Energy direct debits are 'free loans' to firmsA quarter of customers more than £100 in credit

25 March 2009

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Gas and electricity suppliers are effectively using their customers’ money as ‘interest-free loans’ by taking unnecessarily high direct debit payments each month, new research published today in Which? Money magazine has revealed. 

Four in five people surveyed by Which? said that they pay their energy bills by monthly direct debit. A quarter of those in credit were owed more than £100 and 8% more than £200. This was particularly surprising as the survey took place in winter – when energy use is typically higher. Which? Money said that these customers are losing out on interest they could earn on the money they have overpaid.

Which? Money also advised customers to regularly check their meter readings and the direct debit amount, and to contact their supplier if what they are paying does not accurately represent their usage.

Direct debits

Direct debits being set too high was the most common complaint that customers had with their energy provider in the latest Which? survey about customer satisfaction. Almost one in five customers who'd had a problem with their supplier in the last 12 months cited this reason.

The survey found that energy suppliers are one of the lowest performing of all industries when it comes to customer satisfaction, and customers are getting increasingly less satisfied.

Npower was Which? members’ least favourite energy provider, with a satisfaction score of only 30 per cent. Utility Warehouse achieved the highest customer satisfaction score of 83 per cent.

Profit at our expense

Martyn Hocking, editor of Which? Money, said ‘It seems incredible that energy companies can take hundreds of pounds more than they need to from their customers, and profit from the interest that this money will earn at our expense.

'While a small amount of credit built up over the summer months can be used up during the winter, it’s difficult to see how a £200 credit will be used up – particularly as the customer makes the same payment each month.

‘Our customer satisfaction report makes for disappointing reading. As the recession bites, we are all looking for better service at reasonable prices, and energy suppliers need to take note. People who aren’t happy with their supplier should switch – they could make big savings.’

No fair deal

Commenting on the Which? Money report, Liberal Democrat shadow energy and climate change secretary, Simon Hughes MP said: 'This shows that the energy suppliers are still not giving people a fair deal.

'It is completely unacceptable that big energy companies are taking hundreds of extra pounds of people’s money through inaccurate meter readings.

'This report reinforces the need for a smarter energy grid and the rapid roll out of smart meters. We must empower consumers more and drastically improve energy efficiency.'

Industry response

The Energy Retail Association, which represents energy suppliers, said that Which? Money's research did not reflect the experience of the vast majority of direct debit customers.

Chief executive Garry Felgate said: 'It also fails to recognise that energy companies aim to ensure that a customer’s account is balanced over the year. This means that there will be periods when a customer is in debit, effectively receiving a loan at that time, and there will be corresponding periods when they are in credit to their supplier.'

'Customers who pay for their energy by direct debit choose to do so because it helps them to budget effectively for their energy use throughout the year. If you are a direct debit customer and you are at all concerned about your payments, you should take a meter reading and speak to your energy company without delay. They will be happy to discuss your concerns with you and can organise a refund if appropriate.'

Ofgem investigating

Energy regulator Ofgem is currently investigating the direct debit issue following similar concerns raised by Conservative MP and chairman of the Business and Enterprise Select Committee Peter Luff. Mr Luff claimed the practice might be widespread. An spokesperson for the regulator said that companies had been asked to provide details on direct debit arrangements and that it expected to publish a report 'quite soon'. 

Which? Switch

Nine out of ten members who had switched energy suppliers in the last 12 months said that it was easy to switch, and customers who have never switched before can save around £250 a year. Which? Switch can help find the best value tariffs.

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