Variable (Floating) Gas Rates in Alberta
Many energy supply companies offer gas price plans at "floating" or "variable" prices that depend on the market price for natural gas. This is similar to the regulated rates for natural gas (which are based on market prices). Is a floating price plan right for you?
Summary of Pros and Cons
| Pros | Cons |
|---|---|
| A floating gas price allows you to take advantage of low market prices | A variable floating gas price does not protect you from market volatility |
What is a Variable Gas Price?
A variable or floating gas price is tied to the market price for natural gas, and usually offered as the market price plus a transaction fee for the energy supply company.
What Are the Advantages of Choosing a Variable Gas Price Plan?
The main advantage of a floating gas plan is the possibility to take advantage of low market prices. With the development shale exploitation in the United States, the price of natural gas has been falling since 2009, and Canadian exports have also been steadily decreasing. Prices are expected to stay low for the next few years. The Government of Canada forecasts:
Overall, for the 2014-2015 winter heating season, Canadian consumers can expect similar prices to last year, with less variability, and a return to even lower prices in 2015 both compared to historical prices and relative to other heating fuels.
Source: NR Can
Our Take:
If you are looking to save money on your natural gas bills and can handle a bit of price fluctuation, we recommend choosing a variable gas price plan
What Are the Disadvantages of Choosing a Variable Gas Price Plan?
The main disadvantage of choosing a variable gas price plan is that it exposes you to market volatility. Gas prices tend to change quite rapidly throughout the year, and can sometimes rise quite dramatically in times of extreme weather (very hot summers or cold winters). This may be difficult to manage for consumers on a tight monthly budget, even if in the long run it often means paying lower prices overall.
Variable Gas Price Plan vs. Regulated Gas Rates: What's the difference?
Both variable gas price contracts and regulated gas prices are based on market prices, and change with developments in the natural gas market. However, regulated rates providers are required to pass along the cost of natural gas without a profit margin to the consumer. So does this mean that the regulated rate is always a better deal than a variable price from a competitive energy retailer? Not necessarily. Competitive energy retailers are allowed to make a profit on the market price of natural gas, but they are not bound to the same procurement policies as the regulated rate providers are. This means that they are able to use more flexible and possibly cost-effective methods of gas procurement.
Furthermore, the regulated rate does include the possibility for a return margin on the costs associated with procuring gas (Direct Energy Regulated Services currently receives this margin; AltaGas has not applied for it). Competitive energy companies' rates of return are not regulated, but must be low enough that they can compete with regulated rate providers.
Sources: AltaGas and ENMAX
In some cases, as is the case between AltaGas and ENMAX, the competitive price company can offer prices that are on average lower than the regulated rates. From January 2014 - January 2015, the average rate for ENMAX was $4.145/GJ vs $4.300/GJ for AltaGas.
Sources: AltaGas and ENMAX
Furthermore, also remember that the price of gas supply is only one part of your gas bill. Monthly administration fees will be different amongst competitive retailers and regulated rate providers. Again, while their administration costs are not regulated, competitive energy suppliers have an interest in operating with lower costs and overheads in order to survive in the market. Some also energy retailers offer other benefits when signing up for a fixed rate plan (AirMiles, discounts with partner retailers, credits on your bill), which might also be attractive to you.
Is a Floating Gas Price Plan Right For Me?
A variable gas price plan might be right for you if:
- You want to take advantage of low market prices
- You can handle price volatility (and its results on your bill)
If you aren't sure whether a floating gas rate plan is right for you, you might want to learn more about fixed natural gas rates or the default regulated rate offered in Alberta.