What is a Tiered Rate structure and what is a Time of Use rate structure?

As solar becomes more popular people start asking us similar questions. One of those common questions is about the different rate structures that they see on their utility bills. Majority of our customers are still on the old school rate structure before they get solar. This rate structure is commonly known as a tiered rate structure. This rate structure has been status quo for utility companies for decades, until now. Let us explain….

The Tiered Rate Structure

This structure is billed to you (the customer) based on how much energy you use in your home. These units of energy, otherwise known as kilowatt hours (kWh), are billed in a way that increases the cost of electricity as the homeowner uses more kWh. To start, you have a baseline allocation (or otherwise known as a certain amount of kWh’s you can use) at a low price. Once your home uses this allocated baseline, you are then bumped into a higher price bracket. This next tier is priced higher than your baseline and also has a limited amount of kWh’s that you are allowed to use. Once you have gone through that allocation, then you go into the highest price tier bracket. For most utility companies, they have 3 tiers for their customers. This system was initially designed to have homeowners understand that they are being penalized for using more electricity. It’s a structure that we are all very familiar with, but there is a shift in the way utility companies are now billing their clients. This new structure is called time of use (TOU).

Time of Use (TOU)

This rate structure is designed a little differently. Its whole premise is billing the customers based on what time they use their electricity. So instead of having a baseline allocation, customers now will pay a specified price per kWh depending on the time of day that they use their electricity. What does this mean for you? At first glance, it doesn’t seem very drastic of a change, but where it can be problematic is if your home uses a lot of electricity during that high priced time bracket. For example in San Diego’s SD&E, your high rate is between the hours of 4 PM and 9 PM. The reason this can be an issue is because most families spend majority of their electricity in their home during these high rate hours. The utility companies understand this which is why they have implemented the Time of Use rate structure. This means that the utility companies are using the time of day to dictate when customers should use their electricity. Instead of say using your dishwasher and your clothes washer between normal home hours in the early evening, you’re being forced to use those appliances in the off hours when most people go to sleep.

Now how does this affect solar? When you get solar most you will be automatically put onto Time of Use. Remember though, this isn’t necessarily a bad thing. This is an industry common practice. The reason you are getting solar in the first place is to take control of your electricity and to gain independence from the utility companies. So how do you best set yourself up for future success? This is where a good solar company should shine. As the customer, you should provide as much information as you can about how and when you use your electricity. Most of the time this can be done by providing 12 months of electricity usage with your utility bill and then going through a questionnaire of how and when you use that electricity with your solar company. This will then give the necessary information for the solar company to properly size a custom solar system for your home. Of course, the tiered rate structures will vary from one utility company to another, but with the proper planning and execution, your solar company should help you become ready for any changes the utility company decides to throw your way.  At Solar Brothers, we take this information very seriously because we understand that the customer needs to be ready for the future and whatever that may hold. If you’re curious to see how you can benefit from solar, set up an appointment with us today!