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Energy suppliers must explain direct debit charges
• Ofgem criticises lack of transparency over energy charges
• Watchdog could review licences if changes are not made
Energy suppliers must provide better billing information. Photograph: Stephen Hird/Reuters
The energy regulator has demanded "significant improvements" from suppliers in the way they manage customers' direct debits.
The call follows a review by Ofgem into whether firms have been deliberately overstating customers' monthly payments in a bid to build up cash reserves.
In a report published today the regulator said it found no evidence of this, but warned the big six gas and electricity companies it is considering licence changes if they fail to put their house in order. It has launched a consultation process to establish how best to achieve this.
The regulator launched its investigation following a wave of complaints from energy customers last year that they had seen their monthly gas and electricity direct debits significantly increased, despite the fact that in many cases they were already in credit. When consumers complained to their supplier they found their arguments were batted away; in many cases they were told they had no choice but to pay the inflated figures.
Ofgem said there was no evidence suppliers had a deliberate policy to demand more money from direct debit customers than they were due. However, it criticised a lack of transparency and poor communication "which has left customers struggling to understand why they are being asked to pay more".
The regulator said it was also concerned about refund policies, and wanted suppliers to do more to make the grounds for refunds clearer and to give consumers more choice on how their credit balances can be repaid.
Ofgem's chief executive, Alistair Buchanan, said: "Our investigation found no evidence that suppliers are recovering more money from direct debit customers than they are due.
"However, their explanations of the payment increases and their practices on refund policies are wholly inadequate. Suppliers need to manage customers' direct debit payments much better, especially at a time when household budgets are under pressure. We are calling on suppliers to meet and beat our best practice and will take new licence powers to back this up if necessary."
'Interest-free loans'
Earlier this week the consumer group Which? said energy suppliers were using customers' unnecessarily high direct debit payments as 'interest-free loans'.
In a recent survey it found a quarter of its members who paid their energy bills by direct debit were owed more than £100 by their supplier. Around 8% had overpaid by more than £200.
James Tallack, a senior researcher at Which?, said Ofgem's demands were a move in the right direction for consumers, but the group remained concerned about the size of credits that were being allowed to build up on some gas and electricity accounts.
"Allowing such large amounts to accumulate in the first place is unacceptable, even if the money is paid back eventually," he said. "With household budgets already stretched to the limit, suppliers need to play fair and stop effectively using their customers' money as interest-free loans".
However, Garry Felgate, chief executive of the Energy Retail Association (ERA), said the report showed energy firms were being fair to customers.
"Ofgem's report has confirmed that energy companies always try to balance their customers' direct debit accounts over the year, and base their payments on as much information as they are able to obtain on an individual customer's past use of energy.
"The report will hopefully lay to rest customers' concerns about this payment method, as the vast majority of direct debit users appreciate being able to budget and pay for their energy this way."
He added that the ERA and its members were working to address people's concerns and would continue to work with Ofgem to explain to consumers how their direct debits and other payment methods work.
• Ofgem criticises lack of transparency over energy charges
• Watchdog could review licences if changes are not made
- Miles Brignall
- guardian.co.uk, Friday 27 March 2009 09.38 GMT
- Article history
Energy suppliers must provide better billing information. Photograph: Stephen Hird/Reuters
The energy regulator has demanded "significant improvements" from suppliers in the way they manage customers' direct debits.
The call follows a review by Ofgem into whether firms have been deliberately overstating customers' monthly payments in a bid to build up cash reserves.
In a report published today the regulator said it found no evidence of this, but warned the big six gas and electricity companies it is considering licence changes if they fail to put their house in order. It has launched a consultation process to establish how best to achieve this.
The regulator launched its investigation following a wave of complaints from energy customers last year that they had seen their monthly gas and electricity direct debits significantly increased, despite the fact that in many cases they were already in credit. When consumers complained to their supplier they found their arguments were batted away; in many cases they were told they had no choice but to pay the inflated figures.
Ofgem said there was no evidence suppliers had a deliberate policy to demand more money from direct debit customers than they were due. However, it criticised a lack of transparency and poor communication "which has left customers struggling to understand why they are being asked to pay more".
The regulator said it was also concerned about refund policies, and wanted suppliers to do more to make the grounds for refunds clearer and to give consumers more choice on how their credit balances can be repaid.
Ofgem's chief executive, Alistair Buchanan, said: "Our investigation found no evidence that suppliers are recovering more money from direct debit customers than they are due.
"However, their explanations of the payment increases and their practices on refund policies are wholly inadequate. Suppliers need to manage customers' direct debit payments much better, especially at a time when household budgets are under pressure. We are calling on suppliers to meet and beat our best practice and will take new licence powers to back this up if necessary."
'Interest-free loans'
Earlier this week the consumer group Which? said energy suppliers were using customers' unnecessarily high direct debit payments as 'interest-free loans'.
In a recent survey it found a quarter of its members who paid their energy bills by direct debit were owed more than £100 by their supplier. Around 8% had overpaid by more than £200.
James Tallack, a senior researcher at Which?, said Ofgem's demands were a move in the right direction for consumers, but the group remained concerned about the size of credits that were being allowed to build up on some gas and electricity accounts.
"Allowing such large amounts to accumulate in the first place is unacceptable, even if the money is paid back eventually," he said. "With household budgets already stretched to the limit, suppliers need to play fair and stop effectively using their customers' money as interest-free loans".
However, Garry Felgate, chief executive of the Energy Retail Association (ERA), said the report showed energy firms were being fair to customers.
"Ofgem's report has confirmed that energy companies always try to balance their customers' direct debit accounts over the year, and base their payments on as much information as they are able to obtain on an individual customer's past use of energy.
"The report will hopefully lay to rest customers' concerns about this payment method, as the vast majority of direct debit users appreciate being able to budget and pay for their energy this way."
He added that the ERA and its members were working to address people's concerns and would continue to work with Ofgem to explain to consumers how their direct debits and other payment methods work.
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