Energy suppliers should give automatic annual refunds if customers overpay - according to Ofgem

Households on average could see a £65 refund from their energy suppliers (Photo: Shutterstock)
Households on average could see a £65 refund from their energy suppliers (Photo: Shutterstock)

Ofgem has said that customers who overpay their energy supplier through monthly direct debit payments should receive automatic annual refunds.

Energy suppliers might have to refund money to customers as Ofgem proposes that there should be a limit to the amount of customer credit balances that suppliers can hold.

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This could result in as much as £1.4 billion in total being refunded - or £65 per house on average.

‘Customers are overpaying’

Customers who pay via a fixed direct debit pay for a set amount each month based on their estimated energy consumption - these customers typically build up a credit balance during the summer when their energy usage is lower, and then use this credit during the winter, when their energy usage is higher.

Ofgem says: “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.”

‘Automatic refunds’

As an example of the new proposal, Ofgem says: “If a consumer who pays in arrears has a credit balance of £50 at the end of the year (12 months from when they first started their contract) this means they have overpaid.

“The new proposals would automatically move this money from their energy account back to their bank account.”

If the proposals from Ofgem are confirmed, they would be rolled out from 2022.

‘An important step’

Jonathan Brearly, 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.”

Ed Dodman, Director of Regulatory Affairs at the Energy Ombudsman, said that the complaints handling body received more than 1,000 complaints about credit balance refunds in 2020 alone.

Dodman 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.

“We know from looking at complaints that suppliers can sometimes take too long to issue refunds, which can be stressful for consumers.

“We think Ofgem’s proposals will help to tackle the problem, setting clear expectations of suppliers and making sure consumers are treated fairly.”