EDF sets the trend with winter fuel price hike

SCOTTISH households have been warned to brace themselves for higher energy bills as suppliers prepare to raise their prices over the winter.

EDF yesterday became the first of the big six suppliers in two years to increase its standard prices, with a 1.2 per cent hike taking average bills up from 1,159 to 1,167 a year.

The news came days after two of the cheapest online tariffs were withdrawn from the market. Newcomer Ovo Energy has bumped its cheapest one-year fixed rate up by 45, while npower is replacing its cheapest fixed rate with a deal that is 4 per cent dearer.

ScottishPower and Scottish and Southern Energy - among the four suppliers under investigation by energy regulator Ofgem for misselling - have also raised their cheapest online tariffs in recent months, by 4 and 10 per cent respectively.

Suppliers buy their energy in advance so their price movements are dictated largely by forward wholesale prices, which reached their highest level for a year in July, an increase that is likely to feed through to tariffs over the winter months.

The latest quarterly market report from Ofgem forecasts a squeeze on suppliers' net margins by next spring that will prompt them to push prices up. It said: "By spring 2011, gas purchase costs may increase by 13 per cent. This would shrink the net margin on gas supply from 50 today to around 10. For electricity supply, net margin is also expected to decrease, but at a slower rate."

Lisa Greenfield, energy analyst at Confused.com, said this would almost certainly translate into higher costs for households. "The latest Ofgem report is further evidence that fuel prices will be rising in the very near future, with stark predictions of escalating costs of wholesale gas likely to force the hands of the suppliers. If this forecast comes true, it will mean suppliers' profits will plummet from around 50 per customer for gas to 10."

But Ofgem delivered better news for households when it told energy suppliers to give 30 days' notice before increasing prices. As it stands, they only need to inform households of price rises after they have taken effect.

Ofgem said the change would give consumers more time to find a better deal before the higher prices are introduced. Andrew Wright, senior partner for markets at Ofgem, said: "Companies should be under no illusions: we will continue to keep the effectiveness of the energy market under review and will not hesitate to bring forward further measures to protect consumers if the evidence shows them to be necessary. We intend to make sure that our current reforms stick, as our investigation of door-step selling demonstrates."

Meanwhile, npower yesterday agreed to pay refunds of nearly 70 million to 1.8 million customers after poor communication of changes made in 2007 to the way it charged for gas resulted in some households paying too much for their energy.