Budget billing: does paying the same amount every month save money?

How the payment is set

The utility looks at the last twelve months of your use at the address, prices it at current rates, and divides by twelve. If you are new to the address, it uses the previous occupant’s history or a house of similar size. That figure becomes the monthly payment. Underneath, the meter is still read and the real bill is still calculated every month; the difference between what you paid and what you owed accumulates in a running balance you can see on the statement.

The true-up

The balance has to be settled. Utilities do it one of two ways, and the tariff says which:

• Annual settlement. In the twelfth month, the balance is billed or credited in full. After a hot summer or a rate increase, this can be a large charge, which defeats the purpose for people who chose the plan to avoid large charges.
• Rolling adjustment. The payment is recalculated every few months from the latest twelve months of use, so the balance never grows very large. Most large utilities now do this, and it is the version to prefer.

Either way, look at the running balance on each statement. If it is growing steadily in the utility’s favour, your use has gone up or the rate has, and the settlement will hurt. Ask for the payment to be recalculated early rather than waiting.

What it costs you

Two things, both small. In the winter months when the real bill is below the payment, the utility holds your money without interest; in the summer, the reverse. Over a year that nets to close to nothing. And if you leave the plan or move mid-year, the balance is due at once. There is normally no fee, and utilities are generally required to offer the option to residential customers.

What it does not change

The rate plan. Budget billing sits on top of whichever tariff you are on, and every argument about which tariff suits you still applies underneath it. A household on budget billing can still switch from a flat plan to a time-of-use plan, and if the switch saves money, the monthly payment falls at the next recalculation. It also does not change what happens when the season turns: a seasonal rate still applies in summer, it is just averaged into the payment. Why the rate changes with the season, and how to check whether you are on the right plan.

When it is worth having

• Yes if your summer or winter bill is more than about double your off-season bill and a fixed monthly outgoing makes budgeting easier. That describes most houses with central air or electric heat.
• Yes if you are on a fixed income and the timing of the bill matters more than the total.
• Probably not if your use is flat through the year — a small apartment with gas heat — since there is little to smooth and one more thing to keep track of.
• Not as a savings measure. It is not one, and any pitch that says otherwise is describing something else.