Utility Bills: How to understand and Optimize them

To help you feel more in control of your utility bills, and to ensure that you're saving on energy bills for your household, we’re taking an in-depth look at these essential outgoings and what they mean for you.

What is considered as a utility bill?

‘Utility bill’ is an umbrella term that includes your electricity, gas and water usage and costs. It can also include bills for other essential services like sewerage and waste disposal. Some non-essential services, like internet and landline connections, can also be considered utilities. This is because, while they’re not essential, they are a very important part of modern life and contribute to a good standing of living. In general, when people talk about ‘utilities’ they are referring to water, gas and electricity.

How to read my electric bill?

In order to stay on top of your utility bills and manage your payments, you first need to get to know your utility bills. When looking at your electricity bill, you’ll notice a few different charges and figures. In most cases, these will be:

• The price you pay per kWh
• Your total monthly consumption
• Your daily standing charge
• The VAT that’s added to your bill

Some energy companies will also add an environmental levy to your account to help cover the cost of investments in renewable energy and other green projects. Adding all of these fees and charges together will give your total energy bill for the month.

How to read my gas bill?

Like electricity bills, gas bills are made up of a few different figures. Your gas supplier will also charge you a daily standing fee to connect you to the grid and they’ll also charge you per kWh of energy that you consume during the month. Like your electricity bill, your gas bill will probably be made up of:

• The price you pay per kWh
• Your total monthly consumption
• Your daily standing charge
• The VAT that’s added to your bill

Breakdown of your utility bill

If you’d like to know even more about your utility bills and what you’re really paying for, you can go even deeper into the fees and charges you pay your supplier. Although some suppliers make their bills up slightly differently, there are some factors that all utility bills have in common. These are:

Energy use

The amount of energy you consume is always going to have a big impact on the cost of your utility bills. Most energy companies will charge you a set fee for each kWh of gas and electricity you use. They’ll use an energy meter to monitor your consumption and then use this figure to calculate how much you owe them for the month. The cost of a kWh of gas and electricity can vary from supplier to supplier and region to region. At the moment, the average amount customers pay for a kWh of electricity is 16.3p. The average cost of a kWh of gas is 3.8p.

Standing charge

The standing charge is the amount that your energy provider charges to connect you to the grid. They charge this as a daily fee and, in most cases, you’ll have to pay it whether you use any energy or not. At the moment, the average standing daily charge paid by customers in the UK is 20p per day for electricity and 24p per day for gas. However, these figures can vary widely between suppliers and tariffs.

Distribution fees

Your energy supplier has to pay your local distribution network operator (DNO) to maintain local energy infrastructure and deliver gas and electricity to your property. In order to cover these costs, your energy supplier will include distribution fees in your utility bill. In general, these fees will be included in the cost of your gas or electricity, you won’t see them listed as a separate charge. However, they do ad a considerable amount to your monthly bill with around 16% of everything you pay your energy supplier going straight to the DNO.

VAT charges

Like almost everything else you buy in the UK, your utilities have VAT added to them. Domestic energy customers in the UK currently pay a reduced rate of 5% VAT on their gas and electricity supply.

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Environmental fees

Environmental fees added to your energy bill are put towards offsetting the carbon produced during gas and electricity generation. They can also be used to invest in other green and sustainable projects as well as social schemes. At the moment, around 23% of your bill is made up by environmental charges and social obligation costs.

Wholesale energy and supply costs

One of the main factors that influences the cost of your utility bill is the price of wholesale energy. When wholesale energy prices are high, this is passed onto the customer, increasing bills and making energy more expensive. When wholesale prices are low, prices drop and customers should see lower energy bills. Around 34% of your energy bill is made up of wholesale energy costs.

Other fees

Energy companies often tack other fees onto your bill in order to cover the costs they incur supplying your property. The table below shows a detailed breakdown of an electricity bill for 2020:

Other elements you may find on your energy bill

The most prominent features of your electricity bill will be the amount you owe, your total monthly consumption and your tariff details. However there are a number of other elements that are commonly found on energy bills. Understanding these elements should help you get more from your tariff and keep your payments to a minimum.

• Electricity supply number: Your supply number, also called a Meter Point Administration Number or MPAN, is unique to your house. You’ll need it whenever you switch supplier. Your MPAN will be 21 digits long and will be printed on all electricity bills.

• Your estimated usage over the past 12 months: Some energy suppliers will include your estimated usage for the past year. This is not your actual usage but will give you an idea of how much gas and electricity you’ve consumed. Submitting regular meter readings will help to ensure that your bills are accurate and you pay the correct amount for your energy.

• Where does my money go?: Some energy suppliers include a breakdown of where exactly customers’ money goes. So you might see something like 42% - wholesale energy costs, 25% delivery costs, 15% environmental and social levies and 11% operating costs. This should give you a clearer idea of what exactly you’re paying for and help you to understand your energy bill.

• Previous usage: It’s also common to find information about your previous month’s energy consumption on your bill. This shows you if the amount of gas and electricity you use has gone up or down over the last 30 days. It can be a useful tool for monitoring your ongoing energy usage. Instead of showing your consumption for the past month, some energy companies may include a comparison between the current period and the same period last year. This is useful as consumption often varies during the year.

• TCR: The TCR, or Tariff Comparison Rate, was introduced by Ofgem to help make tariffs easier to understand and easier to compare. It's a figure that includes everything you have to pay as well as any discounts available including standing charges, unit rates and discounts. Your TCR should be printed clearly on your energy bill.

• Could you pay less?: A lot of energy companies will include a segment titled ‘Could you pay less?’. This should show you any tariffs that are available from the supplier that are cheaper than your current deal. This is a useful comparison tool. However, as it only includes tariffs from your existing supplier, it won’t give you a full picture of all of the deals available on the market.

How much are utility bills per month on average?

On average, UK households pay £1,289 a year, or £107 per month, for their gas and electricity. That works out to £56.50 per month for electricity and £50.80 per month for gas. Both gas and electricity costs are going up year on year. Between 2018 and 2019, electricity prices rose 6% and gas prices rose 2.8%. This means that it’s more important than ever to find a good deal on your utility bills.

How to save on utility bills at home

As utility bills make up a large proportion of monthly outgoings, working to reduce them can have a positive impact on your finances. Luckily, there are a number of ways that you can save on your home utility bills and boost your finances. Here are some of the most effective:

Reduce your consumption

The easiest way to save on your utility bills is to reduce your consumption of gas and electricity. After all, the less you use, the less you’ll have to pay. When working to reduce your electricity consumption, the first thing you should do is replace your old light bulbs with energy efficient new ones. This is easy, affordable and can make a considerable difference to how much energy you use. Swapping other energy-sapping appliances for new, more efficient models is also a good idea. Your old fridge, oven, toaster, kettle and tumble dryer could be guzzling a lot more electricity than they used to, so why not update them with something greener? As most gas is used up powering your central heating system, the easiest way to reduce your consumption of the fuel is to turn down your thermostat. Insulating your loft and cavity walls, and replacing any single glazed windows and ill-fitting doors with newer models, will help to keep your home toasty even when the heating is turned down low.

Switch supplier

Switching supplier is another good way to reduce your energy bills. If it’s been a while since you switched, you may well find you can get a better deal elsewhere. Use an impartial price comparison service to find a cheaper tariff and a high quality energy supplier.

Switch tariff

Even if you don’t want to switch supplier, you may find you can save money by changing your tariff. If you’re currently on a standard variable deal, locking into a 12, 24 or 36-month fixed rate tariff could help you save a significant amount on your monthly energy bill.

FAQ

How to change name on utility bills

If you need to change the name on your utility bills, you’ll need to get in touch with your utility suppliers. Some companies allow customers to update account details online, however in other cases, you’ll need to call up and speak to someone about changing the name.

How long should I keep utility bills UK

Ideally, you should keep your energy bills for around two years after you receive them. This will give you a good record of your spending and help you monitor your consumption. If you don’t have the space to store your utility bills, you could scan them and keep them in a digital file.

How can I estimate my utility bills

Estimating your gas and electricity bills is fairly easy. You’ll need to take a look at how much energy you’ve used since your last bill (check your monthly meter readings) and then multiply this by the amount your energy company charges for each kWh of gas or electricity you use.

If you don’t have any meter readings or kWh prices handy, you can take a look at Ofgem averages to get an idea of how much you might pay.

What are the basic utilities?

Basic utilities are those that are considered essential for a basic standard of living. These include water, gas and electricity. These days, some people also consider internet and landline connections to be utilities. However, as these aren’t essential, they’re often not included in lists of utilities.