On 21 February 2023, Ofgem published a call for evidence which seeks views on the use of prepayment metering (“PPM”). This call for evidence comes at a time of wider investigation into potential breaches by suppliers of their electricity supply licence conditions with respect to PPMs.
Suppliers’ Obligations on PPM
Circumstances in which a PPM can be installed
Standard Licence Conditions (“SLC”) 27 and 28 stipulate PPMs should only be installed where it is “safe and reasonably practicable”. Ofgem’s guidance on switching a customer to PPM further highlights circumstances where a customer should not be on PPM (which largely relate to mental and physical disabilities that may prevent the customer from using a PPM). To protect consumers from forced PPM installations, especially for people with existing mental and physical vulnerabilities, SLC28B requires a warrant before a PPM is installed.
Historically financial vulnerabilities have not been considered in this category, Ofgem notes that including protections to financially vulnerable customers (such as an increase in unpaid energy bills which would have to be mutualised) may not be practical given that suppliers may not have the information necessary to assess financial vulnerability.
Separately, given recent press input about behaviour of third party installations, Ofgem is considering to accompany the SLC13 obligations. SLC 13 specifies that suppliers must ensure that representatives visiting a household to install PPM are deemed a “fit and proper person” to enter the household and perform their function appropriately
Actions: Respond by 14 March
Ofgem has suggested potential actions that could be taken to further support PPM customers. These are:
1. Load Limiting
Load limiting is the process by which a supplier can set a customer’s smart meter (needs to be SMETS 2) to limit the amount of energy that can be drawn. Once a consumer is out of credit, limited electricity for basic needs would remain available and only once a customer has exceeded the maximum amount of energy that can be drawn would the meter disable (i.e. electricity supply would stop). Ofgem’s view is that this limits the accumulation of debt whilst preserving a basic level of electricity.
Load limiting was previously considered by Ofgem in 2012, but decided against implementation due to the potential for ‘disconnection by back door’ and the lack of supplier interest. Ofgem asks again whether load limiting should be explored.
2. PPM smart meters
Ofgem believes that smart meter PPMs offer several significant advantages over traditional PPM installations given that smart meters are easier to top up and are clearer when customer’s credit is running low. Suppliers benefit from smart meters as they can be remotely switched on and off PPM mode thereby reducing costs for a supplier and limiting their debt exposure.
Whilst there is an obligation on suppliers already, Ofgem seeks suggestions (for example, restrictions on warrant costs recovery for traditional PPM installations) for how to further increase the PPM smart meter roll out.
3. PPM tariff levels
The price cap tariff for the average dual fuel energy PPM customer is generally higher than for those paying by direct debit. Given the high share of PPM customers that are low income, Ofgem seeks views on whether and if so, how to reduce or eliminate the cost gap.
4. Prepayment Metering Interface Device
Prepayment metering interface devices (“PPMID”) are devices that act as a two-way version of an in-home display. PPMIDS are not currently a standard provision for PPM customers but Ofgem believes they would give consumers greater displaying control by information such as consumption and credit levels. Ofgem queries whether the provision of PPMIDs to consumers should be a universal position and how the costs may be recovered.
Next Steps and Comment
The recent energy price volatility has exposed the inherent disadvantage of customers on PPMs. Given that PPMs are clearly installed mainly in homes of customers struggling to make payments, the protection of customers as well as protection of suppliers against significant debt exposure warrant review. Given the shortcomings of the current system, we would expect changes to the current regime.
For example, we would expect that warrants for entry into consumers’ houses to install PPM will no longer be issued en masse and that suppliers will need to be able to demonstrate that they have seriously considered the needs of vulnerable consumers.
The call for evidence closed on 7 March 2023 and responses to suggested actions close on 14 March 2023. Ofgem’s findings will be published in late March and there will then be a period of sample testing across suppliers up until the end of March 2023 with further on-site sample testing no earlier than the week commencing 17 April 2023.