Electricity demand from the grid follows a fluctuating pattern everyday day. Household power demand is highest in the evenings, while industrial and commercial is has a peak around late mid-day. Meeting these demand variations as they come is difficult for the power company. Economical power generation systems are large, but slow to come on line. These are operated 24 hours and meet the unvarying part of the demand, called the base demand. To meet the fluctuations the power company has to maintain quick reacting plants which can be brought on line in a matter of minutes when required and then switched off. These are much smaller units and the power produced by them is more costly.
Power companies resort to Time of Use (TOU) rates, also referred to as Time of Day (TOD) rates because the variations follow a daily pattern (apart from an annual and seasonal pattern). Most companies will charge higher rates during the peak demand hours. These rates and timings are preannounced and known to customers so that they can adjust their usage patterns, leaving no-essential power consumption for non-peak hours, Peak hour rates and peak rate timings may be changed according to seasonal variations.
Such schemes have multiple advantages. The power company is compensated for the higher cost of production during these peaks hours. At the same time users are encouraged to rearrange their consumption schedules for a more uniform utilization.
Multiple tariff rates can be implemented through a single meter at a location. These are normally intelligent meters with different registers for totaling consumption during periods of different rates. The rates can be switched under program control in accordance with a built-in temper proof clock. Another possibility is switching through ripple control. Ripple control means sending signals over the power lines at frequencies higher than the mains frequency so they can easily be filtered out. (This is also known as power line communication).