What Are Time of Use Rates?

In an era where energy efficiency and cost savings are increasingly important, time-of-use rates (TOU) have emerged as a pivotal concept in managing electricity costs and supporting broader energy management goals.

But what exactly are time-of-use rates, and why should you care about them?

Below, we'll dive into what TOU rates are, how they align with the Federal Energy Management Program’s (FEMP) demand response and time-variable pricing initiatives, and how you can learn about TOU programs specific to your state.

Understanding Time of Use Rates

Time-of-use rates (TOU) are a type of electricity pricing plan that varies the cost of electricity based on the time of day it is consumed. Unlike traditional flat-rate pricing, where electricity costs the same regardless of when it’s used, TOU rates reflect the fluctuating demand for electricity throughout the day. Typically, during peak demand periods – such as late afternoons and early evenings – electricity is more expensive. Conversely, during off-peak times – like late at night or early morning – electricity is cheaper.

The rationale behind TOU rates is simple: encourage consumers to shift their energy usage to times when demand is lower, thereby reducing strain on the electrical grid. This helps consumers save money on their energy bills and supports broader energy efficiency goals by smoothing out peaks in electricity demand.

How TOU Rates Relate to Peak and Off-Peak Hours

Time-of-Use (TOU) rates in electricity plans are directly related to peak and off-peak hours. These rates are designed to encourage consumers to use electricity during off-peak hours when demand is lower and to reduce usage during peak hours when demand is higher. Here's how they relate:

1. Peak Hours

These are times of the day when electricity demand is at its highest, often in the late afternoon and early evening when people return home from work and start using more electrical appliances. During these hours, TOU rates are higher to reflect the increased cost of generating and distributing electricity.

2. Off-Peak Hours

These hours typically occur late at night or early in the morning when electricity demand is low. During off-peak hours, TOU rates are lower, providing an incentive for consumers to shift their energy usage to these times, which helps utilities balance the load on the grid and reduce the need for expensive, peak-time energy generation.

3. Shoulder Hours

Some TOU plans also include shoulder hours, which are transitional periods between peak and off-peak times. Rates during shoulder hours are generally moderate, falling between the high peak and low off-peak rates.

By aligning your usage with off-peak hours, you can save money on energy bills, while also helping ot reduce strain on the electrical grid during high-demand periods.

Finding Local Peak and Off-Peak Hours

To find specific peak and off-peak hours for your area in your state, you should first check with your local utility provider or energy company. They can provide the most accurate and up-to-date information regarding time-of-use rates and help you decide if a TOU plan is right for you.

The chart below, however, will give you a rough idea of Peak and Off-Peak Hours for the different time zones in the U.S. There are two charts, one for summer and one for winter, as the change in weather and daylight hours affects human behavior and electricity demand.

Summer Peak / Off-Peak Hours

Winter Peak / Off-Peak Hours

How TOU Rates Support Federal Energy Management Initiatives

The Federal Energy Management Program (FEMP) plays a crucial role in promoting energy efficiency across federal agencies. Among its initiatives are demand response and time-variable pricing programs, which are designed to optimize energy consumption and reduce costs. TOU rates are integral to these programs because they provide a financial incentive for residential and commercial consumers to adjust their energy usage in response to real-time demand.

Demand Response

Demand response refers to the ability of electricity consumers to respond to signals from the grid – such as TOU rates – by reducing or shifting their energy use during peak periods. This helps stabilize the grid, reduces the need for expensive and polluting peaker plants, and can even prevent blackouts during times of high demand.

Time-Variable Pricing

On the other hand, time-variable pricing encompasses a range of pricing strategies, including TOU rates, that reflect the varying cost of electricity production throughout the day. By aligning electricity prices with real-time production costs, time-variable pricing encourages more efficient energy use and supports the integration of renewable energy sources, which can be intermittent in nature.

Together, these initiatives help to create a more resilient and sustainable energy system. By adopting TOU rates, consumers not only save money but also contribute to these larger goals of energy security and environmental stewardship.

How to Find TOU Programs in Your State

If you’re interested in taking advantage of TOU rates, the first step is to determine what programs are available in your state. Fortunately, the U.S. Department of Energy’s website offers a wealth of resources to help you navigate this process.

To find information specific to your location:

1. Visit Energy.gov

Start by visiting the U.S. Department of Energy’s main website. Navigate to the Federal Energy Management Program (FEMP) section, where you’ll find resources related to demand response and time-variable pricing. (Or jump right to the latest DR/TVP Rates spreadsheet.)

2. Search by Region

Depending on where you live, you can explore regional sections like the ones mentioned above – the Western States, Northeastern States, and Southeastern and Midwestern States. Each region’s page offers detailed information on the TOU programs available, including which utilities offer them and how they work.

3. Contact Your Utility Provider

In addition to the resources available on Energy.gov, it’s a good idea to contact your local utility provider directly. They can provide the most accurate and up-to-date information on TOU rates and other energy efficiency programs available in your area.

4. Enroll in a TOU Program

Enrolling is typically straightforward once you’ve identified a TOU program that suits your needs. Most utility providers offer online enrollment, or you can sign up by phone. An even quicker route to find and enroll in TOU programs in your area? Just visit ElectricityRates.com and punch in your zip code to pull up energy plans for your home or business, including TOU programs.

Why Should You Consider TOU Rates?

The primary benefit of TOU rates is the potential for cost savings. By shifting your energy use to off-peak times when electricity is cheapest, you can lower your monthly energy bills.

But the advantages don’t stop there. TOU rates also support the integration of renewable energy sources like wind and solar, which are often most productive during off-peak times. By aligning your energy use with these periods, you’re not only saving money but also supporting a cleaner, more sustainable energy system.

Moreover, TOU rates contribute to grid stability and energy security. During periods of high demand, the electrical grid can become strained, leading to the potential for blackouts or the need to activate costly and polluting peaker plants. By reducing your energy use during these peak times, you’re helping to reduce these risks.

Maximizing Savings and Sustainability: Your Next Steps

Time-of-use rates offer an innovative, sustainable way to manage your electricity costs while supporting broader energy efficiency goals. By understanding what time of day electricity is cheapest and adjusting your usage accordingly, you can take control of your energy bills and contribute to a more resilient energy grid.

Whether you’re a residential consumer or a business, exploring TOU programs in your state is a step worth considering. Visit Energy.gov today to learn more about the options available to you and how you can start saving on your energy costs.