Feb 06 - Mail on Sunday; London (UK)

LONDON

GAS and electricity bills are to leap by 25 per cent thought to be their biggest single increase ever.

The Mail on Sunday can reveal that British Gas, the nation's largest domestic power supplier, will announce the price hike this month in letters to its 11 million consumers.

Other power companies such as PowerGen and ScottishPower are certain to follow suit.

The rises will affect gas and electricity prices equally and will send the average annual energy bill for a three-bedroom semi close to Pounds 1,000. Consumer groups are certain to lead a furious outcry over the massive increases and last night Age Concern warned that vulnerable pensioners could die because of the leap in their bills.

After two rises in 2004, energy prices last year went up by an average of 13 per cent and the new rises mean bills will have jumped by around 80 per cent over three years. Analysts warned last night that as well as inflicting hardship on millions of householders, the rises are also likely to have a knock-on effect on High Street spending. Inflation will be fuelled and industry will suffer.

Government Ministers are bracing themselves for a political backlash, knowing they face criticism for doing too little too late about the deepening consumer energy crisis.

Preparations for the announcement which will blame the increase on rising wholesale gas prices are already well advanced. It will be made by the end of the month but could come as early as next week.

A source close to British Gas told this newspaper the price rise would be between 22 and 25 per cent more than ten times the rate of inflation and, as far as experts are aware, the biggest single increase in British history.

An insider confided: 'Directors have agonised about taking the decision because they know it is going to hurt everybody. But the harsh reality is we have no choice.' Analysts last night warned the British Gas hike will open the floodgates, saying rival energy firms have been anxious to raise prices but nervous about going first. With rivals such as PowerGen, EDF and Scottish-Power swiftly following British Gas's lead, increases will average 20 to 25 per cent.

The moves will lift typical combined gas and electricity bills from about Pounds 760 a year for a threebedroom semi to about Pounds 950.

Last night a spokesman for independent consumer watchdog Energywatch said: 'If this is true this would be horrendous news for British Gas customers. We would worry about how many of them could actually afford to pay it.' And Gordon Lishman, director of Age Concern, said: 'This will hit old people hard. People will die. More than 800,000 pensioners are already living on less than the minimum poverty level and will be forced to make a choice between warmth and food.

'We tell people to spend the money and worry about it later. It is particularly hard when you realise many of the same people are also being hit by large council tax rises.' Energy industry regulator Ofgem is expected to be unable to intervene. A spokesman said: 'If there are good economic reasons for prices going up and the rises are across the industry, we would not investigate.' Wholesale gas prices have rocketed in recent years because of dwindling North Sea stocks and limited supply from the Continent, where suppliers in France and Germany have been reluctant to pipe it across the Channel.

In the past 12 months, wholesale prices have shot up by 75 per cent and have trebled since 2003.

With 40 per cent of UK electricity coming from gas-fuelled power stations, there is a direct knock-on effect for electricity prices.

Industry insiders insist that if suppliers were to pass on the entire cost of the wholesale price rises, domestic bills would have to go up by a huge 40 per cent.

It is only in recent months that Ministers have travelled to Brussels to press for an opening up of the European energy market.

And the Government has been accused of failing to develop alternative power sources leaving the nation heavily reliant on gas- fired stations. Tony Blair's recent announcement of a review of Britain's future power strategy is intended to tackle this issue, although changes in policy will take decades to put in place.

Much of the blame for higher gas prices can be laid at the door of Europe.

France and Germany have monopoly domestic suppliers of gas and they have refused to open up their pipelines and storage facilities to UK operators.

They are selling us some gas through the Interconnector pipeline under the Channel but keeping most for domestic consumption, even though they could get a high price for it in the UK.

Ofgem and the Government have called for an inquiry by Brussels into their behaviour and European competition regulators could impose fines, but they have shown a reluctance to do so.

Profits at major gas suppliers have been squeezed because they have held back from passing on the full cost of the price they have had to pay for the gas.

British Gas lost money in the second half of last year and has been cutting jobs to reduce costs.

However, ScottishPower enjoyed a 45 per cent rise in first-half profits last year to Pounds 273million and said it expected strong annual results.

There is hope of some relief to the fuel bill misery in a few years' time as new foreign operators race to supply the UK's gas needs.

Producers in the Middle East and Africa are beginning to export gas to our shores in the form of liquefied natural gas, a process by which gas is cooled into liquid form and then transported by ship.

And Russian energy giant Gazprom, the world's largest natural gas producer, is hoping to win long-term contracts to supply UK companies through its planned trans-European pipeline.