Monday, July 26, 2010

Equal Billing Plans Encourage Increased Consumption

Utilities often offer some sort of equal billing plan that allows customers to pay fixed payments each month. This requires the utility to guess each customer’s consumption for the year. Any estimation error gets corrected at the end of the billing year. But, what effect does equal billing have on consumption?

Ellen Roseman reported that natural gas utility Enbridge underestimated customer consumption over the past year by a wide margin. This has led to a predictable outcry from customers unhappy with the large bill they received to cover actual gas consumption. Lost in the discussion of whether Enbridge should have done a better job is the negative effects of equal billing (called the Budget Billing Plan by Enbridge).

In general, people like predictability in the costs they face. It’s easier to plan exactly how much money will be left out of every pay cheque if all monthly costs stay constant. However, for many people, once a monthly amount is set, the mental link between consumption and having to pay for that consumption is severed.

It becomes far too easy to nudge the thermostat up another degree in the winter if you won’t have to pay the added cost until the next summer. When monthly billing is based on actual consumption, the delay from setting the thermostat to seeing the higher cost is only a month or less. The shorter this delay is, the better most people are able to control their consumption.

The hue and cry over the large Enbridge bills is evidence of consumers’ ignorance of their gas costs. If these people had faced unpleasantly high bills sooner, some may have chosen to reduce their use of natural gas sooner.

9 comments:

  1. This is a good point. Enbridge might be wise to take a page from the government's handbook and overcharge by 10-20%. Then at the end of the year, customers will be happy to receive a refund.

    ReplyDelete
  2. @Gene: Overcharging slightly would probably be a smart approach by Enbridge and it would likely make most customers happier. However, I don't think the concept of equal billing serves consumers well.

    ReplyDelete
  3. Wow. The extra charges in July for some users ranged between $600 to $1,100, according to Ellen Roseman's post. How could Enbridge screw up by so much? The billing plan not only misled users into consuming more than they otherwise would have. It also did not contribute to conservation of energy from a larger perspective.

    ReplyDelete
  4. @Larry: I think the larger issue is your latter remark that the billing plan hides excessive consumption until the end of the year. It's hard to know what went on for the extreme cases of $600 and $1100 charged at the end of the year. Maybe a couple who moved out of a house kept the place at 18 degrees C in the winter, and the new owner prefers 25 degrees C.

    I think it makes sense to crticize Enbridge for encouraging over-consumption, for failing to update the billing plan amount earlier in the year, and for underestimating usage for too many customers, but the extreme cases could easily be the result of large increases in consumption from one year to the next.

    ReplyDelete
  5. Sure is an odd situation. Enbridge was inadvertantly offering deferred payment on natural gas to its customers. This is a serious oversight, giving so many customers a free ride. Now, it's angering them by asking for payment that people haven't budgeted for. Maybe they'll make up for the free loan given customers with late fees and interest, but that's no way to run a railroad, as the expression goes.

    If I were a customer on the equal billing plan, watching an increasing shortfall build up, I would feel lucky to be able to defer payment. If I weren't paying attention, I would feel blindsided just like the other clients.

    ReplyDelete
  6. Good article Michael.

    Maybe I should count overselves lucky because we got a credit back from Enbridge last month for our gas bill (overpaid with BBP)?

    ReplyDelete
  7. @Gene: I'm not on equal billing, but if I thought I could get a loan from Enbridge each year I might try it.

    @Financial Cents: I guess it depends on how you look at it. Unexpected bills are no fun, but getting an interest-free loan is good.

    ReplyDelete
  8. We set our thermostat at either 20 or 21 Celsius. My family does not overconsume natural gas. Yet because of the BBP screwup I'm out money. What really angers me is it was their fault. I could accept colder weather than normal leading to a higher balance at the end of the season for the BBP but not this way. This is a lesson for all of us to not trust big companies to do the right thing (BP anyone?).

    ReplyDelete
  9. @Anonymous: To be precise, you're not really out any money. You are paying for the natural gas you used. The issue is that you were surprised with the news that the cost was more than Enbridge said it would be. Unexpected bills have a cost, but how much trouble they cause has a lot to do with the nature of your finances. The other cost you face is the lost opportunity to lower your thermostat further if you absolutely had to keep your natural gas costs down.

    ReplyDelete