Regulators find no evidence of gas market manipulation in the UK
On 7 November 2013, the regulators Ofgem and the Financial Conduct Authority (FCA) announced that after conducting their review they had found no evidence of gas market manipulation following allegations by a former employee of ICIS-Heren (an energy price reporting agency). The allegations of market manipulation related to trading activities in September 2012.
Using the trading activities information, price reporting agencies produce a benchmark price. Such benchmark prices are often used in a range of other contracts. It was alleged that gas was sold at a price (58p/therm) that was lower than the price of the best bid to buy gas at the time, in order to manipulate the benchmark price produced by price reporting agencies. Ofgem stated that the sellers of the six 58p/therm trades have provided explanations for the transactions they entered into, supported by relevant confidential information, to demonstrate that their trading activity were not improper. Ofgem found that the sellers' explanations were credible and no evidence was found which disputed the explanations provided. Ofgem and the FCA have decided to take no further action in connection with these September 2012 allegations.
Issues around transparency of gas prices have been around for a long time. To this end, the EU regulation on wholesale energy market integrity and transparency (REMIT) was drawn up and has been in force since December 2011. REMIT aims to prevent market abuse in wholesale energy markets. REMIT introduces a consistent EU-wide framework by:
- defining market abuse, in the form of market manipulation, attempted market manipulation and insider trading, in wholesale energy markets;
- introducing explicit prohibitions of market manipulation, attempted market manipulation and insider trading in wholesale energy markets;
- requiring the effective and timely public disclosure of inside information by market participants;
- establishing a new framework for the monitoring of wholesale energy markets to detect and deter market manipulation and insider trading, including introducing an obligation to report suspicious transactions; and
- providing that national regulatory authorities (NRAs) be given enforcement and investigatory powers and that member states establish a penalties regime for sanctioning of breaches at a national level by June 2013.
Ofgem's review discussed above was not under REMIT as Ofgem did not have REMIT powers at the time of the allegations. It is unclear what powers Ofgem had used to investigate the complaint as before REMIT, Ofgem's powers to enforce unlicensed companies were limited to the use of Competition Act. A breach of REMIT can carry a penalty of up to 10% of the annual turnover.
Ed Davey, Secretary of State for Energy and Climate Change, announced on 7 November in his Annual Energy Statement that the government will consult on introducing criminal enforcement powers for the most serious cases of energy market abuse.
As we reported in a previous edition, in June 2013, in order to strengthen transparency, Ofgem called for stakeholder views on how they use and contribute to price benchmarks, and whether they feel current arrangements are fit for purpose or think that further action is necessary. Ofgem's response is expected soon. For more information on REMIT, the application of competition law where market manipulation activities are concerned, and further transparency requirements please contact Charles Whiddington, Mauzima Bhamji or your usual Fieldfisher contact.
Please click here for Ofgem's announcement.