Here’s How to Avoid Overpaying for Tariffs and Lower Your Electricity Bill

Most homes are billed for electricity based on a flat rate system. However, not every resident has the same electricity needs. And what most don’t know is that flat rate, or single rate, is not the only option. In fact, several different choices may be available to you, which vary in price depending on the hours when electricity is in highest demand.

Whether you don’t spend evenings at home, or you’re always up burning the midnight oil, the key to optimizing your power pricing is understanding different tariffs on electricity.

Getting down to the nitty gritty of a basic need like electricity might not sound appealing, but fortunately it’s not too complicated either. All you need to do for cheap electricity is find out which tariffs are available through your network distributor and then choose a rate based on the tariff that best fits your usage.

Great! Now How Do I Get Started?

Since electricity rates are determined based on tariffs, let’s first consider what a tariff is.

A tariff is a collection of charges, such as taxes, that go into determining the cost of supplying goods. In this case the goods are electricity. Simple enough. You could probably guess that utility usage varies heavily throughout the day and across different communities.

When demand varies, it follows that supply and thus price will vary as well. This means that one tariff does not fit all and because electricity rates are determined based on tariffs, neither does one rate.

There are three main types of tariffs you will fit into – let’s break down what those are.

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The Three Main Types of Tariffs

1.     Single-Rate

The first and most common method of billing electricity: single rate—a tariff based on one constant price. Now one tariff may not work for every situation, but a single rate may in fact be the best option for some.

You see, a single rate tariff charges a flat fee regardless of the time of day you use the energy. A rate based on this type of tariff might work well for you if you tend to be home and using electricity during what are considered “peak hours”, which are during the evening Monday to Friday. Since you’re being billed a flat rate, you won’t pay more for your frequent peak hour usage.

This is the most common type of tariff, so it’s likely that you’re already being billed on a single rate plan.

2.     Time of Use

If most of your usage is at night or during “off-peak” hours, then it’s possible that a single rate is not the best option. You might benefit from a rate based on the “time of use” tariff. While this tariff is unfortunately closed to new entrants, it’s worth understanding because it gives the biggest financial break when used properly.

A time of use tariff splits the bill into two different rates: “peak” and “off-peak” hours. Electricity costs more during peak hours and less during off-peak hours. This rate division works out nicely for anyone who is usually home late at night or mid-day.

If you’re already being billed based on a time of use tariff and considering switching then you’ll want to check your math carefully. You can’t switch back to a rate based on time of use once you give it up. A scenario where this tariff would cost you more money is when nearly all your electricity usage is during peak hours, with little to no off-peak usage.

3.     Flexible

The next best option to a time of use tariff, is a “flexible” tariff. Where time of use tariff divides the rates into two categories, a flexible tariff introduces a third, in-between rate known as “shoulder hours.”

This type of tariff, which is open to new entrants, also allows residents to get a break for using electricity outside of peak hours. It also offers a smaller break for electricity use during shoulder hours.

No matter your usage, which tariff you belong to is worth looking into. You might be paying too much when there are cheaper options by better providers waiting!

Image: Electricity bill via Shutterstock/tommaso79

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