More utilities finally instituting time of day pricing for electricity.
It’s an idea that’s been around for a long time. Stupefying that it’s taken this long to get wide adoption.
Simple concept. Building power plants that you only use between 3 and 7 pm a few days per year is really expensive and wasteful for all of us. Giving customers a price signal that reflects that is a lot easier and cheaper than building and maintaining all those “peaker” plants.
Time-of-use rates fall within a broader category of innovative utility rate structures that adjust the rate you pay for electricity over the course of the day. These types of rate structures, commonly referred to as time-varying-rates, frequently follow a similar pattern. At times when both the cost of generating electricity and demand for electricity are low (i.e. in the middle of the night), the rate paid to use electricity is very low. However, at times when both the cost of generation and demand for electricity are high (i.e. the afternoon of a hot summer day), the rate of electricity is much higher.
Time-of-use rates may vary by season, on weekdays versus weekends and holidays, and across multiple periods over the course of an individual day. For instance, as of 2021, Pacific Gas & Electric’s (PG&E’s) summer time-of-use rate for commercial businesses has three separate periods: an off-peak period from 11 pm through 2 pm, a partial-peak period from 2 pm to 4 pm and again from 9 pm to 11 pm, and, finally, an on-peak period from 4 pm to 9 pm.
Why are time-of-use rates necessary?
The goal of time-of-use rates is to better align the costs that electricity consumers see with the actual cost of producing electricity. At present, most utilities update their residential electricity rates once or twice a year. That rate, expressed in dollars or cents per kilowatt-hour ($/kWh), is intended to cover the entire cost of generating the electricity that consumers use.
However, a utility’s cost of electricity changes throughout the course of the day for various reasons. Traditionally, as demand for electricity increases throughout the day, so too does the cost of generating that electricity. Without a time-varying electricity rate, residential consumers have no window into how the cost of electricity rises and falls each day.
This is where time-of-use rates can add transparency: by adjusting the rate across the course of the day, week, or month, you can better understand what the true cost of the electricity you use is. With the knowledge of when costs are both higher and lower, you can begin to lower your overall electric bill by adjusting when you use electricity.
