If you pay £140 a month for energy, it can seem natural to use that figure when deciding whether another tariff is cheaper.

But your monthly Direct Debit isn't necessarily the cost of the energy you use that month.

For a meaningful tariff comparison, the more useful starting point is usually your energy consumption in kilowatt hours (kWh).

That's because tariffs charge you for the energy you use through unit rates, together with standing charges.

Your Direct Debit is how money moves between you and your supplier.

Those aren't quite the same thing.

What does your monthly Direct Debit actually tell you?

If you pay by fixed Direct Debit, your supplier will normally estimate how much energy you're likely to use over a year and spread the expected cost across monthly payments.

This helps smooth out seasonal differences.

You might pay more into your account than the energy you actually use during summer and less than you use during winter.

Citizens Advice explains that fixed Direct Debit payments are usually based on estimated annual energy use and can change if actual consumption differs from the supplier's estimate.

So a £140 Direct Debit doesn't necessarily mean:

You use £140 of energy every month.

It means:

Your supplier is currently collecting £140 each month towards your energy account.

That distinction matters when comparing tariffs.

Why your Direct Debit can be different from your actual energy cost

Suppose your Direct Debit is:

£160 per month

Multiplying it by 12 gives:

£160 × 12 = £1,920

It would be tempting to assume that your energy costs £1,920 a year.

But imagine your supplier increased the payment because your account was £240 in debit.

Part of that £160 could therefore be repaying money already owed rather than paying for your future energy consumption.

Citizens Advice gives a similar example: a customer's payment can contain both the estimated cost of current usage and an amount to repay arrears.

Using the Direct Debit alone could therefore make your current tariff appear more expensive than it really is.

The opposite can happen too.

If your Direct Debit has been set too low, multiplying it by 12 could understate what your energy consumption is actually costing.

What is kWh?

A kilowatt hour, written kWh, is a unit used to measure energy consumption.

Your electricity and gas usage can therefore be expressed as something like:

Electricity: 2,500 kWh per year

Gas: 9,000 kWh per year

Your tariff then applies a price to each kWh you consume.

For a simple single-rate tariff, the basic calculation is:

Annual energy cost = annual kWh × unit rate + annual standing charge

That's why kWh is so useful when comparing tariffs.

We can take the same household consumption and apply different tariffs to it.

A simple example

Imagine a household uses:

Electricity: 2,500 kWh per year

To keep the example simple, we'll compare electricity only.

Tariff A

Unit rate: 25p/kWh

Standing charge: 50p/day

Usage cost:

2,500 × £0.25 = £625

Standing charge:

365 × £0.50 = £182.50

Estimated annual cost:

£807.50

Tariff B

Unit rate: 23p/kWh

Standing charge: 60p/day

Usage cost:

2,500 × £0.23 = £575

Standing charge:

365 × £0.60 = £219

Estimated annual cost:

£794

Using the household's same 2,500 kWh consumption:

£807.50 − £794 = £13.50

Tariff B is estimated to be £13.50 cheaper over the year.

That's a tariff comparison.

We haven't needed to know whether the household currently pays £60, £70 or £80 per month by Direct Debit.

What happens if you compare the Direct Debits instead?

Suppose the customer currently pays:

£75 per month

and the new supplier quotes:

£70 per month

It might look like:

£5 × 12 = £60 annual saving

But that doesn't necessarily establish that Tariff B is £60 cheaper.

The two monthly payment figures could have been calculated using different consumption estimates.

The existing payment might reflect a credit or debit balance.

One supplier may also have recently adjusted its estimate while another hasn't.

The tariff itself is defined by things such as the unit rate and standing charge, not simply the amount of the monthly Direct Debit. Citizens Advice describes a tariff as including the rate charged for energy used and the daily standing charge.

So comparing £75 with £70 isn't necessarily comparing like with like.

Use the same consumption for every tariff

This is the key principle.

Suppose you use:

2,500 kWh electricity

and:

9,000 kWh gas

Take those same consumption figures and apply them to every tariff being considered.

Then compare:

Tariff A rates × your consumption

with:

Tariff B rates × your consumption

with:

Tariff C rates × your consumption

using the appropriate standing charges and other relevant costs.

Now the tariffs are being tested against the same household.

Ofgem's approach to Estimated Annual Cost reflects this principle. Where annual-cost estimates are used for tariff comparisons, Ofgem says they should be personalised, use actual historic consumption where available and apply relevant assumptions consistently across the tariffs being compared.

Why actual historic consumption is particularly useful

Imagine two households are offered exactly the same tariff.

Household A uses:

1,800 kWh electricity

Household B uses:

5,000 kWh electricity

Their annual costs won't be the same.

And as we saw in our guide to energy unit rates vs standing charges, different consumption levels can even change which of two tariffs is cheaper.

That's why a generic household figure can't tell you precisely what your household will pay.

Ofgem also makes clear that headline price-cap figures don't limit a household's total bill; the amount paid depends on energy consumption.

Your own usage therefore gives us a much better basis for comparison.

But historic kWh isn't a guarantee of future usage

There's an important limitation.

Last year's consumption tells us what you did use.

It doesn't guarantee what you will use.

Perhaps you've:

• installed a heat pump

• bought an electric vehicle

• added solar panels or battery storage

• moved to working from home

• had someone move into or out of the property

• changed how you heat your home

In those circumstances, simply assuming next year's consumption will equal last year's could produce a poor estimate.

The right question becomes:

What is the best reasonable estimate of the energy this household is likely to use?

Ofgem's methodology recognises this too: actual historic consumption should be used where available, with a best estimate used where it isn't.

What if your bill is based on estimated meter readings?

There's another complication.

Historic consumption is most useful when the underlying meter readings are accurate.

If your supplier hasn't received meter readings, it may estimate your usage instead. Citizens Advice warns that this can make bills too high or too low.

Smart meters can reduce this problem when they're successfully sending readings automatically.

If you have a traditional meter, regular meter readings help keep the supplier's information closer to your actual consumption.

So when looking at a bill, it can be worth checking whether readings are marked as actual or estimated.

Where can you find your annual kWh usage?

Your energy bill or online supplier account will often contain information about your consumption.

Don't confuse:

£ spent

with:

kWh used

For comparison purposes we're looking for figures such as:

Electricity annual usage: 2,500 kWh

Gas annual usage: 9,000 kWh

rather than:

Direct Debit: £140/month

We're going to cover exactly where to find these figures in the next Likewise Compare guide.

That will be Article 9: Where to find your annual energy usage on your electricity and gas bill.

Does this mean your Direct Debit doesn't matter?

No.

Your Direct Debit still matters to your household finances.

You need to know what will leave your bank account each month, and the payment amount can help you budget.

It can also provide a warning that something needs investigating if it suddenly rises significantly.

But it answers a different question.

Direct Debit helps answer:

How much is my supplier currently collecting from me each month?

Consumption and tariff rates help answer:

What is this tariff estimated to cost for the amount of energy I use?

For tariff comparison, the second question is the one we're primarily interested in.

What should you use when comparing energy tariffs?

Where reliable information is available, start with:

• annual electricity consumption in kWh

• annual gas consumption in kWh

• electricity and gas unit rates

• electricity and gas standing charges

• relevant tariff fees

• tariff duration where relevant

Then apply the same consumption assumptions to each tariff.

If you know your circumstances are about to change substantially, adjust the consumption estimate where you have a reasonable basis for doing so.

Your monthly Direct Debit can still be useful information.

It just shouldn't be mistaken for your energy consumption.

Compare what you use, not just what you pay each month

This distinction is central to how Likewise Compare is being built.

A £140 Direct Debit and a £125 Direct Debit may look like two directly comparable prices.

They aren't necessarily.

What we want to understand is:

How much energy does this household use?

What rates does each tariff apply to that energy?

What standing charges and relevant fees apply?

And:

What would each option cost using the same assumptions?

That's a much fairer basis for deciding whether staying or switching is actually cheaper.

Because your Direct Debit is a payment.

Your kWh tells us how much energy you use.

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