Most business owners know their energy bill is too high. Fewer know exactly what they're paying for — or why. Before you can shop for better rates, negotiate a contract, or evaluate a broker's proposal, you need to understand the basics.
Here's a plain-language breakdown of the terms that matter most.
Electricity: What Is a kWh?
A kilowatt-hour (kWh) is the standard unit of electricity consumption. One kWh is the amount of energy used by a 1,000-watt device running for one hour — or a 100-watt light bulb running for 10 hours.
Your electricity bill shows your total kWh usage for the billing period. The supply rate — what you pay per kWh for the electricity itself — is the number you can shop for in a deregulated market.
Typical commercial usage:
- Small office (2,000 sq ft): 2,000–5,000 kWh/month
- Mid-size retail or restaurant: 10,000–30,000 kWh/month
- Industrial or large commercial: 50,000+ kWh/month
The more you use, the more leverage you have when negotiating rates.
Natural Gas: What Is a Therm?
A therm is the standard unit of natural gas consumption. One therm equals 100,000 BTUs (British Thermal Units) of heat energy — roughly the amount of gas used by a commercial boiler running for about an hour.
Your gas bill shows usage in therms (or sometimes CCF — hundred cubic feet, which is approximately equal to one therm). Like electricity, the supply portion of your gas bill is what you can shop for in deregulated markets.
Supply vs. Delivery: The Most Important Distinction
Your energy bill has two main components:
Supply is the cost of the energy itself — the electricity or gas commodity. This is the part you can shop for. In deregulated states, you can choose a third-party supplier to provide your supply at a competitive rate, while your local utility continues to handle delivery.
Delivery is what your local utility charges to transport energy to your building — maintaining the wires, pipes, meters, and infrastructure. This portion is regulated and fixed. You cannot shop for it or change it by switching suppliers.
When a broker or supplier quotes you a rate, they're quoting the supply portion only. Your total bill will always include delivery charges on top of that.
Why this matters: Some businesses switch suppliers expecting their total bill to drop dramatically, then are surprised when delivery charges remain the same. Understanding this distinction sets realistic expectations and helps you evaluate quotes accurately.
Fixed vs. Variable Rates: Which Is Right for Your Business?
This is the most consequential decision in commercial energy procurement.
Fixed Rate
A fixed rate locks in your supply price per kWh or therm for the duration of your contract — typically 12, 24, or 36 months. Your supply cost doesn't change regardless of what happens in the wholesale market.
Pros:
- Budget certainty — you know exactly what you'll pay
- Protection from market spikes (winter storms, supply disruptions, grid stress events)
- Easier to forecast energy costs for the year
Cons:
- If market prices drop significantly, you're locked in above market
- Early termination fees may apply if you need to exit the contract
Best for: Businesses that value predictability, have tight margins, or operate in regions with volatile wholesale markets.
Variable Rate
A variable rate fluctuates month to month based on wholesale market conditions. There's no long-term lock-in.
Pros:
- Can be lower than fixed rates when wholesale prices are depressed
- Flexibility to switch suppliers or return to utility default service
Cons:
- Exposure to price spikes — variable rates can double or triple during extreme weather or grid events
- Harder to budget and forecast
Best for: Businesses with flexible budgets that want short-term optionality, or those timing a move to a fixed contract.
Indexed Rate
A third option — less common but worth knowing — is an indexed rate, where your price is tied to a published market index (like the NYMEX natural gas futures price) plus a fixed adder. This gives you market exposure with some transparency into how your rate is calculated.
Block-and-Index: A Hybrid Approach
Larger commercial customers sometimes use a block-and-index structure, where a portion of their usage is locked in at a fixed price (the "block") and the remainder floats with the market (the "index"). This hedges risk while preserving some upside if prices fall.
What to Look for on Your Bill
When reviewing your energy bill, find these line items:
- Total kWh or therm usage — your consumption for the period
- Supply charge — the per-unit rate times your usage (this is what you can shop)
- Delivery charge — utility infrastructure costs (fixed, not shoppable)
- Taxes and fees — state and local charges, often a percentage of supply + delivery
The supply charge is your target. Even a small reduction per kWh or therm compounds significantly over a year of commercial usage.
Ready to Put This to Work?
Understanding these basics puts you in a much stronger position when evaluating energy proposals. If you'd like help applying them to your actual bill — or want to see what competitive suppliers would offer your business — we're happy to walk through it at no cost.
Contact Orzel Energy or call (855) 578-9900.
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Written by
Chaim Orzel
Content creator and writer sharing insights and stories.