What are “Time of Use” Rates?

Solar IndustryCalendarJune 12, 2018

Our demand for electricity is insatiable. Our homes, businesses, and cities depend on energy providers to keep the lights on. One of the biggest challenges utilities have to contend with is meeting daily and seasonal periods of high demand. These “peak” periods put a lot of stress on the grid, forcing utilities to turn to natural gas or fossil fuels to meet demand, the byproducts of which exacerbate climate change.

In order to incentivize customers to use less energy during these peak periods, many utilities are implementing “Time of Use” rates (also known as TOU or Time-Based rates). 

Under TOU rates, utilities charge customers based on how much and when they use power from the utility. The exact times of day determined to be “peak” or “off-peak” vary from season to season and from utility to utility. TOU rates also commonly vary between weekdays and weekends. Electricity used during peak times is billed at a higher rate than electricity used during off-peak times, creating an incentive for homeowners to lower energy usage during peak times Here’s an example of a residential TOU plan from Southern California Edison1:

 time of use rates graphic1

As you can see, this tiered pricing is meant to encourage customers to use power at times when demand on the utility is low, and to discourage use when demand is high (and most expensive for the utility to provide power). Off-peak prices are typically lower than the standard utility rate charged to non-TOU customers. Fortunately, utilities can’t adjust TOU rates without approval from a regulatory commission. For that reason, TOU schedules tend to remain fairly stable from year to year. 

Which States Offer TOU Rates?

Nearly every state and the District of Columbia have adopted some kind of TOU program (Montana and Rhode Island are the only two states that do not have a TOU program; Massachusetts2 is poised to drop theirs). Where available, TOU rates are optional for most residential customers, with the exception of solar customers in California and Arizona who are required to choose either TOU rates or demand pricing.3 (Demand pricing is essentially when your bill is calculated by the highest amount of energy you use in a single 15-minute period during a billing cycle.)

Some states, like California and Arizona, are moving to default TOU pricing with an opt-out rather than opt-in setup for residential customers. In 2014, only four percent of residential customers were enrolled in a TOU program,4 possibly because it can be intimidating to determine which rate structure is more affordable.

Are TOU Rates Good or Bad for Customers?

Under a TOU rate structure, customers potentially have more control over their bill by controlling how much electricity they use during peak and off-peak times. Of course, most of us aren’t going to unplug our refrigerator every day during peak hours, but we might adjust our thermometer up by a few degrees or decide to run the dryer during off-peak hours.

To figure out if a TOU rate structure is right for you, take a look at your electricity usage, looking to understand when you use electricity throughout the day. To figure out when your home uses the most energy, make a note of which hours you’re usually home and when you tend to run appliances - especially the big energy users like heaters and air conditioners, water heaters, dishwashers, clothes washers and dryers. If you have a smart thermostat or a home energy monitor, you can quickly view specific power use by time of day. Then you can compare your analysis to the TOU rates in your area to determine how much on average you might pay during both peak and off-peak times. 

Remember, each utility has its own unique TOU rate structure (even different areas serviced by the same utility can have different schedules). TOU rates are usually posted on your utility’s website - call your electric provider if you’re not sure whether they’re offered or where to find them. Utilities may offer a choice of TOU schedules and some even have a comparison tool to help calculate your potential savings.

How Can I Maximize Savings Under TOU Rates?

If you decide to switch to TOU rates with your utility company, there are several ways you can make TOU rates work to your advantage. Here are a few tips to minimize your electricity use during peak hours and help you take advantage of low off-peak rates.

  • Schedule energy use for off-peak hours with smart appliances. Many major home appliances on the market today come with either a delay-start setting or remote access to controls. This means even those of us who are away from home most of the day can schedule our dishwashers or clothes dryers to run during the lowest electric rate times. Some smart appliances can even monitor energy usage in your area and automatically run during off-peak hours!
  • In the hot summer months, air conditioning is a major electrical expense for most of us. If your heating system is also electric, your heating and cooling costs are likely the bulk of your power bill for most of the year. Smart thermostats can be programmed to run less during peak hours without you remembering to adjust it daily.
  • Some homeowners benefit from a home battery - especially if they have solar panels (more on solar next). Home batteries can be charged by your solar panels or during off-peak hours, allowing you to use the stored power during expensive peak hours. The cost-benefit ratio will vary by home and area, but for wind or solar customers it’s certainly worth looking into.
  • Speaking of solar - this is probably the biggest way to save with TOU rates. In the California example above, the highest rates are during weekday afternoons - just when solar panels are generating the most electricity. Investing in a rooftop solar system can allow customers to skip the peak rates. Pairing your system with a home battery is rapidly becoming one of the best ways to save money under TOU rates.
  • Net metering may be available in your area, which rewards you for returning excess power from your solar system back to the grid during peak hours. For example, in California, net metering credits are calculated using your TOU schedule. So if you export 1 kWh during peak hours, you’re credited the peak price.

If you think TOU could work for you, you may want to look into what your utility offers. Some power companies allow you to track what you would have paid under the standard rate and then refund the difference if you end up paying more under the TOU rate. Time of Use rates are likely to become more prominent in many areas. 

If you’re interested in learning more about saving with solar and home batteries, visit vivintsolar.com to get started.

Endnotes
1. https://www.sce.com/wps/portal/home/residential/rates/Time-Of-Use-Residential-Rate-Plans 
2. https://www.utilitydive.com/news/massachusetts-approves-new-demand-charge-for-eversources-net-metering-cust/514477/
3. https://www.greentechmedia.com/articles/read/arizona-public-service-solar-industry-reach-critical-settlement-in-content#gs.bvYSGbc
4. https://www.utilitydive.com/news/rate-design-demand-charges-time-based-rates/419997/

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