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UK energy firms face competition probe after price hikes

U.K. regulator Ofgem has called for a full investigation into the country's energy market, to "clear the air" over competition and whether the public is being ripped off.

The move comes amid rising anger towards the so-called "Big Six" energy companies which have been accused of hiking energy bills to boost their profits at a time when consumers are already struggling.

The results of the probe could see a huge shake up of the industry with the power supply and generation arms of big energy firms being split, allowing easier entry for smaller players and boosting competition for consumers.

(Read more: UK energy companies under pressure to explain price hikes)

"I want to make sure that consumers are put at the heart of this market, so we will continue to take action to help consumers. This includes from today putting the industry on notice that any new serious breach of the rules which comes to light will be likely to attract a higher penalty from Ofgem," the regulator's CEO said in a statement"

Ofgem

Ofgem added that it hopes the investigation, which will be carried out by the Competition and Markets Authority, will end "uncertainty" in the market.

Retail profits of energy firms increased from £233 million in 2009 to £1.1 billion in 2012, "with no clear evidence of suppliers becoming more efficient in reducing their own costs," Ofgem said in a statement. The authority added that 43 percent of consumers distrusted energy companies to be open and transparent.

The regulator also found evidence of "possible tacit coordination reflected in the timing and size of price announcements and new evidence that prices rise faster when costs rise than they reduce when costs fall".

(Read more: Energy leaders warn of blackouts across Europe)

Energy companies have been high on the political agenda in Britain since the opposition Labour leader Ed Miliband said last year that the party would freeze prices if it was elected in 2015. The U.K.'s "Big Six" firms – Centrica, SSE, E.ON, NPower, Scottish Power and EDF – unveiled inflation-busting price hikes last year, adding to the debate that the country's consumers were being unfairly treated.

A decision on the inquiry is expected in July.

'Increasing risk' of blackout

The boss of Centrica, the U.K.'s biggest electricity and gas supplier told BBC Radio 4's Today program on Thursday that a long review would damage much-needed investment in the industry and cause "an increasing risk" of a blackout.

Ofgem

Centrica, SSE, E.ON and Scottish power all said they welcomed the review in order to restore trust in the energy companies.

E.ON U.K. CEO Tony Cocker said he hoped the inquiry would dispel the "myths and misinformation that surround the energy market".

EDF and NPower did not respond to a request for comment.

'Make or break'

Consumer group Which? backed the probe and called it the "right decision".

(Read more: Europe 'held hostage' by Russian nat gas: Hamm)

Ofgem

"It is make or break time for the energy suppliers, who should not wait to be forced into action but instead start now to put customers first, keep costs as low as possible and trade transparently," executive director Richard Lloyd said in a statement.

In its "State of the Market" report, Ofgem found fewer consumers are switching energy providers and these "sticky" customers are being charged higher prices while more active people are receiving cheaper deals.

Ofgem's report is also found barriers to entry for smaller firms due to the dominance of the "Big Six".

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