Keeping up with the rising cost of commercial energy in California is a financial challenge for any business. It’s also difficult to keep track of the governmental and provider actions that affect your energy bills. It might feel like the only sure thing is that your commercial electricity rate will get more expensive year over year.
PG&E, for instance, recently announced a proposed rate increase that averages anywhere from 3.3% (small and medium-sized businesses) to 6.4% (large industrial businesses). Residences are getting hit hard, too, with an average increase under the proposal of roughly 5% annually through 2026. In southern California, SCE and SDG&E have approved similar rate increases, although there is less information available about their impact on commercial businesses.
These rising electricity rates have commercial energy customers wondering about the reasons behind the hikes, and what they can do to mitigate their energy costs.
Causes of electricity rate increases
Some of the rate increases are due to the yearly “true-up” process that consolidates rate changes authorized by CPUC, the California Public Utilities Commission. These energy rate changes cover the costs of electricity supply and delivery. They also fund assistance programs for income-qualified energy customers, energy efficiency programs, and public-interest R&D.
PG&E is requesting its rate hike through a General Rate Case (GRC), which the CPUC must approve for it to go into effect. GRCs outline the ways that additional costs are allocated to (and collected from) different customer classes.
The costs in the 2023 PG&E proposal would go toward approximately $12.8 billion of investments in wildfire safety and electric system safety & reliability. These include such activities as thinning vegetation near power equipment, installing more underground electrical lines, and improving the ability to identify and locate system safety failures.
SDG&E outlined a similar proposal for 2024-2027, seeking around $3 billion to spend on grid modernization, wildfire safety, natural gas pipeline updates, and more. They hope to reduce power outages, improve public safety, and reduce insurance costs for the utility.
SCE also looks to increase their electricity rates on June 1, 2023 to recover a $595 million “Undercollection Amount.” This stems from SCE estimating an increase in spend on procurement costs that are “due to a variety of factors which include, among others, very high natural gas prices.”
These increasing natural gas costs have also impacted the price of electricity for other utilities. Natural gas-burning generators account for roughly half of California’s electricity generation, and the combination of increasing demand and low reserves has caused gas prices to escalate. According to SGDE, the cost per unit of natural gas has more than doubled in the last year, rising from $2.36 to $5.11 from 2022 to 2023.
Of course, the rising cost of electricity-generating natural gas in California raises the price of electricity for the consumer. As the state takes steps to decarbonize, California becomes increasingly dependent on natural gas as a source of power. With fewer available alternatives, California can’t shift to other methods of production when prices increase.
This PG&E proposal does not increase electricity rates all at once. Rather, the proposal increases the electricity rate incrementally over the next four years. Total revenue would increase by approximately $3.56 billion in 2023, $930 million in 2024, $590 million in 2025, and $381 million in 2026.
The PG&E General Rate Case Proposal document lists the potential yearly Average Bundled Rates (¢/kWh) for commercial businesses on page D-20 as:
|1/1/2023||% Change||1/1/2024||% Change|
The rates continue to mostly increase, although at a slightly reduced rate, into 2025 and 2026:
|1/1/2025||% Change||1/1/2026||% Change|
The impact of SDGE’s proposal on commercial businesses is less transparent, although they estimate that the average residential customer would see an increase of “approximately $9.16, or 17.5%, per month” in electric costs. It’s also difficult to judge the effects that SCE’s Undercollection Amount rate change will have on commercial customers, as they only offer an estimate of about a 4.4%, or $6.49 per month, jump for residential customers.
While these hikes go towards necessary updates to the California energy grid and are the result of unexpected complications due to demand, they unfortunately result in an increased cost of doing business. So, in economic times when every dollar counts, savvy businesses need to take action to curb their own energy expenses.
Switching to solar abates escalating costs
In the face of rising electricity rates, commercial businesses can use solar to reduce their dependence on electricity from the utility. When a significant share of their energy comes from renewable sources, they’ll be better insulated against utility rate hikes and production shortages caused by forces outside of their control.
That being said, even commercial energy customers who take action to reduce their electricity consumption and costs (such as installing rooftop solar) will see increases to their overall electric rate from the grid. Although a majority of their power needs can be fulfilled by solar, these commercial businesses may still need to purchase energy from the utility to meet their daily usage. This supplemental power from the grid still comes at the increased rate set by the GCR.
When these two energy sources combine, there may be a net price increase on a customer’s bill, as the inflated price of using supplemental utility energy outweighs the savings of the bulk of the commercial solar. Although this can be frustrating, using solar is always a net positive that offsets the increased energy rates and inflated cost caused by hikes approved by the California Public Utilities Commission.
King Energy makes the transition to solar simple
With companies facing ever-increasing electricity costs, installing solar should not become a burden. That’s why King Energy works directly with multi-tenant property owners and property managers to benefit from commercial-scale solar at no out-of-pocket cost to them.
King Energy covers all costs for installation and long-term management of our solar programs. Furthermore, we have secured over $300 million in project funding to support program installations in 2023 and 2024, positioning us to be the largest provider of multi-tenant solar solutions in the United States.
By installing rooftop solar with King Energy, customers save 10% off the local utility rate for the energy consumed from the rooftop solar system. In 2022, restaurants benefiting from King Energy solar programs saved an average of $960 on their energy bills annually. Larger tenants, like grocery stores, may save many thousands of dollars per year by offsetting their energy consumption with solar. These commercial businesses can also benefit by marketing themselves as using a clean, locally-produced source of energy, and their building may even qualify for a LEEDS certification.
A shopping center in Los Osos, CA enjoys the benefits of a King Energy solar program, including energy savings and the use of clean energy.
Support your business against rising commercial electricity rates
Experiencing constant and often steep increases in your monthly energy bills is a challenge for business. Unfortunately, rising energy costs are a given, especially so in California.
These ongoing and stressful rate hikes are due to a multitude of factors outside of business owners’ control, such as CPUC-approved GRCs and rising natural gas costs. Plus, reducing electricity consumption is not always feasible when that power is necessary to conduct your business.
Yet rooftop solar installations will continue to ease that burden for commercial energy customers. If you’re ready to see what solar can do for your multi-tenant business in the face of the latest proposed electricity rate increases, get in touch with us. We’ll ensure that you and your tenants benefit financially, covering your costs so you can get right to saving money on your rising energy bills. Get in contact for a personalized proposal for your building.