THE Financial Services Authority (FSA) has confirmed it is investigating claims that the UK’s wholesale gas market has been manipulated by big power companies – in a potential scandal which could echo that of Libor price fixing.
The big six energy companies regularly blame hikes in the price of wholesale gas for increases in household bills that are passed to the consumer.
However, it is thought that the prices for wholesale gas may have been manipulated by suspicious trading on 28 September, which is the end of the gas financial year.
A spokesman for the FSA said yesterday: “We have received information in relation to the gas market and will be analysing the information.”
British Gas, which trades as Scottish Gas north of the Border, is expected to announce this week an increase of 6 per cent for customers’ gas and electricity costs, with average dual-fuel bills rising from £1,260 to £1,336 per year.
Concerns about price-fixing were first reportedly brought to light by Seth Freedman, a former City trader who worked for energy market analyst ICIS Heren.
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.”
Mr Freedman claimed the big six energy companies were involved in attempting to raise or depress wholesale gas prices.
The trader taped conversations about the price fluctuations on 28 September – and these conversations have been handed to the FSA.
In one, a trader from a power company says: “There’s a feeling among some people that somebody’s taking the p*** a bit on the day-ahead index. Between us, I think [Company X] got in a bit of trouble for that about six months ago.”
Another trader told Mr Freedman: “There are a few shops that continually try to distort closes from what I see … some of the range of quotes I hear sometimes are criminal.”
A spokesman for the Department of Energy and Climate Change said: “The government takes alleged abuse in markets very seriously. It’s important not to pre-empt the work that enforcement agencies already have under way to assess the detail of the allegations made.
“The FSA and Ofgem have a range of powers available to them and have our full support in applying the law and ensuring that any wrongdoers are held to account.”
Energy and climate change secretary Ed Davey was expectged to make a statement to the House of Commons today about the price fixing allegations.
A spokesman for French-based energy group EDF said: “EDF Energy does not participate in loss-leading trading activity and considers it to be against existing market regulation. We make information likely to impact market price formation publicly available on our website in compliance with the
European Union’s regulation.”
A spokesman for gas provider SSE said: “We are entirely confident that our energy portfolio management team operate in a fair and legitimate way.”
A spokesman for Centrica, which owns British Gas, said: “Our compliance procedures and trading principles are clear. They require us to comply with all European Union and UK laws and we have done so.”
Scottish Government figures show 658,000 households in Scotland are living in fuel
poverty – meaning they spend more than 10 per cent of their income on fuel bills. Figures for 2011 are expected to reach 800,000.
Research by Uswitch suggests 87 per cent of households will be rationing their energy use this winter.
Last week deputy first minister Nicola Sturgeon said Westminster needed to do more to protect consumers from energy price rises.
She said: “Scotland is an energy-rich nation and everyone should live in a safe, warm, affordable home.”
Shadow energy minister Tom Greatrex MP has also called for a reform of the energy market, writing in an article for The Scotsman: “When wholesale costs rise, energy prices go up like a rocket. Yet when these costs fall, energy prices drop like a feather. It’s unfair on the consumer and must be reformed.”