choose a fixed billing program with extreme caution

June 25th, 2008

Choose A Fixed Billing Program With Extreme Caution

Last week my natural gas company sent me a letter inviting me to enroll in their dependabill program.  Basically, I would pay one flat amount every month no matter what our actual usage was, and at the end of twelve months, there would be no settling the difference if we used more natural gas than we paid for.  Then the amount we paid for the next twelve months would be recalculated and if we chose to re-enroll the cycle would repeat itself.  Because we recently installed a new furnace that we anticipate will significantly lower our natural gas bill this winter, there is no way I am enrolling in a program based on past usage, but I was curious to what it worked out to.  For this program wasn’t the same as what I thought a fixed rate program was – meaning you didn’t settle the difference in what you paid versus what you used at the end of twelve months, but also, you didn’t get back the difference if you used less than what you paid for.  And the amount I would pay per month also seemed very suspicious – $158.83.  Our natural gas bills in the winter were higher than that, but we also have 3-4 months of bills in the $20/month range in the summer and most of our fall and spring bills are in the $40-$50 range.  That number just seemed a bit high for anything close to an average of our usage over the past twelve months.

This particular product is packaged in a pretty slick way as well.  In the letter, they offer a $20 credit on your next natural gas bill for signing up.  It also bills itself as the surest, most dependable way to budget your gas expenses that is designed specifically to meet our natural gas needs.  But it also has a number of interesting statements in the fine print.  For example, it guarantees a fixed monthly bill but does not guarantee savings, and should only be purchased by customers who are interested in a fixed monthly bill with no year end true-ups, and are willing to pay a fee for that feature.

Being that I am not willing to pay a fee for anything, I decided to calculate exactly how much of a fee we were talking about here based on our own past usage.  I’ve been budgeting and tracking expenses for a little over a year now, so I could easily look up what we’ve paid in natural gas charges over the past year.  I did so, and found we’d paid about $1116 in natural gas charges in the past 12 months, which works out to approximately $93/month.  Which means that in our case, if our bills are the same over the next 12 months,  we’d be paying about $65 more per month (or $780 total!) than our natural gas charges would be if we just paid our actual bill with its seasonal fluctuations.

Yikes.  No thanks.

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20 Responses to “Choose A Fixed Billing Program With Extreme Caution”

  1. Double Yikes! I’ve always wondered about how those programs work.

  2. Very interesting. I’ve considered signing up for our gas company’s plan, because our winter bills in our 90 year old house are out of this world. But now that we’ve been in the house for a year, I need to go back and really see how much we would save–if any.

  3. Interesting, I am on a fixed payment plan for the electric, but there is a true up at the end. At least there are not fees. I am guessing the gas company in this case is giving themselves cushion to ensure that you don’t use more than you are paying for by the roughly 2/3 markup. I imagine a lot of people get tricked into this though. Bad energy company!

  4. Our flat monthly rates for either utility (gas or electricity) don’t work that way. Yes, the monthly amount is based on the previous 12-months’ usage, but each year they take the final balance, adjust it by whatever credit (overpayment by us) or debit (underpayment by us) is there, then recalculate for the next 12 months using the immediately preceding years figures. So, our monthly amount changes annually.

    There are no additional fees, and our payments and usage for the entire year is usually within about $50 of being spot on. The only time we would “true up” as you say is if/when we would close the account. Then we would pay any outstanding fees or receive any overage.

    I find this level pay method much easier to budget for than paying the actual amount each month.

  5. I will have to check if our electricity company makes us pay any additional fees for this service – I don’t think they do, but that amount yours might charge is alarming. I think Brandon is right that they are probably giving themselves and they figure, the customer, a cushion.

  6. Multiply that “cushion” by potentially thousands of customers and it starts to sound like a real scam.

  7. The thing that gets me about fixed is that you either have to have the money ready at the end of the year or you give people an interest-free loan. Neither of those makes me comfortable. I’d rather budget something a little high and have some left over. That’s what we do for gasoline.

  8. Sounds pretty tacky, to say the least! Maybe they’re factoring in projected price increase? Still, why wouldn’t they true-up at the end of 12 months?
    We could do the fixed payments bit, but we’ve been keeping track long enough I have a pretty accurate estimate of our use, and just pay an average of that amount. I end up overpaying in the summer, but never get slammed in the winter. It’s worth the few pennies in interest lost to not worry about those winter gas bills! This fits in perfectly with our system of paying a set amount on all bills on the 28th of every month.

  9. Sounds like they won’t true-up, that’s the gamble.

  10. My equal pay program is similar to the one Annie Jones outlines above. The one thing she doesn’t mention is the settling up process each year on your anniversary date.

    Usually I use less than they bill and historically I’ve probably ended up with a credit in the range of one to one and a half times my usual monthly payment. When I’ve had a credit they reset the monthly amount downwards slightly and apply the credit to the next month or two of service.

    The one or two occasions where I’ve ended up owing they take the balance owing plus the monthly amount on the next scheduled date, so you have to be prepared. But it’s not a total shock because every month the statement shows how much energy you’ve used, compared to how much you’ve paid.

  11. In my previous home, my electric and gas companies both offered this, called “budget billing.” Sure, it probably is great for budgeting to know that you have to pay the exact same amount every month for these bills. And the claim is that at the end of the year, you either pay the rest (or your budget billing is adjusted upwards to make up for anything missed) or you get money back.

    I didn’t like the idea. First off, I was always trying to reduce my energy usage, which would save money. Additionally, as Mrs. Micah said, you’d have to be ok with an interest free loan or be ready to pony up the extra at the end of the year. I’d rather just know that I’m paying for what I used and not a penny more.

    I see where it would be helpful for people struggling to make ends meet or people who are just awful at budgeting. But I think that the main problem would be the mindset that “Oh, I don’t need to worry about turning up the heat a few degrees this chilly November. My gas bill will still be the same.” There isn’t the same cause and effect to help force you into saving money.

  12. Kudos to you for taking the time to do the math! Fixed, or budget, billing seems like such a good idea in theory, especially as gas prices climb. I think a lot of people sign up for those out of near panic about climbing prices without thinking it through. We considered it but realized, much like you, that it might actually cost us more over the course of the year when you figure in those low, low summer gas bills.

  13. Some observations:

    Interest rates are running….at best 3.3%? If you’re in 30% tax bracket, that’s really 2.31%. Maybe not worth the effort, especially if it throws you into a higher tax bracket.

    Lots of folks have irregular income, and are not “lousy” at budgeting. Getting slammed with a huge bill in the middle of the winter would hurt. Having advance warning as to what you will “owe” allows true budgeting.

    Fearing you will ratchet up use because of a fixed utility payment is a non issue. In most, if not all True-Up programs, you see your energy use/actual cost for a given month, and so, if you wish, there is LOTs of motivation to reduce use so by year end your bill will either be nonexistent or in the negative.

    The flaw in the program described here is there is NO true up, so you’re gambling on rates/usage.

    Different strokes, different folks. One way is not necessarily right way.

  14. My point in this post wasn’t that it is a bad thing to choose a fixed payment program – but that if you choose one, be sure to read it and understand it and know that you’re not getting screwed over in the process.

    This program I got the letter about, it trumpets the no true-up part like it is a great benefit. But in fact, it isn’t, it’s a way for the gas company to get a lot of extra money out of me ;)

  15. Totally Agree!

  16. Wow, that is crazy! I’ve never heard of a program like that. We’re enrolled in budget billing for our natural gas usage, but about every 6 months it’s adjusted so that we’ll wind up the year having paid the correct amount for our usage.

    Companies are just looking for any way to make an extra buck off their customers, particularly those in the energy sector, as they’re squeezed so tightly now. It’s sad to think about all the people who will get suckered into paying that company so much more money than they really need to – what a waste!

  17. I’m forwarding this along to a math teacher friend of mine who teaches middle school…. it’s a great example of WHY you need Math in school, and YES, you will use it when you get out of school :) Thanks!

    For those with irregular income, one of those Christmas Savings accounts would do the job… so much into the account every month, and then you take it/or part of it/ out in the winter when you need the money for your oil bills. (also works for property taxes due in Novemeber)

  18. I’m forwarding this along to a math teacher friend of mine who teaches middle school…. it’s a great example of WHY you need Math in school, and YES, you will use it when you get out of school :) Thanks!

    For those with irregular income, one of those Christmas Savings accounts would do the job… so much into the account every month, and then you take it/or part of it/ out in the winter when you need the money for your oil bills. (also works for property taxes due in November)

  19. Thank you! That’s exactly the conclusion I came to, but since all my friends have billing averaging, I thought maybe I was nutz.

    When I called the power company to point out that their average billing estimate was more than my actual average, their rep pointed out that (hang on to your hat!) power costs are slated to go up this year, and the amount quoted in their sales pitch represents the jack-up in price they’re planning to wallop us with!

    Thanks, I said, but I’ll take my chances.

    Besides, if power bills are astronomical here for three summer months, they’re almost nil in November, December, January, and February. I’d rather have the low rates around the Christmas season, so I can buy presents, than be strapped every single month all year round.

  20. We true up at the 12th month so it’s not a huge deal.