Many energy companies offer a billing plan that allows you to pay a set amount every month, rather than pay for the exact amount of energy you used that month. This is known by various names, but I will call it Average Billing (AB).
When you sign up for AB, the company looks at the history of the usage on the account and calculates your monthly payment. At the end of the year (or at some point during the 12 month cycle), they look at your actual use versus your estimated use and you either have an extra amount due or you end up with a credit on your account. So you still pay for the energy you use, just not right when you use it.
Make sense?
This type of billing is AWESOME for budgeting. You know what you have to pay every month. Of course, there is that month where your estimated use and your actual use are compared and you could owe a bit more, but for the other 11 months? Awesome.
For me, the downside is the lack of instant gratification. What do I mean by that? Well, what about the months when I manage to save a bunch of energy? What if I decide to turn down my thermostat in the winter by a few degrees? I won’t see the results of that on my bill. Will that make me less likely to do it? And along the same lines, while I won’t get a crazy high electric bill after the first month that I run my air conditioner in the spring, seeing that bill might be what gets me to change the temperature settings to a more cost-effective level.
Another big downside that has been talked about here locally in recent weeks is that because we had a ridiculously cold winter, everyone on an AB plan will have owe a good chunk more when the recalibration hits.
My home has gas heat and electric cooling so in the winter, my gas bill is high while my electric bill is relatively low. In the summers, my gas bill is essentially just fees (under $15) while my electric bill runs high. I reset all of my YNAB budget categories this year and am going to try to figure out what I spend on average on gas and electricity per month and see if I can’t reduce that for the years going forward.
Of course, when we have a ridiculously cold winter or a ridiculously hot summer, there’s not a lot I can do. I do adjust the temperatures so I’m not wasting money, but I also am willing to scrimp elsewhere if it means that I can sleep comfortably without waking up either shivering or sweating depending on the time of year.
Does your energy company offer this type of plan? Do you participate? Why or why not?
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
Our company offers this but we don’t participate. I am not willing to pretty much “lend” my utility company money based on my typical usage. I’ll pay for what I used. It’s also much easier to see what is going on with my house utility wise: leaks, insulation failing, dryer vent clogged etc. I understand that the same bill every month is a good budgeting tool, but frankly I don’t trust the utilities to not make math errors in their favor and then getting any money back is impossible.
You make a very good point that I hadn’t considered! Energy leaks, other problems… something that would definitely be missed with a budget billing plan.