Power firms may be forced to hand £1.4bn to customers
Energy firms are holding customer cash in accounts
Energy companies may be forced to return up to £1.4 billion held in customer credit balances.
Customers who pay by fixed direct debit pay the same amount each month based on their estimated consumption.
They typically build up a credit balance during the summer when their energy use is lower and then draw down on this credit during winter.
Suppliers should set the payments so that customers’ credit balance returns to £0 each year on the anniversary of when they started the payments.
However, many customers who pay by fixed direct debit are overpaying resulting in surplus credit balances.
Ofgem’s research found that as much as £1.4 billion was held in surplus credit balances in October 2018.
Ofgem is concerned that some suppliers may use customers’ surplus credit balances to fund otherwise unsustainable business practices.
The ‘auto-refund’ policy would require suppliers to refund any credit balances, for domestic credit customers paying by fixed direct debit, above £0 each year on the anniversary of when they started their contract.
Jonathan Brearley, chief executive of Ofgem, 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.”
The ‘auto-refund’ proposal would stop surplus credit balances growing year-on-year but would not stop suppliers building up surplus credit balances during the year. To address this risk, Ofgem is also proposing to introduce a credit balance threshold for all domestic suppliers.
These new proposals would also reduce the amount of credit balances held when a supplier fails, reducing the cost to the market and ultimately consumers of covering these additional costs.
If confirmed, the proposals would be rolled out from 2022.