Energy News

‘Hard-up families’ overcharged £464million for energy

Tuesday 16 June, 2009

By becca.talbot@consumerchoices.co.uk

Brits using a prepayment meter to pay for their gas and electricity could have been overcharged by as much as £464million in the last three years, claims a housing group.

The National Housing Federation (NHF), the governing body for England’s housing associations, said millions of “hard-up families” who use prepayment meters were overcharged by £464million between 2006 and the end of last year.

The group criticised energy regulator Ofgem for failing to stop the “big six” energy suppliers from overcharging the customers.

Federation chief executive David Orr said: “It is an absolute scandal that Ofgem allowed energy firms to overcharge customers. 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.”

Figures from watchdog Consumer Focus have shown that households on prepayment meters typically pay more than customers who pay their energy bills by direct debit due to the costs of running payment facilities in local shops.

npower, British Gas, E.ON, Scottish & Southern Energy and Scottish Power all charged prepayment customers more than the average cost of £87 for supplying meters over the period.

However, the NHF believes the excess charges are breaching EU regulations introduced in 2004 under which energy suppliers are allowed to charge higher prices to prepayment households only if they reflect the costs involved.

NHF’s Orr added: “Some companies 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.”

The Federation said 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.

The group has called for greater awareness that prepayment customers can switch energy suppliers and greater clarity in tariffs so they know they can get a better deal.

A spokesman for Ofgem said: "Our Energy Supply Market Probe found that some energy customers were disadvantaged by paying unjustified premiums for their payment methods. The main energy suppliers responded late last year by removing some £96million from the charges paid by prepayment meter users."

"Our consultation on proposals for licence obligations to address unjustified price differentials has closed. Depending on Ofgem’s decision, and subject to further final statutory consultation, we aim to have new enforceable obligations in place in the summer."

At Ofgem’s request, suppliers have sped up their programmes to replace the 1.2 million token electricity meters, with most being replaced by the end of this year.

In the meantime, customer protection exists by way of an enforceable licence obligation, backed up by guidelines, which Ofgem put in place to make sure suppliers were resetting meters in a timely way to avoid unnecessary debt build up when prices increase.

Article updated 16.30

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