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Energy regulator mulls prepayment meter subsidy

Emma Lunn
Written By:
Emma Lunn

The regulator is considering introducing a subsidy to level energy costs for prepayment meter and direct debit customers.

The energy regulator Ofgem is examining whether a subsidy could be introduced “to create a level playing field” in differing costs across payment type.

Currently, those on a prepayment meter pay more when topping up, compared to those who pay by direct debit.

Energy suppliers claim the higher tariffs are justified as those customers cost more to serve. But consumer groups argue that the increased costs aren’t fair on households with low incomes who may be building up energy debt.

According to charity Citizens Advice, it estimates that households on prepayment meters will pay £258 more for energy this winter than those on direct debit.

During the meeting with MPs at the Business, Energy and Industrial Strategy select committee yesterday, Ofgem CEO Jonathan Brearley said the regulator 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.”

Energy suppliers under fire

During the committee meeting, Brearley defended energy suppliers that have forced people on to prepayment meters during the cost-of-living crisis.

He told MPs: “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.”

It comes as suppliers faced a backlash after forcing struggling households onto prepayment meters, both physically and remotely via smart meters this winter.

This kind of energy meter needs to be topped up in advance to pay for energy – but this method of payment works out more expensive than paying for energy after it has been used.

Some of the most vulnerable energy customers have admitted to ‘self disconnecting’ from prepayment meters when they can’t afford to pay for energy. This means they have been left in the dark for days, and even weeks, according to Ofgem.

However, the problem doesn’t stop when they disconnect. Standing charges and daily fees rack up, meaning when people can afford to add credit, it is quickly swallowed by these built up background costs.

Ofgem last week opened a review looking at energy firms’ “checks and balances” when it comes to forced prepayment meter installations, and threatened to take legal action if they’ve not taken “due care”.

Related: Moving to an energy prepayment meter: Everything you need to know.