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17 Mar 2021

Energy customers in credit could be refunded £1.4bn

Ofgem could be changing its rules on energy suppliers keeping hold of your cash. Find out how to get a refund if you've paid too much for gas and electricity
Woman at a computer holding a credit card

Struggling to get your energy supplier to pay back your credit could become a thing of the past under new plans to limit how much credit gas and electricity customers can build up.

Energy regulator Ofgem is consulting on proposals, which it estimates would see £65 returned per household, on average - a national total of £1.4bn.

Under the proposed rules, energy firms would have to automatically refund any credit customers have built up each year and protect bigger balances built up in between.

Previous Which? research found two thirds of members paying by direct debit were in credit to their supplier, and several had more than £1,000 in credit tied up with their energy supplier.*

Ofgem says that its plans will help stop customers overpaying for their gas and electricity, and stop energy firms from collecting more of their customers' money than they need.

If confirmed, the new rules are expected to take effect in summer 2022.

Don't wait for automatic refunds - if you have a lot of credit with your energy supplier, keep reading to find out how to get it back. Then use our 10 tips to save money on energy bills.

Man looking at energy bill

My energy bill is in credit - will I get it back?

Fixed direct debit customers pay the same amount each month, based on how much your energy supplier expects you to use.

Typically, you build up credit during the summer when you use less energy and then use it up in winter when you use more gas and electricity. Alternatively, you might build up debt during the winter and pay it off in summer.

Over a year, your usage and payments should balance out.

If your energy account had any credit in it at the end of your contract's year then currently a few providers will refund credit over a certain amount, but many will keep the credit into the next year. Under these new proposals, all credit from all providers would be automatically refunded to you.

Customers who pay by fixed direct debit are most likely to be affected, although the proposals apply to any household customers who are in credit (including those paying by variable direct debit and those paying estimated bills).

Ofgem says: 'Suppliers should set the payments so that customers' credit balances return to £0 each year on the anniversary of when they started the payments.'

If they don't, you would be refunded any overpayment automatically.

Find out how to stop your energy company overcharging.

How to get your money back on gas and electricity now

You're allowed to ask for excess credit to be refunded at any time, so there's no need to wait for these new plans. You can also ask your energy supplier to lower your direct debit payments so that you gradually use up the credit if you prefer.

Many energy firms have an online form to request a refund, although you can also ask over the phone.

When you ask for a refund, the current rules state that your supplier must give it promptly, unless there are reasonable grounds not to. You'll usually need to give meter readings.

Your energy supplier should review your account periodically, too. Some firms pay back excess credit over a certain amount automatically.

If you're unhappy with your energy supplier, compare gas and electricity prices with Which? Switch. It's a free, independent way to find the best energy tariff for you.

Woman sitting at a laptop
Paying for energy by direct debit: what the plans would mean for you

Some energy firms ask you to pay for your gas and electricity upfront by direct debit. This is called payment in advance. When you switch supplier, this means you'll make your first payment before you've used the gas and electricity you're paying for.

Others collect your first direct debit payment after you've used your first month's energy. This is called payment in arrears.

Energy firms would still be able to take direct debit payment in advance. But your account should break even one month after your 12th payment (after a year of being a customer). Any overpayment would be refunded to you at this point.

Whereas if you pay in arrears, your account should balance just before your 12th monthly payment (also after a year of being a customer). Anything extra would be paid back to you.

My energy supplier pays interest on my credit balance - what will this mean for me?

Several energy firms pay interest on customers' credit balances over a certain amount, for example Ovo and Scottish Power have both done this.

The proposed new rules would set limits on how much excess credit energy suppliers would be allowed to hold throughout the year.

If suppliers collected more than this then they would have to protect the amount, for example by putting it in an escrow (third-party) account or using a guarantee from a third-party or parent company (with a minimum credit rating of investment grade).

Ofgem says this 'would encourage suppliers not to collect surplus credit balances, by making them pay to protect any credit balances they hold above the threshold limit'.

So energy firms would still be able to choose to pay interest on customers' credit balances. But it may cost them more to offer interest. Any unused credit (including interest) at the end of the year would be returned to the customer.

See the best and worst energy firms, according to their customers.

Why is Ofgem proposing new rules for gas and electricity payments?

Ofgem is concerned that 'some suppliers may use customers' surplus credit balances to fund otherwise unsustainable business practices'.

These could include using customers' excess credit to finance unsustainably low-priced tariffs that they wouldn't be able to offer otherwise.

When an energy company fails, the Supplier of Last Resort process means that you'll get your credit balance back in the end.

But the cost of this can ultimately be passed on to all energy customers. For example, when Extra Energy failed and Scottish Power took on its customers, Ofgem agreed it could claim £6.5m to help it repay credit balances to Extra Energy's customers.

This cost is spread across the rest of the market.

Ofgem's research found that suppliers held as much as £1.4bn in surplus credit balances in October 2018.

Which? research on energy credit

In July 2019, Which? ran an online survey of 3,950 Which? Connect panel members who pay their energy bills by direct debit.