As we plunge into the third year of a global pandemic, the world is experiencing little relief from ever-increasing prices. Aggravating the situation, supply chain disruptions intensified by the war in Ukraine have caused inflation rates to soar to levels not seen since 1982. The agriculture and energy sectors and commodities markets have all taken a hit, with the effects rippling into other areas of the economy.
From an energy perspective, in California, these global hardships are compounded by regional climate issues that are now coming to a head. PG&E and Southern California Edison, two of the largest American electric utility companies, together serve over 10.5 million Californian customers—who are experiencing dramatic rate increases. This situation does not bode well for the future: many commercial and industrial customers depend on their ability to access affordable electricity to maintain business operations. Abrupt rate increases put businesses in severe financial hardship, leaving many to question how they can maintain operations with such high electricity prices that have yet to peak?
Southern California Edison (SCE)
To implement an effective solution, we first need to place these rate increases in context. In addition to the global events mentioned above, many of SCE’s rate hikes can be attributed to increased efforts to provide clean, renewable, resilient power—particularly in the face of blackouts created by extreme weather and adverse climate events. The California Public Utilities Commission has approved $3.29 billion in spending on SCE’s Wildfire Mitigation Programs alone—which continues to be an increasing threat across the state. As climate change continues on its course, ratepayers will continue to shoulder the burden.
SCE’s commercial and industrial customers are typically sorted into three rate classes: TOU-8-Option D, TOU-8-Option D-CPP, or TOU-8-Option E. Until 2019, C&I rates were steady and predictable. But for the past three years drastic rate increases have affected all three classes: from 2019 to 2022, Option D-CPP increased by 72% in total, while Options E and D increased by 23% and 30% respectively.
Pacific Gas and Electric (PGE)
PG&E customers have been similarly affected in recent years. A significant portion of the increases can also be attributed to a need for clean, resilient power and increased protection against wildfires. Many of PG&E’s commercial and industrial customers pay B20 rates; from 2019 to 2022, B20 rates increased by a total of 37%.
Can C&I customers keep up with this enormous uptick? We anticipate that prices will continue to increase due to inflation trends.
Can C&I customers keep up with this enormous uptick? We anticipate that prices will continue to increase due to inflation trends.
DERs Provide a Viable Energy Solution
Although it may look like a doomed scenario for many businesses in California (not to mention the U.S. and the rest of the world), we are in fact now presented with a vital opportunity to manage these cost spikes—and to support utilities in areas of grid constraint. Forward-thinking businesses are looking at Distributed Energy Resources (DERs) as a solution for obtaining clean, resilient power. DERs are frequently becoming the demonstrably cheaper option compared to utility-provided power and provide resiliency against climate-induced outages on customers’ sites. Tariffs have been written to enable DERs to benefit from Demand Response programs, a win-win situation for all involved.
With no end to the pandemic, effects of climate change, or indeed war in Ukraine in sight, the decentralization of the grid and associated microgrid legislation is our best and most viable answer to the energy crisis. We would be wise to pay attention and work towards a solution now—California could very well be the forerunner to what’s in store for all of us if current trends develop unimpeded.
