Other suppliers are expected to follow suit

Business customers from July will be paying as much as 5% more for electricity and 3.4% for gas.

Domestic customers from early September will face an average rise of 3.1% for their gas supplies or about �11 a year.

Other suppliers are expected to follow Powergen's lead and raise prices, with high oil prices having a knock on effect on wholesale gas prices.

The price at which suppliers buy gas is about 50% higher than this time last year and this makes up about 40% of the bill price paid by consumers.

Scottish & Southern Energy recently said it would soon have to raise its retail gas prices, while British Gas warned its profits would be squeezed by rising wholesale gas and electricity prices.

Gas prices are linked to the price of crude oil in continental Europe. The Interconnector pipeline between the UK and Belgium means that gas prices in the UK also tend to take their lead from oil prices.

The cost of electricity, in turn, normally moves in tandem with gas prices.

Scrapping charges

Powergen also said costs would rise by an average of 1.9% for over 60s on the firm's Staywarm tariff from 13 July, while prepayment gas prices would increase by 3%.

However, the price rises would be offset by changes to the tariff structure, as Powergen also announced it would be scrapping its standing charges for gas and electricity customers.

This would mean the majority of its standard electricity customers would actually benefit from lower bills, it said.

Energywatch, the gas and electricity consumer watchdog, welcomed the move to scrap standing charges for domestic consumers, but warned the company to not recover the savings through the backdoor.

In addition, customers who take both electricity and gas from Powergen will also get a dual fuel discount of 3% and there will also be a 3% discount available for customers who pay by monthly Direct Debit, Powergen said.

Nick Horler, managing director of Powergen Retail, said: "With the removal of standing charges and with new percentage based discounts, customers will ultimately benefit from simplified pricing structures."

Powergen was the first household supplier to announce increases for 2004.

Customers who were affected by the earlier move have already seen their bills increase by on average 6.9% for electricity and 4.9% for gas.