Southern California Edison: The Counterintuitive 5.3% Rate Decrease
In a rare anomaly for California, Southern California Edison (SCE) small commercial rates are projected to drop 5.3% in early 2026, despite the CPUC approving a $544 million overall utility revenue increase. This occurs because massive statewide electrification (EV fleets, HVAC) is inflating aggregate kWh sales, effectively spreading the utility's fixed capital costs over a much wider base.
Executive Impact
- →The Denominator Effect: Rates (cents per kWh) calculate as the utility's total Revenue Requirement divided by Total Sales Volume. Because California's push for vehicle and building electrification is driving massive sales volume growth across the SCE territory, the denominator is expanding faster than the CPUC-approved revenue increases, forcing per-unit rates mathematically down.
- →Tariff Class Discrimination: The "5.3% Decrease" makes great headlines but obscures reality. This is an average drop for small-to-medium businesses (SMBs). Massive industrial operators subject to strict Time-of-Use (TOU) modifiers and aggressive capacity demand charges are largely excluded from this deflationary trend, with their absolute costs often remaining flat or slightly increasing.
- →Direct Access Limitations: California caps the amount of commercial load that can purchase competitive third-party electricity through the Direct Access (DA) program. For businesses stuck on SCE bundled utility service, this temporary rate reprieve offers breathing room, but long-term exposure to CAISO grid volatility remains extreme.
Navigating the SCE Tariff Maze
Despite a projected drop in the baseline rate, SCE's rate structures remain among the most complex and punitive in the United States. Commercial operators must remain hyper-vigilant regarding their consumption profiles.
- The Brutal 4 PM - 9 PM Peak: The CAISO "Duck Curve" defines California energy physics. SCE's Time-of-Use tariffs penalize electricity drawn during the critical 4 PM to 9 PM window when solar generation drops offline. A 5% drop in the base rate is completely swallowed if a facility operates heavily during this multi-multiplier penalty window.
- Fleet Electrification (EV) Rates: One of the primary drivers of SCE's massive volume increase is commercial fleet electrification. Logistics hubs in the Inland Empire installing Class 8 heavy-duty charging banks must migrate to highly specialized EV-only tariffs to avoid triggering catastrophic non-coincident demand charges.
- The NEM 3.0 Reality: For commercial facilities operating onsite rooftop solar, the transition to NEM 3.0 has destroyed the economics of standalone generation. Any excess power exported to the SCE grid is compensated at a fraction of the retail rate. The only financially viable commercial solar strategy in 2026 involves pairing generation with massive onsite battery storage (BESS) to capture and self-consume exactly 100% of generated electrons.
The Wildfire Mitigation Wildcard
While standard base rates are temporarily dipping due to volume growth, the specter of catastrophic wildfire liability remains. If severe wildfires strike SCE territory in 2026, the CPUC could rapidly authorize emergency surcharges and balancing account pass-throughs, instantly vaporizing the highly publicized 5.3% rate reduction and resetting commercial bills significantly higher.