Power Is Weakening Local Businesses
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.
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.
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.
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.