Energy firms can switch the meter type remotely, and the speed leaves little time for debt advisers to intervene. It also increases the chance of “inappropriate” conversions forced onto vulnerable people, Richard Lane of debt advice charity StepChange said.
Those affected will be forced to pay higher energy costs, while a larger number of prepayment meters is expected to lead to more “self disconnection” – a situation where households run out of energy entirely.
Consultancy Cornwall Insight predicts the cap on energy bills is expected to rise to £3,582.02 this October. In January, the cap is set to soar again to £4,266.48.
“Prepayment meters are the most costly method of paying for energy and consumers also have to pay a standing charge even when not using their energy,” Lane said.
“Suppliers can add debt repayments to the meter which can mean energy top-ups end up repaying debt rather than providing much needed energy.”
Smart meters track household energy use and have been touted as a way to improve energy efficiency and help customers track their spending.
But they also have a functionality allowing them to be changed into a prepayment meter, meaning a customer has to pay for energy before they use it. This is generally more expensive than monthly energy payments. Energy suppliers are able to switch customers onto prepayment when they fall into debt with the company, using prepayment as a way to recoup the debt.
Ordinarily, energy companies have to obtain a warrant from a court to enter a customer’s home and physically install a prepayment meter and last month the Big Issue revealed 187,000 such warrants have been granted in 2022 alone.
“[A] big concern is that consumers are not generally made aware of this functionality when they agree to take a smart meter,” Lane said.
“Energy suppliers should do more to highlight the potential negatives of smart meters when they are promoting them to their customers, including the potential loss of control over how they pay.”
According to Peter Smith of charity National Energy Action, energy companies are obliged to assess the vulnerability of a customer before they switch them to prepayment.
Yet automatic switches are not leaving ample time for adequate assessments, charities have warned.
“With energy prices soaring, our concern is that suppliers could push households with smart meters, who are not able to afford their bills, onto prepay mode at short notice and with less opportunity to seek advice,” Jane Tully, director of external affairs and partnerships at the Money Advice Trust said.
“This would leave people already in financial difficulty, paying more and at risk of self-disconnecting their supply,” she added.
EDF Energy said “changing the customers’ mode to pay as you go is a last resort and will only happen if the customer doesn’t engage with us to agree a solution,” adding: “We will always check the action is appropriate, including assessing signs of vulnerability that indicate pay as you go may not be suitable”.
A ScottishPower spokesperson also said that switching customers to prepayment only happens as a last resort to “prevent them falling into further debt”, as well as conducting vulnerability tests.
“We always contact customers to try to agree a payment plan first,” they added.
Debt and energy charities are now calling on Ofgem to take action ahead of winter to protect customers from forced switches to prepayment meters.
“We’re calling for a moratorium on PPM installations due to debt during this crisis, particularly for consumers where there is clear vulnerability or low income. We are also calling for Ofgem to closely monitor supplier activity in relation to debt repayment,” Lane said.
Jane Tully said: “Ofgem needs to do more to protect households struggling with high energy prices, including working with suppliers to temporarily halt disconnections and forced installation of prepayment meters, which should also prevent forced switching of smart meters over to prepayment mode.
“Anyone worried about their finances should contact a free debt advice service like National Debtline.”
When asked by the Big Issue what action Ofgem would take to prevent more switchovers, a spokesperson indicated that no further action would be taken, though admitted that a higher rate of self-disconnection has already been observed.
A spokesperson commented: “Ofgem’s priority is to protect consumers and we know that people are currently under huge pressure as bills continue to rise. Suppliers must treat their customers in a fair and reasonable manner. This includes proactively making contact to identify if a customer is in payment difficulty, assessing repayments on a customer’s ability to pay and ensuring debt management activities are done in a fair and reasonable way.
“We closely monitor compliance of this and take action when needed. We also regularly engage with suppliers, consumer groups and charities to ensure up to date and consistent messaging is given to consumers on the support that is available to them.
“Anyone struggling to pay their bills should speak to their supplier who is obliged to offer payment plans and direct customers to available support. Ofgem will ensure they provide this.”
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