- New protections come into effect on 15 December
- Suppliers will have to provide more support for customers struggling to pay their energy bills and extra help for prepayment customers
- Those in financial distress will get some breathing space but ultimately all customers need to pay for the energy they use
Ofgem has confirmed plans to strengthen protections for customers who are struggling to pay their energy bills this winter. Following a consultation in June (1), Ofgem is introducing new licence rules for suppliers from 15 December.
One will require suppliers to offer emergency credit to customers struggling to top up their prepayment meter, many of whom are likely to be in vulnerable circumstances. (2)
This could be because they temporarily cannot afford to top up or get to their local shop to top up because of a mobility issue or due to self-isolation for example.
Suppliers will also have to offer extra prepayment credit for households in vulnerable circumstances to provide more breathing space while working out alternative arrangements to pay.
These requirements will help reduce the number of prepayment customers who go without energy or “self-disconnect” after running out of credit on their meter. (3)
In March this year (4), suppliers voluntarily agreed to support vulnerable customers through COVID-19, including those on prepayment meters facing difficulties in topping up. The new licence rule will require suppliers to offer this extra protection.
Another new licence rule Ofgem is introducing will require suppliers from 15 December to put customers in debt on realistic and sustainable repayment plans.
This means suppliers will have appropriate credit management policies, make proactive contact with customers, and set repayment rates based on ability to pay. (5) Many suppliers already have this in place, but making it a formal licence requirement will ensure more customers are helped.
Philippa Pickford, Director of Retail at Ofgem, said: “Suppliers have stepped up to the challenge of supporting their customers during the COVID-19 crisis, especially those in vulnerable situations. … “Customers who are struggling to pay their bills should contact their supplier as soon as possible. The extra protections we have announced today will help ensure they get some breathing space this winter. … “Alongside our wider programme of support for vulnerable customers, Ofgem has also capped and reduced default tariffs so these customers always pay a fair price for their energy.”
(1) In June 2020, Ofgem published a statutory consultation on Self-disconnection and self-rationing final proposals. The decision confirms Ofgem has decided to proceed with the proposals set out in the statutory notice.
(2) “Emergency credit” is a fixed amount of credit provided to customers when their meter runs low or runs out to ensure continuity of supply. “Friendly hours credit” is provided overnight, at weekends and public holidays, when top up points may be closed and a customer’s prepayment meter runs low or runs out. “Additional support credit” is provided to customers in vulnerable circumstances who may have exhausted other options. We are making the offering of these credit functions by suppliers mandatory. The customer usually has to repay this extra credit when they next top up but we are making it clear with these proposals that suppliers should consider customers’ ability to pay and agree an affordable rate when customers are struggling to repay this credit. Suppliers must also improve how they identify customers who are self-disconnecting and keep a closer eye on vulnerable customers who might be self-disconnecting and self-rationing.
(3) Ofgem’s Consumer Survey 2019 found that of the 4 million households using prepayment meters, around one in seven had self-disconnected their supply in the past 12 months. Prepayment customers are more likely to self-disconnect if they are in debt and are more likely to be vulnerable and in fuel poverty. “Self-rationing” is when customers deliberately limit their energy use to make their credit last longer or save money for other goods or services. Recent research by Citizens Advice has found that while most disconnections were related to practical factors, 29% were the result of not having enough money. 11% of disconnections were due to people being unable to top up due to self-isolating and 10% were due to the top-up shop being closed.
(4) In response to COVID-19, in March 2020 energy supply companies agreed principles to support vulnerable customers with the Department for Business, Energy and Industrial Strategy (BEIS), including practical support regarding top-ups, provision of advice, switching between credit and prepayment mode, and extending non-disconnection periods.
(5) Ofgem’s Ability To Pay Principles (originally published in 2010) will be updated to better reflect existing debt collection practices and make the principles more future-proof. These principles include suppliers: (a) having appropriate credit management policies and guidelines; (b) making proactive contact with customers; (c) understanding individual customers’ ability to pay; (d) setting repayment rates based on ability to pay; (e) ensuring the customer understands the arrangement; (f) monitoring arrangements after they have been set up. We have also proposed to include an additional principle placing an obligation on suppliers to give due consideration to (g) re-engaging with a customer after an initial occurrence of a failed repayment arrangement.
(6) Help with energy bills and budgeting: If customers are struggling to pay for energy bills they should contact their energy supplier as soon as possible. Depending on their circumstances, customers may be eligible for extra help with their energy bills or services. Customers can also find advice and help on managing debt and budgeting through: