NEW pricing rules to shield customers from large hikes in bills were unveiled today by energy watchdog Ofgem.

Power companies were told that they can raise distribution charges by 1% from April to spur improvements to the network.

Under the proposals, firms will then be restricted to raising prices by no more than the rate of inflation until 2010.

Ofgem said its decision would shield consumers from unnecessarily large hikes in bills - but ensure that £5.7bn is invested in the networks over the next five years.

Distribution charges - the price paid by suppliers to use the network to direct electricity to their customers - account for a quarter of electricity bills.

The increase in charges next year is equal to 6p a month on the average domestic bill in the first year following the review, Ofgem said.

Ofgem chairman Sir John Mogg said: "We have produced a package of measures that strikes the right balance between attracting investment and ensuring that customer prices are no higher than they need to be."

Ofgem said its decision would provide power firms with "sufficient incentive" to meet the £5.7bn target for investment.

Operating expenditure - covering day-to-day costs - will be expected to fall by 3% on average or about £21m a year.

el (5)