Smart meter customers in debt to their suppliers are being shunted onto costly prepayment meters with little notice or explanation.
The regulator is to investigate energy suppliers after an "extremely high" number of households have been forced onto costly prepayment meters during the high-usage winter months.
With energy bills soaring, millions of households have slipped into debt with their suppliers.
And while the practice of shifting customers onto prepayment meters is within the rights of a supplier, there have been concerns raised that they have been too aggressive in doing so, prompting Ofgem to act on the matter.
In years gone by, the supplier would have to jump through some hoops in order to get the meter fitted, but smart meters have apparently made things far more simple, with suppliers able to transfer customers onto prepayment tariffs with the flick of a switch.
Jonathan Brearley, chief executive at Ofgem, said in a statement on Monday: "The number of forced installation of prepayment meters is extremely high.
"It is simply not acceptable that vulnerable customers are left in the dark and cold in Winter. Therefore, we will take a more detailed assessment to check whether plans have led to improvements."
He said the review would focus specifically on self-disconnections, remote switching and forced installations and, the checks and balances companies have around any decision to put a customer on a pre-payment meter.
"If we find that they have not taken due care in this process, we will take further legal action against them," he added.
Minister @GrahamStuart will today meet with energy suppliers, @Ofgem, @EnergyUKcomms and @CitizensAdvice to discuss forced prepayment meter installations.
— Dept for BEIS (@beisgovuk) January 25, 2023
Following a surge in forced installations, the minister will repeat calls to end further unwanted switching this winter.
Sadly, this isn't a new development.
As far back as November, Ofgem raised concerns about how energy suppliers were treating customers on smart meters who fell into debt to their suppliers.
"Last year, we ran comprehensive reviews assessing suppliers’ systems and processes for dealing with its most vulnerable customers and assessing the way they treat customers who are struggling to pay their bills," said Brearley.
"Although there is good practice in many places, no company came through without needing to improve and all have been required to submit plans to meet the standards we set."
Prepayment meters: following the process
There are certain steps that need to be followed before a supplier moves a customer onto a prepayment meter.
For example, they should actually give you some notice, outlining not only the fact that they plan to move you but also explaining why, as well as any other options you might have.
Suppliers also need to take into account your circumstances.
There are some people for whom it simply isn’t practical or acceptable to be on a prepayment meter, even if they are in debt.
For example, if you have a medical condition which is maintained at home, but which requires the use of electrical equipment, then you should not be moved.
If the supplier is looking to fit a physical prepayment meter, then it may need to get a warrant in order to access the property.
The prepayment problem
There are plenty of issues that come from being on a prepayment meter.
It presents a big budgeting challenge ‒ no longer do you have the relative certainty that comes from paying for your energy use through a monthly direct debit.
Instead, you have to load up that meter before you can use any energy.
While some meters allow you to top up your balance remotely, in other cases you will need to take the meter key to a Post Office or relevant store.
What’s more, a prepayment meter exposes you to far greater changes in your energy costs.
Not only have prepayment tariffs traditionally been more expensive, but you also go through seasonal increases in what you have to put onto that meter.
After all, while all of us see our energy use rise during the cold winter months, that doesn’t translate into a bigger monthly bill.
Instead, suppliers calculate how much energy we are likely to use over a year, and then divide that annual bill into 12 equal direct debits.
That isn’t the case with a prepayment meter ‒ if you are using more energy, then you’ll have to head to the shop to top up that meter more frequently, meaning you’re spending more in the here and now.
The haves and have nots
It’s notable that this is happening at a time of a growing divide between households when it comes to balances with energy suppliers.
More than three million households are in debt to their supplier, with the amounts owned having risen by a fifth between Autumn 2021 and 2022, from £159 to £190, according to research from Uswitch.
It found that around one in five of those in arrears has moved from being in credit to debt over the course of those 12 months.
Yet at the other end of the spectrum, households in credit have built up even bigger credit balances.
Around two-thirds of households are in credit ahead of the winter, by an average of £249 ‒ almost double the level of a year ago.
That’s a real chasm, between those who are struggling and those who have been able to stomach the extensive increases to direct debits implemented by energy suppliers.
loveMONEY says: the dark side of smart meters
There are some obvious benefits to smart meters.
When used properly, they can provide you with valuable insight into your energy use, and the pounds and pence that usage is costing you.
And that info can prompt tangible changes to your habits, or push you into investing in more energy-efficient options, resulting in saving money on your energy bills.
It’s notable too that schemes, like the National Grid’s ‘demand flexibility service’, under which households are rewarded for moving their energy use to off-peak times are only available to homes with smart meters.
Yet those selling points are badly undermined by the fact that these meters leave you more greatly exposed to poor behaviour from energy suppliers.
There’s something deeply unsettling about the fact that suppliers can simply flick a switch and move you to a prepayment deal.