Consumers overpaying for energy to the tune of £1.7bn a year on pre-paid electricity meters

Cap prepaid energy meters, competition authority urges

A cap on exorbitant rates being charged to energy customers on prepaid meters has been proposed by the Competition and Markets Authority (CMA) after the regulator said households are paying £1.7bn a year more than they should.

Such a cap is long overdue.

According to the CMA, the Big Six power companies, which make up most of the UK market, have frequently let customers using pre-paid meters remain on the most expensive default standard variable tariffs.

The result is that many customers are being overcharged more than £300 a year for their power.

The problem with pre-pay meters

Over four million households in the UK depend on pre-paid electrical meters to get power in their homes, with the majority of these being low-income homes.

The archaic pre-pay system involves customers going to a shop to purchase cardboard electricity tokens, which are then fed into a slot on an electricity meter, and they can then watch as the pounds drip away with every moment an electrical appliance is used.

As anyone who has used this method of electricity supply knows, it is horribly expensive, and when you run out of electricity late in the evening, it can be the case that you can’t get hold of a pre-paid card until the shop selling them re-opens in the morning. All the while you are in the dark with no heating, and the food in the freezer is defrosting.

Solutions

The CMA wants to see increased competition between energy suppliers to get these vulnerable customers onto cheaper tariffs.

It has proposed that energy regulator, Ofgem, keeps a database of customers that have been on a standard tariff for three years.

This database would then become available to other suppliers, allowing them to specifically target these customers.

The CMA’s Roger Witcomb, who lead the energy market investigation, said: “We have found that the six largest suppliers have learned to take many of their existing domestic customers – some 70% of whom are on ‘default’ standard variable tariffs – for granted, not just over prices, but with their service and quality.

“Yet in those parts of the retail markets where competition is working, customers are benefiting to the tune of hundreds of pounds a year by switching. We’re proposing a wide range of bold, innovative measures to enable competition to grow further across the market so that millions more households will benefit.”

Energy Secretary Amber Rudd said: “This is a wakeup call to the Big Six.

“Energy customers should get a fair deal from a market that works for them. That’s why we called for the biggest ever investigation into the energy market and won’t hesitate to take forward its recommendations.”

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