Wholesale Energy Costs Are Eating Into Small Business Operating Budgets, and Relief Is Not Imminent

Small business owners who locked in utility contracts in 2021 or early 2022 are now renewing at materially higher rates, and the arithmetic is punishing. Wholesale natural gas prices, which briefly touched negative territory during the pandemic demand collapse, have stabilized at levels that leave commercial customers paying significantly more per unit than they did three years ago. The U.S. Energy Information Administration reported that the average commercial natural gas price in early 2024 sat near $10.40 per thousand cubic feet, compared with roughly $8.50 in the same period of 2021.

Electricity costs track natural gas closely in most of the country because gas-fired generation sets the marginal price on the grid for a large share of hours. That linkage means businesses that don't burn gas directly are still exposed to its price swings through their electric bills. The Federal Energy Regulatory Commission has noted the correlation repeatedly in its seasonal energy market assessments, pointing to natural gas supply constraints as a persistent driver of power prices in the mid-Atlantic and New England regions. For more on the topic discussed above, see National News Desk.

Where the Pain Is Most Visible

Restaurants, laundries, small manufacturers, and greenhouse operations are reporting that energy now represents a larger share of controllable costs than at any point in the past decade. For a mid-sized commercial laundry running industrial dryers twelve hours a day, a ten-percent increase in the electric rate can translate to an additional $18,000 to $25,000 in annual overhead, depending on location and load profile. That figure is not recoverable through incremental price increases without customer pushback.

Cold-storage businesses face a compounding problem. Refrigeration systems cannot be scaled back during peak-price hours the way some lighting or HVAC loads can, so demand-response programs that help larger industrial customers manage bills offer limited relief. Operators in that segment are instead looking at capital investments in thermal storage and more efficient compressor systems, which carry paybacks of five to seven years at current pricing.

Commercial real estate landlords with triple-net leases have largely passed utility exposure directly to tenants, which means the stress is concentrated at the occupant level rather than the property level. That dynamic tends to be invisible in aggregate economic data but surfaces quickly in lease renewal negotiations and tenant-retention numbers.

There is no near-term structural reason to expect a sharp decline. Liquefied natural gas export capacity out of the Gulf Coast continues to expand, which ties U.S. wholesale gas prices more tightly to international benchmarks than was the case before 2016. Additional LNG export terminals currently under construction will add further export pull when they come online over the next two to three years.

The practical takeaway for operators renewing utility contracts this year is straightforward: get competitive bids from at least three retail energy suppliers, review interval meter data before signing, and consider a partial fixed-rate hedge rather than going fully variable. Locking in one hundred percent at today's rates carries its own risk if wholesale prices fall, but full exposure to spot pricing is not a strategy most operating budgets can absorb comfortably right now.