understanding energy bills

Understanding your energy bills can save you £100s

You have probably had a cold call about your energy bills or even lost the will to deal with energy companies, but a better understanding of your bills really could save you a packet.

Despite over a million consumers moving to smaller companies last year alone, taking the total of UK households who purchase their energy from the smaller companies to 3 million, the vast majority of UK households are still languishing with the big six energy companies on their standard tariff.

If this is you – you’re burning money! I’m going to show you how to understand your energy bill better and in turn save you money that is better off in your pocket than the supplier’s.

What is a unit rate?

This is the rate that your gas and (or) electric is charged at. Energy is calculated in kilowatt hours, shown as kWh on your bill. If, for example, your unit rate is 10.9p you will be charged 10.9p for every kilowatt hour you use.

What is a standing charge?

A daily rate you pay regardless of usage. For instance, if your property lay empty with no appliances hooked up to the energy supply, you would still continue to pay the standing charge. Some companies offer contracts with no standing charge but their unit rate is usually higher.

What is a tariff comparison rate?

Shown as TCR on your bill, many see the Tariff Comparison Rate as energy’s answer to the money market’s Annual Percentage Rate (APR). This is because it is designed to provide an easier way to get an indication of how your rate compares to other plans and suppliers.

In the energy market, this is done by giving an effective price-per-unit rate for every gas and electricity tariff – a rate which factors in elements a normal kWh rate wouldn’t, including standing charges and discounts.

energy bill
Click to enlarge image.

TCR will always be calculated based on medium energy use – a household that uses 3,100 kWhs of electricity and 12,500 kWhs of gas per year. Keep this in mind if your household falls in the low or high gas and electricity user range.

In general, you should consider TCR only as a guide to what you are paying or will pay.

TCR is not yet available for time-of-use meter customers, such as those with Economy 7 and Economy 10 meters.

Where can I find my TCR?

A TCR can be found wherever a gas or electricity tariff is outlined. That means the plan you’re currently on has a TCR and any plan you may be thinking of switching to will have one as well.

In fact, the point behind the TCR is to compare your current TCR to the TCR of other plans on the market to get an idea of how competitive your plan is. So, how do you find these figures?

The TCR will be outlined on energy suppliers’ own websites and on price comparison sites. You can find your current energy plan’s TCR on your energy bill and on your annual statement.

Ofgem’s changes will also see your bill feature what is referred to as a Tariff Information Label. This label will include your current plan’s TCR, along with other helpful information such as your plan’s actual kWh unit rates, plan end date and standing charge amount.

How to use a Tariff Comparison Rate

Ofgem is very clear that a TCR is not intended to be an exact calculation of what a consumer can expect to pay for an energy plan.

Rather, it is intended to provide an indication of how the costs of one plan compare to another and ultimately motivate the customer to perform a full-market energy comparison using an Ofgem-accredited price comparison website such as Energylinx, UK Power or uSwitch.

Accredited gas and electricity comparison sites will be able to provide a much more accurate calculation of your expected energy costs because you will be asked to provide information about your consumption and postcode – two factors that greatly impact your energy costs.

Economy 7 meters

An Economy 7 meter has a night unit rate as well as a day rate. At night, usually between the hours of 12-7, or sometimes 11-6, the unit rate is cheaper.  You often find these in properties which have electric only and those with storage heaters.

Please note that not all modern appliances are compatible with timers so check before buying.

Economy 10

Just like Economy 7 meters, these meters come with a cheaper rate at set periods. The difference is that these come with one during the day too. The cheaper day rate can differ from meter to meter so always check with your supplier to see when the cheaper day rate is set for. As mentioned above, using timers to switch on appliances in the cheaper periods can really help to cut down costs.

What is a standard tariff?

It is a variable rate of energy, or in plain English, if the cost per unit of energy goes up with your supplier and you continue to use the same amount of energy, so does your bill. If it comes down then your unit rate/bill reduces. Anybody who hasn’t slept for the last decade will tell you the cost only comes down in the warmer months, after the winter increases have taken place, so effectively it never really comes down – yes, your loyalty means that much to them.

What is a fixed rate?

This means you have an energy contract which is set at a fixed price for an agreed period of time. This is usually between 12 and 24 months. N-power were offering a 4 year fix last year and the year before, but it didn’t turn out to be a very good deal for many of their customers. Unsurprisingly they sit at the bottom of the Which? energy supplier league table for customer satisfaction with a paltry overall score of 41%.

Be mindful that a longer fixed term will be set at a higher unit rate than a 12 month fix, as the supplier will be offsetting it against the likely price rises to avoid taking too much of a hit on their huge profit margins.

What are early termination fees?

Basically a cancellation fee. Most, not all, suppliers will charge you a cancellation fee if you leave before the end of your contract. They can range from £5 right up to £50 per fuel, so make sure you check your bill or contact your supplier before making any attempts to switch.

What is a Personal Projection?

This is what your supplier thinks you are likely to spend over the course of a year. It is just an estimation and not an exact amount so please bear this in mind. For instance, if we had an extremely cold winter, or even an extremely hot summer (here’s hoping), you may use more or less energy than predicted by your supplier.

Common misconceptions about energy bills and suppliers

  • I will lose supply during a switch
    You will not lose your supply whilst your switch is being processed. You gas and electric all comes from the same place, The National Grid. Your energy supplier purchases your energy from the National Grid and then they sell it on to us, the consumer, at a profit. Your current supplier’s energy is no different to the next company. The only difference to you or me is the logo at the top of our bill and the rate we are charged. Ask yourself this question – would you buy a bottle of milk from a shop selling it for £30 or would you go to another shop selling the exact same thing for £1?
  • I’ll be better looked after by remaining loyal to one company
    If this were true nobody in the country would be on a standard rate of energy. If your supplier really wanted to reward your loyalty they would call you and transfer you to their cheapest available tariff. The reality is they are happy to leave you paying the standard tariff and therefore paying way more than you need to, until you decide otherwise. The rule of thumb where energy is concerned is loyalty doesn’t pay.
  • It is always better to be with one supplier for both gas and electric
    In most cases, but not all. Sometimes when you have prepayment meters it can be cheaper by splitting the energy supply between two suppliers, which is why you should always do a comparison to be 100% sure you are getting the cheapest possible deal.
  • I cannot switch if I have arrears on my prepayment meters
    You can take a maximum of £500 worth of arrears for each fuel to another supplier if you pay by prepayment meter. Ecotricity have capped this at £200. Ultimately it will be down to the discretion of the supplier, but in most circumstances as long as you meet the criteria above, you can switch to a cheaper supplier.

Top tips to save on your energy bills

  1. Fix the price
    There is no sense in paying more than you need to, it is expensive enough. Fix down the price and avoid any potential price hikes.
  2. Pay by Direct Debit
    You get a cheaper rate and it takes away the danger of running up arrears
  3. Choose an online tariff
    Your supplier will offer you a further discount for eliminating paper bills. It is also much easier to upload your meter readings, meaning no waiting in massive queues on the phone or navigating your way through annoying automated services!
  4. Give regular meter readings
  5. Compare and switch regularly
  6. Ask your supplier for your exact annual consumption before starting a comparison
    This means that any potential saving will be as accurate as possible. You can also find your annual consumption on your bill. Just be careful to check it is an actual amount and not an estimated amount.
  7. Don’t believe everything your supplier tells you
    When you attempt to switch you may receive a call from your supplier to try and convince you to stay. You may be even offered a better rate than you saw on the comparison sites. Don’t just take their word for it that this new price is the cheapest out there – have them email it to you and check it thoroughly yourself to be certain. Retentions agents, or whatever fancy equivalent they are known by, are trained to make you stay, whether it is of any real benefit to you or not.
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