Escalating gas prices prompt Ofgem inquiry

The energy regulator Ofgem launched an investigation yesterday into the doubling in wholesale gas prices in the last two months amid allegations that shippers may have been manipulating the market.

The move came as Powergen, one of the country's biggest energy suppliers, warned that domestic gas bills would rise by 5 per cent from next January. Wholesale prices make up about 45 per cent of household gas bills.

Consumer groups and heavy industrial users of energy welcomed the Ofgem investigation, which could result in fines of up to 10 per cent of turnover if shippers are found guilty of abusing the market.

Wholesale gas prices have risen from 15p a therm in September to a peak of 34p a therm in October and Ofgem said it was concerned that the sharp increase did not seem to be justified by market conditions.

"We have a duty to consumers to examine the reasons behind these gas prices very carefully," said Ofgem's chief executive, Alistair Buchanan. "We will be examining why, when demand for gas is not particularly high and the supply of gas is not low, we have seen gas prices go up by 80 per cent in October."

The Energy Intensive Users Group, which had written to Ofgem urging it to launch an investigation, welcomed the move. Energywatch, the consumer body, also backed the inquiry, saying it had been asking questions about the fairness of wholesale gas prices for some time and was delighted the regulator was now examining allegations of manipulation.

Energywatch also said that Powergen's price rises would amount to a "nasty" Christmas box for consumers, adding about £17.50 to the average gas bill of £350. Powergen is also increasing electricity prices by 7 per cent - a move which will increase the average £250 bill by £17.25 a year.