Jeff Salway: Scandal of poorest customers paying most for electricity

Published on 10/10/2008 14:00

THE energy watchdog finally appears to have spotted the elephant in the room. Whether it has the appetite to do anything about it, however, is a very different matter. The watchdog, Ofgem, this week acknowledged that the big energy companies should not be charging the six million households using prepayment meters more for their gas and electricity. But it stopped at that, effectively meaning energy suppliers have little motivation and no obligation to stop ripping off their poorest customers.

Prepayment meters are used primarily by lower income households to help them manage their budget more effectively and keep a better track of their energy usage. Except it doesn't have the desired effect, because prepayment meter users are denied access to competitive tariffs and consequently overcharged to a scandalous degree. Ofgem's own figures show that the average prepayment meter customer pays 244 more a year than households on the most competitive deals and 116 more than the average standard deal. Consumer Focus – the super watchdog that this month replaced groups including energywatch and the Scottish Consumer Council – believes energy companies are pocketing an extra 700 million a year from this rip-off.

This is fundamentally wrong and unfair, but it's not a new issue. With energy prices continuing to rise, Ofgem has to compel the energy suppliers profiting from this shocking inequality to give all customers access to the best deals – typically online dual fuel tariffs paid by direct debit – and to force them to backdate payments to those that have lost out.

This is unlikely to happen soon, but there are some steps prepayment meter users can take to improve their deal. The biggest is to ask your supplier to replace it with a normal meter free of charge and convert to a more competitive rate. This should not prove a problem if your credit history is good.

Alternatively, if you want to continue using prepayment meters (or have no choice), it could be worth checking out Ebico. This is a non-profit company which offers the same rate regardless of the payment method, putting prepayment customers on a level playing field.

If you can pay by direct debit there are cheaper deals elsewhere, but until prepayment users are treated fairly by the big energy suppliers, Ebico could be a cost-efficient alternative.

WHAT have Bradford & Bingley, Northern Rock, Alliance & Leicester and HBOS got in common? Yes, they've all been high-profile casualties in some way or another of the credit crunch. But they also share the distinction of being former building societies that relinquished their status for the more rock'n'roll world of stock market listing.

This isn't something that building societies are being smug about – in fact they are careful not to be – as they're hardly gambolling through their mutual meadow without a care in the world. The Derbyshire and Cheshire building societies were taken over by Nationwide after coming close to being sunk by bad debts. More consolidation is likely and the Financial Services Authority has expressed concerns that some mutuals have too much exposure to lending risks.

But the values of mutuality are like the contents of my wardrobe – rarely fashionable, a bit dour but very consistent. They are the values that the "carpetbaggers" – the members who traded in mutual status for windfall payments – considered disposable. It might be a while before we hear from carpetbaggers again.