Energy firms 'broke rules designed to protect poor'

Power suppliers accused of exploiting six million users of pre-payment meters

Britain's big energy suppliers have broken rules intended to stop them exploiting millions of poor customers, according to an investigation by an NGO.

The National Housing Federation (NHF) says that British Gas, SSE, npower, E.ON and Scottish Power breached new licence conditions designed to stamp out overcharging for six million pre-payment customers. Under rules introduced by the energy regulator Ofgem in September, suppliers can only charge more if it reflects the extra cost of providing the service.

Last year, Ofgem set the extra cost of providing pre-payment meters at £88, but the month the new rules came into force, the NHF discovered the firms were charging £100 on average. Scottish Power and British Gas charged pre-pay meter customers £108 and £106 more than those on direct debits, while npower charged £105 more, SSE £102 more, and E.ON £99 more.

The average excess charge was the same as that charged in August, the month before the new rules came in. "This means they failed to make any difference," the NHF complained, claiming its findings cast fresh doubt over Ofgem's ability to "tame" the £27bn-a-year energy industry.

The NHF's chief executive, David Orr, has written to Ofgem demanding an investigation. Ofgem responded by saying it would consider doing so once the letter arrived. In the meantime, it said it had not capped pre-payment meter prices because the costs of providing the service might vary.

"It was never our intention to stipulate a maximum acceptable cost difference as we accept that suppliers' costs for providing different payment methods change over time," a spokesman said. He insisted that the widespread abuse of pre-payment customers had ended, because the difference was much lower than in the past.

The Energy Retail Association, which represents the Big Six, "disputed" the fact that suppliers had breached licence conditions. "Energy suppliers have already taken action to reduce pre-payment tariffs, and in some cases, using a pre-payment meter now costs less than paying by standard credit," a spokesman said, adding that customers should shop around. Ofgem has come under fire for failing to take strong action on pre-payment tariffs. Many people who use them are unemployed, pensioners, disabled or low paid. The average income of a pre-payment customer is £13,500 a year, almost half the national average.

Between 2006 and 2008, power companies made £464m in "unjustified charges" by billing above the costs of maintaining pre-payment meters.

Commenting on his group's latest research, Mr Orr said: "EDF, SSE, npower, E.ON and Scottish Power are to be commended for equalising their pre-pay tariffs with those customers on quarterly bills. However, the fact that five of the Big Six energy companies have already ignored the new licensing conditions shows that Ofgem isn't taken seriously. Ofgem has lost the confidence of millions of pre-pay customers across the country. Ministers now have a duty to end the pre-pay meter rip-off once and for all."