Ofgem announces £500 million of repayments to be made to customers

Industry regulator, Ofgem has announced that it will refer power companies to the Competition Commission if they continue to stall repayments, reportedly worth £500 million to customers. According to the Telegraph, energy firms owe £300 million in rebates to pre-payment meter customers and £200 million to non-gas customers who “missed out on good deals”.

After sharp rises in fuel bills, the regulatory body investigated into six major energy companies, British Gas, Eon UK, npower, EDF Energy, Scottish and Southern Energy and Scottish Power.

The results of the investigation found that there wasn’t any anti-competitive behaviour between the firms, but it did decide that some of the pricing was unfair and so demanded that customers are to receive compensation. According to Ofgem’s chief executive, Alistair Buchanan, not all the money has been returned: ”We've seen progress but it's certainly not the endgame. We've seen encouraging signs since the end of our initial investigation but we demand more and quicker action for those customers currently losing out.”

The price cuts Ofgem have demanded are soon to be passed on by Centrica, owner of British Gas. Phil Bentley, managing director of British Gas said: ”We are fully confident we will meet all Ofgem's requirements for transparency and fairness in our pricing.”

Martin Brough, utilities analyst at Dresdner Kleinwort, said the Ofgem demands are not as servere as they could have been. Energy firms have the opportunity to recover losses in the profits from other segments of the retail business.

Mr Brough said: ”This doesn't mean that the price cuts will impact on long term profitability. It's not as sweeping as it could have been. If it had said all prices are excessive and profit margins are excessive, that would have been significant. But at least Ofgem is discussing this in a rational manner rather than answering a political question about whether large profits are acceptable.”

Energy analyst at Inenco, Ian Parrett, also commented on the issue, stating that energy companies should prepare for more intervention into their profit-making: ”It's the first step from Ofgem, but there's still some way to go. There are some fairly large profits in the energy sector and it would be a shame if the money was recovered from other parts of the business.”