A trio of charities including Citizens Advice has written to Ofgem to seek assurances over the treatment of energy customers who fall into debt amidst the current price crisis.
In an open letter to the regulator, they urged Ofgem to publish new guidance for suppliers setting out how they should deal with customers who cannot afford to pay anything towards their arrears.
The charities, which also include the Money Advice Trust and Step Change, said the guidance should additionally cover the personal and financial circumstances in which it would not be safe and practicable to install a prepayment meter in a customer’s home or keep a smart meter in prepay mode, as well as how and when to provide additional support credit to assist customers on legacy prepayment meters.
They called on the regulator to ramp up compliance and enforcement activity on key affordability licence conditions, particularly concerning self-disconnection and affordability repayments, adding: “We recognise that what we’re calling for represents a significant intervention within the market and will come at a cost to suppliers.
“However, we believe that the clear health and safety risks as a result of this year’s price rises justify this level of action from the regulator.”
In cases where customers cannot afford to pay towards arrears, the letter said Ofgem’s guidance should instruct suppliers to pause collection and focus on supporting customers to pay for what they can of their ongoing usage.
This should include promoting further financial support that may be available and considering payment holidays for customers with no income as were offered during the Covid-19 pandemic: “If an individual can afford to pay a token amount (£1 a month), the supplier could set this up and then the repayment level can be re-assessed when prices fall again.”
It said the same protections must also apply to customers on prepayment meters, with “suppliers needing to set the prepayment meter to collect energy arrears at zero or a token amount (£1) each month.”
The Department for Business, Energy and Industrial Strategy (BEIS) recently confirmed details of its Energy Bills Support Scheme, which will provide households with a £400 discount on electricity bills over the coming autumn and winter. The letter said Ofgem should set out how its ability-to-pay rules interact with the scheme: “Where the rebate is applied to debt repayments which are subsequently found to be unaffordable, any overpayment of debt due to the rebate should be redirected to lower ongoing costs”.
With regards to debt collection, the charities said Ofgem should instruct suppliers to “proactively establish” customers’ ability to pay before proceeding to collection methods such as pursuing court action, issuing warrants to install prepayment meters, referring to debt collection agencies, issuing county court judgments and instructing high court enforcement officers.
They said Ofgem should also seek a new voluntary commitment from suppliers to not use certain collection methods this winter for specific groups such as those receiving benefits or with incomes below a certain level and monitor companies’ adherence.
To prevent prepayment meter customers from self-disconnecting over winter, the charities said Ofgem should introduce a temporary moratorium on forced installations of traditional prepayment meters for debt. They said suppliers should be required to conduct an income and expenditure assessment before installing a prepayment meter. If this showed the customer could not afford to make debt repayments, the supplier would have to pause collection activity.
The letter said Ofgem should additionally seek commitments from suppliers to reassess the size of their additional support credit measures to ensure they have a material effect and keep customer support lines open out of hours for off-supply cases.
It said Ofgem should make a clear statement to suppliers that they should not refuse to provide additional support credit solely on the basis that a customer has received it before if the customer has later repaid it.
According to the three charities, energy arrears have now overtaken council tax to become the most type of debt they are contacted about.
Joanna Elson, chief executive of the Money Advice Trust, which runs National Debtline and Business Debtline, said: “Government support to help with energy and cost of living price rises is welcome, but the challenges facing many people are set to become more acute with another substantial increase in the energy price cap coming this autumn.
“At National Debtline and Business Debtline, we are hearing from more and more people struggling to afford soaring energy bills.”
Dame Clare Moriarty, chief executive of Citizens Advice, said: “Families we’re supporting are already facing stark choices because of mounting bills. Some are turning off fridges and freezers because they can’t afford the running costs; others are washing their kids’ clothes at their grandparents’ because they’re already in the red.
“Come October when energy prices are set to jump again, things will go from bad to much worse.
“The government needs to be ready to act again, but Ofgem has a crucial role to play. It must ensure suppliers aren’t chasing people for debts they can’t pay or forcing people onto prepayment meters when they’re struggling to cover their bills.”
In its recent report on the energy retail market, the Business, Energy and Industrial Strategy Committee also called on Ofgem to ensure suppliers do not force customers who are struggling to pay their bills as a result of the energy crisis onto prepayment meters.