Councils have been buying gas in bulk in multi-million pound contracts since the market was deregulated under privatisation, but growing problems with billing are now stifling the market.
Suppliers, currently numbering between 25 and 30, are increasingly reluctant to bid for council contracts and authorities, which usually purchase in consortiums, are reluctant to go to competition because of the administrative confusion that results.
In some cases bills are arriving up to a year late, throwing budgets into chaos.
But local authorities claim applying penalties does not generate the kind of partnership necessary to make the market work.
The Central Buying Consortium which buys gas for six authorities has written to the director-general of Ofgas expressing its concerns about the current system.
'The basic problem is that the competition has been seriously affected by the cost of administration,' said Steve Gilbey, chair of the consortium.
He said councils are just extending existing contracts to avoid the problems of tendering work.