Most business owners pay their electricity bill every month without fully understanding what they're actually paying for. The bill arrives, the autopay fires, and the cycle repeats. But for commercial businesses — especially those operating in deregulated energy markets — that passive approach can cost tens of thousands of dollars per year in avoidable overpayments.
Understanding how commercial electricity pricing actually works is the first step to doing something about it. This guide breaks down exactly what's on your bill, what drives the numbers, and how businesses operating in deregulated markets can take control of their energy spend.
The Anatomy of a Commercial Electricity Bill
Your electricity bill is not just one charge. For commercial accounts, it typically consists of several distinct components — and each one can be negotiated or optimized independently.
1. Supply Charges (Energy Commodity)
This is the cost of the actual electricity you consume — measured in kilowatt-hours (kWh). In deregulated markets, this is the component you can change by choosing a different supplier. It's expressed as a rate per kWh and multiplied by your total consumption for the billing period.
The supply charge is where competitive procurement makes the biggest impact. When Hovey Energy runs a multi-supplier bid on your account, this is the number we're competing on.
2. Delivery Charges (Utility Wires)
Regardless of which supplier you choose, you still pay your local utility for the physical delivery of electricity to your facility — the poles, wires, transformers, and infrastructure that carry power to your building. This component is regulated and cannot be changed by switching suppliers. It stays the same no matter who supplies your electricity.
3. Capacity and Transmission Charges
These charges cover your share of the cost to maintain enough power generation capacity to meet peak demand on the grid. Capacity charges are often passed through from the wholesale market and can vary significantly based on your load profile and location.
4. Taxes and Regulatory Fees
Various state and local taxes, utility assessments, and regulatory fees are added to the total. These vary by state and utility service territory.
In most commercial electricity bills, the supply charge represents 40–60% of the total cost — and it's the only component that competitive procurement can directly reduce. Everything else is fixed. This is why focusing your energy strategy on supplier selection is so important.
How Deregulated Markets Work
In regulated markets, your local utility is the only option — they generate, transmit, and deliver your electricity at rates set by the state public utilities commission. You have no choice.
In deregulated markets, the generation and supply side has been opened to competition. Retail energy suppliers — companies licensed to sell electricity — compete for your business, offering different rates, contract structures, and products. Your local utility still delivers the power, but you choose who supplies it.
Major deregulated electricity markets in the United States include Texas (ERCOT), the Mid-Atlantic and Midwest (PJM), New York (NYISO), New England (ISO-NE), the Midwest (MISO), and the South Central region (SPP). If your business operates in one of these territories, you have the right to choose your electricity supplier.
Rate Structures: Fixed, Variable, and Index
When you choose a retail electricity supplier, you also choose a rate structure. The three most common options for commercial buyers are:
Fixed Rate
A fixed rate locks in a set price per kWh for the duration of your contract — typically 12 to 36 months. Your supply cost is predictable regardless of market conditions. This is the most common choice for commercial businesses that prioritize budget certainty.
Best for: Businesses with stable energy loads that want cost predictability and protection against price spikes.
Variable Rate
A variable rate fluctuates month-to-month based on wholesale market conditions. When markets are cheap, you benefit. When they spike — as Texas saw during Winter Storm Uri — you're fully exposed. Variable rates are generally not recommended for commercial buyers without a dedicated risk management strategy.
Best for: Sophisticated buyers with risk management strategies and the flexibility to absorb price volatility.
Index Rate
Index pricing ties your rate to a published market index — often day-ahead or real-time wholesale prices — plus a fixed adder. It's more transparent than a traditional variable rate but still carries market risk.
Best for: Businesses with flexible operations that can shift load during high-price periods.
"Most of our commercial clients choose fixed rates for the first contract. Once they understand the market and their own load profile better, some move to blended strategies — but certainty wins for most businesses."
What Drives Commercial Electricity Prices?
Understanding the factors that influence electricity pricing helps you time your procurement decisions more effectively.
Natural Gas Prices
Natural gas-fired power plants set the marginal price of electricity in most deregulated markets for most hours of the year. When natural gas prices rise, electricity prices typically follow. When gas is cheap, electricity prices tend to drop.
Seasonal Demand
Electricity demand peaks in summer (air conditioning) and winter (heating in some regions). Forward prices for summer delivery are typically higher than shoulder months like spring and fall. Locking in rates during low-demand periods can yield meaningful savings.
Capacity Markets
In markets like PJM, capacity auctions held years in advance set prices that eventually flow through to commercial buyers. These prices can create significant spikes in supply costs that are difficult to predict.
Renewable Energy Penetration
In markets with high renewable energy penetration — particularly solar — wholesale prices can actually go negative during certain hours. This increasingly affects pricing dynamics across all major markets.
How to Get a Better Rate
Getting a better commercial electricity rate isn't complicated, but it does require the right approach:
- Run a competitive bid. Never accept the first rate you're offered. A multi-supplier competitive bid process — even with 3–4 suppliers — consistently produces better pricing than single-supplier negotiations.
- Time your procurement. Locking in rates during lower-demand periods (spring, early fall) typically produces better pricing than procuring in peak seasons.
- Know your load profile. Suppliers price accounts based on your usage pattern. Understanding your peak vs. off-peak consumption helps you choose the right rate structure.
- Don't roll onto default rates. When a commercial contract expires, accounts often roll onto a variable or "default" rate that is significantly higher than available fixed-rate options. Track your contract end dates.
- Consider contract length strategically. In a low-price environment, longer fixed contracts lock in favorable pricing. In a high-price environment, shorter terms give you flexibility.
The Role of a Commercial Energy Broker
Navigating supplier relationships, understanding rate structures, and managing the procurement process takes time and expertise most business owners don't have. A commercial energy broker — particularly one with established supplier relationships and a disciplined quality assurance process — can run the entire process on your behalf.
Hovey Energy's in-house team has been doing exactly this since 2012. We run competitive bids across our supplier network, present options in plain language, handle the enrollment process from start to finish, and manage renewals so you never roll onto an expensive default rate.
The service costs nothing to commercial clients — we're compensated through supplier commissions, meaning you get the full benefit of competitive procurement without any consulting fees.
Bottom Line
Commercial electricity pricing is more complex than most business owners realize — but that complexity works in your favor if you approach procurement the right way. Understanding what's on your bill, knowing the difference between fixed and variable rates, and running a competitive bid process are the fundamentals that separate businesses that control their energy costs from those that overpay year after year.
If your business operates in a deregulated market and you haven't reviewed your electricity supply contract recently, you're almost certainly leaving money on the table.
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Hovey Energy's in-house team has been helping commercial businesses navigate energy procurement since 2012. Get a free analysis — no obligation.
