Consumers who were expecting significant falls in their energy bills over the next few years – which have risen by more than 40% in 2008 – could be disappointed, Alistair Buchanan, the chief executive of Ofgem, told an influential group of MPs. Britain does not have enough storage capacity to buy and hoard gas when it is cheap, and the credit crisis has delayed projects which would have improved the situation. To make matters worse, the financial turmoil means that gas and electricity wholesale companies are now demanding a higher deposit for energy because they are worried that their customers – the retail distributors – will not have enough money to honour their commitments in the future. Mr Buchanan told the Business and Enterprise Select Committee on Energy that gas companies were being charged considerably more by their banks to borrow money.

“Companies are having to decide how much of this should be pushed through to consumers. This is very, very frightening,” he said. His comments will come as a severe blow to hard-pressed consumers, who have had to cope with a series of bills increasing this year. The average joint gas and electricity bill has jumped from £912 at the start of the year to £1,303. While the cut in Value Added Tax, announced this week by Alistair Darling, will bring down some bills, it will not affect energy bills, which incur a VAT rate of just 5 per cent. Most experts predicted that energy bills would start to come down in 2009 because of recent heavy falls in the gas wholesale market. However, Mr Buchanan warned that customers might fail to see much long-term reduction in their bills, because of gas companies escalating costs.

“Our British utility companies have significant refinancing to achieve in the next 18 months. They are very healthy companies but they have to refinance their debt,” Mr Buchanan said.

Peter Luff, the Conservative chair of the Committee said afterwards: “This has to hit consumers. It has to. They will be puzzled to see oil prices tumbling and no reduction in their gas bills, but the forward gas market remains ahead [of the current price] throughout 2010 and 2011.” Most gas companies buy their energy on the ‘forward market’, which allows them to purchase contracts at a set price in the future. According to energy consultants ICIS Heren, the price of wholesale gas in summer 2009 is 49.87p, but rises to 53.5p in summer 2010 and to 55.p in 2011.

Though this price has fallen very sharply since the peak they reached this summer, Ed Cox at the company said, “They remain very high in historical terms compared to a few years ago. “The era of cheap energy is very much over.” Most experts agree that consumers will never see prices return to where they were five years ago, when the average gas and electricity bill for a family was nearly half its current level – at just £534 a year.

Mr Luff agreed that forward gas prices had calmed down since the summer – which could see suppliers trim their bills in the New Year. But, in the longer-term in the UK, the cost of energy was much more expensive than both Europe and America. “In the past Europe set a ceiling for prices, now it sets a floor,” he said. According to figures submitted to the committee the forward price of gas in 2011 is lower in Europe by at least 5 pence a therm, and even lower in America.

He blamed the lack of storage capacity for imported gas. Britain can store between 10 and 12 days’ worth of gas, compared with an average of 70 days’ worth of storage in Europe.

Various projects to increase capacity in this country have run into trouble because of the credit crisis. Portland Gas, which was planning a major facility in Dorset, admitted earlier this month that it will be seriously delayed. Not only will consumers need to get used to annal energy bills of well above £1,000, business users will be very heavily hit. Jeremy Nicholson, the chief executive of the Energy Intensive Users Group, which represents glass, paper, chemical and brick factories, all of whom consume vast quantities of energy, said: “Britain is no longer competitive with Europe and the gap has widened in recent years, despite repeated protestations from Ofgem and ministers that the problem will sort itself out.

“Everyone will be hit by these high forward energy prices – consumers and businesses.”

Mr Buchanan defended himself from accusations by Committee members that the regulator was a “toothless tiger”.

“We are quite comfortable giving the industry a good kicking,” he said. He also promised to investigate why so many customers, who pay their bills by direct debit, were in credit to their energy suppliers.

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