Watch out for cash-grabbing energy firms

By Martin Lewis, January 29, 2009
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In these tough times, many would think twice about lending money, even to loved ones. So why would you give an interest free loan to your energy provider?

Thousands of people have got letters from their energy companies, telling them that the amount they need to pay will double or treble. While energy costs have risen by 50 per cent in 2008 alone, that’s still only a fraction of the rise many are seeing. What’s the cause? Greedy energy companies unnecessarily hoiking the direct debit levels.

Has your payment risen?
If you pay by direct debit, check the amount. Don’t assume just because you’re in credit the bill won’t be increased.

Gas and electricity customers across the UK are having their payments pumped up to grossly disproportionate levels to the amount of energy being used.

It’s important to note that this only applies to monthly direct debit. Those paying by quarterly direct debit, direct billing or prepayment meters generally only pay for what they use.

Yet monthly direct debit is the cheapest way to pay your gas and electricity bills, usually at least ten per cent cheaper than any other method. Even the Prime Minister has encouraged people to pay this way, yet he didn’t mention the problems.

It’s time we fought back to ensure that the money stays in our pockets rather than boosting the energy giants’ coffers.

What you pay isn’t what it costs
The price you are charged for your energy and the amount that you pay every month are not the same thing. The energy cost is set by the power suppliers and you will be charged a unit amount for gas and electricity, and possibly a monthly standing charge on top.

But what you actually pay is determined by the energy company’s estimate of your annual usage, divided by twelve. So, if they think you’re going to spend £1,200 over the course of the year, then you should be paying a direct debit of £100 a month.

The aim is that this minimises the seasonality. Of course, we tend to use more energy in the winter months when our homes need more heating, so there should be a small surplus after the summer that will be used up in the winter. The problem is that the link between what we’re being charged and our actual energy usage seems to have been lost. One MP has, rightly in my view, argued that this is just being done to boost energy companies’ cash flow as, if they take more money from our pockets, they can then earn interest on it and use it for their own purposes.

And anecdotally it seems to have got much worse over the last year. So much so that even those switching to ‘cheaper’ suppliers can find themselves paying more each month.

How to fight back:

Always do a meter reading
Never allow the company to rely on its estimates; that’s a great excuse for inaccuracy. Whenever you get a bill, the first thing to do is to go to your meter, take an accurate reading and report it to the supplier.

Ask for your money back
Being a small amount in credit is fine, as the worse thing is owing the energy company a whack of cash and having it chase you. Yet if you’re heavily and disproportionately in credit, it means you’ve substantially overpaid. Before even talking about lowering the direct debit, try to get back a chunk of the surplus back.

Some companies have automatic payout systems. British Gas, for example, should refund you if your account is more than £200 in credit. Most other companies simply have a review every six or 12 months, so push to ensure you’re getting the right mount of money back.

Demand an explanation
Energy rules give you a right to ask for an explanation as to why your direct debit is set at a certain level. If your debits increased too much, ask your provider to explain why, and if it’s not justifiable (which is common) request it lowers your payments so they accurately reflect your use.

If the direct debit has been increased enormously and you were a small amount, eg £20, in debit, one trick that often works is to pay that amount off there and then on the phone. As you are no longer in debit, it can help you argue that your payments should not be increased as much.

Formally request it is lowered.
If your provider still hasn’t lowered the direct debit amount, it’s time to make a formal request, arguing that it’s disproportionate.

Outrageously, we do not have a legal right to have reasonable direct debit levels set. It’s something I believe the Government needs to change quickly.

Yet writing a formal letter to your supplier will indicate that you are taking it seriously and are unwilling to let the matter lie. Most importantly, you should mention that you will leave the energy company if it doesn’t lower the debit. There’s a sample letter on my website at www.moneysavingexpert.com/energydirectdebit

Complain to the Ombudsman
If your supplier still won’t budge, and you think you are being treated unfairly, try the Energy Ombudsman, the independent arbiter of disputes between companies and customers. It will check whether the company has stuck to the industry’s code of practice and award you compensation if not.

If none of this works, the nuclear option is simply to cancel the direct debit. At that point, the energy company should give you an overpayment refund. You will of course be paying more if you are not paying by direct debit, yet if it’s been so belligerent, why not ditch it and switch to another provider?

Go to www.moneysavingexpert.com/gaselec to find out how.

    Last updated: 2:52pm, January 29 2009