Energy giants cleared of price collusion

Britain's energy industry is working well for most customers but at least 4.3 million are being overcharged, the regulator Ofgem said yesterday.

During a seven-month inquiry into the energy markets, Ofgem found that after costs companies made about £1bn a year, or 4 per cent of total sales, from "premiums" charged to certain sets of customers, many of them vulnerable.

Of the UK's 33 million energy customers, 4.3 million electricity-only households were experiencing a lack of competition and many of the 5.4 million on pre-payment meters (PPMs) were being overcharged, the regulator said.

Customers most likely to be getting a rough deal were country-dwellers living away from the gas network and the poor and the elderly without bank accounts or access to cheap deals on the internet.

But Ofgem dismissed any suggestion that the Big Six energy giants were colluding to fix prices, and said the rate of switching between companies – done by 3 million people, or 18 per cent of customers, annually – showed there was adequate competition.

"Overall, the transition from monopoly gas and electricity supply 10 years ago to competitive markets is well advanced and continuing to develop," the regulator said in the initial findings of its Energy Supply Probe. "Many consumers have benefited from lower prices, better service and a wider range of deals on offer. The Big Six suppliers are acting competitively."

Ofgem added that there were some important areas where the transition to competitive markets needed to be accelerated, warning that vulnerable consumer groups were "disproportionately affected".

Ofgem told the companies to do more to publicise disparities in cost in tariffs by listing their extra cost on bills and on an annual statement to be sent to all customers. In addition, new operating licences would stipulate that different payment tariffs (for pre-payment, for instance) reflected costs.

The consultation ends on 1 December. Ofgem warned that unless companies agreed a suitable package of measures, it would consider referring the industry to the Competition Commission.

The Energy Retail Association praised a "timely and thorough report" at a time of rising energy prices. "After seven months of exhaustive investigation, Ofgem found no evidence of an energy cartel, and confirmed that the British energy market remains one of the most competitive in the world," said the ERA's chief executive, Garry Felgate.

Ed Mayo, chief executive of Consumer Focus, the new Government-funded watchdog which has replaced Energywatch, demanded swift action to stimulate competition among the Big Six and encourage new entrants. "For a market that is meant to be working for all consumers, Ofgem has found plenty to fix," Mr Mayo said. "The report certainly points to systematic overcharging of certain groups – especially the most vulnerable who use prepayment meters."