Why don't utility companies charge the exact amount used for the monthly bill?
Why don't utility companies charge the exact amount used for the monthly bill?
Coming from another country, I always wonder why the two utility companies I have here in the UK, Thames Water and Octopus Energy, would calculate an amount that they think I should pay monthly, instead of just charge whatever I used last month. To me, the latter way makes much more sense and is the standard practice in the countries I lived before.
The amount they calculated seems to generate either a huge credit balance, or a huge underestimation. Thames Water changed my monthly bill from £29 to £7, and then to £17 over the course of a year and a half. Octopus Energy built up more than £200 of a credit balance (not sure if it's a result of the UK government energy gift credit last winter), then set a minimal amount of £61 monthly. They say the purpose is to make sure that the credit balance would be always be more than £100. Okay...but why? If I want to save money, I'd go to a bank.
I could see that it might make sense if the measurement is not as easy or accurate, but come on, it's the 21st century and the meter shows me my energy usage by the hour, surely they can calculate the exact amount rather than pull a random number out of nowhere?
"Most people" don't budget very well and would prefer to pay a known, fixed amount every month rather than get lulled into a false sense of security by cheap Summer bills when the heating is off and daylight abundant (we don't generally have air conditioning), only to then get hit for massive bills that they can't afford when the heating goes on in the Winter.
To make this work they try to find the sweet spot so that your balance fluctuates between building credit in the Summer and going into debt in the Winter, but ultimately balancing out to zero-ish throughout the year. If your balance goes too far negative they'll ask you to increase your payment and if you build too much credit you can reduce your payments and/or get (some of) the credit back.
All that said though, if you'd rather just pay each month's bill in full then Octopus will let you do that. You might need to contact them to make the change.
Thanks. I didn't know Octopus supports that. That being said, billing the exact amount approach has been working fine for billions of people elsewhere, I guess maybe it's just a cultural difference.
Yeah that's undoubtedly part of it, but it's fueled (excuse the pun) by the vast Summer to Winter disparity in energy usage. My own energy bills are currently very low thanks to rooftop solar, but my house is very poorly insulated so I'm expecting my Winter bills to be 10 to 15 times higher than they are now once the temperature drops into the mid teens and my gas heating goes on.
Most housing stock in the UK is unfortunately just as badly insulated so people like to know they're not going to get massive unpayable bills in the Winter by paying more than necessary in the Summer.
Cultural and geographic difference, depending on what we're comparing to.
The UK system has the advantage (to the energy companies) that'd you're paying in advance which is great for their cash flow and reducing the odds of bad debt.
The idea with energy is that you pay the same year round, so you don't get hammered by bills in the Winter.
Seems a bit... paternalistic and the fact that it leads to them having a tonne of our cash is hardly a coincidence. They likely make more money from investing that than they do from their core business (see also: the insurance industry).
You have the option of doing average billing in the US but we just pay based on usage. Most of the other plans with promotions or discounts ended up being more expensive when I ran the numbers in my case.
I had quarterly-averaged bills when I had housemates. It was easier to pay for the two months of heater usage over six months of bills than deal with the spike.
The way they do it here is to estimate your usage, and then come check the meters every 3 months and adjust your bill for actual usage. Although they just installed a new networked smart meter a couple months ago, so I guess they might be charging for our exact usage now. I do not really know, because I didn't ask them.
They do if you ask them to.