3.10 Tariff and Market Issues

3.10.1 Time of Use (TOU) and Tier Pricing

Utility tariffs vary greatly from jurisdiction to jurisdiction with respect not only the actual price per kW for electricity, but also structured to take into account the time that the energy is used as well as the total amount of energy used within a period of time. Utilities typically identify on-peak and off-peak times of the day and the week, where on-peak reflects high load times. It is often more expensive to add “peaking” generation to meet these peak loads, so various methods are typically used to try to lower on-peak loads, usually by trying to shift them to off-peak times or by reducing the overall loads.

Two common tariff structures are:

• Time of Use (TOU) tariffs in which on-peak rates are higher than off-peak rates. These TOU tariffs are used to encourage shifting loads to off-peak.

• Tier pricing tariffs in which the amount of energy used during a period (e.g. one month) is binned into different tiers, with the lowest tier the lowest price, and each higher tier with a higher price. This tariff structure is used to encourage conservation and the reduction of overall load.