Ofgem has demanded significant improvements from energy suppliers in the way they manage monthly direct debit payments and is consulting on the need for changes to supply licences to secure improvements.

Ofgem's action results from a review the regulator has conducted into the direct debit arrangements of the six major energy suppliers, following complaints by customers late last year about significant increases in amounts they were being asked to pay. Ofgem's report confirms there is no evidence that suppliers were over-recovering, or of systematic errors in the payments they are requesting. But Ofgem has criticised a lack of transparency and poor communication by suppliers which has left customers struggling to understand why they are being asked to pay more, especially when they may already be well in credit on their account.

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The regulator is also concerned about refund policies and wants suppliers to do more to make the grounds for refunds clearer and to give consumers more choice on how their credit balances should be used or repaid. Ofgem is also telling suppliers to ensure they adjust direct debits on a timely basis to avoid debt build-ups when prices rise and encourage customers to provide up-to-date meter readings, which lead to more accurate payment plans being set.

Ofgem Chief Executive, Alistair Buchanan, said: "Our investigation found no evidence that suppliers are recovering more money from direct debit customers than they are due. However, their explanations of the payment increases and their practices on refund policies are wholly inadequate. Suppliers need to manage customers' direct debit payments much better, especially at a time when household budgets are under pressure. We are calling on suppliers to meet and beat our best practice and will take new licence powers to back this up if necessary."

Climate Change Secretary Ed Miliband said: "Hard pressed consumers deserve to be treated fairly, regardless of where they live or how they pay. Ofgem's proposed changes to the rules on direct debits and earlier this week on pre-payment meters are vital.

"Consumers also deserve the lowest prices possible. The suppliers have all announced price cuts, but there's scope for more later this year. We want to see the full benefits of wholesale price reductions passed onto consumers."

(CD/JM)