In a move that may usher in the biggest shake-up of Britains retail energy market since it was opened up 15 years ago, three regulators said competition was so weak and public trust so low that an investigation was needed.
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Profit increases and recent price rises have intensified public distrust of suppliers and highlight the need for a market investigation to clear the air, energy regulator Ofgem said.
Centrica, the countrys biggest supplier which owns former monopoly British Gas, rejected any suggestion of tacit coordination on prices with other suppliers and warned the threat of a break-up would likely result in lower investment.
The countrys big six energy suppliers SSE, Scottish Power, Centrica, RWE npower, E.ON and EDF Energy are under intense political scrutiny ahead of the election next year because of soaring bills.
The six companies, which control around 95% of Britains energy supply market, have denied accusations by the opposition Labour party that they are ripping-off customers and say they have been unfairly cast as the villains in a debate over rising prices ahead of the election.
Energy bosses and investors have warned that a lengthy inquiry could sow uncertainty that will deter the 200 billion ($330 billion) of investment they say is needed to avoid potential power shortages in future decades. We will act on that uncertainty and thats something the company and the country will have to deal with, Nick Luff, Centricas finance director, said.
The regulators said they had found some signs of tacit coordination by the companies on pricing strategies, though they said it was too early to conclude whether such coordination did exist. We found a number of aspects ... that would appear to be consistent with tacit coordination between them, the regulators said.
Retail profits within the sector rose to 1.1 billion ($1.8 billion) from 233 million between 2009 and 2012, a rise of almost five times, the regulators said. Prime Minister David Cameron, who ordered the initial review following mounting public anger over high energy bills, welcomed the full investigation.