Octopus Energy has urged Ofgem to end payment penalties sooner for standard credit customers as the cost of living crisis puts more strain on households.
The energy firm has criticised the watchdog’s decision to not review potential changes to non-debit charges until 2024/25.
The Big Six Supplier has released fresh research showing that three quarters of customers who pay by cash, cheque or card for their energy don’t realise they are being charged much more than customers who pay by direct debit.
The charge disproportionately affects older people, with almost a third (28 per cent) of customers – the largest cohort – who pay via cheque or cash over the age of 65.
Non-direct debit payment methods do burden energy suppliers with extra costs, which have more than trebled during the energy crisis.
When Ofgem introduced the energy price cap in 2019, it calculated the extra cost was £81 – compared to the £254 per year suppliers are now allowed to charge households.
This means that customers who pay by cash, cheque or card are paying over £20 a month extra for their energy, compared to those who pay by direct debit.
With around 5m electricity customers potentially affected, it means British households could be paying around £1.3bn per year more than they need to.
Octopus has called on Ofgem to slash this uplift as soon as possible.
It is also urging everyone who pays by receipt of bill or standard credit to move to direct debit if they can to avoid unnecessary charges.
Greg Jackson, chief executive and founder of Octopus, said: “While the global gas crisis is beyond the control of the UK, Ofgem need to do all in their power to drive down the sinister, hidden costs creeping up on pensioners. Committing to review it only by the winter of 2024/25 is simply not soon enough.
“Suppliers do incur extra costs for other payment methods, but this surcharge has got out of hand and we’re asking Ofgem to review it as a matter of urgency – especially with the price cap rising again in April.
“It’s all the more pernicious for people who pay carefully on time, every time and think this gets them a fair deal. In reality they’re being gouged – and this practice must be stopped.”
Ofgem has been approached for comment by City A.M.
Octopus chose not to pass on this surcharge to customers until October 2022, when it raised it to £80 per customer to cover the additional cost.
Absorbing these costs on behalf of its customers has cost Octopus £46m since 2019.
There is growing focus on helping vulnerable customers this year, with Chancellor Jeremy Hunt set to hike the subsidy rate for households from £2,500 per year to £3,000 per year from April.