More than seven million Powergen customers are facing the prospect of big increases to their gas and electricity bills next month.

The energy company, owned by E.ON, the giant German utility, was putting the final touches to a double-digit price increase for its 7.4 million British customers yesterday that could come within days.

Industry sources said that E.ON’s sales teams had been called in for a briefing, fuelling expectations of an announcement soon.

E.ON, with 4.7 million electricity and 2.7 million gas customers in Britain, is the country’s third-largest energy supplier, after British Gas and Scottish & Southern Energy. Three other groups – npower, British Gas and ScottishPower – have raised prices this year, blaming soaring wholesale energy prices and increased costs, caused by network upgrades and investment in low-carbon power generation. A spokesman for E.ON declined to comment.

The prospect of further price rises came as rumours of a proposed merger between EDF, of France, and Iberdrola, of Spain, forced a brief suspension of Iberdrola’s shares. Such a deal would unite the fifth and sixth-ranked energy suppliers in Britain, EDF Energy and ScottishPower, which is owned by Iberdrola.

Combining EDF Energy and ScottishPower would create a company with about 10.7 million customer accounts, propelling the new group to second place behind British Gas in the ranking of customer suppliers.

Ofgem, the British electricity and gas market regulator, declined to comment on the speculation, except to acknowledge that it could be asked to advise the European Commission on the impact of a deal in the UK. The Commission would have the final say on whether an EDF-Iberdrola merger overcame competition hurdles.

The deal may also alarm Energywatch, the watchdog. It would not comment yesterday, but it has raised concerns repeatedly over the state of competition in the UK energy market, where the total of 26 supply companies that existed at privatisation has been reduced to only six. Should that number fall further, then Energy watch’s calls for a Competition Commission inquiry would have even greater force.

Energywatch argues that the integrated character of the six energy companies, in which they both generate power and supply it to householders and businesses, prevents new entrants coming to the market.

It also argues that the energy companies justify price increases by reference to the wholesale energy market’s spot prices, even though the companies rarely pay this spot price since they have teams of energy traders in place to take advantage of price increases and falls.

Ofgem has begun to examine allegations of cartel-like activity in the British market after this month’s price rises.

Consolidation in the European utilities sector has been unfolding at a steady pace for the past eight years, but many analysts believe that there are still several big deals to be done. However, energy is a strategic resource and national governments are inclined to protect their national champions.

Any deal between EDF, which is 85 per cent state-owned, and Iberdrola would be difficult to achieve on a hostile basis.

In the past two years, Spain has trenchantly defended its national champions and looks likely to do so again, especially before a general election to be held in March.

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