Small Business Electricity Rates How to Cut Costs and Understand Demand

Commercial electricity pricing uses an entirely different structure than residential rates. Key differences:

• Residential: Pay primarily based on total kilowatt-hours consumed
• Commercial: Two-part billing with both energy charges AND demand charges

⚠️ Critical insight: The demand component alone typically represents 30-70% of a small business electric bill—yet most business owners focus exclusively on the per-kWh rate when shopping. Why this matters:

• Strategies that work for residential customers often fail for commercial accounts
• Understanding this split is the first step toward meaningful cost reduction

💡 Commercial accounts also access contract terms and rate structures unavailable to residential customers—opportunities savvy business owners leverage for substantial savings.

Demand charges measure your highest power draw during any 15-minute interval within a billing period. How it works:

• Hit a spike once—and you pay that peak demand rate for the entire month
• Example: HVAC, equipment, and lighting all running simultaneously on a hot afternoon

Real example:

• Restaurant peaking at 50 kW with $12/kW demand rate = $600/month before using any electricity
• Business using 10,000 kWh monthly might pay $800 energy charges but $1,200 demand charges

Why this charge exists: Utilities must maintain infrastructure capacity to meet your maximum demand—even if that peak occurs briefly. ⚠️ Missed opportunity: Most small business owners have never examined their demand patterns, leaving substantial savings untapped through simple load management strategies.

Businesses can choose from several rate structures, each optimized for different usage patterns. Rate structure options:

• Flat rates: Consistent price per kWh regardless of timing—simple but rarely cheapest
• Time-of-use (TOU) rates: Vary by hour, peak pricing 50-100% higher during afternoon hours (noon-6 PM weekdays)
• Demand-based rates: Combine energy charges with peak demand fees—rewards steady consumption
• Interruptible rates: Lower pricing in exchange for allowing brief service reductions during grid emergencies

Best fit by business type:

• TOU rates: Businesses that can shift operations to off-peak hours
• Demand-based: Businesses with steady, consistent power consumption
• Flat rates: Simple operations that can't shift timing

💡 The optimal structure depends entirely on when and how your business consumes power.

A commercial electric bill contains several distinct charges that residential bills lack. Bill components explained:

• Supply charge: Electricity commodity—the kWh your business consumed
• Delivery charges: Utility infrastructure maintenance (regardless of supplier)
• Demand charges: Separate line showing peak kW and rate applied
• Capacity charges: Grid infrastructure investments—vary seasonally
• Transmission charges: Moving power from generation to distribution

⚠️ Important: PJM Interconnection (serving Ohio and Pennsylvania) saw capacity prices surge 833% for 2025-2026. What you can control:

• Supplier choice: Supply charges
• Efficiency improvements: Total kWh consumption
• Demand management: Peak demand charges

💡 Understanding each component reveals which costs you can reduce through different strategies.

Commercial electricity costs vary dramatically by state due to different generation mixes, transmission constraints, and regulatory structures. Ohio commercial rates:

• Typical supply rates: 8-12¢/kWh
• Switching suppliers yields 15-30% savings
• Six major utilities: AEP Ohio, Duke Energy Ohio, AES Ohio, FirstEnergy companies

Pennsylvania commercial rates:

• Competitive supply through PECO, PPL Electric, Duquesne Light
• Average commercial savings: $1,200 annually through supplier choice

Massachusetts commercial rates:

• Highest commercial rates nationally: 21.92-30.63¢/kWh
• Driven by transmission constraints and natural gas dependency
• Mass Save programs offer substantial rebates to offset higher base rates

Unlike residential customers who accept posted rates, businesses possess genuine negotiating leverage. Negotiation strategies:

1. Get multiple quotes – Request from at least 5 suppliers (spread often exceeds 20%)
2. Use competing quotes as leverage – Explicitly tell suppliers you're comparing options
3. Time your shopping – Spring and fall rates typically 5-15% lower than summer/winter

Contract length considerations:

• 24-36 months: Lower rates but less flexibility if prices drop
• 12-18 months: Higher cost but allows repositioning as markets shift

For larger businesses (100,000+ kWh annually):

• Request custom pricing rather than standard rate sheets
• Consider index-plus pricing that tracks wholesale markets

Reducing peak demand often delivers faster ROI than efficiency upgrades. Step 1: Identify your peaks

• Request interval data from utility showing 15-minute consumption patterns
• Common culprits: HVAC startup surges, equipment running simultaneously, EV charging

Proven demand reduction strategies:

• Stagger equipment startup – Don't power everything at once
• Demand controllers – Automatically shed non-critical loads at peak thresholds
• Pre-cooling – Cool buildings before peak pricing periods
• Battery storage – Shave peaks by 30-50% (4-7 year payback)

Real success story: A manufacturing facility reduced demand charges 35% simply by delaying compressor startup by 15 minutes after opening.

Efficiency investments reduce both energy charges and demand simultaneously. High-ROI improvements:

• LED lighting retrofits: 50-70% energy reduction, 2-3 year payback
• HVAC optimization: Programmable thermostats, maintenance, economizer controls
• Variable frequency drives: Cut motor energy use 20-50%
• Occupancy sensors: Eliminate waste in warehouses, restrooms, conference rooms

Available rebates by state:

• Massachusetts: Mass Save covers up to 80% of efficiency upgrade costs
• Ohio: Utility rebates cover 30-50% of LED/HVAC projects
• Pennsylvania: Act 129 programs with zero-interest financing for larger projects

💡 Many utilities offer rebates covering 30-50% of project costs.

ElectricRates.org brings commercial-grade rate comparison to small businesses without broker fees or lengthy negotiations. How it works:

1. Enter your ZIP code
2. See competitive supply offers from licensed suppliers instantly
3. Compare energy rates and contract terms side-by-side
4. Enroll in under 5 minutes

Typical savings:

• 15-25% reduction on supply costs vs. utility default rates
• Service costs nothing—suppliers pay referral fees

Why ElectricRates.org vs. energy brokers:

• Shows all available options transparently
• No steering toward higher-commission suppliers
• Switching handled automatically by the new supplier

✅ Available in Ohio, Pennsylvania, and Massachusetts.

Start optimizing your commercial energy costs this week with these concrete steps. Your action plan:

1. Gather 12 months of electric bills – Identify average demand (kW) and consumption (kWh)
2. Request interval data from utility – Shows 15-minute usage patterns and demand reduction opportunities
3. Visit ElectricRates.org – Compare competitive supply rates for your territory
4. Evaluate time-of-use rates – If operations allow schedule flexibility
5. Schedule free energy audit – OH, PA, and MA mandate utility-funded audits for commercial customers
6. Implement one demand management strategy this month:
   • Stagger equipment startup
   • Adjust thermostat schedules
   • Install occupancy sensors

💡 Remember: Small changes compound into substantial savings.