How are my utility bills broken down?

Last updated: 15 October 2020

In this guide you’ll get answers to the following questions:

  • What’s included in a utility bill statement?

  • How does my supplier work out my energy use?

  • How are my gas and electric charges determined?

  • How can I pay my gas and electric bill?

What is a utility bill?

A utility bill contains the charges you’ve run up and payments you’ve made for a specific type of utility: water, energy (gas and/or electricity), telephone, broadband, and so on. In this guide we’ll help you decipher what’s in your energy bill, plus how to reduce your costs going forward.

What’s included in a utility bill statement?

The typical utility bill example starts by displaying some basic facts: your energy supplier’s contact details and your customer reference number. These are obviously crucial to giving you a point of contact to query your bills (or indeed any aspect of your gas and electricity supply), along with your all-important customer reference number. You’ll also see a billing period – that’s the period this specific bill covers, as well as a date when the statement was issued. These are usually positioned near the top of the bill. 

Near the bottom of the statement, you’ll find the date for when your payment is due. The payment section will show the amount you owe, both before and after VAT, along with instructions on how to pay any outstanding amount to the utility company if you’re not already making regular payments, such as by direct debit or standing order.

Energy bills fluctuate over time due to the seasons, changing rates, and your own level of use. You’ll naturally use more energy during the winter months and less during the summer. The bill will include a section detailing the previous period’s charges and payments, which helps to pinpoint regular seasonal changes. However, if your last payment is significantly different to what you now owe, you should find out why – it might be your fixed-rate tariff has expired, or it could be something else entirely.

Alongside information about your payments and charges, the statement should also include some details about your current energy plan, including an MPAN supply number and MPRN meter point reference number for identification. These are different to your customer reference number. Your MPRN will stay the same no matter which supplier you’re using, so hold onto it because you may need it if you choose to switch. Finally, you’ll see a breakdown of your energy usage during the billing period

How does my supplier work out my energy use?

Everyone’s energy consumption varies on a daily basis, with no two days being the same, , so how does your supplier work out how much you’ve used? Energy is consumed in units measured as kWh (kilowatt hours), and you’ll see these charges appear on your bill.

The amount of energy listed will come from two principal sources: a meter reading, which provides an accurate record of your energy use up to the day it was taken, or an estimate. Estimates are made when your supplier doesn’t have access to a recent meter reading, and are an average calculated from your previous bills. Naturally, it’s not the best method as you could end up overpaying or – worse still – underpaying for your energy usage, which could over time leave you owing a significant amount.

This is why energy suppliers prefer to work out your bill using actual meter readings. Some companies send representatives round to your home to take the reading for you, but others encourage you to submit them yourself by phone or online. Regular meter readings give a far more accurate idea of your actual energy use, so you won’t face a surprise bill down the line. It’s recommended that you provide meter readings at least once every three months to keep your supplier’s records up to date and improve the accuracy of your bills.

Estimated bills should soon be a thing of the past as the smart meter rollout continues. Smart meters send meter readings automatically to your energy supplier at regular intervals to ensure your readings are up to date.

How are my gas and electric charges determined?

From supply costs to distribution fees, there are numerous factors that go into the final payment amount on your gas and electric bills. Here’s a breakdown of what’s involved – all figures from Ofgem, August 2020. 

  • Wholesale costs

It’s probably no surprise that the single largest part of your bill comes from the supply of gas and electricity you’re using. The wholesale cost breaks down to around 40% of the average dual-fuel energy bill (34% electricity, 46% gas), which covers what your supplier pays to source the gas and electricity in the first place, whether it’s via an exchange, gas producer, or electricity generator. This cost will fluctuate according to global supply and demand, with the changes reflected in your bill. Suppliers try to minimise any sudden price changes by purchasing their energy well in advance. You can explore fixed versus variable rates to see how these are managed.

  • Transmission and operating costs

Another major component of your utility bill is the cost of delivering the gas and electricity to your home through the pipes and wires that connect you to the network. Transmission network costs, which cover the building, maintenance, and use of these networks, make up around 24% of the average dual-fuel bill.

Operating costs make up the next largest segment – 18-19% - and cover the supplier’s own operating costs as well as the delivery of your services. The latter includes the cost of metering – both the meter itself, and the reading and processing of that data.

  • Government environmental initiatives

Suppliers pass down some of the costs related to government energy-saving and social obligation costs. They make up nearly 23% of your electricity bill, but a mere 2% of your gas bill (so around 13% of a dual-fuel bill). Examples include programmes like the Feed-in Tariff scheme, the Renewables Obligation, the Community Energy Saving Programme, and the Carbon Emissions Reduction Target. They’re designed to reduce emissions and encourage wider use of renewable energy sources, which helps reduce wholesale costs in the long run. 

  • VAT payments

Your bill will also include a VAT tax payment. VAT on electricity and gas is currently capped at 5% of the total bill. You’ll see the full amount in the payment section. 

  • Additional costs

In the end, suppliers are businesses, and they incur all the administrative, marketing and sales costs that one would expect. These additional costs of operation comprise a small percentage – around 1.5% of your utility bills – which leaves around 4-5% of your bill that makes up your supplier’s profit margin (before tax). 

How can I pay my gas and electric bill?

The balance you owe for the current bill is displayed at the bottom. There are plenty of options when it comes to payment, whether you wish to pay online, via a smartphone app, or at the Post Office. Here are your main payment options – note, the actual options available to you will vary by tariff and supplier:

  • Prepayment meters

Pre-paid meters operate with a pay-as-you-go system. You’ll top up your meter with a key, online smartcard, or token in advance. 

  • Standing order

This is an easy way to pay the utility company directly through your bank account on a prearranged basis, particularly if you’re consistent with your energy use. 

  • Direct Debit

There’s a bit more leeway with a Direct Debit payment, which could be fixed or variable. This is usually the preferred payment method for energy suppliers, so you might even snag a discount on your bill. 

  • Online payment

Many suppliers allow you to log into an online account through your web browser to pay your bill by debit or credit card.

  • Giro bank slip

You’ll see a giro bank slip at the bottom of each energy bill, which gives you the option of a one-off cash or cheque payment

How can I reduce my gas and electric utility bills?

Are your energy bills too high? Although you can’t manage aspects of your bill like the VAT and wholesale costs, you can reduce what’s owed with a few simple lifestyle changes at home. Here are some tips to get started. 

  • Manage heating costs

For most households, the bulk of your energy bill stems from heating your home and water. Try turning your thermostat down or investing in a smart thermostat system. Even a single degree saves up to £80 throughout the year. Give your home’s insulation a boost to lock in natural warmth or install a radiator booster for more efficient circulation throughout the room. 

  • Turn the lights off

Heating your home can make your gas bill skyrocket, and lighting it has a similar effect on your average electric bill. One of the easiest ways to save money is to replace your old lightbulbs with energy-efficient designs. These last significantly longer, saving you £35 per year in the meantime. Of course, it doesn’t hurt to get into the habit of switching off the lights whenever you leave a room too.

  • Minimise appliance use

If your kitchen contains a washing machine, dishwasher, and full-size refrigerator, it’s going to burn through a great deal of energy. Cut down on your washing loads by waiting to fill the machine each time. If you have an economy setting, use it to save a bit of power, and air-dry your clothes. In the kitchen, microwaving is more efficient than using the oven (although a slow cooker beats both), boil water in a kettle before transferring it to the pan (using the correct sized hob on a low temperature sufficient for it to simmer rather than boil), and consider switching off your oven 10 minutes before you’ve finished cooking as the residual heat will be sufficient to finish the job. Finally, if you’re in the market for new appliances, look for those clearly marked with an energy efficiency sticker. They’ll save you a bundle over time. 

  • Be mindful of electronics

In today’s world, it’s not uncommon to always have a gadget or two in standby mode. If you’re constantly leaving your stereo or TV in standby, buy a standby saver designed to automatically shut them down and help shave more money off your electricity bill. Many of us charge our laptops and mobile phones overnight while we’re sleeping, which is another wasteful habit. Instead, charge them during the day when you’re able to turn them off once they’re at 100%. Turn your devices off when they’re not in use. 

Your electric and gas bills provide a great deal of useful information, so it’s worth taking a closer look to assess how you use energy. You might notice patterns that help you reduce your bills over time using the energy saving tips mentioned above – switching to a smart meter can also provide you with real-time insights into your energy usage. If your energy bills are consistently higher than you would like, one of the easiest ways to save is to compare plans online to find a better deal.

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Published on Wed 23 Oct 2019 03.30 GMT