Econintersect: In an exclusive, The Guardian reported Monday (12 November 2012) in an article by Terry Macalister, that the FSA (Financial Services Authority, the financial sector regulatory agency) is investigating charges brought by a whistleblower that large power companies in the UK have manipulated the wholesale gas market in Great Britain. These charges emanate from an ex-employee of ICIS Heren, a company responsible for setting so-called benchmark prices. The annual wholesale market for gas in Great Britain is £300 billion (US$475 billion). The Guardian quotes a statement that, if proven true, this would be “corruption on a massive scale.”
In another article Macalister explains how the wholesale gas market operates. Energy companies traditionally buy their future needs with contracts lasting three or more years and costing billions. The most important date for setting contract prices each year is Spetmeber 28 and it is manipulation on that day that is underinvestigation. Very small changes in prices can effect a flow-through worth millions to individual multi-year contracts. The following diagram gives a process overview:
During the summer there were reports that the petrol (gasoline) market was also subject to libor-like manipulation (The Telegraph).
The following links to a video on at The Guardian where the whistleblower, Seth Freeman, explains the types of trading patterns he saw which indicated manipulation.
Editorial note: Econintersect would interject that we don’t need more regulation provided we can get bigger prisons.
- FSA examines whistleblower’s claims of ‘Libor-like’ manipulation in gas prices (Terry Macalister, The Guardian, 12 November 2012)
- How the £300bna year wholesale gas market operates (Terry Macalister, The Guardian, 12 November 2012)
- Was the petrol price rigged too? (Rowena Mason and Emma Rowley, The Telegraph, 15 July 2012)