The demand for electric power varies over time. Demand is typically higher in the middle of the day than it is in the middle of the night. Demand also varies seasonally and ultimately, within the peak seasons, it varies with weather. Typically, the top one percent of the hours in the year account for more than ten percent of annual peak demand.

Because electricity cannot be stored economically in large quantities, it has to be consumed instantly. Thus, to meet the time-varying pattern of loads, sufficient generation capacity has to be online and available at all hours of the year to ensure that the lights stay on. In particular, to meet demand during the top one percent of the hours of the year, peaking generation capacity that runs very infrequently must be available. The cost of supplying electricity also varies by hour, depending on the operating costs of the generation units. However, few end use customers see this time variation in their electric rates. Most of them see flat rates, which provide them no incentive to use less energy during peak times when power is very expensive and to use more during off-peak times when power is comparatively inexpensive.

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