Most guides tell you to "shop around." This one explains the mechanics so you can evaluate suppliers yourself—and catch contractual traps before you sign.
Reading time: 15 minutes. Last updated: February 2026.
Commercial electricity bills have three distinct components. Understanding which ones you can control—and which you can't—determines whether switching suppliers will actually save you money.
The actual electricity you consume, measured in kWh. This is what suppliers compete on.
Your peak usage in any 15-minute interval. Measured in kW. Often ignored, but huge savings potential.
Transmission + distribution. Paid to your local utility. You cannot shop this.
Key insight: When a supplier quotes you "8.5 cents per kWh," they're only talking about the energy portion. Your actual all-in cost will be 2-3x higher after demand and delivery charges.
Demand charges are based on your single highest 15-minute usage period in the billing cycle. If your machines all start up at 8am Monday and draw 500 kW for 15 minutes, you'll pay for that 500 kW demand all month—even if you average only 200 kW the rest of the time.
| Component | Calculation | Monthly Cost |
|---|---|---|
| Energy (100,000 kWh × $0.065) | Usage × Rate | $6,500 |
| Demand (350 kW × $12/kW) | Peak × Rate | $4,200 |
| Delivery charges | Fixed + variable | $2,800 |
| Total | $13,500 |
In this example, demand charges are 31% of the bill—and many facilities run 40-50%.
Capacity charges pay for power plants to exist and be ready—even when they're not generating. This is separate from the energy you actually use. The mechanism varies dramatically by market.
PJM calculates your capacity obligation based on your usage during the grid's 5 highest demand hours each summer (June-September).
Strategy: Subscribe to peak alert services. When the grid approaches a potential 5CP hour, reduce load. A $50,000 capacity charge can drop to $30,000 with disciplined peak shaving.
ERCOT uses 4 peak intervals—one per summer month—to set transmission charges for the following year.
Strategy: Requires an Interval Data Recorder (IDR) meter. Many brokers offer 4CP management programs. Real-time alerts let you curtail just 4 times per summer for year-long savings.
Note: ERCOT does not have a capacity market like PJM. It relies on "scarcity pricing" during tight supply conditions instead. This is why ERCOT prices can spike to $9,000/MWh during extreme events—there's no capacity reserve payment cushioning the market.
Locked price per kWh for contract term
Pros:
Cons:
Tied to wholesale market (LMP or hub price + adder)
Pros:
Cons:
Portion fixed, portion at market
Pros:
Cons:
Real talk: Most CFOs prefer fixed rates because they remove uncertainty. But in a falling market, you'll overpay. If your operations can shift load (overnight manufacturing, EV charging, cold storage), index pricing with active management often wins.
Before signing, have someone who understands energy contracts review the terms. Here are the clauses that cost businesses money:
Many "fixed rate" contracts only fix the energy component. Capacity, transmission, and ancillary services are passed through at cost—which can swing 20-30% year over year. Ask: "Is capacity included in this fixed rate?"
If you miss the cancellation window (often 60-90 days before expiry), you renew at whatever rate the supplier chooses. These "holdover" rates are typically 30-50% above market. Calendar the notice deadline immediately upon signing.
Some contracts calculate exit fees on projected usage for the remaining term—not actual. A 24-month contract at 500,000 kWh/month with 12 months remaining could carry a $30,000+ termination fee. Negotiate a cap or declining fee schedule.
Allows suppliers to adjust rates if regulations change. Sounds reasonable—but vague language lets suppliers pass through costs that should be their risk. Ask for specific examples of what triggers this clause.
"6.5 cents for the first 6 months!"—but the remaining 18 months are at 9.2 cents. Calculate the blended rate over the full term. If they won't tell you the post-promo rate upfront, walk away.
Wholesale electricity prices follow seasonal and economic patterns. Locking in at the wrong time can cost you 15-25% more than locking in at the right time.
Shop in fall/winter
March-April and October-November typically see lowest forward prices. Demand is moderate, no extreme weather premiums baked in.
Avoid summer and mid-winter
June-August prices carry heat wave premiums. January-February in northern markets includes cold snap risk pricing.
Start 4-6 months before contract expiry
Gives you time to get multiple quotes and wait for a favorable price window. Starting 30 days before expiry = taking whatever you can get.
Pro tip: Natural gas prices heavily influence electricity prices (gas plants often set the marginal price). Watch Henry Hub futures. When gas drops significantly, electricity contracts often follow within 2-4 weeks.
Now that you understand the mechanics, compare offers properly. We'll get you quotes from multiple suppliers so you can evaluate them yourself.