Utility bills explained

Your utilities power your lifestyle. In an age where we’re more reliant than ever on our 21st century contrivances to live, work, and play, our propensity for running up a high utility bill is greater than ever. Especially as a nation under lockdown. But while many of us bemoan the increasing cost of our utilities, few of us are aware just what goes into our utility bills. When it comes to taking control of your household expenditure and managing your energy costs, knowledge is power.

What is considered as a utility bill?

Utility bill is a very broad term. Often we use it to describe our energy (gas and electricity) supply, as well as our water and sewage. However, in the digital age your utilities amount to more than just energy. They could also include your phone and broadband bill. A number of energy suppliers like Ovo manage not only electricity and gas but also phone and broadband. So energy consumers may be able to get better deals by getting all of their utilities under one roof.

Here we’ll be looking predominantly at understanding utility bills, , working out and the costs and charges that are contained within. However, the same principles apply to all of your utilities including your phone bill, broadband and even your mobile phone bill. You pay these companies hundreds of your hard-earned pounds every year. They have a legal obligation to show you where that money goes.

And you owe it to yourself to find out what your suppliers are doing with your money.

Breakdown of your utility bills

Here we’ll look at all the constituent elements of your utility bills so you can see where your money goes every month. The energy industry regulator Ofgem has some useful information about how your utility bill is calculated. However, you may require some further explanation about the costs mentioned in your utility bill. Let’s take a closer look at where your money goes:

Energy use

Needless to say, the biggest determining factor in your energy bill is how much energy you use. And in order to ascertain this, your utility suppliers need to be kept in the loop. You need to let them know how much energy you’re using by sending meter readings on a monthly basis. Ideally, these should be taken on the same date every month.

If you do not furnish your supplier with this information, they will estimate your bill. And this could lead to costs that are disproportionate to your use. Estimates are taken from average use in your area. So if you’re a single young professional who’s barely at home, you may be charged the same as a family with 3 kids who use much more energy than you. It's important to know what the average bill is in the UK for reference.

Of course, sending meter readings is inconvenient. Even if your supplier has a handy app that allows you to submit meter readings on the go. You may want to consider reaching out to your supplier to see if they can offer you a smart meter. This transmits usage data directly to your supplier. So you won’t need to worry about billing inaccuracies or have to take another meter reading any more.

You can find out more about smart meters and your rights here.

Wholesale energy and supply costs

Around 34% of your utility bill is the wholesale energy and supply costs that your utility provider has to bear. Another 16% or so is made up of the operational costs that come with supplying your energy. This includes the logistics of generating and sending bills, running a call centre, marketing and everything else the company does.

These costs can vary enormously depending on your supplier and tariff. It’s also the primary reason why the bigger suppliers tend to be costlier. Bigger businesses, while they have more customers, also have higher operational costs.

Distribution fees

Around 16% of your bill (per utility) goes toward the cost of distributing your energy. This includes charges paid to the National Grid to take power from their network and distribute it to their customers. This alone can account to the cost of your bills, and may be higher depending on how far you are from the centres of highest demand.

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It also includes some of the cost of building, maintaining and operating the infrastructures of cables and pipes through which energy travels to your home.

Transmission fees

Transmission fees are often confused with distribution fees. However, these are the costs associated with transmitting energy into your home rather than maintaining the network. These costs account for around 2% of gas and 4% of electricity bills.

Environmental fees

Energy suppliers and consumers alike are all-too aware that we cannot continue to be reliant on fossil fuels. As such, Ofgem expects energy suppliers to channel some of their resources into research and development for renewable energy sources (known as the Renewables Obligation or RO), and reducing carbon emissions. Environmental fees also supplement the cost of government initiatives like Feed in Tariffs (now replaced with Smart Export Guarantees) to encourage the use of solar panels and batteries. They also help to supplement the cost of social initiatives for vulnerable energy consumers like the Warm Homes Discount.

These charges are not to be confused with the Climate Change Levy, a government tax on non-renewable energy sources.

Other fees

There also other ancillary costs such as gas storage and meter installation that your bills help to cover. These account for around 4-5% of your overall bill.

VAT Charges

Finally, like virtually all commodities in the UK, the energy you consume is subject to Value Added Tax (VAT). However, this is not the full 20% that we pay for most goods. Energy consumers only pay 5% VAT on the utilities they use.

How to cut your costs (per room in a house)

Now we know the costs that go into generating our utility bills, how can we drive them down? As we can see, the only component of our bill that we can really do anything about is our energy usage.

Let’s go from room to room to establish the ways in which we can reduce our energy usage and drive down bills.

Living room

Avoid using your home’s heating to excess. Dropping your thermostat by just 1 degree every day can save up to £60 a year. If your radiators don’t feel as warm as they should, try using a radiator booster to circulate the heat more efficiently. This can save anywhere from £70-£140 a year. There are many simple ways to save on energy bills.

Make sure "energy vampires" like TVs, games consoles and other devices that are usually on standby are switched off at the wall overnight.

Make sure your living space is well insulated. Replacing your loft insulation or adding cavity wall insulation can save you hundreds of pounds every year.

Kitchen

You may find that the white goods in your kitchen have potential for huge energy savings. Even if you need to replace them with more energy efficient models. Make sure freezer and fridge doors are properly closed to avoid wasted energy trying to maintain the temperature.

Try and do fewer loads of washing through the week, and use your machine’s economy setting. The hotter you heat the water, the more energy you’re using.

Bathroom

There are lots of water saving devices that can be put to use around the bathroom from low flush toilets to water saving shower heads. All of which can drive down your bills and help you to conserve this precious resource.

And remember to switch off the bathroom light when you leave the room. Every time you forget, your energy bills creep up!

Bedrooms

Light your bedroom (and other living areas) with energy-efficient LED or CFL bulbs rather than wasteful incandescent bulbs. Avoid charging your phone or laptop overnight as this can lead to a lot of wasted energy and therefore money. Even if you’re in an Economy 7 meter.

Want to drive down your utility bills? We’re here to help?

As well as making an effort to drive down your usage, you’ll find that switching to a new supplier and tariff can result in huge savings every month.

We can help you to find the perfect supplier and tariff for your needs and drive down the price of your utility bill. What’s more, we’ll manage your switch from end-to-end so you don’t have to do anything except enjoy your savings!

Call us today on 03300 540 017 to find out more. We’re available from 8.30 am - 5.30 pm

Want to know more on this topic? Check out these guides:

• What to do if you smell gas
• How to react to a power cut
• How to change the utility bills name
• Struggling to pay bills

FAQ

What are the basic utilities?

Gas, electricity and water are usually considered basic utilities. Although your phone and broadband bill could also be considered utilities.

Is a mobile phone considered a utility bill?

In the strictest possible terms, no. Although it really depends on whom you ask. For all intents and purposes, a mobile phone is considered a utility, especially in an age where fewer and fewer of us have landline phones.

Can I change my waster supplier in the UK?

Unfortunately not. In 2002 it was ruled that allowing UK consumers to change waster suppliers would be far more costly than beneficial to the industry. Your water supplier is determined by where in the country you live. You can find your local water supplier here.

When can I change energy supplier?

You can technically change energy suppliers any time you like. However, depending on your tariff, you may incur an early exit fee for doing so. You can exit your tariff without penalty within 49 days of its end date.