The Hidden Flaw in Utility Budget Billing

Got another one last month, as I opened the highest Georgia Power bill ever. A little flyer fluttered out to remind me how much I could save and how I could avoid surprises by just signing up to their “Utility Budget Billing” plan. Here’s the hook (my power bill sins for the past year):

  • January $110
  • February $100
  • March $128
  • April $104
  • May $159
  • June $188
  • July $186
  • August $179
  • September $162
  • October $88
  • November $80
  • December $101

Ah, the joys and security of knowing exactly how much I’m going to pay for the privilege of having air conditioning! “With Utility Budget Billing, you say goodbye to those peaks that can really hit your budget the hardest,” they promise, “because now you’re paying approximately the same amount each month, based on an average of your previous 12 months’ electrical usage.”

The Hidden Flaw in Utility Budget Billing
The Hidden Flaw in Utility Budget Billing
Managing utility bills with equal payments throughout the year sounds like a great idea at first — the utility company charges you a set amount each month so your budget won’t be bludgeoned by gigantic heating bills in winter or cooling costs in summer.

It all balances out because your bills are averaged over the year using the previous year as a guide.
Too good to be true, right? Damn right.

This is yet another version of that old gamble by a consumer and a provider. All the hype makes it seem you are getting over on them, pulling a fantastic scam on them, getting your services for less than what they should bill you.

But Does it Really Work?

Not exactly. Equal monthly billing sometimes brings financial surprises, the very thing it’s supposed to help you avoid.

Suppose you use more than the monthly average of the total. That monthly average is based on what you actually paid the year before you began their program. And the utility company might not tell you this interesting bit of news until the end of this year.

So comes December, just as taxes and holiday spending are slamming your budget, suddenly you get a bill for several hundred dollars extra, or worse. In other words, with budget billing plans, even if you pay your monthly bill in full, you can still incur debt.

“When you’re on utility budget billing, if you’re paying $300 a month, then at the end of the year, you might owe them $600,” explains Lisa Brinkley of Poughkeepsie, N.Y.

On her plan, “you either have to pay that $600 in full, or you can take that $600 and divide by 12, and you pay if off slowly.” And that is in addition to the regular monthly “budgeted” billing.

Brinkley thinks of equal monthly billing as a short-term fix for rising costs. “They’re temporarily helping me,” she says. “Then at the end of the year — boom! — it’s going to go up again.”

Beware The Debt Cycle

The cycle kicks in this way. Your previous (base) year average is, $221.72. You pay $220.00 a month. At the end of the year, suddenly your average has jumped up to $388. But you can’t pay the $168 dollar difference, so they offer to roll the $14 over into your monthly billing. But now they’ve adjusted your budgeted bill to $375; you’re paying $389. That year turns out to be a scorcher and the average has now climbed to $425, so you’re short again by $36 or $3 more a month on top of the new budgeted bill of $420.00 You’ll never get caught up unless there is a Second Ice Age.

Combat surprises by asking lots of questions when you sign up for any budget plan, consumer advocates say.

“Find out how often that payment will be reset,” says Ken McEldowney, executive director of Consumer Action in San Francisco, “and what will happen at the end of the year. Will there be a balloon payment?”
If you are on a plan, remember that not every company adjusts your bill regularly — so call and ask for a detailed update.

“Monitor the ongoing progress of your equal payment plan,” says Barbara O’Neill, financial management specialist at Rutgers University Cooperative Extension, and author of “Saving on a Shoestring.”

“There is usually a summary of usage and payments on every billing statement,” O’Neill says.
If you can’t figure out how your bill is computed, call the utility. A representative should be able to tell you how much you actually are using, and how much you owe or are owed. So call often, and if it looks like you’re going to owe some serious cash, start planning. One of the surest ways to avoid a surprise is to learn how to read your own meter and compute your bills as you go along. That way, too, you can catch any errors that show up in the monthly statement. Every state is different — so watch out.

“It’s entirely state-regulated,” says McEldowney. “Late fees differ from state to state, and the fees for balanced billing differ from state to state.” But don’t be afraid to call the regulators if you think there is something wrong. They can either help you understand, or they can investigate to see if everything is copacetic.

And – surprise! –there can be charges to use equal monthly payment billing services. Some utilities charge you for averaging out your bill, so instead of saving money, you might be paying more for gas and electric.

Another Solution

And I like this suggestion: Compute your own mean. Then in your personal budget set aside that amount. When the actual bill comes in, pay it, and put the difference you’ve budget aside to a savings account or some special project. That way you make the adjustments yourself and not have to pay someone to do it.

This is an excellent strategy, especially if you use the “envelope” budgeting strategy. You put $225 in the envelope for electrical service, but only have to take out $190 to pay the bill. The extra $35 goes to the bank.

And learning to read a meter is not complicated. Most utility companies have website instructions for you. Or you can get to know your meter person and have them teach you. But with the advent of “smart meters,” the monthly visits may be a thing of the past. Remote reading of meters seems to be the wave of the future.

Have you ever had experience with utility budget billing? Was it a favorable experience for you? Would you recommend it to others? What were the biggest advantages and the worst disadvantages you experienced?

( Photo by KOMUnews )

2 Responses to The Hidden Flaw in Utility Budget Billing

  1. Bill, a very interesting article! I don’t think I have ever used this program but know people who have. My view on this whole thing is “manage” your own. And by this I mean when I was in Florida, I was able to cut down on my air conditioning use with ceiling fans. Yes they work. Now I am in Virginia and have no idea how I am going to do it/lol. They say ceiling fans can be reversed to increase the effectiveness of your heat. To be honest, I dream of having fireplace which I know requires work on my side – but it does offer an alternative to the high heat bills. I rather cut back as needed rather than leave it in the hands of someone else. Thanks for the insight into this program – much appreciated just in case I run into someone who is thinking about using it. Knowledge is power in life….

  2. I use level payment for my Con Ed bill because it helps my budget but I don’t get that big extra bill at end of cycle because I beat them using a my way to pay. I keep track of what my actual usage and cost is and I have records of actual usage. I take a 12 month list of bills actual usage add them up and divide by 12 and come up with a real usage bill average for the month. I pay this amount which is slightly more than my level payment and wind up with a cushion of extra payment so final payment for the year is not more but less. You have to really read yo ur bill to understand actual usage. I usually use more electricity in the summer because of the air conditioning running (humidity is too high not to use it)and in winter the gas usage is higher because of more use of oven. My biggest peeve is the fee for gas usage in the summer when I barely use stove or oven.

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