Five questions answered on the wholesale gas price fixing allegations

Regulators are investigating claims wholesale gas prices have been manipulated by major gas companies. We answer five questions on the gas pricing fiasco.

What exactly are the allegations being made? 

Major energy companies are being accused of manipulating the wholesale price of gas in the same way banks have manipulated libor. 

Energy companies buy gas at wholesale price then sell it onto to homes and businesses. On the 26 September gas companies are alleged to have made unrealistic bids at a time when data was being collected to set the wholesale price, they area alleged to have done this in order to suit their own situation rather than making a realistic bid.

Who discovered this alleged price-fixing? 

The whistle was blown by Seth Freedman, who worked at ICIS Heren, a financial information company that publishes energy price reports.

The Guardian report that Freeman flagged up a set of suspiciously low trades he believed were designed to depress ICIS Heron’s ‘day ahead’ price on the 28th September. One trader told Freeman in regards to the range of prices quoted on the 28th September:

There's a feeling among some people that somebody's taking the piss a bit on the day-ahead index.

ICIS Heren also told the BBC 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.

Does wholesale price manipulation affect consumer prices?

Not directly as the price is being manipulated to be lowered. Wholesale gas price makes up an average of 45 per cent of consumers bills so lowering it shouldn’t affect bills. However, it is still a damaging discovery as Freeman has explained: 

There's certainly a link. They [the power companies] are telling you: Look, in order to make our profits and cover our costs and so on, we have to give a price to retail customers which reflects the cost to us.

But if you can't trust the market at a wholesale level, it becomes a crisis of confidence. People at retail level are just thinking, "I don't trust these companies" - and it needs to be scrutinised.

What has been the response of energy providers?

The big six energy providers have all released statements denying the claims. However, some of these ‘big six’ are currently being investigated by the Financial Services Authority and Ofgem. 

What has government said?

Energy Secretary Ed Davey will make a statement in the House of Commons today, but he has already said he is extremely concerned about the allegations. 

The Treasury Secretary, Greg Clark, spoke of the seriousness of the allegations to the BBC, saying:

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.

Photograph: Getty Images

Heidi Vella is a features writer for Nridigital.com

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.