Ofgem wants fees scrapped for prepaid energy meters

Currently around 15% of all energy consumers in Great Britain use prepayment meters (PPM), where you pay for your energy on a pay-as-you-go basis. But while they help with budgeting, they're often used by the poorest in society and cost more than standard gas and electricity credit meters.

But energy regulator Ofgem has today revealed it's working with suppliers to get them to remove costs of up to £180 to install or remove meters in order to enable easier switching. See our Cheap Prepaid Gas and Electricity guide for ways to switch and save.

At this stage, Ofgem is asking providers to comply voluntarily. But the regulator says that if suppliers don't remove charges, it will launch a consultation on the issue this autumn, which could ultimately result in it altering supplier's licence terms and forcing them to ditch the fees.

The move follows a review of all suppliers that offer PPMs, which found that around 40% of energy companies charge for installation and 5% charge for removal.

The review also revealed that around 60% of suppliers charge security deposits when customers switch from PPMs to standard credit or direct debit meters, which can add an average £211 to consumers' bills. Suppliers do this in order to cover costs if customers fall into debt.

Ofgem will also now consult on whether to put an end to this practice or whether clearer guidelines should be provided for suppliers on how and when they can charge this.

How much do suppliers charge to install or remove PPMs?

Co-operative Energy was found by Ofgem to be the priciest provider, charging up to £108.15 to install or remove an electricity PPM depending on the type of meter and £69.02 to install or remove a gas PPM – a combined charge of £177.17 for both services.

It was followed by Ecotricity, which charges up to £82.26 to install or remove an electricity PPM and £87.09 for gas – a combined charge of £169.35 to install or remove both.

In comparison, British Gas, EDF Energy, E.on, First Utility, Scottish Power, SSE and Utilita were found not to charge any fees for the installation or removal fee of PPMs.

Ofgem adds that it's also sent its finding to the Competitions and Markets Authority, which is currently investigating the energy industry, and is expected to announce its findings this summer.

Ofgem calls for prepaid energy meter fees to be scrapped

What are prepayment meters and how do they work?

Prepayment meters are electricity and gas meters that let you pay for your energy on a pay-as-you-go basis. About 11 million UK homes use them, according to Citizens Advice.

You top them up via a key or card, which you can credit at newsagents, post offices, garages, or sometimes online.

'Some providers are effectively trapping customers'

Martin Lewis, founder and editor of MoneySavingExpert.com, says: "Prepayment meter users include many of the most vulnerable in society – yet without doubt they get a raw deal from energy firms. "Someone with typical usage on a prepayment meter with the big six pays £1,240 a year. That's just over £80 more expensive than someone on the same usage paying by direct debit. 

"Yet the real issue is the lack of competition out there. A switcher sticking with a prepayment tariff could only cut their bill down to £1,168, compared with the huge savings those on direct debit can make – there the cheapest tariffs would cost less than £900 a year.  "So Ofgem is quite right to investigate the fact that some providers are effectively trapping people into costly, uncompetitive tariffs by demanding hefty charges to switch to normal, billed meters, which are far cheaper."

Join our free Cheap Energy Club to see if you could save by switching prepay supplier. Alternatively, consider switching to a standard meter for cheaper energy. But bear in mind the following:

• You may be credit-checked: Providers usually fit prepay meters as they think you're a credit risk. If it was fitted because of payment problems, you'll need to prove your credit-worthiness. Any external credit checks via credit agencies will appear on your credit file and may affect future applications.

• A standard meter might cost: Some providers charge up to £60 to swap to a standard credit meter so this means finding cash in the short-term. But switching can save you up to £250/year, or even more if you've never switched, so your savings should offset this cost.

• You may be charged for the prepay meter to be removed: As outlined above, the provider may charge you for the meter if you switch away to a standard meter option.

• It's easier to get into fuel debt: Prepayment meters have the advantage of budgeting. You know what you're spending, when you're spending, and it's an incentive to keep energy usage down.

'Charges and costs for using PPM fall on those least able to afford them'

Philip Cullum, partner at Ofgem, says: "Ofgem is concerned that charges and costs for using a PPM fall on those least able to afford them. That's why we want to remove barriers, deliver greater protections and offer more choice for prepayment customers to ensure they're able to find the best possible deals.

"We are calling on suppliers to work with us to abolish charges as soon as possible. There are already good savings to be found in the energy market at the moment and consumers can save up to £300 when switching from PPM to direct debit."