Budget Billing 101: How to Master Utility Payments With Level Billing
Budgeting conjures visions of a monthly pile of bills — the mortgage, car payments, credit card balances and, of course, utilities.
While some monthly payments are predictable, utilities like electricity, gas and water are based on usage and can swing wildly from season to season. And an unpredictable monthly payment can make it challenging to plan and stick to a budget.
Residential consumers in the United States pay on average $316 to $391 per month for essential utilities, according to an analysis by move.org. And around $538 to $613 when you add in phone, internet and streaming services.
Those averages for basic utilities vary as we water plants in the summer and run the AC, then switch to natural gas for heat in the winter. Extreme weather events, like a heatwave or snowstorm, can drive monthly energy costs above average throughout the year, too.
To help customers avoid those shifts, many utility companies offer something called budget or levelized billing where you pay the same amount every month, regardless of your usage.
How Does Budget Billing Work?
A budget billing plan allows residential customers to have a set payment amount each month for utilities like electricity or natural gas. Instead of paying $85 for electricity in the winter and $115 in the summer, you might pay $100 every month.
Most utility companies base the budget billing payment on average energy usage over the past year. If you haven’t lived at your current home for a year, the budget bill amount is based on the previous resident’s usage.
At the end of the year, if your actual energy costs are greater or less than anticipated, your final budget billing amount is adjusted to make up the difference.
You should definitely still keep a close eye on your energy usage though, especially during the first year.
“A major drawback can be if the utility company overestimates your usage and you end up paying more per month,” says Danetha Doe, chief economist at Clever Real Estate and the creator of Money & Mimosas. “Usually, there is a credit at the end of the year if you did end up overpaying, but anecdotally, I’ve heard that sometimes it can be hard to get refunded.”
Budget billing flattens the peaks and valleys of energy costs and provides a set monthly budget amount for utilities, but there is no guarantee it’ll stay static for the year. Energy companies often adjust payments quarterly after reviewing actual usage patterns.
Utility providers that offer budget or levelized billing typically require residential customers to pay any outstanding balance on the account from the last billing cycle before they’re eligible to enroll.
Some companies charge a small fee for budget billing or require at least a year of service at the current address. Given these caveats, you should pay attention to the fine print and review the details before committing to any billing changes.
Can Levelized Billing Help You Save Money?
Budget billing or levelized billing isn’t a discount program, and it doesn’t reduce your utility costs, but it does level your average monthly payment.
So while a budget billing plan won’t technically save you money now, it could improve your ability to stick to a budget and give every available dollar a job, which helps you save money long term.
“Anytime you can smooth out expenses, it makes them easier to predict and plan for. You can get off the rollercoaster and have smooth sailing,” says Rob Bertman, a certified financial planner and chartered financial analyst who founded Family Budget Expert.
But don’t expect smooth sailing right away. Your payment may still fluctuate at first.
“If you start billing in an expensive month for utilities, you don’t really see a break in your bill until the actual cost goes down,” he says. “If you start in a lower utility bill month, your monthly payment amount will be higher than normal to start.”
Before opting into budget billing, Bertman advises adding a little extra cash cushion to your budget to even out the bumps in your energy costs.
Also, ask questions about how the payment is calculated, what happens if you move or cancel service and if any fees are associated with starting monthly budget billing.
You could save money on utility bills by decreasing your usage and increasing efficiency though. Here are 25 ideas to lower your electricity bill.
Is Budget Billing Right for Me?
Even if budget billing doesn’t save money on your energy bills, some benefits make it worth considering.
“The benefits are the ability to plan out your expenses and budget more effectively,” Doe says. “Otherwise, without utility billing, your utility bill can fluctuate wildly from month to month, making it difficult to plan out your finances.”
Doe also cautions homeowners considering energy efficient improvements to be wary when starting monthly budget billing.
“Utility billing may not be a good fit for homeowners who are thinking about adding solar panels, or other energy-efficient solutions, to their home because the consumption calculation would not be accurate,” she says.
Here are a few other pros and cons of budget billing to consider:
- Easier to manage monthly budgeting
- Steady auto-pay payments
- Less stressful monthly bill
- A small fee may apply
- Less attention to actual usage
- Some overpayment and underpayment risk
- Account may have to be current to qualify
Budget billing for utilities is a great strategy for anyone on a stricter budget or worried about late payments affecting their credit score. If those concerns aren’t top of mind or your utility bills don’t fluctuate much, budget billing may not be right for you.
Fortunately, levelized billing — like other billing options — is usually part of a free program, so you can give it a try for free. If you want to stop budget billing, it’s typically as easy as picking up the phone or accessing your account online before your next bill arrives.
Be aware that leveling your utility bills can have hidden impacts on your usage. When your bill is always the same, higher energy consumption can creep up on you. So if you tend to turn down the heat after that eye-popping gas bill arrives, you may want to keep those bills coming just as they are.
Bertman says this drawback of budget billing can also be a benefit.
“If you feel like you don’t like to look at the swings in utility bills between spring and summer, signing up for it could take one more stressor off your plate,” Bertman says.
Which Utility Companies Offer Budget Billing?
We can’t create an exhaustive list of every utility or electric company that offers budget billing. However, here are some of the regional power and gas companies that offer budget billing or equal payment programs at no cost to residential customers.
How to Set Up Do-It-Yourself Budget Billing
You can practice budget billing at home even if you don’t or can’t utilize level billing through your service provider. Simply add up the past year’s bills for each utility, average the cost out and set aside that amount each month — plus a little extra as a buffer — to cover your utility payment.
Think of it as a sinking fund of sorts but for utilities. You add $100 a month to your utility budget category whether your bill is $85 or $115.
Even if budget billing doesn’t fit the bill for your finances, there are other ways to reduce your energy costs and monthly usage. Like investing in a smart thermostat or asking your service provider or local government for a free energy audit.
Kaz Weida is a senior writer for The Penny Hoarder.