Page last updated at 11:22 GMT, Tuesday, 16 December 2008

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."


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.

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