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Ofgem's auto refunds could see UK energy customers getting £65 back

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Ofgem sign outside the electricity and gas industry regulator's office in Millbank, central London. Photo: Yui Mok/PA via Getty
Ofgem sign outside the electricity and gas industry regulator's office in Millbank, central London. Photo: Yui Mok/PA via Getty

Britain's energy regulator Ofgem is pushing for reforms to stop utility companies and suppliers using customers' credit balances to "fund unsustainable business practices."

Ofgem said on Wednesday it wants to put in place an "auto-refund" policy that would require suppliers to refund credit balances to customers paying fixed direct debit annually on their contract start date.

It said this could result in as much as £1.4bn ($2bn) in total or £65 per household on average being returned.

Jonathan Brearley, chief executive of Ofgem, said the proposals would ensure that suppliers are not holding onto more of customers’ money than absolutely necessary, potentially returning millions of pounds of customers’ money.

“This is an important step in making the retail energy market fairer for consumers at a time when many are facing financial hardship," he said.

Customers who pay by fixed direct debit pay the same amount each month based on their estimated consumption. They typically build up a credit balance during the summer when their energy use is lower and then draw down on this credit during winter.

Suppliers should set the payments ensuring that customers’ credit balance returns to £0 each year. However many customers who pay by fixed direct debit are overpaying, resulting in surplus credit balances, Ofgem said.

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The auto-refund proposal would stop surplus credit balances growing year-on-year but would not stop suppliers building up surplus credit balances during the year.

To address this, Ofgem is also proposing a credit balance threshold for all domestic suppliers.

If confirmed, the proposals would be rolled out from 2022 and Ofgem is inviting stakeholders to submit their views by 12 May 2021.

The proposals are part of its wider supplier licensing review, the regulator said, which "seeks to mitigate the potential for consumer harm by raising supplier standards of customer service and financial resilience."

Meanwhile, around 15 million UK households will see their energy bills rise more than £90 after Ofgem lifts its price cap.

The new cap will come into force from 1 April this year. This means that for six months from April, the price cap will increase by £96 to £1,138 for 11 million customers on a standard dual-fuel energy tariff, and by £87 to £1,156 for 4 million prepayment meter users.

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