Time-of-Use (TOU) rates help reduce the demand for electricity during “peak” times of the day when it costs the utility company more to purchase that power.
The principle is simple. Demand for electricity varies during the day. It is usually lowest in the middle of the night when most people are sleeping and commercial/industrial buildings are not in operation, and it is highest from about noon to 9 p.m. when most of us are working, cooking, watching TV, running the dishwasher, etc. Very hot and very cold days also make a big difference (more power is required to run air conditioners or heating systems).
What TOU rates do is reflect that reality into electricity prices to create incentives that encourage people to use less electricity when demand is highest and more electricity when it is lowest. The total amount of electricity used could be the same, but the peaks will be lower and the valleys won’t be as deep. This is in opposition to flat rates (same price throughout the day), which does not make it any more expensive to use power during peak time, leading to huge peaks.