What is a baseline allowance? Tiered electricity rates explained

Tiered pricing is the oldest form of usage-sensitive residential rate, and it was designed to do something time-of-use pricing does not: make a modest amount of electricity affordable while making a large amount expensive. It is a policy instrument as much as a price.

How the tiers work

The mechanism is a ladder, not a switch. If your first tier covers 400 kWh at 20¢ and the second charges 30¢, using 500 kWh does not cost 500 × 30¢. It costs 400 × 20¢ plus 100 × 30¢. Only the electricity above the line is charged at the higher price.

That has a consequence people consistently get backwards: the last kilowatt-hour of a heavy month is the expensive one. Cutting 50 kWh off a month where you were already deep into tier two saves you 50 × 30¢. Cutting the same 50 kWh off a light month saves 50 × 20¢. Efficiency is worth most exactly when you are using most.

Baseline: an allowance that moves

California’s investor-owned utilities express the first tier as a baseline quantity — a daily allowance, not a monthly one, which means a 31-day billing cycle gives you more cheap electricity than a 28-day one. The allowance itself depends on two things:

• Your baseline region. PG&E divides its territory into lettered regions — P, Q, R, S, T, V, W, X, Y, Z — reflecting climate. A house in a hot inland region gets a larger allowance than one on the coast, on the reasoning that it genuinely needs more cooling.
• Whether you heat with electricity. All-electric homes get a substantially larger winter allowance. This is why so many tariffs come in pairs, one marked “All Electric Service”.

The practical consequence is that the same named rate schedule can cost noticeably different amounts depending on your address. You cannot choose your baseline region — it is set by where you live — which is why we group plans by zone on every utility page and only ever compare within a zone.

Reading a tier table

On any of our rate pages, the “What you actually pay” table shows each tier with its threshold and unit. The unit matters more than it looks:

Tiers versus time-of-use

These are different axes and a plan can use both. A tiered plan asks how much; a time-of-use plan asks when. 209 of the plans we track are tiered, 233 price by hour, and a fair number do both — which produces a bill where the price of a kilowatt-hour depends on the clock and on how much you have already used this month.

The behavioral advice differs completely. On a tiered plan, moving your dryer to midnight does nothing at all; reducing total consumption does everything. On a time-of-use plan the reverse can be true. Knowing which you are on is the difference between effort that pays and effort that does not — and it is printed on your bill as a schedule name you can look up in our index.

Is a tiered plan good for you?

Broadly, tiered rates favor small households and penalize large ones, which is what they were designed to do. If you live alone in an apartment and never approach the first-tier threshold, a tiered plan is likely the cheapest structure available to you. If you have a family, central air conditioning, and an electric car, you will spend most of the year in the upper tiers and a time-of-use plan will usually serve you better — provided you can move some of that load into the cheap hours.

Every rate page on this site estimates the annual bill for three household sizes precisely so you can see where the crossover falls for your utility rather than reasoning about it in the abstract.