The energy watchdog has demanded that the Big Six energy firms explain to customers why the price of gas and electricity hasn’t fallen.
Ofgem contacted the companies last week ahead of last Friday's news that wholesale gas prices had reached their lowest level since September 2010, leading to growing anger among consumers.
Energy companies have refused to cut bills despite the slump in prices, which has helped boost their profits to near-record highs.
In fact the price the energy giants pay for gas is now around 38 per cent less than it was this time last year, Ofgem said.
Meanwhile electricity prices reached their lowest level since April 2010 and are currently around 23 per cent lower than this time last year.
But that reduction in cost has not been passed on to customers who are still paying an average £1,237 a year to heat and light their homes.
The watchdog wrote to the big energy firms and warned them to act or lose customers.
Ofgem chief executive, Dermot Nolan, said: “Consumer trust is low. If suppliers are going to start rebuilding that relationship they need to take the initiative and explain clearly what impact falling wholesale energy costs will have on their pricing policies.”
Forward prices for gas and electricity have also fallen. Compared with last winter, prices for the coming winter are around 16 per cent lower for gas and nine per cent lower for electricity.
Last winter’s mild weather has left gas storage at record levels. Ofgem said that in a competitive market the threat of losing market share would encourage suppliers to reduce their customers’ bills when there are sustained reductions in costs.
The lack of price cuts or explanations has also angered consumer groups.
Citizens Advice chief executive Gillian Guy said: “It does not add up for consumers when the wholesale price drops yet they see no difference in their bills. Energy companies need to make sure they pass on the savings they make when wholesale prices reduce. This would help relieve the pressure on stretched household budgets and send a signal to consumers that suppliers are treating them fairly.”
Ann Robinson, director of uSwitch, said: "Consumers are not going to understand why they are not benefiting from lower energy costs — when costs go up they are the first to suffer.
"It would be great if one of the Big Six companies could now take the lead and cut prices, laying down the gauntlet to the other energy companies to do the same."
Ofgem is currently proposing referring the retail market to the Competition and Management Authority after a joint report with the Office of Fair Trading and CMA confirmed that competition is not working as well as it could.
“Consumers need to know where they stand in the energy market, that’s why the outcome of the proposed competition investigation must deliver reforms to ensure it works for all consumers,” said Ms Guy.
Analysis published by price comparison site energyhelpline suggested suppliers could pass on a price reduction of £77 – six per cent - to a typical household bill.
“For too long energy customers have got a rough deal from suppliers with prices rising rapidly when wholesale prices go up but coming down very slowly when wholesale prices drop,” said Mark Todd, director of energyhelpline. “Now is the chance for the suppliers to show that they have changed and to pass on the savings that they are getting.”Reuse content