North Bay firms struggle with escalating power bills

After getting hit with rate hikes earlier this year, commercial and agricultural customers throughout PG&E’s 70,000-square-mile service area in Northern and Central California face possible increases of 20% next year.

The hike could have a painful impact on businesses, leaving them with potentially smaller profit margins at a time when every dollar counts in this challenging and uncertain post-COVID economy.

“We burn through a lot of electricity,” said David Jablons, who with wife, Tamara Hicks, owns Tomales Farmstead Creamery in Marin County.

“We do have an agricultural break from PG&E, but that is definitely going to be threatened by these proposed price increases. That is a problem. There is no profit margin in small scale agriculture and we are small scale agriculture.”

Michael Wara, director of the Climate and Energy Policy at Stanford University's Woods Institute for the Environment said the question businesses in wine country need to ask is: How important is it to have power that is reliable, especially during harvest, versus having it be more affordable?

“PG&E in particular is proposing a number of things like undergrounding (utilities). It’s very expensive, but it will be reliable energy in high wind events like fire weather. That has to be paid for,” Wara said. “I’m assuming no one wants to sacrifice safety.”

While he admits there is not consensus about undergrounding wires, people do agree they want reliable power. What needs to be discussed by the utility and regulators, he said, is how rates hikes are having an adverse effect on business.

“We are moving into a new world of rates where electricity has been a smaller piece of their cost structure and now is maybe becoming a larger piece. I don't think that is going away,” Wara said. “Businesses need to think about how they can adapt to minimize their costs and be more resilient.”

The California Public Utilities Commission will decide what, if any, rate increase PG&E can implement. Public hearings were conducted earlier in the year. However, people may submit comments online to the CPUC as long as the case is active

Feeling the pinch

“Businesses are hanging on and they are seeing sales either flat or increasing, but the net profit is smaller because the cost of everything is increasing. This (PG&E rate increase) is just one more layer,” said Joanne Webster, San Rafael Chamber of Commerce president and CEO.

She is also co-chair of Marin Council of Chambers, which is comprised of the 11 chambers in the county.

Craig Smith, executive director of the Downtown Napa Association, jokingly wonders if one day we’ll be paying $150 for a pizza because that is what it will take for a pizzeria to make a profit after paying all of its bills.

“Collectively, it’s a much different landscape out there. Our businesses are doing everything they can to absorb the costs so they don’t have that $150 pizza,” Smith said. “I talked to some restaurant owners who say this may be a banner year in sales, but a bad year in profits.”

A number of North Bay businesses shared their PG&E rate increase stories with the North Bay Business Journal:

• Archer Hotel Napa said its gas and electric bills increased by about 40% from September 2018 to September 2022.
• Skin care manufacturer and retailer Juice Beauty saw its PG&E bill go up 25% from September 2021 to September 2022 at its headquarters and warehouse in Petaluma.
• Luther Burbank Center for the Arts in Santa Rosa estimates a 20% increase in PG&E costs from fiscal year 2019 to this fiscal year.
• Filippi’s Pizza Grotto in Napa was paying about $3,000 a month to PG&E a few years ago, and now it’s nearly double that amount.
• In just electricity costs, Tomales Farmstead Creamery paid $18,000 in 2021 from March to October. This year during that same span the PG&E bill came to $22,500. (The goat dairy-cheesemaker uses propane for gas.)

While Allison Hallum, general manager of three downtown Napa restaurants (Eiko’s, Eiko’s at Oxbow and Napa Noodles) did not share her PG&E bill numbers, she didn’t hide her frustration.

“I can’t really change what I am doing. I can’t not have the air conditioning on, I can’t not cook, I can’t not have lights on,” she said. “Whatever they are going to charge me they are going to charge me. They get to do whatever they want.”

In the past year, she has raised her prices by about 10% to help offset all of the added costs she has incurred.

PG&E’s position

The San Francisco-based company, as well other investor-owned utilities, must submit a general rate case (GRC) proposal to the commission every four years.

PG&E expects the agency to make a decision on the latest proposal in the second half of 2023. Bundled gas and electric rates for commercial and ag customers could increase from between 12.9% and 20%.

However, the utilities commission also could approve a lower rate increase than what PG&E asked for.

PG&E commercial rate structure is determined by whether the enterprise is a small, medium, large, or agriculture consumer of gas and electricity.

“PG&E’s 2023 (general rate case) proposal includes crucial safety, resiliency, and clean energy investments for customers,” PG&E spokesman Mike Gazda said.

“It also incorporates current recorded and forecast inflation estimates related to our business plans for providing safe and reliable service to customers, as well as updates due to federal tax law and guidance.”

When asked how much money PG&E expects to bring in from the 2023 commercial rate increases, Gazda said, “It’s difficult to answer your question because there are several different commercial/industrial rates, not just one rate for all commercial and industrial customers.”

PG&E commercial customers were handed an electric rate increase in June that ranged 0.7%–1.4%. In August, their gas rates went up 11.4%–15.1%.

Gazda attributed this year’s electric hike to “costs for wildfire mitigation activities, such as vegetation management, as well as recovering costs related to restoring energy during and after past extreme weather and emergency events.”

When it came to the gas going up, Gazda said, “Commodity prices are what PG&E pays for natural gas and electricity to serve customers, and these costs are passed directly through to customers. Commodity prices have increased this year due in part to higher global natural gas prices. Natural gas also is used to generate some of our customers’ electricity.”

Solar as a solution

Solar is one solution to offset PG&E electric rates because customers generate their own power and are also able to sell what they don’t need back to the company.

“When you budget for a 10% increase and it ends up 22(%) or 23%, such a large line item is hard to ignore,” said Ryan O’Neil, general manager of the Green Valley Athletic Club in Fairfield in Solano County.

The company is moving forward with a 900-panel solar project projected to cover 95% of its power usage.

“In general our (PG&E) rates have been much higher this year and with the anticipated raise next year we are not just taking it, we are trying to take some action against it — not the raise, but in ways we can save energy in-house,” O’Neill said.

He did not say how much it will cost to install the PG&E-approved solar array that should be completed in a year. O’Neil anticipates savings from the solar installation to be noticeable in six years.

“We will save millions over 25 years,” he said.

A year ago, Green Valley replaced more than a dozen HVAC systems with energy efficient ones. O’Neil said that has reduced the annual PG&E bill by at least $25,000.

LED lights have been installed inside buildings. The fitness center in March got new equipment, flooring, and insulation all to cut down on energy costs. The six tennis courts and three pickleball courts received upgraded lights three years ago.

“Yearly, (PG&E) bills are in the six figures. We pay well over $100,000 for utility costs,” O’Neil said. “Even as we pinch and do energy efficient habits we still have bills that are higher when the rates go up.”

Luther Burbank Center in Santa Rosa has solar to help defray energy costs. In 2015, a 400 kilowatt system with 1,630 solar panels was installed in a partnership with Nelson Solar Projects of Sonoma.

This, along with changes to the HVAC system, lighting and replacing windows, has seen energy consumption decline by 25% compared to 2014.

Even so, the nonprofit performing arts center knows those costs savings may not be as good tomorrow as they are today.

“We will be purchasing the residual value of the equipment that was installed and are hoping that capital investment will translate into further utility savings,” said Rick Nowlin, president and CEO.

“However, if the agreement to sell and purchase power to PG&E changes substantially, the investment might not be as long term a savings plan as we had hoped.”

By the nature of the center’s business it uses power at peak times, 4-9 p.m., because this is when sound checks, rehearsals, and performances take place.

PG&E bills are in the six figures each year, according to the center’s spokeswoman.

Making changes

A remodel in 2014 that included changes to the HVAC system has made Calistoga Spa Hot Springs 60% more energy efficient, according to General Manager Mike Lennon.

The Napa County property is investigating solar especially with four electric pool pumps to supply. For now, Lennon said the business is absorbing the higher utility bills along with the other costs of doing business, which is one reason solar is being looked into.

He said continual PG&E rates hikes “could affect upgrading other parts of the property. Especially when the baseline expense goes up it has you rebudgeting other line items.”

Tom Finch, owner of Filippi’s Pizza Grotto in downtown Napa, had PG&E out several years ago to survey the building to see what could be done to make the structure more energy efficient. New lights went in and new equipment was ordered.

“We turn lights off when we can, we turn the air conditioning off when can. We only turn the ovens on that we absolutely need to have on,” Finch said. “We try to penny pinch. I really think we are doing everything we can.”

He opened the pizza shop in 2005, survived the Great Recession of 2007-09, but says this is the worst he has seen it as a small-business owner when the costs of operating a business are skyrocketing on all fronts.

“I don’t know what the money is going toward; they are not upgrading systems,” Finch said, adding how Napa is known for outages and brown outs. “I question PG&E’s logic for raising the rates so high.”

Archer Hotel Napa, where rooms start at approximately $350 a night, is a bit more understanding of energy costs going up.

“While rate hikes have a direct impact on the overall profitability of a business, we also understand the needs behind the hike, much of which has to do with wildfire mitigation and the upgrade to the infrastructure,” General Manager Michael Collins said.

He said the PG&E bill represents about 5% of operating expenses and 2.5% of total expenses.

One way the lodging establishment keeps costs down is by being able to remotely control the HVAC system of a hotel room when it is not occupied.

Jablons at Tomales Farmstead Creamery admits, “Dairies are a massive energy problem.”

Turning goat milk into cheese takes a lot of electricity because there are various cooling and heating stages involved in the production process.

Nonetheless, the owners are cognizant of when they are milking their 130 goats and try to use cheese-making equipment at off-peak energy times.

Jablons is hopeful recent federal and state legislation affecting climate change will spur renewable energy development, which in turn could help keep energy costs in line.

The Marin County dairy looked into installing solar, but it was cost prohibitive based on the amount of kilowatts needed, Jablons said.

“The whole agricultural framework of California is getting shaken on every level. Between climate change and the drought, which has a direct impact on PG&E showing millions of dollars of loses from poorly managed power sources, it is all a very bad, vicious cycle,” Jablons said.

“We need to hold PG&E back for a while so people can stay in business.”

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