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Time of Use and Off-Peak Rates

Posted on 2013-11-13 13:34:44 PST

Utility companies will often offer their customers the ability to choose an alternative rate structure. Sometimes these are referred to as “Off-Peak” or “Time-of-Use” rates. Utilities are often subject to peak demand. That is to say at certain points in the day their customers demand more energy than at other times. This peak demand usually occurs during the day. Offices, factories, etc. are all demanding energy at the same time. The utility companies need to meet this demand.

To meet this demand, utility companies have a number of strategies. They can bring more power on-line (if they generate power themselves) or they can buy the extra capacity from the open market. The problem with this, though, is that the additional energy they produce or buy generally comes at a higher price. Yet the price they charge customers (under the normal rate tariff) is always the same.

Enter Time-of-Use Rates

However, if the utility companies can persuade their customers to shift their demand for power to a different part of the day, then this would lower the company’s peak demand. It would reduce their need to bring on-line or buy additional power at the higher rates. It can also delay the need for adding additional and expensive infrastructure – more power generating facilities, higher capacity power lines and transformers, etc. By simply shifting some of that peak demand to a different time of day the company can save all that additional investment.

What it Means to the Consumer

An “Off-Peak” or “Time-of-Use” rate has a different rate or cost for that energy depending on when that energy is used. Much like long distance phone calls, if you call later in the evening, the cost of that phone call is less. And so does a Time-Of-Use rate.

The exact rate and the time at which these lower rates kick in vary from utility to utility. Often the “Off-Peak” rate is half (or better) than the Peak Rate. That can add up to significant saving on your energy bill if you can take advantage of these rates.

In a later post I will describe how you can do just that as well as how SmartRooms can really help you take a bite out of your energy bill.