Regulator Ofgem will investigate reports that energy suppliers have been increasing direct debits “by more than is necessary,” part of a wider review of the sector after the collapse of nearly 30 firms and amid record gas and electricity bills.
In a blog post on Ofgem’s website, the regulator’s chief executive Jonathan Brearley acknowledged the “difficult year” the energy sector has faced, with suppliers having to “adapt quickly to extreme changes in market conditions”—namely the stratospheric rise in natural gas prices since last summer.
But he said customers are “suffering the most as the result of the gas crisis,” seeing their bills rise by an “unprecedented” 54% on 1 April. Additionally, 4.3 million customers have been transferred to alternative energy companies after their suppliers ceased trading.
“We are also seeing troubling signs that some companies are reacting to these changes by allowing levels of customer service to deteriorate,” he said.
The regulator pointed to “concerning” reports that some suppliers have increased direct debit payments by more than necessary to cover the recent price hike.
Stories of inflated direct debits have circulated on social media and in the press for months. In October, following a tweak of the price cap, customers accused struggling supplier Bulb of hiking direct debits by as much as 80% despite their accounts being in credit and the cap rising by just 12%.
In emails, Bulb told customers they were increasing direct debits because they were “using more energy than your monthly payments can cover” and to “avoid your account building up debit over winter.” Bulb eventually fell into administration in November, with its 1.7 million customers now being served by a special administrator at taxpayer expense.
Customers of other suppliers have recently alleged similar practices on social media.
Suppliers can increase the amount taken from your account but the change must reflect higher prices or increased usage and you must be notified of the increase beforehand, usually at least 10 days before the payment is taken.
Customers can dispute any increase in direct debits. If they think the supplier’s estimate of their usage is elevated, they should take and submit a meter reading.
Brearley also said Ofgem was concerned about reports that suppliers were directing customers to tariffs that “may not be in their best interest.”
“We have also seen troubling stories about the way some vulnerable customers are being treated when they fall into difficulties,” he continued. But with energy bills so high, it is more important than ever that suppliers “suppliers to stick to the requirements in their license on how they work with customers in financial distress,” he said.
If suppliers are found to be in breach of their licence requirements, Ofgem will “not hesitate to take swift action to enforce compliance, including issuing substantial fines.”
The regulator also published a letter outlining plans to require suppliers to ringfence customers’ credit balances. The plans were advanced after some of the 30 toppled energy suppliers exited the marketing owing millions of pounds to their customers.
Customers who pay by direct debit typically build up credit balances over the summer that then covers their higher use over the winter.
These credit balances of domestic customers are protected in the event their supplier folds, but those costs can be recovered from the wider market. £68 of the recent £693 increase in the energy price cap was to cover the costs of recent supplier failures, including refunding these credit balances, along with covering the companies’ debts to green energy schemes.
Large energy companies, including British Gas owner Centrica, have pushed for suppliers to be required to keep customer money in separate bank accounts or financial vehicles.
“There is absolutely no excuse for taking customers’ money upfront and not keeping it safely to one side,” Centrica chief executive Chris O’Shea said.
Smaller suppliers have objected, saying ringfencing requirements would threaten their viability. Ofgem acknowledged that “transition arrangements” will likely be needed.
The regulator plans to consult on ringfencing proposals later this year. It has also considered limiting the amount of money energy companies can hold in credit balances, a move that would see energy suppliers hand an estimated £1.4 billion back to customers, or £65 per household.
Currently, customers can request refunds of their credit balances by contacting their supplier. Suppliers can refuse to issue refunds if they have a good reason, for instance if you have a small amount of credit on your account during the summer which will be used when your usage and bills rise in the autumn and winter. But they must explain their decision to refuse the refund.
Sources: Ofgem: “Time for suppliers to improve standards for energy consumers”
Ofgem: “Open Letter to domestic energy suppliers – Financial Resilience”
The Financial Times: Ofgem warns UK energy suppliers over unjustified increases in direct debit
