Energy giants accused over bills

Following a review of the retail market, Ofgem said for the first time it had evidence the “big six” firms had increased bills in response to rising costs faster than they reduced them when expenses fell.

The regulator has threatened the major suppliers with a referral to the Competition Commission if they do not simplify prices and sell off between 10 per cent and 20 per cent of their electricity output to allow smaller firms to enter the market.

The watchdog hit out at the number of different tariffs available and called on firms to narrow the range of standard tariffs on offer.

Ofgem launched its review in November after it emerged that price rises had seen profit margins soar by an average of 38 per cent at major suppliers, which include British Gas, E.ON Energy, EDF Energy, Scottish Power, npower and Scottish & Southern Energy.

The watchdog’s report was welcomed by consumer groups and the Department of Energy and Climate Change, while industry representatives also backed moves for more transparency in the market.

Ofgem chief executive Alistair Buchanan said: “Consumers must have confidence that energy companies are playing fair at a time when they are being asked to foot the £200bn bill to pay for the investment Britain needs to ensure secure and sustainable energy supplies.”

The review found competition was being “stifled” by complex tariffs, poor supplier behaviour and a lack of transparency.

The number of tariffs available has risen by 180 to more than 300 since 2008, leaving customers “bamboozled”, Ofgem said.

Ofgem’s reforms include reducing the number of tariffs suppliers offer to avoid confusion over price and improving transparency by appointing an independent accounting firm to ensure the suppliers’ books are clear. The consultation period for the review closes on June 1.

A separate investigation into Scottish Power’s standard prices has also been launched following the review. Ofgem will look at the difference between direct debit bills and quarterly paper bills.

Energy Secretary Chris Huhne welcomed Ofgem’s proposals.

He said: “Consumers deserve the best possible deal, which means rough and tough competition in the market place.”

He added: “Making energy tariffs easier to understand and tackling poor practices will help consumers.”

Mike O’Connor, chief executive of Consumer Focus, also welcomed the “explicit” statement from Ofgem.

He said: “Companies are now on a very short leash. If they cannot show the will and capacity to change, we would expect Ofgem to refer aspects of the markets to the Competition Commission.

“Consumers have less confidence in energy companies than in any other sector – they feel that prices aren’t fair, that tariffs are too complex and that the market doesn’t treat them well.”

Ofgem found average industry margins on a standard dual fuel tariff rose to £90 in November, from £65 in September.

The watchdog vowed to look into the “facts behind the numbers” as companies claimed rising prices in the wholesale market left them with no choice but to increase bills.

Responding to Ofgem’s proposals, Phil Bentley, managing director of British Gas, said: “We welcome any proposals that further boost competition in the UK energy market and provide reassurance for consumers.”