Energy regulator Ofgem has launched an investigation into whether Scottish Power and Scottish & Southern Energy have abused a dominant position in the UK power market.

Ofgem said: “This decision was based on a formal complaint alleging abuse of a dominant position in the electricity generation sector arising from constrained capacity on the transmission network, as well as informal enquiries.”

The probe into the pair, who between them own the Scottish transmission system and control most of the power stations in Scotland, is separate from an investigation into energy supply markets launched on February 21 which was triggered by public outrage at rising retail fuel bills.

The allegations are linked to an incident last September/ October when Scottish Power and Scottish Hydro, a subsidiary of Scottish & Southern Energy, took a number of power stations in Scotland offline for maintenance purposes.

The reduction in generation forced National Grid to start importing power from England.

But the power lines running North of the border became overloaded, forcing National Grid to buy power at hugely inflated prices from Scottish Power and Scottish & Southern Energy, who were forced to bring their plants back into operation.

At the time, National Grid is understood to have been forced to pay as much as £700 per megawatt hour for wholesale electricity in the Scottish market, up from as little as £40 under normal circumstances.

The situatiuon continued for several weeks, mostly at weekends.

The investigation by Ofgem will focus on whether or not the incident represented an abuse of a dominant market position in the SCottish electricity market, and whether the plants could have been taken offline deliberately to artificially inflate prices.

Scottish Power and Scottish & Southern Energy have firmly denied any allegations of market abuse.National Grid owns only the transmission system in England and Wales and has to pay the Scottish pair for use of their transmission network north of the border. But the network has limited capacity to bring power from England to Scotland at times of high demand and low generation north of the border. This potentially allows the pair to charge more for the use of their power or for the use of their high voltage transmission lines when power has to be imported across the border from one country to the other.

Scottish Power is now owned by Spanish power giant Iberdrola.

A Scottish & Southern Energy spokesman said: "No specific allegations have yet been put to SSE, but we are confident that our actions in the electricity generation market have always been justifiable in economic terms and consistent with the operation of a competitive market.

"With any Competition Act investigation there is a process to be followed and we will cooperate fully with Ofgem throughout this process in order to bring it to a speedy conclusion."

Alleged overcharging by Britain's big six power companies has become a political hot potato since 70 MPs signed an early day motion claiming that the liberalised UK market is not competitive enough and is unhealthily dominated by six suppliers, which include SSE and Scottish Power. The others are Centrica, NPower, E.On and EDF Energy.

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