Customers on prepayment energy meters would be able to save up to £250 by switching supplier if tariffs were as competitively priced as those available to households paying by direct debit, the competition watchdog has found.
Prepayment customers, who tend to be less well-off households and those in rented accommodation, pay in advance for their gas and electricity rather than after it has been supplied.
As part of an investigation into the energy market, the Competition and Markets Authority said energy suppliers faced “technical limitations” that limit their ability to innovate by offering suitable tariffs to these customers.
It added that suppliers’ incentives to compete for these customers were reduced due to actual and perceived higher costs to take them on, as well as the fact that some of them have existing debts.
“Consequently such customers don’t have the same access to cheaper tariffs as others, can’t switch and save money to the same degree, and therefore pay more,” the CMA said.
Around 15% of customers on prepayment meters are in debt to their supplier, and firms often switch accounts that have fallen behind with direct debit payments on to the meters to recover missed bills.
The watchdog analysed the tariffs available to prepayment customers who were switching suppliers and remaining on a meter, and found that suppliers were not offering competitively priced acquisition tariffs.
Switching to a direct debit tariff operated through a credit meter is the way for households to save, but only small numbers were doing so, it said.
Ofgem data showed that in 2014 around 130,000 electricity and 103,000 gas customers switched to credit meters – just 3% of all prepayment customers.
The CMA said it was considering remedies to fix the market, including removing barriers to switching, possible price controls and measures to prompt prepayment customers to switch by allowing other suppliers to contact them to offer better tariffs.
