Pressure for a windfall tax on the energy companies has intensified with the disclosure that the biggest suppliers increased their dividend pay-outs to shareholders by £257 million last year.
Research commissioned by the Local Government Association (LGA) revealed that altogether the six biggest companies paid £1.635 billion in dividends last year - a 19% increase on the 2006 total of £1.378 billion.
LGA acting chairman Sir Jeremy Beecham said the figures demolished claims by the companies that they needed to protect their profits in order to invest in new forms of energy for the future.
"This research torpedoes the energy companies' justification for their profits," he said.
The disclosure comes as ministers are continuing to work on a package of measures to ease the pressure on families from rising fuel bills, due to be published next week in the latest stage of Gordon Brown's autumn fightback.
Chancellor Alistair Darling has been resisting calls from trade unions and Labour backbenchers for a windfall tax in order to help households struggling with their energy costs arguing that it would affect the competitiveness of the industry.
However, talks with the energy companies are apparently deadlocked, and Downing Street made clear this week that nothing had been ruled out.
The LGA, however, is arguing that a more effective measure would be to require the energy companies to finance a national home insulation programme to the tune of £500 million-a-year for the next five years. "This would allow the energy firms to continue being profitable and provide the best long-term solution to cutting carbon emissions and fighting fuel poverty," Sir Jeremy said.
"There are 10 million homes in this country that still lack basic insulation. Making these properties more energy efficient would knock £2 billion off fuel bills each and every year and also slash domestic household carbon emissions by a fifth.
"The Government and Ofgem (the regulator) should seize the opportunity to take a long-term solution to encourage the energy companies to use their disproportionate dividend payments for a massive drive to insulate people's homes."