Accused of overcharging, UK energy firms could face price cap

* Big suppliers charged UK consumers too much - watchdog

* Price cap proposed

* Utilities avoid worst-case scenario of break-up (Updates response from PM Cameron)

By Karolin Schaps and Nina Chestney

LONDON, July 7 (Reuters) - Britain's largest energy suppliers could face a price cap after a competition watchdog found they overcharged households by around 1.2 billion pounds each year ($1.9 billion) between 2009 and 2013.

Britons have seen energy bills double in the last decade to 1,200 pounds a year, leading to allegations that utilities were cheating them and political pressure to curb increases. The utilities have denied ripping off customers.

The inquiry by the Competition and Markets Authority (CMA) was launched a year ago to clear up once and for all whether the six largest suppliers were abusing their 90 percent control of the market.

Britain's biggest supplier, Centrica (LSE: CNA.L - news) 's British Gas, even faced the threat of being broken up after a former energy minister raised the idea in a letter to the energy regulator.

The CMA has now firmly ruled out such a radical step, saying in its initial findings that suppliers were acting within the law and not making excessive profits. Consumers who failed to switch energy provider were however paying too much, it added.

"We are proposing a transitional price cap which would actually protect those who are disengaged and indeed those who are most disadvantaged," Roger Witcomb, non-executive director of the CMA, told BBC radio.

Prime Minister David Cameron's spokeswoman said that while he opposed a blanket price cap across the market, he was prepared to consider safeguards for consumers on high tariffs, along the lines of those set out by the CMA.

The idea of a cap on energy prices was floated by former Labour Party leader Ed Miliband when he promised to act on high bills as part of his unsuccessful campaign for the May election.

Centrica said it had concerns about some of the proposals, including the price cap. Its shares traded down 1.2 percent at 1120 GMT, while rival energy supplier SSE (LSE: SSE.L - news) saw its stock fall 1 percent, modest declines reflecting relief at the initial outcome of the review.

Britain's largest energy suppliers are Centrica and SSE plus foreign-owned Scottish Power, RWE (Xetra: 703712 - news) npower, E.ON and EDF Energy.

SMALLER PLAYERS

Britain's retail energy market is relatively diverse in comparison with other European countries, some of which only have one or two major energy suppliers.

The prices which British consumers pay for energy use are in line with European Union averages, but poor household insulation tends to mean energy is lost and pushes up bills.

The CMA found the large suppliers' lowest-priced deals were on average higher than those offered by their smaller competitors. Britain's independent energy providers include Good Energy, Ovo Energy or First Utility.

Good Energy Chief Executive Juliet Davenport called for more action to encourage consumers to break with suppliers.

"What we need now is next steps from the CMA that will enable us to 'unstick the stickies', and light touch regulation which helps the consumer," said Davenport.

A price cap is intended to address these issues and to prevent customers who don't switch supplier regularly from being automatically moved on to higher-priced tariffs.

The CMA said it was now seeking views on the level and duration of the price cap. It will publish its final findings by Dec. 25.

While the details were still to be defined, a reduction in profit margins on retail prices would clearly make utilities less attractive to investors.

Analysts at Deutsche Bank (Xetra: 514000 - news) estimate a 1 percent reduction in margins would reduce their equity valuation for Centrica by around 10 percent and 7 percent for SSE.

"Regulated margins may prove to be a ceiling rather than floor if competition from smaller retailers continues to increase," Deutsche said in a note.

($1 = 0.6424 pounds) (Editing by Keith Weir)