Ofgem is allowing energy companies to pass on the cost of employee pensions to customers and has warned consumers that bills could go up.

There is currently a £4 billion gap in the industry’s pension funds, as rising costs for employee pensions leave many companies struggling to meet their funding obligations.

In a statement, Ofgem’s regulation and financial affairs director David Gray explained, ‘The rising cost of pensions is a concern for everybody. We are therefore proposing guidelines for the treatment of these costs, which are a normal part of company employment costs.’

However, the regulator has warned energy companies that there will be no blank cheques.

The new guidelines set out where costs can be fairly passed on to consumers through price controls and in what circumstances it would be outlawed.

Consumer groups have called for energy companies to be prevented from hiking customers’ bills.
Ofgem is about to start a review of electricity distribution companies’ price controls, which is due to be completed in April 2005.