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Energy credit to be automatically returned under new plans - and it could be worth £65/household

Energy credit to be automatically returned under new plans - and it could be worth £65/household

Energy suppliers will be forced to automatically refund in-credit balances each year and will have limits placed on the size of customers' balances under new proposals from the energy regulator. The shake-up could result in households getting an average refund of £65.

Households who pay their energy bill by fixed direct debit pay the same amount each month based on their estimated consumption. This means they typically build up a credit balance during the summer when their energy use is lower and then draw on this credit during winter when they use more energy.  

But Ofgem research found that as much as £1.4 billion was held in credit balances in October 2018, and it is concerned some suppliers may use customers' surplus cash to fund otherwise unsustainable business practices, such as offering tariffs that are too cheap.

The regulator has therefore proposed an ‘auto-refund’ policy that would require suppliers to return any credit balance above £0 each year on the anniversary of the contract. This means households may get a rebate each year, though this would depend on their energy usage and the level of any cap on credit balances implemented - see below for more on this.

You don't need to wait for the new rules to take force though - MoneySavingExpert.com founder Martin Lewis explains in his blog How to reclaim £100s of credit from your energy firm now. 

Credit balances may also be capped

While the ‘auto-refund’ proposal would stop surplus credit balances growing year-on-year, it would not prevent potentially high levels of credit being built up in the meantime. To address this, Ofgem has also proposed introducing a cap on credit balances, although it hasn't said yet what level this would be set at. 

The regulator says this will help to reduce the amount held when a supplier fails. In this scenario, the new supplier is responsible for repaying credit to customers but as we've recently reported with Scottish Power's takeover of now defunct Yorkshire Energy, this can take several months. This measure would reduce the cost to these suppliers and ultimately to consumers - whose bills will likely rise if companies are hit with bigger costs.

Neither proposals are confirmed yet, but if they get the go-ahead following a consultation, it's expected the new rules would take force from 2022. Use our Cheap Energy Club to check if you can save hundreds on your gas and electric bills. 

What does Ofgem say?

Jonathan Brearley, chief executive of Ofgem, said: “These new proposals would ensure that suppliers are not holding onto more of customers’ money than absolutely necessary, potentially returning millions of pounds of customers’ money. This is an important step in making the retail energy market fairer for consumers at a time when many are facing financial hardship.” 

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