Prepayment meters for gas and electricity should be 'last resort'

30 September 2008 / by Daniela Gieseler
Nearly five million British energy customers using prepayment meters (PPM) could be paying up to £244 more a year for their energy bills than they actually need to, price comparison site uSwitch.com has warned following the latest Ofgem 'Social Obligations Report'.

The report highlights that there are currently 5.9 million consumers using PPMs to pay for their gas and electricity bills, although only one million of those are actually repaying a debt.

This means that nearly five million Brits may pay over the odds for their energy usage, as prepayment meter deals are generally more expensive than ordinary deals. The average PPM spend per year is £1,315 - £116 more than a standard customer paying by direct debit will spend, and £244 more than being on an online energy plan.

Ofgem research revealed that "some customers favour the PPM payment method as it helps with budgeting and to avoid getting into debt", and uSwitch.com says price hikes make more people turn to PPMs in order to keep track of their spending.

However, uSwitch warns that prepayment meters should always remain the last resort to rein in spending, as they are the most expensive way of paying for energy. The cheapest deals available are generally online energy plans where customers sign up online and pay by direct debit.

The total numbers of customers on PPM has been steadily on the increase in the last 10 years, rising from 4.7 million in 1997 to 5.9 million by the end of 2007. Still, Ofgem reports a slight move away from PPMs in the last year, as 234,000 switched to other payment methods.

Even those who want or have to stay on a prepayment meter and owe less than £100, or are in credit, can still save money if they switch energy provider, which could save them up to £138 a year.

Ann Robinson, consumer policy director at uSwitch.com, warned those considering a PPM: "While it could be argued that a PPM will help them to monitor their energy usage, this comes at a cost and I would urge consumers who believe that having a PPM installed could help them cope better with rising energy prices to think, and think again. PPMs should carry a financial health warning.

"Clearly the biggest concern for all consumers at the moment is how to cope with rising energy prices," she continued, and recommended: "There are two steps to this: make sure you are paying the lowest possible price for your household energy and learn to use less of it."

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