Exploring Time-of-Use Electricity Rates – Is it Worth the Switch?

Many utilities offer time-of-use electricity rates to help reduce demand on their grids by encouraging customers to shift energy use to off-peak hours. These off-peak periods typically occur overnight or on weekends and can help you save money.

Pilot programs have shown that well-designed residential time-varying rates can significantly save customers money while reducing utilities’ peak demand. But three big questions have delayed large-scale implementation:

Lower Electricity Bills

While electricity rates are regulated in most states, things can still increase your bill. One of the most common is using too much energy during peak demand hours. This is why some utility companies offer time-of-use electricity rates that charge you more for using power during peak demand times and less when usage is low.

Unlike old ‘dumb’ meters that tell utilities how much energy was used, smart meters continuously track energy use and tell when power is consumed most heavily. This information is used to determine electricity demand and adjust the rate quickly. This results in lower prices for energy during off-peak times and higher Texas electricity rates during peak demand periods (typically on weekdays).

The most obvious reason utility companies employ TOU pricing is to help reduce the grid’s costs. It costs more to meet electricity demand during peak hours because more power plants are required to operate. TOU plans encourage people to limit their electricity consumption during these high-demand times, which can reduce the cost of running the grid for everybody.

TOU rates also allow utilities to transition to the “utility of the future,” in which consumers are more like energy suppliers with their own solar, batteries, and other technologies that can help keep bills low. Critics of TOU pricing argue that the plan can lead to skyrocketing electric bills for low-income customers, but a new bill introduced in California addresses this issue.

Energy Conservation

Historically, most electricity bills have been simple: customers use appliances and equipment throughout the month, adding to total kilowatt-hours. Utilities then send a bill with an energy cost equal parts supply and delivery costs. But when many people use their energy simultaneously, utilities’ costs for meeting that demand increase significantly. That’s why many utilities offer Time of Use rates.

During the hours that demand is high, utility companies pay a lot more for power than they do for the cheaper electricity they buy from baseload generators. The higher price during peak hours incentivizes consumers to decrease their energy usage, saving the utility money.

The lowest-priced electricity typically comes late at night or early in the morning when demand is low. Taking advantage of those cheap hours is one of the best ways to reduce electricity bills. It’s also possible to save with home energy monitors, which can automatically shift your energy consumption based on rates and weather conditions. And when paired with smart thermostats and EV chargers, those energy-saving devices can help you save even more.

And those aren’t the only benefits of Time of Use rates: Using electricity during off-peak hours can also benefit your community and the environment. That’s because running large appliances (such as washing machines and dryers) or charging electric vehicles during off-peak hours helps reduce the stress on your local grid, making it easier for solar panels to feed excess energy back into the system.

Reduced Stress on the Grid

During peak hours of electricity demand, when a lot of people are running appliances like washing machines and dryers or air conditioning, the power needs of a community skyrocket. This strains local energy generation and increases the chances of a grid failure, leading to a power outage.

With a TOU plan, your utility charges you different rates for electricity depending on when you use it. The cheapest rates are during off-peak times of the day, such as at night or in the morning. This helps to reduce stress on the electricity system by shifting energy use away from these high-demand periods.

A TOU rate structure also enables electric utilities to avoid the costly energy-generating investment of adding new capacity or building transmission lines. Instead, they can encourage customers to manage their energy use by providing price incentives during high-demand periods.

While several factors contribute to grid stress (including climate change, natural disasters, and human error), one of the biggest drivers is local energy demand. Utilities can prevent the need to build that last peaker plant by promoting energy conservation through time-varying electricity rates.

Reduced Blackouts

Many electric utilities offer TOU rates for their customers. Check out your utility’s website for more information to take advantage of this unique pricing structure. Offerings can vary, and programs may have eligibility requirements.

TOU electricity rates split the cost of power into different categories based on when demand is highest. During peak hours, like late afternoon and evening, when everyone runs their dishwashers, washing machines, air conditioners, and electronics, the demand for electricity increases significantly. Wholesale electricity prices spike because of this high demand. During off-peak hours, however, the price of power is much lower.

Getting rid of these high energy prices during peak times could reduce the risk of blackouts. Several reasons, including aging and inefficient power plants, equipment failure, weather events, and human errors, cause blackouts. While the electric grid is designed to avoid rolling blackouts as much as possible, people must work together to conserve energy.

Smartly designed TOU rate plans can help to cut electricity prices by shifting energy usage away from high demand times. They can also help to reduce carbon emissions and support clean energy goals. It’s time for the US to get behind these innovative new rates, focusing on customer needs while meeting system demands.