Under a flat rate, a kilowatt-hour costs the same at three in the morning as at six in the evening. That is a billing convention rather than an economic fact. The cost of producing electricity varies enormously through the day, and a time-of-use tariff passes some of that variation on to you.
Why electricity costs more at some hours
Grid operators dispatch generators in merit order, cheapest first. Overnight, when demand is low, the cheapest plants cover everything. As demand climbs through the afternoon, progressively more expensive plants are called until the last one needed sets the price for everyone.
On a hot afternoon that last plant might be an old gas peaker running a few dozen hours a year. Its cost per megawatt-hour is a multiple of the baseload plants below it. Peak hours are not expensive because of greed; they are expensive because the marginal generator is expensive.
Solar has changed the shape of this considerably. In states with a lot of it, the middle of the day is now cheap and the expensive window has moved to the early evening, when solar output falls but demand has not. That is why peak periods in California and Arizona are typically defined as something like four to nine in the evening rather than the middle of the afternoon.
The one question that decides it
Can you move a meaningful share of your consumption out of the peak window?
The load that is genuinely shiftable in most homes is narrower than people assume. It is essentially:
- Electric vehicle charging. Entirely shiftable, large, and the single strongest reason to be on a time-of-use rate.
- Laundry and dishwashing. Shiftable with mild inconvenience. Moderate load.
- Water heating. Shiftable with a timer, and a tank holds heat for hours.
- Pool pumps. Entirely shiftable and surprisingly large where they exist.
- Cooling, partially. Pre-cooling a well-insulated house before the peak and letting it drift through it works well in dry climates, less well in humid ones.
What is not shiftable: refrigeration, lighting, cooking at mealtimes, electronics, and heating or cooling in a poorly insulated building. If your consumption is mostly these, a time-of-use tariff will move you onto a higher price for the hours you cannot avoid.
Doing the arithmetic honestly
The average American household uses about 871 kWh a month. Suppose a tariff prices peak at roughly double off-peak, with peak running five hours on weekday evenings.
A household with an electric vehicle charging overnight might have 60 per cent of its consumption off-peak without trying, and can push higher. A household with no EV, an evening cooking routine and a window air conditioner might have 40 per cent of its consumption inside the peak window, and no realistic way to change that.
The first household saves meaningfully. The second pays more than it would on the flat rate. Neither is doing anything wrong; they simply have different load shapes.
Most utilities now publish a rate comparison tool that runs your own interval data against every available tariff and tells you which would have been cheapest over the past year. This removes all the guesswork and almost nobody uses it. If your utility offers one, that is the first and last analysis you need.
Where the spreads are widest
The value of shifting depends on how far apart the peak and off-peak prices are, and that varies a great deal.
Nevada and the desert Southwest have some of the widest summer spreads in the country, because the afternoon peak is extreme and the overnight trough is deep. Pre-cooling in the morning and coasting through the afternoon is the single most effective residential strategy available in southern Nevada.
Arizona has the most complicated residential rate menu in the country. Its utilities offer multiple time-of-use plans, demand-charge plans and flat plans, and the gap between the best and worst choice for a given household is large. This is a state where actually running the comparison tool is worth real money.
California combines time-of-use with tiered pricing, so the marginal rate in the highest tier during peak hours is far above the 33.25¢ state average. Load shifting is correspondingly valuable, and the average rate is a poor guide to what an additional kilowatt-hour costs you.
Colorado is the case where you may already be on one. Xcel's residential time-of-use rate is the default there rather than an option, which means the shifting decision has been made for you and only the behaviour is left.
Related tariffs worth knowing about
EV rates
Many utilities offer a schedule specifically for households with an electric vehicle, with a very deep overnight discount. These are frequently better than the general time-of-use rate for EV owners and are almost never applied automatically. If you bought an EV and did nothing else, you are probably on the wrong tariff.
Demand charges
A residential demand charge bills your single highest interval of draw during the month, in kilowatts, on top of your energy. It rewards staggering appliances rather than reducing them. Excellent for a disciplined household, punishing for one that runs the dryer, oven and air conditioning simultaneously.
Critical peak pricing and demand response
Some utilities keep a normal rate but call a handful of extreme-price events a year, with notice. Others pay you to let them control a thermostat or water heater during those hours. The payments are modest but the inconvenience is usually smaller than expected, and these programmes are among the few places where a household interacts directly with the capacity market.
What to do
- Ask your utility for its rate comparison tool and run your own twelve months of interval data through it.
- If you have an electric vehicle, check for a dedicated EV schedule before anything else.
- Look at the peak window definition, not just the price. A five-hour evening peak is very different from an eight-hour afternoon one.
- Check whether there is a minimum stay. Some utilities require twelve months on a tariff before you can switch back.
- If you cannot shift load, stay on the flat rate and spend the effort on insulation instead.
Your state's rate page lists its market structure and links to the utilities serving it. Start at the rate table.