Business owners are accustomed to receiving quantity discounts on just about anything they buy to run their businesses. Whether purchasing consumables or items for resale, the more you buy the lower price. One of the biggest surprises when it comes to shopping for electricity for your business is that quantity is not the primary price driver.
Electricity Pricing is Unique
What makes electricity so special that more is not always cheaper? Simply put, electricity is the most perishable of all commodities. Electricity cannot be stored in any meaningful way. Therefore, it must be consumed when it is generated and transmitted or it is lost. This makes the “when” aspect of electricity pricing more important than the “how much” aspect. The power plants feeding the grid have a limited capacity. With supply fixed and demand varying, electricity costs fluctuate depending on the time of day, day of the week, and season of the year. Electricity in Texas is generally going to be more expensive on a weekday afternoon in August than the early morning hours of a Sunday in mid-April.
Peak and Off-Peak Usage
Electricity usage is broadly classified into usage occurring during peak times and that occurring during off-peak times. Electricity prices are similarly assigned to peak and off-peak periods. The more electricity you use during peak times, the higher your overall price will be.
Most commercial businesses follow a usage pattern that generally mirrors the demand pattern of the power grid as a whole. Weather is a significant driver of power grid loads and most businesses have conditioned space for their employees and customers. As with any generality, there are many exceptions. Convenience stores tend to use most of their electricity at night when the canopy lighting over their fuel pumps is active. Schools often miss volatile peak pricing in the summer months. Churches may benefit from concentrating their usage on weekends.
Balanced Electricity Usage
In addition to those customers who have unique off-peak usage patterns, some customers benefit from using relatively stable amounts of electricity throughout the day. Hospitals with their non-stop operations often top the list of customers who realize lower energy rates by having their usage distributed across peak and off-peak pricing periods. Grocery stores realize a similar benefit as refrigeration compressors that run all hours of the day make up the majority of the electricity usage.
It is true that larger commercial electricity consumers receive a disproportionate amount of attention from electricity providers and brokers. It is more efficient to gain market share and meet sales quotas by focusing on larger customers. This extra attention and increased competition for larger commercial loads drives margins down. However, downward pressure on margins can only go so far in reducing electricity prices. The fundamental cost of procuring electricity from the grid for a particular customer will always set the price level.