npower charged too much
Britain’s fourth-largest domestic energy company, npower, is to repay £70m to customers it overcharged for gas.
The refund comes after the energy supplier admitted that it caused confusion when it changed its billing mechanism in 2007, which led to households which used less gas paying for more fuel.
Energy companies have been criticized for their confusing billing systems and for the estimated billing system which leads to many customers overpaying or underpaying their bills.
Npower started charging households a fixed monthly number of more expensive initial gas units – known as primary block units. Previously the amount of primary units charged varied according to time of year. At the same time, npower lowered prices and introduced some discounts.
Energy regulator Ofgem started a probe after customer complaints, seeing the company pay back £1.2m to 200,000 customers last year.
One of the complaints was highlighted in a report in the Guardian, describing a dogged two-year battle by a former art teacher who refused to accept that his bill was correct – and has been proved resoundingly right.
For years, executives at npower denied that Carlisle resident Robert Bramwell’s figures were correct, and under pressure repaid just £6 to what it said were a tiny number of customers affected by a small mispricing error. But Bramwell persisted in his fight, which was highlighted by Guardian Money and taken up by Consumer Focus. npower has now been forced to make repayment to the 1.8 million customers it overcharged during 2007.
Guardian Money understands that it agreed to make the payments, which will average £35 but, in some cases, will be as much as £100, after being told it would be taken to court by lawyers acting for consumers who lost out.
The threat of legal action and subsequent negotiations were handled by Consumer Focus, the body representing energy users which is under threat from Government cutbacks.
The saga also revealed major failures in the regulatory regime for the big energy suppliers and will be regarded as a major source of embarrassment for Ofgem, particularly as npower is not going to face a fine.
In February 2008, Guardian Money first brought the overcharge to the attention of the authorities. We had been contacted by Bramwell, who told us that he believed around 2 million npower customers, who were paying by direct debit, had been overcharged by around £27. The self-confessed spreadsheet obsessive had been poring over his bills and could not make sense of them. The problem centred around the fact that power companies charge gas at two prices, with customers paying a higher rate for the first (4,572 kWh) units consumed.
In April 2007, npower changed the way it calculated its customers’ monthly payments, and then changed it back six months later; Bramwell had spotted that the changes were to the detriment of its customers. Calculations were so complex you would have had to be a serious mathematician to grasp them, and furthered the case for a radical overhaul of utility bills.
Initially, Bramwell contacted npower. It gave him £50 as a “goodwill gesture”, but insisted the charges were correct, saying: “Mr Bramwell has been charged correctly according to the tariff in operation. Whenever there are changes to a tariff some people are better off and others worse off.
“It is unfortunate that Mr Bramwell was in the latter camp.” Undeterred, he complained to the then consumer group Energywatch – now part of Consumer Focus. Faced with a handful of similar complaints from other mathematicians, including another Guardian reader, Juliet Watkinson from Chester, Energywatch referred the matter to Ofgem.
What happened next still rankles with the consumers who brought the original complaint. Ofgem failed to enact a formal investigation for seven weeks, by which time it was more than a year since the overcharge. The delay severely restricted the action it could later take against the gas supplier as “it was out of time”. It finally announced formal proceedings in June 2008.
It carried out an investigation over an eight-month period, but critics say that the regulator failed to take evidence from those who had originally complained. Ofgem then announced a “great result for consumers” in which npower agreed to pay just 200,000 customers an average of just £6 – amounting in total to £1.2m. But Bramwell did not see this as a “great result”, and declared that npower had “pulled the wool over Ofgem’s eyes”.
Undeterred, he took the matter to the Office of Fair Trading. Other consumers had joined in the campaign and one, Andy Beck, even took a claim against npower to court, only for the power firm to settle out of court.
At this point the body that had become Consumer Focus picked up the baton again. It obtained a legal view that npower customers had suffered a serious detriment – of a sum higher than the Ofgem payment. It made it clear to npower that it would help the affected consumers to bring a legal action against the company, at which point it agreed to pay higher levels of compensation.
Audrey Gallacher, head of energy at Consumer Focus, says: “Consumers have been waiting a long time for this announcement and we are pleased with the final result. It an example of what consumers can achieve if they don’t give up, and of how consumer organisations can work with industry to deliver a fair.
“Initially, npower refused to engage with us on the basis that Ofgem had dealt with the matter. Only once they realised we were serious about this, did they become reasonable.”
A spokesman for npower says: “We are sorry that the complexity of the changes we made caused confusion. We have worked closely with Consumer Focus and decided to review every individual customer’s account for 2007. We have agreed how we will determine if any customer has paid for more than 4,572 primary block units in a year. If they have, we will make a payment to match the excess. We will add VAT and interest and ignore any benefits from other changes we made in 2007.” It is writing to the affected consumers with refunds.
Meanwhile, Bramwell is delighted by the fact that npower has finally been forced to compensate customers it overcharged: “It’s a good day for the consumers. However, it still seems extraordinary that npower has not been fined for this. They robbed people – pure and simple. Can you imagine a company in any other area of business getting away with overcharging their customers to the tune of £60m for so long? The fact that Ofgem didn’t deal with this matter properly is a disgrace. I hope they are hugely embarrassed by the outcome.”
An Ofgem spokesman this week defended its actions over the affair: “This is an excellent result and we recognise the important role Consumer Focus has played in bringing this about. Ofgem encouraged and assisted Consumer Focus in its review of breach of contract issues which fall outside Ofgem’s remit.”
Why didn’t Ofgem act more quickly? “We had a window of seven weeks from the date the case was referred to us, to the date where the 12-month time limit would apply. This was a very complex case and this short time period proved inadequate.”
It said it has since used the case to highlight to the government the necessity of an extension to the time period available to impose a financial penalty for a breach of licence conditions. This has now been extended from one to five years.
You can read the story in full at http://www.guardian.co.uk/money/2010/oct/09/npower-consumers-ofgem
The lesson as always is do not just look at the headline deal, work out how it will work for you. Alternative lesson is to sell your service fairly.