Difference in prices between payment methods have fallen significantly since Ofgem rules were introduced.
Ofgem analysis shows these industry-wide differences reflect the varying costs suppliers face for providing different ways to pay for energy.
Ofgem now requires suppliers to tell consumers regularly what their cheapest tariffs are so they could save money by changing their payment method.
Suppliers must work harder to explain to customers why these price differences exist and ensure they understand what their choices are.
Today Ofgem published its findings on the different charges energy consumers pay, depending on their payment method.
Ofgem rules allow suppliers to charge different prices for different payment methods, but only if the amount reflects the cost of providing those accounts. The rules, introduced in 2009, protect consumers and take into account that some payment methods are more expensive to administer than others. For example, it costs suppliers more to provide pre-payment meter accounts than direct debit accounts.
Customers who use prepayment meters are now charged around £80 a year more on average compared with direct debit customers for dual fuel. This is a significant fall as the difference was almost £140 in 2009. Ofgem is satisfied that across the market the price on different payment methods reflects the varying costs suppliers face in providing them. The price difference for quarterly payment compared to direct debit has remained at around £80 since 2009.
How suppliers allocate costs of different payment methods is complex and any changes will impact consumers in different ways. For example, spreading costs across all customers would likely benefit quarterly payment and prepayment customers. However, the majority of consumers pay by direct debit (including half of all fuel-poor households) so any change would mean these consumers would pay more.
Ofgem will continue to monitor the market and take action where suppliers fall short of the rules. Ofgem will also hold a meeting with suppliers and other stakeholders in the coming months to discuss these price differences.
Since the start of April, Ofgem has required suppliers to start telling consumers what their cheapest deals are, on all bills and other communications. This means it will be far clearer for consumers to see if they can save money by changing their payment method. These rules also make it much easier for consumers to compare other deals on offer.
They could save up to £200 by switching and Ofgem advises them to regularly check they are on the best deal for them.
Rachel Fletcher, Senior Partner for Markets said: ìWe have found that price differences between payment methods reflect the costs suppliers face, and that they have dropped significantly since Ofgem introduced the rules.
ìHowever, to help re-build trust suppliers must do more to explain to their customers and interested stakeholders about what drives these price differences. Given public concern over these differences we also urge suppliers to also look at how they can provide more reassurance to consumers that they are set fairly. And now that our reforms are in place giving consumers clearer information on bills and other communications, suppliers should be working to explain where consumers could make savings by switching payment method, where possible.î
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