15. As currently constructed, systems of payment
for gas and electricity often have the perverse effect of penalising
poorer households. Because these households often find it difficult
to budget for the comparatively high cost of their
fuel, both they and the supply companies have an incentive to
use systems that enable the households to pay in advance. For
individuals, this means having to find smaller amounts of money,
though at more frequent intervals. For companies it means customers
cannot fall into debt (or, very often, can gradually repay the
debt they have already incurred). The most widespread method of
paying in advance is by means of prepayment meters (PPMs). However,
their disadvantage is that the households most at risk of fuel
poverty end up paying more for their fuel than better off households
because of the higher service charge element and because no discount
is offered for paying in advance.
16. A number of industry initiatives are addressing
the removal, or partial removal, of PPM surcharges: for example,
PowerKeyPlus, a PPM tariff which is the same as the quarterly
credit tariff, but under which an extra charge is imposed if an
engineer has to be called out to the property to deal with problems
with the meter. This scheme is being operated on a trial basis
within the Newham Warm Zone, and also in Plymouth, but has had
relatively low take-up. We were told by London Electricity Group
"PPMs are very popular arrangements. They
have very high levels of customer satisfaction, mainly drawn from
the ability to budget in a very, very effective way. It is wrong
to assume that they are in some way unpopular; in fact it is the
opposite. We are having some difficulty in convincing customers
to move from the existing PPM tariff with surcharge to the PowerKeyPlus.
I guess their primary concern is the worry about the charge for
the call-out. All we can do is seek to show over time that the
call-outs can be eliminated."
Our witnesses said that ways are being considered
to overcome these concerns.
Despite the cautious start to such schemes, we urge companies
to continue to look at and promote other methods of payment for
17. Companies should already have incentives to prevent
the accumulation of debt, but clearly these are not sufficient.
Further options are being considered by Energywatch who emphasised
the need to find ways of avoiding people getting into debt: "Companies
themselves know quite a lot about bills, energy usage, and they
should be in a position to act at a much earlier stage to prevent
the debt occurring in the first place".
"What we are looking for are incentives
to make companies address some of the issues that give rise to
the need for prepayment meters in the first place. One of the
ideas that we are floating and it is only an idea; we
have not thought through the depth and detail is the idea
that we could have a social obligation, rather like the renewable
obligation, where [companies] will benefit who have done things
like reduce the number of people on a prepayment meter, on debt
and increase the number of people on the priority services register.
There are several key things that we could do to encourage good
behaviour by having a social obligation."
We welcome the constructive thinking that is taking
place on ways of preventing the less well-off from getting into
debt in relation to fuel bills. The idea of a social obligation
on energy companies seems to us to be worth pursuing. However,
this will need to be thought through carefully, not least in the
light of some of the problems with cross-subsidy and competition
law that we discuss later.