From May, the energy regulator will ban suppliers from sending customers backbills for energy that was used over 12 months ago.
A backbill is essentially a 'catch-up' bill that's sent out by energy companies to their customers when they've not been charged or paid the right amount for the energy they've used.
Most commonly they are sent out when energy suppliers under-estimate a customer's energy usage and then have to send out a higher bill based on actual usage. They can also occur when meter readings are mixed up, when energy companies fail to act on information provided by customers, or indeed when a customer is not billed at all.
This latest move from Ofgem follows a consultation in November 2017 on whether to introduce licence obligations around backbilling because the regulator was concerned that not all suppliers had appropriate backbilling policies in place, despite the fact that it's their responsibility to provide customers with correct and timely bills.
Although a voluntary code of practice for backbilling does currently exist, only the big six energy companies are currently signed up to it (British Gas, E.ON, EDF Energy, npower, ScottishPower and SSE).
It's called the code of practice for accurate bills (or the billing code for short) and is administered by Energy UK, the trade association for energy suppliers.
Every year Energy UK audits members of the billing code against a number of factors, including backbilling, to "provide a common framework around which energy suppliers can build better processes and controls for billing their customers."
Commenting on the code, Laurence Slade, Chief Executive of Energy UK, said that: "Suppliers are actively working to improve billing for their customers. That is why companies covering 80 per cent of the market have signed up to the Energy UK Billing Code to ensure greater accuracy of bills."
However, Ofgem has decided that the voluntary code just doesn't go far enough to protect consumers, and its new ban on backbilling will apply to all energy suppliers, no matter what size their operation.
During the course of its research, Ofgem found that the average backbill was £1,160 in 2016/2017 and was concerned that customers were being surprised with such large bills, causing a lot of worry and financial strain.
Citizens Advice, which has long campaigned against the practice of backbilling, welcomed the move.
Victoria MacGregor, Director of Energy at the charity said: "We have long called for the changes announced today...No-one should face a massive unforeseen bill that goes back years when it's their supplier that's at fault."
Rob Salter-Church, Ofgem's interim senior partner for consumers and competition, echoed this thought: "Large catch-up bills can leave consumers struggling financially or even in debt to their supplier...it's unfair that consumers should be left out of pocket when through no fault of their own they're issued with a shock bill from their supplier. So we're taking action and banning suppliers from issuing backbills beyond 12 months, where it's not the customer's fault."
Indeed, Ofgem says that the only exemptions to the new backbilling ban will apply if a customer is actively at fault. For example, a customer who has prevented their supplier from taking a meter reading to generate an accurate bill, perhaps by obstructing access to their meter, or someone who has wilfully avoided paying their bill.
Going forward, Ofgem hopes that the roll-out of smart meters will mean that suppliers will no longer need to rely on estimated bills or send out these large catch-up bills to customers.
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