Budget Billing and the True-Up Month Surprise

Why this matters

A customer on budget billing pays the same amount every month, which is the point of it. It is also why a fault can run for half a year without anyone noticing. Backup heat stuck on from December, a well pump short-cycling since spring: the payment does not move, so the customer does not look. Then the review month arrives, the utility settles the year, and the customer gets a balance due plus a higher payment going forward, both landing at once and usually months after the cause. The call that follows often blames whatever the shop touched most recently. Knowing how the plan works, and where the real use hides on a level-pay bill, tells you which month the problem started.

How levelized billing works

Budget billing, also called levelized, equal-payment or balanced billing, replaces each month's actual charges with a fixed monthly payment. The utility sets the payment from the account's recent history, commonly the last twelve months of charges divided by twelve, sometimes adjusted for expected rate changes.

Behind the scenes, every month is still metered and billed at actual use. The difference between what the customer paid and what they used accumulates in a running balance, sometimes printed as a budget balance, deferred balance or plan balance.

At a review or true-up month, the utility settles that balance. Practices differ by utility and by state commission rules, but the common shapes are:

• Annual settlement. Once a year, the accumulated balance is billed (if the customer underpaid) or credited (if they overpaid), and a new payment is set for the coming year.
• Periodic recalculation. The payment is recalculated every few months, so a growing balance shows up as a rising payment partway through the year rather than in one jump.
• Rolling balance. The balance is folded into the next year's payment instead of billed at once.

The customer's own plan terms say which applies. A customer who signed up years ago may not know.

The trap in the payment line

On a level-pay bill the amount due is the budget amount, every month. The real information is on the same bill in smaller print: the kWh or therms used this period, the actual charges for this period, and the running balance. Customers read the amount due. So does anyone who asks "has your bill gone up?" and gets "no, it's the same every month".

That is why a fault that would have doubled a normal bill can go unnoticed for months. The kWh line rose; nobody read it.

A year on budget billing

A house with an electric heat pump. The budget payment, B, was set from last year's use, which averaged 1,000 kWh a month. To keep the arithmetic visible, assume a flat rate per kWh so that charges are proportional to kWh; tiered or seasonal rates break that proportion and the utility's actual-charges line is then the figure to use.

BUDGET YEAR JUN-MAY, PAYMENT B EACH MONTH, B = 1,000 KWH
MONTH   ACTUAL KWH   LAST YEAR KWH   GAP SO FAR KWH
Jun          900           880            -100
Jul        1,150         1,100             +50
Aug        1,200         1,180            +250
Sep          850           850            +100
Oct          700           720            -200
Nov          950           940            -250
Dec        1,600         1,250            +350
Jan        1,950         1,400          +1,300
Feb        1,800         1,300          +2,100
Mar        1,250         1,050          +2,350
Apr          800           720          +2,150
May          750           610          +1,900
TOTAL     13,900        12,000
PAID 12 X B = 12,000 KWH WORTH
MAY SETTLEMENT 13,900 - 12,000 = 1,900 KWH, OR 1.9 B

"Gap so far" is actual use to date minus 1,000 kWh for each month paid. Positive means the customer has underpaid.

Read it the way a tech should:

The summer and fall look normal. June through November track last year within 50 kWh a month. The gap wanders between -250 and +250, which is ordinary month-to-month noise around the average.

December breaks the pattern. 1,600 kWh against 1,250 last year, 350 more. January is 550 more (1,950 - 1,400) and February 500 more (1,800 - 1,300). Those three months together are 350 + 550 + 500 = 1,400 kWh above last year.

Weather is the first question, not the conclusion. A colder winter would raise heat pump use. If the bills' average temperatures show this winter about like the last, the 1,400 kWh is not weather. Here, say, they do. See related: How to Weather-Normalize Two Winters of Bills.

The rest of the year adds 500 kWh. 1,900 - 1,400 = 500 kWh across the other nine months, spread thin (March 200 over, May 140 over). Some of that may be the same problem tailing off, some ordinary variation.

The customer did not notice, because the payment never changed. By the end of February the account was 2,100 kWh behind, more than two months' worth of the budget payment, and every bill they opened showed B.

What the true-up does to the customer

At the May review, the customer owes the 1,900 kWh gap, 1.9 B. Many utilities then reset the payment for the coming year from the year just ended, and some fold the balance in rather than billing it at once. Take both together:

• Next year's expected cost, if nothing changes, is 13,900 kWh, or 13.9 B.
• Add the 1.9 B balance, spread over twelve months.
• New monthly payment: (13.9 B + 1.9 B) / 12 = 15.8 B / 12 = 1.32 B.

So the customer sees a payment 32 percent higher than last year's, even though the problem may already be fixed. If the cause was a fault that has since been repaired, next year's real use should fall back toward last year's. Removing the 1,400 kWh winter excess gives 13,900 - 1,400 = 12,500 kWh, 12.5 B, and a payment of (12.5 B + 1.9 B) / 12 = 14.4 B / 12 = 1.2 B for the year that also pays off the balance. The customer can ask the utility whether the payment can be recalculated once the repair has shown up in a few months of bills; whether it will is up to the utility's practice.

Finding when it started

The value of reading the kWh column is that it dates the problem. In the example, the fault appears in December. That narrows the question to what changed in late November or December:

• Was a thermostat replaced, reprogrammed or switched to emergency heat?
• Was any equipment serviced, and by whom?
• Did a cold snap trigger backup heat that never released?
• Did anyone move in for the winter?

If the shop's own install or service visit falls in that window, that is not proof, but it is a reason to look first at what the visit touched, such as auxiliary heat settings or a lockout setpoint, rather than to argue. If the shop's visit was in March, three months after the use rose, the visit did not start it. See related: The Bill That Doubled From Emergency Heat, and Why a Bill Rises: The Causes That Are Not the New Equipment.

What the office should ask

When a customer calls about a true-up bill or a jump in their budget payment, the questions are different from an ordinary high-bill call:

1. "Are you on budget or level billing?" If yes, last month's amount due tells you nothing about last month's use.
2. "Can you read me the kWh, or therms, for each of the last twelve months?" Most bills carry a twelve or thirteen month usage history, often as a bar chart with the figures printed. The utility's portal has it too.
3. "What did the same months use the year before?" That is the comparison column in the table above.
4. "When is your review month, and is the balance being billed now or spread into the new payment?" This sets what the customer actually owes and when.

Where the plan hides other things

• A rate change. Under budget billing, a rate increase also hides until the review. The kWh can match last year exactly and the balance still grows. Check the rate per kWh on the actual-charges detail. See related: Anatomy of a Residential Electric Bill, Line by Line.
• A plan that recalculates during the year. On a plan that reviews every few months, the same fault surfaces sooner as a step in the payment. In the example, a review at the end of February would have found the account 2,100 kWh behind and raised the payment then, which is the first moment the customer would have seen anything. A mid-year payment increase deserves the same kWh-by-month reading as a true-up bill.
• Leaving the plan. A customer who cancels budget billing, or closes the account at a move, usually has the running balance settled on the next bill. A large final or first-regular bill after leaving the plan is the same settlement arriving early, not a new problem.
• A credit at true-up. A mild year leaves the customer overpaid. A smaller payment the next year after a repair is not proof the repair worked; it may be the weather.
• Delivered fuels. Propane and heating oil companies often run their own budget plans, paying a fixed amount toward deliveries with a settlement at the end of the plan year. The same lag applies, and the delivery tickets play the part of the kWh column. See related: How to Estimate Delivered Fuel Use From a Run of Tickets.
• Solar accounts. Net metering often has its own annual true-up, separate from budget billing, and some accounts have both. See related: Net Metering and Net Billing: What a Solar House Bill Is Saying.

References

• The customer's utility budget-billing plan terms and the state public utility commission's billing rules
• See related: Reading Customer's Electric Bill Reference
• See related: Helping Customer Read Utility Bills Reference
• See related: How to Diagnose a High-Bill Call, in Order
• See related: Utility Bill Spike - Source Isolation Decision Tree