An electricity firm controlled by Esat founder Mr Denis O'Brien is withholding payment on an ESB supply contract.

EPower's refusal to pay for a supply stream secured in an auction of "virtual" capacity prompted the ESB to threaten to withdraw the contract from January 2nd last.

Only after the intervention of the electricity regulator, Mr Tom Reeves, did the State company agree to continue supplying the power.

It is thought the regulator urged dialogue in the dispute, which involves electricity secured in an auction designed to foster competition in the partly liberalised business.

Power generated by the ESB was auctioned to independent suppliers, who sell it on to industrial customers. The ESB's Independent Energy subsidiary secured power in this process, in addition to ePower and a division of Viridian, the former Northern Ireland monopoly.

There were three auctions - one for 400 megawatts (MW), and two for 100 MW.

Suppliers pay for capacity on the network and for the actual power sold to customers. EPower has refused to pay in December for the tranche of power it secured in the first 100 MW auction.

It did so in protest at what it claimed were anti-competitive strategies pursued by the ESB's Independent Energy subsidiary, which competes against ePower in the eligible market.

Complaints by ePower prompted an investigation by Mr Reeves, who concluded that ringfencing by the ESB of its subsidiary was insufficient to secure competition.

This was denied by ESB Independent Energy, which has taken a High Court case against Mr Reeves after he issued a 10point directive designed to ensure a level playing field in the market.

Sources cited conflicting figures for the sum not paid by ePower to the ESB.

EPower's chairman, Mr Leslie Buckley, said: "We're refusing to pay because of the activities of the ESB and the findings of the Commission for Electricity Regulation vindicated that."

In a series of letters, the State company is thought to have argued to ePower that non-payment of a contract into which it entered freely cannot be accepted. The ESB added that its Independent Energy subsidiary was ringfenced from it, so there could be no basis for ePower to withhold payment to its parent.

The State company is thought to argue that Viridian would withhold payment for its virtual power if it learned that the ESB accepted ePower's position.

ESB Independent Energy has accused ePower of whingeing, despite Mr Reeves's findings.

His investigation involved a dawn raid on ESB Independent Energy led by an authorised officer acting for Mr Reeves. A seven-person team seized documents after ePower alleged the ESB subsidiary was selling below cost and attempting to wrongfoot its competitors. It is thought Mr Reeves did not uncover evidence of such practices.

ESB Independent Energy has denied any wrongdoing, adding that its arrangements were agreed in consultation with Mr Reeves.

Among the conditions the regulator imposed following the investigation was one which would require ESB Independent Energy to submit every new contract it signed for his approval.