The Mail on Sunday's recent article “Hard-up customers of energy firm OVO hit with shock emails telling them to pay hundreds of pounds in unexpected charges[1]” is a stark reminder of two glaring problems in the energy industry. Firstly, Ofgem needs to deliver on its promise to strengthen back-billing protections for customers. Secondly, smart meters need to deliver on their promise of accurate bills.
This case is all the more alarming as many of those impacted, OVO’s customers from spin-off company Boost, are reportedly on low incomes. They have chosen to use pay as you go energy despite the extra cost, because it's meant to give them peace of mind and help them budget. They are also on smart meters.
Under current rules, household and microbusiness customers using any ‘payment type, meter mode or meter arrangement’, can be charged for gas or electricity used up to 12 months ago if they've not been correctly billed, even if it's not their fault[2]. This is deeply unfair in any circumstances and puts the liability on customers for company mistakes.
It’s especially unfair for prepayment meter customers who pay in advance precisely to avoid debt and given the promises of smart meters, high energy prices, and the current cost of living crisis.
Given that energy suppliers don’t issue ‘bills’ to prepay customers, contractually it seems somewhat perverse that Ofgem allows them to ‘back-bill’ prepay customers at all.
Extreme worry
Shock (unexpected) bills can cause extreme worry and hardship and push people into a cycle of hard-to-escape debt and even suicide. For small businesses it can mean the difference between financial survival and going bust.
Under Ofgem rules, energy suppliers must take account of customer’s ability to pay and ask for money from a back-bill to be repaid at an affordable rate.
In OVO’s case it waived the catch-up bill for vulnerable customers[3] and a minority with an existing debt of more than £500. Acknowledging the problem was due to a technical error on their side, it gave the rest impacted (a number the company wouldn’t disclose) a 10% ‘discount’ on the back-bill. An unequal approach that some customers felt was unfair[4].
This case is indicative of another issue. The government and regulators promised smart meters would deliver accurate bills. However, as Ofgem’s Smart Meter Rollout: Energy Suppliers Rollout Delivery Open letter April, out this month highlighted, while more than half of households now have smart or advanced meters installed, 3.2 million are not operating in smart mode[5].
Indeed, research by consumer group Which? reported that energy customers not getting remote readings was the most common problem experienced in the last 12 months by those with smart meters; with one in 10 people in their survey of members with smart meters saying they had a problem with their bills being inaccurate in the past 12 months[6].
Billing problems remain the single most cited complaint by energy customers. This is followed by complaints about problems with smart meters according to Ombudsman Services, (though the Ombudsman Services were unable to provide a breakdown of billing problems for smart meters nor back-billing complaints by payment method or meter type[7].)
Gettings basics right
In 2013 Ofgem set an objective that there should be no back billing once smart meters are rolled out while recognising there may be practical considerations with smart technology and flexibility needed especially in the short-term.
Arguably smart meters should now have a shorter back-billing limit, if any at all, where it’s not the customers fault.
This issue has been dragging on for years and it is time it is addressed properly.
In 2014 Ofgem in its updated work programme reconfirmed “accurate bills” and “no back bills where the consumer is not at fault” as part of “getting the basics right” for smart meter rollout and building confidence in the energy market[8].
In its 2015 document called Smart billing for a smarter market: our proposals[9], the regulator consulted on an initial back billing limit of six months, with the expectation of reducing it to three months once smart meters were installed following a proposed review in 2020. Tackling back-billing and estimated billing were seen as two sides of the same coin - “By increasing incentives on suppliers to avoid back-bills, a limit would also incentivise suppliers to minimise the use of estimates,” it stated.
Such a proposal was felt to strike the right balance between the needs of suppliers and customers. It allowed sufficient time for suppliers to fix errors, incentivised them to improve service, wasn’t deemed cost prohibitive or requiring fundamental change to core processes, while also limiting consumers’ exposure to harm caused by a longer limit.
Energy UK didn’t support mandating action but acknowledged that the 12-month back-billing threshold was too long for customers with smart meters and promised their members would move to a voluntary six-month limit for customers with smart meters.
Voluntary model
Despite the protestations of the Ofgem consumer team and the responsible policy lead, Ofgem senior leaders shelved the proposals relying instead on the industry voluntary approach while restating their expectation for a twelve month back-billing limit. Oddly they cited back-billing, despite the harm it caused, as an area for ‘competitive differentiation’[10].
Predictably the voluntary approach failed (as the voluntary approaches to debt and prepayment before them had); not all suppliers signed up to the industry Code and not all who signed up to the Code complied with it.
Two years and lots of everybody’s time and resource later in 2017[11], yet another consultation was issued, and in 2018 a new licence obligation was introduced to prevent suppliers from back-billing consumers for gas and electricity consumed over 12 months ago when the consumer is not at fault.[12] No separate protection was introduced for smart meters despite emerging evidence that there were problems with smart billing.
In December 2020, following evidence of continued failure by some suppliers to comply with the back-billing rules (submitted by consumer groups) Ofgem issued an open letter gently reminding energy suppliers of the requirements placed on them by supply Licence Condition 21BA on back-billing[13].
Today there isn’t a voluntary industry code setting a higher bar for back-billing for customers with smart meters. Back-billing, as this latest news story highlights, remains a problem.
Net zero foundation
It’s ten years since Ofgem set its smart objective to end back-billing and 18 years this month since the then consumer watchdog Energywatch’s initial super complaint about back-billing ‘significantly harming the interests of consumers’[14]. More than 31 million smart and advanced meters are on the walls. Customers rightly have low tolerance for back-billing and inaccurate bills in a smart world.
Octopus Energy is one company that seems to recognise this. It didn’t back-bill its customers for a recent problem with a small number of some of its old gas meters, effectively giving customers a 99% discount on their bills for a short period over winter. Octopus say they always seek “to find a solution that is fair”.
History has taught us we can’t rely on voluntary approaches where suppliers decide on a case-by-case basis if and how to back-bill consumers. We strongly urge Ofgem to investigate billing errors and back-billing as part of its smart meter compliance review to understand the causes and scale of the problem.
The back-billing rules need updating and enforcing. They must be updated to recognise the genuine distress back-billing causes; to reflect the capability of new technology and rising consumer expectations; and to provide stronger incentives on suppliers to make improvements.
Billing matters to customers. It constitutes one of the most fundamental areas of interaction between them and their supplier and we are running out of time. If we can't as a sector get the basics of smart billing right, it's delusional to think we will get buy-in from consumers for more complex flexible energy markets and the wider transition to net zero and clean energy.
Zoe McLeod is Policy Director at Sustainability First.
[1] Ovo in hot water AGAIN over shock demands for cash | This is Money
[2] Back-billing explained | Ofgem
[3] OVO didn’t confirm who they considered vulnerable and waived the back-bill for.
[4] Boost Energy UK - Failing customers | Facebook
[5] Smart Meter Rollout: Energy supplier Rollout Delivery Open Letter April 2023 | Ofgem
[6] Smart Meter Problems And How To Solve Them - Which?
[7] Energy complaints data | Ombudsman Services (ombudsman-services.org) – Ombudsman Services records back-billing data separately and was unable to provide data on back-billing or billing in relation to smart and traditional meters
[8] Consumer Empowerment and Protection in Smarter Markets: Updated Work Programme (ofgem.gov.uk)
[9] Smart billing for a smarter market: our proposals | Ofgem
[10] Smart billing for a smarter market: our decisions | Ofgem
[11] Protecting consumers who receive backbills: Statutory consultation | Ofgem
[12] Decision: Modification of the electricity and gas supply licences to introduce rules on backbilling to improve customer outcomes | Ofgem
[13]https://www.ofgem.gov.uk/sites/default/files/docs/2020/12/open_letter_on_expectations_for_energy_suppliers_undertaking_charge_recovery_action_0.pdf
[14] https://www.ofgem.gov.uk/sites/default/files/docs/2005/07/11070-16305_0.pdf