Ofgem has told a number of energy suppliers to take “immediate and urgent action” after finding a range of weaknesses or failings in the way they charge customers direct debits. The watchdog has now ordered every energy firm to review the accounts of all customers whose direct debit was increased by 100% or more between February and the end of April, involving some 500,000 households.
The regulator found five suppliers - Ecotricity, Good Energy, Green Energy UK, Utilita Energy and TruEnergy - had moderate to severe weaknesses ranging from inadequate processes to an overall lack of a structured approach to setting customer direct debits. UK Energy Incubator Hub (UKEIH), which has ceased trading, also had severe weaknesses and did not have a consistent and structured approach to setting direct debits, Ofgem said.
Out of a total of 17 large suppliers in the market, the majority were found to only have minor issues. Suppliers with no significant issues found were British Gas, EDF, ScottishPower and So Energy.
The second group, with minor weaknesses, consisted of Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse.
Ofgem said that, as a result of the “initial snapshot” of findings, the suppliers affected will now have to submit action plans within two weeks to set out how they will take the required action.
Where appropriate, Ofgem said it also expects suppliers to adjust any miscalculations, including making repayments if needed, and consider whether a goodwill payment is warranted.
The review found that more than seven million energy consumers on a standard variable tariff (SVT) saw an increase in their direct debits between February and April 2022.
On average, direct debit levels for customers on an SVT increased by 62% in this period, most of this reflecting the increased cost of gas.
Ofgem chief executive Jonathan Brearley said: “We know how hard it is for energy customers at the moment so it’s crucial that the amount they pay each month in direct debits is right so they can manage their money.
“Suppliers must do all they can, especially during the current gas crisis, to support customers and to recognise the significant worry and concern increased direct debits can cause.
“We know there is some excellent service out there, but we want to make sure that it’s consistent and standard across the board.
“It’s clear from today’s findings on direct debits that there are areas of the market where customers are simply not getting the service they need and rightly expect in these very difficult times.
“Today’s findings show that, with the urgent changes we are now expecting, the current system will be much fairer for consumers.
“Bringing down the price of gas is not in Ofgem’s control; however, we will do all we can to have a fair system and ensure suppliers look after their customers.”
Dhara Vyas, deputy director of Energy UK, which represents suppliers, said: “Steep rises in energy bills have meant big increases in direct debit payments, which can also be triggered by changes in tariffs, high debit balances or an updated meter read. Given the situation, it’s right for Ofgem to check how suppliers are setting these.
“Suppliers are required to set direct debits at a level that allows the customer to pay the same amount each month, without running up too much credit and or getting into too much debt, basing this on each customer’s individual circumstances – taking into account factors like energy usage and record with previous payments.
“Doing this at a time when energy bills are rising rapidly can be challenging, so it’s important that all suppliers’ processes are as robust as possible so that customers can be confident these are being set fairly.”
Green Energy said it is disappointed with Ofgem’s findings and has “genuine concerns that the information that we supplied has been misunderstood or ignored”.
Chief executive Doug Stewart said: “Ofgem has highlighted areas where we can make improvements and we are already taking action to address these areas. However, I do feel that given the challenging state of the market, Ofgem needs to resist knocking suppliers, like ourselves, who have survived the market crash and doing our very best to help customers.”
The latest prediction from Cornwall Insight, suggests that the upcoming price cap review will see a rise of 64 per cent, taking the annual cost for a typical user on a standard tariff to £3,245 from October 1. The energy analysts also suggested that the price cap could go up by a further £360 in January to £3,364.
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