Energy regulator Ofgem has finally got tough with suppliers by demanding they cut household bills to reflect the falling price they pay for power.

Campaigners have been calling for price cuts for months because the wholesale prices the major firms pay for gas and electricity have slumped by around 50% since their peak last summer.

Yet the price we pay for energy has fallen by no more than 10%. Last year, prices rose by up to 50% (see the Cheap Gas & Electricity guide).

Ofgem has written to the six major power companies' chief executives this week demanding they slash bills and better explain their charges to consumers.

Ofgem chief executive Alistair Buchanan says in his letter: "Wholesale costs have fallen from last year's peak and look set to fall further as we head into the winter. In a strong competitive market, we would expect prices to respond to such falls.

"You will be familiar with these trends and also aware of some public dissatisfaction with suppliers' response so far to wholesale price reductions.

"You know that I have been, and remain, concerned about how effectively the sector communicates with consumers. I believe you owe it to consumers, ahead of the winter, to explain how cost changes, including falling wholesale costs, are likely to bear on future energy bills and I urge you to do this."

Some firms, such as EDF, Eon and Npower have recently introduced new, cheaper online tariffs.

However, only savvy customers searching for the best deals are likely to benefit, rather than those stuck on standard tariffs.

Martin Lewis, creator, says: "This is the nearest thing to teeth we've seen bared by Ofgem so far. Be under no uncertain terms Ofgem's politely-worded letter can only be read as a loud, wailing shriek at suppliers.

"If suppliers choose to ignore this then surely Ofgem must realise the time for words is over and the time for action is here."

Despite the plea, the Energy Retail Association, which represents the major power firms, did little to suggest households would see their gas and electricity costs drop further.

Its chief executive Garry Felgate says: "We have seen energy prices falling for the vast majority of customers this year. Despite these falls, the wholesale market remains volatile and a challenge for energy suppliers coming up to the winter.

"Customers were protected from the massive rises in wholesale prices last year, price rises that were not fully passed on at the time.

"Companies are investing billions of pounds in new generation capacity to ensure an essential, reliable and safe energy supply to their customers."

Further reading/Key links

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