Ofgem under fire for delaying plans to tackle energy giants’ cash grab

Energy watchdog Ofgem is dragging its feet over a £2.5 billion rip-off by energy giants charging customers extra if they don’t pay by direct debit.

The regulator, led by Jonathan Brearley, is under pressure to prevent companies from charging customers extra if they choose to pay their bills by cash, check or over the phone using a bank card.

But it says it won’t curb the practice for the next two years, meaning customers – many of them elderly or less fortunate – will continue to pay through the nose.

Some prefer not to pay by direct debit, because they fear that energy companies will set the monthly amount too high. Companies have been accused of hoarding billions of pounds in customer cash and making direct debits even when they have large balances.

Anyone who chooses a different payment route will pay a hefty fine. The size of the additional costs, which could be as high as £254 a year, was first revealed by The Mail on Sunday earlier this month.

With an estimated five million affected households, the levy is expected to raise around £1.25 billion by 2023. That is the same amount in one year as in the previous three years.

The allegations have been widely condemned by campaigners. Many customers do not know that they will receive hefty fines because of their payment method.

The surcharge was previously capped at £79 per annum. However, since 2021, the maximum that suppliers can charge customers has quietly increased to more than threefold. The increase is calculated using an algorithm based on energy prices, which have risen rapidly due to the war in Ukraine.

Companies try to defend their cash grab by claiming that it costs them more to process cash, check, or phone payments compared to direct debits. Ofgem agrees. However, this has nothing to do with the price of energy and therefore there is no justification for an increase in the surcharge.

Tory MP Craig Mackinlay, a former member of the influential Work and Pensions Committee, said he was “appalled” at the scale of the charge. He said: ‘Ofgem is best placed to address this. But the energy giants themselves should not charge those exorbitant amounts and I call on them to keep the administrative burden to a minimum.’

Consumer advocate and former Pensions Minister Baroness Altmann, who has campaigned against energy stealth charges, called for a review. She said, “There’s definitely a lack of regulation here.”

Most affected customers are still unaware they are paying the fee, according to a survey by energy company Octopus. It is one of many sneaky energy charges highlighted by The Mail on Sunday.

A separate fixed fee, which is intended to cover the costs of running the network, has also exploded. Octopus, Britain’s third largest supplier, said it had refused to pass on the full increase to its customers – it remained at £80.

Octopus chief executive Greg Jackson said Ofgem must “make every effort to reduce the sinister, hidden costs incurred by retirees.” He added: “This surcharge has gotten out of hand. We ask Ofgem to review it urgently.”

Ofgem said the levy for those who do not pay by direct debit will be reviewed as part of a “draft program” for the levy policy. However, the regulator added that no changes would be made until “the winter of 2024-25.”