Ms Spottiswoode said the ValuePlus package offered to 500,000 homes in the first domestic competition trial area did not amount to predatory pricing, despite the opposition of most rival suppliers and the Gas Consumers Council (GCC). Centrica, the demerged British Gas supply business, is offering to cut bills by up to 12 per cent.
Ofgas, the watchdog, said it had allowed ValuePlus to continue because competition in the South-west could be said to be established. Almost 105,000 households have switched from British Gas since the trial began a year ago, though independent suppliers argued numbers moving have dropped by half since ValuePlus was launched.
Sue Slipman, GCC director, disagreed with the conclusions. "We recognise that Ofgas had a very hard decision to make. We do not share Ofgas's view that competition has been well enough established."
The long-awaited Ofgas decision said the ruling could not be taken as a precedent for the other competitive areas in the South-east and Avon and Dorset, where 240,000 customers have switched to new suppliers. Ms Spottiswoode has also called for changes to British Gas's operating license to give three months' notice of any future changes.
British Gas Trading, the supply operation, said it was pleased with the announcement, but said the proposed new conditions were "up for discussion". It was too early to say whether ValuePlus would be offered elsewhere.
Neil Lambert, joint general manager of Calortex, one of the largest independent suppliers, called the ruling a "cop out". He said: "She had the tools to do something effective and she hasn't done so."