Is Commercial Electricity Cheaper Than Residential?
The financial impact of commercial electricity rates on an organization’s operating costs and profitability is significant. While most business owners know they’re paying less per kW/h than their residential neighbors, it’s worth understanding why this price gap exists.
Industrial vs. Residential vs. Commercial Electricity Rates
Utility companies charge different rates based on three categories of end-user. In most of the country, electricity customers are divided into three groups: residential, commercial, and industrial. Qualifying for a specific category is typically based on the customer's tax filings or the zoning regulations where the facility is located.
As of January 2024, the average electricity rates for each sector show a relatively large spread in electricity costs.
Commercial and industrial rates vary by state and utility company. States with higher living costs, fewer natural resources (like natural gas or coal), or fewer energy subsidies have considerably higher costs across all sectors. The states with the most expensive commercial electricity rates are Hawaii, Rhode Island, California, Connecticut, and Vermont.
Related: How Wholesale Electricity Prices Are Set
Why Are Industrial and Commercial Energy Prices Lower?
Industrial and commercial energy rates are lower for several reasons. Most importantly, these sectors consume much more electricity than residential ratepayers. How and when business user energy differs from households, which impacts how utilities charge their commercial customers.
Demand Changes
Also known as distribution fees, demand charges are billed at a set dollar price per kilowatt instead of cents per kilowatt hour. Businesses pay fees based on the total amount of energy they use during a specific period. This protects utility providers from experiencing overwhelming demand from companies and threatening grid stability.
Negotiated Contracts
Larger companies negotiate electricity rates with their utility company or through an energy broker. These contracts cover a range of issues, including minimum and maximum electrical demand per pay period, kWh and kW rates, and stipulations around energy bandwidth. Most contracts also include early termination fees.
Local Factors
Local resources, regulations, and subsidies shape electricity prices for all three sectors, but some states give businesses more of a break. From price caps and cost increase limits, several mechanisms exist to reduce price volatility for businesses deployed at the municipal, county, and state levels. Supply-side federal subsidies also lower utilities costs, which lowers customers' charges as a result.
Finding the Best Commercial Electricity Rates
As part of our energy audit process, Keen Technical Solutions helps customers find better electricity rates based on their real-world energy needs. We evaluate customers' electricity usage by reviewing years of bills and comparing commercial electricity rates offered by local utilities.
Take Control Of Your Commercial Electricity Costs
At Keen Technical Solutions, we help customers lower energy-related expenses and meet their sustainability goals. Our trained, experienced energy consultants have deep industry experience and the skills to identify impactful cost-saving measures for your business. Grow faster, grow smarter; contact a Keen representative today to get started!