For UK's utilities, more pain could follow election

* Unpopular utilities could be target after election

* Labour price freeze wiped 2.7 bln pounds off utility stocks

* Centrica (LSE: CNA.L - news) , SSE (LSE: SSE.L - news) shares seen falling if Labour in government

By Karolin Schaps

LONDON, April 29 (Reuters) - Utilities which have long been a lightning rod for complaints about high living costs in Britain are again in politicians' sights as they campaign in the tightest national election for decades.

Fears the 'Big Six' energy firms will face greater scrutiny and regulation as politicians try to show they are on the side of consumers and not big business have already led some investors to shun stocks like Centrica and SSE.

Polls suggest no party will secure a majority on May 7, raising the prospect that the ruling Conservatives or main opposition Labour Party will need to rely on support from one or more smaller parties to govern. All the parties advocate some kind of change to Britain's liberalised energy market.

"We are concerned that gridlock could see politicians vent towards the lowest common denominator -- utilities," said Sofia Savvantidou, head of European utilities research at Citi.

London-listed Centrica and SSE saw 2.7 billion pounds wiped off their combined stock market value in 2013 when Labour leader Ed Miliband pledged in 2013 to cap prices if elected after hikes in energy costs drew criticism from households and lawmakers.

The 'Big Six' also include EDF Energy, Scottish Power, E.ON and RWE (Xetra: 703712 - news) npower.

"We believe Centrica's shares could be worth at least 20 percent less under a Labour-led government than a Conservative one," said utilities analysts at Deutsche Bank (Xetra: 514000 - news) .

They added that SSE shares could tumble 14 percent while Britain's energy network operator National Grid (LSE: NG.L - news) could drop by 5 percent.

PRICE FREEZE

Details of Labour's proposed price freeze remain scant, making its likely impact on profits hard to estimate. But the pledge has already had unintended consequences.

Analysts say that, with one eye on a potential price cap, utilities have not cut bills for households as drastically as they could have done following the recent plunge in oil prices.

"I believe if Miliband had said nothing about freezing prices, consumers would be better off at the moment," said Roland Vetter, head of research at energy risk management firm CF Partners.

Most utilities reacted defensively to Miliband's proposal, saying price controls would be damaging and that constant changes in policy make investments difficult, although SSE responded by itself capping tariffs until July 2016.

This week, Centrica's chief executive Iain Conn said he doubted Labour would follow through with the freeze.

"There's a big difference between what people say when they're electioneering and when they have the burden of having to implement policy," he told reporters at the company's annual general meeting in London.

But utilities have ramped up their lobbying firepower, hiring public relations staff to improve customer perceptions and engaging more actively with policymakers, sources offering consultancy services to the utilities sector said.

If returned to power, the Conservatives have promised to implement recommendations from a competition watchdog investigation into the retail energy market, launched last June and expected to conclude by the end of this year. That could lead to the break-up of the largest firms.

The Liberal Democrats, junior partners in a coalition with the Conservatives since 2010, want to engineer more participation from smaller suppliers.

Independents such as First Utility and Ovo Energy have started eating into the major suppliers' market share although the Big Six still control around 90 percent of the sector.

The Scottish National Party (SNP), which could play a kingmaker role after a huge surge in support, favours giving the energy regulator powers to impose lower tariffs.

The smaller, Eurosceptic UK Independence Party would cut subsidies for some green energy projects that utilities invest in, while the Green Party has pledged to split up utilities so they can't both produce and supply energy to consumers.

"All parties might have a tendency to support populist measures to attract support in Parliament and also to retain popularity in case of a further UK election," said Deutsche Bank analysts. (Editing by Catherine Evans)