Ofgem targets £500m bill savings

Energy Secretary Ed Miliband on unfair pricing

An energy market investigation by industry regulator Ofgem is on track to remove more than £500m in unfair bill premiums, the watchdog has said.

Ofgem said that since the probe began, more than £300m had been taken off bills, including those of pre-payment meter customers.

It added that the big six energy suppliers had indicated that further price cuts should reach at least £200m.

However, Ofgem said the pace of delivery of the cuts had to be faster.

It said it could still refer the matter to the Competition Commission in the New Year if it was not ultimately satisfied with the industry's response to its proposals.

'Encouraging signs'

The £200m of additional price cuts will benefit the more than four million households who are not connected to the gas grid.

Many of them live in Scotland and Wales.

Customers who are not on mains gas are disadvantaged, because they cannot apply for the cheaper dual-fuel tariffs available to other customers.

"We've seen progress, but it's certainly not the endgame," said Ofgem chief executive Alistair Buchanan.

"We've seen encouraging signs since the end of our initial investigation, but we demand more and quicker action for those customers currently losing out.

"We are about to consult on new rules to end unfair pricing in future."

However the shadow Energy Secretary Greg Clark said Ofgem's plan was hopelessly weak.

"The Ofgem package brings no prospect of early relief for consumers who are struggling this winter," he said.

"The government should now ask the Competition Commission to conduct an urgent investigation into the prices the energy companies are charging consumers.\

Investigation

Ofgem stopped regulating retail gas and electricity prices in 2002, because it believed that the spread of competition would keep prices down.


We're going to initiate legal changes to lock in the protections for consumers, so the companies cannot slip back into their old ways and poor practices
Alistair Buchanan, Ofgem

However, complaints from consumer groups and disquiet over soaring energy bills prompted it to investigate formally the working of the UK energy market.

Ofgem's initial findings, published in October, cleared the energy firms of acting as a cartel.

But it pointed to different ways in which some tariffs discriminated unfairly against certain types of customer.

The probe identified overcharging on pre-payment meters and some customers' lack of access to dual-fuel tariffs.

But it also fingered the long-standing practice of firms charging higher tariffs to customers in their traditional "home" areas, rather than the cheaper tariffs available to those they try to poach from each other elsewhere in the country.

Price control

The big six energy suppliers have so far surrendered £181m in unjustifiably high prices for "home" area customers, as well as £96m in charges for pre-payment meters and £55m in price cuts for off-mains customers.

The regulator now wants a further £200m of price cuts for those who do not have access to mains gas.

To push this through, it has asked the energy firms to agree by next February to change the terms of their licences, so that unjustified and unfair pricing is prohibited legally.

If the firms do not agree, they will have to undergo a full investigation by the Competition Commission.

"We're going to initiate legal changes to lock in the protections for consumers, so the companies cannot slip back into their old ways and poor practices, and secondly, we want the companies to deliver the rest of that premium, that £200m, to customers during the winter," said Mr Buchanan.

Direct debit bonanza for power firms

Energy companies have been accused of picking millions of pounds from customers' pockets by setting monthly direct debit payments too high.

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As many as 70% of householders are in credit with their gas or electricity provider, according to research by Which?

The result, it is claimed, is that the firms are sitting on a cash mountain they can earn interest on.

Power firms are supposed to base the monthly direct debit figure on an estimate of annual use, divided by 12

However, Which? says the industry appears to have got its sums wrong, with the result that customers are losing out on a huge scale.

Research for Which? Money magazine found that one in four of those who are in credit were owed more than £100, while just under one in ten were owed more than £200.

The cash generated by such overcharging has led to long-running complaints of customers being ripped off.

Which? said the evidence of direct debits being set too high was the most common complaint about energy suppliers in a survey of customer satisfaction.

Power suppliers scored an average satisfaction rating of 43%, the worst of any sector - including banks.

Npower, which is owned by the German utility giant RWE, scored a satisfaction rating of just 30%.

One respondent described the firm as the 'worst' he had come across, another said it was 'useless at sorting out problems'.

Some 30% of Which? members said they had had issues with their supplier, such as direct debits set too high and errors on bills.

Anger has increased with the failure of suppliers to pass on the full benefit of a 50% fall in the wholesale energy prices since last summer.

The industry regulator Ofgem launched an inquiry into direct debit charges last year after complaints from consumer groups and MPs. It has not yet reached a conclusion.

Which? Money editor Martyn Hocking, said: 'It seems incredible that energy companies can take hundreds of pounds more than they need and profit from the interest that money will earn at our expense.

'As the recession bites, we are all looking for better service at reasonable prices and energy suppliers need to take note.'

The Energy Retailers Association denied profiteering on charges. A spokesman said: 'This is absolutely not the case. Companies are trying to make sure you get a balanced account that is zero or as close to zero as possible after you've had the biggest bill.'