What Average Billing Does
Average billing, also called level pay or budget billing, is a payment program that every Texas retail electric provider (REP) must make available to non-prepaid customers who are not currently delinquent on their account, and that many municipal utilities and electric cooperatives offer as well. The program calculates an average of your expected annual electricity costs, then divides that figure into 12 equal monthly installments. You pay the same dollar amount every month regardless of whether you run the air conditioner at full blast in August or barely touch it in March.
The critical point: the program smooths the payment schedule, not the actual energy cost. Every kilowatt-hour you consume is still billed at the rate on your contract or tariff. Average billing simply defers the difference between what you owe each month and what your installment payment covers. That difference accumulates in what utilities call a deferred balance, and it gets settled at a true-up date, typically once per year.
How the Monthly Installment Is Calculated
The utility or provider starts with an estimate of your total electricity cost for the next 12 months. That estimate is built from two inputs: your home's historical usage at that address and the current applicable rate.
The annual estimate is divided by 12. That quotient becomes your monthly installment. If your home is projected to use 14,000 kWh over the next year at an all-in rate of 14 cents/kWh, your estimated annual bill is $1,960 and your monthly installment is roughly $163.
Recalculation frequency varies by provider. Some recalculate every month against a rolling 12 months of usage charges, others every three or six months, to prevent the deferred balance from growing too large. If your usage runs higher than projected, or if the rate on a variable-rate plan adjusts upward, the recalculation raises your installment. That recalculation is the most common answer to the question: why did my average billing go up?
The Deferred Balance: What It Is and Why It Matters
Every month, your actual energy charge either exceeds or falls below your installment payment. The running total of those differences is the deferred balance. A positive deferred balance means you owe the provider more than you have paid. A negative deferred balance means the provider effectively holds a credit on your behalf.
In the competitive market, your REP (not the wires company such as Oncor, CenterPoint, AEP Texas, or Texas-New Mexico Power) issues your bill, and Public Utility Commission of Texas (PUCT) rules require that bill to clearly show the level or average payment amount due. Most REPs also show the deferred balance. Reading that line item is not optional if you want to understand your true financial position. A large positive deferred balance going into summer means your installment is about to be recalculated upward, or you will face a meaningful true-up bill in the fall.
Because each retail provider sets the details of its own average billing program in its terms of service, disclosure practices can vary. Reviewing the terms of service before enrolling is the safest approach.
Why Average Billing Goes Up Mid-Year
Homeowners who enroll in January, see stable installments through April, and then receive a higher installment notice in May are often confused or frustrated. The increase is almost always explained by one of three things.
First, actual usage exceeded the initial estimate. A new baby, a home office addition, a guest staying for months, or simply a hotter-than-average spring can push consumption above the baseline projection.
Second, the account is on a variable-rate plan and the rate increased. Average billing does not lock in a price per kWh; it locks in a monthly payment amount based on the rate at the time of calculation. If the rate moves, the underlying cost moves, and the installment follows at the next recalculation.
Third, the utility's periodic recalculation is catching up to a deferred balance that grew faster than expected. The program is designed to prevent a large year-end settlement, so the servicer raises the installment proactively.
Households on fixed-rate retail plans with their own usage patterns are the most insulated from mid-year surprises, because the per-kWh cost at least stays constant until the contract term ends.
Budget Billing Pros and Cons
Average billing serves a genuine purpose for some households and is a poor fit for others. The trade-offs are straightforward.
Advantages
Predictable cash flow is the primary benefit. Households with fixed monthly budgets, retirees on Social Security, or renters splitting bills by fixed shares benefit from knowing the electricity line item will not spike to $400 in July. For those households, the convenience of predictability is worth the administrative complexity of deferred balances and true-up settlements.
Average billing also removes the behavioral penalty for running efficient appliances or taking conservation steps mid-year. With standard billing, savings show up immediately. With average billing, savings reduce the deferred balance and lower the true-up, which is still a real financial benefit, just a delayed one.
Disadvantages
Average billing masks the true cost of electricity consumption in real time. Households that want price signals to motivate conservation will find the program works against that goal. When your monthly bill is the same in July as it is in February, the incentive to pre-cool the house at off-peak hours or upgrade to a more efficient HVAC unit is harder to feel in the wallet.
The year-end true-up can be a genuine financial shock. Households that budget tightly and spend the money they do not pay in winter may not have reserves to cover a $300 or $400 true-up in November.
Finally, average billing paired with a variable-rate plan creates compounding unpredictability. The installment can change at every recalculation interval, so the household gets neither a fixed rate nor a truly fixed payment over the full year.
When Average Billing Makes Sense and When It Does Not
Average billing is worth considering for households that have lived at the same address long enough to have reliable usage history, that are on a fixed-rate retail plan for at least 12 months, and that have a moderate deferred balance relative to the monthly installment. In that scenario, the program delivers meaningful cash-flow smoothing with limited surprise risk.
Average billing is a poor fit for households in a new home with no usage history, households on variable-rate plans, and households that are actively shopping for a better electricity plan. Enrolling in average billing mid-contract and then switching providers typically triggers an immediate true-up of the entire deferred balance. That can convert a manageable year-end settlement into a large lump-sum bill due at the time of switching.
Households that are considering switching should understand the deferred balance before initiating a switch. Most providers show it on the monthly statement, and a quick call to customer service can confirm the exact settlement amount.
How Average Billing Interacts with Plan Structure
One aspect of Texas plan design that average billing does not neutralize is the bill-credit cliff found in many retail plans. As of August 23, 2026, 18 of the 122 plans listed on ChooseMyPower carry a structure where the bill at 500 kWh runs $25 or more above the bill at 1,000 kWh, because a bill credit only activates at the higher usage tier. Average billing calculates an installment based on projected usage. If a household's actual usage falls below the credit threshold in mild months, the underlying charge for those months is higher than the average-billing installment assumed, and the deferred balance grows accordingly.
Before enrolling in average billing, it is worth reviewing the Electricity Facts Label (EFL) for the underlying plan to determine whether the rate structure changes at different usage levels. The PUCT requires all retail electric providers to publish EFLs in a standardized format.
The Bottom Line
Average billing is a payment management tool, not a savings program. It can make household budgeting more predictable, and for the right household on the right plan, that predictability has real value. It does not reduce the cost of electricity, it does not protect against rate increases on variable plans, and it creates a deferred balance that must eventually be settled. Households that understand those mechanics are in a position to use the program on their terms rather than be surprised by it.