When Roddy Smith’s teenage daughter became severely disabled, he and his wife sold their home and remortgaged to buy and adapt a bungalow to care for her. But their energy costs soared as they tried to keep her warm through the long Hebridean winters. Smith says that every year he called his supplier, Scottish Gas, to get a better deal, and each time was told that there was only one standard tariff in his area.

Their predicament highlights the obstacles faced by energy customers who want to switch, despite rules to open up competition.

The Smiths, and some other residents in the Scottish town of Stornoway, have been trapped on a single, pricey, standard tariff for years after wrongly being told they neither qualify for cheaper deals nor have the option of changing providers, because Centrica – which owns British and Scottish Gas, and supplies one third of British households – is the only gas supplier to the island.

In a stand that should embolden thwarted customers across the land, a local guesthouse owner has taken on the energy giant and is attempting to claw back a mass rebate after discovering many residents have been overpaying by 30% for over 20 years.

Derek McPherson’s five-year battle has exposed how corporations mislead customers with what is, at best, incompetence, at worst, duplicity.

Fuel poverty in the Western Isles is among the greatest in the country, with over half of residents spending more than 10% of their income on heating. McPherson reckons Scottish Gas’s refusal to transfer many applicants to more affordable deals has cost them millions. “An elderly neighbour told me she has to go to the old folk’s club every day it’s open as she can’t afford to heat her home,” he says.

Derek McPherson has exposed how corporations can mislead. Photograph: Anna MacPherson

Last month, British Gas was obliged to pay £2.65m compensation by regulator Ofgem, after it was found to have moved more than 94,000 customers to its pricier standard variable tariff when they changed suppliers.

Centrica has to offer its full range of tariffs to customers across the UK since the sector was decentralised in 1995 and, in 2015, suppliers were obliged to inform customers of the best deals on their bills.

McPherson first asked for a cheaper option in 2013 after discovering his sister on the mainland was paying Scottish Gas much less. It told him that, as the island was off-grid and supplied with piped propane rather than natural gas, there was only one tariff. To his surprise, the company sent him a cheque for £102 two months later to reflect the discount he had “lost out on over the last year”.

That winter he again asked if there was a more affordable plan. This time, Scottish Gas declared that off-grid customers, such as himself, were “heavily subsidised” as they were charged the same standard tariff as natural gas customers, despite the higher cost of shipping piped propane to the islands. It argued that it remained the sole supplier because no other energy company would choose to supply islanders at a loss.

It was two years later when McPherson discovered that Centrica does not pay for piped propane to be transported. Since 1995, the cost has been borne by customers across the UK, who pay a tiny levy to cover the expense of supplying four remote off-grid areas, including Stornoway and two districts in Wales.

This cost-sharing strategy is called “socialisation” and, in return, Ofgem required Centrica, the only supplier to those four districts, to make all its tariffs available to them.

The first Stornoway residents officially knew of a cheaper option was in 2016 when their bills advertised a dual-fuel deal with Sainsbury’s Energy, saving up to 50%. McPherson again applied to switch and was told that this deal did not supply piped propane and that the information would be removed from future bills. In fact, Sainsbury’s Energy is a brand sold by … none other than Centrica.

Stornoway gas customer Margaret MacLean at the house Roddy and Nan Smith bought to care for their daughter. Photograph: Derek MacPherson

McPherson complained to the ombudsman, but its investigation was shut down by Scottish Gas, which falsely claimed that he was a bottled-gas customer and therefore outside the ombudsman’s remit.

McPherson then turned to Ofgem, which opened an inquiry. He believes evidence requested from Scottish Gas was tampered with. Two copies of McPherson’s 2016 bill, which had first alerted him to the Sainsbury’s tariff, had had the offer removed, he says. Moreover, a neighbour was refused a rebate for the years he was denied the tariff because Sainsbury’s had “only started supplying the town in 2017”, but when a recording of the conversation was submitted in evidence, that crucial falsehood was missing.

Ofgem has decided there is no evidence to show that it was policy to deny customers affordable deals and that misinformation was a result of “poorly drawn” briefings. It merely announced it had “made it clear” that Centrica customers should be “correctly informed” rather than officially sanctioning it for flouting the law.

Stornoway MP Angus MacNeil, who has supported McPherson’s campaign, is acting for over 40 constituents who say they were refused the Sainsbury’s tariff. He has rejected Ofgem’s findings as “astonishing” and written to Centrica’s chief executive, Mark Hodges, three times to ask why customers were so misled. He has received no reply.

“The savings my constituents have been denied have been put in the pockets of the gas company, and Ofgem is behaving toothlessly,” he says. “Scottish Gas is claiming Derek was the only resident affected. In fact, I know the 40 who have contacted me to be a huge under-representation.”

Ofgem told the Observer it had seen no evidence that a “substantive” number of people had been “deliberately or systematically denied cheaper tariffs”. It declined to clarify what number it considered “substantive”.

Centrica says it has no record of Roddy Smith being denied a cheaper tariff. It declined to answer the Observer’s questions about the years when it had deflected other residents and said: “It is not correct to suggest that customers in Stornoway are being denied access to the best available tariffs. Hundreds of our customers have switched tariff to take advantage of a different deal. We write regularly to all Scottish Gas customers telling them if there is a cheaper tariff.”

It has paid McPherson £1,545.62 to make up the amount he would have saved on the Sainsbury’s tariff plus £500 compensation, but he wants it to compensate others. The Sainsbury’s tariff has been increased, so savings are minimal. “The reality is, we are as badly off as ever,” he says. “We are restricted to Centrica’s cheapest tariff, from which mainland customers are fleeing like deer before a forest fire.”