The energy regulator has revealed a crackdown on household suppliers to prevent them hoarding credit balances for customers who pay by direct debit.
Ofgem’s examination of the issue, a bugbear of many bill-payers, found that £1.4bn of customers’ money was languishing in the hands of companies in 2018 through overpayment.
It said a series of reforms would lead to, at least, that sum being returned to customers – the equivalent of £65 per household on average – though a consumer group said it had seen evidence of credit balances up to £1,000.
The watchdog explained that suppliers are supposed to adjust fixed monthly payments, which are based on estimated energy consumption, over the course of a year.
It is to eliminate disparities caused by lower energy use during summer compared to winter.
But its report found customers were clearly overpaying and Ofgem feared the money was being used to fund “unsustainable business practices”.
The regulator said it was to consult on an ‘auto-refund’ policy, which would kick in on the anniversary of when a customer’s contract had started.
Its planned shake-up would also require companies to make a “prompt” repayment of a credit balance, if a customer was to make such a request.
A third proposal was to impose a cap on the credit balance that a company could hold.
The regulator’s intervention places further heat on suppliers at a time when the major firms have suffered under the government’s price cap on so-called default tariffs to prevent customers being overcharged.
Ofgem chief executive, Jonathan Brearley, said the new measures would help households at a time when budgets are tight as a result of COVID-19 disruption to earnings.
“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.”
A spokesperson for Energy UK, which represents suppliers, responded: “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.”
The plans were warmly welcomed though by consumer groups and price comparison sites.
Natalie Hitchens of Which? said it was right that customers had control over their own money.
She said: “Our research found many energy customers who paid via direct debit were in credit with their energy provider, some by up to £1,000, and not all suppliers are forthcoming when it comes to refunds.”