How to Shop for Business Electricity Rates

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5 minutes read

Category: Home Utilities
Posted on: 01/19/2021
a businesswoman on the phone while writing in a notebook

Besides wages, benefits, and rent or mortgage payments, utilities are among the biggest expenses when you're running a business. Depending on the type of business and the utility rates in your part of the country, your monthly electricity bill can significantly impact the total costs of running your business.

According to the U.S. Energy Information Administration (EIA), the average commercial electricity bill in the U.S. was $660.32 a month in 2018. Simultaneously, the average electricity rate was 10.67 cents per kilowatt-hour (kW) or $0.11. If your business is located in a state with high electricity rates, shopping for cheaper business electricity rates can significantly lower your operating costs.

Shopping for Business Electricity Rates Can Save You Money

Shopping around to find the lowest electricity rates available is an easy way to reduce your business's electricity costs. The difference between the lowest and the highest electricity rates available can be significant. The savings per kilowatt-hour will add up when you switch to a provider with a cheaper plan. You may be able to save up to 30 percent on your electric bill when you shop around for less expensive business electricity rates.

Switching your electricity provider means you're buying your power from a retail energy provider that purchases the electricity on the wholesale power market for a competitive price. The retail provider can sell that power to you at a cheaper rate than your utility does. Your local utility company will continue to deliver the power to your business. The utility is also still responsible for the local power grid and any issues that may occur.

Who Can Shop for Business Electricity Rates?

Shopping for electricity rates is not an option for every business. To switch electricity suppliers, your business must be located in a state with a deregulated energy market. If you're located in a partially deregulated state, check the rules and requirements to determine whether you're eligible. You can contact the public utility commission in your state for details.

Deregulation generally means that anyone can buy their power from the retail energy provider of their choice. However, some states allow commercial customers or customers with a high power demand to choose their own provider, while residential customers are forced to purchase their power from their local utility company. According to the EIA, the number of U.S. businesses shopping for electricity rates is highest in the Northeast, Mid-Atlantic states, and Texas. Washington, D.C. has the highest rate of businesses switching to alternate suppliers.

Find the Right Electricity Provider for Your Business

Before starting your search for a new electricity provider, find out how much electricity you're using annually and each month. Check your electric bills from the past year to see how much you're using in total and per kilowatt-hour. Suppose your business has a high electricity consumption or a high load. In that case, you may also see a demand charge per kilowatt (kW) or a rate structure with different unit prices based on your total monthly consumption.

When you're comparing electricity rates for your business, consider your monthly electric consumption. If you're a small business owner, you can often search for the best rates online like you would for your home. This process is fast and straightforward, and you'll typically find easy and uncomplicated energy plans. For large businesses with a higher consumption or power demand, you usually have to request a quote. You may find more providers offering service to larger businesses, as well as a wider variety of energy plans to choose from.

Choose the Best Energy Plan

When choosing an energy plan for your business, it is important to look at your long-term strategy. The first step is to decide whether a fixed electricity rate or a variable rate plan is better for your needs. Variable-rate plans can be cheaper than fixed-rate plans, and you can change your provider at any time, but they're also subject to fluctuate every month. With a fixed-rate, it is easier to budget, and you don't have to continually monitor energy market prices to keep your electricity rates low.

Electricity plans for small businesses are usually structured like residential plans with cheaper rates. Small business fixed-rate plans typically come with contract lengths of 12, 24, or 36 months and are easy to manage. You can simply switch again when your plan runs out. These plans are usually available to small and medium businesses with a low consumption only or based on your monthly electricity bill.

Business electricity plans often vary from residential plans, especially when you're using significantly more power. For large companies or medium-sized businesses with high power demand, you can often get customized energy plans. Aside from comparatively cheap fixed price plans, you can typically find variable-rate plans such as indexed pricing with fluctuating prices based on energy market indexes or load-following pricing that charges you for the electric load of your business. You will often find a combination of both fixed and variable rate components combined in one plan, such as block pricing. With a block pricing plan, you pay a fixed rate for one or more predefined blocks. Any more electricity used that month will be charged at a variable rate. These rate structures allow you to budget to a certain extent while still getting better unit prices.

Switching Your Energy Provider

Whatever your energy rates are, you can almost always find cheaper rates on the market. As variable rate plans fluctuate, different providers may offer different rates from month to month. If you're locked in a fixed-rate plan, you'll most certainly find different rates by the time your contract term ends. Either way, it can pay out to continue to shop for business electricity rates when your current contract runs out or to monitor the market while you're on a variable rate plan.


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Finance Guru