Prepayment meters: the industry talks back

The Competition and Markets Authority (CMA) has set its sights on prepayment meters (PPM), concerned that poorer customers are being inadvertently penalised. The competition watchdog set out some provisional reforms for PPM in December – but what did the market make of them? Utility Week has complied the key points from the industry responses, published last month by the CMA.

1.    Facilitating the sharing of data relating to prepayment meter customers

This remedy proposed requiring suppliers to submit details including name, address and telephone number of non-smart PPM customers. The details would be entered onto a cloud database. Other suppliers would then be able to access these details and compete for customers.

The big six were quick to dismiss this remedy claiming it would create disengagement by overwhelming customers with marketing, and also flagging up privacy issues. Citizens Advice agreed the remedy could potentially “erode customers’ trust”.

Independent suppliers such as Ovo expressed “grave concerns” about the remedy and First Utility agreed it would not be a good idea.

Supporters included Ecotricity and Utilita, which think that with careful management this remedy could be beneficial to competition.

2. Removing the barriers that prepayment customers without debt face when attempting to switch to a credit meter

a) Prohibiting the charge of a security deposit

This remedy would prevent suppliers from requiring a deposit, which on average costs about £150, when installing a new credit meter. This fee is usually applied when a prepayment customer with little or poor credit history wants to move away from a PPM.

The jury was out on this remedy with a clear divide between the big six. SSE said the remedy was “disproportionate and unlikely to be effective”, with British Gas and Npower on similar ground.  

EDF, however, welcomed the suggestion and Eon agreed, on the proviso it could retain the right to refuse requests from existing prepayment customers to have a credit meter installed where justified.

b) Suppliers are prohibited from charging customers upfront for the cost of a new meter when switching away from prepayment

The CMA suggests that prohibiting suppliers from demanding a lump sum from customers to cover the cost of a new meter would increase incentives for customers to switch. The cost could be spread across a period of time.

Suppliers including Npower and Scottish Power suggested versions of this remedy that included allowing suppliers to recover the costs over a reasonable timescale.         

c) Require suppliers to provide annual notifications to prepayment meter customers setting out their right to switch and highlighting any potential restrictions or charges that may be payable

Linked to sharing of data and access to information this proposal would mean that suppliers would send more information out to customers explaining how they can switch.

All of the big six give this remedy the nod but Ecotricity and Good Energy were less positive, suggesting it served no purpose as customers are already aware that they can switch.

Several suppliers took issue with the premise of the group of remedies that aim to facilitate switching away from PPM. SSE said there is “no evidence that PPM customers face barriers to switching when switching to credit meters,” and Eon and Npower both said that keeping customers on PPM where appropriate should be the preferred route.

3.    Reform the protocol for assignment of debt on prepayment meters
 
The CMA found that customers in debt or with a history of debt were finding it more difficult to switch and so set out a remedy which aims to facilitate switching for indebted PPM customers.  

This remedy attracted overwhelming agreement. Nine suppliers have already made changes to resolve the issue of prepayment debt protocol following a request from Ofgem in 2014. The changes are collectively known as the Point of Acquisition (PoA) model.

SSE explained how the PoA model has already transformed the switching process for indebted customers and renders this remedy unnecessary. SSE said: “It will be superseded by existing and imminent market developments or, worse, impede the delivery of positive changes already in train.”

4.    A transitional ‘safeguard price cap’ for domestic prepayment customers

The safeguard price cap faced strong opposition from all sides. British Gas argued that the remedy was “fundamentally incompatible with the CMA’s principles” and stressed that setting a safeguard tariff at an appropriate level would be difficult.

EDF, Eon, Npower and Scottish Power agreed that even on a transitional basis, it could have severe negative consequences.

Ofgem sided with the suppliers in its response, saying: “In our view, consumers’ interests are best protected by effective competition rather than price regulation.”

SSE dubbed it “an intrusive and retrograde measure”.