Should I Choose Fixed or Floating Prices for My Natural Gas Supply in Alberta?

You're interested in purchasing your natural gas from a competitive energy retailer, but are unsure of what type of contract you should choose. Our guide explains the differences between fixed and floating natural gas contracts so that you can decide what works best for you.

Fixed vs. Floating vs. Regulated Rates: A brief summary of your Alberta electricity options

Regulated (Default) Rate

The default rate for natural gas in Alberta is offered by two regulated rate providers: Direct Energy Regulated Services in the ATCO Gas service territory, and AltaGas Utilities in its own service area. This rate is regulated by the Alberta Utilities Commission (AUC), and is based on market prices. When compared to fixed natural gas prices (see below), the regulated rate for natural gas has been the cheaper option for most of the time between 2006 and 2014, according to the Alberta Market Surveillance Administrator (MSA). However, choosing the fixed rate means that customers must be able to withstand sharp price drops or (more importantly) rapid price increases. Natural gas prices on the wholesale market tend to spike when customers need it most, such as a particularly cold winter. If this is not desirable for you, you may want to consider a fixed rate for your natural gas (see below).

Fixed Rates

Fixed rates contracts offer the same price for natural gas throughout a certain time period. In Alberta they can range from terms of one year to a maximum of five years. Only competitive energy retailers can offer fixed natural gas options. The four largest competitive energy retailers in Alberta (ENMAX, Direct Energy, Just Energy, and EPCOR) offer fixed rate options for natural gas. The smaller, boutique energy retailers (the Utility Network partners) do not currently offer natural gas options at this time.

The main advantage of choosing a fixed rate for natural gas is for the security and peace of mind that it provides with monthly budgeting. Natural gas prices are notoriously volatile, which can make for sharp differences between monthly bills. Fixed prices provide predictability in monthly bills, allowing for greater control in budgeting. While they are often priced slightly above the current market rate, the price you pay for your gas will remain the same even if market prices rise, meaning that they can offer some protection against price increases.

However, you are not guaranteed the same rate once you renew, so any protection against price increases may only be delaying the inevitable. Furthermore, according to the Alberta MSA, from 2006 to 2014 fixed natural gas contracts have almost always exceeded the regulated natural gas rate.

Is there a big difference between fixed rate contracts?

Sometimes competitive energy retailers will offer two types of fixed rate contracts: contracts with a fixed rate (and a monthly bill that varies in function with your consumption levels), and contracts that offer a fixed monthly charge, regardless of how much energy you consume within a certain limit. This can work out to a competitive natural gas rate for customers who can stay within the annual limit, compared to the fixed rate offers. Currently only Just Energy offers this type of plan (find out more about Just Energy's offers).

The fixed rate offers amongst Alberta energy retailers are actually quite similar:

Direct Energy does not offer five year terms for its fixed rate plans, but does offer one and two year terms. Both ENMAX and Encor by EPCOR allow you to cancel your longer term contract at any time without charging cancellation fees if you provide enough notice.

As fixed gas rate offers are so similar, you might want base your choice on other factors, such as administration fees, late payment charges, or customer service.

Floating Rates

Competitive floating rates for natural gas are based on the wholesale market price for natural gas plus a $1 - $2 per GJ transaction fee. The main advantage of paying the market price is for the ability to take advantage of low prices for natural gas on the market.

Do floating rates vary depending on the supplier?

If you are looking for a floating electricity rate contract and are mostly interested in the price, we suggest you compare administion fees and late payment charges

Pros & Cons of Fixed Rates

The major interest of choosing a fixed rate for natural gas is for the predictability and security that it offers. As market prices for natural gas can vary widely, a fixed price is helpful for customers who want to be able to predict their bills for budgeting purposes. However, fixed prices include a price premium, and have generally been more expensive than the market or default rate for natural gas over the past six years.

Pros & Cons of Floating Rates

The main advantage of floating rate for your natural gas is for the ability to benefit from lower market prices for natural gas. However, the flipside of this is having to be able to withstand price volatility. Market prices for natural gas tend to change quite a lot throughout the year, which may not be ideal for certain customers.

Which Type of Rate is More Popular in Alberta?

According to the Alberta Market Surveillance Administrator, the majority of customers on a dual fuel plan tend to choose a variable rate. This is consistent with our recommendation for choosing between a fixed or floating rate below.

Conclusion

In spite of temporary (usually seasonal) price increase, natural gas prices are expected to remain fairly low for the next few years. This means that it is less likely that you will save money by locking in your price on a fixed rate. For this reason we recommend choosing a floating rate natural gas plan over a fixed rate.

Check out some of the options for your power supply in Alberta!