The energy regulator failed to investigate properly allegations that npower overcharged up to 2.2 million gas customers in 2007, according to documents uncovered by Times Money.

The papers, obtained under the Freedom of Information Act, call into question Ofgem’s offical account of the terms of reference for its ten-month investigation of npower and mean that customers may have been denied refunds of about £50 each.

In its contracts, npower promised customers that it would charge them no more than 4,572 units a year at its higher-rate tariff. However, customers allege that between May 2007 and May 2008 the company broke this promise and charged many more units at the more expensive rate.

In March 2008, after a referral from Energywatch (which was then the energy watchdog), Ofgem started an investigation of the alleged overcharging but focused only on the period between May and November 2007. However, customers say that the full extent of the overcharging is apparent only by examining a 12-month period. The regulator has always insisted that it was asked only to investigate a six-month period. But the original referral documents seen by Times Money show that Energywatch clearly asked Ofgem to investigate a 12-month period.

Npower’s excuse for charging customers more than the maximum 4,572 higher-rate units in any one year was that it meant a “tariff year”, not the conventional 12-month period. In the 12-month period in question, npower started at least two new “tariff years”. In these periods no customer was charged more than 4,572 higher-rate units, but over a 12-month period many were.

The documents seen by Times Money show that Ofgem was also asked to investigate the tariff year issue but npower has never faced any sanction for this confusing practice.

Disgruntled npower customers are also anxious to challenge Ofgem’s explanation of why it allowed the complaint about npower to run over the time limit for potential levying of fines, when it could have issued a “stop-the-clock” notice. A spokeswoman for Ofgem told Times Money: “We didn’t issue a ‘stop-the-clock’ notice because there wasn’t time to review the evidence.”

But Andy Beck, an npower customer from Teignmouth, in Devon, says: “The whole point about issuing a stop-the-clock notice is to give the regulator more time to review the evidence. In a letter to me dated August 14, 2009, explaining their failure to act more decisively against npower, Ofgem’s managing director, corporate affairs, Sarah Harrison, said, ‘We cannot impose a penalty where the breach took place more than a year ago unless we have issued a notice to stop the clock’. This indicates that Ofgem executives were aware that Ofgem had the power to stop the clock but failed to do so. The question is, why did it fail to do so?”

An Ofgem spokeswoman says: “We did not extend our investigation to cover 12 months rather than six because we were concerned with npower’s failure to notify customers of changes that related to the period May to November 2007.

“We did look at the question of a tariff year, but the focus of our investigation was whether npower notified its customers adequately. We didn’t issue a stop-the-clock order because we didn’t have time to review the evidence.”

Simon Hughes, the Liberal Democrat energy spokesman, has written to Ofgem asking it to reopen its investigation into npower. He says: “Npower can’t have it both ways. Either it is charging on a tariff year or a 12-month year.

“If it accepts that it shouldn’t charge more than 4,572 higher-rate units over a 12-month period, it should immediately compensate all those who were charged more than this.

“If, on the other hand, it says it was entitled to charge more units because it was operating on tariff years, rather than 12-month years, it should explain why it has never defined the tariff-year concept, either in its literature to customers or on its website.”

Mr Hughes has written to npower, asking the company to re-examine the question of alleged overcharging between May 2007 and May 2008. He has also asked for an explanation of how npower decides its “tariff years” and how, where and when this concept has been explained to customers.

An npower spokesman says: “Between May 2007 and May 2008 we were operating a “tariff-year” system of charging. We started a new tariff year in May 2007 and another in November 2007. We are now operating a continuous 12 months system of charging. We used the tariff-year system to help to move our customers on to a new billing system back in 2007.”

He refused to say how many customers had been charged more than 4,572 units at the higher rate over the 12 months from May 2007, but added: “The overall effect of the changes we made, including price reductions, meant that only a small minority of our lower users saw a slight increase in their bills from May 2007 to November 2007.”

To read Energywatch’s referral letter to Ofgem in full click here

Case study: Taking issue with tariffs

Margaret Erskine, from Surbiton, southwest London, successfully obtained a refund on her npower gas bills.

Miss Erskine, 79, who has now switched supplier, says: “I cannot believe that npower has still not settled the overcharging of its customers for 2007-08.

“I was an npower customer at that time and, after an article in Times Money in May 2008 I wrote to npower seeking redress for being charged too many higher-rate units.

“Npower attempted to justify this by saying they had reduced their lower-rate prices but I pointed out that they had also increased the higher-rate price which, together with the excessive number of higher-rate units charged, considerably increased the cost for consumers. This resulted in a ‘goodwill’ payment of £75.”

For a template letter of claim, click here.