Commercial Electric Rates: An Overview

March 2, 2023


Understanding your electricity bill is critical to maximizing savings. Whether you're an energy manager or responsible for your business's power costs, numerous charges can take your monthly account by surprise.

Among the most significant are demand charges, often a third of the total bill. These charges help utilities cover the costs of storing and maintaining the capacity to provide power during peak times.

Variable Rates

When choosing a plan for your electricity, you need to understand the differences between fixed and variable rates. Variable rates are based on market prices and can change monthly. These prices vary based on weather, gas storage, supply and demand, government regulation, and imports and exports.

Variable-rate plans are often ideal for customers who want to watch energy prices closely and take advantage of lower prices during market volatility. They also allow you to switch providers and energy plans without paying cancellation or early termination fees.

However, they can also be risky and may cause you to pay more than you should. If you are a risk-averse consumer, you can avoid the risk associated with variable rates by choosing a fixed-rate plan instead.

Likewise, if your electric use goes up or down, then a fixed-rate plan is better for you. It's a good idea to compare a few plans before you decide which one is right for you.

Fortunately, if you're from Philadelphia, you can find the best PECO electric rates to match your unique needs with our easy-to-use shopping tool. Logging in will allow you to search your city for options that suit your lifestyle. You can even get a custom quote and start saving within seconds.

Time-Of-Use Rates

Time-of-use rates are an alternative billing option that charges more for electricity during "peak hours" when demand is highest. This aligns the price of electricity with the cost of producing it, allowing you to control your energy costs by shifting your consumption to lower-cost times.

To encourage customers to sign up for TOU rate programs, it is important to first educate them about the program and how it will impact their electric bill. A recent study found that most customers are open to TOU rates, but only 40% know their availability and understand how they work.

TOU rates can help the environment by encouraging you to shift your primary electricity use away from peak demand periods when renewable resources aren't at their optimum production. This means there is less need to switch on fossil fuel power plants during those high-demand hours, helping the environment and lowering your carbon footprint.

It also helps alleviate strain on the grid during these times, so more energy is available for everyone to use at low prices. The more people sign up for TOU rates, the more they can shift their energy consumption to low-demand times.

TOU rates are a good fit for many people who like the idea of controlling their electricity costs and being able to make changes to their electricity usage to realize savings. They can also be a good option for businesses that can avoid using their most significant amounts of electricity during peak usage (summer, 2-7 p.m. and winter, 5-9 a.m.) and shift to lower-priced off-peak and shoulder hours.

Fixed Rates

Fixed-rate plans provide the most budget certainty for business consumers and ensure your price is locked in for the contract term. These are especially useful for businesses that rely on energy during the winter and summer months.

Variable rates offer more flexibility but present more volatility in pricing, which may affect your monthly electricity bill. These plans are often more popular among residential customers but can be risky for businesses that rely on their electricity supply during volatile times.

Retail electric prices are determined by various factors, including the electricity market and regulations surrounding energy production and use. In addition, the cost of fuel used to power your business can also fluctuate.

Because many variables impact your commercial electric rates, knowing what to look for when shopping for a plan is essential. It's also helpful to understand the differences between variable and fixed rates to decide which is best for your business.

For many customers, a fixed-rate plan is an ideal option. These are often the most popular options for consumers who rely on their electricity supply during the winter and summer months. They also help to protect you from future increases in energy prices.

Peak Demand Charges

A business is billed for the energy it uses and how much stress it puts on the electricity grid to keep power flowing. This can make up a significant portion of commercial electric rates in certain territories, rate classes and months of the year.

Understanding how your utility charges you for electricity is essential in understanding your energy bills. There are three different charges on a commercial electric bill: consumption (kWh), demand (kW), and capacity (kVA).

The consumption charge is easy to understand and is calculated by multiplying the total energy used during a billing period by the cost per kWh. Consumption charges vary widely but are usually much lower than demand charges.

However, demand charges can be much more challenging to understand and can represent a large part of your electric bill. This is because the unit cost of demand is typically much higher than the unit cost of consumption.

To reduce demand charges, you can smooth out the peak periods of your energy use by reducing the amount of energy drawn from the grid during these periods. This can be done by identifying when your equipment is in high demand and changing your business's consumption patterns to operate only during off-peak hours.


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