Our backbilling stance

Last updated November 2019

Background

Ombudsman Services considers backbilling disputes in line with the Standard Licence Conditions (SLC21BA) but reviews each case on its own merits. Any failure from a supplier to adhere to backbilling will result in a remedy requiring this action.

Since introduction of backbilling to the SLC, we have been keen to ensure consistency across the industry. Below is Ombudsman Services’ position on backbilling relating to some of the common issues. This position has been shared with Ofgem.

For clarity, this document is not policy, it is not guidance, nor do we believe this to be a position that influences the principle-based nature of the licence conditions.

It is our stance on some key points around backbilling and is how we will approach complaints should they be escalated to our service.

We agree that it is for suppliers to individually interpret licence conditions on a case-by-case basis. We also agree it is not our role to write Ofgem’s position or provide further explanation in addition to the licence condition on behalf of Ofgem.

Overview

SLC21BA states that, from 1 May 2018 for domestic customer and 1 November 2018 for micro business customers, when a supplier takes charge recovery action, it can only do so for energy that could have reasonably been consumed and standing charges accrued within the 12 months preceding the date of the charges recovery action.

For the avoidance of doubt, any charge recovery (a bill requesting payment for example) sent on or after 1 May 2018 for domestic customer and 1 November 2018 for micro business customers would be subject to SLC21BA. Any charge recovery actions prior to these dates would be subject to any previous rules.

Exceptions

Backbilling does not apply in circumstances that include a certain exception. SLC21BA sets out four exceptions. These are:

a) where any charge recovery action was taken prior to the date this condition took effect;

b) the licensee or any representative, has taken a charge recovery action following the date this condition took effect in a manner which complied with paragraph 21BA.1 and, due to non-payment are continuing to take steps to obtain payment for the same units of electricity and, where applicable, the same amounts in respect of a Standing Charge or other type of supply charge;

c) the licensee has been unable to take a charge recovery action for the correct amount of electricity consumed due to obstructive or manifestly unreasonable behaviour of the customer; and

d) any other circumstances, which following consultation, the Authority may specify by publishing a statement in writing.

This means that backbilling under SLC21BA will not apply if:

  • the supplier has completed the charge recovery action prior to the start date of the SLC;
  • the debt on the account is over 12 months old but was sought at the time it was created; the customer is at fault for the correct amount not being sought; or
  • another reason following consultation from the regulator.

Key areas

The scenarios below set out to explain the four main areas we have seen where we consider clarification is required around backbilling.

What is charge recovery?

Scenario A

The supplier sets up the customer’s electricity account on 21 March 2018, with a direct debit of £50 per month. The supplier sends bills each month, using actual meter readings. These bills show that the direct debit amount is not covering the usage, as the balance is increasing.

In August 2019, the supplier sends a bill, which shows a balance of £489.21. The supplier also informs the customer that it is increasing the direct debit to £118 per month to cover the ongoing usage and to pay back the arrears.

Scenario A outcome

While the supplier did send invoices, it did not complete charge recovery action until August 2019. This is because the bills that it sent were not requesting payment for the correct amount and only when it proposed to increase the direct debit, did the supplier complete the correct charge recovery action.

In a situation like this, the supplier would only be able to seek to recover the charges between August 2018 and August 2019. The balance prior to this, between March 2018 and August, which is the difference between what the customer paid and what they should have paid cannot be recovered by the supplier. While the customer might have seen these charges, the supplier has not actively tried to recover these until August 2019 when it increased the direct debit.

The supplier should take steps to remove the unsought charges that are over 12 months old to ensure that it is billing the account in line with SLC21BA.

Scenario B

The supplier sets up the customer’s electricity account on 21 March 2018, with a direct debit of £50 per month. The supplier fails to send bills for approximately 17 months. In August 2019, it sends a bill, which shows a credit balance of £7.43.

Scenario B outcome

While there is a potential billing issue, due to the lack of billing, once this is corrected, the supplier is not taking charge recovery action that is seeking something that is over 12 months old. Therefore, backbilling isn’t applicable in this case. The lack of billing has not directly impacted the customer financially, in terms of a catch-up bill.

The supplier should consider what, if any, impact the situation has had on the customer and look to remedy this if necessary. We would not expect the supplier to remove any of the charges, as while some of these are unbilled and over 12 months old, the payments that it has taken has covered these and are considered charge recovery action.

Backbilling is not intended to refund customers’ payments made for energy that they have used.

Charge recovery explained

When a supplier completes charge recovery, it can only seek to recover energy (including standing charges) that have been consumed or accrued in the preceding 12 months

Charge recovery action is when a supplier sends a request for or takes payment. This is usually as a bill that seeks payment or by the taking or increasing of a direct debit (or attempting). These specifically ask the consumer to pay or take a payment. When a supplier increases a direct debit, due to arrears or awareness that the current amount is incorrect, this is charge recovery action. A direct debit statement is not charge recovery action.

Even when a supplier has sent statements showing outstanding charges, we would still expect it to take charge recovery action within 12 months, as this should prevent the need for backbilling. Therefore, a supplier sending statements showing an increasing balance, even if these are based on accurate meter readings, does not amount to charge recovery action. It is only when the supplier requests payment, in a form previously mentioned, does complete charge recovery action.

Charge recovery only occurs when the supplier actively seeks to recover charges, either by asking the consumer to pay the outstanding balance in full (a bill) or asking the consumer to pay the outstanding balance over a set period (a direct debit increase or when it applies a debt recovery rate to a prepayment meter).

Exceptions

Scenario

An account starts in January 2018, set up using an actual meter reading. The supplier receives the next actual meter reading in August 2018, which does not fall in line with the previous meter reading. The supplier contacts the customer to seek verification of this reading but does not receive a reply.

Between January 2018 and September 2019, the supplier sends meter readers to the property to try to resolve the reading issue. It also contacts the customer via letter (four times), email (twice) and by telephone without success. Some of the contacts inform the customer that there might be a problem with the meter or readings on record and that this could potentially result in a large balance.

In September 2019, the supplier gains access to the meter and bills the account to an actual meter reading. This creates a large outstanding balance, as the previous estimated reading had been too low.

Scenario outcome

In this situation the supplier has made reasonable attempts to ensure it completes correct charge recovery. While alone this would not automatically mean backbilling does not apply, the supplier has also made the customer aware of the potential impact if there is a problem with the meter or the meter readings. This means that customer knows the potential outcome of not engaging, thus might be acting in a manifestly unreasonable way.

The supplier could present an argument showing that the customer was fully aware of the potential impact and failed to engage, so could justify that there is an exception present, meaning that backbilling would not apply.

Exceptions explained

Backbilling does not apply if there is an exception and it is up to the supplier to show there is an exception. This might be by including a copy of a bill that shows that the date of the charge recovery action was prior to the SLC incoming into effect, it might be the supplier showing that the charges were sought previously and simply remain unpaid or it might be by it showing/explaining why and how the consumer’s actions have been obstructive to the point that they prevented the correct charge recovery action.

A consumer is not acting obstructive or manifestly unreasonable when he or she does not supply a meter reading. The backstop measure should be that suppliers take a meter reading themselves to avoid billing based on estimates.

It is not for OS to review the evidence and decide if a consumer has acted in an obstructive or manifestly unreasonable way. It is for the supplier to demonstrate why and how the consumer has been obstructive and OS will consider the merits of this.

Reading the meter

Scenario

An account starts in January 2018, set up using an actual meter reading. Over the course of the account, the supplier estimates the usage, as it has not received meter readings.

Between January 2018 and September 2019, the supplier sent estimated bills. During this time, it also sent four emails and a letter requesting that the customer provides a meter reading.

In September 2019, the supplier gains access to the meter and bills the account to an actual meter reading. This creates a large outstanding balance, as the previous estimated reading had been too low.

Scenario outcome

While the supplier has made attempts to obtain meter readings, this alone does not mean that backbilling would not apply. In a situation like this, we would expect the supplier to attempt to read the meter itself and if this is not successful, to then follow up further with this by asking the customer when they will be free to allow access. We would also expect the supplier to explain the importance of actual meter readings to the customer and the potential impact of not having these. This way, the customer is educated and will hopefully have a better understanding to prompt engagement.

An exception needs to apply for backbilling not to apply. In this situation, an exception does not apply. The supplier not directly being at fault does not remove the backbilling protection and therefore the supplier would be expected to only seek to recover charges in the 12 months preceding the charge recovery – in this case; September 2019.

Reading the meter explained

A supplier taking reasonable steps is not enough to warrant backbilling not applying. This stance does not contradict SLC21B.4, which requires suppliers to take all reasonable steps to obtain a meter reading once every 12 months. This is because OS:E’s stance is that an exception is needed to require backbilling not to apply. Adherence to SLC 21B.4 is not an exception.

While a supplier might be able to show the steps it has taken, this alone would not result in backbilling not applying. The supplier would still be required to show how this aligns to an exception.

For backbilling not to apply due to the consumers actions, the supplier needs to be able to demonstrate why the consumer is at fault. Simply showing why the supplier is not at fault does not amount to obstructive consumer behaviour.

The consumer needs to be at fault for the condition not to apply.

A supplier taking all reasonable steps to obtain a reading is not a stated exception to backbilling.

Erroneous transfers

Scenario

A supply is transferred in May 2018. The losing supplier closed the account and issued a small credit refund. In August 2019, the supply is returned as an erroneous transfer.

The supplier who has now had the supply returned, issues a bill covering the period May 2018 to August 2019.

Scenario outcome

The bill in August 2019 is the charge recovery action. In line with backbilling, and because an exception does not apply, the supplier can only seek to recovery charges for the previous 12 months.

While it is not suggested that the supplier is at fault, this is not a reason that would remove the backbilling protection. A supplier should not consider objecting to a return of supply due to backbilling implications. A rejection is only acceptable if there is evidence that the contract/agreement was valid.

As with all backbilling situations, it is for the supplier to demonstrate an exception, for backbilling not to apply.

Erroneous transfer explained

While an erroneous transfer might result in unbilled charges over 12 months old, this itself does not remove the backbilling protection.

A consumer’s lack of action to rectify an erroneous transfer does not constitute obstructive or unreasonable behaviour. While it might be argued that had the consumer acted then backbilling might have been prevented, this does not mean that the consumer is at fault.

A consumer must be at fault for the obstructive or unreasonable behaviour exception to apply – even if the supplier is not directly responsible.

The backbilling protection applies to all cases and only the exceptions of backbilling can be a reason for a supplier not to apply this.

Ombudsman Services does not consider that our stance on backbilling relating to erroneous transfer has any impact on guaranteed standard payments. This is because these issues are not related. Charge recovery is subject to backbilling, whereas these standard payments relate to how an erroneous transfer is handled.

Expectations of suppliers

We expect suppliers to work in lineSLC21BA. This is not only in any individual cases, but also when creating any internal policies or guidance.

We expect suppliers to communicate clearly with their customers following a dispute, to set out the steps it has taken and the reason for the outcome; if backbilling applies or not.

When a dispute is referred to Ombudsman Services, we expect a supplier’s case file to clearly show the reasoning for the decision the supplier has reached.

In situations where the supplier has concluded backbilling does not apply, it is required to demonstrate why this is, linking this to one of the four exceptions.

As backbilling applies, unless there is any exception, failure to link a conclusion that backbilling doesn’t apply to an exception will likely result in Ombudsman Services deciding that backbilling should be applied.

It is the supplier's responsibility to show the exception. Ombudsman Services will not try to find this.

Our backbilling stance, which is only in relation to elements of backbilling and not an inclusive list, is not intended to be policy or guidance, is not a demand for how suppliers should be acting, it is simply our general stance on these elements.

While we are satisfied that our stance is reasonable, we recognise that in a specific case a supplier might have a difference stance that may too be reasonable. In this situation, we would consider the supplier's stance in line with the situation and not directly in comparison to our stance.