Ofgem, the energy regulator, yesterday announced it will investigate the 20-year-old regime governing the regulation of the country's gas and electricity networks to check that competition is working well.

The review is the second major investigation into the UK's gas and electricity industry.

The two-year inquiry will examine whether customers can expect to receive value for money amid "growing investment challenges" being faced by energy providers.

Last month, Ofgem announced an investigation into the UK's gas and electricity markets. The inquiry was undertaken after five of the UK's big six domestic energy retailers announced big price increases.

The regulator said there are a number of challenges facing large-scale energy providers. These include government renewable energy targets for 2020, proposals for greater power network interconnection in Europe and a greater emphasis on small-scale distribution generation. The UK is also facing a growth in gas imports as supplies from the North Sea run out.

There are four gas network operators in the UK, including firms such as Scotia Gas Networks and National Grid, which maintain gas mains supply for domestic suppliers such as British Gas, Scottish Gas and E.ON.

There are 14 electricity network operators including firms like ScottishPower, the UK unit of Spanish-based Iberdrola, Scottish & Southern Energy, United Utilities and EDF Energy Networks, which is owned by Electricité de France.

The cost of the energy transmission makes up around 20% of a household gas or electricity bill, Ofgem said.

This latest inquiry is separate from Ofgem's investigation announced last month into the gas and electricity markets, which will check for any evidence of anti-competitive behaviour by suppliers. It will also look at the relationship between retail and wholesale prices.