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Gas prices fixing probe: Minister to address Commons Gas prices-fixing probe: Minister to address Commons
(35 minutes later)
Energy Secretary Ed Davey will make a statement to the House of Commons later as regulators investigate claims that wholesale gas prices have been manipulated.Energy Secretary Ed Davey will make a statement to the House of Commons later as regulators investigate claims that wholesale gas prices have been manipulated.
Mr Davey said he was "extremely concerned about the allegations".Mr Davey said he was "extremely concerned about the allegations".
The investigations by the Financial Services Authority (FSA) and Ofgem follow claims by a whistleblower. The investigations by the Financial Services Authority (FSA) and Ofgem follow claims by a whistle-blower.
Four of the UK's big six energy suppliers have released statements denying any involvement.Four of the UK's big six energy suppliers have released statements denying any involvement.
The wholesale gas market includes everything from the UK's own North Sea gas supplies, to gas from Norway or elsewhere, or arriving in the UK by ship as LNG, liquefied natural gas.The wholesale gas market includes everything from the UK's own North Sea gas supplies, to gas from Norway or elsewhere, or arriving in the UK by ship as LNG, liquefied natural gas.
'Less transparent''Less transparent'
Energy companies buy gas at the wholesale price and then sell it on to businesses and domestic users.Energy companies buy gas at the wholesale price and then sell it on to businesses and domestic users.
The allegation is that the market has been rigged in a similar way to the fixing of Libor, the inter-bank lending rate.The allegation is that the market has been rigged in a similar way to the fixing of Libor, the inter-bank lending rate.
It is claimed that on 28 September, dealers made unrealistic bids, at the time when information was being gathered to set the wholesale gas price, to suit their own trading position.It is claimed that on 28 September, dealers made unrealistic bids, at the time when information was being gathered to set the wholesale gas price, to suit their own trading position.
David Hunter, an analyst at M&C Energy Group, said that most of the trading was done directly between companies, rather than via an electronic trading system, and that this system was, in theory, easier to manipulate.David Hunter, an analyst at M&C Energy Group, said that most of the trading was done directly between companies, rather than via an electronic trading system, and that this system was, in theory, easier to manipulate.
He told the BBC: "This sort of trading is less transparent than a fully fledged market. Hypothetically someone could seek to artificially lower the price by making small trades below the prevailing market price that may benefit them." He told the BBC: "This sort of trading is less transparent than a fully-fledged market. Hypothetically, someone could seek to artificially lower the price by making small trades below the prevailing market price that may benefit them."
The alleged manipulation is said to have reduced the wholesale price, and as such does not imply any knock-on impact on the retail price paid by customers. The alleged manipulation is said to have reduced the wholesale price, and as such, does not imply any knock-on impact on the retail price paid by customers.
The cost of wholesale gas makes up the majority of our energy bills - 45% of the average energy bill is made up of the cost of wholesale gas, supply costs and profit margins.The cost of wholesale gas makes up the majority of our energy bills - 45% of the average energy bill is made up of the cost of wholesale gas, supply costs and profit margins.
The Treasury Secretary, Greg Clark, said the allegations were serious and that if they were proven, stiff penalties should follow for those involved in price-fixing: "Any scintilla of doubt that the participants cannot be trusted has a tremendously important effect.
"I think it's very straightforward. When someone breaks the law, they should be punished, and when it's as serious as this, they should be punished very severely. And it's as true for stealing through financial manipulation as it is, frankly, for breaking and entering."
'Considering evidence''Considering evidence'
The Guardian newspaper, which received a separate tip-off from the whistleblower behind the allegations, said the investigations were into "some of the big six" energy providers, but the brief statements released by both the FSA and Ofgem did not identify any companies. The Guardian newspaper, which received a separate tip-off from the whistle-blower behind the allegations, said the investigations were into "some of the big six" energy providers, but the brief statements released by both the FSA and Ofgem did not identify any companies.
The FSA said: "We can confirm that we have received information in relation to the physical gas market and will be analysing the information."The FSA said: "We can confirm that we have received information in relation to the physical gas market and will be analysing the information."
Ofgem also said it had "received information" and was looking into the issue. It added that it would "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 also said it had "received information" and was looking into the issue. It added that it would "consider carefully any evidence of market abuse that is brought to our attention as well as scope for action under all our other powers".
Mr Davey said he would keep in close contact with both investigations. Mr Davey said: "At a time of economic uncertainty and rising global energy prices, British consumers deserve markets that are fair."
Labour's shadow Energy Secretary, Caroline Flint, said that if the reports proved to be true, they "suggest shocking behaviour in the energy market, that should be dealt with strongly". He said he would keep in close contact with both investigations.
Protection
The Government's Enterprise and Regulatory Reform Bill is intended to improve the competition regime and the protection of consumers and is currently with the House of Lords.
It is also working with Ofgem on the implementation of the EU Remit (Regulation on Wholesale Energy Markets Integrity and Transparency) which may lead to giving Ofgem greater powers to act against market abuse.
Labour's shadow energy secretary, Caroline Flint, said that if the reports proved to be true, they "suggest shocking behaviour in the energy market, that should be dealt with strongly".
She said that gas and electricity companies should be forced to sell the energy they generate into a pool, in order to open up the market and ensure fairer consumer prices.She said that gas and electricity companies should be forced to sell the energy they generate into a pool, in order to open up the market and ensure fairer consumer prices.
The whistleblower, Seth Freedman, worked at ICIS Heron, a financial information company that publishes energy price reports. The whistle-blower, Seth Freedman, worked at ICIS Heren, a financial information company that publishes energy price reports.
ICIS Heron said it had "detected some unusual trading activity on the British wholesale gas market on 28 September 2012, which it reported to energy regulator Ofgem in October". ICIS Heren said it had "detected some unusual trading activity on the British wholesale gas market on 28 September 2012, which it reported to energy regulator Ofgem in October".
It added: "The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established.It added: "The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established.
"If anyone was to benefit from this it would have been derivatives traders." "If anyone was to benefit from this, it would have been derivatives traders."