Introduction
Electricity pricing for businesses is different from what you see on a household bill. Commercial rates reflect the larger scale of usage and the costs associated with generating and delivering power for industrial equipment, offices and stores. Your rate is influenced by many factors including how much it costs to generate electricity, the regulatory environment in your state, the balance of supply and demand on the grid, the cost of maintaining transmission and distribution infrastructure, the profit margin of your supplier, and when you use the electricity during the day.
Demand, Load and Range
Small-business energy bills often include new terms. Demand is the maximum amount of power your business draws from the grid at any one time—peak demand can be costly because your utility must ensure sufficient capacity is available for those busy moments. Load refers to your actual power usage at any point in time. A business with a large peak load but low average consumption may pay higher demand charges. Range describes the swing between your highest and lowest usage; a wide range can also affect costs.
Rate Structures
Utilities bill businesses using two main structures. In a non‑time‑of‑use (non‑TOU) or flat rate, you pay the same price per kilowatt‑hour regardless of when you consume electricity. With time‑of‑use (TOU) rates, the price varies by time of day, day of the week and season. Electricity typically costs more during weekday afternoons and evenings—when demand peaks—and less overnight or on weekends.
Plan Types
In deregulated markets you can shop for a competitive electricity supplier. Common plan types include:
- Fixed rate plans: You lock in a price per kilowatt‑hour for the duration of your contract. This protects you from market volatility.
- Indexed or variable rate plans: Your price is tied to an index such as the wholesale market. Rates can change monthly and may fall when wholesale prices drop but may also spike.
- Block and index plans: Part of your energy use is billed at a fixed price (the “block”) and the rest floats with the market. This hybrid approach provides some certainty while allowing you to benefit from lower market prices on the remainder.