Three of Britain's biggest energy providers face a regulatory crackdown after Ofgem, the energy regulator, began investigating claims that customers using prepaid meters were being hoodwinked to switch to more expensive services.

In an open letter, Ofgem said that 63 per cent of electricity prepayment meter customers mistakenly switched their service last year to one of the three most expensive providers, British Gas, E.On and nPower. The letter said that 56 per cent of transferring gas customers made the same mistake.

“On the face of it, we would expect to see customers switching away from the relatively expensive suppliers and towards the less expensive suppliers,” Ofgem said in a letter to energy companies, noting that 78 per cent of those switching intended to save money.

The findings are part of a wider Ofgem inquiry into competition in the gas and electricity markets, announced in February. Energy companies have blamed rising wholesale prices for a succession of increases in domestic charges this year, which have taken the average annual dual fuel bill to £1,048 from £662 in 2005.

Switching was also at the heart of the Government and Ofgem's campaign, launched last week, to reduce fuel poverty. The regulator said customers could be swapping to more expensive suppliers because of aggressive doorstep and telephone campaigns, as “vulnerable” customers lacked the ability to seek out new suppliers for themselves.

Ofgem said it had no plans to introduce new regulation, but said it could do so if further evidence of mis-selling emerged.

A crackdown could include forcing suppliers to provide a written statement of potential savings; alerting customers at the point of sale if they are switching to a more expensive supplier and providing detailed pricing factsheets and price comparison services, Ofgem said.

Yesterday, three suppliers, British Energy, International Power and Drax, faced further questioning by MPs as part of a simultaneous parliamentary hearing into competition in the UK power market.

Chris Tane, chief executive of Ineos Chlor Vinyls, the UK's biggest producer of PVC plastic, said that at no point had he ever been approached by another supplier to try to offer him cheaper energy than his incumbent provider. “I would like to have the choice,” Mr Tane told startled MPs.

Peter Luff, the Conservative MP who chairs the Business and Enterprise Select Committee, asked the suppliers if they were happy with a market that charged British consumers at least 30 per cent more than some European counterparts.

Steven Riley, executive director, Europe for International Power, said: “We still view the UK as a relatively well-functioning market. We don't see that a huge amount needs to change.”

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