Methods of paying

CPAG

Methods of paying

As the supply of energy is governed by contracts, it is open to you and your supplier to negotiate and find a solution to your arrears. However, because of the large number of customers of each supplier, energy companies may find it difficult to reach individual solutions. In legal theory – and in practice – it is possible for suppliers to clear arrears by an individual payment scheme, settlement payment agreement or even by the supplier writing them off, wholly or in part. This is even more likely in cases where suppliers have been at fault.

Unfortunately, it may be difficult to get a supplier to exercise any such option at first approach, since customer service staff may not be fully aware of the range of options legally available. Persistence may be necessary and unique proposals may need to be put into writing.

Before negotiating with your supplier, consider which way of repaying your arrears best suits your needs. Also consider the supplier’s internal codes of practice, policy and procedures currently in place to recover arrears. Consider the practicalities of using a particular avenue and how convenient it is for you to make your payments – it is important to make an arrangement or settlement which you can keep. Chapter 4 looks at the advantages and disadvantages of the various methods of payment.

Generally, you will need to discharge arrears:

•through a short-term arrangement; or

•in instalments through a longer-term payment plan; or

•through a prepayment meter; or

•through the Fuel Direct scheme.

The ways these various options work are discussed below. The payment method available may also depend on your payment arrangements in the past. Your supplier is less likely to agree to your choice of method if you have a succession of broken arrangements. The supplier may take the view that a prepayment meter offers the best chance of secure and regular payment without increasing arrears.

Energy companies usually expect you to reach arrangements by telephone. It is advisable to back up any conversations in writing by email and enter into correspondence wherever possible, keeping copies. Keep a record of any failure to respond to raise in your defence at a later date should the matter result in court action.

Wherever possible, deal with the supplier’s complaints or customer service department, as call centre advisers often know little about the relevant law or about ways a dispute may be lawfully settled. Some suppliers have appropriate extra care or support teams who may be able to get involved with a view to resolving problems if you have a need or vulnerability. Provide as much information about your financial situation as you can so that the staff can establish the most suitable method of payment for you.1Condition 27 SLC Be prepared to provide information about your income and expenditure and, if you can, provide a detailed financial statement listing all your liabilities (see here). Inform the supplier if anyone in your home is elderly, disabled, chronically sick, under five years old, has a mental health condition, if you claim a means-tested benefit, or if there are any other factors which cause you financial hardship, such as multiple debts, redundancy or sudden change in circumstances.

If you are not satisfied with the options made available to you, consider using your supplier’s complaints procedure. Citizens Advice consumer service can provide advice where there is a dispute about the choice of a meter or method of payment or if a deadlock situation is reached. If you are in a vulnerable situation the Extra Help Unit may help (see here). The Energy Ombudsman may be able to intervene where the complaints system has been exhausted (see Chapter 14).

Consider applying for charitable assistance to repay or reduce arrears if you are experiencing serious hardship (see here).

1 Condition 27 SLC »

Short-term arrangements

Where problems with hardship are likely to be temporary, suppliers are often willing to come to a short-term arrangement to enable you to pay your bill in instalments, based on your ability to pay, as long as the outstanding balance is paid before your next bill arrives. If you ask for this arrangement regularly, a payment plan or a prepayment meter may be a better option.

Payment plans

Suppliers calculate an amount which you are required to pay on a weekly, fortnightly or monthly basis. This figure includes an estimated amount for current consumption and an amount for arrears.

Many suppliers add your arrears to your estimated annual consumption, and then divide by 12 for a monthly figure, or by 52 for a weekly figure. You may be told that this is the figure the computer says you have to repay in order to ensure that you will repay the arrears within a year. This is an arbitrary figure chosen by the supplier and has no legal basis. Often, the use of this formula means that you may be required to repay the arrears at a faster rate than you can afford. The overriding principle is that the method and rate of repayment should take account of your ability to pay.1Condition 27.8 SLC and codes of practice from suppliers If, for example, you can only afford to repay £3 a week, the supplier should simply add this figure to your estimated weekly consumption.

It is also important to ensure that the amount estimated for current consumption accurately reflects your use of fuel and that the supplier does not attempt to recover the arrears more quickly than you can afford by overestimating your consumption.2Condition 27.15 SLC Ensure that you read your meter each quarter so that you can accurately track your consumption and, if necessary, ask for a review of the rate of your payments.

If you have not previously had any difficulty with your bill or you have previously been able to manage a payment plan, you should not be refused this as your preferred option. If paying regularly via PayPoint is convenient for you, say so.

Before contacting the supplier to implement a payment plan it is useful to complete a full financial statement outlining your income and expenditure (see below). This shows you exactly how much disposable income you have. Use this information to work out how much you can afford to use to repay your energy debt. Once you have this figure, do not agree to a payment plan for more than this. This is for two reasons: firstly, you may try to meet these unrealistic and unequitable payments to the detriment of feeding, heating or clothing you or your family. Secondly, if you fail to meet the payments it may make your debt situation more complex, and could prejudice any future negotiations with your supplier. Therefore, resist any attempts, however persuasive, by your supplier to agree to a payment plan that is for more than you can realistically afford.

If you do not keep to the first payment agreement made, your supplier is likely to insist you have a prepayment meter rather than renegotiate a further arrangement. However, if there are legitimate reasons why an arrangement has been broken, such as a change of circumstances, this should not disqualify you, particularly if it is the only or most suitable method for you.

Some suppliers may allow you to have a payment plan in conjunction with a prepayment meter set to pay for current consumption only.

Preparing a financial statement

Stage 1: Work out your income and essential expenditure

Firstly, add up all the money you have coming in from your household income streams: wages, benefits and tax credits, maintenance and any other income every week or month, depending on how you are paid. Check that you are receiving all the benefits to which you are entitled, available discounts and exemptions are afforded to you and that you are not paying too much tax. A free local advice agency, such as a law centre, Citizens Advice or welfare rights service can help you undertake such income maximisation and benefit calculation. You can also get this assistance on the telephone from National Debtline free of charge. This is important because it could give you access to additional support, such as a Warm Home Discount.

Secondly, work out what you spend each month on essentials. Ignore any payments for arrears at this stage. Include your normal payments for the following items:

– rent or mortgage and any other loans secured on your home;

– gas (your average weekly or monthly bill over the last year);

– electricity (your average weekly or monthly bill over the last year);

– council tax;

– water charges;

– childcare;

– transport to work;

– food;

– clothing;

– other regular household expenses – eg, telephone, internet, insurance etc.

Be realistic, and remember that payments for housing arrears are a priority – eg, rent or mortgage. Work out what you need to live on over a long period and not over a week. Do not include current payments on loans, credit agreements or catalogues.

When you have done this, deduct the total of your expenses from your total income. The difference is what you have available to deal with your debts. If this is nothing, or your expenses are more than your income, seek advice.

Stage 2: Work out your debts

Make a list of everything you owe to everyone. Include:

– arrears of rent/mortgage;

– arrears of gas/electricity/water/telephone bills;

– the total amount owing (not just the arrears) on loans, credit cards, catalogues, credit agreements, etc.

Some debts must take priority because there are serious consequences if you cannot pay them. For most people these are:

– rent, mortgage or secured loans;

– council tax;

– magistrates’ court fines;

– arrears of child maintenance.

If you are in arrears with any of these, contact the people and/or organisations you owe and try to arrange affordable repayments. If you explain your position fully, including any vulnerabilities you may have, they usually allow you a period to pay off your arrears. This may be a long period of time – particularly if you are in receipt of a means-tested benefit (see Chapter 11) or you have a low income. You may be able to reach an agreement to pay off mortgage arrears over the remaining term of the mortgage.3Cheltenham and Gloucester Building Society v Norgan [1996] 1 All ER 449 If you cannot reach an agreement, or if you think you have agreed to something you cannot afford, seek advice (see here).

Deduct the total of what you have to pay on these priority debts from the amount you had available to pay all the debts. If there is nothing left, seek advice.

Now divide what is left fairly between all the other people you owe money to.

Stage 3: Work out how much to pay your creditors

To work out how to share this money between your creditors, there is a basic pro-rata rule: the more money you owe to one creditor, the bigger share that creditor gets.

Add up all your debts (except the priority ones you dealt with at Stage 2).

Next, work out what percentage of your total debt is made up by each individual debt. For example, if your total debt is £2,400 and you owe British Gas £120, the percentage of the total debt owed to British Gas is:

£120x 100 = 5%

£2,400

Take that percentage of the weekly or monthly amount you have available to pay your debts.

In the example above, if you have £15 a month available for debts, you should pay British Gas 5 per cent of that: £15 x 5% = £0.75 a month.

Once you have worked out all these details, contact all of your creditors. They all need to see your financial statement to understand why you will only be making a small payment to each of them. Fuel suppliers ought to accept whatever you can afford to pay using this calculation. They may try to argue that they should be priority creditors, but they must accept what you can reasonably afford to pay. Your electricity supplier may have adopted a policy of accepting low rates of repayment on a pro rata basis with other creditors when revising its code of practice. Check your supplier’s code of practice.

1 Condition 27.8 SLC and codes of practice from suppliers »

2 Condition 27.15 SLC »

3 Cheltenham and Gloucester Building Society v Norgan [1996] 1 All ER 449 »

Prepayment meters

Prepayment meters can be calibrated to pay for gas or electricity before consumption. It can also be calibrated to pay for arrears over a period of time. For many prepayment meters (or remote-recalibrated smart meters), this means adjusting the meter to reclaim a fixed amount of arrears each week, irrespective of the amount of fuel used. A timing device in the meter registers the amount due towards the arrears each week. This amount is then deducted from the value of fuel paid for by inserting tokens, cards or keys, either when the meter is recharged or over the week. Credit is built up on tokens, cards or keys at local shops or at PayPoint outlets. If you do not credit the meter every week, a build-up of these charges may result. Your supply is effectively disconnected until you can afford to pay these charges through your meter. This is known as ‘self-disconnection’. Self-disconnection can occur on a credit-calibrated mode prepayment meter if all credit is exhausted, including a fixed emergency credit. Signatories to Energy UK’s vulnerability commitment have agreed to alert prepayment customers of standing charge build-up during the summer, and encourage them to keep their meters topped-up during this time and avoid self-disconnection.1Energy UK, The Vulnerability Commitment, December 2020. Signatories include British Gas, EDF Energy, Scottish Power, Octopus, Bulb, Utility Warehouse, OVO Energy, Ecotricity, Together Energy, SO Energy, Outfox the Market and E Energy. See here for help if you have self-disconnected.

If you deliberately limit or control your energy use to lengthen your available credit or prudently save money for other goods or services, this is called ‘self-rationing’.

Suppliers must actively manage consumer usage and self-disconnection for prepayment meter customers. Standard Licence Condition (SLC) 27A requires that suppliers provide appropriate emergency credit support (usually about £5) in situations of self-disconnection or self-rationing to ensure continuity of supply. They must also offer ‘friendly hours’ top-up points and ‘additional support credit’ if you are in a vulnerable situation. See here for more information.

On a smart meter, the emergency credit support can be accessed via the in-home display (IHD).

The emergency credit support provided needs to be repaid at the point of your next top-up or agree an instalment plan taking into account your ability to pay.2Condition 27A.6

The gas Quantum meter and similar ’smart card’ electricity prepayment meters are more sophisticated in the way they are able to recover arrears. They recover an agreed fixed sum once each week and leave you with a certain minimum percentage of your credit – typically 30 per cent – for your current fuel supply. This means you always get some fuel for each credit you make.

The British Gas prepayment meter is set so that, where there is a build up of weekly fixed charges, you are guaranteed the use of only 10 per cent of any credit you make for your ongoing supply. The remaining 90 per cent is used towards this part of your debt.3 If your supplier offers this, or a similar meter, you can find out the level of this setting from the meter itself. The information booklet supplied with the meter should give details of how to obtain information from the meter. These settings can be changed by the supplier. It may be worth pressing for a change in the settings or tariff if you are facing hardship as a result of the amount you are paying back.

Smart meters can be programmed remotely to operate in both credit and prepayment mode. You can agree with your supplier to pay the way that best suits you. They facilitate greater payment flexibility, and choice – eg, you can top-up credit instantly online, via text message or through your telephone, reducing the risk of ‘self-disconnection’. You can also manage your budget better because of the IHD shows your consumption, debt balance, emergency credit balance and provides low credit alerts.

A prepayment meter can sometimes be a good option if you have energy debts. Some rented properties already have prepayment meters to avoid fuel debts being left by previous tenants. The advantage is that you pay-as-you-go and cannot therefore run into more debt. It also means that once the debt is paid off the situation cannot resurface in the future. However, the disadvantages of a prepayment meter include the risk that if you are in serious financial difficulty or have a physical impairment, the lights may literally go out. Ofgem’s Consumer Survey 2020 found that of the four million households using prepayment meters, 21 per cent had self-disconnected their supply in the previous 12 months.4

It is rare for a voluntary request for a prepayment meter to be refused. If it is, contact Citizens Advice consumer service. If you cannot have a prepayment meter for safety reasons or because you are particularly vulnerable, negotiate a payment plan or request Fuel Direct if you receive a qualifying benefit.

If you have previously not been able to manage a payment plan, you may be offered a prepayment meter as your only option. If this is not convenient for you, try to renegotiate another payment plan – SLC 27 sets out a number of alternatives including Fuel Direct.

You are not normally charged the cost of repositioning a meter to enable a prepayment meter to be fitted in these circumstances or for a smart meter set in prepayment mode.

Resisting a prepayment meter

Suppliers sometimes attempt to impose a prepayment meter– eg, if a payment plan breaks down or if you are unwilling or unable to pay a security deposit.

– In individual cases, Ofgem has a duty to make decisions about the reasonableness of the request for security, including the request for a cash security deposit or the imposition of a prepayment meter as an alternative.5Condition 27.3 and 27.4 SLC

– Check the supplier’s code of practice and point out its obligations, including licence obligations towards the vulnerable.6Condition 28B(1) SLC Try to negotiate an affordable payment plan in the first instance. Ensuring that a payment plan is affordable reduces the chance of it failing and avoids more difficult negotiations to reinstate a revised payment plan.7Condition 27.8 SLC

– Check whether the supplier is a signatory to Energy UK’s 10 ‘Prepayment Meter Principles’8Current signatories are Bristol Energy, British Gas, Cooperative Energy, Ecotricity, EDF, E.ON, First Utility, Good Energy, NPower, ScottishPower, SSE, Tonik Energy, Utility Warehouse and Utilita. which provides better safeguards and protections if you are in financial difficulties.9Energy UK, Prepayment Meter Principles, available at .

– Where a supplier asks for a security deposit, you may need to show that you are able to manage a payment plan, perhaps by referring to other bills you have successfully managed to pay in instalments – eg, catalogue debts or consumer purchases. If negotiations fail, contact Citizens Advice consumer service.

– If it is not ’safe and reasonably practicable’10Condition 27.6(a)(iii) SLC for you to operate a prepayment meter, the supplier is in breach of its duty to supply and should offer you alternative means to resolve the problem.11Condition 28.1A and 28.1B SLC Contact Citizens Advice consumer service.

– If you have entered into a breathing space scheme (see here), fresh action to install a prepayment meter must not be taken (existing warrant proceedings may however continue, save execution of the warrant).12DRS Regs

– If you have entered into a breathing space scheme, a supplier must not use a prepayment meter already installed to take payments, except if you had agreed to the meter before the breathing space commenced.13DRS Regs

Prohibitions on installing a prepayment meter

Suppliers are prohibited or restricted from force-fitting prepayment meters under a warrant in certain circumstances. A warrant should not be exercised and a prepayment meter installed where:

•it will be severely traumatic to you due to an existing vulnerability which relates to your mental capacity and/or psychological state and will be made significantly worse by the experience;14Condition 28B(1) SLC

•you are in financial difficulty and the supplier has not offered or discussed with you a range of debt repayment options first;15Condition 27.5 and 27.6 SLC

•it is not a ‘proportionate’ measure in the debt recovery process. Suppliers must ensure that all debt recovery actions and costs and charges levied up to, and including, applying for a warrant are proportionate to the amount that is owed;16Condition 28B.4 and 28B.5 SLC

•there are unpaid charges which are genuinely in dispute;17Sch 6 para 2 EA 1989; Sch 2B para 7 GA 1987

•you have entered into a breathing space scheme (see here).18DRS Regs

Prohibitions on warrant-related charges

Suppliers are prohibited from levying charges or costs associated with a warrant (including applying for and executing) where:

•you have a vulnerability which significantly impairs your ability to engage with the supplier;19Condition 28B.2(a) SLC

•you have a severe financial vulnerability which will be exacerbated by warrant-associated charges or costs;20Condition 28B.2(b) SLC

•you have entered into a breathing space scheme (see here).21DRS Regs

In all other cases, warrant-related charges and costs are capped to £150.22Condition 28B.3 and 28B.10 SLC

Is it safe and reasonably practicable for you to have a prepayment meter?

When a supplier becomes aware that it is not safe and reasonably practicable in all circumstances for you to use a prepayment meter, it should make alternative payment arrangements, move your meter, adapt your meter or replace it completely.23Condition 28.1A SLC What determines ’safe and reasonably practicable’ is open to interpretation. Relevant factors can include:

– a physical or mental disability, or other limitation, which prevents you from operating or understanding a prepayment meter or prevents you from travelling to local top-up outlets or operating top-up devices;

– you require an uninterrupted or regular fuel supply due to a relevant health condition – eg, an electric ventilator;

– local top-up outlets are located an impracticable distance from you to travel;

– the prepayment meter is located in an inaccessible location – eg, a locked room which you do not have regular access, high on a wall or outside.

Where it becomes apparent that it is not safe or reasonably practicable for you to have a prepayment meter, raise a formal complaint with your supplier. Consideration should be given to guidance published by Ofgem.24Ofgem, Guidance on the interpretation of safe and reasonably practicable for the purposes of Standard Licence Condition 28, 31 March 2016 You can also contact Citizens Advice consumer service.

Collecting arrears from a previous property on a prepayment meter

The Electricity (Prepayment Meter) Regulations 200625SI 2006 No.2010 and the Gas (Prepayment Meter) Regulations 200626SI 2006 No.2011 allow a prepayment meter to be used to recover a sum owed to a supplier for the supply of gas or electricity, including the provision of the gas and electricity meter, ‘at any premises previously owned or occupied by the customer’.27Reg 3(1)(a) E(PM) Regs; reg 3(1)(a) G(PM) Regs Note that a supplier cannot recover sums unless it had previously entered into an agreement with you, which states in writing:28Reg 4 E(PM) Regs; reg 4 G(PM) Regs

•your name; and

•the charges you are required to pay in addition to those recovered from a previous property; and

•a guarantee that the supplier has verbally provided you with details of other payment options available to you; and

•the operation of the prepayment meter as regards recovery of debt and charging for ongoing consumption; and

•the implications are of failing to make payments.

You can cancel the agreement by giving verbal or written notice to the supplier within seven working days of receiving the written terms of the agreement. Either party can terminate the agreement on provision of 30 days verbal or written notice.

Vulnerable customers facing disconnection should refer to the Energy UK’s safety net policy and vulnerability commitment (see here) and SLC 28.

1 Energy UK, The Vulnerability Commitment, December 2020. Signatories include British Gas, EDF Energy, Scottish Power, Octopus, Bulb, Utility Warehouse, OVO Energy, Ecotricity, Together Energy, SO Energy, Outfox the Market and E Energy. »

2 Condition 27A.6 »

3 »

4 »

5 Condition 27.3 and 27.4 SLC »

6 Condition 28B(1) SLC »

7 Condition 27.8 SLC »

8 Current signatories are Bristol Energy, British Gas, Cooperative Energy, Ecotricity, EDF, E.ON, First Utility, Good Energy, NPower, ScottishPower, SSE, Tonik Energy, Utility Warehouse and Utilita. »

9 Energy UK, Prepayment Meter Principles, available at . »

10 Condition 27.6(a)(iii) SLC »

11 Condition 28.1A and 28.1B SLC »

12 DRS Regs »

13 DRS Regs »

14 Condition 28B(1) SLC »

15 Condition 27.5 and 27.6 SLC »

16 Condition 28B.4 and 28B.5 SLC »

17 Sch 6 para 2 EA 1989; Sch 2B para 7 GA 1987 »

18 DRS Regs »

19 Condition 28B.2(a) SLC »

20 Condition 28B.2(b) SLC »

21 DRS Regs »

22 Condition 28B.3 and 28B.10 SLC »

23 Condition 28.1A SLC »

24 Ofgem, Guidance on the interpretation of safe and reasonably practicable for the purposes of Standard Licence Condition 28, 31 March 2016 »

25 SI 2006 No.2010 »

26 SI 2006 No.2011 »

27 Reg 3(1)(a) E(PM) Regs; reg 3(1)(a) G(PM) Regs »

28 Reg 4 E(PM) Regs; reg 4 G(PM) Regs »

Fuel Direct

The Fuel Direct scheme is a means to clear fuel arrears. It is also known as the DWP’s ‘third party deduction scheme’. It allows an amount to be deducted from your benefit at source by the DWP and paid directly to your energy supplier until the debt is cleared.

To be placed onto the Fuel Direct scheme you must have a fuel debt and be in receipt of:

•income support, income-based jobseeker’s allowance (JSA), income-related employment and support allowance (ESA) or pension credit. In some situations, deductions can be made from contribution-based JSA or contributory ESA. A fixed amount, £3.85 (during 2022/23) a week, is deducted to address your arrears; or

•universal credit (UC). 5 per cent of your UC is deducted to put towards your outstanding fuel debt.

An additional amount can also be deducted to cover ongoing consumption, based on your previous annual bill, except where you are using a prepayment meter. This is to avoid future debt accruing and assist with budgeting in the future. See here for how the scheme works.

Fuel Direct should be used as an option, ‘where available’, when arrears have been incurred by vulnerable people.1Condition 27.6 SLC A supplier may be at fault if it overlooks this option, as many people who fall within a vulnerable category are likely to be on a qualifying benefit. You must be contacted by the DWP to establish your wishes or an opportunity to make representations before being placed on the scheme.2Timson, Rex (On the Application Of) v SSWP [2022] EWHC 2392 (Admin)

If you are eligible for Fuel Direct and are willing to have arrears deducted from your benefit, request that your supplier and Jobcentre Plus implement this.3Between 5 April 2022 to 5 April 2023, suppliers cannot request new or increased Fuel Direct payments, Be prepared to raise a formal complaint if the supplier will not implement Fuel Direct or if you face procedural obstacles or delays (see Chapter 14).

1 Condition 27.6 SLC »

2 Timson, Rex (On the Application Of) v SSWP [2022] EWHC 2392 (Admin) »

3 Between 5 April 2022 to 5 April 2023, suppliers cannot request new or increased Fuel Direct payments, »

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