Is Average Billing for Electricity Worth It? A Detailed Analysis

Explore whether average billing can simplify your budgeting by smoothing out monthly electric bills based on yearly usage.

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Is Average Billing for Electricity Worth It? A Detailed Analysis
Kendra Aquino By Kendra Aquino
Fact Checked
Dan Schilens By Dan Schilens

Ever stared at your electric bill, puzzled by the fluctuating costs from month to month? The unpredictability can make budgeting feel like guessing how many jellybeans are in a jar. One solution offered by many electricity companies is average billing. But is it worth it? Let's dive in.

Understanding Average Billing and How It Works

Average billing, also known as balanced or budget billing, helps smooth out your monthly payments. Instead of paying for the exact amount of energy you use each month, your provider calculates an average based on your historical usage and current rates.

The Purpose of Average Billing

The goal is to provide more predictable electricity costs. It’s especially beneficial for those with fixed incomes or strict budgets, helping them avoid sudden high energy costs during peak months like summer or winter.

How Electricity Providers Calculate Average Billing

Providers consider several factors to calculate your average monthly bill:

  • Historical Usage: Your energy consumption over the past year.
  • Current Prices: Your contracted rate or projected prices for the upcoming year.
  • Weather Forecasts: Expected weather conditions that may increase or decrease your prior year’s  energy use.

These factors help providers estimate an average monthly payment, smoothing out fluctuations in your bills over the year.

The Role of Deferred Balance in Average Billing

Average billing estimates your monthly payments based on past usage, but actual energy use can vary. This creates a deferred balance, which is the difference between what you paid and what you ended up using. Deferred balances often have an annual “True Up” month in which your billing company bills for or credits any Deferred Balance. Factors that can affect the amount of your deferred balance include:

Impact of Weather Extremes on Deferred Balance

Extreme weather can significantly affect your deferred balance. For example, a heatwave can increase your energy consumption beyond the estimated average, resulting in a debit balance. On the other hand, mild weather can lead to a credit balance.

Changes in Energy Usage Habits

Lifestyle changes, like adding new electronic devices or taking a long vacation, can also impact your deferred balance. Regularly monitoring your energy usage can help manage these changes.

Plans for Energy Efficiency Upgrades

If you are planning any home renovation projects or appliance upgrades, this often leads to more efficient use of electricity and lower energy consumption. Newer appliances such as stoves, refrigerators, air conditioners, and furnaces all use considerably less power than older appliances. When planning these types of projects, it may not be in your best interest to have Balanced Billing as it may reduce your electricity costs, leading to a potential credit that you would not realize until your account “True Ups” annually.

End-of-Contract Experience with Average Billing

At the end of your contract, you may need to settle any deferred balances. Here's what you need to know and be on the lookout for during the end-of-contract experience.

Deferred Debit Balance

If your actual usage exceeded the estimated average, you'll owe a deferred debit balance. Keeping track of your average usage and regularly reviewing energy provider estimates vs. actual usage can help you avoid surprises and stay on top of any discrepancies.

Deferred Credit Balance

If you used less energy than estimated, you'll have a deferred credit balance. Providers are required to refund this amount or apply it to future bills if you renew your contract.

Monitoring Your Average Billing Account

Regularly monitoring your average billing account ensures there are no surprises at the end of your contract. Understanding how your provider calculates your bill can help you make informed energy choices.

Key Takeaways

  • Predictable Payments: Average billing offers predictable monthly payments, helping you manage your budget with greater ease, especially during seasons with extreme weather.
  • Watch for Deferred Balances: Stay vigilant about deferred balances. Knowing whether you're likely to owe a debit or receive a credit at the end of your billing period can prevent financial surprises.
  • Active Monitoring is Key: Regularly review your energy usage vs. the estimates provided. Lifestyle adjustments or unexpected weather changes can significantly influence your monthly bills.

Final Thoughts

Is average billing for electricity worth it? Absolutely, if you value predictable monthly payments that simplify budgeting. However, it's crucial to actively monitor your energy usage and understand how your bills are calculated to manage any potential deferred balances. Stay informed and engaged to make the most out of your average billing plan.