What is all the buzz about time-of-use rates, and why does it matter?

Posted by Charley Cormany, EFCA Executive Director

For decades, energy efficiency experts have focused on saving as much energy as possible on every project. While maximizing overall savings is never a bad objective, things are not as simple as they used to be. Today, grid planners have realized that energy savings at certain times of the day have much more value to the electric grid.

Utilities hope to encourage consumers to reduce loads at peak times by promoting new rate structures like time of use (TOU), time of day (TOD), or special electric vehicle charging rates. As an energy efficiency contractor, you can help your customers save even more on their bills by examining their time of use billing and peak loads.

Decarbonization Means More Demand for Electricity

As decarbonization efforts gain traction, we can safely assume there will be more demand for electricity. Adding electric vehicles will require more capacity. Heat pumps and other emerging technologies will likely require more electricity, too.

Adding electric grid infrastructure to meet this capacity is extremely costly, and runs up against regulatory and environmental hurdles. For the sake of argument, let’s assume that the current infrastructure must meet the demands of both current and new users for the foreseeable future. 

How can we meet the growing demand without increasing capacity? The answer is simple: Use the existing resources more efficiently. Energy efficiency will play a key role in the transition to electricity as the primary energy source in buildings. If every home in one city used 10 percent less energy, the savings could be used to meet future demands with our current infrastructure.

This is exactly what has occurred in California over the past forty or so years. The oil embargo in the 1970s spurred a great deal of interest in efficiency efforts. A physicist named Arthur Rosenfeld was one of the early champions of regulations and rebate programs to encourage energy savings. During this period, the per capita demand for energy nationwide increased by about 33 percent, yet the demand for energy in California remained flat, even as the economy grew. How? Demand was met by reducing the existing loads and incentivizing energy efficiency improvements.

The effort was so successful that the powers that be named it after Art, it is now referred to as the “Rosenfeld Effect”.

Art convinced the world of the value of saving energy. Thanks to his efforts, we are in a much better place today.

The Value of Saving Energy at Particular Times

Art’s focus was on total savings, which we know has value. Today, however, the time when you save energy is as important, if not more important, than the total energy saved. Demand for electricity is not even throughout the day. When demand reaches peak load, the entire electrical generation and distribution grid system is stressed. If the loads are too much, it can lead to brownouts where demand exceeds capacity. Today, saving energy during these peak times is particularly valuable. Efforts that reduce peak load have more value than options that save when demand is low.

In other words, time matters.

Time of Use (TOU) or Time of Day (TOD) rates are a quiet storm that utilities are gently pushing on their customers. By charging more for energy when the demand is the greatest, utilities hope to encourage customers to reduce energy use at those times.

Today, most electric bills have a tiered rate structure. The base rate covers the fundamental electric loads in buildings—lights, motors, pumps, heating systems, refrigeration, air conditioning, etc. As you increase your energy use over a given time (one month) you can get bumped into the next highest tier, which costs more.

When you bump into the third tier, the electricity rate jumps significantly. If you are a contractor, you need to review your customer’s bills to see if this is happening. Sometimes a simple improvement, like adding insulation, can keep your client from getting bumped into the next tier. This low-cost energy savings improvement could save your customers a ton of money if they are being billed at the third-tier rate.

Time-of-use rates have a similar tiered structure, but they concentrate on when the energy is saved versus how much is saved overall. Most time-of-use rates concentrate on reducing peak loads. In California, peak loads on the grid happen between 4:00 p.m. and 9:00 p.m. What drives the demand at these times? The answer is simple: humans and air conditioners.

Most folks get off work in the late afternoon. They come home to a warm house and fire up their air conditioners. They might also turn on some lights or use their electrical appliances, ovens, dishwashers, laundry equipment, etc. When you have millions of users adding load to the grid, meeting the demand can be challenging, especially if you can’t add more capacity.

Time-of-use rates (TOU) are designed to encourage savings during peak demand periods. If it costs more, maybe people will think twice before using those electrons, as they are very expensive during peak times.

However, I suspect most people don’t pay that much attention to their electric bill, other than being shocked by how much it costs each month. This is an opportunity for savvy contractors. If you can help your clients reduce their overall energy use enough to drop to a lower rate tier, they could save a lot of money and be very appreciative. If you educate your customers on no-cost ways to regularly minimize loads during peak demand to take advantage of TOU rates, you will become a hero.

I did an energy audit for one of my friends. His electric bills were crazy high, and he was looking for solutions. During our audit, we found several electrical devices that were pushing him into the highest tier for electrical pricing.  It was simple things like an old stereo with a power conditioner that was running 24/7. It did a great job of smoothing out the electrical fluctuations, but it was operating even when the stereo was not in use. He also had fish pumps running continuously for a turtle tank. There was a light on in the attic; the list goes on. After using the findings from our audit to make some changes, he saved over $600 per month on his bill. That’s not bad, considering that the energy audit cost him roughly $500.

You can have even more impact on your customers’ bills by looking at their time of use billing and peak loads. Are they in the habit of doing laundry and washing the dishes right when they come home from work? If so, a simple change would be to hold off on laundry until after 9:00 p.m., when the time of use rates go down. Doing laundry and using your dishwasher after 9:00 p.m. might keep you out of a TOU rate tier and save you a ton of money.

Energy efficiency improvements are also a great idea. Something as simple as adding insulation, which reduces heating and cooling loads, can pay for itself by keeping you out of the high time-of-use periods. Insulation has other benefits, too, like allowing you to use a smaller heating and cooling system while still providing comfort.

Many new appliances, like heat pump water heaters, are showing up with TOU operational guides built in. With these smart appliances, you enter your utility provider and rate plan, and the devices automatically shift their high-use periods to off-peak hours.

Another thing to consider is charging for electric vehicles (EVs). Many people are unaware that most utilities have special rates for electric vehicles. Why? To encourage behavior that is less impactful to the electrical distribution grid. Most utility EV plans to reward the consumer with lower pricing off-peak and even more savings when most folks are asleep, and grid demand is at a minimum.

If you come home from work and immediately plug your car in to top off the batteries, you might be making a huge mistake. Chances are you are in the peak demand window, and the heavy draw of charging your car will be very expensive. EV owners should program their cars to charge during off-peak times, such as midnight to 6:00 am. In addition to avoiding peak demand charges, this puts less strain on transformers and other electrical infrastructure. It’s also likely cooler outside, which puts less stress on your batteries and the battery temperature control systems in your car.

In summary, as a contractor, you really need to understand your client’s needs and how you can help them get the best result. At a minimum, you need to review their utility bill and look for problems or trends. I always recommend that homeowners look for a contractor who reviews their customer’s utility bills or offers an energy audit as part of their process. It is a sure sign that the contractor understands energy use and is truly interested in the customer’s long-term happiness.

There are lots of little things you can do to make your customer’s homes more efficient and cheaper to operate. Want a couple of tips? Single-speed pool pumps are energy hogs. Replacing a single-speed pump with a variable-speed pump can save hundreds of dollars per year. Another one is recirculation pumps on water heaters. Many recirculation pumps run continuously, which means they are using electricity when there is no demand. Even worse is the fact that they are drawing hot water from the tank and recirculating it, where it cools off. This cycle makes the water heater work harder to maintain its set point temperature. If you must use a recirculation pump, use a timer or temperature control version. Even better are demand-based recirculation pumps that only operate when needed.

To achieve the best possible outcome for a project, you really need to build a complete picture of the home and its energy use. Is the home constantly hitting the highest-cost electric rate? Are the clients charging their EV during off-peak hours? Have they reached out to their utility and asked about EV-specific rates?

A little bit of knowledge and an awareness of the time value of energy use can go a long way to maintaining a comfortable home and not breaking the bank with high utility bills. If you don’t offer energy audits or review utility bills, you are missing out on providing real, long-term savings. If you are performing energy audits or, at a minimum, reviewing utility bills, you should make sure your potential customers are aware. Creating solutions based on data and long-term results is a differentiator you can use to set yourself apart from the competition.

When we save energy, it matters—perhaps now more than ever. As we march boldly into the future, we need to use data and facts to provide the best outcomes for our clients. One of the most informative pieces of information is your customer’s utility bill. The days of guessing and rules of thumb-calculations are over.