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OK, so our electric company offers an "average billing" service.
Here's how it works. The month you sign up for average billing, they add up your previous 12 months' bills and divide by 12, and that's what you owe. Each successive month, you pay the average of the immediately previous 12 months.
Now, of course, one obvious way to look at this is "paying 1/12 of each month's bill for the past year, every month." So, after a year on average, you'd reach an equilibrium where you'd pay 1/12 of the previous year's monthly bills every month for 12 months and that would pay the full bill off. The total you paid in your second year would be EXACTLY equal to the total amount of all the bills, you'd just pay it evenly.
But think about this. Let's say that I sign up now, so that my September bill will be "averaged." Let's make up some numbers and say that last fall, in September, October, and November, I left the door open a lot and heated up the neighborhood and my bill was $240 each month. Then in December, I remembered what my momma told me and shut the door, and turn off lights when I left the room, and so on, and since then my bill has been exactly $120 a month.
So, the September average would be 1/12 of $120, or $10, times nine months, plus 1/12 of $240, or $20, times three months, for a total of $150.
So I'd be paying a $150 "average" bill, even if my usage was $120. I'd be paying $140 the next month, $130 the next, and $120 after that, assuming I stayed "good" about my power usage, for a total overpayment of $60.
Now, you might say, "but this is an average!" Yes, but I've ALREADY PAID those whopping $240 bills, in full, during the months they happened!
Sure, this is an exaggeration, but the first year of average billing, any time your usage last year was over your current usage, you will be paying an excess amount equal to 1/12 that usage, in return for the modest amount of electricity you actually use. And this is for every month until that month "falls off" the year!
This makes me feel not nearly so dumb about my own homemade "average billing" system. In the spring, before it starts to get hot, I send an extra $20 or $25 in addition to my full bill for a month or two. When summer hits, I can pay the full bill if I'm able, or take advantage of that $50 "cushion" and pay the bill less $50 any month I need to (that is, if it's miserably hot and we have to pay a lot more than I budgeted). When the hot months are over (okay, this IS Oklahoma, so that's...November) then if I haven't already done it, I pay only the amount needed to make it even.
So what this loses me is 6 months or so of the theoretical interest I could get, on $50, which at 3% annually would be...75 cents. And in return, I don't have to pay $20 or more of last year's bills that I already paid, for the privilege of "paying less."
I bet everyone on average billing this spring threw a FIT when we had those days and days of rain and they didn't have to run up $200 A/C bills like they did last year.
Here's how it works. The month you sign up for average billing, they add up your previous 12 months' bills and divide by 12, and that's what you owe. Each successive month, you pay the average of the immediately previous 12 months.
Now, of course, one obvious way to look at this is "paying 1/12 of each month's bill for the past year, every month." So, after a year on average, you'd reach an equilibrium where you'd pay 1/12 of the previous year's monthly bills every month for 12 months and that would pay the full bill off. The total you paid in your second year would be EXACTLY equal to the total amount of all the bills, you'd just pay it evenly.
But think about this. Let's say that I sign up now, so that my September bill will be "averaged." Let's make up some numbers and say that last fall, in September, October, and November, I left the door open a lot and heated up the neighborhood and my bill was $240 each month. Then in December, I remembered what my momma told me and shut the door, and turn off lights when I left the room, and so on, and since then my bill has been exactly $120 a month.
So, the September average would be 1/12 of $120, or $10, times nine months, plus 1/12 of $240, or $20, times three months, for a total of $150.
So I'd be paying a $150 "average" bill, even if my usage was $120. I'd be paying $140 the next month, $130 the next, and $120 after that, assuming I stayed "good" about my power usage, for a total overpayment of $60.
Now, you might say, "but this is an average!" Yes, but I've ALREADY PAID those whopping $240 bills, in full, during the months they happened!
Sure, this is an exaggeration, but the first year of average billing, any time your usage last year was over your current usage, you will be paying an excess amount equal to 1/12 that usage, in return for the modest amount of electricity you actually use. And this is for every month until that month "falls off" the year!
This makes me feel not nearly so dumb about my own homemade "average billing" system. In the spring, before it starts to get hot, I send an extra $20 or $25 in addition to my full bill for a month or two. When summer hits, I can pay the full bill if I'm able, or take advantage of that $50 "cushion" and pay the bill less $50 any month I need to (that is, if it's miserably hot and we have to pay a lot more than I budgeted). When the hot months are over (okay, this IS Oklahoma, so that's...November) then if I haven't already done it, I pay only the amount needed to make it even.
So what this loses me is 6 months or so of the theoretical interest I could get, on $50, which at 3% annually would be...75 cents. And in return, I don't have to pay $20 or more of last year's bills that I already paid, for the privilege of "paying less."
I bet everyone on average billing this spring threw a FIT when we had those days and days of rain and they didn't have to run up $200 A/C bills like they did last year.
