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    This post has been updated.

    We’ve zeroed in on four issues that frustrate a broad spectrum of San Diego businesses, and have dubbed them The Four Horsemen.

    Here’s the fourth one.

    San Diego businesses were already paying much higher energy rates than their counterparts in most other metros.


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    That was even before San Diego Gas & Electric bills went way up last year. As we wrap up our effort to understand what is really holding back business investment in San Diego, costs like our very high electricity bills are at the forefront.

    Indeed, many states like Arizona and Texas offer the promise of lower energy rates, a point boosters from those states often use to sell California companies on moving. In many cases, San Diego businesses, especially industrial ones, are also paying higher rates than companies elsewhere in California.

    The state’s energy rates have long exceeded the national average, a reality that energy wonks attribute to multiple factors, including its more expensive mix of power sources and less flexibility to spread out electricity costs given the state’s lower use overall.

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    Federal Energy Information Administration data shows the average San Diego commercial customer paid 41 percent more per kilowatt hour of energy than the U.S. average in 2012. Industrial companies in San Diego paid 46 percent more per kilowatt hour.

    Here’s how San Diego compares with some other major metros on this front.

    That gulf’s likely increased since SDG&E raised rates by 21 to 24 percent last year, leaving companies with sticker shock. (Disclosure: Voice of San Diego’s board of directors includes a vice president for SDG&E.)

    One of them was the Ace Hardware in the Gaslamp, which took advantage of a green business program last year. As part of it, SDG&E audited owner Harry Schwartz’s store and outfitted it with more energy efficient gear free of charge.

    Ace Hardware’s energy bills went up anyway.

    “We didn’t expect a 25 percent increase after being more efficient,” Schwartz said. “That hurt.”

    Schwartz said the increased charges forced him to cut his marketing budget. Planned newspaper ads and mail pieces were history.

    SDG&E isn’t denying those rate hikes exist– or that they’re problematic.

    “I’m very concerned about our business rates for customers,” said Caroline Winn, the utility’s vice president of customer services. “This is a huge concern for us as a company.”

    Winn said those rates motivated SDG&E to work on a proposal for a discount program for companies that plan to flee the state to reap lesser costs. The utility’s pitch to the state Public Utilities Commission is still in the works.

    She attributed the recent increases to a handful of causes.

    Roughly two-thirds of the rate spike came because it’s costing more to buy energy in the first place, especially from renewable sources crucial to meeting the state’s 33 percent mandate, she said. “Renewables are simply more expensive than the traditional power.”

    A year and a half delay in the California Public Utility Commission’s approval of an SDG&E rate hike proposal from 2012 also hit customers harder starting in late 2013.

    SDG&E’s had to collect more from all customers since then to recoup the revenue it didn’t collect starting in 2012, Winn said.

    Businesses also got hit with a new increase last May. They are now helping subsidize low-income residents’ bills. This is not a new program but  unlike other major state utilities, SDG&E was originally using only residential customers, not businesses, to cover the costs of a program that lessens low-income residents’ bills.

    Despite the utility’s protests, the CPUC ordered SDG&E to start forcing businesses to help subsidize the California Alternate Rates for Electricity program too.

    Winn said that has meant businesses are subsidizing residential customers and programs to the tune of $100 million.

    One important caveat to all this, though, is that business energy bills here are often smaller than they are in other states. That’s because they might use less energy than companies in places where heating and air conditioning are more crucial.

    As of 2012, California’s total energy use per capita ranked 49th in the nation.

    But San Diego’s moderate climate and more energy-efficient buildings, both of which can lead to lower overall costs, don’t mean smaller bills for everyone.

    Manufacturers, for example, often build their fortunes around energy use. Without lots of electricity, they couldn’t make products. For them, higher energy rates can be devastating.

    Rising energy rates statewide helped galvanize business groups to found Californians for Affordable & Reliable Energy about two years ago. They’ve since demanded the state more carefully approach energy mandates and consider costs in the process.

    “Rates matter. It matters for the economy,” Alison MacLeod, a spokeswoman for the group, said. “It matters for businesses making decisions about where to locate, where to expand. We don’t just want to become a research state based on Silicon Valley. We want to have manufacturing jobs.”

    This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, SD Manufacturers Get One Powerful Pitch from Other States: Lower Taxes, and the next, The First Rule of SD Business Is You Do Not Talk About SD Business.

      This article relates to: Business, Economy, Quest: Business Climate

      Written by Lisa Halverstadt

      Lisa Halverstadt is a reporter at Voice of San Diego. Know of something she should check out? You can contact her directly at lisa@vosd.org or 619.325.0528.

      21 comments
      Daniel Ferra
      Daniel Ferra subscriber

      Do you care about National and State Solar Energy Policies ?

      Why build Solar farms in the Desert ? Why exchange one Utility for another (Third Party Leasing) ? 

      When you have the right,(That was taken away, Now Have to fight for it) to sell your Renewable Energy electricity to the Utility

      "After all, one of America’s most revolutionary energy policies was introduced in 1978 when the utilities were too busy trying to kill another competing industry to notice as the Public Utilities Regulatory Policy Act (PURPA) passed Congress

      PURPA allowed independently-owned renewable generators to be connected to the grid. Suddenly, the grid was no longer the utility industry’s sole domain.

      PURPA said you could connect your solar PV system to the grid, but it didn’t spell out how much you would get paid for your electricity.

      PURPA laid the foundation for what came next—a policy that not only allowed you to connect to the grid, but that also set the price, a “tariff” in utility jargon, that you would be paid for the electricity you fed into the grid—feed-in tariffs, or FITs.

      Feed-in tariffs are the alternative to net-metering and their time has come.

      FITs have been likened to PURPA on steroids and they are as American as apple pie. It was a crude feed-in tariff that launched renewable energy in California during the early 1980s. In that program, you could connect your biomass, wind, or solar plant to the grid, get paid a fixed-price for ten years, and then get paid a floating price for another twenty. And it worked—spectacularly. For two decades following that first feed-in tariff, the Golden State generated about 2 percent of its electricity from wind energy alone." Paul Gipe

      A California Residential Feed in Tariff would allow homeowners to sell their Renewable Energy to the utility, protecting our communities from Poison Water, Grid Failures, Natural Disasters, Poisoning Fracked Natural Gas and Oil Fracking. It would also create a new revenue stream for the Hard Working Taxpaying, Voting, Homeowner.
      Sign and Share this petition for a California Residential Feed in Tariff.http://signon.org/sign/let-california-home-owners


      Mike
      Mike subscriber

      Thanks for your thorough coverage of the local business climate. Every article was a great read. This power thing we have in CA is kind of part of the reason I want to live here. Can't speak for others but I perceive the SD environment as a clean one. CA runs more natural gas power plants than other states. Natural gas is by far cleaner than coal, diesel, or oil. CA's weather also means many of us aren't using too much power. So we keep the pollution down. Sure the power is cheap in Ohio, but have you seen their coal plants? Have you ever seen the smoke plumes traveling from Dayton to NY and polluting their air? It's horrible. We don't have that here...anymore. Remember LA's air back in the 60s? We learned out lesson.

      Since I don't use much power due to the mild climate, I don't mind the rates.

      For those who do mind how about solar? Oh that's right, due the political lobbying by the gas and coal industries and the myopia of the Republican party, solar energy research is about 4 decades behind. CA should have been king of solar, but our politicians couldn't get their act together. Now the same Republicans who opposed solar research (that's you Texas) are trying to lure our businesses away by claiming CA energy costs too much. What a shame.

      Greg Martin
      Greg Martin subscriber

      "But San Diego’s moderate climate and more energy-efficient buildings, both of which can lead to lower overall costs, don’t mean smaller bills for everyone."

      While the climate is mild towards the coast. every building in which I've lived in San Diego has been horribly energy inefficient - thin, single=pained windows, no insulation, no weather-stripping, old appliances, etc.

      David Cohen
      David Cohen subscriber

      Does "right to work" status of some states play any role in this discrepancy?

      Richard Rider
      Richard Rider subscribermember

      @David Cohen I'm sure it does, David.  But note that the average of ALL the 49 other states is 8.4 times better than CA.  Obviously other factors beyond just "Right to Work" are in play here.

      Rick Smith
      Rick Smith subscriber

      @Richard Rider Any indication from the CMTA how changes and contractions in Federal military and aerospace contracting have impacted those numbers?  California has lost hundreds of thousands aerospace jobs since the 1990's.  Some to other states, but most are just gone as programs end, firms merge and disappear.  And there is not much the state can do about much of that. 

      Richard Rider
      Richard Rider subscribermember

      @Rick Smith @Richard Rider True to a degree.  But that contraction occurred mostly many years ago.

      The important consideration is how we are doing in terms of NEW and RETAINED manufacturing vs. the other states in more recent years (and future years). These other states are not growing from military or aerospace contracts, yet on average the other states' manufacturing is growing at over 8 times the rate of California.

      Chris Brewster
      Chris Brewster subscribermember

      Mr. Cohen: I agree. In fact, this story doesn't even demonstrate that net energy costs for manufacturing are higher here.

      David Cohen
      David Cohen subscriber

      That average does not tell us whether most of the manufacturing facilities were built in right to work states, nor whether most facilities that might conceivably have chosen SD chose right to work states instead. It also does not isolate that energy costs, rather than housing costs, etc., caused facilities to be built elsewhere.

      Chris Brewster
      Chris Brewster subscribermember

      In a nutshell: Energy costs are higher in San Diego than many other places, but this is offset on a per capita basis by lower energy needs for heating and air conditioning. This may be true for manufacturing as well, but we don’t know because no direct comparisons have been offered.

      This story states, “Manufacturers, for example, often build their fortunes around energy use. Without lots of electricity, they couldn’t make products. For them, higher energy rates can be devastating.” This story offers no evidence that that climate control savings in our area are not offsetting for manufacturing just as they are for other businesses and homes. Keeping a manufacturing plant cool in Arizona, for example, could consume a lot of energy.

      My takeaway from the article: Lots of complaints about high energy costs, but no real evidence they affect competitiveness.

      Mark Giffin
      Mark Giffin subscribermember

      I concur with Richard. Terrific series of articles.

      Derek Hofmann
      Derek Hofmann subscribermember

      @Richard Rider One reason is because SDG&E won't let residential customers go on a time-of-use plan unless you have an electric car or a solar PV system. As a result, we don't have the proper incentive to shift our electricity use to off-peak periods, and so SDG&E has to spend more effort on providing peak power. This, of course, means using more of their less-affordable sources of electricity generation which they try to avoid as much as possible.

      peggyo
      peggyo subscriber

      It seems that this point could be further investigated because (maybe I'm slow) I hear it a lot but don't fully understand it.

      " less flexibility to spread out electricity costs given the state’s lower use overall."

      Richard Rider
      Richard Rider subscribermember

      @peggyo CA is blessed with arguably the mildest weather in the nation -- especially in the populous coastal regions.  This bodes well for residential users, and to a degree (sorry) for commercial users.

      But industrial users buy electricity not for climate control but rather to produce things.  Hence our mild climate is of little value to them when it comes to manufacturing.


      peggyo
      peggyo subscriber

      @Richard Rider @peggyo  Okay, that I get. I still don't understand why it's more expensive because we use less of it overall.

      Mark Giffin
      Mark Giffin subscribermember

      @peggyo @Richard Rider 

      Kind of like water. We conserve and the cost goes up. Did you see Ca is looking into charging by miles instead of at the pump? The declining tax receipts from lower gas sales driving it.

      One thing missing from this is the California carbon tax and how that fits into the mix

      Richard Rider
      Richard Rider subscribermember

      @peggyo @Richard Rider It's not the ONLY reason -- it's one of several reasons.  

      Picture it this way -- SDG&E delivers power to your house but you use only 10 kWh a month (perhaps, like me, you have solar).  At 14 cents a kWh, that comes to a buck forty.  Yet the major cost of the DISTRIBUTION infrastructure is relatively fixed, regardless of your usage.  SOMEONE has to pay for that fixed cost.  

      Since we don't bill a fixed cost amount per month for the service (like cable and land line phones where per unit usage is an infinitesimal cost to the utility), it's cranked into the usage (actually it's a per kWh distribution cost --  similar to but a separate category on your electricity bill).


      HalSlater
      HalSlater subscriber

      @Richard Rider @peggyo But during the day, while most solar owners are at work, the excess power generated flows to the nearest power users where it is sold at those high rates everyone is complaining about. SDGE pays nothing for that power though they will trade it for cheaper power in the evening and early morning. They also save significant wear and tear on the power lines from the nearest plant which actually makes solar owners a net gain for the system users. 


      According to studies done by numerous universities, that gain should result in a payment of about $0.08/kWh for excess power exported to the grid. The problem is that the decreased wear and tear, fuel delivery to generators and need for fewer generators means that SDGE does not spend as much on grid maintenance and their profits (set by the CPUC as a percentage of operating costs) are reduced as a result.


      While a net decrease in the cost of operating our energy grid is good for everyone else, it is bad for Sempra (SDGE's owner) and its investors as it means negative growth and lower profits. This is a hard message to get sympathy for so the power companies spin it as a "fairness" problem and call solar owners "freeloaders".


      Maybe it is time to look at a municipal utility like SMUD, Sacramento's city-owned utility. That would eliminate the inherent conflict between the community's interest and the shareholders' interests. Santa Fe, NM is trying to do this right now, we should keep an eye on what happens there.