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Understanding Electricity Costs for Commercial Properties

All commercial buildings in California use some level of electricity. Electricity is used to power computers, lights, manufacturing equipment, or televisions. Electricity has become a vital part of your business’s daily operation. However, as the person pays the bills every month, you may not know how you are charged for electricity. The costs for electricity are different than for residential. Understanding what options you have for commercial electricity billing and your energy consumption can help your business reduce operating expenses. From changing your billing rate to investing in commercial solar, make informed decisions to ensure that you aren’t being overcharged or missing opportunities to lower your commercial electricity bills.

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Commercial Energy 101: Difference Between Power and Energy

Power vs. Energy and How It Affects Your Bill

Your electricity bill is based on how much electricity your business consumes. These units of measurement will use acronyms you may not understand. The first step to understanding your business’s electricity cost is understanding the two most commonly used acronyms. This will help your company understand the various ways commercial power can be billed. The most crucial distinction to be on the lookout for is the difference in kilowatt-hour (kWh) and kilowatts (kW).  

Kilowatt-Hours (kWh) is a measure of energy. It is a simple unit of measurement to determine how much energy is being consumed. 

Kilowatts (kW) are 1,000 watts, which is a measure of power. Power is an instantaneous draw of electricity. Power can be thought of like pipes that draw the water out of the big lake.

To use an analogy of a water pipe and a lake. Power is the width of the pipes that can draw the water from the lake, and energy is the amount of water that passes through the pipes. So a 1,000-watt hair dryer needs 1,000 watts (1kW) of power to make it work and uses 1KWh of energy in an hour. 

Commercial electricity billing in California is typically done using two different methods or a combination of those methods.

1. Bills based on energy billing schedules (kWh) or

2. Power and light energy charge schedules.

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Multiple Rate Schedules: Is Your Business on the Right one?

It is essential for any business to be aware of what billing rate schedule they are a part of. Your utility company offers multiple rate schedules that a customer can choose from. Based on your usage, industry, and size, there may be a more relevant, cheaper rate schedule available to you.

Depending on your business, you will have different options and rate plans that are available. Your company, location and industry can all play a role in selecting your business’s best pricing plan. But picking the appropriate rate plan can save you hundreds if not thousands on your electricity costs. 

If you are currently on the original rate schedule provided by the utility company, or if your operations have changed at a given location, it may be beneficial to inquire to see if a better rate plan is available. Get help identifying the least expensive plan based on your typical usage. We recommend you call your utility company and request an analysis to go over your historical use and determine if there may be a better rate schedule for your business. 

Pro Tip: SCE Commercial Customers can Call 1-800-990-7788 to discuss their pricing schedule. 

Time-of-Use Commercial Billing

Example of Time-of-Use Rates and Difference in Pricing. Credit: Southern California Edison.

When power billing is being employed, a specific time of day a peak can be set, for example, weekdays from 4 pm to 9 pm. Time-of-Use billing is based on a rate plan that varies according to the time of day, season, and day of the week. Higher rates are charged during the peak demand hours, and lower rates are charged during off-peak hours. Time-of-Use pricing encourages businesses to use their electricity efficiently. For residential customers in California, they can choose to be on a Time-of-Use plan. But commercial, industrial, and agricultural customers in California are mandated to be on a Time-of-Use plan. This helps ensure that electricity is available when it is needed the most. 

How to Access Your Power Consumption Data 

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As a customer of a utility company like Southern California Edison (SCE), Los Angeles Department of Water & Power (LADWP), Pacific Gas & Electric (PG&E), and San Diego Gas & Electric (SDG&E), you have the ability to access your consumption data. The easiest way to analyze your consumption data is to identify peak use and energy consumption figures in your monthly bill.

However, when looking at your historical electricity bill, there are limits to the data you can obtain. Your electricity bill does not provide the time and day of your energy consumption variations. You need to obtain a more detailed measurement of your consumption data, called “interval data.” Interval data is a snapshot of your consumption as detailed as every 15 minutes across an entire year. There are typically three ways to access your company’s interval data: 

1. Contact your account representative or a general service representative at the utility company. When speaking with a utility company representative, request the most recent year’s set of interval data. If they can provide historicals from previous years, even better. Ask to receive your information in a CSV or Excel format.

2. The second way to access your interval consumption data is through your utility company’s online portal. Most online utility accounts are set up to enable you to pull consumption reports in different capacities for different periods to understand your usage better.

3. The third most in-depth way to obtain your interval data is through third-party services like UtilityAPI. With UtilityAPI, the first step is to you log into your utility company’s online billing account. UtilityAPI will then process your information and pull the interval data in an easy-to-analyze format.

This is the data commonly used by energy management consultants and facility managers to track consumption yearly. Having access to your utility’s interval data is critical for addressing energy reduction goals. Adopt renewable energy opportunities while better supporting your business’s operations.

Now that you have the information on when you are consuming electricity and how you are billed, make an informed decision on the best options to reduce your monthly electricity bill. Pick the best billing method and rate to see savings in your energy costs.

Importance of Interval Data for Commercial

It is vital to know when your business operates and how much energy is consumed to keep it operational. A business that consumes 80% of their power during 1 pm - 4 pm will have a much different bill than a business that consumes 80% of their power from 4 pm – 7 pm. Commercial electricity costs are much higher than residential. The additional costs for using a lot of electricity and at certain times can result in substantial Demand Charges for commercial buildings. Interval Data is essential for adequately making recommendations on ways to reduce electricity costs. For businesses with high Demand Charges, you will employ different strategies to maximize their savings. 

Leveraging Commercial Incentives to Lower Your Energy Costs

Analyzing your interval data and making changes to your existing rate plans can help lower costs, but switching over your rate plan can only go so far towards lowering energy costs. To substantially reduce your operating expenses, consider investing in your energy source. A solar panel system for your commercial property can replace the expensive electricity cost you are currently purchasing from your utility company. By adding a battery storage solution, you can also ensure that your business continues to run even during a power outage.

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Tax Incentives Make Commercial Solar Affordable

A commercial property’s tax situation can make substantial impacts on the overall course of the business. Finances and corporate taxes are essential considerations to any company’s financial plans. Current tax incentives exist to help reduce the tax liability for businesses while spurring renewable energy adoption. Government tax credits and deductions are used to incentivize investment in new or budding industries and provide a situation for businesses to thrive. 

Federal Investment Tax Credit

History of the Federal Investment Tax Credit

In 2005, the United States Congress passed a bill called the “Energy Policy Act of 2005,” paving the way for the Federal Investment Tax Credit (Federal ITC). The Federal ITC, also commonly referred to as the Solar Tax Credit or Federal Tax Credit, applies to Commercial and Residential buildings.

What is the Federal Investment Tax Credit?

The Solar Tax Credit is a federal incentive that comes in the form of a tax credit, not a deduction. This Federal Tax Credit is based on the total price of adopting renewable energy as a solar energy system. The Federal tax credits are applied to your aggregate tax liability after all deductions. The ITC is different from other market incentives because it is the only federal incentive for a solar purchase.

Difference Between Commercial and Residential Federal ITC

The Federal ITC is on a step-down schedule and is set to expire eventually. In 2020, the Federal ITC fell from 30% to 26% of the total investment. It is set to fall again to 22% in 2021 and then expires in 2022. The most significant difference between the Commercial and Residential Federal ITC is in 2022, where the Residential Federal ITC will expire but remain indefinitely at 10% for Commercial properties. 

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Federal Bonus Depreciation Deductions 

Along with the Federal Tax Credit, solar energy systems also qualify for a Federal Depreciation Deduction of 100% in the first year of purchasing the solar energy system. Since the Internal Revenue Service (IRS) knows these assets are associated with a tax credit, they allow companies to split the difference and will enable you to deduct from the value of 100% minus (-) half (1/2) of the Federal tax credit value.

For instance, if you purchased a $500,000 solar energy system for your commercial building in 2021, your depreciable basis for the asset would be $435,000. This was obtained by taking $500,000 - ($500,000 * ½ * 26%).

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Bonus depreciation has been improved in Trump’s 2018 Tax Package, which moved the depreciable amount from 50% of the asset’s value in year 1 to 100% of its value. Along with the Federal Tax Credit, this incentive is the most considerable tax incentive associated with the purchase of a solar energy system. Therefore, it is crucial to confirm that the business has a tax liability to promptly provide the highest possible return on investment.

State Income Tax Depreciation Deductions

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Some states also have an additional tax incentive for the purchase of renewable energy equipment. Each state has different rules and laws, but in states like California, solar energy systems can qualify for programs like the Modified Accelerated Cost Recovery System (MACRS). The Modified Accelerated Cost Recovery System is a 5-year schedule of deductions against state owed income tax. In terms of overall benefit, the state income tax depreciation deduction is the smallest tax incentive available, but ignoring it can hinder your return on investment. 

Tax incentives can make a renewable energy project financially viable and improve a firm’s tax position. Best of all, companies can help spur the adoption of renewable technologies. Solar energy systems qualify for the Federal Tax Credit, Federal Bonus Depreciation, and State Income Tax Accelerated Depreciation. By working with qualified energy consultants, you Act now to secure your maximum tax incentive while improving your business’s bottom line.

Your Next Step for Commercial Solar

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The goal for most businesses is to be efficient. To be efficiently run and to hopefully produce goods while contributing to a zero-carbon footprint. Adopting renewable energy is the only way to solve the sustainability problem. This will allow us to remove our reliance on carbon-based fuels. Commercial businesses are a significant part of that goal, and the US State and Federal Government have substantial incentives for companies to adopt renewable energy. 

Have a conversation with a Forme Solar Commercial Solar Consultant to determine whether solar makes sense for your commercial property. 

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