Understanding the rates and tariffs that make up your utility bill is an important first step in taking control of your energy costs.
Energy prices aren’t always stable and can vary by season or even time of day. Understanding your tariff can help you save money by running appliances during low-demand times.
Electricity rates are charged to cover utility infrastructure costs, including energy transmission from generation facilities. Your energy provider may also offer different plans that allow you to control the cost of your electricity supply. Your choice of plan type will depend on your energy needs and personal preferences. For example, if you want to support renewable energy sources, you can select a green energy plan.
Residential and commercial customers can choose between fixed or variable electric rates. The latter reflect real-time energy market prices and are more closely linked to wholesale energy procurement markets than retail pricing structures.
Wholesale energy market prices are affected by demand for electricity and weather conditions. As a result, wholesale prices are higher during peak hours when electricity demand is greatest. This is why some top electricity companies in Houston use time-of-day pricing to reduce the stress on power grids by incentivizing efficient and coordinated customer behavior.
The electricity rates you pay are governed by your rate schedule, which will determine how much you are charged per kilowatt-hour. It is important to understand your rate structure to make smart energy choices that will save you money. To help you do this, your provider should provide a static load profile estimation process to show you how your usage will change over a year.
Tariffs are the underlying pricing structures determining the total energy charged on your utility bill. Energy or utility tariffs are a collection of charges used to calculate your final utility bill (delivered in dollars per kilowatt-hour).
The design of electricity tariffs greatly influences how customers respond and the size of their energy bills. Different types of tariffs have been designed to achieve different goals, such as encouraging energy efficiency and fostering the adoption of distributed energy resources (DER).
ToU tariffs use prices that differ by time of day or year to encourage customers to prioritize their consumption during off-peak periods. VPP tariffs have a wider range of prices and usage tiers to offer an even stronger incentive to shift electricity demand to off-peak periods. Dynamic pricing is a more complex approach to shifting peak demand using prices that reflect the current grid status. However, it has been deemed less socially acceptable for customers due to its volatility.
Utility companies are required to file their tariffs with regulators through the process of a rate case. Many factors can influence what tariff options are available to consumers, such as the costs of raw materials, how the electricity system is operated and maintained, and how much it will cost to deliver electricity to the customer.
A time-of-use plan (TOU) is one of many innovative rate structures that align electricity costs with the production cost. It’s a win-win for both utilities and customers as it incentivizes energy consumption when electricity production is less expensive and discourages usage during periods of higher demand.
TOU plans typically split the billing cycle into tiers. Each tier corresponds to a different price for electricity. The cheapest energy rates are during the night and early morning when electricity demand is low, and the cost to produce power is lower. These rates can be as much as 50% less than the highest electricity rates during the afternoon and evening when demand is the greatest, and the cost of producing power is the most expensive.
The rates may change depending on the time of year and weather conditions. Your electric company should include your current rate class and tiers in the summary area of your bill. Some utility companies also actively notify you of your rate class.
To maximize your savings on a TOU plan, you can shift some or all of your energy use to the cheapest rates by programming your air conditioner to cool the house before 4 PM, using appliances at night or early in the morning, and charging your electric vehicle overnight. This will help you reduce your overall consumption and the need for costly peaking plants.
Energy efficiency is a powerful tool that can be used to improve energy access for all. Lowering energy demand reduces utility bills for consumers and businesses, increases household disposable income, raises business revenue, and lowers operating costs for public services such as schools and hospitals. And it does all at a cost typically less than the price of adding new power generation capacity.
Local governments can partner with electric utilities and other program sponsors—including third-party efficiency programs, state energy offices, and regional energy efficiency alliances—to provide incentives to encourage and facilitate local energy efficiency improvements in homes, businesses, and industrial processes. These partnerships can also help leverage public benefit programs and other available resources for energy efficiency upgrades.
Whether it’s through appliance rebate programs, free energy audits for homes and businesses, or educational campaigns, these outreach efforts aim to raise awareness about the importance of energy efficiency. They help customers understand their specific tariff and electric rates—including service charges, calendar dates like holidays, time of use periods, and consumption tiers—and how they can best take control of their power usage and costs. For example, reducing total kilowatt-hours almost always results in a lower utility bill. Deploying a power monitoring infrastructure to forecast and accrue energy savings accurately can further improve cost controls.