Is a Budget-Billing Plan from Your Utility Company a Good Idea?

During a particularly cold winter or hot summer, you open your utility bill with a sense of dread. Is it time to consider your utility company's budget-billing plan?

Maybe so, but do your homework first.

Here's how a utility company's budget-billing plan generally works. Your chosen utility company considers your energy usage patterns over a given period, adds in projections for their wholesale energy costs and your region's future weather patterns. Based on those calculations, your utility company comes up with an average monthly payment that allows a customer to even out monthly utility payments over a specific time period, usually a year.

It may sound good, and for many customers, it adds some stability to their monthly bill payments. However, here's where a budget-billing plan can go wrong. If you see that fixed monthly payment and think you don't have to watch your energy usage at all, think again. After all, your utility is still reading your meter and you might be in for a rude awakening when your budget-billing period ends. You might owe extra money.

Here are some questions to ask before you sign up for any budget-billing plan:

How well do you understand your current bill? Every utility company designs its bills somewhat differently based on state regulations and the type of energy product being sold. Depending on the community, a variety of utility companies might be competing for your business. Still, many of us rip open our gas, electric or other energy bills without understanding the basics of what we're being charged and why. But it's important to try. It makes sense to study your local utilities company's charging practices in general – including those specific to competing providers. Also, if there are qualified energy advocacy groups in your state or community, see whether they offer any specific advice on local utility company practices and how to keep your cost of service low.

Evaluate the budget-billing plan closely. Ask the following questions:

• What happens if my actual utility costs exceed the amount I'm paying each month on my billing plan? As mentioned, your utility company will continue to measure your usage on its metering system. If your usage exceeds that budget estimate for any reason, you could face what amounts to a balloon payment covering what you still owe at yearend. If so, your budget-billing plan could put you in debt.
• Are there monthly or annual fees in connection with this plan? What are they and what do they cover? Paying anywhere from $5 to $10 a month to be on a "budget" plan should give you pause. Understand any and all fees before you pay them.
• What factors go into setting my monthly average? How many years of payments go into that calculation, and what other factors apply to set the amount you want me to pay? In the way many normal utility bills can be a mystery, so can your budget-billing payment. See how well your utility can explain how they would set your bill.
• If my budget bill and actual utility cost are getting seriously out of whack, do you let me know, or is there a way I can check that? If your budget-billing payment is actually putting you in the red due to a cold or heat snap or some other factor, it's best to know that before the end of your term.
• Are you building any weather forecasting into my budget-billing estimate? Are you projecting any weather extremes in the coming year?
• Say I manage to come in under your monthly budget-billing estimate. Do I get my money back?

 

Consider an alternative – your own budget plan. Locate your bills for the last year or two and average your payments, plugging them into your monthly household budget. On the months where your costs come in below your average, deposit the difference into a savings or money market account to cover future months where there could be overages. It's clearly an experiment – after all, no one knows whether the years ahead will bring mild or ferocious weather or how world events might affect wholesale energy prices. But you'll be in control of every dime and potentially earning a little interest on anything you don't spend. Your utility's budget plan probably won't do that for you.

Bottom line: Utility budget-billing plans might be a good idea for homeowners and renters who want a little more predictability in their monthly payments. But before you sign, you really need to understand how your utility company's plan works.