Ofgem and the Financial Services Authority (FSA), the energy and finance regulators respectively, have launched an investigation into claims that wholesale gas prices are being manipulated.
A former trader turned whistleblower yesterday came forward with claims that the market has been subject to tampering in much the same way as the inter-bank lending rate Libor. To find out more about the Libor scandal, read Four thoughts about the Libor scandal.
The allegations
The whistleblower has been named as Seth Freedman, who worked as a price reporter at ICIS Heren, a company responsible for setting benchmark prices. He told the Guardian newspaper that traders had made clear to him that the manipulation of gas prices was taking place “on a regular basis”. And it’s the big names in the energy market who are alleged to be taking part.
He also claimed that price reporters were put under pressure by traders to change the prices they reported, while the information provided to reporters to help them establish prices is far from clear.
ICIS Heron has separately approached Ofgem with claims that it had seen evidence of suspect trading.
The claims have been denied by most of the ‘big six’ energy providers.
Why it matters
Wholesale gas prices are what energy firms pay for the fuel they buy, and subsequently provide to us. As a result they have a significant impact on the price we pay for our energy.
Energy firms have long been criticised for ramping up their bills when wholesale prices rise, but failing to cut prices when wholesale costs fall. If the markets have been subjected to this sort of manipulation, it may mean that we are all paying more for our energy than we should be.
What’s more, most of the big energy providers have already announced prices rises for this winter, which they have blamed on wholesale gas prices.