What Is Time-of-Use (TOU) Pricing–And Why Arizona Uses It?

 Temperatures in Phoenix are expected to hit 102°F today—the earliest triple-digit day on record. By March 21, highs could reach 106°F, more than 25 degrees above seasonal norms. With AC systems kicking on early, this signals a long, unusually hot season ahead—driving higher electric bills just as a 15% APS rate increase looms.

With air conditioners running for months at a time, energy demand tends to spike in the late afternoon and early evening—exactly when utilities are under the most strain. That’s why many Arizona utilities have moved toward Time-of-Use (TOU) rate structures and increasingly, Time-of-Use plus Demand (TOU + D) plans.

While TOU pricing can seem complicated at first, it actually creates powerful savings opportunities, especially when paired with solar panels and battery storage. In fact, TOU + Demand plans often offer the lowest off-peak kilowatt-hour (kWh) rates available and allow homeowners with solar and batteries to tap into the cheapest off-peak energy available, while eliminating higher on-peak kWh rates and demand fees entirely.

Key Points:

• TOU + Demand pricing charges different rates by time of day and adds fees based on your highest power draw (kW).
• Arizona utilities use TOU + Demand to manage extreme summer electricity needs.
• Peak rates usually occur in late afternoon/early evening during summer months when solar panels alone are less effective.
• Solar + battery storage lets homeowners avoid peak rates while shielding from costly demand charges.
• Batteries shift energy use to cheaper hours and prevent costly grid power spikes.
• Smart load management makes TOU + Demand one of the most cost-effective rate structures for Arizona homes.

What Is TOU + Demand?

Time-of-Use (TOU) pricing means electricity costs vary depending on the time of day. Instead of paying one flat rate per kWh, customers pay:

• Off-Peak Rates (lowest prices)
• Mid-Peak Rates (moderate prices)
• On-Peak Rates (highest prices)

Peak hours usually occur in the late afternoon and early evening when temperatures are highest and air conditioning demand surges as people return home from work and settle in for a comfortable evening.

Standard TOU plans typically only adjust the per kWh rate by time of day, while a new type of TOU plans adds a demand charge into the mix, as well as the cumulative one-peak and off-peak kWh charges.

TOU + Demand plans add another layer: a demand charge, which is based on the highest amount of power (kW) your home draws at one time—not your total monthly energy use. With APS, it’s calculated from your highest 60-minute on-peak demand during the billing cycle. With SRP, it’s based on your highest 30-minute on-peak demand.

In other words:

• TOU charges you when you use electricity.
• Demand charges you how intensely you use electricity at any one moment.

This structure encourages homeowners to shift usage to lower-cost hours while avoiding large simultaneous loads during on-peak periods—helping reduce strain on the grid when demand is highest.

There’s an upside to TOU + Demand plans when paired with solar and batteries. Because demand charges are included, utilities typically lower kWh rates across the board. If you can manage short spikes in usage, you can take advantage of lower energy costs around the clock.

Where Is TOU Pricing Used in Arizona?

Time-of-Use and TOU + Demand plans are commonly used by major Arizona utilities, including:

• APS (Arizona Public Service)
• SRP (Salt River Project)
• Tucson Electric Power (TEP)

These plans are especially common in:

• Phoenix and surrounding metro areas
• Scottsdale
• Mesa
• Chandler
• Tempe
• Tucson

Because Arizona experiences extreme, prolonged heat, utilities use TOU and demand-based rates to manage grid stress during peak summer months. As temperatures rise and population grows, these plans help balance increasing electricity demand.

Read more: What is the Cheapest Time to Use Electricity in Arizona?

Why Arizona Uses TOU + Demand

Arizona’s peak electricity demand is heavily driven by residential air conditioning. During hot summer months, nearly every home is running cooling systems simultaneously - often in the later part of the day as people return home from work. Utilities must build and maintain infrastructure capable of handling these short but intense demand periods.

TOU + Demand pricing helps:

• Reduce strain during peak grid hours
• Encourage energy efficiency behavior
• Promote smart technologies like batteries
• Minimize the need for expensive “peaker plants” that are used to bolster production and delivery as demand spikes
  

Instead of spreading peak infrastructure costs evenly across all hours, TOU + Demand assigns higher costs to the periods that drive those investments.

How Long Does TOU Last?

TOU periods vary by utility, rate plan, and season—but in Arizona, they are heavily driven by summer demand. While TOU hours are always subject to change, here’s how they break down currently for Arizona’s three biggest utilities.

• Summer TOU schedules typically run May through October, when air conditioning drives peak demand
  
• APS: On-peak hours are generally 4:00 PM – 7:00 PM (some plans extend to 8:00 PM)
  
• SRP: On-peak hours are typically 4:00 PM – 7:00 PM, shifting later in newer plans (often 5:00 PM – 9:00 PM)
  
• TEP: On-peak hours commonly run 3:00 PM – 7:00 PM during summer months
  
• Off-peak hours usually include overnight, mornings, and mid-day periods when solar production is highest
  

During non-summer months, peak windows are often shorter or less expensive—but summer TOU pricing is where the biggest cost differences occur and also where technologies like solar and battery storage can be most effective in mitigating high electricity bills.

When Do Customers Incur Demand Fees?

Demand fees are triggered when your home reaches its highest level of instantaneous power draw (kW) during on-peak hours within the billing cycle. Unlike kWh billing, which is cumulative for the total billing cycle, demand fees look at short bursts of consumption. Utilities measure your usage over short time intervals and identify your single highest average demand during those windows:

• APS and TEP: Highest 60-minute window during on-peak hours
  
• SRP: Highest 30-minute window during on-peak hours
  

That one peak in your energy use—just a single window—sets your demand charge for the entire month. But what causes a demand spike? Demand spikes happen when multiple high-power appliances are turned on at the same time, such as:

• Running central AC while cooking dinner
• Charging an EV while pool equipment is running
• Using dryers, ovens, and water heaters simultaneously
• Cooling the home aggressively during peak evening hours.
  

Even if this overlap only lasts briefly, if it occurs within a billing interval, it can establish your monthly demand charge, which can often be even higher than your kWh fees.

How Can Solar Batteries Reduce TOU Expenses?

Solar panels alone are excellent at offsetting your total kWh usage because they produce a steady stream of energy as long as the sun is shining. However, they’re not as effective at reducing demand charges. Demand is driven by short bursts of high usage, and solar panels can’t instantly ramp up production to match those spikes in real time—so it’s easy to exceed what your solar panels are producing in a single hour or half hour of high usage.

On top of that, demand charges and the highest kWh rates typically occur later in the day, when solar production is already declining.

That’s where batteries become essential.

Time-Shifting Energy

Solar batteries store excess solar energy, or cheaper midday grid energy (if solar panels aren’t included), and then discharge it during expensive on-peak hours. Instead of buying electricity at peak rates, your home runs on cheaper stored energy - avoiding demand fees and more expensive kWh rates entirely.

Avoiding On-Peak Rates

With a properly sized battery, homeowners can effectively take their home off-grid during peak hours, eliminating the highest TOU charges entirely.

Lowering Demand Charges

Batteries reduce your home’s maximum grid draw by supplying power during high-load events. Instead of pulling power from the grid, the battery supplies power to help you avoid demand fees and expensive kWh rates.

Charging at Lowest Off-Peak Rates

TOU + D plans often offer the lowest off-peak kWh pricing available. Batteries can charge overnight at these reduced rates (if needed), then discharge during peak hours to generate significant savings.

How Can One Eliminate Demand Fees?

Completely eliminating demand fees requires preventing high grid spikes during demand windows, or adding a battery to avoid purchasing grid power during on-peak times entirely.

• Battery Storage: Batteries charge with excess solar energy, or during cheaper off-peak hours, then discharge during on-peak hours to effectively take your house “off-grid” during those time periods when demand fees are assessed.
• Load Management: Avoid stacking large appliances during peak hours.
• Cool your home just before on-peak hours begin so your AC runs less during the most expensive time.
• Smart Home Automation: Energy management systems like the Inergy Systems demand manager can prevent high simultaneous loads from being switched on at the same time.

With proper system sizing and programming, many homeowners significantly reduce, or fully eliminate, demand charges entirely, allowing them to tap into much cheaper kWh rates that come with the demand-based rate plans.

How Can I Save During TOU?

Saving under TOU + Demand isn’t about using less energy overall. It’s about using energy smarter.

Shift Usage to Off-Peak

Run dishwashers, laundry, and EV chargers overnight or early mornings to avoid consuming power when it’s most expensive.

Install Battery Storage

Store excess solar energy or cheaper off-peak energy so that you can discharge it during on-peak hours to avoid the most expensive kWh rates and demand fees.

Implement a Pre-Cooling Strategy

• Pre-cool to a lower-than-normal temperature just before on-peak hours begin.
• Raise your thermostat slightly during peak hours.
• Use zoned cooling or mini-splits that allow you to isolate the most important rooms.

Reduce Peak Stacking & Use AC Maintenance Cycles

Avoid running multiple high-draw appliances at the same time during peak hours. If you’ve pre-cooled your home, use a smart thermostat to run short AC “maintenance” cycles (15–20 minutes each hour). This helps maintain comfort while avoiding a full 30–60 minute demand spike that could set your monthly demand charge.

Why TOU + Demand Works So Well with Solar and Batteries

Without solar and batteries, TOU + Demand plans can feel restrictive—penalizing you for when and how you use energy. But with the right system design, they can become one of the most advantageous rate structures available.

Here’s why:

TOU + Demand plans are designed to reward control—and solar plus storage gives you that control.

• Solar offsets your daytime energy use
  Your system produces the most energy when rates are lowest and your home is actively consuming power, reducing your reliance on the grid during the day.
  
• Batteries shift energy into peak hours
  Instead of buying expensive on-peak power, you can store solar (or lower-cost grid energy) and use it during the most expensive evening hours—effectively avoiding peak kWh charges.
  
• Peak demand can be actively managed
  Batteries can supply power during short bursts of high usage, preventing the spikes that trigger demand charges. With proper configuration, many homeowners can significantly reduce—or even eliminate—these fees.
  
• Lower baseline kWh rates work in your favor
  Because TOU + Demand plans include a demand component, utilities typically lower overall kWh rates. With solar covering much of your usage, and batteries minimizing peak purchases, you benefit from these lower rates across the board.

Read More: How Stand-Alone Batteries Help Phoenix Homeowners Beat Peak Electricity Rates

The Cost and Rewards of TOU

Time-of-Use plus Demand pricing reflects the true cost of delivering electricity during Arizona’s hottest hours. While it may seem complex, it creates real savings opportunities for homeowners who adopt solar and battery storage, or actively engage in behavioral changes like pre-cooling.

With the ability to:

• Store cheap off-peak or solar energy
• Power your home during peak windows
• Reduce demand spikes
• Avoid the most expensive rates

TOU + Demand becomes not just manageable but advantageous.

For Arizona homeowners looking to take control of their energy bills, combining solar panels, battery storage, and smart load management under a TOU + D plan is one of the most effective long-term strategies available.

If you’re considering solar or battery storage, understanding your utility’s TOU + Demand structure is the first step toward maximizing savings–especially before summer temperatures rise.