Electricity Tariffs Explained for Business Owners (2026)

Picture a restaurant owner in Houston opening her electric bill in July and finding a line item she has never noticed before: a demand charge that is nearly as large as the energy charge itself. She assumed she was just paying for kilowatt-hours. She was not.

An electricity tariff is the formal, filed schedule that governs every charge on a commercial electric account. It is not just the price per kilowatt-hour. It is the complete legal document, approved by the relevant state regulator, that specifies the customer charge, the energy charge, the transmission and distribution riders, seasonal adjustments, and, for businesses above a certain usage threshold, the demand charge. Every utility operating in a regulated or deregulated state must file its tariffs with its state commission and make them publicly available.

For small and medium businesses, reading a tariff can feel like reading a legal contract in a foreign language. The goal of this post is to translate the most important pieces into plain terms, and to explain how the deregulated supply market in Texas, Ohio, Pennsylvania, Massachusetts, New Jersey, and Washington DC changes the picture compared to states where businesses have no shopping rights.

People use "electricity tariff" and "electricity rate" interchangeably, but they are not the same thing. A rate is a single line within a tariff, the price per kilowatt-hour for energy, for example. A tariff is the entire schedule that contains all the rates, all the rules about when those rates apply, and all the conditions under which a business qualifies for a given rate class.

Why does this matter practically? Because a business could negotiate a competitive energy rate with a retail supplier and still face a high bill if it ignores the demand charge buried in the utility's tariff. The supply rate is shoppable in deregulated markets. The delivery tariff, including those demand charges, is set by the regulated utility and approved by the state commission. No supplier can change it.

The six regulators who oversee the delivery tariffs in the markets ElectricRates.org covers are: the Public Utility Commission of Texas (PUCT) for Texas, the Public Utilities Commission of Ohio (PUCO) for Ohio, the Pennsylvania Public Utility Commission (PA PUC) for Pennsylvania, the Massachusetts Department of Public Utilities (MA DPU) for Massachusetts, the New Jersey Board of Public Utilities (NJBPU) for New Jersey, and the District of Columbia Public Service Commission (DC PSC) for Washington DC. Each one maintains an online docket system where tariff filings are public record.

A commercial electric bill in a deregulated market typically has two major sections: delivery charges and supply charges.

Delivery charges are set by the local utility and flow through no matter which supplier a business chooses. They commonly include:

- A fixed customer charge applied every month regardless of consumption
- A distribution charge based on kilowatt-hours consumed
- Transmission charges, sometimes bundled, sometimes itemized separately
- Riders, automatic pass-through adjustments for costs like grid modernization, energy efficiency programs, or storm recovery
- A demand charge (for accounts above the utility's applicable threshold) billed in dollars per kilowatt based on the highest 15-minute peak of consumption recorded during the billing period

Supply charges represent the commodity cost of electricity itself. In a deregulated market, this is the piece a business can shop. A retail electricity supplier sets a price per kilowatt-hour, and that price can be fixed for the contract term, indexed to the wholesale market, or structured in some combination.

Demand charges deserve special attention for any business that runs high-draw equipment: commercial kitchens, HVAC systems, compressors, server rooms. Even a single 15-minute spike can set the demand peak for the entire month. Reducing that peak, by staggering equipment startup times or shifting loads, can lower the demand portion of the tariff without changing a single kilowatt-hour of total consumption.

When a business in a deregulated market has not chosen a retail supplier, it falls onto the utility's default supply offering. Each state has its own name for this and its own method for setting it.

In Texas, competitive retail is the norm, but for businesses that have not chosen a provider, particularly in areas served by municipal utilities or co-ops outside the ERCOT footprint, default rates vary by provider. Within ERCOT, the market is fully competitive and there is no traditional default rate concept in the same sense.

In Ohio, the default option is called the Standard Service Offer (SSO), set by each Ohio electric distribution utility and approved by the PUCO.

In Pennsylvania, businesses that have not shopped land on the utility's Price to Compare, which reflects what the PA PUC-approved default supply costs.

In Massachusetts, the default is called Basic Service, with rates set by the MA DPU and updated on a scheduled basis.

In New Jersey, the default offering is the Basic Generation Service (BGS), procured through a competitive auction overseen by the NJBPU.

In Washington DC, the default is the Standard Offer Service (SOS), administered under DC PSC oversight.

None of these defaults are inherently bad, but they are not designed to be the best deal available. They are designed to be a reliable backstop. Businesses that have never compared supply offers may find that the default rate is simply not competitive with what the open market offers. For live rate comparisons across all six markets, visit the ElectricRates.org business electricity page.

In a fully regulated state, the entire tariff, supply and delivery combined, is set by one utility and approved by the state commission. A business has no shopping rights and no ability to negotiate the supply price.

In the six deregulated markets covered here, the supply portion of the tariff is unbundled. The utility still delivers the power and still bills for delivery, but a business can contract separately with any licensed retail electricity supplier for the supply portion. This creates a real market for the energy commodity itself.

For a small business, this can mean the difference between paying whatever the default supply rate happens to be this quarter and locking in a fixed rate for one, two, or three years. Fixed-rate contracts can protect against price spikes during high-demand periods. Indexed or variable contracts can sometimes save money when wholesale markets are calm, but they expose the business to volatility.

The structure of a competitive supply offer still sits within the broader tariff framework. Suppliers must be licensed in each state by the relevant commission. Their offers must disclose all material terms. The utility tariff governs how energy is measured and how billing disputes are handled. Shopping changes the supply line; it does not change the delivery structure.

Of all the components in a commercial electricity tariff, demand charges are the most misunderstood and, for many businesses, the most significant.

A demand charge is billed in dollars per kilowatt, applied to the highest 15-minute average peak of electricity demand recorded during the billing month. The utility uses interval meters, standard for most commercial accounts, to capture this peak precisely.

Here is why this matters: a business that draws a large amount of power for even a brief period can set its demand reading for the entire month. If all the HVAC, kitchen equipment, and lighting in a small hotel come on simultaneously during a morning rush, that moment defines the demand charge for that billing cycle regardless of how efficiently the hotel runs the rest of the month.

Each utility sets its own threshold, measured in kilowatts or kilowatt-hours, above which demand charges kick in. These thresholds are part of the filed tariff and vary by utility and rate class. Businesses near the threshold should ask their utility which rate class they are assigned to and whether load management could shift them to a lower-demand class.

Strategies that can reduce demand charges include staggering equipment startup sequences, using building automation to limit simultaneous draws, and in some cases installing battery storage that can shave peaks. None of these strategies change the supply rate, but they directly reduce the demand component of the delivery tariff.

Every utility in the six states covered here is required to publish its current tariffs. The place to find them:

- Texas: The PUCT's online filing system (interchange.puc.texas.gov) lists tariff filings by utility.
- Ohio: The PUCO's eTariff portal provides current approved tariffs for each Ohio utility.
- Pennsylvania: The PA PUC maintains tariff filings in its electronic filing system.
- Massachusetts: The MA DPU's electronic filing system (eFilings) contains current tariff sheets for each distribution company.
- New Jersey: The NJBPU's tariff library is accessible through the Board's online docket system.
- Washington DC: The DC PSC publishes current tariffs for Pepco and other utilities through its case management system.

When reviewing a commercial tariff, the sections that most directly affect the monthly bill are: the applicable rate schedule (which class the business is in), the customer charge, the energy charge tiers, the demand charge provisions and threshold, and any active riders or surcharges. Riders change frequently because they are adjusted to reflect actual costs the utility has incurred. Comparing the rider section from one year to the next can reveal whether delivery costs are trending up or down independent of supply prices.

For the supply side of the equation, ElectricRates.org's business electricity comparison tool shows current offers from licensed retail suppliers in each of the six deregulated markets, as of July 2026.

Understanding the tariff structure is the foundation. Putting it to work is the next step.

Before approaching any supplier for a quote, a business owner should pull the last 12 months of bills and note: total kilowatt-hours consumed per month, peak demand recorded per month (if on a demand-metered account), and the current supply rate, whether it is a competitive contract or the state's default offering.

With that data in hand, the comparison becomes meaningful. A supplier quoting a lower energy rate per kilowatt-hour is only part of the story if demand charges are the larger cost driver. Some commercial supply products include demand-response components or time-of-use pricing that can align well with a business that has flexible load. Others are straightforward fixed-rate commodity contracts.

Contract terms matter as well. Length, early termination provisions, automatic renewal clauses, and the handling of transmission cost changes should all be reviewed before signing. Each state's licensed retail supplier list is maintained by the relevant commission, and suppliers operating in a state are legally required to provide a clear disclosure statement.

The bottom line: in a deregulated market, the tariff for electricity is not take-it-or-leave-it for the supply portion. It is a starting point for a conversation. The businesses that pay less are usually the ones who know which part of the bill is fixed and which part is negotiable, and who compare offers before the current contract expires.