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What is average billing?
Average billing lets you pay a fixed amount monthly instead of more during high-usage months and less during low-usage months, making budgeting for electricity more predictable.
Have you ever found yourself in the middle of a Texas summer, the sun beating down on your home, wondering what your next electricity bill will look like?
Texas weather is notorious for extreme weather throughout the year with little to no predictability. The only guarantee you have is that summer will probably be hot, and winter can get cold.
These changes in the weather can have a significant impact on your electricity usage. If you have ever wondered if you could even out your electricity bills, then average billing might be right for you.
Average billing, also known as budget or balanced billing, uses your electricity usage throughout the year to calculate an average monthly bill.
Your bill remains relatively flat throughout the year, and you will better understand your electricity bill.
This makes planning for your electricity bill easier, and you won’t have to worry about a hot week in the middle of March wrecking your budget.
The important thing to remember is that average billing offsets your monthly bill based on your average usage. One way or another, you end up paying for your actual usage throughout the year.
How does average billing work?
The idea of average billing is that your electricity bills should be similar each month without any drastic spikes.
Ideally, you’ll have predictable bills to easily budget for electricity throughout the year.
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 your average monthly bill.
If you average 1,500 kWh of usage each month and your rate is 10 cents per kWh, your average monthly bill 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.
Suppose you don’t have a full year of electricity usage history or don’t have any at all. In that case, 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 keep that in mind before signing up for average billing.
Does average billing save you money?
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 wear shorts and t-shirts for a week, so you crank up the air conditioning.
You enjoyed the sun, got a tan, and now you have extra electricity charges 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 ensure you don’t underpay, regardless of the difference.
If you 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.
What are the benefits of average billing?
The main benefit of 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 crazy weather spikes that could double or triple your bill in a single month.
This gives you 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 monthly payments to ensure you aren’t racking up a large deferred balance.
What are the drawbacks of average billing?
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 impact 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 doesn’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.
Is average billing right for me?
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, keeping an eye on your deferred balance should be easy 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 will change.
A big change in your usage can lead to underpayment on your bill and a big deferred balance. You could be stuck with a massive bill to settle anything you owe to your provider at the end of your contract.
How can I get average billing?
You can request average billing for electricity by contacting your electricity provider directly by phone. Most providers on ComparePower offer average billing.
If you aren’t sold on switching to average billing, you have a few other options that could help you with budgeting.
You could try creating your own average billing plan without going through your provider. Take a peek at your bills throughout the last year and determine your average payment.
Each month your bill is lower than your average, and you can put that extra money into a savings account and use it to pay for any expensive months in the future.
Your savings account might also pay you a small interest on that money which is better than nothing coming from your provider.
You can also look into plans that use bill credits. These give you a discount on your electricity bill when you use a certain amount each month.
If you know that you will always hit that usage threshold, you could save yourself some money each month with one of these plans.
Furthermore, you can use bill credit plans by shopping with your home’s historical usage profile. Shopping with your home’s usage history lets you compare energy plans apples to apples.
Learn how to switch electricity providers with your home’s historical usage.