Understanding Electricity Pricing in Relation to Peak and Off-Peak Hours

Peak vs. Off-Peak power rates

Everybody wants a good deal.  Whether you are shopping for a new car, a new house, a gallon of milk, or a new pair of shoes, we all want to find the best deal.  It is the same when we shop for electricity.  We as consumers want to know or believe that we are getting the best deal and the best price.

Many people believe that Electricity is a small unit and therefore it should be cheaper the more of it you buy.  This thinking may have come from the experience we get from a Costco model of purchasing.  At Costco or other “big-box” style stores, the more of a single product you purchase, the cheaper the price per unit when you buy that item.  Although this may seem like it should be true for electricity, the quantity purchased or usage of kilowatts in electricity is not the main factor when it comes to finding the best deal in electricity.

The timing of Electricity Usage vs. the Quantity of Electricity Usage

Electricity is a product that goes bad if not used.  It is difficult to store large amounts of electricity in any particular location.  Electricity must be used when it is created or it will be wasted.  As soon as it is generated it must be transmitted and used.  This is done through power plants and Electricity Grids to distribute the power to people all of the United States and the Great State of Texas.  Because there is no real perfect meaningful way to store electricity, we have created a situation where the timing of electricity usage by customers is more important than the quantity of how much a certain customer uses.

Power plants that generate electricity for a particular grid have limited resources and capabilities.  This creates a situation where the supply of electricity is fixed and the demand created by customers is variable.  This is an interesting dilemma and creates an interesting situation for buyers and sellers.  The sellers now find that they need electricity pricing to fluctuate.  The best solution for sellers thus far is to make electricity pricing fluctuate depending on when the customer needs to use the electricity.  Will the customer need the electricity in the morning or middle of the night when many are sleeping and hardly anyone is using electricity so the demand is very low?  Will the customer use the electricity in the middle of a hot summer day in Texas where every single house in the state is using electricity to keep their homes cool?  The timing of the electricity usage now becomes very important and even more so than the quantity of electricity consumed.  Electricity pricing in Texas will usually be more expensive on a summer afternoon in the month of July than in the morning in the month of April.

What is Peak and Off-peak electricity usage?

Electricity pricing is often categorized by Peak and off-peak usage.  Essentially, when is the electricity being used?  Electricity pricing follows the Peak and off-peak timing.  Peak timing pricing typically is more expensive.  Therefore, if a consumer can use their electricity during off-peak hours, they will save money.  An example may be running your dryer in the middle of the night as opposed to drying your clothes in the middle of the day during Peak hours.

Most consumers use electricity during Peak hours of the day and days of the week.  This is why it is called Peak time usage.  Because electricity is in most demand during these Peak times, Electricity becomes most expensive during these Peak demand times.  Many commercial businesses’ electricity usage follows the usage with the demand of the power grid they are connected to.  Another contributing factor is the weather.  Weather plays a major role in the demand on power grids.  How much electricity is needed and created for the needs during extreme hot or cold weather events can affect pricing dramatically.  It only makes sense that on a 100-degree summer day in the middle of July, the demand for electricity will be very high.  The power generators only have so much ability to generate and distribute their electricity, so it becomes more expensive.  Conversely, off-peak times may be cheaper to consume electricity.  Some common off-peak times are in the middle of the night.  In Texas, Spring and Fall months may be off-peak times as the temperatures may be in the 70’s a large part of the day.  Counterintuitively, weekends are often considered off-peak times.

Let’s look at a few examples of using electricity in off-peak times that are beneficial.  A consumer may do their laundry in the middle of the night as opposed to the middle of the day.  This will save them money.  A customer may do their laundry on the weekends as opposed to a Wednesday afternoon.  This may save them money.  Businesses may reap the same benefits by using off-peak times.  Car dealerships use the majority of their electricity at night.  They need to light their enormous parking lots, but fortunately, this is usually on off-peak hours so they are saving money.  Churches typically operate the majority of the time on weekends which is Off-peak time.  They may be saving money.  Schools are usually closed during the summer months.  The summer months in Texas are the hottest and most volatile.  Pricing can be the most expensive during these Peak months and by not operating the schools are probably saving a lot of money.  So, as you can see, whether a customer uses electricity during Peak or off-peak times, they may spend or save quite of bit of money on their electricity usage.

Common Sense Electricity Usage

So now that we understand peak and off-peak hours and that Electricity pricing is greatly affected by these hours, what should you do?  We recommend using common sense.  You should also look into optimizing your power usage by switching to more energy-efficient lighting, appliances, and even a smart thermostat.  Obviously, there are times of the day and year when a customer simply must use electricity.  A family really would like to have a cool house all summer long.  A gas station needs to have the lights on to be open at night.  The key is to look at every individual customer situation and make smart choices about when the electricity is being used.  Does the electricity have to be used during the more expensive peak hours?  Or can the electricity be used during an off-peak hour?  Making these decisions and executing these decisions will largely determine how much a particular electricity bill costs.