Ofgem to investigate utilities over ‘penalty clause’ deals

A majority of customers will no longer be able to switch electricity suppliers at no charge, because energy regulator Ofgem is unable to decide whether energy companies can legally hold customers to ransom with fixed-term contracts and penalty clauses.

British Gas and npower have both capped their electricity prices for fixed periods, but the offer includes a &£20 penalty clause, to be activated if the customer decides to move to another supplier before the end of the deal.

British Gas has capped electricity prices until January 2004 and npower has capped dual-fuel prices until January 2003.

Rival electricity suppliers say that fixed-term contracts in the gas and electricity markets are not only anti-competitive but may also mean the two companies are flouting licence rules.

A spokesman for Ofgem says: “We are aware of the situation and are still looking into the details. There are no conclusions at the moment.” Ofgem declines to give any time-frame for a decision to be made on the matter. The spokesman says: “We are still waiting for all the details to be put together.”

Early this year, British Gas announced a gas price hike which was condemned by watchdog Energywatch. In contrast, npower, the second-largest gas supplier in the UK – with 1.7 million gas customers – froze its prices during the winter.