Energy Companies Allegedly Misuseing Direct Debit Scheme

MarkyMarkD

Incisor wrote: »

Yes, the highlighted point is being forgotten in assessing whether the energy utilities are treating customers fairly. There has definitely been a change in the basis of DD charging.

I don't believe for a moment that there has been a change in the basis of setting DD amounts. All that has happened is that because there has been a couple of significant percentage rises in the cost of energy, within the DD payment plan year for many customers, there are very many customers correctly being told to increase their DDs even though they are in credit.

And because of the poor explanation of the basis of the new DDs, those customers think they are being ripped off.

And because the newspapers/radio/etc like stirring up a storm, and can't be bothered to work the sums out properly for themselves, this is getting huge amounts of publicity even though in the vast majority of cases the DD increases are correct.

DirectDebacle

MarkyMarkD wrote: »

I don't believe for a moment that there has been a change in the basis of setting DD amounts. All that has happened is that because there has been a couple of significant percentage rises in the cost of energy, within the DD payment plan year for many customers, there are very many customers correctly being told to increase their DDs even though they are in credit.

And because of the poor explanation of the basis of the new DDs, those customers think they are being ripped off.

In the main I agree with you but a point raised by Incisor and myself has not as yet been answered. It appears there has been a change in the basis of setting DD amounts and it is this.

The suppliers are now stating that the anniversary or settlement date is now at the end of the winter quarter. That is when they expect a DD account to be either zero or marginally in credit. They have moved the goalposts. Settlement dates are not now 12 months from when your DD started but whenever a supplier deems to be the end of the winter quarter. This information has not been communicated to customers as the terms and conditions of a DD plan. In many cases this has led to DDs being increased way over any price rise adjustment in order to achieve the suppliers zero winter target.

Joyful

British Gas expect you to be at zero 12 months after your plan started. Therefore Mine started in February so I am expected to break even at that point. Someone who started in June will expect to be at zero in June. I am lucky to be on a fixed price but after having people living with me my consumption has increased in the last 4 months. As I know it will not be reassessed till February I am taking responsibility now to up my DD and also clear my expected shortfall.

As I already reported the amount of Credit now at my company gets more than swallowed up by debt after the winter. People who are being reassessed now must be six months into their year so during this time any price rises will be taken into account- also possibly playing catch up if need be. Sometimes when the energy prices have been volatile BG have checked the DD amounts every quarter. This was in response to complaints about people building up debts.

It looks like companies cannot win. As has been said many times before if you think your DD is wrong you need to manually calculate usage over the last year and add any price increases. Then work out how many months are left to your year end and give the companies this figure.

DirectDebacle

Thank you for the official B.G. DD policy statement. Scottish Power have stated (verbally) that DDs are reviewed every quarter with a zero balance target. So, two down, four to go.

Cardew

Firstly, everyone will surely agree that there should be clarity in how DD payments are calculated.

It seems to me that the crux of this discussion revolves around a difference of opinion on what is happening about DD schemes run by the various companies.

There is the school of thought put forward by Incisor/Direct Debacle that there has been a fundamental change in the system; e.g.

DD are adjusted upward as a matter of course (e.g. mine which is a fixed rate) and the review is set quarterly in advance so that the DD is either at zero or in credit by the end of the quarter. A DD scheme has been converted into a quartely billing system, payable in advance.

Joyful/MarkyMD argue that it has not radically changed:

British Gas expect you to be at zero 12 months after your plan started. Therefore Mine started in February so I am expected to break even at that point. Someone who started in June will expect to be at zero in June.

From the evidence of my accounts with BG the latter case seems to apply. For my 2 major(above average consumption) accounts I will be well in debit emerging from the winter. In early Oct on my last bills I was approx £40 in credit for gas and £50 in debit for electricity. Of course if I find my DDs massively increased on my January bills I will join the Incisor camp!!!!

Clearly if some companies have changed the basis of their scheme, then that should be announced; but I wonder if that has happened? - where is ‘the evidence’!

Just a further point to ponder. According to uswitch, the average discount for paying by DD is 7%.
The average bill is approx £1,200 so the discount will be £84.

The average monthly DD to service an annual bill of £1200 is £100(I worked that out without use of a calculator!!)

Without commenting on the prnciple(which is a given!) I wonder if anyone would venture a figure of lost interest(by a customer) taking a worst case scenario along the lines suggested by Incisor/Direct Debacle, and paying a steady £100.

DirectDebacle

The only real evidence I can give is with regard to my supplier, Scottish Power. Quick re cap is: fixed price to 2011. (before Aug. price rise) DD set as accurately as possible for zero balance 12 payments later in June 2009. This Nov. DD inexplicably increased. Cust service tell me it is to achieve zero balance for winter quarter and will be reviewed Feb. 09 for next qtr to achieve zero balance. S.P. agree to put DD back to original DD. Seems like it is a 1-1 draw at the moment. I am not concerned with any minor loss of interest shown by paying monthly or having the money in an account and paying quarterly. I just want a DD to work as it should, 12 payments to settlement as per B.G. and correct amounts taken. If S.P. now have a quarterly review system then I will have to watch them carefully. I was interested to know if other suppliers had followed suit yet.

bristolleedsfan

Cardew wrote: »

Just a further point to ponder. According to uswitch, the average discount for paying by DD is 7%.
The average bill is approx £1,200 so the discount will be £84.

The average monthly DD to service an annual bill of £1200 is £100(I worked that out without use of a calculator!!)

Without commenting on the prnciple(which is a given!) I wonder if anyone would venture a figure of lost interest(by a customer) taking a worst case scenario along the lines suggested by Incisor/Direct Debacle, and paying a steady £100.

Its not just loss of interest thats at stake, its loss of cashflow to the customer as well.

Cardew

bristolleedsfan wrote: »

Its not just loss of interest thats at stake, its loss of cashflow to the customer as well.

Could you illustrate please what you mean?

As I understand the 'allegations'(for want of a better word), there is no suggestion that the companies intend to charge more than £1,200(using that as the UK average)

So as I understand these allegations, instead of £100 they will set the DD at, say, £150 a month for a winter quarter(£450) to 'balance the books' at the end of that quarter.

Possibly more than £100 a month in another quarter.

If that is so then they must charge less in the rest of the year.

So using a £1,200 annual bill, can someone quantify - using any scenario they wish - the loss to a customer over the flat £100 a month.

Cardew

Incisor wrote: »

Assume [it's extreme] use of £200/month Nov Dec Jan Feb Mar Apr and £0/month for the rest of the year.

Account is reviewed to go through £0 at the end of Jul. Highest credit £300 at the end of Oct, Highest Arrears £300 at end of Apr. Account also goes through £0 at end of Jan.

Account is reviewed to go through £0 end of April. Highest credit £600 at end of Oct. Account ALWAYS in credit throughout year.

In cashflow terms, that is £300 which the customer is always down by and it is £300 addition to the suppliers Cash Balances on the Balance Sheet. I have not worked it out for quarterly billing, but with that, the customer would be in balance from start of May to end of Oct and in debit by £600 at the end of Jan and end of Apr. Evened out, it averages at the customer owing £150 across the year.

So, from Quarterly Billing to Fair DD, with review at end of Jan and end of Jul, the supplier is up by £150. From Fair DD to current DD practice, supplier is up by a further £450. Across a customer base of 20,000,000 homes on 1 utility, the big players have added £3,000,000,000 to their balance sheets by going from Quarterly Billing to Fair DD and a further £6,000,000,000 by going to end of winter Unfair DD.

The DD discount may be fair recompense to the extent that you are punished for not doing DD. But don't talk about the interest on £300 or £450. What is really at stake here is that many households do not have £300 to hand over to the suppliers. It is money which they need from week to week which they must now work to accumulate and keep as dead money in the pockets of the utilities.

[Then add to that the whole months payment which e.on were not going to take into account in my case because they put the review date before the bill date]

Admittedly I said any scenario! and admittedly you have stated your example is 'Extreme" !!!! in fact divorced from reality;)

I wonder why - in reply to my post - you say "don't talk about the interest" when that is exactly the question I was asking. I wanted someone to quantify the cost of the alleged/actual change in policy. In real terms that loss of interest will be a few pounds at most.

I accept that paying extra during the winter and less in the summer might create cash flow problems for those on tight budgets who will find it difficult to find extra in the winter months, and are incapable of saving the reduced sum they pay in the summer months.

However in Money saving terms, under any scenario - even yours, the Direct Debit scheme is a big money saver.

Paying quarterly I agree that the average balance in your bank will be £150. So a gain of say £7 interest for an average loss of £84 for not paying by DD.

Taking your scenario of 6 x £200 payments and 6 x £0 payments and picking the optimum dates to suit your case, I calculate the average credit balance over the year will be £75(over the £100 monthly payment) so a loss of approx £4 a year.

MarkyMarkD

I think that there is a lot of extrapolation going on here from how a few companies might have changed the way the DD annual review system works.

I agree that SP's quarterly reviewing approach is wrong, if it is indeed aimed at a zero balance at the end of each quarter. But I'm not sure how if can indeed do that - do you mean that each quarter they attempt to collect your next quarter's usage plus any debit balance? That will lead to a stupid result with DD amounts going up hugely in the winter and down hugely in the summer - not a DD payment plan in any sense of the word. They might as well collect the amount due each quarter on a meter read by DD.

SP were, indeed, the most irritating of my suppliers when it came to reviewing the DD amount too often, but it wasn't such an extreme amount as to cause me to believe they were being dodgy tbh.

BG, on the other hand, thus far are being a dream as they are charging me the amounts I selected - end of story.

Rather than the pressure (from the Conservative MP and the like) being to have a general kick-about of the suppliers, maybe there should be an increased emphasis on:

(1) transparency - i.e. a proforma calculation must be provided every time a DD amount is set; and
(2) consistency - i.e. however many reviews there are during the year, they must always be looking forward to a consistent plan end date.

It doesn't bother me if that plan end date is consistently set by the suppliers as March, which would benefit them the most and mean that most customers would permanently be in credit. That's a price customers might choose to pay for the DD discount.