ScottishPower Energy Retail Ltd has been hit with a £1.5 million penalty, comprising refunds and compensation, after it was found to have overcharged customers during the energy crisis.
The penalty comes as part of a redress package agreed with Ofgem, the UK’s energy regulator, following a period of billing errors that saw 1,699 direct debit customers charged above the price cap.
The Overcharging Incident
Between 2015 and 2023, ScottishPower mistakenly charged these customers a higher rate that should have only applied to those who pay by standard credit (on receipt of a bill). This error resulted in an average overcharge of £149 per customer over the eight-year period. The issue was self-reported by ScottishPower last summer, highlighting operational errors that led to direct debit customers being billed the standard credit tariff. This overcharging spanned across 11 price cap periods up to June 2023, a time when energy prices soared to record levels, prompting government intervention.
Compensation and Refunds
In response to this breach, ScottishPower has issued direct refunds totalling £250,000 to affected customers, with an additional £250,000 in goodwill payments. This amounts to an average payout of £294 per customer. These payments were processed automatically, ensuring customers received their refunds without needing to take any action.
Beyond the direct refunds and compensation, ScottishPower will contribute £1 million to Ofgem’s Energy Industry Voluntary Redress Fund. This fund supports charities and community projects that assist vulnerable customers with energy-related issues.
Ofgem’s Deputy Director for Price Protection, emphasised the significance of the price cap in protecting consumers, especially during times of financial strain. He stated, “the last few years have been challenging enough for energy customers facing increasing cost of living pressures, without the additional hardship of being overcharged. The price cap is there to protect consumers, and we take seriously any breaches of the safeguards we have put in place.”
Ofgem’s Deputy Director also highlighted the importance of suppliers promptly addressing billing errors to minimise customer impact. He assured that Ofgem will continue to monitor energy suppliers closely and hold them accountable for any failings.
While the overcharge is a serious matter, Ofgem acknowledged ScottishPower’s proactive steps in self-reporting the issue and taking measures to resolve it. This cooperation influenced the final redress package. Had ScottishPower not acted swiftly, the penalties could have been significantly higher.
This incident highlights the importance of the price cap, which has been in place since January 2019 to protect around 29 million households. The Energy Redress Fund, managed by the Energy Saving Trust, plays a crucial role in channelling funds from regulatory breaches to support vulnerable communities. Last year alone, energy companies paid over £72 million in refunds, compensation, and contributions to the Energy Redress Fund as part of Ofgem’s enforcement activities.
