It’s no secret that utility bills are unpredictable, leaving many people searching for more reliable payment options. Enter budget billing — a potential solution for more consistent monthly expenses.
Don’t let the name mislead you. Budget billing doesn’t mean paying less for energy. Instead, budget billing is when you pay a set monthly amount based on your average energy usage. This method smooths the highs and lows of energy bills, but you may need to plan to pay for additional energy usage at the end of your contract.
“Like with any utility bills, if you don’t pay, you could get disconnected and have your electricity shut off,” said Jenifer Bosco, senior attorney for the National Consumer Law Center. “Budget billing does not protect you from that, you still pay the money you owe.” However, budget or level billing offers a more predictable planning tool to manage monthly energy expenses.
Here’s how it works.
What is budget billing?
Budget billing, also known as level or average monthly billing, provides predictability even when usage is higher. This helps relieve the shock of high electricity and gas bills. Instead of paying a rate for each kilowatt-hour (kWh) of energy used per month, your utility company charges a set amount each month based on your average energy usage from the previous year or two.
“If you want to sign up for budget billing, contact customer service and ask if the program is available. The utility company estimates how much the electric or gas bills for the year will cost, then divides by 12. So you pay the same amount every month for the utility bill, even if your usage actually goes up or down,” Bosco said.
Depending on the utility, the cost will be updated monthly or quarterly based on your usage. You’ll receive an alert for the updated amount you owe. At the end of your contract term, if your energy usage exceeds the amount you’ve paid, you must cover the additional usage costs.
For example, if your electricity rate is 15 cents per kWh and you use a monthly average of 1,000 kWh, your cost is $150. If your actual electricity usage exceeds 1,000 kWh per month, you will owe the utility company the difference. However, if your usage was less than what you paid for, you might receive a credit or adjustment from the utility company.
Does budget billing save money?
Level billing is not a discount for electricity. In the short term, it may seem like you are saving money, but long term, you are still paying the same amount.
“It’s not really a way to save money. It’s more a way to help a family budget their energy expenses during the year,” Bosco said. “Evenly spreading energy payments is helpful for some families, but for low-income families, there are more helpful programs available.”
While budget billing may not directly reduce the total amount spent on energy, it can save money in other ways. For example, it may help you avoid late payment penalties or the risk of disconnection due to missed payments.
Budget billing pros
Though budget billing doesn’t save money on electricity costs, there are potential benefits to choosing this payment option.
Predictable monthly payments
Paying a fixed amount each month for utility expenses makes it simpler to plan a monthly or yearly budget, especially for households on a fixed income or tight budget. Instead of being surprised at how much you owe, having peace of mind about utility bills provides more financial confidence and control. By monitoring your energy usage throughout the month, you can reduce the risk of significant charges for extra usage.
Avoid seasonal energy bill spikes
During extremely hot or cold seasons, you typically use more energy due to air conditioning or heating to keep a comfortable indoor temperature. More energy usage means higher utility bills during these seasons than during mild-temperature seasons. With budget billing, you won’t have higher or lower bills: Instead, you pay the same amount each month.
Reduced risk of late payments
It’s easier to prepare and plan your finances when you know how much you have to pay each month. With a clear payment plan, you’re less likely to miss payments due to financial constraints or other circumstances. No missed payments mean no late fees and may result in a credit score boost.
Budget billing cons
While there are benefits, consider the drawbacks of average monthly billing before deciding if it’s right for you.
Potential overpayment or underpayment
At the end of your contract term, you may have overpaid or underpaid for electricity. If you overpaid, the excess funds may be used as a credit for future bills. If you underpaid, you have to pay the difference. Monitoring energy usage every month can help you reduce the chances of over or underpaying.
Limited availability
Budget billing is not provided by every utility company and some may have eligibility criteria or restrictions on who can enroll in the programs. If budget billing is not an option for you, ask your utility about other available programs.
Rate adjustment periods
Utility companies will recalculate your average usage to determine your monthly rate. Some companies recalculate every month while others make quarterly updates. While these adjustments aim to align your payments to your actual energy costs, they can lead to unexpected increases in your monthly expenses.
Are there other similar options?
Yes, alternatives are available and usually support low or moderate-income households. For example, states like Massachusetts and Connecticut offer arrearage management plans (AMP). While budget billing aims to provide stability and predictability in monthly expenses, rate adjustments may lead to fluctuations in payment amounts, making it difficult for low-income households to budget effectively.
“Arrearage plans are an option for income-eligible families to save money and try to catch up on overdue bills. It is basically a budget billing program that helps repay overdue utility bills. Every bill is the same amount and for every on-time payment, a portion of past due bills are forgiven or canceled,” Bosco said.
AMPs can offer relief by providing income-eligible families with a structured repayment option for overdue bills. Utility companies, like National Grid, forgive up to $12,000 per year, providing significant financial relief to eligible families. Availability and eligibility may vary, but you can always contact your utility company to determine similar plans or discounts offered.
The bottom line: Is budget billing right for me?
Whether budget billing works for you depends on your preferences.
“It’s truly an individual choice and you know, it’s your household. If it’s important to have predictable bills that are pretty similar every month because that’s how you budget your money then it might be the right option as long as you are prepared to pay any additional amount at the end,” said Bosco. “If it helps avoid having a few months with extremely high bills and reduces the risk of having your utilities disconnected, then it’s worth considering.”
If lowering the cost you pay for electricity is your main goal, there are better other options. Search or inquire about financial assistance programs, rebates, or discounts from your utility company, or local, state and federal governments. If you live in a deregulated energy market, a low fixed-rate plan may provide more savings.
At the end of the day, high power bills are a result of high consumption. That’s what you should target if you’re looking to save money. Consider things like getting a home energy audit, turning down your water heater, unplugging appliances when you’re not using them and changing your air filters.
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