Time of Use (TOU) Rates Guide
Everything you need to know about Time of Use (TOU) electricity plans, how they impact your bill, and whether you should switch.
In this guide
- How TOU plans work
- The difference between Tiered and TOU
- Who benefits most from TOU
- Strategies for beating the peak rate
Time-of-Use (TOU) rate plans charge different prices for electricity depending on the time of day. You pay premium prices during high-demand 'peak' hours (like late afternoon) and discounted prices during low-demand 'off-peak' hours (like overnight).
What is a TOU rate?
In a TOU plan, the cost of a kilowatt-hour is not fixed. The utility divides the day into time blocks. For example, a summer TOU schedule might look like this:
- Off-Peak ($0.12/kWh): Midnight to 4:00 PM, and 9:00 PM to Midnight.
- Peak ($0.35/kWh): 4:00 PM to 9:00 PM.
The goal is to prevent the electrical grid from overloading during the late afternoon when everyone comes home, turns on the TV, and cranks up the air conditioning.
Tiered vs TOU pricing
Before TOU became common, most homes were on Tiered (or step) pricing. In a tiered plan, the time of day doesn't matter. Instead, you get a cheap baseline allowance (e.g., the first 500 kWh cost $0.15). If you use more than 500 kWh in a month, you are pushed into Tier 2, and every additional kWh costs $0.25.
TOU cares about when you use energy. Tiered pricing cares about how much total energy you use.
Who benefits from TOU?
TOU is highly beneficial if you can shift heavy electrical loads to the morning or overnight. It is excellent for:
- EV Owners: Charging an electric car overnight on a TOU plan is incredibly cheap.
- Night Owls: If you stay up late doing laundry or running the dishwasher, you will save money.
- Solar Owners: Solar panels produce heavily in the late afternoon, often offsetting expensive peak rates.
Conversely, TOU will increase your bill if you work from home or have children who come home from school at 3 PM and immediately turn on electronics and AC during the most expensive hours of the day.
Limitations
For more information on our calculations, please read our Methodology and Disclaimer.