Is Average Billing for Electricity Worth It?

Electricity bills often fluctuate significantly throughout the year, primarily due to seasonal changes in energy consumption for heating and cooling. These variations can make financial planning difficult for many households. To address this unpredictability, utility companies frequently offer a program known as average billing. This system aims to stabilize monthly electricity payments, providing consumers with a more consistent bill amount. This article will explore how average billing functions and its implications for household finances.

Understanding Average Billing

Average billing, also referred to as budget billing or balanced billing, is a system designed to smooth out electricity costs over a full year. Rather than paying for exact monthly usage, which leads to widely varying bills, customers pay a consistent amount. This consistent payment helps to mitigate the impact of high-usage periods, such as extreme summer heat or winter cold, on a household’s immediate budget.

The monthly payment amount in an average billing plan is typically determined by calculating a rolling average of the customer’s electricity usage and associated costs over the past 12 months. This average is then multiplied by the current electricity rate to establish the monthly bill.

The average billing amount is not a fixed rate and can adjust periodically. Utility providers recalculate the average monthly bill, often monthly or quarterly, to reflect changes in actual consumption and current electricity rates. Many providers also incorporate a portion of a “deferred balance” into the monthly calculation. This adjustment ensures the monthly payment remains reflective of ongoing usage patterns while maintaining predictability.

Impact on Household Budgeting

Average billing significantly impacts household budgeting by providing a predictable monthly utility expense. This consistency allows consumers to allocate a fixed amount for electricity costs each month, simplifying financial planning and reducing the stress associated with unexpectedly high bills during peak usage seasons. The stability in payments can be particularly beneficial for individuals managing tight or fixed incomes.

While monthly payments are stabilized, the total annual cost for electricity remains directly tied to actual consumption. Average billing does not reduce the overall amount paid for electricity over a year; it merely redistributes the cost more evenly. The difference between the average payments made and the actual cost of electricity consumed accumulates in a “deferred balance,” representing either an overpayment or an underpayment.

Utility providers periodically reconcile this deferred balance, often annually or at the end of a contract term, in a process commonly referred to as a “true-up.” During this reconciliation, if the customer’s average payments exceeded their actual usage, they may receive a credit on their account or a refund. Conversely, if actual usage was higher than the average payments, the customer will owe the utility the outstanding balance. This reconciliation ensures that over the long term, customers pay for precisely the amount of electricity they used, regardless of the monthly payment structure.

Assessing Personal Suitability

Assessing personal suitability for average billing involves several factors. For those who prioritize predictable monthly expenses over fluctuating ones, average billing can be a beneficial tool for managing household finances. The consistent bill amount can simplify budgeting and reduce financial surprises throughout the year.

A household’s energy usage patterns are also a relevant consideration. Customers with highly seasonal consumption, such as those experiencing very hot summers or cold winters requiring extensive heating or cooling, might find average billing particularly appealing as it smooths out the peaks in their bills. However, individuals with relatively consistent usage year-round may experience less dramatic fluctuations and might not find the benefits as pronounced. A predictable bill might also lead to less vigilance regarding energy conservation, potentially increasing overall usage and the deferred balance.

Comfort with annual adjustments and financial discipline are important. While monthly payments are stable, consumers must be prepared for a larger reconciliation bill if their actual usage consistently exceeds their average payments. Conversely, they should be comfortable with receiving a credit if they consistently use less. Maintaining awareness of the accumulating deferred balance by reviewing monthly statements can help prevent surprises at reconciliation.

Enrolling in or Exiting Average Billing

The process for enrolling in or exiting an average billing plan typically involves direct communication with the utility provider. Customers can generally initiate this process through various channels, including contacting customer service via phone, utilizing an online portal on the utility’s website, or visiting a local office. Many utility companies offer this service without an additional fee.

Utility providers often have specific eligibility requirements for participation in average billing. Common criteria may include being a customer for a certain period, such as 6 to 12 months, to establish a usage history, or maintaining a good payment history without significant delinquencies. When enrolling, customers may need to confirm their understanding of the program’s terms, including the reconciliation process and how the deferred balance operates.

If a customer decides to exit an average billing plan, a similar process of contacting the utility provider is typically required. Upon exiting the plan, any accumulated deferred balance, whether a credit or a debit, will be reconciled. If a debit balance exists, the customer will be responsible for paying the outstanding amount, potentially in a lump sum, or arranging a payment plan with the utility. If a credit balance is present, the utility generally refunds the amount or applies it to future bills if the customer remains with the provider.