Four British energy firms, three of them from the Big Six who dominate the market, will automatically refund their customers who pay bills by direct debit and are in credit on their accounts.
EDF, British Gas, SSE, and First Utility have agreed to the automatic refund. They join E.on, which had already said yes to the new refund arrangement.
Energy customers pay bills based on estimates of their gas and electricity usage. Their actual energy use is then determined by meter readings. Sometimes consumers have overpaid, but are often required by their providers to formally request a refund.
Under the new deal, after an annual review of a customer's account and energy usage, any credit over £5 – or £10 at First Utility – will be refunded by direct debit without any formal request needing to be made. The customer can rollover credit to the next bill period if they choose.
"This is important and welcome news for the 55% of energy customers who chose to pay by direct debit," said Greg Barker, minister for energy and climate change.
"The coalition is committed to helping hardworking people reduce the cost of energy bills and this will ensure that customers are rightly returned the cash that is theirs without having to ask.
"There is still more to do but this builds on the coalition reforms to the energy market, and to have five of the major energy companies agreeing to this new approach will go a long way towards rebuilding consumer trust. I hope other energy companies will adopt this approach very soon."
Reports of the deal emerged ahead of the government's announcement. Npower and Scottish Power are refusing to join the agreement at the moment as "we've had feedback that refunding very low amounts isn't worthwhile and we also know many people like to keep their account in credit," an Npower spokesperson told IBTimes UK.
"It's welcome news that five energy companies have seen sense and will stop hanging on to customer's money when they're in credit," said Richard Lloyd, executive direct of the consumer rights group Which?.
"The other suppliers should take note and follow suit."
Soaring energy bills have been the topic of fierce political debate in the UK as households wrestle with a rising cost of living, declining wages, and welfare cuts.
This move by firms to make energy consumers' lives easier is the latest in a string of efforts by the industry to improve their standing in public opinion.
They have already pledged to reduce household bills after the government said it would remove some of the green levies on firms, which fund schemes such as insulating homes to increase energy efficiency. Instead these will be funded by general taxation.
Labour leader Ed Miliband said if his party won the general election in 2015 they would force energy firms to freeze consumers' bills for nearly two years.
Energy firms insist they need to put up bills because of the volatile wholesale cost of gas and electricity and heavy infrastructure investment, but critics accuse them of profiteering.