Sir James is furious with Clare Spottiswoode, who said in March that he acted illegally in allowing the costs of energy efficency projects to be passed on to gas consumers as part of their bills.
Ms Spottiswoode later retracted her claim in a letter to the House of Commons Environment Select Committee. She made the original claim when giving evidence.
The row is expected to come to a head tomorrow when the two appear before the House of Commons Environment Committee to give evidence on their different approaches to energy saving funds.
Ms Spottiswoode told the select committee that she believed Sir James had exceeded his powers in approving gas energy efficiency projects, the costs of which are passed through to consumers. 'It is clear to me that the Gas Act did not envisage a role for the regulator in setting taxes,' she said.
She later wrote to the committee saying that, on reflection, she believed Sir James acted within his powers and not unlawfully. However, it is understood that Sir James considers this retraction insufficient and regards her original statements as scandalous.
There has been speculation that Sir James will take legal action. He was not available for comment last night and is thought to be waiting to see what emerges tomorrow before deciding what to do.
The affair is an embarrassment for the Government's Energy Saving Trust, which needs to raise pounds 2bn by the end of the decade to meet environmental targets. It was relying on raising money from a levy on gas and electricity bills.
Ms Spottiswoode has said that such levies amount to a tax on consumers. She believes that allowing costs of energy savings schemes to be passed on to customers is not the job of a regulator.
Sir James approved energy saving schemes worth a few million pounds during his time at Ofgas. Ms Spottiswoode, who took over last November, said that the Energy Savings Trust would like her to approve schemes costing hundreds of millions until the end of the decade. Ofgas estimates that the effect would be to add pounds 25 to the average household bill of pounds 350.
Ms Spottiswoode said she had been worried about the cost to consumers since she took office and decided to take legal advice. In her evidence she said she did not believe Sir James 'did not have the same straight legal advice that I have had.'Reuse content