Commercial electricity is no different from residential electricity in its quality. It's more a difference of volume. Businesses often need more electricity than the average homeowner, so they often need to buy it in bulk. Consequently, electricity providers offer different rates for commercial power and take into account different variables that don't apply to residential customers.
The end result is that commercial users can buy electricity at bulk, discounted rates. In 2019, for example, Michigan has an average residential electricity rate of 16.53 cents per kilowatt hour (kWh), while its commercial rate is 11.5 cents/kWh. The difference in California is less pronounced, with a residential rate of 19.86 cents/kWh and a commercial rate of 19.1/kWh.
TL;DR (Too Long; Didn't Read)
Commercial energy refers to electricity that is used by businesses, often at discounted bulk rates. You may sometimes see companies mentioning industrial energy, which refers to a subset of commercial energy and is used by manufacturers.
State Rankings for Electricity Rates
Every month, ChooseEnergy.com ranks each state with its blended business energy index to provide businesses insight on which states are more desirable based on energy costs. Commercial and industrial energy costs are a primary factor in the index, while residential rates are given a lower weight in the calculations.
In November 2019, Louisiana topped the list with the lowest rates for industrial rates and residential rates and the sixth-lowest commercial electricity rates, each coming in at 5.20, 9.57 and 8.60 cents per kilowatt hour, respectively. The top 10 states in November 2019 and their scores were:
- Louisiana: 21.4
- Oklahoma: 21.6
- Washington: 22.1
- Idaho: 22.6
- West Virginia: 23.4
- Arkansas: 23.4
- Kentucky: 23.5
- Oregon: 23.7
- Utah: 23.8
- Virginia: 23.8
At the bottom of the list were California (52.3), Alaska (56.0) and Hawaii (82.4). Of course, if you're thinking of relocating or opening a second business location, there are many other factors to consider beyond the cost of power, such as tax rates and local demand for your products and services.
Getting the Best Commercial Energy Rates
Depending on where you are located, you may be able to get better commercial electricity rates simply by changing providers. Many states have deregulated electricity for commercial customers, so electric companies will compete for your business. Some states, like California, have deregulated only commercial electricity, while others, like Texas, have deregulated both commercial and residential electricity.
In these states, you can often see how the competition compares by getting a business energy online quote. Before making a change, however, you should read the terms and conditions of your contract carefully and do some research on the companies. Make sure you find out the length of your contract, whether or not you have the option to cancel the contract and how long your promised rate is guaranteed.
Electricity Issues for Businesses
For some businesses, the price per kilowatt hour is not the only issue surrounding commercial electricity. Using green energy over conventional sources of energy is becoming increasingly important, if at the very least for public relations and the company's image.
Commercial electricity has a lot of room for improvement. According to the Environmental Protection Agency, 6 million commercial and industrial buildings in the U.S. account for about 45% of greenhouse gas emissions, yet an average of 30% of the energy they use is wasted.
In one 2014 study involving 30,000 commercial buildings in New York, it was discovered that changing the thermostat temperatures by just one degree could save about 2% of the energy being used — a savings of $145 million combined. Replacing inefficient windows could save those same companies 4.5% of their energy usage, at a tune of $227 million combined.
- Business Save: Commercial Energy vs Residential Energy – What Makes Them So Different?
- Choose Energy: Electricity Rates by State
- Choose Energy: Choose Energy Business Energy Index
- Callmepower: List of Energy Deregulated States in the United States
- MIT Energy Initiative: Scaling Commercial Energy Efficiency
A published author, David Weedmark has advised businesses on technology, media and marketing for more than 20 years and used to teach computer science at Algonquin College. He is currently the owner of Mad Hat Labs, a web design and media consultancy business. David has written hundreds of articles for newspapers, magazines and websites including American Express, Samsung, Re/Max and the New York Times' About.com.