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Energy market 'failing'

06/10/2008

UK energy giants have been warned to sort out problems in the gas and electricity markets or face a competition investigation.

A study by regulator Ofgem – started after all the major firms increased prices together earlier in the year – found problems leading to some customers "missing out on the full benefits of competition".

However, no evidence of collusion over prices was found – with Ofgem studying emails and communications from the big six energy firms.

Problems were particularly raised for the 4.3 million customers without a gas supply, who cannot access the best energy deals on the market.

Ofgem is calling for measures to ban unfair price differences, including differences between payment methods such as higher prices paid by prepayment meter or standard credit customers, compared to those paying by direct debit.

The average bill difference between pre-payment meter and direct debit energy customer stood at £125 at the beginning of 2008, compared to £80 at the beginning of 2005.

Quarterly bill customers now pay £80 more than direct debit customers.

Around 12 per cent of all households pay for at least one fuel by a prepayment meter – but this rises to 37 per cent of those in social housings and 25 per cent in the DE social group.

Ofgem chief executive Alistair Buchanan said: "These are hard times and we are taking a hard line on behalf of disadvantaged consumers.

"We accept that global influences are pushing up costs but the suppliers must change their behaviour and cement consumer confidence."

He added: "Initial findings from our energy market probe give us grounds to demand that companies end practices that hinder customers, especially the vulnerable, from getting the best deal. But we have found no evidence of a cartel."

Mr Buchanan also warned if firms failed to improve their practices Ofgem would refer them to the Competition Commission, which could establish new regulations for the energy industry to protect consumers.

The regulator is also pushing for tougher rules on doorstop selling of energy deals and requirements for energy firms to provide information to help consumers to get the best deal.