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Thursday, Oct 6, 2022
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Businesses Brace for SDG&E Rate Increase

David Iwashita says the pending electrical rate hike will increase operating costs at the Lafayette Hotel, the Mid City business he manages, but the costs may not be as steep because of its recent renovations.

“We did a ton of energy saving measures when we renovated the hotel and those may shelter us a little bit, but I’m guessing we’ll be paying at least 5 to 10 percent more for our electricity,” Iwashita said.

The hotel’s renovations, completed in 2011, included natural gas fuel cells, new hot water storage tanks, revamped heating and air conditioning systems, and extensive use of LED lighting. In total, the energy-saving improvements cost about $1 million or 10 percent of the entire project’s cost, he said.

Iwashita and other local business owners who were interviewed say they were aware of the rate hike, but for the most part, haven’t analyzed the exact costs.

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According to San Diego Gas & Electric, the rate hike was necessary to continue to operate its power generation and delivery systems safely and reliably, and pay for increased efficiencies from system upgrades. The company had asked the state’s Public Utility Commission to approve a rate hike for 2012, but the agency didn’t get around to approving the request until May 9.

Retroactive Increase

Because of the delay, SDG&E will collect on the additional money it should have been getting starting in January 2012.

“The CPUC has determined the rate change will go into effect Sept. 1, which avoids the upcoming summer months, and the total ‘catch-up’ amount will be spread out over 28 months through the end of 2015 to help mitigate the impact on customers,” SDG&E said.

SDG&E had been seeking an increase of about $235 million in combined electric and gas rate hikes over the previous rate structure. The PUC granted the company a $119 million increase, SDG&E said.

In a recent follow-up SDG&E report to the PUC providing more detailed information on the hike, the estimated average rate increase for small commercial customers, or those using less than 20 kilowatts monthly, was 11 percent; for medium and larger businesses, the hike will translate to an average 8.55 percent above what they are currently paying, SDG&E said.

Craig MacDonald, owner of Hooley’s Irish Pub & Grill in La Mesa and Rancho San Diego, said in the past year, the business has been shifting much of its lighting to energy conserving LED lights, and wasn’t sure what other steps he could take to reduce his utility costs.

Passing Along the Bill?

“If those increases are substantial we may have to pass them over to our customers,” MacDonald said. “Unfortunately, this is just one more thing to add on to all the other stuff that we must deal with in California. And we’re also unclear about the Affordable Care Act, and how it will affect us.”

Tom Worth, executive vice president at Spectrum Property Management, which manages about 9 million square feet of office, industrial and retail space mainly in San Diego County, said the energy rate hikes will have the biggest impact on the smallest businesses.

“It’s really going to squeeze the smallest tenants the most,” Worth said. “Commercial building owners will see less of a return, but in most cases they’ll pass those higher costs on to their tenants.”

Quality Controlled Manufacturing Inc., a contract manufacturer based in Santee, was one of the few businesses that provided an estimate on what it expects its energy costs will increase from the rate hike. Rick Urban, the chief operating officer, said over a year it will cost an additional $30,000.

The company revamped its lighting and replaced some of its older machines with new equipment that conserves energy. QCMI continues to look at new ways to cut those costs as it tries to reduce its expenses. However, whatever it does, those savings always seem to be whittled away by new rate increases, Urban said.

Stephanie Donovan, spokeswoman for SDG&E, said the company is required to change its rates three times a year. It also amends its rate structure every three years to four years as it updates its operating budget in a process called a general rate case that must be approved by the PUC.

The operating budget rate applies to all the costs covering the distribution of its electricity and natural gas, maintaining all its assets, and all the labor costs. It doesn’t apply to the actual costs to purchase the electric and natural gas energy. Those costs are passed on to customers without any markup, and are due to be increased sometime later this year, another decision in the hands of the PUC, Donovan said.

None of these rate increases reflect the added costs that SDG&E incurred from legal settlements it had to pay as a result of the 2007 wildfires, Donovan said.

Realizing that many small- and medium-sized businesses may not be appraised of the increased rates, SDG&E has set up an outreach team to let them know what to expect and possible solutions to reduce their energy usage, she said.

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