Price-fixing on wholesale gas market “an open secret”

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  By a Newsnet reporter

In a shocking exclusive, the Guardian reports allegations of massive price fixing on the wholesale gas market. 

The scam, which it is claimed involves several of the major gas companies, reportedly involves exploiting weakness in regulation similar to those which allowed the manipulation of the LIBOR rate in the financial sector.

The new claims are being investigated by the Financial Services Authority.  The energy companies deny that they are complicit in any wrongdoing.

The paper reports that the energy regulator Ofgem is also investigating separate allegations that the wholesale gas market was manipulated.  ICIS Heren, the company responsible for setting benchmark prices in the wholesale gas market, warned the regulator that they had evidence of “suspect trading” on a key date in the gas market – 28 September, the end of the gas financial year – which could have a significant effects on prices for the coming year.

The wholesale gas market in the UK is worth £300 billion annually, and determines the costs to the energy companies of the gas they buy from suppliers.  The energy companies routinely cite rising wholesale gas prices as the reason for rising gas bills. The claim that the wholesale price is subject to fixing by a cartel of companies comes in the same week that customers of British Gas are facing a hike of 6% in gas costs.  Scottish Power, Npower, and SSE have also announced price rises.

Speaking to the Guardian, Seth Freedman, who was employed as a price reporter at ICIS Heren, said:

“Traders have made clear to me that manipulation of gas prices is taking place on a regular basis.  They name big companies among those they accuse of trying to rig prices and reap profits. Market participants claim the fixing of prices is an open secret.”

Mr Freedman has handed over audio recordings of his conversations with gas traders to the FSA.  He has also claimed that wholesale gas prices are “unreliable” and the system is undermined by “poorly trained staff” who have an “over-cosy” relation with gas traders.  He added that gas traders regularly put price reporters under pressure to change prices they disagree with.

In a statement, the FSA said:  

“We can confirm that we have received information in relation to the physical gas market and will be analysing the information.”

A spokesperson for Ofgem confirmed that it had received information “relating to trading in the gas market and is looking into the issue”.  In a later statement the regulator said:

“In preparing for full implementation of new EU legislation to tackle market abuse (REMIT), we will consider carefully any evidence of market abuse that is brought to our attention as well as scope for action under all our other powers.  Ofgem has already activated its established procedures to review the information we have received.”

UK energy secretary Ed Davey said that he was “extremely concerned” about the allegations.  Mr Davey is due to make a statement to the House of Commons today (Tuesday) on the issue.

The new scandal to hit the energy companies comes as the energy sector is under heavy criticism for rising gas prices, and misselling of energy contracts. EDF Energy, NPower, SSE, ScottishPower, E.On and British Gas have all denied any involvement in the new allegations.

The LIBOR scandal arose because Westminster, under the previous Labour administration, encouraged self-regulation in the financial sector similar to that encouraged in the wholesale energy markets.  The regulatory code, designed by Ed Balls, now Labour’s shadow chancellor, omitted to specify any penalty for manipulation of the inter-bank rate meaning that many of those responsible may escape censure.

The financial sector, the newspaper industry, the BBC, Westminster itself, and now the privatised energy sector are all facing allegations of mismanagement and criminal activities which were able to flourish due to failures of regulation and oversight.