Co-operative Energy has scaled back a planned price increase amid expectations that the Government will axe green levies from bills.
The supplier said its tariff increase will reduce from an average of 4.5% to 2%, while regional variations in prices mean that more than half of its 150,000 customers will now see no hike at all.
Its decision comes after EDF Energy said yesterday that average prices would rise by 3.9% in January - less than half the rises announced by its "big six" rivals after it chose not to pass on the costs of Government green levies in anticipation of them being scrapped.
Fellow major provider SSE said today after announcing a £115.4 million half-year loss in its retail supply business that it would reduce bills if green levies were cut, while npower has pledged to cut price hikes if the Government removes the charges.
This would mean npower's average price increase is reduced to around 6% from 10.4%.
Co-op Energy, which launched in 2011, said its decision was in response to the "clear indication that the Government has given that it will remove the mandatory Energy Companies Obligation (ECO) green taxes on gas and electricity bills".
But it joined EDF Energy in warning that if green levies are not cut, then customers can expect steeper increases as a result.
Ramsay Dunning, group general manager at Co-operative Energy, said: "If ultimately we have misread the signals and social taxes remain in place for next year, we will have no alternative but to review this decision."
Its original price increase hit all new consumers from October 21 and was due to extend to existing energy users in January.
But those new customers who have already seen a price rise will benefit from a 2% reduction from today.
Prime Minister David Cameron has pledged to "roll back" green energy levies following mounting public anger over energy bill rises and accusations from suppliers that bills are rising due to the cost of Government schemes.
The Government has been under pressure after Ed Miliband vowed to freeze gas and electricity prices if Labour wins the next election.
Five of the "big six" suppliers have announced tariff hikes since the beginning of October, with only E.ON yet to confirm its price changes, but reports suggest it is planning to announce a 6.6% rise for the new year later this month.
German-owned E.ON said today it was "increasingly likely" that it would need to raise prices as it claimed it was running its UK supply business at a loss of around £37 million in the third quarter.
But overall, underlying profits in the UK supply business lifted 2% to £236 million in the first nine months of the year.
E.ON said it would also pass on any green levy cuts "pound for pound" to its customers.