March 14, 2014

Eight PG&E "micro" rate changes in the past 27 months -- a new one took effect this month -- have pushed the Ag rate that affects most growers 13% higher. 2014 is starting much the way 2013 ended. Dry. Snowpack is currently 1/3 of normal in one of the largest water storage reservoirs in the US, the Sierra Nevada Mountains. With higher water delivery costs, reduced or eliminated surface deliveries, and increased groundwater pumping in 2014 and beyond, let's examine how this is impacting agriculture energy use.

Is PG&E boiling the frog?
How do you boil a frog? If you put it into boiling water it will jump right out, but if you slowly increase the temperature the frog will stay in the pot till the bitter end. PG&E is the nation's largest electric utility with as much as 20% of their electricity used to move water throughout the state of CA. Historically, PG&E would put in for massive rate increases every 2-3 years and then try to keep the frog in the pot.

PG&E offers 89 electrical rates to customers in CA. While this is confusing, the large majority of Ag customers are on a electricity rate called AG-5B. These customers have seen their rates increase 8 times in the last 27 months, for a total increase of 13%. That is one half of a percent per month. What does that mean financially? That same water that cost you $100 an acre foot 2 years ago, will cost you $112 an acre foor this year. Or looking at a farming operation with a $200k yearly electricity bill...they will pay $24k more in electricity than they did to start 2012. Small but measurable increases as the frog continues to slowly boil in more expensive water.

Energy is no longer the smallest expense in your operation
When I first started dealing with agriculture clients in CA, I was told that "energy was a distraction" or that it was "not worth the time." This is simply no longer the case. For many operations, it is now the second largest expense, trailing physical assets expenses, but comfortably ahead of crop maintenance. Five years ago, electricity/energy was 5% or less of total cost to produce your yearly crop. With the rate increases, less surface water being available, a deeper water table/bigger wells, and a larger amount of permanent crops, it it is now making up 15% or more of the yearly total expenses.

Not all hope is lost.
Aggregated Net Metering (ANM) goes into effect in the first quarter of 2014 for electrical customers in the PG&E, SDG&E, and SCE territories and allows Ag customers to integrate power generation into their operation. Self-generating your own power was not always attractive to agriculture customers, but things have changed:

  • With ANM you can install one centrally-located power-producing asset (solar, wind, digester, etc.), at the location you choose and choose which electrical meters you want to offset each and every month. This means a 70% to 80% savings on your utility bill with a typical system payback of 4-6 years.

The utilities hate that you have this option, but they are required to offer it until it exceeds 5% of the electric utility's aggregate demand. Considering that you can depreciate your own electrical system the same way as other equipment in your operation, and can offset 30% of the system costs through the Federal Investment Tax Credit (ITC)...you can see why more and more customers are making the move to generate their own power

Nic Stover is CEO at CalCom Solar where he focuses on agriculture specific energy issues throughout California. You can follow him on Twitter at @agenergyman or connect with him on @LinkedIn