Probe into accounts of energy suppliers ordered

Ofgem said the average margin on a standard dual-fuel tariff had risen from 65 to 90 since September and it wants to ensure providers are not boosting profits at the expense of the consumer.

The move comes shortly after major companies including British Gas, Scottish & Southern and Scottish Power hit households with price hikes.

Ofgem said it would look at the "facts behind the numbers" as companies claimed rising prices in the wholesale market – where suppliers buy their energy – left them with no choice but to lift bills.

Energy firms have claimed wholesale gas prices have risen more than 25 per cent since the spring.

Alistair Buchanan, Ofgem's chief executive, said he wanted to make sure firms were "playing it straight" with customers.

He said: "The energy retail market can only be fully effective if consumers have confidence that the market is transparent and easy to take part in.

"So we will go beyond our usual quarterly reports on prices and do a comprehensive review of the retail market and our recent reforms from the consumers' perspective.

"We will also carry out a detailed investigation of the newly available retail accounts and the facts behind these numbers.

"Greater transparency in the market is good for consumers, investors and for the energy industry as a whole."

Mr Buchanan added that as Britain was facing a bill of 200bn to invest in updating the energy network over the next 10 years, consumers had the right to expect the energy retail market to provide value for money.

Ofgem warned in a recent report that rising wholesale prices, boosted by increased demand and the impact of soaring crude oil costs, could be passed on to the consumer.

British Gas managing director Phil Bentley said earlier this month that his company had been selling gas at a loss, which was not sustainable.

But consumer groups have questioned energy suppliers' figures, claiming wholesale prices are still around half their peak in 2008, while in the same period customers' prices have fallen by less than 10 per cent.

British Gas, owned by Centrica, saw profits nearly double in the first six months of 2010 to 585m after the coldest winter for 30 years saw customers reach for the thermostat.

But Scottish & Southern Energy (SSE) announced a six per cent fall in half-year profits earlier this month after selling gas at a loss.

In its latest market report, Ofgem has taken into account the higher prices announced so far by three of the "big six" energy suppliers.

Ofgem said it aims to complete its investigation by March next year.

Lobby group Consumer Focus said energy companies were quick to protect profits when wholesale prices rise but slow to benefit consumers when they fell because of a lack of competition between the major players.

The group said if Ofgem's "overdue" review reveals the current level of competition does not force companies to price fairly, Ofgem or the Government should refer the market to the Competition Commission.

Audrey Gallacher, head of energy at Consumer Focus, said: "We all have to pay for gas and electricity and the main protection we have against being overcharged is competition in the market.

"We have long been concerned that the market is not as competitive as it should be and this review needs to get to the bottom of whether prices are fair or whether consumers are being taken for a ride.

Ms Gallacher said more information about wholesale costs, retail prices and company margins was required.

She added: "Transparency is the lifeblood of competitive markets."

The announcement of the investigation was welcomed by 10 Downing Street, which stressed that the decision was "a matter for Ofgem".