Utility Costs Are Squeezing Mid-Market Operating Budgets as Wholesale Energy Prices Stay Elevated

Small and mid-sized businesses that locked in energy contracts before 2022 are now cycling into renewals at materially higher rates, and the impact is showing up in operating budgets that many owners have not reconfigured for the new pricing environment.

According to the U.S. Energy Information Administration, the average retail electricity price for commercial customers reached 12.75 cents per kilowatt-hour in 2023, up roughly 20 percent from the 10.66 cents recorded in 2020. Natural gas prices for commercial end-users followed a similar arc, spiking sharply in 2022 before partially retreating, though remaining above the floor prices that many operators used when building pre-pandemic cost models. For more on the topic discussed above, see US Daily Newswire.

The pass-through lag is the core problem. Utilities in most states adjust tariffs on a schedule tied to wholesale procurement, not in real time. That means businesses that signed two- or three-year fixed contracts during the low-price window of 2019 and 2020 are only now absorbing the full reset. For a mid-sized commercial kitchen or a metal fabrication shop running three shifts, the difference between a 2020-era rate and a 2024 renewal can represent $40,000 to $80,000 in additional annual overhead, depending on facility size and regional grid pricing.

Regional Differences Are Significant

The hit is not uniform across the country. Operators in New England and the Mid-Atlantic face some of the steepest commercial electricity rates in the continental United States. ISO New England, the regional grid operator, reported average on-peak day-ahead prices in the $60-to-$80 per megawatt-hour range through much of late 2023 and early 2024, well above the national average. By contrast, operators in parts of the Southeast and Southwest served by vertically integrated utilities with large nuclear and hydro portfolios have seen more modest rate movement.

The natural gas side is somewhat different. Spot prices at Henry Hub, the national benchmark, dropped from their 2022 highs above $8 per million BTU to the $2-to-$3 range through much of 2024. But local distribution company tariffs, which include fixed infrastructure charges and state-level adjustments, mean that retail prices for small commercial accounts have not fallen proportionally. Businesses consuming gas for process heat or commercial HVAC are not seeing the same relief that headlines about falling Henry Hub prices might suggest.

Logistics companies with large warehouse footprints, food processors with refrigeration loads, and health care facilities running 24-hour operations are among the sectors flagging energy as a growing line-item concern in mid-year budget reviews.

The practical takeaway for operators: if your energy contract is up for renewal in the next six months, get competing bids from at least two retail energy suppliers in deregulated states, and ask your utility's commercial accounts team for a load analysis before you sign. Understanding your demand charge structure, not just your per-kilowatt-hour rate, is where most mid-market businesses leave money on the table.