Ofgem has said that UK's big six energy suppliers need to cut customer bills to reflect reductions in the wholesale prices. The UK energy regulator aims to raise the competitive pressure on the big six energy suppliers by improving wholesale market liquidity making it easier for new firms to enter the electricity market.

Ofgem said that the new market-led initiatives, like the recent N2EX and the existing APX exchanges, will deliver this extra liquidity and meet the needs of new independent suppliers.

The watchdog intends to be ready to take action if this does not happen promptly and its consultation proposes a range of options to drive more liquidity and create a level playing field for any new firms entering the market.

Andrew Wright, senior partner for markets at Ofgem, said: “Ofgem believes that the lack of liquidity is a major reason for the lack of a strong competitive pressure from independent suppliers. We have put forward proposals for consultation with the industry to ensure that, if the market-led initiatives fail to deliver, we have reforms that are ready to be implemented.”

Ofgem’s regular scrutiny of energy companies’ prices, shows that the net margin for a typical standard tariff dual fuel customer rose by a further GBP30 in February 2010 from November as wholesale energy costs continue to fall.

This is less than Ofgem forecast last quarter, because one major supplier, British Gas, has cut its gas prices by an average of 7%. British Gas’ price cut and the wide range of discounted online and fixed-price deals means that many consumers can now reduce their bills significantly by switching to another supplier. Savings of up to GBP100 a year are available on standard tariffs and even larger savings are available on non-standard deals.

Mr Wright said: “Although we expect energy prices to rise in the longer term to pay for the up to GBP200bn investment, which is needed to secure supplies and reduce carbon emissions, we would also expect recent falls in wholesale energy costs to be passed on to consumers.

“We are seeing a lot of activity in the market with over 5 million people having switched in 2009, and now a GBP100 gap has emerged between the best and worst deals. However, we will continue to monitor the market closely, and if, at any time, we believe that current arrangements and our proposed market reforms are insufficient, we will not hesitate to consider further measures to protect consumers.”