Energy firms are hoarding nearly £2billion in customers’ cash from rip-off overpayments, shock figures reveal.
Gas and electricity giants EDF, Centrica and Shell are among dozens of firms accused of using inflated direct debits as a cheap source of finance during the cost-of-living crisis.
One Scot, 37-year-old Blair Stewart, told the Record how he was overcharged for 12 years until he was a staggering £5,000 in credit.
He said: “They have actually raised my direct debits over the years. I don’t know how that was allowed to happen. There are hundreds of people in the same position as me.”
Christine Farnish, former board member at Ofgem, said: “Energy firms are allowed to put their metaphorical hand into a customer's pocket and use advance customer payments to fund their own businesses.
“It’s my guess that hard-pressed families have no idea that part of their energy direct debits are used to provide cheap financing for their supplier, rather than actually paying for energy consumed.”
And she added: ”In part this derives from the energy sector’s arcane metering, billing and payment systems.
“Despite the Government’s target to install smart meters in all homes by 2020, the job is far from complete.
“Half of us still have old meters which need to be manually read and converted into a bill, and it’s easier and cheaper for firms to estimate bills rather than read meters.
“Estimates are supposed to be based on past consumption and the cost of buying gas or electricity in the market.
“It’s hard, however, for customers to judge whether the estimate is reasonable or whether it 'over eggs' the bill - almost certainly the case this winter as we all try to economise.”
Revelations that firms are hoarding huge sums - in some cases, hundreds of millions of pounds - come despite families struggling to make ends meet amid the soaring cost of living.
The number of Scots seeking advice on their energy bills by phone has more than quadrupled this year, figures from Advance Direct Scotland show.
But an investigation by the Telegraph newspaper discovered more than a dozen UK households who have been hit by automatic increases to their monthly energy payments despite being at least £1,000 in credit.
Stacey Dickens, 41, from North Yorkshire, handed EDF more than £2,300 for energy despite barely turning on her heating this winter.
She said: “I could put that in an ISA and earn money on it instead. I can cushion this, but for some people, especially [around] Christmas, it could be the final straw."
EDF apologised and lowered Ms Dickens’ bills after the reports emerged, claiming an “error” due to estimated rather than actual meter readings being used.
Analysis of financial statements revealed Centrica, the owner of British Gas, held around £588million of money that customers had paid in advance.
But the firm insists it "ringfences" these funds, meaning the money is not used as working capital.
Other well-known brands, including Octopus and Ovo, were found to hold more than £100million in customer credit, while Shell held £45million.
Octopus said it didn’t use customer credit balances to fund business activities, but admitted it did use some of the cash to offset bills that other customers had run up but were yet to pay.
Shell conceded it does use customer credit balances as working capital, but said it didn’t rely on them and had access to other funding sources.
There are no rules against energy companies using customer credit cash to keep their businesses afloat.
But regulator Ofgem says firms must raise the alarm if customer credit balances account for more than half of their total assets.
A staggering 28 energy firms - particularly smaller suppliers - hit the wall in 2021 due to surging wholesale gas prices.
A report by financial consultancy Oxera found many of the companies that collapsed, including Bulb, Avro and Utility Point, were overly reliant on customer credit.
At one stage, it accounted for more than 80 per cent of Avro’s total assets.
Credit built up by UK households is protected if companies go under - but it’s estimated that the collapse of firms has added up to £2.7billion to people’s bills, while the bailout bill for Bulb alone cost the taxpayer £6.5billion.
Ms Farnish warned: “Customers’ money has not been safeguarded in energy because policy makers believed that competition was necessary to challenge the power of large incumbents.
“A requirement for robust balance sheets was seen as a barrier to entry, deterring new players from coming into the market. A blind eye was turned to the use of customer funds as working capital.
“The fact that suppliers could access customer credit balances to cover their running costs created an incentive for risky behaviour before the crisis hit, causing many to fail.
“They could make money in the good times, but if the going got tough and they went bust, their outstanding debts (eg credit balances) were picked up by others and ended up on all our bills.”
Ofgem said: “Much of the feedback and analysis concluded that completely ringfencing credit balances would remove a large piece of working capital that would keep prices down for customers.
“Customers can still request their credit balance back from their supplier at any given time.”
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