Stamping out bad back billing practices

Ofgem has moved to curb unfair back-billing in the energy sector. Alex Belsham-Harris at Citizens-Advice says it is high time, and looks forward to tighter limits as smart meters roll out.

Providing an accurate bill is a key responsibility of an energy supplier. When a supplier can’t fulfil its side of the bargain, consumers should not be the ones to pay the price.

Following pressure from Citizens Advice, Ofgem this week announced that it is minded to insert a 12 month limit on back billing into the energy supply licence. This is good news for consumers, who too often face problems with their bills.

Billing is the largest area of complaints Citizens Advice receives about suppliers – and more than half of these are related to back bills. Back bills arise when an energy supplier takes an actual reading after a period of estimating their customer’s usage and finds that the customer has been undercharged.

“In one case, a consumer was told that they owed over £3,000 because the supplier had stopped taking their direct debit and failed to tell the customer that this had happened.”  

Research we published last year showed that these bills affect up to 2.1 million households a year and are around £200 on average, though we’ve helped people who were asked to pay back-bills for thousands of pounds. Unexpected bills like these can be very disruptive to a family’s finances  –  one in five households don’t have enough savings to cover an unexpected bill of £300.

The limit – which Ofgem calls the ‘back billing principle’- protects consumers by setting out that they should not have to pay for energy used more than a year ago if their supplier is at fault. However, this principle is not currently contained in the energy supply licence, but is instead a protection suppliers apply voluntarily – albeit one that the regulator expects all suppliers to apply.

The cracks in this protection are starting to show. The principle was originally introduced in 2007 following a super-complaint launched by our predecessor organisation energywatch. Back then, the six large suppliers had a combined market share of over 99 per cent. Ten years on, this has fallen to 84 per cent and there are almost 60 suppliers in the market. It is unsustainable for the regulator to rely on each individual energy supplier voluntarily delivering protections as important as the back billing principle.

We recently shared evidence with Ofgem to show that several suppliers are not applying the 12 month back billing limit – even when they admit they are at fault for the error.

In one case, a consumer was told that they owed over £3,000 because the supplier had stopped taking their direct debit and failed to tell the customer that this had happened. The supplier acknowledged they were at fault, and that the issue had persisted for more than 12 months, but said they were under no obligation to apply the back billing principle.

Ofgem’s proposal to introduce a new licence obligation to limit back bills to 12 months is therefore a welcome and necessary step to stop this poor behaviour. However, the regulator should go further than this, and introduce a requirement to limit back bills for smart meters.

Smart meters should mean consumers see an end to estimated bills. However, there will continue to be cases where people are still receiving estimated bills, because of supplier system errors or meter communication problems. We don’t think it’s fair for smart meters customers to be asked to pay bills of up to 12 months in these situations.

For a smart meter user with average consumption, a six month limit on back bills would reduce the amount they‘re asked to pay by up to £580.

Consumers see the end of estimated bills as the biggest benefit of smart meters and this limit would give suppliers a bigger incentive to ensure their customers get accurate bills. It will also reduce the number of people having a bad experience with their smart meter, improving their image during the crucial rollout period.

There is already consensus across the industry that current back billing policies are not fit for purpose in a smart world – but progress towards change has been slow.

A year ago Ofgem agreed to an industry proposal to voluntarily implement a six month smart back bill limit, but information published by the regulator this week showed that no supplier has developed policies which limit smart back bills since then.

Ofgem will consider smart meter back billing as part of its consultation, and we will be calling for them to make it a licence condition for suppliers to limit these bills to six months as soon as possible, with provisions to reduce this limit to three months by the end of the smart meter rollout. This will set a clear pathway for industry towards the ambition of no back bills.