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Energy will cost you more if you prepay

Energy will cost you more if you prepay

Category: Gas and electricity

Updated: 21/05/2014
First Published: 21/05/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

There's no getting away from the fact that the cost of energy has risen significantly over the last few years, but did you know that some consumers will be charged more simply for how they choose to pay? Well, research from Ofgem has found that dual fuel customers who use prepayment meters are charged, on average, £80 more per year than those who pay by direct debit.

Happily, though, this is a significant drop from the £140 price difference recorded in 2009, since which Ofgem has implemented stricter rules to do with pricing – providers are allowed to charge different prices for different payment methods, but only if it reflects the cost of providing those accounts.

It isn't something that consumers will always be aware of, but it's actually more expensive to administer certain payment methods than others – and it costs suppliers more to provide customers with prepayment accounts than it does direct debit versions.

Even though Ofgem accepts this it highlights the need for better communication to consumers, and since April has required providers to regularly tell customers what their cheapest deals are. That way it'll be much easier for customers to see if they could save money by changing payment method, while making it simpler to compare tariffs.

Rachel Fletcher, of Ofgem, commented on the latest report: "We have found that price differences between payment methods reflect the costs suppliers face, and that they have dropped significantly since Ofgem introduced the rules.

"However, to help re-build trust suppliers must do more to explain to their customers about what drives these price differences. Given public concern over these differences we also urge suppliers to look at how they can provide more reassurance to consumers that they are set fairly.

"And, now that our reforms are in place giving consumers clearer information on bills and other communications, suppliers should be working to explain where consumers could make savings by switching payment method, where possible."

However, not all suppliers have been playing by the rules. During Ofgem's payment investigations, the regulator found that, between September 2009 and December 2012, Scottish Power didn't have a robust pricing system in place to ensure any differences between tariffs complied with Ofgem's rules.

This meant that their prices for standard credit and direct debit payment methods were out of line with those of other providers – essentially, the price difference was far more than it should have been – and the scale of the breach meant the supplier was charged a penalty of £750,000.

Hopefully the investigation should mean other providers don't follow in the same footsteps, while stricter rules around communication mean energy customers should find it easier to find the deal that's right for them.

And it seems that consumers are already being more active in their decisions. Ofgem's latest findings come just days after a separate study from TopCashback found a significant drop in energy apathy among consumers – meaning if they're not happy with their tariff or level of service, consumers are now a lot more willing to switch.

According to the figures, 81% of those surveyed now review their energy bills each year while 64% review them as often as other service providers, and a particularly encouraging two-thirds have already switched both gas and electricity provider in the hunt for a better deal.

So why not be one of them? Even though it's technically acceptable for suppliers to charge more for prepayment, it doesn't mean you'll always want to pay that extra amount. If you're not happy with the tariff you're on or the standard of service you receive it should now be easier to compare the options and switch providers, and if you can, consider paying by direct debit to get the cheapest tariff possible.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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