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

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Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.