Changes to the way prepayment meters are installed without household permission (Ofgem content team example)

Overview

We are consulting on proposals to strengthen protections for consumers that may be moved to a prepayment meter (PPM) involuntarily.

Who should respond

We would like views from people and organisations with an interest in Consumer Protection, Vulnerability and Debt. We particularly welcome responses from consumer groups and charities. We also welcome responses from other stakeholders and the public.

Background

To inform this review, we published a Call for Evidence on PPM rules and protections in February 2023.

We consulted extensively with suppliers, consumer groups and charities on the issues and proposals for how we could enhance protections for consumers when suppliers are considering moving them to Involuntary PPM.

We held bilateral and group meetings with these stakeholders at working and senior level. This process of engagement led to the development of the Involuntary PPM Code of Practice which we published on 18 April 2023. We also published an accompanying letter to stakeholders setting out the rationale for introducing the Code and the five conditions suppliers would need to meet before restarting Involuntary PPM.

Why your views matter

Potential for proposals to add to bad debt and debt-related costs.

We recognise that the proposals in this consultation, if implemented, may have an impact on the level of bad debt and debt-related costs faced by energy suppliers. That is because if the proposals lead to suppliers installing fewer PPMs to comply with the rules than was previously the case, or installing PPMs at a later stage than they previously would have, then it may lead to consumers building up more debt that cannot be repaid.

The impact is, however, inherently uncertain. It depends on macro-economic conditions including inflation and the cost of other essential goods and services; the cost of energy; and any changes in consumer behaviour. Given this uncertainty, we are using two alternative methods to calculate total potential impact of between £74m and £307m per year, or between £3 and £14 per household. Our current expectation is that the impact is towards the lower end of this range, in a central scenario. This projection compares against a current annual cost of bad debt of around £45 per dual fuel household.

We have also been gathering evidence on this as part of a wider review of debtrelated costs, including through a Call for Input in April (CFI) published in April.12 Given the data and evidence we have received so far, we consider that there is no evidence of a material or systematic gap between the allowance within the price cap for debt, and actual costs. However, we will continue to actively monitor and assess how the proposals impact debt in the following months. Where there is evidence of material and systematic changes to debt-related costs, we are committed to consulting on how suppliers should be able to recover any efficient additional costs that may occur from implementing our proposal.

Nonetheless, we have a clear expectation that energy suppliers should use other mitigations in line with debt management best practice to try to reduce the likelihood of bad debt for customers who would otherwise have a PPM installed. We would expect them to do this rather than there being a presumption that all of the debt would automatically become unrecoverable.

In the meantime, we have also today published a statutory consultation on making a specific adjustment to the price cap for bad debt associated with Additional Support Credit (ASC) for PPM customers. We have seen significant evidence of a material increase in non-repayment of ASC offered by suppliers to PPM customers. This ASC is offered to customers at the point of selfdisconnection, and these specific debt costs are not currently reflected in the price cap.

What happens next

The statutory consultation on the Code will close to responses on 26 July. We expect to conclude and publish our decision by winter 2023.

We will publish non-confidential responses on our website at www.ofgem.gov.uk/consultations.

We will publish non-confidential responses we receive alongside a decision on next steps on our website at ofgem.gov.uk/consultations. If you want your response – in whole or in part – to be considered confidential, please tell us in your response and explain why.

Please clearly mark the parts of your response that you consider to be confidential, and if possible, put the confidential material in separate appendices to your response.

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