Millions Overpaying For Energy, Watchdog To Warn

Millions of energy customers could save around £160 annually by switching suppliers, the competition watchdog will say later in a report which will criticise the biggest gas and electricity providers, their regulator and the Government.

Sky News understands the Competition and Markets Authority (CMA) will accuse the big six energy groups - British Gas, EDF Energy, Eon (Taiwan OTC: 3411.TWO - news) , Npower, Scottish Power and SSE - of overcharging customers on average by approximately 5% because they exploit general consumer disengagement with the market.

In a series of documents following a year-long probe, the CMA will recommend the introduction of a temporary price cap to protect customers on the most expensive energy tariffs while other market remedies are implemented.

Sources said on Monday the CMA would call for a formal mechanism to resolve disputes between Ofgem and the Department for Energy and Climate Change (DECC), underlining growing tensions over environmental levies which have been a major factor in rising consumer bills.

It will also raise the idea of obliging customers to renew their tariffs annually in an effort to improve engagement between consumers ad the market.

The dozens of recommendations will not, however, include a proposal to break up the remaining vertically integrated companies which both generate and retail power.

Ed Miliband, the former Labour leader, had pledged before the General Election to impose a price freeze on the big six providers, and was keen to examine a more profound restructuring of the market.

The report will say that 34% of residential energy users have never considered switching, and will blame Ofgem’s rule restricting providers to offering just four tariffs for hindering competition.

It will add that while electricity prices have risen by 75%, and gas prices by 125%, over the last decade, the biggest drivers of these increases have been environmental policies and rising network charges.

Among the other remedies to be proposed by the CMA will be encouraging the rollout of smart meters to pre-pay customers and banning the automatic rollover of contracts for the smallest businesses.

The competition watchdog will also consider whether customers on so-called ‘default tariffs’ should be transferred to the new ‘safeguard tariff’, which will have a price cap.

Industry sources said that other criticisms of Ofgem contained in the CMA report would be its approach to financial reporting, and its trade-off between policy objectives and the impact on prices and customers’ bills.

A review of Ofgem’s duties and responsibilities is expected to take place in order to promote competition, while a formal mechanism through which disagreements between DECC and Ofgem can be addressed is expected to be recommended.

The CMA’s report is provisional, with binding recommendations due to be published towards the end of the year.