UPDATE 2-UK utilities face review after recent price hikes

* Energy retailers margins surge 38 percent since September

* Ofgem may change energy market rules in consumer interest

* Analysts say major change to energy market unlikely

* Centrica down 2.4 percent, vs FTSE 100 down 1.7 percent

* Scottish & Southern down 1 percent

By Jonathan Gleave and Una Galani

LONDON, Nov 26 (Reuters) - Britain’s retail energy market will be reviewed after recent price hikes pushed up operator’s profit margins, energy regulator Ofgem said on Friday.

Analysts said a major change to energy market rules was unlikely because rises in wholesale gas prices over the summer have depressed suppliers’ profits for the year as a whole.

Energy retailers’ margins on combined gas and electricity bills have surged 38 percent to 90 pounds since September, which Ofgem said had prompted it to launch a new three-month review due in March which uses new details available to the regulator.

“We have more information on the companies because they are now required to publish their retail accounts. Obviously the recent price rises from the companies have given us a kind of warning light,” Ofgem spokeswoman Alison Wright told Reuters.

British Gas-owner Centrica CNA.L and Scottish & Southern Energy SSE.L, which account for 60 percent of the market and both recently raised gas and electricity prices, saw their share prices fall after the news.

“Any review is normally aimed at identifying any excess profitability, which is negative. But it will be tough to argue that Scottish and Southern was making unfair profits at its gas business,” said analyst Nick Hyslop at RBC Capital Markets, adding the group’s gas business has lost money in 2010.

Hyslop said it may also be difficult to prove unfair profitability at Centrica as he has been forecasting a fall in profit at its gas business due to a 25-35 percent increase in gas prices over the summer.

Prime Minister David Cameron’s spokesman welcomed Ofgem’s review.

“They are doing exactly the right thing looking into the effectiveness of this market and how it is working and whether it is working from a consumer’s perspective.”

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic showing British Gas price changes vs wholesale gas:

here Analysis on UK gas price surge in early 2010: [ID:nLDE65L1T0] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Ofgem and the utilities have had similar clashes in the past. In August 2009, Ofgem called on energy companies to explain why their retail prices had not fallen further despite a steep drop in wholesale gas and electricity prices during the year. [ID:nL6406854]

Gas retailers usually sign forward contracts with wholesale suppliers which means that gas being bought at today’s prices may not be used until next year.

UK utilities have also defended their profit margins by highlighting that that they need to spend over 200 billion euros ($265.2 billion) over the next decade on rebuilding their energy infrastructure.

AT 1039 GMT, Scottish and Southern was down 1.0 pct, while Centrica shed 2.4 percent. The STOXX Europe 600 Utilities index was down 0.9 percent.

The other big utilities in Britain -- RWE npower RWEG.DE, E.ON UK EONGn.DE and EDF EDF.PA have not yet announced price rises this winters, while Scottish Power, controlled by Spain's Iberdrola IBE.MC, has raised both retail gas and power prices. ($1=.7540 Euro) (Additional reporting by Keith Weir; Editing by Jon Loades-Carter)