FSA to probe gas price manipulation

The Financial Services Authority (FSA) is looking into allegations that energy firms manipulated the wholesale gas market.

This comes in the wake of the Guardian’s publication of internet message conversations between Seth Freedman – who works for price agency ICIS Heren – and a trader at a major energy firm, who said manipulation of prices was common and widespread.

The UK wholesale gas market concerns the sale, purchase and resale of gas from its original source. As these sales are arranged privately between each buyer and seller, there is no instant way of knowing the average daily price. Therefore, the average price is determined by pricing agencies, such as ICIS Heren.

It has been alleged that traders, who are now being investigated by the FSA and Ofgem, tried to lower the price of wholesale gas. This would have lowered the price of their gas-derivatives, and generated profit for them.

Freedman’s concerns are centred on one instance on the 28^th September 2012, a key date marking the end of the gas financial year, which can influence future prices. During the alleged instance, dealers made unrealistic bids at the time information was being gathered to set the wholesale gas price, to suit their own position.

Since Freedman’s revelations a second whistle-blower, Jason Torquato, has raised concerns about such manipulation. Torquato, who also works for ICIS Heron, stated the manipulation of wholesale gas prices could “influence retail gas prices”. He also noted “half a dozen or a dozen” occasions when the activity was suspicious.

Energy Secretary Ed Davey told MPs: “Market abuse is always wrong, but at a time when people and companies are struggling with high energy bills, the country would expect us to take firm action if these allegations prove [to be] true, and we will.”

All six of the major energy companies in the UK have denied the allegations. The FSA and Ofgem will conduct a thorough investigation into Freedman’s claims, and the concerned raised by ICIS Heron.

Eleanor Mackay