He has instructed his officials to ask the electricity regulator, Professor Stephen Littlechild, to look into a suspected illegal activity which has left some of the poorest people in the country without light or cooking facilities.
A Welsh utility company has been "carrying over" water debts to its pre- payment electricity meters, to collect money it is owed.
Now, thousands of poor consumers face having their electricity cut off because they are unable to pay both past and present bills at once.
The practice, by Cardiff-based utility company Hyder, which runs both Welsh Water and South West Electricity, may be illegal under the 1989 Electricity Act.
Three thousand consumers in Wales have had their pre-payment electricity meters rejigged, so that they run faster and pay off water debts while buying electricity.
Mr Mandelson has instructed his officials to ask Offer, the electricity industry regulator, to establish whether the practice is legal.
A spokesman for Mr Mandelson said: "This is clearly an area of concern which is affecting some of the least well-off in society. This is being looked into by Offer. Mr Mandelson will be following the issue closely."
Offer said Prof Littlechild, who has the power to ban the practice, believes electricity meters should only be used to pay electricity bills. He is now in talks with the company, which is consulting its lawyers about the legality of the scheme.
The move follows a ruling in February which banned water bosses from using pre-payment water meters to disconnect consumers' supplies. This latest controversy involving the privatised utilities led to questions in the House of Commons last week.
"This is affecting people on low incomes. It means that people are prevented from juggling their finances to give a higher priority for one debt to another," said Dr Lynne Jones, Labour MP for Birmingham Selly Oak.
The Citizens Advice Bureaux believes the practice is "immoral". It has been trying to help worried consumers who have sought advice after having had their electricity cut off.
"People have been coming in and saying 'we cannot afford to keep on doing this',"said Juliet Morris, a CAB spokeswoman. "They are losing essential services because of debts in another area. It's a problem of double vulnerability. If you don't pay for one service you end up being in trouble with both."
Jackie James, a single mother from Newport, who owed pounds 200 in water arrears, found a Welsh Water company representative waiting outside her home after she picked up her son from school. Her meter was set to "turn over faster to recover the arrears". She says the scheme has made it difficult for her to budget.
Hyder said its scheme was entirely voluntary. It said that consumers who had complained were able to have the debts removed from their electricity meters within days. The company is now consulting its lawyers, after being contacted by the regulator.
"It's an entirely voluntary scheme. It's a limited trial of 3,000 people. The majority of people have come to us. No one is compelled to join in this trial," said a spokesman for Hyder. "Few have complained. More than 90 per cent of people we surveyed said it suited them. We believe it is legal."Reuse content