What is a prepayment meter? Ofgem announcement explained - why do they make bills more expensive

One of the key themes of the cost of living crisis has been rising gas and electricity bills.

While they look likely to come down over the next few months, energy costs are actually set to rise for many households from April. With the number of people struggling to pay their bills having increased over the last 12 months, energy companies forced 94,000 homes to convert to prepayment meters, official statistics show. Citizens Advice estimates a total of 600,000 people were moved onto prepayment meters in 2022.

This practice came under the spotlight earlier in 2023 after an undercover investigation by The Times found British Gas subcontractors were ‘breaking into’ vulnerable people’s homes to ‘force-fit’ prepay meters. Energy regulator Ofgem has now announced tougher rules suppliers have to abide by before they can force a home to switch to a prepay meter.

It comes after 3.2 million homes ran out of credit on their prepayment meters during 2022, according to Citizens Advice. The public body also found 18% of homes that pay for their energy in advance spent two days or more without gas or electricity.

So, what are prepayment meters - and why do millions of UK households have them?

What are prepayment meters?

As their name suggests, prepayment energy meters involve people paying for their electricity and gas in advance of using it to heat and power their homes.

These meters usually come with a key or a card that the homeowner has to take to a shop or Post Office offering a PayPoint or PayZone service. Some suppliers now allow people to top their meters up online. Once money has been loaded onto the card, it is used to pay for energy use and standing charges.

Once the credit that has been put into the meter has run out, the household it is providing energy to will be cut off from their energy supply. Some meters do offer emergency credit to keep the lights on, but it is usually only a small amount of money.

You can get a smart meter if you prepay for your energy. Its display will not only show you how much energy you use, but it will also tell you how much credit you have or can access, and whether you’re in any debt.

Why do some homes have prepayment meters?

According to consumer watchdog Which?, around four million British households use a prepayment meter. They are also commonly found in Northern Irish homes.

While some homes use them for convenience - for example, they are used by landlords to protect themselves from their tenants’ unpaid bills - many have them because they are in debt with their energy supplier, and have been forced to change the way they pay for gas and electricity. It means many prepayment meter users tend to be vulnerable people.

Suppliers are meant to work with people who struggle to pay their bills, with changing their meter only one of the options at their disposal. But the evidence suggests they are forcing thousands of people to get prepayment meters by securing court warrants allowing them to access people’s homes.

Citizens Advice estimates 600,000 people were moved onto prepayment meters in 2022. It estimated a further 160,000 people could have been moved onto one by the end of last winter.

The world of ‘force-fitting’ was thrust into the open by The Times on 2 February. A report it released based on an undercover investigation showed agents working on behalf of major supplier British Gas appearing to “break into” the homes of people who had fallen behind on energy payments in order to install prepayment meters - even though some of the customers were known to have what the newspaper called “extreme vulnerabilites”.

British Gas immediately suspended “all warrant activity”, with its parent company Centrica launching its own internal investigation into the allegations revealed by The Times. Centrica CEO Chris O’Shea said the allegations were “unacceptable” and that he was “extremely disappointed” with what had occurred. He insisted his company’s priority was “protecting vulnerable customers”.

Ofgem launched its own investigation. It resulted in the introduction of new rules, which require suppliers to make at least 10 attempts through different communications mediums to contact customers before they are able to force them to move to a prepay meter. They also have to try to visit the homes they want to move to the meter before any force-fitting can take place - although, if no one’s in, they can go ahead with the installation.

The supplier also has to wait at least three months, with the billpayer owing more than £200 per fuel type before a force-fitting can occur. Over-85s, people with serious health conditions and other vulnerable households, including those who need drugs that have to be refrigerated, are exempt from all force-fittings.

Are prepayment meters more expensive?

Prepayment meters have traditionally been more expensive to run than other types of meter. They prevent households from accessing the cheapest energy tariffs - fixed-rate deals (when normal market conditions apply) - and also carry an extra fee suppliers charge to run them.

There is also a time cost for many prepayment meter users, given you have to travel to get to a PayPoint or PayZone. For rural households, this could mean having to spend money on public transport or petrol to get to a shop to top up your card.

In the Spring Budget, Chancellor Jeremy Hunt called for suppliers to end the “prepayment penalty”, that sees them charge additional fees to run this type of meter. It means that from July, households who pay as they go will pay slightly less for their gas and electricity, with their charges in line with direct debit billpayers.

At the end of the March 2023, British Gas brought the change in early for customers who have the meters for both electricity and gas. It said the average customer would save £59 a year, with a saving of £15 coming as a result of it implementing the policy three months ahead of schedule.