Utility Costs Are Eating Into Small Business Margins as Wholesale Energy Prices Stay Elevated
Wholesale electricity and gas prices remain above pre-2021 norms, and the pressure is landing squarely on small business operating budgets across retail, food service, and light manufacturing.
Walk into any independent restaurant or small fabrication shop right now and ask the owner about their biggest fixed-cost headache. A growing number will point not to rent or labor, but to their monthly utility bill.
Wholesale electricity prices in much of the United States remain well above where they sat before 2021. According to the U.S. Energy Information Administration, average commercial electricity prices hit 12.58 cents per kilowatt-hour in 2023, up from roughly 10.66 cents in 2020. That is an 18 percent increase in three years, and it has not fully retreated. Natural gas, which many small manufacturers and food service operators depend on for process heat and cooking equipment, followed a similar arc before moderating in late 2023 — though rates passed through by local distribution companies often lag the wholesale market by months. For more on the topic discussed above, see US Daily Newswire.
For small businesses operating on margins that rarely exceed 10 percent, a sustained shift of that size is not a rounding error. It rewrites the budget.
Who Is Feeling It Most
The sectors absorbing the hardest hits are those with high energy intensity relative to revenue: laundromats, bakeries, dry cleaners, small metal shops, and restaurants. A full-service restaurant running commercial ovens, refrigeration, and HVAC simultaneously can spend between 3 and 5 percent of gross revenue on utilities under normal conditions. When rates climb and that share creeps toward 7 or 8 percent, it wipes out a meaningful slice of profit before a single employee is paid.
Independent grocery and convenience store operators face a related problem. Refrigeration load is essentially non-negotiable — you cannot turn off a cold case — which means any rate increase passes directly to the bottom line. The National Federation of Independent Business reported in its 2024 small business survey that energy costs ranked among the top five operational concerns cited by respondents, a category that had not broken into that tier with the same frequency before the 2021 price surge.
Commercial landlords are threading some of this through to tenants on triple-net leases, where the tenant pays utilities directly. In those arrangements, the operator has no cushion from a landlord absorbing part of the exposure — every cent of rate increase is theirs to manage.
What Operators Can Actually Do
Rate structures vary sharply by utility territory, and many small business owners are not on the most favorable commercial rate their provider offers. A call to the utility's commercial accounts desk to ask specifically about time-of-use rates, demand charge structures, and any available efficiency rebate programs is a concrete first step — one that costs nothing and can produce a lower effective rate without any capital investment.
For operators with more flexibility, load-shifting heavy equipment use to off-peak hours can reduce demand charges, which are calculated on peak draw and can represent 30 to 40 percent of a commercial bill in some utility territories.
The practical takeaway: treat your utility agreement the way you treat a supplier contract. Review it annually, ask about alternatives, and do not assume the rate you signed up for is the best one available to you.