The warning came at the end of a seven-month investigation into the industry in which Ofgem concluded that despite all the major suppliers increasing their prices at a similar time, there was no evidence that the power companies were working together to set prices. However, while that news may have been a reprieve for the industry, Ofgem did state that it was disturbed that some customers had no choice but to pay more for their energy.
In particular it highlighted the 4.3million customers without a gas supply who could not get the best deals on electricity such as those in rural areas of Scotland and Wales who are not connected to the gas grid. It also highlighted consumers who use prepayment meters as being charged more than those who pay by direct debit.
The average difference between customers with one of the main six suppliers paying via prepayment meters compared to direct debit has risen from £80 at the start of 2005 to £118 after the latest round of price hikes.
Why do prepayment meters charge more?
The concept behind prepayment meters is simple - similar to a pay-as-you-go mobile phone, they help users to budget by only using the amount of electricity or gas that they need. They are often installed by a provider if it feels the customer cannot keep up with payments on their energy bill, or they can even be requested by the customers themselves. Payments are usually made by purchasing tokens for cards or keys which are loaded with the amount of money you choose.
However, even though they are meant to support the poorest customers, prepayment meters are often more expensive as many suppliers add on additional charges that they claim are necessary to finance and maintain the meters. Ofgem estimates that the cost of servicing a prepayment meter is no more than £85 - so in theory prepayment customers should be paying less than the £118 extra they are currently being charged.
Prepayment meters do have some advantages - they can be a useful budgeting tool for low income households, such as single parent families, people without bank accounts and those on welfare benefits, as they will always know exactly what they are paying rather than being stung by an unexpectedly high bill at the end of the month. There are also some customers who prefer to shy away from direct debit deals with a set charge and prefer to only pay for what they use - so if money were tight they could make a conscious effort to use less energy. However, most prepayment meters also come with a standing minimum charge.
What options are available to those with prepayment meters?
Just like standard tariffs, different providers offer different prices for energy using prepayment meters, so it's well worth shopping around. Earlier this year, Ofgem estimated that the average prepayment customer could save £100 by staying on a prepayment meter but switching to a different supplier, and this figure rises to £170 in some areas.
Provided you have a current account, it shouldn't be a problem to move to a cheaper, direct debit, non pre-pay tariff, which could save you even more money. However, there is a catch.
When a gas or electricity supplier changes its rates, it can take some time for prepayment meters to be recalibrated, as an engineer would normally have to be sent out. This means that for the interim period between a price increase and the prepayment meter being adjusted, customers are building up an energy debt to which they are oblivious. Once the provider finally updates the meter this additional charge is added on to clear the outstanding debt. This sudden increase has been widely blamed as one of the leading causes of fuel poverty with Government figures released last week showing that fuel poverty in the UK rose to 3.5 million in 2006 - one million more than in 2005.
Thankfully, the practice of back charging has been abolished by British Gas, Scottish & Southern and EDF Energy - however, if you're a customer with npower, E.ON or Scottish Power hoping to switch, you'll need to have money set aside to clear any debt first.
How do you switch from a prepayment meter?
If you're looking to move off a prepayment meter, your first step should be to note down your average consumption levels along with your postcode and use a gas and electricity comparison tool to find the cheapest deal in your area. It will not always be possible to switch from a prepayment meter using a comparison website - however, you should still use the tool to find the cheapest deal.
Currently, the cheapest tariff on average across the UK is the British Gas Click Energy 6 deal, which is an online direct debit deal costing £1,056.86 on average, putting it marginally ahead of the npower Sol 13 tariff which averages £1,066.84. If you don't have internet access or prefer not to use a direct debit deal, the lowest standard rate is available from EDF Energy at £1,210.93. Remember however, that prices vary depending on your consumption levels and your location.
You should also bear in mind that these are variable rate deals and with many analysts predicting further price increases, you may be willing to pay a little more now in order to budget going forward with the security a fixed tariff provides. At the moment the cheapest fixed rate deal on average is the Scottish Power Fixed Price Energy December 2009 tariff, which typically costs £1,212.74 a year.
Once you've found the deal that most adequately suits your needs, contact your existing supplier and find out if you owe any back charges. If you are staying with the same supplier but moving to a different tariff, it should be happy to oblige in placing you on the new tariff as soon as possible, free of charge. If you're moving to a new supplier then ensure any back charges are paid off and then make the switch.
Have your say: Can you 'beat the credit crunch' and save as much as some of our other customers? Tell us how you get on and share your money saving tips in our community forum.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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