All about off-peak: What to know about electricity rates
People generally understand how their electricity bill works. You use more power, you pay more money. But what about if you’re using electricity in the middle of the night, during “off-peak” hours?
Utilities have various ways to charge their customers for electricity. Your rate may depend on what you’re powering or even what time of day it is.
Minnesota Power, Lake Country Power, East Central Energy and Cooperative Power and Light are some of the utilities that provide electricity in northeast Minnesota, and each of them have different rates. But they each have similar programs that try to manage electricity usage during “peak” hours, or when electricity is in high demand.
Power companies care about peak demand because high electricity usage may require them to build new generation sources or buy electricity from elsewhere, both of which are pricey options. Advanced Energy has a nice breakdown of the issue.
By encouraging customers to use power during off-peak hours, utilities hope to reduce strain on the grid.
In this blog, we’ll explore electricity rates and different types of pricing structures you might come across. Like installing solar panels to produce your own electricity or installing energy efficient appliances, a different electricity rate offered by your utility could help you better manage your energy usage.
Paying for electricity
If you use more energy to power your home or business — surprise! — you can expect to pay more money.
Utilities use kilowatt-hours to determine how much energy a home or business uses in a given month. Kilowatt-hours, or kWh, is a measure of power use over time. So powering a 1,000-watt air conditioner for an hour is one kilowatt-hour.
In a typical block rate structure, like the one Minnesota Power currently uses for residential customers, the first few hundred kWh used is priced at a particular rate. But that rate increases as the customer uses more energy throughout the month.
Other utilities, including Lake Country Power and Cooperative Light and Power, change their rates depending on the season.
The average residential customer in Minnesota uses 759 kWh per month, and they pay almost $100 per month for electricity, according to federal statistics.
On top of the rate for each kWh used, power companies issue some kind of service charge every month. That’s meant to help ensure the utility can recover its costs for maintaining the system, regardless of how much power individual customers use.
“If one member uses only one kilowatt-hour of electricity and another member uses 1,000 kWh, the cooperative still incurs the same cost to build the line, maintain the distribution system and deliver electricity to both customers,” Lake Country Power explains.
Time of day
More utilities, including Minnesota Power, are moving to electricity rates in which the rate depends on the time of day. During peak hours, electricity prices are higher than off-peak times.
Those rates are meant to encourage customers to reduce the burden on the grid during times of high demand, such as in the late afternoon when people return from work and turn on their ACs. Minnesota Power said their shift, which is projected to take several years to implement, is meant to accommodate a growing amount of renewable energy sources.
As of 2017, only about 14% of U.S. utilities offered a residential time-of-use rate, according to the Brattle Group.
EV rates
Electric vehicles are becoming an increasingly popular way to get around. While there’s been a big push for more public charging stations, drivers will do most of their charging at home.
And while charging a vehicle at home will result in more energy use, charging an electric vehicle is cheaper than filling up a traditional car with gasoline.
Some utilities make it even more cost-effective to charge EVs at home. Utilities in the Duluth area offer off-peak EV rates, which means the amount you’re paying per kWh is reduced when you’re charging your car overnight.
As an example, here’s a brochure on Minnesota Power’s EV rate. The off-peak rate is about a fifth of their average residential rate, although it comes with a small monthly service charge.
Dual fuel
There are several different ways you can heat your home. Natural gas, oil, propane and electricity are some of the more common ways to keep your family warm during the winter months.
Utilities offer dual fuel rates that require you to have a backup heating source for times of peak demand, when the electric heat is turned off. In exchange for those service interruptions, your utility offers electricity at a discounted rate.
About two-thirds of Minnesotans relied on natural gas to heat their homes in 2015, according to this state report, and only about 17% used electricity. Natural gas tends to be a cheaper option, but electric heat has its own advantages. For one, electric heat doesn’t involve any combustible materials and has low maintenance costs.
Off-peak heat
By now, you’re probably sensing a pattern: Power companies want you to use electricity during off-peak hours to avoid bogging down the grid.
But sometimes you just need to stay warm, no matter what time of day it is. That’s where off-peak heat comes in.
By activating heat electric thermal storage systems during off-peak hours, customers can produce heat at a lower electricity rate and use the warm air later. Lake Country Power has a nice explanation showing a system that stores heat in bricks before it’s dispersed through the building.
Similarly, Lake Country Power offers an off-peak water heating rate, as does Cooperative Light and Power and East Central Energy.
Minnesota Power’s controlled access rate covers both space and water heating.
Wrapping up
Taking advantage of special rates offered by your utility can help you better manage energy use and could provide some savings on your power bill.
But keep in mind that there could be some installation costs and other expenses that come along with signing up for a special electricity rate. That could include a separate meter to keep track of energy used by an EV charger or heating sources, for instance.
This blog hopefully provided a primer on different types of electricity rates you might come across. Be sure to do your homework and talk to your power company about whether making the switch is right for you.
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