New guide: How energy suppliers set direct debits

Former_MSE_Gary

This has always been shrouded in some secrecy – at what point is a price cap change included, can they include predicted future hikes and more. But now we have info from all the suppliers, so here's ... 

How energy suppliers set direct debits

Chrysalis

I think they havent really given the full details but its good MSE has at least got this information.

As an example your table shows Octopus tries to set the DD to have one months worth of DD as credit in April.

In April 2021 I was £872 in credit with the most recent DD amount at £84.

In late spring 2022, they tried to increase my direct debit to over £400, with only actual readings from a smart meter and most recent bill based on these readings under £90.

I am now currently on a manually fixed DD set by their staff over the phone, we agreed I would pay manual payments if they were too low, and that if their system tried to increase again I would switch to a variable DD.

TheBanker

I think the guide is useful, but....

I would suggest adding an introductory section that explains that all suppliers base DDs on annual usage, so people should not be surprised if their DD is higher than their energy use during the Summer, because it's building up credit for the Winter. It's probably also worth explaining the difference between fixed and variable Direct Debits and the pros/cons of each.

May also be worth highlighting which suppliers charge more for people who don't pay by Direct Debit.

All of these are covered in other guides, I know, but if you look through the posts in this section they are all things that cause a lot of confusion, and sometimes result in people making the wrong choice e.g. cancelling the Direct Debit in Summer because they think it's too high, and being moved to a higher non-DD tariff as a result.

The_Green_Hornet

Personally, I do my own review if and when prices change and set the direct debit accordingly.

Leaving it up to the supplier to manage your finances is a mistake in my humble opinion.

Chrysalis

This seems a good thread as any for this.

Today I thought about the fixed vs variable DD argument, I feel the biggest issue with fixed DD is it doesnt encourage people to watch their usage, as what you use does not immediately impact your DD amount, instead it gradually adjusts over the year.  On Variable DD if you use a lot you know when your next bill arrives from the size of it.

So my idea is Ofgem should make it mandatory for suppliers to send customers on fixed DD billing a report on their monthly usage.  The report should do the following.

1 - Explain if their usage is lower or higher than the estimations that the DD is based on, if its higher it should explain to the customer they need to reduce their usage or their DD will be increased.
2 - There should be a document explaining how billing works, the merits of checking devices, smart meters etc.  The customer then on the companies website confirms they have read this document, it should be considered in future to maybe eventually have a system where people have not confirmed reading this they will be moved to variable DD until they read it.
3 - Explain how bills are calculated.
4 - Of course show the actual bill.

This report would be mandatory, only option is to get it via post or email.

[Deleted User]

#1 and #4 make sense.  I think that #1 should be an immediate change and would be of great benefit.

For #3, people don't understand the calculations on their bill already and that's just converting kWh to pounds.  Adding anything else is just going to make is worse.

For #2, you've effectively restricting people's ability to budget (by not letting them have a relatively constant outgoing cost) unless they tick an arbitrary box on a website.  Either people will all just tick the box, and it therefore means nothing, or you will force people onto a wildly swinging cash flow problem.

Chrysalis

I put the maybe in #2 as I knew it would be controversial, although it doesnt restrict anyone, they choose whether to read and confirm they have read something.  But glad you liked #1 which was the main part of the idea.  Just so many people currently treat fixed DD as unmetered.

jj_43

Its a useful start to help the conversation. however its doesn't explain how suppliers set dd, its just "Estimated annual costs divided by 12". Variable DD is the way to go. People should be trusted to budget for their own costs and not have a supplier doing this for them. If people understood the cost of their usage in Jan, they would be shocked and might actually decide to use less and enjoy lower bills. Off course people on prepayment topping up each day know the reality of their energy costs and use much less, while i don't like this extreme, fixed dd is the other extreme so variable dd is the best of all options. 

[Deleted User]

Most suppliers do trust people to budget for their own costs and offer variable DD.

Most people, however, use fixed DD.  Whether that’s because they don’t know other options exist, or whether they prefer the more regular outgoing, I wouldn’t know.