Energy companies creaming interest of customers credit balances

Streaky_Bacon

It's both true that utility companies benefit from building up credit balances (and the benefit of what is effectively an interest free loan is more than the interest rate that we may be able to get at the bank), and also that it is likely reasonable for them to get at least some payment in advance.

The answer, as with similar situations outside of energy, is for the customer to keep a close eye and a tight leash.

Don't let companies retain more of your money than is reasonable.

This may mean regularly requesting credit balance refunds (perhaps leaving a month or so of credit) and threatening to take them to the ombudsman, if they can not provide a proper justification as to why they are entitled to that money now (rather than needing it to cover energy used in X months time).

Verdigris

it is the use of inaccurate estimates instead of following the meter readings...

Although it my observation that the people who don't submit accurate consumption forecasts and regular meter readings are the very ones that then complain about inflated DD amounts.

MWT

Verdigris said:

it is the use of inaccurate estimates instead of following the meter readings...

Although it my observation that the people who don't submit accurate consumption forecasts and regular meter readings are the very ones that then complain about inflated DD amounts.

I don't disagree with you there, it isn't hard to keep things under control if you stay on top of the easy stuff like the meter readings, but unfortunately if you also choose to go for the bottom of the market to get the lowest conceivable price, you tend to get suppliers that are more likely to be manipulating the system to generate working capital so they do actively make it harder to avoid building up large balances, so I would like to see more regulation on that point at least...

Verdigris

MWT said:

Verdigris said:

it is the use of inaccurate estimates instead of following the meter readings...

Although it my observation that the people who don't submit accurate consumption forecasts and regular meter readings are the very ones that then complain about inflated DD amounts.

I don't disagree with you there, it isn't hard to keep things under control if you stay on top of the easy stuff like the meter readings, but unfortunately if you also choose to go for the bottom of the market to get the lowest conceivable price, you tend to get suppliers that are more likely to be manipulating the system to generate working capital so they do actively make it harder to avoid building up large balances, so I would like to see more regulation on that point at least...

Well I have had pretty much the cheapest deals on the market, for many years, and the largest surplus I ever built up was about £90 and that was on an 18 month fix, rather than 12 months. I think every small supplier I was with has since gone bust, barring OFTM, with whom I built up the £90 credit balance. Not that I'm saying there is any correlation!

Curiousgirl1

MMaca said:

Hi, how many other people are fed up contacting their energy company to ask them to stop increasing your monthly direct debit when you have a credit balance on your account? If you think of a mid to high size energy company with say 1million customers. Say 60% have built up a credit balance of around £50. That is 30 million that the energy company has which is customers money. Then think about the interest they are getting back on that balance.
I have now contacted my energy company twice in the last 2 months due to them trying to increase my monthly payment when I am sitting with an £83 credit and their own projection for the year is that,  I will use £643 based on last year. My direct debit is for £51 per month. If you work it out that £83 credit will last me nearly 2 years if prices don;t come back down but all the time they have that credit, they are getting interest on that money.
I really feel its time that more safeguards were put in place by OFGEM to protect consumers from overpaying and feeling like they can't do anything about these recurrent increases to their Direct Debit.  I was only offered a 2 month suspension of increase!! The vast majority of users pay their Direct Debits on time but I believe these companies take advantage of that and are knowingly slowly increasing your DD's to create a credit balance on your account from which they are benefiting.

And because of it you pay a cheaper tariff price. 

The difference between the cash/ cheque price & the direct debit price is usually 5-6%, far more than you would get in a bank on your £83 

wild666

MMaca said:

Hi, how many other people are fed up contacting their energy company to ask them to stop increasing your monthly direct debit when you have a credit balance on your account? If you think of a mid to high size energy company with say 1million customers. Say 60% have built up a credit balance of around £50. That is 30 million that the energy company has which is customers money. Then think about the interest they are getting back on that balance.
I have now contacted my energy company twice in the last 2 months due to them trying to increase my monthly payment when I am sitting with an £83 credit and their own projection for the year is that,  I will use £643 based on last year. My direct debit is for £51 per month. If you work it out that £83 credit will last me nearly 2 years if prices don;t come back down but all the time they have that credit, they are getting interest on that money.
I really feel its time that more safeguards were put in place by OFGEM to protect consumers from overpaying and feeling like they can't do anything about these recurrent increases to their Direct Debit.  I was only offered a 2 month suspension of increase!! The vast majority of users pay their Direct Debits on time but I believe these companies take advantage of that and are knowingly slowly increasing your DD's to create a credit balance on your account from which they are benefiting.

OFTM wanted to increase my DD from £50 per month to a summer/winter DD of £70/£120 in November 2018,I was thinking of leaving them, even though they were just the cheapest at the time but that made my mind up for me and I left them in December 2018. The £120 winter DD would have been more than my yearly total usage even at todays rates, the £1140 I could have stopped paying for nearly two years with only £400 usage per year. 

wild666

Maybe if people thought like their grandparents and said that if it doesn't need to be on it gets turned off at the socket and the plug taken out.
So many people leave everything in standby mode or charging leads plugged in with the socket turned on. 

I started to do this after Avro went under and I use 20 less kWh per week. All the items left on standby might be drawing 100 W of power per hours, that's 2.4 kWh per day, it might even be more.
Try turning everything but the fridge, freezer and router and only turn appliances on when needed for a month. Take a reading on the first day and another after a month and see the difference. It can save hundreds of kWh per year, I bet most won't even try it or go back to leaving stuff in standby after a few days either forgetting or just cannot be bothered to keep turning appliances on and off when needed.

Verdigris

You must have a lot of ancient kit. EU regulation limited standby draw to tiny amounts. My TV and BluRay player use less than a watt each on standby.

Cardew

This recent Ofgem paper may be of interest:

https://www.ofgem.gov.uk/sites/default/files/docs/2021/03/cmp2_consultation_final.pdf

2. Credit balances – what is the problem we are trying
to solve?


Chapter summary 

Credit balances are an intrinsic feature of the fixed direct debit payment model and,
providing customers’ direct debits are set accurately, represent prepayment for
future energy use. They can deliver benefits for both consumers and suppliers.
However, suppliers can currently accrue surplus credit balances, which we view as
particularly distortive, and use these to fund risky business strategies. Existing rules,
while helpful, do not sufficiently address all the causes of surplus credit balances.

ihatetrump

I started a thread here:

https://forums.moneysavingexpert.com/discussion/6309915/the-real-reason-so-many-small-energy-suppliers-have-failed-it-was-inevitable#latest

Virtually without exception, all of the failed energy companies started on a shoestring, most owners put in barely £100 to start them up, grew them on the back of credit from customers - and when they needed more, they simply increased the direct debit - SIMPLES - or as Jake Brown at AVRO famously said, it's simple economics'

Although not a Ponzi scheme in name, the principles were similar - attract more customers (by selling at cost) and attract more cash and grow the business some more - problem with AVRO was they soon realised they needed more cash than even their customers could provide - they needed £258M at last count!