Are Gas And Electricity Comparisons Accurate?

Welcome to The Fool's gas and electricity comparison open day. Myths dispelled. Foolish questions answered. (No philosophers please.)

There's a healthy debate in the online community about whether utilities comparison tools are comprehensive and accurate. I am equally keen to find out if these services - including The Motley Fool's own recently added service - are up to scratch.

To that end, I recently grilled two senior people from our partner Xelector, which powers the Fool's utilities comparison tool. They are Florian Ritzmann, who is the company's gas and electricity specialist, and Justin Thomas, its commercial director. I learned a great deal and I'll have more to say at a later date, but, in the meantime, here are just some of the points that came up.

Do utilities comparison websites compare every supplier?

Ritzmann was very careful to say that on The Fool website tariffs are compared from every known supplier. 'Known' supplier sounds rather vague, but he assured me that, if there's a supplier, he'll know about it. The Fool compares every known vendor too. 'Vendors' are third parties who sell a supplier's gas or electricity, such as Sainsbury's Energy.

Many other websites are equally impartial, but you should be aware that some leave out providers that don't pay when people buy through them.

Do utilities comparison websites compare every tariff?

Like many comparison websites, The Fool compares not just every supplier and vendor, but every one of the thousands of tariffs as well. I say every one, but sometimes what happens is that comparison websites actually have extra tariffs that you can't get direct through the supplier. Occasionally, the opposite is true. But, on the whole, comparison sites show everything.

When are prices updated?

We read about the all to frequent changes to existing customers' prices in the press. Providers also make changes to their new customer tariffs perhaps two or three times a year, which means that two people who live in the same area and use a tariff with the same name are likely to be paying different rates.

The Fool's comparison service is updated as soon as prices are known. Suppliers usually give a week's notice to comparison sites about changes, so that they can update the figures on time. Sometimes comparison sites are given several months' notice, which means the new price will be shown before it takes effect, so as to better reflect what people will be paying in the future. The Fool's engine sees the changes put on as soon as possible.

How do utilities comparison sites project what we will pay?

This gets a little bit technical, but I know that many Fools are interested to know how it works.

The prices can't be exact, because no one knows precisely how much energy we'll use in a year or a given quarter. To consider how searches estimate savings, we first need to consider how gas and electricity companies calculate your bill.

Energy companies work out your bill on a quarterly basis and most tariffs have two tiers of pricing. Let's say that you use 5,000kWh of gas in a quarter. The supplier, Gas Company A, charges you 4 pence per kWh for the first 1,000kWh, which they call Tier One. That comes to £40. The remaining 4,000kWh you used is charged at Tier Two rates, which we'll say are 2 pence per kWh. This costs you an additional £80, which means you'll pay £120 in total for the quarter.

It's likely that you'll use more gas in winter; you may only use 1,500kWh in summer, which comes to £50.

Method one: annual usage in kWh

Hopefully you're still with me. When we enter details in a comparison site, we can put either our annual usage in kWh or we can put in our bill amounts. Let's look at the first way first.

The utilities tool takes the total kWh that you've typed in, e.g. 20,000. It divides this evenly between the four quarters, which is 5,000kWh each. It then finds the best tariff based on this information.

In reality, you're likely to use more in winter, but comparison sites don't attempt to work in seasonality, because it is thought that this will make it less accurate on the whole.

Method two: annual usage in pounds

We can also type in our annual usage in pounds. This is less accurate than using kWh, as the comparison tool can't know what rates you're on; remember that there can be lots of people on the same tariff all paying different rates.

So comparison tools assume that you're on the most recent tariff rates and calculate from there. Let's say that you enter your supplier and a total of £600 per year for electricity. The search engine identifies the tariff. It then deducts the 5% VAT, leaving £570. It then reverse engineers to find the kWhs you use per year. It deducts the first tiers usage; for example, if the first 900kWh is charged at 7p, the system knows you're charged £63, leaving £507 for the second tier. If the second tier is 5p per kWh, that's an extra 10,149kWh per year. Which means your total usage is 11,049.

The system then searches for prices using this kWH figure in the same way as in method one.

Are these search tools accurate?

People want to know if the searches truly bring back each provider's best rates and if they are accurate. To that end, I did some research and I've put the results in this table:

Top five tariffs for north-west London, based on £500 gas and £300 electricity per year

*Although the estimated annual costs are different, these estimates are based on exactly the same tariff, so you would pay the same whether you went direct or through The Fool.

As you can see, the tariffs match exactly, so the search was accurate.

So is it worth it?

Philosophers start and end with the question 'Why?', but the ultimate Foolish question is: 'Is it worth it?'

We can see from above that comparison is not an exact science, but the discrepancies seem to be very minor and, overall, it's a massive time-saver. Allowing for errors and the effort involved, if the utilities search shows that you can save at least £60 or £70 then, yes, it is worth it.

> Compare gas and electricity prices through The Fool.