The news that traders in wholesale gas might well have manipulated gas prices fraudulently is being taken seriously enough to be investigated by OFGEM and the Financial Services Authority. The claim was made by a whistle blower, Seth Freedman, and while we should always presume innocence I am not unsurprised by the claim.
If gas prices are rigged consumers and businesses in the United Kingdom would pay millions more for natural gas than they should. It makes a mockery of the work of OFGEM, the regulator that is supposed to ensure that consumers are treated fairly.
If there has been rigging or market manipulation it will be a criminal offence, and what should the penalties be for such offences? There is little use in fining the energy companies; they will only find ways to pass on the fine to their customers, whereas it is the shareholders who should pay the fines by a dividend reduction.
There might be a case of punishing some individuals but that avoids the question of the responsibility of the people who managed and directed any guilty individuals. It is as serious to close your eyes to a criminal act when you profit by it, as it is to participate in that act.
I confidently expect that if manipulation is found there will not be a punishment that will compensate those who have lost as a result and there will not be sufficient deterrence to prevent others engaging in market manipulation later, after the fuss has died down.
In my view it is unlikely that any of the big six energy companies would have been involved in market manipulation. They may well have profited from it unknowingly, but the traders that would have made money are those buying and selling long and short, and trading in derivatives. That raises the question of why we permit such derivative trading at all, when it can increase the price of a commodity that virtually everyone needs for no reason but to profit the derivative traders.
Filed under: climate change | Tagged: business, derivatives, FSA, investigation into gas price rigging, Manipulating Wholesale Natural Gas Prices, natural gas, ofgem, Seth Freedman, trading in natural gas |