What Is a Time-of-Use Rate?

What a time-of-use rate is

A flat rate charges the same price per kilowatt-hour at three in the morning and at six in the evening. A time-of-use rate (TOU) does not: it divides the day into pricing periods and charges a different price in each. Run the dryer at midnight and it costs one amount. Run it at seven in the evening and it costs considerably more.

The logic is that electricity genuinely costs more to supply at some hours than others. Power cannot be stored at scale on most grids, so supply must match demand instant by instant. When demand is low, the cheapest and most efficient plants cover it. When demand peaks, the system calls on progressively more expensive generation, and at the extreme on plants that exist almost solely for those hours. A flat rate averages all of that into one price, so every customer pays a blend regardless of when they actually drew power. A TOU rate pushes the real cost shape back onto the customer, in the hope that some of them move their usage and the expensive peak shrinks.

Whether that is good for you depends entirely on when you use electricity, and it is knowable in advance rather than a matter of luck.

Peak, off-peak and super-off-peak — and why the windows sit where they do

Most TOU schedules use two or three periods:

• Peak (sometimes on-peak) — the most expensive block, covering the hours when system demand is highest. Typically a window of several hours, often late afternoon into evening on weekdays.
• Off-peak — everything outside the peak window, priced lower, and usually covering the large majority of hours in the week.
• Super-off-peak — an optional third block priced lowest of all, generally overnight, and in some solar-heavy territories in the middle of the day when abundant midday generation drives wholesale prices down.

The single most useful thing to understand is that these windows are drawn around the system's peak, not around your convenience. The utility is pricing the hours when its own grid is most stressed and its marginal generation most expensive. Those hours correspond to the times when nearly everybody wants power at once, which is precisely the times you want it — coming home, cooking, running air conditioning against the hottest part of the day. A TOU rate is not a puzzle you can solve by being clever. It is an offer to be paid for inconvenience.

Weekends and holidays are commonly treated as entirely off-peak, since system demand is lower. The peak window itself has shifted later in many territories over the past decade, because widespread solar generation suppresses net demand through the middle of the day and pushes the system's real peak into the early evening as solar output falls and household demand rises.

Seasons change the windows and the spread

A TOU schedule is rarely the same all year, because the grid's stress point moves with the weather. Utilities typically define a summer season and a winter season, each with its own peak hours and its own prices, and the boundaries between seasons are set in the tariff rather than by the calendar.

Two things change between seasons. First, the timing: a summer peak driven by air conditioning sits in the afternoon and early evening, while a winter peak in a heating-dominated territory can appear in the early morning as well, when households wake and heating systems restart. Some winter schedules therefore have two peak windows a day. Second, the spread — the gap between peak and off-peak prices. Summer peaks are usually priced far above off-peak because summer afternoons are when the system is most expensive to serve, while winter differentials are often narrower.

The spread is what determines whether shifting your usage is worth the effort. A narrow gap means moving the laundry to late evening saves a trivial amount. A wide gap means the same behaviour change is worth real money. Before you change anything, read your own tariff's seasonal definitions, since a plan that suits you in April can be punishing in July.

A time-of-use rate is not a demand charge

These two are constantly confused, and they penalise different behaviour.

A time-of-use charge prices energy — kilowatt-hours — differently by hour. It cares how much you consumed and when. Running a 1 kW appliance for four peak hours and four separate 1 kW appliances for one peak hour each cost the same, because both consume four kWh in the peak window.

A demand charge prices power — kilowatts — and is based on your single highest rate of draw during the billing period, usually the maximum averaged over a 15-minute or 30-minute interval. It cares about your worst moment, not your total. Under a demand charge, running four appliances simultaneously for fifteen minutes can cost more than running them one after another for four hours, even though the energy consumed is identical.

Demand charges are standard on commercial and industrial accounts, where they reflect the capacity the grid must hold ready for that customer. They appear on residential rates far less often, though some utilities offer or pilot them. If your bill shows a charge quoted in dollars per kW rather than cents per kWh, that is a demand charge, and the response to it is different: you stagger simultaneous loads rather than simply moving them to cheaper hours. The bill walkthrough shows where each type of charge appears on the page.

Who wins on time-of-use, and who loses

The winners have either flexible load or automated load.

• EV owners who charge overnight. This is the clearest case. Charging a car is a large, entirely shiftable load that a timer moves into the cheapest hours without anyone noticing. In many territories the EV charging load alone justifies the switch.
• Households that can genuinely shift discretionary loads. Laundry, dishwashing, pool pumps and water heating on a timer are the classic examples: large draws with no fixed schedule.
• Homes with battery storage. A battery charged off-peak and discharged during the peak window converts the price spread directly into savings, with no behaviour change at all.
• Homes with rooftop solar, in many cases, because their own generation covers part of the expensive afternoon — though this depends heavily on the export rules that apply.
• Empty daytime houses where everyone works away from home and the heavy usage naturally lands in the evening and overnight.

The losers are equally identifiable. A household home all day through a hot summer with central air conditioning is the textbook case: its usage is concentrated in exactly the hours the tariff prices highest, and the load is not discretionary because nobody chooses to be uncomfortable. Add anyone who works from home, retirees, families with young children, people with medical equipment that runs continuously, and anyone whose evening routine is fixed by school runs and mealtimes. For these households a time-of-use rate is usually a worse deal than a flat rate, and no amount of diligence changes that. Being told to "shift your usage" is not useful advice when the usage is the air conditioning keeping the house habitable.

Work out whether you would win — before you switch

You do not have to guess. If you have a smart meter, your utility almost certainly publishes your hourly or 15-minute interval data in your online account, usually as a downloadable file. That data plus your tariff answers the question arithmetically.

1. Download at least twelve months of interval data, so you capture both a summer and a winter season.
2. Sort each interval into the periods the TOU tariff defines for that season, respecting weekend and holiday exemptions. Total the kWh in each bucket.
3. Price it twice. Multiply the bucket totals by the TOU prices, then multiply your total kWh by your current flat rate. Add fixed charges to both.
4. Compare the annual totals, not a single month. A plan can win in April and lose badly in July.
5. Then adjust for realistic shifting. Move only the load you would genuinely move — the dryer, the dishwasher, the car — and rerun. Do not assume you will shift cooking or air conditioning, because you will not.

Many utilities also offer a rate comparison tool that performs this calculation on your own data, and some restructured states require a bill-protection period during which a customer who does worse on TOU is refunded the difference. Ask about both before enrolling.

One more thing worth knowing: in a growing number of territories, time-of-use has quietly become the default rather than an opt-in. New customers are enrolled automatically and existing customers have been transitioned with notice, with flat rates surviving only as an opt-out that many people never notice they can take. If your bill has started showing peak and off-peak columns you did not ask for, that is what happened, and you may be entitled to opt out. Check the arithmetic above before you do, since the default is a genuine improvement for a large minority of households and a quiet penalty for the rest. Our appliance energy cost calculator helps you see which loads are large enough to be worth shifting, and the electricity bill calculator will price a month of usage under different assumptions.

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