Prepayment meters must be last resort for consumers

Recent Ofgem figures reveal that there are now 5.9 million energy customers using prepayment meters, but only around 1 million of these are actually repaying a debt. This means that at least 4.9 million customers could be paying up to £244 a year more for their household energy than they actually need to.

According to the regulator, research shows that some consumers are turning to prepayment meters to help them budget. This is a worrying trend, says uSwitch.com, as rising energy prices and debt concerns could push more consumers onto PPMs - the most expensive way of paying for energy. It warns that prepayment meters should always be the very last resort.

The total number of customers on PPMs has been growing steadily. In 1997 there were 4.7 million PPM customers, but by the end of 2007 this had grown to 5.9 million, despite energy prices falling by 10% last year. However, there was also a small movement away from PPMs last year - 234,000 PPM customers switched to another payment method in 2007.

Although PPM customers are commonly thought to be fuel poor, the report makes it clear that this is not the case with only around a quarter - 25% - of PPM customers in fuel poverty. However, the regulator points out that: "PPMs are more commonly used by customers on low incomes and it is therefore particularly important they are on the best deal."

The cheapest deals are online energy plans which generally require a customer to pay by direct debit and to at least sign up online - although some do not expect customers to manage their accounts online afterwards. For those PPM customers who are not in debt and who are able to change payment method to direct debit, this would be the best option as it could save them £244 on average.

However even those who want, or have to, stay on a PPM can still benefit from the market. Prepayment customers who are in credit or owe less than £100 are allowed to switch suppliers - they will still be on a PPM, but can opt to move to a cheaper provider. This could save them up to £138.

Ann Robinson, Consumer Policy Director at uSwitch.com, says: "There are at least 4.9 million energy customers on PPMs who potentially do not need to be and who are paying considerably over the odds for their energy as a result. Some will have no choice, but many do. While it could be argued that a PPM will help them to monitor their energy usage, this comes at a cost and I would urge consumers who believe that having a PPM installed could help them cope better with rising energy prices to think, and think again. PPMs should carry a financial health warning.

"Although the overall number of customers on PPMs has increased, there is some good news here - over 200,000 customers moved away from PPMs last year. This is significant as it means that the industry is doing its job properly in enabling customers to move around the market and onto better deals. Hopefully this is something that can be built on through consumer education, information and support.

"Clearly the biggest concern for all consumers at the moment is how to cope with rising energy prices. There are two steps to this: make sure you are paying the lowest possible price for your household energy and learn to use less of it. Paying by direct debit and moving to an online plan will cut your energy bills. Concerned consumers should explore these options first - moving onto a prepayment meter should always be the very last resort."