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Energy customers to win compensation

The regulator Ofgem is to be given new powers to force energy companies to compensate customers who have been mis-sold services or overcharged.

The Energy Secretary, Ed Davey, said the changes, which are put out to public consultation today, will strengthen Ofgem's ability to protect consumers and bring it into line with the powers held by other regulators.

The proposals come amid The Independent's Fair Energy campaign, which is fighting fuel poverty by calling for a windfall tax to force energy companies to help their most needy customers. It is hoped the changes would end the present system in which Ofgem can fine companies, with the money going to the Government, but has no authority to order compensation to be paid to consumers. Any payments that are made to consumers are voluntary.

Mr Davey said yesterday: "I want to make sure that consumers are protected and that the independent energy regulator has the powers it needs.

"We are now looking at beefing up Ofgem's powers so that it can make companies compensate consumers directly, rather than necessarily having to rely on a voluntary approach."

The proposals were, however, described as "tinkering around the edges" by Ed Matthew, director of the campaign group Transform UK, which is calling for radical reform of energy bills. "This is a small step forward to protect exploited energy consumers," he said. "But if the Government is serious about bringing down energy bills, they must use carbon tax revenue to make all homes super energy-efficient. This is the only permanent solution to end the blight of fuel poverty." He said that from next year carbon taxes will raise £2bn, rising to £4bn by 2020, enough to make 600,000 homes energy efficient each year.

Ofgem welcomed the proposed new powers. Sarah Harrison, in charge of enforcement, said: "These powers, which we have been seeking from government, would strengthen our ability to take more targeted action against companies that are found in breach of their licence."

Audrey Gallacher, the director of energy at Consumer Focus, said: "This is a really welcome move from the Government. Money should be going back into consumers' pockets when they have lost out – not into the Treasury's coffers as is the case with fines now."

The executive director of Which?, Richard Lloyd, said: "It's only fair that consumers are properly compensated when they have lost out due to energy companies overcharging or mis-selling."