Rates will rise an average 16% for commercial buildings in January 2024. Here’s why and what to do.
In November, the California Public Utilities Commission (CPUC) unanimously voted to approve PG&E’s $2.3 billion additional spending request, which will drive up customers’ rates across the board.
PG&E initially asked for $5.2 billion in additional spending in 2021, primarily to move most of its high voltage power lines underground, which they say will reduce wildfire risk from their power lines by 94%.
Although they received less than half of the requested spending, the cost will still fall heavy on ratepayers’ bills.
What drives utility rates?
We are unfortunately at a moment in the history of California utilities where rate hikes are inevitable. Not because utilities are gouging their customers and filling their coffers as is so often assumed; the system is just set up this way.
California utilities are regulated rate of return utilities, with the current rate set to roughly 7.6%. This means they can—and will—collect rates that total 7.6% more than what they spend. Their rate calculation is governed by a simple formula:
COST OF SERVICE
___________________ = CUSTOMER RATES
SALES
If PG&E’s cost of service goes up while their sales stay the same, bills rise. If the total number of kilowatts they sell goes down while their cost of service goes up, bills will rise even more.
Will rate increases keep happening?
The increasing risk of wildfire, the cost of getting solar- and wind-generated energy from the desert to population centers, and the need to upgrade old grid infrastructure are forcing PG&E to spend more delivering reliable power while decreasing our reliance on fossil fuels.
At the same time, we are using less and less electricity. Every LED bulb that gets installed, every rooftop solar installation that comes online, every variable frequency drive you put on every high efficiency chiller or heat pump leads to less need for grid power. Even as we electrify the economy we are still using less power thanks to greater efficiency. Across the major investor-owned utilities, that’s led electricity sales down almost three-quarters of a cent every year since 2008.
This double-bind means more expensive grid power now, and more rate bumps in the near-term as well.
What are steps you can take to mitigate these rising rates?
- Lower your peak demand. PG&E’s new rate increase will be highest for the demand component of your energy bill, so demand management is the most important thing you can do to keep costs down in 2024. Gridium offers a host of platform features to help customers control their demand charges, as well as a Monday morning email that shows customers what happened the week before week and highlights if a building set its monthly peak demand and where. More proactively, the email forecasts whether a customer’s building is going to set a new demand peak in the coming week, allowing them to change operations just enough to avoid accruing higher demand costs.
- Ensure you’re on the right rate. PG&E offers various rate options depending on energy consumption, building size & status, and energy supplier, each with specific rules. Gridium’s tariff engine ensures your buildings are on the lowest cost rate for them, and our advisors help you switch rates if a better option is available.
- Use less energy. NOI is driven by what you spend on electricity, not the cost per kWh. Running a more efficient building will make your building less exposed to rate hikes and more valuable to investors. Plus, it’ll help keep tenants happy in a climate of increasing outrage with utility bills.
For more in-the-weeds details on the recent rate announcement (including info for direct access customers, more cost mitigation strategies, and more), check out our on-demand webinar, “PG&E Energy Rates: What to Expect in 2024.”
Interested in a complimentary audit of your current PG&E rate? Contact us below, we’d love to help.
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