Energy regulator Ofgem (Office of Gas and Electricity Markets) has warned that consumers are being overcharged by a quarter of a billion pound each year on prepay meters and has called on energy suppliers to do more to correct the anomaly.
Prepay meters are often the chosen tariff by those in the most vulnerable financial positions as they allow them to budget more strictly and avoid any large unexpected expenses. These may be people with poor credit ratings or who have had difficulties due to being in debt or being declared bankrupt.
However, research has shown that the average overspend by British Gas customers with prepay meters is £220. Customers of Npower are overpaying by an average of £160 more than they need to while Eon customers are shelling out £71 more than they need to for their energy each year.
These three companies form half of the so-called Big Six of energy suppliers in the UK and the collective overspends amount to £250 million each year.
According to rules set out by regulators the average overspend for customers who are on a prepay meter must not exceed £63.
The cost of running prepay meters is higher for the energy companies than conventional meters and that is often the reason why they charge more for prepay meters.
However, given the fact that those who use prepay meters are often those in the most difficult of financial circumstances, the regulator and consumer groups argue that more must be done to ensure they aren’t paying exorbitant rates for their gas and electricity.
Energy Companies Breaking Rule Set
The research which uncovered the scale of overcharging by three of the top six energy suppliers were conducted by Bulb, a renewable energy supplier.
They argue that British Gas, Npower, and Eon are breaking rule set out by the Competition and Markets Authority by overcharging customers who use prepay meters.
Chief executive of Bulb Hayden Wood said:
“There’s no good reason why these suppliers are charging prepay customers so much more for their energy.”
Industry regulator Ofgem is calling on the energy suppliers themselves to do more to address the disparity in what they charge depending on the type of meter a customer uses.
British Gas customers who have traditional meters installed can expect to pay around £965 on average each year on the cheapest tariff. When you compare this with the cheapest tariff for a prepay meter, the difference is stark. Those households on the cheapest prepay tariff care paying an average of £1241 a year, which is a difference of around £286 a year.
A Npower, the cheapest prepay tariff sees customers pay an average of £222 more then the standard tariff and with Eon customers are shelling out £113 more on prepay tariff than the standard.
Given that those on a prepay tariff are often those with the tightest budgets, regulators and consumer groups argue that not only are those three energy suppliers in breach of the rules, they are heaping the hardship on their most vulnerable customers.