Ofgem considers subsidy to level energy costs for prepayment and direct debit customers

Credit cards USA

Ofgem is considering closing the gap between the cost of energy bills for customers on prepayment meters and those on direct debits – but has defended suppliers who have forced people on to the meters.

Jonathan Brearley, the chief executive of Ofgem, told MPs the energy regulator was examining whether a subsidy could be introduced to create a level playing field.

Citizens Advice estimated that households on prepayment meters would pay £258 more than those on direct debits this winter. Energy suppliers say the higher tariffs are justified as those customers cost more to serve.

Consumer groups, however, have argued that the disparity represents an injustice for households often on low incomes.

Brearley told MPs on the Business, Energy and Industrial Strategy select committee that Ofgem was “examining whether there’s a case for a cross-subsidy”.

He said: “I don’t want to over-promise on that because it’s complex and you would need transfers between companies as there are companies in the market who just have prepayment meters.

“If a levelised price would mean they weren’t able to recover their costs, we would have to find some way to make that good and it’s that we’re looking at.”

Neil Lawrence, Ofgem’s director of retail, said it would examine “who the winners and losers are”. The process is expected to take “months rather than weeks”.

The use of prepayment meters has come under the spotlight amid concerns that millions of people are unable to afford to top-up and becoming disconnected from energy supplies.

MPs and Citizens Advice have called for a moratorium on the forced installation of prepayment meters by suppliers using court warrants.

  Depositing a sealed envelope with Lloyds proved rather unsafe

Ofgem last week launched a review into the treatment of prepayment customers but has said that banned forced installations would require a change in the law.

Brearley said: “If you have a customer who is able to pay and choses not to, I believe this a reasonable response for a supplier who has to manage their bad debt.”

Some suppliers have stopped clawing back debt through meters and British Gas has said it will not remotely switch people using smart meters on to prepay.

Brearley said the regulator would be “aggressively” enforcing rules if it found companies were not following the right procedures for prepay customers.

Credit USA

Representing suppliers, Emma Pinchbeck, the Energy UK chief executive, said: “There are really strong rules around what happens in the process of putting someone on to a prepayment meter so if rules are being broken firstly we want to know where those cases are.

skip past newsletter promotion

Sign up to Business Today

Free daily newsletter

Get set for the working day – we’ll point you to all the business news and analysis you need every morning

Enter your email address Enter your email address Sign upPrivacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.

“Secondly, there’s an Ofgem job to enforce those existing rules and we’ve raised concerns about the regulator time and again with the committee and whether they’re able to do that job properly.”

  What does the future hold for US domestic payments?

Brearley said he was disappointed by Pinchbeck’s comments. He said: “What concerns me is if the industry’s answer is genuinely ‘well, the regulator should force us to look after vulnerable customers,’ then there is still a long way to go until we get the right culture in this part of the industry.”

Pinchbeck estimated that energy suppliers had about £2.5bn of debt on their balance sheets, including £2bn of bad debt.

She called for the government to extend the existing level of the energy price guarantee, which aims to limit consumer bills to £2,500. It is due to rise to £3,000 from April.

Brearley said Ofgem was studying how a social tariff to protect vulnerable customers could be constructed and indicated that the government might need to fund it.

He said: “I struggle to see a social tariff being funded by other people’s bills. It is very hard to see how you charge significantly more to a customer say on £18,000 a year to fund a customer who is on £14,000 a year through a series of benefits.”

Policymakers and regulators are attempting to reform the energy retail market after 29 companies collapsed during the energy crisis as wholesale gas prices soared.

Leave a Reply