Electricity Bills

Electricity Pricing: Tiered vs. Time of Use

Utilities generally allow customers to choose between tiered pricing and time-of-use (TOU) plans. Under tiered pricing, a certain amount of power per month can be purchased at a low cost, another amount can be purchased at a slightly higher cost, and so on. Under TOU plans, a utility may offer summer and winter rates, where a certain price is charged during the daytime (the peak) and another at night. A common analogy is that tiered rates are similar to income tax brackets, and TOU policies are like cell phone plans. Fortunately, solar panels concentrate on offsetting the most expensive parts of both types of plans.

Tiered Pricing

The fundamental idea of tiered pricing is that a certain amount of power can be purchased at the least expensive rate, after which certain amounts are available at escalating prices.  This way, customers who use very little electricity pay less per kilowatt hour than do customers who use a lot of electricity.  The two bottom tiers are considered the “baseline” electricity usage – the basic level of electricity that any household would need – and are generally protected from rate increases.  So, if an electric utility increases its prices, those increases happen in the upper tiers. 

Net metering allows the property owner to reduce their electricity bill, starting with the highest priced tiers first.  The utility will read the electricity meter once a month and allocate the property’s usage into the tiers.  Lower total electricity usage means that less power will be allocated to the most expensive tiers, since the least expensive tier is filled first.  The owner of a solar panel will more rarely extend into the top tiers, the thus impact of utility rate increases over the years will be reduced.

Time Of Use

TOU plans are an option designed to reward off-peak electricity use.  The utility is willing to charge less at off-peak times because it costs less to generate electricity at those times.  (See our section on electricity generation for details.)

Peak times are generally during the weekdays.  This is when businesses are up and running, air conditioning units are at full blast, home appliances are running, and so on.  Fortunately, the time when people use electricity the most – during the day – is when the sun is shining and solar panels are generating electricity.  Like with the tiered system, solar panels address the most expensive parts of the bill in a TOU plan.