Energy: greedflation

By Richard North - April 20, 2023

In the wake of Ofgem’s announcement on prepayment meters, we seem to be getting something of a divergence about the merits of the new scheme for controlling the force-fitting of these devices.

On the one hand, The Times – as might be expected – takes a fairly censorious view, calling it a “power failure”. Ofgem’s belated and inadequate proposals, its editorial says, “are further evidence of the regulator’s inability to set a clear course for the energy market”.

This compares with the more diffident view of the Telegraph which declares in its editorial headline that: “The Government faces an energy dilemma”, asserting: “Greater protection for the elderly is welcome, but where is the recognition others might simply be refusing to pay their bills?”.

It was The Times of course, which blew the gaff about the abuse of the system, so its scepticism is well-founded.

The new voluntary code, it says, does at least go some of the way towards ending the most abusive practices, even if it does not go far enough. But it then goes on to condemn Ofgem’s “repeated failures, and its weak responses to them”, marking it down as “a reactive and defensive organisation that is failing to satisfy anyone”.

Certainly, the Telegraph is very far from satisfied, asking where the recognition is, in this governmental breast-beating, that some people who could afford to might simply be refusing to pay their bills? The great majority who have also struggled to meet the costs, the paper avers, have done so without claiming indigence.

It thus wants to know what the energy companies can do about customers who will not pay and often do not respond to requests. They [the energy companies] could cut off the supplies, it says, but then asks whether that is what the energy secretary and campaigners want to see happen.

Signalling that it has never really engaged with this issue, the paper then asserts that permission to install meters by force requires a court order and “is usually only sought after a number of failed attempts to contact the householder”.

There writes someone who has had no connection with the real world. It would be easier trying to communicate with an alien species from Ursa Minor, without the benefit of a universal translator, than trying to get any sense out of the average utility help desk.

For the past three months, I have been in touch with EDF via e-mail, but the recipients are incapable of coherent responses. For most if not all of them, English clearly is not their first language, and they are limited to making a limited range of stock responses – probably taken from a script – which often bear no relation to the matters at hand.

As for the bland assertion that “permission to install meters by force requires a court order”, written as if this had some meaning, most of the sentient universe knows how limited a safeguard that actually is – details which do not seem to have percolated the brain of the Telegraph leader writer.

Undoubtedly, though, there are customers who will not pay their bills, but anyone who thinks that controls on forcible fitting of prepayment meters will change this is clearly missing the point.

The point, of course, is that there are multiple mechanisms available to utility companies which they can use to recover debt. As we’ve noted before, registering an unpaid debt with credit reference agencies can be a powerful tool, the county court judgement – with bailiff enforcement – will deter some, and if the debtor is a persistent defaulter and owes more than £5,000, the utility can commence bankruptcy proceedings.

And once a defaulter has established a record for deliberate evasion, their supply can be terminated and, to reconnect, a hefty, up-front deposit can be demanded.

In the main, though, the vast majority of defaulters are simply people who cannot pay the vastly inflated energy fees that have been foisted on them. And, bearing in mind that such people often have multiple debts owed to a range of creditors, the effect of the prepayment meter is to allow the utilities to jump the queue, elevating their debts above other demands on income.

It is this which makes the system inherently unjust, whence a significant proportion of debtors are forced to make the unenviable choice between “heating or eating” and have to forgo the latter or fall on charity providers.

Interestingly, Ofgem have commissioned some research on people’s attitudes to what it euphemistically calls “involuntary prepayment meter installation”, finding that 61 percent come in the “strongly/tend to oppose” categories, as opposed to the “strongly/tend to support” bands.

These numbers, the regulator says, reflect broad, instinctive consumer opposition to the practice of energy suppliers using PPMs as a debt recovery measure without the household’s consent.

It is notable, it adds, that the proportion of consumers that strongly oppose this practice (38 percent) is almost double the proportion that support it in any way (i.e., they either strongly or tend to support it). This opposition is shown despite the question introduction explaining why suppliers use this practice.

Nevertheless, the Telegraph has a point about paying customers having to fund the bad debts arising from those who cannot or will not pay. This is something Ofgem is exploring, calling for views on whether the energy price cap should include an increased allowance for debt-related costs.

Obviously, even without additional numbers of defaulters, administering the new code of practice is going to be complicated and costly – assuming the energy companies take any notice of it – and the companies will be seeking to recover their costs.

Interestingly, in its consumer research, Ofgem found respondents giving short shrift to the idea that they should pay more to fund increased debt. Even when the difference between the profits of retail and wholesale energy suppliers was explained, focus group participants had little sympathy for suppliers.

It seems they held a great deal of sympathy for households getting into debt. Most felt that suppliers could easily afford to absorb this debt, based on their perception that suppliers had recently seen increased profits. The view was that one arm of the energy industry should subsidise the other rather than pass consumer debt back onto households.

These views, Ofgem says, have “significant implications for the discussion at hand” as, clearly, there is little public support for any further increases in energy prices. Energy bills were already seen as too high and energy suppliers were seen as making excessive profits as a result.

This has us bumping into a relatively new label for an old idea, picked up by the Financial Times last year, and highlighted by many since as “greedflation”, with the most intense use in the United States and Canada.

Unsurprisingly, over here the term has been embraced by the Guardian in multiple pieces, where large firms are accused of exploiting diverse crises to bump up their profits.

The claim has been levied particularly to increased prices for food and more generally to the entire cost of living crisis, with even the Bank of England enlisted to the cause. But, when one sees overcharging and predatory pricing in almost every walk of life, with even central bankers issuing warnings, then it is hard not to go with the flow.

Perhaps the only ray of sunshine comes from Ofgem’s consultation document where, reading between the lines, it is evident that the retail energy companies are having real problems recovering debt. Combined with reluctance to bail out these companies, we could be seeing the worm beginning to turn.

About one thing, we can be fairly sure though. Ofgem is not going to rein in the suppliers. It is time, as the Scotsman says, for political intervention before the whole system goes belly-up and we have a crisis which is beyond the ability of any administration to solve.