CENTRICA PLC 
By The probe, combined with plans to allow more state intervention in generation, throws into doubt the very premise of privatisation started 28 years ago: that the power industry can be like any other, where competition between private companies leads to lower prices.
The uncertainty also threatens the "dull but reliable" status of power companies such as Centrica (>> Centrica PLC) and SSE (>> SSE PLC) that offer generous, dependable dividends for which investors pay a premium.
Those companies may now be broken up, ordered to sell power stations, forced to surrender market share to smaller competitors or even have their freedom to set prices curtailed.
"The worst possible outcome would be a break-up of the companies if a breach of competition rules is proven," said Paris Dauphine University energy specialist Raphael Boroumand.
With energy asset values already low, he said, the companies would be forced into loss-making divestments that would hit their stock valuations hard.
Britain's liberalised power retail market has already been watered down as the government saddled companies with costs for a shift to cleaner, lower-carbon energy sources.
But the basic framework - a market in which private companies set prices and choose how they produce power - is still among the freest in the European Union, where regulated tariffs were the norm in 17 out of 27 EU states in 2012.
Many countries are still powered by state utilities or have regulated energy prices that are sometimes set below cost.
In countries such as Spain, Italy, Germany and Switzerland, heavy subsidies for solar and wind power or a phase-out of nuclear power have upset the centralised-generation business models of utilities such as E.ON (>> E.ON SE) and RWE (>> RWE AG).
Britain's renewables push has been less radical and costly.
Among the European Union's 15 oldest member states, UK household energy prices per unit, including taxes, were around a quarter lower in 2013, Eurostat data shows.
However, consultants to the industry say draughty homes and poor energy demand management mean the British consume more, resulting in higher bills than elsewhere.
That is unlikely to comfort British consumers enduring energy price rises that far outstrip other bills and inflation.
FLAWED SELL-OFF?
Consumer groups focus on the dominance of the "Big Six" energy firms that hold 95 percent of the British retail market.
The companies deny collusion and say they are grappling with stubbornly high gas prices, the cost of meeting renewable energy and social targets and infrastructure investments.
But Dauphine University's Boroumand said the firms have maximised profits by avoiding aggressive price competition instead of cutting bills to corner a bigger share of the market.
Britain's energy regulator referred the sector for investigation on March 27 after finding signs of tacit price coordination between suppliers.
Some critics of privatisation say the way Britain's energy system was sold off was flawed as it allowed the companies to invest the bare minimum in spare capacity. Growing demand means the country now faces the prospect of a power crisis.
The companies argue that the investment hiatus has been created by the government's constant policy changes.
Some of the utilities own both generating and retail assets, meaning they sell power to themselves and it is hard to check if consumers are getting a fair deal.
Dale Vince, CEO of small energy supplier Ecotricity, a rival to the Big Six, said their market dominance had served their own shareholders, not consumers.
"Whatever the options, they will need to be radical," he said. "Renationalisation is one; the creation of an energy pool is another; and maybe even forced switching of the inherited customer base, away from the Big Six."
The opposition Labour party has vowed to cap prices. The governing coalition of Conservatives and Lib Dems preaches more competition to cut bills.
But it has also embraced state intervention.
A new UK "Contracts for Difference" mechanism will usher in a model in which the state subsidises low-carbon production assets like nuclear and renewables.
Raising eyebrows among advocates of energy competition, the government in October gave France's EDF (>> EDF) an unprecedented 35-year power price and loan guarantees for a 16 billion pound nuclear project, subject to EU approval.
"A fixed-price contract like EDF's effectively turns this into a regulated business," said Roland Vetter, head of research at CF Partners, a trading and investment firm.
A plan for utilities to get state funds to keep capacity on stand-by, a mechanism due to start in the UK in 2018, is another step towards regulation, he said.
UK SUPPLIERS STILL TRADE AT PREMIUM
Even if the Competition and Markets Authority fast-tracks its probe, the companies will be dogged by uncertainty until a 2015 election decides whether Labour gets to impose its price cap, or the Conservatives get a mandate to make the industry more efficient and transparent.
For now, a share performance comparison suggests investors do not expect the competition probe to spark the scale of upheaval seen on the continent, where utilities have been rocked by intervention in tariffs and their generation mix.
In the Dow Jones Titans world utilities index <.DJTUTS>, Centrica and SSE are among the top-five most highly valued stocks in terms of share price to book value, as is UK network operator National Grid (>> National Grid plc).
Shares of Germany's E.ON and RWE trade at a third of pre-financial-crisis highs, while Spain's Iberdrola (>> Iberdrola SA) is trading at half. All three own UK energy supply businesses but have most of their operations elsewhere.
Despite share price slides since Labour's September promise to freeze prices, Centrica and SSE still trade only slightly below 2007 highs and their shares are worth close to three times book value, compared to less than one for Iberdrola and E.ON.
Politics dictate outcomes in the power industry more than in many others because access to affordable electricity is seen as a right.
The late Prime Minister Margaret Thatcher, who pioneered Britain's privatisation drive, promised citizens ownership of their energy sector. The industry is now dominated by foreign companies that repatriate much of the profits from supplying power and gas in Britain.
With politicians and regulators under growing pressure to acknowledge the indignation of consumers, few expect the country's energy retail market to survive in its current form.
"For the moment everybody believes in competition and neither government or opposition talk about regulating tariffs. But you never know if they'll change their mind," Vetter said.
(Additional reporting by Guy Faulconbridge; writing by Geert De Clercq; editing by Tom Pfeiffer)
By Karolin Schaps and Geert De Clercq
