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Whistleblower Claims That Energy Market Is Rigged

The Daily Telegraph

Power companies are “regularly” manipulating Britain’s wholesale gas prices, a whistleblower has claimed. Last night City watchdog the Financial Services Authority (FSA) and energy regulator Ofgem both said they had launched investigations into the claims.

The FSA launched its investigation after whistleblower Seth Freedman told them he saw evidence that wholesale gas prices, used as the basis for domestic energy bills, were manipulated by some of the big power companies according to a report by the Guardian newspaper.

Mr Freedman, who worked at ICIS Heren, a firm which reports gas prices, said he saw what he took to be suspect trading on September 28, which is an important date as it marks the end of the gas industry’s financial year and can influence future prices.

He told his bosses at the firm, a so-called price reporting agency, whose energy prices are used as the basis for large supply contracts between energy firms and gas suppliers, and they alerted Ofgem.

The benchmark prices that ICIS Heren sets are crucial because energy firms base their forward-looking contracts on them. Small changes in prices can cost or save companies millions of pounds.

Allegations of price manipulation come at a sensitive time for the energy industry which has been accused of profiteering at the expense of customers.

This week millions of British gas cutomers wil see price rises averaging of 6 per cent. Other companies including Npower, SSE and Scottish power have also announced price rises.

Experts say that average household energy bills could rise by £118 to a record £1,428 next year. In 2004 the average bill was just £522.

David Cameron recently pledged to make all energy firms automatically put their customers on the cheapest tariffs, a move that was criticised by the industry as unworkable.

Mr Freedman identified what he saw as attempts to distort the prices recorded by ICIS Heren, according to The Guardian newspaper.

He 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.”

An FSA spokesman said: “We can confirm that we have received information in relation to the physical gas market and will be analysing the material.”

An Ofgem spokesman confirmed that the regulator had received information “relating to trading in the gas market and is looking into the issue”.

The move has echoes of the recent Libor scandal when banks were accused of fixing the price at which they borrow money. The scandal led to a multi-million pound fine for Barclays and saw chief executive Bob Diamond resign.

Mr Freedman also claimed that prices produced by price reporting agencies can be “unreliable” and undermined by “poorly trained staff”. He said that the relationship between gas traders and internal “price reporters” in the agencies can be “over-cosy”.

He said that traders regularly put price reporters under pressure to change prices they disagree with.

In a statement Ofgem 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.”

In a statement, ICIS said that it had detected some “unusual trading” activity on the British wholesale gas market on September 28, which it reported to energy regulator Ofgem in October.

“The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established. ICIS welcomes the seriousness with which the regulator has so far responded to this information and we have provided all the evidence at our disposal to help the regulator determine what happened,” the company said.

The Daily Telegraph, 13 January 2012