Regulators investigating alleged manipulation of UK gas prices

In a statement to Parliament, Energy Secretary Ed Davey drew parallels between allegations of manipulation which were published in the Guardian and the action taken by the Government after allegations of misconduct involving benchmark interest rates emerged in relation to major banks.

"The Government has a strong record of providing regulators with the powers that they need to tackle market abuse," he said. "Where regulators and others have identified gaps in their powers, we have acted quickly to address them. For example, Government acted swiftly to tackle the attempted manipulation of LIBOR and EURIBOR, by implementing in full the recommendations of the Wheatley Review, including the statutory regulation of benchmark activities."

Davey added that he had written to the UK's three independent market regulators - the Financial Services Authority (FSA), Ofgem and the Office of Fair Trading (OFT) - to ask them to "identify any remaining gaps in their powers" which could affect their investigations.

The Guardian reported on Tuesday that ICIS Heren, the company responsible for setting the so-called 'benchmark' prices on which many wholesale gas contracts are based, had warned energy regulator Ofgem that it had seen evidence of suspect trading towards the end of the last gas financial year. Separately, a whistleblower working at the company had claimed to City watchdog the FSA that the UK's wholesale gas market has been "regularly" manipulated by power companies.

"Traders have made clear to me that manipulation of gas prices is taking place on a regular basis," Seth Freedman, a former price reporter at ICIS Heren, told the newspaper. "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."

Freedman also claimed that the benchmarks used by at least one price reporting agency were "unreliable" and undermined by "poorly-trained staff" who were put under pressure by traders to change prices that they disagreed with. Price reporters lack independent information about trading and are instead dependent on what traders tell them about market activity, he said.

ICIS Heren told the Guardian that it had reported some "unusual trading" activity on the wholesale gas market which took place on 28 September this year to Ofgem. The date marks the end of the gas financial year, and prices recorded then can have an impact on future prices, according to the Guardian.

"The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established," the pricing agency told the Guardian. "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 determine what happened."

In his statement to Parliament, Davey said that Ofgem would soon be given additional powers in relation to market abuse under the EU's Regulation on Wholesale Energy Markets Integrity and Transparency (REMIT). The UK is set to be one of the first countries to implement REMIT in full, and the Government has been working with Ofgem over the past few months on the "detailed implementation" of the new powers, he said.

Ofgem is leading the investigation in relation to the gas market, he said, while the FSA would lead the investigation in relation to "any associated financial market".

He added that the regulators' work was at an "early stage", and said that the Government would not "pre-empt the work of the FSA and Ofgem, or their conclusions".