6 min read • Updated July 2026 • By the CliQ Team — hardware veterans from Blink Security Cameras
What is a tiered electricity rate? It's a pricing structure where your first block of monthly electricity use — your "baseline allowance" — is billed at the lowest price, and every kilowatt-hour beyond it costs more. Use more, and you're not just paying for more electricity — you're paying a higher price per unit for it, too.
How Tiered Rates Work
Not every utility charges a flat price per kilowatt-hour. Many — especially in conservation-focused states like California — use a tiered rate structure, also called increasing block pricing. Instead of one flat rate, your monthly usage is split into blocks, called tiers, and each successive block costs more per kWh than the last.
Every tiered plan starts with a baseline allowance: a set amount of electricity, in kWh, billed at the lowest rate. Usage inside that allowance is Tier 1. Everything above it moves into progressively more expensive tiers.
The baseline isn't the same for every household. PG&E, for example, sets its baseline based on where you live, your primary heating source, and the season — summer allowances differ from winter ones, and all-electric homes get a larger winter allowance to account for it. Critically, the baseline is deliberately modest: PG&E's own documentation states the allowance is calibrated to cover just 50–60% of the electricity needs of an average customer in the territory (60–70% for all-electric homes in winter). In plain terms: a typical household is already past its baseline before the billing month is halfway over.
California's tier structure shows how quickly the blocks stack up. Under one Public Utilities Commission framework, Tier 1 covers usage up to the baseline, Tier 2 runs from 100–130% of baseline, Tier 3 from 130–200%, Tier 4 from 200–300%, and Tier 5 covers anything beyond that — each tier priced higher than the one before it. The exact number of tiers and the price gap between them varies by utility and by state, but the shape is the same everywhere it's used: use more, and every additional kWh costs more than the last one did.
We touched on this same tier-crossing mechanic in Why Is My Electric Bill So High? (13 Reasons) — Reason 12. This piece goes deeper into how the tiers themselves are actually built.
Tiered vs. Time-of-Use Rates
Tiered rates get confused with time-of-use (TOU) rates constantly, and the two work on completely different logic.
A time-of-use rate charges you based on when you use electricity — a summer afternoon peak might cost two or three times what the same electricity costs at 2 a.m. A tiered rate charges you based on how much electricity you use in a billing period, regardless of when you use it. Running your dryer at midnight helps you on a TOU plan. It does nothing for you on a pure tiered plan — the meter doesn't care what time it registered the kWh, only how many you've racked up so far this month.
Some utilities run one or the other. Some combine both into a single plan (a "tiered TOU" rate), which stacks the effects — crossing into a higher tier and hitting peak hours in the same billing cycle compounds the cost. Knowing which one you're on determines what actually saves you money: shifting laundry to overnight is a real strategy under TOU and a wasted effort under a pure tiered plan.
| Rate Design | What It Charges For | How to Lower Your Cost | Best Fit |
|---|---|---|---|
| Tiered Rate | Total kWh used per billing period | Use less electricity overall | Lower-usage households, few flexible loads |
| Time-of-Use Rate | When electricity is used during the day | Shift usage to off-peak hours | Households that can shift laundry, EV charging, etc. |
| Tiered + Time-of-Use | Both — volume and timing | Use less, and shift what you can | Increasingly common in high-solar states |
How to Find Your Tier Structure
There's no single national tier structure — it's set by your specific utility and, in regulated states, approved by a state public utilities commission. Here's how to find yours:
- Check your utility's website. Search your provider's name plus "rate schedule," "tariff," or "baseline allowance." Most utilities publish the exact kWh thresholds and per-tier pricing.
- Look at your bill directly. Many utilities itemize usage by tier right on the monthly statement — look for line items labeled "Tier 1," "Tier 2," or similar.
- Confirm your allowance basis. Your baseline depends on your climate zone, your primary heating fuel, and the season. It resets every billing cycle, not once a year.
- Ask about your options. Some utilities let you switch between tiered and time-of-use plans. If your household has predictable usage patterns, running the math on both can be worth ten minutes.
The baseline is built to be exceeded. PG&E's own allowance is calibrated to cover only 50–60% of what an average customer actually uses. For most households on a tiered plan, a meaningful share of every bill is already priced at Tier 2 or higher — before you've done anything unusual.
What Actually Helps
Because a tiered rate is about total volume, not timing, the fix isn't shifting when you run your dishwasher — it's using fewer kilowatt-hours in the first place. There's one place to start that outweighs everything else in the house.
Heating and cooling accounts for 52% of a typical U.S. home's energy use, according to EIA data — more than every other category combined. If you're on a tiered plan, your HVAC system isn't just your biggest expense; it's usually the reason you cross out of the cheap tier and into the expensive one. (For the full breakdown of what else is on that list, see What Uses the Most Electricity in Your Home?)
The Department of Energy says adjusting your thermostat 7–10°F for eight hours a day — while you're asleep or away — can cut heating and cooling costs by up to 10%. On a flat rate, that's real money. On a tiered rate, it's often the difference between staying inside your baseline allowance and paying higher-tier prices for a chunk of the month. Every kWh you don't use is a kWh you don't have to buy at whatever tier you'd otherwise be sitting in.
Most people don't manage this manually, every day, in both directions — setback at night, comfortable when home. A smart thermostat automates it. The catch for a lot of households is installation: most smart thermostats need a C-wire that older homes simply don't have.
CliQ doesn't require one. Its hub-based design means no rewiring, no electrician, and setup in a few minutes — automatic setbacks from day one, starting at $69.99.
Use less electricity automatically — and stay out of the expensive tier.
See the CliQ Smart Thermostat →Frequently Asked Questions
What is a tiered electricity rate?
A pricing structure where your monthly electricity use is divided into blocks called tiers, with each successive block billed at a higher price per kWh. The first tier — your "baseline allowance" — is the cheapest; usage beyond it costs progressively more.
How do I know if I'm on a tiered rate plan?
Check your utility's website for a "rate schedule" or "tariff" page, or look at your monthly bill for line items broken out by tier. Terms to search for include "baseline allowance," "Tier 1/Tier 2," and "inclining block rate."
What's the difference between a tiered rate and a time-of-use rate?
A tiered rate charges based on how much electricity you use in a billing period, regardless of when. A time-of-use rate charges based on when you use it, with peak afternoon hours costing more than off-peak. Some utilities combine both into a single plan.
How much more expensive is Tier 2 electricity than Tier 1?
It varies by utility, but Tier 2 pricing is set noticeably higher than Tier 1 specifically to discourage usage beyond the baseline allowance. Check your specific utility's published rate schedule for the exact cents-per-kWh difference — it's public information.
Can a smart thermostat help me avoid higher-tier pricing?
Yes, indirectly. Since tiered pricing is based on total kWh used, not when you use it, cutting your overall electricity use — especially from heating and cooling, the biggest category in most homes — is what keeps you inside a cheaper tier. A smart thermostat that automatically sets back temperatures when you're asleep or away reduces total usage every day without you managing it.
Do all utilities use tiered rates?
No. Rate design varies by utility and by state. Many use flat rates, some use time-of-use rates, some use tiered rates, and some combine tiered and time-of-use into a single plan. Check your specific provider's rate schedule to know which applies to you.
Prices verified as of July 2026. Check retailer links for current pricing.
Sources
Pacific Gas & Electric, Baseline Allowance — https://www.pge.com/en/account/rate-plans/how-rates-work/baseline-allowance.html
California Public Utilities Commission, Residential Rate Design Decision — https://docs.cpuc.ca.gov/published/Comment_decision/7008-06.htm
American Public Power Association, Using Tiered and Time-of-Use Structures in Residential Rate Design — https://www.publicpower.org/blog/using-tiered-and-time-use-structures-residential-rate-design
US Energy Information Administration, Residential Energy Consumption Survey (RECS) 2020 — https://www.eia.gov/energyexplained/use-of-energy/homes.php
US Department of Energy, Energy Saver — Programmable Thermostats — https://www.energy.gov/energysaver/programmable-thermostats
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