate an increase in your energy usage, a fixed rate ensures that the rate per unit of energy remains constant.
It’s important to understand that a fixed rate guarantees the price per unit of energy for a set period, but it doesn’t mean your total monthly bill will always be the same. Your actual bill will still vary based on your total energy consumption.
So, while the rate per kWh or GJ remains fixed, your total bill will depend on how much energy you use each month. This option can provide peace of mind and help in planning your finances, especially if you expect consistent or increased energy usage.
When Should You Lock in Utility Rates
Choosing to lock in a fixed rate for your utilities might be a wise decision if:
- Market Prices Spike – If there’s a significant increase in electricity and/or natural gas market prices, a fixed rate can protect you from these fluctuations.
- Increased Utility Consumption Due to Extreme Weather – During periods of very high or low temperatures, energy consumption often increases. A fixed rate ensures that this higher usage doesn’t translate to higher rates per unit of energy.
- High Energy Demand and Supply Shortages – In times when energy demand outpaces supply, or when energy generation costs rise, market prices can increase. Locking in a rate can shield you from these cost hikes.
Energy markets can be unpredictable, with prices influenced by the balance between supply and demand. While historical rate charts and monthly RRO rate listings can provide some insight into market trends, they can’t predict future prices with certainty.
Ultimately, the decision to lock in a rate depends on your assessment of the market and your personal or business energy needs. Consider these factors carefully to determine if a fixed rate aligns with your energy usage patterns and financial goals.