Some families who have been switched to a new supplier after their original energy company went bust are facing huge increases in their monthly direct debit payments.
Energy market regulator Ofgem has confirmed it is investigating the “troubling signs” that households are being overcharged to cover a rise in the price cap. The news comes after the February announcement that British homes can be charged up to 54% more for energy each year, when the price cap - the limit on the rates suppliers can charge - increased from £1,277 to £1,971.
Business secretary Kwasi Kwarteng has already written to regulator Ofgem to ensure suppliers are fulfilling their licence conditions, and has asked for stricter supervision of how customers’ direct debits and credit balances are being handled.
Read more: How your bill is calculated and why your standing charge has also gone up
When an energy supplier goes bust, regulator Ofgem automatically assigns a new provider — but unsuspecting consumers have seen bills soar after they were moved.
Direct debits are based on predicted energy use across the year and then divided into equal monthly payments. Customers will usually pay more than they need to in the summer so they have enough credit to cover the colder winter months. But firms have to take reasonable steps to make sure the direct debit is fair and based on the best information they have about the amount of fuel a customer uses.
The debits are reviewed at least once a year — and can increase or decrease depending on how much energy has been used, but energy firms have said that increased direct debits could be down to other factors as well as the energy price cap rise, which could explain rises in excess of the 54% increase.
You might find your new direct debit is bigger than the 54% rise if:
- You were on a fixed rate with your old company: Any fixed-rate deal you had with your old supplier was cancelled when that company went bust, meaning that you will be on the standard, much higher, rate with your new supplier.
- If you owed your old company money: If you had any debt with your old company, your new supplier will have had to take the debt on, and has increased your direct debit to claw it back.
- If you were paying a very low amount: Some of the smaller companies who have now ceased trading tempted customers in by offering low direct debits. Allowing you to pay an artificially low rate would mean you would have ended up in debt as your payments would not have covered the energy used.
- If your bills were estimated: If you didn't regularly give meter readings, your payments might not have kept pace with the energy you were using.
But if none of the above apply to you, and you think your direct debit has gone up excessively, you can challenge it with your energy company:
- Take a look at your bill and see how much energy you have used. If your direct debit has gone up by more than 54 per cent then you may want to request your payments decrease.
- Call your energy firm to discuss it.
- But beware – you don’t want to end up in debt later on and remember, paymnets are always lower in the summer and the purpose of a direct debit is to build up credit in the warmer months to use in the colder months.
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But Money Saving Expert founder Martin Lewis encouraged customers to challenge their payment if they felt it was too high.
"If it doesn't add up, then tell them you do not accept the direct debit being put up that much and come to a figure that is more appropriate with the 54% rise," said Martin on his ITV show.
"If you’re still convinced that you’re being overcharged, you can make a formal complaint to the energy ombudsman."
