Ofgem Could Force Energy Suppliers to Refund Credit Balances

Energy suppliers could be forced to hand back up to £1.4 billion in credit balances after the regulator raised concerns that firms are using the sums to fund otherwise unsustainable business practices.

Households that pay for their energy by direct debit typically pay a fixed amount each month, based on their expected energy consumption divided by 12. This practice helps consumers budget and avoid fluctuating bills, including high costs in the winter when they’re running their central heating. 

Usually, customers build up credit balances over the summer, which they then use during the colder months. However, if their energy consumption over the winter is lower than expected, they may still be left with hundreds of pounds of credit—which is difficult to wrest back from suppliers.

Ofgem found that energy suppliers were holding as much as £1.4 billion in credit balances in October 2018, more than it believes is necessary.

Some industry experts warn that small energy firms are relying on credit balances amassed during the summer to fund operations as they offer deeply, even unsustainably discounted gas and electricity tariffs. These suppliers may delay refunds in order to stay afloat in a competitive market.

Last year alone, the Energy Ombudsman received more than 1,000 complaints from customers who were struggling to extract their credit balances from their suppliers.

Under new rules proposed by the watchdog, energy companies would need to “auto-return” any credit balance above £0 to customers every year on their anniversary of signing up. Some households would be in line for refunds of up to £1,000, but Ofgem said the typical amount returned would be £65.

Ofgem may also cap the amount of credit energy suppliers can hold although it hasn’t specified what the limit would be.

Jonathan Brearley, chief executive of Ofgem, said the 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,” he added.

Limiting credit balances would also reduce the amount held with energy suppliers go under. Domestic energy customers are entitled to be repaid their credit balances when their supplier fails, with their new supplier, chosen by Ofgem, largely footing the bill. However, as customers of the defunct Yorkshire Energy learned when they tried to extract their credit balances from their appointed Supplier of Last Resort (SoLR), Scottish Power, this process can take weeks or even months. 

Additionally, some companies named Supplier of Last Resort (SoLR) for stranded households have claimed back the costs of these honouring credit balances. These funds are recovered from energy network companies, which pass them onto suppliers, which raise prices for everyone.

The Energy Ombudsman welcomed the regulator's proposals. Director Ed Dodman said: “We know from looking at complaints that suppliers can sometimes take too long to issue refunds, which can be stressful for consumers. 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.”

Ofgem will consult on the plans and, if they’re approved, put them into force in 2022. However, customers don’t have to wait that long to recoup some money from their supplier. If you consistently have excess credit with your supplier—an amount stated on your bills—you may want to request a refund.