PhilMur's thoughts on biz/tech/money/life

My utility provider (consolidated electric, water, and waste disposal) recently included this blurb in a newsletter enclosed with my most recent bill.  It sounds great on the surface, in fact.  (Note that the bold text is from the original document; it was not added by me).

Levelized Billing

This program lets you pay the same electric bill amount each month throughout the year to avoid a large jump during summer months.  It works like this: Your energy use over the previous 12 months is added up and divided by 12.  Any projected increase in the fuel charge for the coming year is factored in, and you get a set electric bill amount to pay each month.  If your energy use exceeds your set payments, the overage is simply factored into the average for the next year, which means you get 12 months to pay it off.  Customers can drop out of the program at any time.  Call 494-xxxx to enroll.

Initially this sounds like a great approach– you can smooth out your payments to avoid suprises, and base them on last year’s usage so that if your usage increases this year, you won’t have to pay for that until the payments go up next year.

Let’s turn the tables, though, and think about this from the utility’s perspective.  Their job is to remain profitable, which involves bringing in revenue and controlling costs, including the cost of collection on delinquent accounts.  Without a doubt, level billing surely reduces their cost of collections.

But it also provides a boost to their revenue, in two very different ways:

1) It advances them the anticipated utility rates from you by factoring in the coming fuel increase into your leveled bill amount, as explained earlier.  In a given year, this could be anywhere from 1 to 5 percent, for example.

2) Most importantly, it almost guarantees them higher revenue in future years from you, by discouraging close monitoring of your power bill and usage.

I’m always a fan of EXPOSING spending in your life or business — it is, in fact, the first step in getting a handle on it.  By shielding people from the realities of energy spikes in extreme seasons, they are unaware of their usage and very likely to just increase usage over time.

I would be willing to bet there is a study out there commissioned by a utility company, or consultants employed by the industry, that demonstrates that not only do collection costs decrease as a result of such a program, but also that overall energy usage and revenues INCREASE when this plan is adopted.

Granted, utility providers have every right to offer this service, and people who are struggling to manage their monthly income and expenses and need the simplicity of an even payment may find this to be of value.  Additionally, I know that electric power providers are constantly walking a Catch-22 tightrope of needing energy demand to increase in order to justify additional power plants, while also encouraging their constituents to preserve power, in order to allow them to max out the capacity of existing facilities before building additional plants.

In many cases, consumer protection groups have even demanded creation of such a program to protect consumers from spiking costs.  I think this is short-sighted on the part of those groups, as they they may not actually be protecting consumers over the long run.

In many areas there have even been extensive hearings and legal challenges on the accuracy and fairness of these levelized billing programs.  Click here for an example of this.

However, the ball is in your court as the consumer to evaluate each of these types of offerings as they come your way.  In the case of level billing, read the fine print very carefully, and… do the math!