Prepayment meters: good or bad?

Author: 29/01/2015

Prepayment meters (PPMs) are a bit of a controversial topic. There are pros and cons to using them, although many of their typical consumers feel that they don’t have a choice in the matter. The common consensus among experts and analysts regarding PPMs is that they only offer the most expensive tariffs and those who are using them are the people that can least afford it. Energy suppliers say there is competition with prices, but Moneysupermarket says the cheapest tariff is from EDF Energy at £1,332 a year and the most expensive, from Scottish Power, is £1,368. Not much leeway there.

According to a study conducted by Consumer Focus Wales there are 8.8 million customers in Britain paying for their energy via PPMs. It also says that those people are among the poorest and most vulnerable. That’s certainly a problem when the additional cost pushes many into, or deeper into, fuel poverty.

Many PPMs are used as an alternative to disconnection, with many residents going without basic necessities like food in order to ensure their meter is topped up – or they will sacrifice heat and electricity (in effect, undertaking self-disconnection) to put food on the table. Those using PPMs have the added risk of being immediately disconnected if their meter is not topped up, as opposed to those using credit meters, who can work together with their supplier to manage debit. 16% of those on PPMs are self-disconnecting, voluntarily turning off their heat or electricity, in an effort to make their top-up last longer. That’s over 1 million people across the country voluntarily going without heat and electricity.

That said, there’s a certain amount of control that comes with using a PPM. Many using them will say that they enjoy having a stronger influence on use – created by being in control of when and how much they top-up. The problem is that even though there is a perceived sense of control, PPMs create other factors which make things more difficult, often deceptively. For example, when it’s time to top, the resident has to pop out to a shop that offers a ‘top-up’ service. This can be problematic if running out of credit happens at a time when the shop isn’t open – like Christmas, or any other bank holiday, or it’s simply out of hours. In a day and age where topping up your mobile phone can be done via the internet or a smartphone, why shouldn’t PPMs be the same? 

There is also a concern with overpaying. Residents on PPMs are often paying £300 more per year than those on the cheapest tariff whilst getting the same outcome. With the poorest and most vulnerable residents on these tariffs, £300 is far more significant than its face-value. There’s also a total lack of flexibility to adapt to customer needs. PPMs only offer one tariff, whilst those on standard meters have a choice of online, fixed, green, dual-fuel and discounted tariffs amongst others. Many energy companies also offer a further reduction if paying by direct debit. PPMs offer no choice in what sort of tariff customers have. They're simply thrust into whatever comes along with the meter – affordable or not.

It’s argued by energy suppliers that PPMs help residents to budget. While this might be true for some, others are forced into using PPMs if they fail to present a credit check. Existing customers can also be forced into switching to a PPM if they get into a significant amount of debt and have not attempted to pay it back.

If a customer on a PPM wants to switch to a credit meter, there are some criteria. Kate Rose, head of energy at Confused.com, says: "If you are living in a property with a prepayment meter you can ask to have it replaced for a credit meter. However, you will need to pass credit checks and meet criteria such as being over 18, having no outstanding or recent debts to an energy company and be willing to set up a fixed direct debit for future payment."

If you’re struggling financially or have bad credit, switching can be tricky. As a bare minimum, any debts must be paid before being able to switch. Depending on which energy supplier you are with, there might also be a fee to pay for switching meters, which should be taken into account. 

Many customers on PPMs have a number of existing challenges, including financial and personal barriers to setting up a relationship with an energy company. Occasionally, PPMs are the most sensible solution (especially for those who don’t have a steady income) and the National Energy Foundation doesn’t rule them out on principle. Energy companies are often criticised for taking advantage of those who are most vulnerable – but part of the responsibility lies with consumers and their supporters to get information through and ensure that they are well-informed.

Consumer Focus Wales has come up with some suggestions for suppliers to make PPMs more manageable and beneficial, such as:

  • All suppliers should have a ‘friendly credit’ scheme whereby electricity can’t be cut off between 6pm and 9am during the week, 9pm on Fridays and 9am on Mondays, and on holidays - so that residents aren’t cut off during the night or on weekends when topping up might not be possible.
  • Suppliers should offer a variety of top-up methods (online, SMS/text, cashpoints).
  • If a PPM is due to be installed or removed, a smart meter should be installed in its place, which has the ability to switch between credit and debit options, thereby removing any barriers in switching payment methods. The meter should also not have to be changed over to switch payment type.

There are many things energy suppliers could do to alleviate some of the stress and inconvenience of PPMs. But the onus remains not just with customers but with all of us to ensure that each consumer makes the best choice for their energy use.

A final note: Chop-Clocs

A new product, Chop-Cloc, has recently come to our attention, which has proved to be quite effective in trials and has been favourably reviewed. A Chop-Cloc is a device fitted to a gas central heating system and the idea is that it reduces the amount of time the boiler is running by ‘chopping’ a set number of minutes in every hour – in effect, turning the boiler off for pre-determined periods. This uses less energy whilst maintaining the temperature set by the homeowner. The amount of ‘chopping time’ can be adjusted (between 15 and 45 minutes) by the user, depending on the home and the circumstances. Theoretically, the amount of money saved can easily be calculated when used in conjunction with a PPM because residents can see in real time how much less they are putting into their meter.

In a recent study conducted by Chop-Cloc, those residents who were on PPMs and used the device topped up an average of two days later than normal (although the sample size was quite small and this result was only noticed by chance). If a Chop-Cloc were fitted in every home that used a prepayment meter, perhaps millions of customers could benefit from the same outcome.