The Impact of Electric Rates on Small Business

Abstract

Electricity is, for many small businesses, the major source of energy. Consumption patterns are primarily determined by external market forces, which small businesses have little ability to change.

Small business is paying markedly higher rates per kilowatt hour (kwh) of electricity than either residential or industrial users. These discriminatory rates have a significant negative impact on small business operations.

The rate of return earned by electric utilities from sales to small business is greater than that earned from the residential or industrial sectors. This substantiates the charge that small business in effect subsidizes the cost of electricity to other classes of end users.

Electricity costs faced by small business are rising at an increasing rate relative to other sectors, foreboding an accelerating discriminatory impact. Ironically, the Public Utility Regulatory Policies Act of 1978 (PURPA), enacted to promote more equitable rates to all classes of consumers, may exacerbate the problem.