Budget Billing Explained | HotPads

Budget Billing Explained

If you like consistency then budget billing is the payment plan for you.


To avoid having a period of high monthly electric and/or natural gas bills that result from seasonal variations in energy consumption. Budget billing allows a consumer to transform his/her energy costs from a variable to a fixed cost per month. Through budget billing one can spread out his/her annual energy expense over 12 months and pay a consistent amount each month over the course of the year. This payment plan is ideal for individuals who want to better manage their overall household budget and like the predictability of budget billing. There are no surprises because each month the energy bill will cost the same amount.

How it works:

The energy cost for the year is estimated by an energy company using the following information:
  • Energy usage based on the previous 12 months
  • Local taxes, franchise fees, private area lighting, and energy management credits
  • Anticipated energy costs and fluctuations in energy prices based on the market

The total amount is divided into 12 monthly payments to provide an average monthly energy cost. Energy companies will conduct periodic reviews of the payment amount and compare it to the actual cost of energy consumed for the period in order to avoid a large deviation between the actual and budgeted amounts. A periodic review generally occurs every 3 months. At this time your budgeted billing amount will be recalculated to reflect your most recent 12 month energy usage, this may result in a payment adjustment. If the budgeted amount is greater than the actual cost of energy consumed for the period a payment adjustment should occur and one will be credited the difference. If the amount paid is less than the actual amount of energy consumed then the difference must be made up as well. It is important to inquire if this amount may be averaged out as well or paid immediately. A year-end settlement is the final attempt made to equalize the difference between actual and budgeted energy costs (overpayment or underpayment) for the year.

Eligibility requirements:

Must have...
  • a residential account
  • NO past due balances - a succession of late payments past the pay date specified will prohibit you from participating in budgeted billing
  • Good credit history

Reality Check:

Budget billing does not reduce overall utility costs. Costs remain the same but are allocated differently over a 12 month period (equal pay increments). It is important to consider climate patterns in your area before applying for budget billing. The information above is the generally how budget billing operates however ask your energy company for the details and specifics of their budget billing payment plan. Budget billing is most helpful for individuals on fixed income and is not perfect for everyone. Consumers should assess their individual circumstances before opting for a budget billing plan.
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