Trends in Time of Use Electric Rates

Why TOU Rates Are Proliferating

Time-of-use electric rates — rate structures in which the price per kilowatt-hour varies by time of day, day of week, or season — have moved from a niche offering to a mainstream consideration for utilities and cooperatives across the country. The rapid growth of rooftop solar creates grid management challenges that TOU rates can help address. The electrification of transportation is adding substantial new load that utilities can influence through pricing signals. And the declining cost of advanced metering infrastructure has made TOU rates technically feasible for a much broader range of customers than was possible a decade ago.

How TOU Rates Are Structured

The most common TOU rate structure distinguishes between on-peak and off-peak periods, with energy prices substantially higher during on-peak hours. A typical residential TOU rate might charge $0.18 per kWh during on-peak hours (typically late afternoon through early evening on weekdays) and $0.09 per kWh during all other hours. More sophisticated structures add a "super off-peak" period during midday hours when solar generation is high — at a still-lower price — to encourage load shifting toward times when renewable energy is plentiful. Demand-based TOU rates for commercial and industrial customers add a demand charge based on peak demand during on-peak periods, more directly reflecting capacity costs imposed on the system.

The Opt-In vs. Opt-Out Debate

Utilities designing TOU programs face a fundamental choice: require all eligible customers to participate (opt-out) or make participation voluntary (opt-in). Opt-in programs have historically attracted a small, self-selected group of customers confident they can shift load. Opt-out programs apply TOU rates to all eligible customers by default. Research consistently shows that opt-out programs achieve broader load shifting benefits but also expose more customers to bill increases if they cannot adjust usage patterns. The choice between approaches involves both technical and policy considerations that each utility must weigh for its specific customer mix.

Billing System and Metering Requirements

TOU rates require interval data — meter readings at 15-minute or hourly intervals rather than the monthly total reads that suffice for flat rates. Advanced metering infrastructure provides this capability. Utilities implementing TOU rates without full AMI deployment must either use separate TOU meters or phase the program to align with meter modernization plans. Billing system updates to handle interval data and TOU rate calculations are also required, and should be evaluated and budgeted before program launch to avoid delays and customer service disruptions at rollout.