Evaluating Time of Use Pricing

Time of use pricing (TOU) is being proposed to allow people to align their usage of electricity to when it is least costly to produce. This is sometimes referred to as time of day pricing.

Electricity is most costly to produce during periods of peak demand, primarily in the early or late afternoon, depending on geographic location and time of year.

This is largely due to less efficient peaking plants that are brought on line to meet peaks in demand.

Efficient, base load power plants, usually coal, natural gas or nuclear, tend to operate continuously within narrow load bands.

A number of experiments are underway for determining whether TOU actually reduces energy usage and, most importantly, for those pushing TOU, reduces CO2 emissions.

From SRP Power District Web Site Other utilities have different TOU pricing schedules.
From SRP Power District Web Site
Other utilities have different TOU pricing schedules.

Small experiments have been done with consumers who volunteer and are eager to participate in reducing CO2 emissions. The response has usually been positive because the participants went out of their way to modify their behavior to conform with the pricing structure. In essence, they tried to use electricity when it was cheapest during off peak hours, and avoid using electricity during peak hours.

Pilot programs are proposed for California next year. Residential customers of the major investor-owned utilities (Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric) would use the same TOU pricing plan used by commercial and industrial customers.

One organization, the Environmental Defense Fund (EDF), has proposed four criteria for determining the success of TOU:

  • Greenhouse gas reductions
  • Renewable energy optimization
  • Electric vehicle (EV) optimization
  • Avoided infrastructure costs

No mention is made of reducing costs for consumers, or of making it easy for consumers to adapt to TOU pricing.

This last point is critical to the success of TOU pricing, because TOU pricing requires consumers to change their habits and life style.

Here is a look at each of the EDF criteria:

Greenhouse gasses

Reducing greenhouse gasses requires the use of less electricity generated by fossil fuels.

This can be accomplished by a massive switch to renewables or by having families use less electricity.

Very few residential uses of electricity are affected by TOU pricing.

The major residential uses of electricity are shown in the accompanying table.

Residential Electricity Usage
Air-conditioning 13%
Lighting 11%
Water heating 9%
Space heating 9%
Refrigeration 7%
Television 7%
Clothes dryers 4%
Furnaces 3%
Computers 2%
Cooking 2%
Dishwashers 2%
Freezers 2%
Clothes washers 1%
Other uses 27%
Source: EIA

Very few of these uses can be shifted form one time of day to another.

Air-conditioning is needed when it’s hot. Lighting is needed when the sun goes down.

The only way to reduce the usage of air-conditioning or lighting is with a change in life style or adopting new technologies, such as LEDs.

It might be possible to shift dishwashing and clothes washing and drying to off peak hours, but these would have a minuscule effect on the usage of electricity.

It’s obvious that TOU pricing will have very little effect on the amount of electricity that’s used and therefore, on greenhouse gas emissions.


Renewables in California, as elsewhere in the U.S., are a very small part of electricity supply, and cost more than electricity produced by fossil fuels, so it’s difficult to imagine how TOU pricing will affect renewables or greenhouse gas emissions.

PV rooftop solar is more likely to shave peak loads, but is not part of electricity supplied by utilities, unless net-metering is included, so TOU is essentially irrelevant. TOU could actually have a negative affect on the cost of electricity with net-metering pegged to retail rates for electricity, as it would encourage homeowners with PV rooftop systems to sell electricity to the utilities at the highest TOU price.

If residential electricity usage is largely unaffected by when electricity is used during the day, adding more renewables to the supply of electricity won’t affect TOU pricing.

Or, stated differently, TOU pricing has no effect on the usage of renewables.

Electric Vehicle Optimization

TOU pricing could affect when EV batteries are charged.

If EV and PHEV batteries are charged during the day, it would increase the load and probably increase peaks in demand. This would increase the need for more investment in peaking power plants.

A high price for electricity would likely motivate people to recharge batteries at night, when TOU prices are lowest.

Today, and for the foreseeable future, EVs and PHEVs are a minuscule part of demand, so TOU pricing will have a very small effect on residential usage of electricity.

Public policies to add charging stations in office buildings and in downtown areas to promote the usage of EVs and PHEVs, has the perverse affect of increasing demand during the day, which can increase peak demand.

Avoiding Infrastructure Costs

The EDF and other extreme environmental groups are constantly promoting the idea that reducing peak demand will reduce the need for building new power plants, especially peaking pants that are less efficient than base load power plants.

While this might be true in the short term, it probably isn’t true over the long term when growth in overall demand increases. Currently, the EIA forecasts an average growth of 1% in demand over the next few decades. At some point, increased power generation is required to meet the increased demand, so the investment in power generation is deferred and not avoided.

Since very little residential load will be affected by TOU pricing, it’s doubtful that TOU pricing will result in cutting the peaks in demand, which typically occur during the afternoon or early evening.

There are other methods, known as demand response, that can cut peak electricity usage.

An example would be cutting off the flow of electricity to water heaters for short periods of time. If done for short periods, say 15 minutes, it will have little effect on the temperature of the hot water. While this would reduce demand for short periods of time, which with other demand response programs could cut the peak load, it will not reduce the usage of electricity because more electricity will be needed to restore the temperature of the hot water to normal.


What’s likely to happen, as it has in earlier TOU experiments, is that some people, those who want to cut their carbon footprint, will cut back on their use of electricity, such as by reducing the amount of air-conditioning they use.

The basic premiss of TOU pricing is that it will shift residential demand for electricity from peak to off-peak hours of the day. As can be seen, there are very few opportunities for homeowners to shift demand to off-peak hours, and little can be accomplished by forcing TOU pricing down the throats of consumers.

It’s obvious there will be few, if any, benefits from TOU pricing, while TOU will increase overall costs in several ways.

First, it requires utilities to invest in more equipment and software. The most obvious is the need to install smart meters suitable for using TOU pricing.

Second, it requires utilities to maintain a complex pricing structure that increases overhead costs for programing and issuing detailed invoices customers can understand.

Thirdly, it requires timely and expensive education of customers, who are probably not familiar with how they might be able to reduce their electric bills with TOU pricing. It’s also likely to create more confusion and negatively affect utility-customer relations.

TOU is merely another scam being perpetrated on Americans by extreme environmentalists, under the pretense of cutting CO2 emissions.

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