What is Time-of-Use Billing?

For solar sales professionals and businesses exploring solar adoption, understanding commercial electric tariffs is fundamental to making informed decisions. Unlike conventional straight usage billing, time-of-use (TOU) tariffs implement a dynamic pricing model where electricity costs fluctuate based on the time of consumption. This rate structure can create strategic opportunities for businesses considering solar installations – thoroughly understanding these tariffs is key to optimizing both energy usage patterns and maximizing return on investment.

To explain the basics of TOU tariffs, tune into the excerpt below from Matt McNearney from the Commercial Electric Tariffs: Impacts on Solar course.  

 With a time-of-use tariff, your monthly bill is based on the amount of electricity you consume, but the rate that you pay for each kilowatt-hour is determined by when you use it. 

Time-of-use rates are designed to influence behavior. Utilities are trying to get their customers, well, primarily residential customers, to cut back on how much electricity they use during peak times. 

If people can change some of their habits, then utilities can better manage the capacity of power plants. That can help reduce the frequency and severity of demand spikes, especially during the hot summer months. 

For time-of-use, utilities generally designate three blocks of time; although, some use only two. The block with the highest consumption is known as peak-time or on-peak. This is probably mid-afternoon to early evening, perhaps something like 3pm to 7pm. The block when consumption is lowest is considered off-peak. It might start at 9pm on one day and go to 11am the next. The blocks in between are frequently referred to as mid-peak or shoulders, perhaps 11am to 3pm, and then again from 7pm to 9pm. 

That brings us to a time-of-use billing statement. Just as with the straight usage bill, the level of demand is being tracked, but not included in the calculations. What is used to calculate the bill is the amount of kilowatt-hours consumed, which is shown as the total for the month and the amount for each time block. 

The usage for each block is then brought down to the bill calculation area and lined up with a block specific rate per kilowatt-hour.  

Here are the other line items based on consumption. Some utilities have different rates for these, also based on their respective time-of-use. But this one doesn’t, so the cost for each line item is calculated using the total kilowatt-hours consumed. 

Then you have the various miscellaneous charges to get to the subtotal and ultimately the total.