Time-of-Use Rates and Heat Pump Operating Costs

We hear this concern regularly from homeowners considering cold-climate heat pumps: "If I switch to electric heating, won't the power company just raise rates and I'll end up paying more than oil?" A variation of this came up last week when a customer in South Portland mentioned that CMP was talking about time-of-use rates. He was worried it meant electricity would cost more when he needed his heat pump the most - during cold winter evenings.

His concern made sense on the surface. But the reality of time-of-use rates is almost exactly the opposite of what most people assume. For heat pump owners, particularly those in well-insulated homes, time-of-use rates are likely to be an advantage, not a burden.

What Are Time-of-Use Rates

Most Maine residential customers currently pay a flat rate for electricity. Whether you use a kilowatt-hour at 3 AM or 5 PM, the price is the same. As of 2025, CMP's standard residential rate is roughly $0.22-$0.26 per kWh (supply + delivery combined, though this fluctuates with supply cost adjustments).

Time-of-use (TOU) rates charge different prices at different times of day. The basic structure looks like this:

• Off-peak hours (typically 9 PM - 7 AM and weekend daytime): Lower rate, often 30-50% less than peak
• Mid-peak hours (typically 7 AM - 4 PM weekdays): Close to current flat rate
• Peak hours (typically 4 PM - 9 PM weekdays): Higher rate, often 50-100% more than off-peak

The exact hours, rates, and structure vary by utility. Maine is still in the early stages of rolling out TOU options, but the direction is clear. CMP has proposed TOU rate structures, and they will likely become more common over the next few years.

Why Utilities Use TOU Pricing

The cost of generating electricity varies dramatically throughout the day. During off-peak hours, the grid runs on cheaper baseload power (nuclear, hydro, wind). During peak demand, utilities fire up expensive natural gas peaker plants and may need to buy power from other regions at premium prices.

Flat rates average these costs, which means off-peak users subsidize peak users. TOU rates align what you pay with what the electricity actually costs to produce. The goal is to encourage people to shift flexible loads to cheaper off-peak hours, which reduces the need for expensive peak generation.

Why Heat Pump Owners Benefit From TOU Rates

Here is the part that surprises most people: heat pumps are particularly well-suited to take advantage of TOU pricing. There are three main reasons.

Reason 1: Thermal Pre-Conditioning

A well-insulated home holds heat for hours after the heat pump stops running. This means you can pre-heat your home during cheap off-peak hours and then reduce or turn off the heat pump during expensive peak hours. The house coasts on stored thermal energy.

Example scenario: Your home is well-insulated with blown-in cellulose and comprehensive air sealing. During a January cold snap:

• 6 AM (off-peak): Heat pump runs, warming the house to 72F
• 7 AM - 4 PM (mid-peak): Heat pump maintains 70F. Moderate cost
• 4 PM - 9 PM (peak): Heat pump set to 67F. The well-insulated envelope holds temperature with minimal heat pump operation
• 9 PM (off-peak again): Heat pump brings the house back to 70F at the cheap rate

In a tight, well-insulated home, the temperature drop during a 5-hour peak window might be 2-4 degrees - barely noticeable with a sweater. In a drafty, under-insulated home, the same window might mean a 6-10 degree drop, which is uncomfortable.

This is one more reason why insulation and air sealing matter. They are not just about saving energy in absolute terms - they give you the flexibility to shift when you use energy.

Reason 2: Heat Pumps Are Most Efficient During Mild Weather

Cold-climate heat pumps operate at their highest efficiency during mild temperatures (30-50F), which is also when the grid is least stressed and electricity is cheapest. During the extreme cold events that create peak grid demand, heat pumps are working harder and less efficiently - but these events are relatively rare, accounting for perhaps 100-200 hours per year out of a 4,500+ hour heating season.

The math works in your favor for the vast majority of the heating season.

Reason 3: You Can Schedule Other Loads

With TOU awareness, you can shift other big electrical loads to off-peak hours:

• Heat pump water heater: Schedule heavy heating cycles overnight (most units have built-in timers)
• Laundry: Run the dryer after 9 PM
• EV charging: Charge overnight at the cheapest rate
• Dishwasher: Run on a delay timer to start after peak hours

Shifting these loads amplifies the savings from TOU rates beyond just the heat pump itself.

CMP Rate Structure: What We Know So Far

Central Maine Power has been developing TOU rate options as part of Maine's grid modernization efforts. While specific rate structures are still evolving, here is what the general framework looks like based on proposed filings and utility commission discussions.

Current flat rate (approximate): $0.22-$0.26/kWh

Proposed TOU structure (approximate ranges):

• Off-peak: $0.12-$0.16/kWh
• Mid-peak: $0.20-$0.24/kWh
• On-peak: $0.30-$0.40/kWh

These numbers are illustrative - actual rates will be set through the regulatory process and will change over time. But the spread between off-peak and on-peak is significant enough to create real savings opportunities for homeowners who can shift their consumption.

Running the Numbers: TOU vs. Flat Rate for Heat Pumps

Let us walk through a simplified comparison for a typical Greater Portland home with cold-climate heat pumps.

Assumptions:

• 2,000 sq ft home, well-insulated
• 3-zone cold-climate mini-split system
• Annual heating electricity: ~6,000 kWh
• Annual cooling electricity: ~1,500 kWh
• Hot water (heat pump water heater): ~2,000 kWh

Under flat rate ($0.24/kWh): Total annual cost: 9,500 kWh x $0.24 = $2,280

Under TOU rate (with smart scheduling): Assume 60% of consumption shifted to off-peak ($0.14/kWh), 25% mid-peak ($0.22/kWh), 15% on-peak ($0.35/kWh):

• Off-peak: 5,700 kWh x $0.14 = $798
• Mid-peak: 2,375 kWh x $0.22 = $523
• On-peak: 1,425 kWh x $0.35 = $499
• Total: $1,820

Annual savings from TOU vs. flat rate: approximately $460

That is a 20% reduction in electricity costs for the same amount of energy used. The savings come entirely from when you use the electricity, not how much you use.

These are rough numbers meant to illustrate the concept. Your actual savings will depend on specific rates, your home's characteristics, and how aggressively you can shift loads. But the directional conclusion holds: TOU rates reward the kind of flexible, efficient electricity use that heat pump homes are built for.

What About the "Worst Case" Scenario

The concern that keeps coming up is this: what happens during a brutal cold snap when electricity demand spikes and you need your heat pump the most? Won't you be paying premium rates during the worst possible time?

It is a fair question. Here is the honest answer:

Yes, during extreme cold events, your heat pump will be running during peak hours, and the electricity will cost more per kWh. But there are several mitigating factors:

Duration is limited. Extreme cold events (below -10F) in Greater Portland typically last 24-72 hours, a handful of times per winter. The premium rate during these events is offset by months of off-peak savings.

Pre-conditioning helps. If you know a cold snap is coming (and weather forecasts give you 2-3 days of warning), you can pre-heat your home to a higher temperature during off-peak hours before the event hits.

Insulation is your buffer. A well-insulated home needs less heat pump input even during extreme cold. The building envelope reduces the peak demand that would be subject to the highest rates.

The math still works. Even accounting for peak-rate heating during cold snaps, the total annual electricity cost under TOU pricing is lower than under flat rates for homes that actively manage their consumption. The savings during the other 340+ days of the year more than offset the premium during the 20-25 coldest days.

How to Prepare for TOU Rates

Even if TOU rates are not available in your area yet, here are steps that will position you to benefit when they arrive.

1. Insulate and Air Seal Your Home

This is the foundation. A well-insulated home gives you the thermal mass and heat retention needed to shift heat pump operation away from peak hours. If your home loses 4 degrees per hour when the heat pump is off, you have very limited flexibility. If it loses 1 degree per hour, you can shift entire heating cycles to off-peak periods.

A free energy assessment is the first step toward understanding your home's current performance and where improvements will have the biggest impact.

2. Install Cold-Climate Heat Pumps With Smart Controls

Modern cold-climate mini-splits from Mitsubishi and other manufacturers include scheduling and smart control features that allow you to program operation around your schedule and (eventually) TOU rate periods. Make sure your installer sets up these controls and shows you how to use them.

3. Add a Programmable Heat Pump Water Heater

If you are replacing your water heater, a heat pump water heater with scheduling capability lets you heat water during cheap overnight hours. This is one of the easiest loads to shift because hot water storage acts as a built-in battery.

4. Consider a Smart Thermostat or Home Energy Monitor

Devices that track your real-time electricity consumption help you identify where your energy goes and when. This awareness is the first step toward optimizing your usage pattern.

The Bigger Picture: Electricity Costs vs. Fuel Costs

The time-of-use conversation happens within a larger context: electricity costs versus heating fuel costs. Even under the most expensive TOU peak rates, running a cold-climate heat pump is typically cheaper per BTU of delivered heat than oil at current Maine prices.

At $3.50/gallon for heating oil, the cost of heat delivered by an oil boiler is roughly $0.35-$0.40 per equivalent kWh of heat. A cold-climate heat pump at TOU peak rates of $0.35/kWh delivers 2-3 times more heat per dollar because of its efficiency advantage (COP of 2-3 even at low temperatures).

In simple terms: even if you ran your heat pump exclusively during peak TOU hours (which you would not), you would still likely spend less than heating with oil. Add off-peak optimization, and the economics become very favorable.

Getting Started

Time-of-use rates are coming to Maine, and they represent an opportunity for heat pump owners - not a threat. The homeowners who will benefit most are those with well-insulated homes, smart heat pump controls, and awareness of their consumption patterns.

The foundation is always the same: start with the building envelope, then add efficient electric systems. Schedule your free energy assessment to understand where your home stands today, or call us at (207) 221-3221 to discuss your specific situation.