Energy firms 'angering' consumers
Consumers feel "anger and frustration" at the energy companies, which have failed to justify hikes in household bills, Ed Davey told the industry.
The Energy Secretary said customers should not be treated as "cash cows" and the industry needed to open its books to explain why bills were going up.
His "tough message" to industry body Energy UK's annual conference came as EDF Energy became the latest of the Big Six firms to announce an above-inflation rise in bills.
EDF revealed tariffs will rise by 3.9% in January, meaning average standard variable rate bills will increase by around £49 a year to £1,300.
The rise was below those announced by other energy firms but the French-owned group claimed it was "holding back" the full impact of rising charges to limit the increase for its 3.7 million residential customers.
EDF said it was not passing on the rising cost of the Government's green scheme - which it estimates would have added another £50 to average annual household bills - following David Cameron's pledge to "roll back" levies.
The Energy Secretary said an announcement about the levies would be made "on or before the Autumn Statement" on December 5.
He welcomed EDF's lower rise than its rivals, but warned that if it pressed ahead with a further hike consumers should consider switching suppliers.
He said: "I welcome the fact that the price rise is more modest than others that we have seen.
"I understand that they have given some caveats, they say in due course if reform does not happen that they will want to put their price up again.
"That is for consumers to respond to. It's for us to make sure that they have got the markets and the switching ability to respond to it."
Mr Davey, whose speech was met with polite applause, warned the gathering in central London that the energy industry faced the same "reputational fate" as the banks unless it reformed.
While energy firms were entitled to a "reasonable rate of return" to help fund investment and keep the country's lights on, consumers needed to be protected.
He said: "When people see energy bills rising way above inflation, year on year, you can understand the anger and frustration this causes.
"People fear shareholder interests are being put in front of the needs of families and the fuel poor.
"I am clear that the industry needs a reasonable rate of return, because without profit we won't get investment and without investment we risk a return to blackout Britain.
"But those profits cannot come at the expense of the elderly, the vulnerable and the poorest in our society.
"Customers are not just cash cows to be squeezed in the pursuit of a higher return for shareholders.
"And frankly the latest round of bill rises have not been fully and openly justified."
Energy UK's chief executive Angela Knight acknowledged the industry had a problem of trust as a result of increases in bills, but blamed the Government-imposed levies and taxes and rising network costs for the hikes.
"We have got a problem - an image problem, a reputational problem, a trust problem," she said.
"Trust is hard to gain and it's easy to lose.
"Energy bills have risen for well-known reasons, reasons that the industry has made quite clear."
Analysis by UBS indicated 95% of rises up to 2020 would be due to Government-imposed levies and network costs, she said.
Ms Knight also defended the companies' profits: "That profitability maintains the industry and, when it pays dividends, it pays for pensions as well."
Labour leader Ed Miliband's pledge to freeze energy prices for 20 months if he wins the 2015 election has seen the issue dominate the domestic political agenda.
But Mr Davey branded the freeze "one of the most irresponsible proposals a leader of the Opposition has made in recent times", arguing the "intellectually bankrupt" plan would deter investment and ultimately see prices rise.
But Mr Miliband said: "Hot air from this Government will not keep people warm this winter. And the reason energy prices are still rising is that this Government refuses to act on overcharging by the energy companies.
"That's why we need Labour's energy price freeze. We would freeze energy prices if we win the election in 2015 until 2017.
"We would use that time to sort out our broken energy market, and what you see consistently from this Government is a refusal to take on overcharging by the energy companies.
"That's what we need to do, that's what a Labour government would do."
Chancellor George Osborne said that energy companies "do need to look at how they are seen by their customers... not just the retail customers, the business customers as well".
But he warned that Labour's proposed energy price freeze would be "enormously damaging" because it would deter investment in energy infrastructure.
Instead, he said that the Government should concentrate on helping to bring prices down by increasing competition in the market and assessing whether green levies are effective and value for money.
Speaking at the Telegraph Festival of Business, Mr Osborne said: "We should have a proper look at the charges and levies and you would expect me to do that as the representative of the bill-payer."
Answering questions in front of a business audience, the Chancellor said: "There's clearly a concern about energy costs in this country. What can Government do about that? I think Government can do two things.
"The first is to make sure there is a more competitive market. We have these six energy companies. I think it would be a very good thing if there were many more challengers in the market, much more competition and people had real choices - that' s why we are legislating to force energy companies to put people on the lowest tariff and make sure you can switch supplier very quickly without having lots of obstacles put in your path."
And he added: "The second thing is Government can take a good look at the charges and levies that it imposes on energy companies in order to achieve certain objectives, all of which are laudable.
"More secure energy supply, tackling climate change, helping low-income people with their insulation - these are all laudable aims. But are these charges and levies doing that in an effective way, are they value for money and what is the impact of these on the people who actually pay these charges and levies, which is the energy bill-payer?
"I think the debate is at a pretty healthy place. There is now a spotlight being shone on these charges and levies and frankly, where I'm coming from as a low-tax Conservative who wants to make sure we have a good deal for consumers, I very much welcome that spotlight.
"We are in the middle of having a discussion about what's the right approach. We want to do this in a way that does not damage investment in energy infrastructure."