Energy firms rapped over online pricing

Gas and electricity regulator Ofgem is threatening to crack down on supply companies that use the internet to offer heavily-discounted deals that are not intended to last, so that they come top of the price comparison tables.

An Initial Findings Report (PDF) on the energy market cleared companies of price-fixing or taking advantage of soaring world energy prices, but warned of "instances of differential pricing that are of concern".

These include vigorous competition in the online market "with heavily discounted offers, the cheapest of which may be, initially at least, at below cost".

The report stated that this "enables the companies to secure the leading places in price comparison tables".

"The relevant suppliers told us that customers acquired online are profitable over a number of years as prices are subsequently increased. We are concerned that the temporary nature of these offers is not transparent to consumers," the report added.

Ofgem also fears that the practice may deter potential competitors from entering the market.

The watchdog has launched an eight-week consultation period on the action the companies must take to deal with its complaints, including strengthening rules governing sales and marketing activities, more easily understood means of comparison and clearer information on bills.

Ofgem chief executive Alistair Buchanan said that if the companies fail to act he will use Ofgem's powers to force them to comply.

An Ofgem spokesman said that the regulator is willing to allow discounted online offers to continue, provided suppliers make it clear what they are doing and warn customers that the deals will not last.

Suppliers must also send customers an annual statement indicating that cheaper deals may have replaced the one to which they signed up.

The report also pledges to "actively engage with government, suppliers and others in order to facilitate an efficient rollout of smart meters" over the next decade, to improve competition by giving customers better information, enabling comparison of competing quotes, and easing the switching process.