Page last updated at 11:47 GMT, Monday, 23 March 2009

'Unfair' energy bill ban proposed

Chief Executive of Ofgem, Alistair Buchanan, said he was determined to stamp out bad practices

Energy companies will be banned from charging "unjustified" prices under new rules proposed by the regulator Ofgem.

Prices for different payment methods, such as pre-payment meters, will have to reflect costs to the supplier.

Ofgem started the investigation into the state of the energy market in the UK in February 2008.

An industry body has welcomed the latest move, claiming that 300m has already been cut from pre-payment and electricity-only tariffs.

'Emphatic move'

In its initial findings in October, Ofgem said that there was no evidence of collusion between the "big six" suppliers in setting prices and the market was "working well" for most consumers.

This is an emphatic move by Ofgem to clear the decks of obstacles that prevent consumers from getting access to the best offers
Alistair Buchanan, Ofgem

But it raised concerns over the difference in prices for those paying in different ways, and deals for those with no gas supply.

About 12% of households pay one fuel bill on a pre-payment meter, although this increases to 37% of those in social housing, it said.

In 2005, they paid 80 more, on average, than direct debit customers. By the beginning of 2008, this had risen to 125, but this has since dropped back. Ofgem said in October that the cost of servicing a pre-payment meter is 85 a year.

It also said that those paying by cash or cheque each quarter paid 80 more a year than those on direct debit, up from 40 at the start of 2005.

Under the proposed rules:

  • Different payment methods will have to reflect the cost to the supplier of offering those methods
  • Energy companies must provide an annual statement to customers providing details such as the tariff, consumption and a reminder of the customer's right to switch
  • An at-a-glance price scorecard on bills to make it easier for consumers to switch
  • Small businesses to be given clear contracts with no automatic rollover when the agreement ended
  • Written quotes on doorstep sales.

"This is an emphatic move by Ofgem to clear the decks of obstacles that prevent consumers from getting access to the best offers," said chief executive Alistair Buchanan.

The new conditions would give Ofgem the power to fine companies that could not prove price differences were justified.

The regulator will publish a draft of the new licensing condition next month and consult with energy suppliers, with the aim to implement them by the autumn. The new rule would be in place for three years before being reviewed.

If they cannot agree, Ofgem said it retains the right to refer the matter to the Competition Commission.

Price cuts

Ofgem announced last year that it would be conducting a quarterly review of the link between wholesale prices and domestic bills.

Price cuts in 2009
British Gas: gas prices down 10% on 19 February
Scottish and Southern: electricity tariffs down 9% and gas down 4% on 30 March
Scottish Power: gas prices down 7.5%, electricity down 3% on 31 March
EDF Energy: electricity down 8.8% in some areas on 31 March
E.On: electricity tariffs down 9% on 31 March
Npower: electricity prices down 8% on 31 March

It first concluded that there was no evidence that suppliers passed on increasing wholesale costs to customers, but then failed to drop prices when costs fell.

At the end of the month, five major energy suppliers will cut some energy prices for UK households, following the move of British Gas in February.

The British gas and electricity markets were opened to competition 10 years ago and price controls were removed six years ago.

Six suppliers now dominate the market - Npower, EDF, British Gas, Scottish Power, Scottish and Southern Energy, and E.On.

Garry Felgate, chief executive of the Energy Retail Association, which represents the energy companies, said: "Energy suppliers have already taken significant action following the original probe findings, including reducing their tariffs on pre-payment and electricity-only tariffs by 300m.

"The regulator has stated on many occasions that we have the most competitive market in the world, with 100,000 people switching each week.

"Any measures which support competition in the market can only be good news for consumers, and now that all suppliers have reduced their prices, I would encourage customers to shop around to see if they are on the best tariff for their home."

But Bob Wilson, assistant director at the National Housing Federation, said the report was a missed opportunity to assist poorer householders.

"This makes a mockery of Ofgem's claims that it wants to protect vulnerable customers. Energy companies should absorb the extra costs of maintaining meters rather than passing them on to their poorest customers," he said.

"Pre-payment customers should not pay a penny more than people who pay their bills quarterly and should no longer be discriminated against."

Bar chart shows consumer gas prices since 2003

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