Scottish Power savings claim probed by watchdog

The energy watchdog said today that it had launched an investigation into a "potentially misleading" offer by Scottish Power promoted during its last price hike.

Ofgem, which is pressing ahead with a proposed shake-up of the industry, said it will look at Scottish Power's £459 savings claim from its "Direct October 2012" offer.

The energy supplier unveiled the offer earlier this month when it said gas tariffs will rise by an average of 19% from August 1 and electricity will go up by 10%.

Earlier this year, the regulator threatened the "big six" with a referral to the Competition Commission if they did not simplify prices and sell off between 10% and 20% of their electricity output to allow smaller firms to enter the market.

Under the Scottish Power Direct October 2012 Offer, the company guaranteed prices would remain a minimum of 1% per year below its standard monthly direct debit gas and electricity prices until September 30, 2012.

But discussing the product, Alistair Buchanan, chief executive of Ofgem, told the BBC that "when you look at the small print it looks very different from that".

He said: "We have been looking at their marketing material in particular, and under our consumer protection powers we are very concerned about some of the claims they have made and so we will be having a look at that very carefully."

Ofgem stressed that an investigation being launched did not mean Scottish Power had breached its obligations.

Scottish Power is also under investigation over its pricing plans and, along with three other providers, into potential mis-selling of energy to customers.

Mr Buchanan said during its review of the energy market it struggled to see where up to £700 million of the £2.9 billion in profits generated by the industry came from.

He said the "big six" - British Gas, Npower, E.ON Energy, EDF Energy, Scottish Power and Scottish and Southern Energy - were engaging in the reform process.

The watchdog said it had received support for its proposed reforms for the wider industry from Consumer Focus, Which? and the Citizen's Advice Bureau.

Ofgem wants to "sweep away" complex tariffs so consumers can understand prices more easily and wants to "break the stranglehold" the big six energy firms have on the market.

The regulator hopes to publish full proposals for its reforms next year after consultation with interested parties, including suppliers.

Mr Buchanan said Ofgem found that over the last five years profits for the big six had remained "more or less the same" - just below £3 billion on aggregate.

He said: "We watch that quite carefully because of course, on the one hand, the companies, they say, 'we are losing money in a certain part of the energy chain' but it would appear, given that their overall profits stay at much the same level, that they regain profits elsewhere."

Mr Buchanan said Ofgem had appointed an independent official accountant look at the industry books.

Michael O'Connor, chief executive of Consumer Focus, said: "Energy suppliers have been in denial about their poor reputation, the health of the market, and scale of change needed to put it right. This market needs to change. Ofgem has taken another step today and we welcome it."

A Scottish Power spokesman said: "We agree that information about all energy tariffs across the market should be as clear as possible and we will fully co-operate with the Ofgem investigation.

"The tariff in question was a very limited offer with considerably discounted prices, which is now fully subscribed.

"However, there are a number of similar products still available on the market from competitors. We believe that all figures that have been quoted by us are accurate."