Industry regulator Ofgem is proposing to introduce an “auto-refund” policy that would force energy suppliers to return surplus credit balances to customers without them having to request it.

At the moment, many households have a direct debit set up with suppliers to pay for energy use throughout the year.

The set amount is decided at the beginning of your contract, and is based on your estimated usage.

The idea is that you build up a surplus balance during the summer months when you’re using less energy and this is then spent in the winter months when energy consumption is higher.

The process helps to smooth out payments so you know exactly how much to pay each month.

However, in some cases, the surplus balance far surpasses what you would spend in winter. Essentially, the initial estimate was wrong and now you’re paying too much.

Ofgem’s own research suggests that in October 2018, there was as much as £1.4 billion held in surplus credit by energy suppliers – money that could and should be refunded.

Some energy suppliers will reduce future direct debits to take this surplus into account but others require customers to formally make a request for refund.

Ofgem said that it is concerned that “some suppliers may use customers’ surplus credit balances to fund otherwise unsustainable business practices” so it wants to limit the amount of surplus credit that suppliers can hold.

Under the proposed “auto-refund” policy, each year, suppliers would be forced to refund all surplus credit to customers on the anniversary of when they started their contract.

It is also proposing to limit the amount that suppliers can hold in surplus credit, which in turn means energy suppliers would have to be a lot more realistic/accurate about their estimates.

If the proposals get the go ahead, they will come into effect from 2022.

Jonathan Brearley, chief executive of Ofgem, said: “These new proposals would ensure that suppliers are not holding onto more of customers’ money than absolutely necessary, potentially returning millions of pounds of customers’ money.

“This is an important step in making the retail energy market fairer for consumers at a time when many are facing financial hardship.”

The regulator has launched a consultation on the proposal – you can weigh in by email via The deadline is 12 May 2021.