Ofgem calls for fair treatment for prepayment customers

The UK energy regulator Ofgem is calling for fair play for prepayment customers, as its review shows there is disparity in the treatment they’re receiving from energy suppliers. The review was prompted by concerns that prepayment customers can face particular barriers when trying to access competitively priced deals, especially fewer tariff choices, upfront security deposits, and charges for installing and removing prepayment meters.

Fewer tariff choices

While more suppliers than ever before are offering tariffs for prepayment customers, including social tariffs for those in vulnerable situations, the choice of tariffs is much more limited than for direct debit (DD) customers. In particular, Ofgem found there were far fewer fixed tariffs available to prepayment customers – just four, compared to 27 for DD. Fixed tariffs typically offer the cheapest deals, and the review found that prepayment customers could save up to GBP300 by switching to the cheapest DD tariff available at the time.

Cheapest dual fuel tariffs in UK by payment method

Cheapest dual fuel tariffs by payment method – Source: Ofgem analysis of Energylinx data, 2015

According to the energy suppliers, three factors are constraining prepayment tariff choice:

  • Prepayment tariffs are less commercially attractive, as customers on traditional prepayment meters (PPMs) are more expensive to serve and typically use less energy.
  • Technical limitations on the number of tariff codes that the prepayment infrastructure can accommodate.
  • Restrictions on the number of tariffs suppliers can offer introduced by the Retail Market Reforms (RMR).

Smart meters can help mitigate the commercial and technical barriers cited by suppliers, but while a number of competitively priced smart prepayment tariffs are starting to be piloted, these are not yet widely available. Ofgem therefore intends to investigate the availability of prepayment tariff codes and explore whether any action is needed ahead of the smart meter roll-out. The regulator will also look into the impact of the RMR on prepayment tariffs.

Use of security deposits

Ofgem found that 10 out of 18 suppliers require security deposits from prepayment customers who wish to switch to standard credit (SC) and in some cases DD tariffs. Its review also uncovered differences in the value of the security deposit required, the timescales for putting down the deposit, and suppliers’ return policies.

Security deposits can be a barrier to switching payment methods, especially if customers are additionally asked to pay for a meter exchange or have to find a deposit within short timescales. Some suppliers reported that 75-85% of customers didn’t complete a requested transfer to SC as they failed to pay a security deposit when asked to do so.

As part of its broader work on supplier obligations, Ofgem plans to consult on the use of upfront security deposits, including ending the practice in some or all cases.

Ending charges for installing and removing prepayment meters

Many suppliers don’t charge for installing PPMs and 95% of removals are free, but Ofgem found that when they charges are levied they can vary widely. There are also some differences in the charges depending on whether the meter is being installed or removed at the customer’s request or as a result of a court order in debt recovery situations. Most suppliers charge warrant-related costs, which can add substantially to the customer’s original debt.

Ofgem is calling for an end to charging for installing a prepayment meter if it is not done so under warrant, and also plans to consult on ending installation and removal charges in all circumstances. The consultation, which will take place later this year, will also consider the circumstances in which suppliers can refuse to remove a prepayment meter, to understand and extend good practice.

Report welcomed by fuel poverty charity

Fuel poverty charity National Energy Action (NEA) has welcomed Ofgem’s report, together with its efforts to strengthen protection for PPM customers.

“The report is a timely reminder of the many options there are for reducing the inequalities that prepayment meter customers still face,” said Jenny Saunders OBE, Chief Executive of NEA. “The report rightly highlights the need for prepayment customers to be able to benefit from the substantial savings available for switching to the cheapest direct debit tariff and removing any barriers preventing this becoming the norm once debt is repaid. Whilst some suppliers have already chosen not to charge for installs, removals, warrant related costs or security deposits, we also welcome a commitment to look to end these charges for all customers.”