It costs money to run almost every facet of our lives: from the coffee in our mug to the TV news in the evenings, every kilowatt-hour makes a difference. In the past, most electricity rates set by power companies reflected one rate per KWH which would account for both the highs and the lows in the electricity generating seasons. However, now more than ever, power companies are seeking to align the cost of generating electricity with the rates charged to consumers. This is best known as Time of Use Rates. What is it? And why does it matter?
What is Time of Use (TOU) rates?
Instead of charging a fixed rate for the duration of your electricity contract, Time of Use is an attempt to align the cost of generating energy with the price you pay per kilowatt-hour. This provides transparency to the consumer about how much their electricity costs, and it allows the power generator to automatically adjust for fluctuations in prices rather than having to make up for losses with higher rates across the board.
What drives the cost of electricity? And how do time of use rates address costs?
Broadly speaking, demand drives the cost of electricity; the more people use, the more that energy that must be generated, and the more it costs to generate. Other factors that can impact energy generation is the cost of the fuel used to produce energy, power plant costs such as construction and maintenance, the transmission and distribution of the electricity including construction and operation costs, weather conditions such as extreme heat or drought, and state regulations.
As you can see, there are some factors that cannot be under our control. However, one main driver of cost, demand, can be controlled and adjusted. For conservative users of energy, a time of use rate should produce instant savings. However, for some that are less accustomed to paying attention to when and how much energy they use, this could produce and an unwelcomed spike in their bill.
Generally speaking, electricity is most expensive during the afternoons and evenings when people get home from work and are cooking, watching the news, or having lights on in the house. It’s typically the least expensive early in the mornings and in the middle of the night. It may be worth waiting to start a load of laundry right before bed and change it over first thing in the morning rather than running a load during the day or the evening.
Peak hours of energy rates will depend on the power company as well as on the hour or season. Some companies may offer time of use rates that change from weekday to weekend, and some may offer time of use rates that vary from season to season. At least one company varies its rates based on the time of day and the season. It’s the least expensive to use early in the morning and late at night; it’s a little more expensive in the mid-morning to early afternoon range, and then it becomes most expensive during the peak afternoon and evening hours.
Final Thoughts
For many, time of use rates will allow you to adjust your consumption behavior to achieve the cost savings you want or need. For others, it may be a little less accommodating to schedules, but there are still small changes the consumer can make that will positively impact their bill. Some may consider investing in solar and solar-plus-storage options to use during peak hours and save on their energy bill. Regardless, time of use rates does allow for greater alignment between energy costs and energy generation costs. It can be a win-win for both parties when utilized to its full potential.
