BBC Scotland Business Reporter Hayley Millar reports

Scottish Power and Scottish Hydro will have power generation split from supply, which could mean new providers coming into the market.

Before privatisation, electricity charges in Scotland were seven per cent lower than in England and Wales. Now they are five per cent higher.

Domination challenged

The changes being put forward by the regulator, Callum McCarthy, will allow new companies to challenge the domination of Scottish Power and Hydro Electric.

Mr McCarthy is proposing two key reforms which he said could bring about reductions of up to 10% within five years in wholesale prices. This would likely be reflected in retail prices.

Callum McCarthy: "Scottish prices have risen"

Unlike companies in England where generation and distribution of electricity is separated, the Scottish companies generate, transmit and distribute the power they produce and sell surplus power through an interconnector at the border which links the Scottish and English systems.

For transmission prices - which account for about 5% of the average domestic bill - Mr McCarthy is proposing a 13% cut for ScottishPower, and a 5% cut for Scottish Hydro-Electric.

He said that was equivalent to a price reduction for Scotland of almost £10m, or £1 annually for domestic customers of both companies.

'Fairer' structure

Mr McCarthy believes that a Scotland-wide basis of trading - which will be compatible with new electricity trading arrangements being developed for England and Wales - should create a fairer pricing structure for customers.

BBC Scotland Business Reporter David Calder reports

He said: "In the industrial and commercial sectors, Scottish customers do not have the range and choice of competing electricity companies available to industrial and commercial companies in England and Wales and hence the prices they pay have risen relative to those in England and Wales."

Mr McCarthy added: "All the changes are designed to promote competition in Scotland and to reflect the fact that competition in wholesale prices will bring benefit to competing suppliers and to customers, both industrial and domestic.

The high-voltage grid could be transferred

"Changes being introduced for England and Wales to reform electricity trading there present an opportunity for Scotland to take advantage of these arrangements for the benefit of Scotland."

Scottish Power said: "Ofgem's view of future arrangements is consistent with ScottishPower's and we will work with the regulator to ensure Scottish customers continue to benefit."