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Budget billing on a fixed income: is it a good idea?

By Dr. Matthew Crowley

· 7 min read

Checked against: the official prices in each of the 18 states it covers. How we get our prices

A Social Security check is the same every month. A heating bill is not. A January bill can be far bigger than a May bill, and that's hard on a fixed income.

Budget billing is the utilities' answer to that. It's simple, and most electric and gas utilities offer it. But it has one catch that's easy to miss. Here's how it works, and how to decide if it's right for you or a parent.

Budget billing evens out your bill, not your price. To check the price, compare it with your utility's standard price: the Ohio Price to Compare, the Pennsylvania Price to Compare or Michigan's Gas Cost Recovery price.

What budget billing is

Your utility looks at what you used over the past year. It works out a monthly amount that should cover the year. You pay about the same amount each month, winter and summer.

The Public Utilities Commission of Ohio (PUCO), for example, says budget billing "spreads out the cost of energy used during high-demand times of the year" by breaking total yearly use into "manageable monthly bills." Utilities in other states describe it the same way.

Each utility has its own name and its own way of doing it. You may see it called budget billing, a budget plan, level billing, an equal payment plan or an average monthly payment. Some plans use one amount all year. Others change the amount a little each month. AEP Ohio's plan, for example, averages your last 12 months of bills, so the amount moves as your use moves.

What it does, and what it doesn't

It does:

  • make your monthly payment easier to plan for
  • soften the shock of the first cold-weather bill

It doesn't:

  • lower what you pay over a full year
  • lower your price per unit
  • stop the bill from changing at all

If you have a supplier (a company you picked to sell you the electricity or gas itself), ask whether the plan covers the supplier's part of the bill. AEP Ohio, for example, says its plan covers only AEP Ohio's own charges, and tells customers with a supplier to ask the supplier about a budget plan for that part. Other utilities handle it differently, so ask.

In Texas, and for gas in most of Georgia, the company you picked sends the whole bill. There, ask that company whether it offers budget billing.

The catch: the settle-up bill

Budget billing is an estimate. If you use more than expected, or prices go up, you can owe the difference later.

Most budget plans run for a year. At the end, you get a "true-up" or settlement bill. In the PUCO's words, you "may either receive a credit if you paid too much," or "have to pay the difference if you did not pay enough." Some states' rules let you pay a big settle-up amount off over time. Ask.

Utilities can also adjust the monthly amount during the year so the gap doesn't grow too big.

My tip: each month, look at the real charges on the bill, not just the budget amount. Many bills show both. If the real charges keep running ahead of what you pay, ask the utility to raise the amount a little now. A small change now beats a big settle-up bill later.

The rules depend on your state

Some states write budget billing into their utility rules: who must offer it, how many months it averages, and how the settle-up works. Others leave it to each utility. So the first step is the same everywhere: call your utility and ask three things. How does its plan work? When is the settle-up month? Does it cover a supplier's charges?

If you want the written rule for where you live, your state's utility office can point you to it. Type your ZIP code on the Help page to find that office's number. Your utility's website or a bill insert usually explains its plan too. If you can't find it, the number on your bill is the fastest way to ask.

A hidden risk: autopay plus budget billing

Budget billing plus autopay is about as hands-off as it gets. That's the appeal. It's also the risk.

If a supplier's price jumps, the jump can hide for months. The monthly amount stays smooth, while the real charges climb underneath. Then the settle-up bill lands.

So once in a while, check the supply price on the bill, not just the total. If it jumped, read My electric bill jumped. Is it a variable rate?

Who budget billing fits best

  • people on a fixed income who want the same payment every month
  • people who heat with gas or electricity, where winter bills are much bigger
  • families helping a parent, who want one predictable number to watch

When something else may help more

If the issue isn't the ups and downs but the total, other programs may fit better:

  • LIHEAP. This federal program runs in every state and territory, each with its own rules. It can help with heating bills, and with cooling bills too. Your utility or your local community action agency can tell you how to apply. Ohio calls its program HEAP.
  • Income-based plans. Some states and utilities set your bill by your income. Ohio has PIPP Plus (apply at energyhelp.ohio.gov (opens a new tab)). Pennsylvania's big electric and gas utilities have a Customer Assistance Program (CAP). In Illinois, apply for LIHEAP through Help Illinois Families (opens a new tab), or call 1-833-711-0374 for help with the form. In other states, ask your utility what it offers.

See Winter shutoff rules and bill help for more.

How to sign up

Call the number on your bill and say: "I'd like to sign up for budget billing. What would my monthly amount be, and when is the settle-up month?" Write both down.

Helping a parent? Make the call together. If the utility needs your parent's OK to talk with you, see How to check (and get access to) a parent's electric bill.

The rules in your state

Budget billing comes from your utility. But the standard price, the rules for changing your mind about a supplier, and who to call for help are different in each state. Go to the Help page and type your ZIP code to open your state's page. Or go straight to the Ohio, Pennsylvania or Illinois page. It names the state office that takes complaints and the office that speaks up for people who pay utility bills.

Judy Saves is independent. I don't sell electricity or gas, and no supplier pays me. I'll never call you or knock on your door.

What to do next

  • Make sure the price under the budget is fair. Budget billing evens out the bill. It doesn't fix a high price. Run the free bill check: I'll compare the price per unit with the standard price and the offers for your area, and tell you what I'd do.
  • Visiting a parent soon? Use the checklist for a parent's bill.

Sources

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