Why paying your energy bills by direct debit may not prevent bill shock

Signing up to an annual direct debit payment plan from your energy supplier is supposed to help prevent bill shock as your payments are spread equally throughout the year. But it might not work like that...

One way to avoid big winter bills is to pay by direct debit. Energy suppliers offer this option which enables you to spread the cost of your energy bills over the year.

Well that’s the idea anyway. But I’ve just had a nasty shock from my supplier Scottish Power, which has emailed me saying it’s going to increase my monthly direct debit by over 50% to cover my winter bills.

Like many people I switched suppliers last autumn when the latest round of price hikes came in.  At the time Scottish Power had a good tariff with fixed prices until 2014. So I duly supplied details of my previous year’s usage; Scottish Power worked out the direct debit payments and I made the switch.

One winter later, my account is just over £300 in debit as we move towards the summer months when the heating in our house will be off until October.  

I gave Scottish Power a call to point out that having joined in the autumn it was no surprise that my account was now in the ‘red’. But with the heating now off for summer (hopefully), within a few months my account should be back on an even keel. 

But no, Scottish Power wants to increase payments by another £49 a month. It has also given me the option of clearing the full £300 in one go.

Surely this post winter bill hike goes against the principle of annual direct debit payment plans?

Can suppliers do this?

Ofgem, the energy regulator, says that while direct debit deals are designed to enable customers to evenly spread the cost of their energy bills over the year, suppliers do have the right (under section 27 of the gas supply licence) to increase direct debit payments to cover any shortfall. 

Should this happen, a supplier must explain the reason and give you ten days' notice of any change to your direct debit.

In Scottish Power’s case it says it reviews customers’ energy accounts every three months "to ensure customers pay for the energy they use and to prevent any debt from building up on their account". And it says that due to last winter’s extended cold snap "many customers have used more energy across the period which has meant an increase to their direct debit instalments", although it won’t say how many people are affected.

Do other suppliers do this?  

Another of the ‘big six’ energy suppliers, E.ON, also monitors customers' accounts up to four times a year, which can bring payment changes. 

Yet other suppliers only do this once a year, which means your account gets the chance to even out over the course of a full year's usage.

British Gas says the whole point of having an annual ‘direct debit payment plan’ is to enable customers to manage their payments and know exactly how much they’re going to be pay every month.  Its spokesperson says, "We expect customers to come out of the winter in debit and move into credit during the summer." 

British Gas reviews customers’ direct debit payments annually on the anniversary of the account opening and it’s at this point future direct debit payments may be adjusted. 

SSE also says it reviews customers’ accounts annually, on the anniversary of their first payment, and may increase or decrease direct debits based on a full year’s usage.

However EDF reviews customer direct debit accounts twice a year as do npower which says it doesn’t want customers to owe it money, so it will look to increase direct debit payments if the account’s in debit after the winter months.

When you’re comparing energy deals, price is the major consideration, but if you’re planning to switch just before the winter, it may be worth asking how many price ‘reviews’ your new supplier undertakes throughout the year. This way you’ll be prepared for a post winter bill hike or secure in the knowledge that bill payments are only adjusted annually.

What happens if your account is in credit?

Suppliers want the money fast enough when you owe them, but how quick are they to put their hand in their pocket when it’s the other way round?  

According to Ofgem you should be able to get any credit back; although the point at which suppliers automatically stump up does vary. 

In order to get an ‘automatic’ credit refund at your account ‘review’ date you’ll need to be at least £100 in credit with British Gas, £150 with EDF, and have overpaid the equivalent of three monthly payments with Scottish Power although with E.ON it’s just £5.   

However if you actually ask for any outstanding credit to be refunded it should be done regardless of the amount you’re owed.

Can I complain about rising direct debits?

If you’re unhappy about any proposed increase in direct debit payments or have problems getting credit back from your supplier, it’s best to speak to your energy company in the first instance.  And if the problem isn’t resolved you can follow it up with the Energy Ombudsman.

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