Chancellor hauls in energy chief to explain price hikes

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The Chancellor has called for a meeting with the energy regulator to explain why fuel prices have risen so sharply.

Alistair Darling will meet with Sir John Mogg, chairman of energy regulator Ofgem, to ask whether the rises are justified by increases in oil and gas prices.

Home owners face increases of up to 27 per cent.

Mr Darling will warn that bills of more than 1,000 a year could damage the economy. Consumers are set to face intense pressure over the next 12 months, with gas and electric bills from the six big suppliers almost doubling over five years. Last week npower, the fourth largest supplier, said it was raising some tariffs by 27 per cent.

Energy companies have blamed a rise in the cost of coal and gas, but some experts believe they can buy reserves in advance so there is no need for the price rises in raw materials to be fed through to the consumer at once. Ofgem has defended fuel prices, saying that Britain was still a competitive market for domestic energy suppliers.

"We have some of the lowest prices for domestic consumers in Europe," a spokesman said.

However, in March last year the regulator predicted that prices would drop.

Mr Darling wrote in a letter requesting the meeting: "I would be interested in receiving your assessment of the gas and electricity supply and market conditions, both in the UK and Europe and likely future trends.

"I would be particularly interested in your views on the relationship between wholesale price movements and feed-through to domestic retail prices."

Sources close to the Chancellor said he was not undermining Ofgem but said he needed to fully understand the reasons for the rises.

Ministers are concerned about the danger of a consumer spending downturn prompted by large rises in fuel bills and petrol prices.

They know large hikes will increase pressure for higher pay rises in the private sector.

Mr Darling's move comes just 24 hours after the energy minister, Malcolm Wicks, indicated ministers were unlikely to intervene. He said: "Price changes are commercial decisions for companies and we must recognise the fact that global demand is pushing up energy costs worldwide."

Consumer watchdog Energywatch has welcomed the intervention.

Spokesman Karl Brookes said: "We are not convinced the market in the UK is working in the best interests of the consumer."