How Are Energy Bills Calculated?

To be able to lower your energy bills, you need to know how your bills are calculated. It is not only your usage that affects how much you pay each month. On the contrary, there are two elements that make up your total energy bill. These are: 

  • A standing charge, fixed at a daily rate 
  • A unit charge for each unit of energy (kWh) that you consume.  

Both of these charges vary between suppliers. This is why you should do a price comparison before you sign an energy contract. Through that you can make sure you are getting the cheapest deal on the market,  

What is the standing charge? 

The standing charge is a fixed daily amount that energy consumers need to pay, regardless of how much energy they use. This charge is added to most gas and electricity bills and it varies by region and supplier. The standing charge covers the costs of transporting gas and electricity and supplying it to businesses and homes.  

Unfortunately, most of the time it is not possible to avoid paying the standing charge. Suppliers have the right to decide not to charge it, however, so if you manage to find a provider whose tariffs do not include the standing charge, you will not have to worry about it.  

As global gas prices are increasing and maintaining the energy network is becoming more and more expensive, standing charges are going up too.  

Until 1 October 2022, the average standing charge for electricity on a monthly tariff was capped at 45p a day, and at 27p a day for gas. From 1 October, the average electricity standard charge rose to 46p a day.  

If you are not sure what your standing charge is, contact your supplier. They will provide you with detailed information about the tariff you are on. Your standing charge might depend on where you live, what payment method you use, or what type of energy meter you have.  

What are estimated energy bills? 

Suppliers might charge you based on an estimated consumption if you fail to provide them with actual meter readings. This means that an estimated energy bill represents your average monthly usage. Keep in mind that estimated bills tend to be more expensive so if you do not submit meter readings regularly, you might find yourself overpaying for your supply. 

The best way to avoid estimated energy bills is to get a smart meter. They submit readings automatically so energy consumers do not have to remember to do so. Thanks to having a smart meter installed, you can be sure that you are paying only for the energy you actually use.  

I received an extra energy bill. What does it mean? 

If the supplier has to estimate your consumption because you do not provide them with meter readings, at some point, they might issue you with an additional bill to cover the energy you have used but you have not been charged for yet.  

Similarly, if a supplier made a mistake in how they charged you for your consumption in the past, they might send you a back-bill to correct it and collect the outstanding amount.  

As a microbusiness, you should not be charged for any unpaid energy use dating more than 12 months back. This is because you are protected by back-billing rules.  

If you receive a back-bill, you should call your supplier and ask them to double-check the readings and all the information to make sure the bill is accurate. If the amount you have to pay is very high, the supplier might let you pay in installments.  

My back-bill dates back more than a year. What to do? 

If you receive a bill for energy you used more than a year before, you need to get in touch with the supplier and tell them that you know you are protected by back-billing rules. These rules dictate that suppliers cannot charge energy consumers for any unpaid energy use from more than 12 months ago. This also covers situations where a supplier increases the direct debit of an energy consumer because it was previously set too low.  

Keep in mind, however, that you are not protected by these rules if you behaved unreasonably and this was the reason for you not being billed accurately. Examples of such situations are if you blocked meter readings at your business premises on more than one occasion, or if you have been stealing gas or electricity.  

Why has my direct debit increased? 

Adjustments to your direct debit amount can be linked to a number of reasons such as the supplier getting your recent meter readings and realising that you have been underpaying for your supply for some time.  

Suppliers in the UK are required by Ofgem to make sure that payments consumers make through direct debit are reasonable and understood by them.  

If you are struggling to pay your bills, you should contact your supplier. They might come up with a payment plan that will make dealing with these costs easier. Sometimes, they might also switch you to the prepayment method to help you avoid getting into debt.  

What to do if a supplier goes out of business? 

Over the last year, tens of UK suppliers went out of business due to the energy crisis and them not being able to cover the rising costs and making a profit. If your supplier goes out of business, do not worry as your supply should not be interrupted. Your account will automatically be transferred to a new supplier.  

You should not try to make any changes and choose a different provider until the process is finalised. This is because otherwise you might face difficulty getting any money you are owed. At the same time, once the process of moving your account is completed and you are not happy with the new supplier, you have the right to switch to a different one.  

While waiting for your new supplier you should do the following: 

  • Keep any old bills 
  • Download any old bills you have online 
  • Note your account balance 
  • Take regular meter readings. 

Once your account is set up with the new supplier, they will contact you and you should ask them about what contracts they have available. Your old tariff will end and you will be placed on a ‘deemed’ tariff. These contracts tend to be expensive so you should choose a different one as soon as possible. Luckily, you will not find yourself locked into the deemed contract. If you want to switch suppliers, you can do so once your account is live and you will not have to pay any exit fees.  

For more information about this post and how Energy Solutions can help with your Electricity, Gas, or Water, click on the links, or check out the contact details at the bottom of the page.