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Ofgem tells five suppliers to take immediate action following direct debit review

Of the 17 large suppliers, four had no significant issues, seven only minor weaknesses, and five moderate to severe weaknesses. Image: Getty.

Of the 17 large suppliers, four had no significant issues, seven only minor weaknesses, and five moderate to severe weaknesses. Image: Getty.

Ofgem has told five suppliers they need to take immediate action after moderate or severe weaknesses were found in their direct debit processes.

The regulator has conducted a review into the way large suppliers charge customers via direct debit, finding that out of a total 17 suppliers most had only minor issues.

But it identified five that have more significant failings – namely Ecotricity, Good Energy, Green Energy UK, TruEnergy and Utilita Energy – which must now submit action plans to Ofgem in the next two weeks, which the regulator will scrutinise.

“We know there is some excellent service out there, but we want to make sure that it’s consistent and standard across the board. It’s clear from today’s findings on direct debits that there are areas of the market where customers are simply not getting the service they need and rightly expect in these very difficult times,” said Jonathan Brearley, Ofgem CEO.

“Today’s findings show that with the urgent changes we are now expecting, the current system will be much fairer for consumers. Bringing down the price of gas is not in Ofgem’s control; however, we will do all we can to have a fair system and ensure suppliers look after their customers.”

The review found that there was over 7 million energy consumers on a Standard Variable Tariff (SVT) who saw an increase in their direct debit between February and April 2022. On average this was an increase of 62%, and mostly representative of gas price increases.

In April, the Default Tariff Price Cap increased by 54% in response to the surging gas price, which has continued to be volatile throughout 2022, with a further increase of over 60% now predicted for the next price cap period.

Around 500,000 customers – or 8% of those on SVTs – saw an increase of over 100%. Ofgem is concerned about this and is working to ensure that there is a good reason for it.

Currently the regulator has not found evidence of unjustifiably high direct debits, but wishes to additionally reassure consumers and will now therefore require all suppliers who increased direct debits by more than 100% to review them.

Where appropriate, Ofgem expects suppliers to adjust any miscalculations, including making repayments and considering goodwill payments.

The review found that some supplier processes are not as robust as they could be, which could lead to inconsistent, incorrect or poor treatment for customers.

Suppliers were divided into;

  1. No significant issues – British Gas, EDF, ScottishPower and SO Energy fell into this category. They were found to generally have robust processes in place, although Ofgem has still made recommendations for improvement, and has asked them to review customer direct debits to ensure they are correct.
  2. Minor weaknesses – Bulb, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse fell into this category. Ofgem identified some gaps or weaknesses in these companies’ processes, such as a lack of documented policies or guidance for staff, potentially not taking account of all relevant factors when setting customer direct debits, or risks that some customers’ direct debits are not assessed when appropriate. It has therefore started compliance engagement with these suppliers to secure improvements.
  3. Moderate to severe weaknesses – Ecotricity, Good Energy, Green Energy UK and Utilita Energy all fell into this category. There was a wide spectrum of weaknesses identified within these companies, including inadequately documented or embedded processes, weak governance and controls and an overall lack of a structured approach to setting customer direct debits. Ofgem is concerned that due to these factors, customers may have had their direct debits incorrectly set or not evaluated for long periods of time. It is starting compliance engagement with these suppliers to drive improvements, and will consider enforcement action if suppliers fail to act fast enough. Additionally, TruEnergy and UK Energy Incubator Hub fell into this category, and were found to not have a consistent and structured approach to setting customer direct debits, leading Ofgem to have severe concerns over the maturity of their processes and the risks this put consumers at. It is therefore considering whether enforcement action is needed against TruEnergy. UK Energy Incubator Hub has now shuttered, and Octopus Energy been appointed as Supplier of Last Resort, therefore Ofgem will not pursue any further action against them.

Ofgem noted that if it does not see swift and sufficient improvement from suppliers, it will not hesitate to initiate enforcement action against suppliers, which could include fines, enforcement orders and banning the acquisition of new customers.

“Steep rises in energy bills have meant big increases in direct debit payments, which can also be triggered by changes in tariffs, high debit balances or an updated meter read. Given the situation, it’s right for Ofgem to check how suppliers are setting these,” said Energy UK’s director of advocacy, Dhara Vyas in response to the review.

“It’s good that the regulator has found that the majority of suppliers have only minor issues with their processes and, where action is required to make further improvements, providers will work with the regulator to ensure these are in place quickly. Suppliers have been asked to review their own processes so there is no need for customers to contact their supplier, as this can block lines for those who might need urgent support.”

The review of direct debits is part of wider efforts from the regulator to make the energy sector fairer it said, including review lessons from Storm Arwen, making the price cap quarterly and action to improve the financial resilience of companies.

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