How to understand and pay your electricity bill

Before the energy crisis, getting a better deal was just a case of shopping around for a cheaper tariff and switching. Or signing up to an energy switching service like Switchd. However, with several smaller energy suppliers going into administration, the remaining suppliers have withdrawn their competitive deals. Plus, in an attempt to stop more firms from going into administration and with the current market situation, Ofgem has increased the energy cap. All these factors have left consumers stranded to foot the bill.

There are some practical and simple ways to save money on your electricity bill, for example, switching off lights when leaving the room and unplugging appliances that do not need to be on standby. Another way is understanding how electricity usage is measured and costs calculated.

• How is my electrical usage measured?
• What is the cost of 1 kWh of energy?
• How do I calculate the cost to run an appliance?
• How can I pay my energy bill?
• Can I pay my utility bills by credit card?
• What if I am late in paying my utility bills?

How is my electrical usage measured?

Your electrical bill is based on kilowatt-hours (kWh) consumed. You may also pay a standing charge. A kWh is the unit used to measure energy consumed if you keep a 1,000 watt appliance running for an hour. So an appliance which uses a lot of power will use a kWh up a lot faster than an appliance which uses less. 

As a comparison, 1 kWh of energy is more or less enough to:

• Keep a 7-10 watt broadband router on for five days
• Use a 50 watt laptop all-day
• Watch television on an 80 watt LED TV for just over half a day
• Power just one 100 watt light bulb for ten hours
• Use a 1,000 watt iron for an hour
• Use a 2,000 watt dishwasher for just half an hour
• Cook with a 2,000 watt oven or electric stove for just half an hour
• Boil a 3,000 watt kettle six times

To work out your bill, the supplier uses your latest meter reading minus the previous meter reading to work out kWh usage. If no meter reading is taken, you get an estimated meter reading based on your last consumption or a "standard rate". Depending on your supplier, your bill may also include a standing charge, as previously mentioned. A standing charge is applied regardless of what you use and covers the costs of supplying your property with energy.

What is the cost of 1 kWh of energy?

According to the Department for Business, Energy & Industrial Strategy, as of 1 April 2022, the current unit cost for electricity is estimated to be at 28p per kWh for households on a direct debit tariff. As a comparison, the average price per kWh was 21.2p in 2021. While all this may seem to be pennies, it does add up very quickly over time. 

How do I calculate the cost to run an appliance?

You can estimate the cost to run an appliance in three steps:

1. Work out your appliance power rating in kilowatts (kW). For example, a lamp with a power rating of 100 watts is 0.1 kW.
2. Multiply the kW by the time it is on. For example, a 0.1 kW lamp left on for 10 hours each day will mean the light is using 1 kWh a day.
3. Multiply the kWh the appliance uses by the kWh price your energy supplier charges. For example, if your energy supplier charges you 28p per kWh, 1 kWh used daily will cost you 28p. 

How can I pay my energy bill?

Pay when you get your bill

If you pay when you get your bill (bill on receipt), options available to you can include:

• Card payments over the telephone, your bill should show the number to call.
• Cheque or postal order payments, you will need to use the payment slip at the bottom of the bill when you send the cheque. Never send cash.
• Bank transfers, you will need your suppliers' Account Number and Sort-Code.
• Paying by cash at a Post Office or bank, you will need to complete the giro slip on your bill.
• Online via your supplier's app or website, you may need to register, after which you need to log in to your account each time you want to make a payment.

Your bill should provide you with payment options available and details on how to proceed with each. 

Paying your bill by Direct Debit

Another popular way to pay is via Direct Debit. This means money is taken automatically from your bank account instead of waiting for your bill to make the payment. You'll have the option to pay every month or every quarter.

For monthly direct debit, you'll likely get the option to choose when (day of the month) you want the money to come out of your bank account. Monthly fix payment amounts are based on your usage, these are reviewed occasionally in the year, and your Direct Debit will be adjusted according to use. This may mean you overpay or underpay on occasion. Another similar option is quarterly Direct Debits which allows you to pay your bill every quarter instead of monthly. This does mean will you make more significant lump-sum payments.

TIP: Most suppliers offer a discounted or lower rate to customers who pay by Direct Debit. If you are not paying by Direct Debit already, it may be worth checking with your supplier about this option.

Pay as you go and prepayment metres

Using this method means paying for your energy up front, and your balance decreases with usage. Typically your energy prepayment card or key can be topped up at PayPoint, Payzone and Post Office locations. Smart Pay As You Go metres can be topped up at similar locations. You may also be able to use your supplier's mobile phone app or phone to top up; options may vary according to the energy provider.

Can I pay my energy bills by credit card?

Generally, you can use your credit card to pay for gas, electricity, and water bills in the UK. But, a word of caution, you are using borrowed money when you use your credit card. So if you don't pay back what you owe within the interest-free period, you will be charged interest on top of what you borrow. Additionally, some credit card providers may consider making a utility bill payment as a credit card cash advance - similar to withdrawing money from an ATM with a credit card.

IMPORTANT: Some credit card providers may consider paying utility bills as a cash advance. Additional interest and fees may apply. 

A credit card cash advances are expensive and come with two costs:

1. Daily interest - charged on the amount from the day you use your card to make the cash advance, so there is no interest-free period. The interest rate for cash advances will likely be higher than regular purchases.
2. Cash advance fee - charged as either a percentage of the amount or a fixed fee. Each time you use your credit card for a cash advance, this fee is charged.

You should be able to find out more about these changes in the Terms and Conditions of your credit card agreement, under "fee and charges". Or you can contact your provider. 

Something else to be aware of is cash advances show on your credit report. Lenders may see cash advances as a sign you have no money in your bank account, potentially resulting in loan or credit application rejection.

What if I am late in paying my utility bills?

A missed utility payment can show on your credit file, which can harm your score. If things escalate, legal action can be taken to retrieve amounts by your provider. Your credit report will show a county court judgment (CCJ) or bankruptcy. You can view and monitor your credit score and history by signing up for a credit report provider.

If you are struggling to pay your monthly bills, you should contact your supplier immediately. They are required to work with you in arranging a payment plan. There may also be additional help available. We go into more detail in our guide "4 ways to save money on your electricity bill" under the section: What if I am struggling to pay my energy bills. Regardless, you should not ignore the problem. Ignoring overdue bills can make matters worse and potentially increase stress. It may result in legal action, fines or even your power supply being cut off. 

Another dangerous action is to use high-interest personal loans such as payday loans to pay for utility bills. Payday loans are helpful for temporary, one-off emergencies but should not be used if you are experiencing money problems. If you are struggling with debt in general, be sure to seek help and advice:

• Money Advice Service
• National Debtline
• StepChange Debt Charity

In summary

Understanding your electrical bill and measuring consumption will help you see where you could cut back to save money. Knowing what appliances consume will make it easier to see where changes need to be made. Even if the changes are minor, these will add up over time. It is also helpful to know what options are available when paying your bills, as some may be more suited to your financial needs. 

Be careful if you plan on using your credit card. Some providers may consider utility bill payments as credit card cash advances. Other quick forms of borrowing, like payday loans or short term loans, can be a costly way to get money and not an option if you are struggling financially. And finally, avoid being late with your payments. This can hurt your credit score or, worse, even result in legal action. If you can't pay your electrical bill or any other utility bill, contact your provider for assistance as soon as possible.