Lack of compensation for PPM ban ‘disappointing’

Energy UK has criticised Ofgem for not yet introducing a compensation mechanism for suppliers to recover debt accumulated from the ban on forced prepayment meter (PPM) installations.

The trade association says that it is “disappointing that a process for suppliers to recover bad debt […] is yet to be put in place”, within its response to Ofgem’s consultation on involuntary PPM installs.

Energy UK has recently estimated that the PPM moratorium is adding around £30 million a month to the sector’s bad debt levels. The moratorium was drawn up in early February after an undercover Times investigation showed PPMs being forced on vulnerable British Gas customers.

Ofgem is currently consulting on the impact of the pause of forced PPM installations. In particular, the regulator is considering tweaking bad debt allowances to accommodate for revenues lost during the pause.

In response to Energy UK’s concerns, an Ofgem spokesperson said: “Earlier this year, before the moratorium was in place, there was an expectation that banning forced PPM installations would have a much bigger effect on bad debt levels than what has transpired so far.

“If you break down the £30 million a month estimate that Energy UK has provided, that works out at about £15 per customer, whereas industry initially thought that it could be £30 or more per customer.

“The fact that the additional levels of bad debt from the moratorium are at the lower level of original estimates probably means that the fear over ‘can pay but won’t pay’ behaviour hasn’t materialised so far. Of course we continue to monitor this situation carefully.”

The energy regulator has also outlined a new code of practice for energy suppliers around force-fitting of PPMs.

All suppliers have signed up to the voluntary code of practice, which outlines more stringent processes before a forced PPM install can be carried out. It also means that certain groups are exempt from forced installs, including those aged over 85 and people with severe health issues.

Despite issuing the new code of practice, suppliers are still prohibited from applying for warrants for forced PPM installations until Ofgem issues its initial findings from the market compliance review.

Within its consultation response, Energy UK raises concerns about some of the code’s terms and warns that it could lead to “unintended consequences”.

In particular, Energy UK warns against proposals to broaden the scope of the ‘Do Not Install’ (DNI) category.

Its response adds: “‘Do Not Install’ (DNI) category is a generalisation for customer clarity and consistency to capture those that are unlikely to be able to manage the operation of a prepayment meter safely.

“However, if it is used too broadly it will include more households inappropriately. For example, households with under 5s that are not financially vulnerable or in a vulnerable circumstance would not be likely to find a PPM unsafe or impractical.”

It continues: “While we do see a need for careful consideration of household risk where under-5s and over-85s are present, we believe this was already provided by the original code through the precautionary principle in the ‘Further Assessment Needed’ category.”

Consequently, Energy UK says that “no changes should be made to the voluntary code as previously agreed as the code and its effectiveness has yet to be trialled or implemented”.

It adds: “The opportunity to trial changes would allow the opportunity to test for any unintended consequences and should be considered.”

Fears around mounting bad debt have been growing over the past few months, with Energy UK also recently estimating that debt in the retail energy sector has risen by more than £1 billion in the last year, taking the total estimated debt within the sector to between £3.5 billion and £3.6 billion.

While the impact of the moratorium has been less than originally feared, British Gas chief executive Chris O’Shea warned that all households face higher energy bills if suppliers are unable to prevent struggling customers from running up large debts.

In an interview with the Financial Times, O’Shea said: “It’s all very well saying, we are going to stop X, Y and Z . . . [but] ultimately if you have people in categories where you can’t install a prepayment meter, then the general population is paying for their energy.”

He added: “If bad debts go up because of this, Ofgem will have to increase the price [suppliers can charge].”

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