Will pension costs spark higher prices?

Energy firms have been told by the industry regulator Ofgem they can pass on some of the costs of funding employee pensions to customers, if their pension scheme is running short of funds.

Ofgem, which sets the prices utilities can charge for electricity and gas, was setting out a framework for future pricing in the industry.

In response, consumer groups said the move was acceptable as long as the regulator was tough on firms who had mismanaged their pension schemes.

No blank cheque

The pension funds of some UK energy firms are currently in deficit, to the tune of �4bn, as a result of the downturn in stock market investments in recent years.

Some experts have said that in extreme cases, some companies could collapse if they had to fund a huge pension gap.

We welcome the principle that if fund management has been inept, then the companies should shoulder the burden themselves Ann Robinson, Energywatch

"It is not good for the consumer to have energy firms laid low by their pension costs," an Ofgem spokesman told BBC News Online.

Initially, customers could face bills rising by as little as "one or two pounds a year" the spokesman said, but he would not be drawn as to whether consumer costs would rise further in future.

But the regulator emphasised that energy firms would not be given "a blank cheque" to charge customers to make up a pension shortfall.

In fact, Ofgem said that if a firms pension fund had been poorly managed or employer contributions had been cut then this could bar firms from upping bills.

In response, Energywatch the consumer watchdog said that they welcomed the move as long as checks and balances were in place to prevent bills for consumers mounting up.

"We welcome the principle that if fund management has been inept, then the companies should shoulder the burden themselves," said Ann Robinson of Energywatch.