What is bill smoothing?
No one wants to experience bill shock but everyone knows that there are times of the year (e.g. Summer and Winter) when your gas and electricity bills are going to be higher than at other times of the year. Many people choose to set aside extra money for their energy bills in these peak times, but for some people on a fixed income finding an extra $50 or $100 isn’t so easy.
This is where bill smoothing comes in. Many gas and electricity suppliers give their customers the option to spread the estimated yearly cost of their service across equal monthly, fortnightly or weekly payments so that they can more easily manage their household budget.
How are bill smoothing amounts calculated?
If you have been with the same energy provider for more than 12 months, your provider will look at your annual energy usage (and other customers in your area with similar usage patterns) and split the cost of this usage out into equal repayments depending on whether you want monthly, fortnightly or weekly payments.
For instance, Jason’s annual electricity bill totals $1500 for the year. Rather than pay quarterly bills throughout the year of varying amounts, if he moved to a bill smoothing plan making monthly repayments, each month he would pay his electricity provider $125.
If you are a new customer or you’ve just moved house and you don’t know what your annual energy costs will be, your energy provider will be able to estimate the cost for you using other customer usage data in your area.
What if I use less energy than the estimated annual usage?
Even when you are on a plan that allows for bill smoothing, you should still receive account statements that will detail your actual usage. After your meter is read, if it is found that you have used less energy than what has been estimated, your provider will credit your account or discount this amount off your next bill.
It is important to note that every energy provider will have a different process for bill smoothing so check before you sign up to ensure you will get a refund or credit if you are under.
What if I use more energy?
It is expected that there will be times when you use more than the estimated amount for that quarter, so many providers do a 6 month review to ensure that the estimates are in the right ballpark.
In the situation where you use more than the estimated annual amount, your provider will send you a bill for the outstanding amount. They will also likely discuss options for increasing the bill smoothing payment amount with you to ensure you will be able to cover your bills.
Are there any disadvantages to bill smoothing?
Bill smoothing is great for monthly budgeting but there are a couple of things you need to consider before signing up:
- Not all plans will be available with bill smoothing options. Not every plan will have bill smoothing so be sure that you are not missing out on substantially cheaper tariffs or discounts because you opt to spread the cost over the year.
- Interest. Any money you pay in advance is generating interest in the energy provider’s bank account, not yours.
- Overestimate your usage. If you don’t get an actual meter reading, you could be paying more for your electricity or gas service than necessary.
Do all electricity and gas providers offer bill smoothing?
No, not all energy providers will offer bill smoothing plans where the annual cost is averaged out into equal instalments. Some providers will have monthly billing based on estimated usage but each month may be a different bill amount based on the average usage for that time of year.
Some energy providers that do offer bill smoothing include:
- Click Energy
- Diamond Energy
- Power Direct
- Origin energy
- Red Energy
What do I do if I am having trouble paying my electricity or gas bill?
The first thing you should do is contact your current utility provider and talk with one of their customer service representatives. Most energy providers have hardship plans that are designed to help you work out how to plan and pay for your bill in instalments.
One of the options may be a bill smoothing plan. There are other options and you might be able to apply for a rebate or get a voucher to help you. More information on the vouchers and rebates available in your state can be found on the Australian Government’s Moneysmart website.
If you are interested in switching to an energy provider that allows bill smoothing, then first make sure you the compare energy providers that let you do so.