Direct debit is the most popular way to pay for energy use. But as the price cap increases, many people are questioning why their direct debit payments are soaring even higher than expected.
Paying for your energy by direct debit tends to be cheaper than paying once you've received your bill. But it's important to understand how direct debits work in order to make sure you're not forking out more than you need to.
We've seen many examples of increased direct debit bills sent to customers ahead of the new price cap level coming on 1 April 2022.
The price cap on out-of-contract energy tariffs is rising by 54% next month for a typical user. This means climbing energy payments for the majority of UK households. so it's more important than ever to have a close eye on what's going on with your energy bill.
Read on to hear from customers who have already received big energy bills, and find out what you can do if you're experiencing something similar.
Paying by direct debit tends to suit both customers and suppliers, as both you and they will know the exact amount that will be coming out of your bank account each month (or quarter).
Almost all companies offer a discount for paying this way, so it's usually the cheapest option.
If you pay by direct debit, you'll pay your energy provider a set amount every month, but it's important to realise that this isn't actually your energy bill.
Your bill is the amount you're charged for your energy. Its a combination of a standing daily charge plus your metered energy usage. It will be different every month, depending on how much you use.
By paying your direct debit, you (and your provider) are ensuring that there's always enough money in your account to cover this changing cost and keep you in credit to your provider - meaning you've already paid them more money than you owe.
To decide what to charge you each month, energy firms estimate how much they think you will use over the year. They divide this by 12 (or four) to determine a reasonable monthly (or quarterly) direct debit amount. That means that in some periods - usually over summer - you might pay for more than you're using. But you may pay for less energy than you've used at other times, and it should balance out over the year.
It's in suppliers' interest to make sure your account is always healthily topped up. But they have to take reasonable steps to make sure that the amount they are asking you to pay by direct debit is fair. This means that it should be based on the best information they have about the amount of gas and electricity you use.
The price cap on out-of-contract energy tariffs will increase on 1 April 2022. If your tariff's prices rose with it, then you'll pay more over the next year - which means your supplier will increase your direct debit to cover this additional cost.
Energy companies will review your direct debit at least once a year to make sure it matches up with your actual energy use. If it doesn't, they may increase your direct debit payments. This applies even if you're on a fixed deal.
Providers will be raising them in order to counteract the expected continued increase in household energy bills. But it's crucial to make sure you are paying what you should be - and what you can afford.
Your direct debit amount will depend on the rate your supplier charges you for using energy, but also on how much energy it predicts you will use. So get to know your household's real usage, as that will be vital if you want to dispute any changes.
Ask your provider to explain how it has chosen your direct debit amount. It must tell you. If you encounter any issues, you can then escalate your case to the energy ombudsman.
Roy Alexander signed up to EDF's Easy Online 3 Year Fix Sep24 tariff in September 2021, with direct debits of £68 a month. But in February 2022, EDF increased these monthly payments to £252.
While Roy acknowledged his £68 payments were 'too low', he said they were estimated by EDF after he sent the company his usage figures.
He reached out to EDF over email to ask how his payments were being calculated. The company emailed Roy back to confirm that his bill had surged to 'avoid accumulation of any debit balance'.
EDF's letter outlined that its system had predicted Roy would spend around £1,512 on energy in the coming months, and that the £68 direct debit payments it was collecting for his monthly usage wouldn't cover the actual cost of his consumption. Roy's bill was therefore revised to £252 per month.
Following Roy's complaint, EDF generated an updated bill for Roy and revised his direct debit payments again. They're now set at £150 per month from 1 April 2022.
Roy feels he has yet to receive a satisfactory answer regarding how his payments are calculated.
An EDF spokesperson told Which? that customers' direct debits payments can increase or decrease to 'avoid any unnecessary debts or credits' on their accounts.
'When Mr Alexander provided a meter reading in January, it showed he was using more energy than he was paying for, and his monthly direct debit was increased. Mr Alexander provided a further meter reading in March which allowed us to reassess his expected future energy usage, enabling us to lower his direct debit.'
It goes to show that it really is worth submitting frequent meter readings to document your energy usage, and querying anything in your billing that doesn't look right.
Roger and Susan Buckley signed up to Octopus Energy's Agile Octopus tariff last spring, and began paying £75 per month for their energy bills by direct debit. They opted to increase their monthly payments to £100 at the start of last winter.
The couple said they had been sending monthly gas and electricity meter readings to Octopus alongside smart meter readings for their electricity usage, which should send automatically.
Roger and Susan checked their account in December 2021 and found it was £200 in credit. By early January 2022, however, the account had a deficit of more than £700.
They emailed Octopus Energy about the issue, and the supplier told them the surge was because the required smart meter readings had been missing from their account. Octopus also emphasised this requirement is outlined within its sign-up process.
A spokesperson for Octopus Energy told us that the technology behind smart meters can 'sometimes suffer from connectivity issues.'
'The Buckleys had only paid for their gas usage from September 2021 to January 2022, but not for their electricity usage. Their electricity charges during this timeframe were all added in bulk to their energy bill in January 2022, which is why their January bill was so much higher than previous statements.'
Octopus recommends that 'if a customer suspects they are underpaying on their account they should always get in touch so we can look into it and make sure there are no underlying issues.'
Because the matter was a 'lengthier issue', Octopus has offered the couple £200 'to make up for the error they experienced.'
How to address direct debit rises
While your unit rate and standing charge are fixed, your payments are not. These depend on how much energy you use.
You must make sure your direct debit payment is fair and proportionate to your usage, and question anything that doesn't look accurate, as we do hear of errors.
Your supplier must also let you know about a payment increase before happens as part of the Direct Debit Guarantee, and you should complain to the company if it doesn't. Ask them to justify how they calculated the new amount. They must clearly explain how they reached the figure they want to charge, and give you the meter readings they used. Check these readings against your bill to ensure they are the same.
If you notice your credit balance creeping up, it may mean that your direct debit payments are too high for your actual usage. Contact your provider, as you could have an argument for reducing your monthly direct debit amount.
If you think you've been overcharged by your energy provider, you can request a refund of any money owed to you at the end of the year.
If you ask for a credit refund, providers must do so unless they have a good reason not to (which they'll need to justify).
Alternatively, you might want to reduce your credit by reducing your direct debit amounts and then gradually working through the credit over winter while you're using more heating.
If your energy company stopped trading while you were in credit with them, you can claim this back from your new supplier. There is no set period within which this process needs to be completed though, so it could be a while before you see the money.
Rules set by Ofgem called the Back-Billing Principle mean that if the supplier itself is at fault for not billing your household correctly, they cannot charge you for energy usage from more than 12 months ago.
As the cost of living continues to creep up, thousands of households are struggling to make ends meet. The government has announced some support for rising bills.
There are other small ways to reduce your bills. You can:
It's likely to feel daunting, but you should talk to your energy supplier as soon as possible if you can't afford to make your payments. Energy companies have to treat customers fairly and agree a payment plan with you that you can manage.
Your options can include a payment break, payment reduction, additional time to pay, access to hardship funds, and being added to its priority services register if you're in a vulnerable situation.