Average Billing

Average billing lets you pay a fixed amount every month instead of paying more during high-usage months and less during low-usage months making budgeting for electricity more predictable.

The idea of average billing is that it should get you close to having the same electricity bill at the end of each month. 

Ideally, you’ll end up with predictable bills throughout the year so that you can easily budget for electricity. 

Retail electricity providers (REPs) use a simple formula to calculate what your average bill will be each month. 

They add up your past 12 months of electricity usage and then divide that number by 12 to get your average monthly electricity usage in kilowatt-hours (kWh). 

Once they have that number, it is multiplied by your current electricity rate to determine what your average monthly bill should look like. 

If you average 1,500 kWh of usage each month and your rate is 10 cents per kWh, your average bill each month would be $150 throughout the year. 

Each month your REP also looks at your bill to compare your actual usage with what you were billed for.

If you use more or less energy than your average, you’ll have a deferred balance that keeps track of any differences. 

Most providers will add 1/12th of your deferred balance to your next month’s bill to avoid that deferred balance getting too big. 

At the end of your electricity contract, any remaining balance will be added or credited to your account by your provider. 

If you don’t have a full year of electricity usage history or don’t have any at all, the REP can also use any previous history from your service address to calculate your average. 

Unfortunately, the calculation will be based on someone else’s electricity usage habits and likely won’t be accurate for you, so just keep that in mind before signing up for average billing.

Are you wondering if average billing is worth it?

The unfortunate side of average billing is that you don’t end up saving any money at all. Each month your electricity provider adjusts your bill to smooth out any spikes in usage. 

Say it’s March, and you get surprised with some great weather. The clouds blow away and you’re wearing shorts and t-shirts for a week straight, so you crank up the air conditioning. 

You enjoyed the sun, got a tan, and now you have extra electricity charges that you haven’t paid for. The difference between your average bill and your actual charges is set aside in a deferred balance. 

Your provider is happy to keep track of anything you owe them and make sure that you don’t underpay regardless of the difference. 

If you manage to use less electricity, you can end up with a negative balance or a credit on your account. When your contract ends, your provider will apply for any credit on your account to your last bill. 

At the end of the year, you’ve still paid for all of your electricity usage and haven’t saved a dime. 

The main benefit of going with an average billing plan is that your bill will stay relatively consistent throughout the year. 

You might have a small increase here or there to cover a deferred balance, but you don’t have to worry about any crazy weather spikes that could double or triple your bill in a single month. 

This makes it so that you’ll have a good idea of what your electricity bill will look like each month and you can easily budget throughout the year. 

Stability is great, but you still need to pay attention to your payments each month to make sure you aren’t racking up a large deferred balance. 

In an ideal environment, your deferred balance at the end of your contract would be close to zero.

However, any variation in your energy usage adds up and you can get stuck with a big payment at the end of your contract if you aren’t careful. It also matters when you start an average billing agreement.  

If you haven’t had a full year to sort through any overpayments and underpayments, you’re more likely to have a deferred balance left over. 

While average billing helps to smooth out weather extremes, they still have an impact on your energy use and can build your deferred balance throughout the year. 

And if you don’t have a full year of electricity usage history, then your average bill is based on someone else’s behavior rather than your own, to begin with.

Average billing can also lead to laziness when it comes to energy conservation. It’s easy to leave lights on and not pay attention to your thermostat if it won’t affect your wallet at the end of the month. 

In a worst-case scenario, your electricity contract expires and you end up on an expensive month-to-month holdover rate. 
 
The difference between your average bill and actual usage cost will grow your deferred balance even faster and you could be stuck with a big debt to pay. 

Average billing is a great option for someone looking for a stable electricity bill throughout the year and isn’t afraid of keeping an eye on it. 

If you have a good understanding of your usage and are stable in your home, it should be easy for you to keep an eye on your deferred balance to avoid surprises at the end of your contract. 

You’ll have an easier time planning out your monthly finances without worrying about what the weather is doing. 

Stable electric bills could also be great for someone on a fixed income. You’ll have more consistent bills and won’t have to guess when planning your finances. 

Considering a new pool or maybe an electric vehicle in the future? You’ll want to wait on average billing if you think your usage patterns are going to change. 

A big change in your usage can lead to underpayment on your bill and a big deferred balance. At the end of your contract, you could be stuck with a massive bill to settle anything you owe to your provider. 

You can request average billing for electricity by contacting your electricity provider directly by phone. Most providers on ComparePower offer average billing.