How Does Average Billing Work for Your Utility Bills?
Explore how average billing works to provide consistent utility payments, making it easier to budget and manage your household expenses.
Average billing, also known as budget or levelized billing, helps utility customers manage monthly expenses. This approach stabilizes the amount paid each month for services like electricity, gas, or water, offering a more predictable payment schedule. It contrasts with traditional billing, where monthly charges fluctuate directly with actual consumption.
Understanding Average Billing
Average billing smooths out seasonal fluctuations in utility consumption and costs. Customers pay a predetermined, consistent amount each month, avoiding unexpectedly high bills during peak usage periods like extreme summer heat or winter cold. Average billing does not reduce total energy costs; it spreads them evenly over the year.
The core principle involves paying an amount that reflects an average of past consumption, not the precise usage of the current cycle. This approach makes budgeting easier by providing a stable expenditure for utility services. While the monthly payment remains steady, customers are accountable for the actual amount of energy used over the entire billing period. The difference between the fixed payment and actual usage charges is tracked and reconciled periodically.
How Your Average Bill is Calculated
Utility companies determine the monthly average bill amount by reviewing a customer’s historical energy consumption. This calculation involves summing up the past 12 months of utility usage, measured in units like kilowatt-hours (kWh) for electricity. The total historical usage is then divided by 12 to arrive at an average monthly usage figure. This average usage is multiplied by current or projected utility rates to establish the monthly payment amount.
For new customers without a full 12-month history, utilities may use prior occupants’ data to set the initial average bill. Some providers periodically adjust the average amount throughout the year, such as quarterly, if usage patterns change substantially. This adjustment helps prevent a significant accumulated difference between payments and actual consumption. The monthly bill amount can still fluctuate slightly as the calculation is re-evaluated with the most recent usage history.
The True-Up Process
The true-up process, also known as settlement or reconciliation, is a key component of average billing programs. This process involves the utility company comparing the total amount paid through consistent monthly average bills against the actual cost of consumption over a specific period, typically a 12-month cycle. The comparison reveals whether the customer has overpaid or underpaid relative to their actual usage. This difference is known as a deferred balance.
If a customer has paid more than their actual consumption, they receive a credit. Conversely, if actual usage costs exceeded payments, they will owe an additional amount. The settlement of this balance can occur in several ways, such as a one-time charge or credit on the final bill of the true-up period, or by rolling the balance into the calculation for the subsequent average billing cycle. Some utilities may allow customers to pay off a debit balance through a payment plan.
Factors Affecting Your Average Bill
While average billing aims for payment stability, several factors can influence the calculated monthly amount and eventual true-up balance. Significant changes in a household’s actual energy consumption can lead to average bill adjustments. For instance, adding new major appliances, changes in occupants, or home improvements affecting energy efficiency can alter usage patterns. Such changes mean historical data used for calculation may no longer accurately reflect current needs.
Substantial shifts in utility rates, whether increases or decreases, also directly impact the average bill amount. Even with consistent usage, a change in the per-unit cost of electricity or gas necessitates a recalculation of the average payment. Extreme weather patterns, such as hotter-than-average summers or colder-than-average winters, can lead to higher consumption exceeding the historical average, contributing to a larger deferred balance at true-up. These external elements show the average bill is dynamic and subject to periodic adjustments to reflect underlying costs.