Statutory consultation on Involuntary PPM licence changes opens

Ofgem published a statutory consultation on 28 June 2023 on proposals to strengthen protections for consumers who may be moved to a prepayment meter (PPM) without their consent¹. The regulator is consulting on how to integrate the requirements in the Involuntary PPM Code of Practice, agreed with suppliers and published on 18 April 2023, into electricity and gas standard supply licence conditions (SLCs)¹. Responses are due by 26 July 2023¹.

The consultation follows a moratorium agreed with suppliers in February 2023 on Involuntary PPM installations and smart meter remote mode switches¹. Ofgem said it saw further allegations about supplier PPM practices in January 2023, launched an investigation into British Gas and a Market Compliance Review looking at PPM¹. It said it needs to implement the measure so it is in place for winter 2023/24¹.

The proposals include a new SLC 28 that would replace and combine existing SLCs 28 and 28B, alongside additions and modifications to SLC 27A¹. Under the draft condition, a licensee must not install an Involuntary Prepayment Meter unless, in accordance with guidance issued under SLC 28.4, each of the listed requirements is satisfied¹. Ofgem said suppliers would need to follow an enhanced process for checking consumers' suitability, and that where a supplier does want to install a PPM it must carry out a welfare visit, have the case independently assessed by another team or individual, and provide the customer with an initial £30 credit¹.

Ofgem's impact assessment puts the potential impact on bad debt at between £74m and £307m per year, or between £3 and £14 per household, using two calculation methods¹. It said its current expectation is that the impact is towards the lower end of this range, in a central scenario¹. The document also states that the moratorium, described as equivalent to a full ban on PPM installations, increased bad debt costs by between £25m and £30m per month in February and March 2023¹. Ofgem estimated that a full ban on new PPM installations would raise bad debt by between £472m and £599m, or from £21 to £27 per household¹.

Ofgem said its impact assessment shows a positive cost:benefit ratio in each scenario considered, quantifying the consumer cost:benefit ratio at at least 1:8 under the most likely scenario and at least 1:2 under the high sensitivity scenario¹. It cited wider societal figures, including an estimate from 2019 that the NHS spends at least £2.5 billion per year treating illnesses directly linked to cold, damp and dangerous homes, and an estimated 32,058 excess winter deaths in England in 2020-21¹. It said estimates suggest some 10 per cent of excess winter deaths are directly attributable to fuel poverty and 21.5 per cent to cold homes¹.

Why it matters for households

The consultation concerns customers who face being moved onto a prepayment meter to recover debt without their consent. Ofgem said its monitoring in 2022 showed suppliers increased PPM installations, with a 44 per cent rise in smart mode switches and 40 per cent in traditional installations between 2021 and 2022¹. It said the proportion of consumers who have constantly struggled or fallen behind on general household bills rose from 27 per cent in March 2022 to 32 per cent in November or December 2022¹.

If the Code becomes licence conditions, the process a supplier must follow before an involuntary installation would be set in the licence rather than in a voluntary code. Ofgem said suppliers must not proceed where a customer is in the "do not install" category and should take additional precautions for those in the "further assessment needed" category¹. Where a PPM is installed, the customer would receive an initial £30 credit¹. The rules on PPMs installed under warrant date from 2017, and Ofgem said it extended these protections in 2020 up to 2025 to tie in with the completion of the smart meter rollout¹.

The costs of bad debt are recovered from consumers through the price cap and non-price cap practices, Ofgem said¹. It added that in the absence of PPMs, suppliers would be likely to resort to alternative debt collection methods such as bailiff action¹.

What happens next

The consultation closes on 26 July 2023¹. Ofgem said it will consider all responses and publish non-confidential responses alongside a decision on next steps on its website¹. It said the measure needs to be in place for winter 2023/24¹. The consultation is part of the wider process by which new rules are made, covered in our guide to consultations and discussion papers, and sits within our regulation and policy coverage.