Energy providers are being investigated over allegations they overcharged customers Business

Energy suppliers are to be investigated by the industry watchdog over claims they overcharged customers amid soaring prices.

Ofgem, the market regulator, said there were ‘troubling signs’ that some companies had increased household direct debits more than necessary to cover an increase this month in the price cap, which jumped by 54% this month to £1,971. Some companies may also have steered customers toward rates that aren’t in their best interest, he said.

Charging customers more than strictly necessary allows suppliers to build a cash reserve in case wholesale prices rise again in the wake of the Ukraine crisis. The practice is prohibited because it is unfair to the consumer.

Ofgem is now launching a series of reviews to assess whether energy retailers are complying with requirements on how direct debits are handled and how much they hold in customer credit balances.

Jonathan Brearley, managing director of the watchdog, said: ‘In looking at the gas crisis, we have identified one of the root causes of the failures of many of these suppliers who have exited the market has to do with the way they have managed the money paid to them by customers.

“This is money intended to pay for energy, or collected to support the wider development of renewable energy.

“However, some vendors have used these balances to support their finances, allowing them to pursue riskier business models with reduced financial resilience and higher likelihood of failure. If that vendor becomes insolvent, the cost of replacing these balances must be borne by other suppliers and ultimately by all energy consumers.

It comes after MPs on the business select committee heard complaints that providers were disproportionately increasing direct debits and forcing people into more expensive fixed rate offers instead of the capped variable rate.

Next week the committee will quiz major UK suppliers on their handling of the energy crisis.

The CEOs of E.ON, EDF, ScottishPower and owner British Gas Centrica will attend the meeting.

Bulb and Avro bosses will also be quizzed on their handling before the companies went bankrupt last year.
Avro folded in front of £90m to customers and its failure is expected to cost consumers £700m.

Bulb remains operational as the government seeks a buyer after its effective nationalization.

A total of 4.3 million customers were transferred to alternative utility companies after 30 suppliers went bankrupt.

Ofgem warned MPs last month that the string of failures could cost households some £2.4billion as still-operating suppliers have had to buy more energy on the wholesale market to supply new customers .