Navigating Utility Rate Increases and the Changing Energy Landscape
As a business owner or farmer operating in PG&E territory, you have likely been following the recent news about potential rate increases with concern. PG&E has requested a rate increase of $3.961 billion, or 32.4 percent, for its 2023 General Rate Case (GRC). The energy industry is evolving rapidly and it's important to stay informed and proactive to protect your bottom line. Below, we will explore the reasons behind these rate increases, their potential impact on businesses and farms and discuss strategies to navigate the changing energy landscape.
Understanding the Factors Driving Rate Increases:
In their filed comments on the proposed rate increase, PG&E said the increase was necessary due to the below:
Increased spending on wildfire safety and prevention measures is a priority in the face of growing risks.
The capital investments required to meet the state's ambitious climate goals, such as the electrification of the transportation and heating sectors, contribute to the rising costs.
Inflationary pressures also play a role in the need for these adjustments.
Potential Impact on Businesses and Farms:
In the year 2000, the average California business paid about 3 cents more per kWh than the national average. By 2022 it was 13 cents more. Over the past decade, rates more than doubled for a typical California company. The proposed rate increase for 2023 is one of the largest ever, making it crucial for businesses and farms to take proactive measures to protect their operations and financial well-being.
The state's most recent data showed just over a third of all electricity was renewable energy while hydro and nuclear which are carbon free but not renewable supplies 14% and 10% respectively. That leaves nearly 40% of the state energy mix that must be replaced to meet the state’s 100% carbon free energy mandate.
Below is a list of power plants scheduled to close in the next 2 years along with their retirement date:
Alamitos Generating Station (2,200 MW) - 2023.
Huntington Beach Generating Station (2,200 MW) - 2023.
Redondo Beach Generating Station (2,200 MW) - 2023.
Ormond Beach Generating Station (1,200 MW) - 2024.
Moss Landing Power Plant (2,600 MW) - 2025.
Diablo Canyon Power Plant (2,240 MW) - 2025.
As these plants are retired they will be replaced with a mix of renewables and storage. CAISO’s new 20 year plan calls for a mix of solar, wind, battery storage, and long duration storage in place of natural gas plants. Compared to their 2021-2022 Base Portfolio below are the capacity additions:
Battery energy storage (30,000 MW)
Long duration storage (4,000 MW)
Utility scale solar (40,000 MW)
Offshore wind (10,000 MW)
Out of state wind (10,000 MW)
Geothermal (2,000)
That comes to about 95,000 MW’s of new generation and storage required to meet California’s 100% carbon free energy mandate.
California is still less than halfway to meeting its climate goals and most of the so-called “low hanging fruit” has already been picked. How much should businesses expect energy costs to go up? While we can’t ensure what the future will bring we know over the past decade non-residential customer rates have seen rates increase 221%.
Uncertainties that will affect future rates include inflation and public acceptance of electrification efforts. Inflation has driven the cost of all goods up over the past 18 months. Prices for both wind and solar projects have risen each of the last 2 years for the 1st time ever. Commodities such as copper and lithium along with the ability to scale up mining efforts to meet the increased demand will dictate final costs that will ultimately be paid for by utility customers.
A key question is will customer demand meet the projections. Slow adoption of electric vehicles and electric heating means less kilowatt hours (kWh) to amortize the infrastructure costs with rate increases necessary to make up the shortfall. Companies need to begin their plans now for the coming changes and investigate how electrification will impact not only electricity costs but their business model as well. Customers in rural areas are expected to face additional hurdles as the infrastructure in those areas requires significant upgrades in both capacity and reliability. The cost burden is typically on the company requesting the upgrades.
Businesses and farms in PG&E & SCE territory have a couple of strategies to mitigate the impact of rate increases:
Generate your own power onsite
Maximize usage on-site and reduce exports back to the grid
Employ energy storage to reduce energy purchases and demand charges.
Generating your own electricity on-site can reduce reliance on the grid and provide long-term cost savings. While recent changes have affected new enrollments under net energy metering (NEM), farms and businesses with multiple meters can still install solar systems under the old NEM guidelines, known as NEMA (Net Energy Metering Aggregation). This allows a single solar system to offset energy usage across all on-site meters. Exploring this option can provide more control over electricity costs and help safeguard your business or farm against rate increases.
In the face of potential rate increases and the evolving energy landscape, it's crucial for businesses and farms in PG&E territory to be proactive and strategic. By prioritizing energy efficiency measures and considering on-site energy generation options, you can mitigate the impact of rate hikes and protect your bottom line. Stay informed, explore renewable energy solutions and embrace the changing energy landscape to secure a sustainable future for your business or farm. Now is the time to maximize your solar benefits.
Please reach out to rich@jkbenergy.com with questions so JKB can help you determine the best path forward for your operation.