Time of Use Pricing Explained in Six Questions

Time of use pricing has existed for awhile, but is still not widely used. Here we explain what time of use pricing is, and whether it's right for you.

1. What is Time of Use Pricing?

Time of Use (TOU) pricing is a variable price for electricity that changes based on the time of day that you use electricity. In other words, with TOU pricing, how much you pay for electricity depends on when you use it. Under most TOU plans, rates for electricity are highter during times of "peak demand" and lower during the "off-peak" times. In most TOU programs, off-peak hours include weekday (early) mornings, (late) nights and weekends, while on-peak hours include some set of hours during the weekday (usually late afternoon-early evening). Customers on traditional fixed or variable rate plans pay the same rate for electricity, no matter what time of day it is.

Peak- and Off-Peak Demand Defined

Peak demand refers to the times in which demand for electricity is highest. On a seasonal basis, this is usually in the summer when people start using air conditioners. On a daily basis, this is usually early in the morning (when people get up and are getting ready for work/school), and in the late-afternoon/early evening, when people get home from work/school and are preparing dinner, etc).

Off-peak periods are the times when demand for electricity is lower. Generally speaking, electricity demand is lowest during the spring and autumn, when temperatures are moderate and people don't need to use heating/cooling. Electricity demand also tends to be lower at night, when most people are asleep and therefore not using electricity.

Find out more about peak and off-peak times for electricity

2. When is the Cheapest Time to Use Electricity?

The cheapest time to use electricity is when demand for it is lowest, which is usually at night, when most people are asleep.

3. Smart Meters: a pre-requisite for Time of Use Pricing?

In order to charge customers different rates depending on the time period, they must have smart meters installed that are able to measure and record consumption based on the time of day. In most cases, TOU pricing is therefore only an option for customers who already have a smart meter installed at home. However, some utilities will exchange traditional meters for smart meters for customers who voluntarily sign up for TOU plans. Check with your utility to see if this is an option for you.

4. Real Time Pricing: another type of Time of Use Pricing?

Real-time pricing is a variant of Time of Use pricing. It is currently only offered in Illinois, by ComEd and Ameren Illinois. Participating customers in this program pay for the electricity they consume each hour based on the corresponding wholesale hourly market price for electricity, which, like the price to compare, is offered without any mark-up or profit. The precise details of real time pricing are slightly different depending on the utility.

In Ameren's real time program, the hourly prices of electricity are determined the night before ("day ahead prices"), and prices are communicated to customers so that they can plan their electricity usage accordingly. Customers receive an alert between 5 p.m. and 10 p.m. if hourly electricity prices will be 9 cents per kWh or higher for any number of hours the following day (this is most likely to occur during the summer, but could occur on any day of the year).

Ameren recommends that customers should be using at least 350 kWh per month (or spending about $35 per month on electricity) before considering this program. Note that participating customers must stay on the plan (which is called Power Smart Pricing) for at least 12 months (after one year's participating, customers will remain on the program but can leave at any time), and pay a $2.25 monthly participation fee. The Ameren Power Smart Pricing is administered by a nonprofit organization called Elevate Energy. Interested customers can call Ameren Illinois at 1-877-655-6028 (hours: Monday - Friday, 8:00 a.m. - 5:00 p.m.) to sign up.

ComEd's real time program (known as its Residential Real Time Pricing program - RRTP) bases prices on real-time prices, with customers notified in real time when prices are high or expected to rise, so that they can respond in real-time. The program uses ComEd’s Basic Electric Service–Hourly Energy Pricing (Rate BESH) to determine your monthly electricity bills. Under this program, the price for electricity varies from hour to hour based on wholesale market prices. ComEd states that since the program began, RRTP participants have experienced a savings of more than 15% off the electricity supply portion of their electricity bill, as compared with what they would have paid with ComEd’s fixed-price rate.

Participating customers must install an electric meter that is able to measure and record electric usage in hourly intervals. ComEd can exchange a conventional meter with an eligible meter at no cost to the customer. As of June 2012, participating customers pay $0.39 per month to be part of the program. Interested customers should call ComEd directly at 1-888-202-7787. Note that participating customers must stay in the RTTP program for at least 12 months (after which they will remain in the program, but can leave at any time). The ComEd RTTP program is administered by Elevate Energy (a nonprofit organization dedicated to improving energy efficiency and promoting smarter energy usage).

5. Who Offers Time of Use Pricing - My Utility, or Alternate Suppliers?

Whether Time of Use pricing is offered by your utility or by an alternate supplier depends on your state.

Time of Use Pricing in Pennsylvania

In Pennsylvania, for example, some electric generation suppliers (Direct Energy, Green Mountain Energy, and NRG) offer TOU pricing in the PPL Electric Utilities service area.

Time of Use Pricing in New York

In New York, time of use pricing is offered by utilities, including ConEdison, Orange & Rockland, National Grid, PSE&G . These time of use programs are voluntary, and most utilities will install a new eligible meter at no charge. In most cases customers are required to stay on the time of use pricing plan for at least one year.

Time of Use Pricing in Texas

Electricity in deregulated areas within the ERCOT grid is supplied by retail electric providers. Currently only a few REP offer energy products with a time of use component (Champion Energy, Direct Energy, TruSmart Energy, and TXU Energy. However, interested customers should verify whether they are receiving prices based on their actual consumption and not on estimated consumption (check the contract terms and conditions).

Direct Energy and Bounce Energy also offer rewards for reducing electricity use by five percent during peak periods - contact them directly to find out more.

6. Is Time of Use Pricing Right for Me?

Keep in mind that you are not guaranteed to save money if you switch to a Time of Use pricing plan. Whether you save and by how much depends on how much electricity you use, and how much of your usage you are able to shift to "off-peak" time periods. TOU pricing may not be appropriate for individuals with full-time jobs or commitments, as it may be difficult to adjust the times in which they use the most electricity.

In general, a Time of Use plan may only be a good choice for savings if you are able to shift the about 80% of your electricity usage to off-peak times.

• Time of Use pricing is best for the following type of customer:
• Your electricity consumption is medium to high
• You have a flexible lifestyle and are able to shift most of your energy use to off-peak times (e.g. to nights/weekends)