Pay for energy by direct debit? Here’s what’s changing

Five of the UK’s Big Six energy firms have announced changes in approach when making refunds to direct debit customers who overpay for their gas and electricity.

Suppliers have long been criticised for holding on to overpayments and earning interest on customers’ cash, but at least six companies have decided to change their policies on overpayments, following talks with the government’s Department for Energy and Climate Change (DECC).

Here’s a look at what’s changing, and what it means for customers who pay their energy bills by direct debit.

Automatic refunds

Until now, the Big Six energy suppliers made automatic refunds once the in-credit amount reached £60 or above (based on an accurate meter reading). The exception was E.On, which paid refunds once the customer reached £5 in credit.

British Gas, SSE, EDF Energy, Npower and Scottish Power only refunded amounts under their stated limits if requested to do so by the customer. The trigger points were £100 British Gas and SSE, £75 for EDF, £60 for Npower and three months’ bills for Scottish Power.

British Gas (from later this year) and EDF will in future provide full refunds following an accurate meter reading, while Npower and SSE will join E.On in refunding anyone more than £5 in credit. In Npower’s case, customers can choose not receive a refund and instead leave the surplus in the account towards future bills.

First Utility, one of the larger ‘independent’ providers, will automatically refund anyone more than £10 in credit.

Greg Barker, the government’s Minister for Energy and Climate Change, said: “This is important and welcome news for the 55% of energy customers who chose to pay by direct debit. I hope other energy companies will adopt this approach very soon.”

‘Rolled forward’

Scottish Power has opted to deal with direct debit overpayment refunds differently. A spokesperson for the supplier explained: “If a customer is in more than one month’s credit, or more than £75 in credit, the full credit balance on their account will be automatically refunded.

“Where customers are less than one month in credit, or less than the £75 credit threshold, they will be informed in a clear and prominent way that they can have a full refund of the credit. Otherwise the credit will be rolled forward to reduce future payments.

“Over 60% of customers have stated they would rather not receive a refund for smaller amounts, and would prefer to use this to reduce future payments.”

Why do overpayments happen?

Direct debit customers’ annual bills are estimated by the supplier, based on their bill history, and divided by 12 to give the amount the customer will pay each month. Estimates are reviewed twice a year to make sure they’re fair.

When a customer uses less than the supplier’s estimate, they pay for more energy than they have used and the surplus accumulates as credit on their account.

Other ways to save

The DECC estimates that 55% of all energy customers choose to pay by direct debit. It’s the cheapest way to pay as suppliers generally offer discounts for doing so, and if you submit regular meter readings you can limit the chances of overpayment.

Managing your account online makes submitting regular meter readings easier, and you often get a further discount for eschewing paper bills anyway.

Of course the most important thing to do is to make sure you’re on the absolute cheapest tariff – which may mean switching suppliers.

There are 22 fixed-price tariffs coming to an end over the next ten weeks or so, and if you’re on one of them you’ll be automatically moved onto your supplier’s standard tariff unless you take action. Standard tariffs are invariably the most expensive option.

Our energy channel will tell which tariff is currently cheapest. You can apply to switch in around 10 minutes and be with your new supplier, with no need for drilling, digging or any other work on your property, within six weeks.

* Up to 20% can save at least £276.98. MoneySuperMarket data based on sales Dec 2013

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