How are my utility bills broken down?

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How do I read my utility bills?

You might automatically pay your gas and electric bills online or with direct debit, but do you know exactly what you’re paying for? There’s more than meets the eye in the average utility bill, so here’s an easy breakdown of the different charges – and how to reduce them. 

What’s included in a utility bill statement?

You’ll find some basic facts on your average electric bill, starting with your energy supplier’s contact details and your customer reference number. These can be particularly helpful if there are any discrepancies with your own records, so keep them to hand. You’ll also see a billing period that the statement covers, as well as a bill 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 tax, along with details regarding how to pay this amount to the utility company.

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 your last payment, which can be quite helpful in pinpointing these seasonal changes. However, if the last payment was drastically different from what you now owe, it’s worth finding out why – it could be due to an expired tariff. 

Along with information about your payments, your statement should include some details about your current 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 your supplier works out your energy use

We all go through a different amount of energy depending on the day, so how does your supplier work out how much you’ve used? While some use your previous bills as the basis for an overall average, this isn’t the most accurate method. If the supplier underestimates your use, you’ll end up paying a larger bill later. 

This is why most energy suppliers work out your bill using meter readings. Some companies send representatives round to your home to take the reading for you, while others allow 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.

How your gas and electric charges are 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. 

  • Wholesale costs

It’s probably no surprise that most of your bill comes from the supply of gas and electricity you’re using. The wholesale cost breaks down to 67% of your gas bill and 58% of your electricity bill. These wholesale costs refer to what your supplier pays to get 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 distribution fees

Another major component of your utility bill is the cost of delivering the gas and electricity into your home. Roughly 4% of your electricity bill and 2% of your gas bill goes toward these transmission networks. 

When it comes to distribution, think about all those pipes and wires required to get the energy through the network and into your home. Your bill includes some of the costs of maintaining the pipes and wires that distribute energy throughout this national network. This distribution cost is about 16% of your total bill. 

  • Government environmental initiatives

Suppliers pass down some of the costs related to energy-saving government programmes. These environmental costs add up to about 6% of your gas bill and 11% of your average electricity 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. This is currently capped at 5% of the total gas and electricity bill. You’ll be able to 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 from any business. These additional costs of operation comprise a small percentage of your utility bills. 

How to pay your gas and electric bill

The balance is displayed at the bottom of your utility bill. 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:

  • 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. 

  • 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. 

Ways to reduce your energy 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. 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 make switching the lights off a habit whenever you leave a room. 

  • 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 thoroughly each time. If you have an economy setting, use it to save a bit of power, and air-dry your clothes. In the kitchen, place a Hob Gas Saver over your burner to boost efficiency to the tune of 12%. When you’re in the market for new kitchen 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 tablet or TV in standby, buy a standby saver designed to automatically shut them down. It will help save money on those electricity bills. 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. 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. 

Ben GallizziEnergy Expert - Oct 23rd 2019