What Are Time-of-Use Rates?
Time-of-use (TOU) rates charge different prices for electricity based on when it's consumed. These rates reflect the actual cost of generating and delivering power, which varies significantly throughout the day and across seasons.
During peak demand periods—typically late afternoon and early evening—utilities pay more for power and strain their distribution infrastructure. TOU rates encourage customers to shift consumption to off-peak periods, benefiting both the utility and customers.
How TOU Rates Work
TOU rate structures typically include three pricing periods:
- On-Peak - Highest rates during maximum demand periods (e.g., 2 PM to 8 PM on weekdays)
- Off-Peak - Lowest rates during minimal demand periods (e.g., overnight and early morning)
- Shoulder - Mid-level rates during transitional periods
📚 Design Effective TOU Rates
Learn how to analyze load patterns, set appropriate price differentials, and communicate TOU rates to customers. Our course library covers modern rate design strategies.
View All Courses →Benefits of TOU Rates
For Utilities
- Reduced peak demand lowers power supply costs
- Better utilization of existing infrastructure
- Deferred need for expensive capacity upgrades
- More accurate cost recovery aligned with actual system costs
For Customers
- Opportunity to save money by shifting flexible loads
- Greater awareness of energy consumption patterns
- Incentive to adopt energy-efficient technologies
- Support for renewable energy integration
Implementation Considerations
Successful TOU rate programs require:
- Advanced metering infrastructure (AMI) to track hourly consumption
- Customer education about rate structure and bill impacts
- Tools to help customers understand and manage their usage
- Opt-in periods to allow customer adaptation
- Regular analysis to ensure price differentials reflect actual cost variations