Time of Use Rates - Your TOU Rates Guide

Time-of-Use Rates (TOU) were introduced by many electricity providers back in the early 2010s. However, over a decade later, most homeowners are still unaware of its significant impact on their monthly energy expenses. 

What is TOU?

Time-of-Use rates, or in short, (TOU) rates, are an electric rate schedule that adjusts in price based on the utility customer’s use. The pricing will vary based on the time of day and the season to meet grid demands. Many utilities are starting to offer this as an option for homeowners. 

With successful programs rolling out with the Sacramento Municipal Utility District between 2012-2014, the California Public Utilities Commission (CPUC) implemented the default TOU rates for investor-owned utilities in California by the end of 2019. 

As a result, all California residents have access to TOU rates (with an option to opt-out) to focus on customer costs while meeting system needs and supporting greener energy solutions. 

How do TOU rates work?

TOU rate plans that utility companies like Southern California Edison (SCE) offer aim to incentivize homeowners to be conscious of their energy consumption.

Though TOU rate plans may vary by region and utility company, some specific terminology will stay consistent. Typically there will be three segments the pricing will fall under; Peak, Off-Peak, and Super Off-Peak. 

You can think of peak hours as the most heavily used energy time where the most significant number of people will be consuming more energy at once. 

Nothing is better than getting home after a long day at work to a crisp, chilled home thanks to your central air system. You decide to catch up on the binge session you started of How I Met Your Father in the kitchen, start cooking dinner, and those well-deserved chocolate chip cookies. The kids are home, one’s playing Minecraft, and the other is streaming their Fortnight session. And you can’t forget to throw a load of laundry on because both kids have soccer games tomorrow; those grass stains won’t get themselves out. 

When you think about the everyday habits we all partake in, they may be more expensive than we think!

So, as we can see, naturally, we unknowingly create a higher energy demand during those peak hours. Therefore, the electricity companies must ensure they have readily available supplies to meet these demands.

Off-Peak hours are just that; they typically run from early morning to late afternoon. Sometimes this can fall under a few other categories such as Mid-Peak or Super Off-Peak. They are all just variations of this time frame with different rates. 

Few people are home during this time, so the demand will be lower, resulting in a lower rate.  Making this time range the most suitable for homeowners to run higher energy-consuming appliances during those times to get the lower rates, keeping their monthly bills to a minimum.

Try to schedule your heating and cooling systems to run early or mid-morning. That way, you can pre-cool or heat your home and set the temperature to a warmer or cooler setting (health restrictions permitting) during the seasonal peak hours. 

What time of day is electricity cheaper?

The cost of electricity is typically cheaper during the late evening into early morning hours. With lower demand on the grid, the pricing will drop. 

Home appliances, like central air, water heaters, dishwashers, and clothes dryers, typically use more energy. Therefore, running those energy heavy machines during the cheaper, Off-Peak hours can save the homeowner money. As opposed to running those appliances during Peak hours, late afternoon to mid-evening, when the rate will be the highest.

Will solar panels help my energy bill?

In the long term, yes.

When switching to solar panels, many utility companies require this new TOU rate switch—allowing the homeowner to be engaged in their overall energy consumption. So going solar gives you a leg up on your overall energy consumption while helping provide excess energy to your community.

Not to mention it’s an excellent investment for your home and property. 

In a recent case study conducted in 2020, we took ten different completed SCE territory solar projects from 2019 as a baseline. We compared the total solar savings after SCE rolled out their new 4-9 TOU rates model. We identified that the average bill after solar came in at $29.77 a month, a great deal compared to the $49.77 monthly average homeowners were paying with the older 4-9 plan. 

This change had significant improvements for our solar customers. Across analyzed projects for the case study, the average lifetime savings increased by nearly $12,000 to almost a total of $64,000 over 25 years (a 22% increase in lifetime savings on average and a high of 57%). Another benefit noticed was a decrease of 1.5 years in the payback period with an annual rise in return on investment of 3%.

By making owners aware of when they can save money while helping support the electricity demand for their community, a TOU rate plan can benefit everyone. 

Still, those with solar get the more significant benefit as their units typically generate enough. Primarily during those peak hours.

So by going solar, you can avoid those hefty peak charges because you’re producing your own power during that time. In most utilities, since the cost of electricity at peak hours is the highest, so is the cost of the credit you’ll receive for pushing your solar energy to the grid. 

Or you could add a battery to your solar unit to store the credits you produce off-peak rather than send them to the grid. Then, you can use them if you need more than you generate on peak to get your energy at a lower rate effectively. 

“TOU empowers customers, and if they shift their usage to lower-cost time periods when solar and wind are abundant, they will not only lower their bills, they will also use cleaner energy.” Andre Ramirez.

Rate Design Senior Advisor, Southern California Edison

As the homeowner gets more involved with this aspect of living, they become empowered to embrace the shift fully. Whether adding solar panels to their home, a heat-pump water heater, or electric vehicles for complete home electrification, homeowners can take control now more so than ever. 

For example, in the past couple of years, rates have adjusted due to more homeowners adopting Electric vehicles (EV). As a result, utilities like Pacific Gas & Electric (PG&E) have updated their rate structure with an EV-A electric vehicle rate plan to allow residential customers to combine their home and vehicle costs.

It becomes quite convenient; after getting home from work wait to take advantage of the lower rates during the late evening to early morning hours (off-peak hours) when it’s ideal to re-charge with their at-home charging unit.

A win-win all around. 

Though this seems like a lot to digest, let’s break it down.

Key Takeaways

• TOU (Time of Use) rates are an electric rate schedule that adjusts in price based on the utility customer’s use, i.e., electricity.
• The utility company sets Peak and Off-Peak schedules to adjust the electricity cost depending on the grid demand.
  • The best time to do that week’s worth of laundry is before you go to bed or when the sun comes up.
• Adopting solar and a new habit of using electricity during off-peak hours can help you save money and lower your carbon footprint.
  • A solar unit that produces more power during peak times can send it to the grid for credit, and a battery can help to store additional energy to offset costs during peak times.
• Electric vehicle owners see benefits as well with their local electric companies. Some utilities have introduced homeowners to a lower-priced EV-A time-of-use package for going green.
  • Contact your local utility after you install your new EV charging unit in your home to reap the benefits and get the best rates.

Hopefully, you leave here with more knowledge in your back pocket to make informed and empowered decisions about your energy consumption.

So be empowered and get involved in how you can take small steps towards helping the environment. For example, a small action like adopting a TOU rate with your utility company might make a difference in your energy bill. Yet that’s not always the case with all utility companies, be sure to review all the options and find one that fits your needs. 

The more we know, the better equipped we can be to make more conscious decisions for our environment and families.  

Take the next step, go solar today.