Regulator Ofgem is considering an investigation into rising direct debit demands from energy companies. The move comes after an MP said firms were raising direct debit payments when people were in credit to boost cash flow. The industry denied this. Pressure is building on energy firms to cut household bills after they raised prices twice during 2008. The head of regulator Ofgem has told MPs that he expects to see prices drop for customers early in the New Year. The average annual household gas and electricity bill rose by more than £300 during 2008. Now some of the direct debit customers of the bigger lenders say they are having to pay more in recent months.

Millions of people pay their gas and electricity bills by direct debit, but many are unclear how much they should be paying each month to ensure they clear the amount due on their bills. Conservative MP Peter Luff, chairman of the Business and Enterprise Select Committee, said firms had been raising direct debit payments even when customers’ accounts were in credit and warned this practice might be widespread. An Ofgem spokesman said there was “no quantified evidence indicating misuse of direct debit schemes” but, after receiving information from consumers, it was considering whether to investigate.

But earlier this week the Energy Retail Association, which speaks for suppliers, strongly denied the claim that this was designed to boost companies’ cash flow.

“What energy companies are trying to do is make sure you get a balanced account that is zero or as close to zero as possible after you’ve had the biggest bill,” said Russell Hamblin-Boone from the trade body.

Energy companies have come under pressure to lower bills after recent falls in the wholesale prices of gas and electricity. In his pre-Budget report speech on Monday, Chancellor Alistair Darling acknowledged “widespread concern” that these wholesale price changes were not being reflected quickly enough in falling household bills.

He announced that Ofgem would produce a report every three months on price changes.

The government would step in if there was evidence of “unfair gaps” in pricing between different payment methods, such as pre-payment meters and direct debit customers, he said.

British Gas announced on Tuesday that it was narrowing the price between pre-payment meter bills and other forms of payment.

This would lead to a £22 average cut in the annual bill of a dual fuel pre-payment meter customer. Electricity customers with British Gas will pay the same as the quarterly cash or cheque tariff.

Ofgem chief executive Alistair Buchanan told the Business and Energy Select Committee on Tuesday that the regulator was putting as much pressure as it could on all the major suppliers to make announcements soon on bills.

He repeated the regulator’s view that there was no evidence of any price-fixing cartel among the major suppliers. None of the major suppliers have dropped prices recently, after all the “big six” put bills up to reflect wholesale costs earlier in the year.Earlier this month, the UK’s second-biggest energy company, Scottish and Southern Energy, said it was “optimistic” that domestic prices could be cut early in 2009 if wholesale gas and electricity prices continued their downward trend. Smaller supplier, First:Utility, which has 6,000 customers, said on Monday that it was dropping its prices in response to falling wholesale costs.

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