This Bill Blunder Could Break Your Budget

Even if you pay your bills on time, your energy supplier's mistakes could be driving you into debt.

Last week, I reported that gas and electricity prices could swell by 50% before next February -- and gave Fools my opinion on the best way to avoid the price hikes.

Today, I'm afraid I have more sobering news for anyone tightening their belt at the moment: mistakes made by your energy supplier could see you slapped with a massive unforeseen bill.

Drifting into energy debt

It's hard to believe that, even when you pay your bills on time or by direct debit, you can end up in debt to your energy company.

However, energy suppliers are only obliged to visit your home to read the meter once every two years. At all other times, they can estimate readings to work out what you owe them.

As a result, a third of all meter readings used by energy suppliers are estimated. This means -- as customer watchdog energywatch puts it -- that "one in three bills is potentially wrong".

When you pay an incorrect bill, the transaction will either put you in credit with or in debt to the energy company you use. Unfortunately, in an era of rising prices, it's more likely that the amount you pay won't cover the cost of your energy.

Paying for your gas and electricity by direct debit won't protect you from this problem, either. Because your agreement is likely to be at least partly based on estimated readings, it may be set too low.

Battered with a bill

I know all too well how frustrating it is to be confronted with energy arrears.

As the sole occupants of a small one bedroom flat, my partner and I don't use a great deal of energy -- so we weren't surprised when the direct debits set up for us by our supplier were for small amounts.

A couple of months ago, we were surprised to receive what industry folk call a "catch up bill", informing us that we owed more than £250 extra for gas and electricity.

Unfortunately, our experience is increasingly common. Citizens Advice reports that requests for help with demands for energy debts are increasing as fuel prices rise; and, according to Ofgem, around 2 million households in the UK are now in debt to their energy suppliers.

When our supplier spotted we were in arrears, the company quadrupled our monthly direct debit. But others have found their direct debits inflated by much more, as companies insist they cover their costs.

Elsewhere, energy customers have received unexpected catch up bills for huge sums -- in some cases, up to £1000.

Why are we playing catch up?

You might wonder why energy debts are allowed to develop at all. While estimated readings are an obvious problem, surely your energy supplier can check your account regularly to make sure you aren't building up arrears?

The problem is, while `reassessments' do take place, they're carried out too infrequently. There are no rules on how often energy companies must look at their customers' accounts, so some suppliers might only review them once a year.

If you pay by direct debit, some suppliers may review your account every six months to check that your payments are high enough.

However, customers who pay quarterly bills based on estimated readings could find themselves waiting even longer for their energy debt to be noticed -- possibly until an actual meter reading takes place.

How to prevent energy arrears

In my opinion, the current billing system provides consumers with inadequate protection from energy debt.

Thankfully, there are plans to roll out Smart Metering across the UK.

Smart meters are digital devices with a direct connection to your energy supplier, which allow them to track your actual energy usage. When the system is in place, unforeseen energy arrears should become a thing of the past.

However, Smart Metering may not be in place for another ten years. So what can you do in the meantime?

1. Always check your bills and statements. Ensure that your account number, details and tariff are accurate, and always check the letter after the reading on your bill.

The letter [E] means that the reading is an estimate, while [A] means the reading is actual.

2. Don't accept estimated readings. If your bill is based on an estimated reading, call your energy supplier and ask them if you can supply a customer reading (which will show up as a [C] after the reading on your new bill).

Every energy company I spoke to about this issue said they'd recalculate a bill based on a customer reading, and then re-issue it. Some now make it incredibly easy for you to submit these by phone, online or even by text message.

3. Be more energy efficient. One way to address energy arrears -- and the issue of price rises -- is to become more energy efficient.

Government grants are available to help with this, and The Fool also has plenty of useful tips for energy saving here and here.

What if I already have energy debt?

Ofgem made it clear in its Debt And Disconnection Review that energy suppliers must do more to deal with customers who have arrears swiftly, positively and on an individual basis.

If you can't pay a catch-up bill or are struggling to afford an increase in your direct debit, your supplier should give you the opportunity to pay in a way that is manageable and affordable -- so speak to them about your situation and negotiate this.

Hopefully, some of the tips in this article will see you stay safe from arrears.

Remember, as prices continue to climb we're all in more danger of energy debt -- so now is a good time to adopt the habits that will help you.

More: Change Your Energy Tariff TODAY | Seventeen Ways To Cut Your Fuel Bills | Four Original Tips To Reduce Your Energy Bills