Ofgem names energy firms who must improve their Direct Debit setting

Ofgem has been investigating how energy suppliers set customers’ direct debits. The energy regulator has found:

• more than 7 million consumers on a Standard Variable Tariff (SVT) had their direct debits increased between February and April 2022;
• direct debits went up 62% on average;
• half a million households had an increase of more than 100%.

Ofgem has told 6 energy suppliers to take immediate and urgent action, after identifying a range of problems in the way they set direct debit payments.

MSE’s survey

Ofgem’s investigation into the way firms set direct debits for their customers follows what MSE has described as widespread complaints from customers.

MSE’s report on its own survey is here: 30% of British Gas, Octopus & Shell Energy customers say their direct debits have DOUBLED. This survey was large scale, with over 40,000 respondents, but it was self-selected so it is inevitable that people who felt they had been unfairly treated are more likely to have responded.

The 6 firms where Ofgem has found moderate or severe weaknesses

Often regulator announcements can be bland, but in this case Ofgem has named the specific firms involved. It found that:

• TruEnergy and UK Energy Incubator Hub, have a “severe weakness”;
• Ecotricity, Good Energy, Green Energy UK and Utilita Energy, have a range of “moderate” weaknesses.

Those firms now have to submit an action plan to Ofgem within two weeks to set out how they will take the required actions.

Six further firms were found to have “minor weaknesses”: Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse.

Ofgem decided that four firms do not have significant problems: British Gas, EDF, Scottish Power and SO Energy.

A review of all accounts with very large increases

Ofgem says it has not found evidence of unjustifiably high direct debits. But it is concerned that 8% of customers, about half a million, have seen their direct debits increase by 100% or more.

It wants to ensure there is good reason for these large changes. This could include the customer coming off a low fixed rate, arrears on the account or a recent meter reading showing an increased energy use.

It has therefore decided to require all firms to review the accounts where direct debits have doubled.

What can you do if you think your direct debit is too high?

The aim of the direct debit is to charge you the set amount every month, so the direct debit smooths the higher energy usage in the winter with the lower usage in the summer. This makes it easier for you to budget and prevents you from getting large arrears in the winter.

So it’s normal to build up credits on your account during the summer. These credits should now be higher than they were last years because energy prices went up last October and this April.

You can challenge the direct debit amount if you think it should be lower.

Your supplier should be able to explain how they have calculated this amount. If this is based on meter readings, check that these are accurate.

It’s a good idea to start to take monthly meter readings from now on and submit these to your energy firm. Take a photo of the meters. If you have decreased your energy usage in order to save money, these monthly readings should start to show that your energy usage is dropping from what it was last year.

Although the direct debit system can seem opaque, it is the cheapest way to pay for energy. If you cancel it and pay on the quarterly bills, these will be higher. As will paying with a prepayment meter.

With higher prices from October, perhaps just live with a DD that is a bit high

The current average energy bill is about £2,000 a year.

We are now close to the point where the October price rises will be set. The best estimate is now expected to be £3,244 a year from October, then this will increase again to £3,363 a year from January 2023. So the October prices are thought to be going up another 60% or more.

So this may not be a good time to get your Direct Debit reduced. If you can build up a large credit now, this winter after the next price rise, will be easier.

What if you have accumulated arrears already?

If you are already in arrears on your account, your supplier will want to set a direct debit that covers your ongoing energy usage and with an extra amount towards clearing the arrears.

Energy bills are priority debts. If you have non-priority debts such as credit cards or loans then you may need to pay less to those. That will let you afford to pay more to your energy bills.  See Can’t pay your bills & debts? What help can you get? which looks at your general options.

Citizens Advice’s What to do if you’re struggling to pay your energy bills page covers the options for your energy bill. If your supplier won’t agree to a payment you can afford, contact your local Citizens Advice for help.

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