Tiered rate structures charge progressively higher per-kilowatt-hour rates as monthly consumption increases across defined usage brackets. For example, a utility might charge $0.12 per kWh for the first 500 kWh monthly, $0.15 for the next 500 kWh, and $0.18 for consumption exceeding 1,000 kWh. This approach encourages conservation during peak demand periods.
Technical Details
Typical tiering systems include 2-4 consumption brackets with incremental price increases of 20-50% between tiers. California’s tiering system uses baseline allocations of approximately 60% of historical usage, with rates increasing significantly above baseline. The structure applies daily or monthly depending on regional utility standards.
Practical Significance
Tiered rates incentivize reducing HVAC system runtime and installing high-efficiency equipment. Understanding tier thresholds helps optimize system scheduling to minimize bills. Solar installations become particularly valuable under tiered rates, as reducing consumption keeps usage in lower pricing brackets and maximizes long-term savings.