The energy regulator could soon call on suppliers to hand £1.4bn in customer credit back to households under plans to stop energy companies from holding on to customer credit balances.
Ofgem is concerned that some suppliers may be using customers’ surplus credit balances – which tend to build up over the summer when bills are lower – to fund otherwise unsustainable business practices.
Under the proposed rules, suppliers will need to “auto-return” the extra credit to their customers every year on the anniversary of joining the supplier. Some households would be in line for up to £1,000 from their energy supplier, but the regulator estimates that on average households stand to get £65 back.
Jonathan Brearley, the chief executive of Ofgem, said the regulator’s proposals would ensure suppliers are “not holding on to more of customers’ money than absolutely necessary”.
“This is an important step in making the retail energy market fairer for consumers at a time when many are facing financial hardship,” he added.
Households which pay for their energy bills through a fixed direct debit can find that they overpay during the summer – when less energy is used – and build up hefty credit balances which shrink again in the winter.
Some industry experts fear that smaller energy firms may be relying on the extra summer cash in their coffers to support the business while offering heavily discounted gas and electricity deals. This can lead to suppliers delaying customer refunds to stay afloat financially.
Kevin Pratt, a personal finance expert at Forbes Advisor, said the fixed direct debit payment model works well for customers “if the credit built up in summer simply soaks up the cost of extra usage in the winter”.
“But it is clearly wrong that excessive balances can accrue to the benefit of the supplier. Consumers aren’t cash-cows or sources of working capital,” he said.
If the regulator’s proposals are confirmed the rules would require suppliers to refund credit balances each year from 2022.
Ed Dodman, a director at the Energy Ombudsman, said the new rules should help to tackle the problem of unrefunded credit balances, which accounted for more than 1,000 complaints to the ombudsman in 2020 alone.
“We know from looking at complaints that suppliers can sometimes take too long to issue refunds, which can be stressful for consumers,” he said. “Just as people are expected to pay their energy bills on time, we think it’s fair to expect energy suppliers to do the same with refunds.”
Natalie Hitchins, from consumer champion Which?, said recent research found that many homes were in credit on their energy accounts, with some by up to £1,000. However, not all suppliers are forthcoming when it comes to refunds.
“These proposals are good news for consumers, as many may prefer to keep this extra cash in their bank accounts rather than with their energy supplier,” she said. “It is worth keeping an eye on your balance, and if you consistently have excessive credit you should consider requesting a refund.”