Time of Use (TOU) Pricing or Time of Use Rates is a strategy to control electricity peak rates. Many states are considering legislation to require utilities to provide Time of Use Rates pricing to their customers. TOU is one of several different types of strategies employed by utilities to reflect how energy costs vary over time.
Time of Use Rates — On Peak and Off Peak Electricity Rates
Historically, utilities have priced their services at a set rate per kilowatt-hour (KWH). Some utilities may adjust their rates for different seasons of the year, but the sliding rate scale incorporated in a TOU pricing mode, goes even further by tying pricing to peak and off-peak times of the day. Under the TOU rate plan, bills are determined by how much energy a customer uses and when they use it.
Time of Use Rates can vary based on the season, day of the week and time of the day. Most utilities consider weekends “off-peak” for their commercial customers. The hours from midnight to six in the morning are usually considered off peak times for residential customers. HVAC usage is higher in the summer time so rates may also be adjusted to reflect the amount of energy consumed to keep people cool.
How Residential And Commercial Customers Benefit from Off Peak Electricity Rates
Energy used in low-demand times, like at night, is cheaper than energy used in high demand times, like early morning and early evening. If residential consumers shift their non-essential energy uses like running the dishwasher, or charging electric vehicles, to low-demand times, they can save money on their bills. Thus reducing energy demand, and significantly impact the amount of carbon entering the environment.
Commercial customers generally consume more energy than residential customers. This gives businesses significantly more opportunity to save money by aggressively implementing strategies that tie to TOU pricing. For example, there are several ways that commercial users can “store” energy in non-peak times for use during peak times.
Electricity Demand Charges
Utilities assess “Electricity Demand Charges” based on a customer’s maximum power draw (demand) during specified demand periods. These demand charges are typically tied to time-of-day, day of week and season of the year. They create specific categories of these “demand charges” like Super Peak, Mid Peak and Low Peak. They then adjust their rates according to these categories.
The Utilities Benefit from TOU Rates
Nearly every utility in the country already offers, or is seriously considering time of use pricing for several reasons, including:
- Easing the burden on their power grid
- Minimizing peak demand spikes
- Reducing the potential for blackouts and brown outs
- Helping to reduce dependence on environmentally harmful peak power plants
TOU pricing leads to better transparency with customers because they know exactly why they are being charged more during periods of peak demand. It also encourages them to move some of their more demanding energy usages to non-peak periods and save money.