Watchdog: 'Energy companies over-charging households'

Energy companies are over-charging customers and failing to pass on billions of pounds worth of savings made because of falling gas and electricity prices, it was reported today.

A report by the watchdog Consumer Focus states the fall in wholesale prices has saved energy companies around £1.6 billion but this has not been reflected in average domestic bills.

Energy bills rose by 42% last year with the average household paying £1,293 for the year.

Consumer Focus deputy chief executive Philip Cullum said consumers had feared suppliers had not passed on the full cuts in wholesale prices.

He told the Independent: "Our new research for the first time shows the reality. The companies are pocketing £1.6bn extra while millions of households struggle to make ends meet.

"Energy firms should take immediate action to put things right. A failure to act, and to ensure that people pay a fair price for energy, could have serious consequences for the sector."

But Garry Felgate, chief executive of the Energy Retail Association which represents the industry, said the watchdog had made basic mistakes in its report.

He said: "The amount of gas and electricity a customer uses can form as little as half their annual bill.

"The remainder includes other costs, such as transporting gas and power and meeting the Government's carbon emissions reduction targets - all these costs have risen sharply in recent years."

National Housing Federation chief executive David Orr said: "The findings of the Consumer Focus investigation are a damning indictment of the UK energy market, which is the least regulated in Europe.

"At least five of the big energy companies have repeatedly overcharged customers, especially those on prepay metres, in a potential breach of EU directives. As a consequence, many people may be entitled to compensation.

"The energy regulator Ofgem has long been soft on the fat cat energy companies, and it is now time for it, and the Government, to start intervening effectively to give energy consumers some real protection."

Mr Felgate said it was "misleading" of Consumer Focus to suggest consumers were being overcharged.

"The amount of gas and electricity a customer uses can form as little as half their annual bill," he said.

"The remainder includes other costs, such as transporting gas and power around the country and meeting the Government's carbon emissions reductions targets - all these costs have risen sharply in recent years. Consumer Focus has ignored these facts during its research.

"The energy regulator, Ofgem, has repeatedly looked at the issue of energy prices and has concluded there is no evidence of energy suppliers increasing prices faster than they reduce them.

"If Consumer Focus disagrees with Ofgem's conclusions, then their model and calculations should be made transparent and subject to scrutiny."

He added: "Since the start of this year, all the major energy suppliers have reduced prices, and they are investing around £4 billion over the next three years in energy efficient measures - like free and low-cost insulation and home energy audits - helping their customers use less gas and electricity and cut their fuel bills."

A spokesman from Ofgem cast doubt on the methods used by Consumer Focus.

He said: "We are entirely confident in our analysis of wholesale and retail energy prices, which has been transparent and subject to wide consultation.

"We too believe that, should wholesale prices continue to fall, there will be pressure on companies to reduce their bills.

"We are determined, as our retail probe demonstrates, to ensure energy suppliers treat their customers fairly at all times.

"Contrary to press reports today, Consumer Focus have not used the same approach for calculating wholesale costs as Ofgem. We have shared with them our concerns about their methodology.

"We are concerned that their approach may mislead consumers and for customers' sake hope they will be open about the analysis they have used to reach their conclusions."

Britain's biggest older people's organisation, the National Pensioners Convention (NPC), called on the Government to do more to prevent energy companies from making "huge profits" at the expense of vulnerable older customers.

Dot Gibson, NPC general secretary, said: "One in three older people are currently living in fuel poverty and are paying more than 10% of their income on energy bills.

"Every time there is a 1% increase in energy bills, a further 40,000 older people fall into hardship and each year 20,000 pensioners die unnecessarily from cold-related illnesses.

"It's time the Government intervened to prevent the energy companies making profits at the expense of vulnerable pensioners, raised the winter fuel allowance to £500 and regulated social tariffs to give proper discounts to older customers."