Why do people still get inaccurate energy bills?

Providing accurate and timely bills is a basic responsibility for energy suppliers.

However, billing errors are consistently the most common issue that energy consumers contact our consumer service about. These failures are also seen in the number of multi-million pound fines in recent years for suppliers who have failed to accurately bill their customers.

More than half of the billing complaints Citizens Advice receive are related to back bills. These are revised bills an energy supplier sends after estimating and undercharging a customer. Our research shows that these bills average around £200 and affect up to 2.1 million households a year. Unexpected bills like these can be highly disruptive for family finances — one in five households don’t have enough savings to cover an unexpected bill of £300.

In 2007 Ofgem responded to a super-complaint from energywatch by securing a commitment from suppliers to limit back billing for energy usage more than one year ago, if the supplier was to blame for the bill. However, Ofgem didn’t add this requirement to the supply licence, making it more difficult to monitor whether suppliers are applying the requirement proactively. As a result, some people are still left facing back bills running into thousands of pounds.

Smart meters — silver bullet?

Energy suppliers are currently in the process of offering smart meters to every household in the country. These meters can communicate with your supplier and send readings automatically. This should mean an end to estimated bills, one of the major causes of back billing.

However, no system is perfect. There may be times when these meters, or the communications systems they use, malfunction and your supplier doesn’t get a reading. The system also relies on suppliers’ own IT systems, which may still fail to produce accurate, timely bills — even if these readings are available.

Consumers with smart meters won’t provide regular readings to their supplier, and meter readers will not be regularly attending these properties. This means there is an increased risk that consumers will not be aware if their bills are no longer based on accurate readings.

New protections to ensure consumers benefit

Ofgem recognises these issues. In 2015 they proposed a new obligation for suppliers to limit back bills for smart meters to six months — half the current twelve month limit for traditional meters. We strongly supported this proposal, and the aim to move to a 3 month limit by 2020. This would protect consumers from excessive back bills, and incentivise suppliers to improve their systems to limit estimated bills.

In response Energy UK, the industry trade association, agreed that 12 months was an unacceptable back billing limit for smart meter users, and indicated that they would take forward a voluntary approach to implementing a six month limit through their voluntary Billing Code. The regulator accepted this voluntary commitment from the industry to take this forward and decided not to put new rules into the licence for suppliers.

Dragging their feet

But in the year since this commitment, no meaningful progress has been made.

There are now more than 4 million of these meters in homes, projected to rise to over 10 million by the end of 2017. These consumers will continue to face the risk of back bills, despite the promises of an end to estimated bills by suppliers as a key part of their advertising campaigns for smart meters. This is a risk for the smart meter rollout. Ongoing back bills could reduce consumer confidence in this technology making it harder to persuade them to accept a smart meter.

However, we have seen a growing problem with smart billing as the rollout has progressed. In 2016, a quarter of consumers who contacted us with smart meter issues complained about billing problems, and the number of these cases more than doubled compared to 2015.

In one case a consumer was billed for more than £1,000 eighteen months after her supplier failed to install her smart meter correctly. This error meant that the supplier did not send her any bills, despite her contacting the supplier to ask them to resolve the problem. If the new limit had been in place, she would have only been billed for six months of this usage.

Going backwards

Since the regulator made the decision to allow suppliers to adopt a voluntary approach the number of suppliers in the market has grown by over 20%. When the original commitment from suppliers to limit back bills to 12 months was made in 2007 six suppliers had a combined market share of over 99%. There are now over 50 suppliers and the market share of the six largest suppliers is 84% and dropping. This makes it much more difficult for the regulator to secure and monitor voluntary commitments that protect all consumers equally.

In fact, over the past year we have seen more cases where suppliers are refusing to apply the existing 12 month back billing limit, even when consumers complain. This is incredibly concerning, since the regulator says that it has ‘secured a commitment from domestic energy suppliers to put a stop to customer back billing for energy used more than 12 months ago’.

In one recent case that we dealt with, a consumer who wanted to leave their supplier was told that they owed over £3,000, because the supplier had stopped taking the direct debit from their account and failed to tell the customer that this had happened. The supplier acknowledged they were at fault, but when we asked the supplier to apply the 12 month back billing limit they refused and said they were under no obligation to do so.

We think it is now unsustainable to rely on voluntary commitments from the industry to deliver what are basic consumer protections.

Time for a level playing field

Accurate billing should not be an area of competitive differentiation, especially when consumers are paying for the smart meter rollout which should ensure an end to estimated bills. Last year the regulator said it was ‘looking for industry to step up to the challenge of more accurate bills, and shorter back billing periods’. In short, the sector has failed to do so.

The time has now come for Ofgem to incorporate the back billing principle within the supply licence.