It didn't take long. Within hours of Centrica announcing an eye-popping six-fold surge in operating profits (from £95m to £571m) from its British Gas subsidiary last year, just weeks after the company had imposed tariff rises averaging 15% on domestic customers, the energy regulator Ofgem has launched another major probe into UK gas and electricity supply markets.

Last month, as British Gas and most of its rivals were unveiling their latest double-digit price hikes, Ofgem's chairman and chief executive told a worried Chancellor: "Britain's competitive market in energy is working." Sir John Mogg and Alistair Buchanan reassured Alistair Darling that they saw only companies losing and gaining significant market share, as record numbers of customers switched their accounts and forced suppliers to introduce more innovative deals.

"We have no evidence of any anti-competitive behaviour," said Buchanan. Bills were going up, Ofgem claimed, because global energy costs were rising and suppliers were having to pay more to help curb the impact of climate change while also having to up their investment spend to ensure safe and reliable supplies in the future. If there were any anti-competitive forces at work, we were told, "a lack of market liberalisation in the rest of Europe" might prove to be the real culprit.

Five weeks on, faced with an outcry from politicians, consumer groups and the fuel poverty lobby, our regulator doesn't sound quite so sure. Now the formulation is that, to date, Ofgem has "seen no clear evidence that the market is failing". However, because "recent events in the market have increased public concern and have damaged customers' confidence that competition is working well", Ofgem says it is casting aside its magnifying glass and picking up a microscope to see if anything is amiss.

Curious terminology. But whatever its investigative tool of choice, what is the chance our energy regulator can get to the bottom of what's going on? It bases its earlier assertion, that the domestic energy market is competitive, on its observation that companies have been winning and losing market share. But British Gas, while racking up these whopping profits, has been a persistent market-share loser. Over the past three years it has lost a total of 1.75 million gas customers, a 15% decline since 2004. Its share of the residential gas market has slumped from 57% to 46.4%.

So how come it can still make such vast profits? It's all about timing and how many customers can be bothered to switch. British Gas made the bulk of its £571m profit in 2007 (£533m of it) in the first half of the year. In the same period of 2006, that business made a loss of £143m. In 2004 and 2005, wholesale gas prices had rocketed in Britain. British Gas aggressively passed these rising costs on to its customers. Some responded by going off to what looked like better deals elsewhere. In 2005, around 640,000 of its gas customers switched. In 2006 the net outflow of disgruntled customers rose to some 870,000.

That £143m loss in the first half of 2006 was one measure of the resultant damage to its bottom line. But more than 10 million other customers stayed on the supplier's books. And when wholesale prices began to fall just as sharply from the spring of 2006 onwards, as new supply links opened up, British Gas rewarded their loyalty by keeping its domestic tariffs artificially high. Much fatter margins and much less customer churn (less than 250,000 gas customers switched out of British Gas last year) produced those bumper profits in the first half of 2007.

Now that wholesale prices are rising again, British Gas is determinedly, like all but one of its main competitors so far, pushing tariffs higher again to try to keep pace and avoid fresh losses. However, if Britain's competitive energy market is working as soundly as Ofgem was claiming just last month, why did suppliers get away with keeping domestic tariffs artificially high when wholesale prices were plummeting? Had too many customers simply become so accustomed to higher bills that suppliers felt under no real pressure to pass on some of these wholesale price falls? Or is this market, despite the regulator's insistence that it cannot find hard evidence of collusion, rather too cosy in the way it prices its supplies up and down the wholesale price curve for its own good?

Ofgem's new probe coincides with other doubts about the capacity of a privatised energy sector to address other big issues of our time. Earlier this month I chaired a conference on energy and the environment in Glasgow. I heard Ian Marchant, the impressive CEO of Scottish & Southern Energy, tell us we are all addicted to energy. That we already need three planet earths to sustain our lifestyles. That we need to get consumption down.

Marchant's answers to how that should be done are conventional enough. Fewer impediments, such as five-year planning delays, to getting renewable schemes such as major wind farms built. Better technology, such as smart metering, to help persuade us all to consume less. And price signals that will break old habits. "They were talking $500 oil at Davos," he reminded us.

But I also heard the suggestion of a more radical future from James Curran, former head of science at the Scottish Environmental Protection Agency, now chair of the Scottish Sustainable Development Forum and running his own green store, Entrading, in central Glasgow. If governments are really serious about confronting climate change, argues Curran, they will have to conclude that price mechanisms and the profit motive are never going to deliver. They will have to take the energy supply industry back into public ownership, and transport systems as well. The competitive marketplace simply doesn't have the answers.

In the wake of the Northern Rock crisis and the wider travails of the global financial system, other commentators are beginning to wonder out loud if we might be approaching another tipping point in how people think about the big challenges our planet faces. As Anatole Kaletsky put it in yesterday's Times: Is the post-Thatcherite faith in unbridled market forces becoming discredited, and triggering a new debate about the necessary role of government in managing any market economy?

The debate British Gas has ignited concerning the balance to be struck between corporate profits and how much millions of citizens should be expected to pay to keep their homes warm, dry and lighted may be about more than a regulatory probe by magnifying glass or microscope. It may be part of wider dialogue, just beginning to make its presence felt, about whether markets can resolve these tensions. Is that, in the end, the task of enlightened government?