Energy firms have been told they face emergency legal action unless they agree to slash bills for millions of households.
The Energy Secretary, Ed Miliband, threatened to use his legislative powers to change the licences of the "Big Six" suppliers unless they respond to demands to end rampant overcharging and pass on the benefits of cheaper oil price to all of Britain's 27 million customers.
Average energy bills have rocketed to a record £1,264 a year, up 40 per cent in 2008 on the back of the surging oil price which is now just a third of its summer high.
Yesterday, the energy regulator Ofgem said that suppliers were on course to make annual cuts of £500m to bills for groups of customers they had been over-charging. However, the regulator said that only £306m of the cuts had been made so far, promising to keep his "regulatory hobnail boots on" to ensure the remaining reductions were made quickly.
Unless the companies agreed to new licences ending unfair pricing, Ofgem warned it might refer the £31bn-a-year industry to the Competition Commission for an investigation.
The Energy Retail Association which represents suppliers, said it took Ofgem's statement "very seriously". The association said: "All the companies will be considering the concerns Ofgem has raised. However, [Ofgem] also recognises that energy companies have already invested £300m in response to the regulator's report."
Yesterday, Ofgem said that the companies had reduced electricity-only deals by £55m, pre-payment bills by £96m and regional premiums by £155m but expressed frustration that the suppliers had not yet made £200m cuts to electricity-only customers. Ofgem's chief executive Alistair Buchanan told BBC Radio 4's Today programme: "The end-of-autumn-term report card for the power companies is that the B-minus which we awarded at half-term has moved to a B-plus, but I think consumers and Ofgem expect an A.
"We are going to keep the regulatory hobnails on. We are going to add a legal toe-cap to this. We want two things – first of all, legal changes to lock in the protections for consumers so the companies can't slip back to their old ways and poor performance, and we will look to do that through a licence change. Secondly, we want the companies to deliver the rest of the premium to the off-gas grid customers during the winter."
The Energy Secretary said it was clear that the pressure being applied to companies was having an effect. But Mr Miliband warned the companies: "If Ofgem's route to changing the law doesn't work, I am prepared to consult on legislation myself."
His department later said that Mr Miliband was referring to his secondary legislative powers to alter supply licences without needing to pass new laws at Westminster.
Ofgem: Then and now
16 January 2008: Ofgem statement
In their meeting today with the Chancellor, Alistair Darling, Ofgem chairman Sir John Mogg and chief executive Alistair Buchanan confirmed that Britain's competitive market in energy is working. Mr Buchanan said: "Obviously, we look even more closely during periods when prices are rising, but we have no evidence of any anti-competitive behaviour. We see companies gaining and losing significant market share, record switching levels and innovative deals."
* December 16: Ofgem interview
Mr Buchanan said: "The end-of-autumn-term report card for the power companies is that the B-minus which we awarded at half-term has moved to a B-plus, but I think consumers and Ofgem expect an A. We are going to keep the regulatory hobnails on. We are going to add a legal toe-cap to this."Reuse content