Martin Lewis: How to reclaim £100s of credit from your energy firm

Is your electricity and gas provider unfairly sitting on £100s of your money? Over 70% of us pay energy bills by direct debit – a good thing, as it gets you the cheapest rates. However, it can give firms the chance to build up a reservoir of customers' money. It's time to get that money back!

Yet this isn't simply a case of 'if you're in credit, you're owed cash'. To set your direct debit most firms take your annual cost and divide it by 12, smoothing out your annual usage, so you avoid huge cost hikes or bill shocks in the high-use winter period. NB: A few firms do seasonal adjustments, much to their customers' distress – see Outfox the Market uproar when it briefly tried it.

Therefore, it is by design that we spend part of a year in energy credit and part in debt. And, below, I've sourced an energy firm's internal data to show the perfect direct debit cycle. Before I get into the nitty-gritty though, a bit of inspiration for you.

Clare tweeted: "@MartinSLewis Phoned my energy supplier as I was paying £147/month, and was £960 in credit. They reduced my DD to £80 and I got a £570 refund."

And then, after I mentioned this recently on my ITV money show, I got this tweet from Neal: "@MartinSLewis I got a £900 rebate from British Gas after overpaying for 11 months, paid to me within four days."

Of course, do also check you're not – like many – overpaying by £100s on energy bills. It just takes a few minutes via our Cheap Energy Club.

Let me estimate the problem

Most issues are because monthly direct debits are based on an estimate of your usage. These estimates can be way out, especially when new to a firm and it has little to go on.

This may result in massive overpayments which unnecessarily reduce your disposable income, or big underpayments which risk you facing a crippling future backdated bill. That's why I always caution people to give regular meter readings, or get a smart meter that does it for you.

The energy direct debit cycle

Clearly, we use less energy in summer than in winter. Yet to be more accurate I tried to find an energy firm to give me its internal data. Octopus Energy kindly obliged. What's fascinating about this data is the time lag.

Here's the main graph, for someone with a £100/mth dual-fuel direct debit, with a zero balance at the start of the year...

As you can see, while the mid-point of winter weather is around the end of January, it takes until May for your energy debt to stop increasing, by which time you owe nearly two months' worth of direct debits. And it's after summer's peak, in late August, by the time you're actually in credit, with that maxing out in November.

Are you in too much energy credit?

Assuming your meter readings are up to date, check whether you're in energy credit or debt, and compare it to the graph (which is set up for someone who switched on New Year's Day).

For example, at the end of February the graph predicts debt of around a month's direct debit. So if you're in credit, certainly over a month's worth, your direct debit may be too high and you may be owed cash.

The one complexity here is the date you switched energy firm, especially if the switch is recent. So I've two graphs below to show you the impact. These are based on exactly the same data, just with a different start point.

Let's first look at it for someone who switched in May, so they had a zero balance then. That means straightaway you start to build up credit, and never actually go into debt.

The opposite is true for someone who starts in November, when instantly you start to build up debt.

Of course, this makes the whole thing a little trickier, but it's all about understanding the pattern. That's why my first graph is the most important, it shows you the direction credit moves throughout the year.

In too much credit? Get your cash back

Condition 27 of energy suppliers' licences is that they must take reasonable steps to ensure direct debit levels are fair, and to explain the level they're set at. So call up and ask – there may be a justifiable reason.

If not, the rules state that if credit has accumulated and a customer asks for it back, suppliers must refund it – or clearly explain why not.

If they don't, then you can make a complaint via Resolver, which will auto-escalate problems to the Energy Ombudsman if it is not sorted.

Some firms, including big ones, do promise automatic refunds if your credit's too high on the anniversary of you joining, yet I'd still check.

When there's no need to get your credit back

There are a few energy firms that pay decent interest on any credit, so it could be an advantage to keep it there as that's more than you can earn in savings (though if you've debts to clear, it's still better to do that). The three bigger firms that do this (as of April 2021) are...

  • Igloo pays 3% interest on up to £1,000 in credit.
  • Ovo pays 3% interest after your first year, 4% after your second year, 5% after your third year (max £1,000 in credit). This is a cracking rate, clearly done as a retention benefit, yet don't stick with it just for this, always compare, as if other firms are cheaper, the energy bill saving is likely to outweigh this.
  • Scottish Power: At the anniversary of you joining, you earn £1 for every £33 over £100 you're in credit (max £12), eg, £133 in credit gets £1 back, £166 in credit gets £2, £199 in credit gets £3 and so on. For anything under £133 in credit you earn nothing, but above that this is equivalent to 3%.

When I first wrote this blog I warned against keeping too much money in there, due to the risk of losing it if the firm goes bust. Yet these days, the Ofgem safety net protects any credit you have when the firm goes bust, so that risk is reduced.

PS: Old providers may still owe you cash, too. When you switch energy firm, you should be given all your credit back. Yet for years many firms operated 'don't ask, don't get' policies. Most of them have been behaving better for a long time now, but if you think you did miss it, it can still be worth trying to ask for it back. More help on this in Reclaim old energy credit.

In too much energy debt?

If you owe far more than you should for the time of year, your energy direct debit is likely too low. That may seem like a win in the short term, but it's storing up trouble for the future.

Fail to deal with it and you'll likely see a hugely hiked direct debit in the future, forcing you to catch up, or a huge one-off bill if you switch elsewhere (that's if you're allowed to, big energy debt can stop you switching, even if it'd cut your bill).

So don't delay – speak to the energy firm about increasing the direct debit. If it's unaffordable, Simple Energy Advice can give details of help available.

Do please let me know below what your situation is, and whether you managed to get any money back – and how easy it is.