Most power companies offer a time-of-use program of some sort. In Raleigh, NC, the power company is called Carolina Power and Light (CP&L), and they offer a time-of-use program that makes a good example (even though every program is different).
Most people pay a flat rate for their power. For example, let's say that CP&L's flat rate is about 7.4 cents per kilowatt-hour. If you use 1,000 kilowatt-hours in a month, you pay $74.00 for the month (plus some taxes).
The idea behind a time-of-use program is to put a special power meter on your house so that the power company can bill you differently depending on the time of day. For CP&L, there are only two different time periods: "on-peak" and "off-peak." In the summer (April through September), the on-peak hours are 10 a.m. to 9 p.m. on weekdays. Nights, weekends and vacations are off-peak. During the winter, the on-peak hours are slightly different (6 a.m. to 1 p.m. and 4 p.m. to 9 p.m. on weekdays).
There are two different programs in the CP&L time-of-use plan. Under the simpler program, you pay:
- $9.85 per month to be a part of the program
- 14.5 cents per kilowatt-hour for on-peak power
- 2.9 cents per kilowatt-hour for off-peak power
You can see that this approach provides a good incentive to move as much power consumption as possible to off-peak hours. So things like laundry, dish washing, showers, etc. move to off-peak hours (nights and weekends). Moving these things to off-peak is not usually a big inconvenience.
So if you use 1,000 kilowatt-hours in one month, and 333 are on-peak and 667 are off-peak, then the total bill is $64.83, for a savings of $9.17 (12%).
The keys to understanding if this will work for you or not include:
- Knowing your monthly power consumption - If you don't use something like 700 kilowatts or more per month, the $9.85 monthly fee isn't worth it.
- Knowing your appliances - An electric dryer and an electric water heater consume large quantities of power that you can easily shift to off-peak. A refrigerator, on the other hand, is difficult to shift.
- Knowing your tolerance for inconvenience - If it would bug you to death to wait until 9 p.m. to do a load of laundry, or if turning the air conditioner off in the middle of the day would bother you, then time-of-use is not for you.
So what does the power company get out of this? Why would they want to charge you less for electricity? It turns out that the power company has a problem -- it cannot store power. During hot summer days when everyone has their air conditioner on, there is a huge load on the power company. The power company has to build enough power plants to meet that peak load. At other times of the day and at other times of the year, much of that power-generating capacity is not needed. This surplus capacity costs lots of money to build but generates very little income, so the power company wants to even things out. It wants to try to reduce the peaks so it does not have to build extra power plants. It is much cheaper to give people a discount than to build a new plant, so they create a time-of-use program.