Pre-payment meter customers 'overcharged by £464 million for energy'

Consumers with pre-payment meters have been overcharged nearly £500 million by energy companies during the past three years, a housing group claimed today.

The National Housing Federation said millions of hard-up families who use the meters were overcharged by £464 million between 2006 and the end of last year.

The group criticised energy regulator Ofgem for failing to prevent the overcharging and for not going far enough to stop it happening again in future.

It added that it thought the overcharging by firms breached EU directives introduced in 2004, under which energy companies are allowed to charge higher prices to pre-pay meter users only if they reflect the costs involved.

Many pre-payment meter users are classed as being vulnerable customers, such as single parents, and households that use the meters have an average income of only £16,000 a year.

The Federation said between 2006 and 2008, millions of pre-pay customers were charged "well in excess" of the average extra cost for installing and maintaining gas and electricity pre-pay meters, which is estimated by Ofgem to be £87 compared with the cost of direct debit customers.

It said in some cases people paid £500 more during 2008 than those paying by online direct debits.

During the past 12 months, the premium charged to people with pre-payment meters has either been eliminated or reduced, with the maximum excess charge now standing at £39 for a quarterly bill.

The regulator is also consulting on new rules which aim to end the practice of firms charging their pre-pay customers more than is justified.

But the Federation argues that Ofgem has failed to ensure that pre-pay customers will not be overcharged, as they can still be charged more than others if it is cost-reflective.

It is calling on Ofgem to introduce new rules that go further and compel firms to charge the same tariffs to pre-pay customers as those who have quarterly bills.

David Orr, chief executive of the NHF, said: "It is an absolute scandal that Ofgem allowed energy firms to overcharge customers, and potentially breach EU rules for so many years.

"Ofgem has been asleep on the job, and it must urgently start defending the rights of ordinary people, instead of protecting the profits of big business.

"As a way of compensating prepay customers for the historic overcharging, Ofgem has a moral duty to go beyond the EU directives, and force the energy companies to equalise prepay meter prices with those for quarterly bills."