OFGEM, the energy regulator, yesterday warned that householders and businesses were likely to face higher energy bills from 2010 to pay for improvements to the UK's electricity distribution networks.

Ofgem said the distribution network operators (DNOs) were planning significant increases in their capital spending to replace ageing equipment and to expand networks.

"Ofgem is challenging the companies' cost forecasts hard and will assess the opportunities for further efficiencies," it said in a statement accompanying the publication of its second consultation document relating to the electricity distribution price control for 2010/15.

"But it is likely that distribution costs will increase, adding to customers' bills from 2010."

The UK has seven power distribution network operators including Western Power Distribution, EDF Energy, Scottish & Southern Energy, E.ON, Scottish Power, Central Electric and Electricity North West.

Distribution charges currently stand at about £3.6bn a year, accounting for 14% of a typical domestic customer's energy bill, Ofgem said.

The regulator is proposing to improve incentives to distribution companies to be more efficient, to improve services for customers and to help tackle climate change by cutting the amount of electricity lost on the networks.

Energy companies have reduced prices for some of their customers in recent days to head off further action from Ofgem following its separate inquiry into retail gas and electricity markets.

But some analysts believe it's not enough and that the biggest six companies should be able to cut prices by as much as 10% within weeks in a year when bills have risen by as much as 50%.