What you need to know about RRO and energy suppliers in Alberta

In Alberta’s dynamic electricity market, commercial and industrial customers often face choices that significantly impact their energy costs and operational efficiency. Understanding the differences between the Regulated Rate Option (RRO) and third-party energy suppliers is crucial for businesses aiming to optimize their energy expenditures and accurately calculate electricity costs. This article explores these options, providing insights into how businesses can benefit from informed energy purchasing decisions.

What is the RRO?

The Regulated Rate Option (RRO) is a default electricity rate provided to customers who have not signed a contract with a competitive energy retailer. Companies like EPCOR and Direct Energy Regulated Services purchase electricity from the wholesale market and deliver it to consumers at a rate that reflects current market prices. This energy rate can be quite volatile as it is subject to change monthly, influenced by market conditions such as supply and demand, generation plant maintenance, and seasonal factors.

How RRO rates are calculated:

RRO rates are determined based on a rate-setting plan approved by the Alberta Utilities Commission (AUC). Electricity is purchased four months in advance to stabilize prices, potentially reducing costs for consumers. Despite this, RRO rates can fluctuate monthly, offering little predictability for businesses.

Is the RRO a reliable option for Albertan businesses?

While the RRO provides a straightforward and regulated pricing model, its month-to-month variability can pose challenges for businesses requiring budget stability. Since the RRO rate is calculated based on real-time market data, any volatile upswing in market prices could cause higher costs for consumers. For example, between the period January 2023 – July 2024, the RRO rate saw lows of 10.550¢ per kWh (May 2024) and highs of 32.270¢ per kWh​ (Aug 2023). These large swings in prices make it hard for businesses to plan and set firm budgets.

The benefits of third-party energy supply

Third-party energy suppliers offer an alternative to the RRO, purchasing electricity directly from the wholesale market and providing it to consumers through fixed-rate or variable-rate energy contracts. These prices are often more flexible than the RRO as suppliers are not regulated around purchase volumes or timing.

How do supplier rates differ from the RRO?

Unlike the RRO, third-party suppliers can negotiate contracts that lock in rates for a specified period, offering businesses the advantage of price certainty. This can be particularly beneficial for budgeting and financial planning, especially when energy market prices are trading low.

Why choose a commercial energy supplier?

Choosing a third-party supplier allows businesses to tailor their energy procurement strategies to their specific needs. This flexibility includes options like purchasing futures, spot prices, or customized energy products that align with their operational patterns. For example, a 24/7 cold storage facility might benefit by locking in electricity prices during peak periods, and floating prices on the index market during off-peak times. This is not an option with the standard RRO.

Challenges with suppliers and things to consider

While third-party suppliers can offer cost savings and stability, businesses must carefully evaluate contract terms, potential additional fees, and the supplier’s reliability. Understanding these factors is crucial to avoid unforeseen costs or service disruptions. Hiring an energy consulting firm like DNE can prove valuable when negotiating with energy suppliers.

Procurement strategies: RRO vs. open market

There is a big difference in the way regulated utilities procure electricity to set the RRO rate and how third-party energy suppliers can purchase power from the wholesale market. The difference in these procurement strategies is what drives market and RRO prices. Now, let’s explore how these rates are set and procured.

RRO procurement

RRO rates are regulated and based on electricity purchased in advance, aimed at stabilizing prices. However, the lack of flexibility and the potential for monthly rate changes can make it less predictable for businesses. For example, utilities are forced to procure electricity during certain windows despite how market prices are trading. During times of high volatility, this can cause RRO rates to sky rocket.

Open market flexibility

Third-party suppliers in the open market provide greater flexibility. Businesses can benefit from strategies like locking in future prices to hedge against market volatility or opting for spot prices when market conditions are favorable. This tailored approach can better align with business energy demand, needs, and operational schedules.

Historical energy savings: suppliers vs RRO

Historically, businesses that have opted for third-party suppliers often experience significant savings compared to those on the RRO. The ability to secure fixed rates during periods of low market prices and to avoid the volatility of monthly rate changes with the RRO contributes to these savings.

How we can help

As a sophisticated energy consulting firm, DNE offers comprehensive services to help businesses navigate the complexities of Alberta’s electricity market. Our approach includes:

• Energy load evaluation: We analyze your energy consumption patterns to identify the best-fit energy supply products.
• Customized energy solutions: We help you choose the most suitable contracts and procurement strategies in the open market.
• Performance monitoring: Continuous monitoring ensures that your energy supply remains cost-effective and adjusts to any changes in your usage patterns.
• Flexible options: We assist in switching to better options as market conditions and your business needs evolve.

Need assistance navigating the power markets for your business?

Navigating the Alberta electricity market requires a nuanced understanding of the options available and the strategic benefits they offer. By leveraging the expertise of DNE, businesses can achieve significant energy savings and operational efficiency. Contact us today to learn more about how we can help you optimize your energy procurement strategy and ensure long-term energy cost savings.