Opinion: Ofgem must act on prepayment energy meter scandal

Energy firms have been far too eager to push people onto prepayment meters, including the most vulnerable, claims John Fitzsimons. It must stop.

Investigations into the way energy suppliers go about fitting prepayment meters have been launched, after one of the nation’s biggest suppliers was exposed for fitting meters even for vulnerable customers.

An investigation by The Times accused debt collectors, who were working for British Gas, of forcing entry into households who were behind on their energy bills, in order to fit prepayment meters.

An undercover reporter found that workers for Arvato were incentivised with bonuses when they force-fitted prepayment meters, which meant that they did so to even vulnerable customers. 

The rules are clear that these meters should not be fitted for customers in “very vulnerable situations”, and yet The Times saw evidence of prepayment meters being forcefully fitted for those with severe mental health issues, disabilities and mobility problems.

The pain of prepayment

It’s worth outlining just how punishing on your finances it can be if you are moved onto a prepayment tariff, whether through the installation of a prepayment meter or by having your smart meter switched over.

First and foremost, prepayment tariffs are more costly than those paid by those on regular direct debits.

This is true even in the time of the Government's energy price guarantee.

The unit cost of gas for regular payers stands at 10.33p per kilowatt hour (kWh), with a standing charge of 28.49p per day.

By contrast, prepayment customers cough up 10.82p per kWh, and have a standing charge of 37.51p per day. 

These tariffs are also a considerable challenge when it comes to budgeting.

If you are on a regular tariff, the supplier works out what you are likely to pay over a year, and then divides that into 12 equal payments. It means that you have to pay the same amount every month, no matter what your energy use over the month has been like.

But, with prepayment tariffs, there isn’t this level of consistency.

Instead, you have to pay for the energy before you can use it, meaning that during the winter time, there are more frequent trips to the shops to top up your meter and a greater overall expense.

That in itself can lead to people essentially cutting themselves off ‒ if they don’t have the money to add to the meter, then they simply can’t use any energy.

For more, read our guide on how prepayment, credit and smart meters work.

A rotten attitude

British Gas has since suspended the installation of prepayment meters and, while it noted that these were being carried out by firms contracted by the supplier rather than British Gas itself, CEO Chris O’Shea admitted: “There is nothing that can be said to excuse it.”

Thankfully, energy regulator Ofgem has launched an immediate inquiry into what has been going on at British Gas, as well as digging into what it described as the “rapid growth in prepayment meter installations” across the energy market as a whole.

In addition, the regulator has asked suppliers to stop fitting prepayment meters, urging them to “get their house in order”.

Magistrates have also been ordered this week to stop issuing warrants allowing energy firms to force fit prepayment meters in England and Wales.

To me, the whole scenario is unacceptable.

Moving households onto a prepayment meter is such a damaging step that it must only be the very last option, yet this scandal ‒ and the fact that so many people from other suppliers are being moved to prepayment meters ‒ suggests that this isn’t happening.

Instead, suppliers are wasting little time in moving customers who may be in some financial trouble onto prepayment meters.

We all know that finances are under real pressure at the moment.

What is needed at a time like this is a little understanding from suppliers, some support to ensure that households are able to keep the lights on as well as pay for their energy use.

And yet there has been an enormous spike in the number of applications for warrants to break into homes and fit prepayment meters.

Official figures show that while there were 275,000 of these applications in 2019, this had jumped to 345,000 for the 11 months to December 2022.

This must not be allowed to stand.

I think Ofgem needs to take real action against any suppliers found to have been overly eager in moving customers to prepayment meters, particularly if they have done so with households who are already financially vulnerable.

That means potential fines, suspensions of licences and ‒ crucially ‒ compensation for any wronged households.

It is in all of our interests that we have strong regulators who can protect ordinary people.