Ofgem's Letter to Suppliers, dated 14 November 2022, expressed "concern over remote switching of smart meters to prepayment mode" and set out suppliers' obligations under their conditions of licence1. Those obligations include identifying vulnerable customers, providing advance notice, and assessing the suitability of the arrangement after a switch has taken place1.
The letter followed a report published by Citizens Advice on 30 September 2022, which called for a "winter moratorium on moving customers to prepayment meters under warrant and on switching smart meters to prepay in an attempt to recover debt", to remain in place until April 20231. Under their licence agreements, suppliers can install prepayment meters or switch smart meters to prepayment mode for customers in arrears, having assessed customers' situations and provided notice1. Ofgem's published guidance states that a prepayment meter can only be force-fitted by warrant after a supplier has taken all reasonable steps to agree payment, and that it should be a last resort to avoid disconnecting supply1. Suppliers cannot force-fit a prepayment meter under warrant for people in very vulnerable situations who do not want one, or charge them for warrant costs on debts, and cannot use warrants on people who would find the experience very traumatic; warrant charges for debts are capped at £150 for everyone else1.
In 2020 Ofgem reported that there were 4.3 million electricity and 3.4 million gas prepayment meter customers1. It said its data showed that 1 in 7 customers self-disconnected during 2019, and that more recent data from Citizens Advice showed these numbers could be higher1. According to the Citizens Advice cost of living dashboard, the number of people it had seen in 2022 up to October who were unable to top up their prepayment meter was more than for the whole of the previous five years combined, and the number it had seen having prepayment meters installed for debt was between 700 and 900 per month in nearly every month since November 2020, up from 400 to 500 in most months in the previous three years1.
On price, the default tariff cap for 1 April 2022 to 30 September 2022 was set at a rate whereby an average dual fuel customer paying by direct debit would pay £1,971 per year, and a prepayment customer £2,0171. On 26 August 2022 Ofgem announced the cap would increase from 1 October 2022 to £3,549 for an average dual fuel customer paying by direct debit, and to £3,608 for a customer paying by prepayment meter1. The Energy Price Guarantee, announced by the Government on 8 September 2022 and implemented from 1 October 2022 to 31 March 2023, superseded the default tariff cap1. Under it, prepayment customers pay a lower unit price for electricity than direct debit customers but a higher unit price for gas, and higher standing charges than all other payment methods1. The published averages for October to December 2022 are set out below.
| Payment method | Electricity standing charge (pence per day) | Gas standing charge (pence per day) | Dual fuel standing charge (pence per day) |
|---|---|---|---|
| Direct debit | 46.4 | 28.5 | 74.9 |
| Standard credit | 52.4 | 33.5 | 85.9 |
| Prepayment meter | 51.4 | 37.5 | 88.9 |
Why it matters for households
A remote switch to prepayment mode changes how a home pays for energy: credit is bought before use rather than billed afterwards, and the meter can cut out when credit runs out. That is the point at which self-disconnection occurs, which happens when a consumer does not have enough money to top up or does not realise credit is running out1. Ofgem has said that around half of those who self-disconnect appear to experience a negative impact, which could be physical, such as living in a cold home, or emotional, including financial distress, with households including children or the elderly generally more affected1. The obligations set out in the letter bear on whether a household is identified as vulnerable before a switch, told in advance, and reviewed afterwards. The standing charge figures above show prepayment customers paying more per day than direct debit customers for both fuels under the Energy Price Guarantee, which affects the running cost of a home regardless of how much energy it uses.
What happens next
A debate on self-disconnection of prepayment meters was scheduled in the Commons Chamber for Thursday 15 December 2022, chosen by the Backbench Business Committee and opened by Anne McLaughlin MP1. Anne McLaughlin has introduced a Private Members' Bill on Pre-payment Meters (Self-disconnection) under the Ten Minute Rule; it was read a first time on 19 October 2022 and is due for Second Reading on Friday 24 March 20231.
Sources1 cited
- Subject:, researchbriefings.files.parliament.uk