Fixed-Payment Utility Plans Can Have Nasty Endings

No one likes to get hit with high utility bills in the middle of winter. If you heat your house with electricity, paying hundreds of dollars more in January than you do in July is pretty much the norm -- and the same goes for other utilities. This year, increased energy costs could make your midwinter heating bills significantly higher.

For many consumers, the solution is to work out a budget plan with your utility providers so you can even out the highs and lows of the annual billing cycle. In essence, you pay more in summer so you can pay less in winter. 

With a fixed-payment plan or budget plan, you make equal monthly payments to your utility provider based on your previous year's usage. But if you end up using more power, oil or propane than last year -- or even worse, if the price of whatever you are buying jumps significantly -- your monthly payment will stay the same, even though it may no longer cover what you owe. When your contract ends, you'll owe a hefty "balloon" payment to make up the difference.

That's why the folks at Consumer Action, a national nonprofit consumer education and advocacy organization, are wary of some of the budget plans that are out there.

"The problems with fixed-payment plans is that they don't actually protect the consumer from a rise in prices," says Linda Sherry, director of national priorities for Consumer Action. "That leaves consumers exposed to huge bills at the end of their contract."