Millions paying over the odds to energy suppliers

Some gas and electricity suppliers are operating a two-tier pricing structure which leaves at least 13 million households paying more for energy than the cheapest deals on the market, research shows.

Utilities operators such as Npower and EDF have been found to have kept online deals low to attract "price-sensitive" consumers while raising the cost for those paying by direct debit or quarterly payments. When the biggest supplier, British Gas, raised its prices 15 per cent for millions on 18 January, the company failed to publicise the fact that it was not increasing tariffs for customers who manage their accounts online.

A medium user on the Click Energy 4 tariff would save more than £300 a year, paying £742 compared with £1,055 for a quarterly bill, according to research by the price comparison website uSwitch.com. Online tariffs offered by the other big five energy companies offer discounts of between £98 and £214.

Ofgem, the energy regulator, estimates that customers could save £1bn a year by switching to cheaper deals while one industry expert claims the selective overcharging is as high as £5.8bn. The 13 million consumers who have stuck with their existing supplier since privatisation in 1999 are most at risk of overpaying. However, the regulator is urging all customers to check whether they can switch to a cheaper deal, cutting 10 per cent off their bill – about £100.

Many customers with families or houses of above-average size will save up to £400.

Customers on pre-payment meters are paying the most for their power even though they usually have lower incomes than those using direct debit. In the most extreme case, a north-east England prepayment customer with British Gas and Npower can over-pay by £486 more a year, according to Energywatch, the industry watchdog.

Britain's £24bn a year market has come under increasing scrutiny from consumer organisations this year following a series of similar rises blamed on rising wholesale energy prices. Between 4 January and 1 February, EDF raised prices by 10 per cent while Npower, British Gas and Scottish Power announced 15 per cent increases.

Energywatch says the Competition Commission should investigate the industry because the companies which generate the power also sell it to the public, which makes it difficult for outsiders to break into the market.

MPs on the Business, Enterprise and Regulatory Reform Select Committee have launched their own inquiry into the competitiveness of the retail market. But Ofgem and the Government say the market is "highly competitive," claiming our bills are only slightly higher than the EU average for electricity and marginally cheaper for gas. The Energy Retail Association also defends the industry, saying that internet and direct debit options offer such a great price advantage because they are cheap to administer.

"No other country in Europe has a higher number of consumers engaged in the market," said an association spokesman. Since the energy market was privatised in 1999, half of the UK's 26 million energy customers have kept the same gas and electricity supplier.

Which? says a resident of Birmingham could save £363 a year by switching from a quarterly deal with ScottishPower to an online dual fuel deal from British Gas. Mark Todd, director at energyhelpline.com, said: "The prospect of a £1,000 bill has made a depressing start to the year. But if each customer switched every 12 months, the UK public could effectively drive down prices by as much as 24 per cent.

"For the whole of the UK that would be about £5.8bn a year." Half of households are on standard plans rather than online plans while four million miss out by not moving to dual fuel. Tim Wolfenden, of uSwitch.com, said: "Competition in the energy market will only ever work properly if both consumers and suppliers get stuck in. The deals are there, the savings are there – consumers just need to start taking advantage."

Switching supplier takes a few minutes and the gas or electricity entering the home stays the same: there is no need to change the meter, cabling or appliances.