Ofgem launches consultation on smart prepayment

Ofgem has launched a six-week consultation on smart prepayment, as part of its preparations for the mass roll-out of smart meters in Great Britain. The consultation follows a review within the Consumer Empowerment & Protection project of arrangements for the operation of prepayment in a smarter market, as well as extensive stakeholder engagement, and sets out Ofgem’s proposals for changes in a few discrete areas.

The consultation closes on 23 October 2015, and Ofgem’s decision, together with a summary of responses, is expected to be published during Q4.

Change of supplier arrangements

One of the new measures Ofgem is proposing addresses a potential risk of smart prepayment customers being left stranded off supply when they change supplier. Stakeholders had previously identified two scenarios which carry a low risk of this outcome:

  1. When a new supplier is not able to access and put its security credentials onto a meter that has been left in prepayment mode by the previous supplier, for example due to a failure of the wide area communications network.
  2. When a gaining supplier chooses not to use smart functionalities (during the transition to smart metering), and so doesn’t have a communications contract and can’t access a meter that is in prepayment mode.

Ofgem is supporting an industry-developed solution that would see the meter left in credit mode when a smart prepayment customer switches supplier. This is widely seen among industry stakeholders as the most appropriate way of safeguarding a continuity of supply. According to the regulator, industry is already looking to operationalise the solution.

Switching the meter temporarily to credit mode has several implications for the consumer journey during the change of supplier process and Ofgem has asked suppliers to consider how these should be managed, including avoiding any potential unintended consequences such as a prepayment customer building up debt if their meter continues in credit mode for some time due to ongoing communications issues.

New smart prepayment reporting requirements

Smart metering introduces new functionalities that can improve how prepayment services are offered, including remote top-up mechanisms (e.g. via smartphone apps), and low-balance and high consumption alerts via multiple channels to help consumers manage their budgets.

Ofgem had previously indicated that it might consider mandating minimum standards for key smart prepayment functionalities, but its present view is that this would be unnecessary and suppliers should be left room to innovate and differentiate their smart prepayment offerings. Instead, the regulator is proposing to monitor suppliers’ use of smart prepayment through its Social Obligations Reporting mechanism, to understand if the key smart prepayment functionalities are being made available to consumers.

Key smart prepayment functionalities and their importance

Key smart prepayment functionalities – Source: Ofgem

The proposed new data requirements cover:

  • How much emergency credit and friendly credit[1] is offered, if any, and whether these are fixed amounts or include any element of consumer choice (e.g. user-defined credit limits or choice of times of day when friendly credit is available).
  • Which smart prepayment functionalities are used, such as low credit warnings and high consumption alerts, whether the thresholds are fixed or flexible (e.g. customer defined), and which communications channels are used (e.g. email, text message, in-home display or prepayment interface device).
  • Which top-up channels are available (e.g. cash payment outlet, online, mobile app, telephone or text), and the minimum and maximum top-up amounts for each of these channels.

Suppliers will need to provide yearly data covering these areas from 28 January 2017, starting with the 2016 annual reporting period.

Ofgem also plans to collect quarterly and annual data on the number of smart prepayment customers, beginning with the April-June 2016 quarterly reporting period. There are also plans to track on an annual basis the number of customers requesting non-cash top-up mechanisms.

Phasing out traditional prepayment infrastructure

The consultation calls for general views on the issues associated with phasing out the legacy prepayment infrastructure – an important topic that is outside the scope of Ofgem’s current smart prepayment work. One area for consideration is the commercial sustainability of operating the traditional prepayment infrastructure once smart meters have become the norm and how to ensure that any consumers still on legacy prepayment meters remain protected. Ofgem is also asking for opinions on which parties would be best placed to consider and manage the transition.

[1] Emergency credit is a small amount of credit that suppliers can make available when a customer’s balance is depleted to maintain supply until they next top up, whereas friendly credit is extended when credit runs out at times when there is a policy for customers not to be disconnected (traditionally out of normal business hours). Both types of credit must be repaid when the customer recharges their account.