Energy watchdog Ofgem yesterday said it had opened an investigation into ScottishPower and Scottish & Southern Energy (SSE) after a complaint alleged the two power giants had abused their dominant positions in the UK electricity market.
Ofgem said it was investigating the alleged abuses under the the European Commission's Competition Act and that it had begun the inquiry after a "formal complaint" had been lodged.
The regulator also said that it had made its own informal enquiries before starting the investigation, but provided no further details.
Nonetheless, the investigation appears to centre on alleged abuses connected to the wholesale price of electricity, which could arise from transmission bottlenecks in the power network.
Scottish Power and Scottish & Southern own most generators in Scotland, and therefore are potentially in a position to manipulate the price and benefit from these bottlenecks.
National Grid recently received a £41.6m fine after it was accused of hindering the roll-out of "smart" meters that tell customers how much energy they are consuming.
A ScottishPower spokesman said: "ScottishPower is confident that its participation in the market has been lawful and appropriate at all times."
The severity of the investigation remains uncertain.
Bobby Chada, a Morgan Stanley analyst, said: "It's hard to tell (how significant this is). There's a lot of uncertainty."
A spokesman for Scottish & Southern Energy 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.
"We will co-operate fully with Ofgem throughout this process in order to bring it to a speedy conclusion."
Ofgem said in February it would investigate the relationship between retail and wholesale energy prices, amid growing concern about rising costs for households.
UK gas and electricity firms have blamed recent price rises on soaring wholesale costs.
Under the separate investigation, regulators will investigate the barriers to customers trying to switch energy suppliers, and the different switching rates among customers on online, dual fuel, single fuel and pre-payment tariffs.
Shares in Perth-based Scottish & Southern Energy yesterday fell 2%, or 28p, to 1404p.
ScottishPower was acquired by Spanish energy giant Iberdrola last year for £11.6bn. Iberdrola shares last night closed on the Madrid Borsa down 0.8% to 9.67.
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