Since 1995, customers in Alberta have been able to choose their natural gas supplier in a competitive market. However, as is the case with the electricity market, consumers who do not wish to sign up for a contract may purchase their gas supply from a regulated rate provider. Learn more about the regulated rate for natural gas, including its advantages and disadvantages in this article.
What is the Regulated Rate for Gas?
Did you know?
About 55% of Albertans purchase the regulated rate for natural gas
The regulated rate for gas is approved by the Alberta Utilities Commission (AUC) and provided by a specific regulated rate provider within a certain service territory in Alberta. There are two regulated rate providers for natural gas in Alberta: Direct Energy Regulated Services and AltaGas. While AltaGas is both the natural gas distributor (utility) and the regulated rate provider for its service territory, DERS is the regulated rate provider for the ATCO Gas service area. The regulated rate is known as the Gas Cost Flow-Through Rate (GFCR) in the DERS service territory, and for AltaGas it is known as the Gas Cost Recovery Rate (GCRR).
Regulated rate providers are not allowed to charge customers a fee for opening or closing an account. Their terms and conditions of service are reviewed and approved by the AUC. Their service fees and rates of return are also approved by the AUC (see below for the components of the regulated rate).
Comparing AltaGas and DERS Regulated Rates
Though they have different procurement mechanisms, AltaGas Utilities and DERS prices tend to follow the same patterns and are usually roughly the same.
How is the Regulated Rate Calculated?
Regulated rate suppliers must follow a procedure that has been approved by the AUC. The calculation of the regulated rate is a multi-step process:
- First, the regulated rate supplier estimates the volumes required for the forecast month based on historical weather/temperature data. Residential consumption is closely tied to weather patterns, with extreme hot or cold periods causing demand to increase.
- Then, on the 5th working day before the start of the forecast month, the regulated rate supplier checks the prices for natural gas on the NGX. The NGX is the spot market and forward market that provides the basis for the AECO-C gas prices, which are used in most natural gas transactions in Alberta.
- The regulated rate supplier uses the price from NGX to establish the forecasted cost of procuring gas supply, by multiplying the price with the forecasted required volumes (from step 1).
- Meanwhile, any differences between estimated and real costs during the current month are added to a deferral account.The cumulative amount of the deferral account is added to the forecasted month's forecasted cost. This aggregated gas supply cost (the estimated cost of gas with the deferral account taken into account) is divided by the forecasted volume to give the forecasted Gas Flow-Through Rate.
- Any differences between the actual and forecasted costs of supply are accumulated throughout the month in the deferral account and added to the following month's forecast.
What Makes Up the Regulated Rate for Gas
The regulated rate includes the following components:
- The estimated price of gas: gas prices are estimated based on wholesale market prices.
- The deferral account: the deferral account is the where all the adjustments from previous months are accumulated and applied to the next forecast. The deferral account can include adjustments relating to: differences between actual and estimated prices for gas, as well as differences between forecasted and actual costs from activities associated with gas procurement and sales, such as portfolio administration, working capital, penalty revenues, and bad debts. It can also include adjustment relating to metering errors and system balancing. Adjustments from up to two years prior are allowed in the deferral account.
- Rate of return: regulated rate providers may apply to receive a return margin on costs (excluding the costs of gas supply). Direct Energy Regulated Services currently receives a return margin on some costs. AltaGas has not applied to receive a return margin.
- Administration fee: this may be monthly or daily and is approved by the AUC
What are the advantages of the regulated rate for natural gas?
The regulated rates are designed to follow market prices. In some areas, consumers may only have one option for their natural gas supplier, as retailers may not be present in their area. Customers of natural gas co-ops or of municipally owned gas utilities are not able to purchase gas from independent marketers.
Budget Plans: Some protection against price volatility
To help consumers manage volatile natural gas prices, both regulated rate providers offer a budget plan payment option. In this type of plan, total estimated annual gas bills are spread out over the course of a year. Find out more about budget billing plans in Alberta
Why might I change to supply from a competitive retailer?
About 40% of residential customers in Alberta are currently on a competitive contract. Competitive retailers are able to offer stable, multi-year prices for gas, which allow for greater protection from price volatility. Some competitive retailers also offer a discount on administration fees when you combine your electricity with your natural gas contract. Some will also offer additional benefits, such as Air Miles or other discounted services.
Is the Regulated Rate Right for Me?
The regulated natural gas rate might be right for you if:
- You don't have a choice of your natural gas supplier
- You do not want to enter into a contract for your energy supply