The energy regulator for Great Britain has told a string of suppliers to take urgent action after finding “severe weaknesses” in handling customers’ direct debits.
Ofgem has scrutinised how energy companies handle direct debits, finding evidence that customers have been treated poorly.
It named a group of suppliers where it had identified “moderate to severe weaknesses” – Ecotricity, Good Energy, Green Energy UK, TruEnergy, Utilita Energy and UK Energy Incubator Hub, which has ceased to trade.
The regulator said it had found failings ranging from “inadequately documented or embedded processes, weak governance and controls, to an overall lack of a structured approach to setting customer direct debits”.
Ofgem is concerned that these issues could lead to direct debits being set incorrectly, or not being reviewed regularly, which can cause the buildup of either large credit balances or debt, depending on whether the customer is under- or overpaying.
It has threatened to take action – which could include fines or a ban on acquiring new customers – if it does not see a “swift and significant improvement” by the companies.
The business secretary, Kwasi Kwarteng, said: “If we do not see improvement in two weeks, the regulator could issue fines and enforcement orders.”
The findings come as consumers battle soaring household bills, which are expected to top £3,000 a year this winter.
Ofgem’s chief executive, Jonathan Brearley, said: “We know how hard it is for energy customers at the moment, so it’s crucial that the amount they pay each month in direct debits is right so they can manage their money.
“Suppliers must do all they can, especially during the current gas crisis, to support customers and to recognise the significant worry and concern increased direct debits can cause.”
The energy market was upended last year as the combination of an industry price gap and soaring wholesale costs pushed almost 30 suppliers out of business.
Ofgem is attempting to prevent a repeat of that situation by studying the financial resilience of energy suppliers and the machinations of the market.
It also named a group of suppliers where it had found “minor weaknesses” including a “lack of documented policies or guidance for staff”. This group consisted of Bulb, which is now in a taxpayer-funded administration, E.ON, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse.
British Gas, EDF, ScottishPower and SO Energy had “no significant issues” in handling customer direct debits, the watchdog found.
The review found that debit levels for customers on standard variable tariffs increased by 62% on average between February and April largely because of the increase in the cost of gas. Ofgem said it had asked suppliers to review the accounts of all customers whose direct debit had increased by 100% or more.
Doug Stewart, Green Energy UK’s chief executive, said: “Ofgem has highlighted areas where we can make improvements and we are already taking action to address these areas. However, I do feel that given the challenging state of the market, Ofgem needs to resist knocking suppliers, like ourselves, who have survived the market crash and [are] doing our very best to help customers.”
Utilita said it was “shocked and disappointed by Ofgem’s decision to name and shame suppliers at this time” and disagreed with the regulator’s categorisation.
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A spokesperson for Good Energy said: “Ofgem raised just one concern about our direct debit governance. It relates to internal documentation and we are taking rapid action to address it.”
TruEnergy said it “welcomes tougher regulation from Ofgem and is working with the regulator to demonstrate full compliance with all areas of its supplier licence conditions”.
The Ecotricity founder, Dale Vince, said: “We have always included credit balances in direct debit calculations – but our new billing system, which we installed during the pandemic, didn’t do that, so we began an upgrade in January this year. This is in testing now and will go live in six weeks. We told Ofgem this but, unfortunately, they took no account of it in their assessment.”
Vince, who is also the chairman of the football club Forest Green Rovers, put Ecotricity up for sale in April.
Separately on Wednesday, the financial services firm Interpath Advisory was appointed as administrator to UK Energy Incubator Hub, which ran the Northumbria Energy and Neo Energy brands. Interpath will handle the transfer of 3,500 customers to Octopus Energy.