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. In addition, 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:
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.
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.
This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.