It used to be that nothing in this world is certain except death and taxes. Perhaps it’s time for commercial energy users to add electric rate increases to the list.

Many businesses in California have seen electricity costs jump annually by double digits for more than a decade, leading to some of the highest rates in the nation. Until recently, Arizona businesses seemed largely insulated from the forces driving up the cost of electricity, but that too is changing.

This post will explain why many businesses around the country, especially those in Arizona and California, can no longer manage energy risks the same as before. You can invest in energy efficiency, reduce overall consumption, and still experience year-over-year cost of electricity increases.

Ask yourself, ‘Are my electric bills better off today than they were four years ago?’ If the answer is no, your business might benefit from commercial solar, an electricity source that provides predictable long-term energy costs so you can hedge against the next rate increase.

Managing Electric Risks

The economics of retail electricity is working against the commercial energy user. Electricity demand is going up while supply is constrained, contributing to rising prices.

On the demand side, Arizona’s largest electric utility, APS, projects that peak energy demand will grow from about 8,500 megawatts (MW) to more than 13,000 MW over the next 12 years. APS attributes rising long-term demand to “rapid advancements in technology and manufacturing,” factors affecting business customers across state lines.

New data centers needed to run networking equipment and AI (artificial intelligence) processes are driving up demand in Arizona, California, and elsewhere.

Meanwhile, electricity supplies are being pinched by the planned closure of aging power plants that are too expensive to retrofit and policy uncertainty disrupting the deployment of new energy generation from solar and wind.

Some analysts view California as a postcard from the future, showing how extreme weather can further drive up electricity costs. As customers in California bear the cost of upgrading the electric grid to mitigate wildfire risks, neighboring states can only wonder how long until they have to do the same.

Rates Climbing Higher

Starting this year, utility regulators in Arizona are making it quicker and easier for electric service providers to gain approval for rate increases. Traditionally, utilities seeking to raise rates would file a rate case, presenting evidence and participating in public hearings before government appointees decide whether the requested increases are reasonable. The process can sometimes last a year or longer.

In 2024, the Arizona Corporation Commission offered utilities another pathway to raise rates, known as a formula rate plan. Now utilities can reset rates every year based on utility revenues, expenses, infrastructure investments, and targeted return on equity.

The stated goal is to introduce rate increases gradually instead of once every several years. Independent analysts, however, are sounding the alarm. Amanda Ormond, a technical expert and former State Energy Office Director for Arizona, says formula rate plans “eliminate accountability” and “shift significant risk to ratepayers.” Another regulatory analyst, Michael Deupree, says formula rate plans generally result in large rate increases with very few rate decreases and no improvement in reliability of service.

Already, APS and Tucson Electric Power are seeking 14 percent rate increases under the formula rate plan.

Traditional rate cases, still used in California, do not necessarily shield energy users from risk. In the decade between 2014 and 2023, electric utility bills increased about 2.5 times higher than inflation, according to one solar and energy storage software company, Energy Toolbase. Another software provider, Elexity, says that between 2020 and 2024, commercial electricity rates in California increased more than 70 percent.

Hedging Against Risk

Unmitigated risk is bad for any business, and at this point it’s too risky to source all your electricity from the utility. Your energy costs are already be higher than they used to be. The risk of future rate increases and demand charges that can cause electricity bills to skyrocket unpredictably are pushing many commercial energy users to secure a reliable supply of solar energy.

Businesses using solar energy gain a competitive advantage by locking in predictable energy costs for many years to come. You can soften the impact of rising electricity rates by sourcing some electricity from solar or combining solar with energy storage to offset risks even more.

Businesses that act fast can also maximize federal tax incentives under the 2025 One Big Beautiful Bill. Commercial solar projects that get underway by July 4 can qualify for the 30 percent Investment Tax Credit (ITC), bonus credits, bonus depreciation, and a four-year timeline to complete construction. See our recent article on the July 4 commercial solar deadline for more details.

Solar Gain follows a clearly defined process to help business owners and chief financial officers assess multiple properties and identify the best portfolio opportunities for commercial solar. We then help you develop the best acquisition model—including cash purchase, financing, or power purchase agreement (PPA) at $0 upfront cost—depending on your business goals.

🔗Submit the Form or Call (520) 822-8377 to connect with our commercial solar team and find out how to meet the July 4 tax credit deadline.

Written by Robert Neifert