The regulator Ofgem's threat to refer the energy industry to the Competition Commission over unfair charges has received a lukewarm response from consumer groups and charities.
The regulator acknowledged yesterday that the companies were on the way to stripping out up to £500m in unfair premiums for customers such as those using pre-payment meters, including many disadvantaged households. But it said it wanted faster action.
It announced that it was launching a consultation process to look at changes to the energy companies' licences to ban unfair pricing and protect consumers.
Ofgem warned that if its latest initiative proved insufficient it would take further action and said it was not ruling out a full-scale reference to the Competition Commission.
Consumer Focus welcomed the move but added the proposals did nothing to help "mainstream customers". The chief executive, Ed Mayo, said: "British consumers have been overcharged by millions of pounds over recent years. And this action does nothing to advance price cuts for mainstream consumers, which must now be the priority for Ofgem".
Domestic customers are still paying large bills for their gas and electricity, despite sharp falls in wholesale prices. Companies argue this is because they bought the power for this winter at peak prices during the summer and need to protect their margins to fund the estimated £100bn of investment in new plants.
In an investigation into the energy market this year, Ofgem identified a number of areas where it said customers were being charged tariffs which were not justified by the costs of the service to the supplier. Among the areas where it called for action were the prices charged for pre-payment meters and for customers who were not connected to the gas grid and therefore were unable to benefit from companies' dual fuel offers.
Speaking on BBC Radio 4, Ofgem's chief executive, Alistair Buchanan, said: "The end-of-autumn-term report card for the power companies is that the B-minus which we awarded at half-term has moved to a B-plus, but I think consumers and Ofgem expect an A. We are going to keep the regulatory hobnails on. We are going to add a legal toe-cap to this."
Ofgem will consult with the industry about imposing new licence conditions on the energy companies which would stop excessive charging.
Buchanan said he anticipated falls in household energy prices early in 2009.
Help the Aged special adviser Mervyn Kohler said: "It's time we saw progress rather than baby steps from the industry. If this is Ofgem wearing hobnail boots, they should invest in running shoes instead - they seem to be just hobbling along. The regulator should have said to the government we need more powers to deal with the industry effectively."
