What am I being charged for?
On every energy bill, your supplier should explain how they’ve worked out what you owe. To do this, they’ll usually include a table with a lot of calculations. If you find this table confusing, don’t worry. This simple guide will explain how your energy supplier works out your fuel costs.
What are the different charges on an energy bill?
An energy bill covers a particular time period. Your bill might be for the energy you’ve used over one month. It might be for the energy you’ve used over three months. The time period you’re being charged for is called “the billing period”. The start and end dates of the billing period should be shown on the bill.
To work out your bill, your energy supplier uses three different costs:
- The unit charge
- The standing charge
To get the final amount, your supplier applies these costs to the billing period. Don’t worry, we’ll go through an example below.
Let’s start by looking at what the different charges mean.
Like most other things, energy is measured in units. Milk is measured in pints or litres. Sugar is measured in kilograms or pounds. Gas and electricity are measured in kilowatt hours (kWh). The cost of one kilowatt hour is known as the unit charge.
The unit charges are set by the tariff you’re on. Gas and electricity have separate unit charges. For example, your gas might be 11p per kWh. Your electricity might be 36p per kWh.
If you’re on a tariff such as Eco 7, you will have two different unit charges for your electricity. There will be a higher day-rate and a cheaper night-rate.
Energy suppliers also charge for supplying energy to your property. This is like phone companies charging line rental. The charge covers your supplier’s costs for running the energy network.
The standing charge is usually a daily rate. It’s the same no matter how much energy you use, even if you don’t use any.
As with the unit charge, there are separate standing charges for gas and electricity. Their costs depend on your tariff.
For example, the standing charge for your gas might be 32p. The standing charge for your electricity might be 54p.
VAT is a tax added to most goods and services. It’s always a percentage of the full amount. For energy bills, VAT adds on 5%.
How does my supplier work out my bill?
Now we know about the three different charges. Let’s see how your supplier uses them to work out your bill.
Remember, your bill is for a specific time period. Let’s say your bill is for 25th Jan – 22nd Feb. This works out as 28 days. Your supplier needs to know how much energy you’ve used in that time.
How does my supplier know how much energy I’ve used?
As we’ve seen, energy is measured in units. Your supplier needs to know how many units of gas and/or electricity you’ve used. This is where meter readings come in.
Our meters keep track of how many units of energy we’ve used. They’re just like the milometer on a car, counting how many miles the car has done.
To work out how many units of energy you’ve used, your supplier needs to know the meter reading. They’ll then look at how much this has gone up since the last reading.
If on 25th Jan your electricity meter reading was 1001 kWh
And on 22nd Feb your electricity meter reading was 1122 kWh
Then between 25th Jan and 22nd Feb you’ve used 121 kWh (1122 – 1001 = 121)
Your supplier will only know your meter readings if:
- You’ve sent them one
- Someone from the supplier has come round to read your meter
- You have a smart meter, which sends readings to your supplier for you
If your supplier hasn’t had a meter reading in a while, they’ll guess how many units of energy you’ve used.
How can I tell if my supplier has guessed my usage?
If your supplier has guessed your usage, you’ll have what’s known as an “estimated bill”. Any estimated meter readings will have “estimated” or an “E” next to them. Actual meter readings will have “actual” or “A” next to them. If the reading is from a smart meter, it should say “smart meter” next to it.
If any of the readings on your bill are estimates, send your supplier a meter reading. We’ve put together guides for reading both gas and electricity meters to help you.
Once you’ve given your supplier a meter reading, they’ll send you an updated, accurate bill.
How does my supplier work out the cost of the energy I’ve used?
Once your supplier knows (or guesses) how much energy you’ve used, they do a simple calculation.
In the example above, your supplier says you’ve used 121 kWh of electricity since your last bill. To work out how much you owe for electricity, they multiply that amount by the unit charge:
If you’ve used 121kWh of electricity
And the unit charge for electricity is 36p
Then the cost of your electricity is £43.56 (121 x £0.36)
In the next step, your supplier works out the standing charge over the billing period.
How does my supplier work out the standing charge for the billing period?
The standing charge is usually a daily charge. To work out the standing charge for the billing period, your supplier multiplies the standing charge by the number of days in the billing period:
The billing period (25th Jan – 22nd Feb) is 28 days.
The standing charge for your electricity is 54p.
So, the standing charge for the billing period is £15.12 (28 x £0.54 = £15.12).
In the next step, your supplier works out the VAT.
How does my supplier work out the VAT for the bill period?
Remember, VAT is 5% for energy costs. Your energy costs are the units you’ve used, plus the standing charge, over the billing period.
For 25th Jan – 22nd Feb (28 days):
The cost of your electricity was £43.56 (121kWh at £0.36 per unit)
The standing charge was £15.12 (28 days at £0.54 per day)
Adding these two together gives us £58.68.
5% of £58.68 is £2.934
How does my supplier arrive at the final amount for the bill period?
In the final step, your supplier adds together:
- The cost of the energy you’ve used over the billing period
- The standing charge for the billing period
- The VAT
In our example:
Our electricity cost was £43.56
The standing charge over the billing period was £15.12
The VAT was £2.934
So, the final amount for our electricity bill would be £61.61 (rounded up to the nearest penny).