Household Energy Bill – Explained!!

May 1st, 2020
Household

Services necessary for smooth functioning of a home and business are termed as utilities. These include gas, electricity, telephone, water supply, sewage and more. You pay for these bills to the suppliers. These bills are normally sent on a monthly or quarterly basis. However, it’s not just the energy or other utilities that constitute the bill; there are additional aspects that form your bill. Your bill includes not just the services but a payment to all the nodes through which they have passed in order to reach you.

One must have a clear understanding of how the money paid is distributed as part of the utility service. Let us decode an average utility bill for you. Right now we will decode a May 2016 dual fuel bill – gas and electricity bill for you. This means if you are buying gas and electricity from the same supplier then you get a combined bill called a dual fuel bill. See how your total payable amount is distributed starting from the wholesaler to actual supplier.

Breakdown of a dual fuel bill as per May 2016:

Cost

Percentage (%)

Wholesale cost

43.14%

Distribution Network

24.08%

Environmental and social obligation costs

7.40%

Operating costs

16.36%

VAT

4.76%

Supplier pre-tax margin

3.56%

Other direct costs

0.70%

Find detailed description of all the costs here:

Wholesale cost: This is the price at which the energy supplier buys energy from the wholesale energy suppliers. Supplier needs to buy wholesale energy and then get it distributed through various distribution networks. So, around 43.14% of your energy bill is used by the supplier to buy wholesale energy.

Distribution network: It is the cost you pay for building and maintaining the networks of gas pipes and electricity wires through which the energy is transferred to your home. Out of the total bill paid by you, 24.08% is paid to the companies that manage the distribution networks.

Environmental and social cost: The amount of money used for the government’s environment welfare programs. These programs are used to provide subsidies to people who generate their own electricity from renewable sources and other energy saving programs. Find here the list of environmental initiatives by the government:

  • Feed-in Tariff (FIT)

  • Carbon Emission Reduction Target (CERT)

  • Renewable Obligation (RO)

  • EU Emissions Trading Scheme (ETS)

  • Community Energy Saving Program (CESP)

Operating Costs: This cost is paid to the energy distribution companies that divide energy into different grids and networks so that it reaches the customer.

Value Added Tax (VAT): You pay for these taxes but you do not pay full VAT especially in the realm of energy i.e. gas and electricity. According to the latest information (May 2016) VAT is capped at 4.76%. This means 4.76% of your energy bill goes into these taxes.

Supplier pretax margin: This is the amount of profit the supplier gets before taxes and in this bill it is 3.56%

Other costs: This includes everything else that does not fall into the above categories. It includes metering and gas storage costs.

This way, your energy bill includes not only the price of the energy but many other factors which are responsible to get you that uninterruptable flow of energy.

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