European industry fears rising energy costs are blunting its competitive edge, while the German government has warned utilities against endangering economic recovery with large power price hikes.

"For the big consumers prices are higher than before liberalization started if you include transmission and surcharges," said Peter Claes, president of the Brussels-based European Federation of Industrial Energy Consumers.

"Our members are big companies which depend on prices for their ability to compete - this is a competitive handicap."

Price increases have stoked concerns about the dominance of a small band of mega-utilities - Germany's E.ON and RWE, and state-owned Electricite de France - which were left in control of the market by a wave of consolidation as competition started to kick in five years ago.

"The question now being asked is has liberalization failed?" said Denis Brooks, general manager in the UK for energy analysts NUS Consulting Group.

"It has in that structural and regulatory failings have allowed market share to reduce down a handful of players whose interests lie in rising prices, and high costs of market entry," he said.

GERMAN UTILITIES SLAMMED

In Germany, where RWE and E.ON rule the roost, the government has condemned big prices increases this autumn. Economics minister Wolfgang Clement on Wednesday described utilities' pricing policy as "totally unacceptable, warning them against endangering economic recovery.

Utilities blame higher oil prices - gas prices in Europe are indexed linked to oil - and the cost of complying with government rules on climate protection.

Critics say suppliers may be pushing through increases before Germany installs an energy regulator next year.

"Liberalization is not a guarantee of low prices, but regulation (in Germany) is not where it should be," said A.T. Kearney analyst Berthold Hannes. But he said high taxes, rather than genuine energy costs, had been the main driver behind recent price increases.

Elsewhere in Europe, Spanish industrial and household gas prices went up by 7.5 percent and 2.65 percent respectively in July, while Electricite de France is pushing for a 2.7 percent rise in tariffs.

UK households are reeling from huge increases just imposed by Centrica, the country's biggest gas supplier, and N-Power, which is owned by Germany's RWE.

Both firms blamed the increases - which ranged from 7.6 percent to 12.40 percent - on a 40 percent jump in wholesale gas prices in the UK.

Traders say prices have risen partly on tightening supply as output form Britain's North Sea fields drop and the country becomes more reliant on imports.

But allegations of market manipulation have also emerged, prompting the energy regulator to launch an investigation.

British industry has been stung by a series of hefty increases, compounding firms' misery at a time of rising interest rates and soaring prices for oil and other commodities.