Prepayment Price Cap Could Rise

People on prepayment meters could soon see their energy bills rise, according to the Competition and Markets Authority (CMA).

The CMA has said it is adjusting the way it calculates the energy price cap for prepayment customers. The prepayment energy price cap was introduced in April 2017 and is not to be confused with Ofgem’s energy price cap that was introduced in January this year for customers on standard variable tariffs.

The prepayment energy price cap, which currently stands at £1,242 a year for the average household, will be extended beyond its initial end date in 2020 due to the delay in the smart meter rollout. The government has been planning for every home and business in the UK to be offered a smart meter installation by the end of next year, although officials have warned that this could be delayed by a further two years.

According to the CMA, once the rollout of smart meters is complete, there will be no need for the price cap to protect consumers as customers will be able to monitor and control their energy usage and efficiency. Smart meters record the amount of gas and electricity that is used in a home, sending the data back to the energy supplier who then bills the customer accurately, while displaying to the customer their energy usage in real time and in pounds and pence.

“The rollout of smart meters has not progressed in line with the initial projections on which the EMI Final Report was premised,” said the CMA. “Evidence shows that it is not on track to complete by the end of 2020 and we believe may be as much as two years behind schedule. Some of the costs that an efficient supplier is expected to bear in supplying prepayment customers have increased to a level materially higher than that reflected in the (prepay cap) methodology.”

Prepayment meters are typically used by vulnerable customers, for example those that have struggled keeping up with payments in the past and those living in rented accommodation. However, prepayment energy deals are usually more expensive than standard tariffs because of the costs involved with administering the technology. Households with prepayment meters have also been told they are likely to be the last to be offered smart meters. There are currently around 4 million households in the UK with prepayment meters.

The CMA said that energy suppliers and consumer groups have until July 8 to challenge their ruling, while the decision was welcomed by the energy regulator, Ofgem.

“This will ensure the market offers choice and protection to prepayment customers both now and in the future,” said a spokesperson for Ofgem. “Under the default and prepayment meter price caps, households are protected and will always pay a fair price for their energy and not be overcharged. If approved, the new prepayment meter cap level methodology will be reflected in the next cap period coming into effect in October, which Ofgem will announce in August. Alongside the price caps, we are continuing to work with government and the industry to deliver a more competitive, fairer, greener and smarter energy market that works for all consumers.”