24/02/2015 10:37 GMT | Updated 24/02/2015 10:59 GMT

Energy Giant Scottish Power Faces MPs' Probe Into £79m Mis-Selling Scandal

David Cheskin/PA Archive
General view of the logo of power company ScottishPower. Scottish power. The energy giant is to pay £8.5 million to customers after an investigation by regulator Ofgem found that the group provided misleading information through its doorstep and telesales agents.

Scottish Power is set to feel the heat as MPs prepare to look into its alleged failure to avoid paying out as much as £79 million owed to 625,000 customers who had taken out cash back on warranties under a scheme that ended up going bust.

The energy giant has been accused of "evading" paying out compensation to customers who bought white goods in the early 2000s from Scottish Power's chain of 150 high street stores, under the Powerplan warranty scheme, which promised to refund the cost of the warranty after five years if customers had not claimed on it.

However, customers were left in the lurch after the stores and Scottish Power’s insurance arm, Domestic Appliance Insurance Limited, were sold to Powerhouse in 2001, which itself went bust in 2004.

Scottish Power paid £6 million to settle all claims in 2004, but liquidators have accused it of taking steps to "willfully obscure the true extent of the liability and the entity ultimately responsible for the cash back payments, by providing false and materially misleading statements to the duly appointed administrator."

Powerhouse claimed Scottish Power had given it a £75 million indemnity against cash back claims under the warranty, however Scottish power insist a legal flaw in its wording means it cannot be called upon.

Liquidators have passed their reports to the authorities, including the Competition and Markets Authority (CMA), the Serious Fraud Office and the National Crime Agency, as they harbour a "suspicion of a serious economic crime".

In a report seen by the Huffington Post UK, the scheme's liquidators, The MacDonald Partnership, wrote: "When SP [Scottish Power] realised the cost of making cash back payments was spiraling out of control, it deliberately evaded its liability."

The liquidators accuse the energy giant of designing a scheme "with artificial claim hurdles" which "intentionally made it so difficult for consumers to make a claim that very few claims were in fact successfully made".

"The scheme providers did not provide for adequate reserves to meet even the limited claims that were successfully made," the report added.

"The parties who were ultimately responsible have yet to be taken to task."

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MPs are set to hold the first meeting on Wednesday of their "All Party Parliamentary Group" (APPG) focused on "Scottish Power's Warranty Mis-selling".

"This group will be front and centre in exposing what is becoming regarded as the newest installment in the widespread culture of financial product mis-selling by certain Big Businesses during the noughties," former sports minister and Labour MP Gerry Sutcliffe told fellow members.

"At stake, is real money, denied to our constituents, despite being legally and, arguably more importantly, morally due under the terms of their warranties."

Tory Andrew Percy, fellow member of the group and MP for Brigg and Goole, told HuffPost UK: “625,000 people are still owed money on Scottish Power’s cash back promise – more than 2000 of them in my constituency.

"While the individual claims may not mean much to Scottish Power, the sums mean a great deal to my constituents; and £80 million plus interest is still owed nationally. I will therefore be doing what I can to ensure that my constituents get their money back.”

Scottish Power said in a statement: “The PowerPlan scheme, which was one of a number of very similar schemes offered by retailers across the industry in the late 1990s and early 2000s, did not involve any wrongdoing by Scottish Power.

"Scottish Power emphatically rejects any suggestion of improper conduct. The scheme is currently the subject of threatened Court proceedings and it is accordingly inappropriate for Scottish Power to comment further.”