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All month long, they use appliances like the dishwasher and clothes dryer, electronics, light bulbs, water heaters and air conditioners - all of which adds up as total kilowatt-hours (kWh) of usage.Īt the end of the month, the utility company sends a bill with a simple calculation: usage multiplied by price.įor example, if you use 1,000 kWh of electricity in a month and your rate is $.15/kWh, you get a bill for $150, plus whatever flat fee your utility charges to connect to the grid-usually something like $5 or $10. Most people have a pretty simple electric bill. The differences between Time of Use pricing and standard rates That’s why utilities invented Time of Use electricity rates. Under a rate structure where every user pays a flat amount for electricity, the utility makes less of a profit when lots of people use electricity during peak times, because its average cost per kWh goes up while its revenue stays flat. This is the most expensive kind of electricity. The utilities “book” this fluctuating level of electricity on a weekly and daily basis, and they end up paying a little more for it than they do for baseload power, because starting up extra power plants costs more money.įinally, during hours of “peak” usage, utilities need to purchase extra energy on shorter time frames: 1 hour ahead, 15 minutes ahead, and even 5 minutes ahead. This is called “ baseload power,” and it’s really cheap, because the power plants that make it stay operational at all times and maintain high efficiency.īut power usage fluctuates based on weather conditions, temperature, and more. Utilities have a really good idea of the minimum amount of electricity they need to serve their customers at all times. Reducing that “peak” usage saves the utility money because each kWh of electricity costs a lot more to make during peak times. Simply put, utility companies like to use Time of Use rates because they help curb demand when lots of people are using electricity. Show more Why do utility companies use Time of Use rates? If you have the choice between a flat or TOU plan, this article will tell you what you need to know about which option is right for you, and how you can tailor your electricity use to save money on your energy bills. But there can be advantages to choosing a TOU rate over a flat rate. Time of Use plans can get quite complicated and confusing, which might sound like the opposite of what you want in an electric bill.
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The rest of the state’s residents will ultimately be shifted to Time of Use sometime in the future.
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In most places around the country, TOU rates are optional, but people who install solar in California are now required to accept a Time of Use billing arrangement. Time of use rates are intended to encourage people to switch their electricity consumption to times when demand is low. Also called “TOU rates,” they make electricity more expensive during “peak hours,” when there is high demand, and less expensive during hours of low demand. Time of Use rates are a kind of electricity billing arrangement in which the price of electricity changes based on the time of day.