Ofgem orders energy companies to cut bills

Energy bills are set to fall for up to 10 million households after Ofgem demanded the Big Six suppliers end "unjustified pricing" for electricity and gas. The regulator said yesterday that the energy industry would have to justify all above-average charges on the basis of their costs, which should lower prices for prepayment and electricity customers.

Energy companies will also be required to send an annual statement to all 33 million UK customers setting out their tariff and annual energy use. Firms will also have to provide a written quotation of prices to households approached in person in a move aimed at ending "rogue" doorstep selling.

Ofcom has often been criticised for being too gentle with the Big Six power companies – nPower, E.On, EDF, British Gas, Scottish and Southern, and Scottish Power – over claims they exploited millions of customers. Last October, however, Ofgem said it believed the market was not working well for all customers. In particular it reported overcharging of 3.5 million electricity customers with former incumbent operators and some of the 5.4 million people with pre-payment meters.

Setting out a consultation yesterday, Ofgem said that in future all companies would be able to charge no more than £85 extra for pre-payment customers over the direct debit rate, when the current difference is £102. Companies will also have to justify – and more likely reduce – charging up to 12 per cent more in former monopoly areas, lopping up to £50 off an average bill.

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

The Energy Retail Association said that since October energy suppliers had cut tariffs on prepayment and electricity-only tariffs by £300m.

Its chief executive, Garry Felgate, said: "We are keen to participate in the consultations announced today and look forward to hearing the outcomes later this year."