Dec. 8 (Bloomberg) -- Nazrul Islam, who owns a liquor store in London's East End, says his natural-gas bill has climbed by a third during the past year. With temperatures poised to plunge, he can't contemplate cutting back on heat.

``I have two baby sons whom I have to keep warm,'' Islam, 30, said at his shop in Brick Lane. ``I am really angry with British Gas.'' Islam's latest quarterly gas bill for the summer amounted to 140 pounds ($275), about the same amount he paid for during last year's winter heating season.

U.K. residents are paying the most in a decade to heat their homes. Even after an 84 percent drop in wholesale gas prices since March, British Gas, Powergen Plc and Scottish & Southern Energy Plc, the country's biggest suppliers, say they won't cut rates until they're sure the lower costs are here to stay.

Senior citizens are among the hardest hit by rising fuel prices as energy costs eat up more of their pensions. About 24,650 people over 65 died of cold-related causes last year in the U.K., down from 31,250 the previous year, according to the Office of National Statistics.

Annual energy bills for U.K. households will average 1,029 pounds in 2006, up from 790 pounds last year, according to the Office of Gas and Electricity Markets, or Ofgem, the country's regulator. U.S. residents will spend $826 to heat their homes this winter, down from $945, the U.S. government said Oct. 10.

Scottish & Southern, the nation's third-largest energy supplier, will raise household power prices by an average of 9.4 percent and gas prices by 12.2 percent in January. The utility cited the increase in wholesale costs over the past three years.

Free Market

``If we see a sustained downward trend in prices next year, we will review our tariffs,'' said Sharron Miller-McKenzie, a spokeswoman for Perth, Scotland-based Scottish & Southern.

U.K. natural gas prices for delivery on the day reached a record of 2 pounds a therm on March 13 because of freezing temperatures and supply disruptions. Prices have since fallen to about 33 pence after new import pipelines from the Netherlands and Norway started delivering gas.

The U.K. stopped regulating gas and power prices in 2002, saying the creation of six competing utilities would keep prices low. Utilities are free to alter household rates without approval from Ofgem.

The regulator only reviews retail rates if utilities fail to respond to a ``sustained'' decline in wholesale prices, because utilities buy power and gas six months in advance.

``Ofgem will expect suppliers to compete hard as wholesale prices fall, just as they have done as prices have gone up,'' said Chris Lock, an agency spokesman. ``We will need to see a sustained period of falling gas prices and suppliers acting on this. We are watching the market closely.''

600,000 Households

That's not enough for Reg Tarbard, 72, a pensioner in east London.

``We've been cutting back on other living expenses to make up for our higher bills,'' Tarbard said, while shopping for vegetables at the local supermarket. ``I'm lucky that I'm still healthy. Many of my peers are losing their health and having to deal with keeping warm this winter.''

About 600,000 households that include at least one person over 60 are affected by fuel poverty, defined as homes that spend more than 10 percent of their incomes on energy, according to the advocacy group Age Concern.

``The government must ensure that decent housing, energy efficiency measures and a higher basic state pension are in place to help older people stay warm,'' said Gordon Lishman, Age Concern's director general.

Heat Subsidy

Everyone age 60 and over is entitled to 200 pounds each winter to help pay their heating bills. Age Concern is lobbying to increase the subsidy to 300 pounds.

Chancellor of the Exchequer Gordon Brown on Dec. 6 told Parliament the government was increasing aid to low-income seniors and said the government would provide free insulation for 300,000 households by the end of 2008.

``One of the big answers is to make sure there is proper insulation and proper central heating,'' Brown said in an interview with the British Broadcasting Corp. ``For low-income pensioners, insulation and central heating are free.''

The average U.K. consumer will spend an additional 600 pounds on gas and electricity this winter compared with a year ago, Citigroup Inc. estimates. Higher energy prices will cost retail customers about 6.2 billion pounds, the bank estimates.

New Pipelines

U.K. utilities say they can't cut prices because they're still paying the price for surging energy costs last year.

The new pipeline from Norway, the main reason for the plunge in wholesale prices, will ``hopefully make a difference to prices going forward,'' said Andrew Hanson, a spokesman for Windsor, England-based Centrica Plc, which owns British Gas.

Powergen, the U.K. unit of Dusseldorf, Germany-based E.ON AG, Europe's biggest utility, has no plans to change residential prices until it sees a ``sustained'' period of lower wholesale prices, says Rebecca Middleton, an E.ON spokeswoman.

``We expect utility companies to pass on price cuts in the same way as increases,'' said Janice Allen, a London-based spokeswoman at the government-funded Consumer Council. ``It's unfair to say consumers must wait for a period until price cuts happen because utilities have been quick to raise prices.''

To contact the reporter on this story: Renee Lawrence in London at rlawrence7@bloomberg.net

Last Updated: December 8, 2006 01:48 EST