Ofgem plans to make suppliers pay back unused credit balances
Ofgem is mulling proposals that would limit the amount of consumer credit energy suppliers can hold, which could see £1.4bn in excess payments returned to customers.
Households that pay for their energy by direct debit typically pay a set amount to suppliers every month based on their average consumption.
As energy use is normally lower in the summer and then climbs again in the winter, consumers usually build up a credit balance before drawing down on funds when it gets cold.
As a result, over a 12 month period customers should see their balance level out at £0. But research by the energy regulator shows that at the moment, many customers are overpaying.
Under the proposals, suppliers would be obliged to automatically return balances over £0 at the end of the year.
That could be as much as £65 per household, or a total of £1.4bn, the watchdog said.
Chief executive Jonathan Brearley 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.”
Comparethemarket’s head of energy Peter Earl said that the proposals should be welcomed.
“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. Ultimately, any credit belongs to the customer, whether the suppliers holds it or not”, he said.
“It’s worth bearing in mind that sometimes it pays to be in credit though, to prepare you for more expensive bills during the year and potential energy price increases.”
Forbes personal finance adviser Kevin Pratt said that Ofgem should be applauded for the proposal, adding that the findings were “damning” of suppliers.
“It’s damning that Ofgem thinks some suppliers could be using their customers’ money to prop up ‘unsustainable’ business practices. Consumers aren’t cash-cows or sources of working capital”, he said.