Should You Use Budget Billing For Your Utilities?

utility budget billingHave you ever heard of budget billing? I may be the only one, but I had never heard of budget billing until I saw it on my electric company’s website. Basically, budget billing smooths out your bills over a period, normally twelve months, so that you don’t have high bills in the summer (or winter) and low bills in the spring and fall. Instead, you have one steady bill that is occasionally adjusted if your 12 month average bill amount changes.

Initially, I thought that it was just a way for my electric company to charge me an extra fee for smoothing my payments. I figured they wouldn’t be offering a service that creates more work for them for free. On the surface, it looked like the electric company was offering a valuable service at no extra cost. It almost sounded too good to be true. So, I did some further investigation to see if I was missing anything. Here’s what I found out.

Budget Billing Really Is Free!

My electric company really does offer budget billing completely free! Now, I can’t say that all budget billing scenarios for all utility companies are free, so make sure you check with your particular company. However, after a bit more thought it does make sense why utility companies would offer this service for free.

According to a 2011 survey by the National Foundation for Credit Counseling 64% of Americans didn’t have enough cash on hand to cover a $1,000 emergency. Hopefully you have an emergency fund of at least $1,000, but clearly most Americans don’t even have that! So what does this have to do with utility bills? If someone can’t come up with $1,000 in a pinch, what makes you think people can handle an unexpectedly high power bill for a hot summer month of air conditioning or a freezing cold month in Minnesota?

Budget billing helps these people smooth out their utility bills so they know how much money to expect to pay every month. This helps the utility company out because it means there is a higher chance of people paying their bills on time. Utility companies can spend less time chasing people trying to collect money. Utilities can quit wasting time turning customers’ utilities off which saves them money as well. It benefits both the utility companies and the customers to offer this service.

How Does Budget Billing Work?

My utility company monitors my twelve month rolling average bill and as long as the average doesn’t vary drastically, they keep my bill the same. Whenever they need to make a change, either up or down, they let me know a month in advance so I can prepare for the change. If I ever need to close my account, I’ll either have to pay the small amount I may owe the company due to monthly variation or the electric company will send me a check for what they owe me.

Is Budget Billing A Good Option For You?

I’ve thought about budget billing for a while because I was determined there was a catch, but I simply can’t find it. I don’t see any huge reasons why anyone wouldn’t like budget billing. It smooths out your bills so that you know what to expect every month. There aren’t any surprises during high use months which is great. Even though I can pay my bill every month no matter how high it is (within reason) I think I’ll give budget billing a try so I don’t have to wonder what my bill will be each month.

There were only three small negatives I could think of. If I quit making payments my utility company can kick me off of the budget billing program. In fact, they can end it for any reason they like. I’ll always make my payments, so this isn’t a big deal for me.

The second small negative is that I may no longer pay as much attention to how much electricity I use. Right now, I check our online portal a couple times a month to monitor our usage to see how big our bill is so far. If I quit paying all attention to my bills, I do see how my bill could creep up, but I always read all of my bills in full every month.

Finally, if I reduce my usage I may end up overpaying my electric company for a few months. I’d essentially be giving them an interest free loan, but it’d be on a very small amount of money that wouldn’t make a big difference to me. In the end, it will all balance out.

Overall, I think budget billing is a great option if it is free. Do you use budget billing? Is it even an option for you? I want to know about your thoughts on budget billing!

Picture by: AnthonyStoro Text added by: Lance Cothern

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. We’ve been doing this for several years now. I like it for the consistency it brings to the monthly budget. No more crazy up and down months, which I felt were more difficult to manage.

  2. I was actually just thinking of doing this after I got my insane gas bill this month. It was seriously $200 more than my last bill! I need to get on this.

  3. I’ve never actually been in a situation in which I have to “pay” my utilites. I always have found a way to work into my rental agreement that they are covered, usually at the owners cost. If not, I find another place to live. It has always been a great way for me to lessen the bills and lessen the heartache of those hot summers and cold winters.

  4. alma gideon says:

    I had budget billing for both my heating and utility bill for years, it made it so there was no ups and downs. If your H/U doesn’t offer it or if you want to have more control over it you can do it yourself. I set up and have followed a strict but changeable budget for years. I pull all my monthly statements from all my accounts. I transferred the actual bills onto a spreadsheet application. I discovered that usually in May – Jun were my lowest months. I then went back 12 months and calculated an average charge per month. I put that into my checking/savings account starting in May. Gives me a little interest but also keeps me more aware of my usage since I see the actual bill rather than a average on the bill. That helps me adjust my thermostat or encourages me to turn off unused appliances or electronic equipment when not in use. It also gives me a little buffer to meet minor emergencies along the way. The summer payments are usually manageable with the savings. Just a thought.

    • That’s another great way to do it Alma. Thanks for sharing so everyone who doesn’t have budget billing available can do it themselves. I might even do this if interest rates ever increase above the paltry 0.85% I’m getting now.

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