Families face soaring power bills

MILLIONS of families will see their power bills soar by more than £100 next year as increases in the cost of gas and electricity hit home.

North Sea gas producers say bills are likely to jump an inflation-busting 15% - meaning the average family will be paying more than £800 a year.

And they warn that a severe winter, which would boost demand for gas to heat homes and generate electricity, could push that figure even higher.

The news will be a blow to many households already struggling to cope with power bills, which have risen by an average of £100 this year.

Consumer groups claim the rises are unjustified and have accused the producers of effectively overcharging UK families by £5bn a year.

They point out that producers such as BP and Shell are currently the focus of price-rigging inquiries. But the producers deny swindling consumers, and blame the rises on the increasing wholesale price of gas, which is expected to jump by 45% next year.

They say gas is linked to oil and the cost of oil has risen to as much as $50 (£27.50) a barrel.

The UK Offshore Operators Association, which represents producers, commissioned a report on gas prices from energy consultants ILEX.

It showed that the average wholesale price of gas had risen from 18.5p a therm in 2003 to 27.1p in 2004, and is predicted to reach 39.4p next year.

David Cox, an analyst with ILEX, said: 'There isn't really any good news for consumers looking forward. In terms of another rise in domestic prices, we are looking at increases some time next year.

'When increases in the wholesale price feed through, we see another significant rise if companies are to remain profitable. That would be 10%-15%.'

But he warned the situation could get even worse. 'The impact of oil prices of $50 a barrel has not yet been reflected in gas prices,' he said. 'We could see prices go above those we have talked about in this report.'

However, consumer groups rubbished the producers' claims that high gas prices are driven by factors out of their control.

The power industry regulator Ofgem said the link between oil and gas prices is unwarranted and unjustified.

The industry's consumer body, Energywatch, agreed. Its chief executive, Allan Asher, said: 'This is little more than gas producers voting themselves a £5bn windfall each year at the expense of consumers.'

Gas is used to generate 40% of the UK's electricity, and some producers have talked up prices by warning of a shortage this winter that could bring blackouts.

However, Ofgem denied that power cuts are likely, even if the country experiences the sort of freezing winter that is seen only once in 50 years.

Suspicions that North Sea gas producers are rigging the market have triggered three inquiries. Ofgem is investigating in the UK, while the European Union is looking at the situation on the Continent.

The powerful House of Commons Trade and Industry Select Committee is to launch its own inquiry next month. MPs have suggested imposing a windfall tax on those producers benefiting from the high prices.

BP is currently on course to deliver annual profits of £9bn - a record for any UK company - while Shell is also doing well.

Both companies deny rigging the market, a denial supported by the UK Offshore Operators Association. Its spokesman, David Odling, said he finds the allegations 'a little bit strange' and the companies involved are 'somewhat bemused' by the claims.

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