Ofgem launch consultation into involuntary PPM (Pre Payment-Meter) 

By Jessica Taplin, British Gas Energy Trust CEO  

Energy regulator Ofgem have launched (June 28th) a statutory consultation to make prepayment-meter (PPM) protections mandatory as part of suppliers’ license conditions.

The regulator has proposed that these new measures will strengthen rules protecting PPM customers. This is following on from all energy suppliers agreeing to a voluntary Code of Practice earlier this year following media reports which raised questions about the conduct of PPM installations through the warrant process. 

The energy regulator has also proposed a £13 allowance within the PPM price cap – this allowance would enable energy suppliers to recover bad debts associated with Additional Support Credit (ASC), which they are obligated to provide to PPM customers in need – Ofgem noted that ASC: “helps some of the most vulnerable PPM customers, by providing them with additional respite, when they are struggling the most, and prevents them from going off supply.” 

But does this get to the root of the issue? Is the issue PPMs or what lies at the heart of the crisis facing families, affordability? 

There are two alternatives to PPM. The first is credit accounts, a consumer credit agreement is a regulated credit agreement within the meaning of the Consumer Credit Act 1974,  both “the OFT’s Irresponsible Lending Guidance and the FCA’s Consumer Credit Sourcebook (CONC) note that regulators require an assessment of affordability which was proportionate – to determine if a prospective borrower would be able to repay their loan” Source Unaffordable lending (financial-ombudsman.org.uk).  The requirement in the Consumer Credit sourcebook (CONC) is for companies to assess the customer’s creditworthiness. A key element of this is the customer’s ability to make repayments as they fall due (or within a reasonable period). (Source The CONC Sourcebook: An Overview (rbcompliance.co.uk) 

Many of the people with Pre Payment-Meters might not pass the creditworthiness criteria, as we know from the growth in negative budgets being seen by the Money & Energy advisors we fund across England, Scotland and Wales. A negative budget is where a debt adviser assesses that a client cannot meet their living costs. To do that, they use a tool called the Standard Financial Statement (SFS). The SFS is agreed between debt advice and financial service providers. In an article for the BBC on the 28th April Citizen’s Advice Director of policy Matt Upton said 51% of those it sees with debt issues have negative budgets, compared with 36% before the pandemic, with no sign of that figure coming down. (source Households in debt time-bomb, says Citizens Advice – BBC News) 

So what is the next option? Paying by cash or cheque may seem a good idea, but with these accounts households are sent a bill every three months. There are three challenges a) you are unlikely to know what the bill is until it arrives, unless you use a smart meter b) unless money is put aside each week or month, and left untouched, there is very real risk that when the bill arrives it is a shock there is simply no money left to pay for it c) many of the people we support are private renters or in social housing. Ian McDermott CEO of Peabody wrote in an article in February “As a major provider of social housing, we know that many of our customers prefer to have prepayment meters because they say they are more convenient for them personally. The issue is not with prepayment itself. It’s the fact that it costs more and that there is an increasing element of compulsion” (source Inside Housing – Comment – Pre-payment meters should be the cheapest, not the most expensive, way to pay for energy) 

The Ofgem consultation is open, and it will be interesting to read the views aired when it is published. Energy providers are commercial entities that owe a duty to their shareholders, can they, should they be forced to continue to provide energy or credit to a defaulting customer? Who then pays for that customers’ energy; are there certain circumstances which would warrant installs? What happens to the debt? The questions grow with each question asked. 

Since before privatisation prepayment meters have been a way to help manage debts and without prepayment meters there is an argument that bad debt will increase significantly – ultimately this gets paid for by everyone else.

Last year the British Gas Energy Trust made a total of £16m in debt right off grants to support fuel poor customers, considering this one could safely extrapolate to say that the likely debt impacts across all suppliers would likely be in the hundreds of millions. 

So, in short, it all comes down to affordability – energy companies need to ensure vulnerable customers receive support. But I would pose the question, can changes to prepayment meter processes alone, address the underlying problems around affordability for many customers? Alongside PPM reform, it is also vital to look at the wider issue of long-term affordability of energy. 

The Government has confirmed they are looking carefully at long term energy support, including potentially a social tariff, from April 2024. This is welcome news for those on the lowest incomes but there are some tough policy choices about how this is paid for. 

For more details or to respond to the Ofgem PPM consultation go to Statutory Consultation – Involuntary PPM | Ofgem