There can’t be many people who hold the banking industry up as a positive example of anything, but at least you get to choose how much of your money is retained in your bank account. You may even be paid interest. The same cannot, however, be said about most energy companies.
Soaring prices of energy bills are hitting everyone, with the UK Government’s inaction hitting them even harder. Not only are people struggling to pay bills, some just can’t, but those who are managing, somehow, to do so can be caught out by another problem that can increase hardship.
There is so much wrong with how government interventions have been handled that it is hard to keep up with all that needs to be fixed.
There is much to complain about, from missing payments and non-existent communication to rolling back support for businesses.
One question that keeps coming into my mailbox is – to paraphrase – “why is my energy company holding onto hundreds of pounds of my money?”
It’s a good question.
When wholesale gas prices started to rise, bills did too, and the regulator Ofgem adjusted the price cap and forecast. Initially, prices shot up 54%, with a warning of a need for further upward adjustments. It all rolled out in real-time.
In the background, energy suppliers “spot” or buy gas based on prices in a market and lock these in for a period. This is called “hedging” and is often done for months ahead; it allows them some certainty over their costs. So then, they were able to benefit from locking in earlier prices.
Wholesale gas prices have now fallen to even lower costs than before the invasion of Ukraine, yet energy suppliers tell us that prices cannot fall for consumers right away because of their hedging. Of course, they are also looking at a spike in demand from China as it opens after its strict Covid protections.
So, as consumers, we pay the hikes earlier than energy companies and keep paying increased costs despite the costs of energy dropping.
At the same time, most of us are asked to increase direct debits based on the energy supplier’s estimate of our future usage based on current prices. It is difficult to see how this can be conducted fairly or scientifically in such a volatile market.
Direct debit amounts rise and rise, often resulting in consumers racking up hundreds – and sometimes thousands of pounds – of credit in their energy accounts. Their hard-earned and often much-needed money is swelling the energy companies’ coffers, earning interest for shareholders. More worryingly, most energy companies use your money as capital to invest as their own rather than ring-fencing it to protect it from risk.
Sometimes the sums are significant; I spoke to someone who had built up over a thousand pounds worth of credit with their energy company, just trusting that this was needed. It is remarkably easy to do in a time of paperless billing; their energy provider just kept increasing their monthly payments.
And if we cancel our direct debits to take control of our payments – the prize is them imposing higher costs per unit of electricity – the last thing any of us need.
There is clearly more going on here than helping customers cover their forthcoming bills.
I am not suggesting any deliberate wrongdoing; I understand suppliers are dealing with estimates, but how fair can a process be when it is conducted by businesses ‘hedging’ to protect their bottom line first?
Now for some, I am sure the process is helpful. Some will be glad of the cushion created by increased direct debits and energy companies’ cost predictions on their behalf. Others are, rightly, unhappy. They want their money back, and if they have a balance accrued, they should be able to withdraw the funds just as they can with their bank account.
It is their decision to make, yet many of my constituents have had their requests for refunds of hundreds of pounds refused by their energy companies. Others must jump through hoops with their energy companies to get the money back.
We know it can be done – constituents who are customers of Octopus, for example, tell me they can withdraw their excess funds at the click of a button.
So, if you do anything today, check your balance and – if you so wish – demand a refund from your energy company or a reduction in your monthly payments. According to Ofgem, suppliers must do this if fair, though it doesn’t say how much it thinks is fair. That means the energy company may try to make it difficult for you – keep on their case, and if they absolutely will not budge, complain to Ofgem.
After all, Ofgem states that unless energy companies have reasonable grounds not to do so, they must pay out credit if requested.
As part of my new ‘It’s Your Money’ campaign, I have called on all energy companies to commit to changing their processes to allow all customers to easily withdraw excessive overpayments. I will be keeping up the pressure on them, along with the UK Government and Ofgem, to end these practices once and for all.