Ofgem’s ‘failure to prevent prepay overcharging’

According to official figures, npower, British Gas, E.ON, SSE and Scottish Power all charged prepay customers more than the average cost of supplying meters – even though households with prepay meters only have an average income of £16,000.

Ofgem is to finish consulting on the new regulations it hopes will stop energy firms from charging prepay customers more for their gas and electricity than the figure justified by the extra cost to the supplier of providing a meter.

Ofgem said its purpose in introducing the changes to the regulations was to ‘better reflect…the EU directives and to address the detriment caused to consumers.’

Under the two directives, member states had to ensure that any difference in terms and conditions reflected ‘the costs to the supplier of the different payment systems’.

However, Ofgem, failed to ensure that all extra charges to prepay customers were purely cost reflective – with some prepay meter customers being charged up to £500 more than those paying by online direct debits. 

Many prepay meter users are classed as vulnerable customers, such as single parent families. Even though they pay for their fuel upfront, the big energy firms have frequently charged them more in recent years than any other customer group.

The Federation believes the overcharging of prepay customers is the inevitable result of a lack of effective regulation of the UK energy market, which is the most deregulated in Europe.

During the last 12 months, the prepayment meter premium has either been eliminated by the energy firms or reduced, with the maximum excess charge now standing at £39 over quarterly bills. However, Ofgem’s new rules would still allow the energy firms to charge prepay meter customers more for their fuel – if it was cost reflective.

So, the Federation believes that when Ofgem introduces the new rules it should go further than the EU directives and compel the firms to equalise prepay tariffs with those for quarterly bills.

Federation chief executive David Orr said: “It is an absolute scandal that Ofgem allowed energy firms to overcharge customers, and potentially breach EU rules for so many years.

“Ofgem has been asleep on the job, and it must urgently start defending the rights of ordinary people, instead of protecting the profits of big business.

“As a way of compensating prepay customers for the historic overcharging, Ofgem has a moral duty to go beyond the EU directives, and force the energy companies to equalise prepay meter prices with those for quarterly bills –

“Some companies, including Npower, E.ON and Scottish Power, have already proved that energy firms can absorb the additional costs rather than passing them on to their poorest customers, and Ofgem must outlaw the practice of discriminating against prepay meter users once and for all.”

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