At the same time, the regulator has vindicated the regional electricity companies in their plans to buy gas-fired electricity - the 'dash for gas' that has been widely blamed for the decline of British Coal.
Professor Stephen Littlechild, director-general of Offer, said: 'The prices of electricity from gas-fired stations compare well with that from nuclear and coal. It raises the question of whether the price of electricity from coal- fired stations can be brought down and if there is scope for reducing the margins asked for by the generators.'
Professor Littlechild's investigation could lead to a clampdown on the profits or prices of National Power and PowerGen, the two generators, and could result in a reference to the Monopolies and Mergers Commission.
His statement lent weight to allegations made by the regional companies that the generators were failing to pass on to customers the full benefit of the lower prices now being offered to them by British Coal.
Offer's price comparison for electricity from different fuels, published yesterday, shocked the generators into a swift counter- attack.
National Power dismissed the analysis as 'faulty, incorrect and unfair to coal'. Colin Webster, the commercial director, said: 'We are utterly astonished - this is a nonsense.' He accused Professor Littlechild of manipulating the price of coal-based power wrongly with the result that it appeared more expensive than electricity from gas.
He said the comparison was based on different lengths of contract and had failed to take into account the ability of electricity generators to respond to peaks and troughs in demand for energy.
His concern was echoed by PowerGen, which said: 'We are concerned at the way Offer has marshalled data to put coal in a very bad light. We have written to Professor Littlechild in full and robust terms.'
The study of prices was originally intended to see whether the regional companies were justified in buying electricity from gas- fired plants, in the light of the Government's review of energy policy. The 'dash for gas' has been blamed, along with nuclear power, for the planned closure of 31 coal mines and the loss of 30,000 jobs.
While giving existing gas projects a clean bill of health, Professor Littlechild questioned the nuclear levy that provided Nuclear Electric with an annual subsidy of over pounds 1bn.
'We must ask whether in the present circumstances a nuclear levy of this magnitude is still appropriate,' he said.