Ofgem, the electricity regulator, today threatened to slap a Competition Commission inquiry on the big energy suppliers after accusing them of dragging their feet over the delivery of £500 million worth of price cuts to disadvantaged households.

Ofgem said its energy market probe was on target to achieve the removal of unfair premiums from suppliers' tariffs, but it was unhappy with the pace of progress.

It said that since the start of its market inquiry, on which consultation ended on December 1, more than £300 million of unfair premiums paid by customers, many of them pre-payment users, had been removed.

However, it said that the big six suppliers, which include EDF Energy and RWE npower, had indicated that further reductions of at least £200 million were achievable for more than four million households that were missing out on the best deals.

While the suppliers were in agreement with the probe's finding that many rural and otherwise disadvantaged households were paying unfair prices, Ofgem said it was concerned over the rate of progress in banning such pricing.

The watchdog said: "While a number of companies have delivered some of these savings, Ofgem is not satisfied with the overall pace of delivery."

Ofgem's governing authority last week put forward options for a fresh six-week consultation on proposed changes to suppliers' licences to ban unfair prices and protect consumers' interests.

But it gave warning that if swift action did not follow, it would consider taking further action, adding: "A full market investigation reference to the Competition Commission is not ruled out."

Alistair Buchanan, Ofgem's chief executive, said: "We've seen progress but it's certainly not the endgame. We've seen encouraging signs since the end of our initial investigation but we demand more and quicker action for those customers currently losing out."

Ofgem said that, in addition to initiating the new consultation in January, it would press ahead with the full package of remedies identified in its probe.

These would include tightening rules on sales and marketing practices, helping small businesses and bringing in new powers to tackle market abuse.

When it announced its long-awaited investigation into competition in October, Ofgem said that it had uncovered no evidence of collusion over prices or that suppliers were quick to raise prices and slow to cut them.

However, it highlighted areas where it felt that many of Britain's 26.7 million households were being treated unreasonably. It expressed particular concern that 4.3 million mainly rural customers were unable to benefit from the cheapest dual-fuel tariffs because they were not connected to the national gas network.

Ofgem said that they were paying an average of 10-15 per cent extra for electricity — about £55 each a year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive