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Financial Education for Everyone

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March 25, 2016

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?

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

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.


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.


  • 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.
  • 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.

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.


