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Ofgem Warns Domestic Gas Bills Set to Rise

By Rob Hull on October 5, 2010

Industry regulator, Ofgem, has warned that the rising cost of wholesale energy is likely to drive the average domestic gas bill to more than £700 per year. If the increasing cost of wholesale energy is passed on to consumers as predicted, the estimated rise will constitute a 13 per cent increase in household gas prices, with annual bills leaping from £625 to £706.

In its most recent quarterly update, Ofgem reported: “We forecast our estimate of wholesale energy costs to begin to increase over the coming months. This is because prices in forward markets have further increased since our June report. This effect is more pronounced in the market for gas. We estimate that by spring 2011 gas purchase costs may increase by 13 per cent”.

Several gas suppliers, including First Utility, have already begun to increase rates for existing customers whilst withdrawing cheaper tariffs for new customers. As the weather turns colder in Britain, many households could struggle to pay for inflated central heating costs amid widespread public spending cuts, which have targeted welfare benefits. Homeowners who have invested in heat-saving measures such as cavity wall insulation and double glazing are likely to be among the least hardest hit should the anticipated rises be adopted by the major energy suppliers.

David Hunter, an energy analyst for the M&C Energy Group, pointed out that Ofgem’s latest report marks a worrying shift in focus; whereas previous reports criticised the major energy suppliers for not passing on wholesale savings to customers, Ofgem’s most recent report fails to exert notable pressure on suppliers.

Mr Hunter said: “What concerns us is that the Ofgem report could be seen to be giving energy companies ‘carte blanche’ to raise their prices going into the peak winter period”.

Ofgem has also warned that £32 billion must be spent on improving Britain’s gas and electricity networks during the next decade.

Ofgem’s Chief Executive, Alistair Buchanan, said: “Our estimate at the moment is about a 6 per cent increase on the current average family’s total annual electricity and gas bill over the next decade. It is going to be basically £6 a year over the next 10 years”.