How Time-of-Use Electric Rates Work and Whether They Save You Money

What time-of-use rates are and how they work

Time-of-use (TOU) rates charge you different prices for electricity depending on when you use it. Instead of paying one flat rate all day, you pay a higher rate during peak hours (usually late afternoon and early evening) and a lower rate during off-peak hours (usually late night, early morning, and midday). Some utilities add a third tier for super-off-peak times, typically between midnight and 6 a.m.

Your utility company sets these rates based on actual demand on the grid. When everyone is cooking dinner and running air conditioning at the same time, the grid is stressed and electricity costs more to produce. At 2 a.m., demand is low and power is cheaper. TOU rates pass that cost difference to you, so you pay what the electricity actually costs at that moment.

You do not have to switch to TOU rates if your utility offers them. Most utilities still offer a standard flat rate as the default. If you want to move to TOU pricing, you contact your utility and request the switch — the process usually takes one to two billing cycles to take effect.

Key Takeaways

• Time-of-use rates charge more during peak hours (typically 4 p.m. to 9 p.m.) and less during off-peak hours, reflecting what electricity actually costs the utility at that time.
• You save money on TOU rates only if you can shift most of your heavy electricity use to off-peak hours, such as running the dishwasher or laundry at night.
• TOU rates hurt you if your peak usage is fixed — for example, if you work from home during peak hours or run central air conditioning in the afternoon.
• Your utility publishes its TOU schedule and rates before you switch, so you can calculate whether the switch makes sense for your household.
• Some utilities offer TOU rates only to certain customer groups or in certain service areas, and not all utilities have them available.

When TOU rates save you money

TOU rates work in your favor if you can move electricity use away from peak hours. The bigger the gap between your peak and off-peak usage, the more you save. A household that runs the dishwasher, does laundry, and charges devices during off-peak hours can see savings of 10 to 20 percent on their electric bill, depending on how much they shift and how wide the rate gap is.

Households with flexible schedules tend to benefit most. If you work outside the home during peak hours, you are already using less electricity then. If you can delay tasks like laundry, dishwashing, or pool pumping until after 9 p.m. or before noon, TOU rates reward that behavior with lower bills.

Electric vehicle owners sometimes benefit from TOU rates because they can charge overnight during the cheapest hours. If your utility has a dedicated EV charging rate, that may be even cheaper than the standard off-peak rate.

When TOU rates cost you more

TOU rates hurt you if most of your electricity use happens during peak hours and you cannot move it. If you work from home and run your computer, lighting, and air conditioning all afternoon, you are using electricity at its most expensive time. A household with central air conditioning that runs heavily in the late afternoon and early evening will see higher bills on TOU rates, even if they are careful about other uses.

Families with young children, elderly household members, or people with medical equipment that runs during the day may find it difficult or impossible to shift usage to off-peak hours. If your peak usage is fixed, TOU rates are not a good fit.

The rate gap also matters. If your utility's peak rate is only 5 percent higher than the off-peak rate, you have less room to save. Some utilities have gaps of 30 to 50 percent or more, which makes shifting usage worthwhile. Check your utility's published rates before you switch.

How to find your utility's TOU schedule and rates

Your utility publishes its TOU rates and peak hours on its website, usually under a section for rate schedules or pricing options. Search for "time-of-use rates" or "TOU" plus your utility's name. You should find a document that lists the exact hours for each rate tier and the price per kilowatt-hour for each.

Peak hours vary by utility and region. In California, for example, many utilities define peak as 4 p.m. to 9 p.m. on weekdays. In other regions, peak might be 2 p.m. to 8 p.m., or peak might shift by season. Some utilities have different schedules for summer and winter. Read the schedule carefully — if you misunderstand when peak hours are, you will not save money.

Once you have the rates and hours, calculate your own usage. Look at your last few electric bills and estimate how much electricity you use during peak hours versus off-peak hours. Multiply your current peak usage by the TOU peak rate and your off-peak usage by the TOU off-peak rate. Compare that total to what you currently pay. If the TOU total is lower, the switch makes sense.

Smart meters and how they track your usage

TOU rates require a smart meter that records when you use electricity, not just how much. Most utilities have already installed smart meters in their service areas, but not all. If your utility does not have smart meters yet, you may not be able to switch to TOU rates.

A smart meter sends your hourly usage data to the utility, usually wirelessly or through a network connection. You can often see your hourly usage on your utility's website or mobile app, which helps you understand when you are using the most power. Some utilities let you set alerts if you are approaching peak-hour usage.

Smart meters are installed and maintained by the utility at no cost to you. If you are concerned about privacy or radiation from wireless meters, some utilities offer opt-out programs, though these sometimes come with a fee or a higher flat rate. Check your utility's policy if this is a concern.

Comparing TOU rates to flat rates and other options

Before you switch to TOU rates, compare them to your utility's other pricing options. Most utilities offer a standard flat rate as the default. Some also offer tiered rates, where you pay a lower rate for the first block of usage and a higher rate for usage above that threshold. A few utilities offer demand response programs, where you get paid to reduce usage during peak hours.

Flat rates work best if your usage is steady throughout the day and you cannot shift it. Tiered rates reward households that use less electricity overall. Demand response programs are usually available only to larger customers or in specific regions. Your utility's website should list all available rate options and let you compare them side by side.

Some utilities also offer budget billing, where you pay the same amount each month based on your average annual usage. This does not change your rates, but it makes your bill more predictable. You can combine budget billing with TOU rates if your utility allows it.

Steps to switch to time-of-use rates

Contact your utility by phone, online account portal, or in person to request a switch to TOU rates. Have your account number ready. The utility will confirm that TOU rates are available in your service area and that you have a compatible smart meter. If you do not have a smart meter yet, the utility will schedule an installation before your rate change takes effect.

The utility will provide you with the TOU rate schedule and peak hours in writing. Read this carefully and ask questions if anything is unclear. Some utilities require you to sign an agreement acknowledging that you understand the rates before the switch is final.

The rate change usually takes effect on your next billing cycle, though some utilities allow you to choose a specific date. Once you switch, you can monitor your usage on your utility's website to see whether you are saving money. If TOU rates are not working for you after a few billing cycles, you can usually switch back to flat rates, though some utilities require you to stay on TOU rates for a minimum period (often 12 months).

Frequently Asked Questions

Do I have to pay extra to switch to time-of-use rates?

No. Switching to TOU rates is free. Your utility may charge a fee if you switch back to flat rates within a certain period, so check the terms before you commit. Some utilities waive the switching fee if you have been on TOU rates for at least 12 months.

What if I do not have a smart meter yet?

Contact your utility and ask whether smart meters are available in your area. If your utility is still rolling out smart meters, you may be able to request one. If your utility does not have smart meters, TOU rates are not available to you yet, though this is becoming less common.

Can I use a smart power strip to automate my off-peak usage?

Yes. Smart power strips let you schedule when devices turn on and off, so you can run the dishwasher or charge devices automatically during off-peak hours. This removes the guesswork and helps you stick to your plan. Make sure the devices you are controlling are safe to run unattended.

Do time-of-use rates work if I have solar panels?

Yes, but the math changes. If your solar panels produce power during peak hours, you use less grid electricity at the most expensive time, which increases your savings. If your panels produce power during off-peak hours, you are exporting cheap power to the grid. Check with your utility about how solar production interacts with TOU rates in your area.

What happens to my bill if I do not shift my usage at all?

Your bill will likely go up. If you use electricity the same way you always have and most of that usage happens during peak hours, you will pay the higher peak rate for all of it. This is why TOU rates only save money if you can actually change your behavior.