How many times have you looked into your monthly electricity bill in detail? Have you ever wondered what the amounts represent exactly? Do you understand them all?
As a business consumer, you probably don’t have the time to look into details, but you would probably still like to know where your money goes along with the best way to optimise your consumption and potentially make some savings.
Hopefully by the end of this article you will have more insight into what you are charged for, and you will have a better understanding of your monthly payments.
Here is a breakdown of the main components of an electricity invoice:
Invoice address – This is the address to which the invoices are sent. This can be the main office or any other address where you want to receive them.
Supply address – This is the address for which you are charged.
Account number – Unique number assigned to you by the supplier. Based on this number, it is much easier to communicate with them in order to resolve any potential queries.
Invoice number – Unique number assigned to each invoice.
Supply number/MPAN(Meter Point Administration Number) – Unique number assigned to your meter that provides information about it to the supplier. It is found typically at the bottom of the electricity invoice. This is what makes up the supply number:
Profile Class – These are the first two digits of the top line. They represent the type of meter. Profile class 00 is for half hourly, profiles 01-02 are domestic, 03-04 are SME, and 05-08 are considered maximum demand.
MTC – This is short for Meter Time Switch Class. It provides information on the metering it is capable of, e.g. singe rate, day/night, and others.
LLFC – This is short for Line Loss Factor Class. It is used to calculate Distribution Use of System (DUoS) charges.
Core MPAN –This is the most unique number set and it is specific to your meter. It has 13 digits. The first two digits, in particular, identify the area in which the meter/distributor is located. The UK has 14 distribution areas. These will be covered at a later time.
If your profile class is 00, then that means your meter is half hourly and that it produces half hourly readings, which are compiled by a Data Collector. The Data Collector then provides the readings to your supplier who is able to produce an invoice.
All other profiles are non half hourly (NHH).
In order to produce an NHH bill, the meter reads need to be provided manually. In some cases, the client reads the meter and sends the reading over to the supplier, but most of the time, if the supplier doesn’t have meter reads, they estimate them.
That can be tricky because in some cases your bill can be overestimated and you may end up paying for more than you actually consumed.
On the other hand, the reads can also be underestimated, and by the time the supplier recalculates and rebills to correct the readings, your current month’s operations and payments end up being affected.
Here are short explanations for charges that appear on most bills:.
- Consumption charge is a charge for the electricity consumed. The unit rate (day, night, weekend, etc.) is multiplied by the kWh consumed during the billing period to calculate the charge. This part of your invoice is negotiable, and you should always look for the most competitive one.
- Standing charge/administration charge/quarterly charge is a charge that suppliers include to cover their administration cost. This amount differs from supplier to supplier, but in most cases it is determined by the contract you have in place with them.
- Capacity charge (also known as Availability charge) is a charge related to the meter’s Maximum Import Capacity. This is what the meter is allowed to take from the distribution system. Capacity is measured in KVA, and it is calculated by multiplying the capacity rate with the set capacity.
If the set capacity, for example, is 200 KVA, and during the month your consumption goes over that amount, the supplier will charge you for the excess capacity. The excess capacity rate is in most cases the same as the capacity rate.
- Feed-in Tariff (FiT) is a policy mechanism made to accelerate investments in renewable energy. The program intends to encourage homes and businesses to generate their own energy. FiT is charged based on the energy used during the billing period. More about FiT will be discussed later.
- Renewable Obligation is a mechanism designed to support large-scale renewable electricity generation. Renewable obligation is charged on consumed energy.
- Climate Change Levy (CCL) is a tax chargeable for units of energy consumed in the billing period. This is a government-imposed tax to encourage reduction in gas emissions. The rate of CCL will most likely increase from 1 April as it does each year.
- VAT is a government-imposed tax on the supply of goods and services. Depending on what type of business you operate in, you can have full or reduced VAT rate. VAT is applied on net invoice value.
- EMR charges – Electricity Market Reform is a government policy that is applied from April 2015 to incentivise investment in secure, low-carbon electricity, improve the security of UK electricity supply, and improve affordability for consumers. This involves replacement of power stations while ensuring reliable electricity supply. EMR costs will initially be low. In 2015, we expect the total charge to be under 0.1p/kWh.
Hopefully, now you understand what makes up your electricity invoices and what you are paying for. Mistakes and discrepancies can and do happen, and it is important to notice and correct them to avoid any further potential overcharges.