You used more electricity this month, but why is the bill this much higher?!

First of all, check out our article on What is a kWh if you have no idea what a kWh is.  It covers how to get a sense of “how big” a kWh is and get an intuition of knowing what might be using them up in your home.

What we’ve found is that buried in the charts and tables of your electricity bill are two pricing schemes that catch some people off-guard.  They are tiered pricing and time of use.  Pretty much, you pay a lot more for splurging when everyone else is.

Tiered Pricing

Tiered pricing is fairly common and have been around for a while.  If tiered pricing is in place, you might see something like this somewhere on your bill:

Your utility company is charging you higher rates the more you use over “baseline.”  In this example, the first 236 kWh (in “tier 1”) you used was charged at 3 cents per kWh, but if you splurged for the month and used more than 472 kWh (in “tier 5”), you are getting charged 25 cents per kWh.  That’s 8 times more for the same thing!  The sample above lists out how the rate keeps on going up from 3 cents to 25 cents.  Since this person used more than double the baseline, she has to pay all the different rates in all five tiers.

 

Your electricity is unexpectedly high because you probably went from some affordable tier into an expensive tier.

 

In our example bill, going from tier 2 to tier 3 is a jump from 6 cents to 15 cents per kWh!

What is “baseline”?  Baseline is pretty much the electric company’s calculation of a reasonable ration of electricity for a home in your region.  If you go over this ration called “baseline”, the idea is that you will pay more for splurging more.

Why is there a baseline and tiers?  Utility companies create these more expensive tiers mainly to help prevent brownouts and control the cost of electricity for everyone.  You will see these tiers escalate during the summer or winter.  In hot summers, everyone wants to crank up the A/C or enjoy swimming pools.  The electric grid cannot handle everyone splurging, so in an attempt to be fair, your electric company keeps prices cheap for people who stay within the baseline while people who freely splurge pays more.

What can I do?  We suggest you cut electricity use to avoid the jumps in pricing.  Experiment with changes that cut big chunks of electricity but, at the same time, minimize lifestyle changes.  Here are some suggestions for hot summers.  You can also check out our article on how to get a sense of what uses the most electricity.  Also, for some homes with a lot of appliances and electronics, you can nearly make no lifestyle change by fixing standby power.

Last but not least, consider trying our free app called Dr. Power (iOS, Android).  It’s sponsored by the government to help families reduce their electric bills  There are no in-app purchases.  No strings attached.

Time of Use

Another pricing schedule you may see on your electricity is called “time of use” or TOU.  It’s structured like travel seasons, but instead of seasons in the year, the pricing changes based on the time of day.  You may see something like this on your electricity bill:

The terms to look for are “off peak”, “peak” and “mid peak”.  Throughout different periods of the day, your utility company will charge higher prices when electricity is in peak use.  Peak use just means everyone else is also using electricity at that same time of the day.  So, what is really going on with the electricity rates is something like this:

Why is there time of use?  In the example above, during the summer, everyone in the area is using more electricity from noon to 6pm at the same time, so the rates go up.  On weekends, it’s always off-peak.  This makes sense because on the weekdays, everyone is in sync on a work or school schedule, so there are peak hours where people are generally doing the same things at once.  On the weekends, families are all on their own schedules, so there is no problem of everyone using electricity at the same time.

Utility companies do this not to profit off people’s schedules.  Time of Use pricing usually is only in effect as necessary to help keep the local electric grid humming.  Time of Use pricing is usually in effect during hot summers or harsh winters only.

What’s the easiest way to cut my electricity bill?  The quickest answer is to reduce your use during peak hours.  Most of the time, the easiest fix is adjusting thermostats by a little.  If you have a smarter thermostat, you can tell it to adjust only during peak hours.  Another easy trick we recommend is just to turn off big hogs during peak hours.  Big hogs are devices that suck up a lot of electricity and in use for a while.  For example, shift the time when your pool pump/filter cleans your pool.  Maybe wait until the evening to do laundry.

If that’s not enough or you want to be even more proactive about it, we suggest signing up for a Demand Response program in your area.  They are like bonus programs utility companies offer to further incentivize people to hold back a little during peak hours.