Energy customers to get automatic credit refunds in regulator plans
Households would be automatically refunded any overpayments on energy bills in plans tabled by the regulator to end companies using customers’ money incorrectly.
Under the current system, those who pay their bill by direct debit pay a fixed amount each month, typically overpaying in the summer months when usage is low in order to build up credit which can be drawn on throughout the winter.
However, this can lead to companies holding extra cash at the end of the year and Ofgem, the industry regulator, estimated in 2018 that as much as £1.4bn was being held in surplus credit balances.
The new process, which is now being consulted on, would mean suppliers would be required to refund any outstanding credit each year on the 12 month anniversary of the account being opened.
Some firms already do this, but Ofgem said that in the majority of cases the onus is on the customer to claim back any extra cash.
Jonathan Brearley, chief executive of Ofgem, said: “These new proposals would ensure that suppliers are not holding onto more of customers’ money than absolutely necessary, potentially returning millions of pounds of customers’ money.
“This is an important step in making the retail energy market fairer for consumers at a time when many are facing financial hardship.”
Ofgem said it is concerned that some suppliers may use customers' surplus credit balances to fund “otherwise unsustainable business practices”.
These could include relying on cash reserves to offer artificially low tariffs in the hope of quickly gaining new customers, but this comes with a risk that the company will collapse.
More than 20 suppliers have failed in the recent years, with the regulator appointing a new supplier to take over the supply of the affected customers.
However, the new firm must also take on responsibility for paying outstanding credit and can recoup its costs from an industry levy. Ofgem said that 79 per cent of funds claimed from this pot were to cover credit balances.
If adopted, the new system would come into force next year.
A spokesman for Energy UK, the industry trade body, said: “Paying by direct debit helps customers budget by ensuring they pay a regular amount each month even though their actual energy usage varies significantly over the year.
“Some suppliers already refund credit balances automatically so we now need to look in detail at Ofgem’s proposals.
“We look forward to working with them and our members to find an industry-wide best practice approach that supports customers and works for suppliers.”
Peter Earl, head of energy at switching website Comparethemarket.com, said: “Energy companies managing credit balances has long been a matter of confusion and complexity for households.
“Although there is often a focus on customers who are in debt to their supplier, these proposals to return credit balances in a timely manner should be welcomed, especially given the burden the past year has placed on people’s finances.”
Richard Neudegg, head of regulation at Uswitch.com, said: “A certain amount of energy credit can be a useful cushion for consumers during the winter months, as it can soften the blow of bills spiking if they are using their heating more at a particular time.
“However, if a customer’s monthly bill is higher than it should be or the consumption is much less than expected, their supplier could be potentially hoarding hundreds of pounds of their money.”
He said that, even though the new rules will not come into force until next year, people currently in credit with their supplier may be able to claim a refund.
