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In the face of rising electricity bills, energy customers need new ways to budget and save. After all, according to the U.S. Energy Information Administration, the average monthly electricity bill has increased 18% in the last two years. To help customers save, many electricity providers have begun offering budget billing programs. 

Before making the switch, ask yourself: Is budget billing worth it for me?

While budget billing changes the way utility companies calculate your bill, it doesn’t lead to immediate savings. To help you decide, we’ll explain what budget billing is, its pros and cons, and whether you should make the switch. 

Key takeaways

• Budget billing calculates your average energy usage over a year and charges you one-twelfth of that each month.
• Budget billing evens out your payments but doesn’t reduce them.
• While budget billing can save money if you use less energy than you paid for, you may end up paying more. 
• Budget billing comes with penalties and fees you should consider.

What Is Budget Billing?

Budget billing is a utility payment option that provides a set monthly bill for customers. While most fixed-rate electric bills vary based on energy consumption, budget billing avoids this by charging the same amount each month. As a result, this billing option makes budgeting for utility payments easier.

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Does Budget Billing Save Money?

Budget billing evens your utility bills but doesn’t necessarily save you money. In most cases, cutting energy usage will save more than switching to a budget plan. Since budget billing gives you predictability, it changes how you pay more than how much you pay. 

Some customers do get savings every quarter to a year after paying budgeted bills. During a “settlement month,” utility providers compare how much energy you used to the amount you paid for. In some cases, you can get reimbursed for using less electricity than you paid for. However, you may owe your utility company if you use more electricity than the budget bill covers.

Budget Billing vs. Flat Billing

When you pay power bills on a flat billing policy, you pay the same amount every month, regardless of kWh usage. Because utility companies set flat rates, you would only save on a flat bill if your energy usage is consistently high. 

How Does Budget Billing Work?

Utility companies set a budget billing amount by looking at your past usage and calculating an average. Typically, they will look at your energy consumption from the past year. By dividing that amount into 12 payments, customers will get a predictable monthly bill. 

Because your energy usage may change, providers review your bill every few months to a year. Depending on your energy consumption, your budget bill may increase or decrease. Additionally, if you rent a home, utility companies may look at energy use from before you moved in. To ensure you pay an accurate amount, give providers a timeline on when you started using energy at your address. 

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Pros and Cons of Budget Billing

Budget billing presents a few advantages and disadvantages. To find out if budget billing is right for you, we’ll cover the most important pros and cons. 

Advantages

At its core, budget billing makes utility payments easier to plan around. While it won’t cut your energy costs, it gives you the tools to better manage your finances. Whether you’re looking to save or take the stress off, budget billing can help. The most specific benefits include: 

• Ease of predictability: Making payments is easier when you can anticipate your monthly charge. Budget billing’s consistency gives you the tools to avoid late or missed payments.
• Less financial stress: Budget billing takes one of the biggest sources of anxiety out of utility payments. You can rest assured knowing your bill’s price and that you can pay it. By combining budget billing with autopay, you can keep energy prices further out of mind. 
• Streamlined budgeting: Variable payments can throw off an entire monthly budget. However, when a monthly cost stays consistent, you can treat it like a regular line item on your expenses. This saves time you’d otherwise spend strategizing payments. 
• Avoiding steep increases: Based on fuel costs and price regulation, utility price jumps aren’t uncommon. Last year, the cost per kilowatt hour ranged from 39.85¢ per kWh to 8.24¢ per kWh. Budget billing helps keep these fluctuations in check. 

Disadvantages

Despite the benefits, budget billing won’t solve every customer’s utility problems. Getting the most out of budget billing takes research and awareness of your energy footprint. To help you overcome these challenges, here are the disadvantages of budget billing: 

• Extra fees: Some utility companies attach extra fees to budget billing. These fees can come from starting or ending the service, going over your budgeted energy, or moving while on the plan. Always check for these fees before signing up. 
• Increased energy usage: Thinking less about your energy usage may reduce stress, but that makes it easier to overuse energy. In the long term, this increased consumption will increase your average budgeted bill. You’ll need to check your usage each month to ensure you’re staying consistent.
• Overpayment and underpayment: If your energy usage goes up or down, you may owe more or less than what you pay in a monthly budget bill. Increased energy usage doesn’t only increase your bill over time—you will owe providers money for the extra energy you used while on a budget plan. 
• Strict payment policies: Compared to standard plans, utility providers are less tolerant of late payments on a budget plan. On many policies, only a few missed payments disqualify you from budget billing and even result in an energy disconnection. 
• Limited energy assistance: Low-income customers may not qualify for programs like fuel assistance on budget billing plans. While these programs help customers with utility bills, they generally only apply to standard plans. 

Should You Switch to Budget Billing?

You should try budget billing if you want more consistent utility payments. While you can try to control energy consumption, it will naturally vary over the months. Budget billing uses your utility history to smooth over these seasonal changes. If you still aren’t sure about budget billing, ask yourself these questions:

• Can you stay diligent until the settlement month? More specifically, without fluctuating bills, can you keep energy usage low?
• Is consistency worth a fee? Budget billing almost always incurs a $2-$3 monthly fee, along with penalties. With budget billing, you may end up paying more than predictability is worth. 
• Do you plan to move? If you’re moving in the near future, budget billing will present issues. If you want to try budget billing, save it for after the move. 
• Will you review your bills? Budget billing isn’t always accurate. To get your money’s worth, you should review your bills each month to chart energy usage and changes in what you owe. 

Tips for Budget Billing

If you’ve decided budget billing is right for you, your work isn’t over. When vetting plans, follow these best practices to help avoid fees and penalties. 

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• Learn how your bill is calculated: Companies set their own criteria for calculating your budget bill amount. Some look at your existing accounts, while others base it on the property’s usage. Get a quote before signing a contract to make sure the amount is fair. 
• Plan for incorrect utility estimates: Many customers' energy usage doesn’t exactly align with the monthly charge. As you spend more time with budget billing, expect the exact cost to change and reflect this. 
• Look out for extra fees: Budget billing policies often come with monthly administration fees. They may also charge you for going over your allotted energy amount. In general, avoid plans with more than a few dollars in monthly fees. 
• Review refund policies: Getting a refund for using less energy than expected isn’t built into every plan. Look for utility companies that guarantee a refund for using less energy to maximize savings. 
• Check cancellation and moving penalties: Some providers charge you for ending your budget billing plan. Moving while on the plan may also force you to cancel and pay this fee. 
• Monitor energy usage: A stable monthly bill isn’t a good excuse to overuse energy. High utility usage may increase your budget bills over time, so try to avoid wasting power.

Lower Your Electric Bills With Arbor

With many people experiencing high electricity bills, any program called budget billing is bound to earn attention. But whether budget billing is worth it comes down to your priorities. Predictable payments are easier to budget for, and you may end up saving money if you’re careful. However, budget billing isn’t designed to cut costs for customers. 

If you're looking to explore your energy-saving options, Arbor can help. We offer a safe and streamlined way to cut down on your energy costs without any legwork on your end. Just enter your electric account info, and our experts will help you secure a more competitive rate.