Energy firms face curbs on penalties for loyal customers

After gas and electricity firms are made to return £38 MILLION to customers . . .

MINISTERS are planning to crack down on ‘rip-off’ energy firms as part of a major overhaul of the UK’s energy market.

Business Secretary Alok Sharma is tomorrow expected to announce moves to stop energy companies from punishing longstanding customers with expensive tariffs – known as the ‘loyalty penalty’.

Many firms offer their cheapest deals to new customers but then automatically switch them to more expensive standard rates when the contracts end.

Officials are also considering legislation to regulate the new energy-saving smart meters amid fears they could be vulnerable to ‘hacking’ by foreign powers.

The plans have been drawn up as part of preparations for the Government’s new Energy White Paper, which is a blueprint for reforming the UK’s energy industry after a commitment was made to reach net zero emissions by 2050.

The paper will also set out plans for major investment in offshore wind, clean hydrogen, carbon capture and nuclear power, supporting up to 220,000 skilled jobs in industrial areas such as Merseyside, the Humber and Teesside.

There is also support for pensioners and low- income households through a five-year extension of the Warm Home Discount Scheme, which knocks £ 140 off annual electricity bills.

The extension to 2026 will mean three million households benefit from the discounts.

Industry estimates suggest 12 million households are overpaying by hundreds of pounds, adding more than £2 billion to UK energy bills each year.

But the Government’s reforms mean energy firms will no longer be able to switch customers to more expensive tariffs without their consent.

Instead, when contracts come to an end, energy firms will either have to give customers the choice to opt-in to a cheaper tariff or automatically switch them to a competitive new deal.

A Whitehall source said: ‘We do not believe that energy companies should be able to roll over contracts indefinitely or punish longstanding, loyal consumers.’

The move follows lobbying by renewable energy firm Bulb, which urged Energy Minister Kwasi Kwarteng this month to end the ‘unacceptable situation’.

Bulb’s chief executive Hayden Wood last night welcomed the shake-up, which has been described as similar to plans by the FCA City watchdog to outlaw the practice of ‘ price- walking’ on home and motor insurance contracts, which sees long standing customers who renew their annual premiums charged more than new customers.

Mr Wood said: ‘Millions of loyal households have paid hundreds of pounds over the odds this year through no fault of their own.

‘You’d be shocked if your local coffee shop started charging you more because you’re a regular – it should be no different with energy companies.

‘ We want greater fairness and transparency in the energy market and this is an important step to getting there.’ In September, the £ 2 billion Green Homes Grant handed low-income families grants of up to £10,000 to insulate their homes, which can knock up to £500 off annual energy costs.

The Whitehall source added: ‘The Government is revolutionising the way the UK powers its homes, buildings and industry – but we are also overhauling the system in favour of the consumer.

‘That’s why we’re going to make it even easier for people to switch to cheaper tariffs and drive down bills so they can keep more money in their back pocket.’

‘Paying hundreds of pounds over the odds’

HOUSEHOLDERS are being warned to avoid the sneaky tricks that utility suppliers use to keep hold of customers’ cash. They include doubling direct debit payments, even when accounts are in the black, and not refunding customers who are in credit when they switch supplier.

Many utility providers also take money upfront from new switchers – before any energy has been consumed. Marketing ploys also encourage customers to keep their accounts in credit by paying interest on positive balances.

The warning comes as figures show that suppliers have paid a staggering £38 million in redress to customers through intervention by energy regulator Ofgem this year. About £14 million relates to problems with bills or customers wrongly being blocked from switching.

Energy providers have stumped up an additional £26.5 million in fines – the highest penalty total in a decade. It takes the overall bill for wrongdoing this year to nearly £65 million – the highest since 2015.

Some industry experts believe suppliers will be keener than ever to hoard customers’ overpayments. Andrew Long is chief executive of Switchcraft, an auto-switching service that moves customers on to cheaper energy deals on their behalf. He says: ‘We’ve identified several sneaky tactics being used to hang on to customers’ money.’

The tactic most employed is the ratchetingup of direct debit payments – sometimes by 100 per cent, even if a customer’s account is in credit.

Direct debits are a way to automate energy payments over the course of a year. If the monthly sums aren’t likely to cover a year’s energy costs, suppliers sensibly winch the direct debit higher. But Long says this system is sometimes cynically used to bring in more money for suppliers. It has also been used as a last-ditch effort by struggling suppliers to obtain cash before going bust.

Recently, Switchcraft has seen widespread evidence of suppliers doubling monthly payments. Long says :‘ With some customers understandably behind on their bills with the pandemic, I wouldn’t be surprised if more suppliers quietly bump up direct debit payment demands. Households should check that their direct debit payment matches their energy usage.

‘They should also insist that their supplier refunds any credit balances straight away.’ Changing supplier is usually the quickest way to trim energy bills. But more than a dozen suppliers charge money upfront on day one of a contract – while some will even demand money before they have taken over supply of a customer’s account.

Suppliers that charge up-front claim they do so to buy energy in advance at a cheaper rate. But not every customer will be happy to pay for energy they haven’t yet used.

Meanwhile, for those who switch away while still in credit to their former supplier, getting money back can be painstaking. Complaints on review websites show this problem still exists despite Ofgem’s best efforts to root out this bad practice.

One customer says it took two years to retrieve £ 200. Another complains of a six-month wait for a £136 refund. Suppliers are obliged to pay £30 compensation to customers left frustrated by this experience. Ofgem introduced a new rule in May last year, stipulating that credit balances must be refunded within ten days of a final bill being produced. Tens of thousands of households have been awarded this compensation since.

Jonathan Lenton, head of regulatory affairs at the Energy Ombudsman, whi c h settles disputes between suppliers and customers, says: ‘ We continue to see complaints about delays i n credit refunds. Just as customers must pay for energy they have used, we think it’s important that customers who are in credit receive refunds in a timely manner.’

Customers should also be caut i ous about dubious sounding rewards such as interest credited to accounts with positive balances.

Igloo energy pays three per cent on positive balances, while Ovo gives between three and five per cent. They do this because it is

cheaper than borrowing money via the wholesale markets. Though the rates are much better than high street savings rates, money is not protected in the same way as bank savings where protection is provided by the Financial Services Compensation Scheme.

The rates can distract customers from seeking cheaper energy deals.

In most cases, a lower tariff and lesser monthly payments will prove more rewarding than any interest earned on a credit balance.

The same is true of cash offers used to convince switchers to stay. Anyone tempted should check it is worth more than the savings made from switching.

A cheap quote for gas and electricity from a new supplier might appear attractive, but a quote and reality can be wildly different.

A comparison between deals can only be trusted if based on how much energy a household truly uses. But it is standard for suppliers and price comparison websites to offer quotes based on estimates if a customer doesn’t provide real figures.

People often sign up, only to see their direct debit jump later. This happens once the new supplier sees the household’s real usage.

For some, it can come as a shock. Retired manager Charles, 73, who does not wish to share his surname, was recently quoted a cheaper energy deal by M&S Energy for his t wo- bedroom bungalow in t he North East of England.

The £78-a-month deal was lower than Charles was paying his existing supplier and he signed up. But the quote was based on estimated usage and not on his real previous bills, which Charles did not have to hand at the time.

Within two months, the direct debit had shot up to £148.

He says: ‘It was nearly double what I was first told and £17 per month more than my previous supplier.’

M& S Energy, run by Octopus Energy, says the quote was based on a ‘ fair’ estimate but it says Charles uses more energy than average for a home of his size.

It has made a £30 ‘goodwill’ payment to Charles, but he has decided to move back to his former supplier. He believes suppliers should demand accurate data before any switch is finalised.