Demand for probe into gas bills

MAJOR energy users will today demand an inquiry into the surge in North Sea gas prices which has led to soaring power bills.

Wholesale power costs have leapt 40% since January, climbing to a record high last week amid claims of price -fixing.

Domestic customers have had to pay an extra £100 this year and can expect even more pain in 2005.

Companies which use large amounts of gas and electricity said the prices cannot be justified and are meeting industry regulator, Ofgem, today to call for an investigation.

They warn that some firms may be forced to halt production during the winter because of the rocketing cost of fuel. Their fears come amid a multi-billion pound profits bonanza for oil and gas giants, BP and Shell.

Eddie Proffitt, a spokesman for the Major Users Energy Council, said there were a number of suspicious factors driving up prices much higher than abroad.

'We are very concerned,' he said. 'We need an investigation into this whole issue. There is no good reason why gas should be 40% more expensive here than in the United States.'

Any increase in gas prices has a knock-on effect for electricity as it is used to power around half of the UK's generators.

Proffitt added that there have been some unusual buying patterns of gas recently which appear to have inflated the price.

There are also concerns that producers have been shutting down fields simultaneously for maintenance, so creating shortages and pushing up prices.

The operation of a gas pipeline, known as the interconnector, between Britain and the Continent is also in contention. There are allegations that British companies have been pumping North Sea gas through it to Europe, leading to a shortage here that forces up costs for customers.

Proffitt also criticised Ofgem for failing to protect customers. 'The regulator has been very lax,' he said. 'It has allowed the price rises to go through without being checked, it needs to be far more proactive.'

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Jeremy Nicholson, director of the Energy Intensive Users Group, which is also meeting the regulator today, backed calls for an inquiry.

'In the absence of a comprehensive investigation, it is difficult for industry to see why [international] price differentials should be so wide,' he said.

EnergyWatch, the consumer body, also has concerns about gas prices and believes the European Union or Competition Commission may have to be called in.

'There has been a sharp rise in the past year with no compelling reason,' said spokesman Adam Scorer. 'Something must be seriously wrong if a market behaves in that way.

'The impact of higher prices is having an astonishing effect on domestic and commercial customers. If Ofgem cannot get to the bottom of this, then a body with greater powers needs to take this on.'

The wholesale cost of gas for the first three months of 2005 has risen from 30.825p a therm to 44.75p, an increase of 45%, this year.

British Gas recently announced that the cost of gas will go up 12.4% and electricity 9.4%. These rises take the average gas bill up £67 a year to £425 and the average electricity bill up £37 to £268. Other companies have been imposing similar rises.

David Cox, of energy market analysts ILEX, agreed that gas prices were too high but rejected claims of price manipulation. Instead, he blamed their link to oil prices, which have hit record highs recently.

'I can't see the likes of BP and Shell manipulating the market to boost prices,' he said. 'That would be disastrous for their reputation.'

The UK Offshore Operators Association, which represents gas producers, denied price-fixing. Spokesman David Odling insisted that higher gas prices reflected supply and demand, plus the link to oil.

He said: 'A large number of gas producers operate in this market. It would very difficult for one or two to manipulate supply and prices. These accusations are not new.'

Ofgem has already investigated gas price movements in an inquiry which was triggered by sharp rises last winter. The outcome is due to be announced 'shortly'.

A BP spokesman said: 'We reject suggestions we have been involved in any attempt to raise gas prices or manipulate the market.'

A Shell spokesman said: 'The market is sufficiently transparent and works well.'