Tiered Vs TOU Rates

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You may have recently received an email from SDG&E notifying you that you are going to be switched to a new TOU (Time-of-Use) rate plan. It states that you will be automatically moved to the new rate plan if you do nothing or you can contact them to stay on your current rate plan which is most likely the Schedule DR Tiered option. The email shows you a summary of what you could expect your annual electricity cost would be if you switch and what it would be if you stayed on your current rate plan. In many cases your annual bill will GO UP if you switch.

So WHY make the switch? While none are very compelling I can think of a few reasons…

  1. By switching now you be entitled to “One Year No-Risk Pricing” which means you will lock in the current TOU rate for up to 12 months as long as you maintain continuous service at your current location.
  2. It is possible to reduce your bill with drastic changes to when you consume your electricity. May I suggest more candlelight dinners? Laundry at midnight?
  3. It is inevitable. On January 1st, 2019 ALL residential customers will be moved over to the TOU rate structure with almost certainly a considerable increase to the current rates. So, by switching now you might save a little bit for a few months early next year.

Let’s take a deep dive into the two different rate structures and compare the differences and similarities between the two.

Tiered Rate Structure

Other than the Flat Rate structure the Tiered Rate structure is the simplest of rate structures. Basically the more electricity you use the more expensive it gets. Most SDG&E residential customers are on this structure referred to as Schedule DR. The rate is made up of multiple steps called tiers. Over the years the number of tiers has changed from 4 to 3 to 2 then recently back up to 3 again. The amount of electricity for each tier is calculated as a percentage of your “Baseline” allowance. Baseline is the amount of electricity that SDG&E believes is enough for your basic needs such as heating, cooking, lighting and refrigeration. See our “Baseline Electricity Explained” article for more information on how your Baseline Allowance is calculated. SDG&E calculates the first tier as any electricity used up to 130% of your baseline allowance, the second tier as any electricity consumed over 130% and up to 400% of baseline and any electricity consumed in excess of 400% of baseline is charged under the third tier referred to by SDG&E as the “Super User” surcharge. The Schedule DR rate plan is also broken up into two seasons. Summer Season is from June 1st to October 31st and the Winter Season is from November 1st to May 31st. See below for current rates for Schedule DR rate plan as of January 1st 2018. If you have been paying attention to your electric bill over the past 5 years you know that it has almost DOUBLED since 2013. Tier 1 electricity was billed at 15 cents per kWh and the most expensive tier was billed at 29 cents per kWh in 2013!



Let’s take a look at a typical SDG&E customer living in the “Inland” Climate Zone. The table below shows the customers energy consumption on a month by month basis.

Month Total
January 964 kWh’s
February 743 kWh’s
March 595 kWh’s
April 743 kWh’s
May 846 kWh’s
June 870 kWh’s
July 1198 kWh’s
August 1301 kWh’s
September 1286 kWh’s
October 1093 kWh’s
November 730 kWh’s
December 681 kWh’s

This energy profile is typical and average for our clients living in the Inland climate zone. Using on average about 700 kWh’s in the winter and topping out around 1300 kWh’s during the summer months.

For comparison purposes were going to calculate the electric bill for the month of August under the Schedule DR tiered rate structure.

In order to calculate each the charges for each tier we need to know the baseline allowance for inland customers during the summer months for basic service.

Basic Allowance Coastal Inland Mountain Desert
Summer (June 1st to October 31st) 9.0 kWh’s 10.4 kWh’s 13.6 kWh’s 15.9 kWh’s
Winter (November 1st to May 31st) 9.2 kWh’s 9.6 kWh’s 12.9 kWh’s 10.9 kWh’s
All Electric Allowance Coastal Inland Mountain Desert
Summer (June 1st to October 31st) 8.3 kWh’s 10.1 kWh’s 16.5 kWh’s 18.5 kWh’s
Summer (June 1st to October 31st) 13.5 kWh’s 15.8 kWh’s 26.0 kWh’s 20.0 kWh’s
  • August (31 days) X 10.4 kWh’s per day = Baseline of 322 kWh’s
  • 130% of Baseline = 1.3 X 270 kWh’s = Tier 1 Billing of 419 kWh’s
  • 400% of Baseline = 4 X 322 kWh’s = 1288 kWh’s “Super User” Threshold
  • 1301 kWh’s (August’s Total Usage) – 1288 kWh’s “Super User” Threshold = “Super User” Billing of 13 kWh’s
  • 1301 kWh’s (August’s Total Usage) – Tier 1 Billing of 419 kWh’s – “Super User” Billing of 13 kWh’s = Tier 2 Billing of 869 kWh’s
With this information and using current rates we can calculate the electric bill for the month.
  • Tier 1 Charge = 419 kWh’s X 27 cents per kWh = $113.13
  • Tier 2 Charge = 869 kWh’s X 48 cents per kWh = $417.12
  • “Super User” Charge = 13 kWh’s X 55 cents per kWh = $7.15
Now we can determine the bill for the month of August by adding the 3 different charges.
  • $113.13 (Tier 1) + $417.12 (Tier 2) + $7.15 (Super User) = $510.69

I know you are thinking… “NO WAY!”. Right?

This is real. We just had one of the largest increases ever over the past 3 months. In fact, your summer rates went up 3 TIMES before the summer season has even started again

About 10 years ago SDG&E started to replace the dial meters on their customers houses with new “Smart Meters”. The old meters only kept a running total of how many kWh’s were used. Each month that number was manually recorded by a “Meter Reader” and the difference between the previous months reading and the current reading was what you were charged for that month.  The new meters though are in fact much “smarter”. They not only keep track of the total kWh’s being used or exported (solar electric production) each month, they also tracked when you are using your power and how much you are using at once (demand). The data collected is known as your “15 Minute Data” because it is recorded every 15 minutes. The new meters also “beam” that information directly to SDG&E, no more need for the “Meter Readers”.  This of course was all in preparation for a new way to bill their customers and that is the new TOU-DR1 rate structure.

TOU Rate Structure

The TOU-DR1 Time-of-Use rate structure does share some similarities with the Schedule DR Tiered structure. There is a Baseline Allowance that is factored into the bill and is calculated the same as the tiered structure, there is a summer and winter season for baseline allowance and different rates for those seasons. You are also billed for the kWh’s consumed on a monthly basis. That’s where the similarities end. The TOU rate structure adds a new layer to how you are charged and that is when you use your electricity.

TOU Period – Weekdays Summer Winter
On-peak 4:00 PM to 9:00 PM 4:00 PM to 9:00 PM
Off-peak 6:00 AM to 4:00 PM
9:00 PM to 12:00 AM
6:00 AM to 4:00 PM
Excluding 10:00 AM to 2:00 PM March and April
9:00 PM to 12:00 AM
Supper Off-peak 12:00 AM to 6:00 AM 12:00 AM to 6:00 AM
10:00 AM to 2:00 PM In March and April
TOU Period – Weekdays and Holidays Summer Winter
On-peak 4:00 PM to 9:00 PM 4:00 PM to 9:00 PM
Off-peak 2:00 PM to 4:00 PM
9:00 PM to 12:00 AM
2:00 PM to 4:00 PM
9:00 PM to 12:00 AM
Supper Off-peak 12:00 AM to 2:00 PM 12:00 AM to 2:00 PM

So you potentially have 6 different billing rates per season depending on how much electricity you have used in the month and when you used the electricity.

(Non-solar Customers)

(Non-solar Customers)

The graph above shows the current rates for TOU-DR1 rate plan as of January 1st 2018. As you can see there are essentially three different rates for baseline allowance depending on when you are using your power and unlike the tiered structure there is no “Super User” surcharge but any electricity used in excess of baseline during the peak period (4:00 PM to 9:00 PM) is charge at almost the same high rate.

Let’s look at how our example customer fares under this structure.

Month Peak Off-peak Supper-Off-peak Total
January 243 kWh’s 312 kWh’s 139 kWh’s 694 kWh’s
February 260 kWh’s 334 kWh’s 149 kWh’s 743 kWh’s
March 208 kWh’s 238 kWh’s 149 kWh’s 595 kWh’s
April 217 kWh’s 248 kWh’s 155 kWh’s 743 kWh’s
May 267 kWh’s 446 kWh’s 134 kWh’s 846 kWh’s
June 275 kWh’s 458 kWh’s 137 kWh’s 870 kWh’s
July 378 kWh’s 630 kWh’s 189 kWh’s 1198 kWh’s
August 411 kWh’s 685 kWh’s 205 kWh’s 1301 kWh’s
September 406 kWh’s 677 kWh’s 203 kWh’s 1286 kWh’s
October 345 kWh’s 575 kWh’s 173 kWh’s 1093 kWh’s
November 256 kWh’s 329 kWh’s 146 kWh’s 730 kWh’s
December 238 kWh’s 306 kWh’s 136 kWh’s 681 kWh’s

Notice how we have divided the total monthly usage into the three periods, Peak, Off-Peak and Super Off-Peak. For practicality purposes, we have combined the “15 Minute Data” into these three periods and will work with percentages for our calculations.

Again, for comparison purposes we will take a look at the month of August. Referring to the graph we can see that this customer used approximately 32% of their power during the Peak period, 52% of their power during the Off-Peak period and 16% of their power during the Super Off-Peak period. Using the same Baseline calculation from the Tiered rate structure calculation we know this customer has a Baseline Allowance of 419 kWh’s.

By multiplying our total Baseline Allowance by the period percentages, we can determine the approximate Baseline Allowance for each period.

  • Peak Period Baseline Allowance = 32% X 419 kWh’s = 134 kWh’s
  • Off-Peak Period Baseline Allowance = 52% X 419 kWh’s = 218 kWh’s
  • Super Off-Peak Baseline Allowance = 16% X 419 kWh’s = 67 kWh’s
Now we can determine the approximate Baseline Allowance charge by multiplying the period’s cost per kWh by the approximate allowance per period.
  • Peak Period Baseline Charge = 134 KWh’s X 33 cents per KWh = $44.22
  • Off-Peak Baseline Charge = 218 kWh’s X 27 cents per kWh = $58.86
  • Super Off-Peak Baseline Charge = 67 kWh’s X 21 cents per kWh = $14.07
Now we can calculate the Total Baseline Charge by adding the charges for the three periods.
  • Total Baseline Charge = $44.22 + $58.86 + $14.07 = $117.15

Now if you recall from our previous example the Baseline Allowance Charge under the Tiered billing structure was $113.13 so as of this point in our calculations the bill seems to be going up.

Ok, we’re half way there. Let’s continue by subtracting each periods Baseline Allowance from each period’s total to calculate the remainder of the charges.

  • Peak Remainder = 411 kWh’s (period total) – 134 kWh’s (Baseline Allowance) = 277 kWh’s
  • Off-Peak Remainder = 685 kWh’s (period total) – 218 kWh’s (Baseline Allowance) = 467 kWh’s
  • Super Off-Peak Remainder = 205 kWh’s – 67 kWh’s (Baseline Allowance) = 138 kWh’s
Finally, we can calculate the last of the charges.
  • Peak Period Remainder Charge = 277 KWh’s X 53 cents per KWh = $146.81
  • Off-Peak Remainder Charge = 467 kWh’s X 48 cents per kWh = $224.16
  • Super Off-Peak Remainder Charge = 138 kWh’s X 42 cents per kWh = $57.96
Now we can calculate the Total Non- Baseline Charge by adding the remaining charges for the three periods.
  • Total Non-Baseline Charge = $146.81 + $224.16 + 57.96 = $428.93
Drum roll please. Our Total TOU Bill for the Month of August is….
  • $117.15 (Baseline Charge) + $428.93 (Non-Baseline Charge) = $546.08

Wow, that’s a significant increase. A 7 percent increase to be exact. Are you surprised? Of course, it is higher, SDG&E would not have invested millions of dollars on smart meters so they could charge you less.

Bottom Line

They say there are two guarantees in life…death and taxes. I say you can add a third guarantee and that is that your electric bill will go up. There is hope though. We can help you reduce or even eliminate your dependence on SDG&E with our energy saving products. Fill out a contact form or give us a call if you have any questions or would like more information.

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