Business

Why the problem of prepayment meters won’t go away for vulnerable energy customers

One thing the energy industry agrees on in theory – if not, it turns out, in practice – is that forcing prepayment meters on vulnerable customers is unacceptable. 

The widespread revulsion at British Gas debt collectors forcing entry to the homes of families is deserved and universal.

Less clear-cut is what to do about the underlying cause.

The industry calls it the “affordability crisis” but those facing the reality know it simply as poverty.

Forced installation of prepayment meters (PPMs) is a miserable practice that, until the energy crisis, existed at the margins, affecting only the poorest or most reluctant of bill payers.

The explosion in energy prices has pushed it closer to the mainstream.

PPMs are supposed to be a last-resort in response to a challenge that has always faced utility providers; what to do about those households who cannot or will not pay their bills, and who continue to run up unsustainable debt?

Forty years ago, when gas and electricity meters were commonplace and tampering was a criminal, occasionally fatal, offence, affordability was self-regulating. If you did not have 50p to feed the meter the lights stayed off.

In the age of near universal connection the responsibility for balancing ability and willingness to pay, and the right to essential utilities, lies with the energy companies themselves.

It’s an issue the regulator Ofgem has grappled with since its inception.

An ongoing issue for Ofgem

In 2009 it asked suppliers not to disconnect pensioners or any home with under-18s in the coldest months between October and March, and to reconnect anyone inadvertently cut off within 24 hours.

In the last decade PPMs have been the mechanism for managing debt. They are supposed to prevent customers from going deeper into arrears by requiring them to pay upfront with payment cards or emergency credit from suppliers.

In practice they are a digital version of the old coin meters. Those who cannot pay end up self-disconnecting.

Read more:
British Gas prepayment allegations – what you need to know
How do prepayment meters work and what are the rules?

Ofgem’s licence conditions have banned forced installation for vulnerable customers since 2018, and “suppliers must not disconnect certain vulnerable customers during the winter, or disconnect anybody whose debt the supplier has not taken all reasonable steps to recover first by using a PPM”.

That was plainly not the case in the British Gas examples highlighted by The Times, but it should be said even Ofgem believes PPMs have a place.

Support for prepay meters

Its chief executive Jonathan Brearley told MPs this week they were a reasonable recourse for customers who can pay but will not.

Underlying that is the reasonable assumption that suppliers should get paid, and that they have a responsibility to ensure customers do not run up unsustainable debts.

The practical challenge of the current crisis is straining those principles.

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10:07

The boss of British Gas’ owner, Centrica, has said

The energy industry and charities estimate up to 40% of households are spending more than 10% of their income on energy.

Ofgem’s own figures show close to one million people are in arrears on electricity payments and nearly 800,000 for gas, with no agreed plan to manage debt reduction.

The least well-off customers are routinely offered payment plans or emergency credit, around half of which is never repaid.

Retail suppliers privately say they cannot afford to offer such support on the scale that may currently be required.

Industry sources say the collective debt book is thought to run to around £2.5bn – around £2bn of which is considered bad debt.

The week that Shell announced profits of more than £32bn is a tough one in which to plead poverty, but the retail industry is separate from energy production, with regulated prices that have seen almost 30 companies forced out of business in the last 18 months.

A watershed moment for those in the market to reconsider?

That’s why, with wholesale prices falling, suppliers are calling on government to cancel a scheduled reduction in energy support that will increase prices, and distress to the poorest households, from April.

There’s little question that for those on the receiving end, forced installation of a PPM is a dehumanising bureaucratic device.

It’s possible too that anyone who runs up unsustainable debts heating their home satisfies a definition of vulnerability.

The industry-wide pause on using court warrants gives everyone with a stake in the market a chance to reconsider and may prove a watershed but there are no easy options or solutions.

Ofgem has recently argued for a subsidised social tariff, offering cheaper rates to defined vulnerable groups. The review of PPMs may also ask if it is ever okay to allow someone to be cut off.

Water companies cannot turn off the taps, but if the same applied to energy, how can commercial supply be sustainable in a medium term of elevated energy costs?

A meaningful review will have to examine the court process, which since the cost of living crisis has seen magistrates asked to approve hundred of warrants at a time and take suppliers at their word that due diligence has been done.

Unless government legislates to remove suppliers right to access customers homes the court process will be central to reform.

Centrica chief executive Chris O’Shea said this week that the plight of his energy customers was symptomatic of a wider affordability crisis for basic essentials, including housing.

As the man ultimately responsible for British Gas’s actions he may not be the most sympathetic witness, and the answer can never be to drill the locks of the disabled, but he had a point.

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